04 April 2023

Choosing to ignore open-source, global money technology that can’t be shut down can be a risky decision for policymakers, especially for those in states with a thriving industry of Bitcoin miners. Today, Preston Pysh talks with Pierre Rochard about why Texas politicians really need to get their decision right with respect to Bitcoin mining policy.

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  • Why Pierre was in the Texas Congress testifying about the benefits of Bitcoin and it’s mining infrastructure.
  • Explain why Bitcoin is a National Security issue if a country fails to adopt and understand it.
  • How much settlement is currently happening on Bitcoin and why is that important?
  • Why Demand Response System are important to ensure grid stability.
  • What is the cost of running the existing fiat system compared to Bitcoin?
  • Who is the customer of Bitcoin mining?
  • State rights issues and bipartisanship with respect to Bitcoin.
  • Why CBDCs are so dangerous to freedom in the United States.
  • Choke-Point 2.0.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Preston Pysh: Hey everyone, welcome to this Wednesday’s release of the Bitcoin Fundamentals Podcast. On this week’s episode, I have the pleasure of talking with Mr. Pierre Rochard, who’s the Vice President of Riot Platforms. We talk about the current draft bill in Texas that’s trying to limit Bitcoin mining and what this means in the broader context of state’s rights and their competition between local jurisdictions. With states like Texas, Wyoming, and Florida leading the way in pro Bitcoin legislation, hearing some of the counter-arguments and ideas set forth in this particular domain may be useful for other locales to pay attention to and to focus on. So with that, here’s my chat with the ever thoughtful Pierre Rochard.

[00:00:42] Intro: You are listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now for your host, Preston Pysh.

[00:01:01] Preston Pysh: Hey everyone. Welcome to the show. Back by popular demand, I got Pierre Rochard here with me. Pierre, welcome back to the show.

[00:01:08] Pierre Rochard: Hi Preston. Glad to be back.

[00:01:10] Preston Pysh: Here’s where we need to start, right? We’ve been having these conversations for, I don’t even know how many years at this point. And you know, I’m online and I see this in my Twitter feed.

[00:01:22] Preston Pysh: Can you see my screen Pierre?

[00:01:24] Pierre Rochard: I sure can. Yep.

[00:01:26] Preston Pysh: And I click.

[00:01:27] Pierre Rochard: “My name is Pierre Rochard. I’m the Vice President of Research at Riot Platform.”

[00:01:31] Preston Pysh: And like right there, like I’m just looking at this clip and I’m saying, who is this guy in a suit with a tie? And he looks like he’s in this like, really official room only to find out it’s the Texas State Senate.

[00:01:44] Preston Pysh: I’m going to play the clip so everyone can hear your testimony here. Okay. Here it goes.

[00:01:48] Pierre Rochard: “The largest publicly traded Bitcoin miner in the United States with our facility in Milam County close to Rockdale. I’m a first generation immigrant, and I graduated from the University of Texas in Austin with a bachelor and master accounting degree.

[00:02:04] Pierre Rochard: Thank you, Senator Kolkhorst, for your work on demand response issues. I believe that the witnesses here have adequately represented our views on demand response. I would just add that there is already a 60% limit to prevent concentration in demand response programs and that this bill would override ERCOT’s long-term study on large flexible loads.

[00:02:28] Pierre Rochard: With regards to chapter three 12, temporary county tax abatements, these abatements have helped attract Bitcoin miners to Texas. And they’ve created hundreds of rural jobs. Bitcoin miners are the number one employer in Rockdale. Bitcoin miners are also the number one taxpayer to Rockdale ISD.

[00:02:47] Pierre Rochard: Bitcoin mining is good for rural education. Milam County has record sales tax revenue thanks to Bitcoin miners. Even if you are skeptical of Bitcoin, these abatements have been highly effective at revitalizing rural communities. It is also in our national security interest to mine more Bitcoin here in the United States.

[00:03:09] Pierre Rochard: And take market share away from foreign adversaries like Russia and China. We should not add unnecessary regulatory burdens or raise taxes on this strategic and innovative industry. For these reasons, I recommend to vote against SB 1751.”

[00:03:28] Preston Pysh: So Pierre, I guess, what happened to the days where it was just you and Bitstein talking online and the Wall Street Journal writing these articles about how you just can’t sit there and eat steak all day and outperform Wall Street. And now I’m like seeing you in the Senate testifying like, what in the world’s going on here?

[00:03:49] Pierre Rochard: Yeah, it’s an interesting situation. I, you know, I think that Bitcoin has been so successful and Bitcoin mining in Texas has been so successful that now it is at least a state level issue.

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[00:04:00] Pierre Rochard: And obviously there’s also federal level issues that are, are being discussed in DC and I was actually in DC a couple of weeks ago now talking about some of those issues with different policy makers. Yeah, times have changed, but you know, what we’re discussing has not changed, which is Bitcoin and the value it has and how important it is in many regards.

[00:04:21] Pierre Rochard: There’s a continuity. It’s unreal.

[00:04:25] Preston Pysh: Bravo, by the way. And the comment for me personally that really hits home is really kind of the strategic interest that you’re talking about, that I think when people maybe are looking at that from the outside and not aren’t intimately familiar with Bitcoin, they might hear that and and say, yeah, come on, give me a break.

