Not Your Father’s Data Center - The World of Crypto

Episode Date: September 26, 2022

Who doesn’t love a sequel? Raymond Hawkins sure does, and back by popular demand for another episode of fantastic industry insights, Fred Thiel, CEO of Marathon Digital Holdings, joined the Hawk to talk about all sorts of things. Top of mind was how current events are shaping the crypto community and how crypto could impact the events unfolding in Europe.     The current state of affairs could provide a new test for digital currency. Thiel pointed out in past wars; displaced citizens did not have many options for moving their money. “Crypto provides a unique thing in this world where sanctions have become essentially a weapon and weaponized,” Thiel said. In the matter of the war in Ukraine, the United States and its allies have used sanctions to shut off Russian access to banks. The only other bearer asset available for many people and businesses in this scenario is Bitcoin and other cryptocurrencies.   One might ask if Crypto is a solution to transferring assets, could Russia use crypto to avoid sanctions? Thiel said that the daily trading of cryptocurrency and the total market cap prevents this idea from being scalable. “As a tool for sanction evasion, Bitcoin is not a good option,” Thiel stated.   Since the start of the war in Ukraine, one trend is the decoupling of the correlation between bitcoin and equities. “All of a sudden, now there was a real use case for bitcoin that was very actual and urgent, and so you started seeing bitcoin move in the opposite direction of equities. Even bitcoin-related stocks which track the price of bitcoin started moving separately. So, there were days when the Dow and the Nasdaq would go down, yet bitcoin would go up, and you saw the Nasdaq-traded, bitcoin-related stocks, Like Marathon, for example, move in lockstep with bitcoin.”

Welcome to another edition of Not Your Father's Data Center. We are joined back by popular demand, I might add, the CEO of Marathon Digital Holdings, Fred Thiel. Fred, thank you so much for joining us again. Glad to be here. Fred, I think last time you and I spoke, you were in London doing some world traveling stuff. This time, where are you connecting with us from? So I am dialing in, if you would, from our new office in Irvine in California.

And we're still setting it up, so it's not the fancy video suite that we will have in the long run, but it'll have to do for now. Well, the fact that there's a video suite coming just tells me we'll have to get you back for at least a third episode. So we appreciate you joining us in transition. Thank you for that. Absolutely. If you're willing, why don't we just jump off with the thing that is top of everybody's mind today with the news cycle and the things that are happening in our world, certainly the oil price, the human tragedy. But I think that there's certainly a crypto angle or a crypto thought about how could crypto influence a war, impact a war, impact the funds around a war, impact people's

assets during a war. I think it's just a different way of thinking about currency and sanctions and those kinds of things in the context of a war. So as the CEO of Marathon Holdings, but more importantly, as somebody that's an expert in the concept of digital currency, how does digital currency in an age of a war change things? You know, it's a really interesting use case for crypto. So if you go back to World War II, when people were being displaced and having to emigrate, leave their countries based on the onslaught of the Nazis

and all the destruction that was going on, they didn't have many opportunities for moving their money. You know, they couldn't obviously carry a lot of cash with them. That was dangerous. They couldn't carry gold with them. And so what many people did is they bought diamonds and sewed the diamonds into the hems of their clothing as a way to essentially be able to carry their bearer assets.

It's an asset you can carry with you across borders very risky obviously and you know you're going to pay a higher price to buy the diamonds because you're desperate and then when you sell them you're going to sell them at a discount because that's what the way markets work with these things crypto provides a very unique thing in this world where sanctions have now become a essentially a weapon and weaponized. So if you look at what the U.S. and the Western countries have done to Russia with this war and their invasion of Ukraine, essentially they've used sanctions as a weapon and essentially shut down the ability for Russian banks to interact with the West,

for Russian businesses and Russian business people, to a great extent, to work with the West. And so if you were somebody who had money in a bank and you wanted to transfer it to the West, because, you know, the ruble has essentially been crushed by these sanctions, it's now very difficult to do that. You know, plus Russia won't necessarily let you move to foreign currencies. So your only options are what other bearer asset can you take? And Bitcoin happens to be a great example of one. So there's been a lot of crypto buying going on.

