WBD607 Audio Transcription

How Bitcoin Can Expand the Grid in Africa with Erik Hersman

Release date: Wednesday 18th January

Note: the following is a transcription of my interview with Erik Hersman. 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.

Erik Hersman is an entrepreneur and the co-founder of Gridless. In this interview, we discuss how half of all Africans are without access to electricity, the affordability issue affecting the rest who do have access, and how Gridless aims to alleviate this situation by helping to build out cheap sources of stranded renewable energy.

“There’s 600 million people in Africa that don’t have access to electricity. That’s a lot. That’s two-thirds of the world’s total that don’t have access to electricity that’s here. And so what we all should be trying to do is focus on how can we help electricity proliferate across this continent. Bitcoin mining just happens to be the missing link.”

— Erik Hersman

Interview Transcription

Peter McCormack: Good morning, Erik, well, it's morning for us; what time is it for you?

Erik Hersman: Yeah, it's 3.30pm here in Nairobi.

Peter McCormack: Right.  Well finally, after a couple of false starts, we can get this interview done and we can find out about your amazing project.

Erik Hersman: Well, hopefully.  We haven't gotten as far yet as we did even that fifth time or whatever it was, so let's see, let's see if we can make it happen.

Peter McCormack: I'm feeling confident; we've got good upload speed, good download speed, we've got Danny here, we've got you, we've got Jeremy, we're going to get this done.  Okay, so recently, I saw some tweets about your project.  There was the conference down in Africa which I really wanted to get to and I just could not make it work, but one of the big talking points, if not the biggest talking point, was Gridless, that's what I felt like everyone was talking about, your company.

So, we normally like to interview in person; we couldn't get down to Nairobi, we couldn't get you here in Austin, so we're going to do this remotely, but I want to hear everything about Gridless, what you're up to.  Tell me all about this project.

Erik Hersman: Yeah, thanks.  So, at Gridless, what we really are about is, yes, we do Bitcoin mining, but really we're about backstopping mini-grid electricity providers.  So really, what you have in Africa is a lot of people who don't have electricity and grids that aren't well built, and so what they need is they need somebody who can come in and use that energy and help provide some sustainability to their own economic model.  Then, what we do at the same time is we provide some confidence to them that they can push out further to other locations and that they'll have a buyer of last resort.

Peter McCormack: I think, for a lot of people, it's probably going to be a little bit hard to understand what life is like living in these communities in Africa because most of us have just become very used to the fact that we live in a house with running water, electricity, sewage, all the kind of things that we've come to take for granted, yet in some of these communities they can't.  So firstly, start with the cities in these African countries, all major cities, are they just like major cities anywhere else?

Erik Hersman: Yeah, so that's a big bucket, right. 

Peter McCormack: Yeah.

Erik Hersman: So, you've got some major cities, let's start with that, so if you're in Nairobi or Lagos or Cape Town or Cairo or just some of the big cities, it is a lot like anywhere else in the world with maybe some more extremes on both the rich and the poor side, and you don't have as good an infrastructure in those cities either; so yes, that is the case.  So, for the past ten years before this, we were building an internet connectivity infrastructure throughout both urban and rural, and you see that what you have in the low-income areas is really, really nothing and people are really struggling, and then you get a small sliver of middle class and an even smaller sliver of upper class, and it's a numbers game.

So, you have something like only 40% of the people in the African continent can get connectivity to the internet, the other 60% can't, and even if those 40% who can get connectivity to the internet, this is even in the cities, right, not just rural areas, most of them can't afford it, so there's an affordability problem too.  The same actually applies to electricity; so the numbers are similar, I think it's 37% approximately who can get access to electricity, but even those who can get access aren't always able to afford it, and so you have this kind of doubling down problem.  So, access and affordability are closely linked for both internet and power.

Peter McCormack: When you talk about access to internet, does that include mobile access?

Erik Hersman: Yes.  So, when I talk about internet connectively, I mean all the internet connectivity, and something like 95% of the internet connectivity in Kenya is mobile, so the majority of that internet connectivity is mobile.  So, we do have these islands of connectivity.  Now, Kenya's particularly well blessed with it, we have companies who've done a good job over the past decade; other countries are not nearly as far along.  So, if you go to Malawi, you're going to have a very, very different experience than if you were in Kenya.

Even there, you have these islands of connectivity but the prices are still high.  So, if have somebody whose monthly disposable income is let's say $5, you're going to be very careful how you spend every penny, every shilling.  So, you have to make a choice between am I going to pay school fees, or am I going to buy water or milk or bread, or am I going to pay for internet connectivity?  Those are the kinds of decisions people are making every day.

Peter McCormack: So, the expense is relative to what they earn, not so much relative to the rest of the world?

Erik Hersman: Yeah, that's true.  So, it's actually we get amazingly cheap data prices if you compare it relative to where you're sitting today in Austin, or even in London, you have really, really cheap internet, but it's relative to how much you make, and a lot of people don't have that same level of income.

So for years, you'd see me, if I stood up on stage somewhere, I'd give some pithy statement about, "You can't have a 21st century economy without power and connectivity", and that's true; if you think about it, if you're going to build any of the digital services we think about for government, or if you're going to have some type of EdTech play, or you're going to have information for the doctors and healthcare providers, or if you're going to run a business more efficiently, you need both power and internet connectivity.

So, when we were looking at this space, it was like, "Wow, we've been so focused on internet connectivity for so many years, but power isn't there either".  So, if we really hope to kind of push these things forward, you have to provide a base level, that foundation that everything else can be built on.

Peter McCormack: It might seem like a simple question, but if you are able to bring power into these communities, what is the range of differences it makes?  I would think of simple things like, if it's a home, it would make it easier for the kids when they're doing their homework when it gets dark, simple things like that, but you've probably got a better range of examples of the differences it can make.

Erik Hersman: Yeah.  So, I have some land up country and we have friends who are the farmers who live around it, so it's very agricultural, it's tea fields and maize and just normal crops, very agricultural, dirt roads, and our neighbours don't have a power line to their house.  They only buy the very small solar panels that they can put on their house and they'll charge a light with it all day, and then at night they'll have that, or they use paraffin, and paraffin lamps are very dangerous, especially for growing children.  So, you still have that all over Kenya, so what do you think it's like in other countries that aren't as far along, aren't as middle class as Kenyans are?  So, there's a big problem across the continent about electricity and what it can do for you. 

