23 February 2021

On today’s show, Preston talks with energy and mining experts, Harry Sudock and Marty Bent. We talk about whether Bitcoin energy consumption is a concern and we also address concerns about mining being too concentrated in China.



  • Does China control all the Bitcoin mining?
  • Bitcoin uses so much energy, isn’t that an issue?
  • How Bitcoin is increasing productivity by reducing methane flaring.
  • How Bitcoin is slowly changing the power grid (for the better).
  • Is it better to invest in Bitcoin mining or just buy Bitcoin?
  • How likely is it until we start to see homes equipped with energy efficient tools to mine Bitcoin?


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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.


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.

Preston Pysh (00:00:02):
Hey everyone. Welcome to this Wednesday’s release of the show, where we’re talking about Bitcoin.

Today’s show is super exciting because we’re covering everything related to energy and Bitcoin mining. Now, this is a really hot topic because there’s a lot of controversy around Bitcoin consumption of energy. Additionally, there’s a lot of debate around people talking about how much hashing power and mining is taking place in China. Well, I have two incredible experts in this space. We’ve got Marty Bent and Harry Sudock to discuss these ideas in much, much more detail.

Sit back, hold tight and get ready for a massive amount of information on energy and Bitcoin mining.

Intro (00:00:39):
You are listening to Bitcoin fundamentals by the Investor’s Podcast Network. Now, for your host Preston Pysh.

Preston Pysh (00:01:01):
All right. Everyone, welcome to the show. We got Marty Bent, Harry Sudock here, and guys, I’m excited to have this conversation, because you guys are the experts on this topic. Welcome to the show.

Marty Bent (00:01:13):
Thank you for having us. Thank you for having me. I’m not going to speak for Harry. Preston, expert may be a bit of a stretch.

Preston Pysh (00:01:20):
No, I’m hearing you guys in clubhouse and I’m just like, whoa, we need to have a chat with these two. I’ve been following you guys for years now, and this is exciting. What I’m going to do, to start this off, I just want to pitch a couple underhand pitches for you guys. I want you to crank them out of the ballpark so far that people can’t even see the ball. It’s going to be the natural, where the cover comes off the ball as you guys are hitting these two underhand pitches. The first one I got for you, China controls all the hashing power, therefore they can make Bitcoin do whatever they want.

Marty Bent (00:01:53):
False. They don’t control all the hashing power. Historically they’ve controlled a significant amount, but that amount has been waning. Even though all that hashing power does exist within the borders of China, they can’t really control the Bitcoin network at the end of the day. The Bitcoin network is controlled by full nodes who dictate the consensus rules and validate the consensus rules with those full nodes. If the miners within China or anywhere in the world for that matter attempt to fall outside of those consensus rules, full nodes will reject the blocks or transactions that they attempt to include in those blocks.

Marty Bent (00:02:28):
In terms of being able to control Bitcoin, the mining industry in China, that is a bit of a stretch. I believe the worst that could happen, which is also a bit of a stretch, is all the mining equipment within the borders could be turned off and slowed down block production for some time. But that’s why we have the difficulty adjustment. I don’t know if you want to add anything to that, Harry.

Read More

Harry Sudock (00:02:49):
I do. I want to reframe the question. A 51% attack in the Bitcoin network is not the same as a 51% attack on an election. This is not majority rule. This is not flip the party. This is not a deep change to the behavior of the network. What it would involve, is a challenge to process and confirm net new blocks. There may be a very, very shallow reorg. Those are the scope of the problems that could arise from that type of behavior. Exactly like Marty said, the network is unbelievably, unbelievably antiviral and white blood cell driven. And so what that means, is that, you’ve got tens, if not hundreds of thousands of people all over the planet with their eyes on the asset, that Bitcoin delivers, which is the UTXO set.

Harry Sudock (00:03:35):
The history of the fidelity of the transactions over the last 13 years has been driven to this tip of the blockchain. This point in time. That incredibly high fidelity transaction set across history, is the asset that Bitcoin delivers. And right now it’s delivering it to the tune of $975 billion in market cap. And so if we were to see something that was going to try to erode this historical value transfer, this transfer log, there are hundreds of thousands of people with all of their eyes on proper behavior and proper game theoretic design. And so if we begin to see or smell, the first instance of this, which would emerge from a very, very small point in time, 51% attack, the ability for the network to route around that type of bad behavior is instantaneous and the negative impact for the participants in an attack like that would be catastrophic economically and socially.

Marty Bent (00:04:32):
And even coordinating the individual miners within China to attempt a 51% attack that would be logistically a nightmare, potentially impossible, especially when you consider the amount of miners that are doing stuff off grid. That’s the one thing that is really ironic about the first 12, 13 years of Bitcoin, is that, some of the most capitalistic activity has come from the mining industry within China. If you speak with some miners in China, you’ll find that they’re profit driven as well, they don’t want any of this stuff to happen. Actually spoken to some that are looking to co-locate equipment in different geographical regions, just to mitigate risk from the CCP. Individuals running these businesses are pretty capitalistic. It’s not like the CCP controls everything that’s going on in the mining industry or anything for that matter, from what I can tell.

Harry Sudock (00:05:23):
I want to jump in on two more data points that are really important when you think about this mentor model. One is that the largest Bitcoin mine in the world that I’m aware of is about 250 to 300 megawatts in size and represent somewhere between three and 5% of the network, depending on the rigs that they’re running. If every farm in China was that size, you would need to get your hands on 15 to 20 of the largest. What that really means when you look at the power law across how large those farms really are, you need to find your way to get your hands on 50 to 100 different warehouses, at the same time and get them all to behave in the same way. There’s a massive coordination problem, assuming you can even locate. The second data point is exactly what Marty said.

Harry Sudock (00:06:08):
The migration of hash out of China over time by existing players is very, very rapid and they’re very motivated. If you’re operating on any of those hydro facilities in China, there’s significant seasonality. You’re already moving hash in between locations. And so they’re incentivized to avoid those switching costs, to migrate to regions where there’s stable access to power, which by and large is in Eastern Europe. Right now, I’ve heard of some South American migration among a couple of other locations. The trend is moving actively away of the miners that are there currently, not to mention the net new hash, that Marty and myself represent among others, migrating elsewhere.

Preston Pysh (00:06:46):
Explain why they’re moving elsewhere?

Marty Bent (00:06:49):
Political risk.

Harry Sudock (00:06:50):
Exactly. It’s power availability and political risk. They do not live under a stable regulatory regime by any stretch. And they don’t always have high uptime, high availability of power, because they’re very beholden to the wet and dry seasonality of China’s hydro environment.

Preston Pysh (00:07:07):
Because I know the current hashing is less than 50% there. What’s the number that we’re seeing today and what was it five years ago?

Marty Bent (00:07:15):
The most common stat that was thrown out, at least within the last three years was 60%. Pretty sure that’s waying to around 40% of recent estimates, it’s been high. 80%, I would imagine at some point. If China was going to control the Bitcoin network, the best chance to do so was probably five or six years ago.

Preston Pysh (00:07:33):
Harry, you have any other comments on the amount that’s there right now?

