TFTC: A Bitcoin Podcast - The Convergence of Bitcoin, Energy & Mining | Marty Bent, Center of Hash E001

Episode Date: July 29, 2025

Parker and Marty discuss the convergence of Bitcoin mining and energy systems, exploring how mining serves as a pioneer species for monetizing stranded energy resources while examining the current state of centralization in ASIC manufacturing and mining pools.

you've had a dynamic where money's become freer than free if 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 welcome back to austin it's great to be back i saw you walking down first street yesterday congress heading over to vera cruz like nothing had changed nothing a chance i just i was coming coming up congress you were walking down uh you right where you were headed i got

a walking meeting and as i was describing to you earlier around town lake today it was felt good to be back I haven't been gone that long it's been two weeks yeah feels like a you know

like you were on vacation or something yeah and I have been leaving for the summers yeah yeah you do spend the summer on the shore so

yeah it does feel good to be back though it is weird staying in a hotel we're gonna need to find some way to have it be fairly regular I think it's gonna be fairly

regular regular how many times per day do you think you're gonna eat veracruz while you're here i'll probably have it tomorrow too i'm gonna skip today i'm gonna go get lunch for ryan gentry after this i think we may do something in the proximity of of the park got your steps in got 20 000 steps

in already we did the long route in town lake today which i've never done i feel like missing the lake is probably going to be the biggest adjustment you have the shore but we have the beach we've been walking doing push-ups and air squats on the beach every morning which has been good but once you get back to philly proper it's hard we do have some parks around us but i'm gonna try and keep the walking up dr jack cruz is really in my mind get the sunlight get the steps i was at the park we were at the park on sunday and we saw uh katie and mike and they were they were talking about sun max and just kind of happened to see them and that uh that's inspired me to start and i've been paying attention to jack for quite a while now but it's time to put that into action

I told Kaylee she was wearing sunglasses Like hey Uncle Jack says Bad for your eyes I feel good Because I didn't know sunglasses were bad Until like two or three years ago Bad for your eyes But I naturally just

Discarded sunglasses like ten years ago Because I would either lose them Or they would never stay on my face And so I've been sunglass free for a decade I have been Yeah Alright Catch you back in the studio

Back in your city this is you're in the interview seat maybe what are we doing here what are we doing here um starting a show as part of tftc on mining and energy and not just mining but an energy focused podcast a cross-section of bitcoin bitcoin mining energy and a lot of the inspiration of it has been um just me increasingly focused on the fact that mining is consistently talked about as a point of centralization and it's a it's a really interesting subject on the energy side i think that the energy side of bitcoin is as much of a rabbit hole as money is a rabbit hole and you know at zap right working on bitcoin payments it's not you know

My main goal of doing this is to help for the education around the convergence between Bitcoin and energy, but also a lot of our customers at ZapRite and early adopters of Bitcoin payments are in the mining ecosystem, naturally. They have revenue that's Bitcoin-denominated, and they have customers willing to pay in Bitcoin. But most importantly, there are these knowledge gaps that exist around Bitcoiners not appreciating energy, Bitcoin miners really being sophisticated in energy and energy economics, but maybe not being as familiar with the technical underpinnings of Bitcoin. And then there are legacy energy professionals and legacy energy industry that have a lot to add to Bitcoin, but don't understand it, as well as regulators and legislators that specifically influence policy or grid operations that would benefit for a Bitcoin podcast that was focused around not just mining, but energy fundamentals and how that converges. And, um, given the fact that the TFTC studio is here and that we're in the center of hash being, uh, Texas and everything that's happening around the state, it won't just be about ERCOT and what's going on in Texas. But I thought, uh, we could leverage the infrastructure that's already here. We got the best studio in America, maybe the country, probably the world. Yeah, definitely Austin.

Um, so yeah. So, and you have a long history of working on mining, you know, from various different cross sections of it. And so, yeah, looking forward to diving into helping Bitcoiners understand the energy side, helping miners further entrench themselves in the working of the network and their role to play in it. Because I think one of my observations is, while there are different aspects of Bitcoin mining that are centralized and potentially increasingly centralized, it's really to the detriment, ironically, to miners themselves. and that the miners have a role to play in helping to solve that problem. Yeah, I agree. The energy rabbit hole, I've fallen down it twice. Once early in my career, I was working at a managed futures fund.

We were trading commodities, energy being part of a bucket of commodities. So I learned a lot about macro influences on energy, but i didn't really fall far down the rabbit hole until great american mining i joined them in 2018 and we went on that journey to mitigate flare gas in the balkan using bitcoin mining and it is hilarious to me that you can spend years on bitcoin myself like understand the economic principles the distributed protocol how it works and even really understand hash rate and the the difficulty adjustment but it wasn't until i joined great american mining and really was forced to do a deep dive on bitcoin mining economics which forces you to understand energy systems that

i came to have like a full grasp of the industry and even today i won't admit to be the end-all be-all expert on bitcoin mining and the intersection of mining and energy but i think i know enough to be dangerous and have learned a lot over the last seven years to have a pretty good perspective on where the market was in the past where it is today where it may be going in the future yeah maybe talk a little bit about so you joined great american mining in 2018 you've worn the hat of an operator um you mine yourself i believe you're 1031 1031 invest in mining companies you sit on a board a mining company but from 2018 to today 2025 in your view how has not just like the industry changed but the sophistication around energy

strategies maybe advanced i think it's in order of magnitude it's made in order of magnitude probably multiple orders of magnitude advancement in terms of the understanding because you have all these i think the 2021 chinese mining ban like really forced operators in the united states to step up their game and really think about the power aspect um very very hard and i think we've seen that the products of that here in ercot and to a lesser extent but pretty advanced as well up in tennessee valley authority in the tva and there's that's the thing with mining and energy there's so many variable inputs that go into both industries it's like trying to combine them is um you have to be very smart but it's also like an art form uh you have timing the market

on the energy side of things and timing the market on the bitcoin side of things i think when it comes to mining when you go back to when i first got in you had like yes 17s coming out yeah the what's minor m20s is and so uh on just the hardware side we've had incredible advancements in the efficiency of the machines in terms of joules per terahash like how much they can produce much more hash with smaller amounts of energy um and at the same time you've seen the proliferation of these publicly traded miners like riot marathon clean spark iron and they've really industrialized mining particularly on grid but then you have this whole other aspect which is off-grid mining and now with projects like the bid axe you're

getting at-home mining and there's many different ways to skin the cat of a mining operation and i think between even before 2018 i think between 2016 and within the last two or three years the advancements on the hardware side were um were so quick and the way in which you acquired a6 was not how it's done today which i think is much more efficient and better for the miner but you had like pre-sales and pre-orders and the cost per terahash got out of whack in 2021 particularly But I think we've settled down into a point in time where the operators are more professional, they're more methodical about their deployment of capital, both on the hardware side and the infrastructure side of locking down the power and building it out. And so as it stands today, I think the mining industry has matured. I do think outside of ERCOT and even within ERCOT to a certain extent, energy producers really have not fully grokked Bitcoin mining and how it can increase their efficiencies and their revenues and make their operations more secure in the long run, economically viable, sustainable, as you like to say.

There definitely are some who get it and are early leaders, but I think the mining industry has matured to a point. I do think the energy industry is lagging a bit in terms of understanding the benefits mining can provide them in the long run. Yeah, and for a frame of reference, and I want to go back a bit, but I believe in 2017, the network had approximately five exahashes. and today it's 800 between eight and nine hundred yeah between eight or eight eight nine hundred so the network hash rate and i want you know for given that this is the first podcast of this series that we're doing under the tftc umbrella i want to do some basics to just ground people even even bitcoiners and uh what certain things represent and are but that's just as an order of magnitude hash rate in the bitcoin network has increased by 160 times the past eight years and

that necessarily as mining becomes more competitive the you know and there might be various reasons that you know turning on a home miner and solo mining with a small amount of hash rate doesn't need to be thought of the same way that a miner that is running a sophisticated operation might think about their own economics but over the past eight years it's shifted to if you are going to have a viable bitcoin mining operation and you know whether it's people that own power generation start to look at bitcoin mining that increasingly it seems like just out of the increase in the network that if you're not optimizing for an energy strategy or realizing that you're in the business of energy development and procuring cheap power and optimizing around that that