[00:04:40] Preston Pysh: There’s no way. But explain to people why your comment about national security is so important.

[00:04:49] Pierre Rochard: We know that anybody can mine Bitcoin, right? It’s permissionless throughout the world in different countries and different jurisdictions. Different people are mining Bitcoin. Our latest estimate is that I’m going to rank them from biggest to smallest.

[00:05:05] Pierre Rochard: So biggest is the United States. Currently we’re estimated to have approximately 38% of the hash. Which means that US based entities like my employer Riot, the other publicly traded miners all the way to, you know, the person heating their pool with their one mining rig, they are getting 37, 38% of the mining revenue.

[00:05:31] Pierre Rochard: Number two is really interesting. It’s China. They’ve currently estimated to have 21% of the hash rate. And so, you know, one of the state senator’s questions was around, didn’t China ban Bitcoin mining? And it’s a really interesting question because I think that it speaks to this point on the strategic importance of Bitcoin mining, which is that they did shoot themselves in the foot and cripple their mining industry in, in 2021, and their market share was estimated to have gone to zero. But then it seems like they reversed course and now they’re at 21% and they’re back to being, you know, they’re number two now. When before they were number one, it’s certainly the case that they realized, hey, we’re leaving lots of money on the table by not participating in.

[00:06:25] Pierre Rochard: Number three is Kazakhstan, number four, Canada and then Russia. So you have Russia that has all these financial sanctions. And the Russian energy minister came out and said, Hey, we have all of these energy resources. We can direct some of them towards Bitcoin mining and be able to earn hard currency revenues that then they can go spend on their war machine or whatever else they, they want to spend.

[00:06:53] Pierre Rochard: And then Iran is, is up there, although with a very small percentage, 0.12%. But the point is that the more we try to push Bitcoin mining out of the US, we’re just surrendering market share to adversaries abroad. We really should have the opposite approach of trying to take as much market share as.

[00:07:16] Pierre Rochard: So that that money is going to the United States, and it’s not going to people who, frankly, we don’t want them to have that money either because they are corrupt communist party officials in China, or because they are, you know, invading their neighboring countries.

[00:07:34] Preston Pysh: For people that are hearing all that, and they’re hearing about the energy expense, and they’re looking at the picture behind you of all the miners, They might be thinking, okay, so like we got these gee whiz kids on the internet that are bouncing around payments, and they might not have an appreciation for the sheer buying power, the terms of settlement that’s happening on this network.

[00:07:55] Preston Pysh: Now, you and I had talked about this months ago, but tell people how, how big this number is just for the past year, how much has been settled on the Bitcoin network.

[00:08:05] Pierre Rochard: Yeah, it’s in the dozens of trillions. And so it is a macro global settlement network at this point. Now, the, the exact number I don’t have in front of me, but it is in the trillions and it has not slowed down through the bear market.

[00:08:22] Pierre Rochard: And so I think that the political implications, they’re not local, they’re not state level. They’re international. This is a, a geopolitical resource at this point, and that’s the way it should be thought about and analyzed so that we can come to some of the correct policy conclusions.

[00:08:42] Preston Pysh: Yeah. So when we talk about the environmental impact of this, so many people get this just dead wrong.

[00:08:48] Preston Pysh: And you, you said something there in your testimony. You said demand response programs or demand response system. Explain what that is and how it functions and why this actually makes the grid more robust and efficient.

[00:09:04] Pierre Rochard: Unfortunately, I only had two minutes to provide my testimony, so I had to compress a lot, and thankfully the fine folks from Texas Blockchain Council were there as well.

[00:09:15] Pierre Rochard: And so right before I spoke, they spoke on this topic of demand response. Let me just zoom out and talk about the bill. This bill was introduced by State Senator Kolkhorst. Texas has a legislature that meets every two years. And so every two years they quickly try to figure out what laws to pass.

[00:09:35] Pierre Rochard: And this is one of the bills that she has proposed and that, you know, is now in this business and commerce committee. The bill really has three parts. The first part is about having large flexible loads like Bitcoin miners register with ERCOT if they have more than 10 megawatts. That makes a lot of sense because ERCOT does need to be aware of these resources and be able to work with miners in order to stabilize and, you know, maintain the reliability of the electricity grid.

[00:10:06] Pierre Rochard: So that part is uncontroversial. And it is also something that is in other bills as well. It’s not like this bill has to be passed in order for that part to become law. The two other provisions are far more controversial and they’re really unrelated, but they’re focused on essentially being antibi, Bitcoin mining in Texas.

[00:10:29] Pierre Rochard: One is to limit how much Bitcoin miners can participate in ERCOT. Ancillary services as it’s called the technical terminology, but it’s really kind of the, the formal programs ERCOT has in what’s called demand response that are aiming at different aspects of making sure that supply and demand is balanced on the grid, and we can get into that.

[00:10:54] Pierre Rochard: The third part of the bill is about temporary county tax abatements. So these chapter three 12 tax abatements are used by counties to attract businesses where they say, Hey, for 10 years, we’re going to give you a discount on your property taxes. And so that’s really about economic development. Now, just starting with the county tax abatements, because I think the, it’s the easiest topic is that there can be a principled debate on whether.