Harry Sudock (00:07:37):
Yeah, the estimated I’ve seen are similarly 40 to 60, 65%. We tend to think it’s the lower end of that range, because even you’ll see Bitmain pre-split and I guess now they’re Bitmain post split, the Jihan four. They’ve located hash in US. They’ve got multiple facilities running in the US. And so even the crown jewel of the Chinese mining industry is locating hash in the US right now. We’ve seen that progression over time happen and like with anything I think it’s going to continue. I think that when you think about why hash wants to leave, it’s about a regulatory regime, that’s uncertain in favor of a regulatory regime that’s at least more certain and legally is significantly more certain.

Preston Pysh (00:08:18):
That really surprises me, that you’re seeing them move into the US. I would think that the power expense here would not be optimal for them. How are you guys seeing that?

Marty Bent (00:08:29):
That means big operation was done with Texas, correct? I believe they bought a substation down there, probably a substation, I think, you can drive here, past power production down very low. I can’t speak to exact sources of energy production for these Chinese miners that are looking to distribute their operations to North America. But just from what we see in the field of Great American Mining, there’s abundant cheap energy here, all across North America not even just the United States.

Preston Pysh (00:08:57):
I want to go back to a point that you made early on there, Marty, about full nodes dictating what actually takes place on the network and that the miners are just providing a security service to secure the network. Harry, you had said the Jihan four. Explain to people who have no idea what that is and why this is such an important moment that happened in the summer of 2017, that really demonstrated to the world that running a full node is really calling the shots as to the direction of the network. I think this is also important. Explain to people what the difference between running a full node in mining even is?

Harry Sudock (00:09:35):
This is great. It gets to the core of why Bitcoin, the software functions effectively. What mining does and what full nodes do is, they and we, we validate the integrity of the transactions that are processed and ensure that the behavior of the network is in compliance with the rule set, that the participants in the network have agreed to. And so the job of the miner is to process the transactions. What we basically do is say, there’s something called a mem pool. You’ve got thousands of people, and now millions of people around the world, sending Bitcoin back and forth, they are attaching a fee to their transaction in an attempt to get a miner, to include that transaction in a block. So it’s like an auction. What miners will do, is pull the highest value transactions into blocks, in cascading order from highest fee to lowest fee.

Harry Sudock (00:10:30):
And so once we’ve constructed a block, which is really just a set of transactions that are compliant within the rule set, we find the block, which means, discover the cryptographic signature of that set of transactions. And we say to the network, look at me, I found it and we show the completed block to all the nodes and the nodes look at the block and say, does this block sit within the compliant framework that the software that I’m running on my full node says is check or fail. We think about it very much like a puzzle, where a puzzle takes a really long time and a lot of effort to finish, but anybody walking by can tell you if the puzzle is done or not. And so we’re the puzzle solvers and the nodes are the puzzle checkers, but they have the power, because if they say your puzzle ain’t worth the pieces that are assembled, we don’t get paid.

Harry Sudock (00:11:25):
We have a tremendous incentive to behave properly within the rule set that the nodes dictate, because if we don’t do that, we don’t get paid, but we spent all that money on the electricity to solve the puzzle in the first place. So the game theory is such that the nodes have power over the miners and the miners are highly motivated to be compliant within the rule set defined by the nodes.

Preston Pysh (00:11:49):
How much does it cost to run a full node and how difficult is it? I run one, I’m just asking this for the audience to hear how important this is, this piece. The person who’s checking the puzzle to make sure that it’s a completed puzzle. I love the analogy. How much do they got to spend and how much effort is involved and how much electricity are they burning to do this activity?

Marty Bent (00:12:11):
Pretty cheap. You can get a ras pie and a couple other pieces, maybe one terabyte, two terabyte SD card, and get a full node running for less than $200. I think I’ve seen some setups that are less than $100. There’s even developers working on a software AB core specifically. One that comes to mind where you can actually run a full node on an Android phone or some Android devices as well. It’s relatively cheap. A lot of people can afford it. I actually just spun up a full node two weekends ago, got a new Mac mini, 16 hours to go from zero to setting it up. It’s pretty easy. You got to You follow some directions and you’re able to spin that note up and download it, the rule set and blockchain, the history of the blockchain and follow along as new blocks are produced.

Marty Bent (00:12:58):
If you’re savvy enough, you’ll actually use your full node to make sure that if you’re actually taking possession of UTXs, your Bitcoin, that you’re validating the addresses that Bitcoin is sent to on your node alone. You’re not trusting anybody else’s node, but the node that you downloaded and have it in your possession.

Preston Pysh (00:13:16):
Would you guys look at it as the governance structure of Bitcoin? Is that a good way to describe it? It’s very low cost to basically be a part of this voting and this puzzle checker, the energy expenses is pretty much negligible. A person’s not even going to notice the energy that it takes to run a full node.

Harry Sudock (00:13:34):
Yeah. I want to be super cautious of the term governance, because Bitcoin is fundamentally an opt-in system and an opt-out system. It’s bi-directional. You hear the term governance in a lot of other projects that are out there and I’m super wary of it, because I think that the governance mechanism for Bitcoin is fully distributed and decentralized. And so what that means, is that, there’s total autonomy to interact with the rule set independently. There’s no way to sort of, the idea of a vote means that there’s a majority rule, which is not the governance mechanism that functions for Bitcoin. It’s different than that. Bitcoin is not a democracy. Bitcoin is a rough consensus.

Marty Bent (00:14:19):
Yeah, exactly. That’s what I was going to say. You download a node, you’re participating in the social consensus of the network and using that node to verify for yourself. That’s at least in the way that it should be.

Preston Pysh (00:14:31):
Marty, if the three of us wanted to create our own rule set, we wanted to take the Bitcoin full node that we’re currently running, change it slightly. And the three of us agree to run that rule set. Now we’re running our own hard fork version of Bitcoin, correct?

Marty Bent (00:14:46):
It’s a very small network effect.

Preston Pysh (00:14:48):
Yes. We don’t have any miners that are to mind blocks on that network of three nodes. Correct?

Marty Bent (00:14:55):
We’d have to convince, if we keep the hash SHA-256 mining algorithm for our three-person Bitcoin fork, we’d have to convince at least a couple of miners to point their hash rate in our work network.

Preston Pysh (00:15:09):
Harry, go back to 2017. Now that we just had that mini example of forking Bitcoin with three full nodes and explain what was attempted back in 2017 and what the result was.

Harry Sudock (00:15:23):
In 2017, and I’m sure Marty is going to have a lot to add to this as well. I was still in, not in my Bitcoin infancy, but in my Bitcoin preadolescence. Essentially there was a very contentious technical introduction into Bitcoin the software, which was the argument that there was a group of relatively centralized actors who were pushing an agenda to do something called increase the block size limit, where, if you think of a blockchain as a database, fundamentally, each block has a certain amount of space within it, in which you’re able to include transactions. The argument that this group of people wanted to introduce was a bigger block size.

Harry Sudock (00:16:01):
They wanted to double the amount of transactions that could be included in a block and they wanted to do so through a fork. And so what the Bitcoin network was able to prove through rejecting this, was that the folks who wanted to do this were largely mining adjacent and mining-related. It was Bitmain and it was others. What happened was, you had these sort of, I don’t want to say larger entities, but they were larger corporate entities. Coinbase was on that list. I think ShapeShift was on that list. They-

Marty Bent (00:16:36):[crosstalk 00:16:36] that list. BitPay.

Preston Pysh (00:16:36):
I think that’s important because you’re showing how much fire power was coming to the table with this idea that they want the fork at to have larger blocks. It wasn’t like you were dealing with a ragtag group of people in the space.

