TFTC: A Bitcoin Podcast - #343: State of the bitcoin mining industry with Edward Evenson

Episode Date: July 1, 2022

Join Marty as he sits down with Edward Evenson from Braiins to discuss the state of the mining industry. Follow Edward on Twitter Follow Braiins on Twitter Learn more about Braiins Shoutout to our sponsors: Unchained Capital Braiins HodlHodl Upstream Data CrowdHealth TFTC Merch is Available: Shop Now Join the TFTC Movement: Main YT Channel Clips YT Channel Website Twitter Instagram Follow Marty Bent: Twitter Newsletter Podcast

Excuse me for the burp freaks. What is up? It's your boy Marty Bent here. To introduce you, I think there's a rip 342, 343, 343. Sat down with Edward Evenson, business development lead at Brains to get a state of the Bitcoin mining industry.

It's always great sitting down with Edward. It's been about a year. since we last joined each other on this podcast last time we spoke was in the midst of the great chinese mining migration so we had to catch up about that situation what unfolded there as well as everything going on with the mining industry as it reacts to the collapse in price of bitcoin i'm staring at my block clock now it's 5 155 sats per dollar so we're under 20k right now Very informative, dense rip. Always a pleasure to get together with Edward Evenson.

He admitted that he ate some cheese recently, which you hate to see for somebody who's such a big cheese hater. Had to eat some cheese. This rip is brought to you by our good friends at Unchained Capital. Right down the hall from me here in Austin, Texas, at the Bitcoin Commons TFTC studios in the Bitcoin Commons. Unchained is here to help protect you from the mess that a lot of people are finding themselves in

in this particular market cycle. A lot of people trusted their Bitcoin with centralized lenders to get yields and they're finding out the hard lesson that those lenders were taking their Bitcoin and lending it out to other people who were then taking undue risk with their Bitcoin. And unfortunately, many people lost a lot of Bitcoin

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that the gentleman who I interview in the episode works for. Brains. Two sponsor guests this week. Very interesting. Coincidentally, just coincidence, Parker, expert on the macro landscape and everything going on with the Bitcoin lending blowups. And then Edward here from Brains, pretty in touch with what's going on in the mining industry, which is obviously being affected by the price decreases. So we got an update from Edward on everything going on in the market and what's going on at Brains. Most importantly, what you freaks need to know is that if you have an ASIC that is compatible with Brains OS Plus firmware,

which is an auto-tuning firmware that really increases the efficiency of your machines that allows you to produce more hash to then produce more sats. If you're not running Brains OS Plus firmware, if you have an ASIC that's compatible with it and you have not downloaded it yet, you're an idiot. you're just dumb you're leaving sats on the table only idiots leave sats on the table don't be an idiot if you're mining with an asic that is compatible with brains plus firmware you should probably download it because you don't want to go home to your father-in-law and him be like hey you're running you're running a mining operation s19s like are you running brains imagine having to go to your father-in-law it's like no i'm not running brains he's gonna be like you're an idiot how can I trust you

with my daughter you're the bloodline you're like you're my grandchildren and have your blood in you in them

idiot blood what put your ass down to your mining operation download BrainsOS plus firmware on your

on your A6 before I I force my daughter to divorce you you can go to brains.com that's B-R-A-I-N-S dot com

here I'll walk you through it son-in-law open up your laptop Here's the page, brains.com, and there's a BOS Plus tab at the top. Click it. Download it. Don't besmirch my family name, okay?

My bloodline. No idiots in my bloodline. Brains.com. Go check it out. This report is also brought to you by our good friends at Hodl Hodl. Hodl Hodl, again, another company that's building on Bitcoin's native multi-sig properties. they have a peer-to-peer lending platform which allows you to find peers uh to to get bitcoin

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Big mining company. Upstream. Okay? Whether you're an at-home miner or somebody who's mining upstream on an oil and gas well pad, Upstream Data is here to provide you

with the tools that you need to mine to the best of your abilities. If you're an at-home miner, they have the black box which allows you to mine at home the box fixes the sound asics are loud that's the sound that's ended a lot of marriages because because people have decided to mine at home and just have their asics running in their basement or in their kitchen or wherever

The wife comes in like, honey, don't you think this is a little loud? Don't worry, we're stacking sats. It's not always the best rebuttal. What you should be saying is, yes, honey, it is loud. But you know what? I purchased a black box. It's on its way. And we're going to put it outside.

We're going to put the ASICs in it. And it's going to fix the sound. It's going to go from to. You're not even going to notice it, honey. if you buy a black box use the code freaks f-r-e-a-k-s you're going to get five percent off and then again it's not only for atom miners they have bigger hash huts i'm an owner of a hash hut a 50 kilowatt hash hut came with a mining hut and a generator that upstream builds as well and i've had an incredible experience with my hash hut again the only time i've ever had downtime is

when i need to change the oil in the generator um so essentially no downtime for my operation to date and it's been up and running for for a considerable amount of time i have a philly philly i'm from philly i have a 50 kilowatt uh hash shut but they also make 900 kilowatt hash shuts and other models in between so whether you're a smaller miner like myself or somebody who wants to really plug in a bunch of a6 they have different sizes for you if you're upstream on the well pad. It can get you many 900 kilowatt

boxes and generators for those. Or if your utility company has excess electricity and you want to take advantage of that, Upstream Data

has solutions for you as well. Go to upstreamdata.ca and fill out the contact form with your client solutions team. In that form, you'll be able to tell them that TFTC sent you.

Please do tell them if you go there after listening to this. Last but not least, this report was brought to you by our good friends at CrowdHealth. CrowdHealth is here.

