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You've had a dynamic where money has become freer than free.

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You talk about a Fed just gone nuts.

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All the central banks going nuts.

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So it's all acting like safe haven.

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I believe that in a world where central bankers are tripping over themselves to devalue their currency,

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Bitcoin wins.

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In the world of fiat currencies, Bitcoin is the victor.

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I mean, that's part of the bull case for Bitcoin.

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If you're not paying attention, you probably should be.

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Welcome back to Austin.

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It's great to be back.

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I saw you walking down First Street Congress,

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heading over to Veracruz like nothing had changed.

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Nothing had changed.

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I was coming up Congress, you were walking down,

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you were right where you were headed.

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I got a walking meeting in, as I was describing to you earlier,

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around Town Lake today.

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it was

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felt good to be back

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I haven't been gone that long

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it's been two weeks

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yeah

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feels like a

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you know

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like you were

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on vacation or something

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yeah

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and I have been leaving

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for the summers

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yeah you do spend the summer

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on the shore so

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yeah

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it does feel good to be back though

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it is weird

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staying in a hotel

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we're gonna need to

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find some way to have it be

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fairly regular

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I think it's gonna be

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fairly regular

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regular

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how many

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times per day

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do you think you're gonna eat

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veracarees while you're here

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I'll probably have it tomorrow

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I'm going to skip today

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I'm going to go get lunch

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for Ryan Gentry after this

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I think

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we may do something

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in the proximity of

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of the park

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got your steps in

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got 20,000 steps in already

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we did the long route

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in Town Lake today

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which I've never done

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I feel like missing the lake

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is probably going to be

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the biggest adjustment

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you have the shore but

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we have the beach

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we've been walking

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doing push-ups

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and air squats

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on the beach every morning

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which has been good but

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once you get back to Philly proper, it's hard.

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We do have some parks around us, but

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I'm going to try and keep the walking up.

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Dr. Jack Cruz is really

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in my mind. Get the sunlight, get the steps.

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I was at the park. We were at the park on Sunday, and we saw

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Katie and Mike,

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and they were talking about SunMax

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and just kind of happened to see them.

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That's inspired

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me to start. And I've been

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paying attention to Jack for quite a while

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now, but it's time to put

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that into action. It is. The sun.

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provider of energy. I told Kaylee she was wearing sunglasses

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like hey Uncle Jack says

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bad for your eyes. I felt good

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because I didn't know sunglasses were bad until

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like two or three years ago. Bad for your eyes

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but I naturally just

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discarded sunglasses like ten years ago

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because I would either lose them or they'd never stay on my face

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and so I've been sunglass free for a decade.

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I have been as well.

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Alright.

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Catch you back in the studio?

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Back in your studio

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This is, you're in the interview seat.

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Maybe.

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What are we doing here?

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What are we doing here?

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Starting a show as part of TFTC on mining and energy.

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Yeah, not just mining, but an energy focused podcast,

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a cross section of Bitcoin, Bitcoin mining and energy.

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And a lot of the inspiration of it has been,

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just me increasingly focused on the fact that mining is consistently talked about as a point

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of centralization and it's a really interesting subject on the energy side i think that the

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energy side of bitcoin is as much of a rabbit hole as money is a rabbit hole and you know at

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zap right working on bitcoin payments it's not you know the my main goal of doing this is to help

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for the education around the convergence between Bitcoin and energy.

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But also a lot of our customers at Zaporite

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and early adopters of Bitcoin payments

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are in the mining ecosystem naturally.

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They have revenue that's Bitcoin-denominated

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and they have customers willing to pay in Bitcoin.

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But most importantly,

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there are these knowledge gaps that exist around

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Bitcoiners not appreciating energy,

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Bitcoin miners really being sophisticated in energy and energy economics, but maybe not being as familiar with the technical underpinnings of Bitcoin.

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And then there are legacy energy professionals and legacy energy industry that have a lot to add to Bitcoin but don't understand it, as well as regulators and legislators that specifically influence policy or grid operations that would benefit for a Bitcoin podcast that was focused around not just mining but energy fundamentals and how that converges.

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And, um, given the fact that the TFTC studio is here and that we're in the center of hash being, uh, Texas and everything that's happening around the state, it won't just be about ERCOT and what's going on in Texas.

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But I thought, uh, we could leverage the infrastructure that's already here.

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We got the best studio in America, maybe the country, probably the world.

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Yeah, definitely Austin.

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Um, so yeah.

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So, and you have a long history of working on mining, you know, from various different cross sections of it.

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And so, yeah, looking forward to diving into helping Bitcoiners understand the energy side, helping miners further entrench themselves in the working of the network and their role to play in it.

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Because I think one of my observations is while there are different aspects of Bitcoin mining that are centralized and potentially increasingly centralized, it's really to the detriment, ironically, to miners themselves.

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and that the miners have a role to play

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in helping to solve that problem.

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Yeah, I agree.

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The energy rabbit hole,

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I've fallen down it twice.

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Once early in my career,

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I was working at a managed futures fund.

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We were trading commodities,

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energy being part of a bucket of commodities.

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So I learned a lot about macro influences on energy,

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but I didn't really fall far down the rabbit hole

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until Great American Mining.

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I joined them in 2018.

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And we went on that journey to mitigate flare gas

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in the Bakken using Bitcoin mining.

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And it is hilarious to me that you can spend years on Bitcoin.

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Myself, I understand the economic principles,

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the distributed protocol, how it works,

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and even really understand hash rate

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and the difficulty adjustment.

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But it wasn't until I joined Great American Mining

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and really was forced to do a deep dive on Bitcoin mining economics,

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which forces you to understand energy systems

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that I came to have like a full grasp of the industry.

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And even today, I won't admit to be the end-all be-all expert

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on Bitcoin mining and the intersection of mining and energy,

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but I think I know enough to be dangerous

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and have learned a lot over the last seven years

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to have a pretty good perspective

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on where the market was in the past,

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where it is today,

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where it may be going in the future.

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Yeah, maybe talk a little bit about,

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so you joined Great American Mining in 2018.

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You've worn the hat of an operator.

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You mine yourself, I believe.

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You 1031 invests in mining companies.

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You sit on a board of a mining company.

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but from 2018 to today 2025 in your view how has not just like the industry changed

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but the sophistication around energy strategies may be advanced i think it's in order of magnitude

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it's made in order of magnitude probably multiple orders of magnitude advancement in terms of

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the understanding because you have all these i think the 2021 chinese mining ban like really

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forced operators in the united states to step up their game and really think about the power

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aspect um very very hard and i think we've seen that the products of that here in ercott and

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to a lesser extent but pretty advanced as well up in the tennessee valley authority in the tva

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and

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there's

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that's the thing

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with mining

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and energy

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there's so many

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variable inputs

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that go into

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both industries

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it's like trying

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to combine them

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is

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you have to be

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very smart

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but it's also

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like an art form

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you have timing

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the market

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on the energy

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side of things

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and timing the market

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on the Bitcoin

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side of things

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I think

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when it comes to

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mining

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when you go back

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to

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when I first

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got in

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you had

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like

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yes 17s coming out yeah the what's minor m20s is and so uh on just a hardware side we've had

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incredible advancements in the efficiency of the machines in terms of joules per tera hash like how

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much they can produce much more hash with smaller amounts of energy um and at the same time you've

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seen the proliferation of these publicly traded miners like riot marathon clean spark iron and

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they really industrialized mining particularly on grid but then you have this whole other aspect

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which is off-grid mining and now with projects like the bid axe you're getting at-home mining and

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there's many different ways to skin the cat of a mining operation and i think between even before

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2018 i think between 2016 and within the last two or three years the advancements on the hardware

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side were um were so quick and the way in which you acquired asics was not how it's done today

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which i think is much more efficient and better for the miner but you had like pre-sales and pre-orders

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and the cost per tera hash got out of whack in 2021 particularly but i think we've settled down

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into a point in time where the operators are more professional they're more methodical about their

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deployment of capital both on the hardware side and the infrastructure side of locking down the

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power and building it out and so as it stands today i think the inner the mining industry has

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matured i do think outside of ercott and even within ercott to a certain extent energy producers

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really have not fully grokked bitcoin mining and how it can increase their efficiencies and their

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revenues and make their operations more secure in the long run, economically viable, sustainable,

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as you like to say.

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There definitely are some who get it and are early leaders, but I think the mining industry

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has matured to a point.

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I do think the energy industry is lagging a bit in terms of understanding the benefits

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mining can provide them in the long run.

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Yeah.

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And for a frame of reference, and I want to go back a bit, but I believe in 2017, the network had approximately five exahashes.

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And today it's 800, between 800 and 900.

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Yeah, between 800 and 900.

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So the network hash rate, and I want, you know, for, given that this is the first podcast of this series that we're doing under the TFTC umbrella, I want to do some basics to just ground people, even Bitcoiners, and what certain things represent and are.

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But that's just as an order of magnitude, hash rate in the Bitcoin network has increased by 160 times the past eight years.

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And that necessarily as mining becomes more competitive, and there might be various reasons that turning on a home miner and solo mining with a small amount of hash rate doesn't need to be thought of the same way that a miner that is running a sophisticated operation might think about their own economics.

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But over the past eight years, it's shifted to if you are going to have a viable Bitcoin mining operation and, you know, whether it's people that own power generation start to look at Bitcoin mining, that increasingly it seems like just out of the increase in the hash rate of the network, that if you're not optimizing for an energy strategy or realizing that you're in the business of energy development and procuring cheap power and optimizing,

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around that that you're not going to have a sustaining operation do you where do you see us

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in that kind of process to the shift of big efficiency gains coming from the hardware side

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versus optimization around energy and cost of energy or uptime downtime curtailment thinking

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about that i think we're definitely in a better spot but have a lot of room to grow there and i

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was actually in dc last week at the bitcoin policy institute summit and i was talking with

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rey browning and isaac fithian who were at great american mining with me and they're still in the

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industry and we were having this conversation our thesis even at great american mining

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was that ultimately due to the competitiveness of the mining market as you mentioned bitcoin

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mining is the most competitive ruthlessly competitive market in the world anybody can

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buy an ASIC or excuse me, an ASIC's not the right term, can buy a mining machine with a bunch of

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ASICs on it, plug it in and boom, they're competing for, they're producing hashes and competing for

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the production of blocks and the reward that is Bitcoin, the subsidy, plus the transactions

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associated with the fees associated with the transactions in that block that they may ultimately

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win um and our thesis back at great american mining was that ultimately power companies are

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like it's either who's going to become who first the miners going to become energy companies or

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the energy company is going to become miners they're going to converge and just be one

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operation at some point and so at great american mining we were doing off-grid mining we learned

252
00:14:46,740 --> 00:14:54,320
this lesson the hard way we were doing flare mitigation in the bakken on the well pad and

253
00:14:54,320 --> 00:15:01,600
harsh conditions in the middle of North Dakota. And we learned the hard lessons of sort of gas

254
00:15:01,600 --> 00:15:21,163
quality flow quality depending on like if the pipe froze because it was negative 40 degrees that could prevent you from actually being able to run a generator uh pipeline access and right of way like we learned the hard lesson at one point in 2019 that we

255
00:15:21,163 --> 00:15:27,082
got an operation set up on the well pad we were taking gas would otherwise been flared but then

256
00:15:27,082 --> 00:15:33,842
midstream capacity opened up and so they were able to actually flow the gas into the pipeline

257
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to take it to midstream.

258
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So we had the gas taken away from us.

259
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And then on top of that,

260
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you have mineral rights owners.

261
00:15:39,842 --> 00:15:41,803
They're getting smarter about the fact

262
00:15:41,803 --> 00:15:42,883
that some of these operators

263
00:15:42,883 --> 00:15:44,242
are bringing in mining operations

264
00:15:44,242 --> 00:15:46,303
to mitigate flare,

265
00:15:46,402 --> 00:15:47,322
and that's producing revenue

266
00:15:47,322 --> 00:15:50,043
in the form of Bitcoin that's being mined.

267
00:15:50,142 --> 00:15:51,222
And they're getting involved

268
00:15:51,222 --> 00:15:52,183
in the conversations like,

269
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hey, you're using my minerals.

270
00:15:54,322 --> 00:15:56,842
I'm supposed to have a 12.5% royalty

271
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on any revenue produced by this.

272
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Typically, it's at the midstream,

273
00:15:59,982 --> 00:16:02,142
but there are some intricacies.

274
00:16:02,142 --> 00:16:07,082
since it was happening on the well pad, technically, they didn't have to give them the royalties.

275
00:16:07,283 --> 00:16:13,322
And so now you have like mineral rights owners beginning to write like mining royalties on

276
00:16:13,322 --> 00:16:16,202
the well pad into their contracts.

277
00:16:16,383 --> 00:16:20,283
And on top of that, it's like logistically, this off-grid mining model is logistically

278
00:16:20,283 --> 00:16:25,803
a nightmare because you drill a well, you get the oil, you have a steep decline curve

279
00:16:25,803 --> 00:16:34,102
And that gas, that archetype of gas, flared gas, is not sustainable or reliable in the long run.

280
00:16:34,202 --> 00:16:40,183
And so we always had the idea at Great American Mining that eventually, and so this is like-

281
00:16:40,183 --> 00:16:42,803
It's not sustainable or reliable because the gas-

282
00:16:42,803 --> 00:16:44,022
The gas is not consistent.

283
00:16:44,222 --> 00:16:45,582
The amount of capacity is declining.

284
00:16:45,803 --> 00:16:46,022
Yeah.

285
00:16:46,262 --> 00:16:51,602
The amount of power that you can generate at that site is variable because of that, but variable in a declining sense.

286
00:16:51,602 --> 00:16:58,202
that you basically have a mining operation at a site that can't be operated reliably at full

287
00:16:58,202 --> 00:17:05,142
utilization exactly and so the analog here and like our thesis was like ultimately what actually

288
00:17:05,142 --> 00:17:10,203
makes sense and so the analog would be like a midstream provider is like a power generator

289
00:17:10,203 --> 00:17:16,662
or utility on grid and i think this is beginning to happen where we always said like what ideally

290
00:17:16,662 --> 00:17:23,263
makes sense as you go to the midstream operators who are who are basically aggregating all the gas

291
00:17:23,263 --> 00:17:30,783
from upstream and processing it and then sending it to utilities to run power facilities it actually

292
00:17:30,783 --> 00:17:36,982
makes sense for mining operations to exist at the midstream and act as this sort of pressure

293
00:17:36,982 --> 00:17:43,322
release valve for pipeline capacity next to a processing plant yes and so i think i've talked

294
00:17:43,322 --> 00:17:51,122
Maybe describe a little bit about that, that there's pipelines from the well site going to the processing plant and then from the processing plant to the generators.

295
00:17:51,402 --> 00:17:51,703
Yes.

296
00:17:52,102 --> 00:17:59,982
And so you have this upstream, midstream, and downstream, like the generators, is the way I would describe it and understand it.

297
00:17:59,982 --> 00:18:06,922
And what actually makes sense is if you want to prevent flare upstream, what you really need is more pipeline capacity.

298
00:18:06,922 --> 00:18:12,422
because that's typically not it's not every instance there's some instance where you have

299
00:18:12,422 --> 00:18:15,783
to flare because they don't have access to a pipeline to send it in the first place but

300
00:18:15,783 --> 00:18:21,402
there's a lot of situations where they're flaring because pipeline capacity doesn't exist it's full

301
00:18:21,402 --> 00:18:25,362
and so you just have this excess gas you have to burn off so what actually makes sense

302
00:18:25,362 --> 00:18:31,963
is instead of logistically trying to plop down mining operations at these different

303
00:18:31,963 --> 00:18:37,862
upstream well pads what you do is you just put a big sort of base load at the midstream

304
00:18:37,862 --> 00:18:46,543
and you basically have this offset right at the co-location or the aggregation site of the gas

305
00:18:46,543 --> 00:18:51,182
coming from upstream and when you need more pipeline capacity if they're drilling more wells

306
00:18:51,182 --> 00:18:58,203
upstream on on the well pad you just simply divert some of the gas to the mining operation you let

307
00:18:58,203 --> 00:19:03,803
the generators that are running the miners consume the gas open up capacity and prevent flaring

308
00:19:03,803 --> 00:19:09,023
upstream and so we would call that like sucking and flare from the midstream is how we would

309
00:19:09,023 --> 00:19:15,842
describe it and so i think on the off-grid set that's where i would like to see things go and i

310
00:19:15,842 --> 00:19:20,162
have talked to some miners who've included in on that and some midstream providers who have

311
00:19:20,162 --> 00:19:25,342
recognized this and are beginning to implement that strategy but that's similar to on-grid

312
00:19:25,342 --> 00:19:30,682
demand response and where i think ultimately it goes is the power generators regulate it's a it's

313
00:19:30,682 --> 00:19:36,382
a regulator of excess yes and and so i want to i want to come back to this because i want to

314
00:19:36,382 --> 00:19:43,063
want to get the thoughts of like why sitting at the midstream versus more optimally at the point

315
00:19:43,063 --> 00:19:54,002
of generation for someone that is converting gas to power to then supply to the grid of of whether

316
00:19:54,002 --> 00:19:59,902
it's a balance between both of those points kind of essentially providing regulation at different

317
00:19:59,902 --> 00:20:08,803
points in the the power generation supply chain but before that i do want to just rewind on

318
00:20:08,803 --> 00:20:16,142
anchoring somebody that is less familiar the space do two things how

319
00:20:16,142 --> 00:20:23,902
you describe the function of bitcoin mining in terms of its what it is doing for the bitcoin

320
00:20:23,902 --> 00:20:35,283
network as well as the nature of power demand for the bitcoin network and how it differs from

321
00:20:35,283 --> 00:20:41,123
all other sources of power demand yeah it's actually then i want to come back after i kind

322
00:20:41,123 --> 00:20:45,482
of anchoring in those concepts i want to come back to the discussion on you know where power

323
00:20:45,482 --> 00:20:49,703
generation for bitcoin mining might be most optimally set no this is very fitting as i was

324
00:20:49,703 --> 00:20:53,922
tweeting about it earlier proof of work over everything and i was quote tweeting elon musk who

325
00:20:53,922 --> 00:20:59,842
was he's tweeted out something about physics like you can't fake physics uh like nothing you can't

326
00:21:01,023 --> 00:21:06,963
you can't 51 attack physics if you will physics is the truth and so i guess that is

327
00:21:06,963 --> 00:21:14,963
the sort of reason that we use proof of work in bitcoin mining like bitcoin is this distributed

328
00:21:14,963 --> 00:21:20,722
monetary system and the whole reason for bitcoin existing is because we want to separate

329
00:21:20,722 --> 00:21:27,543
state and money and we don't want central authority over the monetary system we want

330
00:21:27,543 --> 00:21:32,763
a monetary system that anybody can audit anybody can verify and everybody knows

331
00:21:32,763 --> 00:21:38,703
what's going to happen when in terms of how blocks are going to be produced and how much bitcoin's

332
00:21:38,703 --> 00:21:44,082
going to exist on the market at any given point in time and that's the function that mining plays

333
00:21:44,082 --> 00:21:49,642
is sort of regulating the distribution of Bitcoin.

