We Study Billionaires - The Investor’s Podcast Network - BTC068: Bitcoin Exchange & Mining Policy Incentives w/ Magdalena Gronowska (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the podcast where we're talking about Bitcoin. Today's guest is Magalina Grunowska. And during our conversation, she covers Bitcoin exchange and mining policy incentives. With so many governments around the world trying to wrap their head around what Bitcoin is or isn't, this episode is designed to help policymakers think about the impacts and consequences of implementing policy around Bitcoin. Magalina comes with a wealth of knowledge in this particular field and some interesting. experiences that have helped shape her point of view. So without further delay, here's my interview

Starting point is 00:00:35 with the thoughtful Magalina Grunowska. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right. So hey, everyone, welcome to the show. Like I said in the introduction, I'm here with Magalina. And boy, we've been chatting online back and forth from time to time and never really had the opportunity. to sit down and have this more in-depth conversation. So I'm really looking forward to going through this. So my first question for you is, how did you become a Bitcoin? How did you get into this space? Tell us your story and welcome to the show. So my story is common to, I think, many people, which is number go up. Take sure of this. 27. I mean, I've heard about Bitcoin,

Starting point is 00:01:34 and I remember even like searching for Bitcoin in my emails and coming across it around like 2013, but it was really number go up technology or I was like, whoa, wait a minute, I need to buy some because it's going up. And so maybe it's not as an exciting story. But it was also a quite the learning opportunity because I lost money in Quadriga. So that's trial by fire. You'll learn that way. I lost money through, you know, when you first get into the space, everything's shiny and sexy and interesting. And you're like, wow, these ICOs, they're really pumping.

Starting point is 00:02:06 And one of those people that despite coming in at 2017, I lost a lot of money because I was not, yes, I made some mistakes. But again, trial by fire. And that's how a lot of Bitcoiners become Bitcoiners, right? And how a lot of Bitcoiners custody their own Bitcoin because they do these missteps. And I just think trial by fire is probably the best way to learn because people don't listen. They think I'm going to make a ton of money, a million dollars on this NFT when most cases people don't. So the best way to learn is, you know, touching that hot stove.

Starting point is 00:02:36 So you were a Supreme Court appointed bankruptcy inspector, and you were overseeing the bank trustee for 76,000 victims on the Quadriga digital currency exchange collapse. At the time, this was a $215 million exchange collapse. And so I guess my first question for you is walk us through this experience, talk to us about what it was like, and talk to us about the whole exchange collapse, give us all the details and really don't hold back, because I'm just curious what this was like to go through. So I think, first of all, it was a huge shock to see such a loss. 215 million in Canada is in this kind of time where we're post-Mount Cox, you know, it's 2018, the end of 2018, seeing something of this scale. I don't think people were expecting it

Starting point is 00:03:26 because, you know, we're kind of transitioning away from this Wild West. And it really was, as more details came to light, you know, it's the perfect case study of everything that can go wrong in an exchange. And I personally lost money. That's how I came to be in this role. You have to be a creditor to be able to represent other creditors as a bankruptcy trustee. And I also sit on the committee that makes decisions on behalf of creditors because it's kind of like a class action lawsuit. So we inform kind of decision making. And what was really kind of depressing to everybody was how little assets were recovered. It was only about 46 million of the. the $215 million. And just to put a scale on that, currently it's worth about $1.4 billion. So it was a lot.

Starting point is 00:04:11 And the wild part is everything that happened that went down. There was an OSC report kind of postmortem, which actually called Quadriga Ponzi. And, you know, it really went to show this is pretty much everything that can go wrong. So the CEO had a criminal past. He was, you know, engaged in Ponzi schemes way, way back when he was 16 years old. And he was involved with another bad actor who had his co-founder was helping him with kind of these schemes. And that's how they met on these forums on how to scam people, which is interesting because we just had a recent research during this for Michael Patron. So the co-founder was managing a billion dollar defy treasurally for Wonderland.

Starting point is 00:04:52 So it's just wild kind of that this still continues and now it's 2022. But anyways, so, you know, typically in regular markets, there are measures in place to prevent something like a criminal running a financial institution. So what was really crazy there was Quadriga really misrepresented their custody practices. So the assets were not safeguarded in cold storage like they said. What the CEO Cotton actually did was he created and then he traded fake assets against clients using aliases. So some of them were like CP30, you know, just like making little puns. And then he sent client coins to other exchanges and he was a bad trader, like terrible. So the exchange, you know, him trading incurred about 143 million trading shortfall. And so

Starting point is 00:05:39 he kept then using client assets to cover the shortfall, which would then escalate the losses. And then with his death, it really kind of kicked off that collapse of the exchange because, you know, people started looking into what happened. And it was kind of more than that. And he didn't just do this. He also embezzled exchange funds. You know, he bought homes, multiple homes, cars, a boat, a plane, luxury vacations, right? And his activities on the exchange were deliberately not tracked in the system. Like he had blanked, you know, everybody else, you can see what happened in kind of the history, but he blanked it.

