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Rob, welcome back to Bitcoin Park.

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It's good to be here again.

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Last time was the Texas Energy Mining Summit.

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It feels like yesterday, but now a couple months in the past.

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Yeah.

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And so we're joined today by Rob Warren, who is the Head of Research and Education at Bitcoin Park.

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Talk a little bit about that role.

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Yeah. So I've worked predominantly in the mining industry and have been really deep in really kind of generally the research and education side of things, just because we've all been figuring stuff out in public as things do in Bitcoin.

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and jump down with Bitcoin Park essentially as the broad head of research and education,

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which gives me the opportunity to do exactly what I'm doing,

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but in the context of now the whole Bitcoin space,

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which is fantastic because it's not just exposure to mining,

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but it's also introductions to folks that are working on the human rights side of Bitcoin,

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who are working on the technical side of Bitcoin, the payments, the custodies.

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So it's really kind of a whole new aspect of work that's opened up, which I love.

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And in addition to work at Bitcoin Park, which we're now members of the organization.

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That's right.

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Here in Austin, happy members.

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You also wrote a book, The Bitcoin Miner's Almanac.

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That's right.

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And in my view, you know, we're friends, but also just in the discussions that we've had, you have a well-rounded perspective of granularly, you know, how a Bitcoin mine works, what the inputs are, Bitcoin at its broadest sense as a money network.

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And the combination of those for these early episodes of this podcast is, you know, you were one of the one, two and three people on my list to record the first episodes to kind of lay some groundwork of not just going into Bitcoin mining 101, but painting a broad structure of the critical aspects of how Bitcoin mining works, the energy components of it, why it's important to the system.

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and today i want to kind of dive deeper into the the energy side of what is actually happening

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you know in terms of why the energy is important to bitcoin also some points around centralization

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but before we get into those kind of deeper points i want to hear you articulate because

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we've had conversations in the past about how there's there's bad analogies of what bitcoin

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mining is or isn't one of which is that bitcoin mining is is a battery or bitcoin's a battery

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whether it's proof of power but just talk a little bit about you know from your perspective

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a function of mining to the bitcoin network and why it's important and what it is sure sure well

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i mean as as most things are it's always good to go back to the source document and kind of

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understand how things were understood at the earliest days of Bitcoin. So functionally,

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Bitcoin mining does two things. It allows for the issuance of new Bitcoin. That to us is called the

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block reward. So approximately every 10 minutes a block is found. You find a block, you are rewarded

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with something. You're rewarded with Bitcoin. That is a way to get Bitcoin into the world.

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You need a way to essentially distribute Bitcoin so that people can then have some utility, whether that's holding or spending or whatever they do with it.

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All Bitcoin that exists has come into existence through mining.

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The next thing that you need to do is you need to be able to transact with the asset.

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So you need to be able to actually send it to people.

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And that's the second part of Bitcoin mining, which is settlement.

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So it's the ability to actually submit a signed transaction to the mempool, have it included in a block, which then the miners are given a small reward for, which is the fee that you pay to transact on the Bitcoin network.

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And fundamentally, that's the two things that Bitcoin mining does from an operational, from a functional perspective in Bitcoin.

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And it's where we stand today is really worlds apart from where we were in the days of the white paper.

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And it's almost unrecognizable to look at Bitcoin as of 2025 and try to compare it to what it was in the earliest days, the 20-aughts, right?

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For one, the biggest difference is that when we talk about what a node is, Satoshi refers to a node as a node that is actually doing mining.

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And where we stand today, functionally, that's extremely rare.

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Now it's coming back and I'm sure we'll hit on this when we talk about the decentralization point, but it's interesting how you can learn a lot about the present by actually going to the original source documents, the white paper, and then understanding, okay, well, what's different and what's the same?

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And how do we hold true to what was actually given to us in the white paper to make sure that we're really appropriately stewarding this thing, this Bitcoin thing as we build on it in the future?

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And so what is it about the mining function and specifically energy that you view, why is it critical to the system?

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Like, why is this function critical to, so if they're, if they're doing, if, if Bitcoin miners are functionally doing two things, validating currency transactions and validating the fixed supply of the currency.

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Why and how is the mining function critical to that, but at a lower level, what is the function of energy and energy consumption within there?

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That's such a big question.

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it's such a big question and it's really interesting because when you when you look

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at the earliest conversations on something like the the bitcoin talk forums where a lot of folks

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who are household names in bitcoin are trying to figure out what is the extension or what is the

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natural growth path of bitcoin there are only very small glimpses into what the future of the mining

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sector would look like. There are some references to when I run my computer, it heats up my room.

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There's references to the noise, you know, how noisy your computer gets if you happen to be

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running your Bitcoin client and it's mining and your computer is now wrapped up, operating at 100%

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all the time. But it was, I'd argue that it's not really something that we have a fully fleshed out

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theory of. It's something that we're actually living through the history of right now.

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and fundamentally it all reduces to this truth,

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which is that to win a block,

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that's what miners are trying to do.

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They're trying to win a block

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and the mechanism that they use to do that

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is inputting information into this algorithmic machine

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we call the SHA-256D hashing algorithm,

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which is what we use to mine.

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Running that algorithm takes energy

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and like running any process,

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that has some kind of expected value, and we could get into what that means, the expected value or the statistical nature of it,

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running any process is going to have some kind of cost associated with it.

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And for Bitcoin miners, fundamentally, that cost, really the largest cost that we incur outside of buying machines,

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is the cost of running that machine.

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And so we find ourselves, just based on the simple fact that we want to run profitably,

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always beholden to the world of energy.

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And it's because we always want to reduce our operational cost as low as humanly possible.

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And what that means in the real world is that we become a very interesting consumer in the

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broad world of energy because we are not stuck in a single jurisdiction.

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We're not stuck operating on a single IP address in a single type of building.

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Our operational requirements are almost nothing like any other business that you could imagine.

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You know, if you want to set up a hot dog stand, you put it outside of the baseball field.

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Well, if you want to set up a Bitcoin mine, you go and you find some energy.

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If you want to set up an AI data center, well, I have some constraints.

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I have demands I have to make of my infrastructure provider.

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Bitcoin miners have an incredible degree of flexibility operationally that is unlike any other consumer in the market.

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And because of that, we are this kind of dung beetle in the market where we are constantly seeking out sources of energy that are abundant, that are waste, that are difficult to access.

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And we're monetizing them in some of the most far reaches of the world, really.

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So two things.

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One, a basic question.

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You referred to what miners are trying to do is win a block.

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connect that to the prior statement like the the concept of a block to

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the fixed supply and validating currency transactions just for for a baseline for

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for people who might the the concept people who the concept of a block might be esoteric okay and

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then second um on the idea of the consumption of energy if you would lay some ground

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work for what is actually like you plug a machine in but talk about in a in a literal sense how that

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power is performing the functions that you talked about enforcing the fixed supply and validating

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how does the bread box what what the heck is a bread box you're going from some natural resources

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to electricity to the bitcoin that's right helping somebody understand like what might be happening

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because they're not just, they're not taking, you know, it's not mining in the sense of pulling a

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resource out of the ground, but first connect the block to the core functions that you laid out.

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Perfect. So I, I like to conceptualize it and I, I did it. I did it in the book as well through

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the concept of the machine itself, right? The Bitcoin mining machine, a lot of us have seen

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images. It's easy to pull up a picture of, you know, an S21 or an S19 or a standard, you know,

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Watts miner in M30. And it's kind of this bread box looking machine. And it has fans on the outside

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of it. There's different versions. There's all sorts of futuristic ways to cool it, but that's

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not relevant. The most important thing is that you have some kind of machine and its sole purpose

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is to consume electricity and do this thing called Bitcoin mining. To run that machine,

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you only need three things. You need something to plug it into, source of energy. You need some

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physical way to cool it. And there's all sorts of creative ways that you can cool these machines,

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whether it's by using some kind of solvent, like a two phase solvent, you can use an oil,

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you can use water cooling plates, you can use air. There's all sorts of reasons to use all

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sorts of different cooling mechanisms. And then you need a connection to the internet.

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And the connection to the internet or a connection to a node is the way that you communicate with

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the network, the peer to peer network that is Bitcoin. So fundamentally what's happening,

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If you imagine, you know, in the simplest sense possible, a blockchain is a chain of blocks.

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And the question is, OK, well, what makes it a chain of blocks?

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What is a block?

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A block is simply a chunk of data included in that are transactions that people want to be settled in a block.

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And that data, just a string of data, is given to the machine as a template.

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and included in that data is essentially a reference. It's a link, it's a hash.

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So what had just happened, the prior block. So I have a chunk of data and in that data is some

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information about the prior block, some information about time, version, difficulty, all sorts of,

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you know, computer stuff. If you're not like a tech literate type person.

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And in that are transactions that people want to send. What do I do with that data? I run it

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through a hashing algorithm. Now, what is a hashing algorithm? You can think of it sort of like a big

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wood chipper. And it's a wood chipper that I put data into, and what it spits out is going to be

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just a cube. Okay, well, for our purposes, it looks a bit just kind of like a random 64-bit string,

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right? Random number. It's called a hash. There's something interesting about this shot256 wood

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shipper, which is that if I put the same piece of data in, I will always get the same output.

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So it's 100% deterministic that if I put in this, I get this out. But what makes it so powerful is

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that I can never look at the final product and know what I put in, which is a really powerful

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tool because you imagine that it allows you to package and verify data while giving no way to

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an attacker or some outside party of modifying it in transit or doing anything like this. If I want

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to send you a message and I send you a message and the hash of the message, if somebody gets between

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us and changes that message, if you go and you run that message into the hashing algorithm and

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you see that it gives you a different result out of the wood chipper than what I told you the result

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was, you know that somebody is screwed with the data. So it's a wonderful way from a safety and

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security mechanism to ensure data fidelity. But I do that through my Shot256 hashing algorithm,

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and I get an output. Now, the Bitcoin network doesn't just want any output.

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It wants an output that has certain characteristics to it. And the way that we think about this is

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what we call difficulty right so i don't know if how deep down that rabbit hole we want to go

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let's keep it to the um the direct like not let's like not get into difficulty necessarily but

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the direct connection between that the energy you described to how how that relates to you

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mentioned the transactions are included and then the the pointing to a prior block a prior set of

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these transactions, but then maybe articulate how it's connected to the fixed supply of enforcing

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the 21 million. Sure. So, so in the process of, of running this hashing algorithm, um, what you're

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trying to do is you're trying to essentially achieve the difficulty, which allows you to,

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to find a block, right? Um, the only way to do this is to include another little bit of random

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data that we call a nonce into the ingredients going into that wood chipper right The reason I do this is because I can never predict what I get out of the machine So I do this millions upon millions upon trillions of times second after second

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And what I'm fundamentally doing is I'm taking an input source of energy and I'm doing a

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certain kind of work, which is called hashing.

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And I can't know what the output of that work is going to be, but that work has a certain

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value associated with it.

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And this kind of gets into this idea of pooled mining or contributing work to the network, which I think is maybe a later conversation when it comes to the centralization of the network. But this work has a value. And this is essentially kind of a derivative, but still a bit of a commoditized value.

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So the energy that I put in can be essentially the expense side of the equation.

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And the work that I get out can essentially be the profit side of an equation when it comes to running a Bitcoin mine.

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So I have an incentive.

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I have a block reward.

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And the block reward is what eventually issues Bitcoin over time, which then will fulfill the 21 million, which is the hard cap supply.

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That's how we get there.

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We get there by taking input energy, which has a cost associated with it.

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Sometimes, however, we get paid to use the energy because what we perceive as a cost is actually a liability to another type of business.

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We consume something, we convert it into hashes, which have some kind of value associated with them.

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Functionally, what that does in the Bitcoin network is it helps us issue and settle transactions.

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It's kind of the oil in the machine that keeps everything running.

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and that's what brings us on that issuance curve to that eventual implied 21 million bitcoin

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um and then fundamentally over time where that leaves us is um a whole bunch of different ways

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to monetize but through what we call the block or the subsidy is sort of the the the um the the

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inputs the uh the revenues of the business and so without going into necessarily what staking is

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versus proof of work but you could try to explain why this process consumption of energy the

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conversion of energy into these esoteric concepts of hashes and then where it starts to get more

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functional literal which is that allows anybody else in the network to to verify something easily

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even if it was difficult to produce why is this function critical to the permissionless nature of

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bitcoin and and ultimately bitcoin's ability to operate in a way that is resistant to censorship

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like why so it's doing these functions but why does it need the energy to be consumed like why

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couldn't why couldn't we do this without without energy without energy without the mining function

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What the Fudsters say is, why can't we just switch to proof of stake and just make it an internally self-referential system, right?

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It's really indigenous to the design of Bitcoin that it is permissionless.

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You know, it's said in the white paper that nodes can leave and rejoin at will.

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Bitcoin wasn't designed to be the best at something.

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Well, let me rephrase that.

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Bitcoin wasn't designed to compete with a Venmo or to compete with a big settlement layer or a visa right out of the box.

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It was designed to be fundamentally unkillable.

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It was designed to be anti-fragile in its nature.

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And the way that you do that is you have to make really, really smart design choices to ensure that you don't put yourself in a situation where you incur some kind of existential risk.

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Because what you're always trying to hedge against is the existential risk.

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What is the thing that could kill me?

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proof of stake runs into issues without getting too deep into it or it has collusion problems

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if you wind up with too much of whatever your your staking reward is winding up in the hands

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of particular actors or validators you have collusion risk that is just kind of baked into

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the system as as a risk of the function of the system bitcoin does something different it does

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not ground itself in a set of internal game theoretics that are tied strictly to the inside

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of the game. It actually ties itself into the outside world. And it demands that you use real

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energy in the real world if you're going to produce hashes and participate in the network.

