Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Marco Streng: Genesis Mining – Taking Bitcoin Mining to the Cloud

Episode Date: May 5, 2020

Genesis Mining is a leading hash power provider offering cloud cryptocurrency mining as a service. They offer mining for Bitcoin, Zcash, Dash, Ethereum, Litecoin, and Monero and serve over 2 million users in 100+ countries. The company was formed in 2013 and saw tremendous growth in its seven years in operation. In the mining business, process optimization, controlling costs, and vertical integration are key. Crypto prices, difficulty adjustments, hardware availability – all can have an impact on profits. Co-founder & CEO Marco Streng shares how he built his company from the ground up, and is now expanding beyond crypto to address other profitable markets in cloud computing.Topics covered in this episode:Marco's background and how he started Genesis MiningThe biggest challenges they faced in the early daysThe company's cost structures and vertical integrationWhy they got into cloud computing and the applications of GPUsThe major shifts in the mining industry since they were foundedThe ecological footprint of miningWhy people would buy cloud mining and its profitability opportunitiesThe risk of mining centralizationBitcoin halving and the impacts of this on the mining industryMarco's views on Proof of StakeEpisode links: Genesis Mining websiteBitcoin Halving - What to Expect as a MinerGenesis GroupGenesis CloudGenesis Mining TwitterMarco Streng TwitterThis episode is hosted by Sebastien Couture & Brian Fabian Crain. Show notes and listening options: epicenter.tv/338

This is Epicenter, episode 338 with guest, Marco String. Hi, welcome to Epicenter. My name is Sebastain Kutuo. Today our guest is Marco String. Marco is the CEO of Genesis Mining. They are the world's largest cloud mining company. Genesis was founded in 2013 and it's grown to a team of hundreds of people. And according to their website, they service over 2 million customers. They have mining farms in Sweden and Iceland and they offer mining for Bitcoin, Zcash,

dash, Ethereum, light coin, and Monero. The mining operations are just one part of the business. The parent company Genesis Group also operates Genesis Cloud, and this subsidiary offers GPU cloud computing for a variety of applications, things like machine learning, rendering, data analysis, and other forms of computing. Obviously, this is an immensely successful business, and there's lots of room to grow. And as much traction as we've seen in Proof of Steak in recent years, proof of performance. proof of work isn't going away anytime soon, and neither is the need for highly specialized

and parallelized computing. I really enjoyed this interview because we got an inside look into a large-scale mining operation and really understand the unique economics of that business. It's a business where there's lots of variables at play, things like electricity cost, an ASIC supply, and the price of Bitcoin, of course, and any slight variation can have a huge impact on profit. And as Marco explains, something has been not. as a customs agent not signing off on a shipment of ASIC chips before he goes home for the weekend, well, that can have huge costs on the business. But what I took away from this conversation is that over the last seven years of operations, they've tuned the business so that it's fully

optimized and as vertically integrated as possible. And I think the success of Genesis is largely due to Marco's skills as an entrepreneur. After the interview, Brian and I were talking and saying that whatever business this guy could have started in his 20s, while he probably would have been successful at it. So here's what you'll learn in this interview. Marco's background and how he got started with Genesis mining. The biggest challenges they faced in the early days. The company's cost structures and their vertical integration.

Why they got into cloud computing and the applications for GPUs. What have been the major shifts in the mining industry since they were founded? The ecological footprint of Bitcoin mining. why people should buy cloud mining and if it's profitable, the risks of mining centralization, the impacts of the Bitcoin having on the mining industry, Marco's views on proof of stake, and the role of Bitcoin in the current economic crisis. So reset everything just wrapped up last week. It happened on Wednesday and Thursday. And I just want to say that this thing exceeded all of my expectations. This was kind of a grassroots kind of thing. And we didn't

have very many expectations for it, but it was so cool. It was, it was phenomenal. I mean, there, we had over a thousand signups. And on the first day, a total of about 400 people came in. On the second day, about 300. And it was just two days of really thoughtful and intelligent conversations around all of the lasting impacts and lasting effects of the COVID crisis. And I was just ecstatic about it. I was so happy. about how it turned out. And I want to thank everybody, all of you who came to the conference, who were in the Zoom and asking questions and interacting with the speakers. You guys really made it what it turned out to be because of like all this discussion and all this back and

forth. So that was really fantastic. I also want to thank all of our speakers for giving us their time, their expertise, their insights, and for sharing their vision for the future. And I also want to thank the group of people who made this possible, Alex Mazmage, Samantha Yap and her team over at Yap Global and Bettina Bunfellow, who organized ECC this year. They were helping out for the last couple of weeks getting this all together. And they were also there during the conference, emceeing and coordinating in different ways. And so it wouldn't have been possible without them. This has taught me a lot. It's taught me obviously a lot about the COVID crisis and how it might impact us in the years to come.

but it's been sort of a personal development journey for me too. It's taught me that if I want to do something, I can just do it and it can be successful. It's also giving me some ideas about where I want to spend my time and, you know, talking about a lot of the things that were discussed during the conference and having discussions like this is something that I'd like to spend more time on. So I'm going to wrap this up and just take a step back and internalize a lot of lessons learned here and also take a little break because the last couple of weeks have been really intense. But one thing's for sure is I want to continue this conversation. And I've got a

couple of ideas of where I want to take this, like maybe a newsletter or another podcast. But one thing's for sure is I'd like this to be a community thing. And so I'm going to be reaching out to everybody who's signed up soliciting people's feedback and asking people, you know, what they think I should be doing with this, what directions they'd like to see this going and what they would find valuable. And whenever I'm ready to take this further, well, you guys will be the first to know and I would be more than happy to have you be part of this new adventure. And with that, here's our interview with Marco String. We're here with Marker Strang.