And once you have crypto, essentially, it's very portable because all you need to do is have your keys and you can access your crypto anywhere in the world where there's an Internet connection. So, yes, you do need to have an Internet connection to do it. There are people trading Bitcoin, by the way, directly face to face without Internet connections. They're literally doing it, you know, live between each other, exchanging keys. And then as soon as they get access to the internet, the transactions go live. But, you know, risky nonetheless as to how you do it. But it's certainly easier than carrying diamonds or gold with you. So as a use case, using Bitcoin has become very popular, especially in the Ukraine, where, you know, people are fleeing. And so they're converting their local currency into Bitcoin, and then safeguarding that outside of the country. Especially when you see these people having to

flee, leave everything behind. And, you know, not being able to carry a whole lot, just being able to carry your keys is enough to safeguard your assets if you're able to do that. So that's been a great thing. Now, people say, well, okay, if people who are refugees, and people trying to avoid, you know, the depreciation of their assets by all these sanctions can move to crypto why can't crypto be used as a way to bust sanctions so think you know russia use crypto as a way to essentially be paid for the oil exports that they're doing and then use that crypto to buy things well the crypto markets are not like the fiat markets uh you know the total market cap of bitcoin is uh sitting uh you know sub a trillion dollars and you look at the average amount of bitcoin traded

on a daily basis and it's typically about 30 000 bitcoin you know that's under 2 billion dollars at current prices of bitcoin traded today a nation state state like Russia can't operate sanction busting when they can only move, you know, a couple hundred million dollars a day. It just doesn't work. And so, plus, you know, obviously crypto is very transparent. You can see where all these transactions go. And today the tools that government officials have for tracking and identifying who holds the wallets are very sophisticated. So I think as a tool for sanction evasion, Bitcoin is not a good option. But what's interesting is you are seeing a lot of people where they may be fearful of the volatility of Bitcoin. There's been a huge uptick in Tether and USDC

volumes lately. So that's also clearly people are piling into those as ways to have access to a cryptocurrency that's pegged to the dollar and more stable potentially, and easier to trade in different markets. But it's definitely proving the use case. I think we've also seen Bitcoin decoupling itself from the markets a little bit, the equity markets, which has been good. And it's generally a very exciting time. Yeah, Fred, as we think about the decoupling comment that you made, how is Bitcoin trading in regards to equities on a whole? I think when you say decoupling, you're talking about that they're not tracking quite the same. So you expand on that a little bit. Yeah. So since the fall, late fall and the beginning of this year, we saw Bitcoin moving very much kind of in lockstep to the Nasdaq into technology

stocks as people moved to risk off with fear of the Fed raising interest rates and the impact that that would have on equities. What you started to see at the beginning of the war was a decoupling where the correlation between Bitcoin and equities started separating and decreasing because obviously all of a sudden now there was a real use case for Bitcoin that was very actual and very urgent. And so you started seeing Bitcoin move in opposite direction of equities and even Bitcoin related stocks, which track the price of Bitcoin, obviously, started moving separately. So there were days where the Dow and the Nasdaq would go down, yet Bitcoin would go up. And you saw the Nasdaq traded Bitcoin related stocks like Marathon, for example, move in lockstep with Bitcoin. And so we're starting to see that decoupling. Fred, is the thesis there that you use this term, the use case, and I'm going to just play it out in my head. I'm a desperate immigrant wanting for my family not to be injured in Ukraine. There's only so much I can carry.

I'm going to liquidate my holdings and I'm going to take it with me in a digital wallet format, and I'm going to sell my, and I don't know what the Ukraine local currency is, but I'm going to sell my currency, I'm going to convert it to Bitcoin, and I'm physically getting me and my family out of the country, that that created a demand spike in digital currencies, in Bitcoin in this case. And while the uncertainty of a war, on a war of this scale and this visible, equity markets don't like uncertainty. So you see the equity markets wane, but yet you saw this spike in demand. Is that the confluence of events we're describing here? Generally speaking, yes. is we've seen since the kind of the late fall,

the retail trading of Bitcoin decrease and institutional trading being kind of the general, the bulk of the volume being traded. And, you know, when institutions are buying Bitcoin or trading in Bitcoin is because it's a store of value. And what happened leading up to the invasion, you know, with fear of the invasion and then the invasion of Ukraine happening, people quickly looked to crypto as a way to safeguard their assets. And so because if you think about it, if Russia invades any Ukrainian banks, you're going to be out of business pretty quickly, right?

