We Study Billionaires - The Investor’s Podcast Network - BTC014: Bitcoin Mining and Energy w/ Marty Bent and Harry Sudock (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the show where we're talking about Bitcoin. Today's show is super exciting because we're covering everything related to energy and Bitcoin mining. Now, this is a really hot topic because there's a lot of controversy around Bitcoin consumption of energy. And additionally, there's a lot of debate around people talking about how much hashing power and mining is taking place in China. Well, I have two incredible experts in this space. We got Marty Bent and Harry Suttock to discuss these ideas in much, much more detail. So sit back, hold tight, and get ready for a massive amount of information on energy and

Starting point is 00:00:38 Bitcoin mining. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right. So everyone, welcome to the show. We got Marty Bent, Harry Suttock here. And guys, I'm excited to have this conversation because you guys are the experts on this topic. And welcome to the show. Thank you for having us. Thank you for having me. I'm like to speak for Harry. Pressing expert may be a bit of a stretch. No, I'm hearing you guys in Clubhouse and I'm just like, whoa, we need to have a chat with these two. And I mean, I've been following you guys for years now. And this is exciting. So what I'm going to do to start this off, I just want to pitch a couple underhand pitches for you guys. I want you to call. I want you to call you. I want you to call. crank them out of the ballpark so far that people can't even see the ball. It's going to be like

Starting point is 00:01:39 the natural where the cover comes off the ball as you guys are hitting these two underhand pitches. The first one I got for you, China controls all the hashing power, therefore they can make Bitcoin do whatever they want. False. I mean, they don't control all the all the hashing power. Historically, they've controlled a significant amount, but that that amount has been waiting. And even though all that hashing power does exist within the borders of China, they can't really control the Bitcoin network at the end of the day. The Bitcoin network is controlled by full nodes who dictate the consensus rules and invalidate the consensus rules with those full nodes. And if the miners within China or anywhere in the world for that manner attempt to fall outside of those consensus rules, full nodes will redirect the blocks or transactions that they attempt to include in those blocks. So in terms of being able to control Bitcoin via the mining industry in China, that is a bit of a stretch, I believe the worst.

Starting point is 00:02:36 If that could happen, which is also a bit of a stretch, is all the new mining equipment within the borders could be turned off and slow down block production for some time. But that's why we have the difficulty adjustment. I don't know. If you want to add anything to that, Harry. I do. I want to reframe the question. A 51% attack in the Bitcoin network is not the same as a 51% attack on an election. This is not majority rule.

Starting point is 00:02:59 This is not flip the party. This is not a deep change to the behavior of the network. What it would involve is a challenge to process and confirm net new blocks. There may be a very, very shallow reorg. Those are the kind of scope of the problems that could arise from that type of behavior. And exactly like Marty said, the network is unbelievably, unbelievably, unbelievably antiviral and white blood cell driven. And so what that means is that you've got tens, if not hundreds of, of thousands of people all over the planet with their eyes on the asset that Bitcoin delivers,

Starting point is 00:03:33 which is the UTXO set. So the history of the fidelity of the transactions over the last 13 years has been driven to this tip of the blockchain, this point in time. That incredibly high fidelity transaction set across history is the asset that Bitcoin delivers. And right now it's delivering it to the tune of $975 billion in market cap. And so if we were to see something that was going to try to erode this historical value transfer, this transfer log, there are hundreds of thousands of people with all of their eyes on proper behavior and proper game theoretic design. And so if we begin to see or smell the first instance of this, which would emerge from a very, very small point in time 51% attack, the ability for the network to route around that.

Starting point is 00:04:22 type of bad behavior is instantaneous. And the negative impact for the participants in an attack like that would be catastrophic economically and socially. And even coordinating the individual miners within China to attempt a 51% attack like that would be logistically a nightmare, potentially impossible, especially when you consider the amount of miners that are doing stuff off-grid. That's the one thing that is really ironic about the first 12, 13 years of Bitcoin is that some of the most capitalistic activities come from the mining industry within China. If you speak with some miners in China, you'll find that they're profit-driven as well. And they don't want any of this stuff to happen and actually spoken to some that are looking

Starting point is 00:05:06 to co-locate equipment in different geographical regions just to mitigate risk from the CCP. There are individuals running these businesses are pretty capitalistic. It's not like the CCP controls everything that's going on in the mining industry. or anything for that matter, from what I can tell. I want to jump in on two more data points that are really important when you think about this mental model. One is it the largest Bitcoin mine in the world that I'm aware of is about 250 to 300 megawatts in size and represents somewhere between 3 and 5% of the network, depending on the rigs

Starting point is 00:05:39 that they're running. So you need to have, if every farm in China was that size, you would need to get your hands on 15 to 20 of the largest. So what that really means when you look at sort of the power law across how large those farms really are, you need to find your way to get your hands on 50 to 100 different warehouses at the same time and get them all to behave in the same way. There's a massive coordination problem, assuming you can even locate. The second data point is that is exactly what Marty said. The migration of hash out of China over time by existing players is very, very rapid and they're very motivated. So if you're operating on any of those hydro facilities in China,

Starting point is 00:06:18 there's significant seasonality. You're already moving hash in between locations. And so they're incentivized to avoid those switching costs to migrate to regions where there's stable access to power, which by and large is in Eastern Europe right now. I've heard of some South American migration among a couple of other locations. So the trend is moving actively away of the miners that are there currently, not to mention the net new hash that Marty and myself represent, among others, migrating elsewhere. And explain why they're moving elsewhere. Political risk?

Starting point is 00:06:50 Exactly. It's power availability and political risk. So they do not live under a stable regulatory regime by any stretch. And they don't always have high uptime, high availability of power because, you know, they're very beholden to the wet and dry seasonality of China's hydro environment. What is the, because I know the current hashing is less than 50% there. What's the number that we're seeing today? and what was it five years ago?

Starting point is 00:07:15 The most common stat that was thrown out, at least within the last three years, was 60%. I'm pretty sure that's weighing to around 40% of recent estimates. It's been high, 80%. I would imagine at some point, yeah, if China was going to control the Bitcoin network, the best chance to do so was probably five or six years ago. Harry, you have any other comments on the amount that's there right now? Yeah, the estimates I've seen are similarly 40 to 60, 65%. And, you know, we tend to think it's the lower end of that range because, you know, even you'll see Bitmain pre-split, and I guess now they're Bitmain post-split, the Jihon for, they've located hash in the U.S. They've got multiple facilities running in the U.S. And so even sort of the crown jewel of the Chinese mining industry is locating hash in the U.S. right now. So we've seen that progression over time happen. And like with anything, I think it's going to continue. I think that when you think about why hash wants to leave, it's about a regulatory regime that's uncertain in favor of a

Starting point is 00:08:12 regulatory regime that's at least more certain and legally is significantly more certain. That really surprised me that you're seeing them move into the, into the U.S. I would think that the power expense here would not be optimal for them. How are you guys seeing that? It means big operation was down to Texas, correct? I believe they bought a substation down there. I call that substation. I think you drive your cost of power production down very low. I can't speak to exact sources of energy production for these Chinese miners that are looking to distribute their operations to North America. But I mean, just from what we see in the field of great America mining, there's abundant cheap energy here all across North America and not even just the United

Starting point is 00:08:55 States. I want to go back to a point that you made early on there, Marty, about full nodes dictating what actually takes place on the network and that the miners are just providing a security service to secure the network. Harry, you had said the G-Hon fork. Explain to people who have no idea what that is and why this is such an important moment that happened in the summer of 2017 that really kind of demonstrated to the world that running a full node is really kind of calling the shots as to the direction of the network. I think this is also important. Explain to people what the difference between running a full node and mining even is. This is great, and this gets to the core of why Bitcoin, the software, functions effectively.

