WBD400 Audio Transcription
Bitcoin Mining 101 with Harry Sudock
Interview date: Wednesday 22nd September
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.
In this interview, I talk to Harry Sudock, Vice President of Strategy at Griid. We discuss how bitcoin mining works, mining as a force for good globally, and demonetising the political class.
“What Bitcoin does is it demonetises the political class and empowers the productive class...that’s what better money does for people is it takes the people who are just rent-seeking in our political structure, and it says to them, ‘I’m sorry, but you don’t belong here because you don’t produce anything or create any net economic positive’.”
— Harry Sudock
Interview Transcription
Peter McCormack: Harry, good to see you again, man.
Harry Sudock: Round two.
Peter McCormack: Round two. The last show we did was very popular. Always happy to talk to you; you're one of my favourite humans in the whole world and now I'm Bitcoin mining again.
Harry Sudock: Congratulations!
Peter McCormack: Thank you. That was a very cool way it happened. Compass got in touch and said, "We'd like to sponsor the podcast and we'd like you to mine with us", and I was like, "Okay. Well, let me buy some equipment and let me get back mining". It was a very different experience from my last time, fuck!
Harry Sudock: A little more white glove!
Peter McCormack: Oh, God, dude.
Harry Sudock: And disclosure, I'm an investor and advisor in Compass.
Peter McCormack: Okay, and full disclosure, they're a sponsor. People will know, there'll be an ad before this. But what's happened is, it's probably been one of my most successful sponsorships ever, because I'm getting so much inbound from people saying, "Wow, tell me about Compass. What's the deal? Are they legit? Can you cover mining?" So, I think we need to do a 101 on mining. I've got so many questions. I've got my five S19s powering away.
Harry Sudock: They're beasts.
Peter McCormack: They're amazing, apparently! I mean, I just log into my Luxor, I was like, "Yeah, I've mined some more Bitcoin today". And, I'm going to tell you later why I'm mining, but I think it's useful to do a 101. People want to know all about it. There's no one else I'd rather do it than with you, and we can get into a whole bunch of other shit. But good to see you, are you well?
Harry Sudock: I'm great. We're mining Bitcoin. This feels like the middle of the bull market. I think that we've held up really well. I think that Bitcoin has never been in a more -- Bitcoin's a word that everybody knows now. Even in 2017, that wasn't obvious. It was this weird niche thing that one person in every office was into it. Now, it's essential.
You log into CNBC and Coin Metrics is on the screen. You go into any sort of macro update; Bitcoin is considered one of the inflation hedge risk assets that gets talked about as a normal piece of discussion. And I think that obviously, we can go into some of the ESG that's out there; but the ESG discussion, people are talking about proof of work and consensus and mining. Some of that's positive, some of that's negative obviously, but we're in a very different part of the public consciousness that I think is super compelling.
Peter McCormack: It's fascinating. So, I bought this up a while ago when people asked about, "How do we get Bitcoin mass adoption?" I said, "Look, we have mass awareness". Outside of some obscure tribe in the Amazon jungle, everyone fucking knows about Bitcoin. There's never a scenario where somebody says to me, "What do you do?" and I'm like, "I've got a Bitcoin podcast", and they say, "What's Bitcoin?" Everybody's heard of it. And if they're not holding Bitcoin, maybe they're holding dogcoin, or something else, but we have a lot of people interested in this space and it's getting political now.
We have a country that's made Bitcoin legal tender; we have pro-Bitcoin people in Congress here in the US. We have Senator Lummis, we have Warren Davidson, we've got Mayor Francis down in Miami as well, Ted Cruz.
Harry Sudock: Ted Cruz doesn't get nearly the credit he deserves for that speech.
Peter McCormack: Yes. I wonder how much he cares, but fuck it. It's a very Texas idea.
Harry Sudock: Exactly. What he did was he saw innovation happen and regardless of whether or not it's his ideology or his interests or whatever, he saw a new idea come to market and the old-world congressional immune system tried to kill it out of default, out of knee-jerk reaction, and he said no; not because he loves the idea necessarily, but because the idea of killing things out of knee-jerk reaction is wrong.
Peter McCormack: It's kind of mind-blowing, because Senator Lummis is amazing, Warren Davidson's an incredible guy, but Ted Cruz is next level politician; everybody's heard of him, everybody knows who he is. And, I see there's these international dominoes, of which El Salvador's one and then the US is so important. The US tends to drive global regulations and we have dominoes falling here as well. So, it's super interesting.
I was down -- Parker Lewis hosted a Bitcoin mining even down in Houston, which was incredible. Big shoutout to everything Parker's doing; that was incredible. Mining was a thing, it's been a thing back in 2017. Right now, it's a huge topic of conversation, because I think a lot of companies have realised, "Actually, this is big business, we can get into this", the oil and gas people down in Texas. And also, I really like the way a whole bunch of the hash rate is now growing here in the US.
Harry Sudock: Yeah, it's growing here organically. This isn't necessarily folks who had to shudder in China just sending their rigs over here and hosting it here. This is American DNA companies building out rack space, self-directing their hash, saying that this is going to be a core infrastructure business here and we're going to build it from the ground up. Griid is obviously doing that, we've been doing that, but just to see how broad the interest in engaging with this as a core business line, it's huge.
Peter McCormack: Well, I'm getting a lot of emails about this and look, my audience now has done a 5X while the Bitcoin price has gone up, there's a bunch of new listeners that maybe don't really, truly understand mining. I think it's good to go back, I've got loads to talk to you about, but we should do a 101. Let's give all the basics, explain what it is, allow people to understand what miners do, the role they play in Bitcoin, and then we can get into some of the intricacies and then some of the debates around some of the more interesting topics.
But I'm just going to, off the bat, just explain what Bitcoin mining is; you take this away.
Harry Sudock: Yeah. So, I think it's important to talk about how Bitcoin functions. At a not overwhelmingly technical, but reasonably technical level, is that the way that Bitcoin works is that you continue to add blocks to the end of a chain; it's called a blockchain, it's very literal, where the specific details of the prior block are cryptographically included in the following block so that every time that a new block is added, the honest behaviour of the transactions in all of the history of the previous blocks is continuously validated.
This is important because you hear these words like "distributed ledger", or Bitcoin is "triple-entry bookkeeping", or these are memes of the industry. It's important to understand that Bitcoin fundamentally is a database that tracks values moving across accounts. It does this with something called "the UTXO set", the Unspent Transaction Outputs, which means that every time Bitcoin is moved, all of the inputs result in an equal number, on Bitcoin basis, of outputs.
So, this is why the 21 million hard cap is enforceable; this is why Bitcoin is able to achieve transaction finality; when you send it, there's no chargebacks, there's no backsies, there's no rollbacks, there's no forking it out. Bitcoin works as expected and that's something that we, 12, 13 years into this experiment, now can take for granted, but is an enormous innovation. And so, we really have to think super, super carefully about the 21 million hard cap and the transaction settlement finality, and how those are enforced. Those are enforced in this beautiful relationship between the proof-of-work consensus mechanism and the node validation.
