{ "episodeId": "SLP295", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "stephan_livera": { "name": "Stephan Livera", "role": "guest", "tag": "STEPHAN" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 9.37, "text": "Hi and welcome to Stephan Livera podcast, a show about Bitcoin. So are you interested to understand more about the shift of Bitcoin mining into North America? Historically, the industry has been dominated by China. John Lee Quigley wrote this report for Compass Mining. Now, he has since left Compass Mining and independent consulting and writing now, but we talk- About the report and give you some insight into the dynamics going on here around why it's changing now, the mining equipment upgrade cycle, capital market access, regulatory certainty, as well as potential downsides of this shift. This show is brought to you by Swan Bitcoin. 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It's really popular right now and CompostMining dot io are helping the everyday person get The everyday person might not have contact on where to buy their ASICs or which hosting facility to get a good electricity rate. Well, with Compos, they are doing some of that hard work for you. They've vetted some of the suppliers and the hosting facilities for you, so you can choose an ASIC, you can select a hosting facility, you join a mining pool, and you receive Bitcoin so you can buy that miner, and it just allows you to get started without needing advanced technical knowledge. So you can go and sign up at Composmining dot io to get started mining. Bitcoin today. John, welcome back to the show. Hey, Stefan, how's it going? Thanks for having me back. Yeah, man, I've-- you've done some great work on this report for Compass Mining, and I thought, \"Ah, look, it's a good time to get you back on and talk about the mining industry and where it's come from and where it's going as well.\" So, do you wanna just tell us a little bit about, what you were doing with this report?" }, { "speaker": "stephan_livera", "time": "03:22", "start": 202.32, "text": "yeah, sure. I'm, I'm glad you, you enjoyed it Just to give a bit of a background, Compass Mining launched their two-sided marketplace back in, I think it was around October 2020, and obviously it's grown a lot and become a huge success since then. but around the time of the launch, we also wanted to start a research initiative called the Bitcoin Mining Index to give some more insights and information to Bitcoin miners about the about different regions where they could mine. And we started off the first two research reports, the first one was on Russia, second one was on Kazakhstan. We spoke to industry professionals in both these regions and put the report together. It took us about a month or two each report, and by the time we'd finished our report, we kinda- Got a good idea of how, how the, how the research process worked with speaking industry professionals, et cetera, et cetera. But by the time I was finishing, there was, North America and Bitcoin mining was just becoming a bigger and bigger topic, and, obviously we turned our, our attention to, to the North American region. But when we turned our, attention to North American region, it also turned out this was gonna be a completely different beast than Russia and Kazakhstan. Obviously, the region's huge, there's a huge variety in, jurisdictions across the, the country, and, Yeah, then we, then we, we set out on what would turn out to be a five, six month, research report speaking to the biggest industry professionals in North America. Trying to get as comprehensive as we could information on the energy market in the country, how hardware, how sourcing hardware was changing for Bitcoin miners in North America, also looking at the regulatory environment, the capital markets, what role they played. So yeah, it turned out to be a monster report, and anybody listening, I would certainly recommend checking it out." }, { "speaker": "stephan", "time": "05:44", "start": 343.5, "text": "Yeah, excellent. And so one of the difficulties with this is when people are new, they just think of it all as one thing, right? Mining pools and miners, and they're all the same. Well, no, they're not. They're actually distinct entities, and they're not all public-facing or they're not all fully open about all that, and maybe that's for good reason. So was that part of the difficulty then that you had to sort of go around and research and try to figure out who was open to speaking more? Forthright and others who were more, let's say, a little bit more private." }, { "speaker": "stephan_livera", "time": "06:14", "start": 374.28, "text": "yeah, so what I would say is one of the reasons we were able to carry out this report Is prior to launching the Compass Marketplace, Whit was carrying out the, the hash rate mining podcast, mining podcast for, for a long, long time and corresponding very closely with, with a lot of the biggest Western miners, and, managed to build some, some close, close relationships with them. so that really gave us the, the access, the tools, and the resources to be able to carry out the research. Without those connections, the research simply wouldn't have been, been possible. And, in terms of like some of the mining industry being secretive, blah, blah, blah, yeah, we, we, we've seen that a lot in In China, because the, the jurisdiction was more opaque from where it stood in the eyes of the law, so a lot of mining centers used to pose as, as cloud, cloud computing centers, or you might see, a group of maybe a, a number of maybe five data centers, and one of them will be a normal data center, so if inspectors came, they'd show them this one, and the rest will be crypto mining centers. but when it comes to Western miners, we're seeing, we're seeing, a completely different approach. The companies are trying to be more transparent, more in line with, with regulation, For North American mining pools, we're seeing, we're seeing them KYC the addresses of their, of their connected, of their connected miners. And, yeah, there's definitely, there's definitely a big, big shift compared to, compared to what, what mining looked like in China a few years ago." }, { "speaker": "stephan", "time": "08:08", "start": 487.69, "text": "Yeah, very good insight there. And so let's talk a little bit about where we came from, and now it seems that it's-- there's a lot of mining shifting into North America, but I guess just to set the scene For listeners out there, what was it like, and why did so much of the industry in terms of Bitcoin mining start off in China? What were some of the advantages that China had as a jurisdiction for Bitcoin mining