WBD361 Audio Transcription
The Truth About Bitcoin's Energy with Harry Sudock
Interview date: Wednesday 16th June
Note: the following is a transcription of my interview with Harry Sudock. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
To address this FUD, I talk to Harry Sudock, the Vice President of Strategy at Griid. We discuss the energy consumption of Bitcoin mining, energy generation & the power grid and the case for renewable energy.
“The whole energy argument...it doesn’t take into account the physics and engineering of how the energy is produced, and it doesn’t take into account the economic reality that we are always seeking out lower cost power.”
— Harry Sudock
Interview Transcription
Peter McCormack: What's up, Harry?
Harry Sudock: How are you, Peter?
Peter McCormack: This is long overdue.
Harry Sudock: I know.
Peter McCormack: When was it we first met?
Harry Sudock: So, we first met in New York at some event, it was some Consensus side event.
Peter McCormack: Was it MCC?
Harry Sudock: It was that week.
Peter McCormack: That week, yeah.
Harry Sudock: But it wasn't that. I forget.
Peter McCormack: So, that was 2019? I thought we met in 2018.
Harry Sudock: We might have met in 2018.
Peter McCormack: Yeah. Well, this is well overdue, dude.
Harry Sudock: I appreciate you having me. This is the perfect comedown from the last five days of just mainlining Bitcoin everything.
Peter McCormack: This is going to be croakiest, most deep-voiced podcast I've done; you and your cigars and the drinking. Honestly, I'm losing my voice, dude. But, listen, the timing's great. As we know, you're responsible for the end of the earth; you are burning the planet and boiling the oceans, and it's time for you to apologise for your sins.
Harry Sudock: I'm always on the hook for some good repenting. Thankfully, we don't think that the facts bear that out, but we live in a post-fact world so guilty as charged!
Peter McCormack: Dude, I don't know anyone who gets as much shit as miners; maybe Hamas.
Harry Sudock: Yeah, and I think that it's not just the shit quantity, it's also the broad and mainstream digestible nature of the critique. So, it's not just that, "Bitcoin, bad", it's that there are constituencies well outside of Bitcoin or Bitcoin-adjacent people who find this as the topic for them to get to weigh in. This is their moment in the sun to come in and try to dunk on Bitcoin. It's not about terrorism or money laundering anymore; it's, "The mining is bad, it's boiling the oceans, it's bad for people, it's bad for society" and we need to stamp out these rats.
Peter McCormack: They're fucking lazy, let's be honest. These journalists, they're fucking lazy.
Harry Sudock: I'm not willing to critique their work ethic, but what I am willing to do is say that they have terrible incentives.
Peter McCormack: Well, I am! I think they're fucking -- look, the information's out there, there's plenty of information out there if you do the research. I do think the topic's worthy of discussing. I'm not a climate change denier; some people would say that is insulting to call people deniers, but I personally believe we do have a climate issue and I think it's worthy of discussion. But, at the same time, we need to be fair and balanced.
It was cool because we were at Beefsteak the other night with a senator, as you said, eating meat with our hands with a senator, and we had a conversation about it; what was most fascinating about that conversation is, actually, and what I want to cover today mainly, was you explaining how the energy sector worked because I've got no idea, especially in the US. So, that's where I really want to start. But, let's just tee it up, explain to people who you are, what company you work for, what you do so we understand your credentials.
Harry Sudock: I appreciate it. So, I'm Harry. I'm the VP of Strategy for Griid Infrastructure, which is an American-based industrial-scale Bitcoin mining operation. We've developed a fully vertically integrated portfolio of mining ops right here in the beautiful US, and what we believe is that mining Bitcoin is an incredibly exciting and powerful business to engage in, both as an economic actor, but also because of the things that it can bring to the table for a community and for the world.
What we've done to date is we've spun up several of these. We've got a pipeline of opportunity in front of us that we're in the midst of executing on that's going to bring that well into the double-digit numbers of sites. We've assembled a team of, in my opinion, the best operators in the world. There are a lot of people out there who are building businesses these days in the Bitcoin industry, and what's been so exciting about this cycle has been the folks who have said their traditional industry is not as exciting as bringing their skillset to Bitcoin. We definitely feel like we're the beneficiary of similar forces.
So, our Director of Operations ran IT for an Air Force base, our VP of Energy Procurement spent 30 years at a utility and 10 years at a university before that, so these are deeply credentialed people in totally other areas. So, what that's let us bring to the table is that we're in pursuit of true vertical integration for mining, which means having the leading opportunity to understand energy and energy markets because that's the key input, having deep Bitcoin expertise which I try to bring to the table as best I can, but having other skillsets like network engineering; electrical engineering; a really strong recruiting in HR function; bringing blue-collar jobs to the high technology world.
These are the things that mining is all about which doesn't get the kind of coverage that a boiling-the-oceans type of story will. But when a community is zoned to have a new hospital built there, and this is an anecdote that we're in the midst of working through right now, they were zoned to have a new hospital get built in their area; there are 17,000 energy customers, house to house, in that utility's jurisdiction; they're going to bring a hospital that's going to double the amount of energy that that region pulls down.
We can all agree that a hospital, very worthy use of electricity; no argument there. They rebuild the transmission lines, and we're going to get into defining what all these things are; the rebuild the transmission lines, they build a new substation that's bigger that can handle the additional load and, after they finish doing all of that, the hospital project falls apart. So, they're left having invested millions of dollars in this area to have this large customer to attract.
They now have to pass that cost back to those 17,000 households unless they can find another use for that energy. So, what do they do? They called our VP of Energy Management. They said, "We've got an overbuilt supply here. If we do not bring in a largescale energy customer, these costs are going to get passed back to households that definitely do not have the budget to support rising energy prices". So, we have this beautiful opportunity to come in, backstop this utility, provide a customer to come in on the back of this deal falling apart, and provide the backbone for this community and to continue to stabilise their energy prices for a decade to come.
So, these are the stories about Bitcoin mining that don't get to rise to the surface. It also so happens that that energy mix is over 60% carbon free, but that's also maybe beside the point, and we'll get in to why that is and how this works. But the idea that industrial scale energy consumption isn't a fundamentally valuable thing for communities and for the world, it's just a misnomer; it just doesn't take into account what's actually happening from a boots on the ground perspective, which is what I'm so excited to dig into with you.
Peter McCormack: Okay. I actually want to ask something on that. So, you said a hospital has been zoned, explain to me what was being built and the infrastructure there.
Harry Sudock: Totally. So, I actually want to take a couple of clicks out and just talk about how energy works.
Peter McCormack: What I was thinking is, "Well, can't they just not use that excess energy?"
Harry Sudock: So, this is the problem is that we're living in the world of atoms, not the world of bits. So, to build a hospital you need to have a tremendous amount of energy available, so things like an MRI machine or an operating room or all of the functions that happen within the four walls of a hospital that provide lifesaving care; those are all extremely energy intensive.
So, if you're going to build a hospital, you need to have the energy to power that hospital in a stable and reliable fashion available in relatively close proximity. So, that means that, when you think of how the energy system is designed, there's an energy generation point; call that just a big turbine that spins, forget how it spins. Then, it spits out electrons, those electrons get transported at a very, very high voltage to try to minimise the amount of loss that happens, and then they get dropped down to what's called a substation, and the substation transforms those electrons into a consumable voltage. So, those consumable electrons then get transmitted to the "last mile" to the hospital.