Bitcoin is a system that adheres to rules and the way that it adheres to rules is with what I call "maker-checker". So, the miners process the transactions by putting together a block and then think of that like a 1,000-piece jigsaw puzzle; really hard to put together, if you've ever done one, they take forever. But they're really easy to see if they're done or not. So, the miners do this really challenging task of putting together a 1,000-piece puzzle and then they hold it up, and all the nodes get to look at it. And the nodes are able to say, yay or nay; it behaves by the rules or it doesn't.
The maker versus the checker power dynamic is really important when you think about things like the Blocksize Debate in 2017, when you think about the inclusion of Taproot more recently; so the miners are very responsible for a day-by-day performance of the network, but they are not the power centre of the ongoing development of the software. So, this is a little bit wonkish and I know we're trying to do 101 and this might not be quite there, but it's important to understand that while miners are critically important to the system, we are not the court system of Bitcoin; we are not the enforcement mechanism. The nodes are and the nodes are the most decentralised of all pieces of the system, and so the brilliance of the design is that the most decentralisable piece is where all the power sits.
So, what miners do is we dig the ditch. We do the hard manual labour of putting together the computing power and directing that computing power to continue to process transactions. But the processing of transactions is really sort of a by-product. Really what we do is we make sure that the ongoing performance of the system is abiding by the ruleset that the nodes enforce.
Peter McCormack: Okay, we're going to break this down even simpler. So, the way I understand it -- I mean, look, we're talking about two key components: the nodes and the miners. And to me, that is just a separate of power. It puts the checks and balances in the system to ensure that miners, who have the economic incentive to mine Bitcoin, can't corrupt the system.
Harry Sudock: Totally.
Peter McCormack: And I think the important thing to explain to people is, what is consensus and where does that sit in this hierarchy, because for me that's the most important part.
Harry Sudock: So, consensus is really --
Peter McCormack: The rules.
Harry Sudock: -- just a set of rules.
Peter McCormack: Yeah.
Harry Sudock: So, what Bitcoin does a really good job of is designing a set of rules that is governed by the code, so if you run a Bitcoin node, the rules in your node say, "These are the list of behaviours that are --", and I'm significantly abstracting this but, "This is the list of behaviours that are acceptable. Everything that deviates from this list is rejected".
So, the two ones that I think are critically important are the supply schedule of Bitcoins. There will never be more than 21 million Bitcoins, because any rules that introduced more than 21 million would be rejected out of default. The default position for all the nodes is to reject an increase in the supply. What miners do is we say -- let's get even simpler.
What miners do is we plug computers in. We generate computing power that gets contributed typically to pools, and that computing power is used to find a block of transactions, so a group of transactions, that satisfy the Bitcoin software ruleset. So, the first person to guess a compliant block within the Bitcoin ruleset, not compliant with some other outside thing, the first person to guess that block gets paid the Bitcoin, which is made up of the subsidy plus the fees.
Peter McCormack: And we should explain the nodes. Some people will have heard of them, a lot of people will know exactly what they are, but some won't. So, the node to me is the ability that I have to download the entire blockchain and to check that every block coming in is following the rules that you've just said.
Harry Sudock: Exactly.
Peter McCormack: And the really interesting part of all of this is that the nodes keep the miners honest, because we as the operators of the system, we don't want it to break because we hold Bitcoin. It's imperative the system does not break.
Harry Sudock: And let's be super explicit about what a scenario where a miner tries to violate the rules and the node says no and why that doesn't happen. So, if I'm running lots of servers, the ongoing cost of doing that is a big fat power bill. We're generating this compute, but in order to power the compute, we consume a significant amount of energy. If we were to try to propagate non-compliant blocks and then we asked for Bitcoin in return and the node said no, we're not getting that energy back; it's use it or lose it.
Peter McCormack: Yeah, and a block is now worth, what $240,000, $250,000?
Harry Sudock: Yes, 6.25 Bitcoin plus fees.
Peter McCormack: Yeah, so what's that; 6 times 48, so nearly $300,000.
Harry Sudock: $300,000-plus.
Peter McCormack: And, you could have spent how much on power for one of those; $200,000 to $250,000, depending on who you are?
Harry Sudock: It really depends on who you are.
Peter McCormack: But you've spent a lot.
Harry Sudock: You've spent a lot of money on power, six figures on power.
Peter McCormack: You've spent a lot of money and the incentive to cheat the system is, "Can I create extra Bitcoin into an account that I want?" That's the best cheat that you could do, but you're never going to get away with it, because the node will reject it. So, it's burning money.
Harry Sudock: It's just burning money.
Peter McCormack: It's just throwing money away.
Harry Sudock: Yes.
Peter McCormack: So, there's no incentive in the system for a miner -- there's incentives for people to try to cheat; they're just never going to get away with it.
Harry Sudock: Exactly. And the cheating can't be hidden, is what's important. Even if you attempt to cheat, it's shockingly difficult to get away with it. We lose sight of this, because Bitcoin is part of our common vocabulary now, but this is just fundamentally innovative. The core innovation that Satoshi Nakamoto offers us is a solution to the double-spend problem. What that means is that if I send you a Bitcoin, I can't send the same Bitcoin to somebody else and stay within the rules. There is no workaround so that I can perform that behaviour.
The way that that behaviour is avoided and enforced is with the relationship between proof of work and mining, and nodes and validation.
Peter McCormack: I think we've nailed it. Shall we go down the pub?! No, okay, so that's great. That's a great primer for everyone. I think now, let's talk about the business of mining, because this now is fascinating. From a distance --
Harry Sudock: It's big business.
Peter McCormack: -- it's huge business. I mean, how much money are miners generating daily?
Harry Sudock: I don't know daily, but it's 900 Bitcoin a day in net new roughly.
Peter McCormack: What's that, Danny? Gives us a price, man.
Harry Sudock: Call that $4.5 million a day? Am I off a zero?!
Peter McCormack: You could be! You could be off that.
Harry Sudock: Clearly, live maths is not what this podcast is about!
Peter McCormack: I could do it, but…
Danny: $43 million.
Harry Sudock: $43 million.
Peter McCormack: A day.
Harry Sudock: A day.
Peter McCormack: We're talking billions a year.
Harry Sudock: Oh, yeah. Yeah, yeah. So, this is -- and you see it reflected in valuations of miners. There are publicly traded miners that are multi-billion-dollar businesses.
Peter McCormack: Hold on. Was that $43 million a day? So, let's say that's $1.5 billion a month. Big business.
Harry Sudock: Big business.