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So this fundamentally makes it different. And this has been really the main source of critique that

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we've seen over the last couple of years has been a lot of the energy use of Bitcoin. Now,

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baked into that is the assumption that producing or using energy is a bad thing, which is a bit of

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a silly argument in my perspective. If you look at the development of nations over time and how

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that is directly tied to the way that they produce and consume energy, a bit of a Malthusian take,

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right? The idea that you need to constantly reduce and consume less and do less and do less. It's

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it's the opposite of whatever the E accelerated folks on X are talking about.

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But what Bitcoin does is as part of its actual design, and the reason for its design are really,

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really interesting from a historical perspective that are worthwhile to go into if you're a fan

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of like Nick Zaba or Wei Dai, but not so much relevant to the conversation. It solves a really

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interesting problem. And the problem that it solves is that it needs to be hard to make money.

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I mean by physical creation, not like get a job, make money. There has to be some kind of cost

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associated with producing the money in the same way that there is a cost associated with mining

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gold. How do I do that in the world of computers where everything baked into the world of computers

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is designed around getting faster and better and quicker and cheaper? That is really an

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intractable problem if you try to solve it in the way that kind of a proof of stake does is totally

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in as a totally internal problem what satoshi did that was so interesting in the way that they

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designed bitcoin is that they didn't try to actually solve the problem internally what they

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said instead was i know that people are going to enter this game and leave this game all i can do

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for you is provide the incentive, a stick. I can provide for you the block reward and the fees,

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and I can let you know how many there are going to be. And I can let you know essentially what

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the issue and schedule is going to be like across halvings. Consistent with the fixed supply.

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Consistent with the fixed supply. And I'm going to let you figure everything else out.

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And so if you figure out a really creative way to mine Bitcoin, say you don't want to use a CPU

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anymore and you want to start using a GPU, go for it because you're chasing an incentive.

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If you figure out how to manufacture an ASIC and mine Bitcoin even more effectively,

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go for it. I'm not even going to concern myself with that. All I'm going to do in the network

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itself is build a mechanism that keeps us aligned with that base incentive, which is 21 million

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issued across this rough timeline,

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essentially certain block heights where adjustments are made,

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moderated by the difficulty adjustment.

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So all that Bitcoin knows,

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the only thing Bitcoin knows,

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if Bitcoin can know anything about the world of mining,

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the only thing it knows about the world of mining

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is when block times come in.

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That's it.

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Because all it does when the difficulty adjustment occurs

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is look back and say,

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were blocks coming in faster than I wanted them to?

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or were they coming in slower than i wanted it to okay they were coming in faster well then i need

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to i need to make the bar a little bit harder to find a block coming in slower okay we'll do the

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opposite that's the only thing bitcoin knows about the world of mining it doesn't know who's mining

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it doesn't know where you're mining i think it doesn't know what kind of hardware you're using

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okay so connect that idea doesn't know who's mining where anyone's mining

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it knows that it just saw a new block and it has an objective way to evaluate whether or not it's

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valid without relying on somebody else that's right right connect that to the permissionless

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nature that basically any miner can come in and mine that's right um but then anybody can also

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send transactions that something about that process of no one knowing who's mining other

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than the proof of it that energy is a key component that any anybody can evaluate at

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least probabilistically how much energy would have to be consumed and whether or not it met

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a certain you know in this case difficulty target but ultimately a threshold for rate of block

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creation yeah yeah that is that a fair way to describe it like that something about this

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process is what ensures the integrity of bitcoin being a permissionless system yeah would it would

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another way to say it be something along the lines of like what is bitcoin saying about the world of

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energy because it knows very little so to speak but i do think it's it's saying something about

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the world of energy given the fact that it is and continues to just absolutely explode in hash rate

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is that another way to to kind of address the the question yeah i mean i think it's it's less so

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the because i do want to get to like how bitcoin and what bitcoin's role is in energy systems

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but um wanting to focus of anchoring someone in okay mining is doing these certain functions

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validating the currency transactions validating the fixed supply but in like the world of checks

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and balances of bitcoin if you have bitcoin holders and you have bitcoin miners and you have

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nodes in which you described that in the early days of bitcoin every node was also mining bitcoin

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and now it's more centralized yeah that um software alone doesn't dictate that there will

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only ever be 21 million and software alone doesn't dictate what isn't a valid bitcoin transaction

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that there's this objectiveness that all of these participants can be involved in this system but

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there's something anchored in the physical world that others can verify

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without needing to actually have any direct coordination between them and trying to connect

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that to you know is energy really critical to that system or could it be done another way

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so almost like could we change it if we wanted to or or or to think about it say like if we

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say that the energy use of bitcoin is not a waste and it's actually going to to a utility sure

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trying to test that assumption by saying if it's critical to the system then if it weren't then in

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theory of the system wouldn't work and if bitcoin only works because it's permissionless there must

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be a connection between anybody being able to plug into a power source um that other people can verify

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it's such an interesting way to think about it because the one thing that the one thing that

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really trips people up is that you you sort of spend your 10 000 hours learning bitcoin right

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and then once you start to get into bitcoin mining it's as if you've entered this small

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sub-niche that now, again, is a totally alien landscape. Because it's not really clear on its

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face what the incentives are, because the incentives of a Bitcoin miner don't even in all

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cases necessarily align with the incentives of the adversarial network that is Bitcoin with the

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software itself. And so there is this really interesting tension, I think, is what you're

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getting at that you don't even have to care about Bitcoin to mine Bitcoin. You know, there,

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there are reasons that you would mine Bitcoin that are entirely unrelated to your interest in

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Bitcoin or your, um, your desire to preserve the monetary network or to contribute to the

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monetary network in some way. And in this sense, it's a, I'll give you a concrete example is if

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you talk to a lot of folks who are early oil and gas adopters, oil field mining of Bitcoin,

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they were trying to solve a problem that is extremely hard to solve, which is that I might

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have a well that regulatory-wise is producing integrated gas, so a mix of natural gas and oil,

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but I can only sell the oil to market. That natural gas is essentially, it's a prohibition,

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it's a liability to me, but I can't get the oil out of the ground without getting the gas.

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Or maybe I have a tranche of wells that I own that are producing natural gas,

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but there's no pipeline nearby. There's no way to actually get it to market. So I have a stranded

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asset. There's a myriad reasons why an oil and gas operator would be looking at some set of

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minerals that they own and going, what the hell am I going to do with it? It's kind of, it's dead.

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It's a dead asset on my balance sheet.

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Bitcoin mining, in a lot of senses, has entered the equation for these operators as a way for

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them to do something that they know how to do, which is monetize minerals.

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And how do they do that?

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They can take this stranded product, this natural gas, or this waste product, or this

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liability product, this natural gas, and they can run it into a genset, into a generator,

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an engine.

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And when, if I consume it, I can turn it into electricity.

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If I turn into electricity, I can run a machine with it. It's one of the three inputs of the Bitcoin miner. And if I run a machine with it, I can hash and attempt to find a block and contribute in a sense to the Bitcoin network and be monetarily rewarded for it.

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it's really interesting because it's not necessary for a bitcoin miner to understand all of bitcoin

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to understand the utility that bitcoin mining might provide to them as a business operator

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totally unrelated to bitcoin however if you don't understand what your machine is doing

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you are incurring some secondary risks so you actually if you not fully educated in what the heck your machine is doing and if you look at it simply as a load bank

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kind of a dumb asset that just turns electricity into money,

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you actually pose a risk of killing the golden goose in a sense,

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of doing something that might actually be inappropriate

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for the health and function of the network,

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which we've been kind of teasing around this idea of,

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you know, growing centralization risks

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or growing censorship risks or growing collusion risks,

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which are very real in the modern state of Bitcoin.

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Yeah, actually, you touched on something there

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that maybe we could go in that direction for a second,

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which is somebody could mine Bitcoin

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and mine Bitcoin profitably,

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take electricity, convert it to hashes,

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propose blocks, solve blocks,

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validate currency transactions without,

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you know i i consumed x and i got paid y and y was greater than x and i and i made a profit

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in your mind can bitcoin miners really be competitive long-term and profitable long-term

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or effective efficient without understanding the money side of bitcoin the why of what they're doing

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Can they think about everything downstream from that, whether it be their basic strategy, their facility strategy, their energy strategy, if they don't see the field of Bitcoin?

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Maybe they can in the short term.

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Do you think that in how competitive the world of Bitcoin mining is and the ruthless competition to reduce costs or to identify better or worse energy sources?

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how do you like how do you think about that can can a bitcoin miner really get along for the long

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term without understanding it fundamentally no you you can understand the business of bitcoin

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mining from the perspective of the three connections of optimizing your um

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your physical setup, your cooling setup, and that gets you some efficiency gain,

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which increases the profitability of your business. You can optimize for your energy strategy,

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which may be the way that you source your energy or the way that you manage or process it or

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participate in some kind of curtailment or other ancillary service that might assist the operation

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of your business. If you don't fundamentally understand the value of what you're producing

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from the perspective of that third connection, the Ethernet cable, then you have a two-legged

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stool and you can't run a successful business in that way.

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So while you don't have to have an all-inclusive understanding day one of the Bitcoin network

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to immediately grok that this Bitcoin miner as a device is a technology that allows you

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to monetize what would otherwise be a liability if you're an energy producer.

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that's the easy thing to get.

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What do you mean by that liability?

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So energy has to come from somewhere.

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And some of the,

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some of the finest Bitcoin miners that I have met have been able to identify

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other businesses and other locations where energy is a liability.

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So we often think about energy strictly as an asset.

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I want to turn my lights on.

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And when I flip the switch,

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they better come on.

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So it's a thing.

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I have it,

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But we never think that through the connections of that grid, there is a business, there's

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a generator on the other side that has to take some kind of input and then profitably

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sell that energy to the grid.

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So we're not used to thinking of the energy we consume as somebody else's liability, but

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that's what it is.

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And especially sitting here in Texas on ERCOT, I think we have the best picture really in

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the world of what energy as an asset or a liability looks like because you have this

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free-floating mechanism in terms of price in the market. And the best way to see it is to look on

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ERCOT's website. And at any moment, you can see not only the total amount of load, the forward

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curve, what people are paying, what the price is at various nodes, but you can also see the

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distribution in the type of energy that's on the market. You can see how green at any given moment,

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how many megawatts of wind turbines are spinning, or how much photovoltaic is there.

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you realize that the grid is this incredibly complex mechanism that consists of generators

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which are fundamentally businesses trying to sell a product to the market and this is a free-floating

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supply and demand market and when you have a lot of supply that exceeds demand you run into issues

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and so something that you see quite often in particular pockets of the u.s but speaking just

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in reference to ERCOT in west texas you see a lot of photovoltaic and you see a lot of wind which

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kind of run in concurrent production curves often with each other, you know, notwithstanding

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if it's a cloudy day, what you see is that you get an oversupply.

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And so when you get an oversupply, the energy that you're producing at those sites becomes

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a liability and it becomes a liability because everyone is producing it on a hot, sunny day.

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Everyone wants to be dumping their electricity onto the grid.

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However, you have a transmission constraint.

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You can only get so many people lined up and queued up into the party at once.

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And so what does that do?

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That has the effect that it often drives prices negative in many points in time throughout the year.

375
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You see that quite regularly.

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So energy from the perspective of those producers is a massive liability because they want to get it to market.

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And if everyone else is trying to flood the wires to get it to market, they now have a resource which they may not fully understand.

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They might not understand the Bitcoin network, but they dang well understand that instead of having to pay the network or pay the grid rather to offtake this excess energy that they have.

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And that's when prices actually become negative.

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They have a buyer. And so, yeah, I mean, negative prices are something that occur routinely because of transmission.

381
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But you're not just talking about a liability in the concept where the energy prices are negative.

382
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You're talking about I have this resource, I have these costs input to it, and I need to monetize it. Is that fair to say?

383
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Fundamentally, yeah. A good example of that is what Gridless Compute is doing, which is a fantastic miner out of Africa, where they have found essentially all these producing hydro assets.

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So take a 10 megawatt hydroelectric dam that was a big project that somebody is way underwater on the financing of because they built this, you know, five, $10 million project.

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and now it's sitting in remote Kenya and the village that they thought was going to be receiving

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all this energy can't afford the prices. They have so much capacity, but they can't produce it

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because there's no demand. All of a sudden you have this essentially under monetized asset

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where an operator goes, wait, you're going to show up and on day one, you can buy 50%, 70%

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of my excess productive capacity that's currently not being utilized?

390
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Yeah. Okay. And then what's going to happen when the town wants to buy the price,

391
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wants to buy electricity from me? Oh, well, you're not willing to pay as much as them?

392
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What's a healthy market? Because it's a consumer that is buying somebody's liability,

393
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which is this excess capacity, this non-productive capacity. It's a 10 megawatt hydroelectric site

394
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that might be running at 20% capacity,

395
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they can start to spin it up to 70, 80% operational capacity.

396
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And they're willing to pay for that

397
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because Bitcoin miners will pay for their electricity

398
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or be paid if it's enough of a liability to the producer.

399
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But then they don't compete with the person

400
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who's living in the town next door

401
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because a Bitcoin miner isn't willing to pay as much

402
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as somebody who is in that village next door

403
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to that hydroelectric dam.

404
00:38:22,090 --> 00:38:25,050
And so maybe that's a good opportunity to talk about

405
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how do you think about the energy sources you just described one that was attractive and why

406
00:38:30,370 --> 00:38:38,710
but how do you think about the energy sources that are most attractive to mining bitcoin or

407
00:38:38,710 --> 00:38:45,470
what would be the best candidates and i i don't mean is hydro the best or is natural gas the best

408
00:38:45,470 --> 00:38:50,910
or is wind the best or is solar the best i mean that could be part of the discussion but

409
00:38:50,910 --> 00:38:59,990
what are the characteristics or properties of a site like proximity to a point of generation or

410
00:38:59,990 --> 00:39:07,510
scale and you know maybe in certain cases large-scale works but others that don't that

411
00:39:07,510 --> 00:39:15,210
or the balancing capacity to be able to balance flows and that might be you know upstream midstream

412
00:39:15,210 --> 00:39:16,550
or actually on a grid,

413
00:39:17,430 --> 00:39:20,730
how do you think about the opportunities

414
00:39:20,730 --> 00:39:25,870
of saying this energy source is better or worse

415
00:39:25,870 --> 00:39:28,470
than that for mining Bitcoin specifically?

