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THE Bitcoin Podcast
Bitcoin Mining Centralization & Nation-State Game Theory | Bob Burnett (THE Bitcoin Podcast)
01:52:14
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- [00:00]
A
If you believe like I do, that bitcoin in the course of the next century and probably much, much sooner becomes the base layer of all money, then access to that base layer becomes existential to your viability as a nation. So if I have that, if I have twice a week, I have 8,000 transactions that I can make with anybody in the world, I can do the business of my country, I can do the business of the corporations and I can do the business of the citizens of my country in a way that cannot be impeded by anybody else. Biden can't ban it, Putin can't ban it. The new BRICS can't ban it. Like I have achieved true financial sovereignty for my nation. And if I do not, if I have no blocks, even if I have 5,000 bitcoin or 50,000 bitcoin, it doesn't matter. I am subject to the whims of the others, whomever they are. And I believe at a nation state level that presents an existential problem.
- [01:14]
B
Greetings and salutations, my fellow plebs. My name is Walker and this is the Bitcoin podcast. The bitcoin time chain is 879546 and the value of one bitcoin is still one bitcoin. Today's episode is Bitcoin Talk where I talk with my guest about bitcoin and whatever else comes up. And today that guest is Bob Burnett. Bob is the founder and CEO at Barefoot Mining, a board member at Ocean, and he was also the ex CTO of a little company called Gateway. You may have heard of them. Bob and I took a deep dive into the biggest risks to bitcoin focusing on bitcoin mining, pool centralization and templates. But we also discussed nation state bitcoin adoption, the future of block space, the importance of home mining and a whole lot more. I know you are going to love this conversation with Bob and learn a lot. But before we dive in, just do me a quick favor and subscribe to the Bitcoin podcast wherever you're listening. And make sure to subscribe on YouTube or rumble as well. Just search Walker America, head to the Show Notes, grab discount links for my sponsor Bitbox or go to Bitbox Swiss Slash Walker and use promo code Walker. Send an email to hello@bitcoin podcast.net if you have feedback or are interested in sponsoring the Bitcoin podcast. And if you find this show valuable, consider giving value back by giving a zap on Noster or a boost on Fountain. Without further ado, let's get into this bitcoin talk with Bob Burnett. Well, Bob, it is great to see you again. Wish it could be in person. This will have to do for now though. At least we both got good microphones. So what else can you ask for for doing this? From one cold part of the U.S. to one very nice and warm part.
- [02:59]
A
Of the U.S. well, great. Great to see you, Walker. Yeah, yeah. All the mic setups are top notch here, so audio quality should not be a problem today.
- [03:09]
B
Not at all, not at all. Bob, there is a bunch of stuff I want to get into with you. I've always appreciated your perspective on things because I think you're a very future forward guy. You also are a very positive guy, but you're a very realistic guy and you're not afraid to say some inconvenient truths just because they may ruffle a few feathers. So kind of before we just dive in a little bit, I think your background is super fascinating and I think it gives a really good kind of setup to how you got into bitcoin mining now and just kind of where you are. Can you walk us through just a little bit? Who are you? How did you get here today to be a bitcoin miner, but with quite an interesting path that led there?
- [03:56]
A
Sure, sure. Yeah. Thanks for having me today, Walker. So my background is really technology based. If I had to say one thing. What are you? I would say I'm a technologist. And I think the role of a technologist is kind of a combination of an engineer and a sociologist and a futurist. Like it's kind of taking all those things and putting them together. And so my roots as a technologist go way back into the mid-80s, actually, technically even the late 70s. I started as a kid coding in the 70s, pre IBM PC days. I was doing a lot of coding work and then got an engineering degree in 1986. I was working for a company called Zenith, which older members will remember as one of the bigger TV companies in the world. But there was a personal computer division there and I was fortunate to be assigned to the personal computer group while I was there. And even more fortunate as a very junior member. I do not want to overstate my role as one of the members of the team that designed what I believed to be the world's first laptop. There's a lot of controversy about where it was because defining the line, but I believe firmly that we brought the world's first laptop to market in that era. Eventually I spent the next 20 years roughly in the personal computer industry. Ultimately as the Chief technical officer for a company called Gateway, which again, some of you may remember, but we were.
- [05:47]
B
Just a little company.
- [05:48]
A
Just a little company. But yeah, we ended up becoming a Fortune 200 company. 10 billion in revenue. We were making about 10 million PCs a year. And I was honored to be able to lead the product development there, which by the time we got into the early 2000s was not just laptops and desktops and servers, but also TVs and cameras and MP3 players. It was phenomenal ride. I left there and started a technology incubator. We did a lot of very seed level funding and work with very early companies. Not really anything probably worthwhile to talk about in this conversation other than in 2017. I got a phone call one day from somebody from back in my Gateway days that said, hey Bob, can you design some Ethereum mining servers for me? For people listening, don't worry, I am a Bitcoin maximalist, but we all start somewhere. I was a computer guy, I looked at the world, I was certainly aware of Bitcoin and Ethereum and these things, but it was certainly something in the background of my life. And this guy said, hey, can you build some Ethereum mining servers? And make a long story short, I said yes, I could. And he wanted a whole bunch of them. So he issued about a $6 million purchase order to us to build them. So we did, not bad and we did well with it. And then we said, well, we have this design and we had a great relationship with Nvidia, so they were willing to give us the chips. And so we went to other people and said, do you want to, do you want to buy some? And a lot of people did, but most of them that said that they did only wanted to buy them if we would host them. So we had to, we had to start hosting these systems. And then we quickly realized they were making a lot of money. So we started taking our profits and putting into our own equipment and started making money. Now this, I'm talking about a period of maybe 9 to 12 months upon which this occurred. And at that point I started to look seriously at what Ethereum was and it didn't smell very good, let's put it that way. Like when we really got into it, like there's a lot of warts here. The biggest one being that number one, they were trying to move off of proof of work, like, okay, you're making a fundamental error here. But second, not that we don't want to make this an Ethereum conversation, but just to review, like it doesn't use proof of work, it uses proof of stake. Big mistake. It's highly centralized. One person or a small group of people pick the product roadmap. And number three, it's massively complex. And my experience with software projects of that level of complexity are they basically never work. They're really, really cumbersome and difficult. And so that led me to look more seriously at, well, what else was out there. And I took my first really hard look at bitcoin and started to see that the three things I just talked about, being a problem with Ethereum were not a problem with Bitcoin. And here we are now, eight years later, deep, deep in the bowels of the rabbit hole. That's my story Walker.
- [09:50]
B
I mean it's, it's, it's quite a, quite a ride and one that still has a lot of room left in it to ride, I think. And again, one of the things that I've always appreciated about you and just enjoy talking to, enjoy you know, following you when we're not able to chat in person, but is just kind of, it's very easy to get caught up in the NGU side of things and okay, you know, fiat price is pumping, things are looking great, let's not worry about anything, you know, yeah, we won, you know, and, and you always do a great job of kind of bringing some sobering realities about bitcoin and bitcoin mining specifically and kind of ringing an alarm bell at times about hey, these are some things you should pay attention to. And so maybe a good place to start is kind of what are these things that you're looking at right now? Obviously you are, you know, you are a bitcoin miner. You have a bitcoin mining company. This is something that you are personally heavily invested in and care a lot about. What are the things that you worry about as a bitcoin miner, as a bitcoiner, just as a human being? What are the things that make you kind of go something is maybe we're on the wrong path here. Maybe there's something that we can do about it.