Starting point is 00:06:13 Quadriga didn't have a business continuity plan. So after he died, the directors that took over weren't able to regain Quadriga's wallets or his accounts. And he did all his like training and running the exchange on a laptop. So they couldn't access any of his devices. So they actually thought that, hey, maybe we can get some of the assets at some point if we managed to get into them. But no, actually, the wallets were empty. They didn't have any financial books and records.

Starting point is 00:06:38 You know, they failed to file corporate taxes. And then so that also led to this tax liability, which is right now the reason why we're delayed in a claims distribution is because equivalent in Canada needs to file, you know, their claim. In Canada, Bitcoin crypto companies have had such a problem getting banking and access to bank. or they got, you know, banks do risk. So he was using third party payment processors. And then these were at least, you know, one of these was commingling personal and client funds. And so the only reason we recovered $30 million was because the funds were frozen by CIBC. And, you know, because the bank was looking into this. So that actually saved predators because there was some money recovered beyond the homes. They did not have very good operational kind of practices. They lost

Starting point is 00:07:27 67,000 Eth, which is a lot right now due to a coding error. I believe it was the parody bug. So, I mean, Cracken, I know lost some money too. It's inaccessible right now. And yeah, so those are kind of, you know, at a high level, everything that typically, you know, the current financial industry is, those to kind of prevent against these things. They did wrong. This is huge, especially at that point in time for an exchange to have $215 million back in 2018. This was a really big deal. And I would imagine this was one of the larger exchanges in Canada. I mean, definitely not the biggest. It was the largest.

Starting point is 00:08:01 Was it really the large? It was the largest. But here's the interesting part. So it kind of got that way through fraud because he created all these fakes accounts. He was trading with himself and other users, especially right at the beginning, like when it first started, something like 80 or 90 percent of trades were his. So he gave this illusion of liquidity. And when people go to exchanges right, they're like, hey, there's a lot of volume being traded. here. It must be a safer exchange. He also said that he was registered with FinTrack, which

Starting point is 00:08:32 oversees money service businesses. And it's not like you register and they check in. It's a good practice thing. It's not like the government, you know, gave a stamp of approval. But people thought it was good, you know, it was like, oh, it's a sign that they're on the up and up. So, you know, there was a lot of fraud that happened, whether it was, you know, kind of to create this idea that this was a good exchange or actual fraud, you know, where he would. as trading against users and stealing their money. Wow. So for a person listening to this, they're thinking to themselves, my God, that sounds scary

Starting point is 00:09:05 as hell. And especially for people that are maybe new to Bitcoin hearing this, they're saying, what the heck? What would be your takeaway having lived through this horrific experience, which I don't think is the norm for most market participants in the space, what would be your takeaway for a person who's hearing this? What do you say? I think it fundamentally comes down to, you know, keep what you're comfortable losing on an exchange.

Starting point is 00:09:29 Just don't keep the majority of your funds on an exchange because things can happen. Now, you know, some of the larger ones we have seen if there is some sort of hack, they cover it with their own cash. But if it's significant enough vulnerability, you're not guaranteed to get anything back. And I know it's hard. So I want to be realistic. People trade, engage in trades. They set up, you know, trades for a certain limit price, right, to hit. It's a matter of really finding out what you're comfortable with and, you know, figuring out

Starting point is 00:09:59 how to de-risk. So maybe it's finding two or three exchanges that are more reputable. You know, they're following regulations. There's nothing shady happening. And, you know, spreading it out if you want, you know, so if one goes down, you don't lose everything if you are a trader. And a lot of people, too, they get comfortable, they put some money on an exchange. Maybe it's $1,000 or $5,000, but think about when Bitcoin was $4,000, and then it shut up,

Starting point is 00:10:24 you know, $40, $60,000 within one year. You know, you can 10x easily what you have on there and forget. And I think another key point that I'm just thinking of is just like the guy in charge so much flows from the top down with the leadership of any organization. I don't care what it is. Like this past week we saw Jesse Powell out of crack and make his statement to the world of, hey, if a government comes to me and tells me that I've got to seize up funds, I have to do these things in order to obey these laws without being shut down. So get your coins off the exchange

Starting point is 00:10:56 which literally coming from the top CEO of one of the biggest exchanges on the planet. This guy doesn't sound like he would ever say something of such ethical transparency, right? Do your homework on who's ever in charge of some of these organizations in the track. Yeah. And that one is actually interesting. So sort of after what happened in Canada over the last week, it's not just losses, exchange losses or a hack that you have to worry about. It's are you going to be financially censored for some reason, maybe even without due process like in Canada and your funds cut off or your address is flagged? So if there is a third party custodian that's subject to certain rules and they want to stay on the good books of the government that they want to continue operating, in that country, you might get your assets frozen as well. So that's something to consider.

Starting point is 00:11:46 Whenever there's a third party, you're not the one in control of your money. And so if you take money off the exchange, you control it, but then it's a different issue where you are responsible for your own money. So it's like, if you have a gold bar, where do you store it? Do you bury it somewhere and then forget, right? There's other factors that come into play and it's tradeoffs. But you have to kind of think about that for yourself. What tradeoff is more important to me?