416
00:39:29,130 --> 00:39:36,550
It's a really hard question to answer

417
00:39:36,550 --> 00:39:38,830
because structurally,

418
00:39:39,130 --> 00:39:41,770
what a Bitcoin miner wants to do

419
00:39:41,770 --> 00:39:43,370
is to drop their operating cost

420
00:39:43,370 --> 00:39:44,610
as low as humanly possible.

421
00:39:45,210 --> 00:39:50,770
Because my operational input, fundamentally the largest cost I'm going to incur is my cost of electricity.

422
00:39:51,390 --> 00:40:00,310
Would you say that the greatest differentiator amongst miners is that the energy strategy?

423
00:40:00,850 --> 00:40:07,030
It's probably what defines everything downstream from that.

424
00:40:07,190 --> 00:40:08,230
So here's what I mean by that.

425
00:40:09,090 --> 00:40:15,150
There are many, many sources of liability or waste energy in the world.

426
00:40:15,210 --> 00:40:35,530
And that is the direction that all miners who want to survive the next few halvings are pointing themselves in because they understand that the person that they are buying their main input from has to be feeling the pain of having this excess energy or electricity on their hands.

427
00:40:35,890 --> 00:40:38,210
So people have rapidly understood that.

428
00:40:38,390 --> 00:40:40,590
Now, what happens downstream of that identification?

429
00:40:40,590 --> 00:40:44,330
So where, let's think in concrete terms.

430
00:40:44,330 --> 00:40:58,870
You might think in terms of something like the Atapu Dam on the Brazilian Paraguay border, which has this immense, many, many gigawatts of hydroelectric generation, but total underutilization on the Paraguay side.

431
00:40:59,270 --> 00:41:00,830
That's a much smaller country than Brazil.

432
00:41:01,070 --> 00:41:04,090
They have 50 percent allocation to the production, but they don't use it all.

433
00:41:04,150 --> 00:41:04,330
Right.

434
00:41:05,090 --> 00:41:11,090
You might look at West Texas where somebody has an oil field where they can't get their gas to market.

435
00:41:11,090 --> 00:41:25,870
You might look at a photovoltaic company, a big farm, where they're going to have to wait three years to get a grid interconnect. So they're sitting there with all their PV built, but they have no way to get it to market.

436
00:41:25,870 --> 00:41:33,950
you might look at a coal plant in Wyoming that has, for whatever reason, been operating at 30%

437
00:41:33,950 --> 00:41:40,130
of its actual operational capacity. Now, as far as coal plants are concerned with thermal generation,

438
00:41:40,990 --> 00:41:45,950
coal plants are interesting because they get a lot more inefficient if they're not running within a

439
00:41:45,950 --> 00:41:50,010
very specific band of production. So it actually becomes marginally more expensive for them to

440
00:41:50,010 --> 00:41:55,370
produce if they are producing too much or too little relative to what's called the heat rate,

441
00:41:55,370 --> 00:41:59,610
where they want to be producing, kind of like the optimal speed to be running your engine on the

442
00:41:59,610 --> 00:42:07,050
highway to get the optimal engine efficiency. So these are all examples of production or sources

443
00:42:07,050 --> 00:42:13,830
of raw energy where indigenous to that business is energy as a liability. They're trying to produce

444
00:42:13,830 --> 00:42:18,210
it, but they may have too much. It may be in the wrong place. It may not be operating in the right

445
00:42:18,210 --> 00:42:26,830
kind of way. What does the Bitcoin mine look like that serves that particular excess? It's very

446
00:42:26,830 --> 00:42:32,250
different. So if you're connected to something like the Atapu Dam, you can almost always expect

447
00:42:32,250 --> 00:42:39,290
to be operating at a certain capacity. Why? Because you have pretty good predictive measures around

448
00:42:39,290 --> 00:42:43,030
how you're going to be able to run your turbines. It's a river and you kind of understand there's a

449
00:42:43,030 --> 00:42:48,010
seasonal ebb and flow, but there's very likely not going to be some insane, you know,

450
00:42:48,010 --> 00:42:52,770
drop off one day, you know, notwithstanding some cataclysmic thing happening, you kind of know what

451
00:42:52,770 --> 00:42:56,430
you're going to get. So it's very steady baseload power. So you can build a warehouse, you could build

452
00:42:56,430 --> 00:43:00,210
a facility, you could put some fans, you could put some immersion. Okay, I can do that. You know,

453
00:43:00,230 --> 00:43:05,650
I'm next to the dam. When I go to the oil field, it's a different game. And it's a different game

454
00:43:05,650 --> 00:43:12,810
because the actual gross volume of energy, the total energy that you can get off a given well

455
00:43:12,810 --> 00:43:20,110
site is infinitesimal compared to what you would get off of this gargantuan hydroelectric dam.

456
00:43:20,810 --> 00:43:25,410
So what does it mean? It means that your footprint is now something like a sea can.

457
00:43:25,830 --> 00:43:31,350
It's a much smaller physical setup. And it looks radically different from what you might have in a

458
00:43:31,350 --> 00:43:39,710
warehouse, but it's serving a need in its own way for an energy producer. If you go to the

459
00:43:39,710 --> 00:43:45,590
the photovoltaic side of things and somebody is producing, um, producing a non-dispatchable load

460
00:43:45,590 --> 00:43:50,730
to the grid or they're not connected to the grid yet. And I'll do this quite non-dispatchable.

461
00:43:51,310 --> 00:43:56,710
Um, essentially, um, grids don't just consist of wires that kind of passively

462
00:43:56,710 --> 00:44:02,890
shuttle electrons between producers and consumers, right? Um, they're managed,

463
00:44:02,970 --> 00:44:08,050
they're managed by a grid operator and a grid operator has a mandate essentially to make sure

464
00:44:08,050 --> 00:44:12,830
that the lights are kept on at all points in time. There's no blackouts. There's no brownouts. We

465
00:44:12,830 --> 00:44:19,150
have a robust, reliable energy always being produced and electricity is always going out to

466
00:44:19,150 --> 00:44:24,970
everybody. And it's always coming at some kind of non-prohibitive price, right? So electricity isn't

467
00:44:24,970 --> 00:44:29,230
consistently, you know, a thousand dollars a megawatt, which is blowing up everybody's ability

468
00:44:29,230 --> 00:44:35,530
to actually keep the lights on. That grid operator has a number, a number of resources at their

469
00:44:35,530 --> 00:44:43,050
disposable at their disposal, one of which is the dispatchability of load, which is, can I call you

470
00:44:43,050 --> 00:44:48,250
up and ask you to produce more for me? And so in the case of something like a peaker plant or a

471
00:44:48,250 --> 00:44:54,470
coal plant, or even something like a Bitcoin mine, I can call a Bitcoin mine and I can say, hey,

472
00:44:54,770 --> 00:45:00,530
remember how I gave you half a cent off your rate? And I told you I would call you every once in a

473
00:45:00,530 --> 00:45:04,530
while and tell you to shut down because I need to send the power to somebody else. You know,

474
00:45:04,530 --> 00:45:08,490
it's the middle of August and everyone's running their AC, that's dispatchable.

475
00:45:08,490 --> 00:45:11,250
I can call you and I can say like, turn off.

476
00:45:11,310 --> 00:45:11,910
I need you.

477
00:45:13,030 --> 00:45:13,570
Yes or no.

478
00:45:14,230 --> 00:45:28,175
I can do that for a certain class of renewables like wind and photovoltaic because they totally passive systems They totally subject to the environment The wind is blowing or it not blowing The sun is shining or it

479
00:45:28,175 --> 00:45:33,315
not shining. And so from that perspective, these certain renewables are considered non-dispatchable

480
00:45:33,315 --> 00:45:37,775
in that they're always just trying to produce as much as they can opportunistically at the time

481
00:45:37,775 --> 00:45:43,795
that they're receiving that energy. They're able to produce electricity. And so I cut you in the

482
00:45:43,795 --> 00:45:48,975
middle of that, but you were using that to describe how, you know, one of those sites might.

483
00:45:49,895 --> 00:45:54,955
How the footprint looks very different. How it's not obvious from physically looking at a Bitcoin

484
00:45:54,955 --> 00:46:00,415
mine that they're all really revolving around this core, solving this core problem, which is

485
00:46:00,415 --> 00:46:07,375
energy as a liability. If you look at a big, a big solar farm and you say, okay, well, I don't know,

486
00:46:07,375 --> 00:46:10,935
does that really make sense to have a solar farm? You think about it, the sun's only up half the

487
00:46:10,935 --> 00:46:17,335
time. I don't know. Production maybe isn't great. When you look at it from that perspective,

488
00:46:17,335 --> 00:46:21,675
it looks a little bit prohibitive. But if you start to look at it from the perspective of,

489
00:46:21,775 --> 00:46:27,295
say, a mega miner, and I think one of the best examples is actually Mara who did this.

490
00:46:28,355 --> 00:46:35,415
They bought a, not a solar farm, but a wind farm. And on its surface, you go, why would they buy a

491
00:46:35,415 --> 00:46:39,615
wind farm? I thought that they were doing, I thought they were doing this like 24 seven,

492
00:46:39,615 --> 00:46:44,935
keep it up all the time. It doesn't make any sense to me, but it makes perfect sense when you think

493
00:46:44,935 --> 00:46:51,355
of it in terms of what a mega miner is doing. A mega miner will always be depreciating and

494
00:46:51,355 --> 00:46:57,195
eventually disposing of the most recent tranche of machines that they've bought. And they're

495
00:46:57,195 --> 00:47:02,115
spending hundreds of millions of dollars on these newest allocations of machines because it's an

496
00:47:02,115 --> 00:47:06,695
easy way from a capital markets perspective, from a publicly traded markets perspective,

497
00:47:06,695 --> 00:47:11,335
to go and to say, okay, well, we're going to buy the newest efficiency machines. We're going to

498
00:47:11,335 --> 00:47:15,115
replace the old machines, maybe do some retooling in our facilities. And look at that. It's an

499
00:47:15,115 --> 00:47:20,935
instant profitability bump because now I'm able to, through this efficiency gain, get more work,

500
00:47:20,935 --> 00:47:25,315
which has value out of the same amount of electricity. Well, there's something interesting

501
00:47:25,315 --> 00:47:29,915
that you can do, which is that all those machines that you've bought and have depreciated,

502
00:47:29,915 --> 00:47:37,415
instead of sending them to e-waste and feeding the trolls who tell you that bitcoin is the worst

503
00:47:37,415 --> 00:47:43,215
thing to the world you can now send them somewhere else where they are able to monetize something

504
00:47:43,215 --> 00:47:49,975
but in a different way so if i'm going to be running 24 7 i want to have the most efficient

505
00:47:49,975 --> 00:47:55,395
machines i want to have the most expensive machines because my incentive is to be just

506
00:47:55,395 --> 00:47:58,975
grinding and hashing and monetizing the heck and paying off those machines as aggressively as i

507
00:47:58,975 --> 00:48:03,575
possibly can. But if I think about it from a balance sheet perspective, once I've depreciated

508
00:48:03,575 --> 00:48:09,415
that machine and it's not worth anything to me anymore, I can keep monetizing it, but I have to

509
00:48:09,415 --> 00:48:15,775
put it in an environment where I don't care as much about the raw profitability. So if I buy a

510
00:48:15,775 --> 00:48:21,615
wind farm, I get this intermittence in terms of the production. I get a lot more variability in

511
00:48:21,615 --> 00:48:26,375
terms of when I can produce or when I can't, which is totally unacceptable if I have the newest

512
00:48:26,375 --> 00:48:30,175
machine. If I have the, if I have the newest Ferrari, I'm going to be racing it every day on

513
00:48:30,175 --> 00:48:35,535
the track. But if it's the old one, where can I put it that I can continue to use it for the next,

514
00:48:35,655 --> 00:48:40,015
the rest of its useful life. It's not worth anything to me anymore. As far as, uh, as far

515
00:48:40,015 --> 00:48:44,375
as its value on my balance sheet, cause it's been depreciated, but I can still, I can still monetize

516
00:48:44,375 --> 00:48:51,835
it in a different way in a different setting. Now, does that not have, doesn't that have

517
00:48:51,835 --> 00:48:58,695
something to do with the cost of power though or maybe say said a different way or it's still an

518
00:48:58,695 --> 00:49:03,955
asset even if it's depreciated it's still an asset that can run yes it's just not going to

519
00:49:04,895 --> 00:49:15,215
be as efficient at consuming power correct so why maybe pull you know go a little bit

520
00:49:15,215 --> 00:49:23,015
deeper on that thread of like why a less efficient machine is acceptable in that environment yeah

521
00:49:23,015 --> 00:49:31,655
the best analog for this is the way that uh this new class of miners heat punks home heating miners

522
00:49:31,655 --> 00:49:38,815
have emerged in the market there is a cost premium to buying the newest and the greatest bitcoin

523
00:49:38,815 --> 00:49:46,515
market, a Bitcoin miner, a massive cost premium or price premium. That's not worth it for me.