years ago?" }, { "speaker": "stephan_livera", "time": "08:34", "start": 514.09, "text": "Yeah, I mean, it's, it's certainly, an interesting background story. And back in the, the first, the first ASIC for Bitcoin mining came on the scene around twenty thirteen. You think what the Bitcoin market looked like Back at that time, it was, it was completely different, different market than it is today. The asset class was maybe ten, ten billion or under in terms of total market cap, the block rewards available to miner much Much lower than they are today, as a result. What happened was, it was, the, the initial manufacturers obviously set up in China. They, they had, they were close to, to," }, { "speaker": "stephan_livera", "time": "09:20", "start": 560.17, "text": "fabricators such as TSMC, Samsung, et cetera. Back in the early years, it was obviously a very, very high risk venture, Bitcoin mining, and we've seen the propensity from Chinese miners to be willing to take this risk, and what that gradually evolved into, and what we're seeing today, is a more institutionalized, market, In the, in the early years of, of Bitcoin mining, hardware life cycles were super quick, chips were, innovating and improving and becoming smaller, At a much greater pace than they are today, and as a result, the, hardware the manufacturers were, were releasing had much shorter life cycles. But with the longer life cycles, now we're seeing hard, hardware having a greater, life cycle, more hardware is operating outside of China, it's becoming, More of, the margins are like tighter. So we're just essentially seeing a transition from an extremely high risk, opaque industry to one that is more transparent, institutionalized, and, Yeah, hopefully gonna be better and more decentralized for the Bitcoin network as well." }, { "speaker": "stephan", "time": "10:42", "start": 642.04, "text": "Yeah, really interesting. And so just to touch on that hardware life cycle point, so I guess it's saying that in the earlier days, the technology wasn't at operating at the human limit, right? In terms of like nanometers and things like that, so it was more important to be close to where the hardware was being made because you're constantly upgrading, and now it's more like that hardware that you get, it will last longer, it might be three or five years, something in that range, where that you buy this machine and it will be generally profitable for you to mine with that, whereas historically you had to upgrade really quickly because of how quickly the technology was improving, such that if you had this old miner, it was no-- it was not competitive. Would you say that's, yeah, basically what was going on there?" }, { "speaker": "stephan_livera", "time": "11:29", "start": 688.55, "text": "For sure. And it's also- played a huge role in keeping the dominance in China because, personal business relationships play such a huge role in how, how Chinese business is conducted. They have a term called guanxi, which is the, the personal relationships you develop within the country and, and the role they play. And, because essentially mining, miners have always scrambled to, to get as much hardware as they can, so there's like this insatiable appetite For hardware and a limited supply, and when hardware life cycles were, were short, every new batch or new innovation that came out, it often made the old generation obsolete, and Chinese miners would capture the biggest share of the, of the new generation coming on the market, and this would also allow them to deploy their hardware, in extremely attractive conditions, because the difficulty level would, would not- Have adjusted yet to reflect this new powerful hardware coming on the market, so these miners would, would get these huge margins, and then by the time that the rest of the world could get their hands on this hardware, which would take much longer, yeah, the, the conditions for mining would be, would be far less profitable. And, also in the report as well, we were covering what the, what the state of affairs looked like for, say, an American miner looking to import hardware from, say, twenty thirteen to twenty fifteen compared to the, the current day. And it's, it's pretty, yeah, it's pretty ridiculous hearing what they were doing in twenty thirteen to twenty fifteen, like institutions would just be sending money to some random Chinese company, hoping that they'd deliver what they said they were gonna deliver. Then they deliver it to a different place than, than what the customer requested and blah, blah, blah. so it was obviously as you can see from that scenario, it is, it is clearly unfavorable to an inst-institution getting, getting involved, and it's, it like starkly differs what we're seeing today with publicly listed entities such as, eBaying and Canaan, Bitmain and MicroBT also looking to go public. By going public, they're gonna have to adhere to high professional standards, and they will need to, yeah, the, the, the level of professionalism will be far, far greater." }, { "speaker": "stephan", "time": "14:01", "start": 840.57, "text": "Yeah, interesting point there. And I recall, this is maybe this is more like an anecdotal story or a rumor that was a very common one, was this rumor that some of the manufacturing would basically mine on the machine that customers had bought first, before sending it out to them because Just because of how much more profitable it was to be first to mine with this new equipment, right? That was, was that your experience or that you would have heard that story as well, right?" }, { "speaker": "stephan_livera", "time": "14:28", "start": 868.35, "text": "I mean, yeah, of course, everybody says, \"Uh, yeah, Bitcoin will like ROI your equipment before, before it gets to you. Just make sure it's running okay.