Not Your Father’s Data Center - Mining for bitcoin and other cryptocurrencies with Fred Thiel

Episode Date: October 26, 2021

Fred Thiel, CEO of Marathon Digital Holdings, one of the largest bitcoin mining operations in North America, joined host Raymond Hawkins to discuss cryptocurrency. From blockchain to bitcoin, Thiel covered it all, including all the nooks and crannies in between. “The blockchain is essentially a chain of linked blocks that each block consists of a certain number of transactions,” Thiel said. “If you think about a ledger, like your check register, if you have a checkbook and you write a bunch of checks, you write them down in your check register at the month you get a statement from your bank. So, those types of transactions are formed into blocks. The underlying software for the blockchain allows miners to do this process of assembling these transactions into blocks. Then you run a mathematical cryptographical proof on this data, and that generates a hash. And that hash has to have a certain value to it. And when it gets that hash, it then has to be equal to or less than a specific target number that the blockchain is looking for.” Miners who guess that number correctly will win the block, publish the block, other nodes validate the block, and then the miner will receive a block award. In the high-stakes game of blockchain mining, with limited numbers of bitcoin issued per day, Thiel said there is a competition to it. “If you have one miner, and you plug it in, you’re not going to get a fraction of a bitcoin every day,” Thiel said. “And so what miners do is, miners, pool their miners together. And aggregating and cooperating, a group of miners in a pool, you have a more hash-rate you’re contributing to the overall network, and a higher likelihood you’re going to win blocks, and the block rewards can be evenly distributed amongst members of the pool.”

Welcome to Not Your Father's Data Center podcast, brought to you by Compass Data Centers. We build for what's next. Now, here's your host, Raymond Hawkins. All right, welcome again to another edition of Not Your Father's Data Center. I'm Raymond Hawkins, Chief Revenue Officer at Compass Data Centers and your host. Today we are joined by Fred Thiel, CEO of Marathon Digital Holdings. He is talking to us today from London. Fred, good afternoon. How are you, sir?

I'm very well, thanks. How are you? Awesome. We're glad to have you. We're really grateful that you are willing to talk to us today about cryptocurrency. Certainly a unique topic and something that's on a lot of people's minds and fascinating to hear your history. So we'll get into that. Love hearing from our listeners. Thank you so much for all of you downloading us wherever you get your podcast.

And we're excited to talk with Fred. So, Fred, thank you so much for joining us. And let's get on to hearing your story and your history. I'd love to hear a little bit of your personal background, where you're from, where you call home today, and then we'll dive right into crypto. Sure. So firstly, I appreciate being on your program. I've spent 40 years in the technology industry. I am European by background. Parents are Swedish, born in France, educated partially in France, the US, the UK, and Sweden. I've always been a lover of technology. Father and stepmom were both bankers,

so sort of ate, drank, and slept banking all my life, especially sort of my more formative teen years when I lived in London. My first technology job was actually writing software in a bank in London when I was in high school. And back in those days, this is kind of late 70s, you walked into a bank branch in London to cash a check and they still hand wrote in a ledger your transaction. No terminals, no computers at the branch level. So I got to live the archaic old-fashioned way all the way through to the modern developments and nowadays with cryptocurrency, the disruption of those old systems. But growing up, I had the benefit of really understanding the difficulties that exist in moving money around the planet.

And one of the things that my stepmom, one of the roles that she had was as a help put together the framework, the regulatory framework for countries in the East Bloc in Europe when they were going to come into the OECD and then into the EU. So securities regulations, banking regulations, lending, et cetera. So sort of grew up in that environment. And in working with software in banks, I got to touch things like the SWIFT system, which is how money is moved around between banks, which, by the way, was a technology in the 70s that they thought was kind of cool because it operated using telexes as opposed to the Internet didn't exist then. So it was the early way of kind of, if you would, electronic data exchange between banks. And when you think about it, what banks really do is they settle balances between each other. And that's exactly the way the blockchain works with Bitcoin. You use it as a settlement network. That's how Satoshi Nakamura designed it. It was meant to be a settlement network. And so Bitcoin and the blockchain is the perfect tool to use for transforming our financial systems to make them much more efficient, much more secure, because nobody can corrupt the data once it's there.

