Bitcoin Mining in the Age of Volatility - Transcripts

June 23, 2022

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From high school hobby to an industrial-scale business.


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to real vision crypto. I'm Ash Bennington. I'm joined today by john paul, barrack, ceo of the mining store J. P. Welcome to real vision crypto, excited to be here. Well I should say, welcome back. You've actually already appeared on the platform with santiago velez a couple of years ago where you guys did a real technical deep dive on what you guys do at the mining store. I'm really curious for people who don't necessarily have strong backgrounds in technology to talk about what mining is, what its significance is, particularly in the Bitcoin network.

So Cryptocurrency mining is the way that new transactions and new Bitcoins are created. So every Bitcoin started off from a newly minted block. And that block was created by a minor. Now the unique thing about Cryptocurrency miners is that they allow anyone to sell energy from across the world to the Bitcoin network. When I mean sell energy. I mean put the energy that they're buying from the local power station into that computer which is a minor device that mining device does some math problems and get calculates these things called mining blocks effectively and every time it gets a block it gets paid. And so they're taking the energy that only could have been sold to the consumer at the local level and they're selling it to this global marketplace. That's why Bitcoin has become this massive energy buyer across the world. But that's like what Bitcoin mining is is at a high level.

That's really

fascinating. So two points. First of all, what you're talking about with mining effectively is the ordering, confirming and publishing of the transactions that have taken place on the Bitcoin network, which provides transparency to anyone who can run a full node or who wants to run a full node. But this idea of almost this energy arbitrage structure that you just described is really interesting and maybe something that most people haven't thought about in quite that way. Talk a little bit more about what you mean by buying energy at the local level and then selling it in a global fungible commodity market.

Sure. So when you think about the local energy markets before Bitcoin, you were buying energy in texas and Iowa and had to be used very close to where it was produced. That's because energy or electricity as a commodity that has to be utilized immediately. We can't store energy effectively. Not like oil or gold or steel where you can put it away and take it out a year later electricity needs to utilize immediately. So with in that sense the the electric participants in the market, the utilities, the wind farms, the nuclear plants, every single one of those groups has to match the energy demand of the grid. And so they're not making more energy than the grid needs. And they're always trying to match it so that as we ramp up our consumption. So in the mornings when everyone is turning on their coffee or when everyone's turning on their air conditioners in the afternoon, they're matching that demand with consumption. Well, Bitcoin mining came in and said, what happens if we could match the energy purchasing from a global level with something called the Bitcoin network? And what I mean by that is that the, the Bitcoin network is always buying energy. It's always saying, hey I need a block, I need a block, I need newly minted Bitcoins.

And Bitcoin is effectively a large clock Because every 10 minutes there's a block and that block is how we track and keep, basically keep time and keep transactions moving throughout this ecosystem. And those 10 minute sequences are produced by the miners. So as more people join the Bitcoin mining community, the clock gets a little bit faster and it's okay now it's, it's nine minutes to mine a Bitcoin. But we have this unique invention called the difficulty in the Bitcoin mining system, which automatically calculates how hard it is to mine a Bitcoin block. So the first Bitcoin blocks were you could mind them on your computer, on your Gpu. S, on your Cpus and then it started getting more specialized and doing trillions of hashes per second. And the hash is a mathematical equation where I'm basically guessing the reward, guessing the the height of a block or trying to guess for like this new block and so what's happening with these computers is they've gotten better and better over the years doing trillions of hashes a second. And so these computers are always competing trying to find these blocks. And then as I mentioned is more computers join. It becomes harder as let computers turn off, it becomes easier and that's kind of the market dynamics we're seeing today. I might have digressed from your question but that's how electricity is sold from this local marketplace, through the computers into the global marketplace with Bitcoin buying every 10 minutes. New energy from all the miners.