[00:11:24] Pierre Rochard: These tax abatements should exist or not. And there are people who, who debate that. But to me it doesn’t make a whole lot of sense to single out Bitcoin miners and to target them as an industry and to say, Hey, you specifically are not allowed to benefit from this decrease in taxes. And so clearly here the intent is to try to slow down the growth of the Bitcoin mining industry in Texas.

[00:11:53] Pierre Rochard: But the other part with regards to ERCOT and ancillary services and demand response, their argument is essentially that the ancillary services, these programs are paying Bitcoin miners to do something that they were going to do anyway in a market driven process. And I think that, you know, that’s not an argument that is specific to Bitcoin miners.

[00:12:20] Pierre Rochard: That is a general statement, in fact, that there are lots of participants in these ancillary services that would be curtailing or doing what they do without this additional compensation. And so I think in, in both cases, the ancillary services or the county tax abatements, we could debate the programs themselves.

[00:12:43] Pierre Rochard: Without really mentioning Bitcoin miners and kind of just debate it in a principled manner of how can we reform these programs so that they are being economical and they are, you know, good for all stakeholders. But that’s not what this bill does. This bill singles out Bitcoin miners and targets them for an increase in regulation and an increase in taxes simply because there.

[00:13:11] Pierre Rochard: The author of this bill or you know, whoever is trying to lobby for it, wants less bitcoin mining to be happening in Texas. They’re not actually solving the underlying root problem that they claim to be concerned about. I think that we need to learn more about what’s motivating this and kind of that’s what these hearings are about, but it’s very challenging when all the participants only have two minutes.

[00:13:38] Pierre Rochard: And so essentially they have to boil down their points to just making political arguments about Bitcoin mining and not really getting into the substance of the issues. And in some regards, it’s about decentralization and subsidiary, where in my view, we should actually leave it to the counties to decide. This is where it should be debated, is that the county level of, do we want to attract this particular business into our county by giving them a tax break?

[00:14:08] Pierre Rochard: Trying to legislate that from the state capital is a bit like central planning of, Hey, we’re going to somehow centrally plan all economic development in Texas and we’re going to micromanage what counties are doing. And same thing with regards to ERCOT is that ERCOT should have a framework from the legislature that allows them to make rules for the electricity market in Texas that are adapted to what they are seeing firsthand in order to maximize reliability on on the grid, and to have kind of outside intervention that is specifically targeting one technology.

[00:14:51] Pierre Rochard: So they do it for political reasons rather than actual engineering or economic reasons, I think that’s not a good direction to be going.

[00:15:00] Preston Pysh: Do you think they’re going to go that way? Where it become, where they push it down to the counties or they’re probably going to make some general?

[00:15:06] Pierre Rochard: So the status quo is that they do push it down to the counties.

[00:15:10] Pierre Rochard: And I think though that I don’t think that this bill ultimately is, is going to pass. But that’s only if we speak up about it. Obviously, if we just roll over and, and don’t discuss kind of the pros and cons here, then it increases the chances that it would pass. But I think the counties have been doing a fine job and from their perspective, it’s a huge win on a number of levels.

[00:15:35] Pierre Rochard: One is that the county taxes are not the only taxes that Bitcoin miners pay. Even if they have a, an abatement on the county taxes that phases out over 10 years, they’re still paying a hundred percent of the taxes, for example, to the local schools. So the local schools are getting additional revenue from having these Bitcoin miners without having additional students necessarily.

[00:16:03] Pierre Rochard: Right. And so if you look at kinda the dollars per student, it’s a giant benefit. In fact, Bitcoin miners are the number one taxpayer to the Rockdale school district. There’s the sales taxes. So at the county level, there’s sales taxes. And then there’s also the, the jobs and kind of the network effects of revitalizing a rural economic community.

[00:16:30] Pierre Rochard: That was devastated a couple of decades ago because Alcoa’s aluminum plant closed down, and so it’s really about revitalizing areas, so that have been abandoned due to offshoring, due to outsourcing of America’s industrial. Due to the dollar, by the way. Right? Yeah.

[00:16:51] Preston Pysh: The irony of that is just crazy. Yeah.

[00:16:54] Pierre Rochard: It is. It comes full circle. I mean, we’ve been exporting dollars instead of exporting aluminum and here we have an opportunity to create good paying jobs and to bring opportunities to these local communities. And yet there’s some pushback from some elements.

[00:17:11] Preston Pysh: Talk to us about the second part. So thank you so much for laying that out so people understand the full context of what was being discuss.

[00:17:19] Preston Pysh: Go back to the demand response part of that, the second part of, of what you guys were covering there.

[00:17:25] Pierre Rochard: There’s demand response. Just as a generic term, that demand responds to the market price of electricity going up. And so that’s kind of just the, the economic demand response. And that’s something that Bitcoin miners are keenly interested in because it helps them reduce their cost of overall, of producing more Bitcoin.

[00:17:51] Pierre Rochard: And so if the electricity prices are too high, let’s say, and this, this happens in Texas because we have a lot of renewable. If the Texas grid was just natural gas, then electricity prices would really be driven only by the price of natural gas, which does have seasonal fluctuations due to increased demand, kind of in the northeast of, you know, for heating.

