We Study Billionaires - The Investor’s Podcast Network - BTC170: Bitcoin's Hardware Future w/ Bob Burnett (Bitcoin Podcast)

Episode Date: February 21, 2024

Bob Burnett shifts from tech executive to Bitcoin mining leader, focusing on innovative, sustainable solutions. He explores Bitcoin's challenges, the significance of ASICs beyond finance, and strategies for navigating regulatory environments. Burnett's insights into future trends and advice for tech entrepreneurs underscore the importance of adaptive strategies and sustainability in the evolving Bitcoin landscape. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 02:11 - Bob Burnett's journey from tech executive to leading Bitcoin mining initiatives. 18:13 - The importance of sustainable practices in the Bitcoin mining industry. 27:44 - Strategies for navigating the complex regulatory environment of Bitcoin. 35:06 - How blockchain technology extends beyond finance into other sectors. 37:01 - The significance of adaptability for entrepreneurs in the tech and finance industries. 62:15 - Insights into the future trends and potential of Bitcoin. 69:08 - Lessons in leadership and innovation drawn from Burnett's extensive experience. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Check out: Bob’s Twitter. Visit: Barefoot mining website. Check out all the books mentioned and discussed in our podcast episodes here. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | | Instagram | Facebook | TikTok. Check out our Bitcoin Fundamentals Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: Hardblock AnchorWatch Cape Intuit Shopify Vanta reMarkable Abundant Mines Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I have the super thoughtful Bob Burnett. As you'll hear at the start of this show, Bob comes with 35 years of hardware and software experience leading and building computers. Bob is a Bitcoin miner and overall thought leader in the space, and today we get into the future of ASIC hardware. This is such an important topic because, as most know, there aren't too many manufacturers

of Bitcoin mining, and having more often. optionality is important to keep Bitcoin decentralized and secure. We talk about this topic, among many other fascinating ideas. You won't want to miss this episode. I promise you that. And without further delay, here's my chat with Mr. Bob Burnett. Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone. Welcome to the show. I'm here with Bob. And I've been really looking forward. This has been on the schedule for a couple weeks. I've been really looking forward

to this conversation because you're somebody that I really admire technically and you're just super proficient on the hardware, on mining in particular, and just an all-around tech guru. So I'm thrilled to have you on the show today, Bob, and really excited to get into this. Well, thank you so much, Preston. I always enjoy our conversations and I love your show. So it's an honor to be here. So I want to start off just kind of giving people a little bit of of a background on you. So you were the chief technology officer, an executive vice president of product, an executive vice president of international markets for Gateway. This is back in the day when Gateway, you know, back in the 90s, I forget when they hit this market cap, but I looked

up that their market cap got as high as 24 billion for the company. And so, I mean, this is a major, major. I had a gateway back in the college days. And you were, you were a major executive in this So you've done product development at a very high level. And I guess my question for you is starting off there with that background, when and how did you come across Bitcoin? And like, what was the initial take coming out of this hardcore tech background? What was your initial take when you started hearing about it? By the way, thank you for remembering for the older members of the audience.

Hopefully you remember well. Because we were quite successful and not to pat myself on the back. obviously a massive team. I was part of it. But, you know, as you said, we had we had about 25,000 employees at one point. We had 400 retail stores. We had 10 billion in revenue. We were making about 10 million pieces a year. And it's almost hard to imagine now when I look back at it, what I went through. Like, it's almost like that was a different person, but it was really a magical time. And it leads a little bit to the question you asked me, which was how I got to Bitcoin, because I'll be honest that I feel like when I left that industry,

which was in 2004, I'd spent about 20 years there, I got a little lost. I'd almost say I was like a little lost. Not in some major way, but I was kind of wondering like, what's my purpose? Because I had been through this thing that was just so big.

It's a behemite. I woke up every day with this purpose. Like, and we were, my background goes all the way back to the mid-80s in my early PC development days, so right at the cost. And so I didn't have something that exciting.

And so life was just kind of bland. But anyway, in 2017, one night I got a phone call. I always give my wife credit for this. It was 9 o'clock at night. My phone rang. It was a Seattle phone number. I did not recognize the phone number. And I wasn't going to answer it like probably most people don't want to answer, right?

And my wife said, answer it. I don't want to. She said answer it. I did. it turned out it was an old gateway acquaintance. And he said, Bob, I'm starting a company, I raised a bunch of money. I need 300 Ethereum mining servers, set it up turning into 800 Ethereum mining servers a little later,

as fast as I can. I can't get the Nvidia chips. I can't get anybody to design something professionally. Can you do that? And I'll make that part of the story short. I didn't know much about cryptocurrency or Bitcoin or any of those things at that time when I was a computer guy and I just looked at it as a computer guy and ended up saying yes I started a company which we now know as barefoot mining to build those and it was about ended up

being about a six million dollar order so I started a company to fulfill that which is pretty lucky right to get a six million dollar order that's your first yeah as your first PEO but I looked at it as a computer guy and I had contacts along with Keith Thomas who's the president at Barefoot along with me, we're both ex-gateway people. A little story now that Nvidia is what eclipsing Amazon and market cap is when they were a startup trying to find their first customer, the very first customer of Nvidia was Gateway. Gateway. We were the first ones to put their chip on a motherboard. Keith was the head of desktop engineering working for me and who works for me now and as part of our team. So we were integral to kind of that little start for Nvidia at that time. That would have been

huge risk. That would have been huge risk for you guys to incorporate this, you know, Nvidia chip into the hardware. Like how much, I'm, like, I love production. I love talking about, like, going through, because there's a lot of risk, especially when you're dealing with hardware, running a new chip like that, like walk us through more for my own, uh, curiosity. That risk profile that you were looking at putting in this chip, was it done on other, you said the gateway is the very first company to do this. Like what type of purchase order? How many thousands of units?

And how are you guys going through the risk of that? I can't remember the specifics, but it was probably given where we were at that time, this would have been, I don't know, 92, 93, something in that order. It was probably an order for 50 to 100,000 graphics chips at the time. We would have always had a plan B. I'm sure we, I can't tell you specifically it's too long. I'm sure we had a plan B, which was, hey, if we were designing for a specific desktop model, right? And we were at Gateway, for those of you who don't know Gateway well, and you may even read

week, we tried to push the edge. That's, you know, our position in the marketplace was we were a little more consumer-oriented than business-oriented, and we tried to push the envelope. We were tried to push, and the value especially, like, that you could get. In this case, graphics performance at a certain level at a price that nobody else had seen, before. And so I'm sure that's what we were chasing with Nvidia. You know, they were a startup. They had some great architectural things. They've always, you know, it's amazing, by the way, for 30 years, they have been able to maintain that technical edge. My, my hats off to them.

