WBD481 Audio Transcription

Bitcoin’s Clean Energy Revolution with Nic Carter & Troy Cross

Interview date: Monday 28th March

Note: the following is a transcription of my interview with Nic Carter & Troy Cross. 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.

Nic Carter is a Partner at Castle Island Ventures, and Troy Cross is a Fellow at the Bitcoin Policy Institute. In this interview, we discuss Bitcoin mining as an ESG offset and how Bitcoin miners could be the frontier of energy development whilst helping nations attain energy sovereignty.

“The best new idea I’ve come across… it’s a market-based, voluntary, bottom-up mechanism to resolve individual qualms around sustainability relating to ownership of bitcoin.”

— Nic Carter

Interview Transcription

Peter McCormack: Good to see you again, Troy.

Troy Cross: Good to see you again.

Peter McCormack: Good to see you again, Nic.

Nic Carter: Hello, Peter.

Peter McCormack: The show we did stirred a few people up.  You've been busy on Twitter replying to every single person, I see!  You've been busy.

Troy Cross: I've been very busy.  I can't believe the response that show got.  There was some negative response --

Peter McCormack: Of course.

Troy Cross: -- which we expected.  I didn't expect the overwhelming positive response that I've gotten in the DMs, people wanting to work with me, people wanting to just talk further about the idea; it's been insane.

Peter McCormack: How many people reached out to you?

Troy Cross: It's in the hundreds.

Peter McCormack: Wow!

Troy Cross: Yeah.  I think there was a pent-up desire for a narrative that was already out there, but for some reason, I think a pleb coming out of the woodwork with this idea inspired other plebs who were also in the woodwork, and wanted some other narrative other than just, "There is no climate emergency", on the one hand or, "Bitcoin sucks", on the other hand.  And people latched on to it as a point of hope.

Peter McCormack: It was a very popular show, the comments were very good.  When you measure in terms of downloads, the show far outperformed -- there's usually a correlation between how many followers you've got on Twitter and how well the show does.  A Nic Carter show is an above-average show.

Nic Carter: That's why you keep dragging me on here.

Peter McCormack: Dragging me on.

Nic Carter: You summoned my arse.  I've never travelled for a podcast before.

Peter McCormack: Well, we're worth it though.

Nic Carter: Yeah, you're special!

Peter McCormack: And, thank you for the validation with Troy; Nic said I should talk to you.  But the show did very well, far out-performed what I would say is the standard correlation.  And the comments were almost universally very positive, which was super-interesting, because I expected 50/50.  So, when I tweet about climate change, because I believe it is an issue caused by humans, I get people who agree, it's about 50/50 with people, half agreeing, half think I'm an idiot, and I expected some positives and some negatives.  But it was almost universally positive, which was interesting.

Troy Cross: Well, let's get those negative ones today, let's do it!

Peter McCormack: We can cover that.  Well, what did you get, negative-wise?

Troy Cross: Honestly, I got less negative response than I had before.  Like, for instance, when Nic wrote up a piece about the idea I had with Andrew, I got some pretty intense, you know, the standard maxi attack, which I see you got the other night on Twitter too.

Peter McCormack: The most balanced tweet thread I could possibly write!

Troy Cross: Yeah, there's a stock of, I don't know, homophobic insults that come your way, I won't repeat them, but yeah, I got a few of those, but a surprisingly small number really.

Peter McCormack: Okay.  Well, listen, just as a starting point, there will be people listening to this who may not have listened to the first show, there's a big increase of listeners over the last couple of weeks, we don't know why.  I would recommend anyone listening, if you didn't listen to the first Troy show, it's probably best to go and listen to that before this, it was a few weeks ago.  But if they don't, just do a very quick reminder, the quickest reminder of the model possible.

Troy Cross: Quickest as I can.  Okay, first part of our show was really dismissing a bunch of FUD, and where I was just playing a lesser version of Nic Carter.  Then, we talked about the challenge of meeting the climate targets that we've set for ourselves and what that will take.  In order to meet the targets that we've set, we need to drastically and very quickly cut CO2 emissions.  And the only way to do that that's humane and decent is to create a tremendous amount of new energy generation with less carbon-intensive forms of energy production, like wind and solar and nuclear.  And that needs to happen very fast. 

We need to electrify the economy, switch over fossil-fuel-burning parts of the economy, like internal combustion engines and heaters, to electrical motors, electrical heaters, and that will mean that we need to triple or quadruple energy production, electricity production; and if that's done in a sustainable way, that means a tremendous build-out, which requires a lot of flexible load to handle the intermittency of those sources, and Bitcoin is the best flexible load there is, Bitcoin mining.  It helps to monetise that build-out and get us over the hump into that renewable transition.  That was one part of the show.

The remainder was the summary of this paper that I wrote with Andrew Bailey, which explains how you can hold Bitcoin in a way that erases your carbon footprint.  You do that by mining in proportion to your holdings.  If you hold 1% of all Bitcoin, say, you just do 1% of all Bitcoin mining in a sustainable way, or you buy 1% of all hashrate that's sustainably produced. 

We argue that because Bitcoin's supply is algorithmically limited, it's 6.25 Bitcoin per block, or 900 Bitcoin a day, if you mine your proportion of all mining as you hold of all Bitcoin, you're literally taking Bitcoin off the table for every other miner.  Like, if you own 1% of Bitcoin and you do 1% of mining, you are mining 9 Bitcoin a day.  That leaves 891 for the rest of all miners in the world.  And if yours are not producing carbon, if you mining those 9 is not producing carbon, the rest of the network is not really your concern; you've mined your part of the -- you've mined the same incentive that you've given to the network, you've mined it.

So, these two ideas played together, I'll wrap this up, so that actually if a lot of people who hold Bitcoin decide to mine their incentive, mine the same percentage of all mining that they own of all Bitcoin, that would be a tremendous influx of capital into Bitcoin and into green mining; into Bitcoin, because we have, whatever, $16 trillion in this country that's locked in ESG frameworks and we think we can unlock that capital, and that will push number way up; and, if people are buying green hashrate, that provides an incentive to do green mining, which then provides the incentive to build out renewable power.  So, yeah, that's how Bitcoin mining saves the environment.

Peter McCormack: Yeah, it was the second part that I thought was more interesting, trying to incentivise people to actually start mining their percentage, I think that becomes a bit tricky.  But if you can incentivise people who have budgets to invest into ESG projects, despite the fact that there are people who hate ESG and think it's propaganda, it's not going away.  If you can incentivise people to put money into these projects, you can actually bring new people into the network, who also can earn Bitcoin by offsetting, which is this strange reward mechanism.  That was the bit that really clicked for me.

Troy Cross: Yeah, actually that's part of why people responded to the show, was because of you.

Peter McCormack: It's because of you.

Troy Cross: Well, it was both of us.  I have this idea that I've had for seven months and that I couldn't communicate.  Nic got it, Nic helped get it out there, but it's a hard idea actually to grasp.  And a lot of people were in the same position you were listening to the show, and when the lightbulb came on for you, it was just an incredible moment.  And it was a moment for both of us, because for me it was like, "Oh, I'm understood!" and for you it was, "Oh, I understand, it's exciting!"

Peter McCormack: Yeah, well you didn't tell me the good bit when we went for dinner!

Troy Cross: I wanted that moment, I wanted the moment of surprise!

Peter McCormack: So, Nic, you recommended that I talk to Troy, you said he's somebody that should be listened to.  You've also spent a lot of time looking at mining.  You produced that epic report with NYDIG.  You're also saying Bitcoin mining is the most misunderstood industry.  What is it about this that grabbed you, as somebody who's looked into mining a lot?

Nic Carter: Well, I'm in the twilight of my Bitcoin career, right?  So, what is it that you do when you're sort of nearing retirement?  You elevate the younger and better voices, so that's what I'm doing here!  So basically, Troy and Andrew's idea is the best new idea I've come across in the conjunction of Bitcoin and the sustainability space.  It is a market-based, voluntary, bottom-up mechanism to resolve individual qualms around sustainability, relating to ownership of Bitcoin.  It's non-coercive, it doesn't require any convoluted tracing of Bitcoins, or imposing a moral accounting on top of individual units of Bitcoin, which is something I constantly see from all of the place, regarding green Bitcoins and blood Bitcoins, which is logistically a nightmare, and I don't think will work. 

So, I think this mechanism is the best one to achieve moral safety for people who want to own Bitcoin, but are also concerned about the sustainability of Bitcoin.  Yeah, so I think it's the best one I've seen and I thought the paper was excellent.  I think it's something that's very pragmatic too, it can actually be very easily implemented.  You don't have to personally mine, you can just buy equity in a sustainable miner, of which there are many.  So, I just wanted to lend my support to the idea, because I hope that in the marketplace of ideas, regarding making Bitcoin sustainable, this one outcompetes the other bad ideas.  So, I think we have a chance to do that.

Peter McCormack: And one of the things I left thinking is that there's a potential for someone to monetise this in creating businesses that support this.  As somebody who's just raised a $250,000 fund, I actually think people could invest in this to create the potential ability -- we've talked about hash-power markets, the ability for people who have the need to offset or invest is cheap budgets if there was a company which only green mined, they could sell that hash power out to those who need to offset their ESG.  And I think that's the part, again, that I think's way better than somebody like me thinking I own 0.000-whatever a percent of Bitcoin, I should mine that much, because I can always say no. 

