WBD414 Audio Transcription
The Resiliency of the Bitcoin Network with Nick Hansen
Interview date: Monday 25th October
Note: the following is a transcription of my interview with Nick Hansen. 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 Nick Hansen, CEO of Luxor Technologies. We discuss the resilience of the bitcoin network, mining pools and the global economics of ASIC supply chains.
“The China ban also demonstrates the resiliency of the bitcoin network and the bitcoin mining network. As long as there’s one computer running bitcoin, bitcoin won’t die, so we’ve effectively created this new lifeform that’s going to far outlast all of us, and probably humanity.”
— Nick Hansen
Interview Transcription
Peter McCormack: Morning, Nick.
Nick Hansen: Morning, Peter.
Peter McCormack: How are you?
Nick Hansen: Doing great.
Peter McCormack: So, the last couple of times I've done this, I forgot to record and we've had to go back and we've had to do it again, but we remembered today. Okay, big morning.
Nick Hansen: It is. Here we are in LA.
Peter McCormack: We're in LA. Okay, we're probably going to run for about an hour. The Bitcoin price was $61,500-ish when we started. What do we think; under or over by the time we're done?
Nick Hansen: $64,200.
Peter McCormack: So, you're going over. You think by the time we've done this interview --
Nick Hansen: Why not?
Peter McCormack: You think we'll go $3,000?
Nick Hansen: Why not? I mean, snap of the finger.
Peter McCormack: I'll tell you what, 50,000 sats.
Nick Hansen: We know how much a sat is, let's do it.
Peter McCormack: 50,000 sats, we'll go $62,000 under or over; I'll take either?
Nick Hansen: Okay, I'll take it over.
Peter McCormack: I'll take it under.
Nick Hansen: All right, sweet metal!
Peter McCormack: All right. We'll check the price at the end. We'll get Pete over there to keep an eye on the price. Big morning. We've had a rough couple of months with Bitcoin.
Nick Hansen: Certainly have. Mining's been a little bit tough, but we're still out here putting these blocks together and making sure the thing keeps going.
Peter McCormack: Well, we should introduce you to everyone.
Nick Hansen: Certainly.
Peter McCormack: You're Nick. You're from Luxor, the mining pool I use, because I'm back mining.
Nick Hansen: Absolutely. Welcome back. I mean, mining is the salt of the earth. That's what all of this is built on, is the ability to produce blocks, change the state of the Bitcoin Network every approximately ten minutes, and off we go.
Peter McCormack: Well, I wanted to talk to you, and I did an interview with Harry Sudock recently.
Nick Hansen: I listened to it a couple of times; the man is brilliant.
Peter McCormack: What was it he said? "The remittance companies are kneeling on the throats of the internationally disadvantaged"! Do you know, he just rolls those out.
Nick Hansen: No, he certainly sits at home on Sunday night with a glass of Cognac and just thinks of things.
Peter McCormack: Hey, are you calling him out?
Nick Hansen: No, he's a brilliant man.
Peter McCormack: Yeah, he is. But he was talking to me about pools, and he said something interesting, which we're going to get back to, because he said to me he thinks the pool fees trend to zero and pools end up becoming service providers, but we'll come to that. We're going to talk a little bit about pools; not too much.
Nick Hansen: It's kind of boring.
Peter McCormack: It's kind of boring. I mean, it's good business for you.
Nick Hansen: It's good business for me, it's good business for Barry, but it is a little bit boring. There are a lot more interesting things in mining right now.
Peter McCormack: Yeah, well listen, I want to find out a bit more about how pools work. When did you set up Luxor?
Nick Hansen: So, I'll give you a super brief intro to Luxor. So, Luxor was originally founded in 2017 as a nights and weekends project between me and my originally co-founder, Eddie, and during that time, we were mostly just building something completely unrelated to mining. We were actually trying to build a decentralised S3, the storage thing that Amazon provides. That didn't work, but we found that there was this one altcoin that we were interested in that had all the hashrate on one pool, 99% hashrate was on a single pool. So, we decided, "Let's figure out how to make a mining pool for this other coin", and that's how we got started.
Then, over a couple of years, we launched different types of pools, culminating in Bitcoin in late-2018 and then finally, I went full time. My first full-time day was 1 July 2019, and we've been off to the races ever since.
Peter McCormack: Wow, okay. So, I don't know what's involved -- we've got a lorry; we've got a little bit of acoustics from the lorry! I don't know what's involved in setting up a pool, but I can imagine the difficulty at the start is having enough hashrate so you are actually hitting blocks. Because, if you solo mine my five S19s, if I solo mine, I'd probably never mine a block. So, your challenge at the start is to have enough hashrate for people to want to join your pool, because you are mining blocks?
Nick Hansen: Yeah, that's a really good point. Getting off the ground is tough, but if we use the payment methodology that Luxor uses, when miners join our pool, it doesn't really matter if we find blocks. We have to front the payments; it's called Pay-Per-Share. Maybe this is a good segue into how a pool works?
Peter McCormack: Yeah.
Nick Hansen: So, the way mining pools work today mostly, you can think of it very similar to a lottery. Guess a number between 1 and 1,000 and if you get the right number, you win $1,000. That means, in that scenario, every lottery ticket is worth $1; so, it has an expected value of $1. So, you submit your tickets to me and I pay you $1 for them, actually I pay you 97 cents, because that's how we make our fee, but you keep submitting them and then eventually, we get the winning ticket, and then we cash it in and we keep the $1,000. So, sometimes it takes more tickets, sometimes it takes less; but on average, we find the exact number of tickets, just due to the statistical, the probabilistic nature of mining.
So, all that's to say, as a miner, the way pools work today doesn't really matter if the pool is finding blocks, as long as you're getting paid. So, we started with that methodology from the start, because we feel it's the most honest and true way to pay. PPLNS is a different way, where all the tickets are grouped together, and then once the winning ticket is found, then everybody that's submitted tickets gets the proportion. So, in the case that I was describing before, say we find the lottery number on ticket number 10, we take those ten tickets and we group them up together; you submitted four, I submitted six, I get 60% of the reward and you get 40%.
In that case, it's actually quite easy for the pools to inject extra tickets that were not actually purchased in this rudimentary example, and in that case you do have to make sure that the pool is mining blocks consistently. So, that's a little bit about how pools work. It's all mathematical and it makes it pretty easy.
Peter McCormack: Probability.
Nick Hansen: Yeah, it's all probability.
Peter McCormack: So, some pools do it whereby the number of blocks they mine, they take the Bitcoin, then they take their fee and they evenly spread it out to everyone; but you guys, you already agree upfront what you're going to pay?
Nick Hansen: Right, yeah.
Peter McCormack: So, in some ways it sounds like you're not so much of a traditional pool. In some ways, you are renting my hashrate?
Nick Hansen: Yeah, so you can think of it as purchasing hashrate. The mining pool is the single buyer, and then all of the miners are sellers. And so, we have pioneered this idea through another property that Luxor owns, called Hashrate Index, and that tracks the value of hashrate over time. And basically, it's demonstrating what the mining pool should be paying for your hashrate at any point in time. So, hash price today is up, it's about 42 cents per terrahash. So, if you submit 1 terrahash to us for a day, you'll get 42 cents.
Obviously, your machines do quite a lot more than that, so you're getting 550 terrahash times that hash price, and that's about how much you'll get per day.
Peter McCormack: But did you have to hit a tipping point for that to work?
Nick Hansen: Yeah.
Peter McCormack: Because I'm thinking, like I said, if I solo mine, I know mathematically at some point, I will mine a block. But I don't know if that's years or decades away. But as I, say, bought more miners, the chance increases and I reduce my risk. With you guys, I'm assuming there's a certain tipping point you had to reach whereby you were ensuring you were going to mine enough blocks?
Nick Hansen: Yeah, that's certainly a risk of getting into mining pools. So, we started as outpoint pools, where the stakes are much lower. We started on a coin that had a market cap 1/500th of Bitcoin which, in that case, a single person, like me and Eddie, could fund, we call it funding the PPS meaning we put out money upfront and we believe in our pool, we're going to mine blocks eventually, and then people started to join the pool.