But yeah, there was a lot of, there's a lot of risk associated in that too. But it's the only way to have been successful. In the early 90s, the PC market was trying to sort itself out. Gateway was at the time probably about a billion dollar company, probably 10 to 12 in terms of market share in the world, something on that order. But we hadn't made it yet. We hadn't, we hadn't IPOed yet. The IPO was still a little bit away. So we had to have a little bit of the gun slinger attitude to chase and try to get to the top of the pile. You know, as I said, you know, they were grateful for that. And so when we called up, some of you might remember in 2017, obviously we're still in the GPU era, especially in the non-bitcoin related coins. I mean,

that was heavy GPU stuff. So if you could get access to the chips, you could do really well, in fiat terms, mining. And that's what we did. We built this design, got these things to market, and did quite well with it. A little side light, just I have a backer, ground in economics as well, more of a macro thing. I'm not on par with our buddies like James Lavish or Larry Lappard or Lin Alden in terms of my macro, but I try to at least be proficient. And I have been, and I got turned on to Austrian economics in the early 2000s, about 2001, 2002. When the dot-com bubble burst, I soured heavily. And so I started looking for something different. The short version of that story is I had done very well. I was part of the gateway

IPO. I had done well. And then I cashed out a lot in the late 90s, only to see a lot of that wealth evaporate through that crash. Yeah. In the crash, right? And I had put a lot of faith in traditional financial advisors and wealth advisors in that period. And they failed me. I started looking elsewhere like, what's wrong? How can this be fixed? I found Austrian thought at that point. As I started to, after getting like this order done and starting to sell this Ethereum equipment, I started to look deeper technically at what Ethereum really was. Because at first, this was just a computer guy building computers. That's what that was.

And then I started looking at it. And so first I looked at the technical aspects of Ethereum. And I started to get uneasy. I could see the technical complexity that they were trying to tackle. And if you've ever been involved in big software, software projects, you realize that they don't work well. And they rarely come together. They never meet their timelines.

They basically never meet their goals and objectives. And what I saw was this piece of software. That's how I was looking at it, right? With all these tentacles and interdependencies, said, this isn't going to work. And then peeling deep into what really is proof of stake. And that led me really to Bitcoin and proof of work. And so I started to appreciate and understand first from a technical perspective, but then seeing the Austrian in me starting to see the monetary policy and the issuance and these sorts of things. And those are money principles really coming out in Bitcoin.

So we pivoted at that point. Unfortunately, we didn't have access to a chip at the time. Maybe we could talk about that a bit later. Yeah, but we didn't have the ability to design our own systems at that time. But we did, so we did the next best thing, which was we signed an agreement with Bitfury, which was a large European maker of Bitcoin mining equipment and became the U.S. distributor and service center for Bitfiry equipment. So that gave us an entree, 2018, 2019, 2020 to enter the Bitcoin world.

And we migrated from providing systems to providing hosting systems to now large, I guess you would call it self-mining, although we usually do it through partnerships. But we do have a small hosting business and self-mining. But our real desire is to get back all the way to designing our own systems. So I love this. This is the perfect lead into the next question I have, which is when we're talking about application-specific integrated circuits, there's basically one manufacturer in the world right now. Now, I know Blockstream is working on a solution.

I think they're maybe in the test phase of the ASIC that they're building, the rig that they're building. You are working on, and I don't know how much you can share. And if not much, that's perfectly fine. But I know that you're working on your own ASIC and your own design work and you're working with some people from your past on designing this. So lay it on us if you're able to. And if not, then beat around the push as much as you want. No, I can tell you a fair amount. today. And as I already lead it in, I think that one of the things I want to give a little bit

more background, I believe in self-sovereignty as a minor. I have something I call the minor stack. And if you can visualize this, it's the energy, it's the chips, it's the systems, operational excellence, and the pools. Okay. So if you want to truly be a minor and you want to deliver to the world Bitcoin and block space, then unless you control all pieces of that, at least to some degree, meaning own it, you're not self-sovereign. It means you are dependent or you require somebody else's permission to fulfill your vision. So for barefoot and for, you know, what I'm trying to accomplish personally, that's what I'm after. I want to own pieces of that. And you had a chance, Preston, to see what I'm doing like on the energy side where you

visited our facility at the ocean launch and where we own small hydroelectric facility, among other things. But we're trying to do that. We're trying to build on that stack. Well, the next piece in the stack is the ASIC, the chip, not the machine. And by the way, it's very, very important. We can talk about this a little bit more later. But I think it's very important to when you use the word ASIC, refer to ACHIP, an application-specific integrated circuit. And by the way, ASIC is not specific to Bitcoin either. I think a lot of Bitcoiners don't understand that they've been around for over 30 years. I worked on my first ASIC probably in the late 80s for power management circuit for charging.

They've been around for a long, long time. They have really nothing specific to do with Bitcoin. But as you said, today Bitmain dominates the market. Bitmain makes chips in partnership with TSMC. And they design the systems. If you look at the PC market, though, the PC market has Intel, it has AMD. It's had other companies in the past. Several other companies have been part of that.

And they are distinct from the system makers. In other words, the chip guys do what the chip guys do, which is develop logic and work on wafer processes and things like that. And the system guys do what they do, which is, you know, they interact with the users and, And they build the machines that fit a specific need. I wanted to be involved in that. I got connected. So to fulfill my vision, I needed to do that. Building an ASIC is an expensive proposition.

Yeah. Especially this kind of ASIC that we use in the Bitcoin world. Tens of millions of dollars, hundreds of millions of dollars, even really, when you get down to it in the very end. So I connected to a group. It's led by a guy named Bombsu Kim. the company's called M-Fivers. Give them,

Yeah, give the background on him. Yeah, Bum-Soo is a, among others, a former employee of Samsung. He would be credited by most people as being the godfather of the solid state disc.

So he comes with pretty strong credentials, let's just say. So people, just for the audience, so when you're thinking of memory or you're thinking of storing information. You have the discs that spin and then you have a steady state drive that doesn't spin. Obviously, the latter is really important if you're dealing with any type of environment that

vibrates or has environmental factors that you just can't have a spinning drive, right? It's faster because you're not having to physically spin the disc in order to get to the spot of the memory that you're trying to find. So the fact that he was literally the guy that invented this. Is this right, Bob? Like, invented this technology. I think it would be considered the godfather of it, yes. I mean, there's a lot of people involved. I mean, it's kind of like saying who's the inventor of the PC, exactly.

