WBD579 Audio Transcription
The Lightning Energy Market with Austin Mitchell
Release date: Saturday 12th November
Note: the following is a transcription of my interview with Austin Mitchell. 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.
Austin Mitchell is the Co-Founder and CEO of Synota. In this interview, we discuss his plan to use the Lightning Network to settle transactions in the energy industry, and how this should bring greater equality to the energy market whilst also enabling the whole energy economy to move to the Lightning Network.
“Imagine the Lightning Network being very similar to the energy system itself and how it moves money, where every physical node now has its own node in the Lightning Network. And when energy moves in one direction, money moves in the other, basically what we’re creating is a system where money can move as fast as energy.”
— Austin Mitchell
Interview Transcription
Peter McCormack: Oh, you're doing a clap! You can do whatever you want. Do you know what that's for?
Austin Mitchell: No, I don't know.
Peter McCormack: All right, so it's not just like a friendly --
Austin Mitchell: I was getting pumped up!
Peter McCormack: -- Bedford welcome! We clap and you… No, it's for the timing. So, when they take all the video and the audio, they use the clap to get all the sync.
Austin Mitchell: So, it's like the thing when the directors used to drop the thing?
Peter McCormack: Yeah, it's to get the sound sync.
Austin Mitchell: That's fair enough.
Danny Knowles: But now I think we need to start every show with a clap!
Peter McCormack: We do. But they might not clap in return. And we're drinking some of Ben's lovely red wine.
Austin Mitchell: It's delicious.
Peter McCormack: I wasn't going to drink, but you insisted, so cheers!
Austin Mitchell: Cheers!
Peter McCormack: So, Ben is a bitcoiner and I think he's a winemaker. This is Peony Lane. We bought six bottles from him about two months ago and then they arrived in Miami as we were leaving.
Danny Knowles: Well, first they arrived at the wrong house.
Peter McCormack: Oh yeah, they went to the wrong house.
Danny Knowles: That was our fault though.
Peter McCormack: That was our fault, and then we moved to another. That was a whole thing as well. There's a whole scam with Airbnb in Miami; I'll tell you about it later. The wine went to the wrong house, Jeremy took it to Philly, he's brought it back, and here we are drinking Ben's wine.
Austin Mitchell: Well, it has a good story then and it's delicious.
Peter McCormack: It's a nice red, I like a red wine. Anyway, welcome, Austin.
Austin Mitchell: Thank you very much for having me.
Peter McCormack: Thank you for coming on the podcast. For context, we've just been to Pacific Bitcoin day one. I think they did a great job.
Austin Mitchell: Fantastic job.
Peter McCormack: Great conference, and we wanted to fit -- well, Danny wanted to fit in talking to you so much, we've come back and we're going to go. So listen, I don't always do this, but sometimes it's good to give a background. So for the people listening, if they don't know you, Austin, tell them who you are, where you're from, and all this energy shit we're going to talk about.
Austin Mitchell: That sounds good. Yeah, thanks for the chance to talk about the background, because I think it really shapes my own Bitcoin story and why I think that Bitcoin and the Lightning Network can really revolutionise the energy industry. So, I have been in energy really from day one. I was an engineering student doing research on energy efficiency, and for me that's what created the attachment where I started to learn about how energy affects people's lives.
Peter McCormack: What do you mean you were studying energy efficiency?
Austin Mitchell: Oh, so what was really neat was you were taking energy use across a cross-section of a community, how much natural gas people used, how much electricity they used, and you're running models on that data to try to figure out where there are opportunities for people to save money by saving energy. And once you identify those opportunities, you'd go into the homes and meet with people to then say, "Hey, it has to do with your furnace is really out of date. Here are some programmes to help you get a new furnace", so things like that. So, it was really on the ground in the community kind of research.
So for me, that's when energy came out of the engineering textbook and now became something real, something very tangible, because obviously you can't touch electrons, or you don't want to touch electrons. But now I understood energy in a new way, and for me that was what catapulted me into grad school, where I spent really five years studying natural gas development, kind of soup to nuts, everything related to hydraulic fracturing or shale, and understanding both environmental policy as well as the economics of it, and through that whole process really just getting a better sense of the natural gas industry itself.
Peter McCormack: Okay, let's go a bit broad and then we'll come in, because I want to ask some questions about fracking. It's something that's like a political hot potato in the UK, I know there's mixed feelings on fracking here. I've just been listening, there's an interview at the moment that Joe Rogan's done with Bjørn, I forget his name, something-or-other, where they're talking about fracking with that and they're talking about and discussing the net impact of fracking, in that it may reduce the cost of being able to produce natural gas, and natural gas itself has a less environmental impact than coal. But then they talk about the environmental damage of the fracking process.
So, I've got questions about that, but generally speaking, you're now a bitcoiner, there are so many discussions around energy. I mean, two years ago we barely talked about energy. Now, it could be, what, 20% of the shows we make; more?
Danny Knowles: It's a lot. I think the first time it probably came up was with Troy. I don't think before that, we'd really done much on energy at all.
