We Study Billionaires - The Investor’s Podcast Network - BTC218: Bitcoin Mining 101 w/ Adam Haynes (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On this week's show, I have the talented Adam Haynes from Simplemining.io to take us back to the basics. Since focusing on Bitcoin full-time on the podcast, I find the conversations tend to only go deeper and deeper down the rabbit hole. But this week, we're going to take a step back because I know we have plenty of new people showing up to the Bitcoin scene. and we're going to cover Bitcoin Mining 101, a crash level course. Adam does an exemplary job making this topic accessible. So without further delay, here's our chat that you can share with all your family and friends that always ask,

Starting point is 00:00:39 yeah, but how does Bitcoin mining work? So this is the episode to find and share with them. All right, guys, I hope you enjoy. 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 Adam Haynes, and I am pumped to do this because you know what? So many of the conversations that we've done over the last year or so get so down into the weeds.

Starting point is 00:01:18 And sometimes you've got to zoom out. And I mean, the whole show isn't going to be 101 style. But when we started off here, I want to talk about mining 101. The reason I want to do this, when I talk to family and friends, one of the first things that comes up, They're like, okay, you're in Bitcoin. Help me understand what this is. And then it almost always goes to, help me understand mining. How are you mining an imaginary coin that doesn't even exist?

Starting point is 00:01:42 What in the world is that? So this is where I want to start, Adam. And it's just a really simple question. Why do we need Bitcoin mining? And what's the purpose of having this as part of the network? Yeah, well, I just wanted to say, I'm grateful to be here today. I've been a big fan of the show for a long time. We're sitting here January 3rd, 2025 recording this episode, and that's the 16th anniversary

Starting point is 00:02:06 of the Genesis block. So pretty exciting to be here, you know, running a Bitcoin mining company and getting to a report podcast with you here today on that anniversary. So thanks for having me. Really, really appreciate it. Great highlight, by the way. 16 years on the day. It's unreal.

Starting point is 00:02:21 Yeah, exactly. So maybe we could just start off to talk about what is Bitcoin mining. Bitcoin mining is just the process of verifying transactions. and adding them to the blockchain. Now, maybe we can break that down a little bit further because there's a lot of buzzwords that you hear in Bitcoin, blocks, blockchain, so on and so forth. So really simply, a block is just a set of transactions.

Starting point is 00:02:45 So Joe sends Bitcoin to Sally, Sally sends Bitcoin to Jim, so on and so forth. Every single block of Bitcoin has a few thousand transactions on average. And those blocks are added to the blockchain in a sequence. So there's one after another, on average about every 10 minutes. And this is done as sort of Bitcoin mining's security in order to ensure there's no double spend. It's a very important and very unique solution that Satoshi came up with in order to prevent the double spend and sort of getting to that decentralized consensus for transactions, being able to actually

Starting point is 00:03:24 verify a transaction without having to trust a centralized party. So that's kind of a high I level overview? No, I love this last point that you just made is you're doing this without having to trust anybody. There's an article written by a gentleman. He goes by Gigi. And the name of the article is Bitcoin is time. We'll have a link to this in the show notes. And when you're talking about trusting outside entity, because I think the question that comes back to me whenever I talk to family and friends about this kind of stuff, he's like, well, why do you need them in blocks? Why do you need to do that? And I think Gigi would argue. And I'm curious. I'm curious if you agree or have another kind of take on this, but he would argue that the reason

Starting point is 00:04:05 you have to have blocks is because you can't trust somebody to tell you the time. So like, let's say we wanted to have these thousand transactions, you turn them into a block and you're saying, okay, what time is it? It's 923 in the morning on whatever day of the month of the year. And you would timestamp those thousand transactions as happening right at that moment in time. And then it'd be like, okay, what are the next thousand? And then how are you getting that time and how are you getting it in a way where you're not having to trust somebody to tell you the time? Because if you have to trust somebody to tell you the time, whoever that trusted agent is that's marking these times, they have control of saying, well, you know,

Starting point is 00:04:44 it happened five days before. If they go back and they adjust this server, they could say it happened five days before or they can manipulate the entry of the time itself. I'm sorry, I think this is such an important point that you made, though, which is you can't trust anybody. and that's why these blocks exist in the first place. But go on. Keep going. Exactly. No, it really goes into the genius of Bitcoin itself and Satoshi.

