Chuck Yates Needs A Job

0:20 Hey everybody, welcome to Chuck Yates needs a job, the podcast. I'm very fortunate today, my guest is Parker Lewis of Unchained Capital. Welcome in Parker - Good to be here - All right, we're

0:33 gonna deep dive into Bitcoin mining, talk about the state of Texas and all that, but the first thing we have to do is realize that my mom listens to this. So will you tell my mom who you are and

0:45 what Unchained Capital does? So my name is Parker Lewis. I'm the head of business development at Unchained Capital. We're based in Austin, Texas. It is a Bitcoin native financial services company.

0:57 What we ultimately do is help people secure their Bitcoin in a way where we eliminate a financial institution as a single point of failure. And then we help people who value us as a custody partner

1:10 with everything else that they need in Bitcoin, helping people buy and sell Bitcoin, lending against Bitcoin if they don't want to sell it,

1:18 We also have retirement inheritance products and services. So we only focus on Bitcoin and a lot of what I do personally, in addition to helping execute and run our company and strategy from a lot

1:30 of the client acquisition, relationship development, what products and services we offer. I also educate a lot about Bitcoin. So I've written a series called Gradually Than Suddenly on Bitcoin,

1:40 17 long form essays that basically explain in an accessible way everything that you never want to

1:46 know about Bitcoin to - Where do people find that? It's on our website, unchainedcom. If they go to resources, it's shortened down to the GTS series Gradually Than Suddenly. You can find all of

1:58 my writings there. There's also audible versions of that provided by Bitcoin Audible. So they're great resources. They're structured in such a way where people can read them. Each essay is

2:10 self-contained on a particular subject. People most often have a common set of questions So it's designed to help accelerate people's paths. understanding Bitcoin. And then I also help organize

2:21 meetups. I organize the awesome Bitcoin developers meetup. I'm based in Austin. We're based in Austin. And I also help organize the Houston Bitcoin meetup, which is focused on mining and energy.

2:30 So a lot of education, which is core to people's kind of understanding and then becoming clients of Unchained. And I'm so glad you've done that because I've been asked to do that. And I figured out

2:42 that I'm fundamentally the most lazy person I know, maybe the most lazy person on the planet, and that being unemployed really works for me. So I'm glad I don't have to do this. I can just link to

2:53 your site. That's what I'm here for there. I appreciate that. C mom, you can go learn all you want. It's called efficiency, not laziness check. There we go. You know, that's Bill Gates's BS.

3:03 He always says, go find the laziest person and give them the task because they'll find the easiest way to get it done. Well, there we go. So let's talk. Let's do this real quick because

3:15 Bitcoin mining, I probably understand it. from about 30, 000 feet. But walk me through it to maybe 20, 000 feet or maybe 15, what is mining actually when we're talking about Bitcoin mining -

3:30 Well, let me put that back to you - Okay - Tell me your 30, 000 foot view so that I can then get you the 20, 000 foot view - Okay, that's a fair question. So as I understand it, Bitcoin, we

3:40 have a decentralized network. So all these separate computers talk to each other, function together, but are ultimately decentralized. And so when we want to add a transaction, I send you a

3:54 Bitcoin. We wanna add it to the blockchain ledger that's keeping track of every Bitcoin. So every Bitcoin ever created has a ledger that says Parker owned it, then Chuck owned it, although it's

4:06 accounts and the like. When we wanna do that, somebody enters into the ledger, Chuck sent Parker one. Bitcoin and Then's where it kind of gets hazy because all the computers are doing something

4:25 which I'll just say is solving a riddle and boom 10 minutes later that winds up in the blockchain. Am I anywhere close? You're in your your clothes. You're in the vicinity. Okay, 32, 000 feet 33

4:42 Half 32 and a half somewhere in that zip okay, okay, correct me and then take me a little deeper Okay, let me I'm gonna I'm gonna go to 40, 000 feet and then I'm gonna come bring you into 20 Okay,

4:52 I'm gonna bring you into the approach so first for the listeners the way that I think about Bitcoin mining is that if I could singularly or most simplify the function it is providing security to the

5:08 Bitcoin network mining equals security and ensuring the integrity of the Bitcoin network. There are actually a number of things that secure But mining is a critical column. If I step back one step,

5:23 it is painting a picture for people and we won't go into, we'll be focused on mining and the relationship to energy, but I always like for people to have context of what that energy is doing. That

5:33 if I was to simplify the reason why Bitcoin is a fundamental value to the world, it is because there will only ever be 21 million. And what that represents is a form of money that can't be printed

5:45 And that that is ultimately of value to virtually everybody in the world. Everyone would benefit from having a form of money that can't be printed. What this mining function is doing is it is

5:56 providing security to ensure principally two things. That there will only ever be 21 million and that Bitcoin can't be spent twice. Both or thinking about that another way that every Bitcoin

6:10 transaction that is sent is valid and for a Bitcoin transaction to be valid, there are two principles. that must be true. There's more than these two, but there's two principally in a

6:22 human-readable version, which is every Bitcoin transactions that's being set had to be that Bitcoin had to originate from a Bitcoin block that was consistent with a 21 million supply cap. And then

6:36 when it is sent that that Bitcoin can't have previously been spent such that if I say I had a Bitcoin and I sent it to Chuck and Colin at the same time and I asked you both for your cars, Bitcoin

6:46 network has a way to know which one of those two things happened first, even if it was simultaneously the network would resolve that one of them was the valid transaction. So ensuring that there

6:58 will only ever be 21 million and ensuring that all Bitcoin transactions are valid and validity is consistent with those two things, 21 million and Bitcoin hasn't previously been spent. So that is

7:11 what the mining function is doing. Now, if you want me to get into that next layer down of like what is mining actually.

7:21 Yeah, I'd love to hear that. Okay. And this is, I don't know if the listeners care, I care. So I've got you under my hand for about an hour. I think if you care, I think your listeners care

7:31 when I go to the meetups and sit down and educate about Bitcoin, especially for people in the energy business that are seeing that there is a role for them to play probably a role larger than they

7:41 actually understand that the energy business and Bitcoin will get into this I actually think they ought to be the 900 pound gorilla in it, but keep going. Okay. So mining, if I go down the level

7:55 from it's providing security network, protecting the fixed supply, the whole thing why Bitcoin is valuable. The next thing is, well, what is mining actually? And what mining actually is, is

8:05 think about a Bitcoin miner as a specialized computer. Today, the special-ass computer run ASIC chips that are built purpose for Bitcoin. and scaring the Bitcoin network and ASIC as an

8:16 application-specific integrated circuit. But just think about there is a computer running that's basically plugged into a power source that's running the Bitcoin protocol, and it is doing a few

8:29 things. It is receiving all Bitcoin transactions that are being set anywhere in the world, and it's looking at each transaction saying, Is this a valid Bitcoin transaction? If it's valid, I'm

8:42 going to package up a group of valid transactions, and I'm going to run energy and what's effectively happening. The best analogy that, like, substantively what it is doing, it is clearing,

8:57 validating, and clearing for final settlement, all current Bitcoin transactions in the network. So when every time a Bitcoin transaction is sent, it is distributed to all miners simultaneously and

9:11 to all Bitcoin nodes on the network which a node doesn't have to be a minor, no could just be a computer that's transmitting transactions. But the entire network is assessing the validity of each

9:22 transaction. And the miners, what they are doing is they are effectively appending new history to the Bitcoin blockchain, which is really just think about that as an ordering system. That ordering

9:32 system is critical to knowing

9:38 whether a Bitcoin has previously been spent. And so oftentimes people hear blockchain and they don't understand what it means, but it's just there's a certain capacity of transactions that can clear

9:48 through the network approximately every 10 minute. And they get appended on in what we call blocks, but think about them as just series of transactions. The relevance of that is knowing which one

9:60 happened before the other such that if I sent a transaction to you five days ago and then you sent it along to somebody else, they needed to know what transaction happened first. Now, if I get into,

10:11 okay, we'll. help me understand what that actually means.

10:17 So think about the way I explain this is, think about there's 100 miners. And imagine that each had a gigawatt of power and there's 100 gigawatts securing the Bitcoin network.