Marco is the founder and the CEO of the Genesis Group. Known Marco for a long time, he was very, very early in the crypto space and has built over the years like a very impressive company, Genesis being one of the largest mining companies, a large cloud mining company. They're doing a bunch of other stuff as well. So thanks so much for joining us. today, Marco. Thanks for having me. Tell us, like, how did you first learn about Bitcoin? What did this

initial phase look like if you slowly getting into this community and this ecosystem? I think it all started by the time of 2011 when I first learned and read about Bitcoin online. And by that time, I was studying mathematics. And I read about the concept and I found it really, fascinating. I realized that a lot of the discussions are going and happening about Bitcoin. Actually, blockchain was not even a main topic. I mean, blockchain was where Bitcoin was happening. Nobody really talked about the blockchain technology itself. Everybody was driven by Bitcoin as the main use. And I realized that a lot is happening on Bitcoin talk and that the community was really rather small and it was mainly interesting, very intriguing ideas that got me really

very interested. And I actually, because I kept on reading and participate a little bit, but I had to say that I had to focus primarily again really my attention on studying. And when it really dragged me in was basically one year later, when I heard about it again. And then I looked back and observed what happened and I was fascinated how in one year that community has actually already grown and businesses have emerged a real economy was going from that time on I also engaged actively in projects and really participated and it all started from there in that real economy you're talking about that was in 2012 yeah exactly 2012 and until end of 2013 where we then actively started Genesis mining.

But I was engaged in the community before. And my main observation and interest was not only that the whole blockchain idea, like that everything was transparent and that you could monitor every cash flow on the blockchain, that was quite interesting for me from a mathematical, economical perspective, actually there was also real economical incentives, like that you realized, I mean, the trading on the exchanges that were existing by that time that was like Trade Hill or like the early stage exchanges.

Bitsdam and Cracken existed already by then, I think they started 2011 or so even. And there were major, major arbitrage opportunities. The market was so extremely inefficient. And I actually actually, Besides the arbitrage, of course, I was also really interested in, I thought, coming from mathematics, that there must be an opportunity, there must be basically some patterns that emerge that can be correlated to certain price movements. Like, for example, a major Bitcoin holder is now selling on the market, and you must see maybe a lot of volume getting into one of the exchange wallet. for example, like a Mount Gox wallet or so, and then a follow-up price move. And so I was looking for that pattern.

I was modeling the blockchain on a graphical model and then seeing whether I can find these patterns and correlations. That was actually before Genesis mining. But towards 2013, I mean, I started with mining as a hobby for myself. I made my own mining computer that was first done with CPUs. then as you know, GPUs, and by the end of 2013, like it turned into a complete craziness. I would say a real gold rush because Bitcoin, I think November 2013 went from 100 to 1,000. And also light coin went from $1 to $30.

So it really got very profitable, actually so profitable that within a few days or weeks you could get your CAPEX back. And as I already had by rigs running and I knew how mining works, I originally just wanted to participate as a form of participating in the network. But I saw that, wow, this is a very economical opportunity. And basically I was telling my partner that we need to make that big. And we have to have this rig and we create thousands of these computers and make a big data center and start mining in large scale. That's how Genesis mining was formed. And originally, actually, we really wanted to do only a large-scale mining for ourselves.

But then as things progressed, and very interestingly, a lot of our friends saw how we are building up this data center and are running these operations. And they thought, wow, how crazy is this? For them, it was so interesting that you could basically print a digital currency. Of course, they didn't necessarily understand so much that it's actually not real arbitrarily printing, and it's a very good way of giving more coins into the market. But, yeah, it started from there, and everybody wanted to participate. So we basically had to find a way how to let our give some capacity also make it available for friends to also participate while we are building our own data center and continue to do that.

And that's where basically we also got into cloud mining. And we wanted to find ways for everybody to participate in mining. And from then on, it grew like Genesis mining, went from really a few people to a lot of people now globally. And it went from there. Back then, if there were other companies that were also exploring this idea of cloud mining, because it was also a brand new concept, were you the only ones at that time? We were the only ones that generalized the concept for also altcoins and offered a broad spectrum of possibilities to do that.

And I think we had also unique ways how people could distribute their hash rate over different altcoins and make basically also the opportunity from the altcoin market accessible for everybody. And that let us get started with a real unique offer. And when the prices also, we had a lot of ups and downs in between, primarily more ups than downs, obviously. I mean, coming from really $30 Bitcoin prices and lower to now $7,000. But, yeah, a lot of people realize that actually it's a very interesting offer and that let us grow. And we have big believers in the underlying assets and in mining itself.

So we really expanded our operations globally over the last seven years in a very significant and large, large way. You mentioned right, basically, these early beginnings where you came from. And at this point, right with Genesis Group, having hundreds of employees, what were the biggest challenges you've had on the way to growing this business? And what have been the biggest learnings for you? Bitcoin, blockchain, in general, but really particularly the market. mining space is just a completely crazy, time-sensitive business. Incredible. I mean, I know what the traders are doing out there. They are awake day and night. They are looking for every

opportunities. The market's never closed. But in mining, you have additionally that huge pressure that you have, like, the production of the machines. It needs to go as fast as possible. and then you need to bring the machines to the deployment sites as quickly as possible. And you need to really knock out all the or the most of the unpredictable factors or you try to really mitigate the risks along the way. And that was a very challenging process from the beginning. I think now after seven years we basically know everything really in detail. There are still surprises.

But I mean, in the first years we had things like, for example, large batches of, machines came in on a Friday on the custom and the customs officer he wanted to go on his weekend now and but for us it's a huge difference if we deploy these machines three days earlier or three days later this whole process has been really optimized to the last bit from our side we know basically all of the as much everything that is linked to the whole process but that's certainly a learning on that yeah that's probably one of the major ones. And then I think I learned a lot about complexity. I mean, personally, having seen, there's rarely markets that have seen so much huge ups and downs than Bitcoin.

