On The Brink with Castle Island - Ben Gagnon (Bitfarms) on Separating Fact from Fiction in Bitcoin Mining (EP. 303)

Episode Date: March 30, 2022

Ben Gagnon, the Chief Mining Officer at Bitfarms, joins the show. In this episode we cover: Bitfarms' journey to the public markets in the US Ben's early efforts in flared gas mining How immersion cooling could provide operational efficiencies  Bitfarms' site selection methodology  How Bitfarms secures power originally built for now-departed industries  How Quebec overbuilt electrical infrastructure  The benefit of miners locating themselves in Quebec and scooping up stranded power  How Bitfarms took over a shuttered hockey stick factory  Why Bitfarms is so keen on stranded hydro  How Bitfarms curtails their power usage – and why curtailment makes sense  Finding excess power in Argentina and Paraguay  Does Bitfarms have a low carbon intensity mandate?  Why being pro-renewable is a good business decision  Why Bitfarms isn't focusing on Texas right now  How Bitcoin is the most efficient way to monetize stranded energy assets Bitfarms' criteria for compelling energy resources  The progress of the Bitcoin Mining Council and the bettering of transparency in the mining space  Where Ben sees room for improvement in the mining sector  The lack of standardization in reporting and valuation around mining firms  The flaws in Digiconomist's estimates of Bitcoin's energy consumption  Issues with academic claims that Bitcoin miners produce significant quantities of e-waste Why Bitcoin ASICs are more recyclable and have long lifespans  The academia and press to policy pipeline  Content mentioned:  Ben in Bitcoin Magazine: We Need to Talk About the Not Science Behind Digiconomist Ben in Bitcoin Magazine: We Need to Talk About the Climate Problem in Bitcoin Mining Sponsor notes: Compass Mining is the world's first and largest online marketplace for bitcoin mining hardware, hosting, and ASIC reselling. Start mining your own bitcoin by visiting compassmining.io  

Hello and welcome back to On the Brink. I'm Nick Carter. This is the mining mini-series. Today we're sitting down with Ben Gagnol, the chief mining officer at BitFarms, which is a publicly traded mining firm with operations primarily using hydro in Quebec, although they are expanding internationally. Today we talk about why there is so much stranded hydro in Quebec, what industry is departed and how Bitcoin mining is filling the gap. Why they're so keen on stranded hydro. as an energy source and where they're looking in terms of expanding abroad. We also cover why they're not focusing on Texas right now, which is a bit of a contrarian view given that so many miners are flocking there.

And then importantly, we cover some of the flawed academia around Bitcoin mining. Ben has written on this in Bitcoin magazine, linking those articles in the show notes. We talk about Dig Economist in particular his flawed estimates of Bitcoin's energy consumption, and then his weak academic claims around Bitcoin e-waste. Ben is a very strong subject matter expert. Really glad I was able to have this conversation with him. Let's start right into it. So everyone, welcome back to the mining miniseries.

I'm Nick Carter. This is on the brink. I'm here with Ben Genial. Chief Mining Officer at BitFarms, Ben, thank you for joining us. Welcome to the show. Thank you for having me. Pleasure to be here.

So BitFarmes has had an interesting journey to the American public markets. I feel like you guys are somewhat less well known than many of the major miners, despite having been around for a really long time. So tell us a little bit about the twists and turns in terms of BitFarms journey to the NASDAQ here. Yeah, sure. BitFarms has been around since 2017. We've been publicly traded multiple times on multiple exchanges. We started in Tel Aviv. And that has a lot of challenges.

associated with that. So we quickly moved on to the Toronto Stock Exchange. We walked in the front door with the Ontario Stock Exchange, or the Ontario Securities Exchange Commission. We filed a long-form perspective. We're the first public minor to do that with the Ontario Securities Commission. And we got listed in 2018. We traded on the Toronto Stock Ventures Board for a couple of years. and then in June of 2021, we complete our up listing to NASDAQ. So now we're dual listed on TSXB in NASDAQ. We've been one of the oldest, largest miners for a long time, a huge amount of hydro power in our portfolio.

We've got a 2.3X a hash online as of our last PR. So we're decently above 1% of the network. And we're continuing to grow super fast. We're going to be hitting 8x a hash by the end of the year. So we have almost a 400% growth rate for this year. So in terms of your own personal journey, tell us about how you became an industrial Bitcoin miner. Yeah, well, I famously missed out on a chance to buy Bitcoin in college and bought beer instead, which started my lifelong passion for Bitcoin.

When Bitcoin pulled back to the 200 levels, I think in 2013, I tried buying my first miners from Butterfly Labs. I sent them $5,000. They never sent me any miners still waiting on those. Even though they're eight years late, I'd still like to receive them as kind of a momentum. The year after, I bought my first Bitcoin's on an exchange. And in 2015, I was working for a small web development company completing my master's in Hong Kong. My boss, who was the founder of the company and the lead developer, quit his job basically overnight in his own company to go work on an Ethereum ICO.

