WBD538 Audio Transcription
The Current State of Bitcoin Mining with Harry Sudock
Release date: Monday 8th August
Note: the following is a transcription of my interview with Harry Sudock. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Harry Sudock is a Vice President of Strategy at Griid. In this interview, we discuss Bitcoin mining tackling environmental and energy FUD with on-the-ground facts. Whether it’s mitigating methane emissions or helping to stabilize grids, miners are providing unprecedented utility to society.
“Bitcoin is a multi-decade, multigenerational incredible opportunity. Doesn’t mean that the water is always warm and smooth; there’s chop along the way. And so planning for those downside scenarios and trying to manage risk, first and upside second is the prudent way to do it. And there’s operators and companies that are out there within our industry, that have done their best and made good conservative decisions, and still blown up.”
— Harry Sudock
Interview Transcription
Peter McCormack: Get off your fucking phone, we're recording!
Harry Sudock: I'm putting sleep mode on.
Peter McCormack: Harry Sudock, hello, man.
Harry Sudock: Hey.
Peter McCormack: How are you doing?
Harry Sudock: This is good.
Peter McCormack: Every time we come back to New York we get Harry back on the podcast now.
Harry Sudock: Well, when I live in a new city, you're going to have come somewhere else frequently.
Peter McCormack: Are we allowed to talk about where that is, or are you secret?
Harry Sudock: I am strongly looking towards the great state of Tennessee.
Peter McCormack: I thought you were going to say that; actually I think you told me that last time, Nashville, man. Well, you can go to Bitcoin Park, go to the Bitcoin Meetup there.
Harry Sudock: I love Bitcoin Park; I love Rod and Mills.
Peter McCormack: Rod's amazing.
Harry Sudock: They crush.
Peter McCormack: Have you seen how thin and athletic Rod's got?
Harry Sudock: He's my inspiration; he's all over the one-meal-a-day thing. He texted me the other day, he was like, "I'm just so addicted to the gym right now".
Peter McCormack: He looks good, man.
Harry Sudock: Looks really good.
Peter McCormack: He looks really good. We went to the Bitcoin Park, me and Danny; they've killed it what they're done there, him and Odell.
Harry Sudock: It's so impressive.
Peter McCormack: Yeah, very impressive. Well, look, that will be another reason not to come to New York.
Danny Knowles: There you go, there's no one left!
Peter McCormack: There's no one left! There are fewer and fewer reasons to come to New York these days.
Harry Sudock: I know.
Peter McCormack: Sad, man. Well, listen, that's funny actually, like we were saying, when I first started the pod it used to be, I'd fly to New York, do a bunch of interviews, I'd maybe go to Florida and do one, maybe go to Texas and do two, and then I'd go to LA and do six and maybe go to San Francisco and Portland and then I'd go home; they were the places, but it's not that anymore. Now it's Austin, Nashville, Miami; they're the three main places to go.
Harry Sudock: I bet Vegas is going to climb that list.
Peter McCormack: Well, we know one person there.
Danny Knowles: Yeah.
Peter McCormack: Yeah, we know one person there, I don't know if he's public so I won't say it, but Vegas would be cool and always happy to go to Vegas; going to be there in November. LA's still good, I think some people can't give up the beach, I think they still want to pay 68% tax or whatever the fuck they --
Harry Sudock: California's a shitcoin!
Peter McCormack: California's a shitcoin but some of us like a little bit of shitcoining and I still like LA, I do, I do, it's California, it's a beautiful place, beautiful people and I'll still keep going there, man. Anyway, dude, we need to talk about mining again, your speciality subject.
Harry Sudock: It hasn't gotten boring yet.
Peter McCormack: It's funny as well, because I remember somebody set up a mining podcast a while back and I was like, "What are you going to talk about? Mining's a subtopic of Bitcoin, I can cover that. How are you going to cover that every week?" I totally get it now; it's its own wild industry that's spawned all these things we didn't even expect. How do you take it all in?
Harry Sudock: I think about it very similarly to Bitcoin where, you know, I showed up for Bitcoin for the sweet, sweet financial gains and ended up eating steak and reshaping all these different areas that I thought I had a good understanding of. So, Bitcoin is like the great teacher that forces you back to kindergarten and all these different topics; and mining, for me, was the same experience where it said, "Oh, you think you know about the world around you, fool?" and then it sends you back; it makes you learn from first principles around energy, around power markets, physics, history, the same way that Bitcoin did.
So, Bitcoin made we learn about the history of money, mining made me learn about the history of ports and cities and how does a young country, being that we in a relatively young country compared to your balmy isle, how does a new place develop; what are the design decisions that get put into the emergent concept that was America; and how are those emergent design decisions playing themselves out for us today in a brand-new industry? So, it's been fun.
Peter McCormack: Well, it's this thing of calling Bitcoin this organic creature, a creature that just seems to be growing into this thing, all these areas we didn't expect, that we didn't realise it, we didn't see coming. I've said it on the pod a bunch of times, I'm most excited about the unknown unknowns, the things that are going to come out in the future that Bitcoin or mining does that nobody could think about, that nobody could prepare for, like the show we made with Adam Wright the other day, where we have an issue with climate change at the moment, some people disagree, I think we do; 41° in the UK is a new record by some 2°, and the new records every year. We do have a climate issue, I'm sorry, scientists are right, shut the fuck up.
Whether you agree with it or not, or whatever you think we should be doing about it, there is an indisputable fact that, if you can go to a landfill site, put miners there and turn methane into Bitcoin, it doesn't matter what you think of climate change, that is an industry that economically works and is good for the climate and creates Bitcoin. Nobody saw this shit coming, well Hal did.
Harry Sudock: Yeah, that's the beauty of a market, when you offer a difficult human problem up to a market, talk about the emergent, the untethered growth of what Bitcoin looks like today versus some number of years ago, what's so great about it is that Bitcoin was born out of an extreme human problem which was the moral hazard of governments, being continuous bailouts in 2009. An inventor, or discoverer depending on what you think of Bitcoin's origin story, looked at this problem of never-ending bailouts and said, "There's a way to change money, and I believe that my discovery, or my invention, is going to be compelling enough to win value in the marketplace of monies".
So, what I think we're seeing today is the bolted on second-order effect of that decision to create a monetary good that can compete on the merits with other monies, and what we've found is that a lot of people said, "Yes, this is working, we want to choose this one". So it's commanding sufficient purchasing power to be able to then turn its Eye of Sauron onto another industry, an emerging human problem, which is we want to live in a beautiful planet and get to enjoy the abundance of advanced technology, and not have to suffer the externalities of that enjoyment.
So, what this superior monetary good is saying to that problem is it's saying, "You guys are leaving a whole ton of meat on the bone. The way you do things today is wildly inefficient and I'm going to prove to you how inefficient your current behaviour is with a market mechanism, because rewarding you for being efficient with your usage and efficient with your energy generation is going to be far more valuable when I pay you some percentage of these 900 new Bitcoin every day".