Starting point is 00:05:09 You've commonly referred to the blockchain sometimes as a time chain. Yeah. And that sequence of adding transactions one after another and then the verification that is gone through. So maybe we could get into nodes. I think nodes is maybe, especially as you're coming in, if there's new entrants coming into space, trying to learn more about Bitcoin mine. And I think nodes are an important aspect of that. Yeah.

Starting point is 00:05:31 So what is a Bitcoin mining node, or excuse me, a Bitcoin node. A Bitcoin node is simply just, it can be a everyday computer. It's nothing fancy. It does not require these crazy high power computers that you use for the mining. A node can simply just be an everyday PC. That node is going to be running the Bitcoin software and going through, and it goes through and verifies that everything that is on the Bitcoin network is true. accurate as of now. So you will go through when you set up a node. We have a node running here

Starting point is 00:06:03 in our office. When you have a node set up, it's going to go through and one by one every single transaction since the very first Bitcoin block, it's going to go through and verify that all of those transactions are true and accurate. And it's going to take some time. It's currently, I think, around 700 gigabytes of data to go through and verify all those are true and accurate. And ultimately, those nodes is what gives Bitcoin consensus that all the transactions from the very first day that Bitcoin started 16 years ago to today are true and accurate. It has nothing to do with the miners. The nodes are going to verify those transactions. They're going to broadcast those. They're going to send those transactions to the Mempool. And then after the miners confirm

Starting point is 00:06:45 those blocks and add them, then they're going to update that on the actual. The nodes are going to confirm that in the blockchain. So that's a little bit, you know, a little bit more indebted. and it's very fascinating how important that is so that you don't have to rely upon that trust. You have these set of nodes around the world that anybody can participate in. And that's extremely important as it goes to that double spend problem. Because UI and everybody else, if we own Bitcoin, if we hold our own private keys, and we want to verify that the network is true and accurate, and there's no illicit activity going on.

Starting point is 00:07:17 We can run a node and verify that everything is true and accurate, every single block that gets added on average every 10 minutes. The only thing that I would add to help maybe illustrate this for people when you're talking about a node, a real world kind of similarity to this in the gold market is you have what's called an XRF spectrometer device that will authenticate whether the gold is real or not. So you hand me a gold bar. I look at it. I'm like, okay, it looks like it's metal.

Starting point is 00:07:44 I guess this is gold. I think it's gold. But you can take one of these devices and what you do is you use x-rays to, you're excite the atoms inside the gold, and then the radiation that it emits back out of there will tell you whether it's a real gold atom or not, and that's how you know if it's real. In Bitcoin, the node that Adam is highlighting here is effectively looking at every single, like you said, every single transaction back to the Genesis block. And if it's not going back to the Genesis block, the math isn't going to work that's being performed because it's very easy to do the math

Starting point is 00:08:15 in reverse, very hard to do the math to find a block in the mining process. But the node can check that math very quickly by basically starting at the last block. It goes clear back to the Genesis block. And you can confirm that you're dealing with the real, in fact, Bitcoin when you would receive a transaction. So let's talk about the process of mining a block because I think that's where it gets people will say, oh, it's doing complex math problems. And so dispel that rumor. Talk about what in the world that is and how it's basically finding one of these blocks. Yeah, yeah, yeah. I love the gold analogy. It really makes it an easy visualization. to break that down. I just had a utility company visiting our headquarters here last week,

Starting point is 00:08:56 actually. The first question that I was going to ask is, what's going on here? What is what is Bitcoin? What is Bitcoin mining? Like, you know, they walk through, they see the computers sitting in the shelves. They see our repair team fixing these broken computers. And they go, what in the heck is going on here? The analogy to mining was actually first reference in the white paper. Section 6 of the white paper, Satoshi talked about how expending CPU and electricity is analogous to gold mining. So that's kind of where the mining portion of things actually stem. This is not we're putting shovels in the ground and trying to find Bitcoin like any other commodity.