I think if you trade it, that's one thing. But if you have like a whole business link to that with several hundred people, then it's a really nerve-wracking thing. And you really need to act coordinated and very planned and deal with the circumstances in a very good way. And I think in that regard, the Genesis group, besides the mining, I think we of course also did a lot of investments and we did a lot of also side projects, particularly when there was so much upside and when the market was so high, probably every major cryptocurrency or every major blockchain company did that. And what I learned is really to still stay focused and emphasize the

importance of the core business and not lose the attention and focus while exploring other opportunities. I think some businesses have never made that. They basically, when the market went down again from this huge ups of 16,000 back to like 5,000 or so, they got completely crushed. And some basically scratched the curve and had to make some adjustments on the personnel, but we're able to really get through that in an optimized way. And I think that's also for us.

We learned a lot from these ups and downs, and I think we really made our whole core business as efficient as it probably get. And we are continuously learning, but I think really the experience and learning so far has been tremendous for me. In terms of personnel costs, where do most of those costs reside? Is it in infrastructure management or other areas of the business? You have to deal with a lot of, to maintain really large-scale operations and several hundreds of megawatts. There is a lot of human personnel that is involved in all sorts, let it be the shipment.

Really, it goes from constructing and assembling the machines to making sure that the shipments are coordinated, to making sure that. everything gets imported well, making sure that the data center is ready by deployment. And then when everything is deployed, you need to make sure that everything is maintained in the best way. And that's a science for itself. I mean, the data centers that we are using and that are best for mining vary and have really some unique features. And the whole business is extremely cost-focused and cost-sensitive. if you have the best cost, the lowest cost of production, you have a very stable and good business. If you are not on that edge, you can have the danger to get wiped out.

It's as brutal as it sounds. And you have a lot of other costs that are involved, like the energy. That is also not so easy to coordinate because if you're dealing with several hundreds of megawatts, you buy or you produce large-scale power, you're not in a position where, for example, the whole mind I can just say, okay, today I just switch off my operation. You need to plan much ahead because if you produce significant amount of power that even can lead to like a whole power plan, now producing significantly less power, you cannot make fast moves.

You need to really make confident and stable decisions to plan ahead and make the best out of. Maybe it's helpful then to understand the level of vertical integration in your business. So you're manufacturing chips and deploying them in data centers, but are you also producing electricity? Give us a sense of scope of the vertical integration that you've grown to. I don't consider Genesis Group a power producing business. I'm not excluding the fact that it is good to produce it on your own. It has some benefits. What I've learned really is that I think it is of great advantage to use really the focus and knowledge

on the core business of what you can deliver. And we particularly realize that the Genesis Group and particularly Genesis mining is very good in producing computing capacities, computing operations at the absolute lowest cost globally that you can imagine. And so much roles play into that. Power, you have to get cheap power is one, but the infrastructure needs to be right. The machines and the chips need to be right and many other things. And I think on the power side, what you really need to make sure is that you have really secured the power. And whether you produce it or not, that's in a different paper, but you need to be sure that you absolutely can be certain that you're getting that power and you're getting it

for the right price. You don't want to be in a position where you have like a large-scale operation. And then suddenly a hydro dam doesn't have enough water in it for a bad season, for example. And suddenly the prices are increasing. And you are completely unhatched going into a scenario like that. This can kill your whole business. And we have seen competitors that have gone down because of these things. And what we have also seen is that competitors have completely under- estimated the importance of really lowest cost, especially when the profits were high. When the profits are so high that you don't even care about your electricity bill, everybody goes into euphoria mode and says, yeah, I'm the best, they make so much money.

But then if the price go down or the hash rate goes up, then they suddenly realize, oh, yeah, it matters actually quite a lot. And that determines their survival in that market. I hope that answers the question. I think it's extremely important to have the control over the electricity. So cool to hear about how this business has evolved. Now, you mentioned the key thing about focusing on the core business, and that has been crypto mining for you guys.

Recently, you also started a new business around general cloud computing. Like, why did you guys get into that? and doesn't that kind of deviate from this core focus? It deviates a little bit. But if you look closer, what we have done from the start is actually large-scale GPU mining, particularly coming from the alt-coin space. Of course, besides large-scale ASIC mining also from the beginning.

So we actually had quite a good amount of GPU capacities. And also we had the knowledge to really build up the data centers in a very, very, very cost-efficient way. And combining these two core abilities, we by now three years ago made that strategic move, and we really made it well-planned and committed to that idea that we really want to contribute into also the AI market and into the high-performance computing market. And we did that really, we took that very serious. We started Genesis Cloud years back.

And I know that there are also other mining companies that were using that as a marketing. But I don't know anybody that took it really as serious than we did. We can offer now a very unique offer for researchers, for AI startups, and for many others, like even pharmaceutical companies. We work together with universities and large-scale organizations to give them the possibility to get access to GPU-based high-performance computing for very low prices. Probably a lot of the people know Amazon AWS. It's a very good business and it grew quite a lot in the past. We have prices on Genesis Cloud that are sometimes 20% of the price of Amazon AWS. So we have really a tremendous difference on the pricing.

And that comes from the fact that our data centers are not necessarily in San Francisco or in L.A. They are sometimes at the end of the world. I think that really is a great thing. And everybody can check it out on genesiscloud.com. Everything written together, you can really buy GPU core hours for low price. And actually, I'm not sure whether you remember, but there was a time where when the GPU mining was so profitable, people went to Amazon AWS and booted GPU nodes to do alt-coin mining. You can do that.

