There’s a lot of ways to mine Bitcoin. There’s also a lot of information on how to mine Bitcoin.
To sift through the confusion, Compass has put together a quick guide on what hosting solutions look like at a glance, how retail buyers can benefit and possible drawbacks to the hosting model.
What is hosting?
Hosting services store ASICs at commercial facilities, otherwise known as a colocation or data center.
Hosting providers build in one of three ways: container-style, retrofitted or purpose-built.
- Containers use altered shipping containers for hosting miners. Containers have become a popular hosting choice due to their mobile nature and can use either stranded or grid energy.
- Smelters, mills or warehouses often serve as retrofitted Bitcoin mines, particularly in de-industrializing states like the American Rust Belt or former Soviet satellite states. Retrofitted mines often use grid energy.
- Purpose-built mines are common among public mining firms, such as Riot’s Whinstone facility in Rockdale, Texas. Purpose-built mines offer higher-quality service for machines but have additional capital requirements that can injure ROI periods.
Hosting is a matter of cost and convenience. Hosting solutions take care of the downsides to Bitcoin mining, namely the abundant heat and noise and energy requirements.
In terms of heat and noise, take the most commonly purchased mining machine on the market today: the Antminer S19. The S19 pulls some 3,000 watts of power and operates at 175 degrees Fahrenheit and over 80 decibels. To translate: Bitcoin ASICs are industrial machines not ideal for households and are better relegated to dedicated facilities.
Hosting solutions often have more enviable electrical costs than home mines. Handshake deals with enegy providers or operating "behind the meter" means lower costs per megawatt for hosted solutions over alternatives. As of November 2021, residential electrical rates were 50% more expensive than industrial rates, according to the Departement of Energy.
Hosting services can eliminate hassle and hands-on action, but it's not without its limitations. To date, two criticisms are common: logistical constraints incumbent to large industrial enterprises and centralization concerns specific to the Bitcoin network.
Like any large industrial site, Bitcoin mines require numerous inputs to operate at peak efficiency. Sufficient energy, weather control, internet connectivity and 24/7 maintenance require large amounts of capital and staff. Delays in one aspect, say a blown transformer, can cause a facility to experience downtime across all machines.
Second, network centralization remains a prickly thorn in the Bitcoin mining game. Similarly to a custodial wallet holding your Bitcoin, hosting miners with a third party means you do not physically own your hashrate. Rather, it's in the trust and care of another entity.
In its current industrialized state, Bitcoin mining must almost certainly operate through hosting services. That being said, miners are encouraged to vet hosting solutions thoroughly before handing over ASICs.
Hosting contracts can come in a variety of lengths, such as 12 or 24 month increments. For example, Compass customers sign 12-month hosting agreements. Hosting charges are dependent on the facility's kilowatt per hour costs, but generally fall within the $0.05-$0.07 range.
Generally speaking, hosting costs are broken into two components: electricity costs and hosting fees. Electrical charges are based on the expected pull of a machine averaged over a month, but experiences may differ by provider. For example, an S19 using 3.25 kW charged at $0.062/kWh would cost $150 per month. Hosting fees include building security, maintenance and upkeep costs. Hosting fees are typically low and bundled into electrical costs.
Overall, hosting services remain the most optimal experience for mining Bitcoin. Despite downsides such as delays or network centralization, hosting provides secure access to hashrate for all levels of players.
Image courtesy of JAI Energy LLC with permission.