Starting point is 00:12:09 For example, for me, just like a personal story. So I saw asset seizure through my grandma. So after the war in Poland, the borders were shifted. And she had this family farm, beautiful. She'd call it paradise, right? Beautiful gardens. It's just so so bountiful. The earth, like the vegetables. She's like, oh, yeah, it was like a shield. You know, that size, the sunflowers. And so when the border shifted, that was no longer hers. So she lost that asset. And that's something that, you know, she really missed. And so I saw that for my family. And so that's important to me. me is like, I want to have some assets that I know nobody can take from me. So that's how I view the world. And then you yourself have to kind of picture what's important to you. Are you responsible enough to kind of take that self-financial sovereignty? All right. So let's talk about another thing that you were a part of here. So you helped with the three IQ IPO, which was North America's first regulated Bitcoin fund on the TSX. Walk us through what this process was like. You have tons of people here in the U.S. wondering why in the world we don't have a spot

Starting point is 00:13:17 ETF. I know for you guys. But walk us through this process and then just kind of give us some of your thoughts on what it's like to kind of get something like this push through and then maybe some of your thoughts on the spot off ETF stuff. So 3iQ's Bitcoin Fund really paved the way for all funds, including ETFs in Canada. And that's kind of an interesting story too because 3AQ took on the regulator, so the Ontario Securities Commission.

Starting point is 00:13:41 So just to set the scene, in Canada, we have provincial regulators. We don't have one Securities Commission. Every province has one. But the Ontario Securities Commission is the one that other provinces look to, just kind of like the world looks at what the SEC does. And they also kind of throw their weight around too, around the other jurisdictions. And so they thought that a Bitcoin fund was not in the best interest of retail consumers.

Starting point is 00:14:07 And so what, you know, 3rd Q thought initially would be pretty, easy to get. Was it ended up being a three-year legal battle to make it okay? Sorry, is Grace Gill going to court or? It sure looks like they're ramping up to do something in the legal domain. Yeah. So they might actually have kind of like a three-a-cue journey where at the end of it, you know, there were multiple hearings. And the judge, so one of the commissioners, came out with a 26-page ruling about why there should be a Bitcoin fund in Canada and how it is in the best interest of retail consumers. And that, you know, that piece of paper,

Starting point is 00:14:45 that document is the foundation that all other funds went to apply for their prospectuses for. But it was really interesting because you really had to push back. So they basically had the OSC say no so that they could then take them to court and then fight for a ruling that would permit that. It's a different type of, you know, approach rather than asking. Because then you get a concrete answer. And I think it's really interesting. because Canada and the U.S. are very similar in terms of markets and just, you know, Western type of country. So, you know, maybe if some smaller country like Bermuda launches a Bitcoin fund, it's not the same kind of implication, but you have funds and ETFs in Europe, you know, Singapore, in Canada. And I'm really looking at the U.S. like the precedent has been set for these types of products.

Starting point is 00:15:34 And I really question why the U.S. does not have one, especially looking at what's happening with Grayscale and, the discount, the heavy discount, with the futures product, you know, the carrying fees. It doesn't seem like in the best interest of retail. At all. It is so administratively burdensome when you're looking at the futures, trying to synthetically create a price around these futures that are constantly being changed. And I mean, it's very frustrating. And it really makes you think, is he doing something in order to allow all of his Wall Street connections to get in there? And, you know, I hate to sound like a tinfoil hat type person, but I can't figure out any other reason why somebody would be

Starting point is 00:16:16 pushing back this hard. And I mean, the thing that I find really strange about it is Hester Pierce, who's the deputy there, has the exact opposite opinion of him. And I don't know if it's a good cop, bad cop routine that they're playing if it's like they just really don't get along. You know what's interesting to, so, you know, I worked in economic development type of activities on the policy side for government for a decade. And if it wasn't a country like the U.S., I would say you're shooting yourself in the foot from an economic perspective. Unfortunately, the U.S. has a significant moat in that everybody looks at the financial markets in the U.S. They are the biggest. So if you want to list something, you go there, right? If you're a Bitcoin minor, you don't list

Starting point is 00:16:59 on the Canadian exchange, you want to list on the U.S. exchange because of all the benefits that accrued with that. But otherwise, you know, I'm thinking just like in terms of investment and jobs that you're costing, if it were any other country, because you want to provide your citizens this opportunity, you want this industry to thrive and have, you know, the economic benefits and innovation that comes from it. So it's just I really question what is happening there and what they think, because typically, you know, government has trade-ups. They think this outweighs that. So therefore, we're saying no, because these other reasons are making it more important. They're saying it's not in the interest of retail, similar kind of type of story or there's market manipulation,