One of the first ICOs on Ether, and I looked at Ethereum. I said, this is my chance, you know, to not miss the boat two times. So I quit my job as well. I started building Ethereum mining facilities. I built my first one in my girlfriend's home in Taiwan. I sold off all the hash rate to some investors in Hong Kong. And then it just started getting too big. I moved it into mainland China, set up my first crypto mining facility in mainland China.

I did that for about three years before it got too difficult to continue to operate and scale in China. And I sold out of everything, started a immersion container cooling company based out of Hong Kong and primarily selling to net gas companies in Alberta for flare gas mitigation in Alberta. And I was one of the first people to start doing both immersion cooled Bitcoin mining and flared gas, Bitcoin mining, definitely the first one to do it together. That was a tough slog of it, trying to sell the most expensive equipment possible during a bear market crash from 20 to 3 grand. And in 2019, I was just speaking at all the same conferences as our former CEO, West Fulford. He saw what I was doing, liked it, wanted to make it apart of BitFarms, and he offered me a chance to join.

And really, I've been with the company for a little over two years now, quickly rose up the ranks, and now I'm in charge of general operations and strategy for the company of one of the fastest growing Bitcoin mining companies in the world. So it's been a long road here, but incredibly exciting. I've been all over setting up mining facilities, operating, explaining people what Bitcoin is, what Bitcoin mining is, and developing a bunch of technologies and products around it. That's an incredible story. So with the flare gas mining, obviously so much is said about it these days,

would you combine, is there a need for immersion cooling for flare gas mining if it's happening in Alberta where it's sort of very cold? There's not a need for it on the cooling side of things. Where there's a need for it is on the labor side of things and the hardware failure. So a lot of the groups that I was speaking with are dealing with flared gas and really remote parts at Alberta. And when you're dealing with these remote parts and these remote oil fields, you know, for three, four months out of the year, it can be really difficult to actually

service that equipment. So if you're relying on that equipment to operate fully in order to mitigate that flare gas and monetize it, you know, you just can't rely on something that's air cooled and going through negative 40, negative 45 degrees Celsius weather to be able to operate stably. And a lot of these areas, the road's not paved. And so, you know, with the immersion, what you can do is you can reduce your labor input, so you're only servicing this equipment like once a quarter and this made it you know a very reliable solution to be able to deliver that flare gas mitigation and all the monetization benefits that it brings to it so it's not really about the cool in there it was more about the labor side of things and the inaccessibility so given your

experience with flare gas mitigation how excited are you about that that model for bitcoin mining as a sector. I mean, I guess, you know, there's a lot of numbers flying around in terms of how much of the Bitcoin network could be powered with flare gas if it was all sort of captured. But how excited are you about flare gas specifically for Bitcoin mining? I think it's a huge application. I mean, what I always say as a Bitcoin miner, we're profit maximalists. So in order for us to maximize our profit, we have to have a low-cost electricity input. In order to get low-cost electricity, you really don't want to compete with other people on that energy resource. So it doesn't matter if we're talking about our sites in Quebec where we're utilizing

excess hydro power, you know, that was developed by old industry, or you're talking about some sort of a flare gas deployment in Alberta or Texas or Colorado or wherever, you know, the place where it's most advantageous is where that electricity has no other use case, you know, whether their demand. On the flare gas side specifically, we're talking about something that effectively has, a marginal cost of zero or really whatever you want to price it in on your books. A lot of the flare gas is what's called associated gas. It's gas that you get while drilling for crude oil. And so you're drilling for crude, you're pulling out the crude, you're selling and

distributing the crude, but that gas is there as a byproduct. You know, the cost to pull it out of the ground is basically baked into the crude. And so really your only other cost on that electricity is the cost of the gen set or turbine. and the depreciation of that asset, which becomes really, really low compared to the fuel cost that you're putting into it. That's probably going to be 60 to 80 percent of your electricity costs. It's just the cost of the gen set and the depreciation, maybe the financing on it. But you effectively get a really, really low-cost fuel source that can utilize older technologies, older mining equipment and can do so really, really cost-effectively. So it'll be a huge part of it.

Yeah, not to dwell on it because this isn't the main thrust of the podcast, but did you find when you were in that line of work that you had to shuffle or your operator's your partner with had to shuffle the installations around oil wells really frequently or that the wells produced stable enough gas flow that it was kind of suitable for long, medium term mining operations? So we produce different containers for different sizes of wells and different amounts of associated gas. And the idea being that you want to have a really stable well. The only reason why you should have to shuffle this equipment is if you're pumping that well too hard, too fast,

that you're not able to sustainably draw out that resource over time. So with the people that we were working with, this was something that, you know, you plan to deploy now and operate for three, five years at that wellhead continuously. But, you know, you always did maintain that flexibility in a container solution to pick it up and move it into another wellhead if that was necessary. So BitFarms, you guys do a lot of hydro, hydro in Washington State in Quebec. That's what I need for. And then now also abroad.