\" But obviously, yeah, you can't, you can't say for sure, but that's, that's definitely, definitely what is believed to be the case." }, { "speaker": "stephan", "time": "14:51", "start": 890.6, "text": "And because at that time, time was of the essence, right? Especially in those days, it was all about getting that new equipment and plugging it in, because every extra day or week that it took for it to ship to you, it was a massive loss or just, I mean, it was massive foregone, opportunity there. So," }, { "speaker": "stephan_livera", "time": "15:09", "start": 908.75, "text": "yeah, I mean, as well Why do these, why do the manufacturers even sell these equipment, their, their money making machines? So when you consider that, you're, you're entering, you're, you're thinking in, in, into a new angle. And why do they sell these machines? Well, they can sell these machines At a huge, premium to what, what they can generate as well, because in, in hot market conditions, retail miners have been shown that they will, they will, they will buy at enormous, enormously long payback periods, you know? So, espe-- in the early days, for sure, the manufacturers were, were getting the best of both worlds. They were able to mine under extremely profitable conditions. Supposedly or allegedly, and, excuse me, and then, sell on their hardware at extremely, high premiums to, to, to their value as well." }, { "speaker": "stephan", "time": "16:13", "start": 972.57, "text": "Yeah. And I, the other difficulty, in fairness, part of that is because it was such a boom and bust industry, right? We've seen these rises and falls in the price, which in turn impact the profitability of the different machines. And so what? seems to be a funny trend that we saw it as well, is that because of the massive price run up that we saw from, you know, three thousand in March twenty twenty up to at the top around sixty K recently, what we were seeing was a lot of old machines were now becoming profitable again, where previously they weren't." }, { "speaker": "stephan_livera", "time": "16:46", "start": 1005.96, "text": "Yeah, yeah, for sure. yeah, I mean, like eff- efficient miners will al- will always set up under attractive conditions. They'll, they'll know what their input costs are, they'll have established great relationships with the manufacturers, so they'll, they won't, they won't be overpaying for hardware, because, yeah, the manufacturers will treat their, their biggest and most reliable customers, favorably. But in heated market conditions, like on the, on the secondary market and for retail miners, you're gonna see them pay enormous, enormous prices for, for hardware. And then when, when things turn What naturally happens is some of these, miners enter into the, the red, red territory. They can't make back the money to ROI on their hardware. And they look to resell it, and who's gonna, who's gonna be the, the natural people picking up those, those miners? It's gonna be the, the efficient miners who've- Who've got extremely low electricity costs, and they'll be able to pick up the hardware for, for pennies on the dollar. So, yeah, it's like the, it's like the, the mining cycle. It's, it's almost like a leveraged Bitcoin cycle." }, { "speaker": "stephan", "time": "18:10", "start": 1089.59, "text": "Yeah, that's crazy, hey, when you think about it. And basically, if you can play that game well, it can be extremely profitable. But on the downside, if you don't play it well, you can lose a lot of money too. So-" }, { "speaker": "stephan_livera", "time": "18:19", "start": 1098.93, "text": "Oh, yeah, for sure. And, yeah Get exposure to cryptocurrencies and they look in, into mining and they're so eager to deploy some capital and, they don't, they don't realize that, oh, maybe the figures look good right now, but how, how will the figures look if difficulty moves this way or if price moves this way? Like, how vulnerable are they to, to price declines and how likely is it that their hardware, at that capital invested, is gonna pay off, Yeah, if price declines by that much. And it's also, it's also an opportunity cost as well, because that, that money can, can go into investing in, in Bitcoin or, or other assets." }, { "speaker": "stephan", "time": "19:06", "start": 1146.43, "text": "Yeah, fascinating. Because you really have to think about all these different factors. You have to think, it's a speculation game, right? You're playing this, speculation of saying, \"Where do I think the price is going to be in one year or two years from now? Where do I think the difficulty is going to be and, and the hash rate going to be Where do I think the technology is going to be in a couple years from now in terms of Bitcoin mining equipment? And then, can I source cheap power and get good certainty on that as well, as opposed to historically where if you couldn't do that, you were at the whim of your energy provider who might- Do the, the rug pull and give you initially a good deal, and then later I do the rug pull and now you're, you're left with the miner but no power or no cheap power. And so I guess that's the-- these are the things that miners have to think about." }, { "speaker": "stephan_livera", "time": "19:52", "start": 1191.94, "text": "Yeah, absolutely. And, and that just, just naturally shows who the, the strongest players from- In terms of pure play Bitcoin mining operations, who the strongest players are, they're those that can, can secure the lowest possible, operating costs for the longest term possible, plus have their CapEx as, as low as possible. And yeah, that's, that's one of the, the reasons we've seen such, huge growth in, in the North American mining industry. It's in, in certain states Texas, particularly, is attractive. It's offered the opportunity for miners to, to secure extremely attractive electricity prices, and it doesn't seem like At least to a lesser degree, it's not as subject to being rug pulled, as, as you say, as in money. Like in some regions in North America, of course, there is, there is that risk, but miners can, can establish themselves in In states which are more favorable to being able to keep the, the rates low for, for a long, long time." }, { "speaker": "stephan", "time": "21:02", "start": 1261.74, "text": "Right. Yeah. And so, yeah, that gets into this whole transition over to the North American Bitcoin mining market that's growing. So historically, China might have been, if you aggregated, it might have been something like sixty, maybe even sixty-five percent of the network's hash rate, and so that was one of the areas where the critics would throw barbs and say, \"Oh, look, see, it's centralized into China.\" Even if it was different pools and different miners, they would say, \"Oh, see, look, and now obviously with what's going on in China, it seems that that number is obviously coming down a lot.