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I don't know what's going to happen with BIP-110.

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You guys probably have a better view of it, whether it'll make it or not.

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But just the fact that we're having the conversation, I think, is a huge positive

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because I think it sends a big, big signal to core.

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I wish Saylor had come out on the other side of it.

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I'm disappointed in the Saylor tweet because I think it kind of disregarded something

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that I think is a fundamental long-term problem.

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It's a time when I'm starting to question some of the major premises

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that I've had behind Bitcoin mining.

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Block space right now is very cheap, ungodly cheap.

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Bitcoin miners ultimately will figure out how to monetize block space and they'll most likely start getting paid outside of the normal cycle.

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This is, by the way, something the core devs don't like to talk about and they don't like me, I think, for saying it.

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Welcome to the Bitcoin Boomers. I'm Bob Burnett. I'm here with my buddies, George Bodine and Larry

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Lepard. And good to be with you guys again. I thought maybe we would start with the state of

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mining, which is very, very interesting. I did a little research earlier this morning. We were

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getting ready. And I looked at the growth of the mining network, you know, from the beginning and

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able to calculate a really interesting thing. So, so from the beginning, the Bitcoin hash rate growth

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has been 20 quadrillion percent. So it's a, it's a mind numbing number, right? I mean,

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We cannot really comprehend it.

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And for those, by the way, who don't know,

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think of hash rate as the computing power securing the network.

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We'll just kind of keep it simple today.

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And if you look at the CAGR of that, it's about 110% a year.

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So it's even faster than the Bitcoin price went up.

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The Bitcoin hash rate even exploded well beyond that.

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We're at a point right now where really for the first time in history, year over year hash rate is down.

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We're down somewhere around 20 to 25 percent.

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And it's it's not a concerning number from the security of the network, because the the you know, when you take 20 percent off of 15 years of 110 percent Kager, it's not really a big deal.

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But it is a very dramatic reversal, right, because we were in an exponential growth.

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And it really stopped about October of last year.

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It peaked and it has fallen precipitously from that point.

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I think there are two things going on primarily that drive this.

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The first being that, as you might guess, the Bitcoin price crashing has really put a hurt on mining operations, the profitability of mining operations.

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I looked up as well, if I looked at five years ago, if you had one petahash, it's a fair amount of computing power.

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You could expect $400 per day for having that much hash power.

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So that's five years ago.

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today $30 wow so so that's like 13x difference on a dollar measurement basis um in in what you get

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from from one day of compute that's a pretty big thing so if you're if you're an organization that's

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fat if you've got high energy prices you're running old equipment you know you've got these

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different things, you're getting weeded out pretty quickly. And so, you know, we've seen a lot of that

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decrease as a result of that. If you've been around Bitcoin long enough, you've probably

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learned one lesson the hard way. Selling your Bitcoin is easy. Buying it back is much harder.

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That's why more long-term holders are choosing to borrow instead of sell. With Ledin, you can

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unlock liquidity using your Bitcoin as collateral while keeping your long-term position intact.

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No taxable sale. No trying to time the market. Just another option when life happens. Learn more at

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leaden. leaden.io slash boomers. Now back to the show. Most of the hash rate loss appears to be

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coming from the biggest companies within the mining infrastructure the the clean spark rye

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at marathon etc um most of most of the decline is coming because they aren't doing it anymore and

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we'll talk about about what what they're going to do in a minute but it it's starting to really hurt

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um i say this as a guy that runs mining operations for a living this low hash price you know pushes even the most efficient operations to the edge I predicting for those who care I predicting we going to continue to see

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declines in hash rate that will continue at least through the halving, which means,

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you know, for the next two years, we'll continue to see a negative trajectory in hash rate.

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It also means that, and I'm seeing this in the real world today,

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that nobody's buying new equipment.

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Like the guys like Bitmain and Watts Miner,

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they almost can't give away their equipment.