So quickly moving their funds to dollar denominated accounts or into Bitcoin. And so that creates a spike in retail and retail moves the price considerably. You know, again, there's not a lot of Bitcoin traded on a daily basis when you compare it to stock markets. And so a spike in demand can move the price of Bitcoin significantly. I mean, if you look at a one-hour candle of Bitcoin trading or, you know, a 15-minute candle, it's, you know, sub-1,000 Bitcoin that are traded. And so you imagine somebody who has maybe $20,000 in savings, you know, that's half a Bitcoin. They want to convert it. Well, take 100 people, you you know and have a bitcoin and now

you have 50 bitcoin all of a sudden you know that's going to move the price and you could see it even by the time of day that these trades were happening uh tended to be more european time centric so you know one of the great things about bitcoin and crypto trading in general is the transparency it's so easy to see what people are doing. And it's easy to see where those trades are happening. Are they happening in the U.S.? Are they happening in Europe? Are they happening in Asia? And you can get a better feel for sentiment.

And that level of transparency makes it much easier to kind of figure out what's going on in the marketplace compared to the equity markets where it's very small movements that are driven by sentiment. Yeah, I just think the inherent transparency in a blockchain environment versus a traditional market maker environment where in equity trading, right, they're just much, everything's visible, right? Not only everything's visible, everything's validated by the larger whole, right? That's the whole blockchain concept. So very, very cool. Well, we appreciate you talking out. There's lots of conversations.

Clearly, the war is on top of everyone's mind. But conversations about how I loved your explanation about why Bitcoin couldn't be used as a way to circumvent sanctions. It's just a sheer volume conversation, right? I mean, when you have a GDP the size of Russia, if you soaked up the entire Bitcoin market, it's still a blip on the radar. It's just a rounding error. And so clearly not a vehicle by which any nation state could circumvent economic sanctions. So that's a clear picture. Or even an oligarch, when you think about it. Right. These oligarchs are starting to feel the pain.

Yachts worth hundreds of millions of dollars are being essentially impounded. You're seeing their assets being essentially impounded by banks. And while they may have a net worth of $10 billion, that's not all in cash, a lot of that is held in assets like homes and yachts and airplanes, and equities. And, you know, it's not easy to dump all that stuff. Right. And so it's very hard for them. So when they move into crypto, as I'm sure some of them have done, it it's been i would assume it's fairly easy to trace those bigger transactions and just like the way the sec looks at any all of a sudden change in the trading patterns of a particular equity to see if an individual is trying or a group of

individuals are trying to kind of manipulate or pump a stock the same thing can be done in the crypto world and i think you're going to to start seeing the kind of law enforcement or the financial enforcement agencies responsible for dealing with sanctions, use these tools to really identify who's doing what out there and make sure that, you know, those trades are being stopped, or, you know, those assets are being frozen. Got it. Well, Fred, thank you for helping us think through crypto when the world is at war and hate the human suffering and don't want to discount that at all, but certainly wanted to have the conversation of how is crypto influencing or impacting or being utilized for good or bad either way in the war. Let's shift gears to a little bit of a data center topic. As I think through cryptocurrency,

I appreciate you coaching me up that there's the proof of work currency, and then there's the proof of stake currencies. And can you walk us through the difference between the two, and then how this leads into, when I think about ESG, which is also on people's minds today, how it impacts the energy being utilized by the crypto space. For us as a data center company, our industry gets looked at pretty intensely because we're large users of electricity. Same for my friends in the digital currency space. Can you talk to us about the difference between those two ways? And I hope I'm going to say it right. There's different ways of hashing.

Is that right? Yeah, it's not different ways of hashing, but it's different ways of validating transactions. So if you think about proof of work, what proof of work is, companies invest capital in mining rigs and energy to essentially validate transactions. We're processing transactions, assembling them them into blocks and then guessing a number and if we guess the right number um we win the block and we're paid by the the coinbase if you would the core network pays us in the case of proof of stake proof of stake is essentially no different than banking you know people say oh it's decentralized. No, it's not. If you look at Ethereum, the vast majority of staking that's been done resides on four platforms processed by miners and it typically will reach finality within a relatively short period of time. And the fact of the matter is no one person can manipulate that transaction because it's a consensus-based algorithm. And there are enough people that do mining, and mining is so distributed around not just the world,

but amongst individual companies and pools, that no one individual can do anything to manipulate that transaction without having 51% of the hash rate. So the investment in capital and machines and energy is what makes the Bitcoin blockchain the absolute most secure blockchain in the world. And it's because of proof of work. In the case of proof of stake, essentially individuals are staking their crypto holdings. So if you're in the case of Ether, to be an Ethernet, an Ethereum rather, staker,

I believe the number was you had to provide 32 ETH, and you had to stake 32 ETH, and that was locked up for a year, and then you had the opportunity to become a validator. Now, the way the validators in Ethereum work, and I may have this a little bit wrong, but this is my understanding at least, essentially, the transactions, you'll be chosen to validate transactions based on the size of how much you have staked. And so the larger staking groups will have the bulk of the validation. Well, it's really no different than having a group of banks validating transactions.