There are a lot of an entrepreneurial young souls who are looking at that opportunity, or maybe older souls, and saying, "I want those Bitcoin and I think I know how to get them and I think I can introduce a net positive by doing so. I think that my idea is the best in the marketplace because you're utilising something that's naturally occurring and introducing a negative externality, method in the atmosphere, nobody's saying it's good; and by solving this problem and getting paid to do so, what I'm not trying to do is argue to pass some bill through a legislative body of 80-year-olds. I'm just going to go and I'm going to do it and I'm going to paid to do it and I'm going to solve your problem".
Peter McCormack: And it's starting to flip the narrative, it's becoming harder and harder for people to claim that Bitcoin is bad for the environment, which they're still doing, it still exists; there are articles in the press and there are certain senators or congresspeople are saying it, but it's flipping. We had it the other day, who was that, the one where Senator Lummis replied to?
Danny Knowles: That was to Adam Wright.
Peter McCormack: No, she replied to another senator, didn't she?
Harry Sudock: Oh, Senator Durbin.
Danny Knowles: Oh, sorry, I thought you meant when she quote tweeted that.
Peter McCormack: Yeah, go and find out what he said.
Harry Sudock: Let me push you, because I'm sensing a vibe shift.
Peter McCormack: I am.
Harry Sudock: The vibe shift is that Bitcoin is not bad for the environment, the vibe shift is that Bitcoin takes the energy and you have no right to it.
Peter McCormack: Well, this is moving goalposts, this is control freaks wanting to move the goalposts. This is, "I hate Bitcoin, I can't give you a rational reason why, but I'm just going to keep moving the goalposts just to argue that case".
Harry Sudock: I really do think 6 months ago or 12 months ago, the narrative was, "Bitcoin is creating emissions", and today I think the narrative is, "Bitcoin is taking energy from deserving uses".
Peter McCormack: Yeah, which also is patently not true, it's an even weaker argument. I could make the argument against Bitcoin for the environment, I could make that, and I can go and spread that to politicians and journalists and get those articles out there. You can do it because we have an environmental crisis some people believe, some people don't, let's just be very clear; we do know that I believe there is. We have an issue with a warming planet, and then people put that down to burning of fossil fuels, so it's very easy to make the link and go, "Well, these Bitcoin miners, they're wasting energy, they're causing coal plants to be fired back up and they're using as much energy as Norway", or some other bollocks, whatever measure they use to make the argument.
It's completely flawed, but you can make it in a way that somebody who isn't smart enough, or hasn't done the research, can put it out there. We know it exists and we know the influence it has because when somebody puts out one of those tweets, under it you see all the nocoiners who have never heard of Bitcoin or only know a little bit about Bitcoin, or repeating these things. I've had them, I've got into arguments with people who clearly don't know anything about Bitcoin and they're making the same arguments. So, what's that thing, it takes how much time to undo a statement?
Harry Sudock: You need seven positives for one negative or something.
Peter McCormack: Yeah, to undo that bullshit. Have you found it?
Danny Knowles: I can't find the original tweet; I can find her response.
Peter McCormack: Well, if you found her response isn't it --.
Harry Sudock: It's Senator Dick Durbin.
Danny Knowles: Yeah, I'm on his thing but I can't find the actual original tweet.
Peter McCormack: Has he deleted it?
Danny Knowles: Maybe, it doesn't look like it though. She responded in a separate thread and she posted a load of Darin Feinstein and the --
Peter McCormack: I thought she retweeted it at the start of that thread.
Danny Knowles: No, it's not in there, unless it has been deleted, I don't know.
Peter McCormack: That would be funny if he deleted it.
Harry Sudock: It's fun when the censors turn to self-censorship.
Peter McCormack: Well, it's fun when a senator turns around to another one and gives them straight-up facts.
Harry Sudock: I know that it's frustrating and I know that sometimes it feels like not all parties are created equal when it comes to digesting information about Bitcoin, but this is really an exciting time to be observing American politics because Bitcoin is the first bipartisan issue that I've ever seen in years and years! It's crossing the aisle in really interesting ways and it's forcing conversation to the surface that hasn't happened.
I think we have got lots of crises in these challenging modern times, but one of the pressing crises that I see is a crisis of debate, where there are a lot of very tricky problems in front of us. I think that the world is a complicated place and answers are not obvious, and the way to get to better answers is to have better conversations, and the way to have better conversations is to have people who don't agree, talk.
Danny Knowles: I found that tweet, by the way; he said, "It's time to learn the truth about crypto. Let's start with the obscene amount of electricity needed to mine Bitcoin and other cryptocurrencies. Families and businesses in America will pay the price for crypto's mining ventures".
Peter McCormack: So that is that vibe switch, yeah; I see what you're saying there. Well, I'm going to push you back on the bipartisan; we believe it should be bipartisan, but it's not. It is definitely more of a leaning to the right of senators who have adopted, or support Bitcoin, and some of the criticisms tend to come more to the left but, look, by the way, I'm with you. We did an interview the other day with a guy called Jason Maier; he's writing a book, A Progressive's Case for Bitcoin. He's a teacher, he is a progressive, good guy, reached out to us, said, "Look, I'm working on this book, just want to tell you about it", and we're like, "Come on the show". He had 30 Twitter followers, nobody knows him. I'm like, "Come on the show and tell me your story about this book".
I put it up on Twitter and some people replied with, "Bitcoin is antithetical to left-wing ideology, this is dumb. He first has to get over the idea of, stop stealing people's money", all these things. And my point back to every one of those is, "If you're from the right, forget the anarchists, you should want this book written more than any other book. You can completely disagree with people on the left, but you do not want them using this as a political argument; you want them on side on this. Fucking argue about everything else, but just have them on side with Bitcoin". Do you see what I'm saying?
Harry Sudock: I definitely see what you're saying, I also think that I come at it differently.
Peter McCormack: Okay.
Harry Sudock: I think that what Bitcoin does really effectively is, it is a return to accountability, and one thing that really frustrates me around the current political climate is that there's just a total lack of accountability between representatives and constituents. I think that Bitcoin, and Bitcoin-related issues, has the opportunity to force a much higher degree of accountability between those elected to represent us and the constituents that they represent, for a few reasons.
The first is that Bitcoin is such a high compression of time that, if you send someone to office with an anti-Bitcoin policy and if you're a senator, you get a six-year term; think about what Bitcoin was like six years ago. It changes very, very rapidly. So, if you come to office, if you say, "I'm running a 100% anti-Bitcoin platform" and I get elected and halfway through, maybe Bitcoin reveals itself to many of the constituents who elected that person and said, "Woah, I changed my mind; this thing's clearly doing all of this incredible humanitarian good all over the world, this thing is improving markets, it's improving people's everywhere", which I think it is, "maybe we need to change our approach".
Most other times, you never see the impact of the platform that you send someone to Washington to advocate for within the context of the term that they were sent there on. So, there's this opportunity for Bitcoin to hold representatives really deeply accountable for the choices that they make, because the other part about Bitcoin evolving so rapidly is that, if you don't get involved and start your process, you get left behind really fast.