524
00:49:46,515 --> 00:49:53,275
If I have intermittent operation for my site, it's not worth it. It doesn't make sense to buy

525
00:49:53,275 --> 00:49:58,075
the newest and best thing and only use it 50% of the time. It makes sense for me to buy the newest

526
00:49:58,075 --> 00:50:02,915
and best and most efficient thing and run it continuously because I'm recapturing what I'm

527
00:50:02,915 --> 00:50:07,595
paying essentially in that, in that price premium. I'm recapturing in the fact that I'm, I'm able to,

528
00:50:07,595 --> 00:50:14,435
I'm able to recover that in the additional profitability gains that I get running at 24-7.

529
00:50:15,155 --> 00:50:20,355
You have this secondary market where, and you shouldn't even really call it a secondary market.

530
00:50:20,575 --> 00:50:28,115
I don't know maybe the right way to classify it, but you have a whole class of use cases where

531
00:50:28,115 --> 00:50:39,155
raw monetization is not your primary motivation because if I buy the lesser efficient machine,

532
00:50:39,155 --> 00:50:45,155
I have a huge cost reduction in terms of what I'm paying to get that machine.

533
00:50:45,935 --> 00:50:51,195
So effectively, I'm willing to put up with the fact that I'm going to get less efficiency because

534
00:50:51,195 --> 00:50:57,575
I'm getting some other utility out of it because I don't want to pay. I can't justify it. I can't

535
00:50:57,575 --> 00:51:00,855
can't justify paying for the newest, greatest thing. So in the world of home heating,

536
00:51:01,295 --> 00:51:09,195
what a lot of people have found is that we have a sunk cost, a built-in sunk cost in most of our

537
00:51:09,195 --> 00:51:16,195
homes, which is coming in the result of some kind of electric or gas heating. And you get it every

538
00:51:16,195 --> 00:51:22,975
month, you pay it. Sometimes it goes up, sometimes it goes down, it changes seasonally. But what you

539
00:51:22,975 --> 00:51:28,675
can do with Bitcoin mining that's very interesting is that if you take this machine and if it's cheap

540
00:51:28,675 --> 00:51:37,375
enough as it is with a depreciated or used or last generation machine, I can introduce it to

541
00:51:37,375 --> 00:51:43,975
my home environment where it might not actually be profitable to run a machine on my residential rate.

542
00:51:45,095 --> 00:51:51,435
But I get something in addition that makes sense for me, which is that I can generate utility

543
00:51:51,435 --> 00:51:53,815
because the Bitcoin mine, we said there's three connections.

544
00:51:53,915 --> 00:51:56,475
We said there's electricity, Ethernet, and cooling.

545
00:51:56,635 --> 00:51:57,295
There's thermodynamics.

546
00:51:58,435 --> 00:52:01,575
Well, I can cool it, but what that means is that the machine is producing heat.

547
00:52:02,255 --> 00:52:08,095
Well, I'm already paying $100 a month heating my water tank or heating my house.

548
00:52:08,995 --> 00:52:13,535
What if I can now offtake from that liability,

549
00:52:13,715 --> 00:52:15,515
that sunk cost that I have sitting in my house,

550
00:52:15,515 --> 00:52:20,175
and I can recapture it through some kind of monetization in Bitcoin mining

551
00:52:20,175 --> 00:52:24,875
and then generate some utility, which is I get the heat because I know the machine is going to

552
00:52:24,875 --> 00:52:30,015
produce heat. So there are these very, very, I wouldn't even call them edge cases because I think

553
00:52:30,015 --> 00:52:33,835
they're growing and I think they're going to continue to grow, but very nascent cases or

554
00:52:33,835 --> 00:52:41,295
nascent use cases where people are starting to grok this, that if I get an older model machine

555
00:52:41,295 --> 00:52:45,955
and it is so much cheaper than the newer model machine, I don't have to care as much about the

556
00:52:45,955 --> 00:52:52,555
raw efficiency of my machine's operation because i'm actually getting some kind of utility from the

557
00:52:52,555 --> 00:52:57,775
thing that the machine does which is solving some other problem which that's right which is i need

558
00:52:57,775 --> 00:53:05,875
to be hot anyway so on the on the side of heat it could it could be using a waste byproduct to

559
00:53:05,875 --> 00:53:11,395
to turn it into some other utility or reduce a cost it could reduce create a redundancy or reduce

560
00:53:11,395 --> 00:53:15,155
risk right it's like i've got one heating system this could be the second heating system

561
00:53:15,155 --> 00:53:22,615
but in the in the i don't say traditional mine because all mining is valid in the mine

562
00:53:22,615 --> 00:53:24,775
in people that are running mining as a business

563
00:53:24,775 --> 00:53:33,095
you know with other with other businesses traditionally people think of scale

564
00:53:33,095 --> 00:53:39,855
you know the greater the scale i can perform this operation at the cheaper i'm able to

565
00:53:39,855 --> 00:53:47,895
produce a marginal widget yeah but based on how you described of bitcoin mining really being

566
00:53:47,895 --> 00:53:57,415
not necessarily dependent but but whether it fits being um necessarily observant or

567
00:53:57,415 --> 00:54:04,455
planned around other uses of energy around it um that might be the you know description of grid

568
00:54:04,455 --> 00:54:12,435
list that you gave of of power not being used it might be um the the natural gas being a byproduct

569
00:54:12,435 --> 00:54:17,975
of of oil and needing to to do something with that to be able to to increase the amount of oil you can

570
00:54:17,975 --> 00:54:30,455
get out of the ground that can a a miner that's mining with 150 kilowatt generator on a well site

571
00:54:30,455 --> 00:54:32,895
versus a 500 megawatt mine,

572
00:54:33,455 --> 00:54:35,515
can miners be equally profitable

573
00:54:35,515 --> 00:54:38,395
on a unit basis at different scale?

574
00:54:38,495 --> 00:54:39,455
That's such a good question.

575
00:54:40,155 --> 00:54:41,035
That's such a good question

576
00:54:41,035 --> 00:54:41,815
because this is like,

577
00:54:42,055 --> 00:54:44,015
this is Bitcoin 101,

578
00:54:44,435 --> 00:54:45,835
something that people misunderstand

579
00:54:45,835 --> 00:54:46,935
about Bitcoin mining,

580
00:54:47,235 --> 00:54:50,315
which is that the economies of scale

581
00:54:50,315 --> 00:54:51,215
in Bitcoin mining

582
00:54:51,215 --> 00:54:54,235
are only proportional

583
00:54:54,235 --> 00:54:56,435
when it comes to that Ethernet connection,

584
00:54:56,595 --> 00:54:58,515
the actual work that the machine is doing.

585
00:54:58,515 --> 00:55:04,655
where you could start to generate economies of scale are in the way that you operate other

586
00:55:04,655 --> 00:55:08,955
aspects of your business or the way that you have utility through the heat or the cooling of your

587
00:55:08,955 --> 00:55:14,775
systems, right? That's such a good question because fundamentally, if you add more hash

588
00:55:14,775 --> 00:55:18,595
rate to the network and say that you're being rewarded, you're being paid for that hash rate,

589
00:55:18,595 --> 00:55:28,255
if I add more hash rate, well, that's a linear progression. I don't get an extra five cents

590
00:55:28,255 --> 00:55:35,915
plus by adding an additional megawatt of load for the network. Because the way that hashing works

591
00:55:35,915 --> 00:55:41,475
is that it's proportional, you know, proportionally over time, if you are 10% of the network,

592
00:55:41,695 --> 00:55:48,215
you will win approximately 10% of the blocks. And if you add another, if you grow yourself by 50%

593
00:55:48,215 --> 00:55:52,655
and you're now, well, you wouldn't be 15% of the network because now the network would also be that

594
00:55:52,655 --> 00:55:58,015
much bigger. You're actually inadvertently by growing, making it a little bit harder on yourself

595
00:55:58,015 --> 00:56:08,175
But that's what everybody else is doing as well. Right. So there's there's extreme competition on this side that does not actually give you an economy of scale when it comes to the hashing side of things.

596
00:56:08,175 --> 00:56:14,075
would you say that on average then just kind of keying in on that point of that example say

597
00:56:14,075 --> 00:56:23,655
there's 30 gigawatts of power scaring the bitcoin network and say you you have just round numbers

598
00:56:23,655 --> 00:56:27,715
one gigawatt if you increase you know if you bring another gigawatt online which obviously

599
00:56:27,715 --> 00:56:33,275
is a massive amount of power i'm just using this description to have numbers be round but

600
00:56:33,275 --> 00:56:42,315
now there's 31 gigawatts that you're essentially um in order to justify that next unit of power

601
00:56:42,315 --> 00:56:50,095
that's creating hashes because it now and it's dependent on how much people are valuing bitcoin

602
00:56:50,095 --> 00:56:56,675
and that has a relationship to your bitcoin denominated power costs but from a relationship

603
00:56:56,675 --> 00:57:04,795
perspective and over time does it create the incentive that each marginal unit of power that's

604
00:57:04,795 --> 00:57:12,015
being consumed be cheaper not 100 of them but just directionally because you're you're effectively

605
00:57:12,015 --> 00:57:21,915
diluting increasing the cost base the cost structure or the hash value because there's

606
00:57:21,915 --> 00:57:27,695
there's another piece there, which is that you can never draw a direct equivalence between the

607
00:57:27,695 --> 00:57:33,075
input energy and the hashes that are generated, right? Because it's always moderated by the

608
00:57:33,075 --> 00:57:41,255
efficiency of the system that is turning that electricity into hashes. And it varies really

609
00:57:41,255 --> 00:57:46,635
widely. You know, we, we measure it industry-wise in what we call joules per tera hash, right?

610
00:57:46,635 --> 00:57:53,895
which is um if i put in this number of joules how much work can i squeak out of it what most

611
00:57:53,895 --> 00:57:59,855
people are familiar with for people that aren't steeped in in energy most people associate energy

612
00:57:59,855 --> 00:58:05,375
with a kilowatt hour because that's what electricity is filled out at home just connection

613
00:58:05,375 --> 00:58:12,535
between a joule and a watt rough rough equivalents but but functionally different uh in terms of what

614
00:58:12,535 --> 00:58:19,335
you're referring to the work being done. The way that you could think about it is essentially the

615
00:58:19,335 --> 00:58:25,715
sense that every machine has an effective total amount of electricity that it will consume.

616
00:58:26,535 --> 00:58:33,555
And that is most often labeled just in kilowatts, right? And so it varies really, really widely.

617
00:58:33,795 --> 00:58:39,815
You have things that are as small as like a bid X, which might be, you know, 15 to 30 watts.

618
00:58:39,815 --> 00:58:45,375
and then you have machines that go up into the thousands or many thousands of watts of kilowatts

619
00:58:45,375 --> 00:58:53,095
of energy and the consumption of that is joules of work. So the idea in joules per tera hash or

620
00:58:53,095 --> 00:59:00,475
work per tera hash is that you fundamentally want to be getting more work for the same or less

621
00:59:00,475 --> 00:59:07,175
energy that you're using, electricity that you're using. So if you look at an older,

622
00:59:07,175 --> 00:59:12,435
older model machine. So something like an S9 that would be in like the 80 or 90 joules per

623
00:59:12,435 --> 00:59:20,195
tera hash. That was considered incredible by the standards of, uh, of 2015, 16, 17,

624
00:59:20,195 --> 00:59:26,995
where you come today is where now we're in a world where we're in the low teens and folks are,

625
00:59:26,995 --> 00:59:30,695
are actually estimating now that they're going to bring things to market that are in the single

626
00:59:30,695 --> 00:59:35,795
digits and like the nine point something or 10 joules per tera hash, which is a ninefold increase

627
00:59:35,795 --> 00:59:40,695
over the course of, you know, eight to 10 years, which is incredible.

628
00:59:41,695 --> 00:59:48,875
Essentially, you can have the same energy asset or the same source of electricity.

629
00:59:49,195 --> 00:59:54,395
And you've now made it nine times as productive because you have the state-of-the-art machine

630
00:59:54,395 --> 00:59:59,815
that is now consuming that electricity to perform that much more work with the exact same footprint.

631
01:00:00,395 --> 01:00:02,015
Right. So that's another variable.

632
01:00:02,015 --> 01:00:06,155
but say you were running the exact same so it's like there could in theory be a

633
01:00:06,155 --> 01:00:12,095
world where the machines are becoming more efficient you might have access to

634
01:00:12,095 --> 01:00:16,355
them earlier and that allows you to say well I could be actually less efficient

635
01:00:16,355 --> 01:00:23,075
in you know my power cost because it's being offset by greater gains and how

636
01:00:23,075 --> 01:00:28,535
much work can actually be done by each unit of power but say I was running you

637
01:00:28,535 --> 01:00:29,915
know the exact same

638
01:00:29,952 --> 01:00:38,492
same machine but multiplying it by two yeah and i'm consuming twice as much power i'm producing

639
01:00:38,492 --> 01:00:44,952
twice as much work but that doesn't give me an additional marginal uh earning it actually gives

640
01:00:44,952 --> 01:00:48,812
me proportionally a little bit less because i'm growing the total network right and in that world

641
01:00:48,812 --> 01:00:56,312
assuming kind of at least looking at the from the energy perspective and setting aside advancements

642
01:00:56,312 --> 01:01:05,472
and efficiency of work per joule over time i'm incentivized to not dilute myself by bringing on

643
01:01:05,472 --> 01:01:11,272
higher cost energy but reducing my costs yes oh i see what you're saying so effectively

644
01:01:11,272 --> 01:01:17,052
because i know it's going to be more difficult over time i'm strongly incentivized to now

645
01:01:17,052 --> 01:01:22,212
reduce my operational cost because that is part of the equation that i can control and yeah

646
01:01:22,212 --> 01:01:29,852
fundamentally this is um there's very little that bitcoin miners are able to control when it comes

647
01:01:29,852 --> 01:01:36,792
to the bitcoin network um now we have choices that we can make as as to whether you are a miner or a

648
01:01:36,792 --> 01:01:40,832
hasher whether you're willing to take on the responsibility of running a node or making your

649
01:01:40,832 --> 01:01:47,952
own templates um but because you are a big miner does not necessarily mean that you are able to

650
01:01:47,952 --> 01:01:54,172
sway the direction of the protocol. Even if you had five to 10% of the network and you're making

651
01:01:54,172 --> 01:01:58,532
all your own blocks, so you're deciding what's going to go into a block that you're going to

652
01:01:58,532 --> 01:02:03,232
work on and add to the blockchain and be rewarded for, you know, you're incentivized to not kill the

653
01:02:03,232 --> 01:02:10,112
golden goose. So you are assumed to be profit seeking, that you're going to look at the

654
01:02:10,112 --> 01:02:14,812
transactions submitted in your mempool and you're going to pick the most profitable ones because you

655
01:02:14,812 --> 01:02:18,952
want to be as profitable as humanly possible. And you already know what the block subsidy is.