[00:18:18] Pierre Rochard: But it does not really have giant daily fluctuations. However, The demand has daily fluctuations from people turning on their air conditioning when it gets hot from people when they get home from work at five o’clock. Now with the renewables, there’s the added fluctuation of wind. Who knows, you know, if there’s going to be 20 miles per hour of wind or zero, that is up to God.

[00:18:44] Pierre Rochard: But in terms of the grid, they have to figure out how to match supply and. And then with solar, obviously solar goes to zero at night, but solar also gets affected when there’s clouds. And so there’s definitely, and then of course during the winter you get less solar than during the summer. So these renewables are unreliable.

[00:19:07] Pierre Rochard: And I’m not going to get into the carbon emissions debate, you know, on today because we’ve already got enough content to discuss. But the bottom line is that you have to have some kind of balancing factor in the grid. And so in the evenings where everyone’s coming home, the sun is setting and wind is dying down.

[00:19:31] Pierre Rochard: You can have spikes of electricity prices, which naturally causes demand response in the sense of Bitcoin. Miners will turn off because they do not want to pay those high electricity prices, or they have a fixed rate contract that allows them to sell electricity back to the grid instead of consuming it.

[00:19:55] Pierre Rochard: That’s kind of just the economic demand response. I think that from that perspective-

[00:20:01] Preston Pysh: And Pierre, I think it’s-. Real, real fast. I think it’s important for the listener when they hear that they’re saying, well, how do we know that they’re going to sell it back? And what I, what I don’t think that they realize is, is how much of a global competition and race you guys are in as minors to compete against people on the other side of the planet that hey actually have sunlight and maybe have more energy on their grid.

[00:20:24] Preston Pysh: The competition keeps the incentive for you to turn off the rigs if the price goes over 6 cents per kilowatt hour or whatever it might be based on the hardware that you’re running there in the facility. And so that global competition is the piece that I think is, is what’s commonly missed with respect to why you would do that.

[00:20:47] Pierre Rochard: Yeah, that’s right. You know, we’re, we’re aware of there’s a breakeven price. It’s constantly changing, but it’s something that, you know, we, we try to track closely so that we can be responsive. And it’s really, you know, on one hand it’s about helping out the grid and helping lower electricity prices during those.

[00:21:08] Pierre Rochard: But on the other hand, it’s about also not losing money because if we’re mining during those peaks, that means that we’re losing money on every single Bitcoin that we mine. Cause we’re paying more in electricity than the value of the Bitcoin. It’s absolutely Adam Smith’s invisible hand of profit maximizing. We are doing the right thing for the grid and for other consumers by, you know, helping lower their, their electricity. And also helping avoid turning on natural gas peaker plants. So they, you know, essentially if, if, if the carbon emissions part of the puzzle is a huge concern that, you know, we are helping avoid carbon emissions in those scenarios.

[00:21:48] Pierre Rochard: But that actually was not the topic of the bill. The topic of the bill was about these ancillary services that are really beyond just the economic demand. These are more kind of fine tuning the grid at the margin. And you have to maintain the right frequency on the grid and exactly the right proportion between supply and demand on the grid.

[00:22:11] Pierre Rochard: So there’s, there’s really very little wiggle room. I mean, that’s where these ancillary services play an important role now. I think that essentially what is driving the desire here to limit Bitcoin miners to 10% of the participation in these services is because they actually have a competitive advantage for providing these services.

[00:22:36] Pierre Rochard: And so the complaint here really is that these Bitcoin miners are so effective at performing this. They are crowding out other industrials you know, chemical plants or batteries or others that want to be providing this same service, but that are unable to compete as well as Bitcoin miners. There’s a bidding process and so if we’re getting a sizable percentage of the allocation of ancillary service, It’s because we underbid the competition and that means that we’re lowering the cost of ancillary services for ERCOT and for the grid overall.

[00:23:17] Pierre Rochard: And so this bill is really anti-competitive of saying, Hey Bitcoin miners are really good at doing this, but we want to kind of constrain their market share and punish them for their success.

[00:23:31] Preston Pysh: It’s crazy. You know, it’s interesting because I try to look at, like, the picture behind you is just perfect for this discussion, and I’m trying to imagine like a person who’s hearing this conversation for the first time and how they might be looking at this and they’re hearing all the rebuttal in the battles that you guys are basically dealing with there in Texas.

[00:23:50] Preston Pysh: And, and they might be asking themselves like, I just don’t get how this is value add. Like, who’s the customer in all of this? Explain that. I know it’s a really simple question for you, Pierre, being in the space for so long, but for somebody who’s looking at this, like who is your customer that you guys are providing all that you’re expending all this energy for?

[00:24:12] Pierre Rochard: I’d say there’s really two customers. One is what I call anti seigniorage technology. So seigniorage is the monopoly profits on the issuance of a currency. And so in the fiat system, the bankers and the politicians in Washington DC who are printing the money, and in New York as well, of course, they are the ones who are profiting because they have a monopoly on the issuance of dollars.

[00:24:44] Pierre Rochard: And that’s why we’ve seen a massive increase in wealth and equality over the past several decades, ever since we went off, you know, fully went off the gold standard in 1971. You’ll correct me on that?

[00:24:57] Preston Pysh: No, that’s right. Yep.

[00:24:59] Pierre Rochard: Okay. And so that’s seigniorage. Bitcoin does not have seigniorage because there is no monopoly on the issuance of BTC.