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As an example, one of the most popular units

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in the market today is called an S21 Pro,

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234 terahashes.

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I'm just saying that to give you a model reference.

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the price of that unit in the last 12 months is down almost 70 percent like to buy one

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wow almost 70 percent what that also means is like those companies trying to produce those products

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are just getting whammied and their ability to fund things like new chip production

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for a year away or whatever I'm speculating like I don't know how they could justify

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spending money on new wafer starts and a large supply pipeline to buy all the materials to keep

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this going. So I think we're going to see a slowing of the introduction of new machines

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and a lot less growth also in part because I just don't think there's going to be supply.

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I just I love this conversation on mining because I always learn so much when we have

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these conversations. And that is incredible, those figures on the growth of the hash rate.

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You know, I know you didn't mention it, but I'm going to just assume that a competing

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entity here is AI in general, and that AI and the rotation that CapEx into AI is also affecting

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this support of the network, if you will, through hash rate. And the other thing is,

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I'm kind of wondering if maybe some of our basic premises about Bitcoin mining are wrong in general, meaning that this idea of concentration of five or six large entities that are going to control 90 percent of the hash rate.

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I'm wondering if that's going to be right going forward.

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You know, are we going to see, you know, the renting of Pata hash being the way that models go in the forward?

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You know, is it going to be more widespread?

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Is it going to be something that, you know, encompasses independent miners, true miners that are using, you know, Datum, Ocean, whatever, whoever you're using, but basically not within the pools?

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In other words, maybe there's some positive aspect of this here in the future.

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You know, the other thing is, this is really interesting that you bring this up because it ties in relationship with the sailors comments the other day regarding fee structures and how, you know, BIP 110 wasn't important because basically so many things are more important.

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And that really fee structure right now should show you that there's no issue here, that anyone get onto the network and anyone can have transactions.

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And, you know, I thought that was a pretty short sighted, not a very smart tweak, quite frankly. But anyway, I'm just glad you're bringing this up because it's a time when I'm starting to question some of the major, you know, premises that I've had behind Bitcoin mining and how it's going to go in the future.

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I really like the last comment, and I think you guys probably know this. I've been a bit of a contrarian as it pertains to mining. And I think what's happening right now is shattering a lot of the things that have been considered foundational principles or almost, you know, laws that dictate the way mining goes.

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Those beliefs have actually changed the way in which the protocol itself gets developed.

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And so if they are not true, it sends a radically different message back into the development community.

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But I will say just two quick things, too.

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One is on centralization. Yes, this is a decentralization force, at least as it pertains to hash rate.

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We still haven't solved the decentralization of the pools, which is the template creation.

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But this is a very positive movement in terms of decentralization of hash.

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Very, very good and refreshing because we were on a bad trajectory.

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We were on a trajectory where hash rate from the public miners had crossed about 33% of the total network and was on its way north of 50.

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And I don't think we want publicly traded companies to hold that much of our hash rate.

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I think that would be terrible.

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Bob I be curious in the mining industry just to know I know it varies widely based on electricity costs but what the current average cost is to mine a coin kind of across the broad spectrum of miners

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In a related question, what's the electricity cost break even?

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I mean, I know there was a time when, you know, you could have a kilowatt hour of eight or nine cents and make money mining.

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I suspect that's long gone.

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And I'm curious how low.

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I mean, I know some people almost have a zero cost.

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I know you do on the ones you run on a river, although you have CapEx.

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The actual cost of the river running isn't, you know, zero.

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You know, how do you talk?

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Can you talk a little bit about the economics?

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I assume the reason why the hash has fallen is that some piece of the people who are providing the hash have done the math and said, this doesn't make any sense.

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I'm turning this thing off.

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Right.

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Yeah.

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My calculation would put it between 78 and 80,000 as the average.

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Wow.

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Wow, so a lot of people losing money actually mining today.

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A lot of people losing money.