Peter McCormack: I think that's hopeful. Well, we had politicians send us into an illegal war in Iraq. That became very clear afterwards that was based on lies and bullshit and had nothing to do with any weapons of mass destruction that existed, it was all lies, we were taking an illegal war, 1.5 million died, right. That, to me, is a war crime; Bush, Blair should have been at The Hague and tried for war crimes. "Why did you lie and why did you send us into an illegal war?"
Tony Blair is now somebody who goes round and gives expensive dinner speeches and gets paid a lot of money. He gets consulted on a lot of important things by different groups, I don't know, I don't follow their bullshit. Pretty sure George Bush is just playing golf and cooking barbeque. We don't hold these people to account, they get away with their bullshit again and again and again.
I think in the now, what we've got is people who are essentially lying about Bitcoin because either they're uninformed or they're just disingenuous. The problem with these people is that, when people tend to argue over partisan issues, they tend to repeat the things that the opinion leaders in their space say, whether that is a politician or that is a journalist, they will just repeat their talking points.
Most of the people I'm arguing with on Twitter, I'm repeating the talking points they've read in The Guardian or some bullshit there. Now we have a guy on their team saying, "You're completely right". By the way, this is book isn't to convince people from the right to become lefties, this book is to deal with FUD that comes from the left from a guy on the left saying, "Here, this is where you're misinformed".
Harry Sudock: I commend the effort; I'll read the book.
Peter McCormack: Well, you don't need convincing.
Harry Sudock: Yeah, but I'll at least buy the book.
Peter McCormack: But the point I'm trying to make is that nobody on the right should be scared of this book, they should support this book because it's educating people who are different from you on why Bitcoin is good.
Harry Sudock: Totally. I think that, if I had to put myself in the shoes of the person on the right who would argue against that, they're saying that any compromising on any ideology that is not absolutist disqualifies you from participation in the conversation. I think we see this behaviour elsewhere in the Bitcoin community, I think we see this issue elsewhere in the American political system. I think that, at the end of the day, the more you're able to have a true North Star around your own life and your family's life and the prosperity that you can bring to the world, the happier you'll be, and my recommendation for those people is to spend less time on Twitter.
Peter McCormack: Come to the UK, you should come to the UK; I should take you around.
Harry Sudock: I would love to see the UK.
Peter McCormack: I can show you how everyone just kind of gets along; we're all very civil, we drink tea, we don't really argue, we just do it behind your back. All right, man, listen, I want to talk about mining a bit more. So, I haven't paid too much attention because we were travelling, but I was aware there was a heatwave in Texas, quite a serious one, and there were questions around asking people to conserve energy. We've all been looking at ERCOT thinking this is a great case study for Bitcoin, integrating Bitcoin in the grid. How does it stand up, because I'm assuming you've paid close attention to it?
Harry Sudock: Yeah, so what's been really fascinating to see is that about a gigawatt of capacity was given back to the ERCOT grid during much of this time.
Peter McCormack: What does that mean in real numbers?
Harry Sudock: 1% of that grid, which is enormous. So the energy system of baseload doesn't change, so to be able to see 1% of the total energy system, which is probably 2% to 3% of the ERCOT baseload, curtail is really pretty impressive.
Peter McCormack: How many machines would that be about, if they were S19s?
Harry Sudock: It would be 300,000.
Peter McCormack: 300,000?! Holy…! So there are that many machines plugged in?
Harry Sudock: Yeah, there are probably about 300,000 machines plugged in.
Peter McCormack: Wow, that's insane.
Harry Sudock: Across those sites.
Danny Knowles: Before mining, what would have done that, what would have been that demand response?
Peter McCormack: Blackout.
Harry Sudock: It's like an entire nuclear reactor, like a nuclear reactor's somewhere between 800 and 1,200 megawatts typically.
Peter McCormack: So, anyone who's not listened to the previous shows we've done on this, just trying to explain to them what this actually means, what these machines are doing, they're allowing for an increase in the baseload?
Harry Sudock: Yeah, so the way that energy systems work is that, on the supply side and the demand side, there's two major behaviours: there's fixed generation, baseload generation, and there's baseload offtake consumption; and then there's variable generation and variable consumption. So for instance, baseload generation would be like a nuclear plant or a lot of the coal or nat gas plants that are out there, not wind or solar because those have intraday peaks and valleys. Similarly, on the consumption side, the lights in your house or your HVAC, depending on the season, the things that run consistently in the background, that's your base consumption. Variable consumption would be like your dryer.
Danny Knowles: I always remember there being an anecdote in England that, at the interval for Coronation Street, it would go up loads because everyone would put the kettle on.
Peter McCormack: Make a cup of tea; I mean I think that's a Northern problem, right.
Danny Knowles: Yeah, probably.
Peter McCormack: We don't watch Coronation Street, we watch Eastenders, but that's on the BBC where you don't have adverts.
Harry Sudock: I'm more a Keeping up Appearances guy.
Peter McCormack: With Mrs Bouquet?
Harry Sudock: Of course, Mrs Bucket.
Peter McCormack: I can't believe you know who that is. How the fuck do you know who that is?!
Harry Sudock: My parents raised me right.
Peter McCormack: Oh man. So did you get Only Fools and Horses?
Harry Sudock: I watched them, I watched Fawlty Towers.
Peter McCormack: Yes, Fawlty Towers.
Harry Sudock: Blackadder.
Peter McCormack: My god, you've got some good TV.
Harry Sudock: I have great parents.
Peter McCormack: That's why you get my humour.
Harry Sudock: Of course!
Peter McCormack: So, 1%, that's a lot.
Harry Sudock: It's a lot. So, when you think about what 1,000 -- I mean 1,000 megawatts, it's like a city, it's like a city going on or off, it's a tremendous amount of power, and the ability to have this on a variable basis relieves enormous cost to those ratepayers at the end of the day, because all those costs end up getting passed back eventually. It lowers the stress on the system, it reduces the need for peaker plants.
So, when you think about, you know, ERCOT wakes up in the morning and says, "Oh shit, there's way more demand than there is supply", they have two options: one is to go call the coal plant operators and say, "Fire it up, boys"; the other is to go out into the open market and to pay a very high price for more power to basically import the power into your system, because the people on the other side of that phone call know you're a forced buyer and so they're going to take you to the edge of what you could possibly every pay for that, so either way it's bad, right.
What a curtailed piece of the load means that there's now 1,000 megawatts of capacity that don't have to get turned on at one of these high demand, whether it's diesel or coal or whatever the generation source is, or it's 1,000 megawatts that don't have to get overspent on in the open Intergrid market and then get ported in. By the way, if you look at the geography of Texas, where is that power needed? It's needed in Austin and Houston and Dallas which are southern, and so you've got to move that power really far, and we know from past discussions that when you move power over a long distance, not all of it shows up.
So you've got overbuy for the power because it's coming from further away; there are a lot of problems. Introducing a load like this to a system at the level of flexibility and the level of high frequency response time that Bitcoin miners are able to offer is unprecedented.
Peter McCormack: What have the miners swapped out in the system; have they swapped out a need for demand response power, or have they increased the total amount of power being put into the system?