But if there's these huge budgets that are available and somebody creates a marketplace for this, perhaps someone like a Compass Mining, one of their facilities is only a green mining facility, they could sell that hash power within the market.  That feels like the next logical step.

Nic Carter: Yeah, that's the crazy thing.  That would be a very direct way to do it, if Compass or another retail mining provider said, "You can get direct exposure to a specific ASIC that's allocated in a location that's getting purely sustainable energy", that would be direct.  But frankly, I think the idea already works in practice, if you can identify miners that are almost entirely sustainable, of which there are many.  I'm not going to call them out by name, because I'm not going to recommend specific investments to make.

But basically, the mechanism there is, by buying equity on the public markets for a publicly-traded miner, which can credibly say, "We're 85% or 95% sustainable", whether it's hydro or nuclear or solar or wind, or whatever, you're reducing their cost of capital, you're making their operations cheaper, you're making it cheaper for them to monetise their operations through the sale of equity.  That's the direct causal mechanism.  And so, that is a way to allow them to fundamentally outcompete other miners that wouldn't get that investment from that sort of motivated investment from the public markets.  So, the mechanism works today.

Peter McCormack: Nuclear is considered sustainable, renewable?

Troy Cross: Can I just step back?  I think that I agree with Nic that the mechanism works today.  It's a little bit messy with equities, just because it can be a little bit of a side bet, in the sense that you're lowering the cost of capital, but how much and how do you quantify that?  It's a little bit more difficult than quantifying hashrate, which since we know pretty well what the total hashrate is, it's very easy to calculate exactly how much hashrate you need to balance your ownership.  But it's like a stopgap measure, and I'll just say that there are people working on it on a more direct product that are talking to me, and I think it will happen.

Peter McCormack: Okay.

Troy Cross: And I also want to come back to your nuclear question, okay.  So, I want to specify something else, so thanks to Nic for saying this is a voluntary idea; that's right.  It is a voluntary idea, and it is not wedded to any particular notion of what sustainability is, honestly.  It's a formula that has, as a variable, an input for you to think about what sustainability is.  So, if you think coal is the most sustainable form of mining, for whatever reason, I disagree with you; but if that's what you think and you own X% of Bitcoin and you think that, then go ahead and mine X% of all Bitcoin mining with coal.  That's your call, it's up to you, this isn't something that's being forced on you.

Peter McCormack: Well, that doesn't make sense.

Troy Cross: It doesn't make sense because coal's not sustainable?

Peter McCormack: Yeah.

Troy Cross: Andrew and I wrote another paper in CoinDesk, called Mine Your Values.  The idea is, what does it mean to be a Bitcoin holder, and how do we shape the future of the Bitcoin Network?  Bitcoin is a mechanism for us to express our values in many ways.  Running a node is one of the ways you do that; what pool you join with your miner, if you mine, is one way you do that; do you CoinJoin?  That's another way.  There are many things we do as bitcoiners to express our values.

Mining is one of those and how you mine.  So, our overall thrust was, "Do you love Bitcoin?  Do you want to see it go in a direction you want it to go?"  For instance, is the network going to blacklist addresses?  Well, that's in part up to you, bitcoiner, you have a say in that, because you have a say in the evolution of the network.  I have a paragraph in there where I say, "We're not used to being able to control money.  We're used to deferring to the high priests of money".  For most of us plebs, we have nothing to do with the Fed or with the banks.  We don't control money, but we do control Bitcoin.  Okay, mining is just one way you do that.

Then, if you want to know how much of mining is on me as a bitcoiner, I would ask, "How much do you hold?"  Same percentage.  So, that general formula is separate from what I think sustainability is.  Do I think nuclear is sustainable?  Yes, I think nuclear's great.  If you disagree with me, fine, then mine with something else.

Peter McCormack: Yeah, but if we are talking to people who have ESG budgets to use or offset, we can't say, "Here, you can invest in Bitcoin mining sustainability projects", and then it's mining which is using coal, that defeats the object.

Troy Cross: For the ESG board, it's the same thing, "What do you think is sustainable power generation, ESG board?"  We want a segmented hashrate market.

Peter McCormack: There's no set code for this.  ESG budgets and ESG investments and ESG boards, they all decide, what, and put that on their website?  There's no actual central, "You should be investing here".

Troy Cross: I think you're going to have a harder time selling natural gas, maybe even flare gas mining, which I think is the most sustainable form of mining; but you're going to have maybe a harder time selling that to an ESG board than wind or solar, because they're not going to list that as sustainable.  You might have a harder time selling nuclear to that board. 

I would like to see a segmented market in hashrate, and I would like to see the market decide which hashrate sells.  I'm not on an ESG board, I'm not a sustainability guru, it's just this idea is a formula, and it's a market idea, it's a bottom-up market idea.

Peter McCormack: Let me ask you a different question.  Carbon offsetting, you talked about the Winklevosses, they invested in carbon offsetting.  Okay, that's great.  But in the world of carbon offsetting, are there things that are considered valid projects, or valid ways to invest your money to carbon offset?

Troy Cross: Yes.

Peter McCormack: Is there a set set of rules, or a set of guidelines that have developed around consensus?

Troy Cross: There are many!  There are many such rules.  I don't think there's a single overarching one, but yeah, there are principles.  And would it be great for us to have that?  Yes.  I just want to separate out that idea of coming up with standards and enforcing them from the general principle, which is open on that.

Peter McCormack: Yeah, but there's no regulatory central body that decides what is and what isn't?

Troy Cross: No.

Peter McCormack: That's fine, okay.  So, what we're really saying is, coal is dirty, flared gas is sustainable and that should be good, positive.

Troy Cross: I think so.

Peter McCormack: Wind and solar, which we can get into, are considered renewables; nuclear is debatable, because over the last week, I've discovered there are environmentalists who hate nuclear and environmentalists who love nuclear.  Okay, I get it.

Nic Carter: That's the reason I don't like the binary taxonomies with sustainable.  I don't even talk about renewable and non-renewable; I talk about carbon intensity of energy generation, that's the fundamental.

Peter McCormack: Okay, yeah.

Nic Carter: Because, what we're interested in is the CO2-equivalent emissions, that's what we care about here.  So to me, it doesn't matter if there's a finite amount of this resource.  Uranium, I guess, is finite, so it's non-renewable, but it has a low carbon intensity, so that's what matters to me.

Peter McCormack: Okay.  And so with this, can we measure carbon in, carbon out, because it's not like even with solar or wind generation that these are zero carbon inputs to create a windfarm.  I think that's been covered by some of the people who are nervous about these ESG or renewable projects.  They say, "We don't consider the carbon input to create the steel that creates the turbines".  Has any work been done to measure this?

Troy Cross: Yes, it's a mess.  And this is maybe something where my rhetoric and Andrew's is a little bit simplistic, when we talk about carbon neutrality, or zero carbon.  Obviously that --

Peter McCormack: Doesn't exist.

Troy Cross: -- doesn't exist.  There's this notion of energy return on investment, and there's a ton of literature on, "What is the energy return on investment for wind, for solar, for natural gas, for nuclear, different kinds of nuclear, for geothermal, for hydro?"  The ranges of estimates for that are so wide, that while there are meaningful differences, it makes me very leary of putting a specific number on a specific form of energy generation.

I will just say, I've seen a lot in the Bitcoin community of people saying that windfarms never pay back the energy that is required to make a turbine.  I mean, that's just false.  I've looked into the literature, the peer-reviewed literature on this, it depends on where you are and how windy it is, but in West Texas, you can pay back a turbine in six months or a year and they last over a decade, and solar lasts 30 years.  Most solar panels that are sold now come with a 30-year warranty.  The payback is a few years, it depends on how sunny the region is and the temperature and that sort of thing.

Peter McCormack: The work to do this shouldn't be that difficult, to model it out for each source of energy, the carbon in, carbon out, just to completely debunk the arguments around this.

Nic Carter: You need to trace the entire supply chain, the origin of all the materials.  So, of course there is the valid point that yes, these things, the raw materials have been made in China with oftentimes dirty inputs.  But you know, it's a question of scoping.  You scope one emissions and scope two emissions, so if you consider the broadest possible picture, you're always going to identify some higher carbon intensity in terms of the factors of production.

Peter McCormack: I'm sure somebody out there listening to this would be capable of doing that project with funding?

Nic Carter: Oh, yeah, the work is done, for sure.

Peter McCormack: The work has been done, or can be done?

Nic Carter: It is actively done, yeah.

Peter McCormack: Okay, so we have an idea.

Nic Carter: We know.

Peter McCormack: So, do we know the arguments coming from people who are nervous about the arguments regarding climate change and that we should consider this, against solar and wind, is that essentially climate-change FUD?

