{ "episodeId": "SLP478", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "ben_gagnon_cmo_of_bitfarms": { "name": "Ben Gagnon CMO of BitFarms", "role": "guest", "tag": "BEN" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.59, "text": "Hi, you're listening to Stephan Livera podcast, a show about Bitcoin and Austrian economics, brought to you by Swan Bitcoin. Over at Swan, you can buy Bitcoin in a safe and easy way. Now, if you are a high net worth investor and you are in need of some dedicated advice, a trusted partner, swanprivate dot com can help you. With Swan Private, you will get a dedicated Bitcoin expert. You can literally pick up the phone and call them, you can email them, they'll be on hand for you. 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I have a single signature setup as well as a multi-signature setup that I'm using Coldcard as part of. It has two secure elements, it's an extremely reliable performer, you can use it in all kinds of configurations, you can use it with NFC if you choose or you can disable it, you can directly plug it in or you can use a micro SD card. So it's a really versatile performer, very reliable, and it's been battle-tested and out there for a long time. If you are interested in getting a Coldcard, go to coinkite dot com, use the code Livera When it comes to sending Bitcoin on-chain transactions, mempool dot space is the place to go and check the mempool conditions just before you broadcast that transaction or you select the fee for that transaction. At mempool dot space, it's a comprehensive Bitcoin explorer. 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Now for today's episode, Ben Gagnon, the CMO of BitFarms, joins me to talk about the flaws of the overly cited digiconomist's work on Bitcoin mining and the impact of Bitcoin mining. As I'm sure many of you have heard, these statistics things like, \"Oh, Bitcoin is using this much energy, it's, it's as much as a country,\" or \"Every transaction is using this many houses worth of energy.\" Well, it's time to debunk some of these, and Ben joins me to go through the flaws in the methodology here. Ben, welcome to the show." }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "03:32", "start": 211.5, "text": "Thank you very much for having me. Great to be here." }, { "speaker": "stephan", "time": "03:34", "start": 213.74, "text": "So Ben, I, I thought it would be great to chat with you a little bit about Bitcoin mining metrics and sorting out the fact from the fiction, as well as talking about some of the inaccuracies that have, been pushed out there by certain people, and, well, for example, Digiconomist, let's be clear, is probably, a clear example of this. But, let's, let's just first have a brief intro from yourself. Who are you? What Of Bitcoin and Bitcoin mining." }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "04:02", "start": 241.58, "text": "Yeah, so, my name is Ben Gagnon, I'm the Chief Mining Officer at BitFarms. A BitFarms is one of the oldest and largest publicly traded Bitcoin mining companies in the world. founded in 2017 in Quebec, we operate now ten sites in four different countries where we've powered between one and two percent of the Bitcoin network since 2017. personally, I've been in Bitcoin since, depends on how you look at it, I found out about Bitcoin in college in twenty ten and missed out on a great opportunity to buy sub a dollar, instead I went and bought beer. so that, you know, watching the price go from sub a dollar to over a thousand dollars in college really makes you get interested in the subject. I tried buying my first Bitcoin miners in twenty thirteen from a company called Butterfly Labs, and, they never, they never shipped me my miners. And then- And in, 2015 with Ethereum, I actually quit my job and started mining Ethereum full time, and quickly moved into mining Bitcoin full time, when I realized that Ethereum really wasn't, you know, the asset that I was, I was hoping it to be, especially after the Ethereum-Ethereum Classic hard fork, debacle. So, I became, slowly became a Maxi starting around 2017. I think I completed my transition to a Maxi in 2019. And, I took the job with BitFarms, December twenty nineteen. I've been with them ever since." }, { "speaker": "stephan", "time": "05:30", "start": 329.86, "text": "Fantastic. And, I guess while we're here, obviously, as I'm sure you are aware, right now there is a lot of this, BRC twenty garbage, and I'm sure this is obviously, there's a lot of fees, so right now transacting is, a lot more expensive. I do believe it's temporary though. But I'm, I guess while we're here, as a miner, I" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "05:52", "start": 351.97, "text": "Oh yeah, I was looking at actually the-- We signed a block yesterday. we actually just had a, a milestone that we hit yesterday, we mined our twenty-one thousandths Bitcoin with, HydroPower yesterday. So, we signed that onto a block, and I was looking, I was like, \"The block fees are thirty-eight percent of the block reward?\" Like that, how does that make any sense? then they just kept getting higher and higher, and I thought I was, I thought I was going crazy, yesterday when I was looking at these fees. So it's, it's a great boon for us economically. I, I always talk that Bitcoin miners should be profit maximalists, and this is maximizing profit right now. So I, I'm all for these higher fees. I don't think they can last for very long, but I, I'll take them, you know, when and as we get them." }, { "speaker": "stephan", "time": "06:40", "start": 400.45, "text": "Right, yeah, I, I, I agree. I do believe it's, not really a sustainable thing, but, you know, take it while it, while it's there. but, let's focus on, the topic for today around Bitcoin mining metrics, how- Certain individuals are dishonest in how they promote a narrative that obviously, you know, benefits, their kind of, narrative. So let's talk a little bit about that. Could you wanna just contextualize this issue around the so-called climate problem with Bitcoin mining?