- [11:02]
A
Yeah, it's a great question. What I'll say first of all is I think bitcoin's greatest risk, it's not just mining. Bitcoin's greatest risk is complacency or overconfidence. And my biggest worry is actually not today, it's not next Tuesday, it's not next year. My concern is you have a new baby, a one year old. I have a couple grandchildren, some as young as three years old. They may grow up in a world where they never see the problem or maybe their kids never see the problem. We know what the problem is. We know about the Fed, we know about the imf, we know about the corrupt monetary system, we understand inflation, we understand debt based money, we understand all these sorts of things. They may not. And so I think one of the reasons I like to come on these shows is that the hope that my grandkids, my great grandkids, my great great grandkids wonder who great great great grandpa was and go find him and hear these messages and they know why we're doing this because they might not fight against decentralization, they might not fight for massive concentrations, they might not fight for self custody, they might not like. These may not be issues that they can feel tangibly. So I think we start with that. So I appreciate what you said about me, but this is why I do it, you know, And I call it 10th man syndrome, by the way, that to be the 10th man is a take on the movie World War Z, which was an old Brad Pitt zombie movie, right? So, you know, here I am extolling the philosophical virtue of a zombie movie. But you know, the truth is, and there's a scene in the movie which I would encourage everybody to go find where Brad Pitt there's this area around Jerusalem that the zombies haven't gotten to. And Brad Pitt is a UN ambassador and he flies to Jerusalem, which is like the only place in the world not infected by the zombies. And he says to the head of security, how did you know? Because what they had done is they had built a wall completely around the city to protect themselves from all the zombies and everybody there was safe. He says, how did you know? And he said, well, it's because of the 10th man. And he tells this story about how in Israeli history, like in the munich Olympics in 1970, there had been these warning signs that a terrorist group might attack the Israeli athletes. And the Security Council at the time decided it wasn't a legitimate threat and they ignored it. And then he tells a couple other stories about times in the history of Israel where the threat of the attacks was there and the signs were there, but people ignored it as not a big enough threat, nothing to worry about. And so they decided that would never again happen. And so the Israeli security council is 10 people and they created the 10th man rule. And the 10th man rule is that if the first nine, if a threat is presented and the first nine members of the Security Council agree to ignore the threat, it is imprudent on the 10th man to take the position against it regardless of whether he or she believes in the threat. And they must present. It's like a devil's advocate on steroids. Like, you have to be this. So when I look at bitcoin and I think about my great, great grandkids or whatever, and I look at bitcoin as our chance to fix money for a thousand years. And so as an engineer, as a technologist, I look at something that is a 0.1% threat, let's say, say, well, in a one year period, is that a threat worthy of really worrying about? No, not really. But if you think about something you want to last for 1000 years, a 0.1% threat starts looking a lot more likely to happen. In fact, it becomes very likely to happen in that thousand years. A whole series of 0.1% threats applied to the same thing. We'll talk. I'm really going a long way around your question, but that's all right. The, you know, mining pool centralization as an example. If somebody says, well, that that's not really a threat, don't worry about it. The minor incentives, the blah, blah, blah. Well, and we'll talk about all this in a minute, they aren't worthy of worrying about, well, that's somebody not taking a very 10th man mentality. That's somebody showing me complacency and that's dangerous. So. All right, so yeah, just to know about this. Let me respond to that before we go to the next.
- [16:48]
B
No, I was just gonna say safe space for rants, for tangents, for long winded runarounds, however you want to do it. There's no rules on this show, but no, I think that that's a really good way of looking at things. And again, we all like to talk about, oh yeah, bitcoin's going to be, you know, like this is it. This is the, you know, the last money. Right. This is the paradigm shift. Fiat was a blip. We had gold for 5,000 years. The blip of fiat. Now we'll have Bitcoin for 5,000 years. But a lot of the ways that we actually think through these things kind of, kind of make it seem as though we're not actually thinking that long term about it. We're not actually looking long into the future. Yeah, something's not a huge risk now, but as you said, that risk compounds becomes greater and over a long enough time horizon, there's a decent chance that it may happen. So let's, let's start out with Kind of because you brought it up at the end there mining pool centralization. And you know, there was a chart that Mechanic had shared, which I think is maybe I'll pop it up on the screen here because I think it's a pretty good one just for giving people a visual aid to what we're looking at here. And maybe you can talk through, you know, is this something that people should worry about? Is this a legitimate risk and kind of what, you know what? Like, is this going to get worse before it gets better? Are there things that are happening now that are actually making this a little bit better, or are we generally trending in the wrong direction? Whether you're mining bitcoin, buying bitcoin, or earning bitcoin, you need to make sure you keep those coins safe by going to Bitbox Swiss Walker and using the promo code Walker for 5% off the easy to use fully open Source Bitcoin only Bitbox 02 hardware wallet. Then get your coins off the exchange and into your own self custody. With Bitcoin, ripping your stack will soon be worth a heck of a lot more in fiat value than it is today. So make sure you take the time to lock your security down tight with Bitbox. Plus, I cannot emphasize enough that the Bitbox O2 is easy as hell to use. Whether you're brand new to bitcoin and it's your first time setting up a hardware wallet or you are a well seasoned psychopath. It is Bitcoin only and again, fully open source. Head to their GitHub and verify that for yourself. No need to trust me or bitbox. And when you go to bitbox Swiss Walker and use the promo code Walker, not only do you get 5% off, but you also help support this podcast. So thank you.
- [19:10]
A
Yeah, it's a great question and a very deep one. I do always want to be up front too, so everyone understands. I am on the Board of directors at Ocean. I do have a financial interest in Ocean. I am not here to promote Ocean though, but I do want to be transparent about that and just for completeness sake, because maybe we'll touch on it later. I'm also part of a group on the board of advisors and an owner in a company called M5ers where we are designing our own ASIC. So maybe we'll touch on that.
- [19:45]
B
I'd love to talk about that later.
- [19:46]
A
As well, which is another area where there's a big centralization occurring. So the chart that that's been brought up, you know, it's a snapshot this changes with time. But it's holistically true that if you look at this chart, you will see foundry at 40% of global hash rate. Now these are estimates based on who won what blocks in a given time period. It might be 33, it might be 28, it might be 46. But foundry is, Foundry is by far the biggest. Now the next three, ant pool via BTC and F2 pool all have between 10 and 15%. Collectively those four are now at like seven. Well, in this case it would be 55 and 15, that would be 70%. So we have four pools with 70% of the hash rate and then a whole list of them. There are more than are listed on here. For instance, Ocean's not even on this chart with single digit percentage or sub single digit percentage. So why should anybody care? Now there's. There's always been a belief in the industry within the community, maybe is a better way to say it, that we never have to worry about somebody getting too much hash rate because the community will correct itself if anybody either starts behaving badly or they put themselves in a 51% situation. And I think the 51% attack, which I assume the audience is probably mostly bitcoiners. I'm sure you've heard of 51% attack. But the, the thought is somebody tries to control the whole network through this 51% and that the network would reject anybody getting up there. And there's a couple cases in history in the past where pools got really big and then as they approached that level, suddenly got really small because of 51% attack. I do not lose any sleep over 51% attack. At the moment, I don't think it's legitimate. The problem in the current scenario is this, the block templates, which we probably should, I guess, back up and talk about the block templates. Right.
- [22:19]
B
Can you talk about, just for people that maybe aren't familiar, what you mean by block template?
- [22:24]
A
Okay, so we'll give the high level version at this moment, when I checked this morning, There are about 150,000 transactions waiting for confirmation. So they've been signed, but they haven't been confirmed and included in a block. Okay. Every block has a finite size and the technical basis is 4 million weight units. But for purposes of this conversation, think of it as about 4,000 transactions that can go into that block. So that means that with 150,000 transactions waiting to get confirmed, there has to be some criteria by which the 4,000 the miners are going to try are going to pick to include the block that they're going to attempt to mine now takes place, right? So that process, that algorithm, is called the filtering. So now every pool, every template creator can do that independently. So right in today's world, Foundry picks their 4000, F2 pool, picks theirs, Antpool picks theirs, and all the others, even the little guys, each pick their own group of 4,000 and they go off and they try to mine it. Now, for the most part, the algorithm that they use looks is this algorithm. The first is, is there business of the pool that that needs to take place? So in other words, are there payouts that have to be made? Well, they'll put those transactions in, usually at a, at no fee. It's their own transaction, it's the prerogative of the miner to mine their own transaction. So they prioritize them and they put them in at the lowest fee. And then for the most part, most of the algorithms and the filter system is set up to say, pick the most expensive ones. Okay, but it doesn't have to be. To be honest, one of the prerogatives of being a template creator is to pick whatever you wish. And we'll talk more about this probably later, but in my mind, there's a great responsibility that goes with it and there's a great amount of power that comes from it. Because again, we'll probably talk about this more. There are only 53,000 blocks a year. That's what a 10 minute block time results in. An average 10 minute block time results in 53,000 blocks a year. There are 4,000 transactions per block. That means there's about 200 million transactions per year. And for the most part, there's some argument within the technical side of Bitcoin about whether or not we can do something about that or should do something about that. But it's my opinion that that's what we have, that's what we're going to have for a long time, 200 million transactions. Now if four companies, four organizations, one American company, Foundry, and three Chinese organizations, F2 Pool, Gantt Pool, and doggone, I forgot the other one. Maybe it was Binance. I'm not sure what the other one was. Via btc, Sorry. Those organizations are each creating their own. But as you can see, if 70% of the transactions are going through those organizations, the real risk is censorship in the short term. So should these organizations, either of their own accord or forced by a government, start implementing blacklists and whitelists, type filters on top of their algorithm? We have a major situation. Right. I should also point out that there's a belief that a lot of these smaller pools that you have listed here, plus some others are actually just proxies for Bitmain. And it has to do with again, we get a deeper rabbit hole. It's hard to run a pool using what's called the FPPs payout method today you have to have massive financial reserves in order to do that. And you can only do that if you have the backing of a really big organization. So it may well be that more like 90% of the blocks are really controlled by essentially Foundry and Bitmain. In the end, like you got 90% through these two organizations. Now that's a real problem. That's a real concern. And we've seen in the past F2 pool, for instance, show behavior that they were trying to follow OFAC compliance. Mara tried it for a while, they got slayed and they backed off of it. But Marathon was doing that themselves. So this is a real concern. Now a lot of people then look at what I've just said about it being a concern and say Bob, it's not a problem because any of the hash rate that's attached to those pools can move immediately. So if these organizations exhibit that behavior, and that's historically what happened, the problem is it's not true for a whole bunch of the hash rate anymore.