Nic Carter: I mean, I think it's valid to point out that wind and solar are intermittent and they don't provide base load, both on a seasonal basis, winter/summer, then on a daily basis.  Solar obviously has more predictable patterns, wind less predictable.  So, is it more of a challenge to construct a grid with wind and solar as the underpinnings while we still don't have highly economical battery technology?  Yeah, so I think that's a valid point to make, that it's a different model of supply, different model of generation.  Does it mean that wind and solar are not economical?  Of course not.  In fact, the cost curve declines are astonishing with both wind and solar.

Peter McCormack: Okay.

Troy Cross: And with batteries as well.  I mean, the related points that are made about solar and wind is that the materials aren't always recyclable, and that the inputs -- actually, European-manufactured solar panels have half the carbon intensity of Chinese-manufactured solar panels, and that sort of thing is very difficult to track.  And it's true that a lot of solar that's manufactured now is not recycled or not recyclable, but these things are technological problems that are improving. 

Some turbines that are manufactured now are recyclable, some you've seen the images of them being buried by bulldozers, they're not recyclable.  But every part of a solar panel, in principle, could be recycled.  It's a question of regulations, where they're produced, and following best practices and improving the technology.  It's a technology.  This is the big difference, I think, between fossil-fuel production and solar and wind, it's that the cost curve is dropping like a stone, the cost curve on batteries is dropping like a stone.  We saw nickel just, I think, spiked last night to absurd levels. 

Peter McCormack: Because of nickel?

Troy Cross: Yeah.  But there are also problems with unethical sourcing of these components with human exploitation; that's another problem.  Our way of life is problematic in so many respects.  The materials that we use to live come from all around the world and we don't know how, we don't see these supply chains.  So, is there exploitation of people?  Probably, just like there is for your phone.  What does that mean?

Peter McCormack: Well, I think something like that, similar to the waste, is potential misdirection, because there's a difference between waste generated by building these products, which maybe ends up in landfill, but we all contribute to landfill, well, the majority of people.  But I think it's misdirection, because I think the more pressing issue is reducing the increase of carbon in the atmosphere; that's a more pressing issue than waste.

Nic Carter: Totally.  It feels like a red herring when people talk about the wind turbines in the landfill, because we're not just talking about ecology here, we're talking about a specific thing, which is anthropogenic climate change due to CO2 emissions.  So, what we care about is the carbon intensity of the grid.  So the question is really, "Does the grid have more carbon intensity with a greater or less penetration of renewables?  And, how does the influence of new renewables change that?"

So, I think there's valid points to be made there, that for instance when you have wind and solar, now you need more maybe thermal sources of generation to counteract the intermittency that you get from wind and solar.  If you look at the German grid, the carbon intensity has not really declined, even though they have a higher penetration of renewables.  So, that's a valid question, I think.  But the notion of talking about wind turbine blades and landfills, that's kind of irrelevant to the much larger issue.

Peter McCormack: Is it Denmark that has moved towards, they've actually got to a point where at one point, they were 100% renewable?  Do we know this?  Do you want to look that up, Danny?

Nic Carter: I know there were the pioneers of offshore wind.

Peter McCormack: So, it is possible for --

Nic Carter: Well, the problem is just that, if you're heavily wind-dependent, the wind can stop blowing, and so you do need a reserve of some other supply.

Troy Cross: This is something that solar people have talked to make this point, that as you approach a higher and higher percentage of solar and wind, the marginal cost to get even more solar and wind on the grid increases.  So, getting from 10% to 20% renewable is very economical.  Getting from 70% to 80% renewable is a whole different ballgame, because you're adding power at times when the grid doesn't need that power, because it's already got a lot of solar following the same curve.

Peter McCormack: That's where Bitcoin mining comes in.

Troy Cross: That's where Bitcoin mining comes in, exactly.  It's batteries plus mining that help us achieve a much higher percentage of renewables than we otherwise could.

Peter McCormack: Nuclear plus renewables plus batteries plus mining.

Troy Cross: That's the plan.

Peter McCormack: In some drawing.  Nic, you talked about the miners and you said you didn't want to name names.  I don't think that's a bad thing, but if you don't want to, that's fine.  In terms of some of the ones you're aware of, that they're potentially greener mining companies, do we know if any of them have, for example, built their own windfarms or are exclusively sourcing from windfarms, or do we know it's a percentage that they're getting from the grid that we know it's a percentage that is from renewable; how do we know; what do we know about this?

Nic Carter: Yeah, so a lot of mining companies are publicly traded.  There's maybe 30 in the US alone.  And so, by law, they have to disclose all the material facts about their operation, which is really interesting actually.  That was not the case two years ago.  There were all these miners in China we didn't know anything about, so that's a great development.  So, there's a bunch of different models with mining, they're not all doing the same thing.  Many of them are very focused on sustainability, not just because of a capital markets thing, and because being pro-ESG is going to help them with the SEC, or whatever; but just because it's the right thing to do and because miners have the ability to be discretionary in terms of where they secure energy from.  They can buy energy from anywhere.

The main one I've seen is just hydro and locating in areas where there was a mismatch between the supply of energy and then the demand.  So, places where maybe industrial production dropped off, like Quebec would be a good example, British Columbia, Washington State, upstate New York; these were places where there were big industrial sources of demand for cheap energy.  And then, whatever those industries were, like paper-pulping, aluminium-smelting, there was a case of a hockey stick factory in Quebec which is now a Bitcoin mine, those industries left, because we can't predict what the nature of demand is going to be 30 years from now, but energy gets amortised over new energy installations, they have that kind of lifetime.

So, these mismatches occur, and so then you have huge sources of supply, especially upstate New York, Quebec, Canada, things like that, with hydro and no demand, because all the industries went to China, or whatever, they just got outsourced.  So, that's the first one, that's very straightforward.  You can effectively complete completely hydro based energy, and there absolutely are miners that do that.

The more complex and interesting one, I think, is where miners will co-locate with renewable energy assets, like wind or solar, and these are assets often times that are distressed in some way, because you might have a windfarm that gets built, and then on the plots of land all around that windfarm, you have three more windfarms get built.  And so, you then have a correlated generation, where they're all trying to sell energy to the grid at the same time, and there's no one there that wants to buy it.  And you might have a situation like West Texas, where there's transmission bottlenecks, where you've got 35 gigawatts of load on a sunny, windy day, and only 5 gigawatts of local demand, and only 12 gigawatts of long-term transmission to the rest of the state, so you can't even really export all the energy.  So then, the energy asset owners can't sell it.

At that point, that's where Bitcoin miners come in.  They say, "We're going to put a mine next to this windfarm so you're not going to have to pay any transmission fees", so the energy's going to be really cheap for them.  However, they can't run their operations on a solar or wind asset 100% of the time, because the wind doesn't always blow and the sun doesn't always shine, so that's when it's more complex.  At that point, they will engage in grid firming.  They will pull energy from the grid to make up whatever the remaining percentage is; and at that point, they'll just get the default grid mix.

So, it's not a story of 100% pure sustainability, because if you trace the electrons, you'll be able to trace them back to some more carbon-intense sources of generation, like natural gas; but what you are doing is rescuing the economics of renewables that are stranded, and you're allowing a structural overpenetration of renewables on the grid, which I think is good.  And so, you'll get that in Texas.  Texas is a great case study; they're piling wind and solar onto the grid right now in huge, huge amounts.

Peter McCormack: Why?  What's the incentive?

Nic Carter: To transition away from fossil fuels.  And there are subsidies, of course, but Texas is also incredibly suitable for both wind and solar, it's the best state in the US for that, it's the number one state in terms of wind and the emergence of solar on the Texas grid is very dramatic.  And they're also cheaper too, yeah, there's a number of reasons.  So, the Texas grid is really the first petri dish, aside from like Hawaii for instance, in the US where we see this hugely rapid transition.  And it's not a surprise that Bitcoin miners are flocking to West Texas to scoop up effectively stranded renewable energy.  

Troy Cross: And to me that's our narrative.  Here's the big picture, Nic Carter's been fighting it out with the energy FUDsters for how long?  I mean, when was your first article you wrote on this stuff, Nic?

Nic Carter: I don't remember.  I remember at Fidelity, I wrote a memo on this in 2017.

Troy Cross: Right, you were basically a child at that point!

Nic Carter: I didn't know anything about this though, I didn't know what demand response was when I started out though.

Troy Cross: We're all learning a lot about the grid weirdly.  But Hass McCook too --

Nic Carter: Since 2014, all this started.

Troy Cross: So, this FUD has been ever present and weighing on Bitcoin.  And I think that bitcoiners, we have these slogans like, "Bitcoin is inevitable", and it's, "Everything divided by 21 million", or whatever.  The protocol handles the supply side and keeps it limited, but the value comes from where supply and demand meet.  And demand is influenced by this stuff.  This is, I think, the number one thing holding Bitcoin's value down, is energy FUD. 

We have a narrative now which I think a lot of bitcoiners don't want, because they're so embittered by having years of FUD launched at them, and that is this thing that we've pledged to do, this thing we tried to do with the green new deal, which is transition away from fossil fuels to renewables, in order to meet climate targets and stay under 2°.  I think the 1.5° ship has sailed.  But we need to cut CO2 pretty drastically in a very small amount of time in order to meet those targets, and if you look at the IPCC report, what happens at 2° is dicey.