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "07:11", "start": 430.78, "text": "Yeah. So, I mean, this is a pretty simple, you know, business. It's a very simple industry. you know, Bitcoin mining is, is just data centers, and data centers consume electricity. It's no different for a Bitcoin mine as it is for a Google data center, a Twitter data center, an Amazon data center, whatever it is. data centers consume electricity in order to provide a service. The Digiconomist came out with what's called a Bitcoin electricity consumption index in twenty seventeen. I think that was the first, you know, real, attempt at somebody trying to measure and track the electricity consumption of the network going out, you know, every single day over time. And, you know, the basic analysis of that is, is reasonable. you say, hey, we know what a Bitcoin mining computer produces in terms of a hash rate, we know what it consumes in terms of electricity, we know what it generates in terms of revenue, and we can derive some expected costs out of that electricity consumption Right? So you have, you know, basically a couple of different variables, some of them are market driven, right? Like, you know, you can pull network hash rate out of, out of blockchain data and out of block processing times, you pull difficulty, you pull Bitcoin price, like you can calculate all the revenue side is fixed. The, the part, You know, where, where you're gonna need to make your assumptions is on the operation side. Now, as a Bitcoin miner, the, the situation is actually reversed. Like, our revenue isn't fixed. Our revenue is the only part of our operations which aren't fixed, and we have to be really, really careful that means on, on the control side of things. if we're not monitoring and keeping track of our controls and trying to minimize costs, we can be in a situation because we don't control the revenue, that the revenue, you know, dips below costs, and then now we Mining at a loss and operating at a loss. And so for miners, you have to have a very, very strong cost focus. But if you're trying to model this, this industry, you know, you've got to make assumptions around those, those costs. What, what Digiconomist has done is, and they have their own stated methodology on their website, and basically it says, we're going to assume that, you know, at a fixed rate, sixty percent of, of all mining revenue is electricity cost. And they assume that the electricity cost is fixed at five cents per kilowatt hour. Now, that's a totally fine estimation for electricity costs, you know, obviously, I think the industrial average cost is probably lower than five cents, but there's definitely people who are mining at five cents and above. The, the real problem in their logic is assuming that sixty percent of mining revenue goes to electricity costs in all scenarios, and that really fell apart during the twenty twenty-one China mining ban. Where we had a situation where we had the largest changes in network variables that we've ever seen in the network ever. I mean, we had the largest reduction in network hash rate, we had the largest single, change in network difficulty, we had very real things happening on the ground. You have extremely long processing times, you have extremely few blocks per day. I think we had almost a one month difficulty adjustment cycle just because there were, there were so few blocks going through. And so, you know, at that time, if you have falling, network hash rate, and you've got falling competition, and you've got an increasing price or even a flat price, what you're gonna see is increasing mining profitability. Now, if you're assuming that, you know, sixty percent of all revenue is, is going towards- Costs, then you're also going to assume that at the same time the network difficulty is decreasing, that actually your costs are going up. And so what you see here is a, it's a real strong trend. Right at that China mining ban, when every other electricity consumption index is going down in line with measured hash rate and difficulty, the Digiconomist index goes up to its all-time high. And it goes up from something like ten gigawatts to twenty-six gigawatts of demand in a couple of months. So, you know, they're talking about a, a growth factor of two and a half times in a matter of months. The real world practicalities of, of even getting those miners, securing that much power, that much capital investment, like, forget all of that. Like, that, that's not only impossible, we're just gonna ignore it for, for now, and we're gonna assume that sixty percent of the costs are going up. And so what we saw, and this Best way I think to, to look at that is you have to look at like what the watt per tera hash assumptions are, right? If you have a network hash rate variable which is given to you by the estimated, you know, time that you're finding blocks, you can derive network hash rate from that, and then you actually are looking at what the electricity consumption indexes are saying, you can put one on top of the other. And you get what is your energy for what is your hash rate? That comes down to a watt per tera hash number, which you can look at at the same, a Bitmain S19 or an S9 or any miner, right? And what we see is that on the DigiConomist index, it went from sixty watts per tera hash before the Chinese mining ban to almost two hundred watts per tera hash during the Chinese mining ban. And so what that means is that at the time when, you know, sixty percent of the network went offline, there is a shortage of, of infrastructure, mining profitability is soaring. What miners are actually doing is they're taking down their newer, higher productive, more profitable rigs, and they're installing older, less profitable rigs. On their racks. You know, so you can clearly see this math is, is, is broken. their model is based on a really flawed assumption there that sixty percent of all costs are fixed for all time. That doesn't work in bullish scenarios, and what that does is it really overestimates the amount of electricity that's consumed, especially in bull markets. So in bull markets, when everybody's paying the most attention and everybody cares the most, you're gonna have the most inflated numbers, you know, the highest metrics, the highest KPIs. Guys, whatever you're looking at, they're gonna be the worst. and it's during the bear markets where you actually start to see those numbers come back to reality, but nobody cares during the bear markets and so Digiconomist is very successful at this. they've, you know, put out their index, in twenty seventeen. They're cited constantly by every major news publication, the White House, every, you know, sort of p-politician or bureaucrat that goes up there, they cite Digiconomist over and over and over again. And this guy's been proven wrong by multiple people, including myself, and he has all his information available on public API. Like, this is, this is not- Difficult math to verify. It's actually a very easy math to verify. Anybody can go and download that data, download some price data, download some hash rate index data, and run a simple divide calculation and figure this out in fifteen minutes. But nobody does, and so this is why it's constantly cited." }, { "speaker": "stephan", "time": "14:20", "start": 859.62, "text": "That's a real shame. And so just to walk that through, as you mentioned, the test case, let's say, of, the China mining ban, which happened, I believe, in May of twenty twenty-one. So just to give some context, you probably know, know the numbers better, but as I recall, I think the network hash rate was something close to two hundred exa hash, something like that, and it, it dropped like half basically. What, what, do you have that? Rough number or do, do you, are you, do you recall that?