\" If you had to guess or do you have like a rough idea what kind of percentages of, what percentage of Bitcoin's hash rate would you say is coming out of North America now or even the USA?" }, { "speaker": "stephan_livera", "time": "21:47", "start": 1307.32, "text": "I'm not, I, I actually, I wouldn't have any figures myself, but I did see the Cambridge put out some estimates for April 2021, and the figures for China were already radically, lower, and that's before even the, Before, yeah, before the com-comments came from the, the high level, high level politicians, yeah, I believe one, one person who was the, the right hand man to the, the president, yeah, le-led a committee to, to essentially, pretty much outlaw the, the activity of Bitcoin mining, and, yeah, since then we've just seen an absolute flood of miners come out of the countries. So, yeah, I don't, I don't know what What the figure is, but I'd be super interested to see it, and I think it's probably gonna be super low, especially compared to historical levels." }, { "speaker": "stephan", "time": "22:44", "start": 1363.61, "text": "Right, yeah, yeah. And so that also- Brings up this whole idea of certainty, so jurisdictional certainty or regime certainty. So I think that's potentially one of the factors, and you outline this in the report where Maybe historically it was more important to be close to getting the new hardware soon, now it seems like it's more important to have regulatory certainty or regime certainty. So what are some of the factors that go into that? What, why is that?" }, { "speaker": "stephan_livera", "time": "23:12", "start": 1391.78, "text": "Yeah, that's a, that's a great question. And, Yeah, to be honest, the way I anticipated it happening was I wasn't expecting such a harsh Stance from the Chinese government so quickly to catalyze such a flood out of the country into the US, and I was expecting it to have a huge share For a long time, and Hashrate gradually transition over to North America as a result of this jurisdictional certainty and, other factors as well. And this jurisdictional certainty is like, it's legal systems that Western, Westerner, sorry, excuse me, it's legal systems that Westerners are comfortable with, it's, capital markets that they're comfortable with the regulations around, and It, it's essentially a just a different environment that Westerners are more comfortable establishing their operations in. And of course, it won't be the number one, North America won't be the number one choice for Every miner that wants to migrate, some will be able to, will be more comfortable setting up in Russia, Kazakhstan, maybe Iran, maybe they, they have connections or circumstances in these regions that allow them to set up more favorably. But if you think that you're, if you're a Western businessman, a Western institution, and you're looking to set up a business that can operate for decades profitably North America is gonna be a strong candidate because its, its legal systems and its regulation have, have stood the, the test of time and has the leading economy in the world, so there's, there's a lot of fe-favorable factors there and it's, It also, another thing that shouldn't be, shouldn't be forgotten is it has, has abundant power. sourcing electricity can be tricky in, in a lot of states, but there's definitely a lot of opportunities to also source low cost power for the long run." }, { "speaker": "stephan", "time": "25:37", "start": 1537.35, "text": "Okay, so digging into the US energy market, why is it that places like Texas, are more attractive than others?" }, { "speaker": "stephan_livera", "time": "25:49", "start": 1548.82, "text": "Yeah, so one of the interesting things about the Texas and the ERCOT grid in Texas is the ability for miners to participate in demand response programs. And, radically reduce their electricity rates as a result of this. So miners can already, secure quite attractive base electricity rates in the region already, but the ability to participate in these demand response programs gives them the possibility to reduce these even further. And essentially what happens with these demand response programs is miners, when they meet certain requirements, can communicate with the grid And they can shut off in times of peak demand, and then the grid has, supply that I can allocate elsewhere. And, yeah, those that participate in these programs can be heavily compensated as a result, and this will reduce their average electricity price" }, { "speaker": "stephan", "time": "27:01", "start": 1620.69, "text": "over the course of the year. Back to the show after a word for the sponsors. CipherGrid is a new product coming from ciphersafe dot io. This is a metal backup seed product for your Bitcoin seed, your 24 words. So it's got privacy by default, it's two plates and they're facing each other, and you stamp in those words, that's normally four tiles per word, you get a tamper-evident seal and an automatic center punch to do the stamping. You can also lock this one with a padlock. And just like all CipherSafe products, it's made from stainless steel and it's Fireproof, rustproof, and waterproof, so don't just rely on that piece of paper you get with your hardware wallet. Use a metal product for this. Go to ciphersafe dot io and use the code livera to get a discount. And speaking of security, get the Coldcard, my favorite Bitcoin hardware wallet from coinkite dot com. The Coldcard is an excellent Bitcoin hardware wallet, and it's a great step for you to upgrade your security if, say, you're on a phone wallet or maybe you've left your coins on the exchange. Well, it's time to learn how to With Specter or Sparrow or Electrum, and so Specter and Sparrow are some really easy ones. So if you're one of those people out there who's a little bit worried about using a Coldcard, maybe you're on a Trezor or a Ledger, well, Coldcard is a great one to try and improve your level. I did an episode recently with NVK as well, where we talk through some of the key considerations as well. Coldcard can be used airgapped, you can use it with a microSD card, so there's lots of excellent features. Coldcard is Finally, Unchained Capital, they've got a new concierge onboarding program to help you get started and get set up with multi-signature security. So there's just a need to upgrade our security beyond custodians and potentially even single-signature wallets. When you move into a multi-signature world now, you're taking away single points of failure. You might have, say, a cold card and a Trezor, and you can bring those and set up a vault with Unchained, and in doing so, now you're not as reliant on one single hardware wallet. You're not exposed to that single point of failure. So Unchained have collaborative custody, you hold two keys, they hold one. They can help you get set up with the concierge team, it's personal one to one guidance, you get hardware wallets shipped to you and you get video calls to set you up and get you, covering everything you need to know about Bitcoin security. So once you're set up with Unchained, they've also got other services like buying and selling Bitcoin, Bitcoin retirement accounts and Bitcoin backed loans. Go to Unchained Dash. capital dot com slash concierge and get fifty dollars off with the code levera. Back to the show. Right, yeah. And so for listeners, ERCOT means Electric