656
01:02:18,992 --> 01:02:23,412
So you're going to combine that into something that's going to give you the most profitable

657
01:02:23,412 --> 01:02:27,952
block that you can generate. And that's how you're going to feed your revenues. You know,

658
01:02:27,952 --> 01:02:32,252
you're not incentivized to be contentious. Now, that being said, there's some really

659
01:02:32,252 --> 01:02:39,132
interesting analysis about an attack vector called selfish mining, which Antoine Poincault,

660
01:02:39,552 --> 01:02:43,352
I don't know if I'm pronouncing his name correctly. He did a really interesting analysis

661
01:02:43,352 --> 01:02:45,472
on breaking down the mathematics behind it.

662
01:02:46,112 --> 01:02:47,672
So there are things that you can do,

663
01:02:48,252 --> 01:02:51,072
mostly in the adversarial sense.

664
01:02:51,612 --> 01:02:52,432
But that being said,

665
01:02:52,532 --> 01:02:54,172
you're always comparing it against the fact

666
01:02:54,172 --> 01:02:56,392
that you don't want to kill the golden goose.

667
01:02:56,732 --> 01:02:58,672
You really have a very strong incentive

668
01:02:58,672 --> 01:03:00,772
to not kill the thing that is your source of revenue.

669
01:03:01,212 --> 01:03:04,012
And that idea of not wanting to kill the golden goose

670
01:03:04,012 --> 01:03:07,692
goes back to a concept that we talked about earlier.

671
01:03:08,692 --> 01:03:10,952
I need to know what the golden goose is

672
01:03:10,952 --> 01:03:16,732
to be able to evaluate your own self-interest.

673
01:03:17,832 --> 01:03:22,032
Like you have to understand power and energy

674
01:03:22,032 --> 01:03:26,772
to have a strategy that will allow you

675
01:03:26,772 --> 01:03:29,632
on a relative basis to be more competitive than your peers.

676
01:03:29,892 --> 01:03:30,072
Yes.

677
01:03:31,032 --> 01:03:35,312
You'll need to understand your function

678
01:03:35,312 --> 01:03:36,472
and how you're consuming power

679
01:03:36,472 --> 01:03:39,172
in relation to how power is being consumed around you.

680
01:03:39,332 --> 01:03:39,712
That's right.

681
01:03:39,872 --> 01:03:40,032
Yeah.

682
01:03:40,032 --> 01:03:48,312
your local local business conditions or maybe a way to say it yeah but then with this concept of

683
01:03:48,312 --> 01:03:57,812
marrying it's like miners can never and should never be assumed to be altruistic correct right

684
01:03:57,812 --> 01:04:00,312
they're always going to be acting in their own self-interest

685
01:04:00,312 --> 01:04:09,792
and and kind of zooming back out so we got you know deep down the energy rabbit hole of bitcoin

686
01:04:09,792 --> 01:04:17,552
and talking about what different uses of energy or sources of energy might be

687
01:04:17,552 --> 01:04:23,692
more effective or less effective and it's a dynamic system based on the specific energy system

688
01:04:23,692 --> 01:04:29,912
kind of re-anchoring people in and all of all of that all that energy regardless of who it is

689
01:04:29,912 --> 01:04:38,092
what scale it is what what fuel source what type of miner they're all doing one thing yeah

690
01:04:38,092 --> 01:04:46,132
securing the fixed supply of bitcoin validating currency supply and at the same time currency

691
01:04:46,132 --> 01:04:53,812
transactions that's the golden goose when you describe is that that fair when you say

692
01:04:53,812 --> 01:04:58,912
you can't be screwing up the golden goose or are you just are you describing something else

693
01:04:58,912 --> 01:05:05,992
yeah it's the it's the fidelity of the of the peer-to-peer network and so one of the things

694
01:05:05,992 --> 01:05:13,512
that puts or potentially puts the fidelity

695
01:05:13,512 --> 01:05:17,452
of the peer-to-peer network at risk is centralization.

696
01:05:18,452 --> 01:05:21,872
And it's not centralization specific to mining.

697
01:05:21,992 --> 01:05:24,332
It could be centralization in any aspect of Bitcoin.

698
01:05:25,052 --> 01:05:28,172
But part of the goal of the podcast is to

699
01:05:28,172 --> 01:05:32,292
go down the Bitcoin rabbit hole on the energy side,

700
01:05:32,292 --> 01:05:38,712
help connect the importance of money to the relationship of both mining and the consumption

701
01:05:38,712 --> 01:05:46,332
of power but another side of it is helping to distribute knowledge with the goal of furthering

702
01:05:46,332 --> 01:05:58,132
decentralization in a part of bitcoin that is either centralized today and has been for a while

703
01:05:58,132 --> 01:06:01,672
or has become more centralized over time.

704
01:06:02,212 --> 01:06:06,632
First really being the manufacturing of mining rigs.

705
01:06:06,692 --> 01:06:06,832
Yeah.

706
01:06:07,592 --> 01:06:09,752
Second being the function of pools.

707
01:06:11,332 --> 01:06:15,932
Describe in your words or from your perspective,

708
01:06:16,932 --> 01:06:21,832
the state of centralization today in either of those two,

709
01:06:21,912 --> 01:06:23,492
to kind of give people,

710
01:06:23,832 --> 01:06:26,072
Marty and I talked about it a little bit on the first episode,

711
01:06:26,072 --> 01:06:37,552
but um how centralized those two functions of bitcoin are what the what the risks are but then

712
01:06:37,552 --> 01:06:48,072
also secondarily someone who's aware of those risks why that doesn't prevent you from saving a

713
01:06:48,072 --> 01:06:54,732
irresponsible amount of your wealth in bitcoin or why it wouldn't or shouldn't dissuade someone

714
01:06:54,732 --> 01:06:59,592
who was thinking about building a new bitcoin mine or investing capital in a mining project

715
01:06:59,592 --> 01:07:03,672
or otherwise just saving in bitcoin of like it's centralized describe the current state

716
01:07:03,672 --> 01:07:12,732
of centralization but then what also makes you more comfortable or still participating

717
01:07:12,732 --> 01:07:19,852
and why yeah the so the fundamental question is is a yes no question

718
01:07:19,852 --> 01:07:27,952
does nakamoto consensus work but most people highly technical people will understand nakamoto

719
01:07:27,952 --> 01:07:34,092
consensus does does the does the design and the incentive structure of bitcoin as an adversarial

720
01:07:34,092 --> 01:07:42,152
network right as this this peer-to-peer network that is permissionless and decentralized does

721
01:07:42,152 --> 01:07:49,292
do the rules of that game do they work and are they self-enforcing yeah do they work

722
01:07:49,292 --> 01:07:56,412
and if they don't work if you don't think that the design of that system of bitcoin

723
01:07:56,412 --> 01:08:05,492
is functional if it really is permissionless decentralized and anti-fragile in this kind of way

724
01:08:05,492 --> 01:08:12,272
then no then you should you should get out but fundamentally you know i haven't made that choice

725
01:08:12,272 --> 01:08:18,392
and if anything i've continuously doubled down on the exact opposite of that thesis which is that i

726
01:08:18,392 --> 01:08:31,192
I perceive Bitcoin as the safest and most anti-fragile, most survivable thing in terms of places that I can store my valuable earnings, my wealth as an individual.

727
01:08:34,432 --> 01:08:37,732
And it can also be true in addition to.

728
01:08:39,192 --> 01:08:40,572
Actually, let me say it in a different way.

729
01:08:40,832 --> 01:08:43,052
So does the incentive system work a Bitcoin?

730
01:08:43,712 --> 01:08:45,352
No, then you shouldn't participate in it.

731
01:08:45,752 --> 01:08:46,012
Yes.

732
01:08:46,012 --> 01:08:47,932
Well, then that's a base level understanding.

733
01:08:47,932 --> 01:09:01,512
If it does, then yes. Can it also be true that the current state of Bitcoin is one that is highly centralized and baked into that centralization are a series of additional very real risks?

734
01:09:02,812 --> 01:09:07,032
Yes, that can be true. What does that look like in reality?

735
01:09:07,032 --> 01:09:18,932
So fundamentally, the argument about two forms of miner centralization, one is physical infrastructure, and then the second one is pooled mining.

736
01:09:19,552 --> 01:09:34,032
So the physical infrastructure, it's an interesting one because where we are in this moment in Bitcoin mining is more competitive than we have ever been in the production of ASICs.

737
01:09:34,032 --> 01:09:40,512
basics so fundamentally the highest or most performant machines that we have really come

738
01:09:40,512 --> 01:09:45,812
out of a single manufacturer and a single manufacturer who is not necessarily the best

739
01:09:45,812 --> 01:09:52,392
actor in the space historically which is who bitmain but they make the most performant machines the

740
01:09:52,392 --> 01:09:58,732
most affordable or the most performant um efficient machines on the market what percentage of the

741
01:09:58,732 --> 01:10:04,552
market would you say they have easily uh 80 plus and then what is the next largest have

742
01:10:04,552 --> 01:10:17,192
i would guess that it's what's minor um 10 15 so the top two at 90 to 95 just like rough

743
01:10:17,192 --> 01:10:22,752
directional yeah and that being said um you know the birth of what's minor came from a former

744
01:10:22,752 --> 01:10:30,132
Bitmain engineer. And then you have additional, you know, seal miners, you have Avalon, Avalon

745
01:10:30,132 --> 01:10:37,992
mining with Canaan. You have a whole series of upstart manufacturers, machine manufacturers

746
01:10:37,992 --> 01:10:42,292
who are now becoming more competitive in the market. So while it is true that it is a highly

747
01:10:42,292 --> 01:10:48,572
centralized space right now in terms of the production, we are also in a moment where the

748
01:10:48,572 --> 01:10:55,152
broader industry recognizes that that is the case. They recognize the associated risks,

749
01:10:55,152 --> 01:11:00,032
not simply the production risks, but the geopolitical risks. The fact that, you know,

750
01:11:00,532 --> 01:11:06,952
like or dislike, it's a foreign nation that is producing the vast majority of these machines

751
01:11:06,952 --> 01:11:14,372
that are running in the US. And if you want to make more robust supply chains, it makes sense

752
01:11:14,372 --> 01:11:20,572
to use your local brain power to develop this technology internal to your country. Now, that

753
01:11:20,572 --> 01:11:24,892
being said, we are also baked into the broader chip manufacturing market, which is extremely

754
01:11:24,892 --> 01:11:31,432
competitive because there's a whole industry of having to get allocations for foundry space and

755
01:11:31,432 --> 01:11:34,952
having to pay and having to have a reputation. And you're not just competing with other ASIC

756
01:11:34,952 --> 01:11:39,492
manufacturers, you're competing with NVIDIA because there are only so many foundries. So

757
01:11:39,492 --> 01:11:46,172
everything is really bottlenecked from accessibility to foundries. And that is a really well-known

758
01:11:46,172 --> 01:11:51,472
geopolitical risk. So it's not the case that Bitcoin mining is uniquely exposed to this. This

759
01:11:51,472 --> 01:11:59,992
is a problem that exists across every aspect of the technology spectrum. There's that aspect, but

760
01:11:59,992 --> 01:12:04,252
I would say that even though it is highly centralized in practice,

761
01:12:04,252 --> 01:12:10,772
because so many people have become so aware so quickly as to the nature of the centralization

762
01:12:10,772 --> 01:12:17,692
and everyone recognizes that it's a problem you've had it in an immense upswing in new businesses

763
01:12:17,692 --> 01:12:23,652
new folks making uh making their own chips doing their own designs which while they may not be as

764
01:12:23,652 --> 01:12:38,737
competitive as bit may not the gate is absolutely acceptable and desirable because what they are doing is it is broadening the brain trust of the industry outside of a single company that exists outside of the borders of the United States right

765
01:12:39,777 --> 01:12:44,817
So that being said, in addition to that, we also have a suite of open source initiatives

766
01:12:44,817 --> 01:12:51,917
that have been effectively reverse engineering a lot of these closed source tools and reintroducing

767
01:12:51,917 --> 01:12:56,417
them to the market now as open source tools through the 256th Foundation.

768
01:12:56,417 --> 01:13:03,537
so that has been a very early initiative that has gotten a ton of traction which is some very very

769
01:13:03,537 --> 01:13:09,697
very intelligent people behind it building a series of open source tools so while yes we are

770
01:13:09,697 --> 01:13:15,817
very centralized in terms of the the production of the physical machines the response to it has

771
01:13:15,817 --> 01:13:21,497
been swift it's been extremely decisive it's been extremely diversifying and it's been oriented

772
01:13:21,497 --> 01:13:27,917
around, in a lot of ways, open source and new technologies that I think is net very positive

773
01:13:27,917 --> 01:13:32,517
for the industry. So that's the physical side of things. While it looks scary on the surface,

774
01:13:33,137 --> 01:13:37,337
I think the moment that we're in right now is extremely optimistic because a lot of people

775
01:13:37,337 --> 01:13:44,117
are realizing very immediately that they do not want their sole provider for the machines that

776
01:13:44,117 --> 01:13:50,597
they have running in their farms to be coming from somebody who is a pen stroke away from having

777
01:13:50,597 --> 01:13:56,397
a 30, 40% tariff put on them. So it's a very strong incentive to repatriate some of that

778
01:13:56,397 --> 01:14:01,197
brain trust or that knowledge and build locally. Now that's one aspect of centralization.