So, imagine that you want to add another, and I'm going to use words like "megawatts" here, so ten megawatts is like a big hospital campus; they want to zone in another ten megawatts to that region. That means potentially, and in this case actually, upgrading the transmission lines. So, moving the energy from the power plant to the substation, you need more capacity.
Using the substation to step down that additional capacity, you need another transformer. Then, when you want to bring it out to the last mile, you need to zone all of that other constituent energy transmission to be able to handle the additional capacity that's all been brought through.
So that means three years of construction and development; that means $5 million to $15 million of investment. For a community of 17,000, it's not a big tax space, it's not a big robust metropolitan area, it's a beautiful slice of Heaven as far as I'm concerned, but it's hard to attract a project of that size and execute on it without taking significant financial risk to the community, which is what the utility did.
Peter McCormack: I don't understand, by the way, about how any of this works! So, once the power's been sent, can the substation store a certain amount or is there just waste?
Harry Sudock: It is.
Peter McCormack: Is there like a constant stream and it's going to houses?
Harry Sudock: Yes.
Peter McCormack: It's like a river.
Harry Sudock: It is a use it or lose it flow.
Peter McCormack: Right, okay. So, if there's excess, how is it lost?
Harry Sudock: Yeah, so there's a difference between the load being zoned and developed and it being consumed. So, the way that this works from the utility's perspective is they think they have a clear enough line of sight on a customer. That customer's going to produce margin, profit margin for 5, 10, 15, 25 years. Those profit margins are then present valued to justify the investment in developing higher throughput infrastructure.
So, imagine you are in a house and the house has one bathroom and the pipes that come from the watermain are big enough to power one bathtub, one sink, one toilet. Then, you do an addition on your house and you build another two bathrooms in the addition. The water is not sufficient to get to all three of those bathrooms and run all the functions, so what do you do? You have to build a bigger interconnection in between the watermain and the house.
What happened in this case is that the upgrade to the watermain, to the transmission to the watermain was done before the addition was completed; they woke up and there was no customer there to finish the job.
Peter McCormack: So, the use it or lose it, we have a town of 17,000 people, let's say it's 10 megawatts, I don't know what they would require. So, do they have to plan for slightly excess usage knowing there's wastage?
Harry Sudock: Yeah. So, this is another fundamental truth about how the energy system works; you have to overbuild it. It is a requirement to build more than you ever think will be consumed. So, were you aware of the polar vortex that happened a few years ago?
Peter McCormack: Yes, of course, across the whole of the US.
Harry Sudock: Exactly.
Peter McCormack: It was like that film.
Harry Sudock: The Day After Tomorrow.
Peter McCormack: It's coming!
Harry Sudock: Unbelievable extreme weather conditions. So, the energy systems need to be built to accommodate that and to be able to heat the homes and provide all of the normal traditional level of function in that extreme condition all the time. So, there's a gap in between what the system is engineered for, which is good; you want to overengineer this because energy, fundamentally, is a very valuable thing when you think about it in terms of quality of life.
So, you want to engineer it so that in the extreme cases you don't lose access to it, because things like grandma's heater or the stove, the core functions of life require energy density if you want to live in an advanced society; you have to build the system to account for the extreme case. What that means is that, on an ongoing basis, there's a big gap in between what the system is built for and what normal consumption looks like.
So, there's traditionally been that gap, so if you hear terms like "spinning reserves", which means, let's say we've seen extreme conditions in Texas recently, we've seen rolling blackouts over the last number of years in California, those are the reasons why you need to overbuild energy production, transmission and delivery, is because you've got to account for the worst scenarios, but you can't do so on a flexible basis; you've got to plan for it from the beginning and build it that way.
But, to go back to the use it or lose it point, the choice risk, until recently, really until Bitcoin mining, has been lose it. "Let's overbuild it, we're going to bake in some kind of waste variable and we'll all tolerate that and that'll be part of the cost passed back to customers".
Peter McCormack: We'll come back to that because that's a really interesting point. A couple of things I just want to understand. So, for example, my house, when I turn on the light, am I suddenly opening up and accepting power or is there a constant power being sent to me and, if I'm not using it, that's where the loss is?
Harry Sudock: It's an interesting way to think of the question.
Peter McCormack: What I'm trying to understand is, it sounds to me just like the whole infrastructure is a network of rivers and streams, and I'm wondering where the loss happens. You say there's 30% waste, where is that 30%; how is it being lost?
Harry Sudock: Correct, and the answer is, with all things like this, it's actually complex. There are a few places that happens.
Peter McCormack: Okay.
Harry Sudock: So, in our model of power plant transmission delivery, there's a lot of loss that happens over distance. So, when you move energy over a long enough distance, you lose some of it. So, an easy way to make a grid more efficient is to move the consumption closer to the generation. That's one piece of it.
The other piece is that, you're exactly right, there is this constant delivery and availability to you. There's some loss there as well. The thing I would challenge is are you defining loss as it not being used, whereas I would say that I don’t think any of it is lost because you always have it available to you.
Peter McCormack: Yeah, it's not being used so it -- I don't know how this works. Does it just disappear into the clouds? How does it happen?
Harry Sudock: The electrons will dissipate over time and distance.
Peter McCormack: Okay. So, we can come to the excess part because we can utilise the excess energy, and that’s a good argument for Bitcoin; wherever it's being lost, if you can have a mine, you can utilise that excess energy, great. At the same time, there are mining companies who are just tapping into the grid, not using the excess; we'll cover that as well. But I want to understand a bit more about the infrastructure before we get into the mining side of things.
Can you explain to me how the grid itself works? Is there one central starting point; are there multiple? How is that energy generated; how's it pushed into the grid? Explain to me what that does.
Harry Sudock: Totally. So, the grid is an incredibly balkanised thing. It is very, very segmented.
Peter McCormack: By the way, is that going to be different in the US to the UK because you have the state system and each state is responsible itself, or do you have a national, because we have a national grid?
Harry Sudock: Yeah, the answer is that the physics and the design are very similar. The segmenting and the market structure and the delivery structure's a little different. Let's use the US just as a starting point because I'm more familiar with it. But the way that it works here is that there are a number of different marketplaces that are collaged, patchworked together.
So, ERCOT is in the news all the time right now; that's the Texas grid, and that's a deregulated market. There are other merchant markets; there are other ones that are fully regulated markets, that are federal utilities or state utilities that drive the market dynamic, which is a patchwork. There's also interconnection in between markets. So, when you sign a contract with a utility, that utility has an obligation to provide you the power. Let's say that the utility can't generate its own power to give to you, that doesn't make the obligation go away; that's when they have to engage with their interconnection agreements that they have with other markets.
So, California, great example of this. Right now, California imports a tremendous amount of their power. Why? Because they can't make good on their commitment, their contractual commitments to deliver that power from sources that they are generating that are natively generating in their grid. So, what they're forced to do is import it.
Peter McCormack: Are they importing from Washington, Utah, Arizona?
Harry Sudock: Exactly.
Peter McCormack: Next door states. How far out can they import it? Can it travel coast to coast?
Harry Sudock: You can move energy about 500 miles.
Peter McCormack: 500 miles?
Harry Sudock: About.
Peter McCormack: Okay, so border states.
Harry Sudock: Yeah. You're not pulling anything from New York or Florida over to California. You're really looking at that adjacent line of states, and you're seeing really significant power imports. We're going to get into why the types of energy generation drive those import behaviours, because it's actually really important, because not all energy is generated the same way by the same types of sources.