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Check it! you've had a dynamic where money's become freer than free when you talk about a fed just gone nuts all all the central banks going nuts so it's all acting like safe haven i believe that in a world where central bankers are tripping over themselves to devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor i mean that's part of the bull case for bitcoin if you're not paying attention you probably should be probably should be probably should be where's your whip can we can you pick up your camera and whip the people working on the what's minor firmware um yeah i i try to do my best every

day in that regard uh sorry to start out with that edward evenson back on the show head of biz dev at brains what do you like what do you think about like the the marketing that we've been doing here at tftc i'm a fan i gotta say um at first it was funny and then a little bit later it was not so funny but it's it's come full circle now i'm loving it and the um i think it's done very well and the community in general likes it so it's nice to inject some some fun into bitcoin mining in these troubling times yeah that's why we're sitting here i figured i'd hit you up somebody who's very well acquainted with the state of the mining industry working at at brains and having

a bunch of touch points with different miners throughout the world it's chaos in the streets Bitcoin price is down. We have Celsius blowing up. BlockFi in trouble. Three arrows capital in trouble. Babel Finance in China. I'm interested to see if you know anything about that operation. Bloomberg article coming out late last week.

Bitcoin mining lenders have $4 billion of exposure that is becoming distressed. What are you seeing on your end as somebody who's sitting and discussing the state of the market with a bunch of different miners from throughout the world yeah so i will say that um the last couple weeks i've definitely been playing catch up in terms of what's going on in the markets because the month and a half before that i was taking quite a bit of time off um hopping around to a few places having some fun but back in action now uh what i'm seeing is a lot of what i think people in general have seen

You mentioned the Bloomberg article. I mean, the 3AC stuff, the BlockFi stuff, all of that, the lenders, it's pretty front and center in the news and social media. Everyone's been talking about it the last week. There's some speculation, I guess, or like pushback from Zach from BlockFi that maybe they would not be bought for $25 million from FTX. But I think that tweet might have been deleted. So things are going on fire sale all around. And as far as mining goes, this is reflected in ASIC prices. I'm seeing some of the newest generation machines, S19J Pros in particular, getting closer and closer to the $30 per tera hash mark. And a lot of speculation that they'll go lower in the coming weeks, maybe four to six weeks from now, as more and more people feel the pressure, the squeeze as hash price goes below 10 cents

for the first time since October 2020, I believe. So I think what you're going to see is a lot more machines flood onto the market over the next month. And we could be seeing $20 to $25 per terahash for some of these machines. And I think this presents a really good opportunity for people that have been sort of building at the background to come online at the end of the summer or this fall because they've essentially got a you know 75 discount from what some of the pricing we saw was at the end of 2021 i mean it was above a hundred dollars a terahash for for a few months there people thought i was going to

two hundred dollars a terahash it's crazy how quickly uh the emotions and the the outlook changes in this market i mean obviously we had the black swan of the china migration that was last summer right about one year ago actually today i think i think the ccp did it in preparation for july 1st it was their uh their 75 year anniversary yeah and was it the 100 year anniversary yeah yeah no we uh actually maybe that's a good a good thing to catch up on because the last time you were on that's what we were discussing is the china migration you mentioned the 100 year ccp anniversary and the theme of the anniversary was harmony they wanted to have a harmonious celebration and bitcoin mining was deemed unharmonious and so kicked them out and

you had a theory that a lot of miners in china were going to leave obviously many did but there was another cohort of chinese miners who were just going to warehouse their asics and wait for the celebrations to come and pass and then a few months later plug back in do you think that happen yes um i think that people got a little overzealous at the beginning thinking that all hash rate was just going to have this exodus out of china um i think i may have briefly touched upon this too in the previous podcast but um while you know beijing signals and different provinces especially the more local you get government react differently and there were a lot of vested interests on the local level already with some of these mining facilities who

And there's just the way business operates sometimes in that part of the world that we're receiving their own incentives, let's say, for having these facilities online. So there's, and there was this big, I guess you could say, pushback against some of the data that Cambridge more recently. I was going to bring up the Cambridge data. They said that zero hash rate was still in China, but from people that have contacts over there that have known mining operations for years over there, it's very clear that 10% would be a very, very conservative figure for the amount of global network hash rate still online in China. it's probably closer to 15 to 20 so there's multiple multiple exahashes in the magnitude of 20 to 40 exahash probably still operated in china and you know maybe they're not operating at the scale that they used to these these huge mega farms outside these hydro dams in sichuan they're probably a little more distributed a little more a little smaller than they were

before in scale but they're still online definitely yeah yeah that that cambridge day when it came out it was like zero percent of hash rate was in china i was like i don't think that's true i can't believe the pools would lie to cambridge i can't believe they would do that how low did the price per tera hash fall in the the pits of that that chaos during the migration last year oh not as low i think as people expected it to um i think it recovered fairly quickly i think maybe like 50 dollars as well yeah i think i was seeing 50 to 55 um some people were getting some sweet deals and the chaos with bitmain directly that were buying you know anywhere from 10 to 40 000 devices um and i think they were pushing the s19js at that time which kind

of had their edge chips. And we're only pumping out 90 terahash for the same power consumption as the J-Pros. So during all that tumult and migration and sort of lessening of demand and dumping of ASICs onto the market, some miners scooped up some pretty sweet futures deals with Bitmain for, I think, even lower than that, potentially. Well, that's another good point to bring up. These future deals, I think, a lot of the publicly traded miners here in the u.s specifically are learning a hard lesson about these futures deals and how they acquire their asics i think there's going to be a lot of strategies that change moving forward considering what's going on right now somewhere a little too quick to jump on