Starting point is 00:09:41 What mining does and what full nodes do is they, and we validate the integrity of the transactions that are processed and ensure that the behavior of the network is in compliance with the rule set that the participants in the network have agreed to. And so the job of the miner is to process the transactions. What we basically do is say, you know, there's something called the Mempool. So you've got thousands of people and now millions of people around the world sending Bitcoin back and forth. They are attaching a fee to their transaction in an attempt to get a minor to include that transaction in a block. So it's like an auction. What miners will do is pull the highest value transactions into blocks, sort of in cascading order from highest fee to lowest fee.

Starting point is 00:10:29 And so once we've constructed a block, which is really just a set of transactions that are compliant within the rule set, we find the block, which means, you know, discover the cryptographic signature of that set of transactions. And we say to the network, look at me, I found it. And we show the completed block to all the nodes. And the nodes look at the block and say, does this block sit within the compliant framework that the software that I'm running on my full node says is check or fail. So we think about it very much like a puzzle where a puzzle takes a really long time and a lot of effort to finish, but anybody walking by can tell you if the puzzle's done or not.

Starting point is 00:11:14 And so we're the puzzle solvers and the nodes are the puzzle checkers, but they have the power because if they say your puzzle ain't worth the pieces that are assembled, we don't get paid. So we have a tremendous incentive to behave properly within the rule set that the nodes dictate. Because if we don't do that, we don't get paid, but we spent all that money on the electricity to solve the puzzle in the first place. So the game theory is such that the nodes have power over the miners and the miners are highly motivated to be compliant within the rule set defined by the nodes. So how much does it cost to run a full node and how difficult is it? And I run one I'm just asking this for the audience to hear how important this is, this piece.

Starting point is 00:11:59 The person who's checking the puzzle to make sure that it's a completed puzzle, I love the analogy. How much do they got to spend and how much effort is involved and how much electricity are they burning to do this activity? Pretty cheap. You can get a raspy and a couple other pieces, maybe one terabyte, two terabyte SD card and get a full node running for less than $200. I think I've seen some setups.

Starting point is 00:12:21 They're less than $100. There's even developers working on software, AB core specifically, one that comes to mind where you can actually run a full node on an Android phone or some Android devices as well. So it's relatively cheap. A lot of people can afford it. I actually just spun up a full node two weekends ago. Got a new Mac Mini, 16 hours to go from zero to setting it up. And it's pretty easy. You go to GitHub.com slash Bitcoin slash Bitcoin.

Starting point is 00:12:47 You follow some directions. And you're able to spin that node up and download the, rules set and blockchain the history of the blockchain and follow along as new blocks are produced and you're savvy enough, you'll actually use your full node to make sure that if you're actually taking possession of UTXOs, your Bitcoin, that you're validating the addresses that Bitcoin is sent to on your node alone. So you're not trusting anybody else's node, but the node that you downloaded and have it in your possession. What do you guys look at it is the governance structure of Bitcoin? Is that a good way to describe it? It's very low cost.

Starting point is 00:13:23 basically be a part of this voting and this puzzle checker, the energy expenses is pretty much negligible. Like a person's not even going to notice the energy that it takes to run a full note. Yeah. So, and I want to be, I want to be super cautious of the term governance because Bitcoin is fundamentally an opt-in system and an opt-out system. So it's bidirectional. And so, you know, you hear the term like governance in a lot of other, a lot of other projects that are out there. And I'm super wary of it because I think that the governance mechanism for Bitcoin is fully distributed and decentralized. And so what that means is that there's total autonomy to interact with the rule set independently. And there's no way to sort of like the idea of a vote means that there's a majority rule, which is not the governance mechanism that functions for Bitcoin.

Starting point is 00:14:14 It's different than that. So like, you know, Bitcoin is not a democracy. Bitcoin is a rough consensus. Yeah, exactly. That's what I was going to say. You only download a note you're participating in the social consensus of the network and using that node to verify for yourself, at least in the way that it should be used. So, Marty, if the three of us wanted to create our own rule set, we want to take the Bitcoin full node that we're currently running, change it slightly, and the three of us agree to

Starting point is 00:14:40 run that rule set. Now we're running our own hard forked version of Bitcoin, correct? It's a very small network effect. Yes. But then we don't have any money. miners that are willing to mine blocks on that network of three nodes, correct? Yes, we'd have to convince if we keep the hash cache out 256 mining algorithm for our three-person Bitcoin fork, we'd have to convince at least a couple miners to point their hash rate at our fork network. So, Harry, go back to 2017, now that we just had that many example of forking Bitcoin with three full nodes and explain what was attempted back in

Starting point is 00:15:20 2017 and what the result was? In 2017, and I'm sure Marty's going to have a lot to add to this as well, I was still in, not in my Bitcoin infancy, but in my Bitcoin pre-adolescence, but essentially there was a very contentious technical introduction into Bitcoin the software, which was the argument that there was a group of relatively centralized actors who were pushing an agenda to do something called increase the block size limit, where, you know, if you think of a blockchain as a database fundamentally, each block has a certain amount of space within it in which you're able to include transactions. And so what the argument that this group of people wanted to

Starting point is 00:15:59 introduce was a bigger block size. So they wanted to double the amount of transactions that could be included in a block and they wanted to do so through a fork. And so what the Bitcoin network was able to prove through rejecting this was that the folks who wanted to do this were largely mining adjacent and mining related. It was it was Bitmain and it was others. And what happened was you had these sort of, I don't want to say larger entities, but they were sort of larger corporate entities. Coinbase was on that list. I think ShapeShift was on that list. There were scale. Very scale. DCG was on that list. Bit pay. I think that's important because you're showing how much firepower was coming to the table with this idea that they won the fork it to have larger blocks.