Harry Sudock: So, it's a tricky question.
Peter McCormack: Okay.
Harry Sudock: When new generation gets put into a grid, that's a multi-year planning process because you've got to manage where that power is located, what are the zones, what's the infrastructure, what's the transmission, all the different types of upgraded development, downstream needs. Let's just say I build a new generation plant, plugging it in is hard, getting approval to plug it in is hard, making sure that's all going to work is hard. So, that's all proceeding along the planning lines that happened in 2017, 2018, 2019 and 2020, that's all kind of chugging along. The Bitcoin miners are a straight up reduction in demand.
Peter McCormack: Right.
Harry Sudock: So, it's like going to the supermarket and the first 100 people who show up in the morning saying, "We don't need to shop today".
Peter McCormack: How much power could the miners take in the system? Could they get to 10%, what that be a good thing, 20%?
Harry Sudock: In Texas, there's probably not enough to go much more than we've already seen.
Peter McCormack: Right, okay.
Harry Sudock: Right now I think the demand response hours are probably more valuable than the mining hours during the most congested times.
Peter McCormack: Right, okay, but there was no situation, say, if those miners weren't there that the system would have failed, or is there?
Harry Sudock: Well, it's tricky. So, I can't say it wouldn't have failed, we don't know what would have happened, but the stress on the system would have been really quite significant. They would have needed to force shutter, rolling brownouts or blackouts in certain areas or a possibility of that --
Peter McCormack: What's a brownout?
Harry Sudock: A brownout is when you lose access to firm power. So a brownout is like a partial shutdown, a blackout is like you've lost access to the transmission line.
Peter McCormack: So a blackout is literally the lights go out and everything goes out?
Harry Sudock: Everything goes out.
Peter McCormack: But a brownout, what does that mean, intermittent?
Harry Sudock: Yeah, it's like insufficiently stable power. You know who's going to DM us after this?
Peter McCormack: Who's that?
Harry Sudock: It's going to be Blake, he's going to say, "Well, there's a technical definition".
Peter McCormack: Well, do you know what we say to Blake? "You should have come on the fucking show, you had your chance, we asked you, you were busy"; can we get him on?
Harry Sudock: Yeah, I can DM him.
Peter McCormack: I like Blake, he's a good guy. I mean, this ERCOT thing's great, its super interesting, but do we know of any other grids who are now starting to look at this?
Harry Sudock: Well, California's been struggling for a long time. I don't think they're as constructive as ERCOT is, I think they've got different problems. How much have you paid attention to what's happened in Germany?
Peter McCormack: A lot.
Harry Sudock: Okay, so it sucks, it's not good, this is kind of the terminal velocity of a lot of really, really bad energy policy. We are not in the same position as Germany, but we're on the same rollercoaster.
Peter McCormack: You're not building any nuclear reactors; California, haven't they just decommissioned their last one?
Harry Sudock: They're fighting to keep it open.
Peter McCormack: Okay, has Sonnenberg had anything to do with that because I know he was --
Harry Sudock: He's a huge advocate, yeah. There's a woman who is a great -- she's a model, but she's a nuclear influencer.
Peter McCormack: Nuclear influencer?
Harry Sudock: Her tag on Twitter on @i_sodope_.
Peter McCormack: That's brilliant, isotope!
Harry Sudock: She makes pro-nuclear energy education TikToks.
Peter McCormack: Holy shit, we need to get her on.
Danny Knowles: I'm following it; I think we need to get her on.
Harry Sudock: She's awesome, Isabelle Boemeke; she's either Dutch or German maybe.
Danny Knowles: Yeah.
Peter McCormack: Dan's got a big smile on his face at the moment.
Danny Knowles: I just think it's funny, that's all, I'm all right.
Peter McCormack: The wife doesn't listen to the show.
Danny Knowles: Yeah, she doesn't listen.
Harry Sudock: She's awesome. Talk about bipartisan issues, where we go from here is, to me there is no palatable political position that is not pro-Bitcoin and pro-nuclear power.
Peter McCormack: Yeah, so we're starting to dig into this, we've actually started to dig into this because I look across all of this and I want to understand it all. I accept there's a climate issue, I also accept we have a massive issue with not allowing people to generate energy; energy is important for humans to flourish, I get it.
Harry Sudock: And the bad that will come from unstable power grids and increasingly volatile access to energy and increasing -- let's just be very, very clear. In Germany right now, it's not only that they're starting to have power rationing come to the market, they're also paying three times as much for what they're getting. So, if you told the average American household that your utility bill is about to triple --
Peter McCormack: "Give me that nuclear shit, get Mr Burns in".
Danny Knowles: How transferable is it though to take what they've done at ERCOT and do it elsewhere, because it's like an isolated grid at ERCOT?
Harry Sudock: So, I think that it's important that we clarify exactly what you mean, "What they've done in ERCOT"; the demand response and presence of miners?
Danny Knowles: Yeah, and sort of integrating that with the grid.
Harry Sudock: I think that's very achievable everywhere.
Peter McCormack: Hold on, what is the deal between the grid and the miners?
Harry Sudock: So, in Texas, there are two driving forces behind why Texas is an attractive place to mine Bitcoin based on this sort of grid integration thing that's been at the centre of a lot of the conversation; the first is that it is a fully deregulated market, so granular, hour-to-hour, real-time pricing, bit in, bit out. So, let's just say I buy a forward contract for one day of power, or one month of power, at $25 a MWh and then the price spikes, I can choose to give that power back and make the difference. I can't do that in New York City. Why? Because it's not a deregulated power market.
So, there's a group in the Government called FERC, the Federal Energy Regulatory Commission, they govern all power generation assets everywhere in the US other than ERCOT because it's deregulated. So, the first piece is the ability to interact on a very granular basis with the power; the second is that there's this other thing called demand response, and other grids in the US have demand response programmes.
The revenue from demand response programmes in Texas is just higher, there's more volatility, there's more congestion; it has to do with how the state is laid out and the load zones and all sort of stuff. But the net of it is that, if you're a miner in Texas and you participate in a demand response programme, there are more revenues available to you out of a programme like that there than elsewhere.
Peter McCormack: Is that because you get power cheaper but on the condition that you turn it off at a certain point?
Harry Sudock: You get paid to give the power back.
Peter McCormack: You get paid to give it back? And, at the time you give it back, do you get paid more than you get to mine?
Harry Sudock: Sometimes, you can.
Peter McCormack: Does the miner have a choice, like they have to offer them the…?
Harry Sudock: So, there are different programmes, sometimes you can get put to give the power back, sometimes it's voluntary, sometimes it's you need to give back a certain number of hours.
Peter McCormack: Everything is up for grabs?
Harry Sudock: It's very complicated, but there's a lot of opportunity around intermittent consumption in ERCOT that's more attractive than elsewhere.
Peter McCormack: So, back to the nuclear thing because, again, we're starting to look at that now. We want to get some people on on nuclear, I want to understand it more.
Harry Sudock: I have people.