you're not going to have a sustaining operation do you where do you see us in that kind of process to the shift of big efficiency gains coming from the hardware side versus optimization around energy and cost of energy or uptime downtime curtailment thinking about that i think we're definitely in a better spot but have a lot of room to grow there and i was actually in dc last week at the bitcoin policy institute summit and i was talking with re browning and isaac fifthian who were at great american mining with me and they're still in the industry and we were having this conversation our thesis even at great american mining was that ultimately due to the competitiveness of the mining market as you mentioned bitcoin mining is the most competitive ruthlessly

competitive market in the world anybody can buy an asic or excuse me nasix not the right term can buy a mining machine with a bunch of basics on it plug it in and boom they're competing or they're producing hashes and competing for the production of blocks and the reward that is bitcoin the subsidy plus the transactions uh associated with the fees associated with the transactions in that block that they may ultimately win um and our thesis back at great american mining was that ultimately power companies are like it's either who's going to become who first the miners going to become energy companies or the energy company is going to become miners they're going to converge and just be one operation at some point and so at great american mining we were doing off-grid

mining we learned this lesson the hard way we were doing flare mitigation in the bakken on the well pad in harsh conditions in the middle of north dakota and we learned the hard lessons of sort of gas quality uh flow quality depending on like if the if the pipe froze because it was negative 40 degrees like that could prevent you from actually being able to run a generator uh pipeline access right of way like we learned the hard lesson at one point in 2019 that we got an operation set up on the well pad we were taking gas would otherwise been flared but then midstream capacity opened up and so they were able to actually flow the gas into the pipeline to take it to midstream so we had the gas taken away from us and then on top of that you have

mineral rights owners they're getting smarter about the fact that some of these operators are bringing in mining operations to mitigate flare and that's producing revenue in the form of bitcoin that's being mined and they're getting involved in the conversations like hey you're using my minerals i'm supposed to have a 12 and a half percent royalty on any revenue produced by this typically it's at the midstream but there are some intricacies like since it was happening on the well pad technically they didn't have to give them the royalties and so now you have like mineral rights owners beginning to write uh like mining royalties on the well pad into their into their contracts and on top of that it's like logistically this off-grid mining model

is logistically a nightmare because you drill a well you get the oil you have a steep decline curve and that gas that that archetype of gas flared gas is not sustainable reliable in the long run and so we always had the idea at great american mining that eventually um and so this is like it's not sustainable reliable because the the gas the gas is not consistent capacity yeah it's declining yeah the amount of power that you can generate at that site is variable because of that but variable in a declining sense that you have you basically have a mining operation at a site that can't be operated reliably at full utilization exactly and so the analog here and like our thesis was like ultimately what actually makes sense and so the analog would

be like a midstream provider is like a power generator or utility on grid and i think this is beginning to happen where we always said like what ideally makes sense is you go to the midstream operators who were who were basically aggregating all the gas from upstream and processing it and then sending it to utilities to run power facilities it actually makes sense for mining operations to exist at the midstream and act as this sort of pressure release valve for pipeline capacity next to a processing plant yes and so i think i've maybe maybe describe a little bit about that there's pipelines from the well site going to the processing plant and then from the processing plant to the generators yes and and so you you have this upstream midstream

and downstream like the generators uh is the way i would describe it and understand it and what actually makes sense is if you want to prevent flare upstream what you really need is more pipeline capacity because that's typically not it's not every instance there's some instance where you have to flare because they don't have access to a pipeline to send it in the first place but there's a lot of situations where they're flaring because pipeline capacity doesn't exist it's full and so you just have this excess gas you have to burn off so what actually makes sense is instead of logistically trying to plop down mining operations at these different upstream well pads what you do is you just put a big sort of base load at the midstream

and you basically have this offset right at the co-location or the aggregation site of the gas coming from upstream and when you need more pipeline capacity if they're drilling more wells uh upstream on on the well pad you just simply divert some of the gas to the mining operation you let the generators that are running the miners consume the gas open up capacity and prevent flaring upstream and so we would call that like sucking in flare from the midstream is how we would describe it and so i think on the off-grid set that's where i would like to see things go and i have talked to some miners have included in all that and some midstream providers who have recognized this and are beginning to implement that strategy but that's similar to on-grid

demand response and where i think ultimately it goes is the power generator regulate it's a it's a regulator of access yes and and so i want to i want to come back to this because i want to want to get the thoughts of like why sitting at the midstream versus more optimally at the point of generation for someone that is converting gas to power to then supply to the grid of of whether it's a balance between both of those points kind of essentially providing regulation at different points in the the power generation supply chain but before that i do want to just rewind on anchoring somebody that is less familiar in the space to two things how you describe the function of bitcoin mining in terms of its what it is doing for the bitcoin

network as well as the nature of power demand for the bitcoin network and how it differs from all other sources of power domain yeah it's actually then i want to come back after i kind of anchoring in this concept i want to come back to the discussion on you know where our generation for bitcoin mining might be most optimally set this is very fitting because i was tweeting about it earlier proof of work over everything and i was quote tweeting elon musk who was who's tweeted out something about physics like you can't fake physics uh like nothing you can't you can't 51 percent attack physics if you will physics is the truth so i guess that is the sort of reason that we use proof of work in bitcoin mining like bitcoin is this distributed monetary system

and the whole reason for bitcoin existing is because we want to separate state and money and we don't want central authority over the monetary system we want a monetary system that Anybody can audit, anybody can verify, and everybody knows what's going to happen when in terms of how blocks are going to be produced and how much Bitcoin's going to exist on the market at any given point in time. And that's the function that mining plays is sort of regulating the distribution of Bitcoin. And then on top of that, the facilitation of transactions on the network on a block to block basis. And so mining is sort of this melding of the physical and digital world using physics in the sense that it's taking an energy source, turning it into electricity, pushing it through these computers that produce these hashes. And then those hashes basically create a market for block production. if you find a particular hash that is below the difficulty target uh you present it to the network

rest of the miners and the nodes say yep that's the hash that's below the target you can add a block of transactions they do that you're rewarded in bitcoin so there's a lot there but describe like what like you just said block production and if a bunch of people have no idea what that means like it is enforcing the fixed supply of bitcoin as well as validating all changes in state which are represented as people sending bitcoin from one address to another one address to another people all over the world and ensuring that only valid transactions be processed yes and so that's the process why is mining important because to ensure that the system is is distributed decentralized you basically need this this process where anybody can contribute to block production

by plugging in one of these computers that produce hashes and that's the way we create a fair system there's no central sort of authority who determines like okay these people are trying to make this transaction these transactions at this given point in time let's just aggregate them in a block and put it on the blockchain uh you don't want a central authority to it you need distributed economically incentivized actors to do that and you can't fake a jewel no and you can't fake a jewel and you can't fake a hash like the and that's what you've mentioned the 180x increase in hash rate over the last seven years like that is a product of more people sort of entering this this race of block production to hopefully produce bitcoin uh at a cost that is

cheaper than the market rate for which they could sell it right now and so that's describing the function of of mining within bitcoin and you uh but now i want you to describe a little bit in your own perspective of the nature of bitcoin's demand for power and how it differs from all other sources of power in the market and if you could because one of the ways that as we're thinking about names for the podcast which we're still working on settling on is thinking about what is actually happening and you and you you described it where basically there's energy in some stored state it's transformed into electricity that electricity is effectively converted to computation computation which releases heat and through that process of

essentially creating computer or hashes derived from computing power bitcoin network is enforcing its fixed supply validating currency transactions all over the world without a centralized third party and it's separating effectively ownership of the network from validation yes in a way that anybody can participate in but then if it's demanding some form of stored energy converting that into power now describe what makes the nature of bitcoin's power demand you in the market because it is a fundamentally new source of power demand that prior to bitcoin did not exist realistically when bitcoin was very small it demanded very little power and that as it as it grows the more power it consumes the more relevant it becomes

to energy systems and the more it can potentially solve energy problems yeah and so i guess the nature of the demand for power from bitcoin miners at any given point in time is contingent on a couple of things number one how expensive or cheap is that power number two how expensive or how how much is bitcoin worth at that given point in time and running the calculations of your energy costs let's add infrastructure and operations and all that into that um and the price of bitcoin any given point in time you're you're basically going to consume power if you think you can produce a bitcoin um for less than you could sell it at the market at any given point in time so i think that dictates the demand for power from the bitcoin

network at any given point in time um with that being said i think the interesting thing that bitcoin mining brings to the world is demand for power sources that previously had no demand and so in the example great america mining flare gas was something they were literally setting on fire because nobody wanted that gas because there was no ability to monetize it because it couldn't get to market right it was stranded energy like out in the middle of these oil fields and that's the beauty of the bitcoin mining network is that it brings a new form of demand to energy resources that for a very long time were simply just wasted because there's no way to monetize them so i think ross stevens has written very eloquently about this and many others

like bitcoin mining is this pioneer species that brandon quittem also wrote in brandon quittem that can i can monetize energy sources that were previously unmonetizable and so it brings demand for that archetype of energy that's existed for a long time but has never been able to be monetized. And this is possible because the Bitcoin network is distributed. And so if you have the ability to generate electricity, the computers that produce the hashes that ultimately get you Bitcoin, and an internet connection, it could be a cellular internet connection.