Peter McCormack: No, not to this level. Now we've done so many shows on energy, how the energy sector works, we've discussed nuclear, OTEC, and there's some pretty hardcore debates. There are people who think climate change is natural, climate change is caused by humans, it's something we don't have to worry about, it's something we should worry about; there are so many discussions and debates around it. You as a bitcoiner coming in, what are you thinking about with regards to energy, what are the main things that are on your mind?
Austin Mitchell: So, I think I'll break it into two themes. I think number one is uncertainty. I think that anybody who sits here in this moment in time and thinks that they can predict the future is forgetting how, throughout time, energy has always been up and down and left and right. There is a ton of uncertainty to think about. So, whether we're talking about, what is the future state of the climate; or we're talking about, what are energy markets and resources going to do in the future, there's just a lot we don't know. So, I always just try to caution people to stay openminded around what the future can look like. Think about the actions today that will help set us on a good direction, but don't be so dogmatic thinking that you know the answers today. So, I think that's theme number one.
Then the other side of that really is then just a belief in free markets. And when I say free markets, it doesn't mean unconstrained free markets, it means markets that are transparent, markets that provide accurate price signals and represent the true cost of energy. So, in order to make that future the best and to deal with some of those uncertainties, I feel comfortable when people lean into, "What can the free market do to solve some of the problems?" So, when I think about energy, those are my two themes, is keep openminded; strive for free markets, because they're going to find the answer.
Peter McCormack: What parts of the market aren't free right now? Again, I've heard criticism of, say, the renewable sector, where people say, "Well, the renewable sector has only been successful and grown because massive subsidies have come from the state". But then I've also been aware that there are massive subsidies for the oil and gas industry as well. So, what parts of the market are actually free; where is the real free market?
Austin Mitchell: Oh, jeez. Well, I think Bitcoin mining, that's one of the things that was actually really attracted to me, is they were sort of creating their own market. My entire career had been, what you're trying to do is basically bring energy to people, bring energy to businesses; and I saw Bitcoin miners were moving to the source of energy, so they were creating their own market off-grid. So, I think that's a perfect example of, "Here is a source of energy demand that is looking for a price signal". They're looking to really identify the true cost of that energy and in doing so, they're finding the cheapest energy. So, I think that's a great example.
Peter McCormack: Right, but that is still within a current energy market and an energy mix that's being created. When you look at the broader energy market itself, and especially something that I have to think about a lot being in the UK at the moment, we have very, very high energy prices. It's unbelievable what's happening. Businesses are closing down, people cannot heat their homes. So, when I'm asking you with regard to the market, you say that part of the market is a free market. But how do you get a true free market for energy; and can you have a true free market for energy; and if you did, how would the market change?
Austin Mitchell: Got it, yeah. So, what I would say, when you think about the free market, I think in energy, what is important for folks to realise, and again I'm go back to Bitcoin miners without diving into that, it's that the cost of energy is going to change both in space, so geographically, and in time. So, when you're trying to craft a free market in energy, what that means is you have to get more granular, you have to as well think about the cost of energy in specific areas and at specific times of the day. So, when you have the ability to realise the cost in a more granular way, that's when you can get closer to a free market.
But that's only one piece of the puzzle, because one of the things people talk a lot about nuclear, there's a lot of enthusiasm for nuclear as, "Here's this baseload power, it's clean, etc", but there's huge subsidies that are provided to the nuclear industry that people aren't even really aware of. One of the ones that I like to talk about, just because I think it highlights why this picture is always complex, is there's something called the Price-Anderson Act in the US. What that means is that any liability for a nuclear accident above a certain amount, which is actually a pretty low amount, the federal government's going to pick up the tab for that.
Why that's a huge subsidy is because no private company -- so a lot of the utilities in the United States, a lot of the power that's delivered to homes in gas is going to be by investor-owned utilities. And those investor-owned utilities, they trade on the stock exchange, nobody would want to buy their stock if they had the liability of a nuclear accident potential in their balance sheet, because that's basically an existential-type event.
Peter McCormack: And you probably can't get insurance for it?
Austin Mitchell: You couldn't get insurance. So, you can insure everything but a nuclear plant. And so that's just one example of a very esoteric, lesser-known subsidy, but it's there.
Peter McCormack: But I mean, I guess it's a subsidy, but it's also an insurance, if the government --
Austin Mitchell: Yeah, but the government is in charge of the companies for that insurance. They just say, "Hey, as long as you follow our rules, if you have an accident, we'll take over the liability".
Peter McCormack: Would you say that's something similar to the FDIC?
Austin Mitchell: I mean, I think it's along the same lines, where the government's basically providing, "Here's a top-down thing that basically we're taking on the risk, we're helping manage that, we're taking that off the hands of the industry".
Peter McCormack: Why do they provide that; is it purely economic, or is it more to do with giving reassurance to the market, or speed of response; or just, if there was some kind of a nuclear accident, you just don't want to wait for the private sector to deal with it? What is it?