There's people that are looking into that also with Genesis Cloud, but the difference is that it's just much lower price than Amazon AWS. But anyway, that business really is absolutely focused on AI infrastructure, TensorFlow applications, rendering applications, and these sorts of high-performance computing. And, yeah, it's a very exciting. exciting thing because also this world of AI, I think I don't need to tell. I mean, everybody knows like what applications are coming, like the self-driving cars and all of that, need so

much more computing capacity. And also on the rendering side, I mean, I'm not sure. I mean, if you have looked into the Lion King, for example, that movie that was the level of detail, how you can animate things. Like, it's incredibly high at this stage. And you can even now make George Clooney movie without George Clooney himself because you can just simulate it. These use cases are basically really what we can offer very well on the Genesis Cloud. So you mentioned AWS and your sort of cost advantage because you're operating in places where presumably rent is cheaper, perhaps also labor, electricity costs, etc. What are some of the downsides then in operating in those areas?

I'm thinking perhaps is it like access? to bandwidth or as a consumer, what am I giving up by going with like a Genesis Cloud over an AWS, if there's anything? It depends on the use case. We are extremely GPU oriented and focused. And if your use case is within our offers that we provide, there is nothing you give up. Actually, really, the gain is significant because you just have to pay much, much less. And we really can focus a lot on GPUs.

dedicate everything towards GPUs because that's our main focus, whereas Amazon AWS is very broadly places, very complicated also, and it's a much broader offer. So I think if your use case is really within our core product, and we have seen that, we have a lot of people that are coming over to us and coming from saying, oh, wow, we're a startup, we don't have so much money for our computing bill, just that we can train our neuronal networks. We cannot pay these high bills anymore. Please help us. It's a very flourishing business, but it costs a lot of time. And I think we are also still in a really big growing phase. And we can do much more in that regard. It is a major component of the

whole Genesis group, besides, of course, our mining business that where we fully believe in. Let's talk about mining. So you guys were super early to get into the mining space. Over that time since you've been involved, what have been the major shifts and transformations in that industry? What I find remarkable is how drastic that change was

from originally 2012, 2013, really a distributed network where you had home miners. Home miners in the early days with CPU, GPU. I mean, Satoshi mined with the, CPU starting and a lot of people mined with CPU then everyone GPU and then of course ASICs no matter which device like the home miners were there and you had people that had their ASIC machine in the basement it's not a very good example but that was the time with butterfly labs etc i don't

it was a very actually bad example with butterfly labs because it was not you know what happened and a lot of people got really burned but yeah it shifted rapidly and we knew we saw saw that coming also, that people who are doing home mining, they have no chance of competing against large-scale miners. And the home miners now, there's only a fraction of the mining that is done really via home miners, and the vast majority of miners are doing it in larger scale. And I think that's probably the biggest difference. It's remarkable to see, like, really that the industry has become a very heavy industry, comparable also to gold mining, really, where at the beginning people were trying to find the gold nuggets in the rivers,

and look at where gold mining is now. I mean, you have huge gold mines with massive of machines that are digging the gold, and I think it's really a good comparison. You really have large, large-scale operations that consume a lot of electricity and have really high degree of economy of scale and very, very optimized setups that a home miner cannot achieve that make the large-scale operators more efficient. One other interesting analogy, you know, between like gold mining and crypto mining. It's just a cost structure too, right?

you know, a gold mine has like a certain amount that costs them to produce like an ounce of gold. And if the gold price goes down, right, then maybe you can lose money or be like, even if it goes up, they make a ton of money. So you probably have a similar, you know, fluctuation and this exposure to this commodity price. Absolutely. That is very similar. And there is one slight difference, actually. And that is a very good difference, I would say, for the crypto.

currency mining. And that is the difference that the supply is fixed. Whereas in gold, the supply is not fixed. It is in gold, basically, if you have high gold prices, then there is more gold miners and you produce more gold per day, usually on the globe. And whereas if gold prices go down, and let's say in an extreme scenario, the gold prices go so low that no gold mine makes a profit, then you have suddenly no excavation of new gold on the globe. And in Bitcoin mining, as we all know, we have a fixed amount of coins that are emitted every day, now 1,800, after the halving it's 900, on average statistically. And that dynamic makes a little bit of a change compared to gold mining. And that basically leads to the fact that you have to be the most

efficient miner in order to succeed in the crypto mining. And now the important point is, if you can make sure that you are that, then you have a very strongly protected downside. Because assuming you are really under the more efficient miners and the profitability goes down, then the other miners who are not so efficient, they have to drop out because they are getting into the reds and while you can continue to mine. And when the others then are in the reds, they turn off their machines. And then the difficulty as a consequence goes down. And you gain the miners that are remaining to mine in the market. They gain on market share and suddenly produce more coins. So that's what I'm saying about the protected downside. You don't have that necessarily in

gold. If your gold mine has a cost of X and the gold price goes below that, You just don't dig, but... I guess another thing that I'm curious about this kind of relates to another topic we want to get into that has been much discussed, which is the energy footprint. I think what you have this interesting situation knowing in crypto mining that you can basically, you can go anywhere and mine anywhere. So you can go to where, you know, you have these cheap energy sources. And I guess from what I've read is that's often renewables.

And I love to love to expand on that. but I guess on the gold side, you have to go where the gold is. Is it the case that gold mining, they mostly use, I don't know, oil and energy sources like that? Or do you know anything about how that footprint compares? Absolutely right. You're hitting a very key differentiator,

and that really is, as you say, gold mining is not so flexible on the energy sources. They are bind to the locations. And that is also a major advantage on the crypto side. basically the high degree of flexibility with regards to the data centers and where you start your mines. And that actually leads to the fact that you have an innate move and an innate incentive for the miners to choose the locations where they can get lowest electricity and deploy the data centers ideally there. And now comes a great point that these locations or the,

cheapest sources of power globally are, luckily, the renewable sources like hydro, et cetera, wind, et cetera, geothermal. And that's an amazing fact. Or solar, et cetera, that actually means that the crypto mining industry is going towards using renewable sources. And then you know that there's such a large amount of resources on renewables. I mean, the sun has so much energy, right, the hydro dams, there is so much power available. If you look at that picture, really, you see that there is no real harm. And it's actually even a support of the renewable energy industry. So the crypto mining industry actually supports the renewable sources industry.