There's no way to hold the data ransom, if you would. And so it's really a perfect solution for that. So I was first exposed to Bitcoin and blockchain a number of years ago and got very involved in looking at facilitating trading of Bitcoin, built a project to build an exchange to operate in Switzerland, and then built an OTC trading desk in a company in Liechtenstein. And I joined the board of Marathon in 2018 when a longtime friend of mine, who at the time had just become CEO of the company, needed to reconstitute the board and figure out how they were going to take the company and do something new. And they decided to go into Bitcoin mining. And so Marathon transitioned from being a patent company that collected patents and prosecuted patents to beginning to do Bitcoin mining. And it was a long process that required

the company to recapitalize itself. And Mariko Komodo, the then CEO and now current executive chairman, did an outstanding job of getting the company out of debt, getting it recapitalized and positioning it to, in sort of mid-2020, place one of the single largest orders with Bitmain for Bitmain ant miners to mine Bitcoin that they'd ever received. And today we're currently in the process of deploying 133,000 miners across sites in North America. Well, that'll keep you busy. 133,000 miners.

It sure will. And multiple sites, I'm assuming, for that kind of volume. Yeah, absolutely. We're doing it across four or five different sites. Yeah, figured. Gotcha. Okay. Awesome. Well, we are super grateful to hear your background. And I love the fact that you make the connection to the SWIFT system and early ability to clear transactions, to transfer money, to operate as that clearinghouse electronically, even in the 70s, and how today the blockchain

does the same thing. I think that there's a thousand ways we could take this conversation. If you don't mind, Fred, I'd love to go back and start with, I think I have a firm grip on blockchain, but I'm not sure everybody that listens to us does. And then Bitcoin itself, and not just Bitcoin, but all of the digital currencies. Can you talk us through just for two or three minutes, blockchain and what the technology of blockchain is and how it differs from actual cryptocurrency itself? And then follow on to that, then could you get in a little bit

into cryptocurrencies themselves? I know you guys are in the business of mining, but can we differentiate those two first as a foundation for our listeners? The blockchain is essentially a chain of linked blocks that each block consists of a certain number of transactions. So let's just say, if you think about a ledger, like your check register, right? If you have a checkbook and you write a bunch of checks, you write them down in your check register. At the end of the month,

you get a statement from your bank and there's each check, kind of who it was paid to, et cetera, and the amount. So those types of transactions are formed into blocks. Think of it as there's kind of a buffer, a memory pool. All these transactions, as they're happening, fall into this hopper. And then the underlying software for the blockchain essentially allows miners to do this process of assembling these transactions into blocks. And then you run a mathematical, essentially you do a mathematical proof, cryptographic proof on this data. And that generates a hash. And that hash has to have a certain value to it. And if it has the correct value, and that value, by the way, is very dependent on the hash from

the block that immediately precedes it, as well as the content of the data in the block it's processing. And when it gets that hash, it then has to be equal to or less than a specific target number that the blockchain is looking for. And if you as a miner guess that number correctly, and it's a factoring exercise, if you guess it correctly, you win that block, you publish the block, other nodes validate the block, and then you receive a block reward. And so miners are paid by the blockchain for doing this assembly of transactions, validating them, putting them into blocks, getting the block approved, and then moving on to the next block. And so the process of essentially securing the blockchain is what mining is. And miners get paid by the blockchain today about six and a quarter Bitcoin per block that they win. And every block is estimated to take about 10 minutes.