Peter McCormack: Okay, give us your people. Marc Andreessen was on Rogan talking about it as well, Sonnenberg has been talking about, lots of people are talking about nuclear, and I did some research and I was trying to understand why people are against nuclear. Look, there are natural super-green people who are going to be against this, of course, I get it; they think of nuclear waste and it scares the shit out of them, etc, but we've actually gone into the detail. We looked just a couple of eye-opening things that, at Fukushima one person died, and that's even under dispute; with Chernobyl, what was it, like 26, 32 or something?
Danny Knowles: It was something like that, yeah.
Peter McCormack: You know, these aren't great, every death is horrible, and there have been these other externalities, like the region of Chernobyl is a no-go zone and lots of people got cancers and things. Again, it's all terrible, but if you actually compare what the impact of burning coal and what that's done to the environment and certain lung diseases as well, let's be realistic, there are consequences and risks of them all. But the benefit, it appears to me, on nuclear far, far outweigh the risks of any burning of a fossil fuel to generate almost unlimited clean power.
Harry Sudock: Yes.
Peter McCormack: It doesn't make any sense.
Harry Sudock: So, let me take me you back even a further step behind nuclear, which is that this idea in modern times that we can't have access to as much energy at a very low cost that we want is false. We can have as much as we want, we just need the will to invest in it, we need the time and the effort to improve the technology; the technology doesn't need to be improved to get there.
When you think of the Moore's law cycles, Nvidia, when they released their GPU for the first time in the early 2000s, they were releasing a new chip size and software every six months. We're on version 4 of nuclear reactors 70 years later; it took us 70 years to get to version 4. If Nvidia was doing it, it would have taken them 2 years, so we're 140 times slower in nuclear than we are in chips.
Peter McCormack: But is it slightly different in that, when you're making a chip, the external risks of a bad chip or designing a bad chip are small, whereas the external risks of designing a nuclear power plant in the wrong way, you might get nuclear meltdown?
Harry Sudock: Of course.
Peter McCormack: I expect a bit longer, but what it sounds like to me is like hardly any new nuclear plants are being built or commissioned -- sorry, you'd found two in the UK.
Danny Knowles: Well, I had a quick look and there seems like there's quite a lot coming over the next few years. India are building seven or something over the next five years.
Harry Sudock: There are four coming in the UAE, two of them are done, two to come; it's a four-reactor development. There are two that are being worked on in Georgia; then the UK has some that are coming; I know that Poland is actively engaging in working on some of this; India obviously is working on it; China's very aggressively working on this.
Peter McCormack: But the US isn't?
Harry Sudock: The US is.
Danny Knowles: The US has a couple.
Peter McCormack: Right.
Harry Sudock: Yeah, so the US is working on something called an SMR, which is a small modular reactor.
Peter McCormack: Is that like a regional…?
Harry Sudock: So, right now in nuclear, if I go and say, "I'm going to go build a nuke", right, what that means in the US is a light-water reactor, you're going to build it, there's a two-and-a-half mile containment zone and a ten-mile containment zone, it takes an enormous amount of land, nobody wants one near them, it's a pain in the ass. That nuclear reactor would generate somewhere between 800 and 1,200 megawatts. You want to build them two together, because then when one is getting refuelled, the other one's spinning, so the site is never fully down.
Peter McCormack: By the way, you know far more on this than me, what do you mean, "Refuelled and one is spinning?"
Harry Sudock: So, if you build a nuclear reactor, you want to have two big turbines, each one of them has nuclear material in them. That's how you do the heating and then the spinning.
Peter McCormack: I have no idea!
Harry Sudock: How do you think a power plant works?
Peter McCormack: They burn shit.
Harry Sudock: Okay!
Danny Knowles: I've never seen Harry look so disappointed!
Peter McCormack: They burn, spin the turbine, the turbine generates energy.
Harry Sudock: So, in a light-water reactor, you use a nuclear fissile material, generates a shit load of heat, heat turns water into steam, steam rotates. When you refuel a nuclear reactor, you put new fissile material in the core and then it burns hot again, and that keeps spinning. But you're doing all this stuff, all this maintenance, all this monitoring, all these things; so if you have two turbines, two reactors, when one of them's getting refuelled, you have to turn it off to refuel it, the other one is on keeping the whole plant working.
Peter McCormack: And you get rid of all the waste shit.
Harry Sudock: Exactly, so it's like redundant stuff.
Peter McCormack: Okay, so do they not ever have the two running at the same time?
Harry Sudock: They always have the two, but they can turn one down and not lose any plant operations.
Peter McCormack: Right, so when you talk about those two, if you were talking about the entire grid of Texas, just for perspective, how many nuclear --
Harry Sudock: You could run Texas right now on somewhere between 70 and 100 nuclear turbines.
Peter McCormack: Okay, so that's a lot. How many turbines can you have on one site?
Harry Sudock: Some sites have four.
Peter McCormack: Okay, so it's still a lot; to power all of America you're going to need thousands.
Harry Sudock: Yeah, you would need --
Peter McCormack: Maybe 1,000.
Harry Sudock: Yeah, you would need probably about 1,000.
Peter McCormack: Yeah, interesting.
Harry Sudock: Which is not that many, and when you think about all the money that we've ploughed into wind and solar, if we just spent that money on nuclear we'd be way further ahead.
Peter McCormack: Yeah. I think there is going to be this shift.
Harry Sudock: I totally agree.
Peter McCormack: I was actually reading in the New Scientist about these new fission reactors that they're working on, there's one that's being developed but they said it'll probably be completed in about 2054.
Harry Sudock: So, yeah, if you're going to go with the new, new technology stuff, there's a range of technologies between ones that are readily available right now and ones that are fundamentally solving big physics problems that are new physics problems; those are like 30 years out.
Peter McCormack: Yeah, I mean I don't the difference between fusion and fission, all I know is about spinning some plasma shit, the stuff that we've got at the start of the universe, sounds cool.
Harry Sudock: Fission, things break apart; fusion, things forge together.
Peter McCormack: Like the sun.
Harry Sudock: Exactly.
Peter McCormack: Yeah.
Harry Sudock: So, in the sun --
Peter McCormack: Stop laughing at me, you dickhead! Danny's laughing at me.
Harry Sudock: The elements go from like the lighter elements to the heavier elements. In fission, you go from the heavier elements to the lighter elements.
Peter McCormack: Why is fission seen as cleaner?
Harry Sudock: Fusion is seen as cleaner.
Peter McCormack: Fusion?
Harry Sudock: So, in fusion, you take two things and you put them together. In fission, things break apart, but they go from being useful and dangerous to not useful and still dangerous.
Peter McCormack: So fission is what we have now?
Harry Sudock: Mm-mm.
Peter McCormack: So, it's about fusion?
Harry Sudock: Fusion is the next thing.
Peter McCormack: Yeah, so 2054 for the first one?
Harry Sudock: It's going to take some time.
Peter McCormack: It's going to take some time; you've got some shit to figure out.
Harry Sudock: Smarter than me are working on it.