Harry Sudock (00:16:50):
This was a powerful minority decision.

Preston Pysh (00:16:54):
Attempted decision.

Marty Bent (00:16:56):
The way it went down. This goes all the way back to the scaling debate. It was a scaling debate, Bitcoin uses the network, stakeholders using the network, whether it be people building businesses, building mining operations, or just using Bitcoin and running full nodes and very passionate about the trajectory of Bitcoin moving forward. Of course, the developers as well, working on the protocol. The debate was, all right, how do we scale this? And as Harry mentioned, corporate entities wanted to double arbitrarily. It’s like an arbitrary doubling of the block size from one megabyte to two megabytes. A lot of the community, myself included, a lot of developer community and other stakeholders, were like, all right, this doesn’t really make any sense, because if you double at once, what’s to stop you from doubling it again and so on and so forth into perpetuity. And that is a bad trade-off to make.

Preston Pysh (00:17:43):
I think it’s important to highlight, Marty, is you’re saying that the bigger that we make these blocks the less or the harder it is for a full node operator who’s checking the puzzle pieces to do that independently at $200 with no electrical costs and all that stuff. Because we’ve kept the blocks small, anybody and their kid sister can go out there and stand up a full node and become a checker of the puzzles that are being constructed in a low cost way. So that we have, I don’t know what the number is. I’ve heard anywhere from 10 to 100,000 full node operators. I’d be curious to hear what you guys think the numbers are. But to keep the blocks small, we’re able to keep the protocol decentralized at the end of the day. I’m sorry to interrupt. Keep going with what you were saying there.

Marty Bent (00:18:30):
Perfectly. You want to be able to make sure that as many individuals as possible download the blockchain, which is filled with data. Right now, I believe the blockchains, I haven’t looked in a while, it’s probably around 350 gigabytes, I would imagine. If that gets too big, if you allow to make a block, a megabyte blocks or megabyte blocks, so on and so forth blocks, are produced every 10 minutes and those blocks wind up getting pretty full. It’s a pretty significant burden on individuals trying to download the blockchain, especially when you take into consideration bandwidth around the world and how fickle that can be in some areas. Taking these trade-offs into consideration, the stakeholders, particularly from the developer community and Bitcoin users that rallied on Twitter and other social networks, that, hey, this doesn’t make much sense.

Marty Bent (00:19:15):
Number one, because you’re just arbitrarily doubling it. And then two, you actually hard forking to do this. And so when you hard fork there’s a chance that people get forked off the network and in Bitcoin, you want to be backward compatible when you’re making these updates. You tend to rely on what’s called a soft fork, which allows you to get these upgrades, but also make sure people running earlier versions of the software are not out of consensus like the man who falls in a coma for three years and has his node running at home, be able to wake up from that coma and go to his node and still interact with the Bitcoin network, three years later, no change was going to make it, so he’s out of consensus and that’s how the Bitcoin software projects approaches the development of the protocol.

Marty Bent (00:19:54):
It’s very conservative and want to make it so anybody throughout any point in Bitcoin’s history, can interact with the network, no matter what version of the software they’re running or as early of the software version as possible.

Harry Sudock (00:20:07):
This is such an important point around these trade-offs to highlight. Again, and to being incredibly clear. This is about time preference. This is about what features and facets of Bitcoin are valuable over a 20 to 50 to 100-year timescale, and prioritizing those now, when things are still not fully ossified, still malleable, we as a community need to continue to prove that this is a multisensory project and take those priorities to heart today in the development decisions that get made on an ongoing basis. And so the argument that we need to double the transaction throughput in exchange for compromising on the broadness of the distribution of the validator set, is an unbelievable in retrospect decision to have been proposed, whether it’s seven transactions a second or 14, doesn’t matter, getting that validation set into as wide set of hands as possible. Is such an order of magnitude more important to the longevity and viability of this project?

Harry Sudock (00:21:10):
That’s a decision that got made through the broader community. But I want to go back to what exactly what Marty said at the end there, about backward compatibility. This is the key that, the choices that we make on an opt in basis, not the choices we ever make for the network. The opt in choices that we make and be projected out over such a long time scale. And we can have such a high degree of confidence that the Bitcoin, the UTXO set, like we’ve talked about, that sits in a wallet or sits in an address, over an incredibly long period of time untouched, will have the same amount of validity and inclusion within the choices that get made by the development community over these multi-decade timescales. This is why we are building harder sound or money that can scale over time.

Marty Bent (00:21:56):
Precedence matter. Arguably, we could have ruined the network if the contingent of power brokers that wanted to arbitrarily double the block size could have destroyed Bitcoin right then and there. But luckily it didn’t work, full node validators prove that they run the network, and here we are today, four years later.

Preston Pysh (00:22:15):
That’s really the point of this entire part that we’re talking about, is the full node operators sided with smaller blocks, with a segued update, opposed to going in a different direction, that was just, hey, let’s just keep increasing the block size, which would lead to the centralization of nodes. And so the full node operators, the consensus of the full node operators led to smaller blocks, is what will be validated.

Marty Bent (00:22:42):
For the context of this conversation that we’re having. Particularly tonight, 95% of the hash rate was signaling or a doubling of the block size too.

Preston Pysh (00:22:51):
Which is the opposite of what the full node operators had signaled.

Harry Sudock (00:22:56):
It’s final proof that we’re subservient to the will of the node. We, as miners are subservient to the will of the nodes and that is the correct path forward.

Preston Pysh (00:23:05):
All right. So let’s go to this second softball question that I have. We went almost 25 minutes on the first softball. Okay. This next one, my God, have I heard this one. Bitcoin mining uses so much energy, it will boil the oceans.

Marty Bent (00:23:22):
It’s our goal. This is what we got into this industry for. Really just trying to increase the temperature of the world’s oceans. To start this particular topic, I think it has to be laid bare that Bitcoin wears its energy consumption to a certain degree on its sleeve. Anybody can point at the network due to the fact that it’s an open protocol, an open source protocol of the data about what’s happening in the blocks and the computing power dedicated to bringing those blocks to market and the amount of hash rate dedicated to that then, which is estimated based on how fast or slow blocks are coming, every 2016 blocks, you can ballpark how much energy is being consumed to produce the amount of hashes that are being produced to secure the network and add blocks to the Bitcoin blockchain.

Marty Bent (00:24:08):
So right off the bat, Bitcoin has this, I don’t want to say an unfair advantage, is easy to pick on and point out and say, hey, look at how much energy the Bitcoin network’s consuming. Whereas if you had to get a measurement of the amount of energy that is used to back the US dollar reserves system, and that includes things like the military industrial complex, all the buildings that run the federal reserve banks and the commercial banks in the US banking system, all the commutes to and from work and the people that work in those buildings, the amount of paper expanding in those buildings, amount of energy and air conditioner and heating, consumed in those buildings.

Marty Bent (00:24:44):
That number just isn’t public, the extent and effort to which you’d have to go and actually get that information to compare to Bitcoin is extremely hard. It’s not easy to find that information. Bitcoin at a disadvantage right off the bat with this particular argument that it can’t really be compared, truly compared to its competitors, because they don’t wear their energy consumption on their sleeve, just like the Bitcoin network does. And then, which is what Harry and I know very intimately to what we’re doing specifically in the field with Bitcoin mining is, if people came to understand the sources of energy that is being converted into electricity to mine Bitcoin, paints a bit of a different picture, where you’re not really creating new energy to mine Bitcoin, you’re not going out and drilling a hole in the earth to pull out oil to mine Bitcoin, specifically Bitcoin miners, again, because they are incentivized to drive their cost of power production down as low as possible.