10:29 All miners and he where in the world are competing with each other

10:35 247. And so each miner is functionally doing the same thing They are at any point in time, trying to solve the next Bitcoin block. They're trying to win

10:49 the solve the problem. And the way I describe this riddle is that it's not actually a hard math problem. It's one that no one can be better at. The only way that you can be better at is being more

11:02 efficient at how you

11:06 produce or how you produce energy and reduce your costs that way how efficient you are from a machine capability of running power. But what they are effectively doing, it is not like, if you and I

11:16 sat down and I might be better at calculus than you, we were given a calculus problem, I'm gonna get to it, but I'm not gonna have to do as much work because I know how to do calculus. But I don't

11:26 presume that you might actually know how to do calculus better - Do you wanna kick my ass at calculus - I don't even know about it - I've known you for 12 minutes now - But this is more like a game of

11:35 guess and check, okay - Okay - And think about it, the best analogy that I've ever heard to describe what the mining problem is and this kind of, when people say complicated questions, it's not

11:47 complicated, you just can't be better at it. You just have to guess and check, guess and check, guess and check, and it's by design. The best analogy that I've heard is like rolling dice. If I

11:57 was to roll, if I was to, if you had to, I always screw this up, dice, die, whatever. If I was to give you two dice and I was to ask you to roll a collective number below seven. it would take

12:11 you about 10 or 11 times. But then if I was to ask you to roll snake eyes - Right - It would take you approximately, you might, there's a chance you might get it on the first one. But on average,

12:23 it's gonna take you 33 times to roll the dice.

12:27 The Bitcoin miners in these quote mining machines, they are guessing and checking, they're rolling the dice and saying, I'm trying to get a probabilistic number that's below a certain, what we

12:40 call difficulty. So if it's like roll underneath seven, that's a lower difficulty than roll snake eyes. And as more security is added

12:52 to the Bitcoin network, and as there are more miners, we don't get more Bitcoin, we just get greater security and you have to roll the dice more to append history. And what that functionally means

12:60 is as the Bitcoin network becomes more secure, we attract more energy, there's more miners, more distributed, there are more geographic locations and there are all competing. So when they're

13:10 competing right now, every single mile in the world is competing for the next Bitcoin block. As soon as one solves it, they distribute it to the rest of the network and everyone starts working on

13:20 the next block to clear the next set of transactions and the next and the next. And the reason why it can't be gamed is because they're all working on the current set of Bitcoin transactions at any

13:30 given time. And they're all competing with each other. And once one sees a valid proof, they were they move on to like say it's block 100, they move on to block 101, which is a different set of

13:40 transactions and so on. So let me see if I can dummy this down to see if I understand. We have hundreds, thousands. I mean, how many how many miners do you think are going right now in the world?

13:57 Like individual mining machines? I mean, the way just some way to well, some way to it's about somewhere between 15 and 20 gigawatts power - Okay. So we've got 15 to 20 gigawatts. all throughout

14:09 the world, a bunch of different computers running. They're all decentralized. Somebody, the lightning network, whoever says, Chuck is sending to Parker one Bitcoin. That's the chain.

14:23 Everybody's computer is going, is that a legitimate transaction? When did this hit first? Whatever the case may be. Then when people all say it's legitimate, they're throwing the dice, and

14:37 whoever wins the dice game gets credit for putting that onto history, appending history. Correct. Like someone rolls like everyone's rolling the dice. It's all probabilistic. They're all

14:48 competing with each other. And so someone says, all right, these are 3000 valid Bitcoin transactions. And I just rolled below snake eyes, send it out and everyone else checks. Like was that the

14:60 difficult, was snake eyes the difficulty level? And what is this a valid proof that it's below that? level, it's that or below. If so, I go on to the next block and I just, I go keep rolling

15:13 the dice and that imagine, imagine the Bitcoin mining capacity increases by 2X. Think about it as it would be like, if I asked you to roll below a 4 or if I asked you to roll below a 2, that it's

15:29 basically, it gets twice as hard

15:33 to actually find the proof, which means that you're going to have to consume twice as much energy in order to solve a valid proof. The reason why that is important is because it is this idea that

15:46 the cost of validate whether a Bitcoin block is in fact valid is de minimis. The cost to produce a block to write new history is incredibly high. So this relationship by the cost of forge versus the

16:01 cost of validate, someone can immediately know whether a Bitcoin block without running a computer that's eight years old, that might cost 100 on the used market, can run the Bitcoin blockchain and

16:13 say, they can look at a miner that consumed, you know, 20, 000 a power in a day and say, Nope, that, that's invalid block. Uh, but that it's costly to write history for a reason that protects

16:26 the Bitcoin network by ensuring only valid transactions get written. And then I, I also, but I use this equation to help people understand like a, about a three to 400 megawatt Bitcoin mining site

16:38 costs about a billion dollars. And probably takes about 18 months, 18, 24 months to plan and build that. These Bitcoin miners are running the software. They're effectively rolling the dice,

16:55 agr-agrating a set of valid transactions and then, and then basically guessing and checking a random input to see like, does this achieve snake eyes below. And again, that might sound dumb, but

17:05 it's it's intentional. to say that all miners are probabilistically competing with each other in order to solve a Bitcoin block, they had to produce X amount of energy. That's effectively what it's

17:16 doing. And that's what we call proof of work. But in that context of what the network is functionally doing is it's making it incredibly costly to write new history, which actually protects by

17:31 design the integrity of the network. And so in that world of, if you were a miner and you're building a 300 and 400 megawatt site and it costs a billion dollars and it took you 24 months to build,

17:41 you only get paid in Bitcoin. If, and so you have this massive incentive to only produce valid work because one, you had all this CapEx and in order to provide security to the Bitcoin network to

17:53 only validate valid Bitcoin transactions, you get paid in one thing and one thing only, Bitcoin. So your incentives with the network are perfectly aligned And if you were to say. issue yourself

18:06 more Bitcoin that wasn't consistent with the 21 million supply cap, or you were going to validate Bitcoin transactions, say you were a Bitcoin miner and a Bitcoin miner sent you and I 10 Bitcoin at

18:17 the same time, trying to

18:20 send and validate in valid Bitcoin transactions, the rest of the network, because they're all competing at the same time. It's like a game of Mexican standoff, basically. Everybody's pointing the

18:29 gun at each other, and everyone's incentives are aligned because they only get paid to secure one thing, and that is the integrity of the Bitcoin network, which is principally there will only ever

18:39 be 21 million and anyone sending a Bitcoin transaction can only send that nominal amount of Bitcoin once. So, dumbing it down for me, I won't say mom. Mom's actually really smart. I'm smart.

18:52 They're only going to be 21 million Bitcoin. We're going to have a ledger that shows who owned each Bitcoin win forever. A lot of transparency there and the system that keeps that history, ie. the

19:07 mining, the integrity of the network and stuff, gets a Bitcoin of some sort paid in Bitcoin for solving that and, in effect, adding the computing power to run all that. Yes. So, again, I

19:22 always come back to what is substantively happening. The miners are validating current transactions. And I think about processing them for final settlement, which is like, if you send a wire, the

19:32 New York Fed has to validate that that is correct And they set the processes. This is basically saying, I send you a Bitcoin. We can both know without needing to trust anybody that that is yours.

19:42 There's no takebacks. There's no like calling up your bank and saying like reverse that transaction. This costliness is what ensures that there are no takebacks in there. And so, but when I kind

19:56 of like play that out to, let's say, the individual minor incentives, it is.

20:04 The network has sent such that probabilistically, a block gets solves every 10 minutes. It's not like at noon, there's gonna be a Bitcoin block solved in at 1210, there's gonna be a block solved

20:14 in at 1220, there's gonna be a block solved. It's that probabilistically, like say, there's 100 miners and there's one out of 10, or one out of 100 each has it, and this is now the Bitcoin

20:25 network works obviously, but like if we were just using a mathematical theoretical example, 100 miners, each miner had 1100th,

20:35 that each block they would have a 1 chance of solving. Okay, and then if there was a doubling of the number of miners and they each had an equal number, then they would have a 05 chance of solving

20:52 the next block. What they are issued currently is 625

20:60 Bitcoin per on average block, okay? And again, that is for validating transactions.