Starting point is 00:17:35 et cetera, et cetera, for all the reasons why they say no. But what is it that they think they see is the part that I question. All right. So let's talk the Citadel 256 Bitcoin mining. Explain to folks what it is, kind of help us understand what your role is there and how long you've been a part of it. Cedel 256, I launched with the co-founders of HUD-8, so Mark and Sean. And post-Hud 8, this was unrelated to HUD-Aid. And we were looking to build enterprise scale hosting for Bitcoin miners. And what's interesting is we actually started working on that and talking to Asian miners because of the connections that we had before the China ban. So what it really was was kind of this testament to the onshoreing of the mining industry back to North America. So it's

Starting point is 00:18:27 bringing manufacturing back because of the opportunities that North America has, whether that's competitive energy system or opportunities that for low-cost prices, for example, we were looking at a site where it was co-located with a wind farm. So we would get reduced pricing for the time that the wind was blowing. So about 80% of 100 megawatts site coming from renewables and then the rest from the Texas grid. Having worked for a decade with heavy industry around competitiveness issues, I'm very familiar with, you know, kind of the investment decisions that a heavy industrial undertakes, especially one that is energy intense and trade exposed.

Starting point is 00:19:09 And there's no other industry that is as energy intense and trade exposed as miners. And what I mean by trade exposed is if policies change, for example, China banning Bitcoin, will the industry just get up and go? And mining is pretty unique because you can just, you can move the miners. They're the biggest cost in terms of infrastructure. So you can ship them and rebuild. Unlike something like a steel plant where you have a Coke oven, that's maybe $30,000, $40 million, and has a lifetime of 30-ish years.

Starting point is 00:19:42 So it's a unique industry because you can move to energy sources that are cheap, that are even low, no cost or negative cost, as in you're getting paid to take that feedstock. And what I mean by get paid to take in is waste. People pay tipping fees to remove. waste. So as a miner, if you have an operation, you can lower your costs that way. Or you can co-locate next to a heat load. So you can sell the heat offtake, as in miners generate a lot of heat. That can then be piped over to a heat load. So that can be something like space heating for a city, which is happening in Vancouver right now in a pilot, or a greenhouse or a farm, you know,

Starting point is 00:20:24 warm up your hogs in the winter. So I think mining is pretty interesting and how. it manages to kind of infiltrate all these different types or parts of the economy. Let's take a quick break and hear from today's sponsors. All right. I want you guys to 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 people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering.

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Starting point is 00:24:43 Back to the show. Yeah, it's fascinating to think that you could have. A $10,000 minor is not really all that big for removing and sending it to some other jurisdiction that happens to be much more favorable to the policies of doing it. So if you take 100 of these things, that's a million dollars worth of infrastructure. And it's really not taking up a whole lot of space. In fact, that's why I think you see a lot of them putting them just straight into containers so that you can just modulize the container and send it somewhere else if the policies

Starting point is 00:25:14 start to become more advantageous to the people conducting the mining. Yeah, and just on that thought, that's why it's easy in some ways to attract miners, because if you create the right economic incentive in your jurisdiction, the miners can very easily pick up and go, because, again, the most expensive part is the capital part is the miner, and if the energy economics are much more competitive, they'll move over there, right? And look at what's happening in Texas. It's becoming a mecca. And there's jobs that are being created. And what's really fascinating, kind of the coolest part of Bitcoin mining is it straddles the digital and physical world. So it has a physical footprint, just like any traditional industry,

Starting point is 00:25:59 but it creates a product that's fully digital and it's a commodity. And so typically, you know, commodities, they have super low margins, but the margins on mining, you know, have been reaching 80, 90 percent. Like, it's wild. And you cannot, like, if the price goes up, you can't produce more Bitcoin. Like, there is a mathematical equation that says how many Bitcoin are always produced. So it's not like gold where if, you know, gold were to 5x, suddenly you'd have a ton more mines, you know, increasing production. So I think it's such a unique industry. And because of that, there's unique features that come with it.

Starting point is 00:26:37 And then also from that economic development perspective, why it's attractive. for countries or states or even cities to attract it is because you're creating these knowledge economy jobs that come with mining. So it's all the financialization of Bitcoin mining, right? There's the energy side and energy experts plus the actual builders, those who set up the mine, who build the infrastructure and manage it. And now we're integrating with other industries, like whether that's district heating or waste management. So it's just fascinating. kind of this diversification and opportunity in so many sectors of the economy. So what do you think most people miss about the whole mining process?

Starting point is 00:27:21 If you're just going to think, you know, the typical person that knows quite a bit about Bitcoin, what is it that they miss when it comes to mining? I think it comes down to sort of this misconception that Bitcoin mining is bad for the environment because it's using power. You know, there's kind of a number of different ways where they're wrong. One is, you know, they think that one Bitcoin transaction is the equivalent to a block reward, which you're probably familiar with. Another one is that just that there's all this energy that could be used for better things.