So, now we know that there's a patchwork of energy markets that are responsible for delivery and have these two-sided agreements: one side of the agreements are with each other to buy and sell in between the markets; the other one is with their constitutes where they have agreements to sell power to the people who live there. Some of those are monopolies, some of those are open markets. So, you see a big range of those market types, but the way that energy is generated, transmitted and delivered is all the same structurally.
Peter McCormack: Okay. So, California, let's use that as an example, will they have a single central starting point for energy and that distributes across the state?
Harry Sudock: Again, it's a patchwork.
Peter McCormack: Wow. Okay.
Harry Sudock: So, it is a network of nodes and spokes basically.
Peter McCormack: Okay, and across the country there are energy creators? What would you call them, generators?
Harry Sudock: I would call those energy generation.
Peter McCormack: Are they all private or there is there state?
Harry Sudock: Total mix.
Peter McCormack: Okay. So, we have renewables, we have coal, we have nuclear, solar within the renewables. Okay, so wind, hydro, solar under renewable, we have coal. Do we have gas?
Harry Sudock: Natural gas.
Peter McCormack: Natural gas, nuclear, anything else?
Harry Sudock: There's a little bit of biomass that happens. That falls under renewables. There's wind. Did you say wind?
Peter McCormack: Yeah.
Harry Sudock: Then there's dual thermal, but we don't do a lot of that here.
Peter McCormack: Okay. Let's start with private companies. They can go out and generate energy and they sell that into the grid.
Harry Sudock: Yes.
Peter McCormack: So, if I was a, I don't know, private energy generator, say I'd built a wind farm, I go to the grid to sell it to them; how does that work?
Harry Sudock: Yeah, so that's where you have to start interacting with energy markets. It's a very American way of doing things where it depends on where you are, depends on how you do it, depends on the rules. So, if you wanted to go and build a wind farm in Texas, ERCOT is pretty accommodating for net new development. The rules are pretty transparent and easy to opt into.
Peter McCormack: Sorry, remind me who ERCOT are?
Harry Sudock: ERCOT is the Texas grid entity.
Peter McCormack: Okay.
Harry Sudock: So, developing something in Texas is pretty easy and, granted, I haven't done it so I can't tell you exactly how easy it is, but, from the way that the rules are laid out, it's easier to develop net new generation in Texas than it is in, let's say, I don't know, Maine. Different market, you've got to check the right boxes.
Energy is very regulated and, to be a federal energy generator, you need to get licensed, you need to go through federal approval processes. There's a lot of red tape and bureaucracy around that. So, it's not as simple as like, "Hey, I'm going to start a start-up that generates energy".
Peter McCormack: Okay, I understand. So, I apply, I get out my licence, find the land, I build my wind farm, I suddenly have this supply of energy, how do I sell it?
Harry Sudock: There are a few methods depending on the market that you're in. You can sell into an open market. So, some of these are just -- there's a day ahead or an hour ahead price for the energy that people are bidding on. There's lots of trading infrastructure around this. So, people at a Goldman Sachs energy desk are bidding on your energy and so it's your job to deliver the commodity that they've bid on. So, there's a very open market, liquid marketplace for actual physical energy.
Peter McCormack: But I only want to be selling it to somewhere within 500 miles, of course.
Harry Sudock: They understand that. What they're doing is they're brokering in between you and someone within that radius who ends up on the other side of that energy trade.
Peter McCormack: Who is on the other side?
Harry Sudock: Maybe it's an auto manufacturer; maybe it's somebody who has an agreement with that energy market to buy power.
Peter McCormack: So, I, as an individual customer of the house, I don't have to because the supplier --
Harry Sudock: You end up getting bundled.
Peter McCormack: Yeah. But, if I'm Tesla with my Gigafactory in Austin, I have to go and buy that energy.
Harry Sudock: It is significantly advantageous for you to buy the energy in that way.
Peter McCormack: Because you'll get a cheaper rate.
Harry Sudock: You'll get a cheaper price.
Peter McCormack: Right, okay, fine. So, that's me doing that. So, everybody I sell my energy to is a supplier to somebody else?
Harry Sudock: Or you're going direct, which is the other option. So, the other way to sell energy is what's called a PPA, Power Purchase Agreement, and there are all sorts of these types of contracts, but an easy one is Harry mining and Pete generating energy are going to get into a bilateral agreement by which you agree to deliver the energy to me, I agree to buy it over a certain number of years at a certain price.
Peter McCormack: Okay. So, in that relationship, what about the actual transfer of the energy? Say if I'm in Dallas and you're in Austin and I'm generating my energy, you've agreed to buy it in Austin; how does my energy get from my wind farm to your factory? It must go into somewhere.
Harry Sudock: Yeah, and that's when we talk about this idea of transmission. Your job as the energy producer is to step up the voltage, push the electrons into a transmission line. My job is to step the electrons down and pull it into a consumption level of voltage. We end up paying fees which are, in ERCOT in Texas, there are tariffs which those tariffs go towards the funding of that transmission infrastructure.
Peter McCormack: Fine, but does it go into a grid and then gets into you, or could I be building a direct line to you?
Harry Sudock: You could build a direct line to me. That is a significant engineering undertaking.
Peter McCormack: I might as well use the infrastructure that's already there?
Harry Sudock: Yeah.
Peter McCormack: So, who owns that bit of infrastructure?
Harry Sudock: So, ERCOT is the consortium that owns that.
Peter McCormack: So, do I, as the energy supplier, have to pay them a rate?
Harry Sudock: They will have an economic participation in what you make and me, as the payer, I will also be paying into what they do as well.
Peter McCormack: Okay, fine. So, then what becomes interesting is the energy mix, because let's say myself as a miner, forget the excess energy for now, just say I want to spin up a mining operation in Austin, I can either go to you and buy it directly or I can buy it from another supplier, whatever. But I'm just buying in the free market the same as somebody who gets bundled as a retail customer, the same as Elon Musk for his factory, the same as Apple for their headquarters. I'm just going into the market and buying it.
Why are miners expected to buy energy in a different way, because nobody is looking at these car plants and saying, "What's your energy mix, etc?"
Harry Sudock: Yeah, so it's a pretty challenging double standard, honestly. I think that the environmentalist in the room would say to you, "Oh well, they are saying that to everyone. Everybody's pushing to get a greener energy mix or a more renewable focused energy mix". Where I think the difference is that miners are being expected to do that today, everyone else has some leeway and some targets and are working towards doing it over a more reasonable transition timeframe.
Peter McCormack: Actually, let me put it a different way. How many different mining locations have you got?
Harry Sudock: Three.
Peter McCormack: All in the same state?
Harry Sudock: No.
Peter McCormack: Can you say which states?
Harry Sudock: I can't.
Peter McCormack: Okay. So that’s confidential information, that's fine. Can you talk about how you guys buy energy?
Harry Sudock: Absolutely.
Peter McCormack: Talk to me about that.
Harry Sudock: So, we buy energy as aggressively based on price as we possibly can. So, when you think of a mining operation, something between 80% and 90% of our monthly expenses is power. That means that if we're able to source lower-cost energy, we're massively incentivised to do so.
What that has meant is that we have spent the last three years scouring the planet for low-cost energy. We have explored a lot of different deal types, a lot of different structures; we've landed on a few of them. Some of them are utility fed, some of them that I'm more excited about are co-located with energy generation.
So, the third thing that we didn't talk about in how you actually buy energy is just go build your Bitcoin mine on the same plot of land that the hydro dam is or that the wind farm is and, rather than ever stepping that voltage up to the transmission level, take it directly.