Peter McCormack: 3.2° is pretty bad.

Troy Cross: We don't even want to talk about that, that's depressing.  1.5° is already pretty bad.  I have to say, some of this starts for me in Portland, where we hit 116° Fahrenheit last summer, and we've had drastic forest fires, the largest in the history of the state, over the last three years every summer.

Peter McCormack: Let me ask you a question on that first, because people will say that's come down to forest management.

Troy Cross: There's an element of forest management too.  I'm fortunate to work with people who study exactly this.  I work with a guy who wrote his dissertation on forest fires and climate change together, and there's an element of that too.  Although, by forest management, I think I probably have a different idea than what they have in mind, which is prescribed burns, which ironically the state doesn't allow enough of because of air quality concerns, and then we have the worst air quality in the world, like five times as bad as the worst city in China, or whatever, during these fires.  But we hit 116°, and that's not on forest management.

Peter McCormack: What's that in British temperature?

Danny Knowles: It's got to be high 30s, hasn't it?

Troy Cross: It's 5° Fahrenheit over our previous record.

Danny Knowles: Oh shit, it's 46°!

Peter McCormack: Jesus!

Troy Cross: And this is only three hours south of Canada, near the top of the US, in a temperate rain forest climate.  Of course, this is one event and this doesn't make a case, but it's not out of the ordinary, it's the entire West Coast that is suffering an historic drought.  It's a statistical case, right, but it's in line with what the IPCC is saying.

I just looked up the weather.  I went to this meeting with the chairs of different departments at my college, and we were looking at the 2050 plan for the college, where are we going to build, how are we going to develop?  We were like, "Oh, we can build on parking lots, that's one place where we don't have to worry about zoning".  One of my colleagues was like, "Yeah, but we need that parking lot, because it's nice to park there and walk to your office, it's close to your office", and I'm like, "We're still going to be parking and walking to offices in 2050?  What is 2050 going to look like weather-wise?"

I went back to my office, just typed into Google, "Portland weather 2050", what's it like?  And I got different estimates based on different models.  One of them was, "It's going to look like Sacramento, the weather's going to look like Sacramento in 2050".  I was like, "Well, I've been to Sacramento, it looks nothing like Portland, Portland's temperate rain forest", it's amazing, beautiful huge trees.  Then I looked at some of the other ones.  Some of the other estimates were like San Antonio.  Well, I've been to the river walk, it doesn't look anything like Portland.

I was like, "Oh my God, if Reed College", which is called sometimes the most progressive college in America, "If their professors are not willing to make certain lifestyle changes, which are just parking a little bit farther away and walking to their office in 30 years' time, we can't conserve our way out of it, and we're not thinking about how dramatically things are going to be different".  The plant life here, it just doesn't match up with San Antonio at all, and that's stuff is not even going to migrate to Portland.

So backdrop my own concern about this, which is seeing this at my own college, doing the maths, well not the maths, but checking to see what our weather would be like in 30 years and just thinking it through, it's a little bit overwhelming actually to think about it.  Then to see these massive weather extremes.  I understand bitcoiners aren't going to share that picture with me, but some of them will.

Anyway, sorry, rant there!  This is our big FUD, it's ESG FUD.  Here's how we go on the offensive with it.  Bitcoin is the solution, it's the solution to the climate crisis.  It's not the solution, it's one tool in a big toolkit.  We go on the offensive with it.  What's your plan for meeting our targets?  How do you think we achieve renewable penetration?  You're going to do it with massive subsidies?  I don't see that happening, and that's the narrative I think we need to pursue.

Peter McCormack: So, let's deal with the elephant in the room, or there's a few elephants in this room.

Troy Cross: Too many.

Peter McCormack: There are people who are considered climate alarmists, or climate hysterics.  That's a name that's been used this week by Saifedean and Stephan Livera as well, and there are, for example, in the UK there's this group called Insulate Britain, who've been gluing themselves to roads, not particularly effective, and pissing people off.  But there is a question about whether this is a crisis.  Is it a crisis now; is it a future crisis?  The models have been brought up quite regularly, none of the models work.  Michael Mann, who has changed his view now, wrote an article in the 1970s saying, "We're going into a cooling period, and then there's questions over the ozone layer and then acid rain", etc.

What we face is a real pushback from elements within the Bitcoin community, and I've actually categorised them.  There are people who outright deny there is any human influence on climate, and usually say, "Climate is always changing", or they bring out some model they found that says, "This is all natural".  I think those people are insane.  There are those people who accept climate change, but they have reservation around action.  If we reduce the burning of fossil fuels, what are the risks associate with that?  We have people who agree there's climate change, but think it isn't extreme, as someone like Alex Epstein.  He actually accepts it's happening, he just doesn't think it's as extreme as people think.  There are people who are accepting it and believe it's happening and are open to action, and then the alarmists.  So, we've got a group of people.

If I think of the spheres of my cohorts, or friend groups, etc, amongst my friends and family, I don't have to have a difficult conversation about climate change.  We're all in agreement there is an issue, because we've been told for years it is, and maybe we haven't thought critically or looked into the data, whatever.  When I go into the Bitcoin community, it's a very challenging place to be, and I refer to Saifedean, because he wrote a thread, which I agreed with parts on and disagreed with parts on, and I wrote what I thought was a considered reply; and in a very balanced reply saying, "Here are the issues we're dealing with, here's the issues I agree with, these are the considerations", it was quite a large amount of aggressive responses back to what I think was a balanced analysis.

So, we're dealing with certainly a group of people who have no interest in this, they think ESG is propaganda, they think it's about control and they think it's about taxation.  So, that's a big issue to deal with.

Troy Cross: Yeah, I get the response that, "Sure, you're not trying to force anyone to do anything now, but you will".  No, I'm committed to liberty first and foremost, and there is a creeping authoritarianism behind a lot of ESG talk, and I vehemently oppose it.  Back to the science, I'm not a climate scientist.  I do know some, like my brother-in-law is one.  He's got a PhD from Harvard in atmosphere chemistry and he does climate science at the University of Washington, flies around in planes, gathering samples of air and analysing them with a highly sophisticated machine.  I work with Margot, who you just interviewed.

Peter McCormack: Yeah, Margot's great.

Troy Cross: I mean, she's a climate scientist.  I'm not going to go toe-to-toe with people on fighting out the thing.  Here's my thought.  It's just that we're facing a lot of FUD and there are different ways to deal with it.  You can say, "You have to agree with me that there is no climate crisis, and then if you agree with me, you can buy Bitcoin".  Or you can say, "Buy Bitcoin.  The climate crisis thing, that's unrelated, because you can hold Bitcoin in a very low carbon-intensity way".  And I think the latter approach is a far better approach, because 75% of people think that climate change is a real, serious issue.  So, you're just taking your total addressable market and cutting it by three-quarters, if you insist that people agree with you first of all that there is no climate crisis, before they buy Bitcoin.  To me, that's just a bad market strategy.

In terms of the word "crisis", it's a vague term.  This is something I study as a philosopher, vagueness.  Of course, any precise way of saying whether we are in a crisis can be disputed; it's a vague term.  I mean, it is what it is.  Look at the IPCC report, think about what it would be like to have Bangladesh submerged and where all these people would go, or what it would be like to have a lot of drought and floods and fires and people migrating because of that.  I don't care whether we call it a crisis or not, it's just a word.

Nic Carter: I'll add one thing here, which is just a matter of pragmatism actually.  So, if you accept Troy's reasoning here around what the mechanism is, to absolve yourself of any moral responsibility associated with the emissions deriving from Bitcoin mining that might be increased due to your ownership of Bitcoin, then you're unlocking anybody that wants a Bitcoin position but is concerned about it.  And I've talked to some of the largest asset managers in the world that say, "We really, really like the return characteristics of Bitcoin, we see a role for it in our portfolio, but we cannot get there, in terms of creating investment products around Bitcoin and getting exposure to Bitcoin directly", the largest pools of capital in the world basically.

Look, maybe we don't need those pools of capital, we're bitcoiners, we're fiercely independent, we're sovereign, we don't need anyone to own Bitcoin, right, we're happy owning it regardless.  But if you want to unlock some of these pools of capital that have enormous trepidation, this is a great mechanism to do it, whereby they can talk to their stakeholders and say, "Yeah, we've quantified the climate impact associated with our Bitcoin ownership, and here's the very simple method we've undertaken to take steps to mitigate that.  It's that we've neutralised the CO2 emissions associated with our position by [whatever] taking a stake in a renewable miner [or] mining ourselves directly in a renewable way, which crowds out the non-renewable miners".

So, it's just a very simple way to ease the moral hang-ups that a lot of allocators have with getting exposure to Bitcoin.  So, it's ultimately a pragmatic thing.

Troy Cross: And it's free market.  You're free not to do it.  No one's forcing you to do it.  You can buy hashrate or produce hashrate, whatever way you see fit.  So, it's back to the voluntary aspect again.  If it were not voluntary, I could see pushback.  Pushback would be, "I don't believe in climate change.  You're forcing me to act as if the climate is changing.  Go away".  That's not what this proposal is.

Peter McCormack: "Okay, bye bye".