Yeah, yeah. The godfather, the central point of this whole thing coming together would be Bump Su. And so he's working with you on this ASIC. Yeah. Well, I think it's more appropriate to say I am working with him. Him. Because I want to be fair. I am not, this is, I am not, I am not,

the guy leading basic design by any stretch of the imagination. But I can provide some insight and help as a system guy, as a guy connected to pools and doing this thing. Does he believe in Bitcoin? Does he believe in Bitcoin or is he looking at it just more from a hardware design standpoint? No, he believes in Bitcoin. Wow.

He believes in Bitcoin. As do the other members of the team, which by the way, are no slouches themselves. We won't go through individual resumes, but they're folks. from Intel and Broadcom and companies like that that are also part of this team. And we're focused initially, I'm acting on the board of advisors of the company. And we are focused initially on the enterprise market. So we can maybe talk time permitting about, you know, where I think mining equipment will go,

but I think we'll see a divergence instead of, you know, one kind of machine. We're seeing a little of that already, right? We're seeing the Bidax folks and some other people trying to do things in different not sauncious, but I think we're going to see the enterprise market truly move toward enterprise class computing. And that means different form factors, higher energy densities. And just to give people a sniff of what we're working toward is a chip that would enable, for instance, single unit hashing power on the order of two to three petahashes or one unit.

And what is it today just so people have the context? Typical one would be about 100 to 120 pet of ashes. This is like 30 times higher. Wow. Than that. Yeah, the thing that I would immediately think is, okay, so now there's going to be an infrastructure change. If you build this, you get it to production, you start, you know, selling these in any

type of large scale, do the mining facilities have any type of infrastructure challenges with the size and the energy? that's required to be pumped into something like this versus what they're traditionally templated for because it's very traditional the sizing and the kind of the energy constraints today. Yeah. Well, it means much higher energy densities, first of all. So in a given form factor, you're going to see much higher energy density.

Now, the AI market's also seeing the same thing, though. So, you know, we're seeing like what, for instance, companies like HP are trying to do with in Vidiaf to do this high performance computing for AI. We're seeing the same sort of massive energy densities that the M-Fiber group is trying to move toward. And it does present issues. You know, for instance, a machine today, a common machine used in Bitcoin mining like an S-19 might be about three kilowatts.

And it sits in that shoebox form factor, which is pretty awkward, by the way. Really, in my opinion, poorly done and not built or large. scale. The server market, the traditional server market, what you would see in a traditional data center, standard, there is a standard rack mount size, usually delineated and used per unit, right? So you could have, for instance, the BIF period equipment that we used to work with was all done in that same vein. And we still have some of it deployed in some of our operations, but it's like a six U form factor, which means 19 inches wide, forgive me if I'm off a little bit, I don't know, nine inches high or something on that order. It's a very standard

form factor. Also means that a lot of the components that go in that are standard too, that some of the power supplies and some of the things that go in there, you can leverage other industries that are using those same components. So as a system designer, there's a lot of appeal to that. Those involved in Bitcoin mining, whether they're at the hobby level or the commercial level probably see things like, hey, the access to power supplies and different components and things like that, they're a little bit overpriced relative to other markets. But I think that's largely because of volume, right? Bitcoin mining is still a tiny, tiny industry.

There's a few million machines sold annually. And I like to put it back in perspective, Gateway was building 10 million PCs a year. So the Bitcoin mining industry as a whole still isn't even at where Gateway was 20 years ago in unit volume. And Gateway wasn't even the top vendor. We were like number five, right? So just to put that in perspective, we're a very small industry. I'm not sure how big we'll ever get, honestly. I mean, relative to these other industries, I'm not exactly sure.

But what we're trying to do, like I said, with the M-Fiber group is really change. this vector. Now the truth is you mentioned something in full transparency. Like one of the things that we have to change is like the people making containers and designing facilities and all that, they've gotten pretty used to that form factor. Yeah. This current form factor. And so there probably will be one of those resistance points to this will be that will be this. But ultimately, I think that the efficiency and the cost-effectiveness of these other designs will overpower the legacy, the need to be in the legacy design, because it just runs out of gas. It just cannot dissipate the thermals properly and all that.

And I'm assuming this would be immersion. Well, probably a lot, but not necessarily. 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

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You brought up AI earlier. Do you see a world where it's almost a necessity to have Bitcoin miners alongside AI GPUs? So that, you know, I'm thinking about, so these GPUs, they're plowing through all sorts of calculations for AI requests. And then people. go to sleep at night and maybe they're just not being pinged as much as they are during the middle of the day. But you got all this energy that you're, you know, that you've negotiated at really cheap rates for these data centers and processing centers. And why not mine Bitcoin with rigs that are there ready to catch that drop in load? Is that something that you think is

going to become commonplace or am I totally off the mark with that idea? No, I think you've very accurately represented that. Because as right now we're at a point in AI where if you're running some sort of AI application, it's somewhat similar to Bitcoin where the demand, the demand is almost 24 by 7. There's so much money and infrastructure being thrown at it, it's hard for me to believe that every AI center is going to be able to maintain a constant load. And so I think that that problem is definitely going to come. I'll say one other thing, though, and that's that maybe the machines that sit next to the AI machines

aren't just mining Bitcoin. And I think I've talked to you a lot. Yeah, I want to get into this. Just a little bit. Yes. This is, I don't know. Yeah, so you have a company that you're looking at. I don't know where you're at with this.

Is it called chaos? Is that correct? Is that where you're going? Yeah. I just want to just take a quick step back. So like when we think about AI and we think about what it's doing and how it's taken all of these patterns, it's compressed these patterns, and then you're basically pinging that compression to unwrap and pop out an answer, right?

So it's like highly organized data. And then next to it on the Bitcoin mining side, we're trying to, how do I even describe this, figure out in the most chaos that you could possibly imagine, the one input that produces this output. And these two computers would be sitting side by side. Are they literally doing the polar opposite of each other? Like, is this literally like a ying and a yang from like deep pattern detection? It's not even, what's the word I'm looking for? It's like they're literally polar opposites sitting next to each other. So it makes sense that that would be like the construct from a hardware standpoint.