that's the thing miners um when they're sending their hashes to the network or a pool uh takes kilobytes of data so you can use pretty low latency significant amount of work at at the site but very little data transmission yeah when you're interacting with a network you're selling kilobytes of data when you're sending your shares to a pool or to the network directly um and so that creates a beautiful thing where you can go and you can monetize these these previously unmonetizable energy sources on site so you bring the market to the molecule is one of the things we would say at great american mining and the network isn't dependent on any one individual miner having 100 uptime anywhere in the world because it's

distributed um and so you can have just explain that because i think that's a really important concept that it's functionally that miners are suppliers to the bitcoin network and that the network is is the source of demand it's basically aggregating demand all over the world and then distributed suppliers and just talk about like the the that as a concept um and and significance of it yes it's location agnostic and since bitcoin's a distributed system the you can have disruptions to individual parts of the mining industry of individual mining operations without disrupting the distributed bitcoin network the extent of this disruption if it hits a critical or not a critical scale but a certain scale is just slower block production and i think that's right but like

making that point it's like if a hospital stops pulling on power yes the operation the hospital shuts down shuts down now if a bitcoin miner shuts down its operation shuts down but the bitcoin network continues to operate just slightly slower and the actual operation that is generating the is the source of demand is the bitcoin network itself which the the miner is supplying it's kind of a it's a a part of the supply chain but it's not the actual in demand no the end demand is the people looking to send bitcoin from one place to another yeah and this is a beautiful thing hospitals one example amazon web services cloud uh data centers the ai compute particularly for uh model training like they cannot have disruptions they need consistent power or

in the case of amazon if one of their data centers goes down like you have websites that will go down like critical business infrastructure that will literally go down um maybe they have some redundancies but i think it's safe to say that they need significant amount of uptime and reliability whereas the bitcoin network an individual mining operation may want that uptime but it's not critical to the bitcoin network being able to facilitate there's another piece of that which is that it's a and you mentioned this before but it's a functioning a purely economic source of demand and in some form or fashion but in a more derivative way

every demand of for power is refining that power into some higher ordered good to ultimately have an economic incentive but bitcoin mining is essentially the least refined that has a direct monetization to money not needing to refine it into something else to then deliver a good or service to trade it and for that reason it's this aggregated source of demand being the bitcoin network as well as this purely dollars and cents bitcoin and sats do i consume this power because all i'm using it for is to turn it directly into money not some other good or service exactly yeah and it's a beautiful thing too because bitcoin trades 24 7 365 it's extremely without counterparty extremely liquid pools you have some counterparty risk yes and i'm sure we'll get to it but like

the pools have created payout structures which are a problem right now but um we're gonna make it so you can get paid out every day uh and so yeah you do have this stream of ink or revenue that you can convert to dollars when when you need to immediately and a lot of miners i think have really gotten smart about managing their their bitcoin revenue and inventory um in ways that are advantageous for long-term viability of their businesses but yeah long story short bitcoin mining is this demand source that is location agnostic um and has the ability to be flexible in the sense that uh if a mining operation goes down it doesn't really critically impair the bitcoin network and if it's more profitable for them to turn down

they will because it might be more costly to continue to run and they have a direct incentive to do that yeah and we've seen that in the last we just had the largest difficulty downward difficulty adjustment in i believe five years earlier this week and this is a product of the heat wave that's been going going across yeah so maybe this is good or any nuclear sites but uh i don't want to go down that no i think this is important though like we're in the going back to the first time i dove down the bitcoin rabbit hole and i think this is this is actually this this sort of theme that we're pulling on here is indicative of bitcoin mining becoming like a truly industrialized commodity producing business where

when i was working at the managed futures fund we're following net gas markets wti um the power markets just generally like i found it fascinating because you could have geopolitical events or weather events in certain parts of the world really materially affect those markets and we're beginning to see that in bitcoin particularly as more miners become engaged in demand response uh within grid systems and so last week like earlier this week we had the largest downward difficulty adjustment we've had in many years it was negative 7.7 percent um and as you alluded to there were many people that were pointing at the united states bombing iran's nuclear enrichment sites and saying oh my gosh iran was running

these mining operations there that's why hash rate fell and i think it's been very well known that iran certainly does have a material amount of hash rate within its borders but i think people were i think it's clear because you can look at the ercot data specifically but literally right around the same time that we were bombing iran the heat wave was starting to hit the united states and the northeast and here in texas and it was just a coincidence that we were bombing iran while that was going on and what was actually happening number one we we bombed nuclear enrichment sites which aren't power facilities and so like it doesn't make any sense that if you're going to have something as high stakes as a nuclear enrichment site that you would

co-locate a bitcoin mining it doesn't make any sense they're not like actually producing power there you if you are producing power there you probably want to spend it all on the enrichment and i'm not going to make any assumptions there um oh we had the heat wave going on here and some miners that were engaged in demand response the pricing signals that they were getting were oh it's too expensive to mine bitcoin and we're in this program that will pay us if we shut down and send our electricity back to the grid and that's actually what has been happening over the last week it's been a hundred it's it's crazy actually coming back down here it's been hotter the heat in jersey has been more oppressive than it is here it's actually relieving to be here this week

yeah yeah last couple summers totally brutal this summer more mild you know people get adjusted to But it is interesting that one of the things that I mentioned, and we're starting to see it, but I expect it to grow, is that when Bitcoin was very small, its demand for power was small. and the larger that it's grown it can actually impact it needed a certain level of scale to be able to actually be relevant to an energy system and thinking about something like ercot and i want to use this to segue back to that question of kind of where optimally and my expectation is what your thoughts is that bitcoin mine will exist everywhere but geographically as well as at different places where there's underutilized energy assets but um if bitcoin can effectively solve an upstream problem in certain scenarios a midstream problem

and then in the case of conversion power generation for the grid downstream problem um now my understanding is that bitcoin mining in urca is like three to four gigawatts a functional base base load and that peak in the summer which i'm sure we're not all-time highs but either last summer or the summer before we had hit something around 90 gigawatts of power that four gigawatts taking that off line at peak demand is enough to provide not just a service but relief to the grid itself um so how do you think like in terms of actually being value additive that if you think about you know peak demand in texas in the summer being between 80 to 90 gigawatts if you were only drawing 100 megawatts power in terms of bitcoin miners in

texas it can't really solve material problems but it's four gigawatts it starts to solve a problem if it becomes 10 it can solve problems more effectively how do you think about how bitcoin mining can solve problems coming back to what you were saying of maybe the most optimal location might be at a midstream processing plant but thinking about relative to maybe that why do you think that might be most optimal but how do you think bitcoin mining can be distributed to in parallel or in tandem solve different types of energy products to be clear i think the midstream application is optimal for upstream energy producers that have problems with gas that they can't get into a pipeline like i think it's it's optimal for solving that problem

does that essentially increase the economics of a pipeline to allow for more pipelines yes you can drill more oil and you can you can get more gas to market and then monetize that gas would otherwise be wasted at least in the balkan where they have strict flaring regulations and so if you flare a certain amount you have to shut down the well pad which means they really care about the oil at the end of the day i mean gas is a byproduct but if you can create a better a more an actual economically sustainable path to offload gas then you can actually produce more oil and then on top of that you can monetize the gas which wasn't possible before so you're getting like compounded efficiencies there but that's optimal for that specific problem on grid there's many other like

i'm thinking of two things right now i'm sure you've seen the charts of chinese energy production over the last three decades versus energy production growth versus u.s energy production it's like flat and one's yeah you know not necessarily hockey sticking but very linearly aggressively ramping yeah like it needs we need to catch up with china in terms of generation expansion and capacity expansion just throughout the united states texas has done a very good job like i was gonna say who's we here yeah well still texas like demand's only going to continue to rise in texas and i think at a pretty steady clip as it becomes this bastion for free markets and enterprises that want to escape hell holes like california in the northeast and

actually build down here you have foundries coming online um in taylor i believe you have samsung building a foundry there i think there's another one being built north of houston and you're going to need a ton of energy for that and you have tesla spacex all these companies coming to texas to build physical things they're gonna need a lot of energy and then on top of that you have the residential um sort of the exodus from some of these states that are oppressive from a tax perspective or civil liberties perspective and freedom-minded individuals flooding to texas to to sort of reap the benefits of the government and law that exists here and so i think demand is going to increase but back to bitcoin mining like we need to increase generation and capacity

and i think bitcoin like a lot of the problem with doing that is like how can you make the economic case like it takes a ton of money a ton of time and how can you reduce risk while you're expanding generation at a fast clip and bitcoin mining's a perfect a perfect solution a perfect way to de-risk energy generation because you have an immediate buyer of the energy and so like i think one of the prime examples of bitcoin being this pioneer species for energy production is the fact that you can build a power facility and then put a mining operation behind the meter so before it hits transmission lines and consume energy there.