And I think that's a great fact that not so many people know. And there's a big misconception, I think, globally, that has been really driven by the media, really to emphasize, yeah, you know how it is. Like the drama always sells very good in the media. And there was such a thrashing of the mining world. And Bitcoin is environmentally not friendly, et cetera. I think this is just wrong. This used to be one of the things that I was most, felt most mixed about when it came to Bitcoin.

And one of the things I was kind of worried about. And then, you know, in the last years there's been a bunch of reports. I think coin shares did some analysis. And I saw some other ones too, where they. did try to analyze, you know, the Bitcoin network overall and where does the energy come from and what's the setup. And so it was very, you know, great. For me at least, of course, I'm not as inside industry as you are, but for me it was a very positive surprise, just how large the percentages that came from renewable sources. I really see the future of the mining world where

the large-scale data centers are below the hydro dams, are close to the geothermal sources. For example, in Iceland or etc. And really near the solar fields and the area where there's a lot of the wind farms. And I think that's a sustainable picture and that would be a really amazing thing when we're ending up there. So your company, of course, is best known as a cloud mining business, although we're discovering that there's just so much more to that business than simply running data centers.

Can you explain what is cloud mining? I mean, most people, of course, kind of understand what it is, but as a product, as a consumer, what do you buy when you purchase cloud mining? And how does that fit into the greater overall mining space? And, you know, all the different types of mining that is going on, whether that's mining operations as a business or a home miners or etc. Absolutely with pleasure. So cloud mining is a product and a possibility. for that lets everybody, gives everybody the opportunity to use already existing mining machines and mining capacities

and basically buy computing resources and miners in the data centers or computing power itself in the data centers. And then basically buy that for a certain amount of time, say two years, one year, two year, or shorter, then get basically the reward, get that computing power and get the bitcoins that are mined with that computing power, the output over that certain amount of time. And I think that this is a product that is really highly underestimated and actually quite important for the industry, particularly looking at the fact of more and more centralization in the mining space. Satoshi had the vision that ideally mining, everybody should do mining itself and we should have a decentralized home mining ecosystem.

We realized very soon that this is unfortunately not going to happen because of that economic advantage of the larger scale miners due to economies of scale and other infrastructure optimizations, etc. That basically means that the large businesses will always have a winning edge over the home miners. How can you go against that innate dynamics of centralization? I think that one of the few possibilities is to be a large-scale miner yourself, but give everybody the possibility to take these large-scale economics and benefits that the large-scale data center has and give it to the users. And this way, you can have a possibility

that everybody has the chance to participate in mining in an economical way. And I think that makes the product really important because otherwise we're steering, we have a market where there is a couple of operators, you can probably count them in one or two hands, that are running the mines

and they have a bigger advantage against everyone that comes new and basically everybody who wants to get into mining will have a major difficulty and we're completely off of Satoshi's vision where everybody should have the possibility to participate in mining.

So I think we're working really against that trend of centralization and in that regard I think it is important that everyone has the possibility to do that. And therefore, it's important that there is cloud mining out there and that basically offer that. And I think, obviously, it has to be done right. There's a lot of obstacles.

And you really ideally want to even do it trust less, which is another step that we are having on our roadmap. It's not an easy one. but I think it's a really important component of our ecosystem. That's an interesting perspective, and I agree on this. I think I follow you on the aspect of, in order to be able to bring more people and expose people to the possibility of mining and growing the ecosystem of people who are, who kind of have skin in the game when it terms of Bitcoin cloud mining plays an important role.

However, you know, the underlying argument that somehow cloud mining would contribute to decentralizing the sort of centralized aspect of mining. You mentioned big data centers running mining rigs and owning a large portion of mining power. That central point of failure isn't addressed by cloud mining itself

because you guys are also running a big data center that is a central point of failure. Do you see that nuance between like the Satoshi's vision, Satoshi's vision, as you put it, to have everybody mining but in a more strictly decentralized sense than on the back using cloud services

or other people's infrastructure. Yes, absolutely that's right. And I clearly see that and know that. And I can say that it's not perfect as it is right now. The solution to basically to address your problem to really even decentralize the control. So I think you have two levels, like giving people the accessibility to do it in an economical way, and then the more idealistic and I think even probably more important one is to basically also decentralize the control.

This problem is a very difficult problem, and it's basically what you're saying is the trustless cloud mining. It's something that we are constantly discussing and engaging with, actually we work towards more and more trustless cloud mining. I really have to say, though, that it's a very hard cryptographical, not only cryptographical, but also in general, hard problem, because I see there are ideal ways how you can do that. One would be basically that to give away control is to basically not even give us the control over the machines that we're selling in the cloud and basically only let that machine be able to run with the permission of a user.

And you can do that by basically fingerprinting each machine to a customer at home and only with a certain signing of a digital signature, that machine really is allowed to run. Those ideas would already go closer towards decentralizing control. There is still, of course, the fact. that it's at one place. There's physical access to the machines. Yeah, the physical access. But you can counter that argument,

but basically saying, well, who would be incentivized to take over a data center that is centralized? But if he takes it over, he cannot use the machines to mine itself, basically, and that would strongly incentivize someone to do that. That would have to be at the hardware,

level essentially. There's different parts of this problem. One is an attacker, you know, presumably like a state wanting to shut down a mining operation. Well, they could do that by turning off the power or seizing the actual physical hardware. And I don't think that there's any way really around that if you're operating a cloud mining operation or any kind of mining, large-scale mining operation. The other is simply the, you know, the ability to take over the hardware to mine for oneself. If I understand correctly, which you're, it's a little bit of the alluding to here is some solution by which the hardware itself or uses of that infrastructure would be dependent on someone signing a message. But if, unless that's actually built in to the

hardware itself, whoever takes over that hardware could reinstall the software and have access to the mining power. Am I understanding that correctly? I agree to a certain degree. You can basically, there's ways how to design it that you cannot refresh and basically, There are ways how you can make sure that not even that would be possible, but that would require basically a really hard coding of some cryptographic system. And then making sure that really, yeah, you basically have to really fix it in the hardware. And then you have to trust, for example, the chip manufacturer that these cryptographical elements are not exposed. And that again leads to shifts the problem of trust to the chip manufacturer.