Starting point is 00:16:46 I mean, it wasn't like you were dealing with a rag-tag group of people in the space. This was a powerful minority decision. Attempted decision. The way it went down. So this goes all the way back. Scaling debate. So it was a scaling debate. Bitcoin users, the network, stakeholders within the network, whether it be people building

Starting point is 00:17:04 businesses, building mining operations, or just using Bitcoin and running full nodes and very passionate about the trajectory of Bitcoin moving forward. And of course, the developers as well, working on the protocol. And the debate was, all right, how do we scale? scale this. And as Harry mentioned, corporate entities wanted to double arbitrarily. So it's like an arbitrary doubling of the block size from one megabyte to two megabytes. And just a lot of the community, myself included, a lot of developer community and other stakeholders for like, all right, this doesn't really make any sense. Because if you double it once, what's to stop you

Starting point is 00:17:36 from doubling it again and so on and so forth into perpetuity. And that is a bad tradeoff to make. And I think it's important to highlight, Marty, as you're saying that, the bigger that we make these blocks, the less or the harder it is for a full node operator who's checking the puzzle pieces to do that independently at $200 with no electrical costs and all that kind of stuff. Because we've kept the blocks small, anybody and their kid's sister can go out there and stand up a full node and become a checker of the puzzles that are being constructed in a low-cost way so that we have. I mean, I don't know what the number is. I've heard anywhere from 10 to 100,000 full node operators. I'd be curious to hear what you guys think the numbers are. But to keep the block small, we're able to keep the protocol decentralized at the end of the day. So I'm sorry to interrupt you. Keep going with what you were saying there. Said perfectly, you want to be able to make sure that as many individuals as possible and download the blockchain, which is filled with data. Right now, I believe the blockchain's, I haven't looked in a while. It's probably around like 350 gigabytes, I would imagine. So if that gets too big, if you allow two megabyte blocks, though that megabyte blocks, so on and so forth, blocks have produced every 10 minutes,

Starting point is 00:18:50 and those blocks wind up getting pretty full. That's a pretty significant burden on individuals trying to download the blockchain, especially when you take into consideration bandwidth around the world and how fickle that can be in some areas. So taking these tradeoffs into consideration, the stakeholders, particularly from the developer community and Bitcoin users that rallied on Twitter and other social. networks.

Starting point is 00:19:13 This doesn't make much sense. Number one, because you're just arbitrarily doubling it. And then two, you're actually hard forking to do this. And so when you hard fork, there's a chance that people get forked off the network. And in Bitcoin, you want to be backward compatible when you're making these updates. So you tend to rely on what's called a soft fork, which allows you to get these upgrades, but also make sure people running earlier versions of the software are not out of consensus. Like the man in a coma, a man who falls in a coma for three years and has his node running at

Starting point is 00:19:40 home, be able to wake up from that coma and go to his node and still interact with the Bitcoin network three years later. No change is going to make it so he's out of consensus. And that's how the Bitcoin software projects sort of approaches the development of the protocol. It's very conservative and want to make it so anybody throughout any point in Bitcoin's history can interact with the network no matter what version of the software they're running or as early of the software version as possible. Let's take a quick break and hear from today's sponsors. All right, I want guys do imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with

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Starting point is 00:24:24 This is about what features and facets of Bitcoin are valuable over. over a 20 to 50 to 100 year time scale and prioritizing those now when things are still not fully ossified, still malleable. We as a community need to continue to prove that this is a multi-century project and take those priorities to heart today in the development decisions that get made on an ongoing basis. And so the argument that we need to double the transaction throughput in exchange for compromising on the broadness of the distribution of the validator set is an unbelievable sort of in retrospect decision to have been proposed, you know, whether it's seven transactions, a second or 14,

Starting point is 00:25:09 doesn't matter. Getting that validation set into as wide a set of hands as possible is such an order of magnitude more important to the longevity and viability of this project. That's the decision that got made through, you know, through the broader community. But I want to go back to exactly what Marty said at the end there about backward compatibility. This is the key that the choices that we make on an opt-in basis, not the choices we ever make for the network. The opt-in choices that we make can be projected out over such a long time scale, and we can have such a high degree of confidence that the Bitcoin, the UTXO set, like we've talked about, that sits in a wallet or sits in an address over an incredibly long period of time untouched, will have the same amount of validity

Starting point is 00:25:55 an inclusion within the choices that get made by the development community over these multi-decade time scales. This is why we are building harder, sounder money that can scale over time. Precedents matter. Like arguably, like, we could have ruined the network if the contingent of power brokers that wanted to arbitrarily double the block size could have destroyed Bitcoin right then and there. But luckily, it didn't work. Full node validators proved that they run the network, and here we are today, four years later. And that's really kind of the point of this entire part that we're talking about is the full node operators sided with smaller blocks with a Segwit update, opposed to going in a

Starting point is 00:26:36 different direction that was just, hey, let's just keep increasing the block size, which would lead to this centralization of nodes. And so the full node operators, the consensus of the full node operators led to smaller blocks is what will be validated. For the context of this conversation that we're having, particularly tonight, 95% the hash rate was signaling for a doubling of the block size, too. Which is the opposite of what the full node operators had signaled. It's final proof that we are subservient to the will of the node.

Starting point is 00:27:11 We as miners are subservient to the will of the nodes, and that is the correct path forward. All right. So let's go to this second softball question. that I have. We went almost 25 minutes on the first softball. Okay, so this next one, my God, have I heard this one? Bitcoin mining uses so much energy, it will boil the oceans. It's our goal. This is what we got into this industry for, really just trying to increase the temperature of the world's oceans. No, I mean, to start this particular topic, like I think it has to be laid bare that the Bitcoin wears its energy consumption to a certain degree on its sleeve.

Starting point is 00:27:50 Anybody can point at the network due to the fact that it's an open protocol, an open source protocol, all the data about what's happening in the blocks and the amount of computing power dedicated to bringing those blocks to market and the amount of hash rate dedicated to that, which is estimated based on how fast or slow blocks are coming in every 2016 blocks. You can sort of ballpark how much energy is being consumed to produce the amount of hashes that are being produced to secure the network and add blocks to the Bitcoin blockchain.

Starting point is 00:28:19 So right off the bat, Bitcoin has this, I don't want to say an unfair advantage, is easy to pick on and point out and say, hey, look at how much energy the Bitcoin network's consuming, whereas if you had to get a measurement of the amount of energy that is used to back the U.S. dollar reserve system, and that includes things like the military industrial complex, all the buildings that run the Federal Reserve Banks and the commercial banks in the U.S. banking system, all the commutes to and from work of the people that work in those buildings, the amount of paper. expending those buildings, the amount of energy and air conditioner and heating consumed in those buildings, that number just isn't public. The extent an effort to which you'd have to go to actually

Starting point is 00:28:59 get that information to compare to Bitcoin is extremely hard. It's not easy to find that information. So Bitcoin sort of added disadvantage right off the bat with this particular argument that it can't really be compared, truly compared to its competitors because they don't wear their energy consumption on their sleeve, just like the Bitcoin network. does. And then, which is what Harry and I sort of know very intimately due to what we're doing specifically in the field with Bitcoin mining is if people came to understand the sources of energy that is being converted into electricity to mine Bitcoin, paints a bit of a different picture where you're not really creating net new energy to mine Bitcoin. You're not going

Starting point is 00:29:40 out and drilling a hole in the earth to pull out oil to mine Bitcoin. Specifically, Bitcoin miners, again, because they are incentivized to drive their cost to power production down as low as possible, they go and seek out extremely cheap sources of energy, which tend to be stranded renewables or fossil fuels like natural gas in oil and gas fields that would otherwise be wasted via flaring or venting in some cases. So number one, it wears its energy consumption on its sleeve. And number two, due to the just pure incentives that drive cost down as low as possible, Bitcoin miners are going to disparate lands to find wasted and stranded energy. Preston, I have three assumptions I want to challenge in this, like as a very good sort of baselining for this whole discussion.