Marty Bent (00:25:39):
They go and seek out extremely cheap sources of energy, which tend to be stranded renewables, or fossil fuels like natural gas in oil and gas fields that that would otherwise be wasted via flaring or venting in some cases. Number one, where’s its energy consumption on its sleeve. And number two, due to the, just the pure incentives that drive costs down as low as possible, Bitcoin miners are going to disparate lands to find wasted and stranded energy.

Harry Sudock (00:26:07):
Preston. I have three assumptions I want to challenge in this, as a very good baselining for this whole discussion. The first is that energy consumption is not a bad thing. If you look over the long arc of history, the best societal biomarkers for societal advancement and maturity and quality are all extremely correlated to energy consumption per capita, healthcare, education, nutrition, infant mortality, all of the things that you would look at and say, wow, these are moving in the right direction, also correlate incredibly tightly to energy density at the population level. That’s the first setting that I think is important in a discussion this is like, it’s not like the energy is being used to spin a whirlpool in the ocean that never touches anything. This energy that gets consumed by us as a society, delivers utility and delivers good outcomes.

Harry Sudock (00:26:58):
That’s the first piece. The second is that, I think energy and in the context of Bitcoin is really discussed as waste. I just challenged that premise first and foremost, the Bitcoin network is directly tied to the laws of thermodynamics, as I’m sure we’re going to get into in more detail. But that tight relationship between thermodynamic laws and the value proposition of the Bitcoin network, the Bitcoin network delivers incredible value to millions of people all over the world. So that energy is not wasted. That energy is properly utilized for positive economic outcomes for people. I immediately challenged the assumption that, that it’s, quote unquote, wasted, as if it’s not being used for something of value. It’s absolutely being used for something of value. The quality of the Bitcoin network delivers tremendous value.

Harry Sudock (00:27:41):
And then third, and this is another foundational assumption around this argument set, is that, when I plug a new miner in, I’m not generating another marginal kilowatt hour, that kilowatt hour already exists and it’s being consumed by me, but me plugging in a new miner, doesn’t make the coal turbine spin one more time around the axle or the nuclear turbine, heat the steam one iota more, or the net gas pipeline pump in one more unit. That’s not how the energy grid is designed. It’s not how the energy generation and transmission system, certainly in the United States and not elsewhere as well. It’s not how that works. And so we need to go back to a bit more of a first principle understanding of how energy gets generated, transmitted and consumed, for us to have this discussion in a substantive way.

Preston Pysh (00:28:30):
I think the really important part is, you now have an incentive structure for the entire planet to figure out a way to harness the energy, like you’re saying, that’s already being created, whether it’s wind, some type of water turbine or whatever. I don’t care what it is, or flaring. I’m sure we’re going to get into a lot of that with Marty. It’s almost if you’re on a sailboat, you’re capturing the wind that’s already there. You can harness it, or you can put your sail down in and complain about somebody harnessing it. But you now have one of the biggest incentive structures that has ever been put in place in the world for trying to capture zero cost energy, which I think is a really exciting part to all of this.

Preston Pysh (00:29:15):
I first want to just dive into this idea. Do you guys see it more from a future standpoint, from where we are at today, in five years from now, are you going to see people that have heating elements or home water heaters and furnaces, things like that, that are actually mining rigs?

Marty Bent (00:29:34):
People in some areas are doing it, it’s very niche right now. I know, Jesse pelts from Hoddle ranch down in Texas. He has a hot tub that he made out of [inaudible 00:29:42], warming with an S9 miner. He calls it spa 256. Some of these applicants. And in Siberia, I think there’s been many cases of people using miners to mine Bitcoin, and then heat their homes to save on electricity costs. There are some do-it-yourself guides out there that you can find. I believe Kanon, Alchemist is one that you can go, and he’s got a guide on how you can create a home miner and use some waste heat from that miner to heat your house. Whether or not that’s commercial in five years. I can’t say confidently that it will or won’t be, but certainly possible.

Preston Pysh (00:30:18):
I just looked at it from, let’s just say, this does become global money. Everyone now has an incentive to take the thing around their house. It’s just naturally just wasted energy. You would think that there would be such an incentive for market participants to start designing ways to capture anything and everything, to start doing these activities, to secure the network, but also participate in some type of mining pool, so that they’re collecting money from this. It just seems an obvious next step that I guess wouldn’t be real obvious today.

Marty Bent (00:30:51):
It all comes down to the cost of power. I think the cost of power is low enough. People are looking to profit off of mining. I think it will happen. Like I said, it’s happening a little bit, but whether or not that’ll be widespread in five years, again, I can’t say confidently. Again, the opportunity that exists with these stranded energy sources is so large and so vast. It’s going to take a couple of decades to begin building out and plugging in the infrastructure to take advantage of these sources and be as efficient as possible with those, I think commercial use case may come on the back end of the curve.

Harry Sudock (00:31:24):
I go actually pretty hard the other way. I think it is going to be pretty approachable to have this happen house by house. I think that it’s been a pretty good bet over the last 50, 60 years, that having Moore’s law at your back is a good spot to be in, which is where we’re at right now with solar and with semiconductors. And so you get some of this solar stuff cheap enough, it’s going to make all the sense in the world to throw a couple of rigs on the back of that. Why waste selling it back to your grid when you can just push it through some SATs? And so it’s going to come down to the cost of the infrastructure. I think that’s the limiter there, but you got Moore’s law working on solar rays well enough and you get some advancement there. It’s going to make all the sense in the world to have that on your home.

Harry Sudock (00:32:08):
Depending on how you finance the houses of the future, you’re offsetting your mortgage to some degree with something like that, or you’re offsetting your other utility bills, your water or your other utility, you’re offsetting it with those SATs that are churning on the backside of an array. I can totally see that happening, 30, 40, 50% market penetration.

Preston Pysh (00:32:29):
Marty, I want to get into Great American Mining and what it is that you guys are doing today, because I just find this so exciting and just so fascinating, because everything we’re talking about of harnessing energy, that’s already there, but it’s not being put into any type of productive use, but now through what you guys are doing, it is. Explain to this in a first principles way for people just from start to finish, to really visualize what it is we’re talking about and what it is you’re doing, because it’s fascinating.

Marty Bent (00:33:00):
This Great American Mining story starts the search for cheap, abundant energy. Like I said earlier, the goal of miners, especially if you’re running a mining business, is to drive your cost of power production down as low as possible. On our journey to find cheap, abundant energy that will allow us to scale, we stumbled into the oil and gas industry and actually our head engineer Reit was at a county fair in Utah or state fair in Utah, just talking to a buddy of his, in the oil and gas industry. He was explaining our problem of what we were trying to do in regards to cheap energy. His buddy said, hey, I have this water treatment facility and we’re just flaring gas into the atmosphere. I believe we have 50 MCFD. If you want to come plug in a generator and hook up those miners, we can certainly make that happen.