Starting point is 00:27:55 Maybe it's like hospitals or something, but they don't understand how much energy either misallocated or wasted. If we just look at some of the cool business models that, you know, these miners are finding flare gas in the oil and gas industry. Typically, oil and gas flares. So they emit methane from the oil and gas process. And because methane is 25 times more potent than CO2 or 80 times over a longer lifetime. And so because you're converting methane into CO2, it's an environmental benefit. And so, but it's still energy that's being wasted. So the awesome part is, you know, miners come in. They're a more efficient process. They're taking this wasted energy and they're putting it to good use for, you know, to support the Bitcoin network.

Starting point is 00:28:40 Recently, we're hearing a lot about miners destroying the planet, not just because they're boiling the ocean and wasting energy, but there's a lot of e-waste out there. They're generating waste, you know, filling landfills. And I think this is an opportunity to kind of like flip the narrative because there are miners that are taking advantage of waste resources, whether that is municipal solid waste or the, billions of waste tires generated annually across the globe. And so that is a resource that could be mined for energy that's just sitting in a landfill. And it's a negative cost energy. And so we're seeing miners kind of fill that niche and figure out better uses. The waste heat that is created from a miner is a resource as well, right?

Starting point is 00:29:23 Whether you're heating buildings or heating greenhouses. And this is both things that are happening right now or another kind of low-grade heat process in manufacturing. You know, there's opportunities to kind of reuse that waste resource. And so I think there's an elegance to Bitcoin where it moves based on economic incentives, right? And it's just, it's simple, right? It's just a simple set of economic incentives. And so for the first time, you know, we have this way where we can fund public policy issues that, you know,

Starting point is 00:29:57 typically have had under investments, whether that's, you know, the transition to a low-carbon economy where trillions of dollars are needed to get us there. Or, you know, this transition to kind of like a more modern, clean, resilient energy system because of a lot of our infrastructure and North America has been underinvested and we get brownouts. It, you know, transmission, distribution lines, generation. Some of these plants are over 100 years old. And so there is investment that's needed. And I think, you know, traditionally it's been the government. So either it's the users, so the rate payers, or it's the taxpayers or it's the private sector that steps in because, of some capitalistic opportunity. But we now have this new bucket that can fund sort of these

Starting point is 00:30:40 public policy issues that could generate some sort of positive environmental income or societal outcome. So, you know, whether it's waste reduction, whether it's resource optimization or optimization of the grid as is happening in Texas. And so having worked for a decade in the low carbon economic transition, I keep seeing the goalposts get moved. And it's typical because, you know, governments want to get reelected. So they don't want to come down too hard with the stick, right? And this is kind of a different way out. And it's purely being done based on economic incentives. You know, these miners are saying, hey, here's a resource that I can lower my cost with or I can sell this heat offtake. And it's a, you know, additional revenue stream for me. And that is

Starting point is 00:31:26 creating this environmental benefit. So I think that is a piece that people aren't yet capturing and sort of the synergies that we're seeing, you know, between miners and the renewable energy industry that hasn't yet come to light because everyone's so focused about, you know, boiling the oceans. And so I think it's one of those things, the Satoshi quote, I don't have time. If you don't believe it or don't get it, I don't have the time to convince you, I'm sorry. It's kind of like at some point, like this is already happening, right? You know, they're, they're combining with legacy industry, integrating and finding these synergies. And at some point, people are going to be as, hey, this actually happened, right?

Starting point is 00:32:03 So we don't need to, you know, people will believe because they'll eventually see it, it'll be so commonplace. Like even think about in people's homes, people's homes, people's sticking minors in. They're reducing their home heating bills, you know, which are traditionally carbon sources because it's natural gas. And they're heating their home on grid power. And depending on where you live, you might actually be, you know, 98% renewable, like in BC where it's all hydro. So it's fascinating how how this industry is just so pervasive in terms of

Starting point is 00:32:33 the economic sectors that it can positively impact. And people tend to focus a lot on the negatives, right? So, you know, the financial services. There's all these societal benefits that can accrue from access, but then people tend to focus on the negative. So they focus on, you know, the criminals and the money laundering, right? There's the energy system where people tend to focus on this, you know, they're wasting very good energy. Well, it's not the case, right? We're creating a better, more resilient, more optimized grid system, manufacturing, creating additional revenue streams, and maybe actually helping struggling legacy industries. If you look at the pulp and paper sector, they've been dying. We're all going digital, right? And, you know, they require heat. Well,

Starting point is 00:33:12 heat recoveries is a cross-cutting technology. So I am seeing miners partner with pulp and paper sector. So if you can provide a little bit of an extra revenue stream or even like, you know, miners co-locating in a legacy business and providing that revenue stream like in the oil and gas sector, there's a lot of opportunities there. So a country that kind of cuts off Bitcoin, whether it's Bitcoin mining or just Bitcoin, you know, is kind of shooting itself in the foot because this is an industry that lives in both the digital and the physical world. It's not just about mining. Like even thinking about, you know, custodial wallets, like it's industry. It's a different type of industry and we're still manufacturing things. They're just things that kind of straddle this digital