some mining finance deals i think as well um i don't have there's nothing wrong with minor financing i think it's a really interesting development in the space and very useful and will continue to be so moving forward but i think what i mean by that is that uh you know in their models uh what before they entered these deals it seemed like they were only considering bitcoin to 100k and they didn't really model it out for bitcoin at 20k hash price like what it is today um so you know over collateralizing and paying you know double digit interest rates for some of these financing deals is probably what's going to significantly contribute to you know this this massive dump of ASICs onto the market and before last year and it was still a problem this year

there just wasn't enough infrastructure available or rack space for a lot of these machines and that continued to be the case as some of these orders started to be delivered through the second half of last year and first half of this year so you could see like a very slow upward tick and global network hash rate but as a result there's a bunch of I mean probably to the tune of you know 70 to 100x a hash of ASICs just sitting in boxes and warehouses. So those are really easy to

sort of justify offloading and selling to get a hold of some funds during these desperate times. Yeah. A lot of ASICs are sitting in warehouses. And one company in particular that had

this asset light strategy that is proving probably not to be the best strategy in the long run and yeah going back to like the minor financing stuff too

what will be interesting to see and I mentioned this yesterday on RHR is if some of these lending agreements do go into default

I'm very interested to see how like the repossession goes because you have a lot of these lenders in offices in New York City

and you have these ASICs that they've used as collateral and loans that they've issued out to individual operations and i think this may be the first instance these are relatively new products to the market where if you have defaults on these lens these lenders then have

to repossess the collateral and that's a logistical nightmare in my mind yeah i don't think it's as you said something that's we've really seen done before so um in terms of i'm sure there'll be probably a lot of juicy disputes um altercations or something we'll we'll hear about in the news coming up um i don't know what that would look like or who these um firms out of new york would contract in order to repossess or whether it would just be you know it could just be a very smooth experience um but i don't i have no idea how that's actually going to pan out yeah it's another lesson we're about to learn moving forward.

If the firms were smart about it, or maybe they do, maybe this is a strategy that they actually employed, having some capacity and infrastructure available to maybe start mining with some of these repossessed ASICs before they were sold again. Hopefully they're not just stuck in a warehouse too.

Yeah. I mean, that was the big question in the beginning of the year over on Nurse 300 Exahash by the end of the year. What do you think about that? I know we're at like 250 right now. I think I saw an estimate earlier.

What is that like using a 30-day average or? No, I think it was like an intraday. So it's like noise, but. Because the last 30 days I'm seeing on Praying, Smiling, Insights right now is 214 exahash. 214. I don't know, with all these deals, yeah. So that's the thing.

With these cycles, I mean, I know there's a lot of oil and gas guys particularly have been waiting to get in, obviously. If you have an oil operation up and running and it's humming well and you don't have a lot of debt, you have a lot of revenue coming in and you want to diversify out of that throughout this summer, it's a beautiful opportunity to get into Bitcoin mining. Am I going to become bullish on 300 by the end of the year? I don't know.

I think there could be a lot of hash rate coming on in the fall, like you mentioned. I mean, these deals are fire. Like once, I don't want to say once in a lifetime, but this is when you deploy the capital to get the ASICs is probably throughout the summer, beginning of fall. Then the question is, can they plug them in quick enough to get to 300 by the end of the year?

We've seen this a couple of times, too, in previous cycles. But what we've learned, I guess, looking back on those cycles, is that there's a pretty narrow window for you to act on these fire sale prices, as you put it. But historically, those who did, when hash price begins to rise, the amount of benefit they get in a six-month period, like in the beginning of 2021, when BTC shot up past $40K for the first time. and you saw s19 pros for example making something like 40 a day and most of those units were picked up between you know 2500 to 3 grand a pop so it was a very very good decision at the time to pick some of those up and i think people will benefit and similarly if they choose to act in the short term now um but to your point about you know some of those people have good revenues now and want to diversify some of it and put it into bitcoin mining i think that if hash rate does

increase and does hit 300 extra hash by the end of the year it'll inevitably have to be people that close to the power source because a lot of the new entrants that we're sort of trying to set up these hosting deals even now a lot of these hosters are you know all in they're offering like seven to ten cents per kilowatt hour um i don't think a lot of hash rate can come online given the current market conditions considering that you know looking at the stats right now like a ant miner s19 pro is making five dollars and 15 cents a day on five cent electricity and if we put this up to you know eight cents it goes down to two dollars and 83 cents so the margins are are pretty pretty slim which means if you enter into a hosting agreement like that now

you pretty much have to have a bullish outlook for the rest of Europe because if margins are squeezed anymore you can get screwed over pretty quickly what are those revenues looking like if you have brains downloaded? oh well I'm so glad you asked

is this like is this a sponsored episode? what's happening here? I'm genuinely curious disclaimer brains are the sponsor of the show yeah And I work at Brains, as Marty said in the beginning.

But it really depends. One of the questions I get asked the most when discussing the firmware is, what can we expect in terms of hash rate? And it sort of just reveals how little people still know about firmware and how it operates. Because there are 50 variables you need to consider before talking about the hash rate output. What are you optimizing for? Are you optimizing for efficiency? are you optimizing for hash rate uplift and a mining bear market like this when we first released the firmware for the commercial version anyways for the s9s it was in 2020 bear market and having

so everyone wanted to underclock to 900 watts to get an efficiency boost which inherently meant that you're going to have maybe one or 1.5 less tera hash than it would have had but you were getting a you know 20 boost in efficiency in terms of watts per tera hash which meant was the difference between shutting off and keeping them online so having a little less terahash was in fact more profitable in that scenario than trying to get more out of the machines for that generation of hardware anyways and it can be said similarly of this cycle as well so you know back in the bull market everyone all anyone wanted to talk about was cranking up the juice or the power as much as possible on these machines and getting as much hash rate as possible out of them that's not going