So that essentially means that there are a little they're delivered 2000 blocks a day or 900 Bitcoin issued per day. That's how miners make money. They get paid in Bitcoin, a similar process with Ether and Ethereum until they move to proof of stake and any proof of work based blockchain. So the blockchain is the technology and the, I like the way you said it, the mathematical proof that says, okay, there's this agreed upon multi-node verified set of, for lack of a better term, questions, mathematical questions. And once you prove that out and fall in the range and get validated by the network, meaning multiple nodes, I guess, of visibility, that then gives you, produces this hash and the block is awarded and then follows with a bitcoin got it okay i think i got it um yeah okay understood and and so as i when i think about then so that bit excuse me that's blockchain and how it marries up to bitcoin in the rest of the crypto which there's a bunch now how many of of them follow that same process, handling a blockchain

transaction? And how many of them do it totally differently? Let me ask the question a different way. Is blockchain the best way? And what are other ways that it gets done in the market? Blockchain, think of it as it's really just a process of how do you create a record of data that can't be changed? And you do it by making sure that every block of data is dependent on all the prior blocks before it. So if you have 20 blocks and you go and edit any one block of those 20, then all of the blocks subsequent to that one that you edited will be incorrect and invalid. So there's no way to go back and change a block.

Now, how you validate blocks can vary. So in the case of the Bitcoin blockchain, you have this process of proof of work that's used. And that's been currently the same process used by Ethereum and a variety of other proof ofof-work-based networks. There are other networks that don't use proof-of-work. They use more of a proof-of-stake system, which is what Ethereum is moving towards, which instead works on a basis of you stake capital, essentially money, in the case of the Ethereum network, Ether, you deposit Ether and you become a stake node, which means you have as many votes as you have the size of your stake. And when you validate a transaction, you say this transaction, this block is correct.

You're essentially betting your stake that you're right. And if the block that you approved ends up not being correct, then you could lose that stake. So the onus is on you to make sure that that block is properly calculated. But it's not done by this proof of work methodology where you have millions of computers around the world competing to solve the math proof. Here, it's really you're just saying staking your reputation is a way to look at it, that the block is correct. Fred, is the competition, is it about speed? Or is it almost, for lack of a better term, you know, everyone, you know, 52 different entities got the question right, and then it's a drawing? Or is it just whoever gets there first? Well, so in the case of proof of work, the way the Bitcoin blockchain works is statistically

speaking, if you have contributed computing power that represents about 10% of the total compute power of the Bitcoin blockchain, then you should win in theory 10% of the blocks. Gotcha. That's the theory. But there is a competition to it. It's not, you know, if you have one miner, and you plug it in, you're not going to get a fraction of a Bitcoin every day. I understand. Right. I gotcha. You'll get nothing, nothing, nothing, nothing, nothing, nothing, nothing. And then you might win a block. I gotcha. Gotcha. I see. And so what miners do is miners pool their miners together into what's called a pool. And the pool is what kind of think of it as the general that directs the miners. OK, go mine this block. You go work on this, you go work on that. And by aggregating and cooperating together a

group of miners in a pool, you then can, you're a bigger, you have a more hash rate you're contributing to the overall network, higher likelihood you're going to win blocks, and the block rewards can be evenly distributed amongst the members in the pool. So the large miner entities like Marathon, do you guys participate in pools or do you act essentially as your own because of your ability to deploy at scale? The vast majority of miners, no matter how big, have cooperate with a third-party pool. In the case of Marathon, we actually do have our own pool for a multitude of reasons. One, it's a great business to have because when you're a large scale miner, it allows you to optimize what you're doing for the luck algorithms that exist in the Bitcoin

blockchain. Also, when you're a very large miner, you want to make sure you can really control how your miners are being directed to mine. And that's why we wanted to own our own pool. Now, we have opened up our pool recently to third parties, and now other miners are starting to join our pool because they love the transparency that we have. We have a third party public auditor who audits our transactions so that we're issuing out all of the rewards. We're not kind of keeping stuff to ourselves and making sure that everybody's getting a fair shake in their process. And most of the pools actually today are offshore, many of them in China still, because it's not illegal to operate a pool in China. It's illegal to mine Bitcoin.