21:08 Every 210, 000 blocks, which is approximately every four years, that number of 625 gets cut in half. And that doesn't happen because software code magically says so. It happens because the

21:26 economic incentives of the system are aligned. And again, it happens because all these miners are playing Mexican standoff, pointing the gun at each other. And when we get to block 840, 000,

21:37 we're at like, let's see, the last happening was 630, 000 blocks, we're almost at May 3rd is going to be the halfway point to the next happening. That would put us at like 735, 000 close to.

21:51 When we get to 840, 000, every single miner without having to do anything is gonna look and say,

21:58 for doing the same work, I have to pay myself 3125

22:03 Bitcoin. where everybody else in the network's gonna reject my block as being invalid. So I'm going to have built all this infrastructure out and consumed this marginal electricity costs. And if I

22:15 don't reduce my own reward by half at this particular block, then I get paid nothing and I expended those resources. And so every four years or every 210, 000 blocks, that rate of issuance in

22:28 nominal Bitcoin terms gets cut in half So when the Bitcoin network launched, it was 50 Bitcoin per 10 minutes on average. Again, it's probabilistic, not on the hour. Then 210, 000 blocks later,

22:40 it dropped to 25, then it dropped to 12 and a half. Now it's at 6125. And in about two years from now, that will drop to 3125. And so what functionally happens is that real reward continues to go

22:54 up, as the Bitcoin network becomes more valuable, while the nominal amount that needs to be paid for security continues to go down and that really drives all incentives and efficiencies in the

23:02 network. Yeah, it's almost like at time zero, they said we're gonna have to pay people a lot 'cause it's new to get them to actually do this, but as they do it, they'll get more efficient,

23:13 they'll get better at it, and we can pay them less and less in terms of a percent of Bitcoin, that being said, because there are only 21 million of them, they should continue to get more valuable

23:23 over time. Right, and that is what has happened empirically, but it also is fundamental to why Bitcoin is valuable. The more people that start to learn about what is money and what is Bitcoin,

23:35 more people value it, it actually creates a more valuable network, a money network for people to trade and transact, and then that attracts more security. So the actual underlying unit becomes

23:46 more valuable as people build infrastructure, but also as it becomes more secure. And so, and if we look at the empirical kind of data, when the miners were being paid 625 Bitcoin every 10 minutes,

24:01 the real value of that 625. Bitcoin is orders of magnitude more valuable than when miners were being paid 50 Bitcoin in 2010. Right? And that funding currency and the value of it is what aligns

24:16 economic incentives. But then what also happens when it goes from 65 to or 625 to 3125 and approximately two years, two things happen It's a supply shock for the overall network that basically it

24:33 starts to communicate just how scarce Bitcoin is

24:37 because the rate of inflation right now, the rate of inflation, there's about 19 million Bitcoin in circulation. There's 2 million Bitcoin left, but that will happen over the next 100 years. And

24:50 that the rate of inflation right now is about 173 So when the next happening happens, then the rate of inflation will be below 1. So it creates this supply shock. feel in the market just how scarce

25:05 Bitcoin is because fewer of them are coming onto the market, but it's also a culling of the herd of the miners that it incentivizes like, okay, who is the most efficient? Who is the lowest cost

25:17 producer? Because Bitcoin and Bitcoin mining is ruthless. Its principal marginal cost is power. And who can go find the cheapest sources of power to be running this computing process, which is

25:35 rolling the dice over and over again, trillions, quadrillion times at the cheapest cost, who can do that most efficiently. And when Bitcoin happening happens, the highest cost producers, the

25:46 least efficient,

25:49 can't produce profitably and they go out of business. And when that happens, the strong miners actually get stronger. So let's drill into this. So you've moved it to from. You've explained

26:01 Bitcoin mining. Now we're into the business of Bitcoin mining. I'm gonna say all this is a statement, but it's really a question for you to correct me or whatever. But when I've looked at Bitcoin

26:12 mining, the grossly simplified, you have to go buy the miners. You gotta buy the computing power. There's probably a little bit in the way of competitive advantage there, in that the more miners

26:26 you buy, the cheaper the price, if you're willing to take delivery in eight weeks, instead of two weeks, you probably get a little bit better price. But at the end of the day, you're buying

26:38 computers. And then when you look at your operating costs to run those computers, 90 is the cost of power. I mean, you need some - Oh, in terms of the business - Oh, yeah - The operating costs,

26:51 you need some people running around - Yeah, 90 - You're hitting control alt delete, and you need cooling. computers get really, really hot. You need to be able to cool. But at the end of the day,

27:03 it's really cost to computers and then cost of power. Do I have that right? Yeah. And generally thinking about the cost of the computers is upfront capex.

27:17 Now, historically, there's been a lot of obsolescence, but the obsolescence is actually far less than I think people believe it to be where people are still running mining machines that were

27:31 probably fifth or sixth generations ago, profitably. So there is effectively a decline curve of those assets. Just like any asset would depreciate. People used to think that it would be two years

27:42 as probably more like, well, the profitability of each unit would go down as more mining comes on That capex is an upfront cost. But then what you were just saying of the operating cost going

27:56 forward, yeah, 90 is. your marginal electricity costs - So

28:04 2011, oldest kiddo was unbeknownst to me and mom was mining Bitcoin on the Apple computer at home. And so the great story there, literally mines, I think nine Bitcoin trades as nine Bitcoin for a

28:18 fake pair of Yeezys out of China, puts on

28:26 the Yeezys, steps in a puddle, they disintegrate So that's our Bitcoin investing adventure. But is the way to think about - Do you know about the Bitcoin pizza - Yeah - Yeah. Although I've heard,

28:39 I've heard that it truly wasn't a pizza, it was bags of weed, that that was the pizza place you called if you wanted weed and you ordered a certain type of pizza. Any truth to that story - No, I

28:52 don't know - I could be true, I don't know how to be true - Yeah, but what was it? I didn't know it was like 25, 000. 25, 000 Bitcoin for the first pizza. Yeah. Oh, that's great. Because I

29:05 think it was when Bitcoin was, you know, worth a couple cents. Yeah. I tweeted out probably about three months ago prizes for a gaming tournament. First prize was 500, second prize is 250. They

29:18 get down to like eight, nine and 10 and they were 25 Bitcoins. Yeah. I could be wrong by the American, maybe it was like 2, 500. But yeah, it was a lot of Bitcoin So the way to think about what

29:29 you were saying, the evolution of the computing power is just basically able to throw the dice faster. Is that an oversimplification? Well, yeah. Verify the chance. The machines get better and

29:41 better in terms of being able to run that operation faster, but then also being more efficient in how it consumes power. Yeah. For each roll of the dice on marginal unit consuming less power, says

29:53 that if you were at a one megawatt. If you had one to make a lot of capacity. you could actually do more dice rolling operations with the same unit of power. So speed and also which ultimate

30:06 capacity and then also the efficiency and how much each unit consumes of power 'cause that will drive profitability but that also drives the marginal cost down - So that's not

30:18 historically you ran it on your Apple computer home, whatever. Now the machines are designed solely to be mining. Is that - Yeah - Like originally when Bitcoin was launched, it was

30:34 mined on CPUs or general computing equipment. I'm not somebody that can go into a lot of detail but the way to think about it basically evolved from CPUs to FGPAs to

30:45 ASX. And all that was driven by was think about the efficiency of an individual chip. It was like each one of those was doing the exact same thing. But if you have a general purpose computer and

30:55 it's a CPU and it's designed to run 100 different programs, it's gonna run the Bitcoin program a lot less efficiently than a chip that is dedicated specifically to Bitcoin. So, ASICS are not

31:05 specific to Bitcoin, but what ASICS are are chips that are highly efficient at doing a single operation. And so as Bitcoin became more valuable, and as we were thinking, or not we, but as people

31:19 logically just reacting to economic incentives,

31:24 it was naturally from a capital efficiency perspective to make higher power computers that could run the Bitcoin network and run the Bitcoin protocol far more efficiently to ultimately be able to get

31:37 more security out of less units of power - And that's pretty typical, I think, with a lot of computing power and a lot of industries, you get more specific. So, ultimately, and those are

31:48 commodities You and I can go buy them now, granted we may have. a tougher time buying them versus some large miner that has a relationship. But outside of that, that's a commodity. So ultimately

32:01 Bitcoin mining today comes out of that 90. What is the cost of power in your hang on one second? I have something in my eye that is. I'm going to run to the restroom real quick. Right. Jacob,

32:14 this is the time out. I have something in my eye. I was fighting it off

32:21 So where I was going to go is just since it's all about power. Yeah. Anyway, we'll go from there. So all right, I'm back, Jacob.