Starting point is 00:30:25 The first is that energy consumption is not a bad thing. If you look over the long arc of history, the best societal biomarkers for sort of societal advancement and maturity and quality are all extremely correlated to energy consumption per capita. Healthcare, education, nutrition, infant mortality, all of the things that you would look at and say, wow, those are moving in the right direction. also correlate incredibly tightly to energy density at the population level. So that's sort of of the first level setting that I think is important in a discussion like this is like, it's not like the energy is being used to spin a whirlpool in the ocean that never gets, that never touches anything. This energy, you know, that gets consumed by us as a society delivers utility and delivers good outcomes. So that's the first piece. The second is that I think

Starting point is 00:31:11 energy in the context of Bitcoin is really discussed as waste. And I just challenge that premise, first and foremost, the Bitcoin network is directly tied to the laws of thermodynamics, as I'm sure we're going to get into in more detail. But that tight relationship between thermodynamic laws and the value proposition of the Bitcoin network, the Bitcoin network delivers incredible value to millions of people all over the world. So that energy is not wasted. That energy is properly utilized for positive economic outcomes for people. So I immediately challenge the assumption that it's quote unquote wasted as if it's not being used for something of value. It's absolutely being used for something of value.

Starting point is 00:31:49 The quality of the Bitcoin network delivers tremendous value. And then third, this is another kind of foundational assumption around this argument set, is that when I plug a new miner in, I'm not generating another marginal kilowatt hour. That kilowatt hour already exists, and it's being consumed by me. But me plugging in a new miner doesn't make the coal turbine spin one more time around the axle, or the nuclear turbine, heat the steam one iota more, or the, you know, the net gas pipeline pump in one more unit. That's not how the energy grid is designed.

Starting point is 00:32:24 It's not how the energy generation and transmission system, certainly in the United States and not elsewhere as well. It's not how that works. And so we need to go back to a bit more of a first principle understanding of how energy gets generated, transmitted, and consumed for us to have this discussion in a substantive way. And I think the really important part is you now have an incentive structure for the entire planet to figure out a way to harness the energy like you're saying that's already being created, whether it's wind, some type of water turbine or whatever. I don't care what it is or flaring.

Starting point is 00:33:00 And I'm sure we're going to get into a lot of that with Marty. It's almost like if you're on a sailboat, you're capturing the wind that's already there. You can harness it or you can put your sail down and complain about somebody harnessing it. But you now have one of the biggest incentive structures that has ever been put in place in the world for trying to capture zero-cost energy, which I think is a really exciting part to all of this. So I first want to just dive into this idea. Do you guys see more from a future standpoint from where we are at today in five years from now, are you going to see people that have, like, heating elements or home water heaters and furnaces, things like that, that are actually mining rigs?

Starting point is 00:33:44 People in some areas are doing, it's very niche right now. I know Jesse Pelton from Honel Ranch down in Texas, he has a hot tub that he made out of an S-9 miner. He calls it SPA 256. To some of these applicants, and in Siberia, I think there's been many cases of people using miners, to mine Bitcoin and then heat their homes to save, save an electricity cost. There's some do-it-yourself guides out there that you can find. I believe Kano Alchemist is one that you can go. And he's got a guide on how you can create a home miner and use some waste heat from that minor to heat your house. Whether or not that's commercial in five years, I can't say confidently that it will or won't be, but it's certainly possible. I just look at it from, let's just say this does become global

Starting point is 00:34:32 money. Everyone now has an incentive to take the thing around their house that's just naturally just wasted energy. And you would think that there would be such an incentive for market participants to start designing ways to capture anything and everything to start doing these activities to secure the network, but also participate in some type of mining pool so that they're collecting money from this. It just seems like an obvious next step that I guess wouldn't be real obvious today. It all comes down to the cost of power. I think the cost of power is low enough. I mean, and people are looking to profit off of mining. Like it will happen. Like I said, it's happening a little bit, but whether or not that'll be widespread in five years, again,

Starting point is 00:35:14 I can't say confidently. Again, the opportunity that exists with these stranded energy sources is so large and so vast. It's going to take a couple decades to begin building out and plugging in the infrastructure to take advantage of these sources and be as efficient as possible with those, I think commercial use case may come on the back end of the curve. I go actually pretty hard the other way. I think that I think it is going to be pretty approachable to have this happen house by house. I think that it's been a pretty good bet over the last 50, 60 years that having Moore's law at your back is a good spot to be in, which is where we're at right now with solar and with semiconductors. And so you get some of the solar stuff cheap enough.

Starting point is 00:35:57 it's going to make all the sense in the world to throw a couple of rigs on the back of that. You know, why waste selling it back to your grid when you can just, you know, push it through some sats? And so it's going to come down to the cost of the infrastructure. And I think that I think that's kind of the limiter there. But like you get Moore's law working on solar arrays well enough and you get some advancement there. It's going to make all the sense in the world to have that on your home. And, you know, depending on how you finance, you know, the houses of the future, you're, you're offsetting your mortgage to some degree with something like that.

Starting point is 00:36:25 or you're offsetting your other utility bills, your, you know, your water or pick your other utility. You're offsetting it with, you know, with those sats that are churning on the backside of an array. I could totally see that happening, you know, 30, 40, 50 percent market penetration. So, Marty, I want to get into Great American mining and what it is that you guys are doing today. Because I just find this so exciting and just so fascinating because everything we're talking about of harnessing energy that's already there, but it's not being put into. any type of productive use, but now through what you guys are doing, it is. So explain to this in a first principles kind of way for people just from start to finish to really kind of visualize

Starting point is 00:37:05 what it is we're talking about and what it is you're doing because it's fascinating. Yes, great American mining story starts the search for cheap, abundant energy. Like I said earlier, the goal of miners, especially if you're running a mining business, is to drive your cost of power production down as low as possible. So on our journey to fund, cheap, abundant energy that will allow us to scale. We stumbled into the oil and gas industry. Actually, our head engineer, Rite, was at a county fair in Utah or state fair in Utah, just talking to a buddy of his new oil and gas industry was explaining our problem of what we

Starting point is 00:37:43 were trying to do in regards to cheap energy. And his buddy said, hey, I have this water treatment facility and we're just flaring gas. Into the atmosphere, I believe we have like 50 MCFD, if you want to come, plug in a generator, and hook up those miners, we can certainly make that happen. And that was basically the start of the journey that we went on them. And so we went there. We plugged in a generator, plugged in a pipeline that took the gas from where it would be flared in a flare like the stack that's behind me in this video.

Starting point is 00:38:10 Instead of piping it to the flare stack, just piped it to a generator that converted the energy into electricity. And that was used to run our miners. And that was our first prototype. We said, hey, this works. So for the last three years or two and a half years, we've been going around the oil and gas industry, particularly in North Dakota in the Bakken, because North Dakota has very strict flaring regulations.