We started offering services on top of the pool that attracted more and more customers, at this time to an outpoint pool, but the idea is still the same. We started with much smaller stakes and then when we got to Bitcoin, we already had a track record of producing blocks on other chains. So, when it came time to mine for Bitcoin, we had that experience; we also had a bit of a bankroll, so that made it a little less scary, but still very scary.
Peter McCormack: I'd love to know a bit more about this. So, are you mining blocks daily?
Nick Hansen: Yeah.
Peter McCormack: But when you first started, was it just a case of sitting there like, "Are we going to get one? I'll ring a bell"? And then when you eventually do, you're like, "Oh shit, great!"
Nick Hansen: Holy shit, we got one, we did it! Yeah, it was pretty amazing.
Peter McCormack: So, in those first days, was it one a week, one every couple of days?
Nick Hansen: It could be one a week. And then you could get super lucky and have a couple a day; it's pretty wild. So, getting started off the ground, that is pretty crazy. But we're off, we're past that now and kind of hearkening to the view that Harry had about mining pools eventually going to zero, we view that right now, the way you should think about hashrate is actually as an asset itself. The value of your hashrate changes over time. It has some value every point in time.
The public markets, we see Marathon and Riot, they get valued based on the amount of petahash they have, not actually as much about the Bitcoin that they produce. That's more of a subscript to the overall hashrate production that they get. And they get a very attractive multiple on the hashrate that they produce. So right now, what we're seeing is a bit of a decoupling of the value of the hashrate to the network, and the value of hashrate to the market.
Peter McCormack: How much hashrate do you guys have?
Nick Hansen: Across all of our mining pools and our partners, about 5-ish exahash.
Peter McCormack: And what does that mean?
Nick Hansen: It's a little under 5%.
Peter McCormack: Okay, but you've got up to a little under 5% of the total hashrate?
Nick Hansen: Between us and our partners, yeah.
Peter McCormack: That's pretty fucking good.
Nick Hansen: It's pretty sweet, yeah.
Peter McCormack: Wow! So, what are the challenges you then face?
Nick Hansen: So, I mean actually building a mining pool is a rather technical task. We've taken the lottery ticket in that previous example, that's actually called a share; so, when you're mining, you see your number of valid shares, and that's actually your lottery ticket. But we take in tens of thousands of those every single second, so that becomes a pretty large data problem, having to manage that. So, it's actually a rather technical task.
Then you also have to get into having resilient network connections, so making sure that your miners actually stay connected. That is another big task that we have to solve. And so, effectively, we produced these Stratum load balancers. Stratum is the protocol that your miners speak. So, when your miner is connected to Luxor Pool, it's speaking a protocol called Stratum. So, we built these load balancers that move the hashrate, in case there's a dead pod or something, we'd move the hashrate over here, and that's all very technical work.
So, those are the biggest challenges; most of them technical.
Peter McCormack: I'll tell you something funny. So, when Compass approached me to sponsor the podcast, and I said, "Well, I want to mine, I like to be a customer of all my sponsors", and so I purchased the miners and big shoutout to Colin at your team, who hooked me up and did everything, and I've got it set up and it's quite addictive going in every day and having a look, especially when the price moves.
Nick Hansen: It's amazing.
Peter McCormack: But let me tell you the funny thing. I keep getting these emails from people, and they keep saying, "Yo, Pete, I see you're back mining. Have you run a comparison? Would it not be better to buy spot? What's the benefit of mining over spot?" and I told Harry a different theory, but the truth is, it's just fucking cool to be back contributing. I own a little bit of the hashrate that provides the security to the Bitcoin Network.
Can I tell you whether or not buying $47,000 of Bitcoin at the time I bought those miners, or buying those miners will work out better in the long run? I've got no idea. Listen, it probably works out about even, I imagine.
Nick Hansen: Yeah, especially at your scale. The margin there is going to be maybe 20% one way or the other. You're probably not going to lose too much and you're probably not going to outperform Bitcoin that much. But when you start getting to megascale, you're massively outperforming Bitcoin, because you can produce it as such a low cost. I don't know what Marathon produces their Bitcoin at, but I imagine it's less than $10,000.
Peter McCormack: Really? Holy shit!
Nick Hansen: Yeah, so they're producing Bitcoin with a massive margin, and so they can sell that Bitcoin. If price goes up, they're also exposed to that as well.
Peter McCormack: But that means, there's still massive room in the market for competition for the total hashrate to go up?
Nick Hansen: Oh, absolutely. Right now, we are in a golden age of mining, where there's more money that you could imagine flowing into mining. All the sites across the United States, West Texas is effectively a mecca of mining. If you've ever flown over North Dakota, not a lot of people have, I wasn't actually there, but I know somebody that just flew there and they said it looks like all New York City, with all of the flare gas that's out in North Dakota coming off of all these oil rigs, and those are just prime spots that could be capped with Bitcoin mines.
Peter McCormack: We've got so many things I want to get into with you.
Nick Hansen: Okay, let's do it.
Peter McCormack: Just sticking on this subject for the moment, let me tell you my actual investment thesis on mining, because I said it to Harry and he disagreed with it slightly. But I have loose capital within my business. My podcast is a business. I used to keep eight weeks' cashflow, business and personal, in the bank and then the rest would go into Bitcoin. I extended that out, because we're now mid-bull market, and I went to 12 weeks, but I was extending out the cash in the business, because there are things I want to invest in. I want to invest in my team, I want to get a studio, etc.
So, I had cash in my bank account. I didn't want to buy more Bitcoin with that, because if say I bought another couple of Bitcoin, and say the price did another 50% crash, I need the money and that's a problem. But if I buy the miners, even when the price drops 50%, the price of the miners do not drop 50%. The miners have actually increased in value, so I've got a yield in terms of the value of the capital, but I'm also earning a yield with the Bitcoin.
So, everything being equal and a steady market, in my head I'm like, "Well, my miners hold their value", so that $47,000 I put in is actually worth now about $55,000 I think, probably even gone up today.
Nick Hansen: Probably, yeah.
Peter McCormack: But I'm also, over that year, say if I mine one Bitcoin, I essentially double my money. So, for me, I was treating getting mining as an interest account for my dollars; does that make sense?
Nick Hansen: Absolutely. So, the other part that, in that podcast with Harry, you were mentioning was, "I could get easy access to the capital for those machines. I could easily sell them". He did have a good point that it could take a little while, where having Bitcoin directly, if I needed to sell a Bitcoin today, I can sell that and get cash into my bank account effectively the same day. Whereas, selling some miners may take a few days.
Peter McCormack: That would be a weird emergency for me though, to need it immediately. And if I did, I could take a loan out from the bank and cover that period of time. But it was, for me, the miners are a derivative of Bitcoin, but they're a stable derivative.
Nick Hansen: So now, why don't you put all your Bitcoin in then, if it's going to make 50% more; why wouldn't you just buy all of it?
Peter McCormack: That's a good question. I don't know if the Bitcoin outperforms the miners, that's what I don't know. Secondly, you can't get any equipment. I mean, people think I get preferential from Compass. They helped me get set up at the start, but they were machines they had in stock. But I'm on the same waiting list as them; I cannot get any machines. And even if you can get machines, there are infrastructure issues as well.
Nick Hansen: Right, okay, so there's so much to unpack in all of that. Yeah, absolutely. So, first of all, you're right, you can't really get machines. Even if you came to me with $1 million today, it's really tough to get machines. Compass is doing a phenomenal job and they're one of our preferred partners, we love working with them. We have a referral, so if somebody buys a Compass miner and then plugs it into Luxor, they refer them over and we have a discount and all of that. So, we love the Compass guys, and I think that the model they put together really democratises mining. I was really hoping someone would do it, and really excited to see that they brought that to market.
But back to your point about actually getting machines; really tough. Then, if you actually get the machines, trying to get them plugged in right now is really, really tough. So, Luxor attempted, well, not attempted, we bought about a megawatt worth of miners. It was almost like pulling teeth to find anybody in the entire country that would give us 1 megawatt, which is not a lot; that is not a lot of miners, meaning just our entire network, nobody was able to give up 1 megawatt of space, it's just that crunched right now.
I mean, they are building quickly and there's a lot of infrastructure coming online, but that's not going to happen until Q1 or Q2 of next year, probably late-Q1 or early-Q2, we'll start to see some of the stuff that was turned on, the projects that were turned on, as a result of the China ban, really start to come online. And then, we're going to see a meteoric rise in hashrate.