And oh, by the way, it is very easy in a staking proof of stake model to manipulate transactions, because if you're a big enough stake node, then you could essentially sell, or rather, you could buy, let's just say 100 ETH. And then you right away turn around and sell it. And then you go back and erase the buy transaction and leave only the sale transaction. So now you didn't actually buy, you just sold, but it's almost like you never paid for the ETH. And it's an oversimplification, but essentially, if somebody has a large enough percentage of, large enough stake, they can do a transaction like that. And it may go some period of time before that gets unwound or even discovered. Whereas in the Bitcoin proof

of work model, you would need to have 51% of the global hash rate, which is an amount of capital that no company on the planet has to be able to do something like that because you would have to essentially you know manipulate enough nodes to make that happen so from a security perspective proof of stake is let's just call it people uh and i think you know uh you know vitalik the terran has said this a couple of times it's good good enough. You have to trust it. Well, people trust their banks. But now go back to sanctions. Here we are.

And you have your money, your Ethereum locked up on a stake node or you're just trading Ethereum. And all of a sudden, there's a sanction event that happens. And this stake node that's responsible for validating your transactions gets sanctioned. Now, if you have staked your ETH, you may not be able to get it back. More importantly, your transactions may not get validated. So, you know, the concept of proof of stake is really just a digital version, quasi-decentralized. It's not fully decentralized. Model that's really just emulated of banks operating all on a blockchain. So I personally think that if you want certainty and security in a fully decentralized network, there is no other choice than proof of

work. So Fred, in this proof of stake world, are there aggregators of, you know, someone shows up, there's a bunch of individuals, are there aggregators who collect up people that want to stake? You mentioned that there were only a handful that was tightly held. I think you said four. Are they aggregating multiple people in that stake? Is that how it happens? Yeah. So you have your large exchanges like Coinbase, where you can essentially use your ETH to stake. And then you have a company called Lido, which is one of the largest. And Lido, I think, has a couple hundred thousand people who have staked through Lido, their Ethereum, but essentially Lido becomes the

validator. And so you have four organizations represent, you know, nearly 50% of all the Ethereum that's staked out there. Granted, people have staked through them. But again, it's just like you deposit money in the bank, and the bank gets to use your money to do things. So, you know, these organizations are earning money on the capital you have staked or the cryptocurrency you've staked. And they're using that and then they're paying you as well a portion of that. But, you know, they're earning a margin on that themselves. I got that. That's a great analogy. Thinking about traditional banking, I put $1,000 in the bank, small dollar amount.

I could walk up and get my $1,000 at any time, but the bank doesn't anticipate everyone coming and getting their $1,000 every day. So the bank invests that money and earns a return on that providing liquidity into the Ethereum market and providing a pool of staking. And that transaction, there's margin in that transaction that which gets shared with the individual. Got it. All right. All right. Very, very good well fred i know when when we had you on the first time you did a great job and we've had lots of people email and ask about the basics behind um about

behind blockchain the basics behind bitcoin do you mind giving us a five minute tutorial just going back to the beginning and going hey here's how it started and when i think about that i think about the total number of bitcoin uh the having uh you know the number that is available every month just some of the basics for people who don't understand and i know it's a bitcoin based um conversation for your business but would you give us some of those basics around bitcoin that people that are thinking about bitcoin for the first time uh just may not understand sure so um bitcoin was a initially conceptualized by a white paper written by um somebody using the pseudonym satoshi nakamura in 2008 and they wrote the white paper and then basically published it a group of people, core developers, started developing the software. And the network was