334
00:21:49,803 --> 00:21:56,203
And then on top of that, the facilitation of transactions on the network on a block-to-block basis.

335
00:21:56,203 --> 00:22:02,763
And so mining is sort of this melding of the physical and digital world using physics

336
00:22:02,763 --> 00:22:08,642
in the sense that it's taking an energy source, turning it into electricity,

337
00:22:09,682 --> 00:22:13,142
pushing it through these computers that produce these hashes.

338
00:22:14,082 --> 00:22:20,322
And then those hashes basically create a market for block production.

339
00:22:20,322 --> 00:22:24,362
If you find a particular hash that is below the difficulty target,

340
00:22:24,783 --> 00:22:26,623
you present it to the network.

341
00:22:27,222 --> 00:22:28,803
The rest of the miners and the nodes say,

342
00:22:28,902 --> 00:22:30,563
yep, that's the hash that's below the target.

343
00:22:30,662 --> 00:22:31,862
You can add a block of transactions.

344
00:22:32,043 --> 00:22:32,582
They do that.

345
00:22:33,123 --> 00:22:34,263
You're rewarded in Bitcoin.

346
00:22:34,922 --> 00:22:36,623
So there's a lot there, but describe what...

347
00:22:37,463 --> 00:22:39,222
You just said block production,

348
00:22:39,682 --> 00:22:42,482
and if a bunch of people have no idea what that means,

349
00:22:42,623 --> 00:22:43,623
like...

350
00:22:44,082 --> 00:22:50,523
It is enforcing the fixed supply of Bitcoin as well as validating all changes in state,

351
00:22:50,602 --> 00:22:55,623
which are represented as people sending Bitcoin from one address to another,

352
00:22:55,623 --> 00:22:57,783
one address to another, people all over the world,

353
00:22:58,422 --> 00:23:03,502
and ensuring that only valid transactions be processed.

354
00:23:03,623 --> 00:23:03,882
Yes.

355
00:23:04,682 --> 00:23:07,763
And so that's the process.

356
00:23:08,283 --> 00:23:09,783
Why is mining important?

357
00:23:09,783 --> 00:23:16,803
because to ensure that the system is distributed, decentralized,

358
00:23:17,222 --> 00:23:21,682
you basically need this process where anybody can contribute to block production

359
00:23:21,682 --> 00:23:25,582
by plugging in one of these computers that produce hashes.

360
00:23:26,263 --> 00:23:28,582
And that's the way we create a fair system.

361
00:23:28,662 --> 00:23:31,943
There's no central sort of authority who determines like,

362
00:23:32,123 --> 00:23:36,582
okay, these people are trying to make these transactions at this given point in time.

363
00:23:36,582 --> 00:23:40,082
Let's just aggregate them in a block and put it on the blockchain.

364
00:23:41,142 --> 00:23:42,742
You don't want a central authority to do it.

365
00:23:42,803 --> 00:23:47,082
You need distributed, economically incentivized actors to do that.

366
00:23:47,263 --> 00:23:48,102
And you can't fake a jewel.

367
00:23:48,362 --> 00:23:50,822
No, and you can't fake a jewel and you can't fake a hash.

368
00:23:52,043 --> 00:23:56,043
And that's what you've mentioned, the 180x increase in hash rate.

369
00:23:56,543 --> 00:24:00,182
Over the last seven years, that is a product of more people

370
00:24:00,182 --> 00:24:03,662
sort of entering this race of block production

371
00:24:03,662 --> 00:24:10,722
to hopefully produce Bitcoin at a cost that is cheaper than the market rate for which they

372
00:24:10,722 --> 00:24:11,602
could sell it right now.

373
00:24:11,602 --> 00:24:16,582
And so that's describing the function of mining within Bitcoin.

374
00:24:17,342 --> 00:24:25,462
But now I want you to describe a little bit in your own perspective of the nature of Bitcoin's

375
00:24:25,462 --> 00:24:33,303
demand for power and how it differs from all other sources of power in the market.

376
00:24:33,662 --> 00:24:44,742
And if you could, because one of the ways that, as we're thinking about names for the podcast, which we're still working on settling on, is thinking about what is actually happening.

377
00:24:45,023 --> 00:24:51,162
And you described it where basically there's energy in some stored state.

378
00:24:51,822 --> 00:24:55,842
It's transformed into electricity.

379
00:24:56,742 --> 00:25:00,883
That electricity is effectively converted to computation.

380
00:25:00,883 --> 00:25:08,123
computation which releases heat and through that process of

381
00:25:08,123 --> 00:25:17,883
essentially creating computer or hashes derives from computing power bitcoin network is

382
00:25:17,883 --> 00:25:23,023
enforcing its fixed supply validating currency transactions all over the world without a

383
00:25:23,023 --> 00:25:30,922
centralized third party and it's separating actively ownership of the network from validation

384
00:25:30,922 --> 00:25:40,102
yes in a way that anybody can participate in but then if it's demanding some form of

385
00:25:40,102 --> 00:25:48,462
stored energy converting that into power now describe what makes the nature of bitcoin's

386
00:25:48,462 --> 00:25:54,703
power demand you in the market because it is a fundamentally new source of power demand that

387
00:25:54,703 --> 00:26:02,362
prior to bitcoin did not exist realistically when bitcoin was very small it demanded very little

388
00:26:02,362 --> 00:26:10,742
power and that as it as it grows the more power it consumes the more relevant it becomes to energy

389
00:26:10,742 --> 00:26:17,362
systems and the more it can potentially solve energy problems yeah and so i guess the nature

390
00:26:17,362 --> 00:26:23,203
of the demand for power from bitcoin miners at any given point in time is contingent

391
00:26:24,242 --> 00:26:31,523
on a couple of things number one how expensive or cheap is that power number two how expensive or

392
00:26:32,883 --> 00:26:39,043
how much is bitcoin worth at that given point in time and running the calculations of your energy

393
00:26:39,043 --> 00:26:44,962
costs let's add infrastructure and operations and all that into that and the price of bitcoin

394
00:26:44,962 --> 00:26:50,703
at any given point in time you're you're basically going to consume power if you think you can produce

395
00:26:50,703 --> 00:26:55,962
a bitcoin um for less than you could sell it at the market at any given point in time so i think

396
00:26:55,962 --> 00:27:02,182
that dictates the demand for power from the bitcoin network at any given point in time

397
00:27:02,182 --> 00:27:09,402
um with that being said i think the interesting thing that bitcoin mining brings to the world

398
00:27:09,402 --> 00:27:13,602
is demand for power sources that previously had no demand.

399
00:27:13,922 --> 00:27:16,703
And so in the example, Great American Mining,

400
00:27:16,902 --> 00:27:20,422
flare gas was something they were literally setting on fire

401
00:27:20,422 --> 00:27:23,623
because nobody wanted that gas

402
00:27:23,623 --> 00:27:27,342
because there was no ability to monetize it

403
00:27:27,342 --> 00:27:31,582
because it couldn't get to market, right?

404
00:27:31,623 --> 00:27:32,763
It was stranded energy,

405
00:27:32,902 --> 00:27:34,902
like out in the middle of these oil fields.

406
00:27:34,902 --> 00:27:38,623
And that's the beauty of the Bitcoin mining network

407
00:27:38,623 --> 00:27:43,582
is that it brings a new form of demand to energy resources

408
00:27:43,582 --> 00:27:46,982
that for a very long time were simply just wasted

409
00:27:46,982 --> 00:27:49,523
because there's no way to monetize them.

410
00:27:49,803 --> 00:27:54,402
So I think Ross Stevens has written very eloquently about this

411
00:27:54,402 --> 00:27:59,023
and many others, like Bitcoin mining is this pioneer species that...

412
00:27:59,023 --> 00:28:00,222
Brandon Quittem also wrote in.

413
00:28:00,242 --> 00:28:00,842
Brandon Quittem.

414
00:28:00,842 --> 00:28:01,043
Yeah.

415
00:28:01,763 --> 00:28:06,783
That can monetize energy sources that were previously unmonetizable.

416
00:28:06,783 --> 00:28:35,922
And so it brings demand for that archetype of energy that's existed for a long time, but has never been able to monetize. And this is possible because the Bitcoin network is distributed. And so if you have the ability to generate electricity, the computers that produce the hashes that ultimately get you Bitcoin, and an internet connection, it could be a cellular internet connection.

417
00:28:35,922 --> 00:28:43,383
And that's the thing miners, when they're sending their hashes to the network or a pool, takes kilobytes of data.

418
00:28:43,523 --> 00:28:45,523
So you can use pretty low latency.

419
00:28:46,162 --> 00:28:51,703
Significant amount of work at the site, but very little data transmission.

420
00:28:51,703 --> 00:28:58,283
Yeah, when you're interacting with a network, you're selling kilobytes of data when you're sending your shares to a pool or to the network directly.

421
00:28:58,283 --> 00:29:04,662
um and so that creates a beautiful thing where you can go and you can monetize

422
00:29:04,662 --> 00:29:12,322
these these previously unmonetizable energy sources on site so you bring the market to

423
00:29:12,322 --> 00:29:18,362
the molecule is one of the things we would say at great american mining and the network isn't

424
00:29:18,362 --> 00:29:24,283
dependent on any one individual miner having 100 uptime anywhere in the world because it's

425
00:29:24,283 --> 00:29:28,263
distributed um and so you can have just explain that because i think that's a really important

426
00:29:28,263 --> 00:29:37,142
concept that it's functionally that miners are suppliers to the bitcoin network and that the

427
00:29:37,142 --> 00:29:44,023
bitcoin network is is the source of demand it's basically aggregating demand all over the world

428
00:29:44,023 --> 00:29:54,263
and then distributed suppliers and just talk about like the the that as a concept um and

429
00:29:54,263 --> 00:29:55,943
and significance of it.

430
00:29:56,383 --> 00:29:57,822
Yes, it's location agnostic.

431
00:29:58,502 --> 00:30:00,582
And since Bitcoin's a distributed system,

432
00:30:01,862 --> 00:30:05,402
you can have disruptions to individual parts

433
00:30:05,402 --> 00:30:07,322
of the mining industry,

434
00:30:07,543 --> 00:30:09,402
of individual mining operations

435
00:30:09,402 --> 00:30:12,162
without disrupting the distributed Bitcoin network.

436
00:30:12,162 --> 00:30:15,263
The extent of this disruption,

437
00:30:15,742 --> 00:30:17,362
if it hits a critical,

438
00:30:17,582 --> 00:30:18,543
or not a critical scale,

439
00:30:18,642 --> 00:30:19,482
but a certain scale,

440
00:30:20,043 --> 00:30:31,065
is just slower block production And I think that Right but making that point if a hospital stops pulling on power the operation of the hospital shuts down

441
00:30:31,505 --> 00:30:34,065
Now, if a Bitcoin miner shuts down,

442
00:30:34,725 --> 00:30:35,945
its operation shuts down,

443
00:30:36,005 --> 00:30:38,445
but the Bitcoin network continues to operate

444
00:30:38,445 --> 00:30:39,745
just slightly slower.

445
00:30:39,745 --> 00:30:44,705
And the actual operation that is generating

446
00:30:44,705 --> 00:30:47,825
that is the source of demand

447
00:30:47,825 --> 00:30:49,585
is the Bitcoin network itself.

448
00:30:49,845 --> 00:30:51,265
which the miner is supplying.

449
00:30:52,265 --> 00:30:54,785
It's a part of the supply chain,

450
00:30:54,865 --> 00:30:56,925
but it's not the actual in-demand.

451
00:30:57,125 --> 00:30:57,305
No.

452
00:30:57,685 --> 00:30:59,585
The in-demand is the people looking to send Bitcoin

453
00:30:59,585 --> 00:31:00,825
from one place to another.

454
00:31:01,125 --> 00:31:01,245
Yeah.

455
00:31:02,005 --> 00:31:03,885
And this is a beautiful thing.

456
00:31:04,065 --> 00:31:05,145
Hospitals, one example.

457
00:31:05,385 --> 00:31:09,385
Amazon Web Services, cloud data centers,

458
00:31:09,385 --> 00:31:14,505
the AI compute, particularly for model training.

459
00:31:14,805 --> 00:31:16,805
They cannot have disruptions.

460
00:31:16,925 --> 00:31:18,105
They need consistent power.

461
00:31:18,105 --> 00:31:20,365
or in the case of Amazon,

462
00:31:20,885 --> 00:31:23,625
if one of their data centers goes down,

463
00:31:23,725 --> 00:31:24,965
like you have websites that'll go down,

464
00:31:25,025 --> 00:31:26,485
like critical business infrastructure

465
00:31:26,485 --> 00:31:28,145
that will literally go down.

466
00:31:28,465 --> 00:31:29,825
Maybe they have some redundancies,

467
00:31:30,065 --> 00:31:31,485
but I think it's safe to say

468
00:31:31,485 --> 00:31:34,025
that they need significant amount of uptime

469
00:31:34,025 --> 00:31:35,605
and reliability.

470
00:31:36,065 --> 00:31:37,405
Whereas the Bitcoin network,

471
00:31:37,925 --> 00:31:39,285
an individual mining operation

472
00:31:39,285 --> 00:31:41,745
may want that uptime,

473
00:31:41,865 --> 00:31:43,725
but it's not critical to the Bitcoin network

474
00:31:43,725 --> 00:31:45,705
being able to facilitate transactions.

475
00:31:45,705 --> 00:31:47,305
There's another piece of that,

476
00:31:47,305 --> 00:31:50,825
which is that it's a,

477
00:31:50,925 --> 00:31:51,925
and you mentioned this before,

478
00:31:52,005 --> 00:31:52,405
but it's a,

479
00:31:52,405 --> 00:31:53,125
it's a functioning,

480
00:31:53,245 --> 00:31:56,845
a purely economic source of demand.

481
00:31:57,785 --> 00:32:00,425
And in some form or fashion,

482
00:32:00,425 --> 00:32:01,965
but in a more derivative way,

483
00:32:02,505 --> 00:32:04,865
every demand of,

484
00:32:05,165 --> 00:32:09,645
for power is refining that power into some higher ordered good to ultimately

485
00:32:09,645 --> 00:32:11,045
have an economic incentive.

486
00:32:11,905 --> 00:32:17,285
But Bitcoin mining is essentially the least refined that has a,

487
00:32:17,305 --> 00:32:23,365
direct monetization to money not needing to refine it into something else to then

488
00:32:23,365 --> 00:32:30,365
deliver a good or service to trade it and for that reason it's this aggregated source of demand

489
00:32:30,365 --> 00:32:37,045
being the bitcoin network as well as this purely dollars and cents bitcoin and sats

490
00:32:37,045 --> 00:32:43,425
do i consume this power because all i'm using it for is to turn it directly into money not some

491
00:32:43,425 --> 00:32:49,225
other good or service exactly yeah and it's a beautiful thing too because bitcoin trades 24 7

492
00:32:49,225 --> 00:32:55,505
365 it's extremely without counter party risk extremely liquid pools you have some counter

493
00:32:55,505 --> 00:33:01,085
party risk yes and i'm sure we'll get to it but like the pools have created payout structures

494
00:33:01,085 --> 00:33:06,705
which are a problem right now but um we're gonna make it so you can get paid out every day uh

495
00:33:06,705 --> 00:33:13,105
and so yeah you do have this stream of ink or revenue that you can convert to dollars when

496
00:33:13,105 --> 00:33:20,425
when you need to immediately and a lot of miners i think have really gotten smart about managing

497
00:33:20,425 --> 00:33:26,005
their their bitcoin revenue and inventory um in ways that are advantageous for the long-term

498
00:33:26,005 --> 00:33:34,125
viability of their businesses but yeah long story short bitcoin mining is this demand source that is

499
00:33:34,125 --> 00:33:42,725
location agnostic um and has the ability to be flexible in the sense that uh if a mining

500
00:33:42,725 --> 00:33:48,405
operation goes down it doesn't really critically impair the bitcoin network and if it's more

501
00:33:48,405 --> 00:33:54,965
profitable for them to turn down because it might be more costly to continue to run and they have a

502
00:33:54,965 --> 00:33:59,685
direct incentive to do that yeah and we've seen that in the last we just had the largest difficulty

503
00:33:59,685 --> 00:34:05,925
downward difficulty adjustment in i believe five years earlier this week and this is a product

504
00:34:05,925 --> 00:34:12,605
product of the heat wave that's been going going across that yeah so maybe this is a good

505
00:34:12,605 --> 00:34:16,285
Iranian nuclear sites, but I don't want to go down that.

506
00:34:16,785 --> 00:34:18,345
No, I think this is important though.

507
00:34:18,345 --> 00:34:24,525
And going back to the first time I dove down the Bitcoin rabbit hole,

508
00:34:24,625 --> 00:34:28,545
and I think this is actually this sort of theme that we're pulling on here

509
00:34:28,545 --> 00:34:34,485
is indicative of Bitcoin mining becoming a truly industrialized commodity producing business.

510
00:34:34,745 --> 00:34:36,645
When I was working at the Managed Futures Fund,

511
00:34:36,645 --> 00:34:45,165
who are following net gas markets, WTI, power markets, just generally, I found it fascinating

512
00:34:45,165 --> 00:34:50,945
because you could have geopolitical events or weather events in certain parts of the world

513
00:34:50,945 --> 00:34:57,505
really materially affect those markets. And we're beginning to see that in Bitcoin, particularly as

514
00:34:57,505 --> 00:35:05,625
more miners become engaged in demand response within grid systems. And so last week, like earlier

515
00:35:05,625 --> 00:35:10,105
this week we had the largest downward difficulty adjustment we've had in many years it was negative

516
00:35:10,105 --> 00:35:21,785
7.7 percent um and as you alluded to there were many people that were pointing at the united

517
00:35:21,785 --> 00:35:29,865
states bombing iran's nuclear enrichment sites and saying oh my gosh iran was running these mining

518
00:35:29,865 --> 00:35:35,225
operations there that's why hash rate fell and i think it's been very well known that iran

519
00:35:35,225 --> 00:35:41,545
certainly does have a material amount of hash rate within its borders but i think people were

520
00:35:42,425 --> 00:35:45,225
i think it's clear because you can look at the ercott data specifically but

521
00:35:46,025 --> 00:35:50,265
literally right around the same time that we were bombing iran the heat wave was starting to hit the

522
00:35:50,265 --> 00:35:56,825
united states and the northeast and here in texas and it was just a coincidence that we were bombing

523
00:35:56,825 --> 00:36:02,025
iran while that was going on and what was actually happening number one we we bombed nuclear

524
00:36:02,025 --> 00:36:05,945
enrichment sites which aren't power facilities and so like it doesn't make any sense that

525
00:36:06,585 --> 00:36:11,065
if you're going to have something as high stakes as a nuclear enrichment site that you would

526
00:36:11,065 --> 00:36:14,665
co-locate a bitcoin mine it doesn't make any sense they're not like actually producing power

527
00:36:15,225 --> 00:36:19,945
there you if you are producing power there you probably want to spend it all on the enrichment

528
00:36:19,945 --> 00:36:25,945
and i'm not going to make any assumptions there um oh we had the heat wave going on here and some

529
00:36:25,945 --> 00:36:30,905
miners that were engaged in demand response the pricing signals that they were getting were oh

530
00:36:30,905 --> 00:36:33,605
oh, it's too expensive to mine Bitcoin.