Peter McCormack: Maybe I could help them! But look, I've not spent any time looking at nuclear, I'm just starting to look at this. I want to talk to people; I want to understand it more. It just sounds to me like it's the sensible route and anybody who's against it is a moron and will probably not be in power.
Harry Sudock: Yeah, and so to me, nuclear's just a fundamentally apolitical, technological, human net benefit.
Peter McCormack: Yeah, but it's not an apolitical issue, certainly if you're from the greener end of the political spectrum. You can go out there, I've read everything they're saying against it.
Harry Sudock: Yeah, so their expectation is that human quality of life should be worse, and that is the only version of reality that's acceptable to them.
Peter McCormack: Well, their version of reality is the risks aren't worth it.
Harry Sudock: Their reality is that every risk is not worth it.
Peter McCormack: That's true.
Danny Knowles: But in places like Germany I think there's some PTSD from Chernobyl still, like that could have been significantly worse for them.
Peter McCormack: If the winds had blown the other way.
Danny Knowles: Is that what it is?
Peter McCormack: Yeah, look it up, they got lucky with Chernobyl to do with the way the wind was blowing.
Harry Sudock: You need to bring on someone who's smarter on nuclear than me.
Peter McCormack: Well, okay, man.
Danny Knowles: We're going to do that in Bedford.
Peter McCormack: Yeah, we're going to do that in Bedford; we're going to get Bedford's nuclear expert!
Danny Knowles: I thought that was you!
Peter McCormack: No, that's Mad Ricky! Mad Ricky plays the banjo down the high street. Have you found it?
Danny Knowles: No.
Peter McCormack: It's something to do with winds, they got very lucky.
Harry Sudock: There is risk with everything, the prevailing and overwhelming fear around nuclear is a function of narrative and marketing, not a function of scientific reality.
Peter McCormack: There's been successful marketing in this last couple of decades.
Harry Sudock: I blame The Simpsons, truthfully.
Peter McCormack: It's a fair point actually.
Danny Knowles: The three-eyed fish.
Harry Sudock: If we just didn't have Blinky the Three-Eyed Fish we would have abundant power everywhere at a penny a kWh.
Peter McCormack: I want three-eyed fish.
Harry Sudock: Do you?!
Peter McCormack: I personally think three-eyed fish are cool; why not? Might be good. Let's get on, this is getting nonsense. All right, man, okay, so listen, price has been a bit shitty and we're reading about some miners are distress, Hut 8 are coming out; a shoutout to Jamie, how are you doing, Jamie? They're still keeping every Bitcoin they mine, but we've heard of distressed sellers. I think the lowest the price hit was, what, $17,500?
Danny Knowles: Yeah, $17,700 or something.
Peter McCormack: Yeah, we saw it dip to there, we're back up to like $22,000 now, but in my head, my basic rough calculations, having spoken to you, none of the big miners should be losing money on mining Bitcoin at $22,000 at the moment, not even at $17,000, so what is happening there? Are there are other structural issues with these companies?
Harry Sudock: So, the short answer is, and this is only from my layman's observation of the industry, I think there's not one thing, it's not just one thing that's happened. So, maybe there are some miners who -- actually, before we go there, the big thing is that these are not miners necessarily who are unprofitable at the end of the month on their bills, these are miners who thought that they either had access to additional capital, were funding expansion, were paying for future orders of machines.
A miner's not selling their Bitcoin reserves to cover their power bill at the end of the month in these examples, I think. Much more so, these are miners who were saying, "Okay, we've planned for X, Y and Z amount of growth. The way that we're going to get there and finance that growth has changed given the change in market dynamics. We're choosing to liquidate some of our balance sheet to go and fund that growth".
Danny Knowles: So, they're selling them to go and buy machines that they thought would be bought by capital investment?
Harry Sudock: Well, let's play out an example. You wake up in the morning, it's November of 2021, you call your Bitmain sales representative and you say, "I want to buy one machine", and they say, "Okay, this machine costs $75 a terahash". You look at the market today, you say, "That's trading at about $100 a terahash, so if I'm going to get this thing in 90 days, or 180 days or something, that's a great price". I pay you 35% of the price upfront, I owe you another payment in the middle, and then I owe you another payment 30 days before it shows up. But Bitcoin goes from $50,000, $60,000, whatever to $17,000, $20,000, whatever over that time period and so what you thought was a great deal at $75 a terahash now is trading for $35 a terahash.
Peter McCormack: But you have a contract.
Harry Sudock: But you have a contract, and so the people who lent you the money to go do that, or the people who bought your equity to go do that, are calling you and saying, "What the fuck?! You're going to be paying over market price for something?" Every dollar you spend now is only worth 50 cents in mining assets. So, it puts an enormous amount of pressure on how procurement happens within the mining industry.
So, I don't know what any individual company situation is, but that's the dynamic that's challenging about some of these future orders where miners go take out a loan, they're locked in at a price with a manufacturer, and then, when it comes to take receipt of that machine or to make the next payment, the value of that machine is significantly below where the contract was struck. So, the people who financed that growth might say, "I don't like this deal as much anymore".
Peter McCormack: Can they hedge that; are there futures products they can hedge with?
Harry Sudock: There's a lot of thought and time that's gone into how some of the manufacturers -- or sometimes the manufacturers introduce adjustable rate contracts, sometimes there are opportunities to hedge Bitcoin price and get part of the way there, but I think what happened for a lot of the operators in the space is they said, "Bitcoin's going up forever". We've gone through three chapters. The first chapter was, "Oh my God, Bitcoin price is going up, I can't get any miners"; the second chapter was, "Oh my God, we've got all of our miners but there's no rack space"; the third chapter is, "Oh my God, why did I do any of this in the first place?"
Peter McCormack: But it's that thing, it's trying to build these businesses during volatile times. I'm going to get him on the show, Pascal from Ledger on the show, because I remember back during the 2017/2018 bull run and then crash, he just said, "Building a company in these times with this kind of volatility is so hard because the majority of your orders some in a very short period of time, you have to provide customer service and then the tap turns off, you don't know when, etc".
Now, they've had a very, very smooth couple of years, and so it's because they learnt everything during that period. We're the same, look, you know, everything is a derivative of Bitcoin, our downloads are, our business is, and we've planned ahead for it. Bear market won't affect the show that we make, we can still travel and make it, but that's come through good planning. I think other people just haven't been prepared for this.
Harry Sudock: I agree with you. We think that Bitcoin is a multi-decade, multi-generational incredible opportunity. It doesn't mean that the water's always warm and smooth, there's chop along the way. So, you know, planning for those downside scenarios and trying to manage risk first and upside second is the prudent way to do it. There are operators and companies that are out there within our industry that have done their best and made good conservative decisions and still blown up.
Peter McCormack: Are there distress deals out there for the miners, like are you looking at things, like a shark, a vulture?
Harry Sudock: I have yet to meet a market that doesn't have opportunity. I think every market's got great opportunities in it. I think that discerning capital allocators tend to rise to the top over time, and it's about process and rigour much more than it is around anything sharky.
Peter McCormack: The empathetic vulture!
Danny Knowles: The SBF of mining.