And so you have Ant Pool and these other pools, F2, that exist in China. But the Marathon's Mara Pool is one of a handful of North American pools. So you mentioned earlier that there's about 900 Bitcoin available a day. This is gonna open up a subject for me that I wanna take a minute or two and go down. And I don't wanna, so Stockholm School of Economics,

economics degree, child of an OECD economist. So I do not want to have a economics competition because I will lose, I will concede before we get started. But when I think about the money supply, and I think about how money supply gets controlled by a central bank in a normal economy, with a fiat currency, and then I look at Bitcoin, can you talk with me about how the supply works? Because you're talking about 900 new Bitcoin a day. How does the, for lack of a better term, how does the money supply work? And how does it tie back into the notion of a digital currency instead of a currency monitored by or managed by a central bank? So the whole goal with Bitcoin, if you go and read the white paper that Satoshi wrote,

essentially, Bitcoin was meant to be a fully decentralized financial network that no one party could control. And therefore, nobody could control the issuance of the currency. And if you can issue more currency, you can essentially cause it to be debased. And so the network itself determines how and when Bitcoins are issued. And there will only ever be 21 million Bitcoin ever produced. And we have already produced to date about 18.9 million Bitcoin. And of those 18.9 million Bitcoin, most probably 6 million of those were lost back in the early days when people were paying 10,000 Bitcoin for one of the trivia questions you asked. I won't give the answer. You know, it wasn't worth

a whole lot. And so if you kept your keys on your hard drive, your keys to your digital wallet on your hard drive and your hard drive crashed, it was like, ah, I lost a couple hundred dollars worth of Bitcoin. It's no biggie. Then, you know, fast forward eight or nine years and all of a sudden, if you had a thousand Bitcoin in a wallet and the keys of the wallet are on a hard drive that's in a trash heap, you know, there are people who have paid trash companies to go look for that hard drive to try and rescue the keys. Sure. Well, at $44,000 a coin, a thousand keys matters today. Yeah, absolutely. Even to guys like you and me. Absolutely. The fact of the matter is that there is a finite quantity of Bitcoin. And so it's a supply and demand issue.

As people start transacting in Bitcoin, as more companies start using it, as more companies start holding it, there are companies like MicroStrategy that sit on thousands and thousands of Bitcoin. They have borrowed money. They have raised equity capital. And, you know, Michael Saylor is a huge proponent of Bitcoin. And he puts his money where his mouth is. And they have, you know, at this point, I think, closing on almost 100,000 Bitcoin, I think, if I'm not too far off. So he's one of the largest holders of Bitcoin out there. Then you have, you know, Tesla has of Bitcoin out there. But then you have,

you know, Tesla has a billion to a Bitcoin. And, you know, even Marathon, we don't sell our Bitcoin, we hold it as many miners do. Most miners don't sell their Bitcoin these days. So you have no supply, no new supply going into the marketplace. So with scarcity, it drives price up. And the whole expectation is that the price of Bitcoin will continue to go up over time as more and more people start using Bitcoin or use the Lightning Network, like, you know, Solver to do transactions. All those things require a certain amount of Bitcoin liquidity. And as investment funds start wanting to invest in Bitcoin, whether it's ETFs, whether it's the Galaxy Fund, et cetera, which is one of the largest holders of Bitcoin out there. I think they hold about $30 billion worth of Bitcoin at this

point. There's a scarce supply. And when there's a scarce supply, it goes up in value. So as a store of value, you can kind of view it as like art. It's, you know, it's not backed by anything physical. It's not like there's a pile of diamonds or gold bars that you can get by trading into Bitcoin. But it has a value because of its scarcity and the fact that people attribute a value to it. Why is a Picasso painting worth what it's worth? Well, it's because people attribute a value to it, right? Right, right, right. Something is worth what someone will pay you for. It's that simple. Exactly. Right. That is what determines something's worth. So you said something, Fred, that is news to me. I didn't understand it. 21 million ever, 18.9 currently mined. If I just do the math quickly in my head, that's about six and a,

just under six and a half years at 900 a day worth of mining left. What happens to the mining industry once we get to 21 million? Well, it's more complicated than that. Every four years, the number of Bitcoin issued per day drops by 50 percent. Oh, I got to redo my math. OK, there will be Bitcoin issued until the year 2140. OK, that's when the last Bitcoin will be issued. But there's sort of a half-life sense to it. It diminishes.