I totally did a disservice on it. I don't know if it's coincidental or not, but it is an amazing observation. And I do think it is a very logical extension of this. Now, what I will say is it's likely that in those situations, that this is part of a cascade of technology. If I was designing such a center, if I was putting up a new AI center,

I probably wouldn't go put S-21s and high-end Bitcoin mining equipment there that is kind of sitting idly, waiting for the energy to free up to go run for a few hours or a few days and turn on and off. That I think if I had a bunch of old S-17s, probably the older S-19s right now

that are toward the end of their useful life in normal circumstances. I would probably locate those there. They're kind of the backup. You know, we have that sort of situation with hydro. In a hydro situation, you often have a base level that is produced on a constant basis,

relatively constant basis. And then it rains, something happens. You have a bunch more water flow and boom, you have some extra. So what do you do? Well, you take and you put newer, more efficient equipment that runs essentially 24 by 7 in the base load.

And then you have the other stuff standing there. So in those, you know, okay, there was a rainstorm for two days. You're going to have an extra 300 kilowatts. Okay, great. Then run the old stuff because it's free energy at that point. We design kind of that way. And I think it's the same sort of principle would apply in this AI situation. That's so fascinating.

Anything else you want to highlight on the chip or on the ASIC side before we go over to this chaos discussion? I'll just say, you know, it's a long path. You know, we all want it to go quickly. You mentioned some other folks, you know, like Blockstream and Block and, you know, others are working on chips. I am very supportive of what all those folks are doing. I will look seriously. I already have looked at some of the chip designs there. We need that.

This development is really important to the development of a healthy ecosystem. And I think to a certain degree, separating the ASIC from the system is a very important. It will drive innovation, first of all. You get the best system designers and the best chip designers, and they each specialize. I think that that's a natural market. It's a natural thing to happen in a market. I think more importantly, it creates diversity. that, you know, when I speak sometimes, one of the things I'll speak about is building Bitcoin

to be money for a thousand years. And most people think, I would say, in a very myopic way, they may look back two years and forward six months or vice versa, you know, that they're very narrow. And I see that happen a lot in the industry. Instead of really stepping back and say, let's look, let's take a several decade view or a couple century view of things. And I know it's hard to do. It's hard to make money thinking that way, but I think from the perspective of making sure that we design Bitcoin, by that I mean the entire ecosystem, all the components of the ecosystem, such that we don't create vulnerabilities.

Usually those are centralization points, but it could also be single points of failure. So if you envision a world where only Bitmain makes chips, and then I'm not picking on them specifically, but if you have only Bitmain making chips, only bit main making systems, you kind of now have a single point of failure. If they build a couple generations of chips, and I'm just speaking hypothetically, there was something wrong or some vulnerability in those chips, we have a huge problem, right? I mean, the whole thing trumbles. We need this. It's very, very important that we get this landscape such that those things can't happen.

Because when you look in a short-term window and you say, what's the likelihood of there being that vulnerability, even in the equipment that's sitting out in the field today? Pretty low. I can't put a number on it even. I don't know. But let's just say for argument's sake, it's one-tenth of one percent is that odds. And if that's the case. well, when you apply that to the next year, you go, well, there's a 99.9% chance that nothing happens, right?

When you apply it to a thousand year window, it becomes highly likely that that happens. So in other words, that's not me saying I'm not trying to panic anybody or anything like that, but we have to recognize when these as a community, like almost that's, that's, I think, responsibility of the community to continually look at those things and say, whether it's goal centralization, A6 centralization, geographic centralization, lack of a derivatives market. Maybe we can talk about that in a little bit too. There's all these different things, I think, that could create vulnerabilities to the long-term viability of the ecosystem.

And as I know, you've talked about, we will probably only get one crack at this thing, that doing it and doing it right. And if we don't, the existing system will win. And there are major motivations for those who don't want us to succeed to try to expose those vulnerabilities. They will continually be tested. Bob, on this one in particular, it just seems that, you know, creating your own ASIC to compete with Bitmain is so capital intensive. I mean, I'm just thinking about the expertise in order to create the ASIC, have all the consideration. whether it's heat, whether it's, you name it.

I mean, there's just, I talked with Adam back probably a year ago or almost a year ago about their efforts at Blockstream building theirs. And he described it to me. He's like truly trying to engineer a sports car. Like, you are trying to make the thing go as hard as you possibly can or else it's just not competitive. And when you're pushing the limits on the design from an engineering standpoint, you're running into, oh, I just fried a circuit board because I'm pumping too much energy.

through this thing and I didn't have the proper or whatever the case might be, things that you're not thinking about if you're not sitting there designing this thing. Not only do you have to engineer it, then you have to go through the test cycle. Then after you go through the test cycle, you've got to get people to give you, like the number you said, was a hundred, call it $100 million for production. Then you push out the production and you don't have, especially if this is your first rodeo, you don't have a really high fidelity on what the reliability of that newly issued design and product is. You know, if you've done it for five or ten years, you might have a lot better understanding what the reliability is

because you know these components and the pieces and all the mistakes that you've made along the way. But if you're doing it for the first time, like these are risks, right? And then, like, you don't control that entire production line. You might have everything lined up. You might have the capital there. And then you might have some bottleneck. that's upstream three paces, some manufacturer three upstream of you that the long lead on that is six months behind where it was and you were supposed to have these things out the door.

And so like all of those risks that I'm talking about is just super capital intensive. It's time intensive. And I'm not trying to make an excuse for why there isn't a competitor in the space. I guess I'm just trying to rationalize for the audience so that they can understand why Bitmain has basically been in this predominant role. And you said it yourself, the volumes aren't high compared to manufacturing other sorts of hardware, whether that's GPUs or whatever. So I think that's the challenge that we're really up against.

And I'm just thrilled to people like you and Adam and Jack Dorsey and others are stepping into this space to really try to offset that from just peak. Like really some of the strongest engineers there are going after this. it's really exciting. You know, you're right. I do want to reiterate, again, that Bumsu, who I mentioned, you know, he's the leader of this one. I'm along for the ride and supporting him and helping him. Yeah.

But he, hopefully I'm contributing. But my involvement, I think does speak to how serious, I think, filling this gap is. Yeah. The need is like that big. And the fact that guys like Adam and Jack are doing similar things. you know, in their way. Also, I think, speaks volumes about it. Now, it also speaks volumes to, we all believe we're not doing it.

I don't think any of us are doing it purely from a philanthropic or we believe there's a lot of money to be made. Yeah, there's a win win. To do it right, this can be massively, massively successful. And you're right, though, there are tremendous number of risks. We're still an early stage company. we, by the way, I'll say this. I can only say so much.