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "14:49", "start": 888.54, "text": "Yeah, so back there in the China mining ban, twenty twenty-one, we had a network hash rate of, let's see here, it was trending upwards of like one fifty, one seventy, and then during the China mining ban, it crashed, we lost, like sixty. Let's see here, 180, it went down to 188, 90. I mean, we lost half the network hash rate in the matter of about a month or two. So by July, we're looking at, roughly a 90x a hash worth of hash rate from 170, right before that, half the network just, just gone, you know? Yeah. And the amazing thing about that is, you know, other than one very slow difficulty adjustment cycle, Bitcoin just healed itself, right? Like all the transactions continued processing, we lost half the network, everything worked totally fine, Bitcoin mining profitability was good. really the only people who would have been, probably at a loss during that period would have been the mining pools themselves, because they've got to pay out on, on theoretical hash rate, not on actual blocks mined. and so the Bitcoin mining pools would have, would have been taking a loss during that difficulty adjustment period, but the miners did totally fine, all the users did totally fine, a-and then after one difficulty adjustment, we were kind of back on a new foundation, and we continued to grow from there. So, you know, we're at more than roughly three hundred and fifty, three hundred and forty exahash today, given, you know, different averages o-over time. So we've, we've grown, you know, almost three times, from that recovery period." }, { "speaker": "stephan", "time": "16:35", "start": 995.01, "text": "So just for context, that shift, that call it one sixty or one seventy xhash down to, call it, ninety, what we're talking about here, just for context, that's hundreds of thousands of Bitcoin mining machines had to be-- Yeah. Basically what was happening is a lot of the miners were scrambling to kind of take miners out of China and plug them in somewhere else, perhaps in the US, in USA, Canada, and other places around the world, right?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "16:59", "start": 1018.51, "text": "Yeah, ab- absolutely. you know, there had to be a massive mining migration because China for the longest time- was the biggest center for Bitcoin mining. It was the biggest center for everything Bitcoin, and, and this, this goes back to a number of different issues there with, with Chinese and, and especially with their, their capital controls that they have within the country. You know, a lot of people don't understand how restrictive it is to move money in and out of China, but essentially you're limited to about fifty thousand US dollars per year as just a normal civilian. So you look at all the, you know, for instance, all the kids that are leaving mainland China and going to the United States, going to the UK, going to Canada for university, you know, fifty thousand dollars doesn't cut it for tuition, let alone airfare and, and housing and everything else. And that's just one example, you know, if you wanna make investments abroad, you know, fifty thousand dollars isn't cutting it. And so Bitcoin was really a, a way for a lot of Chinese to be able to transact and interact with the world in a way that they weren't able to before. And so that's why there's huge adoption in China, because of these capital con- Controls. And actually, one of the most interesting things about the Chinese capital controls, and a lot of people outside China don't know this, I happened to be raised in, born and raised in Hong Kong. I did my elementary and high school in Hong Kong, I did my masters in Hong Kong, I set up my first Bitcoin mines in Hong Kong, Taiwan, and China. So, I have a long experience with, with China and Chinese culture and Chinese language, and what happened with- these capital controls in, in twenty seventeen, Beijing actually came out and said, you know, we're tired of people sending their RMB to a cryptocurrency exchange, buying Bitcoin and pulling it off and sending it to international exchange and selling it for USD, 'cause you're circumventing our capital controls. And so they said, okay, you can't use the top four cryptocurrencies to do this anymore. And at the time, that was like Bitcoin, Litecoin, I can't even remember what the other ones are, you know, nobody really uses them, but Bitcoin and Litecoin Bitcoin were two of the, two of the ones including that restriction. Ethereum was number five, and so it just, it just squeaked out on that list. And if you look at the price action on Ethereum Within two days of this, currency control restriction being put-in place for Bitcoin, Litecoin, and others, Ethereum started taking off in value, and you see it going from ten dollars, eleven, twelve, twenty, a hundred, two hundred, four hundred and thirty dollars, and it was entirely driven by the Chinese demand to get, you know, dollars out of the country via cryptocurrency, that was no longer being fulfilled with Bitcoin. And in the West, everybody says, \"Hey, it's smart coin.\" Contracts, it's Ethereum, it's DeFi, it's, it's, it's everything that Ethereum is gonna be. No, this is Chinese demand to access international markets that's being recognized through a very, very limited frame. And you can see the demand for that in, in the price action that, that takes place. And so China has always been the number one area for Bitcoin. it's been the number one area for Bitcoin mining, manufacturing, for Bitcoin miners themselves, for Bitcoin buying, for Bitcoin trading. and so when you lost this infrastructure, fifty, sixty percent of the infrastructure, it just didn't exist anywhere else in the world. You know, you didn't have the megawatts, you don't have the power generation capacity, you don't have the facilities, you don't have the transformers, lines, the agreements in place, like that all takes time, and it's not as fast as it is in China. In China, you can build a Bitcoin mine in eight weeks, you know, in the West, it, it might be eight months, and that's if you- Have everything lined up and you have it organized and you've got, you know, the, the various entities and parties who are involved who are supportive of the project, if you're going up against headwinds Eight months is nothing. It could be twelve months, it could be twenty-four months. You could go twenty-four months and never get approved." }, { "speaker": "stephan", "time": "20:57", "start": 1257.4, "text": "Gotcha. Yeah. Okay. And so, yeah, bringing it back to the estimates needed to estimate, you know, Bitcoin mining impact, I think there's so many different things that go into this because you have to think about what is the average miner machine being used, what's like the power, you know, being used. There's all these assumptions that are built into that to try to come up with this number on- You know, how, what's the, supposed, impact to the environment or some of, you know, some of these numbers that get thrown around? So can we just talk through some of those assumptions that would be required and where you might challenge or question the Digiconomist story?