So at first, when people get electricity, they do the things we just talked about, which is first, "Can I get a light bulb.  The difference between being able to work from when the sun goes down, which it goes down like a rocket at 6.30pm to 7.00pm every night, and when it goes dark, it's very dark, there's nothing else you can use besides fire. 

So, if you can't use a paraffin lamp then what are you going do?  You're going to do nothing, and so people will go to bed and they wake up early, and that's agriculture networks, but it's not good, and it's not furthering the human condition, it's not making it a more level playing field.  It's not allowing people to get to the same level as other parts of the world, and electricity, energy is the thing that does that.  As much as the internet is important, if you don't have electricity, you don't have lights, then you don't really have anything.

So, if you start there, you say, "Well, what do people do?"  Well, first of all they get lights; second of all, they charge their phones because everybody has a phone and they'll buy a smartphone if they can afford it, they're relatively inexpensive now.  The third thing they do is they will maybe, and this might be three to five years down the line, if they can get a mini-grid power cable to their home, they might buy a refrigerator or a television and then they start using more electricity.  Other things they do, especially in the agricultural belts, is they're able to pump water now and so they can irrigate more and feed their crops with more water as well as their animals.  So, it changes their lives significantly the more they have access to energy.

Peter McCormack: Does it do anything in terms of safety, because you said it gets very dark very quick?

Erik Hersman: So, it depends.  So, you'll see in towns, not villages but more towns, you'll see in places like Kenya, you'll see them erect these really tall towers with big lights on them that then cover as much of the town as possible with overhead light, and so, yes, that does add security.  In the villages, you need it a little less because everybody knows everybody, it's these villagers who have been generations around each other, but does it add security?  Absolutely, it does every time.

Peter McCormack: Yeah, okay.  So, currently, what are the power sources; how are they generating power across major cities, smaller towns?  What's the current energy mix?

Erik Hersman: Again, it depends on the country.  In East Africa, we're really blessed with renewable energy, so I think something like 90%-plus of the grid mix here is renewable energy, and that's hydro and geothermal primarily.  We've had some large solar been built as well, and we have a very large wind turbine plant up in the northern desert, near Lake Turkana.

In other countries, it differs; so, Ethiopia, Uganda, Kenya, Rwanda, mostly East Africa, has a ton of hydro.  You go further south, you get more solar, and that makes a part of the mix, but they're still burning a lot of fossil fuels for energy as well.  It's needed and quite frankly, I think it's fair that say that Africa should have the benefit of going through the same energy use curve that the rest of the world got to use.

Peter McCormack: Is there plenty of investment wanting to come in and support these communities?

Erik Hersman: So, there are plenty of discussions and people trading words about it.

Peter McCormack: Right.

Erik Hersman: So, if you talk to the world bank sorts and the USAIDs and CIDAs and the UK Aid-type organisations, they're all talking about how much we need to build more energy in Africa, and they're right, they're absolutely right about that.  There's been a huge amount of money committed to it, not a huge amount of movement on that money.  It takes a long time to actually move that money out and put it to work.  There are some interesting things that are happening.  If you look at it across a country, there is a grid; that grid might not be well-built, it might be okay on its generation side, it might be poor, it might be good, but generally, the grid and the distribution of that energy is where things fall down.

What we're seeing is that you go into cities like Lagos and you'll get 30-plus power outages in a month; in Kenya, you'll get maybe 3 to 5, and that's just downtown Nairobi.  But if you're on a mini-grid, you might get one outage in a month.  So, the ability for these energy distribution arms of the grid to be able to do it and do it well, and it's difficult for them to do, we're not well connected on our grid, and therein lies the opportunity and the challenge.

Peter McCormack: Erik, what's your background?  How come this has become your mission?

Erik Hersman: Yeah, I might not look like it or sound like it, but I grew up in Sudan and Kenya, and went to the US for university and then came back early 2000, started building tech companies here in Kenya; this is home.  So, yeah, I've been very involved in the tech ecosystem build, so it really just started with software and then got into…

Well, small history, so Ushahidi is one of the first platforms I built.  Ushahidi was built with 300 Kenyans and what we were doing is we were building a software system for crowdsourcing crisis information during the post-election violence in Kenya in 2008.  That's global, it's big, it's used in 200 countries around the world, it's used every time you have a tube strike in London, it's used when there's an earthquake in Pakistan or a flood in, name your country, as well as almost every election, like Latin America.  So, that platform is really solid and valuable and has gone global.

Then, I also built up the iHub here in Nairobi; the iHub is kind of a big tech space, the nerve centre for the tech community, that grew to about 17,000 members in just a few years.  It was in the midst of that that I started to get really interested in, if software's so easy, why can't we do some of the things in hardware that would really change things as well? 

So, I started to think about what the things that we're missing that are being made elsewhere in the world that we could make locally, we could design locally?  And so that's where the company, BRCK, came from, and BRCK, it first started being a hardware company building the best router for internet connectivity, the most rugged router or something you could use and take anywhere in the world and have connectivity.  And we did that, and we realised that building that as a hardware company was a linear business, and so I also realised that we weren't solving the real problem of how do you connect people to the internet; that's actually what's needed.

So, we started deploying that hardware as the base for a whole layer of connectivity, ended up connecting a million people across Kenya and Rwanda, and recently sold that company and taken that same kind of understanding of infrastructure, hardware and software, and applying it into this new space around energy and Bitcoin.

Peter McCormack: And your Bitcoin story, tell me that; how did you get into Bitcoin?

Erik Hersman: So, everybody has their, "Oh shoot, I should have seen that earlier", phase.

Peter McCormack: Yeah, don't, please!

Erik Hersman: Mine came around when we were building the iHub in 2010 and we had this great group of people and we knew what was going on in tech everywhere, and we were looking at Bitcoin and we built a supercomputer cluster and never mined with it; we thought about it, we talked about it, but we never did it.  So, in 2010, we could have done quite well with that.