Exactly. So in May of last year was the last halvening, as it's called. And prior to May of last year, 1,800 Bitcoin were issued per day. And at that point, it became 900. In the spring of 2024, it will go down to 450. In the spring likely of 2028, it will go down to 225, etc, etc, etc. So how do you play the calculus, Fred, if you've built this significant mining business and you're out there with a pool chasing 900 Bitcoin a day and that number is going to drop in 2024 to 450, is the calculus that the value of those coins in the future will be enough to offset the reduced opportunity to mine them? Well, if you look at the appreciation that Bitcoin has shown historically, and even just in the short term, it more than compensates for that. I gotcha. Okay. So it makes good financial sense. Got it. Got it. You know, I think if you look at

where Bitcoin was at this time last year, and look at where it is today, it certainly seems worth that. And if you then use sort of average out the appreciation in Bitcoin over the past sort of 10 years, on an annualized basis, in theory, it should continue to do well. That being said, you know, like all markets, Bitcoin will eventually reach a place in value, where it kind of achieves a maturity, if you would, and levels off. I see. So I'm in the United States. So when I see Bitcoin quoted, it's quoted in U.S. dollars, obviously, as a digital currency.

It can be in any other currency. Is that normal? Is the Bitcoin viewed globally as a dollar denominated asset? Or is it viewed as a digital asset purely expressed in local currency? People in the industry view it as a currency that the IRS doesn't view it that way. They view it as an intangible asset. But because people who trade it view it as a currency, there are these things called trading pairs. So it's one Bitcoin to a dollar, one Bitcoin to a pound, one Bitcoin to a pound, one Bitcoin to a euro, one Bitcoin to a Swiss franc, one Bitcoin to a Japanese yen, et cetera, et cetera. So you can

trade Bitcoin against any fiat currency. It's just going to be a different price quote, not unlike a British pound to a dollar, British pound to a euro, British pound to a Swiss franc, British pound to a Japanese yen. Right, right. It's not a perfect, it can be expressed in relation to any other currency, just like fiat currencies are. Got it. Got it. Yeah. Or gold, you know, gold is quoted in dollars, pounds, Swiss francs. Right, right, right. Fascinating. Okay. All right. This is, I'm learning a ton here, which I'm super grateful for. So as we keep motoring down this way, as I think about a miner, you mentioned earlier, and I'm not educated enough to know who makes the best actual mining devices. I'm not sure.

Is that what the best term for miners is, the actual compute device that does the calculation? I'm assuming there's multiple companies that produce the miners and there are some that are better than others. Is that a fair assumption? Yes. I mean, today, our personal belief is that the AntMiner S19 Pro, an encryption standard called SHA-256. SHA-256. These mining rigs essentially are just massive calculators of this algorithm. And they require custom ASICs.

So the companies that make these machines have to design their own ASICs, have them manufactured. You can't use standard off-the-shelf microprocessors or GPUs. Bitcoin requires much more calc power than that. And so you can't use a general-purpose microprocessor at all. That was going to be my question. Are they GPU-based or standard microprocessor-based? So no, it's its own specific logic to be able to handle this algorithm and calculate. Got it.

Okay. And what's important from a miner's perspective is think of it like horsepowers with lawnmowers, right? You got a lawnmower, it's got a two and a half horsepower engine or a five horsepower engine. And that'll tell you how much strength it has, if you would. More importantly, though, for miners is what's the fuel economy of the engine? So what's the fuel economy of the miner and the fuel that miners use is electricity.