Starting point is 00:38:32 And basically our value prop to producers is, hey, we know that if you flare a certain amount, you're going to have to stop oil production. The regulators in North Dakota are very strict. They have drones flying over fields and really trying to measure how much each producer is flaring. After you flare a certain amount, the regulators come in and say, hey, you have to shut down production. you're contributing too much CO2 and methane to the atmosphere. And so we come in and we say,

Starting point is 00:38:57 hey, instead of flaring that gas, why don't we do an offtake agreement? We'll buy that gas from you for very cheap. Instead of flaring, you'll be able to just pipe it to our generators. We'll consume it or consume you convert it to electricity using an EPA certified generator. We'll mine Bitcoin with it. That's how our pitch started and that's sort of evolving as the producers sort of understand what's going on in the 20 and 40 foot shipping containers that we bring on to their well pads. are producing.

Starting point is 00:39:24 Talk the containers real fast. So you've got a 20 to 30 foot container that's filled up with mining rigs. It's pretty simple, right? The infrastructure on the well pad, you get a pipe that takes the gas and pipes a tier generator. We daisy chain a few generators together. It's in case one goes down. The whole container doesn't go down. You can keep hashing the energy from that generator to a power distribution unit that

Starting point is 00:39:49 exists within the container. and then that PDU distributes the electricity to each individual miner in the 20-foot shipping container. We can fit, I believe, like 160 M20s is. And as the models keep going up and down, you can get a little creative and fit more. That's the thing about these containers. Harry mentioned power density earlier. These containers are extremely energy dense.

Starting point is 00:40:13 And so about like a 20-foot container, depending on what model, can produce anywhere from 750 kilowatts to 1.2 megawatts of energy on the oil field, depending on the BTU content of the gas. Let's assume it's clean gas at 1100 BTU, and you're producing 120 MCFD. You can consume that would be like a megawatt of a mining operation there. So we come on and it's the beauty of it. These are very modular containers and the modular solution to their problem. It takes a very little real estate on the well pad. Again, we say, hey, instead of flaring that gas, it's run it to our generators and plug it into this container.

Starting point is 00:40:52 The infrastructure is pretty straightforward. And we have some fans to help regulate airflow and some filters to make sure it doesn't get too dusty. If you understand the physics of what's going on, particularly around the airflow, you can get these boxes up and running and make sure that they have significant uptime. One thing we're very proud of is that we've had 98% uptime in the field, which is comparable to, like, warehouse money. So now is they're funneling this gas to your rigs, to your generators that energize your rigs, they're able to keep doing their operations for longer because they're not flaring? Is that correct? Yes. They're able to extract more oil and push more to market, specifically in North Dakota, but it seems that the posturing in the industry throughout the United States is moving towards the North Dakota model. Texas Railroad Commission is posturing like they're going to get strict with. flaring specifically.

Starting point is 00:41:45 I want to just ground us in in some in some framing. How much cleaner is it to do it this way to run the flare or the venting through a gen set or generator than it is relative to what they were doing previously like like? Like what's the Delta look like? It depends on where you are. It depends on the type of flare and depends on how windy it is. So North Dakota, especially in the winter, it gets very windy. And these flares, as you can see, this one behind me is leaning a little bit when it's windy.

Starting point is 00:42:13 It makes the flare a little less efficient. So the flare is burning methane at the end of the day, which is a greenhouse gas that's extremely heavy compared to CO2. It's 30 to 50 times heavier depending on the amount of time it spends in the atmosphere. And so when it's very windy and these flare sacks are blowing all around, very inefficient. Some studies say flares with wind that's higher than 10 miles per hour are 30, 30 percent efficient. You're having a significant amount of methane leak beyond that flare. and when you pipe that to an EPA certified generator combust it in there, that's 99.99% efficiency. You're still creating CO2 emissions, but it's much more efficient compared to some flares in windy conditions.

Starting point is 00:42:56 And then on top of that, which is more important, you're creating positive economic value. So it was something, again, like I said earlier, we're doing off-take agreements, but now we're getting into joint ventures with producers want to participate in the upside of sats that are being produced in our mining containers. And so the flare is turning from a drag on their balance sheets and their income statements into a positive revenue stream, significantly more resilient and profitable at the end. So how much if you procured one of these mining rigs, just say the 20 to 30 foot size rig, in a year, how much would that produce in value? Assuming that I know it's really hard because the price of Bitcoin keeps going up. I don't know how you could possibly estimate that based on the price move. moving up all the time, but give us a ballpark of like ROI for something like that. I can tell you exactly.

Starting point is 00:43:47 So we actually built a gas to hash calculator. That's what we call our containers is gas to hash containers. We basically built this calculator or engineering team. It takes your MCFD produced in a particular well pad. So the particular example I have up right now is 500 MCFD. The BTU to scuff is 1100 BTU, so it's very clean gas. The current netback for this producer is about 50 cents per MCFD. and the minor model we plugged in was the M20s, which is a couple generations old coming from what's minor.

Starting point is 00:44:17 So this is all compared to Henry Hub prices. It's not even just flaring. We're assuming that this gas was able to be brought to market and sold at Henry Hub prices minus the marketing cost. So today, if you were to do that, the revenue produced per day with this particular set, it would be $15,878.78. And monthly, it turns into $475,000 roughly, which is $4,000. $20,000 more profitable, they would be able to be selling that gas to market at Henry Hub prices. And now that's if they were able to even get it to market. The multiples that you're making on this waste gas are insane. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:48:22 How much time were they down for flaring? Like if they could normally produce it 24 hours, they're down to 12 hours because of flaring. What do this numbers look like? I don't know the exact numbers. They shut down for a significant amount of time. In some cases, where the, where the well goes a little stale and then getting it back up and running is a bit of a burden and takes a lot of money. So they're highly incentivized to reduce this flare. So they feel like they're getting close to the EPA targets or the state regulator targets. They'll shut down themselves to sort of fall below that line so they can still revamp the well without having to be forced shutdown. If they're forced shutdown and forced the stay shut down for an extended period of time,

Starting point is 00:49:05 they may not be able to get that well back up and running very efficiently. All right, guys, I want to transition into some of the questions that we had from Twitter. I posted we were going to have this conversation and we got a ton of questions for both of you guys. This one is, I think, a really common question that a lot of people have. For an average guy, in your opinion, is it better to invest in mining or just straight up buy Bitcoin? I think buying Bitcoin is probably better. But if the execution risk is high, that's all I'll say, right? Mary, you've got to be able to execute on actually plugging this in and doing it at a price that's

Starting point is 00:49:38 profitable. Listen, you really need to think through very carefully if you have the chops to do it yourself. There are some service providers out there who do a good job of hosting your gear for you. But again, like, unless you've properly allocated to Bitcoin within your perspective on the asset, I wouldn't start looking at mining on an individual level. Because of the competition. there's a lot of mistakes that can be made along the way. And you wind up have the intent of getting into mining that you're going to mine all this Bitcoin.