- [28:25]
B
Why is that?
- [28:26]
A
Yeah, so the reason is we have 30ish percent, probably a little more than 30% of the hash rate now controlled by public miners. Okay. And most of the public miners have contracts with the pool that they work with. Number one, they pay really really low fees. Some have been negative at times in the past. In other words, the pool wanting to have access to hash rate needs a certain amount of volume to win a certain number of blocks. So they'll allow some of the big guys that maybe have 20 exahashes to come in at next to nothing or nothing or even free or even less than free. So that's one issue. So they're not going to switch to a different pool unless those economics change. Okay, that's one problem. Second problem is they may have a contractual obligation to provide the pool with a certain hash rate. And some of them have equity that's tied to that, meaning they own part of the pool. That's the second thing that happens. The third thing is large mining organizations have very sophisticated tools. We have decent ones. We're guess maybe call us a midsize miner. We have pretty good tools. But all the big miners have tools and they have very specific APIs that tie into the reporting tools and the data. And so it's not an overnight change to do that. The third thing is the pools are usually approved by auditors and regulators on behalf of the public companies. So like, the pools have to have a certain level of financial reserve in place to back up the hash rate because, well, in an FPPS pool, which stands for full pay per share, the miner gets paid whether the pool wins a block or not. And so in periods of bad luck, the pool has to have a huge financial reserve in order to pay people. So you have auditors and regulators and people that have to come in and examine the financials of the pool to make sure that they can pay. You're not going to direct hash rate to them and find out a couple weeks later that you're not getting paid. And that has happened, by the way, in the last two years, two FPPs pools have gone bankrupt, smaller ones, but you get a bet run of bad luck and you don't have enough money and you're cooked. So these are examples of why a guy running an S19 in his garage can change from foundry to brains to ocean to whatever in a heartbeat. And I think extrapolates what he can do to what they can do. But, and it even goes deeper than that. There are things like SOC2 compliance, like a pool that doesn't have SOC2 compliance, can't the public miners can't use them. Like there's all these sorts of things. So we, and then I guess I'll say one more thing, which is the financial motivation really may not be there. Because if you look at it right now, if we look at the block reward, the block reward, which is the subsidy, which currently is three and an eighth bitcoin, plus the fees. Okay, well, if the block template creator being the pool in this case, happens to ignore, let's say 5% of the transactions in the mempool, even though they're more expensive, they are foregoing a small amount of revenue. The block would be a little more valuable. But the way FPPS works, and kind of reel me back in if I need to explain this in more detail, Walker. But here, if you connect to what's called an FPPS pool, which I've mentioned several times, this is how you get paid. The FPPS pool has a formula. And the formula says every time a block is won, whether by that pool or anybody else, you get paid. And the amount you get paid is your percentage of the pool times that pool's percentage of the global hash rate and times the average Block reward of the previous 144 blocks, but they throw out in the 144, the three highest and the three lowest as well. So when you sum that whole thing up, it really will make no material difference to the payout of a company connected to an FPPs pool, whether or not that pool is censoring transactions or not. So what it comes back to is, are they principled? Do they carry the ethos? I'll just say, on the whole, it's not impossible for a public company to do so, but it's. It's very difficult. Like my, my company, we have a. We have an ethos pledge. Like the, the pledge to all of my employees and my entire organization is we do what's best for Bitcoin first. If something does harm to Bitcoin, even if it means better for us in the short term, we won't do it. The founding documents of Ocean, which I'm on the board of, we have a do no harm. It's like our Hippocratic oath to Bitcoin. As part of Ocean, we shall do no harm even if it makes gain to us. So I think a public company could certainly incorporate something like that. I think that would be wonderful. I'd love to see a public company do that, but to my knowledge, nobody has that. In fact, I think they look at it very much in a fiat mindset. So the momentum is toward these pools centralizing. We're seeing more and more hash rate go there. We're also seeing. There's a nomenclature. There's a nomenclature issue. I'll put it this way, okay. What we have taken to calling the miners a riot or a clean spark or iron or, you know, whatever, and I'm not saying this to belittle them, but they are not actually miners. They are hashers. They are mercenary hashers. And if you want to be a miner, you must run a node. You must create a template, and you must direct your hash rate to that. It's only then that you become a guardian of the network. It's only then that you express your vote and truly contribute to the network. It's only then that you have a voice in things like software activations. If you're not doing that, you're not really part of it. I'm not saying you're not doing something valuable, but it is a misnomer to call yourself a minor until you do these other things. And some people may be offended by that. I'm sorry, but that's.
- [37:08]
B
I'm not. So don't worry.
- [37:10]
A
But that's the truth of the matter. And I think it's. I think we've, you know, I wasn't there. Unfortunately, if we wound the clock back to 2009, 2010, everybody was a minor. Everybody. So even if you read. I think I got it back here somewhere. Book of Satoshi or Phil Champagne's book. Great book, Phil. I love Phil. What you'll see is Satoshi didn't separate running a node from being a miner. Those were synonymous activities. Like it's only, only in modern times, you know, the last 70. About the time I was getting involved, we started to see this big parsing. And for some reason, I probably should put more thought into it, but for some reason the community of hashers abdicated their mining responsibility or rights to the pools. And so the pools take on this tremendous power at that point. They get to pick the transactions, they get to hold the money. Like the coinbase transaction goes to them, the voice and things like soft fork activations, they get to, they get to make the template. By the way, usually softwork activations have to do with turning certain flags on in the block. So anyway, hopefully I'm really prone to this. I apologize. I've given you some idea of like why, hey, we need more pools. We especially need a whole bunch more template creators. And if we don't and you think of this thousand year Runway or even think of a 20 or 30 year Runway, especially as we see nation states understanding bitcoin better, big financial institutions understanding things better, we're in a position where those things can get very captured very easily.
- [39:30]
B
I want to get into the nation state side of things a little bit. But before we do, just want to kind of confirm in terms of. Because you mentioned you're like a 51% attack doesn't necessarily keep you up at night, does that mean that in your mind the larger risk in terms of mining pool centralization is actually the censorship component of it?
- [39:51]
A
I would say two risks. The first, the answer to the question is yes, number one is censorship. And the second is, as we are presented with soft forks or maybe even hard forks in the future, do we have a democracy or an oligopoly making that decision? Because usually it kind of goes back to Taproot and then Segwit and some of those sort of things from the past, we have used a trigger of a certain percentage of the blocks over a certain percentage of the time, signaling a favorable vote as essentially the mechanism by which that happens. And while it's a whole nother rabbit hole I mean, my feelings about what are a valid transaction or an appropriate transaction for the network and what is spam, I have very strong opinions about it. There are others obviously who disagree with me. Well, we're going to face things like new opcodes activations, for instance. We may see groups, there are rumblings of people who want to play with block size. Again, like these sort of things are rumbling out there in kind of technical back rooms that probably a lot of the normal bitcoin Twitter Nostra group probably doesn't see. But they're there, they're rumbling and there are some ugly confrontations amongst these groups, by the way. It's not all kumbaya in the back rooms, I'll tell you that. This could ultimately get resolved by bips that either get activated or not activated through this. And we need a hell of a lot more than Foundry F2 Pool via BTC and Antpool deciding.