Tell me about your sites and then the sort of site selection methodology and sort of the thought process that goes into that. Yeah, well, we use a lot of hydro. We like it for a number of reasons. One of the big things for us is the long-term economic viability of our mining operations. You know, when we're looking at making an investment in mining equipment, we're targeting somewhere around a six to nine month or better ROI in the equipment itself. the facilities are a little bit longer, but we expect to run this equipment for five, six, seven years plus, assuming that the electricity that's going into it is low cost enough that it's going to be viable. We know that those miners are going to last long enough because we can design the facilities right and we can operate them correctly and we can maintain everything properly. So what we're looking for is long term, stable, low cost electricity resources.

And hydro is a great low cost and predictable electricity resources. Because all this infrastructure was built up decades ago for heavy industry, it's basically all paid for. It's basically depreciated assets. There's no real input cost into maintaining a hydro plant, others and some labor and some basic, you know, machine parts. It's not like a gnat gas deployment where you've got a number of different components in the supply. chain where inflationary pressures over time can drastically affect your electricity price. And so it's a real strategic play for us to be involved in lots of hydro projects. We've got five sites in Quebec. We're building out two more right now. We've got one site that we acquired

in Washington. We just turned on the first site in Paraguay. And we're constantly looking to expand into other jurisdictions, other new sources of power or other new new. utility providers, we take that low cost source of power. We also take that Bitcoin ethos that Bitcoin should be decentralized. And so instead of putting all of our eggs in one basket and all of our revenue with one utility provider, one legal jurisdiction, we want to spread that risk out a bit. So if there is some disruption to service, if there is some political situation, we do have our revenue spread out over all these different areas.

and we're able to flexibly, you know, move our assets around accordingly. So Quebec, I don't know the full story, but my understanding was that Quebec actually shut the door to Bitcoin mining for a long period of time. Can you tell me more about the history there? Yeah. I mean, this goes back to the last bull rally back in 2017. I think the writing is on the wall for a lot of Chinese miners for a long time. they wanted to decentralize their operations as well and move some of their investment into North America.

What happened was they submitted huge, large-scale amounts of power purchase applications with people like Hydro-Cubek with utilities in Washington. And these were huge amounts of electricity demand. I believe there were 16 gigawatts worth of power applications that went into the province of Quebec alone. You know, this is some amount of power that vastly exceeded the amount of power that Bitcoin consumed at the time. But those were the amounts of applications that were being submitted because a large amount of people knew that, you know, they were probably never going to get processed. The cost to submit the application was low. And a lot of people were submitting applications on behalf of the same equipment. You know, it's, hey, my friend's got this equipment.

If I can get them the low cost power, he's going to hope. it with me and so you had a lot of redundant applications for the same equipment. Obviously, if you get 16 gigawatts worth of applications, that's a lot for any grid to handle without building out a significant amount of infrastructure. So what they did was the input of moratorium for 300 megawatts, of which we have a little over 50% of that allocated capacity. A lot of it, we're still building out for this year, including those two new facilities. But we're the largest Bitcoin miner in Cuba.

by by megawatts or hash rate. And we continue to build out towards that that allocation. But the reality is that Hydro Quebec is selling two gigawatts, give or take, at any given time to New York. There exists just huge amounts of excess electricity in the province left over from companies like Rio Tinto, Iron Ore Company of Canada, paper mills, logging companies, all these other sorts of heavy industry that's left and gone to third world countries. But the hydroelectric dam still there. The transmission lines are still there. Substations are still there. The river keeps flowing and the power keeps being generated.

And by selling to us in Quebec, we make jobs in the region. We make revenues in the region. The utility makes a higher price selling to people locally and higher profits selling to people locally than they do selling to New York and bulk. And so it just means more money for the province of Quebec. It's all state-owned provincial courts. So that means that all the profits are being reinvested into Quebec in the communities in which they operate. So this is a very, very big net positive for those communities.

Right. And I think it's just almost precisely the opposite of the way Bitcoin mining is characterized in Washington so frequently as taking power away from households. And if you look at your operations, you're in these places where these sort of industrial. zones where the heavy industry departed, but the energy infrastructure was built for, with the expectation that there would be these high energy industries there. And they've just, they've deserted the region. I mean, I just, I always think about the Alcoa smelting plant in Messina, New York, which is this, you know, completely on change, except it's just full of Bitcoin miners now,

which I think is right there on the St. Lawrence River. Exactly. It's the exact same situation. We operate in five industrial facilities that used to have, you know, other industries, which have all been exported. Most famously, we have a hockey stick factory. You can't think of, you know, too many more iconic Canadian products than a hockey stick, maybe maple syrup. But, you know, they exported the hockey stick factory production to China. And the hockey stick factory left. idle for 20, 30 years. And we came in, we invested in the area, we created those jobs. We took advantage and we maximized utility of that hydroelectric resource. This is a huge economic windfall for that community and for the utility that services us. But, you know, the big thing is that in a lot of our areas, we do participate in those curtailment programs. So, you know, because Hydro-Cubek is pretty much all hydropower, it's well over 99% hydropower. It's well over 99% hydro power. They have one power peaker plant, which is almost never turned on. And the reason why