[00:25:08] Pierre Rochard: Rather, it’s actually a very highly competitive process, which we call Bitcoin mining. You know, the Bitcoin miners, some of them are, are profitable, others are not. It’s a competitive market like any other, and that’s avoiding seigniorage or preventing seigniorage is critical. Otherwise you have a centralized issuer like Ripple or like Ethereum where the centralized issuance of the asset is not competitive.

[00:25:36] Pierre Rochard: They have a monopoly on the issuance and you know, obviously same for the US. Today that’s about 98% of the revenue for Bitcoin miners is about adding new Bitcoin to the ledger and doing so in a way that is competitive and decentralized. The second kind of category of customers is transaction fees.

[00:25:57] Pierre Rochard: Folks who are sending and receiving Bitcoin on the Bitcoin network, paying a transaction fee to get their transaction included in a block so that their transaction can be final. And that today is approximately 2% of the revenue for Bitcoin miners. Now, in the future, we expect that to evolve, but that’s currently where we’re at.

[00:26:18] Preston Pysh: And would you wrap, so like when I think about it, Pierre, like the Bitcoin that I have are secured because of the service that your company and all the other miners provide so that my savings isn’t in a Silicon Valley Bank scenario where I don’t know if my deposit is there or not, or whether Janet Yellen’s going to decide whether she’s going to pay out higher than 250 k of people that had deposits.

[00:26:46] Preston Pysh: I would think that would fall in there as well somewhere.

[00:26:48] Pierre Rochard: Yeah.

[00:26:48] Preston Pysh: How, how would you quantify that?

[00:26:51] Pierre Rochard: I’d say first and foremost, the security of your Bitcoin comes from your, how you hold your private keys. So whether it’s a hardware wallet or a multisig or solutions like that, the second layer of security, I’d say is your node.

[00:27:06] Pierre Rochard: That allows you to verify that when, when you withdraw your Bitcoin from an exchange, that they’re actually sending you real Bitcoin. And that you can verify this independently without relying on a trusted third party. And then the other advantage of the node is it allows you to verify Bitcoin’s monetary policy.

[00:27:26] Pierre Rochard: So good luck auditing the Federal Reserve yourself, right? I mean, they won’t even have like an independent third party audit it. So here, this allows you to audit Bitcoin from the comfort of your home in an automated manner with cryptographic assurances. That’s kind of the, the two most critical layers.

[00:27:49] Pierre Rochard: The third layer is the miners. And what they are really securing is the finality of the transaction. Yeah. So that it cannot be reversed.

[00:27:59] Preston Pysh: Yeah. So it would fall into the transaction fees is where you’re going.

[00:28:02] Pierre Rochard: Yeah.

[00:28:03] Preston Pysh: Okay. I gotcha. You have a quote you said this is real recently. You posted this on Twitter.

[00:28:08] Preston Pysh: You said Bitcoin is popular and bipartisan. I think there’s a lot of people in the space that would tell you that it’s not being bipartisan. What points you towards it being bipartisan?

[00:28:19] Pierre Rochard: The data. So there was a survey, a scientific survey done here in Texas to see kind of what the sentiment is around Bitcoin and it splits pretty evenly 50 50 between Democrats and, and Republicans.

[00:28:36] Pierre Rochard: Well, sorry, you know the, the right way to frame it is that both Democrats and Republicans have approximately the same level of positive sentiment towards. Actually tilted a little more favorably towards Democrats, which I thought was interesting. And I also thought it was interesting that the state senators who introduced this anti Bitcoin bill are Republicans, you know, that nominally at least are for limited government and freedom.

[00:29:05] Pierre Rochard: But, you know, I think that there’s, there’s lots of different factors motivating. First and foremost though, I think it’s really a, a matter of education. I think that a lot of Democrats and Republicans would naturally align with Bitcoin because for Democrats, because it empowers the common person, because Bitcoin is inclusive, it is really a global system.

[00:29:31] Pierre Rochard: And I think that is appealing to folks who want equality. And then on the Republican side, the, you know, Bitcoin is all about freedom, sound, money, and it’s about separating money from government. On the Democrats side, Bitcoin is about separating money from corporations, from banks. I think that there’s massive bipartisan appeal.

[00:29:55] Pierre Rochard: It really is a question of education. And kind of removing some of the misinformation and disinformation that has been put out there by those who would stand to lose from Bitcoin adoption.

[00:30:08] Preston Pysh: You know, Pierre, one of the biggest frustrations that I have, especially with the environmental stuff, I had a post counter to this artist that did the skull that was hired from Greenpeace and all of that, and one of the highlights that I, that I pointed out, in this quick post that I put up was just if you had to figure out the energy expense of the existing financial rails, all of Wall Street, all of the central bankers on a global scale, all the data centers, all the fuel consumption for the millions upon millions of people that have to drive into their office to just have this base layer, dollar Fiat, Euro, Japanese Yen, Yuan.

[00:30:50] Preston Pysh: I couldn’t even begin to imagine what that global settlement layers cost is from an energy standpoint. Then I look at the Bitcoin mining. The picture behind you again, is just so perfect to represent what that looks like, how there’s nobody standing there like this thing is just executing code.