Marty Bent (00:33:47):
That was basically the start of the journey that we went on. And so we went there, we plugged in the generator, plugged in a pipeline that took the gas from where it would be flared, in a flare like the stack that’s behind me in this video, instead of piping it to the flare stack, just piped it to a generator, that converted the energy into electricity, and that was used to run our miners. That was our first prototype. We said, hey, this works. So for the last three years or two and a half years, we’ve been going around the oil and gas industry, particularly in North Dakota, in the Bach. Because North Dakota has very strict flaring regulations, and base our value prop to producers is, hey, we know that if you flare a certain amount, you’re going to have to stop oil production.

Marty Bent (00:34:29):
The regulators in North Dakota are very strict, have drones flying over fields and really trying to measure how much each producer’s flaring , after you flare a certain amount, the regulators come and say, you have to shut down production. You’re contributing too much CO2 and methane to the atmosphere. And so we come in and we say, hey, instead of flaring that gas, why don’t we do an offtake agreement? We’ll buy that gas from you for very cheap. Instead of flaring, we’ll be able to just pipe it to our generators, we’ll convert it to electricity using an EPA certified generator. We’ll mine Bitcoin with it. That’s how our pitch started. That’s evolving as the producers understand what’s going on, and they went in 40-foot shipping containers and we bring onto their well pads are producing.

Preston Pysh (00:35:14):
Talk the containers real fast. You’ve got a 20 to 30-foot container that’s filled up with mining rigs.

Marty Bent (00:35:22):
It’s pretty simple, right? The infrastructure on the well pad, you have a pipe that takes the gas and pipes it to your generator. We daisy chain a few generators together just in case one goes down, the whole container doesn’t go down. You can keep hashing the energy from that generator to a power distribution unit, that exists within the container. And then that PDU distributes the electricity to each individual miner. In the 20 foot shipping container we can fit, I believe 160 M20Ss, as the models keep going up and down, you can get a little creative and fit more. That’s the thing about these containers. Harry, mentioned power density earlier. These containers are extremely energy dense. A 20 foot container, depending on what model can produce anywhere from 750 kilowatts to 1.2 megawatts of energy on the oil field, depending on the BTU content of the gas, let’s assume it’s clean gas at 1100 BTU and you’re producing 120 MCFD, you can consume, that would be like a megawatt of a mining operation there.

Marty Bent (00:36:26):
That’s the beauty of it. These are very modular containers and the modular solution to their problem, takes up very little real estate on the well pad. Again, we say, hey, instead of flaring that gas, run into our generators and plug it into this container. The infrastructure is pretty straight forward and we have some fans to help regulate airflow and some filters to make sure it doesn’t get too dusty. If you understand the physics of what’s going on, particularly around the air flow, you can get these boxes up and running and make sure that they have significant uptime. One thing we’re very proud of, that we’ve had 98% uptime in the field, which is comparable to warehouse mine.

Preston Pysh (00:37:04):
So now as you’re funneling this gas to your rigs, to your generators, it’s that energizer rigs. They’re able to keep doing their operations for longer, because they’re not flaring. Is that correct?

Marty Bent (00:37:18):
Yes. They’re able to extract more oil and push more to market, specifically in North Dakota, but it seems that the posturing and the industry throughout the United States is moving towards the North Dakota model. Texas Railroad Commission is hostile, they’re going to get strict for flaring specifically.

Harry Sudock (00:37:35):
I want to just ground us in some framing. How much cleaner is it to do it this way, to run the flare or the venting through a gen set or generator than it is relative to what they were doing previously? What’s the Delta look like?

Marty Bent (00:37:50):
It depends on where you are, right? It depends on the type of flare. And it depends on how windy it is. In North Dakota, especially in the winter, it gets very windy. These flares, as you can see, this one behind me is leaning a little bit, when it’s windy, it makes the flare a little less efficient. The flare is burning methane at the end of the day, which is a greenhouse gas that’s extremely heavy compared to CO2. It’s a 30 to 50 times heavier, depending on the amount of time it spends in the atmosphere. And so when it’s very windy, and these flare sacks are blowing all around, very inefficient. Some studies say flares with wind that’s higher than 10 miles per hour are 30% efficient. You’re having a significant amount of methane leak beyond that flare. When you pipe that to an EPA-certified generator, combust it in there, that’s 99.99% efficiency, you’re still creating CO2 emissions, but it’s much more efficient compared to some flares in windy conditions.

Marty Bent (00:38:45):
And then on top of that, which is more important, you’re creating positive economic value. Something, again, like I said earlier, we were doing offtake agreements, but now we’re getting into joint ventures. Where producers want to participate in the upside of SATs that are being produced in our mining containers. And so the flare is turning from a drag on their balance sheets and their income statements into a positive revenue stream, significantly more resilient and profitable at the end.

Preston Pysh (00:39:14):
If you procured one of these mining rigs, just say 20 to 30-foot size rig. In a year, how much would that produce in value? Assuming that, I know it’s really hard because the price of Bitcoin keeps going up. I don’t know how you could possibly estimate that based on the price moving up all the time, but give us a ballpark of ROI for something like that.

Marty Bent (00:39:36):
I can tell you exactly. We actually built a gas to hash calculator. That’s what we call our containers as gas to hash containers. We basically built this calculator, our engineering team, that takes your MCFD produced on a particular well pad. The particular example I have up right now is 500 MCFD. The BTU discov is 1100 BTUs. It’s very clean gas. The current net back for this producer is about 50 cents per MCFD. The miner model we plugged in was the M20S, which is a couple of generations old from coming from what’s miner. This is all compared to Henry Hub prices. It’s not even just flaring. We’re assuming that this gas was able to be brought to market and sold at Henry Hub prices minus the marketing costs. Today, if you were to do that, the revenue produced per day with this particular set, it would be $15,878, monthly that turns into $475,000, roughly, which is $420,000 more profitable. It would be able to be selling that gas to market at Henry hub prices. That’s if they were able to even get it to market. The multiples that you’re making on this waste gas are insane.

Preston Pysh (00:40:43):
This doesn’t even get into their opportunity cost of not being able to perform their primary operations. How much time were they down for flaring? If they could normally produce it 24 hours, they’re down the 12 hours because of flaring. What do these numbers look like?

Marty Bent (00:40:59):
I don’t know the exact numbers. They shut down for a significant amount of time. In some cases where the well goes a little stale and getting it back up and running is a bit of a burden and takes a lot of money. They’re highly incentivized to reduce this flare. They feel they’re getting close to the state regulator targets, they’ll shut down themselves to fall below that line so they can still revamp the well without having to be force shut down. Force shut down and force the state shut down for an extended period of time they may not be able to get that well back up and running very efficiently.

Preston Pysh (00:41:36):
All right guys, I want to transition into some of the questions that we had from Twitter. I posted, we were going to have this conversation and we got a ton of questions for both of you guys. This one is I think a really common question that a lot of people have. For an average guy, in your opinion, is it better to invest in mining or just straight up buy Bitcoin?

Marty Bent (00:41:54):
I think buying Bitcoin’s probably better, but the execution risk is high, that’s all said, right? Harry, You got to be able to execute on actually plugging this in and doing it at a price that’s profitable.

Harry Sudock (00:42:06):
Listen, you really need to think through very carefully if you have the chops to do it yourself. There are some service providers out there who do a good job of hosting your gear for you. But again, unless you’ve properly allocated to Bitcoin, within your perspective on the asset, I wouldn’t start looking at mining on an individual level.

Preston Pysh (00:42:25):
Because of the competition.