Peter McCormack: I guess there's a situation where, if somebody's generating energy, they might not have sold it all, but they're still generating it. Can they reduce down how much they generate?
Harry Sudock: They can curtail, yes. It's not the position you ever want to be in as the energy generator. So, let's use a wind turbine as a really easy example. The turbine goes around once, generates ten electrons, using total hypotheticals. The market in some regions is negative, so what they'll choose to do is just not to send the energy anywhere. It dissipates.
So, if they're able to strike a deal with another bidder on that energy who can tolerate some intermittent consumption, can use it some of the time, not the other part of the time, that's a really valuable customer to be able to bring to a market that isn't necessarily able to support the energy generation on a broader basis.
So, I think Bitcoin miners are special and are a huge technological upgrade from the traditional consumers of electricity. We have two, I think of as energy superpowers: the first one is that energy is, like I said, 80%, 90% of our monthly costs; the second is that we can consume on an intermittent basis without harming our business model particularly. So, if someone tells me I need you to shut off your miners 100 hours a year, or 500 hours a year, we don't say no, we just say, "We need to reflect that in the energy price we pay".
So, when I'm looking to negotiate a power contract, the way that I frame this is, "I need you to get me the lowest possible cost that you know how to offer. I'm willing to negotiate on every other part of the profile of the load. How big are we going to build the mine; how often do you need that power back; do you need us to serve any other creative purpose within your energy mix or system; do you need us to split our facility into two and to go locate at two different points within place? Great. Do we need to be able to contribute to the security budget of these other pieces of the operation?"
Our job is to drive that energy price as low and competitive as possible and work with producers on every other variable.
Peter McCormack: So, who are you negotiating with for energy; are you buying from the market; are you buying direct; are you going to tell me it's a mix again, as ever?
Harry Sudock: The problem is that we live in an "all of the above" business, so we do deals directly with energy generation companies, portfolios, who own energy generation assets. We do direct deals with them. We buy directly from the grid in a defined PPA, so a non-market rate, but just a direct bilateral agreement, and we're exploring open market energy bidding options as well now.
Peter McCormack: So, some of your energy's coming straight from a supplier and it's probably a single source?
Harry Sudock: Single source.
Peter McCormack: Then, sometimes you're buying from the grid and that's going to be a mix?
Harry Sudock: Yes.
Peter McCormack: You don't get to dictate that mix; you're just buying the best price possible?
Harry Sudock: Exactly.
Peter McCormack: But, say if there was a coal-powered, what would you call it, a generator --
Harry Sudock: Yeah, a coal plant.
Peter McCormack: -- coal plant, and you could buy directly from them when it was the lowest possible, do you guys hold ethical concerns about that?
Harry Sudock: I think the line between ethical and business continues to get blurrier in this strange world of ours. We believe that we can build the dominant leading Bitcoin mining operation and portfolio of operations without having to do a deal like that.
Peter McCormack: So, the only time you're really buying energy that comes from coal plants is because you're buying from the grid and they get part of their source from them?
Harry Sudock: Exactly. Let me put a finer point on it too that, when we do a bilateral deal with an energy generator, those deals have been 100% renewable. Those are where we found the opportunity. We believe that there's a responsibility to be good corporate citizens. We think that the environmental conversation is one that's just beginning and we want to be part of the solution, not part of the challenge or the friction.
So, we have an internal belief that being aligned with carbon-free power is a positive for Bitcoin and for Griid, to us. The other part of it for us is that we think that there is such a massive amount of opportunity in the carbon-free space that we don't have to compromise on the other stuff.
Peter McCormack: What's the general scale on pricing for energy generation, the cheapest and most expensive? I know it's going to change dependant on where you are, the size of the plant, whatever, and investment, but generally speaking, your experience, what is the cheapest? Is coal the cheapest and that's why it still exists?
Harry Sudock: No, I think hydro's the cheapest. From our experience, single-source hydro is the cheapest opportunity for energy procurement.
Peter McCormack: Why is that?
Harry Sudock: So, it's about the fixed cost to operate. So, let's just compare a coal plant and a hydro dam. The hydro dam costs more to build than the coal plant, but once the hydro dam is fully built, the fixed cost to operate, so it really starts to boil down to regulatory cost, staffing, maintenance and basically the debt service, if it's a debt-financed dam.
A coal plant has significantly more ongoing costs. Even if they are extremely competitive and low when you spin a turbine with coal, you're able to get those unit economics lower at the dam because it's build it once, leave it in the water and let the river run. With coal, you're buying raw materials that are input, the coal; there's still a significant amount of human labour there; there's still a significant amount of upfront costs; so, it ends up being higher cost on a unit economic basis. But you've got to understand that the dam really is this massive upfront cost that can get things wonky a little bit.
Peter McCormack: What about wind and solar?
Harry Sudock: I think the conversation around wind and solar's really challenging and, to be fair, the technology is improving for both. But, trying to support the energy grid with wind and solar as the predominate sources of energy, it's really hard to do. They don't generate energy in a particularly stable, reliable fashion, and so you end up needing to rely on significant other pieces of energy generation to provide that contractually obligated consistent availability.
For example, solar produces energy 22% of the time, nuclear produces energy 99.999% of the time; they both emit just about the same amount of carbon. So, there are significant drawbacks by using these other forms of energy, and those are physics problems. The sun is not in the sky on top of the panels all the time; it's actually only top of them for a limited amount of time.
Wind is a little bit different. The offshore wind load profile has been pretty encouraging from what we've seen. It's a lot more competitive, but it's still not getting to 99.9%, it's getting higher. So, it's about what parts of human quality of life are we willing to expose to variability and energy availability?
Peter McCormack: Okay. Nuclear itself, what's the cost space for that compared to others?
Harry Sudock: So, nuclear is similar to hydro in that it's really expensive to build upfront. It'll cost hundreds of millions of billions of dollars, but our perspective is that, from a carbon-free energy standpoint, it's unbelievably compelling. If you look at the history in France, they were able to largely decarbonise their energy generation mix in 12 years. Germany has gone from being significantly nuclear-focused to decommissioning nuclear plants for largely inexplicable reasons. Their energy price has now tripled, I believe, and they're running one of the most highly emission-forward energy blends of anywhere in Europe.
So, similar to Bitcoin mining, nuclear is one of these superpower energy producers where you get to have your cake and eat it too. You get to have extremely stable baseload, consistent production, it's zero emission and you're able to generate at massive, massive scale. So, to give you a sense of context, a nuclear turbine can generate somewhere between 1,000 and 1,500 megawatts of capacity, and they're able to do that on a tiny fraction of the acreage that it would take to generate that with wind or solar easily.
So, you're able to get much higher quality energy, baseload, you're able to get zero carbon emissions from that energy generation, and you're able to do so on a tiny footprint. It just fixes all of the existing problems with the wind and solar piece of the pie. But unfortunately, the nuclear industry is suffering from significantly more onerous restrictions and regulatory requirements, and it doesn't benefit from nearly as many subsidies despite having a much more attractive energy profile.
Peter McCormack: What is the issue though? Is this to do with nuclear waste and where it should be stored? Is it Chernobyl PTSD, is it Fukushima; is that PTSD from those?
Harry Sudock: Yeah, it's a political argument. The struggle that the nuclear industry has faced is fundamentally a political one. It's not grounded in this.
Peter McCormack: What is the political argument?