Austin Mitchell: Well, any private company just wouldn't have the balance sheet to deal with the liabilities that result. So, it was a recognition that in order to support the nuclear industry's growth, somebody had to take that liability, otherwise there would be no private investment in that. So you can get now private investment in building nuclear plants, but you can only get that if they're not on the hook for any accidents.
Peter McCormack: So, if there was a true free market, there probably wouldn't be any nuclear power?
Austin Mitchell: Yeah, that's exactly right.
Peter McCormack: What would we have?
Austin Mitchell: Well, you could think about it in maybe smaller scales. So, one of the really interesting technologies is small modular nuclear reactors.
Peter McCormack: Yeah, these version 4s; do they call them version 4?
Danny Knowles: Yeah, SMRs, I think they call them.
Austin Mitchell: SMRs. So yeah, those things obviously would naturally limit the potential impacts of a nuclear accident. Obviously we're talking about something that's super-rare, or super-unlikely, I would say; but at the end of the day, it's just one example of the government, through policy, has major effects on markets. So of course, the easy examples are that the incentives provided for renewable energy, but then there's also the flipside of the equation, and this is the complaint that folks who are advocates for renewable energy will have, is that, "Well, we're not pricing in the externalities of fossil fuels".
When I say "externality", what I'm talking about is carbon, other types of emissions, environmental damage. Those things maybe aren't being reflected in the price of the energy that's being delivered to the market. So, folks would advocate for, "Okay, let's have a carbon tax, or let's price that carbon. That's a way to correct the market". So, you can have issues of subsidisation, or issues of externalities not being priced in. But those are two different sides of the coin, but they both distort, "What is the cost of energy that's viewed in the market?"
Peter McCormack: And you're still never going to have a truly free market whilst you have a state, because the state's always going to interfere in one way or another. And then even if you did, is it still truly a free market when there's a historical subsidy and coverage given by the government that's actually allowed for certain parts of the energy sector to advance?
Austin Mitchell: Yeah, so when I see free markets, it's sort of an idealistic thing; it's more like, "The pursuit of" as opposed to, "It can be achieved".
Peter McCormack: It's a journey, yeah.
Austin Mitchell: I really think that whenever we have a choice, our bias should be towards more freedom and more transparency.
Peter McCormack: Okay, tell me a bit about fracking, obviously because you know about that. As I said, the show I was listen to with Rogan and Bjørn, whatever his name was, they were talking about that natural gas is preferred because it has a lower impact on the environment than, say, burning coal. But there is pollution that comes to, say, the riverways and the waterways that comes out of fracking, and there is certain environmental damage that comes from it. So, what is the true story or the true picture of natural gas coming from fracking?
Austin Mitchell: So I think that any time you're extracting a natural resource from the earth, there are going to be impacts. So you can think about just the fact that in a lot of cases, what we're doing is we're laying pipelines to remote areas, we're chopping down trees, we're levelling off a part of the earth to then drill wells into the ground.
One of the most interesting things about fracking though has been how that footprint has really been minimised. And how it's been minimised is that on a single well pad, it used to be just if one well pad meant one well, then they would have to do another one. So, you can look on Google Earth and see parts of the US where it was that one-to-one relationship. It's amazing what it's done to the landscape, where you have such a disruption; you just see well pads everywhere.
But with fracking, what they've been able to do is drill horizontal wells. And the most interesting thing is, they can drill 12 wells, sometimes even more, from one location. And they go out and they spiderweb thousands of feet into the formation to get the natural gas. So, you've taken a footprint, you've shrunk it down by a factor of 15. So, those are some of the really interesting things that have evolved with hydraulic fracturing with horizontal drilling that are truly remarkable feats of technology. I mean, to imagine that a drill bit going 10,000 feet down and then 15,000 feet sideways, it's incredible technology and they're steering it the whole way. It's very precise, it's pretty cool.
Peter McCormack: But how's this natural gas stored; is it stored as like tiny little bubbles within the rock?
Austin Mitchell: It is in the micropores of the rock, absolutely. And so, the fracking process is injecting a fluid, a hydraulic fracturing fluid, into the rock at high pressure, and then having a sander or something similar basically hold open those little pore spaces, so that way the natural gas can flow out over time.
Peter McCormack: All right, so let's move onto Synota. So, Synota is the company you founded.
Austin Mitchell: That's right.
Peter McCormack: And you come under high recommendation from Jeff Booth. And when Jeff Booth gets in touch and says, "Pete, you need to take a look at something", I'm all ears, okay, I love Jeff. So, tell us about Synota.
Austin Mitchell: Okay, so Synota, basically we exist to create an energy-abundant future. And how we're getting there is actually solving the problems that we've been talking about around markets. It's basically providing the energy industry the opportunity to decentralise the settlement process. When I say settlements, what I'm really talking about is the financial part of every energy transaction. So, when you and me consume energy in our home, there's two parts to this transaction. One is, I can have energy delivered to me; the second part of that transaction is I actually pay for the energy.