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And, you know, the Pubcos, which have big stacks,

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they can withstand it for a while,

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but we've seen them start selling at accelerating rates.

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So they're selling the Bitcoin that they hold

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in order to fund the operating losses on the mining operation.

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Wow.

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Right.

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Yeah.

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But more importantly, they're actually pivoting out of Bitcoin.

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Well, yeah, I've heard a lot of them have gotten richer AI contracts, right?

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They've got all this energy and power.

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And they're like, hey, why mine Bitcoin?

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I can sell this to a hyperscaler and make more money, right?

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Right.

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I've been often critical of the management teams in a lot of those companies.

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But I will say they are making the right move at getting out because they're pretty shitty at mining Bitcoin.

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So they should go do something else.

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And they do have an asset, which is access to power.

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is this the don't let the door hit you in the ass on the way out that is exactly what it is George

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um you know and you know what's interesting too if you go pull up the website clean spark riot

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hud8 uh marathon um iron I challenge you to go find the word bitcoin on their website

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you will look

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it's like where's Waldo

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where the hell is Waldo because

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it's all AI, data center,

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infrastructure,

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power, blah blah blah

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and by the way I think they're doing the right

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thing for their company and their shareholders

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given their situation

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and so

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but good riddance right

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because you've been a net negative to Bitcoin

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so you know maybe you can

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go ruin somebody else's life

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so

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Quick word from our sponsor.

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You've probably noticed something.

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Some of the biggest public miners aren't acting like Bitcoin companies anymore.

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They're becoming AI infrastructure companies.

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That's their decision.

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slash boomers now back to the show how cheap does your power have to be to kind of have a shot at

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making money at 50 or 60 grand a little less than five cents per kilowatt hour okay you know um you

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know and i mean there's it depends on which unit you're running it depends on some of your overhead

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costs, you know, maybe you could get it into the five, the five point something cent range if you're

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really lean in other areas. But. And so if you're, if you've actually got a power cost of two or three

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cents a kilowatt hour, you're probably actually even making money at these prices. You can still

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make money. Yeah. I have, I have operations that still make money, but a lot less than we projected,

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you know by a good measure and it's difficult you know and and so what does that do do it it

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it slows down the redeployment schedule like again that's why why do I think it's it's you

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know negative hash rate growth because it just slows down the whole cycle the only caveat is

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like we have and we have taken advantage of some we we have had the opportunity to buy both new and

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used equipment at ungodly cheap prices. And a lot of that, by the way, has come from some of

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the bigger organizations who were rapidly trying to get out of Bitcoin. So they're taking a machine

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that was maybe only installed a year ago, clearly hasn't provided an ROI yet. And they're selling it

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now, getting pennies on the dollar, maybe dimes on the dollar, probably a better way to say it.

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and then moving into AI.

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And I think the market responds to AI right Imagine if you were a public mining company and you announced tomorrow that you were putting money into a new 200 megawatt mining operation and contrast that with how the market would respond to hey you deploying money to put 200 million into it

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Yeah. You know, do you follow? I don't know if either one of you guys follow Bill Gurley.

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You know, just a legendary. I know who he is, but I don't. Of course.

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Well, you know, the thing is that what you touched on is so, I mean, that is the story.

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I mean, he was saying nine months ago, he said in a podcast, he said, you know what?

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If you don't have AI in your pitch, if you don't have it in your perspective, if you're not in somewhere in your company's plan, I mean, you're not going to get capital right now.

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AI is the thing.

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I want to ask you something, Bob, because this I've kind of been thinking I've been rethinking this four year cycle that I dismissed, you know, famously like six months ago, I said the four year cycle's dead.

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And now I'm starting to look back on it.

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I'm wondering if, you know, obviously that was premature because I'm kind of wondering whether the having if we've been, you know, how I asked you if we've been misreading hash rate and the whole mining industry.

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I'm wondering if we're misreading the having itself, meaning this idea that it's de minimis and it's not part of the four year cycle anymore as we go forward is wrong.