- [42:12]
B
So before we get into kind of some nation state side of things, because I do want to explore the game theory there a little bit in terms of just like actionable things that, you know, like is this kind of out of the hands of the everyday bitcoin pleb who might be doing some home mining or something like that? I mean, is. Do you think that at a certain point does home mining just become a relic of the past or do you think there's a chance still for a resurgence in this? I mean obviously overall bitcoin adoption is still, we're still very early. We're at like what probably like, you know, maybe, maybe at a generous level, 1% of people globally and of that a tiny percent that mines like an even smaller percent. So like, do you think there's still a chance for kind of individual mining to make this big resurgence? Or is there so much, so many large institutional, industrial, whatever you want to call them, miners or hashers that that's just, it's going to be, you know, drops and drops in the ocean, basically.
- [43:14]
A
I don't believe it's too late. So the short version of the answer is no, it's not too late. Secondly, I would say I think there is a responsibility for people to be guardians of the network and it's usually, you know, people like the concept of running your own node I think is well propagated within the community. Hopefully people get that, but a whole bunch of people still don't do it. Right. But even more importantly, I think people should be miners too. I don't care if you get a very small one terahash per second device But I believe if you have a material percentage of your wealth, whatever that is to you, I don't care if that's you have 100,000 sats or you have 100 bitcoin, I don't care. I think you have a responsibility to the rest of the community and the ecosystem, and you have a responsibility to yourself to not let a small group of people control this whole thing. And millions of those small, individual people. I call them rabbits, by the way, and there's a reason I call them rabbits, which we can get into in a second, but the rabbits can have a voice. And the reason I call them rabbits, maybe I should explain that. So I believe there are three fundamental types of miners, elephants, horses, and rabbits. The elephants are probably obvious. They're really large organizations building really large sites. What I say about them is they are big and powerful. A tremendous amount of the community's attention says, look at the rabbit or look at the elephants. Like, everybody wants to see the elephants. And the 100 megawatt site, the 300 megawatt site, whatever, they're cool, but there's problem. They're big and powerful, but they're immobile, they're inflexible, they take forever to put up and they're easy to hunt. So again, this is. Again. Remember we talked about complacency and those sort of things? Yeah. Oh, thank you. Wow, you found that one.
- [45:53]
B
I had a feeling we might get into this, so I saved this photo from your timeline.
- [45:57]
A
Oh, thank you. Thank you. That's cool. So the elephants, this term is like, they're easy to hunt. So we're coming into a world, I think, with the Trump election, where again, this complacency and putting our guard down is very possible because two years ago, three years ago, people were really worried about Elizabeth Warren and people like that on witch hunts, and are they going to try to shut it down? And now we're coming into this other environment. Well, it might lead a lot of people to think that there's nothing to worry about. The cool thing about the elephants is they do provide a lot of hash rate and they do, in that sense, to a certain degree, help secure the network, but they also expose the network because a very small number of sites start controlling a massive amount of the hash power. And the other end of the spectrum is the rabbits. So the rabbits are the home miner. It may be an accountant who has an extra server slot and throws a S19 in his server closet. It's like that sort of activity. Individually, it doesn't matter. But collectively, it can be a very powerful force. Much like one rabbit in a field of cabbage is not a problem. But a colony of rabbits, of thousands of rabbits in the cabbage field can destroy it. Right. Now, the thing is, if that was the case and somebody went and tried to hunt the rabbits, the moment they start hunting rabbits, they scatter. You can't find them all. And there's a certain security that the network acquires because of that by this massive number of numbers that we have, maybe this base. And I would love to see 10 or 15% of the network always come from the rabbits. And I think a lot of people that are potential rabbits have to stop thinking about it. As to whether or not, let's say you've got a bit axe, well, realistically, you might lose $100 a year or something like that, depending on where you are running a bit axe, okay, that's probably your likely output. But to me, that's almost your obligation. You need to be doing that. You need to be helping secure the network. It's your obligation. And by the way, you're going to learn a shitload about the way that the network really operates. And some of the things we're talking about today will start to click for you. You start to really understand the way bitcoin really works. Now, I won't dwell on it, but the horses are kind of in the middle ground. They're actually where barefoot is where small to medium sized commercial miners. A megawatt here, three megawatts there, a half a megawatt there. We generally can put them up quickly, they're mobile, we can move them around. They're easier to hunt than rabbits, but way more difficult to hunt than elephants. And if threats occur again, we can scatter pretty well too. Since you have this chart up, those looking at it visually, any of those three elephants, horses or rabbits can also be wild or captive. So captive, for the most part means that you're on grid, that you are dependent on a third party to provide you the energy, meaning you're permissioned. So trying to use some of the same vernacular that we, we use in Bitcoin, a captive elephant, easy to hunt, easy to identify. You can turn them off, you can control them, you can put shackles on them, you can change their access to power really at will. Wild, for the most part, means you are producing your own energy. And I have a combination, by the way, of wild and captive. I have both. Although we're doing more and more wild like what we are doing. We own a hydroelectric facility in South Carolina. It's not even connected to the grid. We just run our own facility. We create our own energy.
- [50:49]
B
That's awesome.
- [50:49]
A
We have stranded natural gas wells, not flared stranded natural gas wells that we, we own and we are operating in Pennsylvania. We just did a new project in Indiana using anaerobic digestion from the excrement of the cows from a dairy farm. So you know, we're producing our own energy there. I think these types of things really help secure the network. And by the way, they are, they are very economical. The best economics are coming from the wild ones these days, not the own good ones.
- [51:30]
B
I appreciate that breakdown a lot because I think first of all on a personal level I've wanted to kind of start doing some home mining. I just ordered one of those, the brains ones that they have, just the little ones because I live in Illinois and our electricity prices are God awful. So as much as I'd like to fill the garage with some higher power units, I don't know how much the, the wife. Wife would appreciate that or how economical they'd be. But I do still need to get to grab myself a bit axe or three as well. And I think it's very cool that those types of solutions are now available to people with a really low barrier to entry and that you know, in terms of getting them up and running, it's like it's a, it's a nice little, you know, nice little project you can do and feel like you're at least you know, doing, doing some small thing and who knows, maybe you get lucky.
- [52:18]
A
Yeah. And you know, first of all, I applaud that. I really encourage you to do it. Anybody listening? Invest a couple hundred bucks and, and just play around. Even if you don't want to run it 24 by 7, you know, you want to just run it on Saturdays, whatever, I don't, I don't care. But go through the process, learn if, if in and, and you know, I'm part of Ocean and we have a, we have a technology there called datum, which it's not step one, but what datum does is it allows you to be in our pool but still create your own template. So. And it's a process like even for you, Walker. I'm not saying like as soon as you get your bit X, it's a big step to say, well I'm going to run a datum server. In addition, I'm going to create my own templates. I'm going to do all that. But over the course of a year or Something like that, you might get more comfortable and get to that point. Then if there is a soft fork activation sitting out there and you want to decide if you want to vote on OPCAD activation or something like that, great. You have a voice. You are part of the system. What's interesting about all that, it doesn't matter how much Bitcoin you have, you don't get a vote if you're not part of that. Michael Saylor doesn't get a vote in this process unless he's a miner. Now, obviously he could become a miner at a significant level pretty quickly if, if something happened in his case, but he doesn't have a vote until he does that. If censoring is occurring, does he want to fight it or ignore it? I mean, those are the two choices. And you fight it by running your own node and either directing it to a pool that doesn't do it, that's creating templates or not. I would also say if you're out there and you're a miner, align yourself with pools that are philosophically aligned to you. And if you're not sure what is their template creation criteria, how do they feel if there's a softwork activation and don't give them your hash rate if they're not doing that. I think people are thinking way too much about just the economics and not about, you know, these other aspects of mining. And one thing, abdicating too much power to these other people.
- [55:06]
B
No, I think that's a very good message for folks. One thing I would say to play devil's advocate on the, let's say, like a Michael Saylor type who both personally and then obviously through microstrategy, holds a lot of bitcoin, is that he does have economic power to be able to, in the event of a hard fork, sell the chain that he does not want and retain the chain that he does, which does have. That is true, I mean, a meaningful impact in terms of, you know, which chain do people end up ultimately buying, you know, like. Yeah, and you see the differences there. Look at bitcoin cash versus Bitcoin, you know, Absolutely. Quite a large economic difference.