Harry Sudock: The political argument is that the environmentalists who have advocated to shut down nuclear do not have a fact-based understanding of how nuclear waste is handled and how dangerous or not it is. It also speaks to the level of misinformation that's out there, or maybe it's just ignorance and not just misinformation, around how energy works. The idea that we're going to migrate all of our energy generation and consumption to solar and wind does not acknowledge the basic physics of the problem.
Peter McCormack: So, it sounds to me like you believe nuclear energy is the best opportunity to solve carbon issues.
Harry Sudock: There is not an emission reduction energy environment. Keep in mind that, of all emissions, the energy industry represents 70% of them, so solving the emission profile of energy, if you're in the camp that says that manmade climate change is a result of C02 emission, you have to solve the energy problem, which is fundamentally a coal problem.
So, there's actually been more emission reduction due to natural gas than due to all the other renewables combined. So, the transition from coal to natural gas has actually outstripped the emission reduction that all of the other energy migration has accounted for. That doesn't mean that natural gas is the be all and end all, but it's a great option when you can't compromise on quality of life.
I love to return to this again and again and again; energy density on a per capita basis is a huge, huge benefit to human civilisation. When we, as a society, generate more energy per person, we're able to produce higher quality of life outcomes. We, in the US, have benefited from that tremendously over the last 50-plus years; the rest of the world hasn't gotten that opportunity yet and they deserve to live in an energy abundant world, the same that we have. I struggle with this issue a bit, because it feels like we're trying to pull the ladder up behind us.
Peter McCormack: What, again, is the baseline argument of environmentalists against nuclear; is it waste or is it fear of a meltdown?
Harry Sudock: All of the above. It is unfounded.
Peter McCormack: My assumption is that risk of meltdown -- let's look at the two that have happened; Chernobyl was incompetence and also a cover-up by the Russian state as I believe. I'm not an expert, I'm going by that very cool series, okay; it was very good, but that was the implication. But, either way, it was pure incompetence what happened. But I'm assuming the regulations around nuclear and the procedures for managing a plant are very strict and it's very safe these days. Fukushima, it seems to me, it was a stupid place to build a nuclear plant, close to a fault line where you can have a tidal wave that can flood the plant.
Harry Sudock: Nuclear has been less deadly on a per unit of energy production basis than every other energy source. So, the entire history of nuclear energy generation has been less deadly than the last year of everything else.
Peter McCormack: Wow!
Harry Sudock: I struggle with the numbers, but it is an unbelievably safe technology and that it is an unbelievably reliable energy source. The idea that we shouldn't do this is the craziest, craziest fallacy that's out there, but we live in a world where really bad ideas get funded and get mainstream support. I'm a New Yorker and we decommissioned Indian Point. Indian Point delivered 25% of the energy to New York City, and they said, "No, thanks. We don't want this fully-funded, fully-built, fully-operational, zero carbon emission energy source", because of inexplicable reasons.
So, what's happened since then; there's been a migration to natural gas. The emission profile for the next ten years is going to be significantly higher than it would have been if we'd just continued running energy on Indian Point. But the problem is, is that it's a mixture of bad incentives and misinformation and the environmentalism of the last 30 or 40 years; is operating from a position of fear around things like Chernobyl. The Simpsons, showing Blinky, the three-eyed fish and having Homer be depicted as the nuclear operator has done more of a disservice to the emission profile of the future than anything else I can imagine.
Peter McCormack: Do you know, it never even crossed my mind. Do we know how many nuclear plants there are globally? Have you got any awareness of that?
Harry Sudock: I'd have to pull up the data on it.
Peter McCormack: Are we talking hundreds, tens, thousands?
Harry Sudock: Hundreds.
Peter McCormack: So, we've got hundreds. So, the cat's out the bag with that anyway. If there is a risk with nuclear plants, we have hundreds of them already?
Harry Sudock: Exactly. If we were going to face catastrophic nuclear energy risk, we would have seen it in the last 50 years.
Peter McCormack: What about risks of attacks against nuclear plants; how real is that? That seems, to me, to be a bigger threat than another meltdown.
Harry Sudock: Yeah, so that's a really fair point. I think that it does represent some risk, and there is risk there. I don’t think it's quantifiably different than other powerplant types of risk. There's a lot of engineering that's gone into that, there's a lot of redundancy that's gone into those plants. I'm actually friends with a couple of nuclear operators now, and so I've been working to get smarter on all this stuff.
Peter McCormack: Can we go and see a plant?
Harry Sudock: Yes.
Peter McCormack: Let's do it!
Harry Sudock: Let's just go to a nuke!
Peter McCormack: I want to go see one.
Harry Sudock: Have you seen Star Wars?
Peter McCormack: Of course.
Harry Sudock: It looks like Tatooine. It looks like those bubble cities around.
Peter McCormack: Is it those big round bulbs?
Harry Sudock: Yeah, exactly, with antennas sticking up. So, it looks just like that. They're amazing; feat of human engineering that we've done this. There's a lot of technology that's gone into this new wave of Gen IV reactors.
Peter McCormack: Yeah, I was about say, I've heard about this nuclear 4.0 and they're smaller plants so you can solve that distance problem.
Harry Sudock: Exactly.
Peter McCormack: What's that all about? Tell me about that.
Harry Sudock: It's amazingly compelling, and we've spoken with a few of those folks as well.
Peter McCormack: Are they just like micro plants; what is it?
Harry Sudock: Well, you say "micro" but it's important to talk about scale here. So, a big turbine we talked about, let's just call it 1,100, 1,200 megawatts, some of these small nuclear reactors are 85 megawatts. 85 megawatts will power 3X of hash, of Bitcoin hash, so it'll power 30,000 or 40,000 S19s, so it's a lot of power. Even though it's not a massive centralised point of power, it can power a county, no question.
Peter McCormack: Tell me about nuclear reactors in submarines. So, we're putting them in the ocean.
Harry Sudock: We put them in the ocean, they work!
Peter McCormack: I've got no idea if they're the same kind of --
Harry Sudock: So, this friend who I'm going to introduce you to, he spent 19 years in the Navy working on a nuclear submarine, and now he does nuclear powerplant operations.
Peter McCormack: We should just give him on the podcast, talk about nuclear.
Harry Sudock: Oh yeah.
Peter McCormack: I'd be fascinated. Introduce me to him afterwards.
Harry Sudock: I will.
Peter McCormack: Okay. I'm getting a good picture. So, it seems to me that what we're talking about here is there's essentially a free market for energy production, as free as you can within the regulations of the Federal Government or the states individually, whatever. It seems to me is, if people have an issue with the emissions of carbon into the atmosphere, they're not going to solve it by attacking Bitcoin mining; the only way to solve this is to do with how the energy market itself is regulated.
So, you have to potentially overregulate coal, disincentivise it; or you have to incentivise, in any way you want, the production of nuclear plants and renewables and hydro. It seems to me this is entirely, therefore, a political problem to solve. This is an interesting area where it would be difficult conversations with those people who are anti-state, anti-government, but you won't get rid of coal production without some form of regulation unless everything else becomes fundamentally cheaper.
Harry Sudock: We need to take into account that this is also not just a US problem, this is a global problem.
Peter McCormack: Of course.
Harry Sudock: So, the US represents a little less than one-sixth of emissions right now, and falling.
Peter McCormack: Really? Fucking greedy bastards! What are you by the population?
Harry Sudock: We've generated 50% of global net worth.
Peter McCormack: We can go down this route if you want. You've never won a World Cup, if you want to get competitive!