Peter McCormack: If any of our maths is wrong here, we're all going to look like fucking idiots!
Danny: I'll edit it out!
Peter McCormack: You can't; you'd have to leave it in! Okay, so it's big business, it's $1.5 billion a month, it's multiple billions a year, it could go into tens of billions. This is huge business. So, talk about the business of mining; what is the edge? Explain what Griid does. I know they're a mining business, but it's more complicated than that.
Harry Sudock: So, at Griid, we are a vertically integrated self-mining business. What that means is we take control of as much of the operations as is reasonable possible, and we don't do any hosting, we don't mine for anybody else; we mine for ourselves, because we really want the Bitcoin.
What that means is we've gotten pretty smart on energy, we've gotten pretty smart on operations and construction management and software development; all the other adjacencies that make us vertically integrated, we bring all that skillset in house. So, if I'm describing what Griid does to someone who knows mining a little bit, but maybe doesn't know the different types of businesses, is that here's the energy company spinning a turbine, and here's the chip manufacturer printing an ASIC. Everything in between is us. We want the whole stack in between.
We think that that's how we accrue the most Bitcoin over time and run at the highest margin. But even more importantly, for us, the mining business is all about thinking about the downside protection case and making sure that we're producing Bitcoin at the lowest cost possible.
Peter McCormack: So, the edge is getting the cheapest energy possible in the most efficient way to the chip?
Harry Sudock: Exactly. So, there are really two big efficiencies: one is CAPEX; the other is OPEX. So, on the operating expense side, it means getting the highest uptime at the lowest cost of power and the best, cleanest operational performance. So, we staff it with technicians and we run our own repair and maintenance capabilities on some of these machines, and it's all about keeping as much of the fleet up as long as you can at the lowest cost basis possible.
On the CAPEX side, it's really about building these mining operations as cheaply as possible, without compromising on quality performance. So, we break that into two major legs: there's the cost of acquiring the hash, which is purchasing the ASICs; and then, there's the cost of building out the operations. So, we think about this on a per-megawatt basis; what does it cost to stand up a mining operation.
Peter McCormack: Okay. So, I'm not going to do the whole energy thing, people can go check out the last show we did, because that was fascinating. But one thing you did say in there is you did mention the cleanest. So, we don't have to have a debate about whether global warming is or isn't an issue, but in terms of Griid, how do you guys think about clean energy versus dirty energy? Is it an internal ethical decision, or is it a general business pressure that you have to think about this? Because, there are some people out there, like Steve Barbour; he seems to not give a fuck.
Harry Sudock: Oh, he doesn't.
Peter McCormack: He's like, "Burn the coal". I'm not a fan of that kind of attitude, but I also don't agree that everyone should be pressured to -- I think there has to be some middle ground.
Harry Sudock: Yeah, so my mum is a huge -- my mum didn't think I was going to -- I come from a family of --
Peter McCormack: Does your mum think you're killing polar bears?
Harry Sudock: No. So, my mum said this is the first time she's felt hopeful for the future, was when she figured out that Bitcoin and Bitcoin mining and energy worked this way. She's a singer, she's not a businessperson; this is not her wheelhouse. But she's been fed the same kind of catastrophised narrative that's out there and she said, listening to our discussion the first time and understanding where I've chosen to dedicate my career is what makes her feel hopeful that we can solve some of this stuff.
So, we at Griid take the approach that we are part of the solution and growth of human prosperity, so we have a couple of key theses around what that means, and we'll get to the energy piece of that. The first is that energy density per person is a really important health metric for society. The more energy that you're generating on a per capita basis, the more access to education, the more access to healthcare, the more access to high nutrition, food, all of the things, and lower infant mortality, lower of all of the bad stuff basically; it's traditionally treated this way.
So, we need to start from a first principles perspective that energy production on a per person basis is good; it's good for society. Now, we need to figure out how to do that in a compelling and forward-looking and sustainable way; I'd say sustainable like the longevity of the project's not sustainable like the definition of sustainable energy. The good news is, is that we're going to be able to generate a ton of energy per person globally over time and not ruin our environment, as long as we handle things like onerous regulation and protectionism properly; as long as we understand how these things are engineered at a basic level, and follow that process effectively; and understand that there are externalities to having things. It's not just that we suck oil out of the ground to spin a turbine; the hydrocarbons are a key input in most of the things that we use on a routine daily basis.
When was the last time you used plastic? Oil's in that as a key input. So, I think we need to have an honest conversation with ourselves about what consumption means and looks like. But also, there is an abundant future for energy consumption at significantly higher levels than we're consuming today, that starts to pivot us more towards things like hydroelectric and especially nuclear, that's going to get us to this incredible abundant place, but that doesn't introduce some of the emission problems that we face with other generation sources.
I say that and this relates back to Griid, because what Bitcoin mining does is it creates the revenue centre for these types of projects to expand and come to market without needing an established retail customer base from day one. So, when you build generation, when you monetise existing infrastructure, the challenge is not just generating the electrons, it's moving the electrons to the consumers and delivering it to them in a form that they can receive.
So, what we get to do is we get to come in and we can co-locate directly next to the generation source, no matter what that may be, plonk down a new substation and consume that energy and provide a revenue backstop that makes that generation business viable, no matter the other conditions; give them the type of economic relief that lets them invest in moving those electrons more efficiently further and more effectively; and over time, what we're going to do is allow for more of that energy to be delivered in a productive fashion, because they have got this -- we think that we're this huge cheat code for energy generators, huge cheat code. They've never had a customer like us.
So, we come into the conversation with a utility and we say to them, "Hey, we're here to buy the cheapest energy you can possibly imagine selling, because we're going to be the best customer ever".
Peter McCormack: Probably need to have a sit down with Elizabeth Warren and explain this to her.
Harry Sudock: Yeah, I mean I find her perspective on this like total feeder, total farce. I would welcome a substantive conversation if she felt like she could offer that.
Peter McCormack: I'll give her a call after this.
Harry Sudock: Get her on here.
Peter McCormack: Mate, I wish! I think it's different motivations going on there.
Harry Sudock: I agree with you. And this is the thing about Bitcoin. Any conversation that actually gets to its logical conclusion around Bitcoin wins on the merits.
Peter McCormack: Well, this is why recently, I've been saying that I want to, even though Bitcoin's not political, I mean there's a lot of political opinions around Bitcoin and Ted Cruz has become interested in Bitcoin and maybe it's a political angle, but it's a very American idea, Bitcoin, it's a very Texan idea, I think there's merit in trying to talk to people who are on the left politically to explain to them the benefits of Bitcoin; because the majority of media is controlled by the left. I know we have right media, but there's a lot of left media who have very negative hit pieces on Bitcoin. And also, it could become a political issue during canvassing by candidates when they want to appeal to their audience.