And so the question is, how many watts of electricity does it take for the miner to produce one horsepower? And in the world of Bitcoin mining, we call it how many watts of electricity does it take to produce one terahash? A terahash is essentially a million, million calculations. I'm taking notes. Okay. A terahash. So yeah. So I like riding the bike and it's watts produced in power to kilowatts of the weight of the rider. This is exactly what you're saying. Watts of the electricity consumed to problems solved as expressed in a tera hash, a million millions of calculations. Correct. Okay. All right. So the most efficient user has the best ratio, right? The guy that can

produce the most calculations on the least amount of electricity. And then I guess the other input then is what you're paying for your electricity, right? That's the other part of this equation is how much am I paying to get that watt of electricity to then do the calc for me? And what's the spread on my machine, my building, my electricity on the value of the hashes or coins that I can generate? All right, I'm starting to get the business a little. And so you have to wonder, like in the oil business or the gold business, gold mining business,

if you want to produce more gold or more oil, you just dig more wells because there's more in the ground. It doesn't work that way in Bitcoin because the network determines how many Bitcoin it's going to award. And it wants to award a constant 900 a day for right now. At the next halving, it'll be 450, as I talked about before. And to do that, it has to balance the load because if there are only two

people mining, then the calculation is pretty simple. It's not very difficult. But if a million people are mining, then you need to make the calculation really hard because otherwise you're going to produce more than 900 Bitcoin a day. And so it's constantly adjusting the difficulty rate of the formula to make it harder the more people that mine. And if you think about it today, there are about somewhere between a million and a half to two million mining rigs operating in the world and calculating the Bitcoin blockchain. And that number is growing at a very rapid rate. And so the difficulty rate, the amount of hash rate, if you would, that a miner has to have to maintain the number of Bitcoin they're earning on a daily basis

has to go up commensurate with the overall growth of the network. And that's one of the beauties of the Bitcoin blockchain. It's continually balancing itself such that, A, only 900 Bitcoin are made a day. And more importantly, the cost to mine Bitcoin essentially reaches a point where eventually it will not be profitable to mine Bitcoin because so many people have added capacity to the network that the difficulty rate has gotten so high. And because your electricity bill is, you know, you pay a fixed rate per watt of electricity that you pull out of the plug on the wall, eventually gets to the point where it may not be profitable for you to mine as a miner. You may pay too much for your electricity or something else. And so you drop out. And then as people drop out, the network becomes easier to mine again.

It's constantly looking to balance itself. And that's one of the beauties of the Bitcoin blockchain. Yeah, I think I want to summarize what I think I heard you say is, hey, Raymond, there are more miners coming on. I think you said about 2 million today, one and a half to 2 million. As more miners come online, the proofs, the algorithms get harder, so as to manage the output of today 900 coins. And so, I mean, just to make the math easy for me, if there's 2 million miners and you owned a half a million, you would theoretically get 25%. But if that 2 million went to 4 million, you're now getting 12.5%. And so it's adjusting

the challenge. So the pool constantly adjusts, the blockchain adjusts for how much capacity is in, for lack of a better term, the pool. I know there are pools, but in the total pool. Am I understanding it properly, Fred? Correct. Yeah. Got it. Got it. All right. I'm going to ask an esoteric question, I think. You said it adjusts. So the gentleman, and I don't want to butcher his name, so I'm going to ask you to say his name again, the Japanese gentleman. Satoshi. I'm never going to, I'll eventually get it right.

So Satoshi builds this concept, writes this white paper, says, hey, I want a currency that people can't manipulate. And when you say the blockchain adjust, who's running that today? Is there a company somewhere, an entity? What's behind the blockchain when you say it adjusts? Can you tell me what the it is? Again, think of a fully decentralized network. Satoshi didn't want any one organization, person, or body to be able to control the blockchain.

So what happens is it's a consensus algorithm. So when a majority of the people who are mining agree on something, they can implement a change. And it's very hard to get everybody to agree. So therefore, there aren't many changes. So the way the software is written, the software itself does all this automatically. And the software isn't controlled by one person, but the software runs on all the miners. And if miners ran different versions of the software, there would be a fork, meaning one group of miners running one software. Who wrote that original code, Fred? So it was written by Satoshi and a group of other individuals. It's open source, so it's not owned by anybody. That was going to be my next question. I'm assuming it's open source.