Yeah, well in many ways those digressions about understanding the broader context or the point of a conversation like this so that people can hear from someone who's been involved in the space for many, many years. You started when you were incredibly young. Tell us a little bit about your own journey into Bitcoin and into mining more specifically. So

I found out about Bitcoin in 2013 and I was learning about the technology I was reading about on Wikipedia and I was a freshman in high school. The reason why it intrigued me is because there was no boundaries per se. Or I guess gatekeepers stopping me as a young 14 year old High schooler to get into the space. You know I barely had a bank account at that age. I couldn't get on coin base, I had to go ahead and buy bitcoins with my mom. It's help because I wasn't 18 but there's still this fundamental opportunity of saying anyone in the world can have access to this financial network doesn't matter your race, your ethnicity what you believe in. And that really resonated with me as a young individual. And so I started learning about, okay why is Bitcoin unique? What what is it solved? And it solves this problem about trust and when you're in high school you know you're a little um you're not gonna say you're not trustworthy but it's your little like authority, you don't like it if people can tell you to do something and Bitcoin solves this problem called the Byzantine generals problem. And it's like the exact situation of that that pushy 13 14 year old things, they know everything. It's like I can go on the internet and I can participate in the set rules of Bitcoin and how they're set up and I have to follow those rules but they're defined so there's no like well this is the rule because I said so and that was a big thing for me as a kid and I would in high school I would like read the read the rule book and read the policy guidelines to make sure that I could follow the policies you know by the T and knew them so I could use them to my advantage.

And so when you get to Bitcoin in this Byzantine generals problem effectively what it is is we're all going to agree to attack the city at once or we're all going to agree not to attack the city and that's where we that's called consensus and it was very hard to not get consensus on the internet without having someone have a higher authority over another member. But as a Bitcoin miner I realized that we instead of we got to consensus by having people invest infrastructure and energy into these mining devices in order to achieve this consensus.

That's really a fascinating metaphor you know as someone who once was a rebellious high school kid. This idea of decentralization of basically having authority spread out. You know another way of I guess talking about this problem is the problem of trust without trusted third parties. In other words the idea that you can have a network itself that through consensus through proof of work has the ability to distribute trust rather than having you know an authority a bank for example that says okay this transactions okay jp is sending ash 100 bucks. We can verify that's in his account. We'll send it to Ashes bank, they can verify that he is, who he says he is and we'll do the transfer this is a radical departure and I don't mean to sort of get into hyperbole before, you know, when we talk about this, but this really is the first time in human history that you could have a network with distributed decentralized trust where there was a mechanism for all the participants on the network to reach consensus collectively together.

And that's the unique innovation here with proof of work is that we're able to reach that consensus by having individuals invest in their infrastructure and by energy. But now, if you take that step further, that means that everyone's on a level playing field and the government, if I like El Salvador, if I am a company, if I'm an individual, we all have access to electricity and everyone is has to use that electricity. There's no cheating. It's not like, oh, I have this electricity machine here that's going to make electricity for free or no cost. So everyone has these real raw inputs and these raw costs and then what it does is it makes it so that you're incentivized to find energy infrastructure that no one in the world is using to find the cheapest energy possible wind farms, solar farms, energy without a fuel source is usually the cheapest. So that's what we're focused on as large institutional Bitcoin miners is always looking for the next spot where no one's buying energy and then exporting it from that local marketplace, which could be in Alberta Canada up in the mountains. It could be in the middle of the midwest, there's only small towns and sending it to the Bitcoin network. So most of the energy actually goes to waste. And that's what a Bitcoin miner and that's what's nice about Bitcoin miners like anyone can do, it doesn't matter how big or small you are. If you're a nation state or individual, you have access to energy. You can play this game of exporting energy from your local marketplace to the global one of Bitcoin.

Yeah. You know, and another way of talking about this is going from a system that's based on rules and contract enforcement to a system where ultimately it's the laws of mathematics and physics that govern the trust of the network.

Exactly. We're trusting physics to handle our money. No more politicians. Which is amazing. And that's why I was so excited as a young lad and get at 13, 14 years old and then going into high school. I started the mining store in 2016, started mining ethereum ended up scaling two facilities in north Carolina and then all the way up to Oregon and then the midwest in Iowa in 2019 and now we're saying how do we buy wind farms and scaled there? So it's been a massive journey all the way from the first device I plugged in my parents basement with my dad and myself, you know, wired up some extra 20 amp circuits and was running in a cardboard, a milk written, which Cpus across it and today where you have massive shipping containers, 30,000 square foot buildings were producing and you're actually buying the wind farms themselves to generate the energy. It's been such an incredible journey.

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