Reliability Council of Texas. And so, yeah, as you were saying, this allows, let's say, in under a time of stress that they need power for people to, you know, stay warm in winter or something like that, the Bitcoin miner can offer to basically turn off and still receive some income while the grid is shunting and giving that power over to the people. People who need it for, to stay warm in winter or something like that, right?" }, { "speaker": "stephan_livera", "time": "30:06", "start": 1805.5, "text": "Yeah, exactly. So the grid is constantly trying to mainta-- maintain a state of supply meeting demand, and if demand goes above supply or say supply drops off and can't match demand, then these, demand response programs pla-play a huge role in, catering to the, to this mismatch." }, { "speaker": "stephan", "time": "30:27", "start": 1827.4, "text": "So thinking of then about places like, say, New York, upstate New York as well. So that's another area, that you hi-highlighted as well. So what's, what's the deal there? Why is that an attractive region?" }, { "speaker": "stephan_livera", "time": "30:40", "start": 1840.03, "text": "So in upstate New York, historically, there's been, some municipals that have been able to, that have, have an abundance of hydropower and have- Given the possibility for businesses securing this power to get really, really low rates. However, at the moment, these municipalities have a mor-moratorium on power requests coming in. So upstate New York really isn't as friendly towards Bitcoin miners as it, used to be. And another factor to take into consideration is the political stance of Texas versus New York. So New York is largely a Democratic state, Texas is largely a Republican state. It just means that in terms of running a Bitcoin mining operation, you're going to face a higher, higher risk that some entities will, will give you political backlash for the environmental concerns regarding, regarding your activity if you operate in New York compared to, compared to Texas. Texas. So that's another, that's another, factor to take into consideration, and it just highlights that every jurisdiction is different in, in North America, and it's one of the reasons that Texas has emerged as an extremely attractive one, because it's offered miners the ability to run at a low political risk, Secure extremely attractive electricity rates, get into a state with abundance of a power and also participate in demand response programs to reduce their electricity rate even further." }, { "speaker": "stephan", "time": "32:31", "start": 1951.18, "text": "Yeah, yeah, definitely a good point there around the politicization and definitely we are seeing conversations about this even now with even things like Bitcoin Mining Council and the supposed ESG concerns. Now, it might also be interesting to touch on how some of the more sophisticated Bitcoin- Bitcoin miners might be trying to see themselves as collaborating with the grid a little bit more, and I think that kind of comes into the point you were saying around demand response as well. So I think some Bitcoin miners have really tried to help outline, \"Hey, we're helping here, we're actually positive because we are helping.\" certain, forms of power or certain, power projects might be more feasible now with Bitcoin mining there as the quote-unquote plug factor, because some-- there might be some stranded energy, that is hard to transport and yet, there's not really a big town there to use all the energy, but then the Bitcoin miner can come in and say, \"Well, hey, we can come in and be that plug factor for you, we can use up that additional el-- energy for you, and then offer to turn off when you need it.\" First two, and in doing so, sort of help that, project become viable where previously it might not have been." }, { "speaker": "stephan_livera", "time": "33:41", "start": 2020.54, "text": "Yeah, I mean, that's a, that's a really interesting point, and it's been raised a lot, is that, it doesn't really matter where the Bitcoin mine is located, they can, they can, like if you, if you're a normal business, there's huge advantages to, say, operating in a city or close to your customers Or whatnot, but a Bitcoin mine can go close to these regions that maybe have an excess of power being produced, and they can provide a constant load response, and this can potentially improve the financial conditions of the power producer and allow them to build out further transmissions infrastructure, and also, also have this, have this reliability of, of a constant, of a constant load there." }, { "speaker": "stephan", "time": "34:33", "start": 2072.98, "text": "Yeah. Yeah, so maybe that is another way that the industry goes to make it more palatable for the rest of society to sort of get along with it. But of course, some of these points are maybe a little bit more technical or a little bit more involved, and they won't just be like a three-word slogan that people can just repeat and whatever, but-" }, { "speaker": "stephan_livera", "time": "34:50", "start": 2089.93, "text": "Yeah. I mean, it's, it's definitely, an argument that, that pro, pro-bitcoiners bring up a lot is that, oh, Bitcoin can, can just move into where, wherever there isn't- Excess of renewable energy, and it's kind of like one of your, your go-to, go-to arguments for, for pro-Bitcoiners. But yeah, I believe the, the reality is gonna be quite nuanced and, and different from, from region to region, and maybe it's not as, as clear-cut as that. But yeah, there's no, there is no doubt that Bitcoin and Bitcoin mining in particular has, attractive, attractive properties in that it can, it can go and provide a- A constant, a constant load." }, { "speaker": "stephan", "time": "35:35", "start": 2135.34, "text": "Yeah. And the other important point is with the US, the capital markets. So there's a lot of funding available. So, what's the, what are the pros and cons there of getting access to this huge pool of capital in North America? I mean," }, { "speaker": "stephan_livera", "time": "35:50", "start": 2150.05, "text": "it seems to, to only be pros, to be honest. like it's extremely attractive for, for any, any, mining related company to have been publicly listed over the past year, they would have seen their, their multiples go to enormous, enormous amounts. yeah, we did, we did some analysis in the report looking at the, the, the value per hash rate of, various publicly listed mining companies and, yeah, it just increased hugely by huge multiples during the, the latest bull run and mining, publicly listed mining companies essentially acted as a leveraged play on Bitcoin during that bull run and it just- Offers a