Now, what happens today is that the means for paying for energy are really stuck in the days of the 1950s and 1960s, when energy companies used to be vertically integrated. So, when people used to walk neighbourhoods, read the meters, go back to the office, put the information into the billing system, you get the bill 30 days later, you're paying that bill. That's hardly changed in 50 years; we're still largely doing that. So, we're paying for something that we consumed one month ago, two months ago.
What we exist to do is to really cut all of that out, and so we're creating a programmatic link between the energy system itself and the Lightning Network. So, the visual I like to paint is if you go into a control room of any utility, what you're going to see is all the physical nodes of the energy system on the big board. You're going to have the points of energy production, the points of consumption, and all of these nodes, the substations, etc, in between; they're all represented there.
Now imagine the Lightning Network being very similar to the energy system itself in how it moves money, where every physical node now has its own node in the Lightning Network, and when energy moves in one direction, money moves in the other. So basically, what we're creating is a system where money can move as fast as energy. So, no longer do we have to wait on the bill to come, or anything like that; now we can really have this full, dynamic system that's perfectly linked together.
Peter McCormack: Right, you're going to have to break that down a bit more. So, talk to me like a real-world use case. We're in my house now, this is not my house, but say if this is my house now, I've got a meter up on the wall, I can turn my electricity or my gas on as and when I need it, I can put my cooker on and start cooking some beans for my beans on toast, I can boil a kettle, or I can have the TV on. How does this work? Because at the moment what happens is, like you say, I get a bill; by the way, I didn't even know that's a month or two months later, but that works quite well for me. Our bills, up until recently, have been fairly stable, not too volatile, it's changed a bit recently but generally speaking that works. What part of that needs fixing?
Austin Mitchell: What's happening is, because you're paying for something you've already consumed, you're basically getting a loan every month and there's no such thing as a free loan. So, what's embedded in the cost of your energy bill is all of the financial inefficiency that is associated with the fact that you're not paying in line with your consumption.
Peter McCormack: Actually, do you know what they always do as well? They always overcharge. I always have a credit with my energy company. I don't know if that's a British --
Danny Knowles: Oh, it was definitely the same in England. I don't know, I don't think that happens in Australia though.
Peter McCormack: Yeah, so whatever they think you need -- yeah, Emma's probably the same. You have this extra credit and it grows every single month. So, by the time the end of the year when your contract's ended, you want to change, I might have a £300, £400 credit with this energy company. I've found out one of the reasons they do that actually is because you've got a credit, it's a signal to you that, "Oh, I should stay with them, I'm earning money". Really, what it is is they've always just been overcharging you. But that's generally how it works. Like I say, I've been okay with that. What are the inefficiencies then?
Austin Mitchell: The first inefficiency, so cashflow is a thing. So, if you're consuming something, that means that the company that provided it to you had to pay the money to bring that to you. But you're not paying them for a few months later, so you have this disconnect which creates cashflow issues. The other thing has to do with the credit exposure side of it. So, you individually, you're not a big credit risk; but when you multiply that by everybody that's consuming energy, by big companies that consume energy, now if you're the energy supplier you're wondering, "Is Peter going to pay this bill?" or if you're a big manufacturer, "Are they going to go out of business before they pay their bill?"
So now you start to stack up, okay, we've got cash issues that we have to manage. We manage those cash issues by actually borrowing money from commercial paper markets, by drawing upon their revolving line of credit, so you start to think about, "Okay, there's whole departments now that are tasked with managing cashflow, there's departments now managing credit risk". And that's the financial inefficiency that exists.
Peter McCormack: The cost of the capital?
Austin Mitchell: The cost of the capital, absolutely.
Peter McCormack: Which gets passed on to the customer. Do we know what that is, about?
Austin Mitchell: Yeah, what we think is that we can save about 10% on average. So, your bill could be 10% cheaper if you adopt the software that Synota's using, if you pay for energy instantly. Now the other things that are important, it's called bad debt, but actually in the US 5% to 7% of people don't pay their energy bill, and that just continues to stack up over time again because the energy company doesn't know if you're going to be paying that.
Peter McCormack: I think there's some kind of laws with regards to turning your energy off in the UK as well.
Austin Mitchell: Same thing here. But there's ways to intervene and help to resolve those situations quicker when you actually know. But when you're relying on a non-instantaneous way of paying, it delays that information of when you're actually going to know that. So again, it just exacerbates the problem.
Then the last thing that I'll mention is that it's also the case that when you pay your energy bill, you're just paying one company. But in my experience, I've worked through the whole value chain of energy, so there may actually be five or ten companies that had a hand in bringing that energy to your house, but you're only paying one of them. So, what do they do? They have to pay the next one who then pays the next one and the next one.
Peter McCormack: You're paying whoever you buy the energy from.
Austin Mitchell: Yes, but then they turn and pay the other people.
Peter McCormack: Because they don't want every gas company to lay a set of pipes, yeah. Okay, so technology-wise, is the way it works essentially like I'm basically streaming sats for my energy usage?