Nic Carter: And it's a good proposal objectively, because it's an alternative to genuinely coercive proposals, which 100% exist, and I can tell you efforts are under way to institute them, regarding Bitcoin hashrate, and what kind of Bitcoins are allowed to circulate.

Peter McCormack: Can you expand on that, sorry?

Nic Carter: There's just a number of initiatives under way from entities that have significant power to determine which Bitcoins are and are not valid, based on their provenance.  But the problem is, you then have to engage in this incredibly convoluted accounting and traceability thing, which I don't think really works frankly.  It's like trying to trace the atoms in a bar of gold all the way back to their source, and attaching a moral prohibition to a certain atom of gold, because it originated in a mine in the Congo, or something.

It's ideas like that which are, in my opinion, bad.  They fragment the Bitcoin market, they reduce the fungibility of Bitcoin, and I don't think you ought to be doing this moral accounting for each unit of Bitcoin, on a pragmatic basis, and because it doesn't really sense, in my opinion.  So, I think this is why we have to encourage ideas like Troy's, which don't rely on that ridiculous moral account.

Troy Cross: It's hard to trace back Bitcoin, because when Bitcoin comes from two addresses into one and then splits, there's no way to identify which Bitcoin came from which source.  So, there's just something intrinsic about the protocol that makes the tracing difficult.  But even more importantly, it doesn't reflect the actual production of carbon.

So, like I said before on this show, my Bitcoin were mined in 2011, very green.  But holding it this entire time has provided an incentive to miners in an ongoing way.  So, there's a temporal variable that is left out of origin accounting.  What's weird is upfront, you're doing 99% too much green mining upfront to buy a green coin, as opposed to a regular coin; but then at some point in time, you won't have done enough green mining to offset your holdings, because you will have incentivised more mining over that interval than your percentage of holdings.

It's just completely wrong accounting, it's just wrong-headed in many, many respects, and yet it's very intuitive, because we are just backward-looking as people; we see things as tainted or pure, depending on where they came from.  So, provenance thinking runs very deep and it's going to be very hard to purify the mind of that.

Nic Carter: And, because we think of Bitcoin as like a literal wallet with coins jangling away, and we want to attach carbon intensities to each coin based on how they were produced; but you should really think of Bitcoin like a quantity, like water, that's flowing in between cups.  When I make a transaction, I'm just moving a new quantity over.  We can't trace the items, it doesn't make sense to do it that way.

Peter McCormack: But also, I just really like it, because those who want to use ESG against Bitcoin, you can turn it 180 back against them and say, "Actually, this improves the environment", and so you have that.  And the other funny thing about ESG is, everyone focuses on the E and never really talks about the S and the G.  I know Pantera Capital wrote a really fascinating article and said, "Bitcoin supports the E, the S and the G".  But that way you can reverse it against them and use it against them, driven internally by Bitcoin companies, is I think the fascinating part of it.

Troy Cross: We've got to go on the offensive.  It's so much more satisfying than trying to shoot down all the FUD, which is just impossible; it's never ending.  Andrew and I have been talking about the meta-FUD problem.  One pay of putting is, "When one side of the FUD dice is facing down, another side is facing up".  It seems like FUD is neither created, nor destroyed, it only changes form!

Peter McCormack: Especially via Elizabeth Warren.

Troy Cross: It's just amazing.  There's some kind of fear quantity that is conserved, and it feels really good to just go on the offensive and say, "Bitcoin actually holds the key to the thing you want, the renewable transition, and you can hold Bitcoin in a way that promotes that transition, by buying some green hashrate, or investing in a green miner.  You can actually accelerate it while holding Bitcoin, so you don't have to be concerned that your holdings are in some way inconsistent with, or in tension with, your values.  It can promote your values.  Holding Bitcoin can promote your green values".

Peter McCormack: The conversation we had with Margot as well was great.  Do you know Margot?

Nic Carter: On Twitter.

Peter McCormack: Yeah, so she wants to work on a paper looking at ERCOT as a case study, how Bitcoin mining is supporting the transition to renewables, and how it's transitioning to green, and how it's stabilising the grid.  So, I think we've got her finance now to go and do that.  And the interesting thing about having that paper, it's objective results that you can put in front of people who are spreading the FUD; but it's also a case study that can be taken from state to state to state.

Nic Carter: The ERCOT situation, the reason I spend so much time focusing on Texas, part of the reason I'm in Texas right now, is because the grid is so unique and interesting.  So, it's an islanded grid, which means it's not connected to the rest of America, which is deliberate, because they want the ability to secede if they have to.  So, there's a political reason why the grid is the way it is, which is actually maybe not that prudent, frankly, because you get better stability if you can import and export energy; that would help.  But they can't, so they have to be totally self-sufficient.

The other thing is, they're great at wind and solar, so they've been stacking wind and solar like you wouldn't believe.  You're probably looking at maybe 80 gigawatts of wind and solar additions over the next three years here.

Peter McCormack: What does that mean as a percentage?

Nic Carter: That's like 100% of the size of the generation right now in Texas.

Peter McCormack: Wow!

Nic Carter: Yeah, so it's absolutely unbelievable.  But there's enormous problems also.  The main problem is that it's negatively zero price energy, because the energy gets produced and there's nowhere to put it.  And so, having buyers of that energy ensures that these installations can go up and stay up and monetise before they're even interconnected, or before transmission is built out.  Having a flexible load, you're going to hear about this a lot, it ensures that the demand side can turn down, they can curtail the usage at a time of grid scarcity.  Now, that doesn't solve a problem like the Winter Storm Uri we had about a year ago here.  During that storm, 50 gigawatts of power tripped offline roughly.

Peter McCormack: Wasn't that due to the infrastructure just being outdated?

Nic Carter: Yeah, it wasn't sufficiently weatherised.  Bitcoin wouldn't have fixed that, because Bitcoin globally is maybe 15 gigawatts.  So, it's not big enough for all the miners to come offline, and it's certainly not 15 gigawatts in Texas.  So, Bitcoin alone isn't big enough to deal with a failure that large; but for shorter term and smaller scale, failures or issues with generation, having a demand side flexibility is very useful, and that's why ERCOT has some of the most sophisticated programmes in terms of making insurance products available for miners to sell to the grid, effectively. 

So, miners sell these products, which is basically the right for the grid operator to ask them to turn off, and the grid eagerly buys them, because they have so much wind and solar, which means they basically need to buy more insurance, because you have less predictability in terms of your generation.  And that's a little template that's going to be taken to all the other ISOs.  So, New York is learning from Texas right now.  Texas is right at the forefront of this stuff.  And that's going to be taken to all these other grids that have this higher and higher level of renewable penetration.  And Bitcoin miners feature in that, because they are the best source of flexible load, because they can turn themselves down at short notice, they can stay off indefinitely.  No other industrial entity can do that.

If you look at other industrial sources of demand resource, like cement factories or steel mills, they can't stay off indefinitely, they can only stay off for an hour or two at a time.  They can't turn down rapidly, they can't turn back online rapidly, because they're doing physical processes.  Because mining is so synthetic, it can turn itself down at a moment's notice, it can turn itself up at a moment's notice, it can be highly controllable; so, it's just much more configurable than all these other legacy sources of industrial curtailment.  So, the Texas case study's the right one to focus on, because that's going to be taken out to the rest of the US and then the world at large.

Peter McCormack: We had Cody Wilson in here yesterday discussing 3D-printed guns, and he's faced many lawsuits and many challenges, both federally but at a state level.  And one of the questions I asked him was with regard to somewhere like Texas, "Has the state ever represented him or defended him?" and we kind of got into that.  If there becomes some coercive attack against Bitcoin at a federal level, because not being American, I don't fully understand this, what power does the state of Texas have to reply, respond, challenge against anything that would potentially be damaging towards their own grid?

Nic Carter: Well, the states have a lot of power in America, and it's always in negotiation; we had a whole war over that.  So, Texas, Governor Abbott, has been explicitly pro-Bitcoin, Senator Ted Cruz has as well.  There are certain things that are reserved to the federal government, you know, taxation, I guess, being one of them.  But energy policy is made locally.  So, unless the EPA or some sort of federal agency came in and said, "We're passing a blanket federal ban on Bitcoin mining", you'd probably see it reserved to the states, and so far it has been a state thing.  New York is actuating their own ban on Bitcoin mining, so something like that you would see happening at the state level.

There are some initiatives around Bitcoin legalisation at the state level, which I don't know if they're going to pass, but you do see a lot of policy being made, for instance in Wyoming, where the commercial code has now been incorporated to cover crypto; they obviously have their own bank charters, which there's a bit of a power struggle happening, in terms of the bank charters at the state level versus at the federal level, so that's actually a great example.  You have two models: you have the federal bank charters and the state bank charters, and they're sort of butting heads over that.  You actually have a proposal for a stablecoin in the Wyoming Congress right now.  So, there's a lot that can be done at the state level.

Peter McCormack: The game theory of this is fascinating, in that Bitcoin mining, which has largely been FUDd, might be the solution to green issues, and also might become a defence against federal reaction.  It's this strange scenario where Bitcoin has evolved into this whole other thing beyond just being peer-to-peer money.  It's become this beast that starts supporting other industries, and it's truly fascinating to watch.