launched in 2009. And at that time, there was a little bit of a lag. And then the first transaction happened. And if you look at the Bitcoin blockchain, it's designed as a cryptocurrency based on a finite number of Bitcoin that can exist. And that number is 21 million. And essentially, every four years since 2009, the Bitcoin blockchain goes through a halving or a halvening, as some people call it, and where the rewards drop by 50%. And today, for example, we're down at only 900 Bitcoin awarded per day, no matter how many people are mining, no matter how many terahash of compute power are contributed to the global blockchain, it's 900 Bitcoin per day, or about 6.25 per block. And there's a block mined every 10 minutes, essentially and um the last halving event was

in 2020 the next halving event is in 2024 and at that point the bitcoin blockchain will go from 900 bitcoin issued a day to 450 and then four years after that 225 and so on until the year 2140 when the last bitcoin will be issued um to date we've already issued or mined 90% of the 21 million Bitcoin that will ever be mined. So the vast majority of Bitcoin to be mined have already been mined and are essentially in the supply. Today, most miners don't sell their Bitcoin, they tend to hold their Bitcoin. And so that limits supply even further. And when you look at the overall Bitcoin in circulation, roughly about 83 percent, based on recent numbers I saw of the Bitcoin that has been mined is has not moved in three months. So that's indicating that people are hodling their Bitcoin.

About 12 to 18% of the Bitcoin that have been mined are essentially have been lost. They've never moved. So these were mined, put in a wallet, and then never moved. If you look at the number of Bitcoin that haven't moved in over a year, it's somewhere around 30%, 20, 30% of the total Bitcoin. So a lot of Bitcoin is sitting in long-term holders' hands.

Some of it's in the holders of whales, but there are more and more Bitcoin wallets being created every day and we're approaching, I think, roughly somewhere around between 30 and 35 million Bitcoin wallets in existence today with a balance of greater than zero on them. So, Fred, can I stick a stake in the lost one for a second? So you say 12 to 18 percent around that number have never moved. Is that somebody, and I know you don't know for certain,

but as I think through that, is that someone that maybe bought a Bitcoin in the early days, 2009, 2010, 2011, when they didn't know what it was worth, or they were somebody that was very technologically curious, and it was on a hard drive somewhere, in a digital wallet somewhere, and they've forgotten about it. They've passed away. What's the thesis behind almost somewhere between 12% and 20%, 12% and 18% never moving? So these are coins that have been mined but never left the wallet where they were mined. So Satoshi Nakamura has a large number of Bitcoin in a wallet, for example, and those Bitcoin have never moved. OK, you have if you look at Bitcoin that haven't moved in over a year, you know, it's a significantly larger number than that. If you look at five years, you know, it's a subset of that.

And then, you know, the 12 to 18% is kind of the Bitcoin that have never moved. So yes, you know, there's the proverbial story, the legend, urban legend, if you would, of the guy in the UK who had mined a bunch of Bitcoin, or had a bunch of Bitcoin in a wallet on a hard drive on his computer, or rather had the keys to the wallet on his hard drive. And the hard drive crashed. And you know, at the time, Bitcoin was maybe worth fractions of a penny. And he had maybe 100,000 Bitcoin. It was, eh, it's not worth it trying to salvage this. And the computer went on the trash heap to the city dump. And then, lo and behold, Bitcoin hits 19,000 back in a few years back.

And it was like, oh, no, this is a lot of money. And so this is the guy who's been trying to get the city to dig up the dump to find his hard drive to salvage his keys. There are lots of stories like that. I was going to say, is that a real story, Fred, or is that an urban legend? Is that a real – It's a real story. Interesting.

Okay. Yeah, yeah. Because I would think – You can Google it. Okay. All right. It is a real story. Got it. I'm not in tune with the market enough to know.

But, yeah, I think about lost treasure, right? I think about a ship sailing across in sinks, and we've got records. And there are whole companies that go around looking for gold bars and coins on the bottom of the ocean. But similar, now that Bitcoin has got the value it does,, I got to think that there are hard drives somewhere that someone has a digital wallet. And at the time, just exactly the story. I got to believe that there's more than one of those stories globally. Yeah. Yeah.