Austin Mitchell: Yes, so that's possible, yes. But what we think is actually going to be the case is that it's more important just to give people a choice. So, if you want to stream sats, great; if you want to still pay at the end of 30 days, great; but what we can do is we can just get closer to the cost of providing the energy because again, if you are deciding you want to wait for 30 days, there are costs associated with that. So now we can differentiate the consumers --
Peter McCormack: You can see the two?
Austin Mitchell: Yes.
Peter McCormack: All right. So, it's a bit like when you're -- I think the airlines were one of the ones who first revolutionised pricing mechanisms, and it was like, "I know if I book weeks in advance, I can probably get a cheaper flight. But if I do fly on the day, or if I want to fly in the morning, it will be this; if I want to take hand luggage versus --" they give you those options. So, if you want to catch a flight these days, if you're a little bit shrewd, you can go, "Right, I'm going to book in advance, I'm only going to take hand luggage, I'm going to take the morning -- you can plan all this shit.
Austin Mitchell: That's exactly right.
Peter McCormack: And so what you're basically saying is, "Here are your options. You can pay at the end of the month and it will be £300, or you can pay as you go and it will be £250".
Austin Mitchell: That's exactly right.
Peter McCormack: And, the energy company benefits, because they're getting the instant money; or, you're incurring the cost of capital if you choose to defer it.
Austin Mitchell: That's exactly right.
Peter McCormack: Okay. Is this one of the things where it will be probably discriminatory against, not by intention, but discriminatory against the poor?
Austin Mitchell: No. So, in my Twitter bio --
Peter McCormack: You sure it's not like -- because we know these things happen. For example, with insurance, poor people tend to have to pay proportionately higher insurance rates because they tend to live in areas of higher crime, and there's a term for it, I can't remember what it is.
Austin Mitchell: So, no, that is not the case, actually it's going to be the opposite way. And why that is is because so much about energy costs or price today that we all pay is being socialised. So, when you think about that socialisation, what's happening is that there's maybe neighbourhoods, maybe zip codes that are more expensive to serve, but everybody's paying the same price.
One of the examples actually, I was just reading the Canary Media on the way over, which is an energy publication, and they were talking about solar panel deployment, and how there's a huge gap between wealthy people with solar panels and low-income people with solar panels. Now, part of that can be just ability, cash on hand, able to pay for those things; but it's also the case that again, we lack the price signals to say, "Does it make sense to be filling up wealthy neighbourhoods with solar panels versus should they be more distributed based on the actual needs of the grid?"
There was a study in Chicago recently, not that recently, five years ago, that looked exactly at that issue, where the incentives which were available to everybody were only being taken by people in wealthier neighbourhoods, and to the extent that it was actually creating a burden on the entire energy grid. The burden, which then gets represented in costs to more maintenance upgrades to the grid, that burden gets spread to everybody. So, the lower-income people were actually helping to now subsidise more wealthy people having solar panels on their roofs. So, there's actually embedded equity issues that are not being resolved, that can be solved with better market pricing, or better markets.
Then you can actually more directly address some of the problems that do exist with energy equity if you do want to have programmes, like Energy Assistance Programs, which are really widespread in the US. One of the challenges actually with that, so during the pandemic, so lots of additional energy assistance was provided, but a significant chunk of that went unused; why? I mean, this is money available to help people pay for their energy bills. Why are people not taking advantage of that? The reason why is because of fraud.
So, the government didn't want to give money directly to the utilities, because money's fungible and who knows where that's going to go; so they didn't give it to the utilities. What they do is they say, "Okay, if you need energy assistance, get your form of identification, your bill, and then two things that prove you live there, go down to the nearest office and get the assistance". Well, that's a lot of time and effort.
With the system we're talking about, where it's provable where the money's going, it's going to pay for energy, we can now have a way to efficiently distribute those benefits to the people that need it and be able to say with 100% confidence that that benefit's going to pay for energy. So, just another example of how you now empower governments, empower energy companies to better serve the people that they serve, not take this top-down view, where everybody pays the same, everything gets socialised; let's actually get very granular with things now that we can when we decentralise.
Our whole thing is, the energy system itself is become more decentralised. Let's now decentralise the method of payment.
Peter McCormack: I mean I understand why you're going to use the Lightning Network for this, it makes sense; you can stream sats as you stream energy. But what about the inherent volatility of the Bitcoin price; how do you prevent that becoming an issue? Is this similar to how Jack talks about the Lightning Network?
Austin Mitchell: Precisely.
Peter McCormack: Yeah, so you're just using the Lightning Network as a way of moving value fast, but you're not using it in terms of -- it's not the payment currency.
Austin Mitchell: Yeah, so they say don't give you quick answers, but that really is the quick answer!
Peter McCormack: Yeah, well that would be my assumption, because otherwise it just wouldn't make sense. If you're in the UK, if you had this great technology, there'd probably be one person in the town I live in, beyond me, who you could explain it to; nobody else would. Yet you've still been able to solve a problem for everyone.