Peter McCormack: Are you guys mining as well?
Nick Hansen: We mine a little bit. We use it mostly as a test bed. So, we build a lot of hashrate-based products; we need to have some hashrate to test with. So mostly, we use it for testing. I mean, it's a nice little bit of revenue as well to add to the balance sheet, but in general, we're not really purchasing miners as our core business; just a supplement.
Peter McCormack: So, I'll tell you what's really interesting with all this. We've had a big year in Bitcoin. We've had everything that Michael Saylor's done with MicroStrategy, everything Jack Dorsey's done to support Bitcoin. We've had Tesla. Despite Elon Musk being a bit of a dick with Doge, it's really interesting that Tesla invested, and their purchase now is very much in the green. We've had a lot of political manoeuvring with regards to Bitcoin, we've had just so much stuff happening. Today, the ETF we found out about, Valkyrie.
But what's really super interesting to me is I think the story of the last year is really mining. I think that's been the biggest story of Bitcoin right now, for a couple of reasons, and I'm not the most educated on this. But a couple of days ago, I was at Governor Abbott's house, mansion, in Texas, as an invite from the Texas Blockchain Council, and that room was filled with miners, investors and oil and gas people. And, listening to him talk about Texas being open for business, "We want to support Bitcoin, we want to be part of this", for me it was just a real moment of, "Wow, this is a big deal".
We've seen Ted Cruz come out very much in support of Bitcoin; a lot of people in the Republic Party supporting Bitcoin. We've seen everything that's happened with the hashrate migrate outside of China and have zero impact upon the network in terms of security; blocks kept getting produced. I think mining is the big story of Bitcoin over the last year.
Nick Hansen: Mining is Bitcoin. Without mining, there is no Bitcoin, so everything that we trade, all the value that's derived from the Bitcoin Network starts from a little machine in a warehouse somewhere, producing the blocks. So, at the end of the day, Bitcoin is mining. So many things to touch on that you've kind of touched on. So, we'll talk a little bit about the China ban, because that catalysed everything that we're seeing now.
I mean, America was definitely going to outpace China over the next three to five years in the mining space anyway, just because the amount of energy that we have far outpaces what they have coming online. But obviously, having it actually get banned in China, I mean it supercharged that. They're building faster than they can possibly build; they're doing everything they can. Money is just firehosing into projects to get online.
So, talking about the China ban --
Peter McCormack: Thank you, China, finally.
Nick Hansen: Absolutely.
Peter McCormack: Like, fuck off!
Nick Hansen: The FUD is real this time. I've been around for a long time. We've heard of Chinese bans for a long time, China banning exchanges or banning mining or banning production of miners, or all sorts of things, who knows. This time it actually happened. It was really strange, the spring of this year, to see, actually hearing from our Chinese counterparts, "Yeah, this is coming, we're moving".
I heard stories of people that had their machines on boats in the ocean somewhere, trying to figure out where they were going to put all those machines when they come to the US or other places around the world. It was sprung very quickly. So, they actually banned mining, which is crazy. That catalysed the first wave of bans, and now they've actually banned the exchange of cryptocurrency now, so effectively it's entirely banned, all cryptocurrency in China.
Peter McCormack: So, let's talk through the China thing, let's try and theorise, which basically for me is guessing. But it's like, okay, let's take a look at China. Obviously, a very authoritarian state, we know it has Social Credit Scores, and just an interesting side point: did you know I had this other podcast, Defiance?
Nick Hansen: No.
Peter McCormack: Okay, so I had this other podcast, Defiance, where I used to do non-Bitcoin subjects. I've done two interviews with westerners who live in China in the last year, and before those shows were released, both of them asked them to be pulled. Both people said, "We don't want this live, it's not good for me". So, despite the fact it's like, "Why would you base yourself in a country where you're fully accepting --"
Nick Hansen: They do it that way, yeah.
Peter McCormack: But we know it's an authoritarian state, we know it has a Social Credit Score, we know they're pursuing a CBDC, right. They could ban the exchange and use of Bitcoin, but mining was essentially making their own grid more efficient and putting money into China. So, my only theory of why they banned it is that they realised that Bitcoin is unstoppable, so let's just put up a wall around it. Essentially, they have the Great Firewall; this is their Great Bitcoin Firewall. Because, there's no economic logic to it, there's only censorship and control logic.
Nick Hansen: So, we have been hearing about electrical grid brownouts around rolling through China.
Peter McCormack: Okay, what's a brownout?
Nick Hansen: A brownout is when part of your city is in blackout, because it doesn't have enough power. Or, your lights are flickering, because there's just not enough power coming into the grid to power the entire city. We have similar things in California and other parts of the United States sometimes. It's not nearly as common, but I think that was a bigger problem back in the 1980s. Anyway, they're having these brownouts where there's not enough energy for the grid in China.
So, my theory was always that they felt like, "If we turn off these Bitcoin miners, we can funnel that energy into the ultra-high voltage line", which allows them to transmit energy very long distances, which is usually a problem.
Peter McCormack: Yeah, because Harry talked about it basically degrades.
Nick Hansen: Over time, yeah, exactly. So, if you bump up the voltage, you can transmit it a lot further. So, they have these ultra-high voltage lines, and my thought is that they're probably thinking they're going to put that energy into those UHVs and then pipe that into the big cities. We'll see if that's actually the case. That makes a little bit more sense than you're saying, purely economically, it makes no sense for them to shut this down, unless they view it as something completely unstoppable. So, maybe they kind of got both sides; they can get a little bit more power into their cities, and kill this thing that could potentially usurp their CBDC.
Peter McCormack: Yeah, interesting. I hadn't heard about these -- I mean, I did hear in the last week or so there were issues with, I heard it's blackouts, but energy issues in China. We've got it essentially in the UK coming. It's happened in China and also India, so I had heard about that. I hadn't made the link to the Bitcoin miners. I'm assuming they weren't taking that much of the power that it would make that much of a difference?
Nick Hansen: Yeah, that's actually a good point. Actually, Nic Carter just released a report about how much energy the Bitcoin Network actually uses. They said about 10 gigawatts most likely, somewhere around there. I took a little bit of a different approach and I said, okay, there's about 140 exahash on the network right now. If you assume they're all latest gen S19s, which are the most efficient, that means that the network would use about 4.2 gigawatts.
Then, you could move on and look at the other side of the scale and say, "Maybe it's all S9s, the worst efficient". I mean, it's not, but we could say if it was the absolutely least efficient machine that's running today, it would be about 14.2 gigawatts. So, most likely, that the amount, the Bitcoin Network, has something between 4.2 and 14.2 gigawatts, which is not a lot. I mean, the Texas Ercot is like 80 gigawatts. So, it's very, very little.
So, if you even assume China had about half, they're really only getting a few gigawatts. So, most likely, that's not going to solve their blackout problem; they just need to produce more energy.
Peter McCormack: Yeah. Well, the other interesting thing about the China ban is the resilience of the Network.
Nick Hansen: Absolutely.
Peter McCormack: That's one of the most impressive things, in that for a long time, people were concerned about, what was it; near 50% of the hashrate was in --
Nick Hansen: Probably more.
Peter McCormack: Probably more. So, that was switched off, we saw a massive drop in hashrate, we saw a move in the difficulty adjustment, but we're back near where we were, right?
Nick Hansen: Yeah, I mean we're getting close. The difficulty adjusted during that period, where they turned everything off. The blocks were maybe a little slow. That was maybe the only service degradation that you might have noticed, was that maybe it took a little bit longer for your Bitcoin to show up in your Coinbase or your Kraken, or whatever your exchange was. But other than that, there was really no disruption. The difficulty readjusted and the blocks started flowing again, and the miners were super happy of course, because there's less competition; they're able to make a ton.
So, this year has been a golden age of mining, and the China ban also demonstrates the resiliency of the Bitcoin Network and the Bitcoin Mining Network. As long as there's one computer running Bitcoin, Bitcoin won't die. So, we've effectively created this new lifeform that's going to far outlast all of us and probably humanity.
Peter McCormack: Do we know how much of the hashrate is here in the US?
Nick Hansen: We don't, but we can make some estimates. So, Nic Carter put out that report, and it looks like it's probably around 35% to 40% now, and it's probably going to be more than 50% over the next year, which brings up a whole other slew of problems, right. But I think that we're, how do I say it? Our states are quite independent, so if the federal government tried to shut down what's going on in Texas right now, there would be no chance that's going to happen.
