A mining farm is a large operation, typically in a warehouse, that’s dedicated to mining cryptocurrencies. Large mining farms have can thousands of cryptocurrency mining rigs operating concurrently.
Mining farms benefit from economies of scale, making them more competitive than smaller cryptocurrency mining setups as a general rule. However, they are also exposed to a unique set of risks, and require a significant amount of starting capital.
Mining farms are typically located strategically in order to make electricity costs as low as possible. The climate that the mining farm is located in can also play an important role, as mining farms in colder climates need to spend less on cooling.
Depending on the setup, a company might own the mining farm as well as all the cryptocurrency mining rigs located in it. However, some mining farms also offer colocation services. In this context, colocation means that people who own mining rigs can pay a fee to have their mining rigs hosted at the mining farm.
Most mining farms are engaged in Bitcoin mining. Here are some of the most popular Bitcoin miners that are in use today:
Most large cryptocurrency mining farms utilize miners with ASIC chips. ASICs (Application-Specific Integrated Circuits) are chips that are designed to perform a very narrow set of tasks as efficiently as possible, in contrast to the CPUs (central processing units) found in the computers and smartphones we use every day, which are designed with flexibility in mind.
Practically every cryptocurrency that can be mined with ASIC miners is dominated by ASIC miners. This is because ASIC miners are simply too efficient for consumer-grade CPUs and graphics cards to compete with.
Examples of Proof-of-Work cryptocurrencies that can be mined very efficiently with ASIC miners include:
Bitcoin miner manufacturers regularly release new Bitcoin miners, which can make old miners unable to compete due to a lack of efficiency. Therefore, mining farms have to periodically rotate their roster of Bitcoin mining rigs to ensure they can continue mining profitably.
Bitcoin mining has undergone many changes since Bitcoin was first released in early 2009. In the earliest days of Bitcoin, miners utilized consumer-grade multi-core CPUs that powered desktop computers.
In late 2010, mining with GPUs (graphics processing units) started to gain popularity as GPUs turned out to be more efficient at mining Bitcoin than GPUs. Soon after, miners began modifying FPGAs (field-programmable gate arrays) for the purposes of Bitcoin mining, and started to scale their operations.
By 2013, ASICs specialized for Bitcoin mining began entering the market and took over relatively quickly due to their unmatched efficiency. The first ASIC Bitcoin miner was released by a China-based manufacturer called Canaan. ASICs continue to dominate the Bitcoin mining landscape, and chip sizes are steadily shrinking leading to improvements in efficiency.
Without adequate cooling, ASIC miners become very hot during operation, which can result in degraded performance or even malfunctions. So, it’s crucial that mining farms ensure their mining rigs operate at the right temperature.
The most common method is air cooling, but liquid cooling and immersion cooling are becoming increasingly popular as they can provide more efficiency. However, these newer methods can be more difficult to maintain and are more expensive to set up.
In immersion cooling, mining rigs are immersed in a dielectric fluid, which provides cooling and considerably cuts down on the noise produced by mining rigs. Immersed mining rigs don’t accumulate dust, eliminating the need for cleaning.
Now that we understand more about the cryptocurrency mining industry and mining farms, let’s quickly summarize the main advantages and disadvantages of mining farms.
The pros of mining farms:
- Due to economies of scale, mining farms are able to achieve much higher profitability than smaller-scale mining operations.
- In some cases, the demand for electricity coming from mining farms can bolster the development of renewable energy sources.
- Due to their high hashrate output, mining farms can considerably strengthen the security of the cryptocurrencies they mine.
The cons of mining farms:
- Setting up a mining farm requires a lot of starting capital, making such an endeavor inaccessible for most people.
- Due to its high energy requirements, cryptocurrency mining can be perceived as wasteful or harmful activity, and mining farms can be vulnerable to political pressure. For example, China cracked down on mining farms in 2021, forcing many such facilities to close down.
- The concentration of mining power in large cryptocurrency mining farms can have an adverse impact on the decentralization of cryptocurrencies.