But in 2013, we had just started the BRCK company and there were 300 MW of wind energy being built up in Northern Kenya; it's phenomenal.  So, this is up in Turkana, it's like a lunar landscape desert, it's just barren, but has some of the best wind in the world, it's just amazing.  So, these European companies have been contracted to build these massive windmills up there and they had started, and they had built it without any contract for transmission.  So, they built it and it sat there and it pumped power into the ground for six years while they built out the power distribution. 

We were looking at that in 2013, and we had just received funding for BRCK, and Philip, my business partner, was saying, "Hey, we should up go there.  What's the type of business that you could put up there and get just some decent connectivity on the internet and be able to do something with?  Bitcoin mining".  And I was like, "Dude, we just got funding for this other company, we've got to focus, man".  So, yeah, there was the second time that I didn't do it.

So, when we saw what was happening in 2020 and 2021, I was like, "You know, I am done not doing this.  I've said, 'No', two times, if I say no a third time, then it's on me, it's really on me", and that's what I said.  When we started considering this and we started playing with it, Bitcoin prices were high, the prices of miners were incredibly high, we were being told four, five or six months before we could receive a $12,000 Bitcoin miner in Nairobi, and we're like, "Oh my gosh, this is crazy, but we need to do this, we need to figure this out".

The stars aligned and the price on Bitcoin crashed and the price of Bitcoin miners went down by a factor, and now we're able to buy Bitcoin miners and put them to work in the right way, and who knew that would happen, so I'm glad we started when we did.

Peter McCormack: Great.  Also, can you give us a bit of a lens into Bitcoin, understanding adoption in Africa?  We hear about it a lot and I know Jack Dorsey's very keen to support the proliferation of Bitcoin in Africa, but we often get told, in certain countries, a lot of people really appreciate the Bitcoin and are using it, but also, at the same time, we're fully aware that scams have proliferated through Africa as well, but it's all kind of second-hand evidence.  So, somebody's who's been there, spent a lot of time in obviously various different countries, can you give us a lens into what's happening there?

Erik Hersman: Yes.  I'll come at this from two different angles, I'll say it from when we started up with Gridless, I started to really try and connect to the other bitcoiners in Kenya, just in Kenya alone, and really struggled because there are a lot of people who are interested in crypto and very few who are interested in just Bitcoin.  So, there are a handful of people who are just bitcoiners, and then there are a lot of people, many, many thousands, maybe millions, who are really into crypto, and a number of them had been burned over the past few years.

If you think about it, the problems that we talk about with payments, so we talk about with moving money with banks and borders and everything like that, it really hits home here, maybe it hits home here worse than it does in the UK or the US or most developed parts of the world.  So, people really do need this thing, and they need it for a couple of reasons; they need it for payments, they do need it for the ability to just do peer to peer, so like send money up country, but most of all, most of them don't have banks accounts, so what do you do with somebody who doesn't have that, right?

So, in Kenya, we have Safaricom and M-PESA, so M-PESA is a mobile money system, and people say, "Well, you have mobile money in Kenya, you should be fine, you should be able to move money fairly frictionless, you have all these abilities that quite frankly most of the other countries in Africa don't have".  The cost of moving that money on M-PESA is not insignificant to people; most Kenyans, if they have a choice, will use cash rather than M-PESA, and that's because there is a very high transaction cost.

So, if you can take something and use, in this case, I think Bitcoin and I think the Lightning Network on top of that is really, really the right way to think about it.  This is why, if you look across the whole African continent about who's building the two things that I think are most relevant for African bitcoiners and/or the usage of Bitcoin by Africans, which is maybe a better way to think about it, is Machankura, who is out of South Africa, and the ability to pay with USD with a dumbphone, just a phone that you can you use without any real touchscreen or anything; two is what they're building at Bitnob, which is just an on ramp into buying and moving it across currencies. 

Then, there is a third more important thing too which is you have to remember that, while the devaluation of the dollar, of the euro, of all these other things are happening, it has a trickledown effect to our third order of currencies of the Kenyan shilling and others across Africa where we get burned even worse.  So, the Kenyan shilling, I think, has devalued from 104 shillings to the dollar this time last year to 125 today, and so that's pretty significant.  It's not as bad as Ghana, but it's pretty bad, so there are some real needs for it.

Peter McCormack: We've had similar in the UK against the dollar in the last year.

Erik Hersman: That's true, you guys did, so did the euro, right, yeah.  I guess everybody's getting hammered if you don't own the dollar, and so you have to have something to hedge against that with.

Peter McCormack: So, when I went up to Venezuela, people used five currencies: the technically literate will use Bitcoin; they are forced to use the bolivar; people do want the dollar, especially if you go into Caracas, they want they dollar; but they also will use the Colombian peso, and what was that stupid crypto?

Danny Knowles: The petro, wasn't it?

Peter McCormack: The petro, but no one really wants to use that.  But I even saw the same when I was in Cambodia; I took my kids out to Cambodia a couple of years ago, and if you're in a major city, they want the dollar and they also want crisp, flat dollars and they won't take any dollars that have any kind of tear in them in the slightest.  We know that people try and find better money when they need it, and so in terms of across Africa or the places you've been, does the dollar proliferate as well and do people want the dollar?

Erik Hersman: Not every day as a means of exchange, no.

Peter McCormack: Okay.

Erik Hersman: But as something to hold, then yes, or to trade if they're a trader, absolutely.  So, here I think it's a little different; of course again, it's country by country.  If you go down to Zimbabwe, yes, a $100 USD bill is king, but if you're in Kenya people will still use the shilling day-to-day. 

Yeah, it's interesting, here you talk about it has to be a crisp, clean bill, no cuts, no tears.  Here it also has to be $100 bill from a certain year forward, even if you go to a forex, so even an official forex, they'll only take it from a certain year forward, I'm trying to remember that year, maybe it's 2008 or something.  Or if they take it, you get discounted on it to I think maybe 20%, so it's pretty significant.

Peter McCormack: Why is that?