lot, a lot of benefits to, to my, to, the companies that are publicly listed during these, these bull runs because their, their, share value increases so much and this gives them leverage to expand their, their infrastructure. And we've seen that with Argo Blockchain co-coming to a share purchase deal with a New York company to purchase, land in Texas and build out a facility there. And we also seen Several other companies, use their, their high share value to execute purchase agreements as well." }, { "speaker": "stephan", "time": "37:11", "start": 2231.23, "text": "Yeah. So essentially being part of that US regulatory regime, while you do have to do some reporting costs and things, ultimately you're getting access to all this capital that's out there, and that can then be used to fund your operations and plu- to turn that in the, in the service of Bitcoin by making the Bitcoin network more secure. So that's certainly an imp- Important factor. Maybe the downside, I guess, is if everything becomes more like regulated, then maybe it, it might theoretically in the future become more easy to capture Bitcoin and stop, say, or start the introduction of things that we don't wanna see, things like white lists or black lists of who you're allowed to send transactions to and supposedly, if the miners were to be forced to, into that kind of arrangement. but there is a countervailing factor as well where, let's say, the fact that it's getting distributed more and more around the world, right?" }, { "speaker": "stephan_livera", "time": "38:08", "start": 2287.72, "text": "Yeah, there definitely is some downsides to publicly listing as well. there's gonna be more costs associated with accounting, financial reporting requirements, and plus you need to be-- you need to be transparent about everything you do. So let's say if, if some publicly listed mining company comes up with some huge innovation that can radically reduce their, their cost In some way, well, they're gonna, they're gonna have to disclose that, whereas a private company could just keep it under the hood for, forever, pretty much. And, the other factor is maybe you're more liable to, to lawsuits, and you're more, you're, you're more in the public light, there's more risk legally operating as a public company." }, { "speaker": "stephan", "time": "38:53", "start": 2333.34, "text": "yeah, yeah. So, yeah, definitely pros and cons there, but on the whole- Seems like the pros maybe outweighs the cons. Outweigh it, yeah, yeah. And, yeah, and just the broader point around how it hash rate is moving all around the world, right? It's not just going into North America, into USA, it's going, as you said, into Europe, into Russia, into other places. so I think that probably on net, and especially as the hash rate rises, it just becomes harder and harder for anybody to try and, try and attack the network over time." }, { "speaker": "stephan_livera", "time": "39:23", "start": 2362.53, "text": "Well, yeah, in terms of attacking the network, you're really facing a big task because any hardware that comes out, essentially is gobbled up by miners, right? Maybe the biggest risk we face is if all the, the hardware, if the majority of the hardware got concentrated within a small region, and then some sort of government authorities or powers in that regard try to seize the hardware or something along the lines of that. But yeah, the, the, I'm, I'm sure the, the network will, will adjust to, to such an attack. yeah, just- Speaking of attacks on the Bitcoin network, it seems like a, a hard, hard task for, for even a collection of states to, to pull off." }, { "speaker": "stephan", "time": "40:09", "start": 2409.41, "text": "Yeah, yeah. Although I guess just for the sake of being devil's advocate, you could say, \"All right, all these miners in the USA, they're public, they're regulated, they're known people. What if the political environment turns and, say, the US government says, 'We're mandating that because you're all regul-- you're all under the regulated tent, now you need to subscribe to our white- Listing and blacklisting service where we say, \"You may send to this address and this, and maybe that would be an angle, now that everyone's inside the regulated tent, possibly.\"" }, { "speaker": "stephan_livera", "time": "40:40", "start": 2440.37, "text": "Yeah, definitely. That's a good point. I'd be more concerned about if they, a huge amount of the hardware migrated to North America and then they tried to do some sort of seize assets thing and take all the hardware. I'm not really sure how it will play out in that regard, whether you would need to shift to maybe a different- Mining algorithm to make that hardware redundant if it was known that the US government was trying to do an attack to, to, build a longer chain and then take control that way. That would, that would definitely be, a scary attack. But in terms of whitelisting and blacklisting, I think it's always the case that as long as there's one mining pool willing to add transactions with complete censorship resistant, then that transaction will, will eventually- Eventually be added, it'll just take a long, long time." }, { "speaker": "stephan", "time": "41:34", "start": 2493.86, "text": "Yeah, yeah. And just to explain for listeners there, so what we're referring to there is when you send your transaction on the Bitcoin network, and obviously we're anticipating longer, longer term over time, these will be very high value transactions between, say, banks, because number is going up, right? And so what would theoretically happen if, if a lot of the miners were trying to censor a certain transaction, then one of the censorship resistant properties of Bitcoin is that it could be, that person could be offering a higher fee and That fee would be an incentive for a miner somewhere around the world, a quote-unquote good miner who wants to promote the censorship-resistant values, would have an incentive then to take that transaction and put it into their block as opposed to some of the other miners, let's say hypothetically, who had been legally mandated not to accept this transaction from A to B, that kind of thing. But, there's a lot of different complicated scenarios here because even to mandate that kind of thing, it would require that all the transactions are identifiable from between... identifiable parties, such that, a person could create a whitelist or a blacklist that is even practical. So it kinda depends on how much of, how many of the coins are, I guess, all KYC'd and tracked and chain analyzed or chain surveilled. and so I guess it's a complicated story and, there's gonna be that push, battle back and forth on how censorship-resistant Bitcoin should be, right? Because some of us would argue, look, the whole value, the whole point of Bitcoin is, you know, inflation resistance and censorship resistance, and so if you start to erode that, then the value of Bitcoin starts to go. So I think it seems now that the industry is recognizing that and pushing that as well. So even recently, there was that whole," }, { "speaker": "stephan_livera", "time": "43:13", "start": 2592.87, "text": "yeah, that," }, { "speaker": "stephan", "time": "43:13", "start": 2593.21, "text": "that, there was that Bitcoin miner who was, Ophac compliant blocks in their, in their block header, and Taken that off and said, \"No, we want to support Taproot, and we're gonna get rid of that.