they never have to turn that on is because companies like us can curtail our demand during those really, really heavily cold days in January and February where, you know, people need the extra electricity to heat up their homes, turn on their businesses and everything else. So we'll just curtail demand for a few hours. And Hydro, Quebec saves a ton of money on infrastructure. Everybody has a stable, reliable electric grid and it's higher profits all around. And so, you know, I think a lot of people think of electric grids as following the Texas model, but you were telling me it's actually a completely different pricing model. There's segregation in terms of load types between residential and industrial,

and the rates are also generally fixed as opposed to sort of free floating on a spot market, right? Yeah, correct. We operate on a tariff-based system. And most hydroelectric utility operators do operate on a tariff-based system because they don't have so many cost inputs like we're talking about. You know, in Texas, Urquod is a very unique electric grid and electric market where you've got a lot of different producers producing power, you know, sometimes ramping up their power or decreasing their power, you know, every 30 minutes or every hour or so adjusting to that. changing power price and with the miners in Texas you know for the most part they would turn off their facilities because the cost of power has increased so much it's no longer cost-effective for them to do so for us were curtailing you know because we're working with the grid to stabilize their power directly so we'll get a we'll get an electric signal from the grid says hey load is too high right now please curtail we'll turn down our facilities and as soon as the

power peak has kind of alleviated, we just crank right back up and keep on mining. So impact is pretty minimal to us in our operations and pretty much concentrated in the coldest days in January and some in February. But very minimal impact and there's a lot of differences in the different jurisdictions of the power utilities. This episode is brought to you by Compass Mining. Compass Mining is the world's first and largest online marketplace. for Bitcoin mining hardware hosting and ASIC reselling. Bitcoin mining is only getting bigger and so is Compass mining. Compass is adding 280 megawatts worth of hosting capacity next year with more to come. That's over

six times Compass's current hosting capacity, meaning more people can mine Bitcoin. With Compass, anyone can mine Bitcoin. Start mining your own Bitcoin by visiting compassmining.io today. So tell me about how you ended up finding this resource in Paraguay. So we have two co-founders who are from Argentina. You know, they were originally mining ether in Argentina way back in the day. They came to Quebec to scale up their operations back in 2017. And, you know, we have been looking at a couple of opportunities to take advantage of excess power in Argentina. for a couple of years now.

And in order to develop those opportunities and those resources, we built up a South American team. You know, there's huge amounts of excess electricity in South America, just like there are in pockets all throughout North America. And, you know, we want to be able to take advantage of that as a miner. We want to be able to further, you know, spread across the globe and de-risk some of our mining operations by spreading that around in multiple jurisdictions, multiple utilities, multiple providers. And, you know, going to South America does give us a lot of those benefits.

So Paraguay historically has a lot of hydroelectric production, very little industrial demand. The electricity that they're produced there is basically exported out of the country because there just isn't, there just isn't enough local demand in the country. So we were able to go in there and help monetize an existing substation through the creation of one of these Bitcoin my facilities. And given BitFarms's heavy hydro presence in terms of the energy inputs, is that part of a specific mandate to be sort of low carbon intensity or did it just so happen to shake out that way in terms of making efficient business decisions?

You know, it just really seemed to be the most efficient business decision for us. We don't have any internal mandate as a company that says, hey, based on this ESG criteria, we need to have this much percentage of our fleet powered by hydro or whatever resource. Really, we're trying to get the most amount of our Bitcoin on the balance sheet at the lowest cost and the fastest amount of time. And part of that is having low cost and predictable cost in our electricity inputs. You know, we're one of the few companies that is not investing in Texas. And, you know, we're concerned about what could happen with the electricity price there over time, especially as crude oil hits $100 a barrel and probably continues upward.

We're going to see increasing prices in that gas and other assets, which is going to flow into the electricity markets. We have a huge demand because net gas is so much cleaner than coal on the emission side. much more efficient in terms of a, you know, a thermal profile and in terms of actually operating the equipment, as all these coal power plants in America, Europe, Canada are being converted over to net gas. We're talking about a massive increase in that gas demand. At the same time, you're having political pressures, reducing the amount of net gas being produced, restricting the amount of gas distribution, pipelines, transmission lines, all that sort of stuff. All of these things have natural increases in cost over time.

And it's going to be subject to a lot of inflationary pressures that hydro just isn't. So, you know, in addition to it being a clean resource, it's really just an economical resource for us to develop and take advantage of. And it's, you know, the areas that we're investing in, these are areas that nobody else wants to invest in. That's why we're getting such low-cost stable power rates. If we went to New York, you know, and we went to the center of Manhattan, we're not going to get the power rates that we want to see in order to be profit maximums.