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "21:38", "start": 1298.47, "text": "Yeah, I mean, the first thing is, is- Like I said before, Bitcoin miners are profit maximalists, and so any assumptions that you make, can be back tested with profitability. And if it doesn't match, that hey, these assumptions aren't lining up with, with profitability metrics, then one, you're, you've already proven yourself wrong, and you've proven your model wrong, because miners won't continue to operate at a loss. And so the way that you do that is you say, okay, a watt per tera hash is, is a fixed unit on a machine, and you can- You can use software to overclock, to underclock, to auto-tune, to improve the efficiency metrics one way or the other. but effectively an S19 has a Wappertera hash efficiency and M30 has a Wappertera hash efficiency, and they both have a hash Hash rate. Now, if you take the, watt per tera hash efficiency, you multiply that by twenty four hours in a day, you multiply that by one point o four, which is, you know, roughly the amount of electricity that you're gonna need to run for fans and lights and, networking servers and all the other electricity components in your facility, and then you multiply that by the, electricity price that you receive per kilowatt hour, and you divide by a thousand to change watts to kilowatts, you get an operating- cost per tera hash, and that should be your base metric. Like that's our base metric as a miner when we're looking at where do we stand competitively with cost, we're looking at what is our operating cost per tera hash, and then we're comparing that to revenue per tera hash Right? And we're doing all of this in US dollar basis. Now, there are two ways to improve your US dollar per tera hash cost basis. You can either improve your energy efficiency or you can drive down your cost of electricity. And when you look at those two variables and which one is a bigger impact on the two, it's, it's costs of electricity. you can, you can improve your efficiency, and obviously that's going to have a direct measurable benefit, but improving your cost of, of, of energy efficiency or improving your energy efficiency comes at a direct cost in terms of more expensive hardware. Right? And so the better way to address your costs is, is with lower and lower energy prices. And that's also true because you don't, like, you don't wanna be mining even on a very high efficiency machine if your energy costs are too high. Like, if you're at ten cents electricity, you shouldn't be mining even on the best hardware, right? This is really an incentive built into the system to keep miners away from overly priced, energy and trying to focus on these kind of overlooked, underutilized marginal sources. Sources of energy that you can acquire for lower costs. And so when you look at it on an operating cost per tera hash basis, you can start making these assumptions. And the second thing that you start doing is you have to say, okay, well, these are my assumptions for electricity cost. Now you've got to make assumptions for what the entire industry might be doing or find competitive. Then you have to make assumptions in terms of how long, a miner might actually be good for. And the reality is, is that, and this ties in with his e-waste metrics, he expects To be good for one and a half years before it's obsolete. And it's like, no, that's, that's wrong. you know, miners are just computers, and if you leave a computer in a good operating condition and good environment, that computer will turn on ten years later, it will turn on twenty years later, it will still work, it'll still run. Now you might be used to a faster computer at that point, but it doesn't mean that that computer is necessarily any slower than it was ten years ago. It's just your understanding of the relative speed has changed you know, these miners even from five years ago are still profitable today, and, and that's generally the math, like you, you expect that a miner should run for five to seven years with an economic useful lifespan, and what we see is over time they'll, they'll transition from higher cost sources of energy to lower cost sources of energy. So places like Venezuela, who have very low cost of energy, they become the, the buyer of last resort for all this hardware. So you, you have all these different assumptions, and what I look at is an assumption that says, okay, let's take a look at what is the watt per terahash of every machine that, that's ever been produced. Let's look at the date it was produced, right? And then let's look at historical time range and let's say, okay, for any miner within the last three and a half years, look at their efficiency. Is this efficiency profitable at this price of power? Right? If this miner's not even profitable, sorry, I'm not including it in my mix of, of miners that are out there. If the miner in the last three and a half years is profitable, I'm including it in the mix. Now, could you extend that out to five years because that's kind of the minimal useful lifespan? Yes, you can. But there's also such improvement in the miners over time that- You know, a miner from five years ago share of the market is relatively small and becomes kind of an outlier, and a meaningless number. So I look at the, the miners for the last three and a half years, I look at their energy efficiency and I compare that with an expected electricity cost to say, hey, these are the range of miners that are available out there in the world and are profitable, and we're assuming that it's going to look some sort of a, a mixture of these various miners, and then we, we make some average assumptions based on that. and what I found is that this, this is a metric that, that tracks really, really well throughout bearish and bullish scenarios, whereas the Digiconomist model works decently well in bearish, but completely fails in bullish scenarios and overestimates. this is a, this is a model that actually tracks really well because it's a model that's based on the logic of an operator, right? It's based on the logic that I have when operating our business It's not based on what an academic thinks that we would model our business on. It's not based on what they think that we might encounter as economic scenarios. Now, this is based on eight years of real world Bitcoin mining experience and what we need to do to optimize and build long term sustainable facilities. And so that's the way that you, you need to do it, that's the way you should do it, and, you know, there's gonna be variances over time. Anybody can tweak the assumptions and get slightly different figures. I think the key thing here is Is, is to be open about your methodology, to be open with your data, and be open for critiques, right? You know, in the academic world, the whole thing is supposed to be peer reviewed and, and checked by other sorts of academics. The, the reality is, is that none of the people writing any of these academic papers have ever mined a Bitcoin, have ever touched a Bitcoin miner, have ever really even been in facilities. A lot of them have- an actual hatred and bias towards Bitcoin, and so they, they've got a bit of an agenda when they're doing their academic research, and it's not actually being done by experts in the field or, or people on the ground or people with real hand experience. when you do comment and you do critique You know, the work of DigiConomist, it doesn't go over so well, it's really not picked up by any meaningful, you know, outlet. New York Times isn't gonna write that the number one, you know, source for all of their articles on Bitcoin mining is a fraud. and, and, and that's a really uphill battle to fight because, you know, you know, our company here, we, we've been operated with, over ninety-nine percent hydro power for six years. we've mined over twenty-one thousand bitcoins with hydro power. I've had dozens of conversations with mainstream journalists since twenty twenty-one when people really started paying attention to electricity consumption, and, and the question's always the same, it's, \"Why is Bitcoin mining dirty?