779
01:14:01,877 --> 01:14:06,217
The second aspect of centralization is what you touched on, which is this idea of pooled mining.

780
01:14:07,257 --> 01:14:11,517
And Bob Burnett says it better than anybody else when he says that some people are mining Bitcoin

781
01:14:11,517 --> 01:14:16,597
and some are hashing. And what he's referring to is that, you know, when you're mining Bitcoin,

782
01:14:16,597 --> 01:14:23,317
where we exist today in the world of pools well what is pooled mining to understand what the heck

783
01:14:23,317 --> 01:14:30,397
pooled mining is you have to understand where it came from in 2010 and and slush of slush pool now

784
01:14:30,397 --> 01:14:35,577
brain's pool was the first individual on the bitcoin talk forums to successfully launch a

785
01:14:35,577 --> 01:14:42,017
a pool pooled mining why did he do that he did that and he says in the original post

786
01:14:42,017 --> 01:14:50,777
are you basically sick of having your lunch eaten by gpu miners and this was the very early days of

787
01:14:50,777 --> 01:14:57,317
bitcoin so you either mined on a cpu or you mined on a gpu there there weren't fpgas there weren't

788
01:14:57,317 --> 01:15:03,517
a6 there was nothing the the s9 was some distant future place right he says in his initial post

789
01:15:03,517 --> 01:15:09,817
are you sick enough finding blocks anymore here's what you can do we can all work together and pool

790
01:15:09,817 --> 01:15:16,377
mining. And what that means is that instead of winning a block reward, because it used to be

791
01:15:16,377 --> 01:15:20,777
that you would just run your computer, win a block reward, but then the GPU showed up,

792
01:15:20,817 --> 01:15:25,177
they started eating everybody's lunch and they added proportionally a lot more hash power to

793
01:15:25,177 --> 01:15:31,057
the network. So it became very hard for a single CPU to, um, to win a block reward. He said, if we

794
01:15:31,057 --> 01:15:38,797
work together, we will in aggregate act like a much bigger Bitcoin miner and we will proportionally

795
01:15:38,797 --> 01:15:43,637
hit more blocks. And so instead of getting the full block reward, which was 50 Bitcoin at the time,

796
01:15:44,637 --> 01:15:50,897
how about I just give you a proportion of what you're contributing to the pool? So if there's

797
01:15:50,897 --> 01:15:55,097
going to be 10 of us contributing and each of us has a 10% share, assume we all have the same

798
01:15:55,097 --> 01:16:01,557
computer, we act like a computer that's 10 times our size. And so now we hit blocks more often.

799
01:16:01,557 --> 01:16:08,617
That's great. What that means is that instead of getting the 50 Bitcoin reward, if I contribute 10%,

800
01:16:08,617 --> 01:16:14,457
we hit a block, I get five Bitcoin. Hey, that's a good deal. And it solves a really interesting

801
01:16:14,457 --> 01:16:21,417
problem, which is a cashflow problem. I don't want to run this machine ad infinitum because

802
01:16:21,417 --> 01:16:26,817
it costs something to run it if I'm never going to be rewarded for running it. So pooled mining

803
01:16:26,817 --> 01:16:32,557
solved this really tough problem at the time, which was we're being outgunned and we're not

804
01:16:32,557 --> 01:16:37,377
getting enough revenues to justify us running these computers forever. And what it grew into

805
01:16:37,377 --> 01:16:44,777
was a whole suite of financialization let me can i ask a question sure that makes sense of like

806
01:16:44,777 --> 01:17:00,677
directionally why bitcoin mining has evolved into pools and in a certain way why you know it describes

807
01:17:00,677 --> 01:17:08,417
why there might be a centralizing function around pools but if if more hash rate coming online that's

808
01:17:08,417 --> 01:17:14,177
more efficient and you mentioned going from a cpu that would have been just a standard computer to a

809
01:17:14,177 --> 01:17:21,437
gpu now to an asic that it would seem that nothing about a pool would change your profitability

810
01:17:21,437 --> 01:17:22,837
it might

811
01:17:22,837 --> 01:17:24,897
reduce

812
01:17:24,897 --> 01:17:26,257
variance

813
01:17:26,257 --> 01:17:28,137
right but if

814
01:17:28,137 --> 01:17:31,057
you're mining on a less efficient

815
01:17:31,057 --> 01:17:33,317
machine just joining with others

816
01:17:33,317 --> 01:17:34,617
doesn't

817
01:17:34,617 --> 01:17:36,337
make you more

818
01:17:36,337 --> 01:17:37,697
less profitable

819
01:17:37,697 --> 01:17:41,037
but then where I'm going is that

820
01:17:41,037 --> 01:17:43,277
you go down the line to where we are today

821
01:17:43,277 --> 01:17:44,317
where

822
01:17:44,317 --> 01:17:46,617
everybody is

823
01:17:46,617 --> 01:17:48,937
generally running or the vast majority of hash rate

824
01:17:48,937 --> 01:17:51,057
on the network is running ASICs of some form or fashion

825
01:17:51,057 --> 01:17:58,637
that older races can be replaced by newer races that have better efficiency that

826
01:17:58,637 --> 01:18:05,177
pooling doesn't improve profitability it reduces variance but if we get to this world where

827
01:18:05,177 --> 01:18:12,537
there's a more level playing field why and maybe describe you know as you did you know kind of

828
01:18:12,537 --> 01:18:19,637
on a percentage basis why is the function still seeming to continue to centralize despite

829
01:18:19,637 --> 01:18:24,637
everyone kind of being on the level playing field of running ASICs.

830
01:18:25,377 --> 01:18:25,477
Yeah.

831
01:18:27,377 --> 01:18:33,357
The simplest reason is because pools have realized that

832
01:18:33,357 --> 01:18:36,897
running a pool is not a profitable business.

833
01:18:37,717 --> 01:18:37,897
So,

834
01:18:38,837 --> 01:18:42,497
or rather another way to put it is that it's an extremely competitive

835
01:18:42,497 --> 01:18:42,637
business.

836
01:18:43,657 --> 01:18:45,077
Cause you have to think about it like this.

837
01:18:45,517 --> 01:18:49,617
I'm going to have a bunch of people point their hash rate to me.

838
01:18:49,637 --> 01:18:57,417
Here's the trade-off that happens when you pool mine, notwithstanding the introduction of something like an ocean where you're making your own templates.

839
01:18:58,257 --> 01:19:01,457
But in kind of standard pool mining, there's a trade-off.

840
01:19:01,877 --> 01:19:05,457
So me, as a miner, I have machines.

841
01:19:06,037 --> 01:19:08,157
And those machines I want to monetize.

842
01:19:08,357 --> 01:19:12,177
And I want to reduce my variance, which is that I want more steady cash flows.

843
01:19:12,177 --> 01:19:20,737
so what I will exchange for those steady cash flows is I will point you my hash rate

844
01:19:20,737 --> 01:19:27,737
and instead of me having now the right and responsibility to act as a single node on the

845
01:19:27,737 --> 01:19:34,497
network and to build my own templates and to hash on them I'm now going to give that responsibility

846
01:19:34,497 --> 01:19:42,697
to you. And in exchange for that, you're now going to take the responsibility of aggregating

847
01:19:42,697 --> 01:19:49,197
these transactions in your mempool. And you're going to issue out work to all the participants

848
01:19:49,197 --> 01:19:53,557
and try to optimize a strategy by which we can hit blocks as efficiently as possible,

849
01:19:53,557 --> 01:19:56,537
because we're all aligned in terms of our incentives. We want to make money.

850
01:19:57,737 --> 01:20:03,937
But the trade-off is that the pool now wields an additional sort of power on the network

851
01:20:03,937 --> 01:20:08,577
that the individual who is trying to reduce their variance

852
01:20:08,577 --> 01:20:09,897
has just kind of given up.

853
01:20:10,277 --> 01:20:14,577
They've kind of given the pool their influence of their hash power,

854
01:20:14,817 --> 01:20:16,577
their hash rate by proxy, right?

855
01:20:17,317 --> 01:20:21,677
They've allowed a representative now to serve as kind of their node on the network.

856
01:20:23,957 --> 01:20:28,377
Now, pools are incentivized to want to grow their hash rate, right?

857
01:20:29,417 --> 01:20:31,417
This has happened historically in Bitcoin.

858
01:20:31,417 --> 01:20:38,677
g hash did this where it can grow to a point to being anti-competitive where participants realize

859
01:20:38,677 --> 01:20:44,797
that oh darn if i go and i join this pool it's actually not good for bitcoin because it creates

860
01:20:44,797 --> 01:20:52,437
a centralization risk so it's happened before in the history of bitcoin but it's not just it's not

861
01:20:52,437 --> 01:20:58,497
good for bitcoin it's also not good for the individual might or the individual who was making

862
01:20:58,497 --> 01:21:02,957
this exchange to reduce their variance, but now so many people have done that through a single party

863
01:21:02,957 --> 01:21:07,637
that it's beginning to create a liability for the sake of the network. So it returns to this idea of

864
01:21:07,637 --> 01:21:14,917
you don't kill the golden goose, right? Even if your mining pool is not behaving inappropriately,

865
01:21:15,617 --> 01:21:22,177
you as somebody who is allocating your hash rate to a pool is still conscientious of

866
01:21:22,177 --> 01:21:27,917
the risk that you might be incurring by giving your hash rate to somebody who's already large.

867
01:21:28,497 --> 01:21:45,397
So this is where the pool story gets interesting, is that pools figured out that they could, if they built up a large reserve of Bitcoin, find creative ways to reduce variance even more for participants in the network.

868
01:21:45,717 --> 01:21:57,377
So in exchange for me giving you my hash rate and you telling me what to work on, I've given up my responsibility and right to build templates that contribute to the tip of the chain, right?

869
01:21:57,377 --> 01:22:19,457
In exchange for that, we have payout strategies that have come to the point where we have reduced, we've reduced variance so much that FPPS, full pay per share, has now essentially removed the actual day-to-day block finds of a pool from the equation.

870
01:22:19,457 --> 01:22:36,397
So I can sign up for certain pools and know what I'm going to make day in, day out, where even five years prior to that, I would have to actually wait for that pool to hit blocks and I would be rewarded some proportion of those block finds that we had.

871
01:22:36,397 --> 01:22:51,737
So FPPS has been described by some people as basically crack for miners, because once you get it, it becomes extremely hard to get rid of, which is this kind of constant payment, constant ability to monetize your hash rate.

872
01:22:51,737 --> 01:23:09,037
But it creates a massive centralization risk and it fragilizes the network in ways that don't break the incentive structure, but create a risk for censorship and create a risk for centralization in the network.

873
01:23:09,037 --> 01:23:25,397
So fundamentally, what pools look like today, these large FPPS pools, is that they have giant, giant treasuries of Bitcoin where they are now running this equation of I have this much hash rate pointed at me at any given moment.

874
01:23:25,857 --> 01:23:34,697
And I am going to pay those people continuously for contributing that hash rate, whether or not we find a block.

875
01:23:34,697 --> 01:23:41,497
which is interesting because the pool can only monetize by finding blocks so statistically they

876
01:23:41,497 --> 01:23:46,597
have some rough guess about based on how big they are relative to the network when they should be

877
01:23:46,597 --> 01:23:50,917
hitting blocks but there's still going to be an element of luck there's still going to be variants

878
01:23:50,917 --> 01:23:55,437
from day to day so by them having this huge bitcoin treasury this huge bitcoin reserve

879
01:23:55,437 --> 01:24:01,737
they're essentially now playing this kind of actuarial game where they're always trying to

880
01:24:01,737 --> 01:24:07,037
to avoid the risk of ruin where they're having to pay out liabilities to people that are hashing to

881
01:24:07,037 --> 01:24:12,977
them continuously against the probability of never hitting a block within a point in time that I

882
01:24:12,977 --> 01:24:18,637
might run down my treasury and not be able to monetize up. So that has actually, while it is

883
01:24:18,637 --> 01:24:23,837
essentially kind of like crack for Bitcoin miners, because they're more than willing to, in many

884
01:24:23,837 --> 01:24:28,877
cases, give up their right and responsibility to build templates for the quick and immediate

885
01:24:28,877 --> 01:24:30,877
that they can get from FPPS,

886
01:24:30,877 --> 01:24:49,142
it creates an additional expense that actually becomes in the long run uh less profitable for miners So it is a centralizing force It is very very difficult to get rid of long run

887
01:24:49,502 --> 01:24:56,102
It, it cannot survive. And the fundamental reason it cannot survive is because as we transition

888
01:24:56,102 --> 01:25:02,202
from a world of block subsidy to more fees being what pays out the miners,

889
01:25:02,942 --> 01:25:11,062
you can almost not keep a treasury that's large enough to account for the variance in fees on the

890
01:25:11,062 --> 01:25:16,082
network. It becomes almost too hard to predict, at least by the way that we have an understanding

891
01:25:16,082 --> 01:25:22,742
of it today, right? So actually, it becomes very, very, very hard to manage. And the fee that you

892
01:25:22,742 --> 01:25:29,162
have to take as a pool to be able to actually offer that service becomes prohibitive against

893
01:25:29,162 --> 01:25:34,762
just taking the variance risk and saying, listen, I'm willing to mine through somebody where

894
01:25:34,762 --> 01:25:40,802
I can maybe have a little more variance, but I'm willing to put up with the variance because I get

895
01:25:40,802 --> 01:25:46,782
more profitability on the back end. So I do think that that day is coming in, in, um, sometime in

896
01:25:46,782 --> 01:25:52,302
the next, you know, four to six years. And just in your own, from like, when you look at the

897
01:25:52,302 --> 01:26:01,262
landscape put numbers on the the the points of centralization like if it made in what's minor

898
01:26:01,262 --> 01:26:06,582
to mining rig manufacturers account for 90 to 95 percent of the network describe

899
01:26:06,582 --> 01:26:14,622
state of centralization and mining yeah so that's that's massive as well and the centralization has

900
01:26:14,622 --> 01:26:19,382
really uh been a function of a couple of things so we have a couple of large predominating pools

901
01:26:19,382 --> 01:26:27,142
that Foundry and Bitmain, their pool, AMP pool,

902
01:26:27,802 --> 01:26:30,682
which account for 40, 50% of,

903
01:26:31,862 --> 01:26:36,082
probably closer to 50, 55% of total network cash rate

904
01:26:36,082 --> 01:26:36,862
at this point in time.