Erik Hersman: They don't trust it because the US changed something on its dollar bill and then the fear was that it wasn't going to have the same value anymore.  So, here it's a USD buyers' market, so they get to set the rules.

Peter McCormack: Right, okay.  Just back into the banking infrastructure, you mentioned there are issues with the banking infrastructure, some people don't have banking, what other kind of issues are there?

Erik Hersman: Yeah, it's not just that some people don't have banking, across the continent there's only like 45% of the continent that does have banking, so the majority doesn't.  So, if they don't have it, what do they do?  Well, in Kenya, you'll put money in M-PESA and so that's a way to store it and it's a little more secure, but most people just have cash, it's cash under the mattress and cash payments for things every day, that's just how it is.

In the cities, you have more access to cash; when you're in the rural areas, it's actually really hard to find cash sometimes.  I actually think, if I wasn't building Gridless, what else would I be building?  I think there's a really interesting play, and I'm hoping that somebody does this, which is if you take Bitcoin as your base layer and you use Lightning as the transmission layer, it still has cost, and I think that what we call agents here, these are people who run dukas and run stores, if they use the Lightning Network at that level it's fine.  But everyday people, this still has a pretty high transaction cost.  I think there's maybe a third order that needs to be built on top of that. 

We've been fortunate to have guys like Obi Nwosu on our investment side, and he's building Fedimint, and I think that idea he coined in December, which was like a Bitcoin frontier town, is interesting because you basically then have a community bank working off of his, it's called e-cash, that allows people to back into the Lightning and then all the way be pegged down into Bitcoin, but do it without any cost friction, and I think that becomes really important in the future for uptake across the continent.

Peter McCormack: How do you find educating people in Africa about Bitcoin?  The thing I always worry about is the price volatility and how people cope with that.

Erik Hersman: Yeah, Peter, that's a good question.  If you think about it, how we view it in the US or Europe, it's like we can deal with that price volatility to a certain extent, but even the price volatility over the last 24 hours, I don't know, maybe it's a couple of percent, could be fairly significant to somebody here.  So, asking people to put all of their savings into Bitcoin, as an African, is I think very dangerous, and so you have to be very careful about how you talk about that with people.

This is where I 100% agree with Jack Dorsey, is that the usage of Bitcoin as a means of exchange is actually the most valuable use case, and it will find its home here more than in savings.  It will be used for savings, it just won't be as valuable as the use of everyday money exchanging it for goods and services; that's where I think Bitcoin really will be valuable, and it can't be Bitcoin itself, it has to be the Lightning Network and other things on top of that that make it work.

Peter McCormack: So, it just becomes another tool, like I have bank accounts in the UK for business and personal life which are pound-denominated, but I also have, with one of those accounts, a dollar-denominated account, but I also have a Bitcoin wallet where I can cold storage my Bitcoin, but I also have a mobile wallet where I have Lightning Bitcoin.  I've come to use different ones for different purposes that suit my life as somebody who lives in the UK, has a recently rapidly devaluing pound, who works internationally and travels.  I've learnt the different monetary tools I need for different things.  I guess that's just a similar scenario that people face maybe in Africa, and they will just use this as a different tool.

Erik Hersman: Right, and so people are always looking for ways that they can either save more money or make more money, and so they'll take up new tools.  I mean, you think you use every feature on a phone, you haven't seen an African use a phone yet.  You think you use that app the best it can be, you've never seen an African using that same app.  They'll come up with ways to use things and do things that you just are like, "Oh wow, I never thought about it in that way".

One of the issues we have here is on-ramping into Bitcoin.  So, if we talk about education and you say, "Okay, let's go to the village", and you guys should join me sometime as we go to a village, and we say, "Okay, let me tell you about Bitcoin", and you talk about Bitcoin and you say, "Isn't this amazing?"  And you say, "Well, how can you buy it?" 

Well, you're going to have some crickets for a minute, like it's really hard to buy, so you have to have an internet connection, you have to have a smart enough phone that you can download the Bitnob app, register an account and then you can buy.  Or alternatively, maybe you have an M-PESA account already on your dumbphone and you have a friend who has access to a smartphone or the internet and you can go to a Paxful or LocalBitcoins and then you can trade with M-PESA, Kenyan shillings, for Bitcoin.  It's fairly expensive by the way; those are not cheap ways to accrue Bitcoin, it's actually difficult.

The biggest problem we have I think right now is on-ramps and off-ramps to Bitcoin, because even if you can get people to believe that this is a thing that they can use, then how do they do it?  It's not simple.

Peter McCormack: And I guess there's another consideration, one of the things we talk to people about with Bitcoin is "not your keys, not your Bitcoin", back up your private keys.  I have a 3-of-5 multisig set up for my cold storage where I have keys distributed into different geographic locations, but that suits somebody who's a westerner who lives in the UK who has all the options of family who live in different locations, friends, offices, you could take out the security boxes at banks.  There are lots of different options to do something like that.

If you're a villager, live in a village, and I've no idea of what the housing situation is and I would jump to some embarrassing cliches about imagining people living in maybe huts and things, the idea of backing up a private key and where do you keep that securely is very different from somebody living in New York or London. 

Erik Hersman: So, yes, you're not wrong, in some parts of Africa, even in the rural area where I have a place, people still have mud houses and tin roofs; that's very much reality.  Yeah, they don't have the same optionality as you or I do for how they're going to do things, which is why I think what's going on with Fedimint is really interesting, that idea of being able to have a community.

By the way, we're very community-based here in Africa, so that model does fit, this idea that there are people in the community that you can trust and that can be shared across individuals does work.  So, that's a way to think about your keys and your coins, that's a way to think about your access to Bitcoin as well in a way that has been done before, so I am bullish on that.  I hope the protocol, as well as Fedi and the team, are able to build some useful tools that can be plugged in right away. 

But beyond that, you're probably like, "How do you secure it?"  It's hard for us; somebody in a village with a dumbphone is going to have a harder time.  Maybe they can move Lightning payments, do things like that, but what they're going to end up doing is cashing out into the local currency as soon as they can after they've done those payments to hold it, because there isn't a really good viable option for holding and securing it right now.