- [55:44]
A
That's a very true statement, Walker. That's kind of a hard fork thing. Some of this is a little more subtle. Like I said, censorship within the network. In other words, if suddenly we wake up tomorrow in these five or six pools, big pools are suddenly saying we're all ofac compliance, there's some game theory that will play out, but bitcoin will march on. I'm not sure it affects much of the way the market will react to bitcoin. Right now. I think we've kind of moved to a different place and we might not see the kind of violent, negative reaction that would have maybe cause four or five years ago, because I think a lot of the market doesn't care. Right.
- [56:47]
B
I, I would, I would agree with that. You know, whether that's, you know, we may look at that and say, well, we obviously care, and a lot of hardcore bitcoiners do care about these things. But if we're being honest, the vast majority of people don't actually care about censorship, resistance and decentralization. Like, it's just, it's a sad fact of life. Whether that's in bitcoin or that's in, you know, communications and social media. They just, they honestly just can't be bothered to care because they think, well, you know, I'm a, I'm a law abiding citizen. This isn't going to affect me. This is just affecting those criminals out there. Of course, you know, everybody can become a criminal when the laws are changed to treat them as such. But I wanted to, I wanted to shift gears a little bit because you brought up just kind of like where we're at right now with like, you know, just regarding, let's say OFAC compliance or something like that, and with all these institutional players and they may look at that and say, oh, great, that actually makes this more investable for us, something like that. But I'm curious at the kind of nation at the national level. Trump very famously said in his speech at bitcoin Nashville that he wants to, I forget the exact phrasing, but have all bitcoins going to the future mined in America. Basically, he's looking at this, which drew a lot of laughs, I think, from a lot of people. Drew some consternation from others. Drew some, yeehaw, let's get it from others. Yeah. How do you see, you know, this playing out with this, this moment that we're at right now, where you have a very good chance. I think that at a strategic reserve level, which is what a lot of people are paying attention to right now, that that's going to be something Trump gets going and gets passed through, whether through Congress or through executive order fairly quickly. And a lot of people are focusing on that. But if I had to guess, you're probably focused more on not so much who's holding the bitcoin, but who's controlling the hash from a geopolitical level. Is that fair? To say, and kind of maybe. What are your thoughts on this right now? Are we entering kind of a, a new era of global hashing?
- [58:49]
A
Yeah. I would say even more specifically, who controls the template? So, but that said, yeah, it's a great point. And I think this is the easiest way to answer that. Let's. Let's pick a small country. I'm Lithuania. Let's pull in. Sure. Okay, so, and I'm going to guess, forgive me if I'm wrong, let's say Lithuania has 1/4 of 1% of the world GDP. I'm guessing it's probably not off by a great deal.
- [59:32]
B
Yeah.
- [59:33]
A
Okay. So I happen to be the head of state for Lithuania. Okay. Now if you said, hey, Bob, you're the head of Lithuania, you can either put an initiative in for the country to go acquire 1/4 of 1% of all the world's bitcoin, kind of get its share of the world's bitcoin, or you can put an initiative in place to make sure that it has a quarter of 1% of all the world's hash rate for the next century. Two choices. Okay. I would choose the latter. The reason is that it's essentially guaranteeing the financial sovereignty of my nation for the next century. The quarter, what would be a quarter of the world's Bitcoin? 5000ish Bitcoin, something like that. Is that right?
- [60:40]
B
A quarter of a percent. That sounds great.
- [60:43]
A
I think that's right. I think you're better at whatever the number is. Doing that in my head real quickly.
- [60:48]
B
Yeah.
- [60:49]
A
You know, a lot of people might say, well, that's going to be worth a tremendous amount. But the problem is, this is the problem. Okay, we'll go Back to. There's 53,000 blocks per year. There are 4,000 transactions per block. There's 200 million transactions a year. If, if I can control 1/4 of 1% of all of the world's hash rate, I'm going to get about 100 blocks a year, two a week. If, if you believe like I do, you both, you, Walker and you, anybody listening that bitcoin in the course of the next century and probably much, much sooner becomes the base layer of all money, then access to that base layer becomes existential to your viability as a nation. So if I have that, if I have twice a week, I have 8,000 transactions that I can make with anybody in the world, I can do the business of my country, I can do the business of the corporations, and I can do the business of the citizens of My country in a way that cannot be impeded by anybody else. Biden can't ban it. Putin can't ban it. The new BRICs can't ban it. I have achieved true financial sovereignty for my nation. And if I do not, if I have no blocks, even if I have 5,000 bitcoin or 50,000 bitcoin, it doesn't matter. I am subject to the whims of the others, whomever they are. I believe at a nation state level that presents an existential problem. So I think when we look at things like whether it's El Salvador mining or Bhutan mining or we're pretty sure Marsha is mining, actually the Russian trade Minister has said they are even using bitcoin in these transactions. Well, I can promise you they're smart enough to know they have to control some blocks too. So at the high level, I think we've not that strategic bitcoin reserves are not materially significant. I mean, that is a very significant thing. I think it's cool. When Trump said, I want to mine the rest of the bitcoin, I seriously doubt he understands what you and I are talking about right now. But he's getting the right answer for the wrong reason, I believe. And that's like, hey, if you're the United States and you're used to being in such a dominant position in the financial community, if the US doesn't have control over some of the block creation, that same thing could happen to them. And, and so, and I believe now is the time. Like, you don't want to be a nation that gets a decade behind in trying to build this out. Like, you know, you need to build it out now and keep up with it. And by the way, you don't give a shit about how much money you're making because it is a cost of sovereignty right now. The next part, people may or may not like that. I'm not even saying I like it. I'm just saying this is what I think the reality is. And I think that's one of those things with bitcoin, like bitcoiners, we want the separation of money from state. I get that. But we don't have any mechanism to prevent the state from participating. And you know the old saying, bitcoin is for enemies. Well, I think it applies here too. Like we can't, you know, we can't stop it. And we also can't say that it's good for the US to mine or for Bhutan to mine, but it's bad for Russia or North Korea that That doesn't work. Like, it's not what we're building now. The next thing I'll say, though, probably gets even more controversial. So actually, before I go there, you want to make any comments or any questions?
- [65:44]
B
Yeah. Well, the one thing I would say is I think that your kind of touch of realism as far as the separation of money and state, I'm in the same boat there too. And I've started thinking about it instead of just, oh, it's just separating money and state, which sounds very nice by itself, but what we're really talking about is the separation of money creation from state, from the ability to arbitrarily inflate and to print ex nilo. Print money out of thin air whenever they choose in whatever amounts they want with absolutely no oversight. Bitcoin has already separated the creation of money from state. Now, that doesn't mean that they can't mine bitcoin, but they're not creating the bitcoin. The bitcoin's already there. They're just mining it, right?
- [66:30]
A
Yeah.
- [66:31]
B
As long as bitcoin, as Jeff Booth would say, remains decentralized and secure, then we have separated money creation from state. And like you said, you're never going to stop. If bitcoin is doing what we think it is doing, of course every nation in the world is going to want to own some, to try and mine some. This is natural. This was always going to happen. Unless bitcoin failed, in which case they wouldn't want to.
- [66:55]
A
Right. And it would be hypocritical of us to say that any entity or any person is not entitled to do that. That would just. I mean, that is against the ethos. That's a great segue to what I'm about to tell you, or at least my vision. Now, part of this, before I go into my next kind of vector on this, is we've been talking about block space. Okay? So we have these 53,000 blocks a year and the 4,000 transactions, I think you could think of those much like seats in a concert or seats on airplanes or hotel rooms or things like that, Right. There's a finite number of them in any window of time, and they're there whether they get used or not. But if you think about the mining function to date, we're 16 years in, right? To date, the output of the mining process would be best thought of as producing bitcoin. The issuance that we were just talking about, Right. Its role has been the issuance via the subsidy. I think we are in that point where that's changing. It's a gradually then suddenly sort of situation. So most people aren't aware of it. But we're at the point now where the output of the mining process is about to no longer be about the subsidy. It's going to be about the block space. So we say Bitcoin is a commodity, block space is a commodity as well. And it is an absolutely scarce commodity in any window of time. And if you start thinking about it in that context, the fight for those 53,000 blocks and the 2 million transaction it represents becomes a race. And today what happens, what we're used to, and I think we always have to be careful, like what we're used to, like it doesn't always remain the same. Right. Sometimes things change. And I think this is the case. What we're used to as bitcoiners is kind of a real time free and open marketplace for access to the block space. And we generally think of it as always available. And for all intents and purposes, it's free.