So they wrote it, published it, and everyone's got it. Okay. Yep. You can download it off the internet. And bitcoin.org, I think, is where you can download it from. Put it on a computer and run your own node. And you're in business. It doesn't cost you anything for the software. It's open source. And essentially, the network makes sure that everybody's running the same version of the software. So there's consensus and that's how it operates. It's an ingenious mechanism. Now, the Ethereum network operates differently. There you have the Ethereum foundation and you have a core group of people who actually control it. So Ethereum is not decentralized in the way Bitcoin is. Ethereum is much more centralized. And with the shift to proof of stake, where the people who hold the most amount of ether have the most say in what transactions

are valid and which ones aren't, you have a re-centralization of control that is no different than banks. So if your purpose in building a blockchain is to move away from the type of control where one individual could potentially approve or disapprove a transaction at their whim, if you would, then that's a centrally controlled system. And with proof of stake, the Ethereum network is moving more towards that model because the largest stakeholders will be the people who hold the most ether. And those will be Coinbase and the big exchanges as well as the banks. And so we're just we're not achieving at all what the original ethos, if you would, of Bitcoin and cryptocurrencies were designed to be. So Ethereum is a great

network, however, for the development of applications. It's super easy to write an application to run on the Ethereum network. And that's what it's great for. It's great for innovation and creating all these DeFi platforms that you see being built on Ethereum. It's a great way to develop those, test them, and build them out. Now, you could argue that because it's an innovation sandbox, whereas the Bitcoin blockchain is this very rugged, if you would, and highly secure, highly decentralized system. You know, if you read in the press on a weekly basis, you'll see there are a lot of applications built on the Ethereum blockchain that have hacks, they get bugs. Even the London fork of Ethereum, before it was released,

they discovered bugs where somebody could have issued an infinite amount of Ether to themselves. So the Bitcoin blockchain, there are no bugs in it. It's been operating for 12 years. There's a major update called Taproot, which is being implemented right now, which essentially gives the Bitcoin blockchain all of the same benefits that Ethereum has in the way of smart contracts,

multi-signature, et cetera. And I personally believe that the Bitcoin blockchain is where you're going to see most financial institutions and anybody who is building an application, whether it's an online MLS, personal identity, health data, if you want to make sure that data is secure, and that that network is going to operate flawlessly, then the Bitcoin blockchain is the place to do that. I mean, think about it, China shut down all mining in China, about 50% of the mining for Bitcoin in the world was done in China. And the Bitcoin blockchain didn't

have a hiccup. Oh, wow. Half the compute disappeared. That's incredible. Well, I guess picked up and moved, right? Didn't have a hiccup. Yeah. Well, yes, picked up and move and it's not fully moved yet. But regardless, you know, no central government can attack the Bitcoin blockchain and shut it down because you have to shut down all of the miners everywhere. Yeah, the decentralization back to Shatoshi's idea of no one controlling, one government or one entity. That's some brilliance in that. So I do want to come back to the China question, but I want to get one more that's burning in my brain. So I've got this digital currency. I'm part of this blockchain

where all the blocks are confirmed and the network nodes all have to agree. I love understanding how that works. But I see Bitcoin expressed in dollars. I know I live in the US and we talked about trading pairs. It's interesting to me when I talk to friends about investing in Bitcoin, they talk about their Bitcoin in terms of dollars. But I think, does that miss the point a little, Fred? Help me think about that a little. Is Bitcoin as an exchange of value itself instead of having Bitcoins and then going off and trading them for another currency? I know that's sort of a weird way of trying to ask a question, but help me think through that the appropriate way. It has its own, it's its own, for lack of a better term, currency, but it also gets expressed in fiat currency. What's the right way to think about it? You have to think about what is the

purpose of money? The purpose of money is that two people agree on a unit of value such that you can price things in a way and exchange things without having to do traditional barter. If I'm a farmer and I have eggs, right? If I'm a farmer and I make eggs and you're a farmer who has milk and we need chickens, you're going to trade milk, I'm going to trade eggs, right? That's how it's going to work. But if you have money instead, then you know that, okay, eggs are priced at a certain number of units per dollars and milk is priced at a certain dollars. And so you and I have a medium of exchange that we both trust and agree on.