Peter McCormack: Right, okay.  Let's get into Gridless then, let's get into your project.  Explain in detail again what Gridless is; I know we covered this a little bit at the start, but I kind of want to dig into it now.

Erik Hersman: Yeah.  So, we started off just looking at different energy and the mix of it, and there are opportunities to go after some of our energy generation and grid-connected energy if you wanted to in Africa.  But the real benefit of Gridless is going to the places that are not well connected, that don't have a good grid.  So, we found mini-grid providers, and we started just calling a bunch of them all over East and Southern Africa and saying, "Hey, tell us about your problems", and so this would be solar, wind, hydro; geothermal tends to be bigger so we weren't dealing with geothermal at the time.

Peter McCormack: Can you explain what a mini-grid is?

Erik Hersman: Yeah.  So, we started talking to these mini-grid providers who were all over the continent, and mini-grid providers, to us, there's no really good definition of it, but we tend to think of them as people who are developing energy projects that are probably under 2 MW, and oftentimes under 1 MW.

So we found out that when they were going in and building it, they had to overbuild for the community for two reasons: (1) because the usage of the community over time will go up and they need to be ready for it; and (2) if you're doing wind or solar, you have a certain amount of energy generation during the day but only a certain amount of use.  And the use during the daytime is very low in these communities, and the use in the mornings and the evenings is higher so you have to build enough that you can have enough for those periods.

That meant they have a ton of stranded energy, the energy is going to waste, it's sitting there and it's literally being wasted and it's being turned into heat and dissipated.  So, we said, "We have a better way of turning it into heat and dissipating it; let's put a Bitcoin miner on it and then we can pay you for it".  So, we found a partner who was willing to give it a try, we tested it out, and it really works.  If you've seen any of the stuff we've done online, one of the first sites we set up was about a 50 kW site, and the community around it was using 20 kW of it during the day, and so that left 30 kW for us to access, which is maybe six miners. 

So, we set up six miners inside there and then, at night, we would be like, "What happened to the energy?"  This is hydro, by the way, I should start with that; this is a small mini hydro site of 50 kW.  And at night, half our miners would just shut off and we were like, "What is going on?!"  We had no idea what was going on. 

So, finally, we went to the site and we were talking to the engineers, he's like, "Oh yeah, between 6.00pm and 10.00pm, people use more energy so we need to use about 15 more kilowatts, so I go down there and flick off your switch", and then we're like, "Oh, okay.  Well, now that we know that, we can do that remotely, in fact we can automate it so you don't have to walk down that steep hill in the dark and flick a switch, and if it's raining, you slip and slide down it", and these are steep, muddy hills too.  So, he was really happy with that, and we turned on this kind of auto-curtailing of a mini-grid in the middle of a very agricultural belt of rural Kenya.

Peter McCormack: There's very little difference fundamentally with what you're doing with these mini-grids than, say, HIVE is doing in Texas.

Erik Hersman: Well, I would say that, besides the orders of magnitude and the ability to get paid when we're curtailing the power, we don't get paid when we curtail.

Peter McCormack: But it's the same kind of scenario, right; you're making a grid more efficient?

Erik Hersman: Yeah, so there are two things going on: there's, yes, you're making the grid more efficient; but you're also providing sustainability.  I had never seen this kind of a, I call it a win-win-win situation.  So, when we were talking to the mini-grid providers, we called up dozens of them all over the continent, and they have a really big problem with sustainability; it costs a fair whack of money to put one of these sites together, and then they have to charge a certain amount for it.

So, there are some solar sites where they're charging 90 cents a kilowatt to rural users who don't have much disposable income; 90 cents in Kenya.  In Nairobi, we're paying 22 cents pre-tax on our energy, which is still fairly high; in places in the US, you'll pay 10 cents or less.  So, 90 cents for a rural African user is incredibly high, and we asked them, "Well, why is that; if you're there to bring energy to people and you're putting in a 100 kW solar site, how does that even make sense?"  "We have to make our return on investment and so we have to charge this much, but we have a bunch of wasted energy".

So, what happens when a Bitcoin miner comes in, we buy that excess, and so it helps make the mini-grid themselves more sustainable because they're getting, I don't know, three, five times the money they were getting before.  And that brings the third win, which is not up to us, it is up the energy provider, the mini-grid themselves, they can decrease the cost to the end user. 

So, the communities that we've been working in, they have done that, they can drop the price from 35 cents before we got there to more like what it is in Nairobi, so 22 to 25 cents today, and that makes a significant change in somebody's life.  So, you have a win for us, we're mining Bitcoin; you have a win for the energy generation, the mini-grid, because they're able to sell all their power now; and you have a win for the community because they have more power, more efficient power and cheaper power.

Peter McCormack: One of these sites, these mini-grid sites, what kind of size community are they serving and what is the local economy of these places, is it mainly farming?

Erik Hersman: Yeah, it's hugely agricultural around here.  We're going to be opening up a site pretty soon in Southern Africa that I think is agricultural as well, but there are more mining sites and other industries down there that are in those rural areas, but in our areas it's all agriculture.  So, yeah, with a site that is 50 kW, you'll probably have about 500 connections to it in the community, and there are more connections.  You could actually build that grid out further if you had more power, so that's one of the things that's happened. 

The second site that we went into was actually just a little way up the same river, and they put another one, a river site, a mini-grid site there, and that has 500 kW, of energy of which we use about 60% for Bitcoin mining, so 300 kW for Bitcoin mining.  So, in those scenarios, in a 50 kW site, we'll have six miners on shelves inside of the energy site, right next to the turbine; and in a 500 kW site, we'll have a container sitting next to the site that has more miners in it and the connectivity to the internet and things like that.

Peter McCormack: What is the upfront investment cost to build one of these mini-grids?  I know it'll change depending on the size of the output.

Erik Hersman: So, I actually think this is maybe one of the biggest things we need to change, so that's a fantastic question.  So, our partners, if they're building a mini-grid that's 200 kW, that's going to charge them about $4,000, it's going to cost them about $4,000 per kilowatt to build.  If they're building something that's 10 times bigger, so 1.9 MW, that will cost them about $1,000 a kilowatt to build just because of economies of scale. 