Starting point is 00:33:50 and physical world. So I think. I think that's kind of why it's fascinating, but that's, you know, policy people are kind of still missing, you know, the forest for the trees. And we're seeing a lot, you know, there's the left and the right or the conservatives versus the liberals. And, you know, the conservatives are very much, it's all about the capital system, capitalist system, which is, you know, mining fundamentally comes down to the economics, right? There's nothing more capitalistic about that. But then, you know, there's all these positive benefits that can accrue societally, including like, you know, something as simple as food security. You know, if you

Starting point is 00:34:22 you look at Alaska or Northern Canada, there are places where, you know, they don't have access to fresh fruits and veggies. But if you put in a mining operation, and I know there's for some First Nations that are looking into this, you put in a mining operation and you're essentially subsidizing food production, fresh food production, instead of having it shipped in. So there's like these little policy levers that aren't a mandate, like a government mandate, thou shall do this or thou shall not pollute that type of thing, where it's actually positively incentivized. And that's why I think it's a fascinating place to be. Yeah, for sure.

Starting point is 00:34:57 And when I'm listening to what you're talking about, you really are hitting at economic incentives. I think so many elected officials, they look at policy as their tool or their way of displaying, hey, I came up with this policy, which then attracted whatever to come into this jurisdiction, which was a win for me being in charge in this domain. And I think that with this in particular, you really less is more. Not putting something in place is allowing these economic incentives to naturally express themselves and to attract all of these things to happening.

Starting point is 00:35:33 Like you were talking about the gas flaring and just, I mean, you name it. Everyone wants to try to optimize this heat energy that's naturally being kicked off from the act of mining. and they're naturally trying to find the cheapest kind of energy or creating some type of business to go upstream. And you and I had talked before we started recording about Jason Williams with the tires, right? Like, here's a guy who's getting paid to take the tires, getting paid to take the tires and then converting that into energy to then run mining rigs. But then also creating value added products because there's black carbon that's generated. There's oil.

Starting point is 00:36:12 There's a synthetic gas, right? There's steel that can be recycled. So it's not just like thermally, it's the thermal deconstruction of the product. You're not just burning the tire. You're creating like resources that typically, you know, to produce oil or to produce the black carbon. You would have your own industrial process with its own environmental impact. So you're replacing that. So I think these types of stories need to be told more to the policymakers.

Starting point is 00:36:38 And, you know, just from my experience, working with industry, you know, the squeaky wheel gets the grease. We haven't been squeaking enough as an industry, I think. it really is changing. We're at a point where the industry is so financialized, you know, like they've got capital because there are so many publicly listed companies, whether that's miners, but then also, you know, you have exchanges. We have tremendous amount of capital that can start to throw their weight around like traditional industry has. And we are seeing that. And I think it's something that's going to grow. And it's been interesting because I'm not surprised to see, you know, mining as an industry have its create its own group. And that's,

Starting point is 00:37:14 That's just, that's what happens in legacy industry. You know, you have like Canadian manufacturers and exporters, but then you have the Steel Association, the Cement Association, where everybody has their own special, you know, unique issues that they bring forward. And they build those relationships with policymakers. And they tell the story of we employ X amount of people. We generate, you know, we bring this much to the economy. And that's kind of why it's important.

Starting point is 00:37:38 But I think it's more difficult to understand because like steel is something simple in the sense that this is an industry and, you know, we creeps feel. And it's, but then Bitcoin, because so, so I'm going to bring in the Darwin Finches. So just taking a look at mining on its own, like there's this Cambrian explosion of like these niches, ecological niches, niches where miners sit in across various sectors of the economy, like waste management, agriculture, energy, just all these places. And then that's just mining alone. And then you get into wallets and exchanges. It's just, it's become so complex that just the energy story is this big black box typically for people. But now you pile in, like, what do you mean? You're replacing our money. Like people can't grasp all these concepts. So it's

Starting point is 00:38:24 really hard for them, you know, to build policy because for the big picture, I think it's important, you know, you want to support the whole Bitcoin ecosystem because then you're, you know, you're creating economies of scale. You're creating this, you know, economic global hub. And then you're strengthening, you know, this attraction of talent and money in this kind of virtuous cycle. So I think like fundamentally, I think where we really need to go is of strategic importance to develop a domestic Bitcoin strategy. But it's so complex and how it plays out. But the policymakers need this big view because there's just so many levers that you can apply to then support a domestic Bitcoin strategy. And I think, you know, if you're just

Starting point is 00:39:04 looking at mining and energy alone, you might be missing some of the other policy impacts like that recent bill that have been put forward, that the one where which would affect miners and nodes, you know, make them kind of essentially money service transmitters. Like that was something that had kind of unintended consequences. It was part of the Infrastructure Act, which kind of ironically was going to kill the, you know, new digital infrastructure in the way that it was being built. But so the whole part is, you know, you have to have this. It's like it's a domestic Bitcoin strategy where the best types of strategies, if you're looking at kind of an industry or a sector, are those that, you know, are very broad. So they look at different policy levers. And not all

Starting point is 00:39:44 levers are fiscal. They're things like, you know, yes, so maybe they're fiscal like funding and creating loans and infrastructure spending, but instead of building roads, we're building, you know, Bitcoin infrastructure, payment rails. But it's things like, you know, government as a first customer, because this company is new. It's a startup and he's never had a first customer. But typically how that works is before I become a customer, I want to know who your customer was. Oh, it's the government.