to be necessarily a winning strategy currently and possibly short term in the future so you know if you if you use less power than stock power consumption the stuff's going to optimize for efficiency you'll drop from you know 30 watts per terahash down to potentially 24 um at the sacrifice of a small amount of hash rate or if you still have a lower enough power cost and you still want to crank up the juice then you know if you run an s19j pro at 4000 watts you're looking at anywhere between 135 and 140 terahash but then again you know the other variables come into play it's not magic it's not you just plug it in and voila the firmware is going to produce these numbers for you that would be under you know very good mining conditions so how well have you

you know built out the airflow in your facilities what kind of cooling do you have is it air cooled is it immersion you know what what are these chips going to be operating at are they going to be operating at 60 degrees celsius or 75 because our research has shown that with the s19 generation you know the temperature these chips run at have a dramatic effect on the efficiency of the machine and we've seen a pretty significant power drift the hotter the chips get so even if you're running stock firmware it's a hardware issue so if you're running the firmware that ships with the machines from bitmain and you know you're expecting 100 terahash for 3080 watts if the chips are running at 70 to 75 c what you're actually getting for 100 what you're actually consuming for 100 terahash

excuse me would be closer to like 3400 3500 watts um if anyone wants like a really detailed breakdown of how the x19 generation operates under different heat conditions it's actually a free article on the blog over at our website at brains.com you can check out um it's got nice summaries and for those that don't like to read as is often the case these days there's nice pretty pictures with charts and data that was that was a cross that was a shot across the bow of people's attention spans of course i don't even know why i'm saying this listeners of marty's are the most educated, refined, avid readers in existence. There was another piece you guys did on immersion,

which is a big topic too. And I think that was a particularly enlightening piece. Because immersion, obviously, especially down here in Texas, has been a big meme. A lot of people expect you to dunk these machines for them to pump out a bunch more hash rate and be extremely more efficient. But in practice, it's turning out that that may not be the case.

and i mean the same thing applies with immersion as air cooled right like you can dunk the tanks into this dielectric fluid in these um or rather the machines into these tanks with the dielectric fluid but the you know if your dry cooler is not running well enough or you're not keeping that oil cool enough you're going to have the same issue you know the chips are going to run hotter than you want them to so but that being said if you can um you know depending on whether you have single phase or two phase immersion setup if you can keep that oil in the tanks cool enough to keep the chips cool then you will see some pretty dramatic increases in hash rate retaining the same efficiency and having them run very stably i know a lot of miners have opted for the immersion

buildouts specifically in texas and i know it's benefited many because a lot of the air cooled facilities are facing the summer issues right now in texas pretty small terrain hot over there and you know you have to deal with machines rebooting all the time you have to deal with them running more inefficiently due to the heat um you know potentially tripping some breakers because of that power drift so there's uh definitely some tangible benefits to immersion and it's becoming increasingly popular. I know not everyone's the hugest fan of immersion. Some prefer the closed-loop water-cooled system.

Some drama in our friends' group recently about that. There's a big debate going on. Well, and then you see MicroBT and Bitmain, I think they're seeing, this is the way I'm reading it, so they're future generations. They plan to release on market. there's beginning to market that they're coming just with the water cooling enabled and they look very terribly designed but it seems that bitmain and microbt noticing that a large portion of their

customer customer base has now migrated to texas where we have the extremely hot summers and it seems like they're trying to front run any potential chip failures due to the heat with by implementing this water cooling technology into their machines right out of the gate. How are you reading? Yeah, that was a big thing. So I went to the Bitmain conference in Dubai in November of 2021, and a large theme of that convention was liquid cooling

and sort of foreshadowed Bitmain's future plans in that regard. Bitmain and MicroBT took two very different approaches to the liquid cooling uh miners bitmain i i mean i guess time will tell and i've been hearing some stuff but i i wasn't a huge fan of the way they chose to go um you know having these containerized solution kind of forcing people into those containers um you know if you if you use it's the same design you just stick them on the racks and you need to have this system otherwise they won't operate in terms of the circulation of the the water these big water towers next to the tanks it seemed very limited in scope and hyper focused on people that would exclusively be using this for

mining whereas i saw the micro bt solution as a little more creative and applicable to a wider array of setups and that you can you know it's the server rack design as opposed to the shoebox units on the shelf which save space and two it seems like the systems they've designed are you can integrate more easily into various projects to reuse some of the heat captured by the liquid you know you could use this for fish farming because a certain amount you need to keep the tanks that the fish are in a certain temperature you can use it for heating breweries I mean, we've seen some of the applications from Mint Green already that kind of made headlines last year and some of the applications they were using it for. But the fact that, you know, you could send in a team, customize a water circulation system to reuse the heat for various applications from greenhouses to fish farming,

not only sort of reinvents the public perception of mining but also lets you profit in more ways than just purely from the hash rate generated from the machines so i think in the future you'll see a lot more projects go the way of micro bt at least micro bt partnered with a company by the name of HeatCore for their liquid cooling solution. So it'll be interesting to see how the market receives in the long run those two different approaches to liquid-cooled miners. What's your take on MicroBT and Bitmain essentially forcing these designs on the market?

Does it constrict the design of an individual operator who may prefer to build their own system and put it on these machines? What do you think MicroBT and Bitmain should do? Should they just hand the boxes that their customers can use to build their own proprietary systems on or should they be offering these systems out of the box?