And that's one of the problems that arises when you want to expand generation is you can build a power plant, then you've got to build transmission to actually connect it to the grid so that the electricity can flow to consumers at the end of the day. And there's a time dilation there that exists where you have your facility that could produce energy, but isn't doing it because there's no transmission to get it to market so bitcoin miners can sit behind the meter on site at the the place of generation and be that revenue producer for

the the generation asset before transmissions build out that's one and uh i i actually have a cousin who runs a nuclear facility in nebraska i've mentioned this to you but we were talking about it two years ago i need to call him again but he was describing to me uh a problem that he has they've overbuilt wind capacity uh in the region out there to the point where it drives his price is negative uh and it's very costly to shut down shut down so you have to keep the nuclear facility running prices are negative you just have to eat that that cost essentially and due to an overproduction uh of wind specifically but bitcoin mining helps in that case too where if you have a bitcoin mining operation behind the meter um and wind starts over producing and your

nuclear power becomes economically uh non-competitive because the wind is cheaper for people to consume uh and there or there's just too much of a supply power in that particular grid system and you have to eat the cost of of running negative prices bitcoin mining operation behind the meter instead of eating those negative costs you just energize the mining operation and make revenue from the mining and so in terms of the importance of bitcoin mining within the energy sector for producers specifically i think in terms of expansion of generation and capacity you have a buyer first resort that de-risks the operation from a speed to revenue perspective and then for generators that are already up and running and are running into these problems

and negative pricing due to the variability of wind and solar production in in their grid systems that you have this sort of economic load that you can divert your energy to to monetize um on the go you mentioned and i always i don't have a clear mind of what what it the right framing of it is whether bitcoin's the buyer of first and last and last it's effectively bitcoin miners should in theory be willing to pay the least for power but they're most capable of absorbing excess power or energy assets that are underutilized that could be generating more power yeah so and what i just described in the generation expansion put it behind the meter before transmissions build out that's first resort the nuclear power facility that has systemic negative pricing that's last

resort it's like nobody's going to buy this prices are going negative because there's an oversupply i need a buyer of last resort to come in and soak this up and so that's that's when you have a mining operation behind the meter there on the back and when transmission's sufficiently built out and the ability to supply that particular market is robust uh to the point where prices are going negative it's like all right last resort i'm just going to mine bitcoin with this because otherwise i'm just eating costs yeah and then of course there's cost of the mine itself to as to whether or not it's economic and that might you know be or not might be that translates to whether a site or a solution is actually viable as well as what a bitcoin miner would be willing to pay

or not pay for power well this is ultimately why i think generators become miners um because when it comes to like controlling the cost at the end of the day it's a race to the bottom and if you're playing this out over 5 10 15 years power generators are gonna have the most control over those costs and right and i i think that maybe another way to say that i mean i i i tend to agree but i'm also on this this journey of trying to understand better myself and that's part of what this podcast is about is any any point further from where some energy resources are converted power electricity the further you get from that point the more cost that exists and it doesn't necessarily mean that bitcoin mining won't exist in places other than the

the point of generation but that you're optimizing for cheap power and that there would have to be some other economic reason where an asset could be monetized increasingly to justify it not being at the point of generation yeah and that might be because there's a large substation that already exists and it can be an energy arbitrage and turn off and you know that there's a there's a valuable you know there's a value there's a reason for an energy system for a bitcoin mine to exist someplace but if they're optimizing for cheap power that transmission lines are cost right and if you can help be a balancing to load closest to the source that there's a very rational reason why why it will shift that way over time yeah it's about

identifying and taking advantage of all the different and that's the crazy thing is i've learned over the last seven years diving down the energy rabbit hole there's so many different types of arbitrage opportunities like what we just described with the negative pricing and the expansion of generation before transmissions build out like upstream with the flare gas um there's so many different ways to skin the cat again of of arbing the cheap energy so like a cathedral what we're doing in the tva it's a different form we're not going straight to the power generator we're going to the utilities that own substations that have excess capacity that's not being utilized because they were built decades ago

serving large manufacturing facilities that due to globalization have since moved out and so you built a 20 50 megawatt substation thinking that you're going to serve the steel factory And you were in the beginning, but ultimately just the economics of steel production were so that you had to export that process somewhere else. And that's a great, like you brought up the idea of the pioneer species that Ross Stevens has written about. Brandon Quinton has written about others where it's like, it's the first kind of demand and then it makes a place inhabitable. And then other species come. That's the idea of a pioneer species. this is what you just described and consistent with that where there was an energy asset

it was abandoned and then a bitcoin miner can come in and absorb that and then over time maybe that industry comes back or or there's some higher value yeah and they're willing to for the asset overbid for the energy and they come back an example you know not exactly the same but these bitcoin miners aggregated large sources of of power with high density they were running mining sites and then there's advancements in ai and then these sites are perfect and and the the ai companies are willing to pay more for power and then there's a higher better use than the bitcoin mine and the bitcoin miners go somewhere else but i think this idea where there's all this energy infrastructure where say there might have been in the midwest these 50 000 manufacturing

plants are gone hopefully those you know that manufacturing comes back but bitcoin miners can absorb that energy infrastructure which then allows them to be maintained rather than decayed and have their value to go zero and so i think that that's you know another very interesting dynamic that that fits into this idea of the pioneer species but in a different way and one of the things i want to do on the podcast is go like focus episodes on each different way that bitcoin mining solves can solve a problem in an energy system but one thing that you mentioned a little bit ago you know not talking about the specific subject but you talked about you know texas increasing in energy demand and about how samsung was building a found

foundry to manufacture chips texas i believe there's one out in uh in arizona as well but you know one of the things that we'll explore in more episodes of the podcast is each kind of those those sources of demand um as well as how bitcoin mining can actually solve an energy problem or an inefficiency exists that that creates a problem one of the problems and problem is a loose term and it's always a degree but um shifting the focus is talking about minor centralization it seems to me and i want to see if you agree with this given the nature of where energy resources exist in the world that the most decentralized and distributed

part of the mining ecosystem is actually where hashes are produced and then the more centralized are where the chips are manufactured as well as where hash rates aggregated the hash rate is aggregated so talk a little bit about if we're shifting you know we'll be diving into all these subjects deeply but trying to kind of set the table for the range of different things that we'll talk about through various different different episodes talk about the points of bitcoin mining that that are more centralized than less and how you see that changing or evolving and why yeah so let's start with the asics the chips so what do asics do asics are these computer chips in the same application specific integrated circuit so it does one thing and it does one thing

well bitcoin asics they do hash cash sha256 hashing i think that's all they do is run that hashing algorithm you input some randomness it outputs a hash uh and that's all that these chips do and and not to to lose people for the purpose of forcing bitcoins fixed supply and validating currency transactions all of them and so asic chips are like top of the line like to produce an asic chip is not easy it's high risk capital intensive like very specialized and there's only a few chip manufacturers in the world that can do it you know you should really two right now is to tsmc and samsung so i mean and really even between the two like really tsmc bitmain is the monolith does samsung produce a basic yeah the what's minor they use oh yeah

Yeah, What's Miner uses Samsung's ASICs. And the two largest manufacturers of Bitcoin miners, which include ASICs, are Bitmain and MicroBT, which produces the What's Miners. Bitmain produces the Antminers. And Bitmain sources their chips from TSMC. Yes. And MicroBT sources theirs from Samsung.