I mean, we believe we've got major architectural enhancements. We believe we have the relationships with the foundries to be at the very leading edge of, which is huge. Yeah. Yeah. And so, you know, and, you know, that's important. And by the way, that speaks to the, you know, we've got Intel folks and Samsung folks and Broadcom folks in very senior positions from those companies, they have the relationships with

those organizations that can help make that happen. Yeah, well, it's not a foregone conclusion that we are successful because, as you said, there's a lot of stepping zones. A lot of it is financial. We've got functioning FPGAs right now. So that's kind of a process you go through of design and then you take it to an FPGA and we're flushing some stuff out architecturally there. And then it moves toward, okay, well, now you've got to take that logic and work toward the ASIC. But we've been able to prove in concept in actual logic that some of the performance enhancements that we're expecting to get are going to come from that. And, you know, but as he said, we could fail just in capital raising.

You know, that alone could cause the problem because at some point we need support from whomever to take us through these different stages. And so we're, you know, we're actively in. in that stage right now, by the way. We're actively trying to get from this stage to the next stage. And who knows? That hopefully people believe in awesome, especially in Bumsu, and will support it. Just to hit on this term, FPGA, this is a field programmable gate array, and this gives the guys like yourself flexibility to implement custom hardware functionality without having to design custom chips from scratch. this is always in the prototyping and R&D phase that you're that you're doing this, correct? Yeah.

There was actually a brief period in Bitcoin's history where people took, because we're migrating from the GPU to the ASIC, and there was a brief period where systems came out based on FPGA, but it's really not economical, and it doesn't, it's, you know, but it's a stepping zone. I appreciate you clarifying the term for folks. I'm sorry for dropping. But it's just to say that maybe if I could put it in a different term, you could think of it as very early prototypes are already working. Put it that way.

Yeah. Without much risk. Not ready. Yeah, without much risk of it being actually on the hardware. Yeah. Let's talk about this chaos. Okay. So I think the conversation probably starts best.

saying you don't like the term ASIC or that you think that there's risk in the term ASIC. So go ahead and start there, Bob. So, well, I mean, ASIC used properly is fine. We just kind of define what it is, which is an application-specific integrated circuit. It's a chip design to do a specific thing. And that can be all kinds of things. Like the car you drive, the TV, you watch, the laptop that you might be on. They all have ASICs in them, maybe multiple ASICs.

And so that basic idea is when you have a circuit and it does something, like maybe it's the headlight control of your car and the dimmers and turn the brights off when a car's coming, all that sort of logic. That could be in an ASIC and it probably is in whatever car you're driving. We have taken as an industry to calling the machines like an S-19 in ASIC, the machine itself, which includes usually. several hundred ASICs chips, but in and of itself is not an ASIC. And some might just say, oh, Bob's this old guy who's kind of ornery, but hopefully the reason why I'm a stickler in this one will

become apparent here in a second. So it is completely inappropriate to call the machine an application specific device, and I would say actually very dangerous to call the machine an application specific device. To exemplify that, let's look at some of you might remember Dane. It was Digital Assets Mining Act about a year ago, the Biden administration proposed this tax. It was a proposal to tax energy consumption of Bitcoin miners at 30%. Got defeated. However, in places like Sweden and Kazakhstan, similar legislation already has been imposed and is imposed. And is place in like those sort of countries. So in attack vector to Bitcoin are legislative regulatory taxation directives at the industry. So when we call a given device like an S-19 in ASIC,

we're playing into that hand. We're saying, well, this is an application-specific device, therefore the energy consumed by that device can easily be subject to whatever this act is trying to impose on it. I find that very dangerous. You might say, well, Bob isn't an application-specific device. So, well, it doesn't have to be. When this started coming about, it actually, my thought process about it actually started Kazakhstan. When the China mining ban occurred, a whole bunch of hash rate went to Kazakhstan. Some of you might remember that. Well, it suddenly did put a big strain on their countries. It was a relatively small country, and it did put a strain.

From an energy standpoint, you're saying? From an energy standpoint, yeah. You had this relatively small country with very low energy costs, and they got flooded overnight. And so I understand to a certain degree why they did that. They did the simplest thing they could do, which was, well, hell, we'll just tax these guys. And they may view things like property rights and civil rights very differently.

I don't profess to understand much about the cost. as a grand constitution. So anyway, we, as I looked at that, what I realized was, well, I don't think these have to be application-specific devices. In fact, what I believe we can do is prove to the world that they can do other things. If you look at an individual machine and certainly at the network as a whole, what we call the Bitcoin mining network or what we call in S-17, they really are entropy engines. And they have greater than any device ever produced in the history of mankind, the ability to create entropy.

So I said, well, I think I'm going to start a new venture. I did found this one myself and funded myself called Chaos, C-A-O-S. And again, for those of you who are maybe not as well-versed in scientific stuff, but chaos and entropy and at randomness are kind of all the same thing. they're kind of birds of the same feather. And I know you have a background in engineering to Preston. Yeah. You know, you've heard of chaos theory. And, you know, we, you hear about entropy talked a lot about within, within the world.

Sailor's done some great stuff on entropy, right? So I said, well, why don't I create an entropy engine with this thing instead. And so my first step was to prove that we could do. that, that we could write software that we could run and interact with, as an example, an S-19 and not mine Bitcoin, but just create massive randomness. And by the way, do it in an auditable and verifiable way. That's the other thing about randomness is that there are sources of randomness. So, for instance, the greatest sources of randomness today, if you have any need for random number. Some of the greatest sources are devices that monitor atmospheric noise and kind of

translate atmospheric noise into randomness. There's a group, if you ever interested, just Google on YouTube or go on YouTube and search for like lava lamp entropy or lava lamp lamp randomness. And there's a company out there that uses the globs of lava lamps to create random numbers. but all of the random number generation that kind of sits out there in the world is still dependent on an interpretation by a third party. It requires confidence that the third party algorithm isn't subject to patterns itself or corruption. It's very difficult.

So what we did is we said, well, we are going to use things that we'd learn from Bitcoin, but apply them completely differently and use the machine in a different way, which was we are going to. create sources of auditable and verifiable random numbers. And there's a massive market for that, by the way. Massive. Help people understand what the value prop is here, because they might be hearing this and be like, this is, this don't make any sense.

But when you get into encryption and you get into the security of telecommunication systems, this is vital. Like, this is, because you get into elliptic curve cryptography and you get into creating a private public key. and so much of the risk comes down to how random was the numbers that were being used on the processor to create this stuff. And you were talking about the thermals. Like, now you're physically taking a picture of something to convert that into randomness, right? But you're limited, your rate limited by that physical thing that's taking the picture or the lava lamps that are moving, right?