So we have to go to these remote parts that nobody else is willing to invest in. And, you know, hydro just can't be transmitted any other way other than on really inefficient transmission lines. So it just makes a lot of sense to develop power in those places. It's incredible to pass this prologue here with your high energy intensity industry, like aluminum smelting, you know, being built on the bank. of all these rivers and then Bitcoin comes in is just a much more efficient way of doing that same energy export. I mean, it's more modular. You don't have actual heavy industry. There's nothing

really, there's no enormous amounts of equipment. There's no actual really raw materials you have to import and export. And so Bitcoin is actually just more efficient at scooping up these stranded energy assets. So you guys are part of the Bitcoin Mining Council. Maybe just tell us a little bit about the progress that organization is made over the last year and how the current transparency environment in Bitcoin mining compares to sort of where we were back when China had sort of 70% of the hash rate. I mean, would you consider it an improvement in terms of disclosure, transparency, etc. I think the trend is towards transparency and clear disclosure, which is a net positive for the industry as a whole. I think Bitcoin Mining Council is playing a positive role overall in that

in terms of aggregating some data and putting out some clear comparisons about, you know, contextualizing how much energy we're actually consuming and what that impact is. I think a lot of people like to refer to Bitcoin's electricity consumption compared to countries. And the idea there is really blown out of proportion. You know, the reality is, is that electricity is an exponential curve. And China is by far the world's number one electricity producer consumer, the U.S. second. And then you've got Canada, Russia, a few other countries that start falling into place after them. This is an opportunity here for all these different, you know, organizations to come in here and start being transparent.

I think the industry has been plagued with bad actors, con men, frauds for years. The public companies that are now coming into place, especially in North America, are really going to start leading the forefront here on this transparency. It's something that we try and do here at BitFarms. We're the only ones with a big foreoditor. I think we are the first public companies for producing monthly production reports. We put them out on the first trading day after each month to make sure that our investors, know that, hey, this is what we're doing, this is how we're operating, this is our production,

we're not overpromising our hash rate and these sorts of things. This is something that should be easily audited and verifiable information. The whole industry is based on easy to verify information. And so for institutional investors to come in here and get exposure, I think they need this transparency. I think they need this accountability. And I think public companies like Good Farm, and Bitcoin Mining Council are doing a lot to improve that for people and make people understand more clearly what we are doing as an industry, why it's important, and contextualizing the problem.

I don't think it makes sense that you look at the electricity that we consume and compare it with a country way down the list on an exponential curve. If you're looking at a problem that you're saying is a global problem, a climate change, global problem, you should contextualize it globally, right? It doesn't make sense to compare it to one random off country. Like, you know, we could easily say, you know, Bitcoin's power consumption is close to this country. You could also say Bitcoin's power consumption is, you know, 50 times tonus.

Like it doesn't, it doesn't make any sense to contextualize it that way. It does make sense to say, hey, Bitcoin's electricity consumption is 0.1% of the global total. And the number one use of electricity worldwide is waste in transmission. And what Bitcoin miners are doing is we're solving that gap. I mean, it's the first technology ever that's been designed to monetize the gap between electricity supply and electricity demand. So I think it's a really important thing for everybody to report on and be clear on. What would you look for from your sort of fellow mining firms in the normal? American mining industry, where would you say there's sort of still room for improvement?

You know, I think there's still a lot of room for improvement on transparency and reporting standards. There is no standard right now for our industry. And there's not a whole lot of areas by which to compare the different Bitcoin mining companies. You've got things like your current hash rate, your current Bitcoin production, your cost of Bitcoin production, you know, your amount of equipment that you have coming, your contracted price on that equipment per terra hash, you know, you've got your amount of Bitcoin's on balance sheet and that's basically it. You know, the valuations for these companies should be relatively standardized. But I think there's a lot of leniency you can have in terms of language choice and reporting standards

in order to highlight certain angles or certain elements and to, you know, minimize the the others. This is something that's just not sustainable in the long term. And investors are going to start to learn that contracted hash rate is not everything. You know, if you've got a bunch of miners sitting on the floor and not generating revenue, there's there's a cost associated with that. And it should be baked into people's calculations. If, you know, you're investing in equipment that has a 20% hardware failure rate over a 2%

hardware failure rate, there should be a cost associated with that and should be baked into people's calculations and valuations. So I think a lot needs to be done still on the reporting side of things and transparency side of things. But, you know, we are trying to set that standard here at BidFarmes. And I think, you know, a lot of companies are moving in the right direction. So it's just an educational effort, I think. We actually did an episode on minor accounting with Brandon and Kareem from Galaxy.

I don't know if you saw they released a report trying to clarify that. But yeah, it's interesting. We see a lot of discussions around contracted or forecasted hash rate. But then, you know, that's not really the whole story. It's also the quality of the hash rate, the nature of the miners, you know, this heterogeneity in terms of the mining units themselves. There's uncertainty around your ability to deploy the miners. Sometimes the miners end up sitting fallow and undutilized.