So that's exactly what I was saying. It is not a trivial problem. It's really a hard one. And I don't think we are close to a solution. And I don't think really, yeah, I think that there can be optimization in many ways. But I think that this goes towards at least in the right direction. And I think this is for now the best direction I see to give more incentive and to make it more decentralized. Because I don't see another way how you can basically, because people are following economic interests usually.

And if you have the large-scale operators have the benefit, then it's normal that you have large-scale operators. Of course. So that's basically intrinsically, I think that the only way of making the, going into that more decentralized direction is to be one of them and then decentralize it. But I think the community really has to emphasize that topic more. And I think there are already great advancements and innovations done on a decentralized pool mining level like BetterHash or Strathom v2 and these things. But that physical hardware mining is still an issue and it will be a tough one to crack. if at all for the industry.

No, I agree. And I think it all comes down to the hardware, right? I mean, everything is a hardware problem when it comes down to it. An inability to produce their own hardware is really the last sort of piece to the trust issue, even thinking about our own phones or our own computers, etc. Let's stay on this topic a little bit. And in terms of the centralized aspect, I was reading on your website, you recently did a study with, I think, some of your customers, about 700 people surveyed.

And there were some questions there about mining centralization, about things like Chinese control. And it was interesting to see that a decent portion of the people who responded, I think somewhere in the vicinity, like a third felt that mining centralization was an issue and that it needed to be addressed. Meanwhile, I presume that these are customers of yours. So there's an interesting dynamic there. So, you know, one of the other things that was mentioned as a response to that question was, you know, the hope that community development would reduce centralized control in the long term. Is what you're talking about here, that community development, or are there other protocols or attempts to decentralize mining that rely on the Bitcoin protocol itself?

I concretely talk about these decentralized mining efforts from the community. Yes. Can you expand on some of the more tangible things that are being worked on on this side? Yeah, I mean, you mean on the physical centralization or on the software centralization? On the software, because we've kind of addressed the physical part, but on the software side, perhaps in terms of sort of game theory. Yes. So I think on the software side, I think the major issue, and that is really being well addressed,

with really efforts like BetterHash or Stratham V2 and other protocol, actually F2 pool already addressed it also quite early. And on the software level, the major issue on mining centralization is on the pool level. You give the pool operator a lot of control, and that can be misused. obviously. And the ways how you can mitigate and go against that is a smart way, just basically, yeah, not

mixing all of the hash rate on one and then let the pool operator decide what to do. You basically leave it on the miners themselves. So you split the hash rate. You leave it split up and don't mix it all together in one.

That takes a lot of more power away from the pool operator with regards to he cannot do he cannot do a lot of he cannot do a lot of wrong behaviors with that

with the joint computing power holding back yeah there's a lot of details now I think we don't need to necessarily jump too deep into it but the benefits of that keeping the

like if you have a hundred miners on the pool, you have a hundred different, the pool operator doesn't mix it all together and then distributes the reward again. He basically ideally leaves it open and don't have that mixing effect. And I think that is a really good approach because the centralization on pool is really a big threat. We have seen it many times in the past where we had like 50% that was not on the physical level necessarily a threat or on the controlling minor control level. It was more a problem on the software level.

I think one of the earlier ones I can remember was the G-Hash, for example, incident where the community acted very well, basically was alarms going internally on Reddit and Bitcoin talk that G-Hash is now approaching more than 50%. and then suddenly miners were switching off the pool. And I think that this is what was referred to in our survey. And this is really what should continue to be developed on. I think it's great that you guys are exploring this, and it's definitely a hard topic.

That, yeah, hard to solve. But let's move to another topic that's, you know, very timely at the moment. Of course, pretty much all our little listeners will be aware of Bitcoin's, reward schedule and that every four years the block reward halves. And of course, we do have the Bitcoin halving coming up now, I think in roughly a few weeks from when we're recording this, where, you know, block rewards is going to go from 12.5 to 6.25 bitcoins. So what do you think is going to be the impact of that, you know, on Genesis mining and on the mining industry overall?

So the major effect the halving has on the mining industry is it, I mean, obviously, I mean, the reward is affected directly, it will get halved. The indirect effect is that the mining industry

will be more stressed and basically the result out of that is that the mining industry will be more efficient because only the, it's a survival of the fittest so to speak and only the most efficient miners are getting through that and gain strength. And it also leads to really drive innovation and R&D in this space, because every mine and

constantly is in a race of staying ahead of the curve and halving events are just brutal events that are just showing no mercy at one block after that one block. you have that heavy half reduction on it. In that regard, I think it has a good effect on the mining industry because you constantly have to keep innovating and improve your efficiency. And then, of course, on the Bitcoin side itself, you have that reward, the price effect, where there is a tendency that the price is going up

because the reward drops. and if you apply supply and demand on that, it should have a tendency to bring that to increase the price. One of the things that I've also read about, and there was, you know, I also referenced here, a block where that is a company in the mining space, they've written a nice report on this topic, but which is basically that when the price goes down

or basically the rewards go down in this scenario, that then miners are forced to sell more of their bitcoins, right, because their profitability decreases. So do you think that we can also see a kind of a downward pressure on price because a lot of miners now, you know, on a lot of pressure and they have to sell either maybe like, you know, all of the bitcoins they earn or maybe even bitcoins that they have, you know, still on their book?