So, I think one of the biggest advantages that Bitcoin mining can bring is a new energy development, where we can come alongside as a partner for somebody who's trying to build more energy into further-out places, so move the grid even further out to the edges.  And we can say, "Listen, you're going to build a 200 kW or 500 kW site, why don't you build something that's 1 to 1.5, maybe 2?  We'll help bring the financing alongside for that, and then the Bitcoin mining will backstop the financing of that for the first however many years until it's paid off", and I think that is one of the biggest promises of electricity generation across Africa that I've seen in my whole life.

Peter McCormack: Yeah, the reason I ask, because it feels like that is an initial investment that could be high tens but possibly hundreds of thousands of dollars just to get the site operational to serve an agricultural community of maybe 500 connections, and so I was just wondering of the economics of it; it seems like a very tough market.

You've talked about these communities maybe having people who don't have a lot of money, aren't paid a lot.  I might be wrong here, these farms, these agricultural areas might do okay economically, but it still feels like a tough business.

Erik Hersman: You would think so, right, but remember, if you have an offtaker, an energy offtaker who can provide you a base level for 50% of that or more, then you're actually in a very good position.  So, you had Brandon Quittem on earlier, or it was in December maybe, and he talks about Bitcoin miners coming in and creating space for new things to happen for other types of activity to come onboard, and I think that is very much what happens here.  It's like, with more energy and access to it, with more affordable energy, then people do more.

Danny Knowles: I'm really on that, Erik.  As you drive the price of energy down for the people in the community that are so close to the grids that are operational now, presumably their usage of energy will increase, so what does Gridless plan to do when that happens?  Is it like you move on and you seed a project somewhere else and grow it again, or do you actually grow out the grid in the same location?

Erik Hersman: So, our partners grow out the grid in the same location further, what we do is the more energy that's needed by the community and small businesses, then we decrease our usage of miners and we move them, and that's written into our contracts.

Peter McCormack: In terms of the testing work you're doing with this at the moment, how well is this working?

Erik Hersman: So, it's working really well sometimes and then other times it just falls apart.  So, what is it, four days ago, three days ago, we lost internet connection at one our sites for 13 hours, and so our miners were sitting there mining away the whole time and we didn't earn a single Bitcoin or sat for it.  It's frustrating because that's something that we know quite a bit about, connectivity, internet connectivity, but we just didn't have anybody there, we hadn't built the redundancy for connection into that site yet, so sometimes you have those issues.

We've come across other -- and this is where, when you're in the trenches, it's different than in fairyland, where the rainfall this year was really poor in Kenya, so that means we're getting less water into the turbines, which means that again, the community gets first take, and then we get the next.  So, we haven't actually been able to run our 300 kW site at 300 kW for the last three weeks, we've been running it at 100 kW, which means that only a third of our miners are running in that site, so we're now moving them to other sites so that they get more usage.

So, in reality, I think what we're finding is that you have to be able to first of all, build a very lean operation with people who can figure things out on the fly, on the ground as they happen.  Two, is then build processes and systems that you can make sure that strengthen you to make sense of these variables, again which is not that normal thing for us to have to deal with, but you have to build that into your organisation and your operations. I think, as we're kind of figuring out that business operation side of things, it's going to level out, but it's going to always have some variability to it. 

I'll tell you another interesting story, I think they're the biggest Bitcoin miner in Africa, is Bigblock Datacenter out of the Congo.  I don't know if you've ever talked to Sébastien; Sébastien's the French guy who started it.  They run I think it's 5 MW of old, really kind of like S9 miners in the Virunga Forest, and it's a really amazing setup, it's a great setup, it helps support the gorillas and everything that are in the park right there; it's a very fantastic programme. 

He was telling me a story at the Africa Bitcoin Conference this year about how they have to deal with electricity, specifically the lightning.  So, lightning strikes in the mountains, they're very consistent, they happen all the time, but it also brings down things all the time, so they have to control for that, and sometimes they have to curtail all of what they do until the lightning goes away.  You have things like that, environmental factors, that are maybe a little different than what you'd find in the other places that are doing a lot of Bitcoin mining, but I think as we come to terms with the environmental issues that we have to deal with at a mini-grid level or even what Sébastien is doing is Bigblock Datacenter, you start to build new things, you build new ways of managing it.

We've been building software now that can -- there's software already that runs the miners; the Foreman is this really good software that we use to manage our miners, and then there's the software that's used to kind of see what's going on with the turbines or with the solar power or whatever it is, but they don't talk to each other.  So, we're already thinking about like, "What are the pieces of software we need to write so they can speak to each other to do the auto-curtailing and baseload management in these locations?"  I think there's going to be a whole bunch of innovation around the Bitcoin mining space that comes from Africa because we have to deal with it in a very different way.

Peter McCormack: Yeah, everything you're telling me just sounds like the growing pains of a new business, the unknown unknowns when they come alone, "Okay, well, we now have to plan for that and consider how we deal with that in the future".

Erik Hersman: Yeah, that's true, the only difference is that I think the types of things that get thrown at you here might be a little different than in other parts of the world.

Peter McCormack: Yeah, I can imagine.  So, what is the size of the opportunity here?

Erik Hersman: So, I can talk about him being a partner of this because he's a kind of early advisor and then ended up doing some investment as well, but we have a really old-school Bitcoin miner who's been helping us figure things out; that's Marshall out of Texas.

Peter McCormack: Marshall Long?

Erik Hersman: Yeah, Marshall Long, he works at Rhodium, and he knows more about this space than almost anybody, at least that we've met, and he's been super helpful in figuring out things.  So, he came and visited with us in I think October, and he looked around and he said, "You know, I think Africa might be the next big home of Bitcoin mining, and the reason why is because you don't have a grid".  That actually makes it really valuable for Bitcoin miners because can come in and you do deals that would be very difficult to do elsewhere, and it's not seen as turning the screws on somebody, it's seen as a, "Thank God you're here to help me".