I'm always going to be a fan of the former mentioned that you just provide a solution that is, you know, that you can integrate with a bunch of different proprietary systems of your own design, because it allows for more flexibility. There's no way that a manufacturer can anticipate every single type of scenario that these miners are going to be placed in. And, but however, that being said, I think there's, you know, room for them to do both and profit handsomely either way. So you can offer it a solution that's easily integratable with the, you know systems of your own design but on the other end there's going to be a ton of people

that don't actually want to create something of their own and don't have the skill sets or capital to do so let's say so then you could have a service offered by the manufacturer saying hey if you don't want to integrate this with your own solution we can come in and design one for you consult for you things like that you know there's a middle ground there that would benefit the industry as a whole and i think that's sort of the approach that micro bt is doing it's closer to what they're doing which is why i like it a bit more than the bitmain one um but this is it's nothing new if they didn't do that right it's uh the manufacturers have never really worked with miners and what they wanted and firmware being customized their operations yeah firmware

being the the main example there yeah i mean the the you know um most common one to point out is a lot of people struggled to you know as immersion got more popular to get firmware that would just disable the fans which would allow them to immerse the machine as opposed to having using fan spoofs and things like that it was pulling teeth to be able to get that feature for them for a while um so you know if if uh they would implement certain things like being able to manually shut off the fans or in bulk just so these things could be immersed easier um it would allow not only probably buy some more loyal customers but allow for a bunch of different setups that people are experimenting with yeah scaling now yeah what's your you have any

commentary on the state of the competition between bitmain and micro bt how's that been developing in your mind you think micro bt is gaining gaining market share um i wouldn't say micro bt is gaining market share but of course bear in mind everything i'm about to say i don't really have hard data on anything i can accept this is just basically what i've observed my interactions from various miners in the industry but last i heard uh micro bt sort of got removed from foundry space um at a certain level and then there was some news recently that they would potentially have access to the three nanometer chips as they come out so there was there were some hiccups along the way not to mention all the lawsuits between bitmain

and MicroBT that were going on for some time and the sort of disappearance of the captain of their ship, Dr. Young, for legal reasons. And then, of course, we didn't see MicroBT come out with any new hardware for quite some time either. They kind of stuck with the M30s, M30s Plus machines as Bitmain continued to come out with S19, S19J Pro. There was the M30s Plus Plus.

but now we're finally seeing them come out with the m50 m53 which are their newest air-cooled versions or rather i think it's just the m50 um so i i really can't say if they've gained market share if i were to you know if someone were to force me to place some bitcoin on a bet whether they had increased or decreased their market share i'd probably say it decreased a little bit especially considering how many miners in the United States and North America more broadly were purchasing S19 Pros, S19J Pros at massive volumes. All the largest miner purchase orders that I've seen except for one were Bitmain devices. There were a couple very, very significant micro BT ones, but nowhere near in general the size of all the Bitmain orders put together.

yes it'll be very interesting to see how that continues to develop because just personally me having run mining operations i mean i'm a i'm a micro bt max maximalist i think their their machines are are beast i mean you obviously have dr young who you mentioned who was the designer of the s9 i think over time his expertise and his ability to design extremely durable machines will uh will be a benefit for micro bt in the long run definitely i mean those things or tanks um they they've never really had the same issues with heat that the ant miners did you could have those things screaming that you know 80 90 c and they seem to work fairly well yeah yeah then the yeah the um the three nanometer chips that you mentioned too what

what do you think i mean so that that news came out a couple days ago samsung uh thinks they can produce three nanometer chips or they're pretty confident they can um they're going to start allowing their customers to begin building and designing and building chips on their foundry floor micro bt being one of those customers what does that mean a three nanometer asic if it materializes for the landscape of the mining industry what does it mean well one i think we're kind of pushing up against some of the dramatic efficiency gains that we were seeing before between the generations i think after three nanometer it's going to be less of a race for more efficiency and chips and more of a race

to like okay we've already got these crazy efficient chips what other ways can we improve the rest of the piece of hardware that we sell the client um and there'll be more focus on especially by that time because these you know the design and build out of these chips by the time you know from going into that room in samsung in south korea where you have to design the chips for ip protection purposes um all the way up to you know mass production of a successful tape out that's a that's what you're looking at like at least a two-year period there so these things take time and you can imagine that by two years margins could be still squeezed pretty tight in the mining industry and you know it's going to demand that you have access to

cheaper and cheaper power so i think there'll be a shift after the three nanometers become more popular i think maybe it'll get down to like 10 to 15 watts per terahash but at that point i think a lot of the focus is going to be on building out relationships with power providers power infrastructure providers and going into sort of joint venture agreements or the providers themselves getting into mining so you know offering to give some of these machines at cost in exchange for access to some of this power and then maybe a split in revenue and also getting the power at cost so i think you'll see a sort of change in the models where instead of having like these long PPAs or, you know, hosting agreements,

those will be abandoned by the largest miners in favor of, you know, having an exchange of what each party wants at cost, whether it be energy or mining hardware, and then sort of a split in revenues with what those hardware produce. What is the most efficient on the market? I know there's some futures orders that are touting 20.5 watts of terahash or 21.5.

It's not clear. There hasn't been a huge rollout of the XPs yet, the S19 XP that was announced in November. At first, I think it was 150 terahash was stated. And then at the reveal, it was 140 terahash at 21.5 watts per terahash. But then in some of the images in the slides, they showed machines hashing around like 130, 132. So I think it'll become much more clear as some of these XPs roll out at scale. I think they just started to ship May and early June. So we'll probably get answers to that fairly soon. but you know those are still the i think those are sort of like the the five nanometers come into fruition because the first generation of x19s the t19s s1995 terahash and s19 pro 110 terahash were still operating with the seven nanometer chips the five nanometer wasn't

introduced until the j line that came out the s19j pros and s19js so those the first batches of new generations of chips are always going to have some issues let's say they're not going to be as efficient as possible but now that they've had some time to work out some of the kinks i think we're seeing sort of the final form of the five nanometer and the xps so we'll i guess time will tell to see what you know if you have a batch of 10 000 s19 xps what the actual average efficiency and hash rate output will be yeah and this is uh this is these efficiency gains or stats as an industry that we should be leaning