Starting point is 00:09:32 This is very much using compute power and electricity to solve hash functions and then basically get that block reward, which is what the miners are all competing for. So as Bitcoin first started out, the Bitcoin block reward was 50 Bitcoin. Bitcoin every single block, every 210,000 blocks. Sure, most people have heard of this, approximately every four years, every 210,000 blocks. That block reward is cut in half, so on and so forth until the very last Bitcoin will be mined in 2140. The gold analogy is, I think, very beneficial because you can look at expending real-world

Starting point is 00:10:05 resources in a large, large capacity in order to be able to produce Bitcoin. One of the things that I think is a really important highlight when we're talking about Bitcoin, everybody starts getting into the energy consumption and how they then draw this interpretation that the energy consumption within four years, and we've seen these articles for a decade now, that the energy consumption is going to take up half the planet's energy in four years from now, why are these articles always wrong? What are they missing with respect to what's happening here? And for the person that's wanting the 101 newbie version or the, I'm brand new to Bitcoin,

Starting point is 00:10:43 Help me understand this. Why is that just a very bad take? Yeah, it's a really bad take. I think there's an article a few years ago talking about how Bitcoin mining was going to use more or more energy than the entire world consumes by 2020 or something. Yeah, those lines. And the reality of the situation is Bitcoin uses around 1% of 1% of all over the energy usage in the world.

Starting point is 00:11:05 It's 170 terawatt hours of energy approximately right now. There's a few components of that. I think there's been this assumption and kind of preconceived notion that energy usage is inherently bad, which is just not true. Energy usage is what's propelled us to have the quality of life globally higher than it's ever been in the history of the world. Our quality of life today globally is outstanding, you know what I mean? And it's only been excelled by the increase in energy production.

Starting point is 00:11:35 So I'm a big proponent that we need more and more energy production over time, not less. On top of that, Bitcoin miners in general are always seeking the lowest cost of energy in order to be able to be profitable. Bitcoin miners, us and everybody else around the world are very incentivized to go get that low cost of power as low as it possibly can be. And typically that is going to be renewable energy, number one. Over 50% of the entire Bitcoin network is estimated currently is using renewable energy. We're based in Iowa. Cedar Falls, Iowa is where we are based out of in Iowa. we have the highest percentage of wind power production in the entire country for our state.

Starting point is 00:12:11 So almost two-thirds of our energy production here in Iowa is renewable energy, predominantly from wind energy. You also have other sources of energy, stranded energy. So Bitcoin miners are very incentivized to go find those very low cost of energy and maybe those stranded sources of energy. And that's great. And again, I think that we are only going to need more and more energy production over time to continue to enhance that quality of life. It's one of the easiest metrics to track globally

Starting point is 00:12:38 for human quality of life per capita is annual kilowatt-hours of electricity consumption. 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 its 18th year bringing together activists, technologists, journalists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin

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Starting point is 00:17:20 Something that I think is lost on people on the energy side is Moore's law itself in that, let's just look at going back to mining gold, for example. You used to be able to go out there with a shovel, try to mine gold and find it. Through time, we come out with better inventions so that you can dig it up faster, that you can refine it faster. You know, all of those things, we harness technology to get more efficient. We power this with energy to do it more efficiently than with our muscles. and I think Bitcoin mining is no different than that.

Starting point is 00:17:52 A rig that we can purchase today is drastically different than a rig that you could purchase eight years ago that is consuming, you know, how much energy, how much more energy would you have to use with the rigs from eight years ago than the ones now? Like 10x more? Oh, easily 10x. Yeah. I think a very important piece that gets lost very quickly just because you're looking at the overall net energy usage instead of the efficiency gains that we've seen in the

Starting point is 00:18:18 technology. Yeah. And maybe we could go back a little bit throughout history of Bitcoin mining and see, you know, how things have developed. When Bitcoin was first launched, all mining was done via CPU on a computer, which is a very slow. It's very slow and not very efficient way to do this particular process. About a year later, after Bitcoin was launched, the famous Bitcoin pizza guy Laslo, he was actually the inventor of GPU mining. So a graphics processing unit, it does a much more efficient job of doing these processes. than a CPU does.

Starting point is 00:18:50 So that went on for a couple of years, and then we upgraded to ASIC, the application-specific integrated circuit, which is a computer, specifically a chip that is designed to do one process and one process only extremely efficient. And we've seen large manufacturers such as Bitmain and MicroBT produce these units and continue to get them exceptionally more efficient over time. A few years ago, when we first were starting this. company, we were looking at machines that were 35 joules per tarahash is the rating of how much power it takes to produce one pterash of hash power. So now we're getting into the low double

Starting point is 00:19:32 digits of joules per tarahash, you know, 12 joules per tarahash. So we've seen a three X efficiency gain just in the last few years where these machines are able to produce a significant making amount of more hash versus the power that they're using. Adam, talk to people about this idea that Bitcoin is one of the most ESG friendly and incentivizes ESG probably more than any government policy or anything that's ever existed. People are probably hearing me say this right now. I'm rolling the eyes. There's no way.