Austin Mitchell: Yeah, it really is thinking about --
Peter McCormack: You're using the power of the Lightning Network.
Austin Mitchell: Yeah, the Lightning Network for us provides an atomic medium of exchange, an instant medium of exchange, so you can operate in your local currency on both ends; the payer and the payee can both deal in fiat, deal in local currency, or deal in Bitcoin. But the point is that really Bitcoin is the vehicle to move value quickly, and so that's really what we're leveraging here. And then, on top of that, the Lightning is an open network, so that's where we're actually able to, in that application layer, write software that's creating that direct link.
So, the whole back office that today sucks time, sucks resources from the system, we can now eliminate all of that and just focus on, when energy moves money moves, it's that simple.
Peter McCormack: Right, okay. So, where are you at with this; are you at the point where you're deploying this or just testing it; where are you at with this?
Austin Mitchell: Yeah, that's a good question. So, where we're at today is we're working with a couple of Bitcoin miners to commercialise the software. So, we've just raised money and that's really where we're at. So, what we're doing is we're going to be pushing the limits of the Lightning Network, so that's why we're getting really excited. So, we're working with Bitcoin miners who understand the opportunity to really initiate this innovation, because this is a huge way to scale the Lightning Network.
So, let's start with people who know it best, because of everything you said with Jack, etc, the energy companies, they're not looking to have Bitcoin on their balance sheets, so we're able to make sure that they still receive cash, or USD in our case. And really, the only case that we're asking them from a sales point is, "Are you okay with getting paid more frequently?" so it's an okay pitch to them! And that's really where we're beginning. And what we're going to do is really just scale within the Lightning Network to build out, "Okay, now we're doing $1,000 a day, now let's do $10,000, now let's do $20,000".
Those are the things that we need to do, and do it at a very high reliability, because Lightning reliability is not 99.99% like a Visa or a Mastercard. So, we're having to put the effort in to make sure we can get there, because we're not paying for podcasts, we're paying for energy, it's a critical thing, it has to be 100% reliable.
Peter McCormack: Right, okay.
Danny Knowles: In what way are you testing the limits of the Lightning Network; in terms of volume of transactions?
Austin Mitchell: Yeah, so it's transaction volume, and it's also just ensuring the reliability side of it. So, there's novel infrastructure that we're building on the Lighting Network, and I think that's really the biggest thing that we want to show we can scale. So, liquidity is of course one of those challenges of the Lightning Network and making sure that you can actually move the payments; and how do you manage all the Liquidity without creating a bunch of cost? So, it's about doing everything, doing it quickly and not losing your shirt in the process.
Peter McCormack: Okay, so if you're using the Lightning Network really as like an accounting system that runs alongside the distribution of energy, and it's just a way of moving value, does that not mean that you have to hold a certain amount of Bitcoin yourselves to be able to move those satoshis around; and are you taking onboard any volatility risk? How are you hedging your risk?
Austin Mitchell: The short answer is yes. What we're doing is we're setting things up so that we're not owning that risk ourselves, but I think that that's going to be an important question and challenge with anybody that's doing something like what we're doing on the Lightning Network, is how are we, as the enablers of these transactions, going to be making sure that we're not now putting ourselves in a position, or putting our customers in a position, where they're exposed to the price risk.
The good thing is that the transaction that we're talking about today happens in 10 seconds, so there's really not currency risk in there. But as we scale and we're maintaining liquidity, it's going to be a question for us of what's the most efficient way to do that while also managing the price exposure.
Peter McCormack: Yeah, but hold on a second, if you're going to be taking payments from the miner and you're going to be sending, I assume with a cut, some of those payments across to the energy provider, and you're saying, "Do you mind getting paid instantly?" what are they actually getting transferred? You're streaming sats, because you can do instant sats, but the energy company the other end, if they only want dollars, how does that become dollars for them; how are you settling? Are you settling on a daily basis, a weekly basis, a minute-by-minute basis?
Austin Mitchell: So, we're integrated with a third party on the off-ramp side. So, the actual exchange is being done by a third party today. Because effectively, we're actually not serving as an intermediary in the transaction; it is purely, as Lightning should be, it's peer-to-peer. Our software really exists as just decentralised software that allows both parties to transact between each other. So, it's to automate all of the complexity, so we're not actually the ones who are pressing go and then moving the funds over, we're just saying, "Here is the software that has all the logic embedded in it. It will automatically read the meter and then move the money".
Then of course a third party, which is obviously custodial, does that conversion at the very end, just like Jack would say, so we're not involved in that, we're just using somebody's existing technology.
Danny Knowles: Is it not an accounting nightmare for the energy company, the energy provider, because instead of getting one payment every 30 days, they're getting 1,000 throughout the month, or whatever it is?
Austin Mitchell: That's a great question. So, one of the fun things that we talk about with energy companies is reconciliation. So today, reconciliation is actually a task in of itself, because you have multiple sources of money coming in, and what's ultimately happening is that there are folks in the accounting department focused on matching up inbound, outbound, AR/AP; all of that can get pretty complex.