into because when you look at the overarching narrative of Bitcoin mining and the mainstream sphere it's wasting energy it's extremely inefficient is what a lot of people will say but I think we have a scoreboard to point to like hey look at the

power draw of these machines it's gotten extremely more efficient as time has gone on obviously as you mentioned there are limits that will be reached but these machines in terms of power density and how efficient they are are getting extremely efficient definitely but what i was mentioning before is you can employ you know especially if you had access to your own chips your own chip fab line or like you wouldn't even need to use the latest and greatest three nanometer five nanometer eventually it'll

probably be five nanometers that people get access to once they're easier to get access to as three nanometer becomes more popular you know because even if you are using the previous generation of chips in your devices if you can produce them uh say you know it starts to make sense at a scale of 100 megawatts plus let's say you know you're going as opposed to buying them for bitmain or micro vt on the market with a huge markup if you produce slightly less efficient machines yourself and essentially acquire them for 50 less than you otherwise would on the open market then so long as you have access to cheap enough power you're going to roi much quicker and so if you're a firm that has access to the capital and more importantly the relationships

at the foundry level to get foundry space then that's going to be a much more favorable option so i think you'll start seeing more companies over the next you know two to three years come out with slightly less efficient chips of their own design and make and start mining on their own you think so yeah yeah interesting you have any uh insight into intel their machines what's going on there uh what's going on with intel and their machines i have a few insights but nothing i could really disclose here okay yeah i don't want to put you in a tough spot that'll be um i appreciate that marty thank you um it'll be very uh interesting to see how this all develops moving forward chip efficiency power contracts models you mentioned models earlier throw your

models out people i hate models models never work well i mean generally you want to build multiple models for even just something like a mining operation right you you don't want to just do 100k bitcoin you want to do the worst case scenario like the crazy bear market uh the crazy bullish case and then something in between and then put all of your preparation into you know building something out that will work in the worst case scenario and then sit back and relax and watch the bitcoin coming yeah yeah and as all this develops how are you guys viewing your product lines at Brains as the market moves and matures?

What are you guys working on? What are you excited about? What are we excited about? What are we working on? So a lot of it's just business as usual, supporting new hardware and then the different control boards inside of them for Brains OS+.

We're getting a lot more hands-on with that too instead of just like here's the firmware because of some of the like performance data we've collected and some of the experience of our team since it has been released in the commercial version anyways in 2020 spring early spring what we've done is we've sort of or we have and we are still in the process of building out this sort of white glove on-site data center service where we have our team field engineers people that have experienced running different pieces of hardware with our firmware on it and air-cooled environments, immersion environments, because we have facilities here outside of Prague where we do all our R&D, tons of machines and

different setups. And then send them out to the facilities and educate on-site staff, help with installation, help with optimization, give them a full rundown of all the most things, common troubleshooting issues and things like that, so that they're well-prepared to sort of manage the operation when we're not there and we found in the couple pilot runs that we've done of this that it helps significantly there's much less friction the people appreciate it you build a closer relationship to the client and generally there's much better results because inevitably you can explain everything to a t perfectly to an executive and then they connect you with the person in charge of all the operations and then you do it again but there's always some information

lost when it comes to the actual it staff and operation staff on the ground doing it so it's better just to go in and actually teach people face-to-face and work with the machines face-to-face or in person i should say and it makes everything a little smoother for everyone and people generally seem to love it so it's nice to kind of have that service now laid out uh what else are we excited for um i mean you mentioned intel before i'm really excited to see what some of their clients you know hive uh grid block and who was the fourth one then the first batch that was announced hive grid block argo right i believe so yeah so the um it'll be interesting to see what they do uh with those chips basically

you know what form factor are these machines going to take what's the performance going to be um you know is it is it going to kind of change the industry in a way where people start moving away from the shoebox design are they going to instead choose to replicate that etc yeah yeah i'm very interested to see because when do they start dropping this summer right uh yeah i think they sometime sometime this year i don't know there's always delays when it comes with these things right like yeah i kind of ignored announced dates and just kind of tack on a couple quarters afterwards because that's when realistically things will probably start to get going yeah i guess that's another important part to bring up like how much

are the broader supply chain issues that exist in the world today affecting the mining industry? Are you seeing or hearing anything about significant delays, either on the chip side or the infrastructure when it comes down to the power side of things? Sorry, I was just looking up

to make sure I got that list of Intel customers right. What was the first part of that question? Are the broader supply chain issues affecting the Bitcoin mining industry? I think they were more dramatically at the beginning of the year and late last year. Especially with some of the stuff that was going on with the lockdowns in China and how that affected shipping lanes and things like that. Everyone remembers the great Suez Canal blockage that everyone was memeing out of. great memes um fantastic memes the evergreen or something right was that the name of the ship yeah but uh and then of course there was in terms of infrastructure like you mentioned

no one could get a hold of transformers so you know what was originally a three to four month lead time turned into an 18 month lead time for some people which is why you saw you know some companies start doing some acquisitions in that regard so that they could sort of manufacture their own transformers as opposed to relying on uh you know sourcing them from somewhere else um but i don't i don't think they're as significantly affecting the industry as they were um people have the transformers now and i think one of the things that's was previously delaying more hash rate coming online was simply lack of infrastructure um and it was all in the process of being built and now as more and more of that infrastructure is available which to my