Starting point is 00:50:07 And it can take you a lot longer to plug in that machine. And it may not make as much money as you expected because your electricity costs are higher than you thought they would be. And then the actual, like, servicing the machines knowing when to replace fans and how to work with the hashing boards. It's not something you just jump into and understand right away. Baptism by fire, you've got to learn a lot of hard lessons to understand how to execute, have the, have these, I mean, the goal is to have these Bitcoin miners are essentially physical Bitcoin options. You want up and running as long as possible. You want them to have the highest up time that you can possibly get them to have. And if you've never done it before, there's just

Starting point is 00:50:42 a learning curve that you're going to have to go through. You're looking to accumulate a certain amount of Bitcoin, like Harry said, probably better off buying just so you can get in before the price runs up anymore. The other like intricacy to it is like each of the, like exactly what Marty said about, about, I think about the rigs. basically as Bitcoin-denominated assets and specifically options, they kind of play with whether or not they're a bond or an option. But they do have this option component to them where there's this uncertain expiry. So you're constantly living through a period of time decay where Bitcoin price can go up and protect your margins for longer. But on average, hash rate goes up.

Starting point is 00:51:22 Machines get more efficient. People find cheaper power. Over time, the number of sats that your hash rate will produce is going to go down. And so you're living through this period of time decay where you hope that price continues to appreciate so that you can run at a profitable margin. But the sacks that get produced, it just isn't going to be there as long as you, as long as you think. And that's a, it's a total uncertain variable. So you have to be really thoughtful about sort of the dynamics at play within, you know, within the framework on how you think about it, you know, because you really, you really are spending quite a bit of fiat to accumulate sort of this decaying sat revenue stream. And then how do you integrate that into sort of your

Starting point is 00:52:00 approach to fully allocating to Bitcoin in the way that you see fit for yourself? You need to think about it within that broader context before you make a decision like that. It's not like just starting a business. I'll tell you, the thing that I've just come through to the realization of talking with you guys right now is just how much of an incentive there is for the people that are doing this, they're getting energy for free or they have some type of incentive to like the flaring example that you provided, for them to be able to do their primary operations because now they don't have to flare because it's being sent through something like this, you can just see how it's, it is just driving this type of work, this type of mining work

Starting point is 00:52:42 into the hands of businesses that have those opportunities to leverage. And it's not like, hey, I'm going to plug this into my wall and my house and start using the electricity out of the wall. Like, this is not going to happen, right? Like, you're not going to survive for 10 seconds. No, and I think particularly what we're doing with waste gas, changes the opportunity costs in the oil and gas industry completely. Like, now that this one variable, this one revenue stream has been entered into the equation,

Starting point is 00:53:11 like producers start asking themselves questions, like, should I even build a pipeline? Do I need to drill as many wells next year? The oil and gas industry arguably in one of the most terrible allocators of capital over the last two decades in the shale industry specifically. This is coming from shale players that I've been speaking to for the last couple of years.

Starting point is 00:53:29 They'll admit it. They took out a bunch of loans, drilled a bunch of wells, expecting the price of a barrel and oil to be between $80 and $100, and that simply hasn't materialized. And so to keep a status quo of profit, they have to drill more wells

Starting point is 00:53:41 and get more volume to market to try to make up that delta in the price they were expecting. And so now that you have this revenue stream in Bitcoin mining that's driven by completely different demand factors and is providing a service that's demanded 24-7-365, which is adding blocks to the Bitcoin blockchain, it just completely makes these oil and gas producers more resilient. They don't have to depend on oil and gas only. They now have this other option that's driven by completely different factors, allows them take a step back, take a breather, and be more efficient and think about what they're doing with a bit more piece. of mine. These commodity producers need a two-week difficulty adjustment and a four-year having in their supply, right? It's a last year approved this, right? You have the demand shock

Starting point is 00:54:27 caused by the economic lockdowns and the shale industry collapsed in and of itself. And then the made futures contract a negative and the amount of mergers and acquisitions and bankruptcies that we've seen over the last 10 months, arguably due to a misallocation of capital and poor planning. So talk to everyone. I'm sure everyone's done. to hear the answer on this one. And it relates to the supply chain for the chip manufacturing. This has become a huge headline, just not for this space, but for automotives and you name it. So my understanding is that these rigs are a year and a half. Like if you order a new rig right now, it's a year and a half from delivery. What's the impact of this? What are the real timelines

Starting point is 00:55:10 that you guys are hearing? And just fill us in on all the inside scoop that you got. I think what we've seen, certainly during the Trump presidency and the relationship with China that's kind of matured here. And now what we're seeing, you know, in a pre, during, and post kind of peak COVID environment is I don't think it's that controversial right now to say that the most important company on the planet is TSM. It's got the most components in the most physical infrastructure across every sector, whether that's an iPhone or a Ford F-150 or an AWS server. You name the critical piece of the American economy, it touches that company in a critical path type of way. So the backdrop on sort of this piece of the conversation is that the supply chain

Starting point is 00:55:55 constraints are not limited to Bitcoin exactly like you said. These are extremely broad constraints and the entire economy is feeling them. Very specifically in our industry in Bitcoin mining, again, you're spot on. There are significantly delayed lead times. There are significant price elasticity at this point in time for in stock units or for nearly in stock units. When you're talking premiums, how much are you talking? Price of this hardware tracks the price of Bitcoin pretty close. The price of Bitcoin starts jumping. So does the price of the hardware?

Starting point is 00:56:28 So since the summer, Bitcoin's up 5X. So the prices on these hardware rigs have gone up 5X? Let's put it this way, like S-9s, which are probably like the oldest models running on the market right now, selling for $20 March of last year in some cases. Now they're selling for $250. Wow. Yeah. So you got to think about it along a curve of convexity where the S-9s go from marginally negative to marginally positive, the first. And so with that first initial spike in Bitcoin price, they go from unprofitable to profitable, depending on your power cost. And so they receive the most kind of upward vol in the curve. The other machines that have higher efficiency, they are profitable

Starting point is 00:57:13 longer and sooner. So they don't get the same spike as early in the price action, but they do see that rising tide. So you'll see a more advanced unit go from $2,500 to $10,000. So maybe it's only up three or four X relative to five X Bitcoin. So the S9 is up 10 plus X. A higher efficiency machine is up three to five X. So I'm curious, you had said the S-9, which is a very old rig, and you said that the price today was around $250. So if a person purchased that today, plugged it in, got into a mining pool, how much Bitcoin are they mining in a year's time frame for something like that?

Starting point is 00:57:52 I'm just trying to get an ROI based on that price that that rig's selling for, just out of curiosity. I mean, using same metrics of 500 MCFD, that would be like... Yeah, and I know it comes down to the energy cost, but if you were the energy costs that you guys are getting with your methane operation. Yeah, I'm trying to think of how many S-9s I would take to consume that electricity on top of my head. I can tell you that at 10, approximately 10 cents power, which is normal for New York City apartment, not so normal for any minor on the planet. It's much higher. That's about a one-year payback. that generates in net of net of the electricity, about $265 a year.

Starting point is 00:58:35 Wow. And then last year when it was at $20, you would have probably still been, I mean, it was $20. So it's 100% return on $20. I'm assuming you would have, would you have even had it plugged in a year ago based on the competition in the Bitcoin price? Or would you would have had that rig turned off, a 10 cents? Not in a New York City apartment.