But when you have the Lightning Network and you're settling things instantly, the actual notion of reconciliation goes away, because it's energy out, money in, and it all happens in 10 seconds. So, it's actually fun having these conversations with energy companies with their controllers, etc, saying, "Hey, this is going to change how you perceive things". So, multiple payments is not going to be a task, because (a) it's all fully automated, (b) you don't actually have to reconcile anymore.
Peter McCormack: So, what has the response so far from energy companies been, and are you purposely targeting ones, say, in Texas who are already aware of the Bitcoin mining thing; or, are you going to companies who've got no idea and they think you're fucking crazy?!
Austin Mitchell: So, the response from energy companies has been, "Okay, yeah, this is solving a big problem", but not loving Bitcoin. So, that's where we're actually -- it's really funny, because we just had a meeting with one of the largest energy marketing companies, marketing in terms of -- marketing could mean a couple of things in this space, but truly marketing and promotional type of things. They said, "Everything that you're doing is fantastic. The value proposition is very clear. Can you do it without saying 'Bitcoin'?" So, the short answer is yes --
Peter McCormack: I love it though, "Without saying it. That's just a bad word, just don't say it".
Austin Mitchell: Yeah, "You don't need that to sell it". So I'm like, I get where they're coming from, because you're solving the problems, just focus on solving the problems.
Peter McCormack: You could just say "blockchain"!
Austin Mitchell: Maybe that would just warm them up, I've no idea!
Peter McCormack: Well it works, doesn't it? "I started to change Bitcoin to blockchain and they're like, 'Oh, yeah'!"
Danny Knowles: You'll be inundated with investments then.
Austin Mitchell: It's been fun, because I'm such a passionate person in Bitcoin, so I love talking about it and how Bitcoin/Lightning Networks solve these problems. So, it's interesting when people who know how to communicate in the energy industry, they're just like, "We don't need to talk about Bitcoin in order to sell this". So, I'm catching up.
Peter McCormack: So, with the tests you've got coming up, what is it you're looking for; what are the knowns you're looking for; and what are the field of unknowns you're thinking about, the unintended consequences of this?
Austin Mitchell: I think it's really just proving out how we're actually going to be managing all of the flows and ensuring that things, like you talk about, "Are you taking on price risk?" I think it's just really doing that and scaling up. It's the reliability and it's the volume of the payment. But other than that, no, it feels all very known, so we feel very good about where we are.
Peter McCormack: But do you feel this will change any part of energy production?
Austin Mitchell: I think that's why we get really excited about this, because what's key about this whole thing is the payment side is one aspect. But what we're doing is we're decentralising the whole processing side. So, no longer do energy companies need to centralise everybody's meter data onto one database; now it's all happening in a decentralised way. So, you have your own container of data, I have my own container of data, we each own our respective data, and so people get very excited about that, because that is what will allow us, you and me, to have different prices, because we're not forcing the same processing -- we're not making changes to one centralised system that we then have to push to everybody. Now we can start to be our own unique operators, and we can get very granular on the pricing.
So, when you think about the production, now we can give clear signals to solar plants, now we can help nuclear plants get the true value of what they're providing every day. So, everybody in the value chain is going to be much closer to the value that they provide.
Peter McCormack: So, how big could this be?
Austin Mitchell: It's huge. The whole energy economy is going to move onto Lightning, and that's what we're really excited about. So, when I say the energy economy, it starts with the $4.5 trillion every year that's spent on energy.
Peter McCormack: Hold on. The whole energy sector will move onto Lightning?
Austin Mitchell: Yeah, so that picture I painted of every node in the physical system will now have its own Lightning Network node, and our software just makes it so that those Lightning nodes now can talk energy, that's really it. So, they now just are in constant communication with each other, moving funds instantly between each other. So, it is that circular economy now happening for the energy industry.
What also gets me excited, Peter, is that it goes beyond that, because then you think of all the other energy-related products and services. So, one of the common things in the States is, you can also buy insurance tied to your energy. Okay, well throw that on there too. Or, if maybe you're somebody who your job was you put the solar panels up, so you are the installer. Now, you can maybe have a choice in the future of, "Do I want to make a small amount off the future revenue of that solar farm, or do I want that upfront payment?" So, now you can start to think of different means of compensating people who have a role in providing the energy in that value chain.
Danny Knowles: I think the really interesting thing that we've not got into at all yet is the stuff you're doing in terms of the mini grids in emerging markets. I'd really like you to get into that.
Peter McCormack: This is what Danny was telling me about earlier.
Austin Mitchell: Yeah, so this is super-interesting, and I have to give credit here to two people. One is Kevin Hallinan, who is a professor at the University of Dayton; and the other is Dan Schnitzer, who is my friend, he's an awesome guy, dear friend of mine from grad school, and he's the CEO of a company called SparkMeter. SparkMeter is on the ground in 26 countries today with hardware and software in mini grids. They do a bunch of other things too, but that's where they really got their start.