And the thing with the Bitcoin blockchain is there are people looking all the time to see if there's any movement in these old wallets that have never moved so for example if coins were to move out of satoshi nakamura's wallet then it's either one of two things one somebody has the keys to his wallet and uh whether it's him or somebody else and they're moving the coins or b somebody hacked the wallet and is moving coins, both of which would be major news events in the world of Bitcoin. It would be splashed all over the place. But when you look at the really active trading on a daily basis, it is 20,000 Bitcoin across all the exchanges that are traded on average a day. That's not a lot of Bitcoin. You brought up a comment there when you talked about Shytoshi's wallet. So I've been in the technology business my whole life, got in the business in the late 80s accidentally. And you hear the conversations around digital

security and the concept of a CISO, right? When I started in technology, nobody knew what a security officer was, much less a chief information security officer, right? And I think there's a phrase that gets said in the security space that nothing is unhackable, right? At some point, somebody can figure out how to break into something digital. As I think about a digital currency, is because it's transparent and visible in the blockchain, is there some level of inherent security? Because I think about if I have tens of millions of dollars in a digital currency, how certain can I be that that wallet and those keys are secure? Well, a brute force attack on a Bitcoin wallet is really difficult unless you have some information that would help you figure out what the seed phrase for the keys to that wallet are. And so, you know, people who specialize in helping people try and recover their keys and there are a few success stories.

They had enough knowledge that allowed them to generate enough of the seed phrase that they were able to, because obviously the owner of the wallet was a willing participant, they were able to figure it out in the end of the day. But if you're doing just a pure brute force attack, it would take so much compute power today. And the minute something moved from that wallet, alarm bells would go off. So it's very hard. It's actually much easier, by the way, to hack into a banking system,

to hack somebody's phone or hack into a mobile app and take money out of somebody's bank account than it is to hack a Bitcoin wallet. And so most hackers focus on that because it's easier than trying to hack the Bitcoin blockchain or somebody's wallet. But there are some people who, through social engineering, use very simple seed phrases. And if somebody spends enough time looking over your Facebook page

and your social media posting and things like that, they may be able to get data that helps in doing that. But it's still really, really difficult. The bigger issue is more somebody has a phishing attack. example, have gotten emails from an exchange saying, hey, you know, we're upgrading you to the pro service, move your, you know, key, move your coins from this wallet to this wallet, and you'll get, you know, preferred service, excuse me. And, and all of a sudden, you know, that's actually a hacker who is now taking their coins. And, because of finality once you send coins you can't get them back very easily and you know that aspect of finality is a detriment if you're a novice or you don't really feel safe in moving money from one wallet to another and that's why a lot of people like to

custody their Bitcoin on an exchange because it's easier you can call hey you know I want to do this. How do I do this? And you can get help, just like the stock market. And it's only really people who are very concerned about security and being able to have their own sovereignty over their assets, who will move their coins to a proprietary wallet and keep them off-chain. But for most people, it's all about making the trading and the use of cryptocurrencies easier. And as you do that, it reduces the friction and more people will adopt it and more people will start using it.

But Bitcoin is essentially today a store of value. And over time, it'll continue to spread amongst institutional holders. You know, more and more of the big banks are starting to offer Bitcoin custody and trading services. You're starting to see more commerce opportunities for it. You know, eBay has been saying that they're potentially going to allow crypto to be used for paying things. You're starting to see states adopt the ability or offer the ability, hey, pay your taxes in crypto. Now, they're not going to custody and hold that crypto.

They're going to sell it right away as soon as they get it. But as more and more of those types of transactions start happening, you'll start seeing crypto coming more and more into the mainstream, and you'll eventually start seeing easier wallets and easier tools for people to use. And that in itself will drive more and more adoption. Again, go back to the Internet, 1997, 1998. You know, you had this thing called a Netscape browser, and you can go look at a few websites. And where are we today?

We do everything. You know, you think about these devices like a smartphone. You know, it's a ubiquitous human machine interface. And if it wasn't for the smartphone, you know, Facebook wouldn't be anywhere near as large as it is because people do 70% of their postings, etc, on Facebook, using their smartphone, they don't do it at a computer, typically, you know, Instagram is pretty unusable at a computer, you have to have a smartphone to use Instagram. And the world of crypto is moving in that direction very very rapidly and people were afraid that the white house was going to try and mandate a ban of crypto and instead they're embracing it in a very big way even to the extent that it looks like

they're being very embracive of a central bank digital currency issued by the fed so this is going to be very interesting over the next six to 12 months as the execution of the executive order happens, which essentially mandated a bunch of studies to be done. Look at security, look at environmental impact, look at central bank and facilitating faster trading and more innovation. It very much appears that the White House is embracing crypto and trying to direct the federal government and its various branches to really educate itself and not just have knee-jerk reactions.