Harry Sudock: You catch more bees with honey, my friend.
Peter McCormack: Oh man, well listen, look, it's super interesting again to watch, to see this play out because I would have thought more than anyone that miners would be prepared. They seem to be so diligent on their numbers, but I guess what you're saying is right, they can't produce the ASICs quick enough during a bull market; the manufacturers hold the power.
Harry Sudock: I think it's changed; I think it's changing. I think that the level of maturity that we see from existing manufacturers and some net new manufacturers in this cycle is more mature than it was in 2017/2018.
Peter McCormack: Do you think we will see consolidation though?
Harry Sudock: I think we have to.
Peter McCormack: And do you think there's any risk of having consolidation in the mining industry where we get a few huge players; is there is a decentralisation risk with that? I ask somebody who wants to grow a massive company!
Harry Sudock: You know, I'd love to be telling you that Bitcoin's decentralisation risk has hit zero. I think that mining risk is pretty low, I think there's not a lot of incentive for bad behaviour among miners, frankly. I think that our job is to produce computing power as efficiently as possible and hand it off to other people who know what to do with it better than we do, and that happens in the form of pools and that happens over time.
I'm very bullish about the improvements around Stratum V2 and some of the stuff that's gone on from a pool decentralisation standpoint. I also think that, as markets for hash rate mature, it's also another synthetic decentralisation of Bitcoin mining. Let's say you're running a farm with 100 terahash and someone buys 2 terahash from you; well, now you've got to contractual obligation to deliver them that hash rate in a certain way on a certain timeline. So, as we see more mature financial products around hash come to market, I think that the ability for miners to behave badly continues to go down.
Peter McCormack: It feels like there are some synergies with the way energy is bought and sold in the deregulated Texas market to what you will see will happen with the market for buying and selling hash. Do you think that's an alignment between the two that's happening?
Harry Sudock: I think that where Bitcoin and energy's relationship goes from here is one of the most underappreciated and underpriced things that's happening in this market. I'm taking your question in another question; I've been watching the discussion around the long-term security budget conversations happen, and I just kind of think they're silly. There are two things that I think make Bitcoin's long-term viability brighter than ever today; the first is that the purchasing power of Bitcoin continues to go up on a cycle-by-cycle basis. We're not crashing to $3,000, we're crashing to $17,000.
Peter McCormack: Yeah, somebody asked me recently about that and I said the only number long term I care about is, what is the lowest price Bitcoin hits each year, not the highest, I mean it's interesting, but the lowest price it hits each year; that is trending up.
Harry Sudock: It's trending up. So, that's the first thing that I think is solving this long-term incentive structure thing. The second is that I just don't buy this idea that the full spectrum of the incentives for miners is captured by the block subsidy plus the transaction fees. I think that the revenue space for miners and the role that miners will get to play within large and complex energy systems will unlock net new streams of revenue that are not related to on-chain Bitcoin disbursement.
So, whether that comes in the form of services or financing or straight-up energy trading, there's just a ton that's going to get unlocked because you've brought a new market participant to a space that didn't have one before, with new opportunities and business models to be built on top of it. I'm incredibly bullish on non-Bitcoin-native mining revenues.
Peter McCormack: Yeah, so after the Adam Wright show we made, Rusty dropped me a DM and he said, "The thing I like most about this is the idea when people are discussing about long-term inflation, should it be considered? What they've missed out is that, with mining we will have mining as a service". But me and Danny were talking about that; if there was no block reward, we get to the stage where there's no block reward, and you were talking about these sites such as the landfill sites, you would be paying for someone to take that methane and burn it and turn it into Bitcoin, but there's no Bitcoin to be created, so you might as well just burn it off. So, all you really have access to is actually the transaction costs.
Now, if there is still a small part which is coming from the block reward and some transaction costs, maybe you subsidise the difference by paying someone to burn off the methane, but if there's not enough coming from a block reward, what is the mining as a service? That's what I can't figure out; what is mining as a service where there's no block reward or very minimal transaction fees? I can't figure that one out.
Harry Sudock: Well, there needs to be some transition to transaction fees.
Peter McCormack: Yeah.
Harry Sudock: But there's a native revenue opportunity to being a flexible grid balancer. Right now, if you go to Texas, there are negative power prices because it's more expensive to shut the turbine off and to turn it back on when you think about the maintenance and the labour and the negative impact of the infrastructure.
Peter McCormack: So you might as well have a toaster on?
Harry Sudock: It is immediately positive sum just to offtake the energy.
Peter McCormack: But if you didn't have that taken off the energy, how could you get rid of the energy; is there no other way?
Harry Sudock: It ends up getting to somewhere, but the price continues to burn negative. Bitcoin mining's a huge capacitor so you look at it and you say, "All right, well this MWh is -$10", and you think the market's kind of digesting it at -$10. I show up and I bid -$9. I'll take the $9, and I have the ability to do so at scale, all I need to do is just turn on my mine, take the power, turn it back off. So, there's zero Bitcoin changing hands, and I got paid $9 for that MWh.
Peter McCormack: I guess if enough miners were doing this, there becomes a limit to how many can go out and offer this.
Harry Sudock: Yeah, I think that's certainly the case, but more importantly, Bitcoin mining economics trends lower on a multi-decade basis. My main focus is how do we make Bitcoin more useful, because the more useful Bitcoin gets, the more on-chain transactions there will be and the higher the purchasing power of a sat goes. If I focus on those two things and build a great business to mine Bitcoin alongside of those activities, then the emergent technological phenomenon that is money that is Bitcoin gets to continue to grind forward and humanity will prosper along the way.
Peter McCormack: How much are you guys thinking forward now about the next halving? Obviously it's something that is relevant to you, the block reward will halve. Now if the price is doubled from now at that point, great, but how much are you forward-thinking about that? The halving seems to get front run, but also there are very good arguments that it's narrative-driven, it's momentum-driven. Now look, fucking great if it happens again, sweet, but how much do you have to start thinking, or when do you have to start thinking about that, and are already thinking about that? I know if the price doesn't go up the most inefficient miners will go offline first, we'll lose all the -- are there still any S9s out there?
Harry Sudock: There still are.
Peter McCormack: Well, they'll all be gone, fuck them, see you later. Then, some of the most unprofitable mining -- I know the network readjusts, but still, how much are you guys planning and thinking about that?
Harry Sudock: We take a pragmatic approach to risk, we don't want to overplan because then you forget to build things, we don't want to underplan because then the water goes out and your pants are down, and neither's a good place to be, right, so it's a healthy concern. The best way to plan for the halving is to control the shit out of your costs.
Peter McCormack: Okay, and you're doing that. How big is Griid now; how much can you tell us?
Harry Sudock: Very little!
Danny Knowles: Just to jump back in the conversation a little bit, do you think the next bull run, the same business plan will be the one, like you hold every Bitcoin you mine, or do you think it'll be to offload periodically?
Harry Sudock: I don't think it's one or the other; we've seen both strategies. We see some miners who sell every day, we see some miners who raise money to pay bills to keep more Bitcoin. We've seen both of those strategies make money at different times in different parts of the cycle, and we've seen those companies be rewarded in different ways by the market.
