Author | Jaran Mellerud / Erick Vera
The United Arab Emirates (UAE) is becoming the destination of choice for Bitcoin miners in the Middle East due to its political stability, friendly business environment, strong capital markets, and abundant energy resources.
In this article, we will explain the characteristics of Bitcoin mining in the UAE and analyze its possible future development directions.
Leading Bitcoin mining in the Middle East
The UAE is a Middle Eastern country located near the Persian Gulf and composed of seven emirates, the most famous of which are Abu Dhabi and Dubai.
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The UAE is a business-friendly and entrepreneurial country, and its people are curious about new technologies. Due to this innovative spirit and the electricity subsidy policies enjoyed by specific industries, home mining and other small-scale amateur mining facilities have been widespread in the country for many years.
However, in the past year and a half, driven by the local sovereign wealth fund, the UAE has created two super projects that have propelled it onto the global stage as a serious and ambitious Bitcoin miner.
At the end of 2021, the digital assets division of Abu Dhabi’s sovereign wealth fund, Zero Two (then known as FS Innovation), partnered with local Bitcoin mining company Phoenix Technology to build a 650-megawatt water-cooled mining farm in Abu Dhabi. The overall investment in the project reached $2 billion, making it the largest single Bitcoin mining farm to date.
In February 2023, Zero Two reached a second Bitcoin mining partnership with US publicly traded miner Marathon. Under the partnership, Zero Two and Marathon will build and operate two immersion cooling facilities totaling 250 megawatts in Abu Dhabi, with Zero Two owning 200 megawatts and Marathon owning 50 megawatts.
In summary, due to the UAE’s business-friendly environment, innovative spirit, and abundant energy resources, it is becoming a leader in Bitcoin mining in the Middle East.
Therefore, all major projects in the United Arab Emirates are led by the Abu Dhabi sovereign wealth fund in partnership with established industry participants. Additionally, almost all mining activity takes place in Abu Dhabi, the largest and most energy-rich of the seven emirates.
Between the aforementioned semi-official government projects and numerous small-scale hobbyist deployments, the UAE’s current Bitcoin mining capacity is estimated to be around 400 megawatts. With the expansion of semi-official government projects, this capacity could exceed 600 megawatts by the end of this year.
Assuming an average energy efficiency of 30 J/TH, Bitcoin miners in the UAE should be able to produce around 13 EH/s of hash power, equivalent to 3.7% of Bitcoin’s total hash rate. This hash rate share makes the UAE the leading Bitcoin mining country in the Middle East, surpassing its neighbors Oman, Kuwait, Saudi Arabia, Bahrain, and Qatar. While these energy-rich countries may have tremendous Bitcoin mining potential, innovative UAE is leading the way.
The UAE is continually expanding its power supply capacity
As a member of the Organization of the Petroleum Exporting Countries (OPEC) and the world’s seventh-largest oil producer, the UAE plays an important role in the global energy market.
Like most countries with abundant oil and gas resources, the UAE exports most of its oil while using natural gas for internal power generation. Historically, almost all of the country’s electricity has been generated from natural gas.
Nuclear energy estimate from the Ministry of Energy and Infrastructure
As part of its push to develop alternative power sources, the UAE recently opened the Barakah nuclear power plant, the largest nuclear plant in the Arab world. The three operational reactors have a total capacity of 4 GW and are expected to generate 19% of the country’s electricity. The final reactor is set to begin operation later this year, bringing total capacity to 5.4 GW.
This nuclear expansion not only provides Bitcoin miners with ample supplies of cheap electricity, but also increases the need for demand flexibility, as nuclear power production cannot easily be adjusted based on demand. As explained by Jaran Melleryd in Bitcoin Magazine, Bitcoin miners are the only flexible electricity consumers, and thus can provide much-needed demand flexibility for inflexible nuclear grids.
In addition, the new nuclear power plant is located in the southernmost part of the United Arab Emirates, hundreds of kilometers away from population centers such as Abu Dhabi and Dubai. Given these distances, bitcoin miners can minimize power loss by establishing operations directly at the power plant, similar to Talen Energy in the United States. However, given the security sensitivity of nuclear projects and the fact that bitcoin mining in the country is still in its early stages, nuclear-based bitcoin mining may still be utopian. As explained by Raza Dabirae of Minestack, establishing a dedicated bitcoin mining area less than 100 kilometers from the power plant is a more realistic solution.