531
00:36:33,805 --> 00:36:35,865
And we're in this program that will pay us

532
00:36:35,865 --> 00:36:39,405
if we shut down and send our electricity back to the grid.

533
00:36:39,465 --> 00:36:41,045
And that's actually what has been happening

534
00:36:41,045 --> 00:36:41,765
over the last week.

535
00:36:41,845 --> 00:36:42,945
It's been a hundred,

536
00:36:43,045 --> 00:36:44,785
it's crazy actually coming back down here.

537
00:36:44,885 --> 00:36:45,565
It's been hotter.

538
00:36:46,105 --> 00:36:47,905
The heat in Jersey has been more oppressive

539
00:36:47,905 --> 00:36:48,725
than it is here.

540
00:36:48,825 --> 00:36:50,445
It's actually relieving to be here this week.

541
00:36:50,865 --> 00:36:51,065
Yeah.

542
00:36:53,565 --> 00:36:55,425
Last couple of summers, totally brutal.

543
00:36:55,605 --> 00:36:56,545
This summer, more mild,

544
00:36:56,905 --> 00:36:58,145
you know, people get adjusted to,

545
00:36:58,225 --> 00:36:59,705
but it is interesting that,

546
00:36:59,705 --> 00:37:03,985
because one of the things that I mentioned

547
00:37:03,985 --> 00:37:07,145
and when we're starting to see it,

548
00:37:07,165 --> 00:37:08,585
but I expect it to grow

549
00:37:08,585 --> 00:37:12,125
is that when Bitcoin was very small,

550
00:37:13,785 --> 00:37:16,505
its demand for power was small

551
00:37:16,505 --> 00:37:19,605
and the larger that it's grown,

552
00:37:20,465 --> 00:37:21,665
it can actually impact.

553
00:37:22,465 --> 00:37:25,425
It needed a certain level of scale

554
00:37:25,425 --> 00:37:28,465
to be able to actually be relevant

555
00:37:28,465 --> 00:37:30,745
to an energy system

556
00:37:30,745 --> 00:37:32,685
and thinking about something like ERCOT

557
00:37:32,685 --> 00:37:34,945
and I want to use this to segue back

558
00:37:34,945 --> 00:37:36,445
to that question of

559
00:37:36,445 --> 00:37:38,845
where optimally and my

560
00:37:38,845 --> 00:37:41,005
expectation is, I want your thoughts

561
00:37:41,005 --> 00:37:42,825
is that Bitcoin mine will exist everywhere but

562
00:37:42,825 --> 00:37:44,705
geographically as well as

563
00:37:44,705 --> 00:37:46,845
at different places where there's

564
00:37:46,845 --> 00:37:49,025
underutilized energy assets

565
00:37:49,025 --> 00:37:49,365
but

566
00:37:49,365 --> 00:37:52,885
if Bitcoin can effectively solve

567
00:37:52,885 --> 00:37:53,845
an upstream problem

568
00:37:53,845 --> 00:37:56,785
in certain scenarios

569
00:37:56,785 --> 00:37:57,905
a midstream problem

570
00:37:57,905 --> 00:38:06,545
and then in the case of conversion power generation for the grid downstream problem

571
00:38:06,545 --> 00:38:12,725
now my understanding is that bitcoin mining in ERCOT is like three to four

572
00:38:12,725 --> 00:38:20,205
gigawatts a functional base base load and that peak in the summer which i'm sure we're not

573
00:38:20,205 --> 00:38:26,025
all-time highs but either last summer the summer before we had hit something around 90 gigawatts

574
00:38:26,025 --> 00:38:36,925
of power that four gigawatts taking that off line at peak demand is enough to provide not just a

575
00:38:36,925 --> 00:38:45,165
service but relief to the grid itself um so how do you think like in terms of actually being value

576
00:38:45,165 --> 00:38:52,225
additive that if you think about you know peak demand in texas in the summer being between 80

577
00:38:52,225 --> 00:38:58,165
to 90 gigawatts if you were only drawing 100 megawatts power in terms of bitcoin miners in

578
00:38:58,165 --> 00:39:04,085
texas it can't really solve material problems but it's four gigawatts it starts to solve a problem

579
00:39:04,085 --> 00:39:11,105
if it becomes 10 it can solve problems more effectively how do you think about how bitcoin

580
00:39:11,105 --> 00:39:16,145
mining can solve problems coming back to what you were saying of maybe the most optimal location

581
00:39:16,145 --> 00:39:20,805
might be at a midstream processing plant,

582
00:39:21,425 --> 00:39:27,205
but thinking about it relative to maybe that,

583
00:39:27,685 --> 00:39:29,465
why do you think that might be most optimal,

584
00:39:29,465 --> 00:39:32,785
but how do you think Bitcoin mining can be distributed

585
00:39:32,785 --> 00:39:38,965
to in parallel or in tandem solve different types of energy problems?

586
00:39:39,885 --> 00:39:43,625
To be clear, I think the midstream application is optimal

587
00:39:43,625 --> 00:39:47,505
for upstream energy producers

588
00:39:47,505 --> 00:39:49,925
that have problems with gas

589
00:39:49,925 --> 00:39:51,125
that they can't get into a pipeline.

590
00:39:51,365 --> 00:39:53,345
I think it's optimal for solving that problem.

591
00:39:53,345 --> 00:39:55,865
Does that essentially increase

592
00:39:55,865 --> 00:39:57,605
the economics of a pipeline

593
00:39:57,605 --> 00:39:59,045
to allow for more pipelines to actually get...

594
00:39:59,045 --> 00:39:59,905
Yes, you can drill more oil

595
00:39:59,905 --> 00:40:02,945
and you can get more gas to market

596
00:40:02,945 --> 00:40:04,025
and then monetize that gas

597
00:40:04,025 --> 00:40:05,885
that would otherwise be wasted,

598
00:40:06,085 --> 00:40:07,305
at least in the Bakken

599
00:40:07,305 --> 00:40:09,405
where they have strict flaring regulations.

600
00:40:09,785 --> 00:40:11,625
And so if you flare a certain amount,

601
00:40:11,705 --> 00:40:13,425
you have to shut down the well pad

602
00:40:13,425 --> 00:40:18,045
which means they really care about the oil at the end of the day i mean gas is a byproduct but if

603
00:40:18,045 --> 00:40:25,725
you can create a better a more an actual economically sustainable path offload gas

604
00:40:25,725 --> 00:40:29,685
then you can actually produce more oil and on top of that you can monetize the gas which

605
00:40:29,685 --> 00:40:33,945
wasn't possible before so you're getting like compounded efficiencies there but that's optimal

606
00:40:33,945 --> 00:40:40,065
for that specific problem on grid there's many other like i'm thinking of two things right now

607
00:40:40,065 --> 00:40:44,025
I'm sure you've seen the charts of Chinese energy production over the last

608
00:40:44,025 --> 00:40:48,545
three decades versus energy production growth versus U S energy production.

609
00:40:48,965 --> 00:40:51,145
Stagnation flat and ones,

610
00:40:51,145 --> 00:40:51,945
you know,

611
00:40:51,985 --> 00:40:52,925
not necessarily hockey sticking,

612
00:40:53,045 --> 00:40:56,625
but very linearly aggressively rampant.

613
00:40:56,665 --> 00:40:56,825
Yeah.

614
00:40:56,905 --> 00:40:57,445
Like it needs,

615
00:40:57,645 --> 00:41:03,785
we need to catch up with China in terms of generation expansion and capacity

616
00:41:03,785 --> 00:41:05,905
expansion just throughout the United States.

617
00:41:06,405 --> 00:41:07,725
Texas has done a very good job.

618
00:41:08,625 --> 00:41:09,565
Like I was going to say,

619
00:41:09,565 --> 00:41:15,085
who's we here yeah well still texas like demand's only going to continue to rise in texas and i

620
00:41:15,085 --> 00:41:22,605
think at a pretty steady clip as it becomes this bastion for free markets and enterprises that want

621
00:41:22,605 --> 00:41:27,385
to escape hell holes like california in the northeast and actually build down here you have

622
00:41:27,385 --> 00:41:33,585
foundries coming online in taylor i believe you have samsung building a foundry there i think

623
00:41:33,585 --> 00:41:38,965
there's another one being built north of houston and you're going to need a ton of energy for that

624
00:41:38,965 --> 00:41:44,765
And you have Tesla, SpaceX, all these companies coming to Texas to build physical things.

625
00:41:44,765 --> 00:41:45,545
They're going to need a lot of energy.

626
00:41:45,665 --> 00:42:06,025
And on top of that, you have the residential, sort of the exodus from some of these states that are oppressive from a tax perspective or civil liberties perspective and freedom-minded individuals flooding to Texas to sort of reap the benefits of the government and law that exist here.

627
00:42:06,025 --> 00:42:29,345
And so I think demand is going to increase, but back to Bitcoin mining, like we need to increase generation and capacity. And I think Bitcoin, like a lot of the problem with doing that is like, how can you make the economic case? Like it takes a ton of money, a ton of time. And how can you reduce risk while you're expanding generation at a fast clip?

628
00:42:29,345 --> 00:42:39,825
Bitcoin mining's a perfect solution, a perfect way to de-risk energy generation because you have an immediate buyer of the energy.

629
00:42:40,145 --> 00:42:52,025
And so I think one of the prime examples of Bitcoin being this pioneer species for energy production is the fact that you can build a power facility and then put a mining operation behind the meter.

630
00:42:52,025 --> 00:43:09,765
So before it hits transmission lines and consume energy there, and that's one of the problems that arises when you want to expand generation is you can build a power plant, then you got to build transmission to actually connect it to the grid so that the electricity can flow to consumers at the end of the day.

631
00:43:09,765 --> 00:43:16,085
there there's a time dilation there um that that exists where you have your facility that could

632
00:43:16,085 --> 00:43:21,285
produce energy but isn't doing it because there's no transmission to get it to market so bitcoin

633
00:43:21,285 --> 00:43:28,165
miners can sit behind the meter on site at the the place of generation and be that revenue producer

634
00:43:28,725 --> 00:43:35,605
for the the generation asset um before transmissions build out that's one and uh

635
00:43:35,605 --> 00:43:41,125
I actually have a cousin who runs a nuclear facility in Nebraska.

636
00:43:41,405 --> 00:43:44,045
I've mentioned this to you, but we were talking about it two years ago.

637
00:43:44,045 --> 00:43:50,145
I need to call him again, but he was describing to me a problem that he has.

638
00:43:50,145 --> 00:43:57,685
They've overbuilt wind capacity in the region out there to the point where it drives his prices negative.

639
00:43:58,645 --> 00:44:00,405
It's very costly to shut down.

640
00:44:00,465 --> 00:44:02,685
Shut down, so you have to keep the nuclear facility running.

641
00:44:03,005 --> 00:44:03,685
Prices are negative.

642
00:44:03,685 --> 00:44:11,005
You just have to eat that cost, essentially, and this is due to an overproduction of wind specifically.

643
00:44:11,225 --> 00:44:28,245
But Bitcoin mining helps in that case, too, where if you have a Bitcoin mining operation behind the meter and wind starts overproducing and your nuclear power becomes economically non-competitive because the wind is cheaper for people to consume.

644
00:44:28,245 --> 00:44:33,725
or there's just too much of a supply of power in that particular grid system.

645
00:44:33,725 --> 00:44:37,165
And you have to eat the cost of running negative prices.

646
00:44:37,425 --> 00:44:41,345
Bitcoin mining operation behind the meter, instead of eating those negative costs,

647
00:44:41,385 --> 00:44:45,085
you just energize the mining operation and make revenue from the mining.

648
00:44:45,425 --> 00:44:52,185
And so in terms of the importance of Bitcoin mining within the energy sector for producers,

649
00:44:52,325 --> 00:44:56,305
specifically, I think in terms of expansion of generation and capacity,

650
00:44:56,305 --> 00:45:03,985
you have a buyer first resort that de-risked the operation from a speed to revenue perspective and

651
00:45:03,985 --> 00:45:11,065
then for generators that are already up and running and are running into these problems

652
00:45:11,065 --> 00:45:19,045
and negative pricing due to the variability of wind and solar production in in their grid systems

653
00:45:19,045 --> 00:45:21,945
that you have this sort of economic load

654
00:45:21,945 --> 00:45:27,445
that you can divert your energy to monetize on the go.

655
00:45:27,445 --> 00:45:28,765
You mentioned, and I always,

656
00:45:28,765 --> 00:45:32,265
I don't have a clear mind of what it,

657
00:45:32,265 --> 00:45:46,168
the right framing of it is whether Bitcoin the buyer of first and last And last It effectively Bitcoin miners should in theory be willing to pay the least

658
00:45:46,168 --> 00:45:46,768
for power,

659
00:45:46,888 --> 00:45:55,648
but they're most capable of absorbing excess power or energy assets that are

660
00:45:55,648 --> 00:45:57,628
underutilized that could be generating more power.

661
00:45:57,707 --> 00:45:57,808
Yeah.

662
00:45:57,888 --> 00:46:02,008
So what I just described in the generation expansion,

663
00:46:02,268 --> 00:46:10,168
put it behind the meter before transmissions build out that's first resort the nuclear power facility

664
00:46:10,168 --> 00:46:15,588
that has the stomach negative pricing that's last resort it's like nobody's going to buy this price

665
00:46:15,588 --> 00:46:20,227
they're going negative because there's an oversupply i need a buyer of last resort to come in and soak

666
00:46:20,227 --> 00:46:24,748
this up and so that's that's when you have a mining operation behind the meter there on the

667
00:46:24,748 --> 00:46:30,427
back and when transmissions sufficiently build out and the ability to supply that particular market is

668
00:46:30,427 --> 00:46:35,427
robust uh to the point where prices are going negative it's like all right last resort i'm just

669
00:46:35,427 --> 00:46:40,568
gonna mine bitcoin with this because otherwise i'm just eating costs yeah and of course there's

670
00:46:40,568 --> 00:46:44,888
cost of the mine itself to as to whether or not it's economic and that might you know be

671
00:46:44,888 --> 00:46:52,448
or not might be that translates to whether a site or a solution is actually viable as well as what

672
00:46:52,448 --> 00:46:57,248
a bitcoin miner would be willing to pay or not pay for power well this is ultimately why i think

673
00:46:57,248 --> 00:47:03,748
generators become miners um because when it comes to like controlling the cost at the end of the day

674
00:47:03,748 --> 00:47:11,988
it's a race to the bottom and if you're playing this out over 5 10 15 years power generators are

675
00:47:11,988 --> 00:47:18,328
gonna have the most control over those costs and right and i think that maybe another way to say

676
00:47:18,328 --> 00:47:23,768
that i mean i i i tend to agree but i'm also on this this journey of trying to understand better

677
00:47:23,768 --> 00:47:32,628
myself and that's part of what this podcast is about is any any point further from where

678
00:47:32,628 --> 00:47:40,868
some energy resources are converted power electricity the further you get from that point

679
00:47:40,868 --> 00:47:49,448
the more cost that exists and it doesn't necessarily mean that bitcoin mining won't

680
00:47:49,448 --> 00:47:54,388
exist in places other than the point of generation,

681
00:47:54,388 --> 00:47:59,588
but that you're optimizing for cheap power and that there would have to be some

682
00:47:59,588 --> 00:48:05,388
other economic reason where an asset could be monetized

683
00:48:05,388 --> 00:48:11,407
increasingly to justify it not being at the point of generation.

684
00:48:12,008 --> 00:48:16,508
And that might be because there's a large substation that already exists and it

685
00:48:16,508 --> 00:48:23,248
can be an energy arbitrage and turn off and you know that there's a there's a valuable you know

686
00:48:23,248 --> 00:48:27,568
there's a value there's a reason for an energy system for a bitcoin mine to exist someplace

687
00:48:27,568 --> 00:48:35,748
but if they're optimizing for cheap power that transmission lines are cost right and if you can

688
00:48:35,748 --> 00:48:45,727
help be a balancing to load closest to the source that there's a very rational reason why why it will

689
00:48:45,727 --> 00:48:50,288
shift that way over time yeah it's about identifying and taking advantage of all the

690
00:48:50,288 --> 00:48:53,828
different and that's the crazy thing as i've learned over the last seven years diving down

691
00:48:53,828 --> 00:48:59,248
the energy rabbit hole there's so many different types of arbitrage opportunities like what we just

692
00:48:59,248 --> 00:49:04,028
described with the negative pricing and the expansion of generation before transmissions

693
00:49:04,028 --> 00:49:10,468
build out like upstream with the flare gas um there's so many different ways to skin the cat

694
00:49:10,468 --> 00:49:17,648
again of of r being the cheap energy so like a cathedral what we're doing in the tva it's a

695
00:49:17,648 --> 00:49:22,628
different form we're not going straight to the power generator we're going to the utilities that

696
00:49:22,628 --> 00:49:31,548
own substations that have excess capacity it's not being utilized because they were built decades ago

697
00:49:31,548 --> 00:49:37,648
serving large manufacturing facilities that due to globalization have since moved out and so you

698
00:49:37,648 --> 00:49:44,268
built a 20 50 megawatt substation thinking that you're going to serve the steel factory um and you

699
00:49:44,268 --> 00:49:50,348
were in the beginning but ultimately just the economics of steel production were so that you

700
00:49:50,348 --> 00:49:55,908
had to export that process somewhere else and that's a great like you brought up the idea of

701
00:49:55,908 --> 00:50:00,168
the pioneer species that ross stevens has written about brandon quinton has written about others

702
00:50:00,168 --> 00:50:07,148
where it's like it's the first kind of demand and then it makes a place inhabitable and then other

703
00:50:07,148 --> 00:50:13,848
species come that's the idea of a pioneer species this is what you just described and consistent

704
00:50:13,848 --> 00:50:22,927
with that where there was an energy asset it was abandoned and then a bitcoin miner can come in and

705
00:50:22,927 --> 00:50:33,028
absorb that and then over time maybe that industry comes back or there's some higher value yeah and

706
00:50:33,028 --> 00:50:38,468
they're willing to for the asset overbid for the energy and they come back an example you know not

707
00:50:38,468 --> 00:50:47,308
exactly the same but these bitcoin miners aggregated large sources of of power with high density

708
00:50:47,308 --> 00:50:53,168
they were running mining sites and then there's advancements in ai and then these sites are

709
00:50:53,168 --> 00:50:58,568
perfect and and the the ai companies are willing to pay more for power and then there's a higher

710
00:50:58,568 --> 00:51:03,988
better use than the Bitcoin mine and the Bitcoin miners go somewhere else. But I think this idea

711
00:51:03,988 --> 00:51:07,528
where there's all this energy infrastructure where say there might've been in the Midwest,

712
00:51:07,688 --> 00:51:14,788
these 50,000 manufacturing plants are gone. Hopefully that manufacturing comes back, but

713
00:51:14,788 --> 00:51:20,868
Bitcoin miners can absorb that energy infrastructure, which then allows them to be

714
00:51:20,868 --> 00:51:27,227
maintained rather than decayed and have their value to go to zero. And so I think that that's

715
00:51:27,227 --> 00:51:34,808
Another very interesting dynamic that fits into this idea of the pioneer species, but in a different way.