32:35 Okay. So we're really focused now, I guess, on the business of mining with the 90 of your op costs that's power, as I understand, we had, you know, early days, a lot of miners in China just

32:49 because they have the cheapest. electricity out there through coal and hydro and the various things they do. And the Chinese government banned mining what two years ago, or they've done it multiple

33:01 times, I think, but the last one was what two years ago - Probably about 10 months ago - 10 months ago, okay - So I would say a lot of the mining was in China, you know, not they have cheap power

33:15 in the world, but they've got government subsidies, but they've got a lot of infrastructure to manufacture chips. So that it was really driven by, yeah, and still to this day, the largest

33:28 manufacturers of Bitcoin, ASIC chips and rigs are from that area of the world. So a lot of those, like one of the large companies called Bitmain and Bitmain actually had sister companies that were

33:42 miners themselves. So they would sell rigs, but then they would set up and run the rigs themselves too.

33:50 Bitcoin scales, everything is being decentralized, Intel is working on a chip, or a rig chip square, or now it's called Block, but Jack Dorsey's company also working on that. So I believe

34:02 Samsung might be working on one as well, not 100 sure on that, but that anyways, geographically, that is distributing as well. But to the point about historically, yes, a lot of the hash rate

34:14 was in China. Everyone that

34:18 doesn't want Bitcoin to be true, always has something that they grow at, and there used to be this idea that China is controlling Bitcoin because 80 of the hash rate was in China.

34:29 And then about 10 months ago, they formally banned Bitcoin mining. Now, it's unclear. I mean, I've seen certain estimates that 10 to 20 of

34:42 the mining capacity that was in China still in China, no one actually knows But what essentially happened was that the amount of energy securing the Bitcoin network over last summer, the summer of

34:52 2021 dropped by 50. So I'm going to throw out just a number that you don't need to know when X is, but a hash, well, a hash is basically that rolling the dice. That's what in Bitcoin terms,

35:06 that's what we, it's like the number of hashes because you're actually running a crypto, the rolling of the dice is actually a cryptographic hash function But we then refer to the overall Bitcoin

35:18 computing capacity as hash rate. When before China China banned Bitcoin mining, the hash rate was 180, I believe, 180 X a hash, which is like probably like a quadrillion hashes or some crazy

35:33 number. But 180 X hashes, basically in total, the Bitcoin network dropped to approximately 90 X hashes over the course of last summer.

35:42 Roughly, again, I don't know this to be somebody else would be a better pro at this, but I've benchmarked. in orders of magnitude, 18 exahashes being approximately 18 gigawatts power nine,

35:55 approximately nine, it might be 15 and seven, but just kind of giving some perspective on that. Well, today we're back at 220 exahashes. So basically China shut down a lot of their miners, they

36:10 came offline, and now there's been the great checks of 2021-2022 of mining capacity being distributed all over the world. So while people used to say, China controlled Bitcoin because all its

36:26 Bitcoin mines there, it's like, now they no longer have that excuse. And a lot of that hash rate, a lot of that mining capacity is now coming to Texas. It's going all over the world, but the

36:37 single greatest concentration of not just where that hash rate is moving to, but of where new capacity would have naturally formed anyways. has the energy industry figures out Bitcoin mining and

36:50 Bitcoin is right here in Texas. Yeah, because I had Marty Ben on the podcast call it 15 months ago, and I would go out and talk to my former private equity brother in energy and say, Oh, man,

37:02 Bitcoin, you need to study it. And they'd say, Yeah, what are you talking about? Fantasyland. And then call it, I don't know, nine months ago, it was like, Well, we might do that if we had

37:12 some flared gas two, three months ago, one of the private equity firms and various other investors have had me and Colin into the office. And so it tells us about Bitcoin mining because I think

37:25 what energy folks missed is particularly an oil and gas person. One of your core competencies is securing cheap power. Every well in America runs off power, whether you got a pump, whatever the

37:39 case may be, need power so you're out securing cheap power whether that's generating it off. natural gas off your own lease, if it's tapping into the local municipality, etc. And that is the core

37:52 competency of mining. I mean, I don't mean to dismiss the being able to keep miners running, being able to create the appropriate cooling mechanism for the computers, etc. But at the end of the

38:06 day, and so I always sat there and said, yeah, guys, you should do this, that should be your business, or at least be educated enough on it to say, I'm not going to do it. And here's why. I

38:19 agree with that. Now, I would say that in terms of the Bitcoin mining operation itself, like it is a data center or it is a container and it's got computers running. And the complex part of that

38:35 is more so the procurement of low cost power than it is actually running those machines.

38:44 If you went back a layer that like producing the actual ASIC might be harder, but in terms of the operation itself, which is not producing the ASIC, it is running a site that the procurement of low

38:57 cost energy and power and doing that at a scale to be profitable or to be able to replicate, I think is the more complex thing. I think about it as probably two bifurcated in two ways One, being

39:13 able to identify and produce cheap power, but then also understanding maps where there are natural resources where you might rethink a site for Bitcoin mining than you would otherwise think about a

39:29 site with conventional markets where you could say, Okay, that well might not have been profitable to get whatever resources are there to market, and understand this business a lot better than I do,

39:41 but my capital well or my you know might be unfinished that you might say, Well, hey, is there a way that I can monetize that to Bitcoin mining? Is there a way to extract the resource, convert it

39:51 to power right on site? So I view those as two competencies, both of which are housed within the energy industry, different parts of it, probably, but that knowing, Hey, I couldn't monetize

40:05 that asset in conventional markets, but now, and I think about this in just a little bit of an abstract idea, but Bitcoin and Bitcoin mining creates an entirely new energy market that had never

40:18 existed before. If I think about the conventional markets, there's in-demand for energy, and it's like if I create a

40:28 new type of car, right, like a car versus a house consuming electricity, it's very similar to each other, but the Bitcoin network is actually a form of money And Bitcoin is a form of money and

40:43 that's hard. I often say that the hardest thing to understand about Bitcoin is understanding what money is. And if you want to understand Bitcoin, you have to go down a rabbit hole. What is money?

40:53 Why is the dollar valuable? But securing a monetary network and providing the power to secure a monetary network is fundamentally different than extracting natural resources, refining it to some

41:07 higher order

41:11 to some end productive or consumption good, like running a car or building a home. And what I mean by that is the Bitcoin network now provides an incentive to develop natural resources and convert

41:24 that into energy and the ability to export that energy to the rest of the world, the Bitcoin network, with just a communication channel and not a pipeline or a transmission line. You can do that

41:37 too. And you can do that in the Bitcoin world, but there is a way to go out to the actual field.

41:44 put up data centers or put up containers that run the Bitcoin networks generate power right there on site. And that will cause people to rethink and re look at all of their assets because there is a

41:56 better way or another way that might be a better way to monetize their energy resources. Because I had this discussion at breakfast yesterday for as entrepreneurial as I think oil and gas folks are.

42:07 I mean, it takes pretty big balls, right? You got them spend 10 million dollars and then turn it on and see what you got, right? I mean, that's by definition an entrepreneur, an optimist.

42:19 We're actually shockingly rigid in our focus as oil and gas people. We only sit there and say what you just said, we extract hydrocarbons and you look at it and you go, you know, we have lithium

42:31 in our wastewater. Why aren't we mining that out? Lithium's pretty expensive these days, you know, and taking the mindset of an oil and gas person and saying, hey, Or geothermal, the same way.

42:45 There's a play up in Northern Louisiana where the water comes out of the ground at 310 degrees and hot and they spent time trying to cool the water to figure it out and that's what killed the play.

42:59 Why didn't somebody go, hey, you know, geothermal could make money here. And so I think part of Bitcoin mining and energy business and what I feel like has been a semi-slow adoption but probably

43:11 in fairness has been pretty rapid in the grand scheme of things is from entrepreneurs being so dogmatic about we extract to opposed as resources

43:23 what do we have and how do we monetize it. And I think you're starting to see that. So let's talk Texas specifically 'cause I have the belief too that twofold Texas is gonna be the capital of

43:39 Bitcoin mining as well as it should be. 'Cause I think this is a good business. folks have.