Dubai Electricity and Water Authority (DEWA): Mohammed bin Rashid Al Maktoum Solar Park
In addition to the nuclear power project, the United Arab Emirates plans to conduct large-scale solar development in its vast sunny desert. The country’s largest solar project currently has an operational capacity of 1.6 GW, which will expand to 5 GW by 2030, making it one of the world’s largest solar projects. Currently, solar power accounts for about 3% of the UAE’s electricity demand, but this proportion is likely to increase significantly in the coming years.
Such large-scale solar projects will undoubtedly produce a significant amount of surplus electricity on a regular basis. As geographically independent and interruptible electricity consumers, bitcoin miners can establish operations directly at these solar power plants, utilizing and monetizing the electricity that would otherwise be wasted. We have already seen many similar projects in the United States that have formed a cooperative relationship between solar power plants and bitcoin miners.
Overall, the United Arab Emirates is expanding its power supply at a rate that North American and European consumers can only dream of. By continuing to develop nuclear and solar energy, the United Arab Emirates will have enough surplus electricity to meet the needs of its rapidly growing bitcoin mining industry.
Significant seasonal fluctuations in electricity demand
The thriving economy in the desert requires two key components, which are often taken for granted by people in other parts of the world: freshwater and cooling. The production of these components accounts for 70% of energy consumption in the United Arab Emirates. As we will explain next, the proportion of energy consumption related to freshwater production and cooling has an important impact on the electricity supply-demand pattern.
First, let’s analyze the demand side. The temperature in the UAE varies greatly between the hottest and coolest months, resulting in a huge fluctuation in the power consumption of hundreds of thousands of air conditioning units in the country. Due to this consumption pattern, the winter base load demand is about half of the summer peak demand.
This seasonal difference naturally puts pressure on the power system. To make the situation more challenging, the UAE’s power plants cannot reduce their capacity in the winter to match the lower demand. Now let’s explain why.
Due to limited freshwater resources, the UAE uses co-generation and desalination plants to desalinate seawater. Due to the importance of providing fresh water, these plants must maintain relatively constant capacity throughout the year, even though electricity demand fluctuates greatly between the hottest and coolest months. This has led to huge waste of electricity.
In 2021, UAE generated 149 terawatt-hours (TWh) of electricity but consumed only 129 TWh, corresponding to 20 TWh of excess electricity waste. Assuming a replacement cost of $0.03 per kilowatt-hour, this wasted electricity causes utility companies to lose about $600 million in revenue each year.
Bitcoin mining can solve this problem. As Marathon CEO Fred Thiel explained on “The Mining Pod,” Bitcoin miners can increase utility company revenue by monetizing the electricity that was wasted before it was converted. Utility companies can then invest this increased revenue in further improving the power system or lowering electricity prices for residential, commercial, or industrial consumers.
Reza Dabirala also explained this in a similar way, but he emphasized the demand flexibility that Bitcoin mining provides to the power system. UAE currently does not have a base load electricity customer with stable annual demand. By adding a stable and flexible Bitcoin mining component to the grid, UAE’s power system can reduce the proportion of seasonal demand and make the system more efficient and resilient.
Electricity prices vary by industry
The UAE operates an electricity market with a government-controlled utility structure. The electricity prices set by utility companies vary by industry of the end consumer, resulting in significant differences in electricity prices.
For example, the government provides a subsidy of US $0.012 per kilowatt-hour for electricity consumption by agricultural consumers. This subsidy has inadvertently provided an opportunity for operators to set up small bitcoin mining sites on agricultural land and benefit from the subsidized electricity price. Dozens of such small mining sites have emerged in rural areas.
However, the strategy of long-term use of government subsidies is not sustainable, as has been demonstrated in Kazakhstan and Kyrgyzstan, where the government is not willing to tolerate such exploitation.
Government project's self-estimate
One unique feature of the UAE’s power system is that citizens in the country pay much lower electricity fees than foreigners. Many UAE citizens have installed small bitcoin mining sites in their own backyards and basements to take advantage of their heavily subsidized electricity price of US $0.02 per kilowatt-hour.
We see the same situation everywhere – electricity subsidies attract bitcoin miners.