Starting point is 00:20:05 Explain how that is the case with respect to if there's really cheap and abundant energy and maybe no infrastructure there. Bitcoin is the only technology that I know of that naturally incentivizes the capturing of this super low cost abundant energy in said place of the world, anywhere in the world. Yeah, there's a few things I can touch on this. So one quick brief overview you can highlight is in new areas. There's a project called Gridless in Africa. You're familiar with that project.

Starting point is 00:20:37 And it's kind of this chicken and egg problem of you have a society that's looking to develop and obviously needs electricity production in order to continue to expand and grow over time. And so there's a demand for electricity. But in the beginning, when this growth is just starting, there's not much demand for electricity. It's incremental and it increases over time. And then you have the developer situation of we need to create electricity generation and make an investment into producing electricity, but we know there's not going to be very much demand in the beginning.

Starting point is 00:21:08 So you can help balance this chicken and egg problem by introducing a few. fixed load that's going to consume a very large amount of electricity all the time, 24-7-365, and will be a buyer of that energy in order to help the economics make sense of deploying that energy-producing project. And that's really interesting. And Adam, I think it's important to also highlight to the listener, this energy that we're talking about is maybe a waterfall or maybe it's geothermal. It's already happening.

Starting point is 00:21:41 This energy is going to take place whether somebody's there to harness it or not. It's going to be spewing over the side of the hill or it's going to be this hot water that's flowing through the ground, no matter whether you're there or not. And so now you have an incentive for somebody to go in there and build the infrastructure to start capturing it and to start powering the local community in a way that's never been done before because it takes a lot of money. It takes a lot of who's going to be the buyer. If I spend $30 million plus to come in here and build the infrastructure, is there

Starting point is 00:22:11 going to be enough people to utilize it. Well, now with this, you've got a buyer. You got somebody like yourself that'd be happy to set up some rigs there to start consuming this. And then there's the competition within the local community. So I need to interrupt, this is, for me, this is the point that I find when I start having conversations with people, they immediately go, oh, well, it consumes too much energy. It's this, it's that. And it's really frustrating because it's literally the polar opposite. It's literally the opposite. It's fascinating because, again, it's a misconception in the fact that people think that Bitcoin mining is going to be taking energy away from other use cases, from other, quote, quote, more important things,

Starting point is 00:22:52 which is just not the case if you analyze supply and demand. Very simply, Bitcoin miners need a very low cost of electricity. And anytime there is going to be demand for any other uses, such as air conditioning, lighting, any of that, any basic function that's going to consume electricity, is going to outbid Bitcoin miners. And that demand would drive Bitcoin miners away if there was not enough supply. So it's a very simple supply demand analysis. We could relate this to maybe our situation here in Iowa where there's an abundance of wind energy.

Starting point is 00:23:26 Like I said, we have the largest percentage of wind power production in the country. And you run into a very unique situation with renewable energies, as you and I both know, if the wind isn't blowing and the sun isn't shining, you still have to have energy produced from somewhere. And we can get into all this. It's definitely a long conversation on, you know, getting into the weeds of renewables and government subsidies and baseload and whatnot. But from a high level, there's an abundance of energy here in Iowa, call it 98% of the time. We have a lot of windmills and a lot of cornfields here in Iowa, and that's about it. So what we're able to do is have very unique agreements with our utility companies where in the off chance that there isn't

Starting point is 00:24:06 wind energy being produced. It's a very calm day. Maybe it's a very calm day. Maybe it's It's a calm day and it's also cold outside, so there's lots of demand for heating in the winter. We're actually able to curtail our operations. We can shut down our full load within 60 seconds at our facilities to help match that supply and demand. The grid has to operate at 60 hertz, 24-7, 365, or you get blackouts, and nobody likes blackouts during the middle of winter. So it becomes this really unique opportunity where you can actually incentivize the growth of more and more renewable energy by building out these load centers that are flexible.

Starting point is 00:24:42 And that's what a Bitcoin mining facility is. It's a flexible load center. We can very quickly ramp down and ramp up to match the interminancy of renewable energy. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving.

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Starting point is 00:28:17 hey, this makes a lot of sense. The next question that you typically get is, should I just buy the Bitcoin or should I try mining and all of these types of questions? Typically, my response to the person is, don't overcomplicate it, just go buy Bitcoin. I'm curious your take for a person to mine. What would be the argument? What's the advantage? Because anything that has an advantage has a corresponding disadvantage that's associated with it. So talk to us about what is that advantage for a person that would want to mine versus just buying the Bitcoin out, right? Absolutely. It's one of the most common questions that we get asked. And I'll start by saying, I don't think it's all mining by any means. I don't think it's all buying necessarily.