- [70:03]
B
Yeah.
- [70:04]
A
Okay. Well, we will soon discover that it is precious, that there are extremely long lines for it. It is a luxury. It is access to the world's most secure digital network, the most, you know, and decentralized network. And, and it's going to get super expensive scarcity. Like we're learning a lot about scarcity with Bitcoin, but I think we're going to even learn about it more quickly what absolute scarcity means with block space. Because block space is a one time use thing. So Bitcoin is liquid, right? So yes, there's only 21 million Bitcoin, but there are things that it's still a medium of exchange. So whether that's a fiat price or a car or a house or whatever, there's probably some like if I have a Bitcoin, there's probably something you could entice me with to make me part with it and create liquidity. But block space, it's a one time use thing and you have to wait again and again and again and there's a big line. Well, we have been in a position for almost two years now. The Mempool, which is the repository of transactions waiting for confirmation, has not been clear for almost two years. We have seen periods where fees have gotten really expensive and then they will come back down. Sometimes absurdly inexpensive even, but also absurdly expensive. I'm going to oversimplify, but the reason why sometimes it's absurdly expensive and sometimes it's absurdly inexpensive have only to do with Urgency. Now a lot of the activity that occurs on the base layer is non monetary today. Some of it relates to the spam stuff, which we'll forego for another time. Maybe some of it relates to let's say a UTXO consolidation. Well, UTXO consolidation rarely has urgency. But if I'm going to buy your house, if I'm going to buy your car, if you know the type of activities that I do see continuing on in the base layer, you know, for, for a long time, institutional movements of money like those sort of stuff, we're going to start to see more and more urgency tied to those transactions and also the value of the transactions going higher and higher. So I think the fees are going to start getting more and more expensive. Number one. Now here's where we're really going to get controversial organizations like bank of America and Wells Fargo and Citibank, JP Morgan, some percentage of them are going to realize that access to the base layer becomes existential to them as well. If we see Sabbath 121 get lifted and they start custodying, they start doing more economic activity. What we're going to see is that big financial institutions, the current big financial institutions are going to realize that their ability to attract customers, big corporations, high net worth individuals, their prime customers, is going to require them to have access to block space. So they are going to, this is my opinion, they will do two things. The first one is they will become active participants in block space future or forward marketplaces. So what you're going to start seeing are the people that control the block templates starting to pre sell access to space in the future. And I've been working on this product actually for two years with a group out of Tampa called Block Spaces. And I'll say this, we are building on the Lightning network, this whole marketplace. And so the idea would be like we're sitting here in January and let's just keep it simple. If I own 1% of the world's hash rate, I'm not that big, but let's say I did. That means on average I would control one and a half blocks a day or about 10 a week. So I could go to a big user of Block Space, like let's say Coinbase and say hey, how would you like to right now buy access to three blocks in the first two weeks of April and we'll agree on a price right now of 13 sats per V byte. And when you hit April 1st you've got to give me the transactions you want and I will Guarantee you they will be in a block in the next 10 days or next 14 days. Okay? So what that's going to do is it will give bigger customers of the network the ability to lock in access at a known price, which I think is the only way for the market to mature. But it'll also give everybody else visibility to demand for block space in the future, which we don't have today. Like right now, we only know the current state, right? We always live in the now. We have no access. But then I think what it leads to is the banking institutions themselves realizing they have to be miners. My guess, I'm playing futurist a little bit is that as we sit here 10 to 15 years from now, the biggest miners in the world will be a combination of nation states and very large bank and financial institutions. And by the way, they won't care about the block reward or the fees. What they will care about, the nation states will care about the sovereignty and the financial institutions will care about attracting the right kind of customers to their institution and giving them preferred access to the base layer.
- [77:05]
B
So you think also, I mean, one of the pieces of fud you usually hear from, let's say the shitcoiner types is that oh, once the block subsidy is small enough fees won't be enough to guarantee the security of the network. So you would say that's a ridiculous statement just because there is going to be so much, let's say the fight for the control of block space isn't just about who's getting the fees. It's about who's getting to create the template, who's getting to decide what goes in there. And having a guarantee as a nation state or a large financial institution that you will have, you will be able to get transactions through that network when you need to. Is that a fair assessment?
- [77:47]
A
Within a window, within a reasonable window, you will know when and how much like just the reason I think to think about block space as a commodity is think about it this way. If you're a farmer there in Illinois and you plant corn, okay, and you plant it in the spring, you at almost, probably the time you plant the crop already are in a futures marketplace. And you might, you, you know what you're in harvest is going to be. You call that X, right? Well, by early June you've maybe sold 25% of your expected harvest already into the marketplace, into a futures marketplace. On the other side of that there's some guy that makes commercial tortillas, okay, corn tortillas, and he's trying to lock in his availability and cost of corn for October when the harvest occurs. So he's buying that contract. Right. The same thing is occurring with block space. I as a hasher and block template creator know how many blocks I'm going to create and roughly when I'm going to create them. I can't say to the hour, but I can say with really high probability within certain windows. And there are organizations, I use Coinbase as an example. It's probably the easiest one in the current world. Well, they have all kinds of base layer interactions they have to do. They have withdrawals and deposits and they're doing their own backend administration with UTXO consulting, consolidation and all that. They're a massive user of block space. So they are running a portion of their business. It's dangerous to them. Right. They don't know what their costs are going to be on a day to day basis in today's world for doing those activities. They don't know for sure that they can even do them. They can't guarantee service levels to their clients without doing them. And so it kind of goes back to something we said before. Like we can't expect the world to run on bitcoin and not have things like that. Like you, you can't have a world where people don't know when their transaction's going to get in and how much it's going to cost. Like there has to be certainty to it. Now I don't want to go too far off the path, but the reason partly we need the rabbits and the horses at least at an appreciable level, is to preserve what we have today, which is a portion that is available to the pleb, that is available to the average guy and runs much like we do today. We need the rabbits and the horses in order to have a chance to do that. Because as you said, we can't have a world where bitcoin becomes successful and there's no nation states and there's no big financial institutions and there's no corporate clients and there's no high net worth people. No, that, that those are mutually exclusive.
- [81:23]
B
Yep. No, and I think that that's. It's going to be really interesting to see this play out. And you know, Bob, we're gonna have to do this again because I'm pretty sure I probably still have about eight more hours of questions for you. But one thing I did want to get in if you're okay with a slight switch of gears. We've talked a lot about the mining pool centralization about the fact that he who controls the template ultimately kind of really has the power there. Right. But there's another angle to this risk of centralization. I think that I believe from what you hinted at earlier about making your own manufacturing, your own ASICs, you're clearly thinking about two, which is supply chain centralization when it comes to ASIC production. Then there's another angle that is geographic centralization of miners in certain jurisdictions that are of course going to be subject to the, you know, political wins of those jurisdictions. Now we saw some of that in China with the, you know, now famous, whatever it was, their 13th mining ban or whatever it was. But the real, you know, the one where people actually picked up and left hash rate crashed and we saw, saw it rebound pretty quickly as they relocated. So I'm, I'm curious between kind of maybe let's start out on the supply chain centralization side with things like Bit, Bitmain and whatnot. Where are you at on this? How big of a risk is this maybe in relation to, you know, mining pool centralization?