While UAE nationals and farmers enjoy cheap electricity, industrial consumers pay relatively high electricity prices, ranging from US $0.073 to US $0.099 per kilowatt-hour. These electricity prices are too high for bitcoin mining, which raises a question: how much electricity fees do semi-government mining projects pay?
Although we have no exact sources of information, we believe that the electricity fees paid by semi-government bitcoin mining projects range from US $0.035 to US $0.045 per kilowatt-hour. Considering the generation cost in the UAE, this price is fair, and we assume that if Marathon pays more than US $0.045 per kilowatt-hour for electricity, it will not enter the UAE.
Under the current electricity pricing system, there are only three ways to operate as a bitcoin miner in the UAE. First, you can take advantage of subsidies and operate a small bitcoin mining site on agricultural land, but this is neither a scalable nor a sustainable strategy. Second, if you are a UAE national, you can install a small mining cabin in your backyard – also not very scalable.
Therefore, the only way for Bitcoin miners to obtain reasonable electricity prices in a scalable and sustainable manner in the UAE is to collaborate with government entities, as Marathon has done.
The UAE has excellent channels for raising capital
With its abundant oil and natural gas resources, the UAE is exceptionally wealthy. Additionally, in recent years, Dubai and Abu Dhabi have developed into international business hubs, attracting a significant amount of foreign direct investment. These cities are filled with wealthy sovereign wealth funds, government-affiliated organizations, family offices, and other investors who want a slice of the scarce Bitcoin cake.
To exert maximum control over their investments, many investors want to mine Bitcoin themselves, ideally within the UAE. One example is the Zero Two project in Abu Dhabi.
During our stay in the country, we encountered many companies that offer mining services, such as Phoenix Store and Blockfarms, which help to meet the endless investment demand for Bitcoin mining in the area. It is worth noting that these companies do not provide hosting solutions within the UAE, but in countries such as Canada, the United States, Russia, and Paraguay. Currently, there are limited hosting options available for small-scale miners in the UAE, as large semi-governmental projects mainly focus on self-mining.
It is important to remember that one of the main reasons why the United States has rapidly developed into one of the most important Bitcoin mining countries globally is its strong capital markets. Like the United States, Bitcoin mining projects in the UAE will have superior channels for raising capital, making it easier for them to raise funds than projects in other mining centers such as Russia and Paraguay.
Political stability and a friendly business environment
The UAE is an absolute monarchy consisting of seven emirates, each led by a local ruling family. Since its establishment in 1971, the UAE has enjoyed unprecedented political stability. Building on this stability, the country has followed a business-friendly principle that has transformed the cities of Dubai and Abu Dhabi from small fishing villages in the 1970s into international business metropolises.
The UAE is not content with the status quo when it comes to promoting economic diversification and building new industries. The country is eager to develop the information technology industry and hopes to have significant data center infrastructure within its borders. Bitcoin mining is a great way to quickly establish multi-functional power and data center infrastructure, as is well known.
In addition, the UAE is very open to the cryptocurrency industry. For bitcoin miners, cryptocurrency friendliness may bring advantages in relationships with government agencies, banks and other service providers. Considering the recent tightening of restrictions by the US and Canada on cryptocurrency companies and bitcoin miners accessing banking services, we see this as a particular advantage.
One reason why the UAE attracts a large amount of foreign direct investment is its tax advantages. Certain export-oriented companies, including bitcoin miners, can register in one of the country’s more than 30 free trade zones and avoid paying corporate taxes, value-added taxes, and import tariffs. This is a huge advantage in an industry as globally competitive as bitcoin mining.
The Abu Dhabi Global Market (ADGM) is one such free trade zone where Marathon and Zero Two have set up bitcoin mining entities in Abu Dhabi. The free trade zone is particularly focused on attracting digital asset businesses.
However, it should be noted that the UAE is an absolute monarchy and the government tends to intervene heavily in areas it deems important. Given that bitcoin mining is closely related to the energy sector, the UAE government may seek to control the industry. We are already seeing this happen.
Currently, the UAE has no specific regulatory provisions for bitcoin mining. Therefore, except for semi-governmental projects, all miners are currently operating in a legal gray area. This industry is likely to be regulated soon, and the government will create a licensing program under which private companies can apply for mining licenses and must operate in a specific manner approved by the government. This is similar to the way the country regulates the oil and gas industry.