\" And why? Highest Bitcoin mining bad for the environment? I'll spend an hour saying, \"No, this isn't why. This is why it's not bad. This is why it's actually good. This is why it's-- you know, the information that you have is wrong. this is the right information.\" Say, \"Oh, that's really interesting, but that's not the story we're trying to write.\" Now, at the end of the day, People are literally looking for something that they can cite that agrees with them. They're not looking for a number to report on, you know, not, not looking for the truth to report on. They're saying, \"This is the article we wanna write, who agrees with me that we can put in here, I don't care if it's right or if it's wrong, because they're not saying it's right, they're saying that that person said it's right.\" And by, by pushing that accountability onto the citation, they absolve themselves of any sort of wrongdoing, right? 'Cause they didn't say it was the truth, they said this per-- they're reporting that this person said it was the truth, and that is true. And so it's, it's, it's really, really misleading, it's really designed to skew, how people think about our industry and how people think about, about this world. And, and there's probably no better metric that does that than the, comparing Bitcoin mining electricity consumption to whole countries. That metric is designed to skew. I, I can't think of any other industry that is compared to whole countries' uses of energy usage. You never see what, what does Amazon con-consume in terms of electricity compared to whole countries? Where's the \"Google consumes more electricity than Argentina\" narrative? Where's the \"Amazon consumes more electricity than Argentina\" narrative? It doesn't exist, right? And, and when you do have a reduction in electricity consumption, like we saw, Digiconomist models gone from twenty- Six gigawatts down to nine gigawatts. Where's the article that says Bitcoin mining, operators have stopped consuming as much energy as Paraguay? Like, where's, where is that article? You don't see the article of it falling sixteen gigawatts, you see the article of it going up sixteen gigawatts." }, { "speaker": "stephan", "time": "31:27", "start": 1887.13, "text": "Okay, so let's summarize some of the key points. So as you were saying, it's the assumptions built into the Digiconomist modeling is flawed. So as you said, probably the key one is this, is this key notion that sixty percent of the cost is always electricity, when that's not always true. and then I think secondarily, you were pointing out that there's a, there's an inaccuracy or it's flawed to assume, certain devices, you know, the useful life of different devices Which drives a different calculation in terms of which devices are being used, as you said. So this kind of assumption that after one and a half years, it's, you know, it's waste when in practice it's more like five to seven years, that an ASIC machine has of useful, useful life. Would you say those are sort of the main two, let's say, critiques of that particular model or? How would you summarize it?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "32:20", "start": 1940.08, "text": "Yeah, for sure. one, it's, it's assuming that, hey, your costs are fixed year regardless of, of, of mining profitability, which is completely flawed. Like our, our gross mining margins swing wildly. I think we've seen our gross mining margins go from like eighty-three percent during the peak of twenty twenty-one down to like twelve percent, I can't remember the, the low that we hit last year, you know, as Bitcoin price was falling down to like sixteen K, but it would have been sub twenty percent. And so, you know, eighty three to twenty, like that's That's already more than the sixty percent that you're assuming, you know? it's a highly variable number, and i-it's not realistic to, to assume that that stays fixed. It also implies a lot of, a lot of assumptions about the real world which aren't practical, right? Electricity prices don't move like that, electricity demand doesn't move like that. You know, you can't buy machines and invest new capital like that. It just, it doesn't happen so quickly. There's, there's huge lag effects to those sorts of things." }, { "speaker": "stephan", "time": "33:23", "start": 2003.44, "text": "Okay. And then, I guess the other question people might be thinking is, okay, so if Digiconomist is getting it wrong, is there anyone who gets it right? Is there somebody who is-- Is there a better modeling or a better metric that's maybe a" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "33:38", "start": 2017.53, "text": "So there's, there's really only two publicly available one that people tend to cite, and Stiglitz economist is Cambridge. you know, both, both the models have their severe limitations. I say digiconomist, you know They're fundamentally wrong in terms of their assumptions and their methodology, so that's obviously the more grave of the two. you know, Cambridge is something that I think started out with, with a lot more transparency and, and honesty associated with it, but they've had a lot of turnover, in terms of their organization, who's running the project, and so it's, it's kind of out of date. I wouldn't say that either of those models really pumping out good numbers right now. The best model that I'm aware of is, is the one that I created for us to like counter the FUD, and it's something that I, I'm speaking about with Bitcoin Mining Council about whether or not we want to just pass this on to Bitcoin Mining Council for them to, start utilizing and start pushing out our own data because, you know, we as an industry are Are, are being attacked by all sides, and we're not being attacked with good information, we're being attacked with bad information, which is a, it's a very frustrating battle to have." }, { "speaker": "stephan", "time": "34:46", "start": 2085.68, "text": "Yeah, of course. And so, yeah, bringing it back to this idea of, oh, Bitcoin is using more energy than this country or, or the other big one that's highly deceptive is you see sometimes people quote this stat, this stat of, oh, every Bitcoin transaction uses this much, you know, carbon and things like this, which, you know, so- So it, it just, it just