- [82:52]
A
Okay. The present state is probably worse than pools. I mean we have nobody knows for sure, but something on the order of 85% of all the systems are produced by Bitmain. And this is a bit of me being the engineer in me being a little anal retentive. But I say it for very important reasons. So I want to be clear when I say asic, I'm talking about the development of a chip, not of a system. Okay. And there's a reason for it I won't bore people with today, but it's very important to separate those two. So today Bitmain makes an ASIC and they make a system and like 85% of the systems end up being Bitmain based. Then we have what's miner and a few other people kind of coming up, but it's improving. We have companies like Block and Blockstream both doing their own asic. We had intel for a while. We'll see if they come back. In my mind, it's a situation where investment is being made and there is impetus to break what's close to a monopoly from Bitmain. And I think it's very important that that happen. It can happen because there's always a chance of them doing something malicious, but there's also a chance of them just having a problem. Like, you know, we have. You know, it's like everything's from the same gene pool. You could think of it like that way. Like, you know, hey, the virus came in and we don't have any genetic diversity. So the other problem though, and the group I'm working on, which is called M5ers, which I'm working with some ex Samsung and Intel people. Part of the guys were part of the team that developed all of Samsung solid state disks and the intel guy was part of the Intel 486 processor development. Really great guys and I think we're doing something really cool. But our intent is to only build chips. We are not trying to build systems because what we want to do is we want to offer much like intel does to the world or AMD to the world, we want to offer chips and let people build whatever systems they want around it and segregate those two things from each other. And I think that's the best path for innovation. It's the best path for creating a competitive environment, giving the market lots of choices. Like you mentioned, you know, whether it's, you know, Bitax, Avalon has the new Nano, you have the brains product. I think we're going to see a lot of people developing products for the home market. We have a lot of these reuse markets, whether they're hot water heaters, furnaces like these pet beds, aquarium heaters, pool heaters, like all this sort of stuff. Like having these poor guys today, God bless them because they're doing great work, most of them. What they have to do is they have to buy hash boards that have failed from old equipment. They have to desolder the chips, they have to reverse engineer because Bitmain doesn't provide what's called a data book. Nobody knows what the pins are or the timing diagrams or any of those sort of things. They have to reverse engineer it. It's a terrible process and they have no way of knowing if Bitmain made a change from chip A to chip B. So anyway, it's a nightmare for that community. All kinds of the R and D and budget for them to develop a product goes into the reverse engineering instead of into, you know, the, the just innovating on what they're trying to do. So, so I think that one is getting better. But here's the problem. The, the fear, okay? Like our organization, by the time we go to market it will have cost somewhere probably in the 50 to 80 million dollars to come to market. It's huge capital deployments. And so the partners that we have, the partners that we'll need in the future to get through this process and we're about 15 months into the process, we're probably 9 to 13 months from production. So we're over halfway. But there's a lot of risk associated with it. But if we're successful, for the people putting the capital up, it can be wildly lucrative. But it's feast or famine to be honest. There's not a lot of semi successful chips ventures like they're, they're, you know, they either turn into intel, amd, Nvidia or you never heard of them and they go away. You know, it's what Silicon Valley was built upon, right? You know, was these kind of high risk ventures. So you know, I want block and Blockstream, I want us to succeed. There's a few others I think trying, but it's a, it's a difficult game and if all of us fail for whatever reason, then that would be really bad. Then we'd be in a Bitmain dominated world. And I'm not even trying to shit on Bitmain because pick whatever name you want. We don't need one company having that sort of dominance. That's really, really an uncomfortable thing. There was another question, I forgot I answered the chip part. What was the other part of the question?
- [89:13]
B
Well, just wondering, is geographic centralization of actual hashers something that you worry about at all in terms of, you know, we've obviously got a lot of hash power coming from the U.S. there's, you know, pockets of large centralization all over. Is that something you worry about at all or just from like a, okay, a government decides it's no longer going to be too friendly or it's going to nationalize, you know, some miners or something like that?
- [89:40]
A
Well, the answer is yes, I'm still worried about it because you know, I try to keep that thousand year hat on that we talked about. Right. I mean I think I was, I'm not worried right now about somebody coming in and trying to shut me down in the US that's the good news. But I think the threat still exists because politics changes. You know, I, we sit in this environment today, like I have, I don't mind in Texas, I have nothing against it. I have a lot of minor compatriots that do. And one of the things I've told some of them in the past, they'll say, hey, because I think they, a lot of them continue to pump a lot of money into Texas. Like they don't even look outside the Texas, not even outside the us they don't even look outside Texas. And what I say is like imagine a world, let's say it's 2028 and it becomes election time. What if we have a world where the Next president is aoc. The Secretary of Energy is Elizabeth Warren. The Governor of Texas is Beta O'Rourke. If that happens and you can't say it's a non zero possibility, right? It is a possibility. So we talked about those odds before. Well, I'm sorry man, but some bad shit's gonna go down if that's the case. And you got four years. When I say you, I'm talking about the greater community. Four years to correct this. And the fear is that the community feels too comfortable, it feels too confident. And instead of using this four year window to really decentralize geographically, it actually even more centralizes because the threat's not there. So that, that worries me. I mean we are, I've spent fair amount of time overseas this year. I sure I will spend more this well in 2024. I spent some material time working a fairly big opportunity in the year in Europe this year, which, which hasn't come to fruition yet. But I'm still hopeful and I'm sure I'll spend time this year in South America, Central America and maybe Africa looking at things because I definitely feel the need for barefoot to have this footprint changed because I do not want to all be in the US and you know, we do run the threat like we talked about with the nationalization. When I gave you that Lithuania example, if I was the president of Lithuania, I didn't. I'll finish that thought to a certain degree. What I would do is I would say, hey, instead of me spending all the money, what I'm going to do is let me put a message out to the world, to all the miners of the world. And the message is, hey, we will offer 3 cent energy, 3 cent per kilowatt hour energy to the first 30 exahashes or whatever the right number is. Probably not even that much. Only be like 3 or 4 exahashes maybe of miners that come here. The only caveat is you have to use the Lithuania pool. So you know, we're going to give you an opportunity to compete, but we're going to control the template. I mean that's, you know, that's the, that's the plan I would deploy if I was the president of one of these countries.
- [93:43]
B
Are there any other risks that like we haven't covered yet? Like do you, I mean obviously there's ongoing talk of quantum computing and how, you know, there's various things, oh, you know, it's going to be able to crack bitcoin, private keys, things like that. I mean I think there, if it's done that, then it's cracked, you know, every other encryption algorithm in the world as well, you know, like. But the point being, is there from the mining side of things, is there anything that you think about with regard to quantum, you know, looking at this, you know, thousand year view, or are there any other kind of risks that you see out there? Or these. Have we covered kind of the big ones that are, in your mind, the most material potential threats?
- [94:25]
A
You know, those are the. Those are the biggest ones. Yeah. Nothing else really comes to mind. I think maybe to just add a little color to it, though. Something that I think is worthy of thought is what would cause bitcoin to end. It doesn't necessarily be in a bad way, and I've done a few talks on this, but are you familiar with the Kardashev scale?
- [94:59]
B
Yeah.
- [95:00]
A
Okay.
- [95:01]
B
Yeah.
- [95:02]
A
So depends on how you measure it. But, you know, as a society, would the. Would everybody listening know, feel free to go through?
- [95:10]
B
Because, I mean, I think it's. It's always fascinating to talk about.
- [95:13]
A
Okay. So the Kardashev scale is a scale looking at how well any society, civilization, has the ability to harness energy and specifically direct it to the creation of information. That's a part people miss often a lot. And it's rated as on a scale of zero being nothing. That's caveman to one, meaning you have the ability to harness all of the energy on whatever planet you're on. The second scale, Kardashev 2 scale, is you're able to harness all of the energy within your solar system. So the energy of the sun plus the energy of the Earth. And the third scale, a Kardashev 3 society, can harness the power of a galaxy. So we sit with some harnessing capability. And this is a kind of a. A log scale. You could think of it as a log scale. Right. So different estimates put us between like 0.4 and 0.7 now. And I think when we reach the point that we are a full Kardashev one society, bitcoin will start having issues because energy itself will be so inexpensive because, you know, we talk about it representing digital energy, or it is digital energy. I don't love those analogies, but it kind of works. And certainly the biggest cost input is energy. Jeff Booth, who you mentioned, you know, a buddy of ours, you know, he'll say, well, it falls to the marginal cost of production. Well, the cost of production is almost all energy based. And when I say that, I don't mean just the energy like running the systems, but the energy to create the chips that run the systems. Right. So if you live in a society that can reasonably harness all of that energy, you just have such a massive amount of energy available per person. I think bitcoin kind of fails at that point and we need something else to replace it. So I believe bitcoin is our money. If we treat it right, if we're responsible, we don't F it up that it can ride till we reach Kardashev1 levels and then we'll need another one. Some people think that could be 200 years. I think it's more like 1,000. That's why I say money for a thousand years.
- [98:14]
B
Okay. It'd be interesting to think about what comes next. I mean, I guess, yeah. If energy is so abundant and so materially just free, basically the marginal cost of production is essentially zero. That has some really interesting implications. Obviously you still need to have raw materials and things like that. There's a lot of other components that go into it. But it's quite an interesting thought experiment that are probably great, great, great times. A few more grandchildren may be living out in real time.