43:45 So I'll throw a few things out and then you throw a few things out. One, I think the regulatory environment's good here. Knock on wood. Politicians seem okay with it. Two, we have a lot of those

43:58 natural resources that you're talking about. Obviously, the Permian Basin is resource rich as it comes. So those are two things we got going for us Yeah, so I would say I agree with that and then

44:11 I would kind of provide some context on the regulatory side.

44:16 Governor Abbott, both Governor Abbott and Urkott have sent signals that they are engaged, they are supportive, they want to understand it better, but energy is core to Texas' economy and our

44:34 regulatory structure is friendly and supportive of energy development and at a fundamental level Bitcoin does has has significant positive externalities to the overall energy dynamics and specifically

44:48 related to the grid. But if I think about - Give me an example of that.

44:55 Bitcoin mining is 247, so it is essentially incremental base load.

45:03 Because when I talk about Bitcoin being a fundamentally new and differentiated and distinct source of energy demand, the Bitcoin - You can think about Bitcoin individual Bitcoin miners as sources of

45:11 energy demand, but

45:18 it is really the Bitcoin network is one aggregated source of demand. Such that one miner can turn down at any point in time without disrupting the operation of Bitcoin. That is not true if you have

45:31 a plant that is developing semiconductors. That if it is 110 degrees out in Dallas, Texas. That's semiconductor. if it had to shut down for five hours might cost 200 million of economic activity.

45:48 Bitcoin miners can literally shut down for an hour and turn back up and be doing the exact same operation. And the Bitcoin network itself, while that happens, runs perfectly. So the idea that it's

46:02 24 hour, 247 demand, it's predictable. And it's probably more flexible than any source of energy demand that exists. And while I'm not a power producer, that a lot of the stuff, the work that

46:15 I've been doing here in the Houston community, and helping run the Houston Bitcoin meetup and meeting with power, power brokers and people that help identify sites, that that provides a significant

46:25 benefit to being able to balance not only market dynamics, but stability dynamics. When you have, you could have a gigawatt of power demand that could go offline at a particular or say, take 250

46:36 megawatts off now, or if this condition happens. And Bitcoin miners. given the very nature are able to do that because there's a profit incentive to do it. And the network as a whole is not

46:48 disruptive. Does that make sense - It makes perfect sense 'cause I don't think people realize with electricity that basically you have to build enough generation for that one hour period in late July,

47:04 early August, when all the air conditionings in the state are running because there really is no storage I know people talk about storage, there's no. There's no, I think if you use all the

47:17 storage in the United States, you could run the grid, the entire grid of the United States for like a millisecond. I mean, there is no storage. So you have to have enough generating capacity to

47:31 be able to meet that really high demand. And I think on the Hurcot system, which is about 95. of Texas, I think the highest demand ever was 75 gigawatts. And that was August of 2019. So you have

47:46 to have generation for all that. But why do you build generation for one hour? Because that wouldn't be profitable. But to the extent you have a baseline load and with Bitcoin miners, you can kick

47:59 them off when shit's hitting the fan and the hospitals need their power, you know, to keep running, you can tell the Bitcoin miners, guys, great, we're going to shut you off for a couple hours.

48:11 Yeah. And my understanding is that that's a lot of work that Bitcoin miners are proactively working on with our car to be able to structure contracts in such a way that allows these loads to actually

48:25 not only align their incentives because if power cross or spiking is probably more powerful than or more profitable for them to shut down and not mine anyways, but then to have that contractually

48:34 obligated allows for people to model out. things a lot more predictably. And so there is this benefit. But if we start from your point, which is there is a natural inclination to be friendly

48:45 towards this idea of energy development is generally good and human beings producing and consuming more power. Good thing. And that's not the case in other places in the world. We look at China

49:01 banning Bitcoin mining. We look at the New York State Assembly has put a or they've voted to pass a two year moratorium on proof of work mining. That does not mean it's a bill in New York, but it

49:12 needs to go to the Senate would need to be approved. That there are a lot of bleeding hearts that don't understand the complexity of energy and power and take it for granted and are you know,

49:23 screwing with all of our lives. But that when you think about a 300 400 megawatt site or you think about like a 10 megawatt off grid site, right, 10 megawatt off grid site probably costs about that

49:34 has. about 25 to 30 million of CapEx, a 300, 400

49:41 megawatt Bitcoin mine site would have a CapEx around a billion dollars. These are long-term infrastructure plays and businesses. And if you're thinking about placing that much capital investment,

49:50 and you're like, oh, these crazy people in

49:53 New York might ban my operation and I'm gonna have

50:01 to go somewhere else or these people in China just did, that the regulatory clarity and the friendly regulatory environment here in the state of Texas combined with what you mentioned, the actual

50:12 quantity of natural resources, like those quantity of natural resources with the regulatory certain to be able to invest significant amounts of capital, that is what leads to cheap cost power. And

50:22 the other thing, the cheapest source of power. Another thing, I think is gonna be really important 'cause I've tried to go through the checklist. It says, just step back, old school economics

50:33 101, in my mind as a. business mining. What I worry about is low-bearers, entry, funds flow in, compress margins, that's just kind of life, right? To the extent you're the higher cost

50:48 producer. But something happens critically that as too many people rush in and certain people become unprofitable and then the mining hash rate comes down, you actually get paid more nominal Bitcoin

51:00 if you were on the lower cost. So there's like a natural balancing Bitcoin's ability to eliminate imbalance. It's like you see like over time you see kind of fluctuations of price Bitcoin that will

51:11 become less and less because the herd is called constantly in the world of Bitcoin mining. Yeah. And so the funds flow coming in though just how we can go bet coin mine in our cost of electricity is

51:27 six cents. Well, you know, six months from now that may get kicked off, right? But everyone's like, this is the other So, I know in more developed industries, they'll have cost curves where

51:39 they'll show like, Okay, over here, this is the cost of Bruce and barrel oil, here, that builds up. And so they can have this expectation and people don't necessarily know like the marginal cost

51:50 versus all-in-cost, but that people have a better conception of that. In Bitcoin, there's always an economic incentive to sell electricity to the Bitcoin network for those on the cheapest end. And

52:01 so everyone, it doesn't matter who they are in the world, they are constantly trying to reduce their cost of power. And if you are on the lowest cost of you, look at it and say, Hey, I can get

52:12 at two cents. And like, I know that the 90th percentile, anywhere below that can't. I will always have a profitable economic incentive to do this operation. Now, I'm using two cents as just an

52:25 example, but where it falls in the spectrum - Yeah, and kind of to that point, I think another thing that makes ticks as attractive is we have tons of natural gas. We have all critical ones. We

52:39 have tons of wind. We have tons of room for solar and solar is growing every day. And there are going to be the way I look at wind and solar, the renewables is in effect you front load your costs,

52:52 but the actual operating costs, I mean, when you have a wind turbine out there or solar panel out there, doesn't cost a lot to generate any given day that electricity you had to pay for it in the

53:03 front end, installing it, et cetera. So I think having in addition to the natural resources, having a lot of wind, a lot of solar is also what makes ticks as attractive because you're going to

53:16 have a blend of energy sources there. Yeah. So I think the absolute quantity of

53:22 resources is kind of a critical piece, but then like the diversity of those sources Again, I'm not a energy professional, but as I know enough to be dangerous. One of my good friends talks about

53:34 this dynamic of West Texas is the one place where the wind belt and the sunbelt overlap and the dynamic between wind and solar of when it's actually when the wind's actually blowing versus when the

53:46 sun's out. The correlation between those and the idea of one of the challenges, at least I understand you might probably understand this dynamic more, but I can relate it to Bitcoin mining is one

53:57 of the big problems with so-called renewables and really with the thing that makes renewables very difficult sustained economically is without government subsidies is their supply is intermittent and

54:11 there's also inter-demitting demand. You can't predict

54:17 when it's hottest in Texas, the wind might not be blowing So when you need that power might not be there and that the complex problem of

54:26 intermittent supply of renewables versus intermittent demand of energy consumption. creates a can create and balances. And if you get into situations where you have a bunch of power when you don't