So predominantly from Bitmain, TSMC in Taiwan, as it stands right now micro bt samsung and south korea that's where the chips are being produced taiwan and south korea um and it's hyper centralized has been since asics came to market in 2013 2014 um 2013 i believe maybe late 2012 uh that's when bitmain launched the s9 uh we've had a bunch of competitors come to market but really bit means the goliath in the room the micro bt is number two and funnily enough micro bt was started by um dr zhong who was previously at bitmain and he designed the s9 which is considered the ak-47 of uh this is an s1 it's one i think we have s9s outside yeah there's some rusty s9s out there but they were produced

come by bitcoin park you can pick one up 2013 i were maybe later than that the s9 was like maybe 2016 um and some some of those s9s are still running today profitably if you have zero cost energy um the it's hyper centralized but the physical nature of these asics like the chips were reaching the physical limits of how much electricity you can push through them to produce the hashes and so that's this is something that has been talked about in bitcoin money you just you said that but ultimately you want to be able to produce more hashes per unit of energy yes that's the increase in efficiency but you're saying that the ability there we're reaching the like right now you have three nanometer asics people talking about two nanometer asics

then you have one you can't go and reducing the number of nanometers basically increases the amount of hash hash efficiency joules per terahash um it makes that go down um and we're reaching the physical limits i believe me who knows if there's some order of magnitude improvement that can be made i'm not um it's out of my pay grade but like i'm pretty sure like the point being and also we're in theory reaching the physical limits of what the best manufacturers in the world are capable of doing which is a very difficult thing to do yes and once you've reached that limit though it's been talked about in bitcoin mining for some time we may hit a point where you get what's referred to as asic commodification where that's the problem with competitors trying to enter the

market is that bitmain and micro bt they have access to top of the line chips from a nanometer perspective from the smaller the nanometer the more efficient you can be and so the risk of going out there and we saw this with intel in trying to produce i believe they produced like a five nanometer chip and it took them 18 months by the time they got to market bitmain was out with a three nanometer chip and you're just not competitive there like what governs the amount of power that a bitcoin miner can pull is it the number of asics and then each asic has a certain amount of like the heat rate that it can support or just explain that i don't um maybe about my pay grade too but like yeah we'll get an expert to come on like talk about you have jewels for

terahash they can be so you have i mean back at great american mining we could put i believe 200 it would be 200 m20s micro bt and what's minor m20s is in a shipping container and that would pull like 700 kilowatts of power from the generator do you have a rough order of magnitude of like say like a single async how much um power it would be capable so this is a single async on a board this is i believe an s20 or an s19 or an s21 this is five volts this one is it running on five volt power right now but but can you provide some like order of magnitude to help somebody understand like the density relative to like a computer and so well it's a computer it's it's orders of magnitude higher but i think a better way to frame is like

uh in 2017 i believe the joules per terahash rate was literally over a thousand might have been like 1200 joules per terahash on average across the bitcoin network that the miners are pulling today it's like 15 so we've made a top of line miners pulling like 15 and a half joules per terash i believe so basically more hashes per unit of energy yes becoming massively more efficient yeah yeah now describe two things why it's as centralized as it is and what the current risks of that centralization are because micro bt has increasingly taken share from bitmain but bitmain and micro bt probably have in aggregate 95 percent of the market probably more than that yeah okay but so

what is preventing greater decentralization and then what the present risk of that centralization is i think it's access to foundry space right it's expensive it's again it's risk it's capital intensive and it takes time and and that is like effectively competing with somebody creating chips for gpus for ai for ai for apple for whoever you're competing with everybody for space on the foundry floor to produce your chips and if you're a large bitcoin miner and you're planning a site say a gigawatt site in texas you might not have reliable access to be able to get chips well that's not your job that's bitmain shop right um well no but i'm saying is if you're if you're a bitcoin miner and you're playing the site it's predicated on

being able to actually get chips from bitmain yeah and that if bitmain decides not to supply you because they're centralized to supply somebody else like that's a source of yeah but i think like a layer down like why aren't there more chip manufacturers because it's not easy to get on the foundry floor and i think micro bt and bitmain have been in the game for a long time and have proven to the foundries like if they come to me with a chip design like they're going to have the money they're going to make a lot and like for example intel tried to make a chip correct yeah and they spent years didn't they actually delivered one but then shut down the program yeah because there are companies that have a lot of money that have a lot of and this is i mean

this is where you this is where you begin to wander into the competition between the u.s and china specifically from a intellectual capital perspective like their chip design just wasn't as good as micro bt and bit mains so they were effectively bringing a chip to the foundry that wasn't they were using their own foundry and intel has their own foundries and just didn't compare from uh when they were actually taking it to market the bitcoin miners were saying no we need something of either micro bt or yeah yeah they have like ardui and proto which is block company they're going after it and so this is effectively the the capability of the manufacturer and their design as well as access access to the foundry which is predicated on

the capability of the foundry but then also the foundry's availability to availability and perspective as to whether you have the capability to actually execute if they get if you're going be a long-term customer like are they are they going to give a founder space to you knowing that you're going to come back year after year and there's gonna be demand for your product like it's a risk the founder takes is there something about bitcoin in its um effectively simplicity in terms of its operation like what the asic needs to do that like there's less diversity because it's it's homogenous i again above my pay grade but from what i understand no because any asic whether it's bitcoin asic or some asic for some other application does one thing specific

application specific so from my understanding asics no matter if they're bitcoin miner or running some other type of computer just doing one thing and that's the whole point of producing an asic chip is just you want to be ultimately efficient at doing that one thing in bitcoin mining it's just producing the hash cash shot to 56 there's no fundamental reason why the develop of bit development of bitcoin asics should be any more or less centralized than develop of any other asic yeah and again these are subjects that we'll dive into deeper where we get the i'm not the asic expert i don't have to be dangerous basic expert into to talk about these things at greater detail um but then the second question of of there's the risk to the

the manufacturer but then to the to the mind to the bitcoin network itself maybe describe risk or if it if there's less risk because of the function of basic manufacturers just what's your view of what risk does this piece of centralization and bitcoin mining ecosystem represent to the network i think we have to uh go back in time to 2016 2017 when greg maxwell discovered that bitmain had a backdoor in their a6 called amp lead where they could remotely brick machines if they wanted to and so i want to talk about risk of uh i mean that's a that's a serious centralization both to the bitcoin network but also to somebody like ercot you know if they had four gigawatts of power drawing on um on the on the ercot grid

and a chinese manufacturer could say brick brick yeah that four gigawatts comes down all at once yeah but then to the to the bitcoin ecosystem if 80 of the installed base of machines that are hashing could also be shut down now there's a there's a limit to what the um the actual difficulty adjustment can be in any one epic negative 75 percent um okay so it's it's in line with you know say if somebody had 80 percent market share but how was that resolved uh called out and it was never it was that was that like software firmware or like firmware yeah i believe like the firmware was remotely like pinging back to central servers that and if the central server wanted to they could remotely shut down the machine is how i recall it this was many years

ago that was like right or there's a right around it's like another thing was right right as i was like getting interested in bitcoin yeah and then asic boost was like another thing it wasn't necessarily a backdoor but it became apparent that it seemed like just like a marginal economic advantage which may skew things over time but less critical to the actual operation just gave some aka bitmain essentially who and also maybe to connect this idea for the for people that are less familiar with bitcoin mining is that if 80 of the network came offline at one time and the network state was assuming there to be five times the amount of of bitcoin hash rate that the bitcoin network would take five times longer to validate transactions and would create

a lot of congestion yeah um okay yeah so that's one of the risks but then i try not to dwell on this risk too much because again going back to the fact it's become so about dictating rules though dictating rules and consensus rules yeah is there uh i mean my you need to get miners on board i think to a certain extent but does the concentration of manufacturing of of asex no no i don't think so okay um okay so then let's shift because we want to be efficient the other source of primary centralization in bitcoin mining is the pool side describe quickly like somebody was five what what a bitcoin mining pool is and again anchoring everyone in this this idea that because it's easy to get lost in these rabbit holes which is