There's, you know, certain, there's heterogeneity in terms of the power contracts and the duration of those contracts. So I guess that's one of the other challenges in terms of being a public mining analyst is distinguishing the outlook for miners and the quality of their fleets. Moving on to different topics. So you've been critical of certainly digeconomist and just generally speaking sort of these third party outside assessments of Bitcoin's energy consumption. And you know, digeconomist is a big body of work regarding Bitcoin mining,

which I would, you know, I'll definitely say is disingenuous about. Tell me about the various thrusts of Dig Economist work and then sort of where it falls short. Let's start with their Bitcoin Energy Consumption Index, which is sort of clearly flawed. Yeah. So, you know, I've done a couple of pieces on Dig Economist, specifically on the Dig Economist Bitcoin Electricity Consumption Index. I mean, this is something that is actually not that difficult math to figure out and to create and to model. You know, we have a lot per tera hash efficiency on every single minor model that exists out there. We know every single hash rate and, you know, minor model that's been produced over time. You know how that, you know, economics plays out when you start putting into things like, you know, your cost of electricity, you know, making assumptions on rents, labor, et cetera.

Like, this is, this is actually relatively easy. The problem here with Dig Economist, and I wrote a whole piece on this, is that it doesn't actually follow their stated methodology. This is something that everybody knows that Bitcoin's price is volatile, right? And the price impacts the Bitcoin mining economics. And so within the methodology stated specifically and explicitly states that the Bitcoin mining economics is what's going to drive the underlying half. rate assumptions and the electricity cost inputs and the Wampterra hash efficiency inputs into the model. You can download their data. They make it publicly available. It by no way does this. It does not take into consideration and there's no correlation with things like network increase in hash rate, no correlation

with Bitcoin price, no correlation with really anything other than there will be occasional adjustments surrounding difficulty adjustment periods themselves. And so, you know, this is something if you look at specifically, it's a straight line on a chart and it does not follow any of the data. You know, after the China mining ban specifically, we had a 50% reduction in network cash rate and they had no reduction in assumed electricity consumed, no reduction in assumed emissions output. And we're sitting now at the Dig Economist data with higher numbers than we had, you know,

at previous network cash rate all time high. It's, you know, it's a multiple of. And this is not something that makes any logical sense. It doesn't follow their stated methodology, and it doesn't correspond with any of the real-world economics or any of the real-world situations that people see playing out on the ground. So it's really problematic. having that as the primary source of environmental arguments because the map is quite easy and it's quite easy to verify and it's verifiably wrong.

The estimates of the energy consumption on the Digit Economist website are just fundamentally flawed. So just to put so that's problem number one, but just to add some more. color to that. Their estimate in May 2021 of Bitcoin's energy consumption was around 110 terawatt hours per year. And then Bitcoin's hash rate dropped by about half from May to June, to July. So in the space of just under two months, it dropped by half, which would imply, obviously a halving of Bitcoin's hash rate or Bitcoin's energy consumption, if not more, because we have to assume that it was actually older units that were coming

offline, so less efficient. And yet, did you connoisse's assumption or estimate of Bitcoin's energy consumption went up between May and July to 135 terawatt hours per year? So he didn't take into account at all a halving, an entire having of the number of units or certainly the quantity of hash rate on the Bitcoin network. So it appears that his representation of Bitcoin's energy consumption is completely untethered from what's happening on the Bitcoin blockchain. Like there's virtually no relationship there. There's zero correlation. You can download the data and you can run correlation tasks.

with actual network data. And there's absolutely zero correlation. The only correlation that you can find is that at difficulty adjustment periods, they will change the rate at which they grow. That's the only correlation that you can find with network data. And it's disingenuous at best, fraudulent at worst.

Yeah, the other incredible thing is like there's periods of completely, static estimates of Bitcoin's energy consumption, which it doesn't make sense sort of one way or the other. I mean, whether it's too aggressive or it's too conservative, it's almost always too aggressive, I would say. But a static figure for energy consumption, which should be derived from a composite of the types of units mining on Bitcoin and the Bitcoin hash rate, those are the two inputs you need, definitely cannot be static because Bitcoin's hash rate is changing all the time. So, you know, for instance, the estimate is static, literally flat at 77

terawatt hours per year between November 2020 and March 2021. It's a straight flat line. But Bitcoin's hash rate is not remotely static during that time. In November 2020, it went from 119 X-a-hashes. And in March, 2021, it went to 165. X-a-hashes. So it's dynamic. There's no correlation there between their estimated emissions and estimated power consumption and actual network data, which is, you know, you can't dispute the network data. There are different ways to calculate the network data, you know, especially on hash rate because it's an estimate, but you can't dispute it, you know, whether that's a rolling seven-day average, rolling 24-hour average, you know, or that's,