But actually, if you sell them actually on the benefits of Bitcoin, it's like -- I've explained this really badly, but Parker Lewis said it brilliantly on my podcast. He said something like, "Conservatives are going to love Bitcoin, Republicans will hate it". I think he said, "Liberals are going to love Bitcoin, but Democrats will hate it". I think it's a really key point that it could unify the left and the right in the benefits it brings to society.
Harry Sudock: What Bitcoin does is it demonetises the political class and empowers the productive class. That's what it fundamentally does; that's what better money does for people, is it takes the people who are just rent seeking in our political structure and says to them, "I'm sorry, but you don't belong here because you don't produce anything or create any net economic positive". And it says to all the people who are producing net economic positives, "We're going to double down on you and we're going to continue to reward you for operating within the context of this new system".
Peter McCormack: Yeah, that's a brilliant quote. I can see two little heads nodding at the side like, "Fucking hell, Harry"! So, let's talk about the ESG thing. I don't know if you saw my interview with Kevin O'Leary.
Harry Sudock: Not yet; it's cued.
Peter McCormack: He brought it up, and I also want to have a chat with Dan Morehead about it, and also Marty Bent; Marty Bent because I want to see his side. Dan Morehead wrote a very interesting article explaining how Bitcoin is actually very good for the ESG narrative.
Harry Sudock: 100%.
Peter McCormack: The thing I said to Kevin is the problem we have at the moment is everyone's focussed on the E. Not many people are focussed on the Social and the Governance, and how actually Bitcoin supports all the issues that the ESG crowd is claiming that needs to be supported.
So, I'm in this weird position where I see Marty Bent completely reject ESG and I see why and I see his point. I also, at the same time, understand that we live in a state system, we have government, we have companies, they have agendas, they have things they want to do. So, I also saw the Michael Saylor side, that rather than fight it, let's actually explain to these people why Bitcoin's a benefit. So, I kind of see both sides. Where are you at with the whole thing?
Harry Sudock: I mean, I think that where I'm at and where we are at Griid is that it's our job to make it obvious. I don't want to have a debate; I just want to build a business that makes it obviously incredible for the world, and I think we're tracking to doing that really effectively. I think we've already been a huge positive in communities that we serve. But I don't want to get tied into a knot around, is ESG the right framing?
The reality is that there's $30 trillion looking to allocate to it, and if we can get some of that money into Bitcoin and Bitcoin-adjacent businesses, like mining, it's going to be really good for the people who've invested it; and that's what we're here to do. We're here to make obvious good decisions available to people.
Peter McCormack: I was thinking about this the other day, because when I said to Kevin earlier, I was like, "Yeah, but should we really --", because he was talking about Larry Fink; was it Larry Fink?
Harry Sudock: Yeah, I'm sure it was.
Peter McCormack: Yeah, talking about Larry Fink, he controls this, he writes his note and he explains why ESG is important, so it's now become an issue that every boardroom is pretty much considering. And I was saying to Kevin, "But should we really bend the knee to these people just for their money?"
But then, I was really thinking about it the other day; I was like, well there's this whole feedback loop. If we can convince these people that Bitcoin is ESG-compliant, and I don't think it's binary, but if it is and we can unleash all the money that wants to come into Bitcoin, Bitcoin becomes stronger, it becomes more powerful, bitcoiners have more money and then it makes it easier to capture, or have the conversation, with the political people who are trying to drive a regulation push against it, to actually say, "No, we have the money and the funds to actually compete with them".
Harry Sudock: This is a key piece of the "everything is good for Bitcoin" argument.
Peter McCormack: Everything's good for Bitcoin!
Harry Sudock: Everything is good for Bitcoin.
Peter McCormack: You just named the show!
Harry Sudock: But it's really the truth. When you introduce a seismic shift in technological improvement that has the ability to improve every single person's life, then all of the decisions become very, very obvious, it becomes much easier. Who's arguing against the internet? Who's out here advocating to shut down the internet? Who's cutting fibre lines?
Peter McCormack: North Korea and China?
Harry Sudock: Yeah, exactly. The deeper viewpoints that people have reveal themselves when you start to rub them against the grindstone that is this type of incredible technological improvement. In this case, it's the technology of money. It's so much better than what there is previously that the people who rail against it end up just revealing themselves.
Peter McCormack: Everything's good for Bitcoin.
Harry Sudock: Everything's good for Bitcoin.
Peter McCormack: When the price goes up, we get richer; when the price goes down, we can buy more!
Harry Sudock: But it's about changing your personal unit of account.
Peter McCormack: Yeah, of course.
Harry Sudock: That's the trick. It's helping people understand that a decision around how do you measure your time, how do you value your life, what are you here to do, what is the service that you can provide to the larger context that you exist within, that's what ESG is about, right? It's a maybe fairly rudimentary attempt to say that part of the human condition is interacting with each other. We are deeply social creatures and the best way that we can serve that biological social itch is to be part of our communities. And I think that what Bitcoin does, is it removes the conflict of interests between our biology and our society.
Peter McCormack: Yeah. Look, it's fascinating and I am open to discussing this topic with everyone. You know what, in some ways I'd love to have Marty's point of view as well. I think he's got a very interesting point of view.
Harry Sudock: And I don't think it's unfounded.
Peter McCormack: No, I think it's very founded.
Harry Sudock: I think his point of view is deeply reasonable. And, Marty's a real-life friend and he and I get along really well, but I think his point of view here is that the ESG mandate framework is another piece of the --
Peter McCormack: Control.
Harry Sudock: Yeah, the ruling class's ability to impose controls and that the distrust that you have for existing structures should extend to ESG, because it really is maybe a jackboot that they can put on you.
I'm sympathetic to pieces of that argument. I think that there is some social feeder that is attached to it. I think that we're seeing it now as the Deutsche Bank news that's come out, there's significant fraud claims being investigated into the way they classified and allocated to ESG. So, moral hazard doesn't go away, just because you put a fancy new, good society label on it. So, I think that we do need to be sceptical and careful when other people are imposing guides and rules and frameworks on top of us, but I also know that the Bitcoin mining industry and the way that Griid is building a business within it is an incredibly massive obvious net positive, and we're not shy of that.
Peter McCormack: Well, this is why I refer to the Dan Morehead piece that I read, because my conclusion at the end of that was Bitcoin is probably one of the most ESG-compliant projects. If you compare it to all projects, companies, protocols, it's probably the most ESG-compliant thing out there, and it's mathematically programmed to be ESG compliant. There is some debate around the E, but it's directionally heading to be more compliant. It's certainly compliant on the social and the governance side, so I almost feel like we should celebrate this and say, "You can't use ESG against Bitcoin, because it's more ESG compliant than anything else out there, and it can't be corrupted".
Harry Sudock: Exactly. The friction that Bitcoin has built around itself and change is so difficult to break through that it is this unchangeable thing.