Nic Carter: Yeah, and there's one thing that's worth noting.  People always talk about how Bitcoin miners are using up renewable energy that other industries would be using, and how, "They're driving up energy bills for people locally", and things like that.  But one thing that's missed, Bitcoin miners, the industrial firms engaged in Bitcoin mining, they're building out energy campuses in places with stranded energy, and they're creating the tools for an industrial entity and infrastructure to come in and utilise it.  For now, it's Bitcoin mining that they're doing.  But they're not strictly just limited to that.

If you look at the environmentalist literature, there's a huge amount of focus on hydrogen electrolysis, which is the production of hydrogen, which would then be used as a fuel, which would be a clean fuel, and that's believed to be an incredibly important component of the green transition.  That would be something you could do, you could repurpose a Bitcoin mine, you could do that at a Bitcoin mine as well.  So, you could do other forms of computing potentially too.  I think the world's going to have a structurally much, much higher demand for more computing in the future; it's only growing.

So it's not like Bitcoin mining is the only thing that can happen at these data centres, there is a repurposability there.  And these are American firms that are building up a high-energy infrastructure utilising the best and cheapest sources of energy.  So, I don't see how that's something to be ashamed of, it's something that is moving us towards recreating industrial centres of load in the US that can be used for high-energy industries, of which Bitcoin mining is just the first.

Troy Cross: Yeah.  I think that one of the paradoxes I see very smart people get hung up on is, "How can we add demand?  How can we add electrical demand?  And by adding demand, create a more sustainable energy infrastructure?"  A lot of smart people cannot get past that.  And some of it is the point that Nic makes all the time, which is that Bitcoin mining is a non-rivalled consumer of energy.  The energy is, in a way, not fungible.  I mean, it's fungible in a way that electrons are fungible, but it's the opposite.

Nic Carter: It's not at all.  It's fungible within 100 miles, unless you have high-voltage transmission.

Troy Cross: Exactly.  And time; it's time- and space-dependent in the extreme.  People don't understand, you can't store power.  I mean, you can with -- they're called batteries.  But batteries are kind of inefficient.  There are transmission losses going into them, they're very expensive.  So, it's anti-fungible in a way.  And Bitcoin, I think last time I used this metaphor of the dung beetle going into these price crevices and literally eating refuse, eating waste that would otherwise not be monetised.  And then that consumption, financing more power production.

As long as they're financing more power production than they're using, and they're financing power that's produced generally, whereas they're using waste energy, that's how you solve the paradox of, "How can you add demand, and yet end up with a greener grid?"  It's actually more efficient and produces less carbon.  I find people just stumble on that constantly, even analysts.  And part of the solution is maybe that we get a migratory pattern of miners.

So, the way I see this is, finding stranded energy, miners go there because they don't need to be grid-connected to monetise their energy.  So, you get a forward team of miners out on the frontier of energy development, and then once you're grid-connected and other consumers can come in, then there's less of an advantage for those miners, so they move to the next front.  Some miners stay behind, because still it's an interruptible load, it's still attenuable, it's still the best source of flexible load, but its advantage over other forms of power consumption is less.

I think people are also missing this dynamic of how, once you're grid-connected, you're going to drop the number of miners you have, because now you have grid demand, and you might have other forms of demand that are less flexible that you can support.

Nic Carter: And one thing people overlook is the importance of transmission, because there's a lot of generation, but a huge component in the cost of energy in this country is the cost of transmission and distribution, as in big old transmission, high voltage, and then smaller neighbourhood wires.  That's a huge part of your energy bill.  People don't realise that, they think it's all about generation.  No, it's all about getting it to the consumer.  The transmission is a bottleneck much of the time.  That's why we can't deliver certain stranded pools of energy to the end user, Texas being a great, great example; it's a huge bottleneck here.  All the transmission is accounted for.

So, the miners can come in, occupy and monetise the asset, while the transmission has yet to be built.  And then, as Troy says, once the expensive, high-voltage transmission lines are finally built and these high-energy pockets are connected to the remainder of the grid, then maybe the miners move on.

Peter McCormack: Does this solve any issue with regards to demand for resources internationally?  Does it make, say if we just use the US as an example, less reliant upon sourcing energy on the international market?

Nic Carter: I think so.  I think being sovereign from an energy perspective is one of the best things this country can be.  And that's a matter of political importance now obviously, the fact that Germany isn't doing much against Russia, the fact that they're not joining the US in the total package of the sanctions, is because they have to buy energy from them.  The US used to be fully sovereign from an energy perspective, we used to produce far more than we needed.  That's not the case today, and that's why we have to go hat-in-hand and ask Venezuela and the Saudis to help us lower the cost of oil here.  But we can produce all the energy we need here domestically.

If we can improve the dynamics and the efficiency of our grid with more flexible load, and onshore more renewable structurally, that completely helps with our energy independence, and we never want to be beholden to any of these hostile foreign countries that don't share our values.

Peter McCormack: And electrifying through vehicles, the structure of how you heat a home or provide power for cooking?

Troy Cross: Yeah, something that bitcoiners say a lot, and that I completely agree with, is that the way forward is through energy abundance, not energy scarcity.  The way we make this transition is by building out tremendous amounts of new power production, not even something I've favoured in the past, which is carbon taxes.  When I look at the impact of carbon taxes, first of all on mining, it's not very effective, because miners can just -- if the tax is too much, the miners will just move elsewhere, the hashrate will just move elsewhere.  It's almost a perfect case study of escape from carbon taxes.

But also, it's not a fast enough transition actually.  Looking at Saul Griffith's book, he maps out the effects of carbon taxes.  It doesn't transition to renewables fast enough.  Whereas, I think if we focus on building, we can get there in time to stay below 2°.  Griffith maps out adoption of other technologies.  Look at the curve of the adoption of cell phones, the adoption of the internet, etc.  That's the kind of curve we need to be on.  We're not going to get there by curtailing or cutting off fossil fuel production; it's not going to generate the incentive we need to build out electricity fast enough.  In fact, it's going to kind of choke the economy meantime, and punish people who are living on the margins.

So, this is a bitcoiner point that I completely agree with, but I go in a different direction with it.  It's like, do we need an energy abundant future?  Yes.  Will Bitcoin help us get there?  Yes, but it will do so probably through renewables, simply because their cost curve is so extreme.

Nic Carter: And it's just not political tractable to input, because the degrowth continent wants energy prices to be high, they want thermal energy prices to be high.  But that's what we have right now.  I don't know if you guys filled up on gas recently, but it's $5 I think here, maybe a little cheaper in Texas.  In California, it's $5, going towards $6.

Peter McCormack: We're £1.55 a litre in the UK, I don't know what that --

Danny Knowles: I think it's even higher than that now, I think it's like £1.80, I saw.

Peter McCormack: What does that work out as a gallon.

Nic Carter: I don't even want to think about that in dollars, but Americans would be scandalised by that.

Peter McCormack: Do a like-for-like comparison.

Nic Carter: So the thing is with gas is, it has the same effect as interest rates.  When gas gets high in dollar terms, it is like hiking interest rates, and it retards economic activity.  And in fact historically, there's a high correlation between gas going over $150 and us going to a recession.

Danny Knowles: So, it's over $8 a gallon.

Nic Carter: That's insane.

Peter McCormack: Sorry, going to recession at what price?  Over…?

Nic Carter: $150.

Troy Cross: $150 a barrel?

Nic Carter: A barrel, yeah.

Troy Cross: What are we at now, $130?

Peter McCormack: $130, $135, is it?

Nic Carter: I'm sure we're going to keep climbing.

Peter McCormack: But I saw predictions yesterday that we could go anything from $200 to $300 depending on response on the international market.

Nic Carter: So, the thing is that it's just politically not tractable to impose structurally high energy prices, because it will hurt society, and especially the poor and the working class.

Peter McCormack: So gas, we call it petrol, I think it's strange to call it gas.

Nic Carter: Because it's not gas, yeah.

Peter McCormack: Because it's not gas, one of those weird American things.  It's used obviously in cars, it's used in airplanes, it's used to power the grid?

Nic Carter: Yeah, in some cases.

Peter McCormack: But we can get it down probably just to mainly aeroplanes?  I can't see us having electric 777s just yet.

Nic Carter: Well you know, the interesting thing is, the US grid has actually declined precipitously in carbon intensity over the last decade.  The reason we did that was because we replaced one source of thermal generation with another.  It was because we got rid of a lot of the coal and started using natural gas more, which is half the carbon intensity of coal.

Peter McCormack: I think we also looked up yesterday, there's only, what, 53 years of oil left!  We had to do it anyway.

Troy Cross: I have to register scepticism about that, just having lived through peak oil.  It's like, who knows?  I'm not going to die on that hill, because I saw many experts predict it.  But the energy return on investment actually for oil has gone way, way down.  Early in the century, I think it was like 75:1, 80:1; now we're down to 5:1.

Nic Carter: Because, it's more work to extract oil.

Troy Cross: That's something else that has to be -- if you're going to do that calculation, that difficult calculation that you were suggesting we do, and I think rightly so, of really looking at the total carbon intensity of each form of energy production, the carbon intensity of oil and natural gas is going up.  Tar sands, that's pretty intensive.