presents an extremely dishonest view of the reality, which is that the transaction itself, it, you ca- it's, it's difficult to place an exact amount, even if you were gonna be in that world of, okay, you know, as, as our friend Pierre Rochard has shown, Bitcoin miners emit zero carbon, but in the same sense that people will count, let's say, Tesla, you know, they'll say a Tesla is a zero-emission car, but if you count the actual energy used as part of that Tesla Well, then it's not a zero emission car. And okay, fine, in that sense, if you're talking about, I think people se- use the term stage two or stage three emissions, right? but even in that sense, it's important to understand that the Bitcoin network could, could run theoretically off somebody's laptop, right? Like if there was only one, you know, one CPU miner, it would be crazy to then say, \"Oh, the, let's say for every block, the, you know, whatever, three thousand or four thousand transactions, that somehow you would divide" }, { "speaker": "stephan", "time": "36:05", "start": 2165.45, "text": "Run just as easily off like a laptop per se, and you would divide that energy by, you know, four thousand for four thousand transactions, right? You can kinda see where it doesn't really line up with reality because what we're talking about is the miners sort of sh- showing finality of that block rather than It being based off how many transactions are being done on Bitcoin, because that can give people the wrong mental model as well. Because if you say, \"Oh, every Bitcoin transaction uses as much as like this many houses or whatever,\" it, it, it just doesn't line up because people just scale it linearly, and that's simply not how Bitcoin transactions work, right?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "36:43", "start": 2202.64, "text": "Yeah, I mean, that-- those are two metrics that are, are designed to misinform, and, and that's the reason why they exist. They're there to push forward an agenda. When you look at electricity consumption as countries You know, it's an exponential curve starting with China as the largest electricity producer and, and generator and consumer, and then it goes down to the United States and so on and so forth, and it's, and it's an exponential curve, it drops down really quickly. So by the time you get down to a country like Argentina, you know, which is a G7, like, I mean, yeah, it's large, as, as I-- actually, it's not a G7, but it's a very large, large economy. I think it's, it's in the G20 percent of the world's electricity, right? And so you look and it's like, Argentina is such a big country, obviously we're talking about something that's like five percent of the world's electricity. It's like, no, it's an exponential curve, and, you know, China is producing and consuming the most, then it's the United States. By the time you get down twenty, thirty countries, like, we are talking about fractions of a percent, right? And the reality is, is that we're not consuming Kind of mainstream electricity, like Bitcoin mining works really best if, like, if you're looking at the normal distribution curve, where Bitcoin mining is the best is at the tail end scenarios. Like, we're here to monetize the inefficiencies that are already present in these systems, whether that be oversupply of renewables, right, that are leading to negative pricing or oversupply of electricity generation capacity and infrastructure and an undersupply of demand. Like Bitcoin mining is best suited for these kind of tail end scenarios. We are not in the middle, in like Manhattan or, you know, the City of London or downtown LA, and competing with people for megawatts. Like that, that doesn't make any sense. It's not economically viable. And so we're in these, we're in these remote parts, we're in these areas where electricity is, is often wasted and, and underutilized. And so when you look at the number one consumer of electricity worldwide, it's waste. It's seventeen percent of, of basically every kilowatt Of all the kilowatts generated, go to waste. And when you look at how much electricity we consume as a network, it's like zero point one percent, zero point one percent of the electricity, not even close to one percent. We are, we are many, many multiples away from hitting one percent of the network, and seventeen percent of the electricity is wasted on a daily basis, and that's the electricity that we're going after. And so when you look at it, it's like, okay, Bitcoin mining doesn't actually consume that much electricity. The amount of electricity that is wasted is massive, and Bitcoin mining is actually an economic incentive to reduce waste and reduce emissions, and it's actually the only natural economic incentive in the world that incentivizes the reduction of waste or the reduction of emissions. If it's not for Bitcoin mining, the only incentives in-- exist in the world are subsidies, government subsidies paid by tax dollars or inflation. And so, you know, one, this is a metric designed to mislead, and two, it's actually- Getting rid of Bitcoin mining or fighting against Bitcoin mining is actually fighting against the only natural economic incentive in place on the entire planet to reduce emissions and reduce waste and recycle your inputs into another valuable product. and so it's actually gonna do the opposite of what they, they claim. The second thing that you have to look at there in terms of the, the Bitcoin energy per transaction, again, it's, it's a metric that's designed to misinform and, and mislead. And so they'll say, hey, you know, this is the amount of electricity consumed by the network This is the amount of transactions in a day, and therefore, this is the amount of, of Bitcoin energy per transaction. It's like, well, one, you're ignoring a lot of other transactions. Like, you're ignoring all the transactions that happen on Lightning Network, you're ignoring all the transactions that happen on centralized exchanges, which are off-chain records and happen on their private balance sheets, and is, and is the vast majority of transactions, you know, are, are those invalid transactions or are those not real? Those are real transactions where the majority of, of data is taking place. So you- You're looking at a very, very small subset of transactions, and then you're saying, \"Okay, well, all the energy that's consumed by Bitcoin mining is just going to those transactions,\" and that really is, is a misnomer, and I think that's designed to mislead as well, because it goes onto this, this idea of, of POS versus POW, and I think that's the whole metric behind this, the whole reason for this metric, of energy per kilowatt hour or energy, kilowatt hours in terms of per transactions, it's the They want to ascribe a, a, an energy value to per transactions, they wanna try and reduce the energy value by reducing our, our energy consumption. Well, like the reason why we're consuming more electricity isn't because we're processing more transactions, it's because we need greater and greater levels of security. And- That is the one thing that POS doesn't