Starting point is 00:28:54 I think it's a happy medium of both. Through my experience of mining and through the experience of a lot of our clients, one of the things that there's a few benefits. Like you said, there's pros, there's cons, so on and so forth. But it removes the emotions of having to actually go through and commit that buy is one of the big things that we've found over the last few years. When Bitcoin price is low, there is a lot of human emotion involved. And regardless, you know, you and I are both very much Bitcoin maximalists. I'm more sure about Bitcoin than I'm the sun rising in the East, right? It can definitely get some emotions involved when you have drawdowns like that and, oh, I'll buy it lower trying to time the market rather than time in the market. So that's one of the first things that we've seen is just the ability to be producing Bitcoin every single day regardless of the price and then paying for that hosting your electricity once per month, more or less. So that's one of the added benefits that we've seen to our clients. So it's a forced DCA, a dollar cost average is what you're really saying. Exactly. It's a forced DCA. Now, there is some additional benefits that we could get into with depreciation and some business benefits. Talk to that. Talk to the depreciation aspect because I think that's important. Yeah. So there's, first of all, now a tax advisor. So I would recommend everybody listening to talk to your own tax professional. But these machines are assets that can be depreciated over a lifespan and you can do all kinds of different depreciation on them. What is the typical depreciation schedule? Like three years or what is it?

Starting point is 00:30:22 Yeah, three to five. I would say on an asset like this, and certainly there's bonus depreciation, there's section 179. Everybody's situation is going to be just a little bit different on how you want to go about that, but it's like a, there are real world tax advantages to buying this equipment on top of the additional operating expenses of running the mining business that, depending on any given person situation, it could be lucrative to exercise those. Let's walk through the math, because I think this is important for people that maybe aren't intimately familiar with how depreciation works in accounting and whatnot. So let's say a person real simple, goes out and buys a

Starting point is 00:30:57 $10,000 rig, and let's say you depreciate it over three years. So you're basically taking a third of that cost, the $10,000. So you got $3,333. You're writing that down after the first year. You're doing it again after the second year and you're doing it after the third year. So the value of the rig itself becomes zero from an accounting standpoint, but you've reduced your tax burden by the 3.3K every single year and you're mining Bitcoin during that entire time. Now, you are paying, help us on the gains. So you would be receiving this as income. Each Bitcoin that you mine at that spot price, it's marked.

Starting point is 00:31:34 Well, it depends on the payout. At the time that you receive from the point is marked as revenue based upon the current spot price of Bitcoin. Yeah, from the pool. So if your pool pays you once a week or once a day or whatever that is, as soon as that is received to whatever Bitcoin wallet address you have set up, it's received as the revenue at that current spot. And then that's what you would pay the tax on with respect to getting it for, I guess, the whole thing would be considered revenue. Yeah, that'd be

Starting point is 00:32:02 top line revenue. And then your operating expenses would be sort of like the electricity cost associated with navigating that. So just pulling further on the numbers. And sorry, I know these are like all off the top of our heads here. So let's say the energy cost is six cents per kilowatt. let's say you bought a pretty new rig. Let's just say $10,000 was the basis on the rig. I'm sure it's probably a 20 or whatever. But let's just say it's 10. How long is it going to take that person just historically looking at the volatility

Starting point is 00:32:30 and how Bitcoin moved? Are they getting that back at what? They're getting their principal back in two years, a year and a half. What is the turnaround for them to recuperate $10,000 worth of Bitcoin on a $10,000 rig? What would that be? Right, right. And this is where, you know, I'm not going to lie to you, Preston.

Starting point is 00:32:46 there's no, I don't think there's a single person who can sit here and tell you confidently exactly how the return on investment of Bitcoin. What's the ballpark? She is going to work. What's the ballpark? Yeah, it's going to vary depending on, you know, Bitcoin performance, lots of different things. I mean, we've seen, for us, we've seen some of our clients return their investment as quickly as six months. Yeah. We've seen some clients that have taken two years or longer to recruit their investment. Obviously, there's a, there's a big timing aspect, just like buying any asset would be. But that's the ballpark is six. Six months would be a best case scenario.