eyes it is one of the things is simply the market conditions yeah market conditions are dire right now do you have any any thoughts on the state of bitcoin the market and i don't know if you're you're a macro analyst or anything like that like how are you taking bitcoin's dump comparing in the midst of all this macroeconomic chaos do you think obviously a lot of people are are piling on to bitcoin because it's not proving in their eyes to be the inflation hedge that bitcoin's been marketed as do you think uh do you think we're in a special type of cycle considering the actions of central banks around the world i mean the the short answer is i don't know i don't think anyone really knows i think it's sort of a black box to most people people speculate there's

experts and everything but i mean right despite what we all thought at least many of us in this industry the fed themselves were claiming that you know no recession was imminent and that tune has changed significantly, especially in the last three to four months. But a longer answer would be that I think it's pretty clear that Bitcoin is not yet untethered from macro conditions. They seem to operate pretty hand in hand. Some data I've seen suggests that it's becoming less and less the case as time goes on, that in fact it was more connected in earlier years. um it's hard to really tell that from first-hand experience because a dump is a dump and all the all the dumps feel pretty brutal when you lose you know like 80 or excuse me 60 percent of the

value in this case so um i think maybe those people that were dog piling on that you mentioned are a little too zealous on that and that when you look at equities and things other investment vehicles they've dropped almost as much as btc recently so it's not like you know these people laughing aha you know btc isn't a hedge against macro cycles all these people have you know lost tons of money in in the markets um you know maybe they lost five to ten percent less but everyone's down pretty bad right now so uh you're right i'm not a i'm not a huge focuser on on macro trends or anything like that generally all of my time and spare time is focused on just directly mining efforts and accumulating as much btc as possible yeah no like you said i mean we closed the quarter

out yesterday and this was the worst first half of the year for u.s equities since 1970 it's uh very precarious times but you've been traveling where have you been traveling to i'm interested to see uh if you're noticing any um any effects of this chaos in the macro environment during your travels um well i mean the most noticeable thing is just fuel prices but i am fortunate enough to you know put myself into a position where i think i'm going to be all right in any case i think with any of these economic crises the most affected people are going to be the ones most at risk like low-income families and things like that which is very very unfortunate um in terms of the places i went what i saw i mean they weren't you know there were places that were doing all right

already so one was norway you're not going to see too much of an effect there i think just because there's huge social safety nets there because their tax rates are absolutely insane and then another place was iceland we were pretty much just in the middle of nowhere enjoying nature um portugal didn't see much of a change there and then the other parts were in paris and tbilisi georgia for work it was mining related so generally areas that are going to probably be largely unaffected by some of the macro trends that we talked about but to answer your first question yeah it was great had a good time um a nice break from constantly thinking about bitcoin and bitcoin mining and hanging out with some friends doing some photography

stuff like that what was the coolest thing that happened to you on your travels the coolest thing that's tough i mean everything about iceland is completely insane it's like you're on some alien planet everything's at a massive scale and everything's absolutely gorgeous and there were no people there so that was a really nice bonus um nicest thing And I took a street portrait of this Croatian family in Paris. And so they demanded I take a couple more and then invited me into their restaurant and cooked me like a three-course meal and kept, you know, making me take shots of Croatian grappa with them and drinking wine and got to know their family a bit. And yeah. What's the Croatian fare like?

What do they cook you? This appetizer was this like toast. I can't believe you're talking about this. bread uh with some some fish some truffle oils some dates uh no it wasn't date it was like fig spread um there might have even been some cheese mix i was gonna ask they forced cheese on you they really did i'm not that much of a radical like if i'm if i'm a guest in someone's home or something like that i'll just you know eat it and be very polite and smile and say yum but uh you know dying inside all the while because i don't know if you listeners know

this but cheese is the devil's food and should be eradicated from this planet um and uh there was one of the main dishes was this uh like the risotto thing on the side and they took a whole red bell pepper and stuffed it full of sausage and spices and some other things um and then there was some like chocolate cake based dessert that they gave me afterwards and yeah it all went down fairly well with the liquor oh yeah croatian fair sounds good you mentioned you highly recommend the beautiful place you mentioned people in the czech republic go vacation you mentioned you were in um actually spoke with somebody yesterday he's got a croatia for a vacation this week waterfalls i need to go see the croatian waterfalls um yeah blew up

i think uh game of thrones like half of it was filmed there or something yeah but you mentioned you were in paris in georgia for work which stoked a thought in my mind what are you know are you seeing any trends in terms of the geographic distribution of hash rate that are interesting to mention is i think the trend is still pretty much what most have discussed you know we saw an exodus of hash rate from particularly southern kazakhstan and of course china and most of that has either ended up in north america most of it has ended up in north america and then also there were the entities that already existed in north america that were growing rapidly as well as some new ones entering

the space i think most of the growth were from already established miners in north america there was a pretty rapid expansion by people that had been mining already you know three to four years in the space um i was george is exciting because it has a ton of hydropower so it has a good narrative um it's stable power and there's fairly good incentives provided by the government to make more of it and there's you know no regulation or laws that are against bitcoin or bitcoin mining so it's a pretty friendly environment to mine in uh other trends scandinavia is still a player and they're continuing to expand particularly sweden and there are a lot of sites being worked on if far far far to the north in norway there's tons and tons of hydropower

available up there we're talking gigawatts so it's just you just need to build out the infrastructure which is well underway for a lot of it to take advantage of it and of course it's in the middle of nowhere it's perfect to use that because what else are you going to use gigawatts of power for up in the the arctic tundra where there's absolutely no one living for the most part and of course paraguay has actually you know a lot of people were excited about that with some of the news around the ipai 2 dam that giant probably the second largest hydro dam in the world with about 14 gigawatts of capacity now and a lot of those actually come to fruition there's a lot of people plopping down containers or building out warehouses and turning on hash rate there now

and because of you know they're not being as much available capital in south american markets what they've done is basically scooped up a bunch of older generation miners second hand for cheap on the market and can with their you know 32 dollars per megawatt pricing sometimes lower can still mine profitably with them yeah yeah paraguay is big and there's been rumblings of some stuff going on in argentina too and obviously you have central america with el salvador leading the charge and i've heard stuff uh about guatemala getting into the game too so it seems i wouldn't expect argentina to kind of take off more by now there was uh in 2018 there was some mining operations being set up down there for south america they were big at the time they were like

50 Patahash Farms, which was pretty huge for that area at the time. And I think there was a company called Bit Patagonia. I don't think it's around anymore. Maybe it still is. I haven't checked in a while. They were doing some stuff in Argentina. And I think there's maybe even a couple publicly traded companies based in North America that are looking at some power capacity down there.