[00:31:13] Preston Pysh: And what’s that cost? And like, let’s put those two things side by side and like, let’s have a real discussion as to like what the energy is, what the environmental impact is. Because I think Bitcoin clobbers it, but I don’t know what that number is. I don’t even know how you’d put the number on it. And then other people were saying, well, you got to also wrap in defense around this fiat base layer one layer.

[00:31:35] Preston Pysh: Right? So how, how do you define that? Is there numbers that you know, is this, is this even a good argument? What are some of your thoughts?

[00:31:41] Pierre Rochard: Yeah, so my, my first thought on this is that it really is about essentially class warfare. Where in the fiat system you have inflation extracting wealth from rural communities, from the wor working class to benefit the coastal elites, the white collar lawyers and bankers in major metropolitan areas.

[00:32:03] Pierre Rochard: And that, you know, bitcoin’s the opposite of that. That with Bitcoin, you have these mining facilities that are employing blue collar construction workers, electricians in rural areas, and that they are getting an excellent career opportunity. While essentially avoiding kind of all the cost associated with maintaining a Fiat ledger.

[00:32:30] Pierre Rochard: And so I see it as a massive efficiency gain that we don’t have to pay all of these lawyers, accountants, economists, bankers. Our hard-earned money to maintain the ledger. Instead, we’re paying blue collar workers in middle America to maintain our ledger. And so that’s the way I think that the facts are based on my experience in both worlds.

[00:32:58] Pierre Rochard: I graduated with an accounting degree. I worked at a big four accounting firm in New York City, auditing mortgage backed securities. I’ve seen the fiat world from the inside, and it is massively inefficient in the most important resource imaginable, which is human time. People talk about wasting electricity. I talk about wasting human time because human time is far scarcer than electricity, and so I think the comparisons should be holistic and qualitative rather than trying to quantify arbitrary.

[00:33:36] Pierre Rochard: In particular, the comparison with proof of stake where you know, somebody will say, oh, all of this revenue that goes to Bitcoin miners gets paid to electricity. Okay, sure. What percentage of the revenue to stakers goes towards, I don’t know, flights to conferences about Ethereum? Right. So we would have to look at what is this revenue being spent?

[00:34:05] Pierre Rochard: And because it’s so hard to quantify what the staking revenue is spent on, if you look at their graphs, they just say zero, you know, zero e carbon emissions. No, of course there are carbon emissions associated with those revenues. You know, just let’s follow the trail. But it’s so onerous to try to figure out, and the reason it’s owner is frankly, is because all of this carbon accounting stuff is fraudulent.

[00:34:30] Pierre Rochard: But we can get into that.

[00:34:32] Preston Pysh: No, I’m with you a hundred percent. Governor DeSantis recently said that Florida is going to be a central bank digital currency, free state looking to pass some laws there in, in the state of Florida. I’ve seen other things. I think Ted Cruz had something in Texas that was similar.

[00:34:51] Preston Pysh: What are your thoughts on what this is going to look like moving forward? It almost, it almost seems like states are going to start exercising their rights here and really kind of stand up against this whole central bank digital currency spyware type tie into money itself. But how do you see this progressing?

[00:35:11] Pierre Rochard: I mean, first of all, my view of CBDC is essentially that we already have them in the sense that all of the concerns about CBDC are already manifested in the existing fiat system, right? Where people say, oh, the government’s going to track all of our activity and they have access to all of our data. It’s like, yeah, that is currently true of the fiat system.

[00:35:34] Pierre Rochard: They can access all of the, all of our payments data is already at their fingertip. Secondly, you know, people say, oh, they’ll be able to freeze us out of our money. It’s like, well, that’s what happened to the Canadian truckers, right? And they were not using a CBDC, they were using just normal bank accounts, and those got frozen because the government told the banks to freeze it.

[00:35:54] Pierre Rochard: So I just don’t see a huge difference in terms of the impact between the status quo and, and CBDC. But from a symbolic perspective, I do think it is critical to have policy makers aligned on the fact that, because essentially what central bankers are trying to do is to say, we don’t need Bitcoin because CBDCs are better than Bitcoin, and they solve all of the problems that Bitcoin claims to.

[00:36:27] Pierre Rochard: Except for one, right? The money printing is, is kind of the, that’s the one problem they will refuse to solve. So it’s not like they’re saying, Hey, there’s only going to be two 21 million CBDC dollars, right? I think it’s important to get alignment against CBDCs and for Bitcoin from policymakers.

[00:36:46] Pierre Rochard: Now, how that translates into legislation and actual policy, we have to be really careful. There’s been some back and forth on some of the legislation that is being discussed at the state level with regards to UCC Uniform Commercial Code and the definition of CBDC and of money and of Bitcoin. So I think the devil’s in the details on the specific policies and we, you know, should certainly have the right legislative experts.

[00:37:18] Pierre Rochard: The lawyers take a careful look at it so that we don’t accidentally undermine Bitcoin from a legal perspective. But at a high level, I think it’s good to see that there’s anti CBDC If at a federal level here in the us, if they come out with say it’s a really restrictive policy, or let’s say that this restrict act also known as like the TikTok ban gets passed and it puts all these really terrible laws in place around people being able to run their own node and being able to use VPNs and it, it sets up this precedence.

[00:37:55] Preston Pysh: Bitcoin to potentially have all these risks and vulnerabilities here in the us. Do you see the states, it almost seems like they’re already passing things to protect against that federal mandate coming from the top down to protect the, the local interest of, of their particular state. Do you agree with that?