Starting point is 00:33:18 Three years would probably be a worst case scenario based on past performance. And what energy cost are we talking? Is it about six cents per kilowatt hour? Yeah. So our rates that we charge are between seven and eight cents per kilowatt hour. Okay. We appear unique things with our offering where we actually, so we have a full dedicated repair center where we include all repairs.

Starting point is 00:33:39 We have bit main certified technician where if a machine gets damaged or breaks down because these computers run 24-7, 365, will actually include any repairs regardless of whether it's under warranty or not. Our goal, you know, our offering, when we talk to our clients, we very much don't really like to discuss a return on investment because we don't know. Nobody knows exactly how things are going to play out. And our goal is not to mislead anybody or anything like that. Our goal is to offer the best service out there if you are looking to participate in Bitcoin

Starting point is 00:34:11 mining and if you want to do this business. And we do that through a combination of a few different things. We do it by providing the low cost of electricity. We do it by having a full dedicated repair center where we include all the repairs. And we offer a flexible pause period where if the mining ever becomes unprofitable, you're able to actually pause your units on our dashboard. And then we also have a marketplace where you're able to resell your equipment at any point in time if you're like. Interesting.

Starting point is 00:34:39 This is great. This is helping people understand the business of mining. Okay, so Adam, where I want to go next is it appears to be there's this synergy between AI and Bitcoin mining that's starting to take place. Help us understand what is this. Is this something that you think is going to become a major theme in the coming five to 10 years? And just real briefly for the audience so that they can understand. So AI takes a ton of energy. It takes energy that needs to be plowed through a GPU, which is very different than Bitcoin A6.

Starting point is 00:35:11 But it seems like you have these data centers that are set up for Bitcoin mining. You have all the energy being plumbed into these data centers already, that if you put some GPUs there and they're willing to pay top dollar, that they can just basically point the energy over to the GPUs, they run their AI models, they get the output that they're looking for, and then they can just take that energy and point it back to the Bitcoin miners. Help us, is this very real, is this from an infrastructure standpoint, are we over-complicating things. Help me understand your perspective because I'm, I don't know, a little cynical or what, I don't know. Yeah, common question that we get asked just naturally being in the Bitcoin mining

Starting point is 00:35:51 space is talking to town for the last year, 18 months, it seems like, has been AI and all that good stuff. I'm going to take the other side of this one, actually. I think in the short term, I think a lot of this is probably overblown. You know, the way that I'm visualizing this, just talk out loud is you're looking at the transition of a Bitcoin mine. data center, which is really like a tier zero data center. It's the bare bones. It's as little KAPX as possible in order to be as profitable as possible on the mining side of things. And you're transitioning to a traditional style data center, which is 10x cost in KAPX in order to operate this equipment. It requires a lot of redundancy, battery backup generation, all these

Starting point is 00:36:34 other sorts of things, because unlike Bitcoin mining, these traditional data centers cannot be a flexible load. You know, they require five nines of uptime, 99.9999% uptime on an annual basis, and you're not going to get a standard Bitcoin mining facility as of today. A few other points that I would add to that. Why do you say that, Adam? Yeah. Why is the reliability so much worse at a Bitcoin mining facility than one of these data centers? Because it can be. So on the Bitcoin mining side of things, we can be interrupted in order to have our cost of power be as low as possible. We can be on off, on off, and it doesn't really affect operations at all. You cannot turn an AI data center or even a traditional data center on off, on off.

Starting point is 00:37:19 It doesn't work. So they need that power all of the time, no matter what, no matter if the grid is under major constraints, it has to have that power in order to, in a traditional data center standpoint, make sure you can open the Facebook app and scroll your newsfeed and those sorts of things. So Bitcoin mining data centers don't have to have that type of uptime. They can be flexible those. They can shut down and it really doesn't affect day-to-day operations. And that helps continue to get the lower cost of power.

Starting point is 00:37:47 But it's a whole different ballgame going to that level of uptime with the backup generation, backup battery requirements, the networking requirements and all of those sorts of things. What other thing that you think is missed on this topic for the common person that's hearing about it? And first of all, do you see this progressing in this way that we described or do you think that it's like long off if not really even a thing? Yeah. My high level over view of AI and data centers and whatnot is I think in the short term here, the next few years, I think a lot of what you're seeing is large, large companies, the Meg 7 companies have a very large balance sheet and access to capital at next to no cost.

Starting point is 00:38:30 And they are taking all of this money and they are throwing it at Nvidia. to use and just seeing what will possibly stick. My kind of interpretation is there's no true business case on how this investment is going to produce any revenue that will recoup this investment in the future. They're just trying to be, it's an arms race. They're trying to get these things up and going as quickly as possible and going in with the fingers crossed, we'll figure it out. We'll build the plane as we fly in type of situation.