And then craft legislation that really allows the U.S. to remain sort of a dominant position as an innovator in this space and adopter of this technology. Fred, you mentioned the executive order and the government issuing a digital currency. One of the things, and I'm not nearly immersed in it as you are, but I think of fiat currency and central banking. I think of the global economic system built on those two pillars, right? There are central banks I think of fiat currency and central banking. I think of the global economic system built on those two pillars, right? There are central banks and then they issue fiat currency and the Bitcoin or all digital currency residing outside of that system. If a central bank starts to issue its own digital currency, that seems to me like an odd melding of two worlds. How do you

think about that? How do you think, how does the, let me rephrase, how does the digital community feel about that? And how do you think that that will work when the idea, I think one of the ideas, at least behind digital currency is let's get outside of the central banking system? Yeah, the the central bank digital currencies are more a technology innovation to facilitate more rapid and immediate payment than the traditional Fedwire Swift system. You know, the Swift system was invented in the 70s and is essentially a messaging service that allows a bank to say, hey, you know, one of my clients wants to send one of your clients money. So deduct from my bank account, the bank, you know, the central bank, deduct in my bank account X number of dollars and put them in your client's bank account. And I'll deduct from my client's bank account and put it in the central bank account. And it's a cumbersome way. And that's why wires can take multiple days to get through. And it's just a complex process.

The idea with a central bank digital currency is not so much for consumers to use it as a replacement for dollars, because let's face it, you know, every time you pay for something on a mobile app, you're essentially paying with digital dollars. Whenever you use your credit card, you're essentially using digital dollars. It's just a ledger entry at the bank that's moving around. So central bank digital currencies are really more about the wholesale aspect, bank to bank transactions, facilitating that. It's like in the stock market, when you buy and sell stocks, you know, it typically takes, you know, two days to settle, two to three days to settle. And, you know, now they want to move to immediate settlement. Well, the only way to do that is if it's done on some form of blockchain or some form of digital system

without lots of intermediaries, which are required today. So, you know, you're going to start seeing, you know, CBDCs, as the central bank digital currencies are called, you're going to start seeing, you know, CBDCs as the central bank digital currencies are called. They're going to focus much more on alleviating all of the friction that exists in to kind of be outside of the system and have an asset that has a value that operates hopefully independently of fiat currencies. Because if the U.S. government issues a CBDC, they can debase that CBDC the same way they debase the dollar, because it will be dollars. They'll just be digital dollars. They're not going to create a separate currency that will trade differently. Got it. So as I sit here and think about it, you walked us through there's $21 million forever by the time we're done. There's never going to be more than that.

If this digital currency thing makes it and continues to be a thing, and I know people can laugh at me. It's 13 years in, and of, it's going to make it. But if it continues to go this direction, what would be an event that would drive the currency the other direction, right? Because the notion of scarcity is already there. It's already built in, right? We know there's a finite number. And when I think about the central banking system, it's one of the things that frustrates me about the central banking system. And I think frustrates a lot of people in America right now with 7%, 8%, 9% inflation, is that there's no guarantee of the value of my dollar. And as a matter of fact, there's pretty much a guarantee it's only going one direction and that it's getting diluted. Certainly, it's been nothing but diluted in my 54 years. Dollars rarely appreciate long term. I don't understand, as I look at a digital currency,

what would cause a significant deflationary event in a digital currency? Isn't it only going to increase in value? And I know I'm kind of teeing up a softball there, but I'm just trying to wrap my mind around what would cause a deflationary event in a digital currency with a finite supply? Well, you know, at the end of the day, it's supply and demand dynamics are going to drive the drop in price of a digital currency. So if all of a sudden, in the case of Bitcoin, for example, which has achieved, you know, amazing success over these 13 years, but it's still less than 10% of the scale of gold for example and by the way gold only has value because we attribute value to

gold it's certainly not the rarest metal on the planet right right exactly and diamonds even more so because they're manipulated by an oligopoly that consists of D beers and you know a handful of other, including the Russians, companies that manage that marketplace and limit supply. But what's going to drive a decrease in people's faith in Bitcoin as an asset are going to be if the blockchain is hacked, for example. That would definitely drive a loss of faith in the value of Bitcoin as this asset that can't be seized.