And can that, I would assume that'd be way slower than using a Bitcoin miner, which can just churn it out cryptographically provable way faster. Is that correct? Yes, that is correct. And if you are using random numbers, I mean, a simple one is a lottery. You know, lotteries have been corrupted, right? So we can talk more about gaming in a minute, but gaming is probably the single biggest market for this. As you've said, anything involving cryptography, passwords, signal integrity, you know, protecting a line of communication signals. It's used in financial modeling like Mardi Cardo analysis. I have a story for another time about it back from my gateway days, but I don't want to detract

from this too much, but we did a lot of work in this area working with pharmaceutical companies to help them crunch numbers because so much of the pharmaceutical research today is to look at, hey, there's a given protein and here's a virus, let's say, and how will this protein potentially dock with this? And what you want to do is you just want to throw a massive number of permutations at this thing. And you want them, but you want them to be truly random. You want to make sure you're not prejudicing anything in any one way, right? What we've created, and I'm going to very, very shortly, I will tell you this, I'm going to have a website called chaosengines.io.

C-A-O-S-engines.io. The preliminary is going to be beta-ish, so bear with me, folks. But it will come out here shortly. Today's, whatever is the February 13th. It'll come out shortly, probably before the end of the month. Here's what's, Bob, here's what's neat about this show. A ton of our listeners are from the future. So they're listening to this a year from when we recorded it.

And I'm sure your site looks amazing right now. for many of these listeners. Well, I'm looking forward to that. But, you know, what we're going to do is we're going to provide this a free service to people. Like, if you just need a random number or something, you have a bet with a friend. We'll be able to provide you an auditably verifiable random number. And how can we do that? Because we use the same technique that Bitcoin uses.

Similar block construction, similar hashes, similar all those sort of things. But we're using the output in a completely different way. We are also working on a gaming platform itself, which will be called a chaoshouse.com. And it will be a place where you can go and you can play blackjack or a dice game or flip a coin and gamble on it. But know that the source of the numbers generating that game come from a verifiable entropy. And they are auditable and verifiable. And if you can say, I can't believe I just rolled three sevens in a row on a craps table, well, we can prove to you that no, you actually just did.

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So could you take the others? So if the numbers are truly random, can you take the other side? Yes. Thank you for bringing that up, Preston, because a neat thing about our game. platform is we will allow people to play either side of you can either be the house or you can or you can be the player. So it's, uh, dear Lord. You know, so it becomes truly a liquid. It becomes a liquidity provider like source of liquidity. Like I guess I'm, I'm thinking through. Yeah, I would have to sit down and think about it. Well, when you become the house, that's really

what you're doing is you're providing, you're providing liquidity to the house side of the equation. and, you know, so what it does is, because I want to get back to the main point, this I started from, and I think this is really important, like philosophically, like whether even like what we're doing or not, you can hate what we're doing. But what we are doing is proving that an S-19 or a similar piece of equipment does not have to just mine Bitcoin and that it can, and it will be used to do other things, just like I happen to be on a MacBook Pro, having this chat with you, that machine could mine Bitcoin today. It could also run an Excel spreadsheet

or run this Zoom session. If you're a government entity and you know somebody has an S-19, you can't necessarily assume that it is mining Bitcoin. It could be doing something completely unrelated to Bitcoin. And therefore, in my book, it would be a massive invasion of privacy for you to be asking me what application I am running on my computer. And S-19, think of an S-19 is just a different type of computer. It's just a, and so if we are going to allow the government or any entity to infringe on our privacy and our right to use our computing power as we see fit, I think we should all, even if you hate Bitcoin, probably not listening to this if you hate Bitcoin, but even if you are,

you should stand with us united that this would be a massive intrusion. Same on energy usage itself. So, you know, use computing power as you see fit and use energy as you see fit. Those, I believe, are intrinsic rights that we need to protect if we do not. And we allow that threshold to get crossed so that people can intrude on what we're doing, then everything's lost, right? Amen. Amen. Because if you're a net producer in your day-to-day activities and you've stored your retained earnings of this excess that you're producing for the world, I and you believe that you should be able to spend that excess any way you want that somebody shouldn't be able to come in there and say, oh, I don't like the way you use your washing machine. I think you should do that by hand. It's like, no, how about this? Go screw yourself. Exactly. It's a very dangerous slope if we go down that path.

And, you know, I would say that's definitely true in the United States where you and I are Preston, but I would say to everybody around the world that might be listening, you know, think about this and push back against it because it's already happened in a couple countries. And I don't think the people in those countries realize what they've allowed to happen. Yeah, you got to fight back. You had some math. I think you posted this on Twitter X, whatever the heck we're calling it these days. a couple months back, you were talking about the math on the halving and made total sense,

but I think for a lot of people that would hear the way that you're laying this out, they might take a step back and say, wow, I wasn't kind of thinking about it from that perspective. Do you know what post I'm referring to? In reference to like the reduction, well, you were you were talking about the fees and how the math is really kind of changing from where it was a couple cycles ago. Yeah, lay this on us. Sure. Sure. So minors are rewarded with a subsidy and fees. Subsity is currently six and a quarter Bitcoin. The fees have a historical average of about a third of a Bitcoin.

Recently, they've been up in 2023. They were up slightly from that number, but largely unchanged over, interestingly, largely unchanged over the entire history of Bitcoin. So interestingly, as fees have largely remained unchanged, the subsidy has fallen dramatically. And it will now be what just over 6% of what it was at the beginning. So we've lost 94% of the subsidy. And so it means that fees are climbing as a percentage of minor revenue. Every having that's happened. Now we're at a point where we're starting to see fees uptick. And maybe we can dive a little deeper into why I feel the way I do. But I believe we are on the

cusp of a massive change in the fee structure. A lot of people probably don't like hearing this, but I believe fees will be face-meltingly high in the next epoch and beyond. I will not be surprised if as we exit the next epoch, the fees and the subsidy are about the same, meaning roughly three Bitcoin per block in fees and roughly three Bitcoin per block in subsidy. and then going into the next having, which is only four years away, by the way. We're right there, right? We're four years away from the subsidy going to 1.5, 6, and fees will still be three. So what does that mean?

That means by four to five years from now, minor revenue is two-thirds. If I'm right, minor revenue is two-thirds fees and one-third subsidy. Dramatically, there's a huge ramifications of that. and for miners, but you can measure medications for everybody, really. So when we're thinking through this, the thing that I guess I find most fascinating with what you've said is that it's been about a third of a Bitcoin since inception, despite the having a changing and despite for the most part, the Mempool, well, I guess it got really full there in the, what was it, 2017, 2016 timeframe?