\" Yeah," }, { "speaker": "stephan_livera", "time": "43:25", "start": 2604.72, "text": "yeah, yeah. It's definitely, an interesting, interesting angle to consider is what would happen if, if Bitcoin mining continues to be institutionalized and then these institutions are under the watch of a large regulatory body and they attempt to introduce this white-listing, black-listing, mechanisms. It's, it certainly, it certainly is, is a risk to, a risk to consider and something to be, to be mindful of." }, { "speaker": "stephan", "time": "43:58", "start": 2638.4, "text": "Yeah, but I think the other point as well, and we, we were talking about this earlier, is that it's not just one country, there are many countries all over the world, and they're not necessarily all going to agree on what the whitelist and the blacklist should be. And so even if the USA came out doing this, that might end up, actually in practice, it might just end up harming US Bitcoin miners but helping Russian Bitcoin miners. Kazakhstan, Bitcoin miners or some other jurisdiction, because they might now get more fees because of all the people who have to pay for their transaction to get included inside a block." }, { "speaker": "stephan_livera", "time": "44:30", "start": 2669.88, "text": "I think one of the best things for Bitcoin is that the governments around the world can't agree. If they could agree, maybe Bitcoin would have been stopped a long, long time ago," }, { "speaker": "stephan", "time": "44:38", "start": 2678.13, "text": "but" }, { "speaker": "stephan_livera", "time": "44:39", "start": 2678.53, "text": "here we are." }, { "speaker": "stephan", "time": "44:40", "start": 2679.59, "text": "Exactly, right? So that's an interesting, dynamic. But I think I, I count myself as an optimist. I think things are gonna work out, in, in that way longer term, just because of the way the system is crafted and the way the incentives sort of work, although, you know, you have to, you have to admit there's certain possibilities of bad outcomes that could hap-happen as well." }, { "speaker": "stephan_livera", "time": "45:01", "start": 2701.32, "text": "yeah, I have my glass half full here as well, Stephan." }, { "speaker": "stephan", "time": "45:05", "start": 2704.63, "text": "Yeah, that's it. another topic I wanted to chat with you about is, this whole idea of hash rate derivatives and hash rate tokens. So in the report, you spell out this idea that some of the big mining pools like Polyn and Binance are starting to You know, explore these ideas, whereas potentially in the US or maybe elsewhere in North America, it's not as much of a thing. Can you outline what this idea is? What, what's the idea behind these hash rate and derivative tokens?" }, { "speaker": "stephan_livera", "time": "45:32", "start": 2731.5, "text": "Yeah, so the financialization of mining has been a big topic for a few years. what do I mean by that, the financialization of mining? It's essentially providing, better tools and better services to miners for them to hedge their risk. one of One of the biggest topics in that area has been how can we turn hash rate into a tradable token or something that trades on an exchange, and we've seen some rudimentary, Applications of that so far, there's one website, the name is gone from me now, where you can, you can rent hash rate from different, algorithms." }, { "speaker": "stephan", "time": "46:19", "start": 2778.94, "text": "NiceHash or one of those, I can't remember." }, { "speaker": "stephan_livera", "time": "46:21", "start": 2781.22, "text": "Yeah, I think, I think it might be NiceHash. But, yeah, over, over the past year, we've, we've seen some companies really, really start to push this idea, forward further. We've seen both Binance and Polyn launch tokens that are tied to hash rate. Yeah, it's, it's been a while since I've looked into them, but I believe they, they trade at huge premiums to actually the underlining, the underlying value of hash rate. But I guess as it relates to North America, the point I was trying to make in the report is that in jurisdictions outside of North America, they will be more, have more propensity towards risk, and they will And carry out more risky activities and experiment more, and as a result, a lot of people are gonna end up being scammed, right? Whereas in North America, businesses are more careful to do things under the guidelines of a regulatory agency. So what's the natural result of this? It's like we see, some innovation outside of North America, but we also see some people being scammed and frauded, but then- Eventually, North America remains on the frontier of innovation because they have the biggest market, biggest economy in the world, so they eventually will come out with regulated products, if there, if there is a sustainable idea there. And I think it's, it's similar to the story of Bitcoin mining, right? in the early years, North America was keeping its hands far away, anybody that was doing Bitcoin mining was extremely questionable. activity, but only in the past few years has it gained huge legitimacy and seen a huge growth in North America and have North America been more willing to embrace it. We've seen institutions put it on their balance sheet, et cetera, et cetera. But are we seeing institutions putting shi coins on their balance sheet? No, we're not. But in, in other countries of course, institutions are messing around with shi coins, et cetera, et cetera. But yeah, it's kind of like a test of What, yeah, it's like experimenting outside of the US and then naturally a bigger product and a bigger market gets created in the US." }, { "speaker": "stephan", "time": "48:48", "start": 2927.72, "text": "Yeah, yeah. also, we haven't spoken much about Canada as well, so did you wanna just outline a little bit of, you know, what's, what's it look like in Canada, Bitcoin mining wise?" }, { "speaker": "stephan_livera", "time": "48:58", "start": 