Certainly very good point. I think that we are probably already past that we had a time actually where especially also when the price was because of corona was dropping so much that you saw a lot of minus already going out and turning off. That means that a lot of the miners at the moment are already on that marginal edge where on that really in that stage where they make marginal profit. and are already in that mode where they have to basically sell a lot to not take too much risk. And if it goes much lower, then they just turn off and then they don't mine anything. So I would tendentially say that we already are in that stage. And it might not, yeah, because when you are, yeah, because further drops will just decide for the miners to turn off then. the machines.

And therefore, I would say this effect doesn't play so much of a role anymore. Yeah, but it is constantly, it is constantly something independent of halving also. You have that dynamics that when prices drop, miners get into more difficult stress situations and have a tendency to sell more. But also that can on the upside create that effect that when it goes up again, then miners are getting less and less worried about the electricity and don't need to, don't have that urgency to sell, and therefore reduce that pressure again, and that creates a leveraged upside effect. So on the bright side, you also have to see that.

I presume from what you've said, or I certainly hope so for, you know, for Genesis's sake that you guys are able to produce Bitcoins at a price where you guys will end up beneficiaries for that or where do you see you guys kind of like positioned in this landscape? Yeah, absolutely. That is what we are. That's why we have invested heavily into R&D over the last years and that's why we are, I would say, still in the game and one of the leading operators because we managed to get through these times. And I mean, I know our competitive landscape around 2013 when we started. I know our competitive landscape now

and I know what has happened also in between. There has been so much, I mean, first of all, a lot of the companies by that time or a significant amount are not existing anymore. Some of the ones that survived are now the leading ones with us. I think you have similar dynamics also on the exchange level, like the exchanges that existed 2011 and are still in existence, they are now actually some of the top exchanges.

And there's rarely one that was existing 2011 survived, and this is a small player now that's rare, actually. Either you go, really, you grow or you fall out. So, I mean, in the meantime, you have seen also so much new businesses coming into mining and think, yeah, I can do it myself, where I can enter in that market and they have tremendously failed. A lot of examples we know. And I think we know, for example, a business that 2014 has raised $100 million from Qualcomm and others

and was a big boom and you don't hear about them anymore. You have seen another Japanese business that went in with 200 million commitment didn't work out very well. Yeah, you just see that. But if you don't do it right, you can lose a lot of capital in that market. And if you do it right, then it has a good potential. But that doing it right is something that you have to learn over years and over many, many iterations and R&D investments.

There was also a bunch of stories recently, you know, that there's a new mining operators. I think there was like some funded by Peter Thiel or some other ones like that. What's your take on new entrance in this mining? field. Yeah, what's going on on that front? That reminds me a lot about the times also about 2017 when the market went so much up. I had a time I remember exactly when I was sitting in New York in the hotel lobby

and suddenly the group next to me, which I didn't know, was talking about, wow, I have this new, a huge business idea. We can basically take miners and make a data center and mine for ourselves in large scale. It's called Bitcoin mining and wow. And I was just thinking, oh, wow, this is crazy. Everybody now talks about these things. And that was by the time where the taxi drivers were talking about, they just bought some bitcoins. And that really reminds me about that.

I mean, those are like efforts, I would say even experiments. people that haven't done really any, don't have a real or just could have come new to that market. Knowing the history of those efforts and having seen so many new companies coming in in a late stage and being the first one that were bankrupt again, it's doomed to fail. Because mining is a very heavy, brutal and intense business, and you really, really need to know what you're doing and you need to be highly optimized. and that's why I'm not very optimistic and bullish on any of these newcomers. We have rarely seen someone that really came in late.

Actually, it's funny. I don't know anyone, interestingly. In the exchange business, we had that, but in the mining world, I don't know anyone that came in really late and now grew and is one of the leading operators. Yeah, it will be interesting to see how that plays out. But one of the topic we wanted to bring up with you in is, you know, we are seeing many, many new blockchains launching,

and the vast majority of them, practically all of them, use some variation of proof of stake. I've worked in this proof of stake area also now for, I don't know, three years or something like that. So what's your take on the interplay between proof of work and proof of stake? And, like, how do you think about this topic and maybe the significance of proof of stake in general?

So I am, and we always work. pro innovation. When we offered altcoin mining, we were a big fan of the altcoin space where many people were saying it's a distraction to Bitcoin. But we always said it's an experimental field and good coins that have validity should be there and should

have a chance to grow. I see it similarly now with Bitcoin and proof of work and proof of stake and for example, Ether and others that want to go there. I don't see a reason why you should mitigate or stop any of these efforts, it is a fundamentally different thing. And I think also Ethereum is a fundamental different thing than Bitcoin. I see Bitcoin really as the main feature of Bitcoin for me is the store of value and being really there as an alternative

and a hedge for investments for people. And really the gold 2.0. I really like that. And I think that this is really a key one. And this component I don't see for Ethereum at all. Ethereum is much more on the application side and decentralized apps and more on the framework side. And I think it offers great functionality in that regard. A lot of it still has to be developed, but it certainly has a good validity and I think it will also grow in the future. If proof of stake serves it well, then why not? I think it is a difficult thing, and I'm not sure whether it will really work out that well. I mean, we have seen major obstacles on the way to proof of stake for Ethereum.

How often did we move the difficulty bomb and how often did we have delays and, et cetera, and it just shows how complex that phenomenon is, and it will. be a very difficult move then in the end to really make the move and switch it over to proof of stake and make that commitment because it's so much at risk with such a big blockchain like Ethereum. I think it would not, proof of stake would not be something for Bitcoin at all because of Bitcoin as the store of value and that comparison to gold. I think there are many problems that occur if you just create it by staking Bitcoin. Gold wouldn't be so successful as a currency in the past and also as a store of value is gold would just

increase its amount by itself. So you have one gold coin and then in a year or in a few years you have 1.3 gold coins or so. I think that cannot be real in nature, but I think it would really have a different, it wouldn't make the gold really the gold as it is. So I think it really depends on the use case and I think it's good that there is work done on proof of stake. I wish that it can work for Ethereum. But I think if it doesn't work, I think Ethereum can also remain on proof of work. At the moment we know that it works. We are seeing really how successful proof of work is securing the Bitcoin chain, which is such a tremendous value now. And over more than 10 years, there has not been anything that broke it.