So, when we go and talk to an energy provider, an energy developer, and let me give you some finite examples, so we went and talked to a solar farm that had built 94 MW of solar, they'd been able to sell 80 MW of it to the grid, they have 14 MW that are just sitting there stranded.  So, they had never heard of Bitcoin, never thought of Bitcoin mining, any of that stuff.  So, we're in there, we spent the first hour just explaining what Bitcoin is, what Bitcoin mining is, how the Bitcoin Network works, this global network of computers and hash power. 

Then, at the end of it, they said, "So, how much are going to pay for that power?"  And we said, "We're not going to pay you anything", and they said, "Well, we need to be paid X amount for this power".  We said, "Well, here's the deal, you're not selling that power to anybody, but I'll tell you what we'll do, we'll give you 30% of the revenue, we'll give you 30% of the Bitcoin that's mined every minute of every day".  They sat there and thought about it and were like, "Okay", and we went round and saw everything for the next hour and we came back and they said, "Well, how much are going to pay?"  It was like, "We're not going to pay, you're going to get 30% revenue share on this Bitcoin", and they were like, "I know but", and we're like, "You're not getting anything else, there's nobody else to sell this power to".  They're like, "Okay, you're right, and we're going to start with 2 MW and see what it can do".

So, that's the kind of thing that happens here, and I think that's why Marshall and others see that advantage.  There's not only the larger power generation, renewable power generation sites that are like them -- and hydro's the same, hydro has massive amounts of stranded energy; in East Africa alone, there are over 200 megawatts of just stranded energy I think actually in just Kenya alone, there are 200 megawatts of just stranded energy, and that's mostly hydro, some solar. 

You look at that and you're like, "Wow, that's a big opportunity", and then you turn over here and you see the mini-grids have the same problem at a smaller scale.  Our business has been built around instead of just kind of vertical growth where we go to big mining sites and we build another just big datacentre, we want to build laterally, we want to build horizontally where we have many small sites, and maybe a couple of larger ones in the future; we think that's where growth and decentralisation security of the network comes from.

Peter McCormack: There's additional benefit here because you could have turned around to them and said, "Yeah, we'll pay you X cents on the dollar for your power", and they would have just issued you an invoice, you'd have paid them, but you've kind of forced them to learn a little bit about Bitcoin now.  And they're people who work in this sector, they're going to tell other people who work in this sector about what they're doing, so you helped spread the knowledge and understanding of Bitcoin as well.

Erik Hersman: Yeah, we do.  We think we have a pretty nice pole position in the space, but you talk about sharing, right, I'm wearing the GAMA shirt, GAMA is the Green Africa Mining Alliance, it's just an association of other renewable energy-based Bitcoin miners in Africa, and there are only five of us right now, but the idea is, how can we share this knowledge so it can be done by more people?

Gridless alone can't take advantage of all the opportunities that are just in East Africa, so why would we try and take that knowledge and just own it ourselves?  We should share this, we should share the methodologies, we should share the blueprints for how to do this, and we should also share some data with each other and maybe with the regulators who are going to come along behind us and try and make laws around this.  It opens it up to more people, more Bitcoin is being mined on the continent, more companies are being developed around it, some small, some large, no doubt some will be even larger than us, but it also opens it up to the energy guys in a way that they've never had it before, and I think that's what gets exciting.

Just so you know the numbers, there are 600 million people in Africa that don't have access to electricity; that's a lot, right, that's two-thirds of the world's total that don't have access to electricity that's here.  So, what we all should be trying to do is focus on how can we help electricity proliferate across this continent?  Bitcoin mining just happens to be the missing link that allows that to happen.  So, it ends up being good business for us, it also ends up being good for the rest of society.

Peter McCormack: Erik, would you say it's fair to say that, whilst you're an entrepreneur and you've clearly had a successful career, this is part mission-driven?

Erik Hersman: Yeah, I just have always been, if you're going to spend your life doing something, build something that makes the world a better place, makes it more meaningful; I think that's where I sit.  You can build all kinds of things, you can make all kinds of money, you can build small things and you can build large things, but whatever you try and do and whatever I try and do, let me say, is try and build something that does help proliferate a better human condition.

Yes, you should make money at the same time because I grew up here and I've seen the damage that NGOs and government can do, and I think if you actually want to make change happen in Africa, then you build businesses, you grow wealth, and I think business is the right vector for that.

Peter McCormack: So, I asked the question for a reason, because as a bitcoiner, I'm a bitcoiner, Danny's a bitcoiner, you're a bitcoiner, when we travel to say a Bitcoin meetup, we spend most of our time just talking about ideas and opportunities and what people are working on.  But then outside of that, we also have to interact with the non-Bitcoin world, which can be very challenging.  We have people who are very critical of Bitcoin, people who spread misinformation, risk of regulation.  We have all these external forces working against us, yet I think sometimes it comes from a place of privilege. 

This one guy, I can't remember his name but he's quite a big critic of Bitcoin, he lives in Berkeley in San Francisco, he lives a very privileged life, and I don't think he realises the consequences of what he's trying to stop in places like Africa.  He has electricity, well, he's in California, he might have blackouts, but he doesn't have the kind of issues that people in Africa are dealing with, and from his privileged position, he's working against a technology which supports the human flourishing.

Erik Hersman: Yeah, I think what you have is there are a lot of people with blinders on who live in the West because they can't see beyond what happens to them every day.  And there are challenges, there are people who have real issues in the US and Europe and places like that, but when you're super-focused on your own view of the world, I think what happens is you don't see what's going on elsewhere and the damage that you can do on a macro scale around it, because you're so focused on yourself.

For that reason, I think you need more people to travel, you need more people to see, and it's when those experiences are had that you change your world view.  Before you started travelling internationally, I bet you had a very different world view than you do today, and a lot of these people haven't travelled enough, or when they do, they're in a very controlled environment that doesn't allow them to actually see what the everyman does and everyman has to deal with.

Peter McCormack: Well, I think Gridless might become one of those things that I end up mentioning quite a bit on the show or on Twitter or when I'm with somebody who's very critical of Bitcoin then to say, "Look, you really need to understand what this innovation is doing in different parts of the world".  We've had different case studies, like the Belarus protests against Lukashenko or the protests in Nigeria, but now what we have is another opportunity which is creating economic opportunity, so don't be surprised if this becomes one of my case studies.