716
00:51:34,808 --> 00:51:48,088
And one of the things I want to do on the podcast is go focus episodes on each different way that Bitcoin mining solves, can solve a problem in an energy system.

717
00:51:48,088 --> 00:51:55,688
but one thing that you mentioned a little bit ago you know not talking about the specific subject

718
00:51:55,688 --> 00:52:02,088
but you talked about you know texas increasing in energy demand and about how samsung was building

719
00:52:02,088 --> 00:52:11,028
a found foundry to manufacture chips texas i believe there's one out in uh in arizona as well

720
00:52:11,028 --> 00:52:17,308
but you know one of the things that we'll explore in more episodes of the podcast is each kind of

721
00:52:17,308 --> 00:52:24,727
those those sources of demand um as well as how bitcoin mining can actually solve an energy

722
00:52:24,727 --> 00:52:32,568
problem or an inefficiency exists that that creates a problem one of the problems and problem

723
00:52:32,568 --> 00:52:43,388
is a loose term and it's always a degree but um shifting the focus is talking about minor

724
00:52:43,388 --> 00:52:51,648
centralization. It seems to me, and I want to see if you agree with this, given the nature of

725
00:52:51,648 --> 00:52:59,288
where energy resources exist in the world, that the most decentralized and distributed

726
00:52:59,288 --> 00:53:07,927
part of the mining ecosystem is actually where hashes are produced. And then the more centralized

727
00:53:07,927 --> 00:53:15,268
are where the chips are manufactured as well as where hash rates aggregated the hash rate is

728
00:53:15,268 --> 00:53:24,748
aggregated so talk a little bit about if we're shifting you know we'll be diving into all these

729
00:53:24,748 --> 00:53:29,008
subjects deeply but trying to kind of set the table for the range of different things that

730
00:53:29,008 --> 00:53:36,448
we'll talk about through various different episodes talk about the points of bitcoin mining that

731
00:53:36,448 --> 00:53:39,848
that are more centralized than less

732
00:53:39,848 --> 00:53:45,488
and how you see that changing or evolving and why.

733
00:53:46,608 --> 00:53:51,468
Yeah, so let's start with the ASICs, the chips.

734
00:53:52,308 --> 00:53:54,028
So what do ASICs do?

735
00:53:54,268 --> 00:53:56,408
ASICs are these computer chips

736
00:53:56,408 --> 00:54:00,127
in the same application-specific integrated circuit.

737
00:54:00,528 --> 00:54:02,828
So it does one thing and it does one thing well.

738
00:54:02,828 --> 00:54:06,148
Bitcoin ASICs, they do hashcash, SHA-256,

739
00:54:06,448 --> 00:54:07,227
hashing.

740
00:54:07,668 --> 00:54:08,127
I think that's

741
00:54:08,127 --> 00:54:08,888
all they do

742
00:54:08,888 --> 00:54:10,028
is run that

743
00:54:10,028 --> 00:54:11,127
hashing algorithm.

744
00:54:11,948 --> 00:54:12,028
You

745
00:54:12,028 --> 00:54:13,727
input some randomness

746
00:54:13,727 --> 00:54:14,588
it outputs a hash

747
00:54:14,588 --> 00:54:16,268
and that's all

748
00:54:16,268 --> 00:54:17,048
that these chips do.

749
00:54:17,568 --> 00:54:18,348
And not to

750
00:54:18,348 --> 00:54:19,227
lose people

751
00:54:19,227 --> 00:54:20,508
for the purpose

752
00:54:20,508 --> 00:54:21,388
of

753
00:54:21,388 --> 00:54:22,768
forcing Bitcoin's

754
00:54:22,768 --> 00:54:23,427
fixed supply

755
00:54:23,427 --> 00:54:24,408
and validating

756
00:54:24,408 --> 00:54:25,568
currency transactions

757
00:54:25,568 --> 00:54:26,188
all over the world.

758
00:54:26,308 --> 00:54:27,308
And so ASIC chips

759
00:54:27,308 --> 00:54:28,148
are like top of the line

760
00:54:28,148 --> 00:54:28,868
like to produce

761
00:54:28,868 --> 00:54:29,388
an ASIC chip

762
00:54:29,388 --> 00:54:29,908
is not easy.

763
00:54:30,207 --> 00:54:31,288
It's high risk

764
00:54:31,288 --> 00:54:33,688
capital intensive

765
00:54:33,688 --> 00:54:35,508
like very specialized

766
00:54:35,508 --> 00:54:36,108
and there's

767
00:54:36,108 --> 00:54:44,088
only a few chip manufacturers in the world that can do it actually really two right now

768
00:54:44,608 --> 00:54:54,088
tsmc and samsung so i mean and really even between the two like really tsmc bitmain is the monolith

769
00:54:54,088 --> 00:55:00,528
does samsung produce a basic yeah the what's minor they use oh what's minor does yeah what's

770
00:55:00,528 --> 00:55:02,227
uses Samsung's ASICs.

771
00:55:02,448 --> 00:55:03,408
And the two largest

772
00:55:03,408 --> 00:55:06,148
manufacturers of

773
00:55:06,148 --> 00:55:08,408
Bitcoin miners, which include ASICs, are

774
00:55:08,408 --> 00:55:10,148
Bitmain and

775
00:55:10,148 --> 00:55:11,988
MicroBT, which produces the

776
00:55:11,988 --> 00:55:14,168
what's miners, Bitmain produces the end miners.

777
00:55:14,707 --> 00:55:16,227
And Bitmain, sorry,

778
00:55:16,368 --> 00:55:17,648
Bitmain sources

779
00:55:17,648 --> 00:55:20,068
their chips from TSMC. Yes.

780
00:55:20,448 --> 00:55:21,768
And MicroBT

781
00:55:21,768 --> 00:55:23,727
sources theirs from Samsung.

782
00:55:24,168 --> 00:55:25,988
Predominantly from Bitmain,

783
00:55:26,288 --> 00:55:27,308
TSMC in Taiwan.

784
00:55:28,448 --> 00:55:29,988
As it stands right now,

785
00:55:29,988 --> 00:55:35,268
micro bt samsung in south korea that's where the chips are being produced taiwan and south korea

786
00:55:35,268 --> 00:55:45,048
and it's hyper centralized has been since asics came to market in 2013 2014

787
00:55:45,048 --> 00:55:54,148
2013 i believe maybe late 2012 that's when bitmain launched the s9 we've had a bunch of

788
00:55:54,148 --> 00:55:58,688
competitors come to market but really bitmain's the goliath and the micro bt's number two and

789
00:55:58,688 --> 00:56:05,627
funnily enough micro bt was started by um dr zhong who was previously at bitmain and he designed

790
00:56:05,627 --> 00:56:16,068
the s9 which is considered the ak-47 of uh this is an s1 it's one i think we have s9s outside

791
00:56:16,068 --> 00:56:20,248
outside yeah there's some rusty s9s out there but they were produced by bitcoin park you can pick

792
00:56:20,248 --> 00:56:29,048
up 2013 or maybe later than that the s9 was like maybe 2016. um and some some of those s9s are

793
00:56:29,048 --> 00:56:36,648
still running today profitably if you have zero cost energy um the it's hyper centralized but

794
00:56:37,848 --> 00:56:46,008
the physical nature of these asics like the chips were reaching the physical limits of how much

795
00:56:46,008 --> 00:56:50,508
electricity you can push through them to produce the hashes and so that's this is something that

796
00:56:50,508 --> 00:56:55,948
has been talked about in bitcoin money you just you said that but ultimately you want to be able

797
00:56:55,948 --> 00:57:00,908
to produce more hashes per unit of energy yes that's the increase in efficiency but you're saying

798
00:57:00,908 --> 00:57:08,048
that the ability they're we're reaching the like right now you have three nanometer asics

799
00:57:08,048 --> 00:57:13,468
people talking about two nanometer asics then you have one you can't go and reducing the number of

800
00:57:13,468 --> 00:57:15,627
of nanometer basically increases the amount

801
00:57:15,627 --> 00:57:16,908
of hash

802
00:57:16,908 --> 00:57:19,508
efficiency joules per

803
00:57:19,508 --> 00:57:19,968
terahash

804
00:57:19,968 --> 00:57:22,508
it makes that go down

805
00:57:22,508 --> 00:57:25,668
and we're reaching

806
00:57:25,668 --> 00:57:27,328
the physical limits I believe

807
00:57:27,328 --> 00:57:28,948
who knows if there's some

808
00:57:28,948 --> 00:57:31,508
order of magnitude improvement that can be

809
00:57:31,508 --> 00:57:31,848
made

810
00:57:31,848 --> 00:57:35,108
it's out of my pay grade but

811
00:57:35,108 --> 00:57:36,288
I'm pretty sure

812
00:57:36,288 --> 00:57:37,948
the point being

813
00:57:37,948 --> 00:57:41,468
we're in theory reaching the physical

814
00:57:41,468 --> 00:57:43,448
limits of what the best manufacturers in the

815
00:57:43,448 --> 00:57:48,248
world are capable of doing which is a very difficult thing to do yes and once you've reached

816
00:57:48,248 --> 00:57:53,328
that limit though it's been talked about in bitcoin mining for some time we may hit a point

817
00:57:53,328 --> 00:57:59,168
where you get what's referred to as asa commodification where that's the problem with

818
00:57:59,168 --> 00:58:04,668
competitors trying to enter the market is that bitmain and micro bt they have access to top of

819
00:58:04,668 --> 00:58:09,668
the line chips from a nanometer perspective the smaller the nanometer the more efficient

820
00:58:09,668 --> 00:58:17,108
you can be and so the risk of going out there and we saw this with intel in trying to produce

821
00:58:17,108 --> 00:58:22,627
i believe they produce like a five nanometer chip and it took them 18 months by the time they got to

822
00:58:22,627 --> 00:58:28,627
market bitmain was out with a three nanometer chip and you're just not competitive there like

823
00:58:28,627 --> 00:58:33,727
what governs the amount of power that a bitcoin miner can pull is it the number of asics and then

824
00:58:33,727 --> 00:58:36,627
each ASIC has a certain amount of

825
00:58:36,627 --> 00:58:38,288
like the heat rate that it can

826
00:58:38,288 --> 00:58:40,408
support or just explain that

827
00:58:40,408 --> 00:58:41,348
I don't know

828
00:58:41,348 --> 00:58:43,988
maybe but my pay grade too but like yeah

829
00:58:43,988 --> 00:58:46,148
we'll get an expert to come on and talk about

830
00:58:46,148 --> 00:58:47,268
you have joules per terahash

831
00:58:47,268 --> 00:58:49,948
so you have I mean back at Great American Mining

832
00:58:49,948 --> 00:58:52,248
we could put I believe

833
00:58:52,248 --> 00:58:53,688
200

834
00:58:53,688 --> 00:58:57,528
maybe 200

835
00:58:57,528 --> 00:59:00,468
M20S's

836
00:59:00,468 --> 00:59:01,288
micro BT

837
00:59:01,288 --> 00:59:08,248
what's minor m20s is in a shipping container and that would pull like 700 kilowatts of power from

838
00:59:08,248 --> 00:59:13,028
the generator do you have a rough order of magnitude of like say like a single asic how much

839
00:59:13,028 --> 00:59:23,308
um power it would be capable so this is a single asic on a board this is i believe an s20 or an s19

840
00:59:23,308 --> 00:59:30,808
or an s21 this is five volts this one is it running on five volt power right now but but

841
00:59:30,808 --> 00:59:35,168
can you provide some like order of magnitude to help somebody understand like the density

842
00:59:35,168 --> 00:59:44,707
relative to a computer and so well to a computer it's it's orders of magnitude higher but i think

843
00:59:44,707 --> 00:59:51,968
a better way to frame is like uh in 2017 i believe the joules per tera hash rate was

844
00:59:51,968 --> 00:59:56,848
literally over a thousand might have been like 1200 joules per tera hash

845
00:59:56,848 --> 01:00:00,088
on average across the Bitcoin network

846
01:00:00,088 --> 01:00:01,248
that the miners are pulling today,

847
01:00:01,328 --> 01:00:01,908
it's like 15.

848
01:00:02,828 --> 01:00:04,968
So we've made top-of-the-line miners

849
01:00:04,968 --> 01:00:06,727
pulling like 15.5 joules per terash,

850
01:00:06,808 --> 01:00:07,188
I believe.

851
01:00:08,148 --> 01:00:09,768
So we've had basically more hashes

852
01:00:09,768 --> 01:00:11,588
per unit of energy.

853
01:00:11,588 --> 01:00:11,968
Yes.

854
01:00:12,227 --> 01:00:13,528
Becoming massively more efficient.

855
01:00:13,768 --> 01:00:13,948
Yeah.

856
01:00:14,548 --> 01:00:14,727
Yeah.

857
01:00:14,968 --> 01:00:15,348
Now,

858
01:00:16,248 --> 01:00:17,828
describe two things.

859
01:00:20,988 --> 01:00:24,088
Why it's as centralized as it is

860
01:00:24,088 --> 01:00:29,088
and what the current risks of that centralization are.

861
01:00:29,088 --> 01:00:35,088
Because micro-BT has increasingly taken share from Bitmain,

862
01:00:35,088 --> 01:00:39,088
but Bitmain and micro-BT probably have, in aggregate,

863
01:00:39,088 --> 01:00:41,088
95% of the market.

864
01:00:41,088 --> 01:00:42,088
Probably more than that, yeah.

865
01:00:42,088 --> 01:00:49,088
Okay, but so what is preventing greater decentralization?

866
01:00:49,088 --> 01:00:49,648
And then...

867
01:00:49,704 --> 01:00:55,804
what the present risk of that centralization is.

868
01:00:56,464 --> 01:00:58,804
I think it's access to founder space, right?

869
01:00:58,824 --> 01:00:59,464
It's expensive.

870
01:01:00,264 --> 01:01:01,264
Again, it's risk.

871
01:01:01,344 --> 01:01:04,504
It's capital intensive and it takes time.

872
01:01:05,124 --> 01:01:09,644
And that is like effectively competing with somebody

873
01:01:09,644 --> 01:01:12,084
creating chips for GPUs, for AI.

874
01:01:12,584 --> 01:01:15,404
For AI, for Apple, for whoever.

875
01:01:15,404 --> 01:01:18,444
You're competing with everybody for space on the foundry floor

876
01:01:18,444 --> 01:01:19,544
to produce your chips.

877
01:01:19,704 --> 01:01:26,104
And if you're a large Bitcoin miner and you're planning a site, say a gigawatt site in Texas,

878
01:01:26,104 --> 01:01:31,864
you might not have reliable access to be able to get chips.

879
01:01:32,384 --> 01:01:33,604
Well, that's not your job.

880
01:01:33,784 --> 01:01:34,724
That's Bitmain's job, right?

881
01:01:35,624 --> 01:01:38,924
Well, no, but what I'm saying is if you're a Bitcoin miner and you're planning the site,

882
01:01:39,024 --> 01:01:42,144
it's predicated on being able to actually get chips from Bitmain.

883
01:01:42,324 --> 01:01:42,604
Yeah.

884
01:01:43,044 --> 01:01:48,404
And that if Bitmain decides not to supply you because they're centralized to supply somebody else,

885
01:01:48,404 --> 01:01:49,704
That's a source of...

886
01:01:49,704 --> 01:01:49,984
Yeah.

887
01:01:50,444 --> 01:01:52,124
But I think a layer down,

888
01:01:52,744 --> 01:01:54,804
why aren't there more chip manufacturers?

889
01:01:55,064 --> 01:01:58,084
Because it's not easy to get on the foundry floor.

890
01:01:59,224 --> 01:02:01,844
And I think MicroBT and Bitmain

891
01:02:01,844 --> 01:02:05,244
have been in the game for a long time

892
01:02:05,244 --> 01:02:06,524
and have proven to the foundries

893
01:02:06,524 --> 01:02:08,384
if they come to me with a chip design,

894
01:02:09,124 --> 01:02:10,164
they're going to have the money.

895
01:02:10,624 --> 01:02:11,584
They're going to make a lot.

896
01:02:12,824 --> 01:02:16,084
For example, Intel tried to make a chip.

897
01:02:17,144 --> 01:02:17,584
Correct?

898
01:02:17,844 --> 01:02:18,104
Yeah.

899
01:02:18,404 --> 01:02:21,964
And they spent years,

900
01:02:22,104 --> 01:02:22,744
didn't,

901
01:02:22,824 --> 01:02:24,224
they actually delivered one,

902
01:02:24,324 --> 01:02:26,924
but then shut down the program.

903
01:02:27,324 --> 01:02:27,804
Yeah.

904
01:02:27,844 --> 01:02:30,984
Because there are companies that have a lot of money that have a lot of,

905
01:02:31,024 --> 01:02:31,384
and this is,

906
01:02:31,464 --> 01:02:31,624
I mean,

907
01:02:31,624 --> 01:02:32,164
this is where you,

908
01:02:32,664 --> 01:02:36,324
this is where you begin to wander into the competition between the U S and

909
01:02:36,324 --> 01:02:36,624
China,

910
01:02:36,724 --> 01:02:40,504
specifically from a intellectual capital perspective.

911
01:02:40,504 --> 01:02:45,164
Like their chip design just wasn't as good as micro BT and it means.