Starting point is 00:40:08 It's the U.S. government. Of course, you know, we'll take you on because they must have vetted you, right? And it's things, you know, not necessarily directly spending where it's like, you know, we provide you with funding for research, for example, it's, you know, you can do things like tax credits or rebates. But then, you know, the big part, and I think that a lot of governments are maybe not doing it so well on is policy framework and policy certainty. And we haven't seen that certainty.

Starting point is 00:40:30 Like Canada is ping ponging along like the industry right now is not sure whether they're going to start shutting down, you know, or banks are going to de-risk them because they're just involved in the crypto industry, right? Certainty is fundamental because if I don't know if I'm operating in this jurisdiction and they're going to shut me down tomorrow, why would I even go there, right? That's huge. And, you know, for a while, Canada was a leader in that and not so much now. And the U.S. was, you know, we kind of leapfrog each other occasionally. And you guys are currently really winning on the attraction of minors. But the ETF, we got to there. But it's other things too.

Starting point is 00:41:08 It's like, you know, creating R&D kind of supports. And, you know, there's been a lot of complaints about intellectual property laws and patents. So there's just so many things that a government can do. And then most importantly, like workers. We need the, you know, knowledge-based economy workers. Like, this is something that takes a while to develop as in school. school curriculum, right? For now, it's, you know, industry is scaling up that, but it'd be great if this could be taught at a kind of younger age and be put into the curriculum. And for the last

Starting point is 00:41:36 thing, I think, like, you know, to really, truly support a domestic Bitcoin strategy, I think you're looking at a treasury allocation, right? What better way to support that? I used to laugh and say, maybe it's possible for Canada to have one. We don't have gold anymore, but we do have a strategic maple syrup reserve. It's like, can you believe we have more maple syrup? Now we have gold or Bitcoin. I love that. But I digress. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:45:12 risks, charges, and expenses. This and other information can be found in the income fund Funds Perspectus at Fundrise.com slash income. This is a paid advertisement. All right. Back to the show. If I was going to summarize it for a person who's maybe in politics or looking to create policy in any jurisdiction, I think your message is really kind of loud and clear of A, get out of the way, B, let people know that you're going to stay out of the way in some type of form that lets people be able to make capital allocation decisions for the cost of infrastructure and hiring people and whatnot that probably don't want to leave whatever jurisdiction they're in. You've got to provide a stable and calm environment that

Starting point is 00:45:59 gives them assurances that they can come here and they can stay here and they can act in a manner that they're not going to be disrupted or toyed with while they're there. That's really kind of the impetus of it. And then Bitcoin will naturally create economic incentives just by the sheer nature of what it's doing for everything to kind of take place on its own. I think that's really kind of what you're getting at with what you're saying. It's 100%. And it's funny because, yeah, no, it's really ironic. I used to actually have my industry, my heavy industry stakeholders. That is exactly what the CEOs used to say, get out of our way. Like basically, like, for example, cap and trade, like, it wasn't so much that government was putting in a cap and trade system. It was that it was

Starting point is 00:46:44 like taking forever to decide on the rules and the rules would be set up to 2020, but not 2030. They just wanted certainty because once there is certainty, they can factor it in. You know, they can conduct all the calculations, depreciations and financial impact. And even, you know, you can buy offsets ahead of time for future vintages. So it's just, it's just a matter of create the framework and let us operate and we will optimize our resources. And if it makes more sense to just shut down our plant and go to another jurisdiction,

Starting point is 00:47:14 you know, at least I have a certainty because I'm making a decision on something that's not, you know, like flipping and flopping, right? Yeah. Get out of the way. Get out of the way. Give me assurances that you'll stay out of the way. And the U.S. has traditionally been a lot better about that. All right.

Starting point is 00:47:30 So over in Europe right now, they're having, and I think this really has come home with the whole Russia situation and the expectations. that their energy costs are going to start going through the roof, I think that now you're seeing this opportunity for people that have very different opinions than the ones we're talking about tonight, kind of standing up and saying, we have got to ban anything that relates to proof of work. We have got to stop this gross use of energy going into these proof of work protocols. And who knows how this is going to be received over there in the EU? But, I mean, the article hit today.

Starting point is 00:48:07 So I'm kind of curious, you know, we got plenty of listeners over in Europe that listen to this show. What is your recommendation for them or where do you see this kind of going and playing out based on this situation, which I think is a real big concern for people living in Europe? These energy costs are going to go up. The pain is there, right? And so like that's where they're coming from without really kind of understanding what it is that they're trying to turn off. I come back to like I really feel they are shooting themselves in the foot with this type of policy because fundamentally they've got an infrastructure problem and from the and they need to spend a lot of money on infrastructure. And, you know, there was a time where a number of European countries shut down their nuclear plants and nuclear, you know, is a baseload. And it's as a single point source, it generates a lot of power compared to something like a natural gas speaker plant or even a coal plant.