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is wrong. And the reason I say that is, yes, it's de minimis in the amount of actual Bitcoin.

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But isn't it, if we project where Bitcoin's going, haven't we always kind of thought to ourselves that

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based upon the price of Bitcoin going forward in the future, that the mining industry would have a

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long runway before fees took over? And you could tie this into the sailor point, too.

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well so the the mining industry this year cumulatively will be a 10 to 12 billion dollar

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industry they take all the all the companies public and private add them together their their

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total revenue will be 10 to 12 billion relatively small by the way like you know um if we continue

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on a vector where the price doesn't lift, obviously it shrinks dramatically. But we need

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at least a double laying. And by the way, that number includes part of this year where we were

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at like 80, 85, 90, right? So if we don't see some recovery in the second half of the year,

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it might end up being $9 billion or something like that.

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But anyway, the industry is small.

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I think a lot of people misunderstand the industry,

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and this will actually include Sailor's comment.

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A Bitcoin miner, the purpose of a Bitcoin miner

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is to produce block space.

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That is our goal.

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I mean, or that is our objective.

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We produce block space.

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We get paid in Bitcoin.

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I think people have misread Bitcoin mining and think of it as the purpose of a Bitcoin mining company is to produce Bitcoin.

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And there's a secondary step, right?

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At least, or I shouldn't say a secondary step.

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There's another step.

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We get paid in Bitcoin.

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We make block space.

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Block space right now is very cheap.

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Ungodly cheap.

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And there's probably three shows about why it's cheap and, you know, what we may have to do to change that.

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Bitcoin miners ultimately will figure out how to monetize block space.

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And they'll most likely start getting paid outside of the normal cycle.

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This is, by the way, something the core devs don't like to talk about.

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And they don't like me, I think, for saying it.

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I think we're going to get to a world where block space is very precious.

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It is very scarce.

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It's mandatory for the sustainability of the Bitcoin network for block space to always be slightly undersupplied, that we need demand to always be a little greater than supply or mostly always greater than supply.

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I think we're going to move to a world where access to the block space becomes one of the most important things, one of the most important assets in the world.

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And that's why I believe banks and nation states will be big miners in the future.

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And so I'm probably not articulating this great today, but the idea essentially would be that if we're five years, 10 years from now, and you have an organization like Bank of America, and you're a large customer of Bank of America, I would expect...

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that one of the privileges of being at Bank of America

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is they are going to give you access to block space

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at a known price with a relatively tight response time.

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It's one of the problems with the Bitcoin network right now

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is that if you're a corporation,

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you don't know for sure what the future holds.

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You don't know how much block space is going to cost. You don't know how much access you're going to have to it.

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You know, I like that discussion. And I will say right now that I think part of the reason we're seeing this comes about because of something that changed for me in Prague, which is, you know, Bitcoin is money.

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I think the idea of the fact that we're not using Bitcoin as money, that we're in this mindset of digital gold, digital capital, whatever the shit you want to call it, is affecting fee rates, too, and just using Bitcoin.

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But reeling you back in, just touch on sailors' comments then.

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That's what I want to be addressed, this idea that we have issues that are way more important than the structure of whether it's arbitrary data or dust within transaction, which it's a pretty huge part of the UTXO set right now.

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So just touch on sailors' comments quickly, if you would.

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I started down that path and I got sidetracked.

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I apologize for that.

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I mentioned the total revenue of the mining network.

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Let's just call it $10 billion.

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Okay.

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So today, 99% of that comes from subsidy,

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meaning the network is paying us to do our work.

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In 10 years, relatively short period of time,

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we go through three halvings So the subsidy amount will be cut in half cut in half and cut in half three times in the next 10 years

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By that point, this thing about when miners are going to be reliant on fees is not decades away.

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It's probably a decade away.

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And we have to create a marketplace that's viable enough so that we're getting probably at least $10 billion, but probably $20 or $30 billion worth of fees by that point.