Peter McCormack: Well, ESG compliance in the future for companies will come down to how they declare how they're ESG compliant. Tesla may release a report on how they're ESG compliant. Bitcoin's compliance is baked in, mathematically.
Harry Sudock: Yeah. I think that part of ESG compliance in the future will require holding Bitcoin on balance sheets as a treasury asset.
Peter McCormack: Fucking imagine that!
Harry Sudock: I'll take it!
Peter McCormack: I'll take it! We were hopefully going to be joined by someone else, because one of the things I also wanted to talk to you about, which I think you're about to unleash fire on, is the fee market at the moment. I follow a Twitter account that tells me, I think the next ten blocks, what the fees are and it's about 12 cents for every -- you can get into every block.
Mr HODL put a tweet out the other day saying there was something like 349 TXs in the mempool, and some people have been having a discussion about, there's not enough fees being generated yet for the miners, and we should just outline what that is for people who don't understand. But the miners, as you said earlier, they receive the block reward, but they also receive the fees every time they solve a block. But over time, Bitcoin is designed that the block reward reduces and 2140 is when the block reward ends as it is. I mean, we'll be long dead; but at some point, fees should, or will, need to overtake for miners to be able to provide security.
So, the concern that people put out there is that Bitcoin is not being used enough and not enough is being generated in fees; this is a risk for the future. I'm often receiving emails asking to discuss this. Many bitcoiners go, "It's not a problem, forget about it"; other people are like, "Well, we at least need to have the discussion"; so, tell me your position on this.
Harry Sudock: I think it's important to talk about how mining revenue has changed over time and do a little bit more of a historical analysis rather than a -- this is not a point-in-time question. This is a historical trend line question and this is a future projection question. I think that the way that we look at it right at this moment is, it's not a problem. We just talked about it. Miners are generating $1.5 billion a month and irrespective of where that comes from, that's a really big revenue number that justifies a whole bunch of electricity spend, it justifies a whole bunch of security assurance as to the functioning performance of the network. Point in time; no issue.
Let's talk about historically first. Historically, we are generating more mining revenue today than we were when there were 50 Bitcoins per block. Why? Because the purchasing power of a Bitcoin has appreciated significantly. So, we need to have a perspective on what is the future purchasing power of a Bitcoin. There is a very reasonable case that in the future, the purchasing power of a block with 1-in-a-32nd of Bitcoin per block subsidy is going to have more purchasing power than we're getting out of 6.25 Bitcoins today.
Peter McCormack: Let's go with 1 Bitcoin for the sake of maths. Let's say it's $1 million a Bitcoin. That means we're generating how many blocks a day? What was our $43 million calculation, Danny? Danny on the maths. So, how many blocks is it a day?
Harry Sudock: So, it's 6 times 24; 144.
Peter McCormack: So, $144 million. So, yeah, that would be enough at the time, but that would be a trending up at that point?
Harry Sudock: Correct. But the problem is that the unit of account that people are talking about is not the purchasing power of Bitcoin; they're talking about the fee level over time. So, what we need to do is think carefully about, what do you think the future purchasing power of 1 Bitcoin is going to be?
Peter McCormack: We just don't know.
Harry Sudock: We just don't know. The second piece is that, if we were seeing fees dramatically higher on a per-transaction basis, I would have worry about the development of the multi-layered approach to Bitcoin that all the different open-source contributors are taking. So, if we fast-forward into the future and we've onboarded 1 billion, 2 billion, 3 billion people to Bitcoin and they're all using it, they're not settling on Bitcoin basechain.
We need to have the opportunity to develop a significantly robust infrastructure that sits on top of the basechain of Bitcoin to be able to handle the transaction throughput, that that level of economic actors needs to be able to use. So, Lightning. I'm a very significant Lightning bull on the way that the Bitcoin economy is going to continue to come to market. I love seeing low fees, but high transaction volumes on Lightning. I think that that type of dynamic is an incredibly, incredibly positive indicator, because the more of the economy that you can migrate into Lightning, the more channel openings and closings there are going to be. What is a channel opening and closing? It's a Bitcoin basechain transaction.
So, I would rather see 1 billion people on Lightning than 50 million people trying to congest on Bitcoin basechain. If we see congestion here, I want each of the Lightning channel openings and settlements to have some enormous associated Layer 2 economic value, because that's how you justify a higher price of settlement on Bitcoin basechain. So, it's about building out this multi-layered approach that can handle more of the global economy, and then we can start to see the fee migration towards the real settlement layer, which is going to be Bitcoin basechain.
If I'm going to buy a house, I'm not sending a Lightning transaction; I'm sending something on Bitcoin basechain in the future. There's also an argument that, and I think he goes by Alex B on Twitter --
Peter McCormack: Yeah, I know Alex.
Harry Sudock: Alex is great. He's got a lot of thoughts on this as well. Sometimes I agree, sometimes I don't, but he's got this vision that we're going to go back to bigger than 50 Bitcoin blocks, in terms of mining revenues; that the demand for basechain settlement is going to be so large that we actually haven't mined the most profitable, in Bitcoin terms, block yet.
Peter McCormack: That's interesting.
Harry Sudock: Isn't that cool?
Peter McCormack: I had a coffee with him recently. He's a fascinating character.
Harry Sudock: Fascinating.
Peter McCormack: Yeah, really interesting guy.
Harry Sudock: He's so thoughtful.
Peter McCormack: Yeah, really interesting guy. Okay, that's interesting. So, I guess we can never answer the question, how much security is enough security?
Harry Sudock: We keep paying our power bill. That's the most informed answer I can give you on how much security is enough. We can model it, we can look at it, we can do all these kinds of twisting ourselves into a pretzel about enough, or fearmongering about it. But the point of Bitcoin is that it abides by the ruleset that we talked about at the beginning. There are 21 million of them; there are not going to be anymore. We don't need to introduce a 1% inflation rate in perpetuity.
When I send a transaction on Bitcoin basechain, I get the confirmations of additional blocks. Each of those blocks is another wall built around a security assurance that the transaction I sent is never, ever, ever changing. This is the fundamentally property and if what we've done in exchange -- what we've really done, as users of this software, is we've bought those assurances with some uncertainty around when and how the future state of fee revenues is going to mature. It's a fair trade.
Peter McCormack: Yeah. So really, the answer to this, some people say it's concern trolling, I don't think it is. I think it's fair for people to be able to ask the question and it's great to have you answer it so eloquently. But the point of this is that, we don't know the answer until we see the problem, and there is no problem.
Harry Sudock: Precisely. And if you're really worried, and this is the call to action here; if you're truly concerned about the future state of fees, build a service or a technological platform or some sort of business that utilises Bitcoin basechain and pay fees to me.