912
01:02:45,504 --> 01:02:48,384
So they were effectively bringing a chip to the foundry.

913
01:02:48,404 --> 01:02:54,684
that wasn't they were using their own foundry and intel has their own foundries and just didn't

914
01:02:54,684 --> 01:02:59,624
compare from uh when they were actually taking it to market the bitcoin miners were saying no we

915
01:02:59,624 --> 01:03:08,304
need something of either micro bt or yeah yeah they have like r2i and proto which is the block

916
01:03:08,304 --> 01:03:14,944
company they're going after it and so this is effectively the the capability of the manufacturer

917
01:03:14,944 --> 01:03:21,424
and their design as well as access to the foundry,

918
01:03:21,904 --> 01:03:25,404
which is predicated on the capability of the foundry,

919
01:03:25,524 --> 01:03:30,504
but then also the foundry's availability and perspective

920
01:03:30,504 --> 01:03:35,544
as to whether you have the capability to actually execute if they get your space.

921
01:03:35,544 --> 01:03:36,784
Or if you're going to be a long-term customer.

922
01:03:36,784 --> 01:03:39,524
Are they going to give a foundry space to you

923
01:03:39,524 --> 01:03:41,204
knowing that you're going to come back year after year

924
01:03:41,204 --> 01:03:43,524
and there's going to be demand for your product?

925
01:03:43,664 --> 01:03:44,884
That's the risk the foundry takes.

926
01:03:44,944 --> 01:04:04,864
Is there something about Bitcoin and its, effectively, simplicity in terms of its operation, like what the ASIC needs to do, that there's less diversity because it's homogenous?

927
01:04:04,864 --> 01:04:11,024
I again above my pay grade but from what I understand no because any ASIC whether it's

928
01:04:11,024 --> 01:04:16,064
Bitcoin ASIC or some ASIC for some other application does one thing specific application

929
01:04:16,064 --> 01:04:22,564
specific so from my understanding ASICs no matter if they're Bitcoin miner or running some other

930
01:04:22,564 --> 01:04:27,824
type of computer just doing one thing and that's the whole point of producing an ASIC chip is just

931
01:04:27,824 --> 01:04:32,284
you want to be ultimately efficient at doing that one thing in Bitcoin mining it's just producing the

932
01:04:32,284 --> 01:04:35,024
hash cash shot to 56 there's no fundamental reason why

933
01:04:35,024 --> 01:04:43,144
the develop of bit development of bitcoin asics should be any more or less centralized than

934
01:04:43,144 --> 01:04:49,424
develop of any other asic yeah and again these are subjects that we'll dive into deeper where we get

935
01:04:49,424 --> 01:04:54,764
the i'm not the asic expert i know enough to be dangerous basic expert into to talk about these

936
01:04:54,764 --> 01:05:02,884
things at greater detail um but then the second question of of there's the risk to the the

937
01:05:02,884 --> 01:05:10,384
manufacturer but then to the to the mind to the bitcoin network itself maybe describe risk or if

938
01:05:10,384 --> 01:05:17,644
if there's less risk because of the function of basic manufacturers just what's your view of

939
01:05:17,644 --> 01:05:22,344
what risk does this piece of centralization

940
01:05:22,344 --> 01:05:25,164
in the Bitcoin mining ecosystem represent to the network?

941
01:05:26,084 --> 01:05:30,764
I think we have to go back in time to 2016, 2017,

942
01:05:31,324 --> 01:05:36,644
when Greg Maxwell discovered that Bitmain had a backdoor

943
01:05:36,644 --> 01:05:39,644
in their ASICs called Ampleed,

944
01:05:40,264 --> 01:05:43,764
where they could remotely brick machines if they wanted to.

945
01:05:43,764 --> 01:05:53,724
and so i want to talk about risk of uh i mean that's a serious risk both to the bitcoin network

946
01:05:53,724 --> 01:06:01,464
but also to somebody like ercott you know if they had four gigawatts of power drawing on

947
01:06:01,464 --> 01:06:13,144
um on the on the ercott grid and a chinese manufacturer could say brick brick yeah that

948
01:06:13,144 --> 01:06:19,184
four gigawatts comes down all at once yeah but then to the to the bitcoin ecosystem if

949
01:06:19,184 --> 01:06:28,604
80 of the installed base of machines that are hashing could also be shut down now there's a

950
01:06:28,604 --> 01:06:36,384
there's a limit to what the um the actual difficulty adjustment can be in any one epic

951
01:06:36,384 --> 01:06:37,644
Negative 75%.

952
01:06:37,644 --> 01:06:44,184
Okay, so it's in line with, say, if somebody had 80% market share,

953
01:06:44,264 --> 01:06:45,664
but how was that resolved?

954
01:06:46,624 --> 01:06:48,924
Called out, and it was never...

955
01:06:48,924 --> 01:06:51,784
Was that software firmware?

956
01:06:52,444 --> 01:06:54,204
Firmware, I believe.

957
01:06:55,464 --> 01:06:58,704
The firmware was remotely pinging back to central servers,

958
01:06:59,024 --> 01:07:01,184
and if the central server wanted to,

959
01:07:01,284 --> 01:07:04,624
they could remotely shut down the machine, is how I recall it.

960
01:07:04,624 --> 01:07:07,264
This was many years ago at this point.

961
01:07:07,284 --> 01:07:08,864
I didn't even know about that because that was like right for...

962
01:07:08,864 --> 01:07:09,724
And this is right around ASIC.

963
01:07:09,724 --> 01:07:10,604
It was like another thing.

964
01:07:10,604 --> 01:07:14,084
ASIC was right as I was like getting interested in Bitcoin.

965
01:07:14,764 --> 01:07:16,544
And then ASIC boost was like another thing.

966
01:07:16,644 --> 01:07:19,724
It wasn't necessarily a backdoor, but it became apparent that...

967
01:07:19,724 --> 01:07:22,604
It seemed like just like a marginal economic advantage,

968
01:07:22,704 --> 01:07:24,664
which may skew things over time,

969
01:07:24,744 --> 01:07:28,464
but less critical to the actual operation of Bitcoin.

970
01:07:28,464 --> 01:07:29,404
Yeah, it just gave some...

971
01:07:29,404 --> 01:07:32,004
It gave Bitmain, essentially, who...

972
01:07:32,004 --> 01:07:59,324
And also maybe to connect this idea for people that are less familiar with Bitcoin mining is that if 80% of the network came offline at one time and the network state was assuming there to be five times the amount of Bitcoin hash rate, that Bitcoin network would take five times longer to validate transactions and would create a lot of congestion.

973
01:07:59,324 --> 01:07:59,844
Yeah.

974
01:08:00,424 --> 01:08:00,984
Okay.

975
01:08:00,984 --> 01:08:03,284
yeah so that's

976
01:08:03,284 --> 01:08:04,164
one of the risks but then

977
01:08:04,164 --> 01:08:07,244
I try not to dwell on this risk

978
01:08:07,244 --> 01:08:09,024
too much because again going back to the fact

979
01:08:09,024 --> 01:08:10,744
what about dictating rules though

980
01:08:10,744 --> 01:08:12,764
dictating rules of the network

981
01:08:12,764 --> 01:08:14,924
consensus rules yeah is there

982
01:08:14,924 --> 01:08:18,984
I mean you need to get miners

983
01:08:18,984 --> 01:08:20,664
on board I think to a certain extent

984
01:08:20,664 --> 01:08:22,784
but does the concentration of manufacturing

985
01:08:22,784 --> 01:08:23,864
of ASICs

986
01:08:23,864 --> 01:08:25,604
no I don't think so

987
01:08:25,604 --> 01:08:28,284
okay so then

988
01:08:28,284 --> 01:08:30,164
let's shift because we want to be efficient

989
01:08:30,164 --> 01:08:37,164
the other source of primary centralization in bitcoin mining is the pool side describe quickly

990
01:08:37,164 --> 01:08:43,564
like somebody was five what a what a bitcoin mining pool is and again anchoring everyone in this

991
01:08:43,564 --> 01:08:49,384
this idea that because it's easy to get lost in these rabbit holes which is

992
01:08:49,384 --> 01:08:55,844
bitcoin miners producing hashes those hashes as a network forcing bitcoin's fixed supply

993
01:08:55,844 --> 01:08:57,844
and validate in currency transactions,

994
01:08:58,624 --> 01:09:00,244
where do pools fit in

995
01:09:00,244 --> 01:09:02,844
and describe the state of centralization

996
01:09:03,424 --> 01:09:05,984
and, in your view, the risks that are created there.

997
01:09:06,384 --> 01:09:10,084
Yeah, and so I'm sure many of the people listening to this

998
01:09:10,084 --> 01:09:13,044
are aware of Bitcoin folklore

999
01:09:13,044 --> 01:09:15,844
of people plugging in their MacBooks

1000
01:09:16,364 --> 01:09:19,824
in 2009, 2010, 2011,

1001
01:09:20,764 --> 01:09:22,064
downloading the Bitcoin software,

1002
01:09:22,224 --> 01:09:25,564
hitting mine and mining blocks themselves.

1003
01:09:25,844 --> 01:09:33,524
You hear the stories of OGs who simply downloaded Bitcoin on their computers, mined, and accumulated large amounts of Bitcoin.

1004
01:09:35,504 --> 01:09:37,524
And that was the case back then.

1005
01:09:37,584 --> 01:09:38,464
It's not the case now.

1006
01:09:38,504 --> 01:09:42,724
As we described, hashrate has gone up 180x over the last seven years.

1007
01:09:42,724 --> 01:09:50,084
And so what has been introduced in terms of a risk for individual miners is what we call variance risk.

1008
01:09:50,084 --> 01:09:57,784
so as more mining nodes join the network that's more competition to produce blocks to get the

1009
01:09:57,784 --> 01:10:06,024
reward that ensures that any individual miner their chances of mining a block goes down

1010
01:10:06,024 --> 01:10:14,504
significantly and so that means that your payout variance increases so the frequency at which you

1011
01:10:14,504 --> 01:10:20,664
find a block and get rewarded for that block goes down significantly. And the way to solve that

1012
01:10:20,664 --> 01:10:27,204
problem is to aggregate hash rate. You get a bunch of these smaller miners and now large miners as

1013
01:10:27,204 --> 01:10:31,964
well. They basically aggregate their hash rate in what's known as a Bitcoin mining pool.

1014
01:10:32,744 --> 01:10:39,084
And that mining pool is essentially tasked with aggregating the hash rate. And then you have all

1015
01:10:39,084 --> 01:10:46,544
these individual actors within the pool producing hashes one of those actors will find the hash

1016
01:10:46,544 --> 01:10:53,444
that enables them to add a block to the ledger and get the reward and the pool does the job of

1017
01:10:53,444 --> 01:11:01,764
basically accounting for who's pointing hash at their pool at one point in time how much hash rate

1018
01:11:01,764 --> 01:11:07,064
and how much of the reward each individual miner gets

1019
01:11:07,064 --> 01:11:10,084
based off of the amount of hash rate they're pointing at the pool.

1020
01:11:10,164 --> 01:11:12,364
So a pool exists to increase variance.

1021
01:11:13,104 --> 01:11:19,264
And so when you hear of individual miners mining their own blocks

1022
01:11:19,264 --> 01:11:23,624
and building a big Bitcoin stack in 2009, 2010, that doesn't happen anymore.

1023
01:11:23,784 --> 01:11:25,704
It's a bunch of individual miners pointing at a pool.

1024
01:11:26,624 --> 01:11:30,124
And even if your individual miner finds a hash,

1025
01:11:30,124 --> 01:11:32,304
you're basically saying I'm going to

1026
01:11:32,304 --> 01:11:34,604
lower my variance

1027
01:11:34,604 --> 01:11:36,644
by pointing at this pool and I'm going to split the reward

1028
01:11:36,644 --> 01:11:38,484
among all the

1029
01:11:38,484 --> 01:11:40,104
miners pointing at that particular pool

1030
01:11:40,104 --> 01:11:42,244
so if I'm a miner and I represented

1031
01:11:42,244 --> 01:11:44,344
a hundredth of the network

1032
01:11:44,344 --> 01:11:46,124
I would

1033
01:11:46,124 --> 01:11:48,024
solve a block

1034
01:11:48,024 --> 01:11:49,744
like one block

1035
01:11:49,744 --> 01:11:51,844
a day but

1036
01:11:51,844 --> 01:11:54,324
if I represented a thousandth

1037
01:11:54,324 --> 01:11:56,184
of the network then

1038
01:11:56,184 --> 01:11:58,184
it would take me several days

1039
01:11:58,184 --> 01:12:00,424
to potentially find a block on my own.

1040
01:12:00,544 --> 01:12:02,104
And if you kind of go smaller and smaller,

1041
01:12:02,164 --> 01:12:03,944
and as the Bitcoin network gets larger and larger,

1042
01:12:04,944 --> 01:12:06,224
while there are exceptions,

1043
01:12:06,324 --> 01:12:08,784
it becomes more difficult to be

1044
01:12:08,784 --> 01:12:12,524
a large enough percentage on the network

1045
01:12:12,524 --> 01:12:15,584
to reliably get paid out.

1046
01:12:15,744 --> 01:12:17,844
If you have expenses that you're paying out in the interim,

1047
01:12:17,924 --> 01:12:21,324
it might require you to have more capitalization,

1048
01:12:21,824 --> 01:12:23,684
more working capital on hand,

1049
01:12:23,784 --> 01:12:26,704
and just creates a strain operationally.

1050
01:12:26,704 --> 01:12:36,704
And so for that reason, pools began to emerge to allow people to effectively get paid out more regularly, reduce variance.

1051
01:12:38,624 --> 01:12:47,244
It's difficult to capitalize mine as it is, reducing the working capital requirements potentially of a Bitcoin mine.

1052
01:12:47,244 --> 01:12:57,464
So now describe current state of centralization in mining pools and why in your view it exists.

1053
01:12:57,464 --> 01:12:59,864
To do this, we have to go back in time as well.

1054
01:13:00,024 --> 01:13:11,044
When pools first came out, the predominant payout scheme is called PPL and LNS, pay per last end shares.

1055
01:13:11,044 --> 01:13:13,844
and basically in that

1056
01:13:13,844 --> 01:13:15,844
mining pool

1057
01:13:15,844 --> 01:13:17,224
payout model

1058
01:13:17,224 --> 01:13:19,824
you would point your

1059
01:13:19,824 --> 01:13:22,124
hash at a pool and then

1060
01:13:22,124 --> 01:13:23,944
whenever that pool would

1061
01:13:23,944 --> 01:13:24,804
find a block

1062
01:13:24,804 --> 01:13:27,984
you would get your

1063
01:13:27,984 --> 01:13:29,964
commensurate amount of the reward and you get

1064
01:13:29,964 --> 01:13:31,584
paid out when they found the block

1065
01:13:31,584 --> 01:13:33,884
they would find a block and then you get

1066
01:13:33,884 --> 01:13:34,944
paid out from that reward

1067
01:13:34,944 --> 01:13:38,104
and as the network grew

1068
01:13:38,104 --> 01:13:39,504
and more pools came to market

1069
01:13:39,504 --> 01:14:00,976
like the variance of individual pools began to grow and extend as well And so the predominant model that has really taken over within bitcoin mining pools the payout model is fpps full pay per share and essentially what full pay per share pools

1070
01:14:00,976 --> 01:14:09,377
have created is a system where they say point your hash rate at our pool we'll do like a moving

1071
01:14:09,377 --> 01:14:15,816
average of how much hash rate how much blocks we produced and we'll pay you out uh a consistent

1072
01:14:15,816 --> 01:14:21,036
amount every day we'll pay out once a day based off of that moving average um so you have more

1073
01:14:21,036 --> 01:14:26,617
consistent revenue you're not beholden to the very so functionally pools help reduce variance but

1074
01:14:26,617 --> 01:14:34,776
then the fpps the fixed paper share further reduces variance by giving a miner a predictable

1075
01:14:34,776 --> 01:14:42,177
daily amount of revenue why has that caused centralization so that's caused so you have

1076
01:14:42,177 --> 01:14:49,016
two trade-offs the ppl and s what was predominant um in the early years of pooling the trade-off

1077
01:14:49,016 --> 01:14:56,257
there is you're going to as an individual miner you're going to get you know you're going to get

1078
01:14:56,257 --> 01:15:02,457
like the full reward of that block that's mine because as it's not as it's not as um

1079
01:15:02,457 --> 01:15:09,117
uh it's not as relevant right now because there's not a lot of fees but like if we're in a high fee

1080
01:15:09,117 --> 01:15:18,957
environment and the variability of block rewards is is pretty high because fees are variable um

1081
01:15:18,957 --> 01:15:26,997
from block to block like let's in a ppl and s model like if your pool mines a block with a very

1082
01:15:26,997 --> 01:15:32,577
high fee like you want to get that whole reward and so like that's the trade-off you make in ppl

1083
01:15:32,577 --> 01:15:36,936
and s is like i'm gonna get the whole reward of that block but i'm gonna stomach more variance

1084
01:15:36,936 --> 01:15:43,117
because it's not like that pool could have a string of bad luck where instead of finding three blocks

1085
01:15:43,117 --> 01:15:48,497
a day they find um they find three blocks over three days and so you're you're getting less

1086
01:15:48,497 --> 01:15:55,436
consistent payouts but you're reaping the full reward of those individual payouts f pps fixed

1087
01:15:55,436 --> 01:16:01,197
pay per share um again since it's the moving average of the individual block let's say the

1088
01:16:01,197 --> 01:16:05,596
pool mines a block with a fat fee like they're just going to use the moving average in their

1089
01:16:05,596 --> 01:16:09,117
calculations you're going to get paid out and you're not going to get the full reward but you're

1090
01:16:09,117 --> 01:16:17,117
getting paid out every day and this creates uh an accounting problem for the pools and a capital

1091
01:16:17,117 --> 01:16:23,916
problem specifically so for the fpps pools the fixed pay per share pools to be able to do this

1092
01:16:23,916 --> 01:16:30,016
What they need is a big Bitcoin treasury that they can actually use.

1093
01:16:30,117 --> 01:16:31,637
They essentially use as a credit line.

1094
01:16:32,236 --> 01:16:34,117
They're absorbing the variance risk as the pool.

1095
01:16:35,336 --> 01:16:40,236
And so you need a big Bitcoin treasury to pull from to consistently pay out.

1096
01:16:40,296 --> 01:16:46,896
Because even as an FPPS pool, you can have strings of bad luck where your variance increases and elongates.

1097
01:16:46,896 --> 01:16:56,577
And if you're running an FPPS pool where you have a pretty long string of bad luck, you could run out of Bitcoin in your reserves and you cannot pay out.

1098
01:16:56,577 --> 01:17:06,577
And so that over the last two years, it's become clear that that mechanism has become a very centralizing aspect of the Bitcoin mining pool industry.