I think that the burden of that decision is on shareholders and stakeholders to tell the management teams running those companies if they want to pay them to become a Bitcoin-holding vehicle or if they want to pay them to be a cashflow generating business and reward them on the stability of those cashflows; I think there are plenty of shareholders who want both of those different options.
Danny Knowles: Good answer.
Peter McCormack: Okay, outside of mining, before we finish up, long term, Harry, your long-term Bitcoin thesis? You said to me before we started, your investment thesis is unwavering, you're a Bitcoin maxi, but how do you feel the trajectory of Bitcoin is going now as a whole? When you look at everything that's happened, whether it's regulation, adoption, technical development, do you think we're moving well; do you think we're moving at the right pace? Is there anything you look and you think, "Here's an area we need to focus on more"?
Harry Sudock: I'll tell you my first principled approach, which is that if I think I'm right and that the world is wrong, then I have to ask myself how am I going to vastly monetise my correct opinion, because if I can't think of a good way to monetise my opinion, I might not be right, because the market's usually faster and smarter and better than me at deciding what reality is. So, when I look at Bitcoin and the process and the progress that we've all been on the same pirate ship together figuring out, I think we're making great progress. I think Bitcoin is working for people who choose to find out how to best work with it. Could we be nicer to each other, and could we be focusing more on education, and could we be building more interesting businesses? Yeah, probably.
It's funny, I was thinking recently about when Bitcoin went back down to $3,000 after it was up at $20,000 in 2017/2018 --
Peter McCormack: It was brutal.
Harry Sudock: -- and I was thinking back, and I was like, "You know, this might not work out. I don't know that this is going to really work out". This time I'm like, "All right, it's going to work out, it's going to be fine". So, it's interesting, as the years go on, and there's the old saying in traditional finance which is, "It's not timing the market, it's time in the market", that is what really matters. I think that the "problem" with Bitcoin is that it doesn't reward your bias towards action. Human beings, to feel in control of our lives, we chose to do things and that's how we feel in control, and what Bitcoin demands is that we don't do things.
Peter McCormack: Yeah.
Harry Sudock: So, by nature of that behaviour, it has forced its way out of more action-biased hands into less action-biased hands.
Peter McCormack: But it provokes us to do things, it tests us.
Harry Sudock: It is the cattle prod that revolves the world!
Peter McCormack: Listen motherfucker, you might be wrong here. Just go and sell a bit of your Bitcoin.
Harry Sudock: So, you know, I don't have a deep technical opinion on are we far enough along. If you're worried about not being far enough along, write some code or fund someone else to write some code.
Peter McCormack: That's as simple as that.
Harry Sudock: It's the best I've got; I don't know how to help you otherwise!
Peter McCormack: Well, listen, I know what you mean. I've got to admit, when we hit down to $3,000, I was like, "What if nobody cares? What if we lose interest? What if this is just like some weird slow death?" I was there.
Harry Sudock: Emotionally, that felt like this might just be dead. This cycle feels a lot more how I felt in 2008; like holy shit, I don't know what's going to break next.
Peter McCormack: We were let down by a crypto contagion.
Harry Sudock: Yes.
Peter McCormack: We've just made a show with David Morris from CoinDesk. He wrote an article, he was essentially saying, "Look, Bitcoin was born out of the 2008 Financial Crisis and was meant to save us from this, and we've just done the same in crypto". And I say crypto not as a shitcoiner, I say it because we cannot avoid the effects of leveraged crypto funds going out and also buying Bitcoin. We can ignore crypto and we can say it's all bullshit, it still affects us.
Harry Sudock: Yeah.
Peter McCormack: If you think, we've essentially repeated the same mistakes of 2008. We have overleveraged, unregulated, greedy bastards creating the contagion for their own greed, a few small people affecting a large group of people. and out of that there's a lot of misery that's created.
Harry Sudock: I would put a finer point on it and say, let's talk about the mechanics of how that happens. Someone buys a Bitcoin, they send a Bitcoin to a counterparty, they take out a loan against that Bitcoin, they gamble with the proceeds of the loan, the thing that they gamble the proceeds on go up, then the people who had the Bitcoin posted to them, lend out that Bitcoin somewhere else.
Everything that happens until they do that last step is fine and doesn't affect Bitcoin. It's that last step when then they go and lend the Bitcoin back out, and then everybody blows up because the first loan breaks because prices go down, and then the second loan breaks because prices went down, and then prices go down further because there becomes this forced selling environment, where if you're got to sell assets to meet margin call it sucks, but that's the end of the story. If you've got to sell assets to meet a margin call and then your original lender also sold away all the collateral and you can't get that back, that's when you get into contagion territory. It's that second layer of rehypothecation that happens into the collateral asset, not just the proceeds of the loan that gets spent gambling.
Peter McCormack: All right, Harry, man, good to see you as ever. Do you want put pump Griid?
Danny Knowles: Have we not got to shit on Fort Worth first?
Peter McCormack: What's that, the first city to mine Bitcoin?
Harry Sudock: I commend them for taking such a bold and aggressive stance on Bitcoin in the future. I think what the Fort Worth story has shown us is that the cheapest political points in the world right now are pro-Bitcoin. If you just come out as super-pro-Bitcoin there are a bunch of people who are going to love you right away.
Peter McCormack: Yeah, you get 30,000 followers like that, click.
Harry Sudock: Like that; it does not matter how much hash rate you have actually committed to generating. So, if you think about them from like a terahash per follower ratio --
Peter McCormack: What have they got, two S19s?
Harry Sudock: It's not a lot, it's single digits machines, is my guess.
Peter McCormack: So I'm probably mining as much.
Harry Sudock: Correct. So, I think it's an incredible story that they're willing to take the plunge and be pro-Bitcoin in public. I think that the takeaway is that every other city and politician should try out a pro-Bitcoin platform and see how well they do on Twitter.
Peter McCormack: See, this is positive leverage, this is just leverage.
Harry Sudock: It's just leverage.
Peter McCormack: Right, we are done now.
Danny Knowles: We are done.
Peter McCormack: We are done. Harry, good to see you man. Do you want to pump Griid; do you want to tell anyone anything? Where can they get any of this sweet, sweet merch?
Harry Sudock: No, no, the merch is only thing scarcer than Bitcoin.
Peter McCormack: When do we get some of this sweet merch?
Harry Sudock: I can have a conversation.
Danny Knowles: I got a hat last time.
Peter McCormack: You got a hat?
Harry Sudock: It was good, it was a beanie, the beanie's good.
Peter McCormack: I haven't got a hat or a sweat.
Harry Sudock: We can change that.
Peter McCormack: We'll fix it up. Right, tell everyone.
Harry Sudock: We're Griid, we mine Bitcoin. I think that I'm going to use my plug space today just to say that things can get pretty bleak, they're going to be much better and sooner than you think.
Peter McCormack: Soon this will pass. All right, my brother, love you, man, take care.
Harry Sudock: Love you, bro, thank you.