Peter McCormack: No chance.
Nick Hansen: Yeah. And, not only do they have to shut down what's happening in Texas, they'd have to go to North Dakota and Kentucky, places where traditionally they give the middle finger to the federal government. So, I think it is safer, but we definitely don't want that much hashrate in a single place.
Peter McCormack: Someone told me that when they tried to ban Bitcoin mining in New York, they failed, because the energy companies were lobbying saying these were going to cost jobs?
Nick Hansen: Yeah. Bitcoin mining is just an energy problem now. We're taking electrons, producing Bitcoins. So, if you're really good at producing electrons, like an energy company, you have a vested interest in Bitcoin mining proceeding the way that it is. So 100%, we're going to start to see some of the biggest power producers in the United States come online and become big supporters of the Bitcoin Network.
Peter McCormack: Well, it gives a lot of regulatory protection to Bitcoin. So, if we forget China and Bolivia and I think Pakistan are three places that Bitcoin is banned, I'll have to double-check that, but the rest of the world tends to follow the US. So, you kind of want regulatory protection in the US now. If the Bitcoin Network is generating billions of dollars in terms of revenue for the US, there's a big question over (1) banning it; but (2) putting in place too much onerous regulation. And it's not even just the miners.
You've got the miners, you've got the oil and gas people getting into mining, you've got the investment companies investing in Bitcoin, you've got the exchanges, and then you've got all the Bitcoin which is held by people in the US. The US is actually in a very strong position with Bitcoin. To damage that would damage the US economy.
Nick Hansen: I mean, we're getting there. It's probably $1.2 trillion now, we'll see if our bet's good, but $1.1 trillion, $1.2 trillion, that's not nothing. And if a significant portion of that is within the United States, then like you said, that would be hurting the US economy.
Yesterday, I did the maths part to the pod. Yesterday, Bitcoin miners extracted about $55 million worth of Bitcoin out of the Network, and that's in one day. So, we're talking really about a huge market and if they try to cut that off, like you said, they're effectively reducing the number of jobs and removing innovating from the United States.
Peter McCormack: I have to sometimes take a step back and say, "Fucking hell, look where we are", because I got into Bitcoin twice, but the first time didn't really count. 2013, I wasn't really looking at it, I was just trading using the Silk Road and didn't even understand what it was. It was only when I got back in in 2017 and set up this podcast. But the podcast was set up as a joke, a hobby, and here we are four years later. And all the things I heard back in 2017, like hyperbitcoinisation, I was like, "Yeah, all right, I know what you're saying, but come on; we're not going to stop sovereign currencies".
Here we are now, we have a country with Bitcoin as legal tender, we have other countries we know are looking, Brazil, Ukraine, etc. We have this huge industry in the US, we have sovereign currencies collapsing and the Bitcoin use case being proven. We are at $61,500-ish, as far as we know, but we could easily go over $100,000 within the next couple of months easily, we could go to multiple hundreds of thousands. You can now see this path, you can say, okay, if somebody turned round to you and said, "Bitcoin could hit $500,000 by the next halving", it's like, yeah, I see it.
Nick Hansen: 100%.
Peter McCormack: So, the interesting thing with the China ban is that we potentially have two different economic worlds. We have the world which has accepted and adopted and uses Bitcoin; and we have the world that doesn't. I don't know what that means. We had a conversation last night, because I've said to you before, I don't think this transition is without a lot of pain and difficulty.
Nick Hansen: Moving to a hyperbitcoinised world is not going to be a peaceful thing, and that's a little scary certainly.
Peter McCormack: Does it trouble you, because it troubles me?
Nick Hansen: Maybe I don't think about it as much as you do. I'm just making sure that my miners are producing as much as they can.
Peter McCormack: It's the leftie in me!
Nick Hansen: Yeah, that is a really good question. I don't think about that very much and maybe I should. But I think about all the good that Bitcoin does bring.
Peter McCormack: Yeah, agreed.
Nick Hansen: I think that one of the reasons I got into Bitcoin early on originally is that it brings equity to people who traditionally have never had it. So historically, looking at Venezuela or Argentina, where their currencies are effectively collapsing over time, Bitcoin offers a life raft. They have the same rules, somebody that owns some Bitcoin in Venezuela, or Kazakhstan, or anywhere around the world, they have the same set of rules as Michael Saylor, who owns billions and billions of dollars of Bitcoin.
That is incredibly powerful, having the ability to be on equal footing and have equity across all economic status; it's never existed before. Right now, I think that we are in this transition. I look for the good side, and I do see that there's probably going to be violence around it, but I don't want to think about that; I want to think about what is the outcome, and I think the outcome is equity for all.
Peter McCormack: I think because of the job I do, I have to think of both sides, and I see the benefits in El Salvador right now. Bukele, outside of what people think of him, took a lot of risk with this.
Nick Hansen: Absolutely.
Peter McCormack: He bought a whole bunch of Bitcoin when the price was falling. Steve Hanke, the dickhead, was giving him shit. And today, all the Bitcoin purchase in El Salvador is now in the green.
Nick Hansen: 100%, yeah.
Peter McCormack: So, that country has gone from four consecutive presidents who've stolen from the country, two hiding out in Nicaragua, one's in jail, one died. They have a new president came in and said, "We've got enough money if we don't steal it". The only way they can get money is borrowing on the international markets, and they have a tough economic position and it's a country with a history of problems. When people email me and say, "I want to go to El Salvador, is it safe?" I'm like, "You know what, I've never had a problem".
Now, that country has a much reduced issue with gangs and violence. It still exists, but that's reduced. They are now plugged into the Bitcoin Network, and as Jack Mallers would say, an open monetary network. They are plugged in. Every person in that country is plugged into this global network if they want, within a few minutes, as long as they have a phone and internet connection.
The GDP of the country has had a bit of a boost from this, so I like the fact that these small countries come first, and I like the fact they bring some equity into capital, I like that. I do think of both sides, but it's incredible that this is actually happening. Like you say, four years ago, I'd be reading Pierre Rochard's articles on Nakamoto Institute, and I'd be like, "Yeah, I understand the theory, but come on". I'm a doubter sometimes, but it's happening.
Nick Hansen: Absolutely, it is absolutely happening, and there are more dominoes to fall. What's happening in El Salvador, like you said, regardless of what we think of the President now, or what their presidents have done in the past, huge step. This is a step that's going to define the trajectory for Bitcoin for the next decade, and they were the first ones to make it. And like you said, it's great to see a smaller country, where he overall economic impact may be a little bit smaller on the global scale; but to them, that doesn't matter. They're now plugged into a network that is able to serve their needs and seamlessly transition them to this new, more sound money.
Peter McCormack: And we're up to like 5.4% inflation?
Nick Hansen: I mean, it's a huge problem. I don't know what to do about it, other than just buy Bitcoin. I buy sats every day.
Peter McCormack: Buy Bitcoin; that's obviously one of the solutions. But specifically with El Salvador as a dollarised nation, they are going through 5.4% inflation, probably higher. But when Biden prints another $3.5 trillion with another Infrastructure Bill, that's not building out infrastructure in El Salvador.
So, we can all hate the Infrastructure Bill, we can hate the printing of money. As we know, it's a shadow tax. But there are some residual benefits to the country in that at least that money filters its way throughout the US. Now, we know unfairly. Everyone in Bitcoin will talk about the Cantillon effect, but there are residual benefits for the US. There is no residual benefit to El Salvador at all.
Nick Hansen: Any dollarised nation is --
Peter McCormack: Getting fucked.
Nick Hansen: -- absolutely fucked right now, and there's nothing they can do about it. There are countries --
Peter McCormack: There's one thing they can do about it!
Nick Hansen: There's one thing they can do about it, and we know what that is. I don't have any solution for you other than that. You have to change your money, and changing your money is hard, but it's important. And we're at a stage in the lifecycle of humanity where changing the money may be the biggest step that you can make, and it's awesome to see Bukele lead the way there and see if there's others that follow behind.
Peter McCormack: Well, we're moving to a world which, if you talk about Bitcoin standard, the thing I like about Bitcoin standard over the gold standard, the gold standard was a centralised standard. That could be switched on and off. A Bitcoin standard, well I guess somebody could operate their own gold standard, but it's less viable, because gold isn't so liquid, you can't use it in shops, etc.