Yeah. A couple brief periods, but we had the, I mean, we had all of 2023. It was packed all the whole year. Yeah, we're like 195 blocks deep in the Mempool right now. But the fees aren't too high. I mean, I think we're at like 20 sats per VB right now. Why do you think that you're saying that this next four years is going to really kind of turn it on?

Is it all of the, all of the crypto that's coming and strapping itself to the side of Bitcoin? Is that what's going to drive it? What's the main driving factor? Because I think you could make the argument that these ETFs are reducing an enormous amount of transaction space on layer one. Well, there's some truth to that latter point, I would say, for sure. But let's look at the math a different way. Each year, there are about 53,000 blocks produced. There's very little that can be done to change that.

That won't waver. each block has a capacity of 4 million weight units. And so for those of you who maybe don't want to think in those terms, because it's a little complex, just think that an average block of 4 million weight units has about 3,000 transactions in it. So if we can translate that. So you have 3,000 transactions per block, and let's even round down and make the math even easier, 50,000 blocks a year. That means 150 million transactions.

Now, those aren't the most efficient transactions. There's a lot of inefficiency in them. I think some things can be done to increase that efficiency. Some of them by user behavior. And we may see today's not the day to debate CTD or Covenants or any of those other things. You did a great job with NVK recently. So you guys covered that really well. But let's say that even the max is 200 million.

Okay. So that means 200 million transactions. There's almost nothing that we can do to materially change that number. That 200 million transactions has to serve all 8 billion people in the world and the 330 million companies that exist in the world. We for the last year have been at full capacity. If you look at the whole year, I have one of my members of my team, we do a bunch of blockchain analysis stuff. then we pull our own data and we scrape it. There was no room for more last year. Like the year was packed. And that was with, I mean,

you tell me what you think, Preston, but let's say maybe 50 to 100 million people max, active in the network. Yeah. And maybe one company, the only one of the 330 million companies. I'm exaggerating,

obviously, but effectively zero companies active. and almost effectively zero people. I give this example sometimes about scarcity. I put a lot of thought into scarcity. So one of the things to realize is that the price action on scarcity is nonlinear. Here's the example I came up with. Hopefully it illustrates this.

Pretend I have an apple tree. It's the only apple tree in the world. And this apple produces 100 apples per day. Now, at the point when demand for apples is 95 apples, per day, they're really cheap. I'm throwing five away every day. Yeah, yeah. Okay. The moment 101 people on apples, the price skyrockets. So it's only a change of six apples in demand that caused the price of apples to skyrocket when 150 people or 200 people per day want apples, but my tree only produces 100 and there's no more apple trees and there's no way to increase the 100. It gets face-meltingly

expensive to buy an apple. Now, the only caveat is if these people all want to eat one apple a day, then it's really, really face melting. If some of them are in a non-urgent situation where they need an apple, then maybe they wait for a day when, for some reason, the demand dips from 150 a day down to 97 and they get one on the cheap. Well, this is my illustration of the way the Bitcoin network has been for the last year. We have been largely sitting at like, demand for 95 apples. Yeah. And with maybe we lead over to 100, 101.

And when we do, what do we see? We see the mempool in very short windows go 5x or 10x on the estimate per V byte for a fee. Now, these transactions, like you said, you know, some can be delayed. Some can move to L2. Oh, okay. Well, if I'm doing a small transaction, I can move it to lightning. if I'm buying for just long-term holdings. Maybe I buy the ETF.

You're right. Those activities can defer it. But there's still 8 billion people. There's still 330 million companies. And by the way, when you say you move something to L2 or you move it to the ETF, which I don't know, what do you call that? We call that an L2 or an L3 or I don't know what we call that. Not L1.

Yeah. But that still, by the way, means that BlackRock or Bitwise, or Franklin or one of these companies is doing a base layer resolution. Now, it may be batched with some other people buying the same day, but they're doing a lot of those transactions. If we hit a bull run, which I'm fairly confident we're about to be in if we're not already in, then if we see 50 to 100 million bitcoinsers move to 250 million and then to a billion and then to two billion, there's no way.

Like the base layer just breaks down. I shouldn't say it breaks down. It just gets expensive. Yeah. It just gets, yeah. I think that's one of the things is I've had, when I've talked about this a few times in the past,

some people I think I've taken it as me being like anti-base layer or anti-max C or something like that. But I'm just trying to paint the reality of it. Yeah. And it is what it is. And the company adoption. So if you're target and you start taking Bitcoin, how many times per day are you going to want some form of basely or resolution with the ins and outs of your money?

Yeah. It's going to be a function of the fees. Yeah. It's going to be a function of the fees. Now, that was so well, I'll be honest with you, that was so well framed from the initial conversation, because I think people hear the initial conversation and they're just like, okay, like, so how's he coming up with this? Is he just plucking this out of thin air? Is this his imagination? and like there are very real numbers that are like slapping you in the forehead.

Like to be honest with you until you framed it that way, Bob, I was kind of just like, ah, maybe. I don't know. But when you put it in that context, it is so in your face that you, I don't know how anybody could disagree with you. Like this is going to get aggressive. This is going to get pretty crazy. But at the end of the day, like if you're not moving around enormous amounts of buying power,

you're not going to, you're going to be priced out of. settling on layer one. And maybe that's okay. I'm sure there's a lot of people that'll disagree with that. They think that everybody, but you're not going to have the security and the decentralization on layer one if you want everybody on the planet, all eight billion people to be able to do L1. You're not going to have that. So you've got to have tradeoffs like anything in life, right? It's just so everything works. Yes, that's the reality. We can't have our cake and eat it too, right? There's this tradeoff. And it's what, I went back to like, why did I abandon Ethereum? That was it.

Because of this. This is why you can see that this is the path. There are major ramifications of this, clearly, because there is a mindset within the Bitcoin community that is difficult to kind of undo. Not your keys, not your coin. It's true. But not everybody can have their keys.

It's not practical. We can't tell everybody to do it that way. One of the things I've said in the past is that a lot of people look at the subsidy as a subsidy for the miners. That's typically because it's part of the reward, right? And they think about, oh, this was to reward the miners through the dark days. I think that was only half of the story, though. And so we're obviously constantly amazed by Satoshi's genius, right? There's too much genius to have been coincidental.