Marty Bent (00:42:27):
There’s a lot of mistakes that can be made along the way. You wind up heavy intent of getting into mining. You’re going to mind all this Bitcoin, and it can take you a lot longer to plug in that machine. It may not make as much money as you expected because your electricity costs are higher than you thought they would be. And then the actual servicing the machines, knowing when to replace fans and how to work with the hashing boards. That’s not something you just jump into and understand right away, baptism by fire. You got to learn a lot of hard lessons to understand how to execute. The goal is to have these, Bitcoin miners are essentially physical Bitcoin options, you want up and running as long as possible. You want them to have the highest uptime that you can possibly get them to have. And if you’ve never done it before, there’s just a learning curve that you’re going to have to go through. You’re looking to accumulate a certain amount of Bitcoin, like Harry said, probably better off buying, just so you can get in before the price runs up anymore.

Harry Sudock (00:43:20):
The other intricacy to it is, exactly what Marty said, I think about the rigs, basically as Bitcoin denominated assets and specifically options. They play with whether or not they’re a bond or an option, but they do have this option component to them where there’s this uncertain expiry. You’re constantly living through a period of time decay, where Bitcoin price can go up and protect your margins for longer. But on average hash rate goes up, the machines get more efficient. People find cheaper power. Over time the number of sacks that you are hash rate will produce is going to go down. And so you’re living through this period of time decay, where you hope that price continues to appreciate so that you can run at a profitable margin, but the sacks that get produced, just isn’t going to be there, as long as you think, it’s a total uncertain variable. You have to be really thoughtful about the dynamics at play within the framework on how you think about it.

Harry Sudock (00:44:17):
Because you really are spending quite a bit of fiat, to accumulate this decaying, SAT revenue stream. And then how do you integrate that into your approach to fully allocating to Bitcoin in the way that you see fit for yourself? You need to think about it within that broader context before you make a decision like that. It’s not like just starting a business.

Preston Pysh (00:44:37):
I’ll tell you the thing that I’ve just come through to the realization of talking with you guys right now, is just how much of an incentive there is. For the people that are doing this, they’re getting energy for free, or they have some type of incentive to, like the flaring example that you provided. For them to be able to do their primary operations, because now they don’t have to flare because it’s being sent through something like this. You can just see how it is just driving this type of work. This type of mining work into the hands of businesses that have those opportunities to leverage. It’s not like, hey, I’m going to plug this into my wall, at my house and start using the electricity out of the wall. This is just not going to happen, right? You’re not going to survive for 10 seconds.

Marty Bent (00:45:25):
No. I think, particularly what we’re doing with the waste gas, changes the opportunity costs in the oil and gas industry completely. Now that this one variable, this one revenue stream has been entered in the equation. Producers start asking themselves questions like, should I even build a pipeline? Do I need to drill as many wells next year? The oil and gas industry, arguably is one of the most terrible allocators of capital over the last two decades and the Shell industry specifically. This is coming from Shell players that I’ve been speaking to for the last couple of years, they’ll admit it. They took out a bunch of loans, drilled a bunch of wells, expecting the price on a barrel of oil to be between 80 and $100. That simply hasn’t materialized. And so to keep the status quo of profit, they have to drill more wells and get more volume to market to try to make up that Delta in the price they were expecting.

Marty Bent (00:46:13):
And so now that you have this revenue stream in Bitcoin mining, that’s driven by completely different demand factors, that’s providing a service that’s manned 24/7/365, which is adding blocks to the Bitcoin blockchain. It just completely makes these oil and gas producers more resilient. They don’t have to depend on oil and gas only. They now have this other option that’s driven by completely different factors, allows them to take a step back, take a breather and be more efficient. And think about what they’re doing, is a bit more peace of mind.

Preston Pysh (00:46:44):
These commodity producers need a two-week difficulty adjustment and a four-year having in there a supply, right?

Marty Bent (00:46:51):
Last year proved this, right? You had the demand shock caused by the economic lockdowns and the Shell industry collapse in and of itself. And then the main futures contract go negative and the amount of mergers and acquisitions and bankruptcies that we’ve seen over the last 10 months, arguably due to a misallocation of capital and poor planning.

Preston Pysh (00:47:11):
I’m sure everyone’s dying to hear the answer on this one. It relates to the supply chain for the chip manufacturing. This is becoming a huge headline, just not for this space, but for automotives and you name it. My understanding is that these rigs or a year and a half, if you order a new rig right now, it’s a year and a half from delivery. What’s the impact of this? What are the real timelines that you guys are hearing? Just fill us in on all the inside scoop that you got.

Harry Sudock (00:47:41):
I think we’ve seen certainly during the Trump presidency and the relationship with China, that’s matured here. And now what we’re seeing, in a pre, during and post peak COVID environment is, I don’t think it’s that controversial right now to say that the most important company on the planet is TSMC. It’s got the most components and the most physical infrastructure across every sector, whether that’s an iPhone or a Ford F-150 or an AWS server, you name the critical piece of the American economy. It touches that company in a critical path type of way. The backdrop on this piece of the conversation, is that, the supply chain constraints are not limited to Bitcoin, exactly like you said. These are extremely broad constraints and the entire economy is feeling them. Very specifically in our industry, in Bitcoin mining. Again, you’re spot on. There are significantly delayed lead times. There’s significant price elasticity at this point in time for in stock units or for nearly in stock units.

Preston Pysh (00:48:45):
When you’re talking premiums, how much are you talking?

Marty Bent (00:48:48):
Price of hardware attracts the price of Bitcoin pretty close. The price of Bitcoin starts dropping, so does the price of the hardware.

Preston Pysh (00:48:55):
So since the summer, Bitcoin is up five X, the prices on these hardware rigs have gone up five X?

Marty Bent (00:49:02):
let’s put it this way, S9s, which are probably the oldest models running on the market right now, selling for $20 arch Of last year, in some cases. And now they’re selling for $250.

Preston Pysh (00:49:14):

Harry Sudock (00:49:15):
You got to think about it along a curve of convexity, where the S9s go from marginally negative to marginally positive, the first. And so with that first initial spike in Bitcoin price, they go from unprofitable to profitable, depending on your power costs. And so they receive the most upward vol in the curve. The other machines that have higher efficiency, they are profitable, longer and sooner. So they don’t get the same spike as early in the price action, but they do see that rising tide. You’ll see a more advanced unit go from $2,500 to $10,000. So maybe it’s only up three or 4X relative to 5X Bitcoin. So the S9 is up 10 plus X, a higher efficiency machine is up three to five X.

Preston Pysh (00:50:03):
I’m curious, you had said the S9, which is a very old rig. You said that the price today was around $250. If a person purchased that today, plugged it in and got into a mining pool, how much Bitcoin are they mining in a year’s timeframe for something like that? I’m just trying to get an ROI based on that price that that rig is selling for, just out of curiosity.

Marty Bent (00:50:26):
Using the same metrics of 500 MCFD, that would be like-

Preston Pysh (00:50:31):
I know it comes down to the energy cost, but the energy costs that you guys are getting with your methane operation.

Marty Bent (00:50:38):
I’m trying to think of how many S9 it would take to consume that much energy on top of my head.

Harry Sudock (00:50:43):
I can tell you that approximately 10 cents power, which is normal for New York city apartment, not so normal for any miner on the planet. It’s much higher. That’s about a one-year payback. That generates net of the electricity, about $265 a year.