[00:38:12] Preston Pysh: Would it actually impact them if the states have some of these laws already passed in advance or even after maybe a federal action that’s trying to make it more restric? I guess what’s, I guess the question is this, Pierre, what’s the game theory from a legal standpoint, from the federal to the state level?

[00:38:29] Preston Pysh: Do you see states exercising more power at their levels to try to protect this in some jurisdictions?

[00:38:36] Pierre Rochard: I think it’s too early to tell right now. The impression I get is that it is, it’s pandering, right? It’s political theater. In order to stick out a position, especially if you know the politician in question is going to be running for president, that they want to essentially have a position on the issue in a strong manner that gets media attention.

[00:38:58] Pierre Rochard: How it will actually play out. I’m concerned that there’s so much focus on CBDC, that of the direct retail version and very little looking at, for example, fed Now, which is a instant payment system that is intermediated today by financial institu. But in a kind of turnkey manner, could be centralized entirely.

[00:39:25] Pierre Rochard: And, you know, essentially retail CBDC overnight and yet Fed now is getting very little pushback. So it’s set to launch this summer and you’ll be able to, you know, pay your taxes with Fed Now. You’ll be able to get your checks from the government with Fed Now, and you’ll be able to buy your soda 7-Eleven with Fed now until they pass a law saying you cannot buy.

[00:39:49] Pierre Rochard: I think that in some ways CBDCs are, are distracting from kind of more urgent issues like Fed. Now, maybe it’s, it’ll be the case that when Fed now rolls out, it’ll cause a, a firestorm, right, of political backlash of people saying, Hey, look, we’ve been hearing our leaders push back on CBDCs. And now I’m being incentivized to use the Federal Reserves Payment Network.

[00:40:15] Pierre Rochard: What’s going on here? I thought, you know, we were trying to move away from this, so we’ll see how, how that plays out. But I think that it’ll be interesting to see it getting debated in, in the presidential election.

[00:40:27] Preston Pysh: Choke-Point 2.0. What are your thoughts on this? So we have Silvergate, we have Signature Bank that evidently was solvent but was told that they’re not solvent and that they need to shut down operations.

[00:40:37] Preston Pysh: We have Binance. It seems like all the, not all, but most of the rails into a lot of these exchanges are being cut off. I know you have a lot of ex experience working at an exchange. How are you viewing this and what does this really mean for the broader context of people that are looking at the space?

[00:40:55] Pierre Rochard: It seems like one is that the Federal Reserves interest rate policy has created issues in the banking system. The officials are telling us that everything is safe and sound. We don’t have to worry about it, but they were telling that to us before SVB blew up and they were telling that to us before 2008.

[00:41:17] Pierre Rochard: Right? I remember Ben Bernanke as early as 2005, people were saying, Hey, Mina’s, subprime market doesn’t look good. And Ben Bernanke saying, don’t worry about it. These are isolated pockets of real estate issues, but it’s not a systemic. I think there’s a troubling pattern of central bankers downplaying issues, including with inflation when they were saying, Hey, it’s transitory.

[00:41:42] Pierre Rochard: Don’t worry about it. And it’s only when the issue becomes politically unavoidable that they finally start to address it while never admitting their role in creating the problem in the first. So I think that they have destroyed their credibility from that perspective. So when they say that the bank system is safe and sound, I have to take that with a tremendous grain of salt.

[00:42:07] Pierre Rochard: Obviously, I want it to be safe and sound right. I, I don’t want the banking system to be collapsing, but they haven’t really earned that trust. In fact, they’ve really spent it entirely over the past. So what I’m seeing from my perspective is that not only are there issues with these unrealized losses on bonds from the duration mismatch between how they finance their balance sheet and how they invest it, there are also issues around refinancing commercial real estate loans and what’s going to happen in the residential real estate market as.

[00:42:46] Pierre Rochard: It seems to me that right now we’re in a state where it, it reminds me of those Looney Tunes. You run off the cliff and then you look at the camera first, split second. Right now we’re just like staring at the camera and the shoe has not dropped yet.

[00:43:01] Preston Pysh: How about the rails going into the exchanges though?

[00:43:03] Preston Pysh: Because I mean, Silvergate and Signature.

[00:43:05] Pierre Rochard: Oh, you’re about to get to that.

[00:43:06] Preston Pysh: Yeah, yeah, yeah. How about that?

[00:43:07] Pierre Rochard: They are using the collapse of SVB as cover to simultaneously go after these banks that, that were working with crypto exchanges. And so the timing on this, I don’t think is a coincidence.

[00:43:24] Pierre Rochard: I think that they saw all the noise with SVB and used it as an opportunity to seize a signature. We’re learning new things about it seemingly every day. So I don’t know where this will end up. I definitely think it’s the case that they, the banking regulators at the federal level, they want to crush Bitcoin.

[00:43:49] Pierre Rochard: They don’t want Bitcoin to exist in the United States. They want to prevent any kind of on and off ramps between Bitcoin and the US dollar so that consumers don’t, and savers more importantly, don’t have access to Bitcoin. And they want to do that regardless of what the legislative branch wants. Right.