And part of that is, well, no, the subsidy was always. a subsidy for the users. It was a, it was a, the subsidy was there to give a period of time in which we could have essentially unlimited access for free to the most secure network in the world. That was free. And the reason fees were, were effectively zero was because of that. It was to incent user adoption. I think that's over. The introductory period is over. This is like that, you know, we're in, we're in early February. right now. Probably in gyms all around the world in January, there's a free first month of membership in your fitness club, right? Well, that ends and you start paying in February. Well, that's where we are

in Bitcoin. We're through the introductory period. And then there's a lot of ramifications, though, beyond that, too. So as an example, as a minor, when we move from most of our revenue being subsidy to most of it being fees, that means also that our revenue stream moves from something that is fixed to something that is variable. Variable, yes. So now you're getting into derivatives. And so, like, you're much more astute and knowledgeable press than I am in financial world. But one thing that I'm pretty confident in is that any commodity that's produced for it to mature and really take off it. There's like always a derivatives market,

whether it's an agricultural product or precious metal or whatever. There's a, and part of that on one side is that the producers can lock in some certainty about future demand and future price. So if you're growing corn in Iowa and it's May, you can sell some of your October harvest, off. You may not sell all of it. You may sell a part of it, right? You sell a part of that future harvest. And then on the at a fixed price that you know you can be profitable at. And maybe you take,

maybe you sell off 30 or 40% of it and the rest you ride with the wind. And maybe as time goes by, you sell off more and more. The other side of that is there are companies that need corn to, for whatever they make, right? Whether that's a bakery or, uh, somebody feeding cattle or whatever, they have the same thing. They have this variable cost structure. And if they don't lock in that price of corn, they have the problem. Well, block space is the same way. Block space in and of itself is a commodity.

Bitcoin mining companies today, in today's world, I think, what if you said, what is the product of a Bitcoin mining company, you would probably say it's Bitcoin. and it goes back to that subsidy. What we produce primarily is the Bitcoin. We get these little tips or fees that kind of are just a little cherry on top. That flips. Maybe as soon as five years, it flips to where, as I said, we have this variable thing. Well, the variable thing is not really tied to the production of Bitcoin.

What it's tied to is the production of block space. So that's a cold different paradigm shift. Right. Like that what we're producing is not Bitcoin. We're producing block space as a mining company to keep it simple and we'll put it in today's terms, if I own 1% of the world's hash rate and I also have control of the block template, meaning I pick what transactions go in the block, then I control 1% of the world's transactions.

And those transactions are virtual. real estate. And I can sell that. I can sell that into the future. You can sell it OTC. You can sell it on the MMPO, which is basically like a spot market, right? Yeah. But you have to be able to control the template. Yeah. And so I believe that mining companies will work very hard to moderate some of that. interestingly there's a second side of it if i am black rock if i'm in exchange i'm a company like that i might be doing a hundred base layer transactions a day let's say now right now is that a meaningful part of my p and l statement no it's not today but in this future world where fees are maybe 30 times higher on average than they are today or a hundred times higher it becomes a meaningful part

of the profitability of my organization. Very interesting. So what do I want to do? I want to buy these futures contracts and lock in a future price so that a minor then facilitate a relationship. Yes. So, you know, I think this is an important part of the long-term health of the infrastructure. It's probably scary to people.

There's even parts of it. I mean, I get a little willies myself because it's such a dramatic shift from where we are today. what it kind of means, yeah, you know what? A lot of the financial institutions and a lot of the big guys are coming in. And when they come in, they are going to drive these sorts of, well, they have these needs and they're going to drive these kinds of solutions. The expertise in all this, though, it exists, right? It's just not pointed at Bitcoin and the whole Bitcoin ecosystem yet.

But the expertise around derivatives and like how to do a lot of these things, it's there in the world. It's just so fascinating to me that, like, as you describe this, it just seems like there's so much reinforcing behavior from a technological standpoint that only makes this thing stronger and stronger and stronger in a naturally occurring way, almost like as you would see nature unfold. When you see such complexity just manifest itself on top of itself. It's strange. It's fascinating. It's indescribable in a really strange, weird way. Yeah, it's not to get too deep philosophically or whatever,

but I think a lot of times people in the sciences, and I would kind of consider myself on the periphery of that, they go through these phases kind of from a religious standpoint. I'm not here to profess any specific religion, but you kind of go through a period where often people in the mass and the sciences, is they lose their faith, and then it kind of comes back later in life to be where they get.

Like you start studying, and just kind of as a hobby, I like to study the universe and like physics and things like that. And that's kind of my path is like, well, I became, it should became more spiritual, more belief and a higher power.

The more that I saw this stuff. And I'll go back to, I believe Bitcoin is divinely inspired. We should not worship it. At least don't take it that way. But I, like, There's just so many things, like you said, like this.

It's miraculous. That one, excuse me? It's miraculous. It is. Yeah. It is fantastic. And, you know, I'm sitting here. I told you to start my story in 2017, deep, deep, deep in the rabbit hole.

I'm still learning these things, still having these revelations, hopefully doing something to make it better. You know, I always, I say for me and my company, you know, I, I try to live the ethos. I try to do what's best for Bitcoin in the belief that ultimately it will be the best thing for me and my family. And that's why like on this derivative product, I should say too, I am actively working with a company ironically called Block Spaces out of Tampa to develop a product to do that. And I'm sure others will look in similar.

They're already derivatives in like, obviously, Bitcoin and hash price and things like that. But the difference with this one, so I think it ultimately will become the most important, is that the need exists on both sides. So hash power derivatives or hash price derivatives, excuse me, there's really not a somebody on the other side of it. The other side of it is kind of speculators. So the miners need it, right?

There's a need for the miner to say, well, I want to protect my investment. I want to protect my output. But there's not somebody on the other side who had kind of the same dependency. but in the price, in the case of block space, that does, there is both a producer and a consumer. Yeah. And so I believe ultimately that's what drives this to become the single most important derivative

product in our space. Absolutely fascinating. Bob, I could literally talk to you all day. This was exactly what I knew this conversation was going to be. I'm just learning a ton. Every time I get around you, I just, I personally get in. from just your background, the expertise that you bring, and just how thoughtful you are from a very first principles standpoint. Can't thank you enough for making time to come on.

You mentioned a couple things that we'll have in the show notes of the episode. Is there anything else that you want to point people towards that we can put into the show notes? You know, I'm at Twitter boomer underscore BTC. I look behind me. This is low. I do have a little show of my own called Old Man Yowls where I go on monologue rips of just. me just ranting about something. So that's on YouTube and Spotify and places like that.

But I always enjoy my time with you, Preston. I'm really happy that we got a chance to do this. Thanks so much for having me. Absolute pleasure. Well, thank you, Bob. And for folks that checking out the show, be sure to look at the show notes

and click on some of the links that we mentioned there and see what Bob's up through. So thank you, Bob, and we'll chat again soon. 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.

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