Preston Pysh (00:51:02):
Wow. And then last year, when it was at $20, you would have probably still been… It was 20 bucks. 100% return on 20 bucks. I’m assuming you would you have even had it plugged in a year ago, based on the competition in the Bitcoin price, or would you would’ve had that rig turned off, at 10 cents?

Harry Sudock (00:51:20):
Not in a New York city apartment.

Preston Pysh (00:51:22):

Marty Bent (00:51:23):
So that’s like, theory is a lot of S9 sold, between March or April last year, Harry. And then they got moved to people with very low cost of power production. People with free power between, probably one and a half two cents.

Preston Pysh (00:51:37):
For me, it’s just beyond what a fascinating, to see that just naturally taking place in a free and open market where these rigs. I think at face value, you might think, well, now they’re just going to throw all these rigs away. That they manufactured from eight years ago, and that is not the case. These things are being repurposed, sold into areas that have no electrical costs, or it’s going to just pent up demand of energy, that’s just being burned off when the market runs again on the next cycle, that becomes a very profitable machine for somebody to run and it’s providing security to the network. And man, you can go on and on, it’s fascinating stuff.

Harry Sudock (00:52:13):
Transparently just for me and my career, this is what’s so exciting about it, is I get to be in one of the absolute hardest, most cutthroat, most flagrantly capitalistic environments you could possibly find. To me it’s this and trading desk. Those are the only things where you are, hip to hip and nice to nice, with the person on the other side of the trade. Except for us, it’s everybody else looking to start and run these businesses more efficiently and more cheaply at the power cost level and do better to integrate their supply chain and capture margin along other naturally occurring avenues. It’s such a game of inches, such a game of precision. It’s so exciting.

Marty Bent (00:52:53):
And to bring this back to the chip manufacturing too, it is pretty dire right now, where you have these foundries, four major ones, two of which TSMC Taiwan and Samsung, South Korea are two producing ASIC chips that it made and micro PT, which produces the what miners are using in their devices. But with that being said, both companies are looking to build foundries on US soil, which is a huge development. People are really stressed out about it now, but I’m actually extremely bullish on the diversity of the semiconductor industry into the future in the next decade. Samsung just announced, I believe they’re filing for permits for a fab in Austin, Texas that would be completed in 2023, which is actually quicker than I would ever imagine. TSMC is going to break land in Arizona later this year.

Preston Pysh (00:53:41):
This is the question I got for you. Why are so many oil and gas companies and maybe they are, maybe it’s just my perception that they aren’t, why aren’t they seeing this? This seems like such a no-brainer.

Marty Bent (00:53:54):
They’re starting to. They’re old dogs. It’s hard to teach them new tricks, but we’re working hard at Great American Mining and other companies like Upstream Data and Crusoe, are also doing a good job at helping to educate the producers in the oil and gas industry. They’re coming around. They’re in such a position where they’re backed into quarter as an industry, both from a profitability standpoint and from a PR standpoint, with everybody worried about the climate that they need to put a very strong foot forward on both fronts to be more profitable and show the public that they’re looking to eliminate waste and be more efficient with the fossil fuels they’re pulling out of the ground.

Preston Pysh (00:54:28):
What’s something that either one of you guys have heard or seen lately, particularly in this space that has just blown your hair back, like, Oh my God, I can’t believe where this is going to go, or this thing that’s going to materialize out of what I just saw?

Marty Bent (00:54:45):
I think Ross Stevens interview with Michael Saylor actually surprising to hear him articulate a theory that I’ve had and many of us at Great American Mining have had for some time now, which is that Bitcoin mining operations are going to be the impetus for new hubs to be built, areas where stranded energy exists. Some Bitcoin miners going to be placing a flag down on new territory and attracting people and communities to come build cities and small towns around these mining operations. That’s something I actually believe is going to happen. And the opportunity is so incredible. When you think about the effects it will have on how that distributes society, it’s pretty insane to think about in place for real.

Harry Sudock (00:55:30):
Transparently, I totally agree with you, Marty. What we work on at grid infrastructure is basically, we take the inefficiencies that are out there in the grid and we unlock them via Bitcoin mining. That’s exactly what Ross was talking about. This is why we try to get adjacent to renewable providers who are either in distress markets or they’re working with an overproduction or under consumption of the asset that they’ve built. We think about this, really in terms of additionality, where this is not how, the way to get people to develop 50 year energy assets is not by offering them a bunch of renewable energy credits. It just isn’t. The way to convince people to invest in the massive amount of energy infrastructure that’s needed, is to provide them a robust and thriving market solution.

Harry Sudock (00:56:18):
We believe that Bitcoin mining represents the best way to bootstrap energy additionality, especially through renewables, because it’s really tough to convince people to invest in transmission, but it’s a lot easier to get people to invest in the generation itself. So if you remove the need for the complexity and the size of the transmission, then you’re able to justify an entirely different suite of projects, oftentimes that have better unit economics than previously thought.

Preston Pysh (00:56:46):
The last thing I want to cover, and it’s really doesn’t relate to mining. This is more on the full node, front and lightning. I’m curious to hear some of your thoughts on how you see the lightning network growing, what that incentive structure is. I suspect it has a lot to do with immediate clearing and the demand for that moving forward. But I want to hear your thoughts on what you think is going to drive more and more people to use the lightning network. And then, what are your thoughts also on the rates of plugging your Bitcoin into the lightning network, opening a channel on the lightning network via your full node and collecting fees on that? How do you guys see that playing out, moving forward?

Marty Bent (00:57:28):
I’m extremely bullish on the lightning network myself. I use it every day. That’s my own podcast. We hook up our website, and our operations even, to the lightning network. We use an app called, Sphinx Chat, where the app picks up our podcasts via our RSS feed. And we’ve actually plugged a lightning network public node into our RSS feed. And so the app automatically picks that up. And anybody that listens to tales from the crypt on Sphinx Chat and they have a lightning well built into the app. And as they listened to my podcast, they stream me sets every minute. So depending on how much they want to stream me, individuals do anything from one set to 100 sets. Let’s use the example of 10 sets per minute, or right now it’s five tenths of a penny. So that micro transaction is possible on the lightning network.

Marty Bent (00:58:16):
That use case alone really gets my mind going where you can fit this in across the internet. And so I think the lightning network, like you said, is going to be used for clearing and remittance and moving money around the world, around the globe instantly. But beyond that, I think the lightning network specifically Bitcoin did this, but I think the lightning network does it better. It solves a hole in the internet stack that’s been there since the beginning. You know how you have 404 error when you don’t get a webpage serve to you from a server. There’s also a 402 error, which is a payments error. And so when they architect of the internet designed it from the beginning, they always thought there would be native payments layer built in, and that’s evidenced by the 402 error, which says, hey payment, then it goes through.

Marty Bent (00:58:58):
Not until we had Bitcoin, and I think more specifically the lightening network with technologies like LSAT, that Lightning Labs is working on, could you actually plug this payments layer into the internet? Beyond clearing from a financial perspective, clearing or remittances and inner bank transactions, I think this gets applied to the internet and used as a quasi communications network via the internet as well, the potential for the lightning network is massive. In terms of running your own node and being a profitable routing node. I think that’s going to be a business. It’s not something that you’re just going to be able to do willy nilly and not put any effort into it.