Starting point is 00:48:58 And so some are going back and actually going to consider building some more. But the fundamental point is there's a lot of money that needs to be spent on infrastructure and where is that money going to come from? So I come back to, you know, partner with an industry that's basically printing money, but real money, right, that can subsidize not the taxpayers, not the rate payers, not the private sector. But here's an industry that can create a new type of subsidy. if they partner, you know, by creating either a predictable load.

Starting point is 00:49:32 So what's really interesting is I'm seeing this with nuclear plants and Oklo in the U.S. where they're creating small nuclear reactors. They're piloting this, building out a smaller reactor. Maybe, again, it's a little larger in terms of capacity than the city that they're going to be placed in, but that extra load comes in from Bitcoin miners. So, again, predicting that, creating that predictable revenue stream so that you can, you know, put it up against off to take that off the infrastructure cost and the operating cost and same thing with renewables similar situation can be made because like any kind of investment decision comes down to

Starting point is 00:50:10 what are the costs right and what what are the profits and so that is you know bitcoin mining is creating that profit center and the other interesting part about europe is they've been a lot more comfortable with the fourth art so energy reuse there was a time for example in canada where people were really against energy from waste. So, you know, people would actually pick it with signs saying, we're not lab rats. Like, don't burn garbage because they were concerned about air emissions and other toxins. And whereas Europe, because they have less land for landfills, it's more densely packed, it's more common that you have energy from waste facilities.

Starting point is 00:50:49 And so, you know, similar to what I was talking about, if there's already kind of situations where you are taking in a landfill, whether it's tires or whatnot, it's another way to kind of subsidize that energy facility. And so, so there's, you know, there's a lot of kind of policy issues that can be solved from like, you know, positive front. But they're kind of, they're stuck on this idea still that we lack energy. It's causing energy prices. And miners are going to. steal that energy, so we have to shut them down. And they're not seeing it as kind of this symbiotic opportunity. And that is something that I think that can only be navigated through

Starting point is 00:51:33 telling these stories and showing these examples of this already happening somewhere else in the world. All right. So this next one's off topic. But there was a lot of people online that were telling me that I need to ask you about being a volunteer fireman. Yeah, I know I'm a volunteer firefighter. I'm a first responder as well. So if you are in a car accident, your car is on fire. I'll put that fire out. I will jaws of life and get you out of there and administer to any first aid needs.

Starting point is 00:52:03 Yes, we also rescue cats, I guess, that happened at the opportunity to do that. But honestly, I love it. It's interesting because most people don't know, 70 to 80 percent of fire departments in North America are actually volunteer, as in they're not career departments. It's volunteers coming in. So, you know, I'm on call 24-7 if obviously, you know, family and the job comes first. But, you know, especially if there's something like a fire in the community, like once the pager goes off, I'm, you know, in firefighter mode. I love this.

Starting point is 00:52:31 Yeah, but I think so it's interesting. A lot of bitcoins are actually moving to these rural towns where you're not going to have, you know, a career fire department. I think it's, it's, first of all, it's like it's an awesome skill set to if you, if you're picking up, you know, first response. It's just like, yeah, I'm a first responder in your house. But secondly, you're building really good, strong relationships with your community. It's really rewarding. It's challenging too. Obviously, there's that element.

Starting point is 00:52:57 But it's just, I love it. It's become part of my identity. I love it. That is just so cool. Good for you. Thanks. It's really funny because, you know, we talk about what is Bitcoin? It's, you know, it's fire insurance.

Starting point is 00:53:10 We know as firefighters, you know, the importance of having fire. insurance. And Bitcoin's kind of like, it's like buying fire insurance, but it's also like building another house in another town and another total local economy. I absolutely love it. Mags, I don't have anything else if you'd like. Can you give a handoff to folks where they can find you? I know you're active on Twitter and then also a cold card as well, which we were talking with NVK last week. So feel free to give some handoffs to anything you'd like. Yep. I'm Crypto underscore Mags on Twitter. And yeah, so I'm Vice President of Business Development at CoinCite. We make awesome products like this calculator, the open dime, which is basically like I'm handing you gold.

Starting point is 00:53:56 And we've got really cool products coming, like the TapSiner and the stats card, but those you can find out from the last week's podcast with Fidelpo. It's funny because I keep straddling, like Bitcoin is so digital that I keep finding these jobs where I'm straddling this physical and digital world. Wonderful. But it's exciting. It's like it's the base level, right? Yes, very exciting. Well, we can't thank you enough for making time and coming on the show is just a absolute pleasure to talk with you and to hear your point of view. Thank you. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I'd love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening. And I'll catch you again next week.

Starting point is 00:55:01 Thank you for listening to TIP. 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 - BTC068: Bitcoin Exchange & Mining Policy Incentives w/ Magdalena Gronowska (Bitcoin Podcast)

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