54:37 need it, that can actually cause

54:40 challenges in terms of the market dynamics or potentially grid dynamics. And in Bitcoin's case, it can help solve that problem because it is this predictable demand and you can go put it out at the

54:51 site, right? You can be there, you could be behind the meter, you could be basically offloading it when the Bitcoin miner, you know, it could take power 247 or when there's market demand on the

55:04 grid, it could put it onto the grid. So I do think that the diversity, particularly though, the natural gas, that pure kind of predictable base load or feedstock for that is critical. Another

55:18 one I would put out is

55:21 I've got eight kind of key factors and actually there's an article in the latest NAIP where we talk about this just trying to remember the various different points, size of natural resources,

55:31 diversity of natural resources, private ownership of those natural resources is a key component. And I think it's something that - We don't have federal lands that are natural resources on, which

55:42 is huge, because God knows what they'll do in DC - Yeah, and that putting the entrepreneurs in the direct position of being able to take their natural resources and monetize them how they would like

55:51 and having that

55:55 economic incentive aligned is obviously a significant driver of both competition and innovation. So that would be different. And I love the state of Wyoming as an example, but most people don't

56:08 know this, like I think 50 to 60 of Wyoming is federally owned. That doesn't mean that there aren't leases to be able to extract resources, but it creates more red tape. Another one is the fact

56:21 that Urkot is Texas' grid is a massive one, I would say that. It allows the state to be in greater control and to not only have less federal red tape, but to be able to look at a problem, look at

56:37 this thing, Bitcoin mining and the dynamic of it and not when I say problem, Bitcoin mining is not a problem, but this is this new source of energy demand, whether the dynamics of it, whether the

56:48 characteristics, how do we leverage that to advance? A lot of people talk about how Bitcoin can help stabilize a grid and a few of my,

56:59 you know, kind of people who become good friends, mine, and the power business that have talked about it, it's not just that Bitcoin mining can help stabilize the grid, it can help stabilize and

57:09 advance it, that it will kind of impact how we think about constructing the grids. So, but ERCOT being independent of East, West, United States will allow for both innovation and the people

57:24 making decisions closer to the actual. source of the underlying operators. That dynamic does not exist in any other state. And when you pair the regulatory environment in the state of Texas with

57:41 the rule of law in the United States as a regulatory jurisdiction, when you add in the natural resources are here, and you think about these large, long-term, massive capital intensive projects,

57:54 it's like all each one of these individual things gets compounded on the next. And it makes any other jurisdiction when they add up all the different layers because they are compounding in nature.

58:12 It doesn't mean that there won't be Bitcoin mining in other places, there will be. They just won't be able to scale like Texas can, or they won't be able to scale until they are able to reproduce a

58:26 structure. of the energy markets, the deregulated energy market is another one that allows contracts between producers and consumers, those consumers being Bitcoin buyers to be structured based on

58:38 the nature of the energy demand. That's another one. But there are, I think there are others that are just

58:46 the citizens in the state of Texas. A lot of wild caddling mentality, you talked about going and drilling a 10 million well and whether there's oil there or not. Like going out and being on the

58:55 front end of Bitcoin mining takes a certain kind of breed and having that risk taking but having all the incentives aligned to say, if I take this risk and I'm doing it in an educated way based on

59:09 power dynamics, energy costs, where natural resources are, that I'm actually going to reap the reward of that. And somebody's not going to come on my door in a year or two years or three years and

59:18 tell me to shut down my operations because that's finite time that has been contributed to it and a significant amount significant amount of physical capital. One of the things about the culture that

59:30 I think is a very subtle point, but it's unappreciated, is we love our small towns in Texas, and Bitcoin mining means really good jobs in small towns. I mean, if you've got a natural gas field

59:36 right outside a small town, go generate power, Bitcoin mine, you're paying people

59:51 75, 000, 100, 000, 150, 000 to work in your operation And there aren't jobs available like that for small towns. And people love their small towns. Yeah. So Riot is a Bitcoin miner here in the

1:00:07 state of Texas. I believe they might have some smaller operations elsewhere, but they're primary facilities in Rockdale, Texas. And that's exactly, you know, it is the two-the-T case study where

1:00:19 I believe Rockdale's in Milum County. I believe there's probably, um, there's somewhere between 2,

1:00:24 500 and 5, 000.

1:00:27 jobs somewhere around that order of magnitude in that county or in Rockdale, one of the two. Riot site there, that's a 700 megawatt site. I think they have 250 to 300 full-time employees, but

1:00:41 they've got, when you add in full-time contractors, 700 people for a county that size. Not only was it does to tax revenue, but what it does to jobs, because those jobs, there's 300 full-time

1:00:53 jobs, employees, 400 full-time contractors, the economic impact of that of those people being paid, and then the services that they need in that area is significant. That riot facility that's out

1:01:06 in Rockdale, there was all this energy infrastructure, power infrastructure, and it was an old, I believe, Alcoa, Alcoa plant that wasn't being utilized, or when I say plant infrastructure.

1:01:19 When you think about that, it was like that town, when Alcoa shut

1:01:26 down, I think it was aluminum factory, I'm not 100 sure. And when that shut down, that's devastating to a community of that size. And now the Bitcoin mines are the ones that are coming and

1:01:35 turning it back on and contributing the economic value. And Riot just announced another gigawatt site in Corsa, Canada, Texas, Navarro County. So I think that's a great point We do love our small

1:01:48 towns in Texas.

1:01:50 And that with Bitcoin mining,

1:01:56 the nature, given the nature of the demand of Bitcoin and its energy consumption, and that is 247, and it's this one aggregate source of demand, the Bitcoin network is paying for security.

1:02:07 That you can take the source of those operations and you can put them where it is most optimal based on the dynamics of natural resources and power generation. And a lot of this happened to be in

1:02:21 more rural areas than in big population centers.

1:02:27 No, that's exactly right. The, I think one other thing, just kind of as a side note, is the fact that Texas is pretty big, but it's blocky as we think through generation, where the consumers

1:02:47 are, transmission, that's a more complicated puzzle than people realize, 'cause you've got wind and solar out in West Texas, but none of the people are out there, they're in Dallas, they're in

1:03:01 Houston, they're in Austin, San Antonio. And so building the transmission's pretty expensive, and it's chicken and egg, right? Well, we're gonna build big transmission lines, why don't you go

1:03:14 build the wind and the solar first? Well, we'll build the wind and the solar out in West Texas, as soon as you get me some transmission lines so I can get over there And I do think Bitcoin mining

1:03:24 helps bridge that. 'Cause we can go first, that's the egg, right, if you will. We can go and build, 'cause I think there's 35 gigawatts of power out in West Texas, and there's really only about

1:03:37 12 gigawatts of transmission to get it to where the folks are. And so, to the extent we build more generation out there, it's a lot easier to go build those transmission lines to get in, and

1:03:51 that's another thing - Yeah, and it can serve as kind of in an intermittent way, like that, again, I don't like using, I think this is an imperfect analogy, but like you talked about the battery,

1:04:02 we don't really have storages. The Bitcoin isn't really a battery in the sense that it's storing power, but that it can absorb demand and then shut down and offload it to other places that need it

1:04:15 more critically at any point in time. So it can effectively operate like a battery does but then also if you think about projects being like, okay, I can go, I've got a solar farm, I can build a

1:04:28 Bitcoin mine up there and Bitcoin mining. The manufacturing operation is highly fungible, like set up a mine, harvest it. If there's transmission

1:04:40 lines that can be built out to send it off, it can be kind of turning up and down, or you can move to another site. So it can basically help create in those places where there are mismatches to

1:04:53 absorb demand and monetize assets in a way that then allow people to develop a functional network, maybe, of transmission lines over time rather than right then. Because I think I've told Bitcoin

1:05:07 miners this that I'm not saying this is the base case, and I want to get your take on the probability of this. I'm not saying it's the base case, but I do think we have to be prepared for a world

1:05:18 where you can only Bitcoin mine off renewables. I mean, it would not shock me if we're sitting here in five years and something happened in Congress or whatever, that that's the rule. I'm not

1:05:31 saying I want that to happen. I'm not rooting for it, but I think you need to be prepared for that. So, I mean, having a bunch of mining out in West Texas where you've got renewables, you've got