[00:44:11] Pierre Rochard: Cause we’re talking here about regulators that are a part of the executive branch or independent. The problem they have is that it is not their job to dictate policy. Their job is to implement policy, right, to execute faithfully at the laws, not to create the laws, but they are trying to create the laws and they’re trying to create an environment where they can defacto ban Bitcoin in the United States by hooker, by crook.

[00:44:39] Pierre Rochard: That there’s two ways to push back on that. Well, one, the judiciary, so litigating, right, and, and we’ll see. The problem with litigation is that it’s very time consuming to have these cases work their way through the court. But I’m actually, I’m optimistic that the judicial process would work pretty well here.

[00:45:01] Pierre Rochard: It’s just would be very time consuming. The second solution is at the legislative level which is less time consum. But constrained by the deliberative nature of these bodies where you have to get all hundreds of people to agree to vote in a particular direction. It’s like herding cats. And third is voting.

[00:45:21] Pierre Rochard: Today we have President Joe Biden, who has been very clear that he is anti-Bitcoin and he appoints people who are anti-Bitcoin. If we were to elect somebody at the presidential level who is more favorable towards Bitcoin and wants to see pro Bitcoin policies, it would be like night and day. Very quickly.

[00:45:43] Pierre Rochard: Because all of these executive branch overreaching will get rolled back overnight, and banks would be assured that as long as these businesses are legal and that they are managing the credit risk, right, the real risk, then they can bank Bitcoin related businesses. But today they’ve created this category of risks.

[00:46:09] Pierre Rochard: Or not risks at all. Right. They call it reputational risks, which is basically saying you’re not, this business is not popular in Washington DC currently. And so you should not bank them which is completely unlawful I mean, it’s, yeah. It violates the rule of law on so many different levels.

[00:46:27] Preston Pysh: Yeah. So much of the battle though, Pierre, so much of the battle is just the war of attrition. It’s to wear people down. They know that the, that it might not get litigated for two or three years. Whether people agree with what’s happening with Coinbase or not. Whenever I look at how I suspect the incumbents on Wall Street are in cahoots with the SEC in order to bring litigation against Coinbase, whether they’re successful or not, in that, I don’t think it really matters.

[00:46:55] Preston Pysh: I think their play is just, let’s just wear them down. Let’s have them all caught up in all of these legal battles so that they’re taking their eye off of performing their operations. And then meanwhile, we can somehow step into this space because we’re way behind, extremely behind.

[00:47:12] Preston Pysh: From a technical standpoint and custody standpoint, I think they’re starting to realize that they got to get into the game somehow. So maybe that’s the play. It’s just the war of attrition. Would you agree?

[00:47:22] Pierre Rochard: Yeah, so that’s a fair point. It could be that the existing incumbents, their angle is to try to participate on their own timeline in their own ways. And they don’t like the kind of the disruptive innovators that are up and coming and that they don’t have a stake in. That is totally plausible both in, you know, with Coinbase, but also with regards to the Bitcoin miners, where some players might want to be participating in Bitcoin mining and they don’t like that others are outcompeting them.

[00:47:56] Pierre Rochard: The other factor here is that if it’s about essentially stopping Bitcoin and a war of attrition against Bitcoin, They will fail because Bitcoin has more resources than any nation because it is a, what I would call a Supra sovereign, so it’s a decentralized global network. That does not exist in any particular country or any jurisdiction.

[00:48:25] Pierre Rochard: It exists in all of them. And that ultimately means that no matter how successful the United States or the anti-Bitcoin people within the US are, they can’t stop Bitcoin and Bitcoin will win. Ultimately, all they’re doing is hampering their own ability to benefit from this. And undermining US national security, US economy and jobs.

[00:48:53] Preston Pysh: Last one. Hash rate all time high. What are your thoughts as a minor?

[00:48:59] Pierre Rochard: It’s a free market. It is a global market. So even if we don’t like it, it is the way it is.

[00:49:07] Preston Pysh: That’s why we’re here, Pierre. That’s exactly why we’re here.

[00:49:10] Pierre Rochard: Having said that, Riot is helping grow that hash rate as well. We’re happy to see the industry growing.

[00:49:17] Preston Pysh: Give us a handoff to your own Twitter page, which is amazing, and anything else that you want to highlight, Pierre?

[00:49:25] Pierre Rochard: Yeah, I’m on Twitter @BitcoinPierre. My dms are open. Feel free to reach out. I’m on LinkedIn as well, Pierre Rochard, always happy to connect. And we’re looking for all the support we can get here in Texas so that we can be educating policy makers about how important Bitcoin mining is to the state and to the nation.

[00:49:45] Preston Pysh: Even though I watched the video and was a little disappointed that you’ve just, you’re just too grown up now, Pierre. We’re not where we were years and years ago when we used to joke around. I’m very proud to call you a friend and very proud of your efforts down there because you’re exactly right.

[00:50:03] Preston Pysh: It’s about education. When people can actually understand what this is, we can just have a really profound impact on what I know you believe to be a much better world on, on a Bitcoin standard. So thanks for taking time. Proud of you and keep up the amazing job.

[00:50:18] Pierre Rochard: Thank you, Preston. That means a lot to me. Have a good one.

[00:50:22] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener if you enjoyed the show or you learned something new or you found it valuable.

[00:50:39] Preston Pysh: If you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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