The problem is, if that is a fiat currency issued by a government, the value of that dollar, if you would, can go up and down based on how many dollars they print and how the economy of that country is going. So it's not in control of the farmers, the value of that dollar. And so as the farmers in time of inflation, if the food you feed your chickens or the grain you feed your cows as the dairy farmer goes up in price, you're going to raise the price of your product. And so that's how you get inflation. And that dollar becomes worth less, not worthless, it becomes worth less. And so you can look at the price of Bitcoin and say,

okay, Bitcoin is $40,000 today. It was $30,000 yesterday. Is that because Bitcoin is increasing in value or is it because the dollar is decreasing in value? And that whole, back to your comment of the barter, eggs and milk, and does the value of the dollar worth less? I love that. It's back to our money supply central bank question, right? Are they putting more money in the economy? Is the economy growing and expanding on its own? Does the money supply keep up with the growth of the economy?

Is the economy shrinking? Is the money supply shrinking commiserately. Right. There's all these multi nuanced factors that increase or decrease the value of the currency. And everybody else tries to keep their goods in line. And yes, it's a way to trade without trading things, but rather trade stores of value. And Bitcoin can be just that. Yeah. All right. Let's let's go back. Let's go back to China. What was behind the decision by the Chinese government to shut down all mining in China? China is a country with currency controls, meaning you can't easily take your renminbi and send them to a bank in the, you know, a few decades ago when, you know, they started opening up the economy, people would essentially move money offshore by buying real estate assets or companies would acquire other companies. And then they started shutting that down because so much money was. And, you know, part of the reason was people wanted to hold their assets offshore. And so when Bitcoin came along, all of a sudden, it was the perfect vehicle for

moving money offshore because you invest in some mining equipment or a mining company, you get paid in Bitcoin, does Bitcoin go in a wallet, that wallet is in control, and you effectively have your money outside of the financial system. And anytime you wanted to deposit fiat in a foreign bank, you simply sold your Bitcoin on an exchange outside of China, and it was deposited in a foreign bank. So that was one of the reasons. Now I'm getting why the Chinese didn't like it. I get that one clearly. Yeah. Okay. So if you have all these very wealthy billionaires, and by the way, there are a number of party officials in China also were quite large

holders of Bitcoin. And that's really just based on the patriarchal system that exists in China. So if you're a Bitcoin miner, you had to get effectively tacit permission to mine and you had to buy power. And power was being provided by the provincial power utility. Typically, the provincial power utility was somehow controlled by somebody who had a friend in the Politburo. So there was this cycle of kind of, let's just say, the profits tended to float. For Premier Xi, the issue in China was he's very much against corruption. He's very much against this type of favoritism. And he wants to control the economy in a way such that he can direct investment in areas that he wants and have the ability, what you have in your wallet, they can say, you know, oh, gosh, guess what, all the money in your wallet disappeared, because your social score is bad,

because you wrote something online that you shouldn't have done. And therefore, we're going to fine you and we're just going to garnish your wallet. It's kind of like the IRS going after money in your wallet. And so Bitcoin was an anathema to them. And so they couldn't just stop the trading in Bitcoin because most Bitcoin trading actually happens outside of China. They had to stop the mining, the creation of the Bitcoin in China, because that was how most Chinese acquired Bitcoin. They essentially invested in Bitcoin mining. Makes perfect sense. Bitcoin from miners, yeah. Well, Fred, this has been an awesome 45 minutes. Frankly, I don't know what your team and schedule would be willing to do, but we'd love to have you talk more. This has been more

educational than I ever could have hoped. It's awesome. I hope our listeners enjoy and understand a little bit more about crypto and blockchain and all of the things that, whether it's Ethereum and the other coins as well, just super, super helpful. I took a ton of notes. I really appreciate you recording with us and would love to have you talk again. It's just been great. And I appreciate you doing it, especially late in the evening where you are. So thank you for that. Happy to come back anytime. Awesome.