Peter McCormack: I think it's really fascinating how Lightning's grown in this last year and I want to attribute some of that to what's been going on in El Salvador, because it's become a total use case for Lightning. I was there recently, and I can't remember the date; was it 9 September? I could go to any McDonald's or Starbucks in the entire country, and I could buy a cup of coffee or a cheeseburger and pay on the Lightning Network. It fucking astounds me that it happened. It astounds me it happened that quick.
I mean, these companies, who aren't Bitcoin companies, have become Bitcoin Lightning companies quicker than some of the companies within our ecosystem. I think it's a fair callout to some of the exchanges, "Why are you not supporting Lightning?" Starbucks are, and they did it and it worked. I mean, the Starbucks one is hugely impressive. Walmart wasn't there, but it's coming. But Lightning is now a thing across the entire country.
Harry Sudock: And, I think Jack Mallers gets a lot of credit; he deserves more. The idea that you can interact with Bitcoin as a settlement rail and not take on Bitcoin risk in terms of price for short-term transactions, what?! Good technology looks like magic. Strike looks like magic.
Peter McCormack: Not to Wells Fargo -- no, Western Union.
Harry Sudock: Western Union, aka the Vampire, sitting on the throat of the internationally disadvantaged.
Peter McCormack: Yeah! How do you do it, man? Honestly, we're going to have so many clips of this, "Sitting on the throat of the internationally disadvantaged"! You know what, you know they just put 50 ATMs out here in the US, the Bukele Government; do you know this?
Harry Sudock: No.
Peter McCormack: They've put 50 -- there's 200 of those Chivo ATMs in El Salvador, they've put 50 out here in the US and they've put it where all the Salvadorans are working to send money home to their family. So, they've now got basically around Western Union and they can send money back, free, to their family. And not only does it save them the Western Union fee, but it also gives them an incentive to send more smaller amounts back, "Here you go, here's $20 for my son so he can get a burger with his girlfriend". It's incredible. That entire system's been routed around.
I am short remittance. If I could short these companies, I might have to look at it, I would short the fuck out of them, because they are screwed. Once people start realising this…
Harry Sudock: You are short remittances; you're on Bitcoin!
Peter McCormack: Well, I am, because I've got Bitcoin, yeah! But it's truly incredible to see that growth in the Lightning Network and, yeah, massive credit to Jack Mallers. Also, I go one step back; massive credit to Michael Peterson of Bitcoin Beach. That was the seed of this project in El Salvador.
Harry Sudock: No doubt.
Peter McCormack: Now, we watch and observe. I don't know how much it's going to be used in El Salvador. It might be an initial burst, then slow down and come back. But the fact is, we have Lightning as a national settlement within a country, a sovereign country; it's incredible. The other interesting thing about that is, I wonder what Head Office in Seattle, Starbucks, is looking at going, "Hm, we just rolled out Bitcoin in a whole country that quick and we have instant final settlement of a currency and we have low transaction fees", because I know they're meant to be doing something with BACS; I don't know why it's taking so long and when it's coming.
But yeah, same with McDonald's. They've integrated it into those screens. You know the screens where you go and order? You just go up and order and you choose to pay in Bitcoin. It's fucking insane!
Harry Sudock: And we have to understand that all of that credit card processing is 3% or 4%. That money is just freed up now. This is why good technology is deflationary over time. Better technology, lower prices; better quality of goods and services at lower prices. Human flourishing is not rocket science. We just need to realise that we need regulators to not stand in the way of good innovation, not at the cost of consumer protection. But there is just so much good to be had that integrating these things does.
Everybody who now buys McDonald's gets 4% back over time. Inflation gets passed onto consumers, so does deflation.
Peter McCormack: Yeah, well look, it's fascinating. I'll tell you another really fascinating thing. So, I'm leaking something out from my conversation with the President, but he said -- because, a lot of people challenged the Article 7. I spoke to a lot of people in the country and they were, "We don't like this being forced on us". I asked him about that and he said, "Look, I've got five banks in this country, billion-dollar banks, multi-billion-dollar banks", he said, "They are legally obliged to provide banking services with Bitcoin. You can go into the bank and any of their services, they have to provide with Bitcoin. If I don't put this law in place, they don't do it.
That's really fascinating, because the banks now in that country have to support the technology which could, ultimately, make them irrelevant. I thought it was fascinating. It blew my mind.
Harry Sudock: There is so much to the El Salvador story that I don't know how to process yet. I think that the President is sitting at a crossroads, where he could go down as the most Progressive, and I say Progressive with a capital P, forward-thinking leader in an area of the world that has not had someone with the ability to change things as much as he has. He could also look like every other small market dictator that we've seen.
Peter McCormack: I'll tell you about that afterwards. I mean, I basically said the same thing. I said to him, "You could be El Salvador's greatest ever President", and he could fuck it up. But I mean, I think it's pretty obvious that this is a more than one-term job, and that's the challenge; that's the real challenge. It's how far does he go? But there's a lot to watch and be interested with here.
Harry Sudock: And Bitcoin doesn't care.
Peter McCormack: Yeah, with a note of warning. I think we have to watch the moves he makes, and I think certain things that people have been raising, such as Alex Gladstein, it's important to raise those points. But let's just go back a second. Within three months of announcing, you have nationwide coverage of Lightning in that country. It's better for people who live there, it's better for their relatives who don't live there, it's better for people travelling into the country, it's good for investors and it's good for the companies that are there. It feels like a win/win for everyone involved.
Harry Sudock: Bitcoin is obvious!
Peter McCormack: Yeah. Everything's great for Bitcoin.
Harry Sudock: Everything's great for Bitcoin. When people are presented with the reasonable, rational, facts-based arguments as to why Bitcoin's good for them, it's very, very hard to take the other side.
Peter McCormack: So, listen, before we do go out and eat, because we're going to go and eat and have a drink and have a proper catchup, there was another thing I wanted to talk to you about, because when we got into the room, you started talking about pools, and I thought this was super interesting. I told you who I was mining with, you told me you think the pool industry's going to change. Just for everyone listening, explain what a pool is, then talk about the things you explained to us.
Harry Sudock: So, the way the pools work, and this is a good kind of -- if we go the full cycle, from mining 101, we start with, this is why mining is important for Bitcoin conceptually. This is the mining business, you buy energy, you buy ASICs, you build places to put the ASICs, you plug them in, you run them over time, and you generate Bitcoin. We talked about where that Bitcoin revenue comes from, both subsidy and transaction fee, but there's another mechanical layer to the business model, which is that you're not just spitting this computing power into the air. The primary way that the computing power is used is by contributing it to a mining pool.
There are a number of different pools that are out there. They're based in different places, they run different models. Some of them are working under different umbrellas. So, Binance has a pool, DCG has a pool. Poolin and f2pool are out of Mainland China and they run some other business, but their primary business is just being a pool. Luxor in the US is a pool that's designed to just be a pool business. So, I think that the traditional way that this has happened, Slush, the first pool, invented the technology and methodology of aggregating hash into a single location.