Nick Hansen: The malleability, the fungibility of gold. Gold is somewhat fungible, but it's not transferable. If I need to pay for something in El Salvador, I have to ship them some gold. If I need to pay for something with Bitcoin, it's done in ten minutes.
Peter McCormack: But a Bitcoin standard is completely optional and down to the individual. I operate on a semi-Bitcoin standard now. I talked about keeping most of my money in Bitcoin; I'm sure you're very similar. That is my standard, you're on the same standard as me. And the more people that come onto this standard, this changes the incentive models, and that's the really interesting thing. I like the fact that we're going to move to a world of prudence and rewarding the savers and the prudent people, rather than rewarding the risk-takers.
Well, I say risk-takers; people in government aren't taking a risk. Well, they are with our money, but they're not taking a personal risk, because they're the Cantillonaires.
Nick Hansen: Absolutely. Harry said it best, "Bitcoin demonetises the political class", and I love the way that he says that, so succinct, because that's exactly what it does. It allows us to opt out of the decision-making that is effectively out of our control. Now, the decisions, while they are also out of our control, we know exactly what they are and what they will be forever. The Bitcoin Network does not change, unless we agree to it.
Peter McCormack: I still struggle communicating this to my friends. My friends know exactly what I do for a job. They see on Instagram, they see on Twitter, they see me touring the world, doing interviews, talking about Bitcoin; they see that. And I can go down the pub when I get back, which I actually am, because I fly back on the 29th. I land back on the day before my birthday. I'm going to be down with my friends in the pub.
One of the conversations, alongside football and everything else, is going to be Bitcoin; they're going to ask me what's going on. I'm going to be like, "Guys, have you bought any?" and not one of them, I'm telling you, not one of them is going to go, "Yeah". I've been saying to them, "Inflation is coming. Bitcoin is your hedge, it's your long-term hedge". I've explained everything that happens in my podcast.
Look, let's put it a different way. I've warned them. I've been warning them for… No, even better. So, it's periods. So, since 2017, I've been educating them about Bitcoin. From around 2020, early-2020, I've been warning them about what's coming, especially through the pandemic. I was like, "Okay, now it's definitely coming". And now it's happening and they're seeing it, they're seeing high inflation, they're seeing supply chain issues, I still struggle to convert people.
Nick Hansen: The conversion, I have the same conversations with my friends. I'm the weird Bitcoin guy in my friend group. We go golfing, we go to a show, we go to a game and we talk about Bitcoin, and the same exact thing that happened to you, none of them has ever actually bought any Bitcoin. They all feel like it's too late. They feel like the runup has happened.
I'm like, "If you look at the world, if you look at what's happening around the world, the US especially, we're not too late. You're at the very beginning of what is a massive weight of devaluation of everything that you own. So, jump on now, or be left behind unfortunately", and they're going to get left behind. I don't know what to tell them.
Peter McCormack: Well, they have to get comfortable with a couple of subjects. They've got to get comfortable with the idea that Bitcoin can go up forever.
Nick Hansen: That's really, really hard for people to understand.
Peter McCormack: But that's the point, it can go up forever; there is no ceiling to this. They have to get comfortable with the idea that it's volatile; they have to get comfortable with the idea that if they buy Bitcoin, they've got to forget about that for years. As a first step, I think they've got to get comfortable around those ideas. Security and multisigs and mining, they can all come later, but they have to get comfortable with the idea that it's an inelastic supply. They have to get comfortable with the fact that we don't know what's going to happen, but I'm trying to encourage them and I can't do it; I can't fucking do it! One guy bought some Tron and made a load of money, what a fucker!
Nick Hansen: What an arsehole! Yeah, my friends message me, they're like, "What do you think of Shiba just got listed on Coinbase?"
Peter McCormack: My fucking sister bought Shiba. She messaged me the other day and I was like, "Well, what are you doing? It's a shitcoin, I've told you". And then she got back to me the other day and she goes, "I was right".
Nick Hansen: How much did she make? 100% or more?
Peter McCormack: Bit more, I think.
Nick Hansen: Hurts, right?
Peter McCormack: Yeah.
Nick Hansen: The fact of the matter is that getting people into Bitcoin is going to be tough. They're going to have to come to the well. We can show them the water, can't make them drink, just like the old saying. Getting everybody that's listening to this podcast -- actually, a lot of them have one of my favourite ways of describing Bitcoin in their Twitter handles, so probably a lot of the people that are going to listen to this, is the infinity symbol over 21, because that is the price of Bitcoin. And at the end of the day, the infinity, that represents all the fiat money that has been printed and is yet to be printed.
Just heard the other day, when Obama left office, there was about an $8 trillion deficit, and it's --
Peter McCormack: We're at $29 trillion now?
Nick Hansen: Yeah, we're going to probably eclipse $30 trillion this year, $30 trillion.
Peter McCormack: The meaningless debt ceiling.
Nick Hansen: Yeah, $30 trillion. So that means, since 2016, we've printed $22 trillion that's never going to get paid back. The only way they're going to pay that back is by inflating it away.
Peter McCormack: Well, inflate it away, or if they're smart, they could have bought some Bitcoin!
Nick Hansen: Yeah, if you guys want to come buy $30 trillion of Bitcoin, be my guest!
Peter McCormack: Yeah, we're in, we'll take it.
Nick Hansen: I mean, I'm happy.
Peter McCormack: I'll take your fucking money.
Nick Hansen: Just hit the market buy button.
Peter McCormack: Okay, can we talk about Taiwan? I specifically want to talk about chips, I want to talk about ASICs and the supply issues within the market, because I probably would buy some more ASICs now if I could, and I know there's a short supply and I know there's a global chip shortage.
Nick Hansen: There is.
Peter McCormack: Explain to me what's going on there. Is it to do with silicon, is it to do with supply chain issues, COVID, is it all of that; what's going on?
Nick Hansen: Okay, I will caveat that I am not an expert in the chip manufacturing process, but being in our industry, I've talked to a lot of people that know a lot about this. So, some of the things I say may not be perfectly correct, but I'm just trying to reiterate the stories that I've heard. So, the TSMC is the manufacturer that builds the chips that goes into everything you have, that little device you have there, to the phone, to my watch, to the cameras, to everything.
Peter McCormack: TM…?
Nick Hansen: TSMC.
Peter McCormack: What is that?
Nick Hansen: Taiwan Semiconductor Manufacturing Company, or something.
Peter McCormack: So, there's only one?
Nick Hansen: There's actually a couple, but TSMC is the one that everybody talks about, because it's the biggest. So, they produce chips for everything. So, getting Bitcoin mining chips into the TSMC backlog is very, very difficult. Bitmain has a relationship there and is able to get those allocations; they call them allocations. So, they know that they're going to get their chips on day X and then probably next quarter, so X plus 90 days, then X plus 180 days.
But the problem now is it's actually not so much a chip shortage for Bitmain, Bitmain has manufacturing problems, so they can't actually get the chips that they've already got into machines and out the door into customer hands. So, it actually is a confluence of events that's produced this massive crunch in ASIC markets.
There's also some rumours that Bitmain is holding on to machines and not actually putting them into the market, because they don't want to flood the market with supply, because right now, they're able to sell them for such a premium, but I don't know if that's true or not.
Peter McCormack: Right, okay, because they can sell them for $9,000 now, whatever the price is. They wait until the end of the year, they can tell them for $25,000 potentially. I've been told $25,000 ASICs are coming.
Nick Hansen: $25,000 S19s?
Peter McCormack: Yeah.
Nick Hansen: Actually, who said that first, JP Baric from MiningStore?
Peter McCormack: Yeah.
Nick Hansen: I think he said $20,000, and I was like, "You're out of your mind", but actually he's probably right now.
Peter McCormack: They started out at like $2,000, right?
Nick Hansen: Yeah. MSRP for one, I think, when they first came out was around $3,000, and now the futures are -- we keep track of this on Hashrate Index. We have something called The Rig Index, where we track the value of different types of ASICs over time, so some secondary, some futures, and the value of an S19 is effectively just a line that goes up and to the right. There was a little dip in the summer here, when we had that dip in Bitcoin price. But yeah, I think right now, the value of an S19 is around $12,000, if I had to guess, which is based on The Rig Index data.