1:05:41 wind, even if that's not your primary source, even if you're running off natural gas, but just having access to that, I think that's important because you've got to think about mining as a

1:05:51 business in at least five-year blocks, right? Because that's how your miners run four to five years. So you need to be thinking about how do I put those in one spot and allow them to run with the

1:06:04 cheapest power for four to five years. Yeah, I think that. So I'll give you my kind of fresh eyes on the energy industry, which I'm not an energy expert,

1:06:19 kind of coming in. I've started to familiarize myself with this concept called

1:06:25 ESG. Wasn't very familiar with it before. But from what? We're kind of in the same spot in the energy business, but go ahead. Okay. But from my vantage point, and

1:06:38 in time, not a ton of history, but it feels like Wall Street basically made the energy industry capitulate to bending it to its will, being like renewable, renewable, renewable. Like we're green,

1:06:52 we're green, we're green. And for a while, it seemed like just based on kind of what I've gathered is people are like, No, but you don't understand. Like, that's not how power works, and this

1:07:02 can be bad long-term. And then they said, Well, if you want money, do it our way. And that there was kind of, you know, a fighting of it, a resistance of it, and then kind of like a

1:07:11 capitulation, where they're like, Fine, we need your money. And that Bitcoin, It's like there used to be the saying about the golden rule that's. who has the gold makes the rule. Wall Street

1:07:23 has the money and BlackRock dictates who gets the capital. Well, that day's ending. Bitcoin

1:07:34 is the new money and he who has the Bitcoin is going to make the rules. There's a saying in Bitcoin

1:07:41 and I believe it to be true because I, in actual experience of the type of people that are drawn into the Bitcoin vortex and that as people start to see Bitcoin as money and start to see how

1:07:54 important it is for us to have a form of money that can't be printed by a government or a central bank

1:08:01 that they start to appreciate how screwed up it is that there is this world where people in largely in New York at to print money and then get to dictate our energy policy even if it is asked

1:08:13 backwards potentially from a stability and economic activity perspective. But that it is. Bitcoin changes you more than you can change Bitcoin. And that the whole idea of why Bitcoin is valuable

1:08:29 when I talk about it is designed to be a form of money that has a fixed supply of 21 million. You cannot change that. Doesn't matter what you wanna do. You can wiggle around your straight jacket.

1:08:39 You can be like, I'm an inflationist and I think it's better for people to print money. Rational economic actors know if I'm gonna go produce a barrel of oil or unit of power. I wanna be paid in a

1:08:50 form of money that can't be printed. That that aligns all of our economic incentives. And so as people start to understand Bitcoin and start to understand money can't be willy-nilly printed, I

1:08:60 can't just pass along tax credits to subsidize this activity or that activity that they will say, yeah, I like solar, I like wind. But I only wanna produce it if it can compete to produce the

1:09:16 cheapest cost power reliably and sustainably. that Bitcoin and a mass movement of people understanding the importance of having money that can't be printed, they will start to see the negative

1:09:29 incentives of how the world used to be, and they will come around to this idea where they'll say, Yeah, great, let's incentivize renewables, but we're not going to do it at the cost of energy

1:09:40 security and stability, and that there will be Bitcoin mining on natural gas, feedstock, and solar, and wind. But I don't think that like when I think about the world of Bitcoin, we're basically

1:09:52 saying, Hey, you people in New York and DC, you've screwed up our money, we're taking that power back,

1:09:60 that dynamic is actually greater than this movement of renewables, and it's like, if we can win that battle, we're going to shift a lot of the way that people think about energy, and that it's not

1:10:09 going to be a world where the market

1:10:13 force will say, We're not going to be in a world where it's 100 renewables, or you have to have 80. It's like, no, we're going to say we love natural gas. We love oil. Please deliver us power

1:10:25 at the cheapest cost. And yeah, we'll have some protections in place to make sure that you're not dumping waste into our drinking water. But there's a big difference between that and dictating

1:10:36 energy policy from, you know, DC in New York. Bitcoin takes down Greta. I like it. Yeah. Bitcoin will take down Greta. I do like that. I do like that It's really interesting because we talk

1:10:50 about Bitcoin and we had the conference, you know, the empower conference. That was phenomenal, by the way. Oh, thanks. No, it was a lot of fun. But, you know, the convergence of Bitcoin

1:11:01 mining and the energy business. So we got a lot of in-bounds. And I'm telling you, people from Prague Czechoslovakia showed up at Empower because they're like, tell me about Texas. Should I move

1:11:12 my mining operations here? I got a DM one time on Twitter, somebody was like. tell me about Monahan's Texas. I'm like, maybe put the mines there. I think you want the corporate headquarters in

1:11:23 Austin or Houston, but - I know, I've been seeing a big wave of that myself. There are probably some overlap of people, but of people that have historically both mine and other places and been

1:11:36 geographically located in terms of operations, corporate, as well as mining operations. Europe, China, other places. And they're all at once finding this signal And it's not just they're coming

1:11:49 to the United States, it's they're coming to Texas. And it's for those layered reasons. But there is this also dynamic. It's like, Texas is the place where it will be the epicenter of Bitcoin.

1:12:00 Bitcoin's gonna be everywhere. But in terms of the, really the next wave and the revolution that takes us from where Bitcoin is this volatile thing that people think is a stock or a financial asset

1:12:13 to the monetary standard, form of money, like my vision of this is that probably plays out in the next 10 years where we shift over to a full Bitcoin standard and Bitcoin becomes the primary funding

1:12:24 currency for all commercial transactions in the world. Like day to day, going by and groceries, gas, like natural gas is going to sit like the market's going to be natural gas for Bitcoin, oil

1:12:34 for Bitcoin, that it will be it will be the predominant currency in the world. It will be perfectly stable. We won't think about it like a stock or bond, but that that revolution will be led in

1:12:44 Texas for two reasons All those same reasons, but Austin's a tech center. And it's the only relatively sane tech center in the United States that benefits from a lot of those same dynamics about the

1:12:58 state of Texas. And so when you have Austin forming as the technological infrastructure from a protocol development perspective, again, Bitcoin protocol development's decentralized network.

1:13:10 There's developers all over the world working on Bitcoin Austin is emerging as the hub though of where there's probably the greatest concentration.

1:13:18 And Houston is the mining and it will only continue to be that case last night that Houston Bitcoin meops, meeting guys were like, I run a oil and gas business. I'm gonna be the biggest miner in

1:13:29 the Gulf Coast. You know, like when, and just seeing it at Empower, I thought the greatest thing about Empower was it was an energy conference about Bitcoin and mining. It wasn't a Bitcoin

1:13:41 conference, it wasn't a mining conference. And the mix of the people that you guys got there was probably 70, 80

1:13:50 traditional energy, oil and gas power people and 20 to 30 Bitcoin,

1:13:58 Bitcoin mining. And in that world, there's a lot of knowledge transfer that happens, but there's a lot of connecting the dots of people that have different capabilities that can bridge certain gaps

1:14:10 to be able to really move the ball forward and

1:14:14 have stepped. function change is not just in the efficiency of Bitcoin mining, but in the scale. But there is this dynamic too where Austin and Houston are going to be these sister cities that are

1:14:27 really on the front lines for different reasons of pushing Bitcoin forward. And the state of Texas, as a result of that, becomes a very important venue in the grand scheme of Bitcoin's next wave of

1:14:39 going from nascent and volatile to

1:14:43 the global monetary standard. Because the line that I feel like changed my discussion with oil and gas folks in terms of, hey, they'd say you're crazy, you're preaching this weird religion of

1:14:59 Bitcoin. My

1:15:01 line back has always been you have natural gas, right? You run every BTU, you have the natural gas processing plant because on any given day, making a decision do I strip out the lip liquids do I

1:15:14 sell the propane separately, the ethane separately, etc. And they all say, well, yeah, I'm just getting the highest price for my commodity. And I go, all right, why aren't you running that

1:15:25 same BTU through a generator and saying how many Bitcoin you can get for it and sell the Bitcoin and the lights go off. And you see the chart and you see that at 40 or 45, 000 per Bitcoin,

1:15:39 depending on the price of natural gas, you're selling your Bitcoin's for, I mean, you're selling your natural gas for 25 per MCF, 30 per MCF. And it all just comes down to what's that payback on

1:15:52 the actual computers, the miners I bought. Yeah. And I think that when people do that, because I've heard the, I've heard stories of people kind of having that light bulb turned on where they're

1:16:01 like, you know, natural gas is 5. And I, my jargon is always screwed up at like 5 an M or whatever your standard unit of a camera's natural gas. And that like when I run these Bitcoin miners,

1:16:12 it's 24 25. And whatever that dynamic is, it gets people's attention. They start doing the math again, and they're, Okay, is this right? But what I oftentimes see is they'll say, I can, and

1:16:23 they'll be thinking about it. I was like, I can make 25. I get that Bitcoin, and I can convert it to dollars. But then what happens over time is people start to think about, when they get into

1:16:32 Bitcoin-Bitcoin mining, they think about Bitcoin as an investment, and naturally it's speculative. But what it really is, and why I tell people is, it is a better form of money, and it's a

1:16:39 better form of money because it has a fixed supply cap This mining thing that you're doing is actually securing that. And that when you actually get that unit,

1:16:50 if you are converting it back into dollars, it's like, No, the Bitcoin is the money.