The way the pool business has been historically, is that they take a slice, 1%, 2%, 2.5% of all of the Bitcoin that gets mined through their pool, and that's how they generate revenue.
Peter McCormack: And the reason you mine -- I mine in pool because I've got five machines. The chance of me finding a block is in the rounding errors, it's pretty much zero, right?
Harry Sudock: Exactly. So, the reason that you aggregate hash into a pool is because otherwise, you may never see the revenues. You have to find a block on your own, you're competing with hundreds of millions of other terahashes all around the world, and so if you don't happen to get a block and get lucky, you may never get any revenue.
So, what a pool does is it aggregates all the hash together, smooths the revenue across all of the participants pro rata, relative to how much hash they contribute. So, let's say Pete and I formed a pool together; he's got 500 terahash and I've got 1,000 terahash and we mine 1 Bitcoin; I get two-thirds, he gets one-third.
Peter McCormack: And the great thing for me is actually, I look, I know what my daily energy cost is and I know how much Bitcoin I'm mining every day, and it's just a very easy calculation. This is profitable; I should carry on.
Harry Sudock: Exactly. It's both a software that helps your business, but it's also your little business analytic dashboard.
The pool business is historically fee-driven; they take a cut along the way. My opinion, and we've already started to see movement in this direction, is that over time, pool fees are going to fall to zero, and then they're going to fall negative.
Peter McCormack: And, we'll come back to negative, but it trends to zero because the cost of moving pool is easy.
Harry Sudock: Very, very minimal.
Peter McCormack: So, if I'm paying 2% here and someone offers me 1.5%, I may as well move where my miners are pointing.
Harry Sudock: Yeah, exactly. There are some performance metrics that you want to track and make sure they've implemented the software well, but overall it's really a price game. The trend has been, so maybe we were 2.5% or 3%, and you'll see in some other proof-of-work chains the fees are higher, because there's less competition. We were maybe high-2%; we moved into mid-2%, 1%, and now we're trending sub-1% in fees at some of the larger, more mature operators. If you're a miner at scale, retail mining probably has a little bit more fee challenge, but over time these are going to turn to zero, super competitive environment, super zero sum, service one versus service two.
So, what's going to happen is that the demand to have miners as customers is going to become so great that you're going to have to either continue to drop fees all the way to zero, and I think they're going to go negative, because the businesses that interact with Bitcoin and Bitcoin miners are going to have so many other services that make money. So, if you think of an LTV calculation, Lifetime Value of a customer; let's use McDonald's, because they've integrated Lightning, so we can reward them with some free advertising, like they need it!
McDonald's doesn't make very much money on a burger. They know they're going to make money on the fries, they're going to make money on the drink, they're going to make money on the apple pie, and so what they do is they cut costs even towards negative on the burger; if you've ever heard the term, "Lose money on the burger".
Binance has a pool, DCG has a pool. Why? Because those mining customers use a bunch of other services. We interact, we are financial actors within this ecosystem. We might want to liquidate Bitcoin, we might want to hedge, we might want to borrow, we might want to lend. All of those are significantly higher margin business lines than running a pool. And so, having us as customers in their ecosystem is going to become so attractive that as time goes on, they'll pay us to be there.
Other things that interest me in the pool business are folks like Poolin or f2pool that are out of China. They run their own self-mining operations. And so, what they've done is say, "Okay, we can offer competitive pricing, because we've basically bolted a pool on top of our own mining ops already". Folks like Luxor, who I think are really interesting, I'm friendly with some of the guys over there, they're building a full-blown hash exchange.
So, they believe that hash itself can be a commodity that can be traded, because there's a pretty easy conversion rate between hash and Bitcoin. Because, you know if you contribute 100 terahash for 1 hour, there's a Bitcoin equivalence in Bitcoin mining revenue associated with that, so it becomes another commodity to trade in parallel with Bitcoin. That's another interesting way to do it but in my opinion, the pool piece of their business flips negative.
Peter McCormack: The thing is about this, it all points to the direction of the maturity of this industry. The levels of depth to this industry are way behind someone like an Elizabeth Warren is thinking about. She thinks, "I've got a political argument here about environmental ways"; she doesn't actually understand everything. More than any other interview I've done, I would love her to listen to this and understand she is talking about a subject she has close to zero understanding of.
I have close to zero understanding when I sit with you and I learn so much, but I think this just speaks to the maturity of the entire ecosystem.
Harry Sudock: Yeah. Nassim Taleb, formerly great thinker --
Peter McCormack: Fuck him. Go on.
Harry Sudock: -- currently disgraced charlatan --
Peter McCormack: Plonker.
Harry Sudock: Plonker! Has a term called IYI, Intellectual Yet Idiot.
Peter McCormack: Is that for himself?
Harry Sudock: Now, he applies, but he used to roll it out for people who have a lot of opinions but are not practitioners. I think unfortunately, this applies frequently to the academic class and the political class, because we talk about this all the time at Griid; we're not a Silicon Valley start-up, we're not moving fast and breaking things, we're not writing code to attract the next billion eyeballs. What we're trying to do is build core infrastructure for the monetary network of the future. That needs to be done with incredibly high reliability, incredibly high attention to safety, both physically and also cyber. This is a heavy construction business. We build these in middle America, in rural areas. We are not creatures of the city.
So, that's built into our corporate DNA. Forgive me for my New York City lifestyle, but we are building this heavy industry. And in the same way that fibre has to travel through the towns you've never heard of to get to the place where maybe you're consuming it, the backbone of the Bitcoin Network, the broad scattershot of miners who are contributing hash to the Bitcoin Network, are cast far and wide. They're the beating heart of the communities that they're serving in and operating in. They're huge energy customers, which you can say, "Well, you're consuming and you're not doing anything productive", but every dollar of revenue that a Bitcoin miner buys from a utility is an additional backstop for the individuals in that community not having their prices go up.
So, there's this tremendous force for good. We bring fibre to remote locations because we need it.
Peter McCormack: That's a really, really great point actually, is that co-locating miners keeps energy prices down for communities.
Harry Sudock: 100%, yes.
Peter McCormack: And again, that's lost in the conversation. It's seen as energy waste, but actually it's making energy more efficient.
Harry Sudock: And more affordable.
Peter McCormack: Yeah, and more affordable. That's a really, really interesting point.
Harry Sudock: These are places that have -- we brought on, he's frankly one of the mentors to me in our company, he's our VP of Energy Management. In 27 years at a utility, the power contracts that we were looking to source, there are only three that he ever looked at in 27 years that were bigger. So, just to give people a sense of what this means for a small utility, it is life-changing for the trajectory of where energy prices are going to go in that region.
So, we do provide this incredible economic backstop, but also bring fibre to more remote locations, we bring connectivity there. It's just a force for good.