Starting point is 00:58:55 Yeah. So that's like, theory is like a lot of the S-9 sold, like March or April last year, Harry, and then they got moved to people with very low cost of power production, people was free to power between zero and probably one and a half, two cents. For me, it's just beyond fascinating to see that just naturally taking place in a free and open market where these rigs that I think at face value, you might think, oh, well, now they're just going to throw all these rigs away that they manufactured from eight years ago. And that is not the case.

Starting point is 00:59:26 These things are being repurposed, sold into areas that have no electrical cost or it's going to just pen up demand of energy that's just being burn off. When the market runs again on the next cycle, it becomes a very profitable machine for somebody to run. And it's providing security to the network. And man, you can go on and on. It's fascinating stuff. Transparently, just from me and my career, this is what's so exciting about it is I get to be in one of the absolute hardest, most cut things. throat most flagrantly capitalistic environments, you could possibly find. To me, it's this and a trading desk. Those are the only things where you're, where you are, you know, kind of hip to hip and knife to

Starting point is 01:00:05 knife with the person on the other side of the trade, except for us, it's everybody else looking to start and run these businesses more efficiently and more cheaply at the power cost level and do better to integrate their supply chain and capture margin along other sort of naturally occurring, you know, avenue. It's such a game of inches, such a game of precision. decision. It's so exciting. And to bring this back to like the chip manufacturing too, like it is pretty dire right now where you have these foundries like four major ones, two of which TSM, Taiwan and Samsung, South Korea are two producing ASIC chips that it main in micro PT, which produces the what's miners are using in their devices. But with that being said, both companies are looking to build foundries on U.S. soil, which is huge development. People are really stressed out about it now. But I'm not. actually extremely bullish on the diversity of the semiconductor industry into the future in the next decade. Samsung just announced, I believe they're filing for permits for a fab in Austin,

Starting point is 01:01:06 Texas that would be completed in 2023, which is actually quicker than I would ever imagine. TSM is going to break land in Arizona later this year. So this is the question I got for you. Why are so many oil and gas companies, and maybe they are, maybe it's just my perception that they aren't, why aren't they seeing this? This seems like such a no-brainer. They're starting to. They're all dogs. It's hard to teach them new tricks, but we're working hard at Great American Mining and other

Starting point is 01:01:33 companies like upstream data and Crusoe are also doing a good job at helping to educate the producers in the oil and gas industry. And they're coming around. They're in such a position where they're backed into quarter as an industry, both from a profitability standpoint and from a PR standpoint, with everybody worried about the climate, that they need to put a very strong foot forward on both fronts to be more profitable. and show the public that they're looking to eliminate waste and be more efficient with the fossil fuels they're pulling out of the ground. What's something that either one of you guys have heard or seen lately, particularly in this space, that has just kind of blown your hair back, like, oh my God, I can't believe where this is going to go or this thing that's going to materialize out of what I just saw.

Starting point is 01:02:18 I think Ross Stevens' interview with Michael Saylor actually, surprising to hear him articulate. a theory that I've had, and many of us, a great American mining I've had for some time now, which is that Bitcoin mining operations are going to be the impetus for new hubs to be built areas where stranded energy exist. So Bitcoin miners are going to be sort of placing a flag down on new territory and attracting people and communities to come build cities and small towns around these mining operations. That's something I actually believe is going to happen.

Starting point is 01:02:53 and the opportunity is so incredible. And when you think about the effects that will have on how that distributes society, it's pretty insane to think about and play through. Transparently, I totally agree with you, Marty. What we work on at grid infrastructure is basically we take the inefficiencies that are out there in the grid, and we unlock them via Bitcoin mining. And that's exactly what Ross was talking about. This is why we try to get adjacent to renewable providers who are either in distress markets,

Starting point is 01:03:22 or they're working with sort of an overproduction or underconsumption of the asset that they've built. So we think about this really in terms of additionality where this is not how the way to get people to develop 50-year energy assets is not by offering them a bunch of renewable energy credits. It just isn't. The way to convince people to invest in the massive amount of energy infrastructure that's needed is to provide them a robust and thriving market solution. And we believe that Bitcoin mining represents the best way to bootstrap energy additionality, especially through renewables, because it's really tough to convince people to invest in transmission,

Starting point is 01:04:02 but it's a lot easier to get people to invest in the generation itself. So if you remove the need for the complexity and the size of the transmission, then you're able to sort of justify an entirely different suite of projects, oftentimes that have better unit economics than previously thought. The last thing I want to cover, and this really doesn't relate to mining, this is more on the full node front and lightning. And I'm kind of curious to hear some of your thoughts on how you see the Lightning Network growing, what that incentive structure is.

Starting point is 01:04:34 I kind of suspect it has a lot to do with clearing, immediate clearing, and the demand for that, moving forward. But I want to hear your thoughts on what you think is going to drive more and more people to use the Lightning Network. And then what are your thoughts also on the rates of plugging your Bitcoin into the Lightning Network, opening a channel on the Lightning Network via your full node, and collecting fees on that? How do you guys see that playing out moving forward? I'm extremely bullish on the Lightning Network myself. I use it every day. It's my own podcast, and we hook up our sort of website and our operations even to the Lightning Network. We use an app called Spinks Chat,

Starting point is 01:05:13 where the app picks up our podcast via RSS feed, and we've actually plugged a Lightning Network public node into our RSS feed. And so the app automatically picks that up, and anybody that listens to Tales from the Crypt on Sphinx Chat, and they have a Lightning Network built into the app, or excuse me, a Lightning Wallet built into the app. And as they listen to my podcast,

Starting point is 01:05:34 they stream me sats every minute. So depending on how much they want to stream me, individuals do anything from one SAT to 100 sets. So let's use the example of 10 SATs per minute. Right now, it's five-tenths of a penny. So that microtransaction is possible on the Lightning Network. And that use case alone really gets my mind going where you can sort of fit this in across the Internet. And so I think the Lightning Network, like you said, is going to be used for clearing and remittance

Starting point is 01:06:01 and moving money around the world, around the globe instantly. But beyond that, I think the Lightning Network specifically, Bitcoin did this, but I think the Lightning Network does it better, solves a hole in the Internet stack that's been there since the beginning. So you know how you have a 404 error when you don't get a web page served to you from a server. There's also a 402 error, which is a payments error. And so when they architected the internet and designed it from the beginning, they always thought there would be a native payments layer built in. And that's evidenced by the 402 error, which says, hey, payment didn't go through.

Starting point is 01:06:31 Not until we had Bitcoin and I think more specifically the Lightning Network with technologies like LSAT that Lightning Labs is working on. Could you actually plug this payments layer into the internet? So beyond clearing from a financial perspective, clearing for remittances and inner bank transactions, I think when this gets applied to the internet and used as a quasi-communications network via the internet as well, the potential for the Lightning Network is massive. In terms of running your own node, being a profitable routing node, I think that's going to be a business. It's not something that you're just going to be able to do willy-nilly and not any effort into it.