address. Like, sure they address energy consumption per transaction, but it, it doesn't in any way address the security angle. And the whole reason why we consume more electricity, the whole reason why we put more and more money into infrastructure Is to make the network more and more secure, not more and more, you know, not pump out more and more transactions. And the reality is, is like this is a metric specifically designed to Take people who are unfamiliar with Bitcoin and unfamiliar with the value promise and, and don't understand necessarily the benefits of a secure network that's decentralized around the world that would cost Untold hundreds of billions of dollars, you know, to attack the network. You know, they're trying to get away from that and just put it into this energy efficiency box. And the reality is, is that the vast majority of what Bitcoin miners do on a daily basis is prevent bad changes from happening to the network. Transactions are secondary. Like transactions are, are happening every single block, but the miner's function is to secure the network, not to process your transaction." }, { "speaker": "stephan", "time": "42:46", "start": 2566.31, "text": "That's a great way to put it." }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "42:47", "start": 2567.29, "text": "That's just one small part." }, { "speaker": "stephan", "time": "42:48", "start": 2568.29, "text": "Yeah, I think that idea of securing the network or the validity of transactions, the finality of transactions, is probably more accurate. that's really what, what the energy usage is going towards. It's not per se per transaction, and I think that's the important point for people to understand. I'm curious, what's Digiconomist's response been to you? I Put this out there to correct him or critique his modeling. Has he publicly responded to you at all, or has he just fully ignored you? What's the response?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "43:17", "start": 2596.86, "text": "I've gotten one or two comments back on, on Twitter. you know, the, the last time I put out a thing on his Whopper TerraHash, the, the one word response was \"silly.\" So, you know, he doesn't, he doesn't take it seriously, you know, here, here's an academic who's only reviewed by other academics. I mean, my, I joke, but my dog has been in more Bitcoin mines than Digiconomist. Like, my dog has physically been in, like over ten different Bitcoin mines in three different countries, and is going to go to another Bitcoin mine in a fourth country here next week. So, my dog has more Bitcoin mining experience than Digiconomist, probably the number one site. rated expert in the entire world on Bitcoin mining, and he's never, he has zero experience." }, { "speaker": "stephan", "time": "44:02", "start": 2641.99, "text": "Yeah. So it's important to understand the state of the, the debate around the world, and we're seeing all kinds of dishonest actors like, the propagandist blog known as the New York Times, who, al-also came out with, with a, with a very dishonest piece, as, I spoke about with my friend Pierre Rochard, so people can check out that episode. I also think it's important to really point out the benefits, I'm coming more from the Alex Epstein camp here in a way. I'm saying we should be arguing that more energy use is a good thing and that, you know, we shouldn't be trying to sort of minimize ourselves or say, \"Oh, no, no, we're trying to min-- we're trying to incentivize the renewable, quote-unquote, renewables.\" I think the benefit is worth it. I just think we should be using more energy, and so be it, you know, it's a good thing for the world, and so I think that's, you know, one way of, of looking at it. I understand there's di- there's a, there's a range of views amongst, Bitcoiners and Bitcoin miners on how to criticize or critique that kind of attack, and so I think it's important that there are a, a range of different views out there and, more importantly, correct information to correct incorrect information. Models around things like how much Bitcoin, how much energy is being used by each Bitcoin transaction, quote unquote, or, how much energy the network is using relative to various countries or relative to the world, as well as, as you were saying, profitability and really assessing Bitcoin mining metrics based on that idea that, you know, miners are actually trying to be profitable here, they're not just trying to run an operation just merely for the sake of running an operation, they're trying to make a profit. Oh yeah. And therefore, the assumptions should be- Should be, should be based on that, but I think maybe one of the challenges is a lot of Bitcoin miners are, and naturally, focus on trying to make money. They're trying to, you know, stay alive. It's a competitive industry. They're trying to stay alive. They're not necessarily trying to go out and fight public, battles, to correct the record, and maybe that's where people like Digiconomist and other people like that are just getting, they're running unchecked in the media." }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "46:06", "start": 2766.41, "text": "Oh, oh, for sure. that's, that's definitely Miners, especially Bitcoin miners, have really wanted to stay under the radar and, you know, hey, I'm gonna build my Bitcoin mine, I'm gonna set it up, like I just want to be left alone and to run my business. You know, w-we have, I think every diff-different having epoch, I think we have kind of a transition into a more, industrialized, more professional phase of the industry. I'd say phase one is like the entrepreneur hobby, you know, stage or stage one would be like the hobbyist enthusiast, stage two, the second having Like the entrepreneur and the maybe the, the speculator. Stage three would be like venture capital, stage four is like small cap, you know, public companies where we are now. Then you got midcap, then large cap and the next two, and then you're, you're onto like sovereign nations. And so each, each having epoch is, is its own, it's its own kind of phase. and people need to understand that, you know, over time, the sophistication of the, the network grows, the sophistication of the user base grows. And that with it needs to come a rising level of sophistication security. Like, you aren't going to get, you know, major hedge funds, major institutions who are backing a asset class that's run out of people's garages. Like, it's, it's not gonna happen. If there's an element to it, that's no problem, but if that's the entirety of the security, there's, there's no way that this reaches, you know, the escape velocity and this reaches the institutional adoption scale. So we have this kind of- Rising sophistication over time, and so I think only with this new sophistication, people becoming public and wanting to be not just under the radar anymore, but actually be out there in the public sphere, we are now starting to get companies who are starting to challenge this information, 'cause for a long time it was, I don't want any attention paid to me at all. I just want to remain