bitcoin miners producing hashes those hashes as a network forcing bitcoins fixed supply and validating currency transactions where do pools fit in and describe the state of centralization and in your view the risks that are created there yeah and so i'm sure many of the people listening to this are aware of bitcoin folklore of people plugging in their macbooks in 2009 2010 2011 downloading the bitcoin software hitting mine and mining blocks themselves like you hear the stories of ogs who simply downloaded bitcoin on their computers mined and accumulated large amounts of bitcoin and that was the case back then it's not the case now as we described hash rate has gone up 180x over the last seven years and so

what has been introduced in terms of a risk for individual miners is what we call variance risk so as more mining nodes join the network that's more competition to produce blocks to get the reward that ensures that any individual miner their chances of mining a block goes down significantly and so that means that your payout variance increases so the frequency at which you find a block and get rewarded for that block goes down significantly and the way to solve that problem is to aggregate hash rate you get a bunch of these smaller miners and now large miners as well they basically aggregate their hash rate and what's known as a bitcoin mining pool and that mining pool is essentially tasked with aggregating the hash rate and then you have all

these individual actors within the pool producing hashes one of those actors will find the hash that enables them to add a block to the ledger and get the reward and the pool does the job of basically accounting for who's pointing hash at their pool at one point in time how much hash rate and how much of the reward each individual miner gets based off of the amount of hash rate they're pointing at the pool. So a pool exists to increase variance. And so when you hear of individual miners mining their own blocks and building a big Bitcoin stack in 2009, 2010, that doesn't happen anymore.

It's a bunch of individual miners pointing at a pool. And even if your individual miner finds a hash, you're basically saying i'm going to lower my variance by pointing at this pool and i'm going to split the reward uh among all the miners pointing at that particular pool yeah so if i'm a miner and i represented a hundredth of the network i would solve a block probably like one block a day yeah but if i represented a thousandth of the network then it would take me several days to potentially find a block on my own and if you kind of go smaller and smaller

and as the Bitcoin network gets larger and larger while there are exceptions it becomes more difficult to be a large enough percentage on the network to reliably get paid out if you have expenses that you're paying out in the interim

it might require you to have more capitalization more working capital on hand and just creates a strain operationally and so for that reason rules began to emerge to allow people to effectively get paid out more regularly reduce variance kind of make it's difficult to capitalize mine as it is uh reducing the working capital requirements potentially of a bitcoin mine so now describe current state of centralization in mining pools and why in your view it exists

so do this we have to go back in time as well when pools first came out uh the predominant payout scheme is called uh ppl and lns uh pay per last n shares and basically in that mining pool payout model you would point your hash at a pool and then whenever that pool would find a block you would get your commensurate amount of the reward and you get paid out when they found the block like when they would find a block and then you get paid out from that reward and as the network grew and more pools came to market like the variance of individual pools began to to grow and extend as well and so the predominant model that has really taken over within bitcoin mining pools the payout model is fpps full pay per share and essentially

what full pay per share pools have created is a system where they say point your hash rate at our pool we'll do like a moving average of how much hash rate how much blocks we produced and we'll pay you out uh a consistent amount every day we'll pay out once a day based off of that moving average um so you have more consistent revenue you're not beholden to the very so functionally pools help reduce variance but then the fpps the fixed paper share further reduces variance by giving a miner a predictable daily amount of revenue why has that caused centralization so that's cause so you have two trade-offs the ppl and s what was predominant um in the early years of pooling the trade-off there is you're going to as an individual miner you're going to

get you know you're going to get like the full reward of that block that's mine because as it's not as it's not as um uh it's not as relevant right now because there's not a lot of fees but like if we're in a high fee environment and the variability of block rewards is is pretty high because fees are variable um from block to block like let's in a ppl and s model like if your pool mines a block with a very high fee like you want to get that whole reward and so like that's the trade-off you make in ppl and s is like i'm going to get the whole reward of that block but i'm going to stomach more variants because it's not like that pool could have a string of bad luck where instead of finding three blocks a day they find um they find three blocks over three days

and so you're you're getting less consistent payouts but you're reaping the full reward of those individual payouts f pps fixed pay per share um again since it's the moving average of the individual block let's say the pool mines a block with a fat fee like they're just going to use the moving average in their calculations you're going to get paid out and you're not going to get the full reward but you're getting paid out every day and this creates an accounting problem for the pools and a capital problem specifically so for the f pps pools the fixed pay per share pools to be able to do this what they need is a big bitcoin treasury that they can actually use they essentially use as a credit line the risk they're absorbing the

variance risk as the pool and so you need a big bitcoin treasury to pull from to consistently pay out because as even as an fpps pool you can have strings of bad luck where your variance increases and elongates and if you're running an fpps pool where you have a pretty long string of bad luck you could run out of bitcoin in your reserves you cannot pay out and so that over the last two years it's become clear that that mechanism has become a very centralizing aspect of the bitcoin mining pool industry because what we've found is that last year matt corallo and others started ringing the alarm bell it became clear and a lot of on-chain analysts like oxt um in zero xt were basically observing that the block templates of different

fpps mining pools were exactly the same and so essentially what was discovered is that you had a number of fpps pools run into that treasury problem where they didn't have enough bitcoin to pay out and so they were forced to go hat in hand to ant pool which is essentially a subsidiary of basically mining pools that were attempting to deliver the product that they thought would allow them to acquire mining miners as customers being able to pay out a consistent amount each day were not well capitalized and they were absorbing the financial risk and then ultimately couldn't they got exposed whether they went belly up they they realized that they couldn't absorb that risk and they went up the food chain to companies that had larger

balance sheets and then essentially it becomes a game that if you are not you know i don't know if irony is the term but it's like the same risk exists with these larger guys that are just aggregating more hash rate it's like they're bearing this financial risk and they they could be exposed as not being financially solvent should a stretch of bad luck emerge for an extended period of time in the case of ample i think it would have to be a very very long like statistically impossible yeah and i'm going to spend time like digging into this like like the differences between a paper last and shares different forms of that fixed paper share some of the economic incentives that might not be as well understood in terms of how you know you're

basically trusting fpps pool in terms of what the pool is actually generating how fees are actually accounted for distributed we'll go into that in other episodes but just articulate what as a percentage basis does that ecosystem look like to not lose people in the weeds? The last time I saw I think to describe

it more thoroughly, like Ampool essentially is a subsidiary of Bitmain and over the course of more than a decade. So that's the point of centralization is that these entities are related. Yeah. They have a large Bitcoin war chest. And this is actually like when it comes

to this pool problem, I don't think we're going to solve it here on this episode but maybe we can do another one where i think when you look at pools are if you think bitcoin mining like just like plugging in asics like and running them as an operation like locking down the energies competitive pools are terrible businesses so people say this pools are terrible businesses but they are necessary to the operation of bitcoin mining and so one of the questions that i have is it's like maybe it's just a cost center to a business but is it specialized enough to merit being its own business and i don't think so the switching cost is zero like that's like you don't

i mean what i'm saying you don't it's a necessary like in order to mine you you essentially either have to be your own pool where you have to join a pool the pool function is critical so how can the pool business be a bad business if it's it's critical if it's delivering both the service and being critical to the because you can just claim mining i mean i think ample is a great example they can just they can just set their costs such that you can't compete right because they have this large and so this might because they're well capitalized they're extremely well capitalized like they have a large bitcoin treasury they have the hardware business essentially that doesn't that

doesn't say that being a mining pool is a bad business it just might say in order to be a good pool you need to be very well capitalized if fpps is the right model which i have i have questions about myself i don't think it's the right model but i do think okay go on yeah like i think looking at bitmain and ample and their relationship i think that's something people should really pay attention to and try to internalize like you have this behemoth of bitmain and their hardware sales which is incredible business um cash flows a lot like and are they anti-competitive bitmain just going back to the uh like are they actively in the background trying to prevent other i wouldn't be surprised i mean i don't know for sure but just if they're economically rational

actors i wouldn't be surprised that they are preventing others from getting access to the foundries that they work with yeah all right that was just an aside but sorry i didn't mean to distract from the no i think like running a pool like you may need another like pools i think we need to rethink like how pools come to be how they operate like is a pool a loss leader for somebody doing something like basic manufacturing or um you're the bitcoin exchanges maybe they should like if maybe they should be running pools to some extent um just as a way to decentralize if you're an exchange and you're thinking about the long-term viability of your business and that sort of the prerequisite for that long-term success is bitcoin being sufficiently

