Colocation refers to the grouping of dedicated IT hardware or specialized equipment belonging to various organizations or individuals centered in a specific location. It simply refers to shared data centres (colocation centres) that are positioned strategically to serve multiple organizations.

An example of this strategic positioning is seen in high-frequency trading (HFT) organizations’ proximity to stock exchange servers.

In high-frequency trading (HFT), organizations position their servers and computers in the same data centre or in close proximity with stock exchanges’ data centres to ensure that they receive market information at faster speeds, offering them tremendous competitive advantage over the rest of the public. Hence, the closer a colocation facility to stock exchange servers, the more financial incentive can be commanded by collocation service providers.

Colocation services in cryptocurrency

Cryptocurrency mining operations leverage colocation facilities in a slightly different way than the regular data center usage. Colocation facilities for mining operations do not require real-time information like HFTs; instead, they are more utilized for energy efficiency, cooling and improved physical security.

Unlike regular data centres used by cloud services (such as Azure cloud, Google cloud, and AWS) that consider redundancy a must to protect IT information, it is not compulsory in crypto mining operations.

Collocation facility services offer rack space rental within their data centres, often set up in remote locations with lower temperatures. This strategically drives down electricity costs as cooling is largely taken care of by the environment, allowing colocation service providers the opportunity to offer better prices per square foot to crypto mining organizations and individuals alike.

The major factors to consider when selecting a colocation provider include location, power infrastructure, operational efficiency, and security.