High-density mining rigs like these TerraMiners from CoinTerra require high-density environments that not all data centers can handle. (Photo: Rich Miller)

Service Providers and Bitcoin: Huge Opportunity, But Tough Economics

This is the second feature in our three-part series on Bitcoin mining infrastructure. Read the first one here.

Is Bitcoin mining a huge opportunity for data center service providers? Or will the bulk of infrastructure for the virtual currency be built out by Bitcoin entrepreneurs?

There’s plenty of activity on both fronts as the Bitcoin network experiences explosive growth. As large mining operations build out low-cost hashing centers, some data center providers are leasing significant amounts of space and power to Bitcoin specialists, while others remain wary of the density requirements and economics of the deals.

Bitcoin customers are seeking to acquire lots of capacity. But they want high-density space, prefer their contracts short and cheap and specialize in a speculative and rapidly changing business.

“There’s about 150 megawatts of Bitcoin capacity being shopped around right now,” said Mark MacAuley, a Bitcoin enthusiast and managing director at RampRate, which helps enterprise clients find data center space. “There’s this massive demand. It’s a huge opportunity, but this is a different animal.

“Most of the data center facilities out there are Tier III and designed for mission-critical loads,” said MacAuley, who has done consulting work for cryptocurrency specialists. “Bitcoin is not mission-critical. Street power is fine. Cost is the biggest driver for them, and most traditional providers can’t meet their price point. None of these guys want long-term contracts. The service providers want to get into this business, but their product isn’t suited to this demand.”

N+1 or N+2 don’t cut it, but ‘N-0.5’ makes sense

Some providers have managed to build thriving Bitcoin businesses by adapting their offerings for the sector’s specialized needs. One company that has embraced the opportunity is C7 Data Centers in Utah. Bitcoin customers represent 17 percent of C7’s business, according to CEO Wes Swenson, who said his firm houses 4.9 megawatts of Bitcoin capacity, with another 5 megawatts scheduled to come online this fall.

“It’s an interesting challenge,” said Swenson. “Most of the data centers that I know are not taking this business. Many of these Bitcoin miners can’t find data centers that meet their requirements for cost and concentration.”

To accommodate Bitcoin customers, C7 has rolled out a new data center design that Swenson describes as “N-0.5.″ It offers high-density space with lower reliability and no service-level agreement. The room is cooled using ambient air and cold-aisle containment, with no UPS or generator backup for the mining rigs. The design requires less infrastructure and up-front investment, which makes these deals work for the provider.

“I’m making the margin I need to reinvest in the business and still have great pricing,” said Swenson. “But I don’t know how you can run an N+1 or N+2 data center and still make money on Bitcoin.”

Space at $1.5 million per megawatt

A recent deal illustrates how service providers are adjusting their offerings. CyrusOne recently signed a lease for 41,000 square feet of space in its Phoenix data center for a customer housing high-density equipment in immersion cooling tanks. CyrusOne delivered the space at a cost of $1.5 million per megawatt, significantly below the $7 million per megawatt the company typically spends on enterprise data center space with “five nines” of uptime.

CyrusOne didn’t identify the tenant or its business, but industry observers note that the deal aligns closely with the requirements of Bitcoin miners. CyrusOne CEO Gary Wojtaszek says only that the Phoenix customer “does not require the same resiliency as traditional deployments.”

“One of the key engineering challenges we were presented with was how to achieve the lowest operating expense possible for the customer,” Wojtaszek said in CyrusOne’s recent earnings call. “Our engineering teams work closely with the customer and we were able to deliver the environment for less than $1.5 million per megawatt.”

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About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

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  1. How are data center operators ensuring that they are not getting hotspots in their DCs and ultimately causing some customer equipment to run too hot?