1099
01:17:06,577 --> 01:17:12,976
Because what we've found is that last year, Matt Corralo and others started ringing the alarm bell.

1100
01:17:12,976 --> 01:17:28,896
It became clear and a lot of on-chain analysts like OXT and Zero XT were basically observing that the block templates of different FPPS mining pools were exactly the same.

1101
01:17:28,896 --> 01:17:31,177
and so essentially what was discovered

1102
01:17:31,177 --> 01:17:33,997
is that you had a number of

1103
01:17:33,997 --> 01:17:36,216
FPPS pools run into that

1104
01:17:36,216 --> 01:17:37,697
treasury problem

1105
01:17:37,697 --> 01:17:40,096
where they didn't have enough Bitcoin

1106
01:17:40,096 --> 01:17:41,997
to pay out and so they were forced to go

1107
01:17:41,997 --> 01:17:44,057
hat in hand to Antpool

1108
01:17:44,057 --> 01:17:46,236
which is essentially a subsidiary

1109
01:17:46,236 --> 01:17:46,557
of Bitcoin

1110
01:17:46,557 --> 01:17:47,177
basically

1111
01:17:47,177 --> 01:17:51,976
mining pools that were

1112
01:17:51,976 --> 01:17:53,836
attempting to

1113
01:17:53,836 --> 01:17:56,177
deliver

1114
01:17:56,177 --> 01:17:58,336
the product that they thought

1115
01:17:58,897 --> 01:18:02,037
would allow them to acquire minors as customers,

1116
01:18:02,776 --> 01:18:06,797
being able to pay out a consistent amount each day,

1117
01:18:07,117 --> 01:18:08,897
were not well capitalized,

1118
01:18:08,917 --> 01:18:10,657
and they were absorbing the financial risk.

1119
01:18:11,877 --> 01:18:15,816
And then ultimately, they got exposed.

1120
01:18:16,537 --> 01:18:17,877
Whether they went belly up,

1121
01:18:18,057 --> 01:18:20,917
they realized that they couldn't absorb that risk,

1122
01:18:20,956 --> 01:18:23,436
and they went up the food chain to companies

1123
01:18:23,436 --> 01:18:24,717
that had larger balance sheets.

1124
01:18:25,557 --> 01:18:27,836
And then, essentially, it becomes a game

1125
01:18:27,836 --> 01:18:28,776
that if you are not,

1126
01:18:29,297 --> 01:18:29,477
you know,

1127
01:18:30,297 --> 01:18:31,617
I don't know if irony is the term,

1128
01:18:31,696 --> 01:18:33,316
but it's like the same risk exists

1129
01:18:33,316 --> 01:18:34,297
with these larger guys

1130
01:18:34,297 --> 01:18:35,776
that are just aggregating more hash rate.

1131
01:18:35,856 --> 01:18:37,816
It's like they're bearing this financial risk

1132
01:18:37,816 --> 01:18:39,797
and they could be exposed

1133
01:18:39,797 --> 01:18:42,557
as not being financially solvent

1134
01:18:42,557 --> 01:18:45,757
should a stretch of bad luck

1135
01:18:45,757 --> 01:18:48,497
emerge for an extended period of time.

1136
01:18:49,776 --> 01:18:50,897
In the case of Ample,

1137
01:18:50,977 --> 01:18:52,257
I think it would have to be

1138
01:18:52,257 --> 01:18:53,137
a very, very long,

1139
01:18:53,436 --> 01:18:56,137
like statistically impossible.

1140
01:18:56,397 --> 01:18:57,696
Yeah, and I'm going to spend time

1141
01:18:57,696 --> 01:19:05,016
like digging into this like like the differences between a paper last and shares different forms of

1142
01:19:05,016 --> 01:19:10,037
that fixed paper share some of the economic incentives that might not be as well understood

1143
01:19:10,037 --> 01:19:15,456
in terms of how you know you're basically trusting fpps pool in terms of what the

1144
01:19:15,456 --> 01:19:21,696
pool is actually generating how these are actually accounted for distributed we'll go into that

1145
01:19:21,696 --> 01:19:24,577
in other episodes, but just articulate

1146
01:19:24,577 --> 01:19:26,877
what, as a percentage basis,

1147
01:19:27,456 --> 01:19:30,657
does that ecosystem look like

1148
01:19:30,657 --> 01:19:32,877
to not lose people in the weeds?

1149
01:19:33,217 --> 01:19:35,117
The last time I saw the...

1150
01:19:35,117 --> 01:19:38,257
I think to describe it more thoroughly,

1151
01:19:38,497 --> 01:19:41,236
Ampoule, essentially a subsidiary Bitmain,

1152
01:19:42,176 --> 01:19:43,456
and over the course of more than a decade...

1153
01:19:43,456 --> 01:19:44,776
So that's the point of centralization,

1154
01:19:44,956 --> 01:19:46,717
is that these entities are related.

1155
01:19:46,717 --> 01:19:47,117
Yeah.

1156
01:19:48,736 --> 01:19:51,176
They have a large Bitcoin war chest.

1157
01:19:51,176 --> 01:20:09,897
And this is actually like when it comes to this pool problem, I don't think we're going to solve it here on this episode, but maybe we can do another one where I think when you look at pools are, if you think Bitcoin mining, like just like plugging in ASICs and running them as an operation, like locking down the energies, competitive pools are terrible businesses.

1158
01:20:09,897 --> 01:20:16,557
so people say this pools are terrible businesses but they are necessary to the operation of bitcoin

1159
01:20:16,557 --> 01:20:21,797
mining and so one of the questions that i have is it's like

1160
01:20:21,797 --> 01:20:28,897
maybe it's just a cost center to a business but is it specialized enough to merit being

1161
01:20:28,897 --> 01:20:34,836
its own business and i don't think so the switching cost is zero like that's like you don't

1162
01:20:34,836 --> 01:20:37,877
what I'm saying

1163
01:20:37,877 --> 01:20:39,397
it's a necessary

1164
01:20:39,397 --> 01:20:40,377
in order to mine

1165
01:20:40,377 --> 01:20:41,117
you essentially

1166
01:20:41,117 --> 01:20:41,637
either have to be

1167
01:20:41,637 --> 01:20:42,196
your own pool

1168
01:20:42,196 --> 01:20:44,297
or you have to join a pool

1169
01:20:44,297 --> 01:20:46,997
the pool function

1170
01:20:46,997 --> 01:20:47,596
is critical

1171
01:20:47,596 --> 01:20:48,617
so

1172
01:20:48,617 --> 01:20:49,977
how can

1173
01:20:49,977 --> 01:20:51,096
the pool business

1174
01:20:51,096 --> 01:20:51,977
be a bad business

1175
01:20:51,977 --> 01:20:52,717
if it's

1176
01:20:52,717 --> 01:20:53,736
it's critical

1177
01:20:53,736 --> 01:20:54,537
if it's delivering

1178
01:20:54,537 --> 01:20:55,217
both the service

1179
01:20:55,217 --> 01:20:55,977
and being critical

1180
01:20:55,977 --> 01:20:57,176
to the

1181
01:20:57,176 --> 01:20:58,137
because you can just

1182
01:20:58,137 --> 01:20:59,037
I mean I think

1183
01:20:59,037 --> 01:20:59,717
Apple is a great

1184
01:20:59,717 --> 01:21:00,497
they can just

1185
01:21:00,497 --> 01:21:01,797
they can just

1186
01:21:01,797 --> 01:21:04,816
set their costs

1187
01:21:04,816 --> 01:21:09,356
such that you can't compete right because they have this large and so this might because they're

1188
01:21:09,356 --> 01:21:13,297
well capitalized they're extremely well capitalized like they have a large bitcoin treasury they have

1189
01:21:13,297 --> 01:21:19,497
the hardware business essentially that doesn't that doesn't say that being a mining pool is a

1190
01:21:19,497 --> 01:21:26,797
bad business it just might say in order to be a good pool you need to be very well capitalized

1191
01:21:26,797 --> 01:21:32,057
if fpps is the right model which i have i have questions about myself i don't think it's the

1192
01:21:32,057 --> 01:21:40,057
right model but i do think okay go on yeah like i think looking at bitmain and ample and their

1193
01:21:40,057 --> 01:21:45,936
relationship i think that's something people should really pay attention to and try to

1194
01:21:45,936 --> 01:21:50,637
internalize like you have this behemoth of bitmain and their hardware sales which is incredible

1195
01:21:50,637 --> 01:22:01,596
business um cash flows a lot like and are they anti-competitive bitmain just going back to the

1196
01:22:01,596 --> 01:22:08,877
like are they actively in the background trying to prevent other i wouldn't be surprised i mean

1197
01:22:08,877 --> 01:22:14,257
i don't know for sure but just if they're economically rational actors i wouldn't be

1198
01:22:14,257 --> 01:22:18,196
surprised that they are preventing others from getting access to the foundries that they work

1199
01:22:18,196 --> 01:22:22,436
with yeah all right that was just an aside but sorry i didn't mean to distract from the

1200
01:22:22,436 --> 01:22:28,356
no i think like running a pool like you may need another like pools i think we need to rethink

1201
01:22:28,356 --> 01:22:37,257
like how pools come to be how they operate like is a pool a loss leader for somebody doing something

1202
01:22:37,257 --> 01:22:45,617
like basic manufacturing or um your bitcoin exchanges maybe they should like if maybe they

1203
01:22:45,617 --> 01:22:52,436
should be running pools to some extent um just as a way to decentral like if you're an exchange and

1204
01:22:52,436 --> 01:23:00,217
you're thinking about the long-term viability of your business and that sort of the prerequisite

1205
01:23:00,217 --> 01:23:05,236
for that long-term success is bitcoin being sufficiently decentralized and block production

1206
01:23:05,236 --> 01:23:10,696
being decentralized like does it make sense for you to spin up a pool to give people an option to

1207
01:23:10,696 --> 01:23:15,537
um you know i'm not saying this is the right answer but just like thinking through this like

1208
01:23:15,537 --> 01:23:21,816
pools is a pure play business model i don't think makes sense like you need another part of that

1209
01:23:21,816 --> 01:23:27,816
business to sort of make sure it's well capitalized and historically you've seen this with bitmain

1210
01:23:27,816 --> 01:23:34,217
and ampoule via the asex sales and then other pools like luxor and brains with firmware that

1211
01:23:34,217 --> 01:23:39,936
makes the machines more efficient and they charge a cost for that and the cost is worth it because

1212
01:23:39,936 --> 01:23:45,497
the efficiency gains are such that you will pay a fee for it and you get revenue that way

1213
01:23:45,497 --> 01:23:51,617
or do we just need to completely rethink it and and how like what businesses should be spinning

1214
01:23:51,617 --> 01:24:00,757
up pools um to to ensure that there's sufficient distribution of block creation between different

1215
01:24:00,757 --> 01:24:06,936
actors does that make sense yeah that makes sense and then but then to provide this the most summary

1216
01:24:06,936 --> 01:24:15,656
level view we have actually ant pool that's that's based in china right and they're functionally

1217
01:24:15,656 --> 01:24:20,537
they're basically saying hey oh but i want to connect this for people that there are probably

1218
01:24:20,537 --> 01:24:25,196
based on what you said about that corral and others who realize how are we doing on time logan

1219
01:24:25,196 --> 01:24:34,676
and we're good that amp pool is essentially a um proxy for 10 or so other pools such that

1220
01:24:34,676 --> 01:24:40,297
you're looking at those other pools and and they look like individual pools but

1221
01:24:40,297 --> 01:24:46,416
they're really a proxy for amp pool they're really a proxy for ample amp pools creating the templates

1222
01:24:46,416 --> 01:24:48,977
but so if you add up

1223
01:24:48,977 --> 01:24:49,956
camp pool

1224
01:24:49,956 --> 01:24:51,936
and the other pools

1225
01:24:51,936 --> 01:24:53,117
it's like 60 to 70%

1226
01:24:53,117 --> 01:24:54,577
and then

1227
01:24:54,577 --> 01:24:55,377
boundary

1228
01:24:55,377 --> 01:24:57,877
which is US based

1229
01:24:57,877 --> 01:24:58,717
yeah so it's not 60

1230
01:24:58,717 --> 01:25:00,196
it's probably like 50 to 60

1231
01:25:00,196 --> 01:25:00,577
yeah

1232
01:25:00,577 --> 01:25:02,337
yeah 50 to 60

1233
01:25:02,337 --> 01:25:03,497
maybe like 50

1234
01:25:03,497 --> 01:25:06,196
boundary is like 25 to 30%

1235
01:25:06,196 --> 01:25:06,797
yeah

1236
01:25:06,797 --> 01:25:08,297
and then marathon

1237
01:25:08,297 --> 01:25:09,196
which is a solo

1238
01:25:09,196 --> 01:25:11,276
a little bit of a large scale minor

1239
01:25:11,276 --> 01:25:11,897
you have other

1240
01:25:11,897 --> 01:25:12,956
which is around like 12

1241
01:25:12,956 --> 01:25:13,596
so

1242
01:25:13,596 --> 01:25:14,257
so

1243
01:25:14,257 --> 01:25:16,176
three functional pools

1244
01:25:16,176 --> 01:25:18,297
including one solo miner,

1245
01:25:18,456 --> 01:25:23,497
and I know that other small miners use Marathon's pool,

1246
01:25:23,596 --> 01:25:25,837
but functionally the pool of one,

1247
01:25:26,276 --> 01:25:32,137
that three pools represent about 90% of the hash rate.

1248
01:25:33,096 --> 01:25:38,897
What is the present risk to the Bitcoin network functioning

1249
01:25:38,897 --> 01:25:40,316
that comes from that?

1250
01:25:41,236 --> 01:25:43,456
It's probably going to sound controversial,

1251
01:25:44,016 --> 01:25:45,117
but I think zero.

1252
01:25:45,117 --> 01:25:46,617
again going back to

1253
01:25:46,617 --> 01:25:49,797
describe why you view it as zero

1254
01:25:49,797 --> 01:25:51,416
but then

1255
01:25:51,416 --> 01:25:52,916
make the other argument

1256
01:25:52,916 --> 01:25:55,596
I think it's zero because the switching cost

1257
01:25:55,596 --> 01:25:58,397
is zero and if push comes to show

1258
01:25:58,397 --> 01:25:59,397
if we've seen this already

1259
01:25:59,397 --> 01:26:02,176
in Bitcoin's history in 2016

1260
01:26:02,176 --> 01:26:03,856
there was a pool called GHash

1261
01:26:03,856 --> 01:26:06,077
that was ultimately a victim

1262
01:26:06,077 --> 01:26:07,557
of its own success

1263
01:26:07,557 --> 01:26:10,236
it aggregated as a

1264
01:26:10,236 --> 01:26:12,257
single pool 55%

1265
01:26:12,257 --> 01:26:14,416
of the network hash rate

1266
01:26:14,416 --> 01:26:21,377
people on bitcoin talk.org and twitter were like yo g hash has 55 this is a threat to the network

1267
01:26:21,377 --> 01:26:29,596
if they wanted to 51 attack the network they could and within days it fell from 55 to 20

1268
01:26:29,596 --> 01:26:35,377
and over the course of 18 months after the alarm bells went off g hash was out of business um so

1269
01:26:35,377 --> 01:26:42,997
miners individual hash owners that are economically incentivized to ensure that their golden goose

1270
01:26:42,997 --> 01:26:58,169
isn killed by centralization reacted to those centralization pressures Right So I get why you know it not in the interest of mining pools or miners to 51 attack Bitcoin

1271
01:26:58,769 --> 01:27:01,309
network that would be putting at risk there.

1272
01:27:02,009 --> 01:27:04,309
The thing that they exist.

1273
01:27:04,749 --> 01:27:04,949
No,

1274
01:27:04,989 --> 01:27:08,489
but the real risk is you could,

1275
01:27:08,489 --> 01:27:13,489
you could have censorship or they could try to reorg via 51% attacked.