Peter McCormack: So, the TSMC?
Nick Hansen: The TSMC, yeah.
Peter McCormack: That's probably geopolitically one of the most important companies in the world right now?
Nick Hansen: Yeah, certainly, and they have, going back to Bitmain, Bitmain actually relinquished their allocation twice in a row. They gave up their allocation for new chips last quarter, and I think this quarter as well; and the reason for that is they just can't get the machines built. So, they have to offshore all of that manufacturing, and it looks like it's going to other parts of Southeast Asia. I think Malaysia right now is the de facto manufacturing site for Bitmain, and I believe Whatsminer as well.
Peter McCormack: Okay, so I'm really interested in understanding how much of the market TSMC has; what other chip manufacturers there are?
Nick Hansen: So, Samsung has a manufacturer, and they're partnered with Bittheory. Bittheory claims to have a 5-nanometre chip that should be coming out, I don't know if it's out or not; I haven't heard any news on that. But there are other manufacturers, they just aren't as big. So, Samsung has theirs. Then there's another one, called GlobalFoundries, but I don't know what their capacity is, and they may not be able to do 5 nanometre.
Peter McCormack: Okay. So, I'm going to talk about something I'm definitely out of my depth on, and it's a little uncomfortable.
Nick Hansen: Okay, I'm getting close!
Peter McCormack: You know what I'm going to talk about, and you can contribute as much as you want to this, but I, like most people, am very concerned about China as a country and its influence around the world, its soft form of imperialism, creating debt obligations in countries around the world through their Belts and Road Initiative. I'm concerned about geopolitical issues relating to global debt, slowdown in the global economy and the impact that's going to have. I think we're heading into very strange and unusual times, times I thought were always from the history books, not something I would see in my lifetime.
Specifically with regard to China, following the takeover of Hong Kong, President Xi has been talking about Taiwan, and I can't remember the exact words, but reunifying China. Then, we know there have been planes circling around Taiwan and we know there are, I think, the US and the UK might have deployments out there. It seems like if there is a threat to Taiwan, I don't believe there will ever be a war over it, I just don't see it, but there is an economic and geopolitical reason for China to want to take control of the TSMC, because they will be controlling a vast amount of the chips that western companies need for their products. That appears to be an issue.
I read somewhere, or somebody told me, that a likely outcome is an attempt to try and move the TSMC to another country, which says to me that there is no appetite for war thankfully, and I would feel very sorry for the people of Taiwan, because I've been there, it's a beautiful place. But that seems to me like a big issue at the moment.
Nick Hansen: Yeah, lots to unpack there. The TSMC, like you said, that becomes a geopolitical pawn, and I believe that it's a very, very important one, more like a geopolitical rook or bishop maybe, not a pawn. That is a very important piece in the puzzle. They are building other foundries, they just take a long time to build. I believe they're building one in Arizona, they've already announced this, and it should be state of the art, meaning it can produce all the chips that exist today and probably even more different types.
Peter McCormack: Probably more expensive, being built in the US?
Nick Hansen: In the US? I don't know.
Peter McCormack: Yeah, I would expect so.
Nick Hansen: But that's okay. If it avoids a global war, a proxy war via Taiwan with the West versus the East, I think we can pay a little bit more for chips. As for what happens with Taiwan, you've reached the end of my knowledge here.
Peter McCormack: Yeah, look, we don't need to get into that as such. We can agree and understand there are geopolitical reasons why this is a topic of conversation at the moment, but I think there are probably people who are better at discussing this than us!
Nick Hansen: It's funny how our little niche of the overall chip industry -- so TSMC, they build chips for Apple, they build chips for Ford. These are massive, massive companies, and Microsoft, all these companies that have technological devices, they all require chips. They're all having the same conversation. There's probably an Apple podcast somewhere they're talking about what's going to happen with TSMC. This doesn't affect just us, this affects everyone.
But the way that it affects us is that the value of our S19s now go up, and it makes it very difficult to get new ones, and the Bitcoin mining ecosystem hasn't really had this kind of crunch in a long time. We've always pretty much had access to chips. The value of S9s, they never really had this meteoric rise, like the value of S19s have, from their base price. I think the S9, when it was originally released, was $2,500.
Peter McCormack: I bought 70 of them back in November 2017.
Nick Hansen: And you didn't leave them on?
Peter McCormack: So, I'll talk you through what happened. I bought 70 of them. A friend of mine said I need to get into mining. I managed to get an allocation. I had to buy with Bitcoin cash, motherfuckers!
Nick Hansen: Wait, brand-new ones?
Peter McCormack: Brand-new ones, straight from Bitmain. Yeah, I bought 70 of them November, I thought they were around $2,000 to $2,500. By December, they were selling on Amazon for around $5,500, $6,000, and I thought, "Maybe I should sell these, but I want to mine Bitcoin"!
Nick Hansen: You should have sold them.
Peter McCormack: I did, shut up!
Nick Hansen: Because then they went down. So, we tracked the value of S9s.
Peter McCormack: Wait, let me tell you what happened.
Nick Hansen: Okay, let's do it.
Peter McCormack: I didn't know what the fuck I was doing.
Nick Hansen: Where did you put them?
Peter McCormack: They went into a hosted facility in Texas, but it wasn't a Bitcoin-specific mining facility, it was just a data hosting centre.
Nick Hansen: Got it. Do you have any idea how much you were paying?
Peter McCormack: I know exactly what I was paying.
Nick Hansen: What were you paying?
Peter McCormack: What do you think?
Nick Hansen: 11 cents.
Peter McCormack: I wish!
Nick Hansen: More? More than 11 cents?
Peter McCormack: 18 cents.
Nick Hansen: Wow! You can plug those in in your basement.
Peter McCormack: But, dude, I plugged them in, they plugged in in January and I made Bitcoin. It was great. February, I kind of broke even. March, I was like, "What the fuck?" Eventually got to the point where I had to negotiate an exit, so they ended up going into a warehouse and sat there. Back in, when was it? About a year ago, maybe a bit longer than a year ago, I was like, "What should I do with these things?" He was like, "Dude, they're only good for scrap right now for parts. I can give you $30 a machine". Just wait for a moment.
Then about six months ago, someone got in touch with me, and they were like, "Do you know where I can get any miners from?" I was like, "I've got 70 S9s". I also had 70 DragonMints, fucking useless pieces of shit. And we negotiated a price of 1.5 Bitcoin for 70.
Nick Hansen: Oh, yeah, well done.
Peter McCormack: Well, so interestingly on dollar value, I break even when Bitcoin gets around $95,000, because I took the 1.5 Bitcoin, so that would work out --
Nick Hansen: Got it. So, how much did you actually sell them for each?
Peter McCormack: I think it was about $700 each.
Nick Hansen: That's a steal.
Peter McCormack: I know. But like, dude, he was like, "Take my money". I think it might have come down maybe $650 and I had to pay for some repairs, because a few of them needed repairing. But in the end, I was like, "Yeah, that's great, I'll hold that Bitcoin".
Nick Hansen: So, let's unpack that just a little bit more, because so many people have a very similar story. So, you had 70 S9s. For anybody who doesn't really know what that is, the S9 is a mining machine and that thing uses about 1,400 watts. So, if you have 70 of them, let's say you're using just under a kilowatt. An American home is usually wired for about 20 kilowatts, so it's about five homes' worth of energy. So, it's not like you can just plug them in anywhere, so you needed to put them somewhere. But that time in history, the hosting industry was still very nascent. The pricing was all over the place. You've heard of folks getting 2-cent power, and then you've heard of folks like yourself paying 18, 20 cents.
Peter McCormack: But it was really hard to get power.
Nick Hansen: Right. It's really hard to get that much power, because it's not built for this yet. You're retrofitting a warehouse, or something like that.
Peter McCormack: It was a data hosting facility.
Nick Hansen: Yeah. I even have a story. We bought a couple of altcoin miners, had them hosted in China for 25 cents a kilowatt hour. But the thing is, the first gen of these altcoin miners are crazy profitable, so it was actually more profitable to keep them running in China, rather than wait the six weeks it would take to ship them. So, we just plugged them in and we got some videos. Those were in some pretty sketchy conditions of those things running!