Peter McCormack: Yeah, I know. Listen, I want to finish on telling you why I got back into mining, and I've had a lot of people ask me why I'm mining rather than just buying more Bitcoin, and I want to tell you my logic and I need you to tell me if it's sound, or I'm a fucking moron and I should have just bought more Bitcoin.
So, people know that I tend to have this rule that it's eight weeks' business or personal cashflow in the bank, the rest goes into Bitcoin. But I've scaled that back a little bit as we're mid-bull market. I'm being a bit more considered about my Bitcoin purchase, I'm still acquiring, but I do have to run a business. And, even with 8 to 12 weeks' cashflow in the business, most of the time I'm well within my flow; it's just sat there as cash. Cash is doing zero for me; well, I know it's losing me money. We know UK inflation is 3.2%, probably higher --
Harry Sudock: Thanks, Boris.
Peter McCormack: Yeah, thanks, Boris, you fucking… No, Rishi Sunak is the other guy you need to blame. Everyone blames Boris; he's the very rich Chancellor. Anyway, so the point being is that I've got cash sat there in the bank doing nothing. It's actually losing value, it's losing purchasing power.
So, I could just put that into Bitcoin, but if I have a sudden cash need, because I don't manage that flow well, which actually happened recently; I had to sell a very small amount of Bitcoin for a short period of time, because my gap between invoicing and payment ended up being longer than I thought. I rebought the Bitcoin, it's fine, so I got through that. But I operate with a higher cashflow now because of that.
But when that cash float's just sat there, say it's $50,000, that can float between $50,000, $150,000, whatever, I can take $50,000 of that and buy five S19s. The S19s, that hardware has value, and it tends to retain its value or go up, okay, because it's a Bitcoin derivative, but it's a much more stable price than Bitcoin. So, what I get to do is I get to put my money into an asset which holds its value, which is also earning me a return.
So, I think of my miners as my bank account earning me an interest. So basically, rather than leave the cash in the bank, I have miners in a facility. The cash in the bank earns me no interest and is losing value; the miners are generating me Bitcoin. So essentially, I've earned $5,000 interest this month with it being held in miners, okay, because I've got the Bitcoin that I've mined. And if at any point I have a cash crush, I know I can sell my miners, probably for more than I bought them now.
It's a more stable investment in Bitcoin than just holding the asset; does this make sense?!
Harry Sudock: It is not the dumbest thing I've heard.
Peter McCormack: That's not kind! That's like, imagine you went on a date, "It's not the worst date I've been on, you're not the ugliest person I've had sex with"!
Harry Sudock: I hope I am! But I think that your use case -- the best thing you could do is not keep any of that cash, is not worry about having to keep any of that in cash and having an undrawn revolver for your business. If I were to put on the Pete McCormack CFO hat for the day, I would say, "I would go talk to a bank, get a line of credit, don't draw on it and then, when you need the cash, you've got available balance to be able to borrow". It's going to cost you, whatever, 4% when you draw it, but you just pay it right back. So, you're only drawing it for 30, 60 days at most, kind of deal. So, that's just a good thing to have in a business, right, is have an undrawn revolver.
The use case that you're doing is really about, if you had to sell the machines, not what price you could get for them, because I totally agree with you; I think the hardware in this market right now, especially the S19, really retains value quite well; it's about how quickly you could get them sold and how quickly you could get that cash in hand. If you have a Bitcoin, that's liquidated in cash in hand that day. Getting a miner processed and sold and making sure that you're able to match that trade, there's a little bit of liquidity risk. If you needed to get the cash same day, I think you'd struggle to get it.
Peter McCormack: Even now?
Harry Sudock: Not even now, but --
Peter McCormack: Maybe in February.
Harry Sudock: And there's friction, right. The wire doesn't clear; it's an international wire; they're not sending you Bitcoin; there's stuff happens. So, I think that you need to consider the liquidity piece of it carefully, but in terms of productive use of cash, no-brainer. Your rate of return on that should be --
Peter McCormack: It's 100%.
Harry Sudock: 100% a year?
Peter McCormack: At the current price, so what would that be? $5,000 I did. I mean, I know the price is going to trend down.
Harry Sudock: Yeah, you'll decay over time.
Peter McCormack: Will decay, but also the price of Bitcoin might go up, but my machines should be paid for in a year.
Harry Sudock: Yeah, so call that 100% rate of return. That's the real DeFi. It's decentralised, you're just contributing hash. You're getting an APR that's unheard of in traditional markets, plus you have an actual asset that's on the books that's of value that's not going to get rugged or hacked or smart contract ruined.
Peter McCormack: So, I want more machines. What's the problem in the market right now; is it just down to the chip shortage?
Harry Sudock: Yeah, I think there's some supply availability stuff. I think it's a lot easier to go after miners if you're a scaled operation, rather than requiring at the retail level. Compass does a great job, but I think the crunch right now is around infrastructure, even more than chips. I think there's probably more ASICs than rack space, if I had to guess today.
Peter McCormack: Oh, interesting.
Harry Sudock: Especially, somewhere between the China shutdown and some of the supply chain stuff around electrical infrastructure, and just it's hard to build things. This is the thing that I always try to come back to with the mining discussions. This is a physical infrastructure business. There are people with backhoes and concrete and electricians that are much more a part of my daily life than any banker or any software developer. And so, that's really where the business gets managed more closely, is around, you know, we have construction, construction project management, that is a core of what we do.
So, it's important to remember that all of the great benefits of something like that are associated with mining, also the challenges. "It was raining, we couldn't pour the concrete", that's a normal problem. So, these are things where I think that it's really easy to talk about, "Hey, we're going to go build a 100-megawatt data centre. That's really hard! I hope that they pull it off, but the number of people on earth who are able to pull a 100-megawatt Bitcoin mining facility off, it's not a long list. The people who have done it, that's a super short list. The people who are in the midst of doing it, who are going to complete it successfully, also not a super long list.
It's a really hard infrastructure project to get to happen, and then to run it clean afterwards is challenging and for you who have your machines parked in a rack, of what one of those operators is doing, I think you benefit greatly the more maturity comes into the infrastructure piece of the business, where you as the host and customer through Compass, you get to see the benefit. But like with every great business, the harder it is, the harder it is to disrupt.
Peter McCormack: Yeah. Well, listen, man, I love talking to you, you know that.
Harry Sudock: Likewise.
Peter McCormack: You're one of my favourite people I've ever met and you are permanently welcome on my show. I think you're criminally underfollowed, but I don't think -- well, you've tweeted more recently; I've noticed an uptick. But just love everything you're doing, come on whenever you want, keep crushing it and let's go and get some food and a whiskey.
Harry Sudock: Thanks for spreading the good word, sir. Thank for having me.
Peter McCormack: Any time, brother.