905
01:26:37,602 --> 01:26:41,542
However, there are also what are called proxy pools,

906
01:26:41,802 --> 01:26:45,942
which are smaller pools that want to offer FPPS,

907
01:26:46,162 --> 01:26:48,302
this continuous payout scheme as a service,

908
01:26:48,302 --> 01:26:52,242
but they don't have the treasury reserve to be able to do that. So they actually,

909
01:26:52,662 --> 01:26:59,082
there are a number of, it's a guy named Borst who has a tool called stratum.work,

910
01:26:59,142 --> 01:27:02,922
which is a really beautiful, more technical tool that you can look at to get a sense of

911
01:27:02,922 --> 01:27:09,442
what the centralization looks like. He has been doing some really deep research into trying to

912
01:27:09,442 --> 01:27:17,062
understand how a number of pools have actually been white labeling ant pool because they want

913
01:27:17,062 --> 01:27:24,182
access to the fpps as a product so they have essentially been taking what amp pool is doing

914
01:27:24,182 --> 01:27:31,362
submitting the exact same templates to all the people that are hashing to them and basically

915
01:27:31,362 --> 01:27:36,062
serving as a proxy for this larger pool so it could even be larger in in excess of like 60

916
01:27:36,062 --> 01:27:43,162
plus of the hash rate coming through only two uh two mining pools which is fundamentally the same

917
01:27:43,162 --> 01:27:50,262
thing as two miners on the network because a node in the traditional white paper sense a node is is

918
01:27:50,262 --> 01:27:56,602
one cpu one vote that you're you're constructing templates and doing work so two pools controlling

919
01:27:56,602 --> 01:28:03,582
you know 60 plus of the network is essentially two nodes running 60 of the network and

920
01:28:03,582 --> 01:28:11,342
the assumption is often well if i need to switch i can switch but if there's

921
01:28:11,342 --> 01:28:13,462
too few participants

922
01:28:13,462 --> 01:28:15,802
and they collude

923
01:28:15,802 --> 01:28:17,422
to either collude on pricing

924
01:28:17,422 --> 01:28:18,762
or collude on

925
01:28:18,762 --> 01:28:21,922
the rules that their nodes are running

926
01:28:21,922 --> 01:28:27,522
it seems to me that

927
01:28:27,522 --> 01:28:30,382
there's all this work

928
01:28:30,382 --> 01:28:31,862
in bitcoin miners

929
01:28:31,862 --> 01:28:33,482
the ones that are actually hashing

930
01:28:33,482 --> 01:28:35,562
are naturally distributed

931
01:28:35,562 --> 01:28:38,842
as a function of

932
01:28:38,842 --> 01:28:41,162
the high cost of capital

933
01:28:41,162 --> 01:28:43,262
to actually build a Bitcoin mine.

934
01:28:43,262 --> 01:28:45,682
Then also just the natural distribution

935
01:28:45,682 --> 01:28:49,062
of combination of energy resources

936
01:28:49,062 --> 01:28:51,662
and how those resources are being developed

937
01:28:51,662 --> 01:28:55,262
and where underutilization or waste

938
01:28:56,042 --> 01:28:58,102
or stranded energy might exist.

939
01:28:59,602 --> 01:29:02,262
And so there's this natural distributing function

940
01:29:02,902 --> 01:29:07,202
on the hash rate, but then it's centralized

941
01:29:07,202 --> 01:29:09,862
almost because of software.

942
01:29:11,162 --> 01:29:20,322
not in the interest of like there might be a reason to to reduce variance of payouts

943
01:29:20,322 --> 01:29:25,662
but there's not an interest of individual miners to

944
01:29:25,662 --> 01:29:34,442
participate in this in a centralization function that centralizes it not in their own hands but

945
01:29:34,442 --> 01:29:44,082
somebody else's what is the individual miner's role yeah in furthering decentralization

946
01:29:44,082 --> 01:29:51,222
and in a way that is both consistent with their own self-interest without you know with that idea

947
01:29:51,222 --> 01:30:00,102
of part of their self-interest being ensuring the integrity of bitcoin working in a permissionless

948
01:30:00,102 --> 01:30:09,662
way in a censorship resistant way which only is viable long term because of decentralization

949
01:30:09,662 --> 01:30:16,882
real decentralization we're we're in the first ending of bitcoin mining you know if you

950
01:30:16,882 --> 01:30:26,182
if you look at as i mentioned earlier the way that the early bitcoin talk forums would discuss

951
01:30:26,182 --> 01:30:36,142
mining, there was, there's nothing there that would let you even remotely map the world that

952
01:30:36,142 --> 01:30:47,042
we live in today. Nothing there. You, you can get almost zero sense or almost zero guess of,

953
01:30:47,042 --> 01:30:51,402
of where we are today from having read those very early commentaries.

954
01:30:51,402 --> 01:30:55,562
so much to say

955
01:30:55,562 --> 01:31:03,502
this is happening universally across the bitcoin mining industry which is that we're

956
01:31:04,982 --> 01:31:16,162
figuring out all of this real time at the speed of public markets which is insane

957
01:31:16,162 --> 01:31:19,822
because it's a boom and we're still in the first inning.

958
01:31:20,062 --> 01:31:24,062
So you have to imagine all of the major manufacturers

959
01:31:24,062 --> 01:31:27,462
for the buildings that Megamines are in,

960
01:31:28,022 --> 01:31:29,622
all of the home mining setups,

961
01:31:30,422 --> 01:31:33,022
all of the heat recapture setups,

962
01:31:33,642 --> 01:31:36,582
all of the creative oil immersion setups,

963
01:31:37,302 --> 01:31:41,782
all of the fancy fans and specialized filters.

964
01:31:41,782 --> 01:31:46,502
almost none of that existed 10 years ago

965
01:31:46,502 --> 01:31:56,382
and what's more in the last five five and a half years just in that time we've seen a radical

966
01:31:56,382 --> 01:32:02,982
shift in terms of the machines themselves they've become more efficient but operationally they have

967
01:32:02,982 --> 01:32:08,482
they have different characteristics and require different things so you have an industry that

968
01:32:08,482 --> 01:32:17,322
has had this insane cash injection in the case of mega miners and a massive incentive to go and mine

969
01:32:17,322 --> 01:32:21,962
at this present moment because we know that in the future we have to figure it out now because

970
01:32:21,962 --> 01:32:25,042
we're only going to get squeezed down the road on the the hashrate side of things

971
01:32:25,042 --> 01:32:36,902
the result of that is that we do have pretty large centralization in the hashing side of things in in

972
01:32:36,902 --> 01:32:44,562
the pool side of things, the protocol side of things. Is this existential, right? Or why haven't

973
01:32:44,562 --> 01:32:51,862
people figured this out? My take is kind of generous, which is that miners, you know, we're

974
01:32:51,862 --> 01:32:57,142
kind of the crow magnans of the Bitcoin space. You know, we're, we're kind of just bashing our heads

975
01:32:57,142 --> 01:33:02,202
into things and trying to not let anything blow up and eventually being profitable and just trying

976
01:33:02,202 --> 01:33:05,862
to figure out the tools and the pieces and how to build the rest of the industry around us as we're

977
01:33:05,862 --> 01:33:13,582
going. I think that as you look at us over time, the professionalization in the industry

978
01:33:13,582 --> 01:33:19,862
has been massive, even only in the last 18 to 24 months. The quality of folks that have come in,

979
01:33:19,862 --> 01:33:24,542
the quality of tools, the quality of resources that people have, they're now folks that have

980
01:33:24,542 --> 01:33:29,002
been building things through two, three different versions of machines and kind of understand the

981
01:33:29,002 --> 01:33:34,502
basic principles of how to run mines. It is slowly but surely becoming more and more obvious

982
01:33:34,502 --> 01:33:41,442
to a Bitcoin miner, that their job is not simply to master the energy side, the electricity side,

983
01:33:41,442 --> 01:33:48,462
and the cooling side of their mine, but to actually take on responsibility for the way in which they

984
01:33:48,462 --> 01:33:54,142
are monetizing their hash rate. And the trend thus far has been towards centralization. It's

985
01:33:54,142 --> 01:33:58,922
been towards convenience. It's been towards fast money. But with every passing day, with every

986
01:33:58,922 --> 01:34:05,442
passing block, you are only going to see a fragilization of FPPS because the model really

987
01:34:05,442 --> 01:34:10,262
doesn't work once you get a couple more havings down the road. And as a result, as you start to

988
01:34:10,262 --> 01:34:13,902
master those other two sides of the stool, which is that as I start to really master this energy

989
01:34:13,902 --> 01:34:18,322
side of the equation and I start to really master this thermodynamic, how do I cool it and do it

990
01:34:18,322 --> 01:34:24,202
efficiently and get my providers and get all my, um, the folks who are managing all of my dry coolers

991
01:34:24,202 --> 01:34:29,622
and whatnot, uh, naturally people will understand that they need to take more responsibility for

992
01:34:29,622 --> 01:34:34,582
the hashing side of the equation. And it doesn't have to be super hard. That's the things like we,

993
01:34:34,642 --> 01:34:39,282
we have the tools today, but they're just, uh, they're just now returning us to where we were,

994
01:34:39,282 --> 01:34:43,962
you know, 10 plus years ago. Do you expect that happens marginally? Or do you think that

995
01:34:43,962 --> 01:34:50,342
something will have to, um, not to say break in the Bitcoin sense, but something like a Mount

996
01:34:50,342 --> 01:35:00,542
gox in the in the mining world like some manifestation of the risk either by um a mining

997
01:35:00,542 --> 01:35:10,182
pool supporting a um fork or a mining pool becoming insolvent that large say you know

998
01:35:10,182 --> 01:35:16,522
no one point at foundry but any any you know well there's only two large pools but um where

999
01:35:16,522 --> 01:35:25,222
they have to switch and the alternatives aren't viable and that spawns more people joining smaller

1000
01:35:25,222 --> 01:35:29,942
pools or the creation of new pools greater capitalization everything hits the fan scenario

1001
01:35:29,942 --> 01:35:38,922
shift of miners figuring out that they have a risk that is either costing them

1002
01:35:38,922 --> 01:35:46,342
versus something more system level like a shock yeah i think from the perspective

1003
01:35:46,342 --> 01:35:55,442
of miners or hashers, folks that are allocating hash rate from the perspective of the pool

1004
01:35:55,442 --> 01:35:59,942
and then from the perspective of the health of the network. So from the perspective of the health

1005
01:35:59,942 --> 01:36:08,342
of the network, I don't think that there is a growing risk that leads to an existential threat

1006
01:36:08,342 --> 01:36:15,922
to the network. I think the risk factors lie firmly within the hashers or miners themselves

1007
01:36:15,922 --> 01:36:17,682
and primarily through the pools.

1008
01:36:17,682 --> 01:36:20,982
And it's really the pool's game to lose

1009
01:36:20,982 --> 01:36:22,342
as far as I'm concerned,

1010
01:36:22,482 --> 01:36:25,982
because they're now offering a product

1011
01:36:25,982 --> 01:36:28,662
that folks are becoming well aware

1012
01:36:28,662 --> 01:36:30,642
is not sustainable in the long run.

1013
01:36:30,942 --> 01:36:35,462
And they're also carrying all of this additional power,

1014
01:36:35,702 --> 01:36:48,147
which is the hash rate of folks that are contributing hash rate to them And should they take a strong position on some kind of protocol change Because if I have all this hash rate

1015
01:36:48,147 --> 01:36:49,767
and I'm going to be adding blocks to the blockchain,

1016
01:36:50,107 --> 01:36:52,867
I'm in a situation where I now kind of wield

1017
01:36:52,867 --> 01:36:56,347
this immense power by proxy on the network.

1018
01:36:56,347 --> 01:36:57,947
If I can determine proportionally

1019
01:36:57,947 --> 01:36:59,227
a large percentage of blocks,

1020
01:36:59,887 --> 01:37:01,887
does that create a risk for me?

1021
01:37:02,107 --> 01:37:02,827
It does.

1022
01:37:02,967 --> 01:37:04,907
And I think pools recognize this.

1023
01:37:04,967 --> 01:37:06,847
I think they recognize that it's their game

1024
01:37:06,847 --> 01:37:14,747
to lose. That being said, does it come to a head? Yeah, I think it eventually will, because

1025
01:37:14,747 --> 01:37:20,147
it's not reasonable to assume that pools and hashers have perfectly aligned incentives.

1026
01:37:21,967 --> 01:37:26,387
It's not the case. There are different types of businesses. How it will come to a head,

1027
01:37:26,387 --> 01:37:34,147
I don't necessarily know, but how it resolves will likely be some kind of large PR crisis,

1028
01:37:34,147 --> 01:37:40,987
but it won't be kind of the knockout, drag out, should we fork or should we not fork situation

1029
01:37:40,987 --> 01:37:46,707
when it comes to something like a protocol upgrade. I think it's more likely to take the

1030
01:37:46,707 --> 01:37:52,587
form of new technology that resolves the problems that are incumbent in other operators.