1276
01:27:14,169 --> 01:27:19,869
but what about the angle of the three minor three mining pools all being on the same page

1277
01:27:19,869 --> 01:27:28,329
about consensus changes that are not hard for us um

1278
01:27:28,329 --> 01:27:34,529
this is where we get into like this is where we get into like murky territory of like what actually

1279
01:27:34,529 --> 01:27:40,809
is needed to like what actors are needed to

1280
01:27:40,809 --> 01:27:45,709
actually get a software change into bitcoin and

1281
01:27:45,709 --> 01:27:54,469
that's like block size wars what was it was a bit 91 was a bit 148 like but in that case that

1282
01:27:54,469 --> 01:28:02,309
was actually a non-backward compatible change i'm talking about a in in the block wars increasing the

1283
01:28:02,309 --> 01:28:08,789
block size to two times would have you would have forked off the network and bitcoin cash did

1284
01:28:08,789 --> 01:28:18,389
right but and so but that was that that presents a different dilemma versus a soft fork and if

1285
01:28:18,389 --> 01:28:27,229
if all three the large mining pools agree on what change should be and they're not forking

1286
01:28:27,229 --> 01:28:34,029
themselves off from the network then if you're a miner and you're hashing you functionally can't

1287
01:28:34,029 --> 01:28:34,729
switch between

1288
01:28:34,729 --> 01:28:36,929
if there's

1289
01:28:36,929 --> 01:28:37,389
collusion

1290
01:28:37,389 --> 01:28:38,089
and this gets

1291
01:28:38,089 --> 01:28:38,729
like who

1292
01:28:38,729 --> 01:28:39,609
dictates the

1293
01:28:39,609 --> 01:28:40,229
rules right

1294
01:28:40,229 --> 01:28:40,649
because like

1295
01:28:40,649 --> 01:28:41,189
if you're

1296
01:28:41,189 --> 01:28:43,069
well but like

1297
01:28:43,069 --> 01:28:43,709
as an example

1298
01:28:43,709 --> 01:28:44,369
let me let me

1299
01:28:44,369 --> 01:28:44,909
like throw a

1300
01:28:44,909 --> 01:28:45,449
different scenario

1301
01:28:45,449 --> 01:28:46,389
say bitcoin

1302
01:28:46,389 --> 01:28:46,849
core

1303
01:28:46,849 --> 01:28:48,469
um

1304
01:28:48,469 --> 01:28:52,789
wants to

1305
01:28:52,789 --> 01:28:55,069
merge a

1306
01:28:55,069 --> 01:28:55,489
software

1307
01:28:55,489 --> 01:28:56,709
and three

1308
01:28:56,709 --> 01:28:57,469
mining pools

1309
01:28:57,469 --> 01:28:59,429
agree

1310
01:28:59,429 --> 01:29:02,629
is that a

1311
01:29:02,629 --> 01:29:02,929
risk

1312
01:29:02,929 --> 01:29:04,789
could be

1313
01:29:04,789 --> 01:29:06,709
but what if

1314
01:29:06,709 --> 01:29:09,909
like economic

1315
01:29:09,909 --> 01:29:10,329
actors

1316
01:29:10,329 --> 01:29:11,169
and I say a risk

1317
01:29:11,169 --> 01:29:11,649
to like

1318
01:29:11,649 --> 01:29:12,989
a relatively few

1319
01:29:12,989 --> 01:29:13,669
number of people

1320
01:29:13,669 --> 01:29:14,309
you would need

1321
01:29:14,309 --> 01:29:15,189
buy in from

1322
01:29:15,189 --> 01:29:17,509
other actors too

1323
01:29:17,509 --> 01:29:18,189
like exchange

1324
01:29:18,189 --> 01:29:19,149
like big economic

1325
01:29:19,149 --> 01:29:19,829
actors

1326
01:29:19,829 --> 01:29:20,969
that aren't mining

1327
01:29:20,969 --> 01:29:21,789
like exchanges

1328
01:29:21,789 --> 01:29:22,409
and

1329
01:29:22,409 --> 01:29:23,889
people that are

1330
01:29:23,889 --> 01:29:24,669
transacting a lot

1331
01:29:24,669 --> 01:29:25,409
on the bitcoin network

1332
01:29:25,409 --> 01:29:26,129
to download

1333
01:29:26,129 --> 01:29:27,369
that node software

1334
01:29:27,369 --> 01:29:28,269
like you could see

1335
01:29:28,269 --> 01:29:29,089
a scenario where

1336
01:29:29,089 --> 01:29:30,529
but it would be

1337
01:29:30,529 --> 01:29:31,329
backward compatible

1338
01:29:31,329 --> 01:29:33,129
right

1339
01:29:33,129 --> 01:29:37,309
and the miners

1340
01:29:37,309 --> 01:29:39,329
would be enforcing the rules and that would be the

1341
01:29:39,329 --> 01:29:40,069
longest chain

1342
01:29:40,069 --> 01:29:47,569
anyways we'll dive more into these in these topics

1343
01:29:47,569 --> 01:29:48,289
the

1344
01:29:48,289 --> 01:29:53,569
I'm trying to think through this

1345
01:29:53,569 --> 01:29:53,809
because

1346
01:29:53,809 --> 01:29:57,209
again going back to like BIP 91

1347
01:29:57,209 --> 01:29:59,189
BIP 148 like what was the actual

1348
01:29:59,189 --> 01:30:07,929
sort of forcing function for segwit getting implemented into bitcoin i mean that was is

1349
01:30:07,929 --> 01:30:17,189
there a scenario it's backward compatible but like let's say coinbase says like i don't like this

1350
01:30:17,189 --> 01:30:24,509
or river strike combination of all those guys you have like this battle between these large

1351
01:30:24,509 --> 01:30:25,629
economic transactors

1352
01:30:25,629 --> 01:30:26,249
and the miners

1353
01:30:26,249 --> 01:30:27,769
like could

1354
01:30:27,769 --> 01:30:29,389
I mean I think

1355
01:30:29,389 --> 01:30:30,469
my understanding

1356
01:30:30,469 --> 01:30:30,949
is they would

1357
01:30:30,949 --> 01:30:31,329
continue

1358
01:30:31,329 --> 01:30:32,429
they wouldn't have

1359
01:30:32,429 --> 01:30:33,109
to change anything

1360
01:30:33,109 --> 01:30:34,009
they would be accepting

1361
01:30:34,009 --> 01:30:35,129
all of the transactions

1362
01:30:35,129 --> 01:30:35,969
that are on the more

1363
01:30:35,969 --> 01:30:36,769
restricted as well

1364
01:30:36,769 --> 01:30:37,309
but even if it's

1365
01:30:37,309 --> 01:30:38,029
backward compatible

1366
01:30:38,029 --> 01:30:39,049
nobody's running

1367
01:30:39,049 --> 01:30:40,489
if the mining pools

1368
01:30:40,489 --> 01:30:41,089
are advancing

1369
01:30:41,089 --> 01:30:42,189
the longest chain

1370
01:30:42,189 --> 01:30:43,929
yeah but like

1371
01:30:43,929 --> 01:30:44,289
if nobody

1372
01:30:44,289 --> 01:30:45,489
still if it's back

1373
01:30:45,489 --> 01:30:46,289
yeah maybe

1374
01:30:46,289 --> 01:30:47,529
there's not a functional

1375
01:30:47,529 --> 01:30:49,149
there's nobody using it

1376
01:30:49,149 --> 01:30:49,449
yeah

1377
01:30:49,449 --> 01:30:50,149
like

1378
01:30:50,149 --> 01:30:51,229
that

1379
01:30:51,229 --> 01:30:52,189
that would

1380
01:30:52,189 --> 01:30:53,089
de-risk it

1381
01:30:53,089 --> 01:30:53,469
yeah

1382
01:30:53,469 --> 01:30:54,249
like hey if

1383
01:30:54,249 --> 01:30:56,429
if nodes aren't transmitting

1384
01:30:56,429 --> 01:30:57,969
transactions that

1385
01:30:57,969 --> 01:30:59,969
conform but then that would

1386
01:30:59,969 --> 01:31:01,109
kind of

1387
01:31:01,109 --> 01:31:04,249
they just never download

1388
01:31:04,249 --> 01:31:05,269
the version like

1389
01:31:05,269 --> 01:31:08,029
then we get an all like sort of rough

1390
01:31:08,029 --> 01:31:10,289
consensus dynamics like somebody's actually got to build

1391
01:31:10,289 --> 01:31:12,349
write the

1392
01:31:12,349 --> 01:31:14,509
software that the miners want

1393
01:31:14,509 --> 01:31:17,789
or that

1394
01:31:17,789 --> 01:31:19,849
core wants or core is like

1395
01:31:19,849 --> 01:31:21,709
core is not some

1396
01:31:21,709 --> 01:31:23,709
centralized entity

1397
01:31:23,709 --> 01:31:28,369
all right i'll shift the question this is where like the beauty of of bitcoin rough consensus

1398
01:31:28,369 --> 01:31:32,889
comes yeah and we'll and again we're not going to solve all the you know knowledge base of

1399
01:31:32,889 --> 01:31:40,409
bitcoin in a single episode but um one last thing on this piece and then we'll wrap up which is um

1400
01:31:40,409 --> 01:31:45,849
it's not in the interest of bitcoin miners the ones that like if you think about the supply chain

1401
01:31:45,849 --> 01:31:53,429
it's some natural resource that is storing energy being converted to electricity that's creating a

1402
01:31:53,429 --> 01:31:59,329
hash that an aggregate is enforcing Bitcoin's fixed supply and validating all currency transactions.

1403
01:31:59,889 --> 01:32:07,809
Those hashes are pointed at a pool and blocks are processed during the fixed supply.

1404
01:32:07,989 --> 01:32:10,289
Bitcoin network is working going forward.

1405
01:32:10,289 --> 01:32:18,509
It's not in the interest of the miners actually producing the hashes that the pools are centralized.

1406
01:32:18,509 --> 01:32:29,589
what in your mind changes the dynamic that would create a scenario for greater decentralization

1407
01:32:29,589 --> 01:32:32,029
i think

1408
01:32:32,029 --> 01:32:43,209
stuff like this is great where you have sort of at-home mining and as we reach asa commodification

1409
01:32:43,209 --> 01:32:46,729
and the waste heat can be used for services

1410
01:32:46,729 --> 01:32:48,609
like heating water in your house,

1411
01:32:48,709 --> 01:32:52,089
using the waste heat to heat your house itself,

1412
01:32:52,789 --> 01:32:54,489
that acts as like a natural...

1413
01:32:54,489 --> 01:32:56,509
But is that a view that, you know,

1414
01:32:56,589 --> 01:32:59,709
if Riot is working on a gigawatt site,

1415
01:33:00,949 --> 01:33:05,349
that large-scale Bitcoin mines

1416
01:33:05,349 --> 01:33:09,709
are ultimately long-term not as viable and that...

1417
01:33:09,709 --> 01:33:13,189
Yeah, like I think Riot, like I love...

1418
01:33:13,209 --> 01:33:17,849
everybody at these companies but like at the end of the day like i'm just saying if this is how

1419
01:33:17,849 --> 01:33:24,669
bitcoin decentralizes it would it would or you know decentralizes decentralizes from the point

1420
01:33:24,669 --> 01:33:34,109
of centralization as it relates to pools and that would suggest that you know any any bitcoin mine

1421
01:33:34,109 --> 01:33:41,069
of scale becomes less competitive for some reason that i couldn't gather if the cheapest way to

1422
01:33:41,069 --> 01:33:47,989
produce a um a unit of power is with large power plants

1423
01:33:47,989 --> 01:33:59,789
the say that again that the the cheapest unit of power is at scale with a either combined cycle

1424
01:33:59,789 --> 01:34:10,889
turbine or a nuclear power plant or even something like a large solar generator yeah at scale

1425
01:34:10,889 --> 01:34:15,029
they're going to be the cheapest but you know like in the wasted example for like at-home

1426
01:34:15,029 --> 01:34:21,749
applications like you're usually you're basically using bitcoin mining to subsidize to lower your

1427
01:34:21,749 --> 01:34:27,669
your month-to-month electricity bill and actually produce some revenue whether or not you're willing

1428
01:34:27,669 --> 01:34:34,249
to stomach the variance is up to the individual but i think what's most important is we can dive

1429
01:34:34,249 --> 01:34:43,489
deep on the pool stuff and the industrial size miners but i think what i care about most is the

1430
01:34:43,489 --> 01:34:49,489
decentralization of hash rate ownership and as many like you're gonna have obviously a spectrum

1431
01:34:49,489 --> 01:35:00,169
of people owning one asic chip like one terahash to multiple tens dozens of exahash but as long as

1432
01:35:00,169 --> 01:35:07,429
sort of distribution of individual owners across that spectrum is is robust i think it'll be

1433
01:35:07,429 --> 01:35:13,109
sufficient to ensure that mining is decentralized at the end of the day and yeah we'll have to

1434
01:35:13,109 --> 01:35:16,229
explore this more because i i or explore this more because

1435
01:35:16,229 --> 01:35:22,749
it's like that hash rate continues to to naturally decentralize because

1436
01:35:22,749 --> 01:35:27,349
energy is distributed all to the world it seems like there's a disinterest

1437
01:35:27,349 --> 01:35:35,569
or there should be a disincentive of of all this very distributed hash rate pointing to

1438
01:35:35,569 --> 01:35:45,109
a regulatory and otherwise censorship prone points of centralization being pools

1439
01:35:45,109 --> 01:35:49,829
that there would there would need to there would almost and again i want to explore i don't know

1440
01:35:49,829 --> 01:35:57,769
what it is a natural forcing function for miners to realize that there's an there's an interest

1441
01:35:57,769 --> 01:36:06,089
in an incentive for pools not to be nearly as centralized yeah and going back to what i was

1442
01:36:06,089 --> 01:36:10,069
saying earlier like maybe it's not even the mining industry that comes up with the solution maybe it's

1443
01:36:10,069 --> 01:36:16,329
some other sort of actor with a ton of skin in the game that recognizes this as a risk and has

1444
01:36:16,329 --> 01:36:20,429
a profitable business and decides to spin up a mining pool to counteract

1445
01:36:20,429 --> 01:36:24,449
the centralizing factors. I don't have the answers to this, but I do

1446
01:36:24,449 --> 01:36:28,389
think I've identified at least one thing, which is

1447
01:36:28,389 --> 01:36:30,729
we need to completely rethink how mining pools

1448
01:36:30,729 --> 01:36:34,189
come to market and how they operate.

1449
01:36:37,389 --> 01:36:40,469
We're getting a bit doomer-ish here. It's important

1450
01:36:40,469 --> 01:36:44,209
to understand these risks and where the centralization lies,

1451
01:36:44,209 --> 01:36:58,529
But ultimately, at the end of the day, I think the incentives of Bitcoin as a project overall and individual actors within a mining ecosystem are aligned to the point where the problem will be solved.

1452
01:36:58,609 --> 01:37:04,429
I don't know exactly what the solution is, but I'm just confident in the economic incentives.

1453
01:37:04,949 --> 01:37:09,789
And as Bitcoin continues to increase in price, those incentives only get stronger.

1454
01:37:10,169 --> 01:37:13,729
Right. And that's something that we're going to talk about as well.

1455
01:37:14,209 --> 01:37:18,009
on other episodes, like you said, the incentives of Bitcoin.

1456
01:37:18,909 --> 01:37:22,589
And I think that if we think about just this first episode

1457
01:37:22,589 --> 01:37:30,329
and where we plan to take this show part of TFTC,

1458
01:37:30,329 --> 01:37:37,949
is exploring the entire value chain down to the molecules.

1459
01:37:39,489 --> 01:37:41,989
From the molecules to the conversion of power,

1460
01:37:41,989 --> 01:37:48,549
how Bitcoin intends, not intends, how Bitcoin solves real world energy problems, how that

1461
01:37:48,549 --> 01:37:55,489
changes as Bitcoin's demand for energy scales, why or why it won't increase in energy demand

1462
01:37:55,489 --> 01:37:58,389
over time or what the drivers will be, how that will evolve.

1463
01:37:59,489 --> 01:38:07,489
Points of centralization, how Bitcoin mining works of past the point of natural resources

1464
01:38:07,489 --> 01:38:08,789
of being converted into electricity

1465
01:38:08,789 --> 01:38:11,669
and the role of ASICs, the role of pools.

1466
01:38:12,869 --> 01:38:15,569
But one of the things that I found

1467
01:38:15,569 --> 01:38:21,049
legacy energy industry struggles with

1468
01:38:21,049 --> 01:38:22,849
or someone like a grid operator

1469
01:38:22,849 --> 01:38:24,249
or legislators or regulators

1470
01:38:24,249 --> 01:38:26,869
is all this power demand sustainable.

1471
01:38:27,409 --> 01:38:28,669
And I'm not talking about

1472
01:38:28,669 --> 01:38:30,309
from an environmental perspective.

1473
01:38:30,929 --> 01:38:32,549
I'm talking about from-

1474
01:38:32,549 --> 01:38:34,309
Are people going to want to Bitcoin mine 10 years from now?

1475
01:38:34,889 --> 01:38:35,209
Yes.

1476
01:38:35,209 --> 01:38:37,829
and what causes that

1477
01:38:37,829 --> 01:38:39,289
and will it be sustained

1478
01:38:39,289 --> 01:38:40,689
because if you develop,

1479
01:38:41,329 --> 01:38:42,449
say as a grid operator,

1480
01:38:43,069 --> 01:38:46,029
an energy reliability strategy

1481
01:38:46,029 --> 01:38:49,549
around 4 gigawatts of power

1482
01:38:49,549 --> 01:38:50,309
growing to 8,

1483
01:38:50,349 --> 01:38:50,989
growing to 10,

1484
01:38:51,109 --> 01:38:51,969
growing to 20

1485
01:38:51,969 --> 01:38:53,789
and there's the possibility

1486
01:38:53,789 --> 01:38:54,769
it could all go away,

1487
01:38:55,569 --> 01:38:57,389
that's a source of risk.

1488
01:38:57,909 --> 01:38:59,489
And what you just described was

1489
01:38:59,489 --> 01:39:00,709
you said,

1490
01:39:00,829 --> 01:39:03,709
if price continues to go up,

1491
01:39:03,709 --> 01:39:12,529
then all of these other things will follow more demand for power or decentralization or entrance

1492
01:39:12,529 --> 01:39:19,449
and i just want to connect for the audience and all the bitcoiners know this but it's that

1493
01:39:19,449 --> 01:39:28,109
that price increasing is a function of more people deciding to store their value in bitcoin

1494
01:39:28,109 --> 01:39:36,089
and the thing that holds it all together is bitcoin's fixed supply and its ability to

1495
01:39:36,089 --> 01:39:43,389
operate in a way that is censorship resistant to censorship which is dependent on progressive

1496
01:39:43,389 --> 01:39:57,641
decentralization at every level there of bitcoin such that so long as those two things hold that Bitcoin fixed supplies enforce and it remains permissionless and resistant to outside censorship all those

1497
01:39:57,641 --> 01:39:58,182
things happen.

1498
01:39:58,361 --> 01:40:03,801
And those are the things that we'll just discuss and explore in greater detail.

1499
01:40:04,482 --> 01:40:09,381
But knowing that it's all anchored to the monetary side, because it's kind of a turtles

1500
01:40:09,381 --> 01:40:10,301
all the way down problem.

1501
01:40:10,301 --> 01:40:14,682
And I want to kind of get your thoughts on this as kind of a concluding thought.

1502
01:40:14,682 --> 01:40:26,702
And I'll have one last question, which is the thing that ties the demand for the hashes and the demand for power comes back to Bitcoin and the incentives of the Bitcoin network.

1503
01:40:28,361 --> 01:40:39,422
Just talk about the incentives of the Bitcoin network itself and the fixed supply and its downstream impacts throughout the mining and power dynamics.

1504
01:40:39,422 --> 01:40:46,202
yeah and going back to what i said in the beginning of the episode bitcoin is not even an attempt it's

1505
01:40:46,202 --> 01:40:54,361
successfully separated money from state so bitcoin exists because satoshi recognized that

1506
01:40:54,361 --> 01:41:01,901
we keep running into these problems um societally because governments and central banks can print

1507
01:41:01,901 --> 01:41:09,361
money at will and there needs to be a market response to the centralized control over

1508
01:41:09,361 --> 01:41:15,662
money and that's what bitcoin represents and so there's a ton of value in being able to successfully

1509
01:41:15,662 --> 01:41:26,182
separate the the function of money itself and um the control over uh the units of that money that

1510
01:41:26,182 --> 01:41:33,722
exists at any given point in time and so that is what bitcoin is is we finally figured out a way

1511
01:41:33,722 --> 01:41:41,342
to get the central authorities out of money they're not meddling with it anymore in bitcoin

1512
01:41:41,342 --> 01:41:47,901
which is incredibly valuable um there will only ever be 21 million and people can have certainty

1513
01:41:47,901 --> 01:41:55,821
that if they store their value in bitcoin their slice of the overall pie um even though it's very

1514
01:41:55,821 --> 01:42:01,762
divisible it doesn't mean you're producing more bitcoin like if you own one bitcoin you own one

1515
01:42:01,762 --> 01:42:09,861
21 millionth of the network into perpetuity and there's a ton of value in having that certainty as

1516
01:42:09,861 --> 01:42:17,002
an individual as a company as a government even um and so that is essentially what ties all this

1517
01:42:17,002 --> 01:42:22,502
together is having that certainty that if you store your value in bitcoin it's not going to be

1518
01:42:22,502 --> 01:42:28,342
debased and as more people recognize this it just perpetuates the feedback loop that you just

1519
01:42:28,342 --> 01:42:35,521
described and that is worth preserving and people who are storing their big their value in bitcoin

1520
01:42:35,521 --> 01:42:41,321
will fight to ensure that those properties remain distributed so that the money cannot be meddled

1521
01:42:41,321 --> 01:42:50,541
with in the future yeah and so it's like one one or for episode one parting takeaway for

1522
01:42:50,541 --> 01:42:57,982
if you were an energy professional who doesn't understand why there's four gigawatts of power

1523
01:42:57,982 --> 01:43:01,561
being drawn in Texas to mine Bitcoin

1524
01:43:01,561 --> 01:43:04,301
in 30 gigawatts globally

1525
01:43:04,301 --> 01:43:07,321
and get lost in hashes and ASICs

1526
01:43:07,321 --> 01:43:08,641
and mining pools.