You know, anything that changes people's perception of the trust they have in Bitcoin is going to affect it just like any other asset. No different. You know, the value of a company on the stock market is theoretically based on the book value of the company. But at the end of the day, look at GameStop. This is a perfect example of where, you know, you get a bunch of people who think it's going to be worth something more. They'll pump up the price and then it can crash just as

quickly back down. You know, Dogecoin has gone through some of those cycles. You know, you've certainly seen it in other places. The one thing I think that, that you know bitcoin has going for it is that because it's so decentralized there isn't one group of people one organization that decides um and makes decisions that can have those kind of negative impacts in the world of ethereum for example you know ethereum is essentially controlled by the ethereum foundation and the large holders of ether and there are 70 holders of ether who hold the vast majority of the ether out there and so uh you know just look at how frequently ether uh forks and you know how they do these changes in the marketplace today um you know that's all because it's more centrally controlled than bitcoin which is fully

decentralized there is no body there is no person who can make any decisions about bitcoin right it requires consensus of you know all the miners and the pools etc uh to get together and do that and you know back in 2017 with the segwit wars um you know you had had nearly 90% of the miners in the Bitcoin blockchain who tried to get a change through and they couldn't get it through. So that shows the kind of imperviousness to change that it has. What does that mean? It means that innovation happens at a potentially slower pace in Bitcoin, but at a very steady pace. And the same analogy can be viewed if you look at the lightning network. You know, the lightning network is continuing to grow slowly, but surely just continues to grow as more and more people use it for creating payment channels. And I think over time,

you know, these layer two payment systems built on top of the Bitcoin blockchain are going to dominate the marketplace because the Bitcoin blockchain offers, you know, ultimate security and finality for transactions. And then these layer twos provide very high velocity, very low cost transaction processing that then settles on the Bitcoin blockchain. And we're now also starting to see back to the proof of stake, will use the Bitcoin network and its proof of work to write blocks, essentially encode data on the Bitcoin blockchain such that nobody can go back and change a transaction on the proof of stake network. And now you're starting to see is the Bitcoin blockchain and proof of work will remain and become the basis for security amongst many of these upcoming proof of stake networks providing, you know,

this essentially in unchangeable blockchain where you'll always be able to go back and audit that, you know, the proof of stake network is in proper state, if you would. And so I think, you know, you're going to see that you'll see a lot of these proof of state networks come and go. You know, there are most of the new networks are trying to compete with Ethereum. You know, Ethereum has some drawbacks, very high gas fees uh you know limited amount of transactions that can be processed and you're seeing solana and uh all of these other cardano and all these other um competitive blockchains that are really trying to solve for those issues um and you know giving ethereum a real run for its money, I think. But at the end of the day, it's going to be the Bitcoin blockchain and then a bunch of other things.

In closing, would you be willing to give us a marathon digital holdings commercial? How are you guys doing? How's the business? Why should my friends listening go out and buy your stock? What's going on a marathon? Well, you know, obviously, I'm not going to go out and tell people you have to go buy our stock that wouldn't be appropriate but um you know listen we are very much focused on growing to be one of the largest bitcoin miners out there we're obviously huge proponents of the bitcoin blockchain as a secure network and as the network upon the layer one on which many of

identity healthcare and other applications are going to get built in the future so we're busy scaling to 23x a hash from uh you know we ended last year at about 3x a hash we'll scale up to 23x a hash, which for context, 23x a hash at the end, this time next year will be about 6% of the global blockchain was probably based on the global hash rate growing by almost 100% this year. And so we're really busy deploying. We've had some fits and starts getting miners deployed due to the method we use, which is behind the meter at renewable plants. And there's some special permitting that goes on. There's some issues related to getting the grid electricity coming into the power generator versus going out from the power generator. But I think we've resolved all of that. And we're moving a lot of, there's a lot of earth being moved, a lot of containers being put in place. And we have a

lot of miners sitting on the ground that we're getting ready to plug in. And, you know, we expect to be deploying at a very fast rate here through the end of this quarter and into Q2. And by the end of Q2, have be fully caught up with our growth plan. Awesome. Well, Fred, thank you for telling us a little bit about Marathon. I always think that we learn a bunch listening to you on top of the fact that you've got a great radio voice. So if you don't, if things don't work out in the digital space, you can get some voiceover work. I'm sure of that. And we really, really appreciate you educating us on the blockchain and on digital currencies and also on what's going on at Marathon. So thank you so much for joining us.