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And if the base layer is not being used for monetary purposes, I don't see any path for non-monetary uses to pay for that budget.

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there's not enough spam in the world yeah that's what i wanted to touch on thanks

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yeah what do you think larry i agree you know the whole non-monetary use of bitcoin just makes no

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sense it's it is money it should be money i mean this is the whole bit 110 argument and the fact

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that we have people in core who don't even understand what the thing is like you i was

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somewhat chagrined to see sailor's reaction to the whole issue because i don't think he's

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thinking it through entirely clearly.

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But I've got a lot of people in my inbox

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otherwise trying to get me to say,

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hey, get out there and support BIP-110.

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And generally speaking, I do.

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I mean, I support no spam

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on the monetary chain of the future.

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And yet I, you know,

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I kind of stay in my lane,

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which is macro shit.

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I'm not a technologist.

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And I feel like that you guys are more so.

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And so I kind of leave that to people

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who are better about, you know,

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how nodes and miners and, you know,

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Everybody else controls the network.

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And I think it is a very important topic.

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And my sense is that you know I don know what going to happen with BIP You guys probably have a better view of it whether it make it or not But just the fact that we having the conversation I think is a huge positive because I think it sends a big big signal to core

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And I wish Saylor had come out on the other side of it

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because I think, you know, he's an important voice in the space.

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And, you know, I think over time, you know, very much like the block size wars

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and other things, this will subside and the spam will go away

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because either a combination of a BIP or a core or both

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will kind of force it to go away.

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And everyone realizes there's just no sense

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in non-monetary uses of this thing.

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You know, very much like the block size wars

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and other things, this will subside

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and the spam will go away

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because either a combination of a BIP or a core or both

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will kind of force it to go away.

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And everyone realizes it just can't support them.

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You don't need them.

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There are better ways to deal with,

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you know, the things that they're doing.

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So that's kind of how I see it.

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You know, you've got so many great points here and it's good to, it's kind of good to

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game this out.

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I mean, I want to see what the future holds for us.

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And I mean, I do have concerns, but I'm kind of wondering if maybe we're just, we need

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to sit back and all rethink about, you know, what is the future going to look like?

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Whether it's big miners, big pools, everything along those lines.

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people have a tendency to look in the rear view mirror instead of looking forward.

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This even applies to, we had some earlier discussion about some macro stuff and all that.

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Well, you don't drive by looking in the rear view mirror. You drive by looking forward. And

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what you have to do in something like mining, or even in the way that the whole network itself

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reacts is look at the 10 year point, the 20 year point, the 30 year point.

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And you know this is how I basically made my living is being a technologist and looking at this What I have always found is it much easier to move yourself fairly far forward in the future because if you start

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thinking 10 or 20 years ahead, the strings of today and the past start to dissipate. You can

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free your thinking from the past and the present that are pulling you back.

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and that's why like i gave you the example about in 10 years we'll have three halvings

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now if you think about what a bitcoin look like 10 years in the past and how much has it changed

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well it's going to change an equal or greater amount over in that period and and so you know

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will block space be used the same way probably not will people run the same kind of nodes probably

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not. Who will be the big miners? Who will create the templates? These are all going to be different

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people, different motivations. The past is not prologue. If you set your mind to that the way

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things have always been are the way that they're going to be in the future, I think you're doomed

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to failure. And, you know, maybe I'll just close it with that. Like, you have to think of mining,

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you know, without the constraints of today. And so, you know, that's what we're trying to do. And,

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you know, are we at an existential point or anything like that? No, we're not. But we have

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a lot of problems. We have a lot of things to address. And probably the biggest one is the one

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that I'm disappointed in the Saylor tweet

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because I think it kind of disregarded something

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that I think is a fundamental long-term problem.

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Well said. Great discussion, Bob.

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That's it for this time.

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Thanks for watching, and remember, stay humble, stack sats.

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See you next week.