decentralized and block production being decentralized like doesn't make sense for you to spin up a pool to give people an option to um you know i'm not saying this is the right answer but just like thinking through this like pools is a pure play business model i don't think makes sense like you need another part of that business to sort of make sure it's well capitalized and historically you've seen this with bitmain and ampool via the asics sales and then other pools like luxor and brains with firmware that um makes the machines more efficient and they charge a cost for that and the cost is worth it because the efficiency gains are such that um you will pay a fee for it and you get revenue that way um or do we just need to completely

rethink it and and how like what businesses should be spinning up pools um to ensure that there's sufficient distribution of block creation between different actors does that make sense yeah that makes sense and then but then to provide this the most summary level view we have actually antpool that's that's based in china right and they're functionally they're basically saying hey oh but i want to connect this for people that there are probably based on what you said about matt corral and others who realize how are we doing on time logan and we're good that amp pool is essentially a proxy for 10 or so other pools such that you're looking at those other pools and and they look like

individual pools but they're really a proxy for ample they're really a proxy for ample amp pools creating the templates but so if you add up amp pool and the other pools like 60 to 70 and then boundary in the which is u.s based yeah so it's not 60 it's probably like 50 to 60 yeah yeah 50 to 50 to 60 maybe like 50 boundary is like 25 to 30 percent yeah and then marathon which is a solo a large scale miner you have other which is around like 12 so so three functional pools including you know one solo miner and i know that of very other small miners use marathons pool but functionally the pool of one that three pools represent about 90 percent of the hash rate what is the present risk to the bitcoin network functioning that comes from that

so probably going to sound controversial but i i think zero again going back to no no but like okay yeah describe why you view it as zero but because the switching cost is then make the other argument uh i think it's zero because the switching cost is zero and if push comes to shove we've seen this already in bitcoin's history in 2016 there was a pool called g hash that was ultimately a victim of its own success it aggregated as a single pool 55 percent of the network hash rate people on bitcoin talk.org and twitter were like yo ghash has 55 this is a threat to the network if they wanted to 51 attack the network they could and within days it fell from 55 to 20 and over the course of 18 months after the alarm bells went off ghash

was out of business um so miners individual hash owners that are economically incentivized to ensure that their golden goose isn't killed by centralization reacted to those centralization pressures um right so i i get why you know it's not in the interest of mining pools or miners to 51 attack bitcoin network that would be putting at risk their the thing that they exist no but the real risk is you could you could have censorship or they could try to reorg be a 51 attack too but what about the angle of the three minor three mining pools all being on the same page about consensus changes that are

not hard for us um this is where we get into like this is where we get into like murky territory of like what actually is needed to like

what actors are needed to actually get a software change into bitcoin and that's like block size wars what was it was a bit 91 was a bit 148 like but in that case that was actually a non-backward compatible change i'm talking about a in in the block wars increasing the block size to two times would have you would have forked off the network bitcoin cash did right but and so but

that was that that presents a different dilemma versus a soft fork and if if all three of the large mining pools agree on what change should be and they're not forking themselves off from the network then if you're a miner and you're hashing you functionally can't switch between if there's collusion and this gets like who dictates the rules right because like if you're well but like as an example let me let me like throw a difference there say bitcoin core um um wants to merge a software and three mining pools agree is that a risk could be but what if like economic and i say a risk to like yes a relatively few number of people you would need

buy-in from other actors too like exchange like big economic actors that aren't mining like exchanges and people that are transacting a lot on the bitcoin network to download software. Like you could see a scenario where... But it would be backward compatible. Right? And the miners would be enforcing the rules and that would be the longest chain.

Hmm. Anyways, we'll dive more into these in these topics. I'm trying to think through this because again going back to like BIP91 BIP148 like what was the actual sort of forcing function for Segwit getting

implemented into Bitcoin I mean that was is there a scenario it's backward compatible but like let's say Coinbase says like I don't like this or River Strike combination of all those guys

you have like this battle between these large economic transactors and the miners could... I think my understanding is they would continue... They wouldn't have to change anything. They would be accepting all of the transactions that are on the more restricted as well.

But even if it's backward compatible, nobody's running the software. If the mining pools are advancing the longest chain... Yeah, but if nobody... Still, if it's backward... Maybe there's not a functional... There's nobody using it. Yeah.

that would de-risk it like hey if nodes aren't transmitting transactions that conform but then that would kind of they just never download the version like and then we get into all

like sort of rough consensus dynamics like somebody's actually got to build write the software that the miners want or that core wants core is like core is not some centralized entity all right i'll shift the question this is where like the beauty of of bitcoin rough consensus comes yeah and we'll and again we're not going to solve all the you know knowledge base of of bitcoin in a single episode but um one last thing

on this piece and then we'll wrap up which is um it's not in the interest of bitcoin miners the ones that like if you think about the supply chain it's some natural resource that is storing energy being converted to electricity that's creating a hash that an aggregate is enforcing bitcoin's fixed supply and validating all currency transactions those hashes are pointed at a pool and blocks are processed during the fixed supply bitcoin network is is working going forward It's not in the interest of the miners actually producing the hashes that the pools are centralized. What in your mind changes the dynamic that would create a scenario for greater decentralization? i think

stuff like this is great where you have sort of at-home mining and as we reach as a commodification and the waste heat can be used for services like heating water in your house heating using the waste heat to heat your house itself that acts as like a natural is that a view that you know if if riot is working on a on a gigawatt site that that large-scale bitcoin mines aren't are ultimately long-term not as viable and that yeah like i think like right like i love everybody at these companies but like at the end of the day like i'm just saying if this you're gonna get this is how bitcoin decentralizes it would it would or you know decentralizes from the point of centralization as it relates to pools and that would suggest that

you know any any bitcoin mine of scale becomes less competitive for some reason that i couldn't gather if the cheapest way to produce a um a unit of power is with large power plants the say that again that the the cheapest unit of power is at scale with a either combined cycle turbine or a nuclear power plant or even something like a large solar generator yeah at scale they're going to be the cheapest but you know like in the waste heat example for like at-home applications like you're usually you're basically using bitcoin mining to subsidize to lower your your month-to-month electricity bill and actually produce some revenue whether or not you're willing to stomach the variance is up to the individual but i think what's most important is we can dive

deep on the pool stuff and the industrial size miners but i think what i care about most is the decentralization of hash rate ownership and as many like you're gonna have obviously a spectrum of people owning one asic chip like one terahash to multiple tens dozens of exahash but as long as sort of distribution of individual owners across that spectrum is is robust i think it'll be sufficient to ensure that mining is decentralized at the end of the day and yeah we'll have to explore this more because i i or explore this more because it's like tyler that hash rate continues to to naturally decentralize because energy is distributed all to the world it seems like there's a disinterest

or there should be a disincentive of of all this very distributed hash rate pointing to a regulatory and otherwise censorship prone points of centralization being pools that there would there would need to there would almost and again i want to explore i don't know what it is a natural forcing function for miners to realize that there's an there's an interest in an incentive for pools not to be nearly as centralized yeah and going back to what i was saying earlier like maybe it's not even the mining industry that comes up with the solution maybe it's some other sort of actor with a ton of skin in the game that recognizes this as a risk and has a profitable business and decides to spin up a mining pool to counteract essentializing factors

like i completely like i don't have the answers to this but i do think i've identified at least one thing which is like we need to completely rethink how mining pools are like come to market and how they operate yeah and i and then we're getting a bit doomerish here it's important to understand these risks and where the centralization lies but ultimately at the end of the day i think the incentives of bitcoin as a project overall and individual actors within a money mining ecosystem are aligned to the point where the problem will be solved i don't know exactly what the solution is but i'm just confident in the economic incentives and as bitcoin continues to increase in price those incentives only get stronger so right and and that's something that

we're going to talk about as well on other episodes like you said the incentives of bitcoin you know and i think that if we think about just this first episode and where we plan to take the this show part of tftc is exploring kind of the entire value chain down to the molecules from the molecules to the conversion of power how bitcoin intends not intends how bitcoin solves real world energy problems how that changes as bitcoin's demand for energy scales why or why it won't increase in energy demand over time or what what the drivers will be how that will evolve points of centralization how how bitcoin mining works of you know past the point of natural resources being converted into electricity and the role of asics the role of pools

but what one of the things that i found legacy legacy energy industry struggles with or someone like a grid operator or legislators or regulators is is all this power demand sustainable not and i'm not talking about from an environmental perspective i'm talking about from are people going to want a bitcoin mine 10 years from now Yes. And what causes that and will it be sustained? Because if you develop, say, as a grid operator, an energy reliability strategy around four gigawatts of power growing to eight, growing to 10, growing to 20, and there's the possibility it could all go away, that's a source of risk. And what you just described was, you said, if price continues to go up, then all of these other things will follow. More demand for power, more decentralization, more entrance. and i just want to connect for the audience and all the bitcoiners know this but it's that that