Starting point is 01:07:09 It's going to take a lot of effort and already does. But I think things like Lightning Pool, which allow you to lend your Bitcoin that you don't want to spend to Lightning Channels and get paid a premium or excuse me, get paid a fee for that, essentially creating a yield for Bitcoin you would not otherwise spend, but doing it so where it's in the Lightning Channel and you actually have partial custody of that the whole way through. I think that's also going to be massive for individuals to get yield in their Bitcoin without having to run a routing node per se. What's the yield? If say you would plug in one Bitcoin into a channel on Lightning Today into this pool, what would you get on an annualized yield for doing something like that? Would you estimate, Marty? Right now it's a pretty illiquid market because it's all being handled without a GUI, all being handled at the command line level with these different Lightning Network implementations,

Starting point is 01:08:02 specifically L&D. But once you get a GUI and you're able to have like a better market develop, I wouldn't be surprised. You see anywhere from 8 to 15% depending on demand on the Lightning Network at any given point in time. I think early books are showing around that level right now. That's totally nuts. I mean, you don't run into the lender-barrower type issues too because you're just plugging in your channel. And I guess you would just change the fee in order to get all your coins back out of the channel again.

Starting point is 01:08:31 Is that how that would work? Yeah, that fee is predetermined, I believe, too. You can rewrite that into the transaction. But yeah, it's like any lightning channel, it's a two-a-two. Multi-sig with your counterparty, you hold one key. They can never run away with your Bitcoin. The worst they can do is tie it up. And if you have watchtowers watching your channel and they try to steal it, they get punished.

Starting point is 01:08:52 So like the worst that can happen at scale when this is all fleshed out is that you have to wait a little bit to get your Bitcoin back to the address that you want to send to. You'll never lose your Bitcoin completely, I don't think. that counterparty risk is significantly reduced. Talk to us about the streaming part because I'm trying to understand the use case. I know you just described it with people streaming you sats, but that's just out of their own goodwill to stream it. Talk to us about how you could see a free and open market of streaming taking place of people receiving sats over lightning.

Starting point is 01:09:27 Well, it's like pay per minute, right? So you pay for exactly what you consume and become more efficient if you say somebody spends $15 a month on a Netflix subscription, but they only ever watch one show, arguably they're wasting money. Imagine being able to watch that one show and just stream the amount of value that show provided for you and nothing over that. That's the sort of efficiencies. This streaming use case can provide specifically.

Starting point is 01:09:52 What if they listen to it on 2X? It's the best of minutes. We need to appreciate just how, like, poorly served the financial use cases of the internet are. Why on earth, why on earth is, is Stripe a $35 billion business? That thing's getting marked up to $100, $150 billion before it ever touches a public market. So if Stripe is worth all that and you just saw Plaid pull out of the deal with Visa, they're going to now go public, double digits of billions of dollars. Like, these are not complex ideas. They're basically like, how can I tell different services my information? And how can, and how can I interact with a service?

Starting point is 01:10:31 These are things that it should not have taken the internet 40 years to start to figure out. And it's a massive underserving of sort of the commerce use cases and the financial use cases at the internet that Lightning is immediately sort of an order of magnitude improvement, the same way that Bitcoin is an order of magnitude improvement on the hardness of money and the store of value over time. And so what you get to see when you have sort of a technology enabled level up is that the total addressable market for what users actually want to do, turns out was way bigger than we thought originally.

Starting point is 01:11:05 And so we saw this very, very obviously with Uber recently. Like, if you told me in 1995 or 1998, how often I'm going to use a car service, I would tell you two times a year to the airport and from the airport when I go visit my grandparents in Florida. That's it. That's the use case for car services. I'll never use it anymore. What it turned out was, I actually wanted a car service all the time.

Starting point is 01:11:26 I just wanted to be way cheaper, way easier to book, way lower friction on the payment side. And so it took a tech-enabled layer to sit on top of an existing service to make it actually start to achieve a discovery of the addressable market and the demand structure for it. Lightning is going to do the same thing across dozens and dozens of Internet commerce functionality because we're already seeing the type of premium that's being paid for fintechs. I still think that fintechs are like an inning one or two and that lightning is how we get out of the bottom of the second and start to figure out that we actually have so much creative white space on the commerce internet that is just untouched because, you know, we were trying to paint on a canvas with a cudgel. Marty, I see you shaking your head. It looks like you completely agree with it.

Starting point is 01:12:17 It's insane, right? The incentive structures that you can set up with this so you can prevent spamming, right? You make it costly, but very cheap. It's still costly. So like the Sphinx chat that I was mentioning earlier, not only can individual streamy sats as they listen to my podcast, but chat app as well, and I can chat with my listeners.

Starting point is 01:12:34 And the chat app runs on the Lightning Network. When you're chat, you're literally sending a message via Lightning Network for one set. So you're just sending one set messages between each other. And if you think if you want to create like a social network that doesn't have the Twitter bots, like when you send your tweet out today, I noticed like a bunch of Twitter bots. Like imagine if you have, had a social network that said, hey, if you want to reply to this tweet, you have to pay two

Starting point is 01:12:58 sets or whatever. Very cheap for the individual at scale for these bots. It gets costly. And so you disincentivize that type of activity right off the bat. My lord. I think we leave it there. This has been just an incredibly, just dense conversation. And I have enjoyed the hell out of this. I think it's my engineering roots to hear what you guys are solving on the energy side and how it's just creating these incentive structures. It's just insane. It's mind-blowing. I guess the thing that you see so many policymakers trying to get to, how can we save the planet

Starting point is 01:13:34 with the way that we're creating incentives for clean and renewable energy? And I mean, my God, this is the biggest incentive structure you could ever imagine to unlock some of these innovations and discoveries in this space. It's just so exciting. Guys, give folks a handoff where they can learn more about you. And thank you so much for coming on and having this conversation. This was so much fun. You can find me on Twitter. That's where I hang out mostly at Marty Bent. Great American Mining. You can find us at gam.a.i. That's our website. Check out our gas to hash calculator. We have a blog up. It's only got one blog, but we're writing more content, don't worry. You can find out why we believe there's a budding symbiotic relationship

Starting point is 01:14:16 between Bitcoin miners and the oil and gas industry. And then you can find out information about podcast and newsletter, Tales from the Cryptamardi's been on my Twitter as well. You can find me at Harry underscore Sudak on Twitter. That's easy to find me. I spend a lot of, I spend a lot of my time mining Bitcoin with grid infrastructure or hiring. So DM me. I love it. It's going to blow up, bro. We'll have that in the Show notes for both of those links in Harry. Yep, I think you're going to have a bunch of people contacting you. Guys, thank you. Tremendously. This was so much fun. Thank you very much. Thank you, Preston. Pleasure is all. All mine. Hey, so thanks for everybody listening into the show. If you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you're using. We really appreciate that. And if you have time, leave us a review. So, thanks for joining us this week. And we'll catch you next Wednesday. Thank you for listening to TIP.

Starting point is 01:15:13 To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC014: Bitcoin Mining and Energy w/ Marty Bent and Harry Sudock (Bitcoin Podcast)

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