computeded by pool inputs, like this is, it's undisputable that those are factual numbers and completely mathematically driven. The digit economist numbers are not. And, you know, one of the clear ways to view this is you can actually compare and directly divide the actual network cash rate and the electricity consumption that they report over time in order to get what would be an implied WAPR-Therra hash efficiency for the industry as a whole. What you want to find if you do that analysis is that the watt per terra hash efficiency post the China mining ban hits levels of such inefficient hardware that we haven't seen these numbers for four or five years. I mean, it goes up to, I believe, 151 or 152 oz per tarahash. This is significantly

worse than an S9. It's so far beyond the pale of what we're seeing here. And so the only way to reach these numbers is to say, look, you know, Miners are profit maximumless, but we're going to pull off more profitable, more efficient machines, and we're going to replace them with less profitable, less efficient machines. And that's how you get these network assumptions. It defies all reason, and it defies everything that every miner on the ground is actually doing. And it's based on this logic that, you know, miners are greedy. Well, if miners are greedy, then why are we using less efficient equipment, according to your model?

It makes no logical sense. So just to simplify, you know, because we don't know for sure what kind of mining units miners are using, you know, when we construct these estimates, we have a choice of assuming aggressively the most inefficient machines compose the bulk of the fleet versus conservatively on the energy side, assuming the most efficient machines. And Dig Economist is using the most aggressive estimate possible, but it's totally out of step with the reality. of what we see in terms of minor disclosures, in terms of what we see on the blockchain,

you can use the randomness in the distribution of nonces to determine how many S-9s are active on the network, for instance. So his estimates are radically out of step with kind of actual economic reality in terms of the efficiency of the machines that the miners are using. And of course, it's motivated reasoning because he wants to derive as high an energy impact as possible. Yeah, you know, Cambridge does a better job than Dig Economist because they provide bans, right?

And so they say, hey, look, here's a band where we use a higher efficiency estimate. Here's a band where we use a lower efficiency estimate. And then here's an average band somewhere in the middle of the two. And so they say this is kind of a range of possibilities. Digiconist does have two lines, but, you know, one of them just goes straight up. I mean, it's a straight line. there's no correlation behind it and it's it's vastly off i mean if you run the efficiency woppertera hash efficiency numbers and you calculate the profit you know at that 152 wopterra

hash peak it's it's unprofitable at most electricity prices that people are operating at this is it's just verifiably false right so dig economist is using assumptions that cannot possibly mirror economic reality and the actual rational behavior of miners. Speaking of that, actually, the e-waste thing. So didgeconomist co-wrote a paper with Stoll, I think, in one of these journals, claiming that Bitcoin produces enormous quantities of e-waste through the junking of basics, and then tried to derive this e-waste per transaction metric. which is absolutely preposterous,

implying that a Bitcoin transaction somehow creates e-waste, as if making a Bitcoin transaction means you have to trash a fractional amount of a Bitcoin miner or something. Tell us about the methodology used in this paper and where it falls short. I mean, there's numerous points where it falls short.

I think the biggest point where it falls short here is it ties this to cell phone waste. And cell phones being kind of upgraded and jumped every 1.8, 1.9 years and saying this is analogous to cell phones. You know, this is in no way is it analogous to cell phones. Not only is the quantity of miners that we're talking about here measured in the low millions, as opposed to billions around the world. But the economic lifespan of one of these miners is significantly far past 1.8, 1.9 years.

I mean, an S-9 right now is still very profitable. I mean, this is something that came out in 2016. It's going on to be a six-year piece of equipment this year and is still profitable. I mean, three times longer than their estimates. And if you put into one of those situations with flare gas mitigation or if you're putting into, you know, a situation with intermittent power source like behind the meter of a windmill or something like that, but you're monetizing excess power, which couldn't otherwise be sold through your PPA and you've got a marginal cost of electricity, the economic useful life span of this equipment goes even to. further past the six years, seven years, eight year time frame. So, you know, the quantities and the scope is completely wrong. The expected useful lifespan is completely wrong. And then in terms of the hazardous waste itself, you know, most of the components of a Bitcoin miner are highly

recyclable aluminum. You've got the heat sinks, which are aluminum. You've got the frames of the miners, which are aluminum. You know, there's very little hazardous chemicals. It's not like there's a lithium ion battery like there isn't a phone. It's not like there's all the chemicals associated with the display that's in a phone. There's almost no hazardous chemicals inside of a minor. You have some trace elements, you know, in some components like in capacitors and that sort of thing. But, you know, the hazardous chemicals in a minor versus a cell phone, and the cell phone drastically outpaces a minor. And so this is something that lasts well beyond expected and declared times has way lower footprint, way fewer quantities, and is mostly recycled because at the end of the day,

the amount of recyclable aluminum that you get out of one of these miners can be 20, 25 bucks. And if the price of aluminum keeps going up, it's going to be higher and higher. So, you know, there is no reason to throw a miner in a junkyard. There's absolutely financial incentive to recycle the minor. And that's what you see happening over and over again. Yeah, I mean, this paper just astounds me, the amount of press cover. virtue got was honestly incredible because I'm used to seeing, you know, nonsensical academia getting repeated by the press, which is effectively a, you know, stenographer of the regime.