- [98:50]
A
But the thing. And I have put a decent amount of thought into it and I've got into some. Obviously it's just a debate. Right. Nobody can prove it right or wrong. But what I would say is you certainly have these other materials. But if you look at it, most of those materials, the cost of the material itself, let's say you need iridium or you need gold or you need something like that in it. Well, the energy to. To mine that and process it is the majority of the cost of that material as well. And then to transport it, most of the cost revolves around the energy to transport it. So it kind of like you just kind of see a little like almost everything, everything tends to free. Now maybe we don't need money at that point. I mean, I don't know. That's probably not something I can envision properly. You know, I'm also. I'm going to do. I have a show. Old man yells that I. That I do. It's kind of me doing monologues, you know, But I'll sneak preview. My next one is actually on Money on Mars. I haven't recorded it yet, but it's because there's a. There's a faction of people that believe that as Mars settles, Bitcoin is the ideal money for them. And I don't believe that's true. Oh, interesting.
- [100:14]
B
Okay, I'm gonna have to. I'm have to tune in for that. I'll link the show too, in the show notes. I want, you know, so, okay, we've, we've talked about a lot of risks today. We've had a lot of realism thrown out there. I want to just kind of close out with like what makes you. So yes, these risks are there. Yes, there are things that could be a lot better in terms of the, you know, decentralizing the network. What makes you hopeful right now? Like, what are some things that you think about where you're like, wow, that really, you know, that gives me a lot of hope as we go forward. What are you seeing right now, whether it's in mining or other open source projects, anything that you're looking at saying, you know what, that's a really amazing thing and that gives me hope.
- [100:58]
A
Yeah. Well, first of all, I apologize to anybody out there if my comments are a downer or in any way are deflating any enthusiasm you have for bitcoin. You said, I just try to be a realistic and I believe bitcoin will succeed. It just that like anything, we have to be vigilant and it's only our lack of care, our complacency that can make it fail at this point. I think that's where we are. So that first of all, that's in and of itself a lot of hope. Secondly, I already feel the next wave, the next way. I mean we, we see it politically. So what happened with the, the elections in the U.S. i feel political wins. I spent, I spent a fair amount of time in Europe this year. I can feel political wins and society shifting there. And they're shifting not just to bitcoin, but to the things that bitcoin stands for. The thing we talked about, about our enemies, the bitcoin's enemies, they're adopting bitcoin. I mean, to a certain degree I think bitcoin's enemies, if you want to say that the big financial institutions in the nation states. I am so impressed by the pace with which that is occurring. It's exceeding at least my expectations. If you know, back from two, three, four years ago, the rate at which this is happening is jaw dropping and it's what we should expect. It's the only way for bitcoin to fulfill its destiny. And that's for everybody to buy in. And it's happening, it's happening faster. Some of the I just did my most recently released episode of Old Maniels is on the concept of collective denial. And I'm seeing more and more people that were in collective denial. Break out of it. That's a really hard thing to do. The poster child would be Larry Fink, by the way. Like, you know, Larry Fink's in, Donald Trump is in. I mean, I think Mark Zuckerberg is in. Like, I, I'm shocked that I am uttering these things. And whether you like these people or you hate these people, they're very influential and they are coming out of a dominant position in the fiat system, both financially and from a power perspective. And joining in, to me, that's wildly optimistic.
- [104:29]
B
Amen to that. It's, first they laugh at you, then they mock you, then they fight you, and then, well, then they join you and then you win. And so, yeah, what a time to be alive. I'm grateful to be here at this moment because I think it's going to be a very, very different world, I hope changed for the better, you know, 50 years from now, even, even less than that. But I think like 50 years from now it's going to be a pretty wildly different one. And I think that one will not without trials and tribulations, but I think it will have ultimately been changed far for the better.
- [105:08]
A
Yeah, I'm blessed. I would say this is my third time seeing the world do this. The first was with the personal computer. The second was with the Internet and now with Bitcoin, by the way. I think they all build on each other. I think the Internet doesn't happen without the personal computer. Bitcoin doesn't happen without the Internet. They all build. But at the beginning, I told you a story. What happened in my world, both through my optics personally and the world in general, from 1986 to, let's say, 2000, that roughly 15 year window was absolutely flabbergasting. If you're younger, you probably don't realize that in 1986 nobody had a personal computer. Nobody. They were $4,000. Nobody had one in the home. Even a large office might have one. And 15 years later, under Christmas trees across the world, I was fortunate to be part of gateway. There were 10 million Gateway PCs and Dell PCs and all these others, you know, under Christmas trees of 8 and 11 and 14 year old kids. And, and we went from, you know, we went through this massive level of adoption, you know, and I remember, and I'm sorry I'm making this long, but I remember I was working on these early laptops, right? And I'm guessing it was maybe like 1987. So I had worked on this in 86. We came out with the product on an airplane in 1987, and a guy walks into the plane and he sits one row in front of me on the aisle and he pulls out one of my laptops. The very first time, like in the wild, like, it's not somebody I knew, it wasn't an engineer or one of the guys, you know, working on it. It was like boom. Like the first time I see a laptop on an airplane. And you know, now, of course, I mean, whether it's an iPad or a phone or a PC or whatever, there's nobody sitting on an airplane, not looking at one of those devices. But even by the year 2000, that was so commonplace. And so I just, I say this because 15 years happens so fast. Like you just, you, like, I can't, as a six year old guy, I can't tell you how fast 15 years is. And it's scary as a 60 year old guy because 15 years from now I'm a 75 year old guy. Right. And that's a scary thought in of itself. But, you know, we're changing the world. The old Parker Lewis is gradually, then suddenly, which I know he stole from Hemingway, but I think it was Hemingway, right, but whoever he stole it from, but he applied it to our world. It's so fricking true. And we are in the bitcoin adoption curve. We're way past that guy that got on that airplane and that I was talking about. Like we're way past that point. Like we're now at a point where there's a lot of laptops on the plane already. And, and, and I just, you know, it gives me hope because, because I'm, I want to make money like everybody else, you know, obviously. But if that doesn't work out for me, it's not the end of the world. But what will be crushing for me would be if bitcoin didn't work. So whenever I pass, whenever I move on to the next level, if bitcoin hasn't won, and I know that the world, my kids and my grandkids and all those have to live in, doesn't have it, that would just be soul crushing for me. And I mean that in a literal sense, but that's not going to happen. It's.
- [109:42]
B
And we've got people like yourself and many others who are fighting to make sure that that doesn't happen and that our kids, grandkids, great grandkids, grow up in a bright orange future. Right? Absolutely. It's a beautiful thought, you know. Well, absolutely. This was a treat picking your brain today. I really appreciate it. I think people are going to get a lot from this episode. I know I did. Do you want to send folks anywhere? I'll link your your social media anywhere else you want to send them. Tell them to check something out.
- [110:15]
A
You know I'm, I'm still more an expert. I am on Nostra but I am on Twitter more still. Boomer underscore BTC there. You know our company website main one is barefoot mining.com and look for me on YouTube or Spotify or whatever for old man yells and that's just me. If you didn't get enough of me going off on tangents, well you can get your fill there.
- [110:44]
B
Well Bob, really thank you so much. This was a pleasure. Looking forward to doing it in person. Hopefully again sometime soon. But until then, appreciate all you're doing and appreciate you sharing that knowledge with us.
- [110:56]
A
Thank you Walker.
- [111:04]
B
And that's a wrap on this Bitcoin talk episode of the Bitcoin Podcast. If you are a bitcoin only company interested in sponsoring the Bitcoin podcast, head to Bitcoin Podcast.net Sponsor or send an email to hello Bitcoin Podcast.net if you are enjoying the Bitcoin podcast and find it valuable, give it a boost on Fountain a five star review wherever you're listening. Or better yet, share this show with your network so more people can learn about bitcoin. Or don't. Bitcoin doesn't care, but I sure do appreciate it. You can grab links in the show notes to watch or list this show wherever you get your podcasts. Or go to bitcoin podcast.net podcast and you'll also find the links to follow me and the show on NOSTR and on X. Bitcoin is scarce. There will only ever be 21 million. But Bitcoin podcasts are abundant. So thank you for spending your scarce time to listen to the Bitcoin podcast. Until next time, stay free.