1:16:55 You are readily transferring something that is finitely scarce for something that the government prints at Infinitum, or the central bank, which they're technically different, but they're

1:17:07 functionally the same And so that what that is, what this is really about. That's why the energy dynamic in Texas is going to be so important. It's like, you know how hard it is to produce what

1:17:20 you produce. You know the complexity of it, you know the physical capital required, you know the human capital required, and you know that each one of those dynamics is very challenging and

1:17:31 requires time to get a barrel oil on the ground, to get natural gas out of the ground, to harvest that natural gas in a way that is actually productive.

1:17:42 And then you're going to convert it into dollars and they've printed nearly five trillion dollars, five trillion dollars in the last two years since the COVID lockdown, nine trillion, eight to nine

1:17:53 trillion since the financial crisis. You guys cannot, like not you, but like the power industry, the energy industry, they have to understand, okay, obviously you know how valuable it is what

1:18:05 you do, but you're turning around and and selling that for things that they literally click a button in New York.

1:18:11 and magically create 4 trillion. And then every unit that you produce gets to purchase less and less over time. And Bitcoin fixes that. It basically says, yeah, that work is hard and it's

1:18:25 incredibly valuable to the rest of society. And you get to convert that work into a form of money that is finite that nobody else can print more of. And that as the energy industry figures that out,

1:18:36 they will say, okay, rather than it being, I could get 5 an M to 25 an M, they're gonna be like, I get this nominal unit of Bitcoin and it's gonna store my value into the future because nobody in

1:18:47 DC or New York can print the money. And that, when that starts to click for energy professionals, that's when it's a game on - Well, it's interesting 'cause the other good line I have with folks

1:18:56 when they say, well, I don't understand what a Bitcoin is, I don't get it. And I'm like, what is gold? Other than the fact that it's marginally attractive on the queen's neck, I mean, it

1:19:06 doesn't have a lot of utility in this world, it was just a finite amount. But that is the core of it, right? People do not know why the dollar is valuable. They do not know why gold was valuable.

1:19:19 They don't know why gold emerged as money. I didn't before I got into Bitcoin. I had to go down that route. I tell people that they don't. And they don't know why Bitcoin is valuable. But that is

1:19:27 not unique to Bitcoin. It's like go ask somebody why 325 million people in the United States expect dollars in return for finite goods and services. When you do that, they will say something like

1:19:40 it's a collective hallucination or it's a belief system. But the key is they do not understand money. Everybody in the world, and I had to approach this with a lot of humility. So I think that

1:19:48 everybody does. I don't project this on to people. Everybody has taken the function of money for granted. Now everyone has also taken the function of energy for granted, I believe, but more so

1:19:60 money that it just has worked or it's always been there. And they've never had to ask the question, what is money?

1:20:08 While the ultimate answer is. It helps facilitate trade and it should be intuitive to people. If I could pay you in a form of money that can't be printed versus one that is actively printed, the

1:20:17 one that can't be printed is just common sense better. I tell people that is what Bitcoin is, but you will never understand Bitcoin if you don't ask the question, what is money? And when you ask

1:20:28 that question, what is money and you go down that rabbit hole, that's part of what my series is about gradually and suddenly, you figure out that money is objective. That is an objective good It

1:20:39 has objective properties, gold had objective properties relative to any other good in the market that made it better as money and that money solves a very basic necessity. It solves the problem of

1:20:50 helping to scale trade. It helps to facilitate individual transactions and exchanges, but in aggregate, it helps coordinate all economic activity and it's not by coincidence. It's not by

1:21:01 coincidence that we all use the same form of money and it's not by coincidence that this thing called money exists that as people go down that rabbit hole of what is money, think about what are the

1:21:11 properties that make something about our worst form of money, they will start to identify that those properties have been perfected in Bitcoin. And oh, by the way, that perfected form of money

1:21:20 needs your energy to secure it. That the reason why it is valuable, that this most important property is scarcity. But the ability to both have scarcity and then the ability to transfer it, well,

1:21:34 that scarcity and the ability to transfer it does not exist without the mining function and without your energy And that's why there's this perfect marriage between Bitcoin and energy, because

1:21:44 ultimately you need money to get natural resources out of the ground. And we need energy in order for money to be valuable. There's this perfect symbiotic relationship with the economic good we call

1:21:57 money and the economic good we call energy. And that's why here in the state of Texas, we're primed at the pump to dominate. Yeah, no, it is. It's very cool. Parker, you're really cool to come

1:22:10 on this. I got one last question for you - Yep - Early 1980s, Fox sitcom, Parker Lewis Can't Lose, who played you in it - I'm gonna fact check you on that. It was early 1990s - It was early 1990s

1:22:25 - Yeah, I believe it was 1990 to 1994 - Okay, look at you. There you go - It was on Fox. You have to learn this in college.

1:22:37 Corinne Nemak - Corinne Nemak - And you probably don't know who Corinne Nemak is, but yeah, it's Corinne Nemak - So, okay, 'cause in fairness, I had that question written down - But - Parker saw

1:22:50 it - But I had to remember this in college, so - That sounds like a hazing trick - Yeah, the fact that I knew 1990 to 1994, and could fact check you on 1980s - So I will give you that. Here's one

1:23:02 deeper question Before 1989, what was Corin's nickname?

1:23:10 Oh, stop me. Corky. Corky. Corky. It was Corky NEMAC. And he actually in 1989 won an Emmy for being in a bad after school special or something to that effect. We can go look that up on what

1:23:24 could be. Yeah. So

1:23:27 I've got this bad ass starter jacket or not saw starter jacket, but it's kind of like it, you know, it looks like a starter jacket like Red Leather Sleeze Black and it's got a Parker Looze can't

1:23:35 lose, you know, kind of logo on it So yeah, I think, yeah, it was basically it was a knock off. It was the sitcom version of Ferris Bueller's Day out. Yes. You know, it was very inspired. I

1:23:48 think that's what the ad said, very inspired by Ferris Bueller. Yeah. He almost was in a dream sequence for a lot of it. They knock that off, I think in the fourth season. That's when they

1:23:60 canceled it too. Yeah, exactly. So well, you're cool to come on. I appreciate you coming over. Yeah. Appreciate you having me on We're spending time in Houston. I love the Empower Conference.

1:24:11 The Houston Bitcoin meetup, we do it for Thursday of every month, same location - How do people reach you if they want to chat - Yeah, well, one, again, I've had a business development at

1:24:23 Unchained Capital or websites Unchainedcom. All of my writing on Bitcoin is on our blog. If people go to resources, they can go to the blog. It's technically under the dropdown on the GTS series,

1:24:37 but there's 17 long form essays there on Unchainedcom, or if you just Google my name, Parker Lewis, gradually and suddenly they'll come up. And then on Twitter, I like to organize a lot of things

1:24:49 around the state of Texas, and I do a lot of that coordination via Twitter, so my Twitter handle is Parker A. Lewis. So Unchainedcom or Parker A. Lewis, on Twitter are the two best ways to find

1:25:00 out what I'm up to and what we're doing as a company.