I think that really shows the strength of proof of work. From a purely business perspective, though, I mean, in terms of proof of stake, Ethereum is not the only chain that will go to proof of stake. There are already dozens of chains that operate on this principle. And since Genesis also has this Genesis cloud and you have all this cloud infrastructure, that you also rent, do you not see a business opportunity for the Genesis group to also move into staking infrastructure? I'm thinking of companies like bison trails, for example, that have built this entire business around cloud staking infrastructure as a service. Is this something

that you guys would consider going into at some point, or are you purely focused on proof of work? in fact we had that discussion numerous times internally and i think it would be wrong to say that we would never do that it is a fundamentally different type of of business i mean we have a lot of customers and i think we would probably offer some value doing that but on the other hand it comes closer to a financial product and financial service i think it really needs to be be discussed carefully to offer staking staking pools or services like that. I don't want to exclude it, but it's also not...

I'm not thinking about staking pools specifically. I'm talking about staking infrastructure. So if I want to launch a staking service, for example, well, I'm not going to do that by myself because I don't have the technical expertise to do so. So I'll go see a company like Bison Trails, and there are others. And they provide that staking infrastructure. I mean, Brian knows a lot more about the intricacies of the society,

but essentially it's providing a service where others are building staking services on top of it, right? So like it's not the staking, you're not a validator in itself, but more of a service provider. I mean, I think the difference is like somewhat marginal in that case, right? Like it's basically almost the same thing, right? That someone like Bison Trail, okay, you run a validator, well, we also run validators. And then one thing is you just put some basically front end UI in front and. maybe you duplicate the thing and then say, oh, it's Sebastian's Valde de now, but like fundamentally there's no big difference there. So I mean, I agree with you

Marco that, I mean, it's completely different as a business, right? Like, I mean, for example, this entire focus on cost optimization, it's not really a factor there, right? Because it's a it's kind of more like a zero marginal cost business. So you have just a completely different dynamic there, you know, energy prices, data centers, like all of those things are not big factors. And then you have entirely different ones instead. So I definitely agree it's a fundamentally different business that it does go more maybe in the direction of a sort of, you know, defy Ethereum direction often. Proof-for-stakes is also very early and it's changing very quickly. And I think the business models around it will change very quickly.

I think that's also one of the major differences between proof of work and proof of stake. In proof of work, it's in essence, what you're doing is something external to the network, right? You're producing these hashes. So now you're subject to things like producing hardware, energy costs, and they're almost these like physical inputs outside of the blockchain that you have to optimize and deal with. Whereas proof of stake is purely software. So that means you don't have kind of those constraints externally. You don't have those as cost factors. But you also have much more degrees of freedom because you can basically change the software

and all of a sudden the staking dynamic changes completely. Yes. I think that's a very good point. Yeah. So I think you were going to see just a tremendous amount of variation and innovation and change also around proof of stake. So it's very early. I agree with that.

I think really that's why I say. I think that if we also see that it's a scalable business and it really is an important factor for the blockchain world, I mean, we are really, in the core, we are very big Bitcoin believers and blockchain believers. And we are flexible to a certain degree. If we think it is a good idea, we can allocate resources towards that. But we really need to make very thoughtful decisions and think about it carefully. But there has been, particularly, Ryan, as you say, those software moves.

When I look back, for example, when Zcash started, we were the first one that offered Zcash mining in the cloud. That was also more a software issue because the hardware was the GPU infrastructure. But we were very fast and good at that. We had really strong opportunities to optimize the algorithm and get maximum hashes out of the hardware. So in that regard, we are flexible. it's a really good point what you say.

So I don't want to say no, but we certainly have to be wise when we make such major moves. No, of course. I mean, the interest in this topic for me is that much like the centralization issue in Bitcoin, sort of encourage more of these staking infrastructure service providers to come into the market to kind of sort of decentralize the infrastructure on which staking businesses are being built. Before we wrap up, I wanted to touch on a final topic, which is not necessarily related to mining directly, but more about Bitcoin and the current economic situation that we're faced with. And I want to get your thoughts on what do you think Bitcoin's role is in this current crisis and, you know, how do you see things kind of playing out in the next six months onwards as the situation, the economic situation probably will get worse? I think it's a major opportunity for Bitcoin right now.

Crisis was what Bitcoin was made for. The price crashed when the corona crisis hit. And people were saying, oh, it failed to be now a really store of value. I don't think that is a really valid argument. Because I think that move was really done. The whole markets crashed. And also gold, not so much, but also lost a lot of. of significant amount of value.

I think it was really the shock situation. People just wanted to get out of everything they're in and maybe even subconsciously made that move and wanted their cash. But I think now what we're seeing now is that the whole world is really more conscious and more careful. They are asking questions behind things.

And I think they think also, they start to change their views on, when they see so much money printing, they also ask and challenge their views on the financial system. And that's exactly what we wanted. I mean, this awareness of the benefit of what Bitcoin can bring to the financial world is what we really not have seen so much, but what really becomes more important. And that's why I say that this is now a very key time for Bitcoin. That's where it can really shine.

And the only thing that I hope is that there is that. the infrastructure is ready for that so that it really can fulfill that increasing demand that is likely to come when that crisis unfolds. Thanks so much for coming on, Mark. I think it was awesome to speak with you. And it's so impressive the company you've built and like through all these crazy evolution state it's gone. And yeah, it's a pleasure to speak with you.

And I'm excited to see what Genesis is going to do in the next years. Thanks for having me, guys. It was a pleasure. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google Home or Alexa device, you can tell it to listen to the latest

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