Harry Sudock: We've won two world wars!
Peter McCormack: Wow! We did that together; we were a team.
Harry Sudock: That’s true.
Peter McCormack: Listen, it's clearly a global issue. I read something like, is it China that's building 600 coal plants this year?
Harry Sudock: Some triple-digit number.
Peter McCormack: Some insane number. Why don't they build nuclear plants? Is it quicker to get to market with a coal plant, therefore, if you've got an energy issue?
Harry Sudock: Building coal is faster. So, people aren't building coal plants because they hate the environment; people are building coal plants because it solves a dearth of energy quickly. So, I mentioned that it's like pulling the ladder up where the US was able to go through this like Gen I, Gen II, Gen III energy market acceleration path, where we went from lighting kerosene candles in our houses to having electricity everywhere.
We did that really fast and effectively, and now other people are trying to go down the same path and are being told they're not allowed to because of the environment when we already got to benefit from the behaviour. So, it's a bit of a quandary in that way, but the problem is that it's easy and that it's a very available form of energy and that other people are doing it because it's a rational economic decision for them to do so.
Peter McCormack: Is there no way to capture the carbon from the plant? I don't know what you'd do with it.
Harry Sudock: Yeah. So, there's lots of technological innovation around this stuff, and this why the basic assumption that I make, and the first principal value judgement that I try to make is that living in an energy abundant society is fundamentally a good thing.
Peter McCormack: See, it's ironic that the environmentalists are the problem, and I'm definitely a hypocrite here, because I've been one to spout off about this issue without fully doing my research, but it's ironic that it's the environmentalism that's causing the problem.
Harry Sudock: Yeah, and it's sticking sand in the gears of markets; that’s the problem. Why the environmentalists are able to have a negative impact is because they're able to put sand in the gears of the market that would otherwise have gravitated towards a more rational set of outcomes. Why are the subsidies for wind so dramatically large, and the subsidies for nuclear are non-existent? Why are the regulatory burdens for getting a wind plant built so much lower than the regulatory burden for building a nuclear plant?
Peter McCormack: Virtue signalling?
Harry Sudock: Yeah, well, some non-rational, non-market behaviour.
Peter McCormack: Where are your blind spots, Harry? Sometimes we have a bias; you have to defend your use of energy because you're a business based on energy, but are there any blind spots we have? Let's say broader, as miners, do we have any of our own blind spots? Do you think this is an issue we should be caring about? There seems to be a spectrum within Bitcoin; there are those who definitely agree we have a general issue with carbon production or carbon emissions and we should deal with it, and then we have some people like, "None of this fucking matters".
Harry Sudock: Yeah, I think that I'm probably not sharp enough, or at least well-read enough to be able to tell you if carbon emissions are going to burn up the entire planet. I think that we have a responsibility to the environment and I think that, to the degree that we are able to -- people die from pollution, that is very, very clear, very obvious. The lower end estimates last year were 8 million people.
Peter McCormack: Globally?
Harry Sudock: Yeah, globally.
Peter McCormack: That's air pollution?
Harry Sudock: Yeah.
Peter McCormack: Dirty water, everything?
Harry Sudock: Everything. So, we need to find better ways to treat the environment that we live in and extract value from the world around us in a more responsible fashion. I think that some of that is definitely -- we're dedicated environmentalists at Griid.
Peter McCormack: Okay. If we don't produce enough energy, that will have its own consequences.
Harry Sudock: Exactly, and that's the other piece of this which is that the only way that we do this stuff better is if we're able to innovate more aggressively. I can tell you, with lower energy availability, innovation will fall with it, and that's the unacceptable case.
This is the example I use all the time which is that, before we dug in our backyards for oil, before Rockefeller dug in the backyard and refined oil into kerosene, do you know how we lit our houses? We put people on boats to hunt whales, to kill the whales, to refine the fat to light candles in the house. That killed a lot more people, damaged the environment in many other ways, was much more dangerous and didn't produce as good a result as going into our backyards and digging for oil and refining the oil into kerosene.
So, when you look backwards, technology looks ridiculous. What did we do before email? We put paper letters on aeroplanes and we sent them to other people, and we had a person sort those and deliver it to your house. When you think of all technological innovation, looking backwards, you look like fools.
Peter McCormack: Harry, you're quite a bit younger than me. I don't think you’ve ever written a letter. Have you ever written a letter?
Harry Sudock: I have written a letter.
Peter McCormack: Do you remember a time where there was no internet?
Harry Sudock: My first memories of the internet are dial-up, and I was probably somewhere between four and six years old.
Peter McCormack: Yeah. So, the internet came around when I was about 14, so before the internet -- I love telling these stories; there are two that I always say. Before the internet and mobile phones, when you agreed to meet somebody, you had to turn up on time and be at the -- "Okay, I'm going to meet you at the top of Bedford High Street at 1.00pm". You had to be there. You couldn't phone or text, "Aargh, I'm going to 15 minutes late". "Oh, all right, cool. I'll go and get a coffee". You had to be there because it's like, "Well, where the fuck are you?!" That was a real issue. You could not find someone.
Then the other thing was schoolwork, you just go on Wikipedia and copy that now. We used to have these encyclopaedias at home, 26 books, and it's like, "Okay, I'm going to do a project on Vietnam. We'll get the V volume out". Get it out, scroll through to Vietnam and it was all there, but they would go out of date. There are so many things like that. I sound like one of those old fuckers, "Oh, remember in my day…" I sound like an old fucker, but genuinely, the world was a very different place.
Harry Sudock: You're exactly right. So, I take those examples because I think there are lots of them and I think they're really compelling, and I just try to look maybe one or two steps forward. The idea that a central bank controls the money supply, and there's no market mechanism to dictate that, is a hilarious reality that we're going to look back on and think of as just absurd.
Peter McCormack: Have we even said the word "Bitcoin" yet? We're an hour in!
Harry Sudock: We can, we can say Bitcoin.
Peter McCormack: We'll get on to that.
Harry Sudock: I'm no Armstrong.
Peter McCormack: Have we covered everything in terms of energy production, the grid? Anything I've not asked?
Harry Sudock: Yeah, I want to touch on one more piece which is this idea of the overproduction, and I want to just hammer it one more time that we produce more energy than we consume, and that’s a good thing. There is room, and one of the mandates that we've defined for ourselves at Griid is that we'll know that we're succeeding when Bitcoin mining lives in between the amount of energy that's being produced and the amount of energy that's being consumed. That space in between is where Bitcoin mining lives.
Peter McCormack: Because we're using excess energy to produce Bitcoin. Actually, we're creating capital out of excess waste.
Harry Sudock: Exactly. We're converting literal waste into the hardest, soundest monetary asset the world has ever seen.
Peter McCormack: That's a hell of a quote. The reason the production of excess energy is super important is -- I went to Venezuela, they struggle to keep the capital -- they have blackouts there, they have blackouts across the country. You destroy productivity without power.
Harry Sudock: It's worse. People die when there is not energy available; people die from heat; people die from cold; people die from lack of medical services; people die from lack of food availability because all the fridges spoil everything overnight. Energy is fundamentally integrated into our basic human quality of life, and so we need to find a way to provide that quality of life in true abundance in a democratised global fashion and then we can build really exciting businesses that unlock that.
Peter McCormack: Okay. So, let's move back to the Bitcoin mining thing because miners can just buy from the grid or direct, whatever. But, generally speaking, are you aware of any miners who are buying energy directly from coal plants? Do we know if it's happening?