price increasing is a function of more people deciding to store their value in bitcoin and the thing that holds it all together is bitcoin's fixed supply and its ability to operate in a way that is censorship resistant to censorship which is dependent on progressive decentralization at every layer of bitcoin such that so long as those two things hold the bitcoins fixed supplies enforced and it remains permissionless and resistant to outside censorship all those things happen and those are the things that we'll just discuss and explore in greater detail um but knowing that it's all anchored to the monetary side because it's kind of a turtles all the way down problem and i want to kind of get your thoughts on this as kind of a concluding

thought and i'll have one last question which is the thing that ties the demand for the hashes and the demand for power comes back to bitcoin and the incentives of the bitcoin network just talk about the incentives of the bitcoin network itself and the fixed supply and its downstream impact throughout the mining and power dynamics yeah and going back to what i said in beginning of the episode bitcoin is not even an attempt it's successfully separated money from state so bitcoin exists because satoshi recognize that we keep running into these problems societally because governments and central banks can print money at will and there needs to be a market response to the centralized control over money and that's what bitcoin represents and so

There's a ton of value in being able to successfully separate the function of money itself and the control over the units of that money that exists at any given point in time. And so that is what Bitcoin is, is we finally figured out a way to get the central authorities out of money. they're not meddling with it anymore in bitcoin which is incredibly valuable um there will only ever be 21 million and people can have certainty that if they store their value in bitcoin their slice of the overall pie um even though it's very divisible it doesn't mean you're producing more bitcoin like if you own one bitcoin you own one 21 millionth of the network into perpetuity and there's a ton of value in having that certainty as an individual as a company as a government even um and so that is essentially what ties all this together is having that certainty that

if you store your value in bitcoin it's not going to be the base and as more people recognize this it just perpetuates the feedback loop that you just described and that is worth preserving and people who are storing their big their value in bitcoin will fight to ensure that those properties remain distributed so that the money cannot be meddled with in the future yeah and so it's like when one or for episode one parting takeaway for if you were an energy professional who doesn't understand why there's four gigawatts of power being drawn in texas to mine bitcoin and 30 gigawatts globally and get lost in ashes and asics and in mining pools the the reason for its existence and the reason why it will be sustained is bitcoin delivers sound money fixed supply is

the anchor of that it is solving the problem that every other form of money is dependent on trust And through this function of mining is how the Bitcoin network incredibly enforces fixed supply in a trustless way without reliance on that central third party. But then for the Bitcoin miners and the people that are well immersed is that all that only works because of decentralization. And that if there's complacency of points of centralization, even though there are economic incentives that will dictate progressive decentralization, that that only happens by individual actors within the network

responding to incentives that contemplate that idea that points of centralization are not just risks to the network, but they are risks to the individual actor acting in their own self-interest. Yeah. And so that's

complacency and apathy will, if you're a miner, ruin your business in the long run because you'll invest in all this infrastructure and you'll put all this time and effort into it and if you get too complacent too apathetic and you just hand wave like oh this is okay um and bitcoin becomes centralized and uh people are easily able to push changes that increase the supply or do something that makes it harder to run bitcoin

it distorts the economic incentives yeah you're basically just setting your capital on fire because as an individual saving in bitcoin if that happens i'm like oh shit like back to gold like the so and that's why like i'm sorry if it was like hand-waving a little bit um flippant earlier but like i i do believe the incentives are strong enough and people um will be forced to reckon and that's what we we saw like in the block size war in 2017 when things are threatened people react and we saw it with ghash in 2015 like that okay we enter these periods where you have relative peace time but in my experience being in bitcoin for 12 years whenever something controversial or something a threat to the sanctity of bitcoin the protocol

and how it operates has ever arisen like the economically incentivized individuals leveraging bitcoin or involved in bitcoin like stand up say no like you're not doing this yeah the the threat needs to present itself and in a lot of cases for and it to be clear and present for a real immune response to kick in while at the same time everyone's acting in their own self-interest and there's a natural tie-in to um de-risking yourself from other counterparties yep whether that's storing bitcoin with an exchange and that might mean having other exchange options or having more self-custody options or whether you're tied into a certain vendor or on the mining side you know being tied into a pool or you know having limited options to shift around or

who you who you are sourcing from in terms of a supplier that throughout the the ecosystem everyone has an incentive to be less reliant on potential points of failure yeah all right last question two subjects related to energy or mining that you're most interested in us diving deeply in on this podcast and then give me your top five wish lists of guests okay um at home mining like waste heat i think people are sleeping on that trend tyler stevens um and what they're trying to do like he wrote the the book with brains on waste heat like the stat he threw out earlier this year at the nashville uh energy mining summit was mind-blowing if you take two percent of the hvac market globally and you successfully convince two percent of that market running

hvac systems to incorporate bitcoin mining you would you would like double the hash rate overnight just like that's that minute market share like we'll get tyler onto so he'll be one of your top five incorporating yes incorporating um mining into the home applications basically subsidize your energy cost by producing bitcoin i think it'd be massively beneficial to decentralization of the network and really uh hash rate ownership overall and you can think of like hvac like maybe individual hvac companies run pools where their customers are putting their hash at the hvac pool that they're using and that's how you get mining pool decentralization that's like at home sort of like home application of mining using the waste heat something that

i'm very excited about and i think we've reached a point of basic modification where you can begin to build um viable businesses around um so that's one the other would be um the midstream problem i think like getting a midstream operator on here hopefully one that actually understands uh bitcoin mining and is like on top of it like how that actually works because the thesis we had i talked to some people that are saying that that thesis is being validated and they're actually doing it and i think at scale that would be massive for the natural gas supply chain and bitcoin mining overall i've got some ideas as well that uh the bitcoiners would have never heard of so yeah um top five you get tyler on um toby rice from uh

the eqt the biggest natural gas producer i had the pleasure of sitting out at dinner with him like two or three years ago and i don't know him he's uh see uh where is he on the bitcoin spectrum he was it was this was like peak 21 craze so he was talking like Sheena Igbo

and like meme coins and I was like just focus on Bitcoin that'd be a good one Chris Ray or excuse me Chris Wright is that an FBI

Chris Ray was the FBI I always get to mix up Chris Wright Department of Energy I've had him on my podcast a couple of times in the past

it'd be great to catch up with him see the secretary of the energy yeah your secretary of the department of energy yeah Elon you gotta get Elon I mean Jesse Pelton

maybe like one degree away from I wanna do a I wanna do a residency with Jesse on like on the physics of energy and then how that comes through Bitcoin gotta get Jesse

and then Nick Gates i think um nick is a priority power he's yeah he's i think he's my he's my go he's within my handful of go-to people of as i'm trying to understand the grid and energy systems energy markets he's one of my go-tos yeah and then you know he always um he helps sharpen my my views of everything around bitcoin i feel like i've helped him understand bitcoin better And then, I don't know their names, but one of the founders of an SMR company like Oklo, Oklo, Oklo. You have to give me another name, but I'll get that as a sub. So SMRs are small modular reactors on the nuclear side.

But another name. You've given me, oh, you've given me five. Tyler Stevens, Toby Rice, Chris Wright, Jesse Pelt, and Nick Gates. Yeah. Okay. Start with some of those. Well, I'm very excited for you. Consistency is key.

Yeah. we're gonna be recording in the podcast studio podcast production is is a grind okay i'm gonna be on top of this i got strong team it's one of the reasons why we're working with tftc have beautiful studio here in austin texas great team we've got a mute all the infrastructure perspective great feed yeah we're gonna we're gonna you know rely on logan's uh fact checking us from time to time he's going to fact check thumbs up okay that video that logan did uh when he was what was the video you were selling uh some class i was like i didn't even know logan can act he can act he can dance you know got some jokes the right way yes yeah so i'm happy

for you yeah it's your sign off that's a big thing i'm not doing uh i don't know gotta think about that i'm just gonna copy you with a final thought or we're gonna zoom out from the center of hash i don't know we're going center that's all folks no that was bugs bunny or the pig porky the pig i don't know think about it we gotta figure out the name first in the next few days before we release it hash found next block i don't know yeah all right we'll just end it till next time