1031
01:37:53,487 --> 01:37:58,547
And with the emergence of that, you're simply going to see people slowly migrating themselves

1032
01:37:58,547 --> 01:38:05,047
away because folks who are hashing also understand that there's a risk to only having a single pool

1033
01:38:05,047 --> 01:38:09,247
that I operate with. Folks tend to have backup pools or other sort of ancillary ways to connect

1034
01:38:09,247 --> 01:38:14,507
because they don't really want to put all their eggs in one basket in terms of having a provider.

1035
01:38:15,627 --> 01:38:21,247
The worst case scenario is that you wind up with a pool that begins to do something like,

1036
01:38:21,247 --> 01:38:25,687
you know, overt censorship of transactions, or it takes some really strong,

1037
01:38:25,687 --> 01:38:30,227
particular ideological stance that people might or might not agree with.

1038
01:38:30,907 --> 01:38:35,467
The second they do that, they run the risk of alienating folks that have been hashing

1039
01:38:35,467 --> 01:38:37,067
with them for years.

1040
01:38:37,927 --> 01:38:42,227
So it's a very tenuous position to be in as far as a pool is concerned.

1041
01:38:42,487 --> 01:38:48,027
I think maybe this is a bit provocative to say, but maybe the golden age of the pool

1042
01:38:48,027 --> 01:38:53,167
is kind of behind us because I think enough people understand that they should be taking

1043
01:38:53,167 --> 01:38:54,727
on certain responsibilities.

1044
01:38:54,727 --> 01:38:57,547
They should be taking on more variants as an operator.

1045
01:38:57,547 --> 01:39:05,207
And there are now tools to hedge that risk in other markets as far as a business operator

1046
01:39:05,207 --> 01:39:06,527
are concerned.

1047
01:39:07,287 --> 01:39:14,147
I think maybe this golden age of the pool may be kind of winding down and a pool, you

1048
01:39:14,147 --> 01:39:19,927
know, five, 10 years from now may become this kind of very benign or even as decentralized

1049
01:39:19,927 --> 01:39:26,447
as possible thing that is now extremely open source, extremely low cost, and is kind of

1050
01:39:26,447 --> 01:39:27,647
just boring by design.

1051
01:39:27,747 --> 01:39:33,087
And we put up with the variance because doing anything other than that could incur some kind

1052
01:39:33,087 --> 01:39:34,027
of risk on the network.

1053
01:39:34,387 --> 01:39:38,147
Yeah, I think that that's a key concept of putting up with the variance of miners, maybe

1054
01:39:38,147 --> 01:39:44,027
recognizing their, I mean, I think they all certainly understand mining more than I do,

1055
01:39:44,027 --> 01:40:04,267
But they are ultimately in the business of variance, the business of ensuring the viability of the Bitcoin network, and that in the pursuit of their own self-interest, every business tries to evaluate key supplier risks,

1056
01:40:04,267 --> 01:40:10,587
functional or key centralization risk where if a provider was to go out of business or to

1057
01:40:10,587 --> 01:40:17,127
prove to not be a great service provider that they would they would shift so um it'll be interesting

1058
01:40:17,127 --> 01:40:22,007
to see you know still certainly feels like there's a centralizing force today but maybe

1059
01:40:22,007 --> 01:40:30,627
maybe that starts to subside um i want to thank you for flying down we got to get you back out

1060
01:40:30,627 --> 01:40:36,947
on a on a flight this evening so i think we're running close to yeah almost two hours um

1061
01:40:36,947 --> 01:40:43,427
last question which i asked them already goal this podcast is take people down the energy rabbit hole

1062
01:40:43,427 --> 01:40:50,887
yeah of bitcoin to increase energy literacy for bitcoiners the mining rabbit hole for

1063
01:40:50,887 --> 01:40:56,407
bitcoiners and people who might not yet be involved in bitcoin but then also the mining side of

1064
01:40:56,407 --> 01:41:05,707
you know understanding these risks that are give me five names of people that you would like to see

1065
01:41:05,707 --> 01:41:10,727
that you think highly of that could go down various different rabbit holes

1066
01:41:10,727 --> 01:41:19,107
in the convergence of bitcoin energy and mining oh man well there's a ton and there's so many

1067
01:41:19,107 --> 01:41:21,847
little niches because the thing about mining is that

1068
01:41:21,847 --> 01:41:29,587
I don't think there are ever going to be industry experts in mining because it so quickly devolves

1069
01:41:29,587 --> 01:41:34,687
into somebody who's an expert in chip manufacturing and somebody who's an expert in grids and somebody

1070
01:41:34,687 --> 01:41:38,867
who's an expert in thermodynamics. So the best that we can do is just try to get these experts

1071
01:41:38,867 --> 01:41:44,847
in a room and figure out what the hell's going on. If you're looking into the heat reuse world,

1072
01:41:44,847 --> 01:41:49,987
which is a great world to work in, Tyler Stevens, author of the Heat Punk Manifesto,

1073
01:41:49,987 --> 01:41:52,987
So, um, fantastic resource to have there.

1074
01:41:52,987 --> 01:41:57,767
Who's a very strong advocate of, uh, mining for utility, mining for heat.

1075
01:41:58,307 --> 01:42:06,887
If you want to understand some of the interesting centralization risks from the perspective of

1076
01:42:06,887 --> 01:42:14,387
a more technical analyst, uh, Borst who created stratum.work is absolutely brilliant.

1077
01:42:14,387 --> 01:42:23,827
and has what I love about him is that some of the finest people in Bitcoin are the quietest people

1078
01:42:23,827 --> 01:42:28,907
producing the best research. It's very easy to get sucked up in kind of the drama of the day.

1079
01:42:28,907 --> 01:42:35,587
And it's very hard to find people who are really just very, very deep lovers of understanding

1080
01:42:35,587 --> 01:42:41,847
technology and Borst has that in spades. If you want a really good take into a lot of the

1081
01:42:41,847 --> 01:42:48,247
renewable side of things and the policy side of things. Troy Cross is a fantastic person to talk

1082
01:42:48,247 --> 01:42:54,327
to on that front. So obviously a professor at Reed and produced some really interesting

1083
01:42:54,327 --> 01:42:59,847
demographic research, which is outside of mining, but has a very deep understanding of

1084
01:42:59,847 --> 01:43:04,767
the mining side of things and renewable side of things. If you want to understand

1085
01:43:04,767 --> 01:43:11,647
some of the unique ways to monetize i would talk to actually

1086
01:43:11,647 --> 01:43:24,407
eric at gridless is a great resource eric who uh eric herstman his um his cto philip

1087
01:43:24,407 --> 01:43:48,687
If you could get Phillip in, Phillip is brilliant at modeling the monetization of underutilized assets. And Eric is obviously an incredible entrepreneur. He could give you just a masterclass in startup in a way that would be unbelievable.

1088
01:43:48,687 --> 01:43:55,187
the funny side note, I have a good buddy who spent a couple of years, uh, after doing a master's in

1089
01:43:55,187 --> 01:44:01,027
London, living in West Africa. And I was actually at the Nashville energy and mining summit a number

1090
01:44:01,027 --> 01:44:05,767
of years ago. And I was talking to him, but I'm at this Nashville energy mining summit. I'm going

1091
01:44:05,767 --> 01:44:08,947
to meet a bunch of people. Oh, this is cool guy from Africa here, Eric Hurstman. And he goes,

1092
01:44:10,147 --> 01:44:17,007
Eric Hurstman, you know, Eric Hurstman. I go like, yeah, the Bitcoin mining guy. He goes,

1093
01:44:17,007 --> 01:44:22,967
no do you understand he's the reason why like half of africa has like internet connectivity

1094
01:44:22,967 --> 01:44:28,967
his first startup was like this incredibly ruggedized like internet connected box

1095
01:44:28,967 --> 01:44:33,207
uh which is this really beautiful story that kind of dovetails into what they do now with

1096
01:44:33,207 --> 01:44:39,387
remote minds but yeah eric herstman brilliant dude legacy entrepreneur uh and then fifth one

1097
01:44:39,387 --> 01:44:48,347
somebody who i want to see develop more of a thesis who has kind of danced around it a guy

1098
01:44:48,347 --> 01:44:54,887
named rev hodl i think he's only a noster he has referred to and it's a concept that i really like

1099
01:44:54,887 --> 01:45:01,747
but i don't know if he's fully fleshed it out he has referred to this idea of the permaculture of

1100
01:45:01,747 --> 01:45:07,947
bitcoin mining permaculture this idea of like how do you robustly cultivate a space

1101
01:45:07,947 --> 01:45:13,927
how do you kind of maximally utilize it there's something there's something in there that i think

1102
01:45:13,927 --> 01:45:19,147
is really really powerful when we look at bitcoin mining how do you maximally utilize all of the

1103
01:45:19,147 --> 01:45:23,707
various aspects of bitcoin mining that i think he would be an interesting person to talk to

1104
01:45:23,707 --> 01:45:30,527
but i i'm not sure he has the thesis fully fleshed out i'd have to double check because

1105
01:45:30,527 --> 01:45:35,007
he's only on nostr but really interesting guy all right well i'll give you a count that as six

1106
01:45:35,007 --> 01:45:42,247
because you gave me the cto of oh you got eric and philip yeah and rob you also with bitcoin park

1107
01:45:42,247 --> 01:45:49,927
have a weekly show that you do is that correct just to share with the audience who uh um not

1108
01:45:49,927 --> 01:45:54,087
just where you can find you but but the work that you're doing at bitcoin park yeah so the the big

1109
01:45:54,087 --> 01:45:58,247
thing for us with bitcoin park is that and you know this as well is that if if you're going to

1110
01:45:58,247 --> 01:46:04,127
have an exponentially growing network just of people that are beginning to get interested in

1111
01:46:04,127 --> 01:46:09,247
Bitcoin, over a certain amount of time, the new entrants are always going to outnumber

1112
01:46:09,247 --> 01:46:13,167
the people who have been in the space for a little while.

1113
01:46:13,647 --> 01:46:19,207
And what becomes really important by our estimation is, is how do you curate, create and distribute

1114
01:46:19,207 --> 01:46:24,347
the highest quality information so that people coming in can immediately know that that's

1115
01:46:24,347 --> 01:46:28,387
where you go as your source of your source of truth, your source of knowledge?

1116
01:46:28,387 --> 01:46:33,127
Where do I connect to talk to people that are actually doing like the building and the

1117
01:46:33,127 --> 01:46:39,327
the innovating in the space. So that's really our whole design thesis about what we're building.

1118
01:46:39,727 --> 01:46:44,207
So thus far, there's two really easy ways for folks to kind of keep eyes on what is happening

1119
01:46:44,207 --> 01:46:51,887
at the park. One is our substack. So bitcoinpark.substack.com. We do a daily newsletter

1120
01:46:51,887 --> 01:46:58,307
called Op Daily. So the idea is highly digestible, four bytes in two minutes. You can get it every

1121
01:46:58,307 --> 01:47:02,847
single day and you can know that this is going to be the highest quality Bitcoin only freedom

1122
01:47:02,847 --> 01:47:09,127
technology focused summary of what's happening in the space. And then more long form, we have

1123
01:47:09,127 --> 01:47:15,027
streamed up at Bitcoin Park dot com, which is essentially an aggregator of what's happening.

1124
01:47:15,027 --> 01:47:20,947
And it's everything from here videos from recent summits to hear all the recent news stories to

1125
01:47:20,947 --> 01:47:24,927
hear what's happening with the friends of the park to here's the next meetup that's coming in

1126
01:47:24,927 --> 01:47:30,647
Austin or Nashville. So two resources. But the idea is where do you go if you want to find the

1127
01:47:30,647 --> 01:47:36,227
highest quality, very, very focused information and try to avoid all the fluff and all the

1128
01:47:36,227 --> 01:47:39,587
all the nonsense that inevitably grows with the growing space.

1129
01:47:40,487 --> 01:47:43,307
Well, appreciate you coming down to the comms, Bitcoin Park Austin.

1130
01:47:43,847 --> 01:47:48,607
Appreciate everything you guys do, but I really do appreciate you coming and joining me today,

1131
01:47:49,327 --> 01:47:53,607
lying down for it and doing that with a young one just a few weeks away.

1132
01:47:54,187 --> 01:47:54,567
It's OK.

1133
01:47:54,627 --> 01:47:56,167
I told her last night that I'd be back.

1134
01:47:56,507 --> 01:47:57,287
It's actually two months.

1135
01:47:57,287 --> 01:48:01,207
So it's not, you know, it's a little bit more than a few weeks, but it does mean, it means a lot to me that you came.

1136
01:48:01,447 --> 01:48:02,807
So it's a pleasure to be here.

1137
01:48:02,867 --> 01:48:14,867
And I love that you're doing this and I love that you're, you're growing it because fundamentally, and I said this to Pierre when, to me, Pierre is an interesting, Pierre Richard, what's so fantastic about him.

1138
01:48:14,867 --> 01:48:21,947
And I think it's fantastic about you is that you just incessantly double down on what you're doing and there's no frills.

1139
01:48:22,067 --> 01:48:23,087
There's no side quests.

1140
01:48:23,307 --> 01:48:25,167
You're so mission focused.

1141
01:48:25,167 --> 01:48:37,527
And I think that there's nothing that the space needs more than folks who have put in the work and are so well versed in in what's happening in the space, continuing to dedicate their efforts to education in the space.

1142
01:48:37,527 --> 01:48:41,867
Like, I can't tell you how excited I am for for the growth of this.

1143
01:48:42,347 --> 01:48:44,407
Well, well, appreciate that and appreciate you.