2937.58, "text": "Yeah. So, yeah, Ca-Canada has its own special chapter in the report for sure, and, it's definitely very distinct from, from the US. It's A much more bureaucratic environment, and it kinda has the, the same relationship that I was outlining with other countries versus the US. in Canada, there was, there was huge growth in the Bitcoin mining industry long before there was in, in the US, and, many, many companies with various cryptocurrency activities have listed on the Toronto Stock Venture Exchange, but because of its, its hugely bureaucratic environment And, political environment, it's-- there's, there's a lot of hurdles to, to building large scale, Bitcoin mining facilities in Canada. So Canada offers some attractive, there's some attractive regions to, to build profitable operations, but typically at a lower scale, whereas in the US, it's more favorable to miners that have ambitions of huge, scale operations." }, { "speaker": "stephan", "time": "50:08", "start": 3008.15, "text": "yeah. Yeah, good point. and so with the creation of the mining, equipment as well, so mine-- mining machines, there's this whole constraint that people talking about with semiconductors, right? So this idea of, TSMC being one of the big dogs of that world and, that, that there being a constraint there because of limitation of, the factories in Taiwan, but then also there is talk now, I think they have mentioned they're gonna build one in Texas, and there are more, there's more talk about competition, coming into that semiconductor space. So I'm wondering whether you have any thoughts there on what the future of that looks like. Does it look like we're going to see more, more alternatives in terms of semiconductors, which in turn will then create, more people who can create Create, you know, Bitcoin mining equipment or the expansion of the current big players?" }, { "speaker": "stephan_livera", "time": "51:01", "start": 3060.99, "text": "Yeah, it's, it's an interesting question for sure, and, it seems that in terms of factories like TSMC and stuff, and TSMC, Samsung, et cetera, building facilities that could cater to Bitcoin miners on North American soil were, were a long, long way from that. Yes, we've seen, TSMC and I believe Samsung, establish some North American facilities or begin developing, but development is gonna take a long process, and then the first applications are gonna be, Secured by, say, government and military uses, et cetera. So it looks like we're, we're a long way from, from, Bitcoin mining, commercial use for the, for these, for these factories. But yeah, it's certainly promising in the long run that we're seeing more diversification, in terms of chip production. And also, you were, you were, spot on when you said that, chip, chip, supply constraint is, is one of the, one of the biggest constraints worldwide right now, and it's, it's not just Bitcoin miners that are scrambling for more chips. big tech companies are also trying to get their, get their hands on these chips." }, { "speaker": "stephan", "time": "52:24", "start": 3144.29, "text": "Yeah, yeah, and I, I mean, I'm hearing, I've, I was hearing stories of even car manufacturers struggling to get chips and having to take out features of their cars because the chips simply weren't available at that time and they didn't wanna just have the customers waiting for a year year or two, because by then it's the new car and all that. So interesting trends. And I mean, we would like to see, progress on that, but of course, it takes time, and so that's, that's just literally where we're at right now. so I'm curious as well, do you have any thoughts rest of the world in terms of other places, Africa or, I don't know, elsewhere in Europe, do you see Bitcoin mining operations coming there or are they just not really at the scale level yet?" }, { "speaker": "stephan_livera", "time": "53:09", "start": 3188.72, "text": "Yeah, I, no, I I don't see them being at the, at the scale level yet. I believe North, North America is gonna be, is gonna be the biggest, US in particular, China's share is dwindling, Russia and Kazakhstan are gonna hold significant shares, Iceland will continue to have a share, but in terms of, of other regions, I'm not, I'm not, yeah, I'm not, not sure which region is gonna be significant or non-significant." }, { "speaker": "stephan", "time": "53:35", "start": 3215.48, "text": "Yeah, still remains to be seen, hey?" }, { "speaker": "stephan_livera", "time": "53:37", "start": 3217.44, "text": "Yeah." }, { "speaker": "stephan", "time": "53:38", "start": 3218.14, "text": "So, yeah, let's talk a little bit about your Or what other stuff are you working on and/or what have you, have you got any other stuff, coming up that people can keep an eye out for?" }, { "speaker": "stephan_livera", "time": "53:47", "start": 3226.86, "text": "Yeah, so I actually, I ended up leaving Compass Mining after doing this report at the end of May. I've been in the, in the industry for over four years now, working with various, various clients doing, freelance writing work, and since leaving Compass Mining, I've, I've gone back to doing a lot of freelance writing work, and one of the main things I've been doing is helping a lot of, With their newsletters, so companies in various, providing various products or services, I help them get out a newsletter to their audience weekly, helps them build an audience, also helps them get, an audience more comfortable with their brand. yeah, if you can, if you can issue high quality insights to an audience that is relevant to your product or service, yeah, very, very few companies can do that, so It will help build an audience, plus warms an audience to using your product or service. So that's been the focus for me recently." }, { "speaker": "stephan", "time": "54:49", "start": 3288.71, "text": "Excellent. So yeah, really enjoyed chatting with you, John. where can listeners find you online or get in touch with you?" }, { "speaker": "stephan_livera", "time": "54:55", "start": 3294.99, "text": "Yeah, if they wanna get in touch with me, I'm pretty active on Twitter. They can follow me at Bitcoin Nomadic. you can also connect me on LinkedIn. I'm not so active there, but, yeah, feel, feel free to follow me on Twitter and DM me or tweet at me." }, { "speaker": "stephan", "time": "55:10", "start": 3310.28, "text": "Excellent, thanks, John." }, { "speaker": "stephan_livera", "time": "55:12", "start": 3311.74, "text": "Yeah, thanks, Stephan. It was a pleasure." }, { "speaker": "stephan", "time": "55:14", "start": 3313.66, "text": "Get the show notes at stephanlivera dot com slash two nine five. Thanks, and I will see you in the citadels." } ] }