In conversations with both of them, one of the most interesting things that I learned was that mini grids during their first few years -- when I say mini grid, I'm talking about we're in remote Africa, or any emerging market, and basically here's now a solar panel providing power to a community. But of course right when those panels get installed, the community doesn't have a lot of organic load that they're ready to plug in. There wasn't electricity before, so it's not like everybody's lining up to now --
Danny Knowles: Using that NutriBullet!
Austin Mitchell: Exactly! So, what do you do? So, one thing people don't fully appreciate is in parts of Africa, or throughout most of the continent, the average price of electricity is 30 cents to 50 cents a kWh.
Peter McCormack: What?
Austin Mitchell: Yeah, so way above what we're all paying. So, talk about energy equity, there's an issue right there, and there's still a billion people without access to electricity, so don't even get me started on the shame in that. But here's a situation where there's now access being provided but the access is hampered by the fact that the electricity is expensive.
Now, it's still a benefit because before, having no electricity, you'd prefer to have some, because you can charge your phone, etc, you can have light at night. So, the opportunity here is that in those first three, five, six years, there's a lot of excess electricity. So, the idea that we had, and Dan and Kevin were instrumental in this is, "Well, let's send some Bitcoin miners over to Africa". So, we have a couple of partners on the ground and they're using the excess electricity that exists right at these very few years to mine Bitcoin.
Now, what's happening in that equation is it's not taking anything away from the community, so it's not costing them anything. What it is is it's providing incremental revenue to the mini-grid operator without any additional cost to them. So, here we're mining Bitcoin in Cameroon, Nigeria; the mini-grid operator is now making additional revenue, so they're able to lower the cost to the rest of the community. And what's neat though is because we're using the Lightning Network, we have an opportunity to pay for that electricity as I sit here in the United States, so instant payments paying for mining happening halfway across the world.
So, the rewards of course flow back that way, but you can think of how can this -- so, at Synota we're not Bitcoin miners. We're doing this to demonstrate what's possible when we open up the energy economy globally, and we open up energy markets globally; because again, going back to my belief in markets, they're not global today because you don't transact energy across borders because of all the cross-border fees. Well now, that can go away.
Danny Knowles: The really cool thing about that to me is it's not only just not taking away from the local people who are going to use that energy, it's actually making it cheaper for them. And those grid operators could presumably charge the Bitcoin miners slightly more and almost give away free energy to those people that are local?
Austin Mitchell: Yeah, it completely changes the economics. And one of the really neat things is our modelling shows that the actual optimal setup is putting more solar, more energy infrastructure on the ground. So, you can take the view today which is, "Let's build the mini grid for the first five years. We can always expand it later". Well now it's like, "No, let's build for ten years and let's actually put more investment in". And it's not just about Bitcoin mining, it's about productive uses of energy and energy infrastructure.
So, we're using Bitcoin miners as an example, but really it's now somebody in Europe or the United States can make a direct investment in energy infrastructure and then have the assurance that they're going to get paid, because it's all coming from the Lightning Network. So, you're just opening this up to where you're now not constrained in where you invest in energy infrastructure.
Peter McCormack: So, what are the downsides here; what are the bits you don't know about; what are the risks? This just seems too good to be true. "Yeah, it's perfect, Pete, shut the fuck up"!
Austin Mitchell: It's perfect, Pete, shut the fuck up!
Peter McCormack: Yeah, "Give us your money and off we go!"
Austin Mitchell: No, I mean honestly, I think that the way that we're thinking about it, there are of course going to be a lot of things that we're going to have to learn, there's going to be a lot of new things, but that's why we're building in a very open way, because we want people to help us see what we don't see, we want the Bitcoin community at large to help contribute to what we're doing. So sure, there's going to be downsides, but as a community we can help solve this.
We don't think Synota's going to be the one to bring the whole energy economy onto the Lightning Network, we don't have some secret sauce. We have 125 years of energy experience that we're leveraging and we've got some great talent on the Lightning development side, but it's going to take a whole community to do this. So I think whatever the challenges are that we're going to face, we know that we have the whole community behind us, and that's what's really cool.
Peter McCormack: All right, and if people want to find out more, where do they go?
Peter McCormack: Right, and how do we see it in action. Is there any kind of demo we can see?
Austin Mitchell: The stuff that we're doing in Africa, we're going to be talking about more towards the end of the year, so we'll have things there that we can spend. And then early into next year is when we're going to really ramp up our commercialisation in terms of bringing more people into the fold, making the product available in a more commercial way. So, I think it's through that process that people will get to see it.
Obviously, I'm an open book, anybody can come and talk to me whenever about this, but I think I just get really excited about, we're going to have the use cases on full display very soon.
Peter McCormack: All right, man. Well listen, I'm glad we did this. I know it's like a rush at the end of the conference.
Austin Mitchell: A rush, yeah, we got it in!
Peter McCormack: I'm glad we did it and I want to find out more about it, so stay in touch. We'll put some stuff in the show notes and yeah, good luck with it, it sounds amazing.
Austin Mitchell: Thank you very much, Peter.