Starting point is 00:38:57 And I think in the short term, that's going to cause a lot of difficulty in trying to operate to business, trying to operate an AI data center business if you have one customer and that one customer goes bankrupt, where does the revenue come from? You know, that's where I think from just like a first principle standpoint is where is the revenue being generated today from all of this AI activity? Certainly, there's lots of things going on and there's, and by the way, over the long term, I'm very bullish on what AI can possibly do for the future. Don't get me wrong. I just think that things of this magnitude do not happen overnight. It is going to take time and you are going to see a lot of, you know, over the course of the next few years,

Starting point is 00:39:38 maybe a lot of bodies float to the surface over, you know, malinvestment. Yeah, yeah, for sure. Okay, one thing that I think is interesting, you've had Bitcoiners beating the drum on nuclear for the longest time. Since I've been in the space, it's just like, we need to get to nuclear power. It seems like in this past year, because of the demand for AI and running all these models and the energy consumption to do this, that we now have a partner out there beating the same drum saying we need to get to nuclear power because there's pretty much no way in the next

Starting point is 00:40:12 10 years we're going to be able to keep doing all of this and growing all of it without kind transitioning to a nuclear world. Talk to us about that. Talk to us about your opinion on renewables. I know you talked about like how abundant it is there in Iowa, but when you compare renewables in the face of nuclear, which is very clean, where do you see this evolve? What do you think is taking place here? Is this a good thing? I suspect I know the answer to that, but let's hear your thoughts. I'm very, very optimistic and, you know, a big fan of nuclear energy. It's a great technology that's really a majority of the nuclear technology that we have running was developed back in the 1950s and 60s. And built in the 70s and 80s here in the United States,

Starting point is 00:40:52 we've had only a couple reactors built since a majority of them were built in that time period. You know, most recently there was a reactor that was just deployed, I guess, technically earlier. last year, 24, down in Georgia, there's a lot of, I think, government bureaucracy and other things that get in the way of getting nuclear up and going. There's a lot of public fear over a meltdown and those sorts of things. But if you just look at the simple facts, it is one of the safest, it is the safest form of energy production per tarot hour outside of ground-mounted solar. It is an extremely safe form of energy production. It is very dense. We should be building much more nuclear. We had a nuclear plant, have a decommission nuclear plant here in Iowa,

Starting point is 00:41:35 actually, about an hour from where I live. And it turned into an interesting economic situation. And due to the abundance of the wind energy, the nuclear just couldn't compete. And you can look at it as you have maybe some free market disruption with government subsidies on the wind side of things. And does that disrupt the natural free market of energy production based upon where it would have gone? And so on and so forth. But I'm very optimistic. about nuclear, the EAI has looked at optimistically, I think a 3x increase in nuclear energy by 2050 in the United States. We currently have just under 100 gigawatts of nuclear energy in the U.S. It's a little under 20% of our production in the U.S. comes from nuclear energy.

Starting point is 00:42:16 And we're talking about 100 reactors or so, roughly. So I think that the opportunity for nuclear in the future, especially with just, again, we need more and more energy production to continue to advance as a society. Energy is one of the most fundamental things that you need as a society or as a nation in order to propel things forward. Energy is a net input for everything, and nuclear will help a lot. Any other energy technologies that you're excited about or that you think are going to be instrumental kind of in the coming decade?

Starting point is 00:42:49 Yes, there's going to be more and more renewables going online. Iowa currently has about 15 gigawatts of wind energy. They're looking to install another 5 gigawatts by the end of the decade, so a total of 20 Do you find that that is being shaped by public policy? And if the public policy wasn't there, would it be a natural incentive to do it that way? Well, it's an interesting thought experiment, for sure. It's very windy here in Iowa. But you look at these windmills, a few different examples here in Iowa, there's government subsidies for every kilowatt hour, every, you know, megawatt hour of energy produced by these windmills. So if you just look at, you know, the disruption of

Starting point is 00:43:27 the free market, well, there's larger incentive because of that. government subsidy to install these wind turbines. And you run into a situation where it starts disrupting the natural free market of energy. And pricing actually here in Iowa will go negative. Utilities will actually get paid to take power from these wind turbines because the wind turbines can run in a loss. They can operate because they're still going to get that subsidy on the back end. And that starts to cause a whole bunch of walkies, you know, things to go on in the grid. and it just renewables are intermittent. And there's always a demand for electricity.