Mining conditions in the UAE are very harsh globally
Although the UAE has many advantages in terms of political stability, business friendliness, strong capital markets, and abundant energy resources, its mining environment is the least friendly in the world. The combination of hot weather, high humidity, salty air, dust, and regular sandstorms makes Bitcoin mining operations in the country face enormous challenges.
Heat is the biggest problem. As a country located in the desert, the UAE’s average daily temperature ranges from 24 degrees Celsius in January to 42 degrees Celsius in August. During the summer, temperatures exceeding 50 degrees Celsius are not uncommon.
Compared with the situation shown in the chart above, the average monthly temperature of the Bitcoin mining center in western Texas is between 14°C and 35°C, which is obviously cooler than the UAE. Interestingly, even in western Texas, due to hot weather, miners regularly reduce mining activities during the summer.
During our visit to the UAE, we saw some facilities using air cooling under conditions where the outdoor temperature was about 45°C. Operators use water curtains to cool the air entering the facility. As a result, the environment temperature near the racks remained at an acceptable level of around 26°C. However, in the UAE, water resources are very expensive, and we doubt whether such a water curtain setting can achieve the same effect in the hotter summer where the temperature often exceeds 50°C. We also question the impact of operating in such a high-temperature environment on machine life.
Heat is not the only climatic factor that troubles UAE miners, as large amounts of dust and periodic sandstorms also pose considerable problems. Facilities that use air cooling can use dust filters, but it is still impossible to completely prevent dust from entering the machine and slowing down its life span.
Hydraulic or submerged cooling can alleviate the effects of heat and dust, so they are considered the preferred cooling solutions in the region. Compared with submerged cooling, hydraulic cooling faces more challenges because the UAE lacks freshwater resources and is currently evaluating the applicability of desalinated water in hydraulic cooling settings.
In order to provide the grid with maximum benefit, large-scale mining projects in the UAE need to ensure that they can control power consumption at all times. Therefore, they must have sufficient cooling infrastructure to avoid emergency shutdowns during the summer heat. Currently, only immersion cooling can provide this level of reliability, which is undoubtedly one of the reasons why Zero Two and Marathon chose to implement this solution in their new facilities.
Immersion cooling in the UAE
However, even with immersion cooling technology, the cooling medium itself must be cooled. This is a challenging task when outdoor temperatures exceed 50°C. Therefore, in the UAE, facilities that use immersion cooling are likely to need to use heat pumps or similar technology to cool the medium, which will add a significant cooling power consumption on top of the already consumed power by the machines.
When it comes to cooling solutions, operating large Bitcoin mining facilities in the UAE is still in the experimental stage. Although the climatic conditions in the region are among the harshest in the world, we have no doubt that operators will find the optimal solution to continue operating during the hottest summer months. However, regardless of how efficient their systems become, miners in the UAE will always face higher cooling costs compared to miners in cooler climates like Norway.
The Middle East has abundant energy resources and is one of the most promising regions for Bitcoin mining. As the most open and business-friendly country in the region, the UAE is naturally at the forefront of this.
The UAE has a large surplus of electricity, and with nuclear and solar energy being integrated into the grid in the coming years, this surplus will only increase. Bitcoin miners can provide important revenue for the power system by monetizing previously wasted electricity and providing much-needed demand flexibility.
Although the country has enormous potential for Bitcoin mining, the industry is still in its early stages and is not yet regulated. Currently, the only way to mine Bitcoin in a scalable and legally sustainable way is to partner with government entities. This is how Marathon is entering the country.
Marathon may be the first North American miner to enter the UAE, but it won’t be the last. For North American bitcoin miners, geographic diversification is becoming an increasingly important consideration, and few places outside of North America and Europe offer the level of political stability and business-friendly environment that the UAE does. The country’s growth may be driven by local quasi-governmental participants partnering with established companies like Marathon.
While there are many advantages to operating in the UAE, we cannot ignore the biggest challenge: the harsh weather conditions. Bitcoin miners can address this challenge by using immersion cooling technology and firmware.
Overall, the UAE will become an increasingly important bitcoin mining country in the coming years and provide a case study for other Middle Eastern countries to learn from.
An overview of the various indicators of the bitcoin mining industry in the UAE