Marty Bent (00:59:35):
It’s going to take a lot of effort and already does, but I think things like a lightning pool, which allow you to lend your Bitcoin, that you don’t want to spend, two lightning channels and get paid a fee for that, essentially creating a yield for Bitcoin. You would not otherwise spend, but doing it so, where it’s in the lightened channel and you actually have partial custody of that the whole way through. I think that’s also going to be massive for individuals to get yield on their Bitcoin without having to run a routing node, per se.

Preston Pysh (01:00:05):
What’s the yield, if say you would plug in one Bitcoin into a channel on lightning today in this pool, what would you get on an annualized yield for doing something like that? Would you estimate, Marty?

Marty Bent (01:00:18):
Right now it’s a pretty illiquid market, because it’s all being handled without a gooey, it’s all being handled at the command line level with these different lightning network implementations, specifically L&D. But once you get a gooey and you’re able to have a better market develop, I wouldn’t be surprised you see anywhere from eight to 15%, depending on demand on the lightning network at any given point in time. I think early books are showing around that level right now.

Preston Pysh (01:00:46):
That’s totally nuts. You don’t run into the lender borrower type issues too because you’re just plugging in your channel. I guess you would just change the fee in order to get all your coins back out of the channel again. Is that how that would work?

Marty Bent (01:01:00):
Yeah, that fee is predetermined. I believe too. Rewrite that into the transaction, but yeah, it’s like any lighting channel. It’s a two multisig, with your counterparty you hold one key and they can never run away with your Bitcoin. The worst they can do is tie it up. And if you have watchtowers watching your channel and they try to steal it, they get punished. The worst that can happen at scale, when this is all flashed out, is that you need to wait a little bit to get your Bitcoin back to the address that you want to send to. And you’ll never lose your Bitcoin completely, I don’t think. That counterparty risk is significantly reduced.

Preston Pysh (01:01:34):
Talk to us about the streaming part, because I’m trying to understand the use case. I know you just described it with people streaming you SATs, but that’s just out of their own Goodwill, to stream it. Talk to us about how you could see a free and open market of streaming taking place of people receiving SATs over lightning.

Marty Bent (01:01:54):
It’s pay per minute, right? You pay for exactly what you consume and become more efficient. If you, say somebody spends $15 a month on a Netflix subscription, but they only ever watch one show. Arguably they’re wasting money. Imagine being able to watch that one show and just stream the amount of value that that show provided for you and nothing over that. That’s the efficiencies this streaming use case can provide specifically.

Preston Pysh (01:02:19):
What if they listen to it on 2X?

Marty Bent (01:02:22):
It’s the minutes

Harry Sudock (01:02:23):
We need to appreciate just how poorly served the financial use cases of the internet are. Why on earth is Stripe a $35 billion business? That things getting marked up to 100, $150 billion before it ever touched the public market. If Stripe is worth all that, and you just saw Plaid pull out of the deal with Visa, they’re going to now go public, double digits of billions of dollars. These are not complex ideas. They’re basically like, how can I tell different services, my information and how can I interact with a service? These are things that it should not have taken the internet 40 years to start to figure out. It’s a massive under-serving of the commerce use cases and the financial use cases at the internet, that lightning is immediately an order of magnitude improvement, the same way that Bitcoin is an order of magnitude improvement on the hardness of money and the store of value over time.

Harry Sudock (01:03:19):
And so what you get to see when you have a technology-enabled level up, is that the total addressable market for what users actually want to do, turns out it was way bigger than we thought originally. And so we saw this very, very obviously with Uber recently, if you told me in 1995 or 1998, how often I’m going to use a car service, I would tell you, two times a year, to the airport and from the airport, when I go visit my grandparents in Florida. That’s it. That’s the use case for car services. I’ll never use it anymore. What it turned out was, I actually wanted a car service all the time. I just wanted to be way cheaper, way easier to book, way lower friction on the payment side. And so it took a tech-enabled layer to sit on top of an existing service to make it actually start to achieve a discovery of the addressable market and the demand structure for it.

Harry Sudock (01:04:12):
Lightning is going to do the same thing across dozens and dozens of internet commerce functionality, because we’re already seeing the type of premium that’s being paid for fintechs. I still think that fintechs are in inning one or two. And that lightning is how we get out of the bottom of the second and start to figure out that we actually have so much creative white space on the commerce internet, that is just untouched, because we were trying to paint on a canvas with a cudgel.

Preston Pysh (01:04:40):
Marty, I see you shaking your head. It looks like you completely agree.

Marty Bent (01:04:44):
It’s insane, right? The incentive structures that you can set up, so you can prevent spamming. You make it costly, but very cheap, but still costly. The Sphinx Chat that I was mentioning earlier, not only can individuals streaming stats as they listen to my podcast, but chat app as well. I can chat with my listeners and the chat app runs on the lightning network. When you’re chat, you’re literally sending a message via lightning network for one set. You’re just sending one set messages between each other. If you want to create a social network that doesn’t have the Twitter bots, when you send your tweet out today, I noticed a bunch of Twitter bots. Imagine if you had a social network that said, hey, if you want to reply to this tweet, you have to pay two sets or whatever, very cheap for the individual at scale for these bots, it gets costly. And so you disincentivize that type of activity right off the bat.

Preston Pysh (01:05:33):
My Lord, I think we leave it. This has been just an incredibly, just dense conversation. I have enjoyed the hell out of this. I think it’s my engineering roots to hear what you guys are solving on the energy side and how it’s just creating these incentive structures, is just insane, it’s mind blowing. I guess the thing that you see so many policymakers trying to get to, how can we save the planet with the way that we’re creating incentives for clean and renewable energy? My God, this is the biggest incentive structure you could ever imagine to unlock some of these innovations and discoveries, in this space. It’s just so exciting. Guys, give folks a hand off where they can learn more about you and thank you so much for coming on and having this conversation. This was so much fun.

Marty Bent (01:06:24):
You can find me on Twitter. That’s where I hang out mostly, @MartyBent. Great American Mining. You can find us at That’s our website. Check out our guests, the hash calculator. We have a blog up. It’s only got one blog, but we’re writing more content. Don’t worry. You can find out why we believe there’s a budding symbiotic relationship between Bitcoin miners in the oil and gas industry. And then you can find out information about podcast and newsletter, Tales from the Crypt Marty Bent on my Twitter as well.

Harry Sudock (01:06:53):
You can find me @Harry_Sudock, on Twitter. That’s easy to find me. I spend a lot of my time mining Bitcoin with grid infrastructure or hiring. So DM me.

Marty Bent (01:07:05):[crosstalk 01:07:05] is going to blow up, bro.

Preston Pysh (01:07:07):
We’ll have that in the show notes for both of those links and Harry. Yup. I think you’re going to have a bunch of people contact you. Guys, thank you, tremendously. This was so much fun. Thank you very much.

Marty Bent (01:07:19):
Thank you, Preston pleasure is all mine.

Harry Sudock (01:07:23):
Thank you.

Preston Pysh (01:07:23):
Hey, thanks for everybody listening into the show. If you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you’re using. We really appreciate that. And if you have time, leave us a review. Thanks for joining us this week and we’ll catch you next Wednesday.

Outro (01:07:37):
Thank you for listening to TIP. To access our show notes, courses, or forums. Go to This show is for entertainment purposes only, before making any decisions consult a professional. This show is copyrighted by the Investor’s Podcast Network, written permissions must be granted before syndication or rebroadcasting.


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