Starting point is 00:44:03 It's called base load. That is the energy needed to heat your home, turn on the lights, run the air conditioning, so on and so forth, all of the basic things you always need to use. And then we have what we call a peak load where it's the hottest day of the year and everybody is running their air conditioner, everybody's running their heater

Starting point is 00:44:22 because it's so hot or cold outside. And you need more and more and more energy. And that right now is being, supplying by peaker plants. Natural gas peaker plants are one of the most common forms of matching that demand with the available supply, because if there's no wind, there's no energy production from the wind, but everybody still has demand for energy to run their air conditioning during the summer. So you kind of start to think about the intermittency of renewable energy and what if we just had a large nuclear plant with a base load and then we sprinkled some renewables on top in

Starting point is 00:44:51 order to supplement the changes in the demand. I love that. Okay. So Bitcoin 101, or mining 101, what is the question that you get asked that makes you roll your eyes the most when it comes to this topic from family and friends? And then let's hear how you respond to that. Yeah, the question that I get asked most that makes me roll my eyes is there's a lot of misinformation, I think, surrounding mining. Luckily, most of my friends and family I've had some good conversations with over the last few years. But just in general, we've had to battle a lot of misinformation, specifically related to mining. We've heard everything under the sun related to mining and how it's bad.

Starting point is 00:45:33 Our facilities are going to emit 12,000 tons of CO2 per day. Right there physically on site. You know, our machines are going to emit CO2. Pierre Schard has probably the best video. I've seen it. I've seen it. Yeah. Oh, yes. Let's look at the parts per million. Yeah, exactly. So that's one of the big ones is just misinformation around our facility. we're just a business looking to operate like any other business and has some negative preconceived

Starting point is 00:46:02 notions, I think about our business and the environmental impacts and the sound and some of these other things where we've been very successful in being able to set up our operations across the state of Iowa and we want to be a friendly neighbor. Don't get me wrong. We understand that there is some noise and things like that. But I think that we are able to locate in areas where we take a common sense approach to this. We don't want to set up our business where it's going to cause has any legitimate problems for anybody. So combating some of those has been interesting. We've had great success so far, setting up different sites across all over the state of Iowa.

Starting point is 00:46:36 But certainly have been some interesting comments and concerns that we've received over the last few years related to energy usage, sound, carbon emissions, those sorts of things. Adam, are you active on Twitter? Yeah, I just got Twitter pretty recently. I need to be better about that. Big mistake. Big mistake. Yeah, yeah.

Starting point is 00:46:56 I'm the type of guy that's kind of, I don't know if anybody cares what I have to say. But some of the guys here on our team have been encouraging me to be better about that. So, yeah, at Adam Haynes on Twitter. Our company is at Simple Mining I.O. And then I'm more active on LinkedIn as well. Okay. Hey, so if you're listening to this and you have Mining 101 questions, we'll have a link in the show notes to both his Twitter and his LinkedIn. I would prefer people to hit you up on LinkedIn because you get some of the most.

Starting point is 00:47:24 I'm going to use the word interesting here. side chatter and side comments when it comes to Bitcoin versus Twitter. It's way more based on Twitter, but it's way more entertaining, I think, on LinkedIn. So we'll have links to that in the show notes. Adam, give people a handoff to anything else that you want to highlight if they're interested in learning more about Simple Mining IO or whatever you want to highlight. Yeah, no, appreciate that, Preston. You're thankful to be here and if anybody's looking to learn more about, you know, mining, we have a website where SimpleMining.com slash insights, we have a lot of information. One of the biggest things that we try and do at our company is educate on mining, on Bitcoin, and those

Starting point is 00:48:00 sorts of things. So visit our insights page, and there's a lot of great resources there if you're looking to learn more. And then if you're interested in learning more about Bitcoin mining and how to possibly get started there, visit our website, Simplemining.io, and there's a start page there where you can schedule a call to chat more with us about that. Amazing. All right. And we'll also have a link to Gigi's Bitcoin is Time article in the show notes. So make sure you guys check that out. Adam, thank you so much for making time and coming on the show. Really enjoyed chat. Awesome. Thanks for having me. Appreciate it. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show

Starting point is 00:48:38 notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting. Thank you.

We Study Billionaires - The Investor’s Podcast Network - BTC218: Bitcoin Mining 101 w/ Adam Haynes (Bitcoin Podcast)

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