Nic Carter: Yeah, we're getting into the worst, the least economical sources.

Peter McCormack: The Arctic, Antarctic, isn't that where Russia wants to mine, dig for oil?  But that's an interesting point, if we can reduce the demand, because we have an electrical vehicle base, if we don't need it for the grid.  I really struggle to see anything beyond, even with the transition of homes, to be electrified in terms of cooking and heating.  I was trying to look through, what are the things where I don't see we move away.

Nic Carter: Planes.

Peter McCormack: I just don't see -- yeah, planes.

Troy Cross: Well, it's interesting, there are electric planes, and they're doing better and better, and it all depends on battery technology, honestly.  Do batteries get lighter and store more energy?  We can do short-haul flights, not transatlantic.

Peter McCormack: Short-haul flights, what, for three people? 

Troy Cross: No, commercial airlines.

Peter McCormack: Really?

Troy Cross: This is Griffith's estimate, that he thinks that that part is solvable.  It all depends on the tech, it all depends on battery tech, really.

Peter McCormack: An electric 737 MAX?!

Nic Carter: The problem is that there's a billion or so people that live unelectrified lives completely.  And so, their source of energy is biomass, wood for cooking fires, and it's gasoline in vehicles and generators.  So, we can't neglect the fact that there is a huge contingent in the world that lives an unelectrified life entirely.  They're still going to be dependent on hydrocarbons.

Troy Cross: And we are too for a long time.  So much of our infrastructure is built around it, and you can see it in the price.  The market reflects the reality, not these climate targets.  If the climate targets were real, we would have much more expensive offsets and fossil fuel companies would be much cheaper.  So, the market's telling us, we're in for a fossil fuel future.  And if you look at renewable penetrations, we've doubled over the past, whatever, decade.  But the total energy consumed has also gone up.

Even if that curve gets dramatically steeper, we still have a long fossil fuel future ahead of us, and I think we just have to reconcile ourselves to that.  And burning biomass, cooking over coal, we have to be very careful here.  This is people's lives and there's no better alternative for them.  And I think that being concerned about climate can never get in the way of actual people meeting their day-to-day needs.  In fact, I think the electrification story is a leapfrog in technology.  I think you'll have people who skip over the entire natural gas stage of our evolution, jump straight to solar, because solar will be cheap and efficient, and you'll go from cooking over wood to cooking with solar.

Peter McCormack: Yeah, but there is a flipside to that as well.  One of the arguments I've seen against the reduction in burning fossil fuels is that, even if there are changes in the climate, we can mitigate that, because we can invest in flood defences and change the way we build homes and things like that.  But one of the things that was never answered, and I just have one case study alone, is Ethiopian coffee production; it's 5% of their economy, employs 15 million people.  They've been suffering a changing situation with droughts and rainfall since the 1970s.  Because they basically have to move up to higher land, there's a cost to move, they could lose anything, I think it's 30% to 50% of coffee production over the next, whatever time period.

The biggest consumers of non-renewable power sources are also the ones who are the most economically advantaged to mitigate the outcome.  But it's a global planet, we're in a global society, and the things we do here affect other people around the world.  Whether you believe it or not, all the reports say that the countries that are going to suffer mostly from climate change are the poorer countries.  But these are the same people who don't like centralisation, so are they voluntarily going to go and support these economies?  I think that's an important part of the discussion that's often missed.

Nic Carter: Well, there's a tricky element here, because the key to industrialisation becoming wealthy is, well it's industrialisation, right, and so that's how you become a wealthy society, is you become able to efficiently use energy at scale and use that to create modern factors of production and so on.  But that involves, in its current model of industrialisation, involves consuming a lot of hydrocarbons.  So, you get this weird thing where if you look at the, what was it, the COP2, the climate discussions they had in Glasgow?

Peter McCormack: COP26, was it?

Nic Carter: I don't even know what it stands for, but the big point of contention was around India's commitment to climate targets, and there was a lot of gnashing of teeth, because India didn't want to commit aggressively, because they felt that the West got theirs, they industrialised from the 1700s to today, and achieved this high standard of living and they have air-conditioning and all those nice things.  Then India figured, "Well, we kind of deserve that too".  So, they didn't want to handicap themselves by committing to a lower level of emissions.

So, that's where it gets really tricky, is because western countries going to the global south and saying, "We don't want you to industrialise.  You can't, you're not allowed.  We've already emitted all the carbon, and that's enough for all of us".

Troy Cross: And there isn't an easy solution.  This is what gets the authoritarians going, because this is the mother of all externalities, carbon emissions.  It affects people in a kind of diffuse and unpredictable, random way around the world, but it's locally produced.  There's no easy way to price it in.  You could do it with a tax, but I've already suggested, people will just flee elsewhere.  It seems to call for some kind of worldwide authoritarian effort, and that's a non-starter for me.

So, what do we do?  The only thing I can think of is just outside of the government mechanism entirely, and it's to build, to build the possibility for industrialisation that's not fossil-fuel-dependent.

Peter McCormack: Change the incentives.

Troy Cross: Change the incentives and offer a path to First World wealth and lifestyle that is sustainable, a sustainable way of living the way we do.  That requires abundant energy, and it requires a lot of things; but it requires, most of all, a lot of energy that's not high in carbon intensity.

Peter McCormack: Okay, so what now?  Second conversation on this, we can keep having it, but we kind of want action now.  I distributed the last interview we did out to a bunch of prominent bitcoiners.  What now?  How do we create some momentum behind this?

Nic Carter: I can tell you, I think Troy should quit his job and actually pursue this.

Peter McCormack: Is that a potential?

Troy Cross: Is that a job offer?  I want to take next year off, take an unpaid leave next year.  I am contractually obligated and I have students.  I have a stack of papers over there in my backpack that I have to grade.  I'm really strung out right now between these two lives, because my heart is 100% in this effort.  It's the most exciting thing, the most exciting idea I've ever had, and I want to make it a reality, and I am talking to people who've reached out to me.  I won't say anything in detail, but we're working on it.

Peter McCormack: Okay, well it sounds like you've made the decision, so that's cool.

Troy Cross: Yeah, I haven't got a sponsor yet for next year, but I'm figuring it out.

Peter McCormack: Well, we can talk about that.  We got Margot sponsored to do her paper.  I mean, I don't think it will be particularly hard, but I won't embarrass you and ask you about numbers on the show, but we can talk about that afterwards; but I think that's a great suggestion, Nic.

Nic Carter: Troy, do your students get whiplash from you teaching them about epistemology one day and then you're a celebrity on the Bitcoin circuit the next day?

Troy Cross: You know, it's funny because it's been this way from the beginning when I was in Bitcoin.  There's a student of mine from 2013, who sent me recently a post of his back on Facebook that was like, "Troy Cross won't shut up about Bitcoin!" like 2013, he posted recently.  I wish I'd listened to him, right!

Peter McCormack: Check out his socks!

Troy Cross: Yeah, they're two different worlds.  But I love the college I'm teaching in and I love teaching.  And in some ways, it's seamlessly connected.  This idea is a philosophical idea that was kind of overlooked, and it was a great moment of joy in discovering it, and it was a great moment to share it with you and with Nic.

I mean, when Andrew and I were working it out, my first thought was, "Nic Carter is going to get this.  And when Nic gets it, the lightbulb's going to come on, and that's going to be an amazing moment"!  We both just fantasised about that.  I can't believe that that fantasy actually happened, and I can't believe that you've allowed me to share it with the broader world, and it's happened for a lot of people.  And now it's execution time.

Peter McCormack: Well, Nic is on the decentralised board of guest selection for What Bitcoin Did, so if Nic says, "Speak to somebody", I speak to them; he has that much power!

Troy Cross: Well, I appreciate it.

Nic Carter: I can't confirm or deny whether I take bribes in order to place people on this show.

Peter McCormack: He doesn't take bribes!  Are you speaking at Miami?

Troy Cross: I have been invited to, but I'm not sure in what capacity, but I will be there.

Peter McCormack: Well, I think that would be a good place to talk about this.  I completely agree with Nic's suggestion.  Is there anything else we should, could be doing, that both of you know?

Nic Carter: Mine would be to encourage the Bitcoin miners that are accessible and transparent to (a) pursue renewable sources, and (b) to be more transparent and clear about it.  There's a lot of confusion still, because I still think that's the most easy way to execute on this plan, is just to buy a stake in a renewable miner.  Maybe that's not the most direct and perfect way to carry out the objective, but it's pretty good.  And the miners are not that clear in terms of where the energy's coming from, what the carbon intensity is, whether they're using wrecks, whether they're using offsets, whether they're double-counting.  There's some tricky stuff around that.  And there are good initiatives there.

I personally like the Bitcoin Mining Council, I think they do a good job, but I'd like to see more there just in terms of transparency.  And also, there are miners that are using some pretty nasty stuff.  Some of the worst powerplants in North America are being used for Bitcoin mining, some of the dirtiest.

Peter McCormack: Should we shame them?

Troy Cross: Is it Kentucky?

Nic Carter: There's one in Montana which is pretty bad.

