MENA’s crypto mining industry needs to catch up

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Barriers to entry exist in every industry and crypto mining is no different. Access to capital can ease some of these barriers, but there are remaining obstacles to navigate.

Digital asset mining is a thriving sector providing crucial infrastructure for the future blockchain economy. While much current mining activity is connected to Bitcoin, the capacity to process blockchain protocols at scale is not, in principle, bound to any single cryptocurrency.

As an industry, crypto mining is akin to mining precious metals or other raw materials, hence the derivation. Successful miners consider real estate, energy costs, building regulations or sourcing the most powerful and efficient machines.

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Outside geopolitical barriers, primary challenges remaining in the Middle East and North Africa (MENA) are threefold: access to power generation sources; power at a competitive price; and climate.

From a MENA perspective, the region has an abundance of fuel for its own power generation sources, but has not yet obtained power generation capacity for cryptocurrency mining’s rapid and continuous expansion, and the scale it requires.

For example, a MENA growth leader, the UAE, gained independence 60 years ago and has achieved huge technological and infrastructural advancements since.

This progress has enabled the UAE to become the main hub in the MENA region, but its infrastructure is only keeping up with the expansion of its cities, with abundance of power not a common factor.

Nor is the distribution robust enough to support anything beyond the populous growth. This is a common factor across the Mena region.

Yes, there is access to moderate power (ie blocks of 5-10 megawatts), but this is insignificant compared to constant growth seen in the US, Canada and Russia.

Here, infrastructure has been constantly built and developed over 150 years, and is where the cryptocurrency mining industry sees facilities built in the tens and hundreds of megawatts.

As technological advancements are made in power generation, the current industry buzzword gaining traction is flared-gas power generation.

In principle, this is a positive accolade for the cryptocurrency mining industry to have fast-tracked its advancement and use cases, but its sustainability and commercial viability is questionable in these early stages of development and deployment.

Gas is still cheap, albeit increasing in price, but the infrastructure required to support such new power generation is expensive and materially affects commercial viability of such projects.

Add restrictions to operation size and the liberating force of technology hits headwinds of commercial sustainability and investment recovery periods – for both power generation and cryptocurrency mining farm operators.

A third barrier is the ‘E’ in the Environmental, Social and Governance strategy (ESG). The MENA region has a profusion of gas from which it can generate abundant power, but gas isn’t viewed as environmentally friendly and its usage to create energy is being heavily scrutinised globally, alongside oil and coal.

Carbon offset credits are also fast becoming a thing of the past. Auditors are losing interest and credits are limited in their ability to actually offset. They are more a “dilution of”, which fails to mitigate fossil fuel use.

But let us assume we have overcome these barriers, and imagine we have tapped an under-utilised nuclear resource – readily available in the Middle East.

Let us also assume, we have tapped into that resource at a distribution level which doesn’t obliterate the infrastructure budget. We’re still left with the climate.

In the summer months, temperatures across MENA are 45-50C – with 100 percent humidity – which isn’t conducive to many activities, recreational or business.

Mining is in this category. Here’s why.

At a superficial level, there are three types of mining infrastructure; air, liquid immersion and water cooled.

Air-cooled is not viable for large-scale operations over 30mw. The cooling capacity required is astronomical in CAPEX and OPEX.

Even a water/evaporative cooling wall won’t sufficiently stave off the constant heat enshrouded by sand that will clog the systems; leaving both immersion and water cooled as the only viable remaining options.

Immersion is a better option from a CAPEX perspective, but cost per output is still too high. Immersion issues are similar to water-cooled, in so far as the vast water requirements to circulate through the heat exchangers.

Infrastructure at a “city” level is not generally implemented across networks in MENA – certainly not next to the power source, to enable the scale required.

Also, deserts are not known for their abundance of water. Immersion infrastructure requires third-party proprietary software to operate, adding a barrier to entry as companies require a strategic partner, who then comes with its own ESG issues.

This leaves water-cooling. This has been in operation since 2016 in the cryptocurrency mining space and is restrictive in its access to equipment. Until the creation of the S19 Hydro unit, these units had to be designed and built from inception.

Bitmain has put together a package of miners and infrastructure, but this requires various changes to comply with local/MENA engineering standards. This further reduces the ability to buy, plug and play. Water levels required are also a problem, thus rendering this unachievable at scale.

Unfortunately, MENA is unlikely to be able to operate at the scale required to compete with the likes of Canada, USA, Russia and the Baltics.

Of course, there can be silo projects, structured in a way to grab the headlines, but they will always be overshadowed by the large scale cryptocurrency mining operations being built in other, more befitting locations.

Philip Harvey is founder and CEO of Sabre56, which designs, builds and operates blockchain data centres