But anyway, these S9s, and then over time, it eventually got to the point where it doesn't matter what energy price you had, unless it was maybe 1 or even 2 cents, you couldn't make breakeven on an S9. I think Harry said he would have been able to run an S9, even through the bear market of 2020. June of 2020, he would have been able to run an S9 profitably, not very profitably, but at least breaking even, or turning a little bit of revenue.
During that time, like you said, the S9s were effectively scrap. We were helping people find them just for the power supplies, because the power supplies, you can take those off and plug them into other machines. So, you would say, "I'll buy your batch of 1,000 S9s, as long as it comes with the power supply", and that was really the only way you could get rid of them. And people were selling them, because they were like, "I have a warehouse full of these things that are worthless".
But now, an S9, we buy one for most of the people on the team so they can get familiar with the ecosystem and run it, like you can run an S9 at home on regular power, just one, and they're like $500, $600 now. So, they didn't obviate as much as people thought. They thought they were going to be off into oblivion, effectively getting dumped into the ocean somewhere, but they were still profitable.
Peter McCormack: Originally, I thought I was going to get about $450 for the DragonMints, but what happened was, when the price dipped, they pulled out of the DragonMints. So, I was like, "Fuck". So, out of those 70, I think only 39 were running. They were shit.
Nick Hansen: Oh, so you didn't get S9s, you had DragonMints.
Peter McCormack: No, I had both. I had 70 S9s and 70 DragonMints.
Nick Hansen: So you had 140 total?
Peter McCormack: Yeah.
Nick Hansen: That's actually quite a lot of power.
Peter McCormack: It's a lot of power for a moron who's been in Bitcoin properly for a year and doesn't know what the fuck they're doing!
Nick Hansen: Yeah, it's really hard to run a profitable Bitcoin mine at 18 cents. In fact, it is impossible to do.
Peter McCormack: But that was one of my biggest lessons in Bitcoin, because when I started my breakeven on my dollar, I lost a lot of Bitcoin. We're talking about multiple tens in terms of buying the machines, and then paying the loss on the cost. That was my biggest lesson about protecting Bitcoin.
Nick Hansen: Protect your sats.
Peter McCormack: So, my simple rule, ever since then, is every month, I have to end up with more sats than the previous month. And I've had two months where I haven't, because I give some away, I sponsor projects, but generally speaking that's always my goal.
Nick Hansen: Right. So actually, I always ask this to people who have been around for quite a while. I was going to ask, "What's your biggest regret purchasing something with Bitcoin?" It sounds like this probably was it?
Peter McCormack: Yeah, it's a fair point. I don't tend to operate with too many regrets, because I think regrets can wear you down. You keep thinking -- I've had a lot --
Nick Hansen: This is supposed to be a light question. This is not supposed to be very philosophical in thinking, "Oh, my God"!
Peter McCormack: But it is quite philosophical, and the reason it's philosophical for me is that I'd learnt, a few years ago, money doesn't buy happiness. That's such a cliché, but let me explain it. Being poor sucks; I've been broke, right. So, base level costs of life, if you can pay your mortgage or rent, pay your bills, your kids need shit, you can get that and you go and do your shopping, you buy what you want and if at any point, you need to get on a plane, you can buy that ticket; I think once you've got that covered, everything else is about lumps in life.
Okay, I want that car, I want that house, I want that plane. Those lumps never buy you happiness, but everything below being able to cover base costs can lead you to being sad. So, I try and always go, actually, I have zero regrets. I'm so blessed with the life I have. But now that I've done the philosophical, yeah, of course, the biggest regret is those miners. But at the same time, it's been part of a journey of my life, which has taken me around the world, interviewing a range of people, to be sat here right now in sunny Los Angeles, hanging out with you. And I'm happy about that.
Nick Hansen: So, maybe I should rephrase the question, what was your most expensive mistake; there you go?
Peter McCormack: Say, "Pete, stop being a wanker and answer properly"!
Nick Hansen: The miners?
Peter McCormack: Yeah, the miners, but that was on a business side of things. My most expensive purchase?
Nick Hansen: Let me give you an example. I bought my mum a Target gift card with 1 Bitcoin back in the day. I used 1 Bitcoin to buy a gift card to Target for my mother for Christmas, and that thing's now work, well we're going to find out if it's worth $62,500 or not at the end of this podcast.
Peter McCormack: Did she keep it?
Nick Hansen: The Target gift card?
Peter McCormack: Oh, sorry, I thought you meant you bought her a Bitcoin gift card!
Nick Hansen: No, I used Bitcoin to buy a Target gift card for my mother in December 2014 or something.
Peter McCormack: I mean, I've got a few of those, but I was talking about this last night. Do you know Garsela, she was there last night?
Nick Hansen: Yeah, yeah.
Peter McCormack: I was talking to her about this last night. I spend Bitcoin, I will spend Bitcoin, because if I die, it's fucking useless to me. And my kids aren't just going to have my suffering and pain, they've got to go out and work themselves.
Nick Hansen: Right, got it.
Peter McCormack: So, I spend Bitcoin and I never tend to look back and go, "Will I regret that?" I mean, I bought some cars earlier this year. I bought my son one, myself two, my dad one, right, and I sold a small amount of Bitcoin for my son, as a reward for him, because he's just been so good to me. He's been very supportive of what I do. And then, say the one I bought my dad, if I hadn't had bought my dad that, I would have bought Bitcoin.
Nick Hansen: Got it, okay, I see.
Peter McCormack: Those were all in the region of like $55,000 to $64,000. They're all going to be negative Bitcoin purchases possibly by the end of today, possibly by tomorrow. I have no regret. I see my dad, he's so fucking happy with his car, he's the happiest guy alive! I like my car, my son likes his and I would happily sell tomorrow. Like a holiday, I'd happily take all my family on a great holiday. Forgetting about that Bitcoin, that holiday could cost $10,000; in a year, it could have been worth $100,000, so I don't care. I spend Bitcoin and I'm happy about that.
Nick Hansen: People need to get to that point, because I've always looked back at that Target gift card or other things that you could use Bitcoin for back in the day, and I've always thought about what the cost of that was. But at the time, it brought a lot of happiness to me and my mum.
Peter McCormack: Okay. My most expensive purchases were buying drugs on the Silk Road, there you go!
Nick Hansen: There you go!
Peter McCormack: I mean, when I first used the Silk Road, I'm pretty sure the first Bitcoin I bought on local Bitcoins was £80. So, you needed more than 1 Bitcoin, because when you're buying cocaine on the Silk Road, a gram of coke was about £100; the best guy with the best reviews! I bought a lot of fucking cocaine!
Do you know what, my dad never listens to my fucking podcast. He occasionally listens to one, and it's always one when I'm talking about bad shit.
Nick Hansen: It's going to be this one; it's totally going to be this one!
Peter McCormack: He'll be going, "For fuck's sake, Pete"! But I mean, I've probably spent well over £1 million at current price on drugs. Fucking Tim Draper's got some of my Bitcoin. You know he bought the Silk Road Bitcoin?
Nick Hansen: Absolutely, US Marshalls.
Peter McCormack: So I had Bitcoin on the Silk Road when it went down. So, Tim Draper, you've got 3 of my Bitcoin. Give them back, motherfucker.
Nick Hansen: Think about how far we've come since then. That's been a long time. This is actually a good point in the podcast to say we should free Ross Ulbricht, so let's get him out of there.
Peter McCormack: Yeah, let's support him, let's support Lyn. But also, wider than that, let's free all non-violent criminals. This fucking week, there was a guy in the UK. The headline was, "Crypto trader sentenced to 13 months in prison for stealing £32,000 of electricity to mine Bitcoin".
Nick Hansen: There's a lot to unpack in that headline.
Peter McCormack: There is. So firstly, he committed a crime and he is a thief; I 100% agree with that. He is a thief. Is there any benefit to society or him putting that guy in prison? He's not violent, this wasn't a violent crime; this was just straight-up theft. Is there a better way of treating him? Should he do community service? Should he clean shit off the streets, or whatever? Can we serve society better? Why put that fucker in jail?
Jail's going to be a horrible experience for him, it's going to be mentally damaging for him. Speaking to anyone, I mean Charlie Shrem, I did a long interview with Charlie Shrem about prison. It deeply affected him, the two years he was in jail. What's the benefit to society? I think none. So, yes, I absolutely agree, free Ross Ulbricht. But prison reform, let's release all non-violent criminals. A big fuck you to the prison lobbyists, the prison industrial machine, which benefits from incarcerating people, fuck them.