Troy Cross: Okay, so that's the Hard plant?

Nic Carter: Hardin.

Troy Cross: Hardin, yes, sorry.

Peter McCormack: Is that the Marathon one?

Troy Cross: Yes.

Nic Carter: So, it's not all good.  There are miners that are still taking advantage, I think, free-riding in a certain way, and they're just not really acknowledging that they are casting this significant issue that all bitcoiners have to deal with.  And the miners earn income and return, and the externality of that is partly that the Bitcoin community is disempowered.  So, in my opinion, they do have a bit of an obligation to render their operations as sustainable as possible, because it is so tractable.  It is genuinely quite possible to do that, to go after these renewable sources and find them and use them.

Troy Cross: I think Nic is in the same position I am, and we see again and again and again articles from The Guardian, The New York Times.  These institutions shape the way people think about Bitcoin, and just a few plants, just a few stories; how many times, Nic, have you read about "Greenage another story that's more complicated", "Stronghold, the story is more complicated"?

Nic Carter: That's the crazy thing, I would argue that those are both inverse.

Troy Cross: I know.

Nic Carter: I actually really support both of those plants!

Peter McCormack: What are those?  Explain what those are.

Troy Cross: Go ahead, Nic, this is your thing.

Nic Carter: So, the Greenage is the one in upstate New York, where you've probably heard about they're boiling all the trout in the lake.  So, it's a coal plant, it got converted to natural gas, and it mines Bitcoin partly, and then it also distributes energy to the grid as needed.  They're fully compliant with the EPA Standards, in terms of the hot-water effluent going back into the lake, but the coverage has been hysterical genuinely about boiling the lake, or whatever.

Then, the Stronghold one is fascinating.  These guys in Pennsylvania, they're using coal waste, which is accumulated over 100 years of coal mining, and it just poisons the ground in Pennsylvania, and it sits there unmitigated.  They developed a technology where they use the technology to create energy with the coal waste and combust it in an emissions-controlled manor.  So, it's much better than the alternative of these waste piles sitting in Pennsylvania, on fire in some cases, oxidising, doing emissions anyway, leeching all kinds of horrible stuff from the soil and poisoning people.

Peter McCormack: Is that the thing where it gets into the aquifers?

Nic Carter: Yeah, and so you see the coverage, including the House memo.  The House had their committee hearing and they wrote the memo.  They called out Greenage and they called out Stronghold.  The real story is very different in both cases.

Troy Cross: In some ways, we're really blessed with how bad the FUD is, and how detached it is from reality, because yeah, there are places you could focus to generate legit-ish FUD, but people focus on Stronghold, which the story is -- Nic did a podcast with those folks, and it was mind-blowing.

Nic Carter: It's actually an amazing story.

Peter McCormack: Is that the place you said I should go and visit?

Nic Carter: Yeah, I think you should look at the piles of waste coal in Pennsylvania.

Peter McCormack: What's the waste from the waste?

Nic Carter: What do you mean.

Peter McCormack: Well, you said it's using coal waste, but does this produce a different waste once they've --

Nic Carter: No, I mean they combust it, and then it's energy for various gases.  So, the waste is effectively mitigated once you put it into the furnace.

Troy Cross: It produces CO2; that's its waste.  It's weird that I've listened to this podcast and Margot and I looked into it, Margot especially, and there just isn't a better way to deal with over 200 years' of coal waste that actually built the world.

Nic Carter: The skyscrapers in New York, you know.

Troy Cross: And then Korea, in Seoul.  This is the steel that was used to fight World War II to make our Navy and our Air Force.  It's just an incredible story of what you see through the long tail of American industrialisation, and the people who are left with cleaning up.  It's the story of these communities and class warfare.  It's kind of the worst stereotype of distant eco-liberals judging what's going on in a region of the world they don't understand, or have any sympathies for.  It's in flyover country, and then people are actually living with the consequences of this world that we've built.

Bitcoin is playing a surprising role in its clean-up, absolutely surprising.  That's one of the FUD pieces that actually flips.  And Alex de Vries, Digiconomist generally, is just so sloppy.

Peter McCormack: This guy.

Troy Cross: He just discredits the movement.  And then, when we do have cases of some of the dirtiest burning sources of energy, yeah, it's a fly in the ointment there, because we're on the verge of flipping this narrative very, very powerfully, because they've set us up for it.

Nic Carter: And frankly, if you look at the data and you consider the Bitcoin Mining Council reliable, it's quite likely that Bitcoin mining is a more sustainable industry than maybe virtually any other heavy industry that exists.  And that's even before considering the benefits of a flexible load, which can help decarbonise the grid.  And that will become clear.  Maybe the Biden Executive Order, they'll commission a study.  I think they'll probably do a pretty good job if they do, and they'll get to the bottom of it too.  You just look through the public filings, you look at where the miners are based, you look at the IPs.

I think what you'll find is that it's a cleaner industry than cement production, than aluminium production, than paper and pulp and all these industrial sources, which are not interruptible, they're not location agnostic, they have to be in certain geographic areas.  So, I think that's what you'll find, it's just that the critics aren't really interested in finding out what's true or not.

Peter McCormack: Typical!  Okay, brilliant.  Well, Troy, we will get this out; Nic, we will get this out.  We will do everything to support you.  We should continue the conversation about what happens next and any way I can support you, just consider it done.  Do you want to point people to -- like I say, if you haven't listened to the previous show and you've just listened to this, please go back and listen to it.  Danny, what episode was that?

Danny Knowles: I'll find out.

Peter McCormack: Anything you want us to point people to?

Troy Cross: No.  You can follow me @thetrocro on Twitter.

Peter McCormack: Is @troycross not available?

Troy Cross: This was a nickname that students gave me two-and-a-half decades ago, and when I signed up for Twitter, I don't know, eight years ago or something, I didn't plan on ever tweeting anything, and I didn't until recently.  So, I just used the same old thing that I set up!  I don't even know if it was available.

Peter McCormack: As a branding and marketing guide to knowing how poor Twitter search is, it might be wise to go to @troycross if it's available.

Danny Knowles: That episode was 463.

Peter McCormack: We don't know what episode this will be, but yeah, episode 463, go and listen to that.  Nic, anything you want to point people to to look at?

Nic Carter: Your essay is at resistance.money, is that where it's saved?

Troy Cross: Yes, resistance.money/green is where the white paper is, and we hope to write -- I mean, I'm busy with my fiat mining job and so is Andrew.  We hope to write some more papers fleshing out the idea, because the white paper is pretty bare bones.

Nic Carter: Yeah, so I would go there.  I like that there are so many philosophers that are writing stuff about Bitcoin now.  There's others that are really great.  Andrew Bailey, Bradley Rettler.

Troy Cross: Craig Warmke.

Nic Carter: Craig Warmke, of course, who wrote some amazing papers on Bitcoin.  Did you ever have Craig on your show?

Peter McCormack: No, I don't even know him.  I know Bradley and you've mentioned Andrew.

Troy Cross: His essay, Bitcoin Behind the Vale is excellent.

Nic Carter: That's a great one.

Peter McCormack: I think I've read it though.

Nic Carter: He also wrote Electronic Coins, I think that's one of my favourites.

Peter McCormack: It sounds like someone we need to talk to.  Where is he based; do we know?

Troy Cross: He's in DeKalb, Illinois, outside Chicago.

Peter McCormack: Okay.

Nic Carter: So, that would be my advice, would be look at the -- I don't know if Troy's -- are you part of the sort of collective there?

Troy Cross: I'm adjacent.  They're writing a book with Routledge right now on the philosophy of Bitcoin.  It's really like kind of a PPE book, Philosophy Politics Economics.  It's just raising all of the philosophical issues surrounding Bitcoin, and I think that's going to be a reference work going forward.

Peter McCormack: Well, there is this new cohort building up, yourself, Andrew, Margot, Matthew Pines, David Zell.  It's a new area of interesting thought which is good, because we've had a lot of very similar conversations for the last couple of years, and for us it's fascinating to prep and talk to new people and help elevate them.

Troy Cross: Yeah, you have to plug the Bitcoin Policy Institute and the folks there.  All the philosophers mentioned are a part of it, but some other great people as well, like William Luther and Margot.

Nic Carter: Yeah, and it's incredible to see serious economics like Will Luther coming in, Larry White as well, even George Selgin is almost friendly towards Bitcoin now.

Peter McCormack: Can I tell you an interesting David Zell story, because we had him on the other day?  Was it 7th grade?

Danny Knowles: 7th grade.

Peter McCormack: You know when you usually ask people, "How did you discover Bitcoin?"  He said, "I was introduced in 7th grade"!

Troy Cross: Wow, that makes even you feel old.

Nic Carter: Yeah, I do feel old, I know.

Peter McCormack: I felt super-old.  Well listen, look, this was great.  I appreciate you both flying in for this, especially you, Nic, because you've been bitching about it since you got here.  And, yeah, we will do everything to promote and move this forward and I'm sure we're going to talk again.  I know we will always talk again, but I'm sure we will talk again.  But yeah, good luck with this and let's see where we can take this.

Troy Cross: Thank you, Peter.

Nic Carter: Thanks.