Erik Hersman: Alex Gladstein and I have known each other a long time because of Ushahidi and the Human Rights Foundation, and so we were both at a conference recently and some of my old friends were there too, very academic, very anti-Bitcoin is what I came to find out, and they said something.  I remember sitting at the table and they said, "Well, I'm just sad to see that you're doing this now, Erik".  I'm like, "Well, hold on a second, what do you not like about it?" and then it's, "Well, you know Bitcoin uses so much energy, it's not good for the planet".  And I said, "Well, let me see if I could change your mind on that", and started talking about it.

It's very easy to be anti-Bitcoin when you're sitting in a comfy house in a nice situation somewhere in the US or Europe.  But when you actually see the change in the ability for somebody to do their homework at night, maybe cool their food for the first time ever, charge their phone and be able to stay in communication, even though we all know the numbers are wrong, but you can't tell me that your theory on what is good for you in that situation is better, it's more important than it is for that kid or that family living in rural Africa, and I think that's what people forget.

Peter McCormack: Yeah.  Okay, the last thing I want to get into with you or ask you about is, we've had a lot of amazing innovation coming off the back of mining, and we've covered it on the show, whether that is what is happening in Texas with the grid, whether it's what Adam Wright is doing with landfill sites and flaring methane, the gas flaring sites, what you're doing, there's all this innovation.  The thing that keeps niggling at the back of my mind is, will there be enough profitable opportunity for miners to support all these projects? 

We made a show the other day with Sam Wouters, I've probably pronounced his surname wrong, that's going to come out soon, and he's going to be talking about this actual thing.  But really we need Bitcoin to continue to grow, the price to grow, the market to grow, the network to grow, to make these projects like you're doing and they're doing actually sustainable.  Is that something you think about much?

Erik Hersman: Well, we're already sustainable now, and I think this is the advantage and the beauty of the Bitcoin Network and mining, is that if you can go out and collocate and do a proper partnership with an energy provider -- for instance, I grew up in South Sudan; South Sudan's not a place you want to go for most people, it's a mess.  There's gas flaring going on there all the time, so there's no reason though, if you can't find a partnership with that local oil company, you couldn't do gas flaring like you're seeing in Texas there right now, there's nothing stopping you.  There's the risk associated with the political risk, and there are ways to control for that, but the opportunities are there and there's money to be made, and I think there's going to be money to be made into the future of it too.

I don't think there's a lack of opportunity, I think there's this delta where there's a huge amount of opportunity and there are the people who aren't ready for that risk profile yet because they are FUDed to death on Bitcoin, they don't know what it is and they're scared of it.  So, that's an opportunity for those like us to take advantage of it and move faster.

Danny Knowles: Just before we close out, can I ask a question on that, the political risk?  I know that Kenya's fairly stable, but what about the other nations in Africa; how do you account for whether there's corrupt government or non-government groups coming in and seizing the equipment or whatever it might be?

Erik Hersman: Yeah, so Africa's very relational, you have to have good relationships and you have to be partnered with people who have good relationships and are connected.  So, yes, some countries are more stable than others, rule of law does count, and so Kenya is a good place for that, Ghana is, South Africa is, Zambia probably is too, but there are other places that are tougher.  I think you could talk about South Sudan, that's one where, if you're going to go into South Sudan, you'd better be partnered with somebody who knows the Office of the President, because if you don't, then who knows what might happen?  So, political risk and geographic risk are real, which is why what we do is, we're quickly moving past just one country. 

So, yes, Kenya is our backyard, it's our home, but getting another site going in Malawi, there's another site in West Africa that will go live in February, trying to make sure that we too have geographic spread of our hashrate into our own company so that we don't get turned upside down because of something that happened economically or politically in a country.

Peter McCormack: Erik, anyone listening, how can people help you; how can Danny and I help you; how can listeners help you; what do you want from people?

Erik Hersman: So, we were very fortunate to get a really good funding round from the team at Block and Stillmark and you've been able to move forward pretty well with that, it allows us to buy things inexpensively right now.  But we're going to grow beyond that at some point, and so we're going to look for partners who can either bring power to the table, a good pipeline here in Africa, or people who are partnering with some unnamed larger mining institutions; we can take their older miners and put them to work and sweat their assets and so we can deploy more to maybe lower-efficiency sites, like solar, in that way.  So, looking for partners in those places is good for us.

Then I think it's just like, hey, listen, tell the story of how Bitcoin mining actually is good for people and planet, and I think that's the case here.  We thought that, and instead of sitting out there and just talking about it, writing about it, we're saying let's do it and make sure that others can do it too.  So, there are other miners, we've got Siyanbola in Nigeria, we've got Nemo up in Ethiopia, we have Sébastien in the Congo, and these guys need support and they need help and they need growth too.  If we've already got our funding, then finance them, help them grow; they have all that they need up here but sometimes they don't have the same access to capital as we do.

Peter McCormack: Okay, and if people want to find out more, where are we sending them?

Erik Hersman: So, it's gridlesscompute.com for us, we're also at @GridlessCompute on Twitter.  Then, for GAMA, you just go to www.gama.africa.

Peter McCormack: Great, okay.  Danny, I think we need to go to Africa, I don't know when we're going to come, but I think we're going to come and visit, come and see what you're doing but come and see some of the other projects.  So, we will have to look at our diaries and see when we can make that happen, hopefully we can do it this year.

Keep doing what you're doing.  This is fascinating.  I think I'm going to be talking about this a lot, especially when I'm talking to a FUDster, a privileged prick up in San Francisco, or somebody who just doesn't understand Bitcoin.  I think I'm going to say, "Well, I need to tell you about something that's happening in Africa that might change your world view". 

So, well done, congratulations on your funding round, congratulations on everything you've done.  If you need anything from Danny or I, just reach out to us, we're here to help and we wish you the best for the future.

Erik Hersman: Thank you, guys, for having me on.  It's been a real pleasure.

Danny Knowles: Thanks, Erik.

Peter McCormack: Thank you.