Sorry, I'm having a rant. Fuck them, let's get non-violent -- let's keep violent people in jail for sure. We don't want rapists and murderers and people who violently assault people on the streets, I think that's wrong, but do we want people who sell weed, or any drugs for that matter, do we want these people in jail? I don't agree with keeping non-violent people in jail; I think there's a better way to serve society.
Nick Hansen: I think a Bitcoin standard solves this, fixes this.
Peter McCormack: I think you're right. Fuck the lobbyist.
Nick Hansen: Absolutely. It fucks the lobbyist, it reduces their power, because they now no longer have the power over our politicians, because as we say, we're demonetising the political class by using Bitcoin. Yeah, I mean getting into that sort of topic, I don't have a super strong opinion about prison reform, I'll just piggyback off you!
Peter McCormack: Well, I'll tell you why, because I spent a lot of time with Lyn Ulbricht. I've interviewed her four times, I saw her recently in Miami. Every time I see her, she is an amazing person, a very strong woman, who has had to see her son be sentenced, have the rest of his life in jail, and she's done everything to free him. But out of this, she got a bigger purpose in life, and her purpose was prison reform.
By going to the prison to visit Ross, she would see people -- it's a bigger problem in the US, because you don't always get incarcerated where you committed the crime, or where you live. You can be moved across the country.
Nick Hansen: All over the place, yeah.
Peter McCormack: It's a big, fucking country. If you committed a crime in New York and they put you in a prison in Arizona, how do your family and kids come and see you. And if you've not committed a violent crime, if you've been sold weed, that's going to cause long-term damage to you, your wife and your kids. There is literally no benefit to anyone, apart from the prison system, which benefits financially from keeping people in jail.
I interviewed the Bitcoin Vegan dude, he spent some time in jail; that's coming out soon. He talks about this and he talks about the essentially slave labour within the prison. He gets paid $1 a day to do work.
Nick Hansen: Yeah, this is a problem around the world, but the US has definitely succumbed to it recently, especially that it seems like, as you call it, the prison industrial complex. It's definitely around and by using Bitcoin as the standard for our monetary system, we defund that type of activity, that type of practice. It makes it harder and harder for that sort of thing to exist, if Bitcoin is the backing for our financial system.
Peter McCormack: Great. Well, let's defund these motherfuckers. Right, man, we've got to get that price in in a second. You broke my heart this morning, but it's my fault.
Nick Hansen: Why's that?
Peter McCormack: Because, you told me where we would have done this interview if I'd come to see you. So, people should know, originally I was going to come to Seattle. I overcommitted myself on travel and I was fucked and I was like, "I'm going to go from Boston to Seattle to -- something's got to give", so I gave way on Seattle and I appreciate you coming here. But I gave way on Seattle, but you told me this morning.
Nick Hansen: Yeah, so I actually know somebody that could have gotten us into the Crocodile. The Crocodile is the venue where Alice in Chains got famous, and actually the drummer is still partial owner there.
Peter McCormack: Is it a studio, or is it a venue?
Nick Hansen: It's a venue, so it would be like a show venue, so we could have done it on stage or something.
Peter McCormack: Oh, man!
Nick Hansen: We'll do another one. If hash price hits $1 --
Peter McCormack: Dude, we're going to do another one anyway for that; you've hooked me. But RIP Layne Staley, he was my absolute hero. Love that guy. I think I've got three Alice in Chains tattoos. Oh, no, one, two, three, four; four Alice in Chains tattoos.
Nick Hansen: Going to see the Crocodile where that's where they started, that's where they came through. The drummer is still a partial owner there and, yeah, it would have been amazing. We could have done it on stage, we could have done it backstage on our own, but anyway, we could have made it happen.
Peter McCormack: Do you know, I've got to get to Seattle.
Nick Hansen: You do.
Peter McCormack: I just want to get to the Boeing factory, because I'm a plane nerd.
Nick Hansen: So, man, I actually know a GM at Boeing. You could come and we could get you the white-glove tour.
Peter McCormack: All right, I'll tell you what I'm going to do. I am coming back to the US next March. I'm going to do a whole month in Austin. I'm going to set up a studio and do all my interviews in Austin. I'll fly out to Seattle, come there for three days first, we'll go to the Boeing factory, we'll go to the Crocodile, we'll record a follow-up, then I'll head down to Austin.
Nick Hansen: Yeah, we'll see. Man, what do you think in March? Okay, let's put another bet out there, another 50,000 sats.
Peter McCormack: Under/over…
Nick Hansen: So, I'm a miner, let's talk about hash price. So, hash price right now is about 40 cents. Do you think difficulty is going to increase or decrease?
Peter McCormack: Let me think this through. I think it's going to -- well, it naturally has to increase, unless the price drops.
Nick Hansen: Well, the price would have to drop to like $20,000.
Peter McCormack: So, I think it's naturally going to increase.
Nick Hansen: Okay. So, is that going to outpace the price appreciation; that's the next question?
Peter McCormack: So, I think we go over $100,000 by the end of the year. I think we January dump as ever, but I don't know how much we dump and I don't know how much we recover.
Nick Hansen: So, we're going to double price; are we going to double hashrate?
Peter McCormack: Based on supply chain issues and infrastructure issues, I don't think we do.
Nick Hansen: We do not. So, we're going to see hash price increase. So, hash price is about 40 cents right now. Do you think price outpaces by 20%, so 50 cents?
Peter McCormack: You give me a fair under/over and I'll pick under/over from it.
Nick Hansen: So, we're at 40 cents today.
Peter McCormack: What's your prediction for what hash price will be?
Nick Hansen: I think we might hit $1.
Peter McCormack: Wow, okay. I'll take under on that.
Nick Hansen: You'll take under on $1?
Peter McCormack: I'll take under on $1.
Nick Hansen: Actually, so that's going to be on March, or is it ever goes above $1?
Peter McCormack: It's the price when I land in Seattle and I see you. The moment we're first together, we'll check the price.
Nick Hansen: The hash price, okay.
Peter McCormack: You can't ramp up your rates just to win the bet!
Nick Hansen: I do run the website, so I could make sure that it says $1! Okay, let's do $1.
Peter McCormack: Done it, another bet. All right, Pete, we need your help; what's the Bitcoin price?
Pete: $61,500.
Nick Hansen: Damn. Look at you, a permabear.
Peter McCormack: Right, we won't do it now, it's a double or quits now, aren't we; we're at double or quits for March? 50,000 sats, Bitcoin standard.
Nick Hansen: So, it's going to be 100,000 sats next March probably coming your way.
Peter McCormack: Potentially.
Nick Hansen: We'll see.
Peter McCormack: All right, look, great having you on.
Nick Hansen: I really appreciate it.
Peter McCormack: No, I appreciate you, man, it was a great conversation. Tell people about Luxor, where they can find out more, why they should consider them as your pool?
Nick Hansen: Certainly. So, US-based pool, we're going through all the things that you need to have in order to be a compliant company, so we're doing a SOC 2 Type 2, all the things that you need to have a secure technology platform. So, that's one of the things that we do. We have a great customer service arm that really tries to give people a warm welcome to the ecosystem.
Then, we also provide a ton of data on top of everything that we do, so we're a data-driven company. So, if you're looking for insight into your mining operation, Luxor's there for you. If you're looking for insight into the overall mining of the ecosystem, we've got Hashrate Index, tons of data there as well, whether that's the rig prices, the hash price, whether that's the value of the individual rigs or overall, the mix. We have all sorts of products out there, so come check us out at Luxor.
You can find me on Twitter @hash_bender. It's a throwback to Airbender, because we are always bending hashes around, moving hash between different places, doing cool hashrate stuff. So, @hash_bender, Twitter, Telegram. Nick@luxor.tech, if you don't like either of those.
Peter McCormack: And another, I'll give a final shoutout to Colin for helping me with everything and probably give a shoutout to Compass as well, but appreciate you, man. I loved this, it was great to meet you, and we will do this again, end of February in Seattle.
Nick Hansen: Yeah, appreciate it, man. Thank you so much.
Peter McCormack: Peace out, brother.