1527
01:43:09,242 --> 01:43:11,682
The reason for its existence

1528
01:43:11,682 --> 01:43:13,482
and the reason why it will be sustained

1529
01:43:13,482 --> 01:43:15,662
is Bitcoin delivers sound money.

1530
01:43:16,242 --> 01:43:17,861
The fixed supply is the anchor of that.

1531
01:43:18,521 --> 01:43:19,881
It is solving the problem

1532
01:43:19,881 --> 01:43:20,962
that every other form of money

1533
01:43:20,962 --> 01:43:21,942
is dependent on trust.

1534
01:43:22,081 --> 01:43:23,422
And through this function of mining

1535
01:43:23,422 --> 01:43:27,162
is how the Bitcoin network

1536
01:43:27,162 --> 01:43:31,401
can credibly enforce as fixed supply in a trustless way without reliance on that central

1537
01:43:31,401 --> 01:43:31,982
third party.

1538
01:43:32,442 --> 01:43:36,801
But then for the Bitcoin miners and the people that are well immersed is that all that only

1539
01:43:36,801 --> 01:43:38,922
works because of decentralization.

1540
01:43:39,242 --> 01:43:44,842
And that if there's complacency of points of centralization, even though there are economic

1541
01:43:44,842 --> 01:43:51,742
incentives that will dictate progressive decentralization, that that only happens by

1542
01:43:51,742 --> 01:43:54,821
individual actors within the network

1543
01:43:54,821 --> 01:43:57,002
responding to incentives

1544
01:43:57,002 --> 01:43:58,922
that contemplate that idea

1545
01:43:58,922 --> 01:44:00,662
that points of centralization

1546
01:44:00,662 --> 01:44:03,021
are not just

1547
01:44:03,021 --> 01:44:04,901
risks to the network, but they

1548
01:44:04,901 --> 01:44:06,962
are risks to the individual actor acting

1549
01:44:06,962 --> 01:44:08,081
in their own self-interest.

1550
01:44:08,081 --> 01:44:10,182
Yeah. And so that's

1551
01:44:10,182 --> 01:44:11,262
complacency and apathy

1552
01:44:11,262 --> 01:44:13,881
will,

1553
01:44:14,081 --> 01:44:15,521
if you're a minor, ruin your business

1554
01:44:15,521 --> 01:44:17,482
in the long run because you'll

1555
01:44:17,482 --> 01:44:19,641
invest in all this infrastructure

1556
01:44:19,641 --> 01:44:21,442
and you'll

1557
01:44:21,442 --> 01:44:25,702
put all this time and effort into it and if you get too complacent too apathetic and you just

1558
01:44:25,702 --> 01:44:32,462
hand wave like oh this is okay um and bitcoin becomes centralized and uh people are easily

1559
01:44:32,462 --> 01:44:37,782
able to push changes that increase the supply or do something that makes it harder to run bitcoin

1560
01:44:37,782 --> 01:44:44,061
distorts the economic incentives yeah you're basically just setting your capital on fire

1561
01:44:44,061 --> 01:44:50,801
because as an individual saving in bitcoin if that happens i'm like oh shit like back to gold

1562
01:44:50,801 --> 01:44:59,541
like the so and that's why like i'm sorry if it was like hand waving a little bit um flippant

1563
01:44:59,541 --> 01:45:07,801
earlier but like i i do believe the incentives are strong enough and people um will be forced

1564
01:45:07,801 --> 01:45:12,561
to reckon and that's what we we saw like in the block size war in 2017 when things are threatened

1565
01:45:12,561 --> 01:45:21,442
people react and we saw it with g hash in 2015 like that okay we enter these periods where you

1566
01:45:21,442 --> 01:45:26,962
have relative peace time but in my experience being in bitcoin for 12 years whenever something

1567
01:45:26,962 --> 01:45:33,581
controversial or something a threat to the sanctity of bitcoin the protocol and how it operates has

1568
01:45:33,581 --> 01:45:39,102
ever arisen like the economically incentivized individuals leveraging bitcoin or involved in

1569
01:45:39,102 --> 01:45:44,401
bitcoin like stand up so you know like you're not doing this yeah the the the threat needs to

1570
01:45:44,401 --> 01:45:52,641
present itself and in a lot of cases for and it to be clear and present for a real immune response

1571
01:45:52,641 --> 01:45:58,141
to kick in while at the same time everyone's acting in their own self-interest and there's

1572
01:45:58,141 --> 01:46:06,801
a natural tie-in to um de-risking yourself from other counterparties yep whether that's storing

1573
01:46:06,801 --> 01:46:11,861
Bitcoin with an exchange and that might mean having other exchange options or having more

1574
01:46:11,861 --> 01:46:16,301
self-custody options or whether you're tied into a certain vendor or on the mining side,

1575
01:46:16,842 --> 01:46:24,881
being tied into a pool or having limited options to shift around or who you are sourcing from in

1576
01:46:24,881 --> 01:46:32,641
terms of a supplier that throughout the ecosystem, everyone has an incentive to be less reliant

1577
01:46:32,641 --> 01:46:37,162
on potential points of failure yeah all right last question

1578
01:46:37,162 --> 01:46:46,041
two subjects related to energy or mining that you're most interested in us diving deeply in

1579
01:46:46,041 --> 01:46:56,742
on this podcast and then give me your top five wish lists of guests okay um at home mining like

1580
01:46:56,742 --> 01:46:57,262
waste heat

1581
01:46:57,262 --> 01:47:02,801
I think people are sleeping on that

1582
01:47:02,801 --> 01:47:04,081
trend Tyler Stevens

1583
01:47:04,081 --> 01:47:08,842
and what they're trying

1584
01:47:08,842 --> 01:47:10,801
to do like he wrote the book with

1585
01:47:10,801 --> 01:47:12,821
brains on waste heat like the stat he threw out

1586
01:47:12,821 --> 01:47:15,021
earlier this year at the Nashville

1587
01:47:15,021 --> 01:47:16,762
Energy and Mining

1588
01:47:16,762 --> 01:47:18,662
Summit was mind-blowing if you take

1589
01:47:18,662 --> 01:47:20,742
2% of the

1590
01:47:20,742 --> 01:47:22,722
HVAC market globally and

1591
01:47:22,722 --> 01:47:24,561
you successfully convince

1592
01:47:24,561 --> 01:47:26,722
2% of that market running

1593
01:47:26,722 --> 01:47:29,762
HVAC systems to incorporate Bitcoin mining

1594
01:47:29,762 --> 01:47:31,482
you would like double the hash rate

1595
01:47:31,482 --> 01:47:33,061
overnight just like that's

1596
01:47:33,061 --> 01:47:35,922
that minute market share

1597
01:47:35,922 --> 01:47:37,842
we'll get Tyler on

1598
01:47:37,842 --> 01:47:39,262
so he'll be one of your top five

1599
01:47:39,262 --> 01:47:40,021
incorporating

1600
01:47:40,021 --> 01:47:41,722
yes incorporating

1601
01:47:41,722 --> 01:47:47,521
mining into the home applications

1602
01:47:47,521 --> 01:47:49,801
basically subsidize your energy cost

1603
01:47:49,801 --> 01:47:51,202
by producing Bitcoin

1604
01:47:51,202 --> 01:47:53,861
I think it'd be massively beneficial

1605
01:47:53,861 --> 01:47:54,282
to

1606
01:47:54,282 --> 01:48:02,081
decentralization of the network and really uh hashrate ownership overall and you can think of

1607
01:48:02,081 --> 01:48:07,722
like hvac like maybe individual hvac companies run pools where their customers are pointing their hash

1608
01:48:07,722 --> 01:48:14,342
at the hvac pool that they're using and that's how you get mining pool decentralization that's

1609
01:48:14,342 --> 01:48:19,122
like at home sort of like home application of mining using the waste heat something that

1610
01:48:19,122 --> 01:48:23,722
i'm very excited about and i think we've reached a point of basic commodification where you can

1611
01:48:23,722 --> 01:48:32,842
begin to build viable businesses around so that's one the other would be

1612
01:48:35,842 --> 01:48:41,302
the midstream problem I think like getting a midstream operator on here

1613
01:48:41,302 --> 01:48:49,581
hopefully one that actually understands a coin mining and is like on top of it

1614
01:48:49,581 --> 01:48:54,861
like how that actually works because it was a thesis we had i talked to some people that are

1615
01:48:54,861 --> 01:48:59,021
saying that the thesis is being validated and they're actually doing it and i think at scale

1616
01:48:59,021 --> 01:49:04,702
that would be massive for the natural gas supply chain and bitcoin mining overall i got some ideas

1617
01:49:04,702 --> 01:49:11,982
as people that uh the bitcoiners would have never heard of so yeah um top five tyler on um

1618
01:49:13,662 --> 01:49:19,021
toby rice from uh the eqt the biggest natural gas producer

1619
01:49:19,581 --> 01:49:23,942
I had the pleasure of sitting out at dinner with him like two or three years

1620
01:49:23,942 --> 01:49:24,262
ago.

1621
01:49:25,381 --> 01:49:26,501
And I don't know him.

1622
01:49:26,702 --> 01:49:27,401
He's a,

1623
01:49:27,641 --> 01:49:27,842
see,

1624
01:49:27,982 --> 01:49:28,282
uh,

1625
01:49:28,561 --> 01:49:29,802
where is he on the Bitcoin spectrum?

1626
01:49:30,202 --> 01:49:30,581
He was,

1627
01:49:30,821 --> 01:49:30,861
uh,

1628
01:49:30,861 --> 01:49:32,922
it was,

1629
01:49:33,041 --> 01:49:35,381
this was like peak 21 craze.

1630
01:49:35,442 --> 01:49:37,722
So he was talking like she and a bow and like meme coins and all.

1631
01:49:37,802 --> 01:49:38,041
I was like,

1632
01:49:38,081 --> 01:49:38,262
Joe,

1633
01:49:38,401 --> 01:49:39,762
like just focus on Bitcoin.

1634
01:49:40,842 --> 01:49:41,242
Um,

1635
01:49:42,282 --> 01:49:43,242
that'd be a good one.

1636
01:49:43,561 --> 01:49:43,842
Uh,

1637
01:49:43,842 --> 01:49:45,182
Chris Ray or excuse me,

1638
01:49:45,222 --> 01:49:45,722
Chris Wright.

1639
01:49:46,001 --> 01:49:46,802
They had an FBI.

1640
01:49:47,081 --> 01:49:48,102
Chris Ray was the FBI.

1641
01:49:48,102 --> 01:49:49,061
I always get to mix up Chris,

1642
01:49:49,141 --> 01:49:49,361
right?

1643
01:49:49,581 --> 01:49:50,682
uh,

1644
01:49:51,602 --> 01:49:52,462
department of energy.

1645
01:49:52,462 --> 01:49:56,962
I've had him on my podcast a couple of times in the past.

1646
01:49:57,021 --> 01:49:58,262
It'd be great to catch up with him.

1647
01:49:59,302 --> 01:49:59,702
Um,

1648
01:50:00,202 --> 01:50:02,242
do you see the energy things?

1649
01:50:02,422 --> 01:50:02,702
Yeah.

1650
01:50:02,982 --> 01:50:03,321
Yeah.

1651
01:50:03,462 --> 01:50:05,662
Your secretary of the department of energy.

1652
01:50:05,782 --> 01:50:05,922
Yeah.

1653
01:50:07,381 --> 01:50:07,742
Uh,

1654
01:50:08,662 --> 01:50:08,982
Elon,

1655
01:50:09,162 --> 01:50:09,881
you got to get Elon.

1656
01:50:10,041 --> 01:50:10,401
I mean,

1657
01:50:10,401 --> 01:50:11,242
Jesse Pelton,

1658
01:50:11,422 --> 01:50:11,581
maybe,

1659
01:50:11,722 --> 01:50:13,242
maybe like one degree away from,

1660
01:50:13,442 --> 01:50:13,942
I want to do a,

1661
01:50:14,222 --> 01:50:14,942
I think I,

1662
01:50:15,122 --> 01:50:15,742
and I'll admit,

1663
01:50:15,922 --> 01:50:18,222
I want to do a residency with Jesse on like,

1664
01:50:18,361 --> 01:50:18,702
like,

1665
01:50:18,881 --> 01:50:18,942
like,

1666
01:50:19,581 --> 01:50:21,381
on the physics of energy.

1667
01:50:21,561 --> 01:50:21,782
Yeah.

1668
01:50:21,842 --> 01:50:25,361
And then how that comes through a bit quite a good Jesse.

1669
01:50:26,361 --> 01:50:27,001
And then,

1670
01:50:27,122 --> 01:50:27,401
uh,

1671
01:50:27,722 --> 01:50:28,222
Nick Gates,

1672
01:50:28,381 --> 01:50:28,861
I think,

1673
01:50:28,881 --> 01:50:29,302
um,

1674
01:50:30,321 --> 01:50:32,622
Nick is a priority power.

1675
01:50:32,682 --> 01:50:32,962
He's,

1676
01:50:33,162 --> 01:50:33,442
yeah,

1677
01:50:33,622 --> 01:50:33,881
he's,

1678
01:50:33,881 --> 01:50:34,702
I think he's my,

1679
01:50:34,802 --> 01:50:35,361
he's my go,

1680
01:50:35,462 --> 01:50:38,321
he's within my handful of go to people of,

1681
01:50:38,662 --> 01:50:42,001
as I'm trying to understand the grid and energy systems,

1682
01:50:42,081 --> 01:50:42,982
energy markets,

1683
01:50:42,982 --> 01:50:44,881
he's one of my go-tos.

1684
01:50:44,962 --> 01:50:45,141
Yeah.

1685
01:50:45,262 --> 01:50:45,901
And then,

1686
01:50:45,901 --> 01:50:46,342
you know,

1687
01:50:46,342 --> 01:50:46,901
he always,

1688
01:50:48,182 --> 01:50:49,102
um,

1689
01:50:49,581 --> 01:50:53,901
He helps sharpen my views of everything around Bitcoin.

1690
01:50:54,061 --> 01:50:55,842
I feel like I've helped him understand Bitcoin better.

1691
01:50:56,182 --> 01:51:01,182
I don't know their names, but one of the founders of an SMR company like Oklo.

1692
01:51:03,041 --> 01:51:06,021
You have to give me another name, but I'll get that as a sub.

1693
01:51:06,222 --> 01:51:09,262
So SMRs are small modular reactors on the nuclear side.

1694
01:51:10,001 --> 01:51:10,662
But another name.

1695
01:51:11,342 --> 01:51:13,122
You've given me five.

1696
01:51:14,122 --> 01:51:18,141
Tyler Stevens, Toby Rice, Chris Wright, Jesse Pelt, and Nick Gates.

1697
01:51:18,141 --> 01:51:18,541
Yeah.

1698
01:51:18,982 --> 01:51:19,182
Yeah.

1699
01:51:19,581 --> 01:51:24,102
start with some of those well i'm very excited for your consistency is key

1700
01:51:24,102 --> 01:51:30,262
yeah we're gonna be recording in the podcast studio podcast production is is a grind okay

1701
01:51:30,262 --> 01:51:34,842
i'm gonna be on top of this i got strong team it's one of the reasons why we're working with tftc

1702
01:51:34,842 --> 01:51:40,581
have beautiful studio here in austin texas great team we've got a mute all the infrastructure

1703
01:51:40,581 --> 01:51:47,682
perspective great feed yeah we're gonna we're gonna you know rely on logan's uh fact-checking

1704
01:51:47,682 --> 01:51:57,982
us from time to time he's gonna fact check thumbs up okay that video that logan did uh when he was

1705
01:51:57,982 --> 01:52:06,021
what was the video you were selling uh some class i i was like i didn't even know logan can act he

1706
01:52:06,021 --> 01:52:12,922
can act he can dance you know got some jokes the right way yes yeah so i'm happy for you

1707
01:52:12,922 --> 01:52:13,302
yeah

1708
01:52:13,302 --> 01:52:13,942
put your sign off

1709
01:52:13,942 --> 01:52:14,662
that's a big thing

1710
01:52:14,662 --> 01:52:15,541
I'm not doing

1711
01:52:15,541 --> 01:52:16,861
I don't know

1712
01:52:16,861 --> 01:52:18,321
gotta think about that

1713
01:52:18,321 --> 01:52:20,321
I'm just gonna copy you

1714
01:52:20,321 --> 01:52:21,361
with a final thought

1715
01:52:21,361 --> 01:52:22,501
we're gonna zoom out

1716
01:52:22,501 --> 01:52:23,682
from the center of hash

1717
01:52:23,682 --> 01:52:25,061
I don't know

1718
01:52:25,061 --> 01:52:26,462
are we going with center?

1719
01:52:26,622 --> 01:52:27,262
that's all folks

1720
01:52:27,262 --> 01:52:28,821
nah that was Bugs Bunny

1721
01:52:28,821 --> 01:52:29,501
or

1722
01:52:29,501 --> 01:52:30,602
is it the pig

1723
01:52:30,602 --> 01:52:31,302
Porky the pig

1724
01:52:31,302 --> 01:52:32,501
I don't know

1725
01:52:32,501 --> 01:52:33,762
think about it

1726
01:52:33,762 --> 01:52:37,881
we gotta figure out the name

1727
01:52:37,881 --> 01:52:38,561
first in the next

1728
01:52:38,561 --> 01:52:40,081
few days before we release it

1729
01:52:40,081 --> 01:52:40,762
hash found

1730
01:52:40,762 --> 01:52:41,702
next block

1731
01:52:41,702 --> 01:52:43,202
don't know

1732
01:52:43,202 --> 01:52:43,482
yeah

1733
01:52:43,482 --> 01:52:46,662
alright we'll just end it

1734
01:52:46,662 --> 01:52:48,401
till next time