Harry Sudock: Yes.
Peter McCormack: Oh, it is.
Harry Sudock: Oh, it definitely is happening.
Peter McCormack: Okay. Do we know what kind of scale that's happening?
Harry Sudock: I can't begin to measure it. The basic assumption I make is that every type of energy procurement that can happen is probably happening in Bitcoin mining.
Peter McCormack: Right. So, just imagine a scenario, new regulations, all mining power sourced directly from coal plants is made illegal; I'm not advocating for this but I'm just saying, in that moment, there is no energy argument against Bitcoin because they're either buying it from the market or they're buying it directly from renewables or nuclear. But in that scenario, we're separating Bitcoin mining from every other industry and treating it differently.
Harry Sudock: Yeah. I don't think that that is the way to go. I think that the frame is wrong. Bitcoin is a new type of bidder in the energy market auction. We're just a new participant who has a little bit of a different profile, or a lot of a different profile, than most of the other folks who are there and, to the degree that we're able to negotiate the ability to purchase energy, I think we should have the ability to do that any way that the market allows.
I think that we're going to see regulation, we're already seeing regulation around emission standards and all these different things. The Bitcoin miner has the opportunity to develop the most competitive and most exciting consumption profile. I think that the thing we need to get the critics on board with is that we do something exciting and valuable for energy markets and let's start there.
Peter McCormack: So, the whole energy argument against mining is a nothing burger?
Harry Sudock: The whole energy argument against mining, it just doesn't make sense. It doesn't take into account the truth of how these energy markets work, it doesn't take into account the physics and the engineering of how the energy is produced, and it doesn't take into account the economic reality that we're always seeking out lower-cost power therefore, we're always looking for excess and stranded, because it's the stuff that people can't sell otherwise so they'll be able to give us a better price.
Peter McCormack: So, are we doing a bad job of PRing ourselves?
Harry Sudock: Yes.
Peter McCormack: So, should we, I don't know, create some kind of council? You know I was going to ask you about this.
Harry Sudock: Yeah.
Peter McCormack: Were you invited to that?
Harry Sudock: I was not part of those discussions.
Peter McCormack: You weren't. Was your company?
Harry Sudock: Griid was not part of that discussion.
Peter McCormack: Rejected or not invited?
Harry Sudock: We were not invited.
Peter McCormack: Okay. That’s interesting.
Harry Sudock: My understanding and, listen, there have been attempts to create governing bodies in Bitcoin for longer than I've been here.
Peter McCormack: They always fail.
Harry Sudock: To the extent that the initiative of that group is to produce a data disclosure standard; go for it. When they try to tell people that you've got to do X, Y and Z to be a participant and it becomes a compliance mechanism, I start to get uncomfortable. Bitcoin is an opt-in network. If a group wants to try to tell others how to behave, I think that that's ultimately a bit of a futile endeavour. But I think to the degree that their mission is to bring about reliable and transparent data, all for it.
Peter McCormack: So, disband the council but carry on with the initiative creating data disclosure, fine.
Harry Sudock: Data disclosures are fine. We would welcome participating in that. We think that we've got a really compelling energy blend, frankly.
Peter McCormack: So, in terms of your business then, looking five years ahead, what are you seeing? Are you seeing that you're going to be migrating to -- and there's an additional question with this, but say that excess energy, does that require you to create certain sized mines with a certain number of ASICs if you're just buying the excess?
Harry Sudock: It's a really good question.
Peter McCormack: Also, is there a risk there in that you're buying the excess but suddenly, that place needs that power, that you don't get it?
Harry Sudock: Yeah. So, those are both very good questions. The first is that we try to size our operations relative to the existing infrastructure.
Peter McCormack: Sorry to interrupt you. Another quick question then. If you're buying excess, that means you get it cheaper?
Harry Sudock: Yeah.
Peter McCormack: Yeah, okay.
Harry Sudock: Depending on where the excess is. So, not every market enables liquid bidding on the power itself. Sometimes, what excess means is there's an energy producer and a community that's been consuming that energy, and let's just say lots of people leave. We'll be able to sign a relatively short-term contract. So, in energy world, that means five years; three years, five years.
We'll sign a shorter-term contract like that and we'll be there and then, in five years, we reassess and if that energy still looks like it's excess, we'll re-up. If it looks like the energy blend for the region is changing, the great thing about ASICs is you can move them, or if they're obsolete, you build something new somewhere else. So, we really treat this as a more and more -- we're a more liquid buyer which means, let's say, 5-year increments rather than 20-year increments. So, that produces four times as much liquidity in those energy markets.
Peter McCormack: Right, okay. What else? So, obviously that's the area you're super interested in. We should be aware of that. We should PR that Bitcoin miners can be the buyer of last resort for energy.
Harry Sudock: Continuous bid.
Peter McCormack: What else is happening?
Harry Sudock: So, the other thing that we're super focused on is colocation. We think that colocating with the energy generator is this hugely exciting place for this Bitcoin mining market to develop because, number one, we immediately save them the 30% loss of sending energy far away. So, every unit that we buy has a 30% mark-up on it, because you've got to sell 30% more because we consumed it onsite. So, there's a physics argument.
The second is that those energy sites are designed to be too big, they have to be too big for us to provide the type of consumption that we, as a society, are accustomed to at this point. So, we're able to develop much more flexible contracts. So, with them, we'll literally spin it up and down, and we'll design the contract to be able to account for that and do the pricing negotiation based on the levels of flexibility that they're looking to achieve.
Peter McCormack: Great. Is there anything else or is that the two main prongs?
Harry Sudock: In five years, if I have accomplished those two at the scale that we, as a team, are envisioning, it'll be an awesome five years and we're going to have the same conversation about the next things.
Peter McCormack: I think the thing is that's quite obvious is that people just don't understand the energy market. I clearly didn't. I've learnt a little bit the other night when we had the Beefsteak and now I get it. It just makes sense; I understand what's going on. I now understand where the opportunity is for you guys to lower price, because that's what you want to do; that co-location sounds, obviously, incredible. It seems to me your problem these days is the bottleneck of ASICs.
Harry Sudock: Yeah, there are a number of challenges and ASICs is one piece of it, but supply chains right now are pretty challenging.
Peter McCormack: Is that COVID-related issues?
Harry Sudock: I think that, in part, COVID really enacted a big shock in those markets in basically Q2, Q3 of 2020, and we're feeling maybe the second ripple of that shock now. The first time we recognised that shock, it was actual supply availability; the system seized up. This time, it's around raw materials and the unavailability. Things like copper, steel, lumber, all of those commodity prices are going through the absolute roof. So, right now, the effect is really around the raw inputs and less around shipping.
Peter McCormack: Well, we're very quick to blame inflation, but also some of this issue is the supply shock from markets reopening up, communities reopening up.
Harry Sudock: 100%.
Peter McCormack: So, the lumber thing, I spoke to Lyn Alden, she said the main issues are with sawmills that have closed down.
Harry Sudock: I could not agree more.
Peter McCormack: We're very quick, "Lumber's up, inflation's hit, buy Bitcoin", and I think you have to take a step back.
Harry Sudock: The only thing I agree with is to buy Bitcoin!
Peter McCormack: Well, of course you do! I've got a few other things I want to ask you. Is there anything we've not covered in mining that you would like to cover here?