Yeah. Yeah. It'll be interesting to see. What are your thoughts on Texas becoming the mining capital of the U.S., potentially the world? Do you have any thoughts on the demand response? I know that there's a lot of people on both sides of the fence there. I think, is it actually good? I think ultimately the concentration of hash rate in any one locality is probably not a good thing.

I am super happy that Texas is so friendly to it and that more and more miners are setting up there. I don't think it's at a point where there's any risk currently, but I think just generally you don't want too much hash rate to concentrate in one place because that exposes the whole industry to a lot more should, say, Texas decide to not be so friendly to it into the future. and then you would probably have something similar to you know what happened in china where tons of hash rate can just potentially turn off overnight i don't think that's likely that's just again generally however because texas has made it such a friendly environment to miners it's a good option i think the biggest risk to texan miners are potential rule changes to some of these curtailment programs that you mentioned um right now they can take advantage of them to their heart's content but because of the fallout of that winter storm last year there are a lot of

people pushing at the um the state government level to create more strict rules around these programs so that they don't have the same fallout they did last time like people didn't have power of their houses for weeks and it was you know freezing um so generally i would like to see hash rate more distributed geographically but specifically in this case i don't think there's any increased risk as it looks now and um some of the people that were you know going to ericot for some of the that were buying power spot it hasn't worked out so well for them because prices have increased dramatically since the first miners set up there i think buying spot in a lot of ericot right now where miners generally tend to set up are you know you're

looking at eight to ten like eight to eight and a half cents per kilowatt hour whereas before it was much much much lower like half of that uh in recent memory so i think you're definitely exposing yourself to um some some pretty high potential operational expenses in the future should things continue to trend this way um but i don't see any you know a doomsday scenario as a result of it at least not now yeah you mentioned kazakhstan earlier and i mean that's i mean we've talked ad nauseum not just me and you but on the show about hydro quebec washington state but most recent example of a jurisdiction luring miners in with low power uh prices is kazakhstan where they lured a bunch of people in to their honey trap and then decided to

first raise taxes on miners specifically and then i think with the uh the petrol problem they had beginning of this year, late last year, the miners got sickled out. Did they officially get kicked out? Well, to your first point, I think it was like a 25% tax effectively. So it basically raised power costs for miners from like four cents to five cents.

And most of the miners that were told to shut down were in the southern part of Kazakhstan. If I remember correctly, the kazakh government was importing a lot of the energy for that region and subsidizing it and that's where a ton of the hash rate was moving towards and to in kazakhstan so you know at one point the government sort of looked at what they were spending money on and realizing that they were actually subsidizing uh bitcoin miners in that region and the whole reason why they began subsidizing energy in that region in the first place was to give to like build industry and give

power to the residents that that lived there and it wasn't actually going to that um i don't think they were actually creating a ton of new jobs with some of the outfits they had set up there and we saw some people try to stay online and sort of be you know have their machines seized and things like that as a result but from what i understand it was very specific to the southern half of the country and most of the miners in the northern half stayed online um but in a in a you know when you mine in a place like kazakhstan or probably any of the stones the i imagine that one you're always going to face more risk because what did happen could happen at any moment and you're not going to be able to influence it very much but two i imagine if you

have very very close relationships to the people in power over there then you're probably less concerns just because those types of moves and new regulations aren't going to affect you as much. Yeah. Coming off a little ston-phobic there. No, I've done business

with everyone across the world from many, many different places and there's just certain patterns and trends you pick up on. I'm fucking with you. It is late afternoon on a Friday where you are. I don't want to hold you up too long.

You were gracious enough to agree to come on at this time on short notice. Yeah, you just hit me up yesterday, man. Two days ago. All my guys canceled. I'm not popular anymore. I'll just call Edward and see if he's willing to fill in some fucking space. Nobody canceled, but I did think it was a good time to catch up considering everything going on. In the markets.

Is that what the people who canceled told me? No, I mean, we need to do this more often. It's been a year since the last one. Definitely. Does that make it three now? We've been on here three times? I think so, yeah. Wow, look at us.

Look at us. Three peak guests here. Strengthening the bonds of friendship in real time. And these 25 people get to witness it. Car, what are we at right now? What's the live stream at? probably more on Twitter yeah it's thousands

tens of thousands of people millions of people tuning in just heard just heard you admit that you've eaten cheese in the last month it's

hate to say it from the it was against my will alright anything else that you think we should leave the freaks with before we wrap up here

any lingering thoughts on the top of your mind that you think people should know about oh things i'm excited for that kind of flipped my mind so just kind of winging this but uh expect some changes for slush pool in the next couple months we're getting a whole a whole new makeover so to speak i'll leave it at that all right well that's a good little nugget to leave the freaks with leave them hanging leave them at the

edge of their seats as we say over here in the united states um edward evenson go enjoy your friday night thank you for joining us i will enjoy your friday day i will have a good one man you too peace and love freaks