under the radar. And now that we've hit this stage where companies realize, hey, you know, going public is kind of the next phase in order to continue growing, continue providing a greater level of- Level service, grade A level security, and, and growing the company with cheaper, more plentiful dollars via public capital markets. Like, this is starting to change. It's something that we, we've been doing in Canada, BitFarms and a number of other major Canadian companies have come together, we created a fair tax coalition, so we've been working, to educate and, inform the politicians and bureaucrats in, in Ottawa, you know, about what is our industry, you know, what are the implications? of the different tax legislations that they wanna put forward, what that would do to our industry, how that would make things unfair to different Canadians in different parts of the country, and, you know, a lot of these politicians have never seen even a photo of a Bitcoin mine, and so it's, it's really hard, I think, to, to go out there and say, \"How are you supposed to regulate and legislate on something you, you literally never even seen a photo of, let alone understand the complexities within?\" Like, you- We haven't even seen a photo. I mean, it's like, it's like swiping right on Tinder, you know, while wearing a blindfold. Like, you literally have, have never seen anything, and you're just swiping, you know? It, it doesn't make any sense." }, { "speaker": "stephan", "time": "49:22", "start": 2962.32, "text": "Yeah, I think there's a lot of problems with that, and unfortunately, we live in a world where people, you know, should first ask questions later, and that's often the case with politicians and regulators. But that said, let's talk about ways to try and improve that situation." }, { "speaker": "stephan", "time": "49:40", "start": 2979.59, "text": "But let me put it to you this way. Let's say to help listeners who maybe they're getting stuck in arguments with people, because people generally, if you're stuck in an argument with somebody, they might have-- or maybe you're at a party or something, and they might have just read a headline, right? They might have read a headline saying, \"Oh, Bitcoin uses more energy than Argentina,\" or, you know, they might have heard some of these metrics or these, you know, dishonest or inaccurate metrics. If you had a way to give a short answer, like, let's say someone Kind of counter this, would you say something like, \"Oh, well, actually, the studies ba-the studies that this, metric is based on, they're flawed. They're using a wrong, they're using an incorrect methodology. Actually, Bitcoin mining, you know, doesn't use as much energy as what they are saying. But that said, it's still a good thing that it uses, you know, energy. Like, it's kind of a complicated thing to sort of explain. If you had a kind of like an elevator pitch answer, what would you, what would" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "50:37", "start": 3037.02, "text": "Yeah, that's a, that's a tough one 'cause there's multiple things wrapped up in there, but I would say the first thing is that, you know, ninety-nine percent of the articles you read are attached to one source, and that's Digiconomist, and his, methodology is, is flawed, and his model has been proven wrong by multiple people and multiple experts over multiple years. this isn't somebody who's taken criticism very well or implemented any sort of change in their model when addressed. So this is all based off of flawed reasoning. The second- The thing I would say is, is again with the Alex Gladstein model, like human flourishing is directly tied with energy, and the more energy that we consume, the better. Bitcoin mining is the incentive to reduce waste, increase, productivity, and do so without any sort of government subsidy. Like there is, there's no negative when you look at it from that way. Like both, both people get what they want out of it. It's a natural economic incentive to reduce waste, improve utilization of resources. It's improved jobs, GDP, economy, everything else. you have Democrats and Republicans or conservatives and liberals like you both get a win out of this, and that's, that's what I think people should really be taken away from this, like Bitcoin isn't a polarizing issue, Bitcoin is the unifying issue that we've all been waiting for, you know, it's, it's the issue that both sides really should be able to get behind in, in a very, very big way, once you get past the headlines and you can actually dig into, to the, the It's" }, { "speaker": "stephan", "time": "52:07", "start": 3126.86, "text": "here. Fantastic. Yeah. One small correction, I think you mentioned Alex Gladstein, I think you meant Alex Epstein, right? But yeah, yeah, yeah, sorry, sorry. Other than that, yeah, yeah, yeah, but, yeah, other than that, yeah, I think that was a great, also future. Yeah, right. Fantastic. Yeah, fantastic book, and, I've spoken with Alex about that on the show, so we can see that episode also. I think those are probably the key points to hit, right? I think" }, { "speaker": "stephan", "time": "52:37", "start": 3156.68, "text": "Energy abundance and we should be supportive of producing more energy and using more energy because it's a massive, massive net benefit for all humanity. And so that's kind of the short answer that I guess I would give. I'm not as, into the detail as you are on it, but, I think that's kind of how I would answer it, and I think you, you gave a great answer there as well. So if anyone wants to find you or follow you and your work, what's the best place for them to do that?" }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "53:02", "start": 3182.48, "text": "you can follow me on Twitter i d e, or you can follow our company, BitFarms, at bitfarms underscore io on, on Twitter or our website, bitfarms dot com. we don't have any, any like Telegram channels or anything like that. There's a lot of people who say we are out there on Telegram channels, don't trust us, you know, we're never gonna ask for your money. We only have a couple of authorized social channels. It's, it's my own personal channel and it's the bitfarms underscore io and bitfarms dot com." }, { "speaker": "stephan", "time": "53:32", "start": 3211.5, "text": "Fantastic" }, { "speaker": "stephan", "time": "53:37", "start": 3216.56, "text": "Bitcoin mining metrics for me and for the listeners." }, { "speaker": "ben_gagnon_cmo_of_bitfarms", "time": "53:39", "start": 3219.05, "text": "Yeah, happy to. Thanks for having me." }, { "speaker": "stephan", "time": "53:41", "start": 3221.33, "text": "So this would be a great episode to share with family, friends, or on your social media accounts so that more people are aware about the truth of Bitcoin mining's impact rather than letting the headlines from the likes of the New York Times and others and many of these other organizations who cite Digiconomist as part of their work. So make sure you share the episode and get the show notes at stephanelivera dot com. Thanks, and I will see you in the citadels." } ] }