And of course, DeVries is regime affiliated, works for the Dutch Central Bank. But this paper in particular is just so vexing because, as you say, he's got an estimated something preposterous like 1.7 year depreciation estimate, which is completely out of step with what we see from actual public miners. If you look at their declared accounting estimates and then their actual realized depreciation, it's out of step with the fact that there's a resale market for these A6, that there's energy types that are suitable for older A6. We see older A6 still being utilized. It's out of the step with the fact that it gets recycled. And with the fact that Bitcoin mining machines are very relatively simple compared to cell phones. And,

And as you say, you know, they don't really have that many toxic components to them. I mean, not to mention the absurdity of trying to correlate a Bitcoin transaction to the creation of waste when the two have just nothing in common. There's no correlation whatsoever. Zero correlation is the basis of most of that research and reporting. And I think Saif talks about this pretty well in the Fiat standard when he talks about the economic of consentives behind creating these papers and everything else and the network of people that participate in them. I mean, you cannot find one of these papers that has been written, has been

reviewed, or has been sponsored or authored or whatever in any way, capacity, shape, or form of someone has any experience in the industry itself. You just can't do it. I mean, every single time you look at the papers, you look at the people who are writing them, look at the people who are peer reviewing them, look at the people who are promoting them. Zero experience. in actual mining. They're all just academics, just coming up with numbers and models that have zero basis in reality. But it's interesting to see the pipeline from academia to political risk, which does end up affecting miners, of course.

You know, we look at the congressional hearings and the memo that they wrote, which is full of references to this completely shoddy academia, I think even more at al, which gets my vote for the worst paper of all time on mining. Got to mention certainly the DeVries. newspaper on Eway's got to mention. And then you see, you know, hostile coverage of greenage or stronghold, which we actually rebutted both of those on this very podcast. You see, you know, just press claims being reported with no pushback by self-serving politicians that are looking to regulate Bitcoin mining. So the odd thing is that this does have a real impact. So, I mean,

I know you mentioned your geographic diversification, but how do you think? think about political risk as something that Bitcoin miners are going to have to tackle in the next decade or so. You know, I think this is obviously something that every industry goes through at some stage. And as we get larger and more institutionalized, I don't think we're going to be exception to that. I mean, we started our work with the Quebec government and hydro Kubeck back in 2017 and 2018, and we're comfortable speaking with government and government entities and explaining what we do

and the value we bring. And I think the success of the curtailment programs that we've operated in and the fact that as of this year, those programs were adopted provincial wide is proof positive of the economic benefits, you know, that Bitcoin mining has to the community and with the people that we operate with. You know, the reality is, is that nobody else is investing in these remote areas. You mentioned coin men in Messina, New York. I mean, you can go on Zillow right now. You can buy a house in Messina for $22,000. After Alcoa left, nobody else came in there. Nobody is willing to invest in that community and create jobs there.

And Bitcoin miners did. You know, this is a reality all around the country, all around the world, is that Bitcoin miners are coming in and investing in regions, creating jobs, creating good tax revenues, and minimizing waste through the maximizing the utility of these resources in a way that no other industry will. And once people start to understand the economic, benefits on the job side, the tax revenue side, the job creation side, and especially on the grid stability side through demand response programs and curtailment. I mean, this is something that

is a, it's a win-win for everybody. And so I don't think that once all said and done and we've gone through the, you know, the educational efforts that any government is going to come down hard on the side of, you know, we've had to cancel this. It is foolish. to crack down on something that's bringing such a net positive economic gain for all these various communities that nobody else is willing to invest in. And, you know, especially on that flare gas mitigation side, and here's a situation where this is the first technology in the world where without any government subsidy at all is creating an economic incentive to directly reduce emissions.

I mean, what other technology does this? you know, if your goal is to reduce emissions, Bitcoin mining is actually the most effective tool that you have in your arsenal to do so. And this is something that once it's learned and once it's understood, has to be embraced because there's no negatives around it. Well said, Ben. So as the last word, where would you invite people to follow your work and to follow BitFarms as well? Yeah.

You know, follow BitFarms at BitFarms I.O. on Twitter. Go to BitFarms.com. You know, my personal handle is hash override. You can find me on Twitter and other platforms as well. And I'll occasionally post, you know, articles that I write on Bitcoin magazine as well. But, you know, follow us on Twitter and stay tuned to what BitFarms is doing. And, you know, the positive impact that we're bringing because it's just going to get there. Yeah.

Well, yeah. And Ben's written some great pieces in Bitcoin. mag so we'll link those. Ben, thanks for coming on. This has been great.