Harry Sudock: Yeah, I think one thing in mining that I always try to talk about is just that it's really a blue-collar business. There's a lot less Silicon Valley in our business than there is steel mill. We love hiring out of the armed services, so a lot of our technicians came straight from the Air Force, and we're going to be continuing that initiative. So, we love making Bitcoin mining a hub for post-armed service careers, and we think that we've built a culture and a community of operators that fits in really tightly with that mission.
We're bricks and sticks; we hire contractors and engineers; we build stuff. We love that the physical backbone of the Bitcoin Network lives on our servers. So, we take the mission within Bitcoin that we're the touchpoint in between the digital world of value and the physical world of securing that value; that intersection is where we live. It's critically important and we take it extremely seriously.
That's what gets me so excited about being a miner rather than being an exchange operator or a financial services person, all these other things that I'd thought about when I was looking to join the industry full time. Those were all exciting opportunities too, but getting out into the hot sun and hearing the ASIC sound, that's different.
Peter McCormack: Well, I just like the opportunity of smaller nations looking at the opportunity with mining, getting into mining. We talked about El Salvador beforehand; there are certain things we know that have changed in that country that might make it more attractive to mine now. I don't know about the issue with the heat, how much that impacts things, but I just like the idea of a country like El Salvador opening up and giving companies like you an incentive to at least go and look there and just consider it.
Harry Sudock: We will absolutely look and consider every jurisdiction. We're not in the business of saying no. The way that we think about that is that Bitcoin mining represents revenue of quality. So, in the past, the reason why we send manufacturing elsewhere is because labour is cheap; we're outsourcing cheap labour. The reason we're able to do that is because the dollar has a significant dominate settlement position in the international currency game.
With Bitcoin, if I put one hash onto the network in the US and I put on hash into the network in any other country on Earth, those hashes are equal to each other on a revenue basis. That's exciting.
Peter McCormack: Yeah. It's incredible. I don't know enough about mining. It's really interesting how, at the same time, it's got this lens on it from the environmentalists and the shoddy journalists, but at the same time, it's becoming one of the most interesting parts of Bitcoin. In having to tell its own story, it is becoming exciting.
Harry Sudock: Yeah. I always say I just play with machines and maths!
Peter McCormack: No you don't, dude. Come on, you do more than that. Well, listen, I can't finish without having a couple of other questions for you, because I just love hearing you rant about Bitcoin, but tell me why you're so bullish, just give me the Harry rant.
Harry Sudock: Yeah. Have you seen Inception, the movie?
Peter McCormack: Of course, man.
Harry Sudock: So, there's the scene in Inception where the bus has driven over the bridge and everybody's sitting in their seats and they're asleep and they're in the dream, and they're living in this alternate reality. The Bitcoin story has driven over the bridge and we're living on a planet full of people still asleep in the van, and we're seeing the change and the adoption and just the value that this network brings to people explode.
I can't stop thinking about what Jack Mallers did bringing Strike into the world. I think that, similar to energy markets, remittances is this totally misunderstood thing that there are incredibly brave and passionate family people who are soldiers of fortune who have left everything to go to another place to change their economic future. The way that they change their economic future and provide an opportunity to their family that they've left behind is to send money through a Western Union that's going to cut 30%, 40% or more out of the work that that person has done when they try to send that home.
Peter McCormack: It's a racket.
Harry Sudock: It's worse! It's so much worse! It is pure extraction. It is international geopolitical extraction, corporate extraction from the hardest working, bravest people who make the hardest choices to provide for their families. So, Bitcoin saves people's time and saves people's lives, it gives them access to a quality of life that is otherwise unattainable, and it's able to do that because of a true technological advancement.
The value proposition that Bitcoin represents is that there are 21 million of these things and, when I send one, I can't get it back. Those are foundational value propositions that we, the miners, will do our damnedest to secure. Our job is to hash the transactions, compile the block and make sure that those two properties are carried forward block by block by block. But those are simple properties, but what they offer to people and what they do for people is that it offers an opportunity to not be bled dry, to not have their time be stolen, to not have onerous regulation dropped upon them by fiat.
The freedom and the empowerment that is made available looks ridiculous and looks crazy, but it's going to be same thing as putting people on boats to go find whales to hunt for oil or to put a letter on a plane to send it; it's going to look so absurd that we did these things in the past and the demand for Bitcoin is just going to be the beneficiary there.
From a totally selfish perspective, let's get these transaction fees moving; I'm trying to mine those. People say, "What can I do to get involved in Bitcoin?" Build something useful. You've got this amazing tool, put your human ingenuity to work. This is a call to action. Anybody listening to this, if you are curious about Bitcoin or thinking that maybe this is something that could be for you or could be exciting, think about the creative ways to make it useful to people and go build that.
There are definitely people who are hungry to fund you to find ways to contribute code, if it's an open-source project, to contribute time or even just signal boost you and retweet you or whatever. This is the most exciting technological breakthrough that has happened certainly in my lifetime, and I've lived through the beginning of the internet. But the idea that we can make people fully sovereign and empowered with regard to their money, it just does so much.
Peter McCormack: Well, you just delivered there, man! One other thing, I know you're going to give me a solid answer, what about these other people like, "Yeah, but Ethereum's interesting, it allows me to build dapps and DeFi's cool, should I look at that as well?"
Harry Sudock: Change your time preference, it does those things. It's probably easier to build a DApp on Ethereum today than it is to build one on Bitcoin, just from a pure coding it up perspective. But, Ethereum is playing a corporate game, Bitcoin is playing a national game.
So, Bitcoin is trying to compete on the global stage at the highest level, Ethereum is trying to outcompete corporate interest and decentralise some sort of lower level things. Whether they're going to be able to do that successfully or not, we'll see. My opinion is that that's not where the exciting stuff is happening, because it's fundamentally playing within the fiat boundaries; it's a fiat game.
If you're working on those kinds of projects, you're still living within the minds of the people in the van, you're not trying to wake up in the van and swim out of the water. So, it's a different thing. It works for lots of people. I don't recommend it. It doesn't work for me; it's not where I voted with my career, my time, my dollars and my hope for the future, but that's just me.
Peter McCormack: So glad I got you on the show. It's been long overdue, dude. Any final comments; anything you want to say, leave with our listeners?
Harry Sudock: Well, I'm pretty available on Twitter if people have more questions about mining or think that I totally missed the mark or anything, Bitcoin's about iron sharpening iron, and so I love engaging on this stuff. I think that mining doesn't have the megaphone that it needs yet, and that certainly isn't me because Bitcoin isn't any one person, but I am (a) endlessly grateful to Satoshi for giving us this beautiful thing; and (b) just endlessly grateful to the broader Bitcoin, I hesitate to say community, but you ragtag pirates. I have the opportunity of my life ahead of me and I just couldn't be more grateful and more excited for the future.
Peter McCormack: Well, I'm grateful for you, brother. Where do they find you?
Harry Sudock: @harry_sudock on Twitter.
Peter McCormack: Right, I'll stick it in the show notes. You should link me up with the nuclear guy.
Harry Sudock: Oh, you'd do a great episode with him.
Peter McCormack: When we come back, we'll go and visit a plant.
Harry Sudock: Yeah. We'll record from the plant.
Peter McCormack: Record from plant with the bottle of whiskey!
Harry Sudock: Yeah, or two!
Peter McCormack: Dude, listen, I love you, man. Appreciate you. Keep doing your shit and thanks for coming on the show. I'm always here for you if you need anything, you know that.
Harry Sudock: Likewise.
Peter McCormack: All right, man. Ciao. Cheers.
