Grid Harmony with Troy Cross and Bitcoin Bassload

Bitcoin is close to becoming worthless.

Now what's the Bitcoin? Bitcoin's like rat poison. Oh. The greatest scam in history. Let's get it. Bitcoin will go to fucking zero.

All right, you ungovernable misfits. I'm your host, Max. Everybody knows that Bitcoin is useless, worthless, and doomed to fail. But what if everyone's wrong? What if it's the system that is doomed to fail?

Join me as I speak to some of the brightest people in the space and sliver to the deepest, darkest, depths of the Bitcoin rabbit hole.

In true bit-by-bit fashion, today, my internet is down. I can't connect to anything. My laptop won't work on my 4G. I think it's actually the laptop just being fucking out, so I just will not.

It lies and says that it's connected, but it isn't actually connected. So I can't look at the show notes. I can't look at anything, but I can tell you that this episode was fucking incredible.

Min John invited on base load, our energy market update, and pleb minor mafia crew member. We also invited Troy Cross from the Bitcoin Policy Institute to talk all things energy and mining.

It was really good to hear from both of these guys with different perspectives and John with the intro. Also smooth, as always. Anyway, I'm now gonna try and work out how the fuck to get this uploaded.

I'm gonna put it on a memory stick or something, and then use someone else's computer. I don't know, I'll work it out. Very quickly, before we dive in, I wanna say a quick thank you to Foundation Devices.

Foundation Devices keep this show running. They have been supporting me for the last couple of years, and it is much appreciated. I chased after them, not the other way around, because I desperately wanted to work with them.

I absolutely love the products they're making, and their team is awesome. They actually care about Bitcoin and the open source technologies. They are making it so simple and accessible for anyone.

I love the fact that I can go out and speak to friends and family and confidently say, "Yeah, get yourself this hardware wallet. "You'll be able to use it, I can help you." It's piss easy, it's open source, it is cipherpunk tools for fuckwits.

If you haven't already checked out the passport, go and have a look at absolutely beautifully designed, go to foundation devices.com, and if you have any questions, you can reach out to me.

If they're really technical ones, you can reach out to Q&A. And finally, a big thank you to Sx6.store. Sx6.store, the fuck is that you might be thinking? It doesn't sound like Bitcoin, it sounds like maybe some sleazy, shitty porn site.

I don't know what it is. I'll tell you what it is. They sell stainless steel backup plates. You need these, and I'll tell you why you need these. If you write down your 12 or 24 words and your passphrase on a bit of paper and you lose it or it burns or it gets wet, you're fucked.

So if you're storing your wealth and you're taking Bitcoin seriously and this is your money and your freedom money and blah, blah, blah and all that, you wanna make sure that you keep it with Marine Grade 316L stainless steel.

This will survive fires, floods, and just about everything else that can be thrown at it. These things are from memory, I don't have internet, but from memory, I think 25 quid. You can also use my shield coat.

I can't remember what it is. I think it's bit by bit. You can reach out to them, they'll sort you out anyway. They'll give you a discount, I think you get 10% off. Or reach out to me and when I have internet, I'll sort it out for you.

But if you don't already have these fucking sort your life out and get one, go to SX6.store, right. Enjoy the show, and a huge, huge thank you to Bass, Troy Cross, and John.

(soft piano music) Welcome to a very special episode of bit by bit. I'm your co-host, John de Giacomo. With me, as always, is Max Bit by Bit, head honcho of the Bit by Bit renew empire. On with us is energy expert, Bitcoin base loaned, and philosopher and Bitcoin enthusiast, Troy Cross.

Join us for a fireside chat. Where we talk all things energy and Bitcoin. In a segment we are calling bass and treble. Red, harmony. Welcome, gentlemen. (clapping) - What an intro. - Wow.

- Excellent, I am ready to go now. (laughing) - Troy, do you recognize that piece of music? - I do recognize the piece. It's something I play. I don't know if that's me playing it or not.

- That is indeed you playing, sir. - Oh my God, I'm so impressed with myself. - You thought that was a professional recording. - I mean, it could have been, right? It was like just lousy enough that it could have been.

I'll take it. - I liked it. - Yeah. - I think of French, one of the French tweets. - That's what you said. - Yeah. - Can we just clear up where you got this recording, John? Were you stalking and lurking in the cupboard?

- Oh, what did you... - I actually enrolled in one of Troy's classes. - Oh. - That really hot girl in the back of the class, you've been eyeballing Troy. - That was you. - That's me, bro.

Push up, bro. - Let's just not merge these two worlds of mine. (laughing) - Sure, moving on to energy. The reason that we've brought both of you guys together here is you have very different perspectives on energy, but they're both passionate perspectives.

So Bitcoin base load had the idea to bring you on the show and he wants to wrap with you about energy. And I hope that you want to wrap with us about energy as well, Troy. - Yeah, absolutely.

My pleasure. I'm excited to be here. I am a philosopher. I'm an academic philosopher. And we don't generally know much about the world of energy, power, electricity, at all. It's not something we discuss in my discipline, but it's something I found myself pulled into as a Bitcoiner.

So I'm happy to, and of course I've got opinions, I've got reasons, you know, I've got a lot to say. But what I don't have is like real world expertise. So I'm always, always happy to learn from people who do.

- Max and I have figured out a way to make that work. He's very good at privacy stuff. I'm good at mining stuff. So when one is talking about the other, then the other person becomes the philosopher and we switch back and forth.

- There you go. It's good to challenge those assumptions sometimes, even when you think you're the expert on something, to come from a philosophical standpoint and just ask a simple pointed question.

I think somebody who's in the weeds all the time, as base load likes to say, it might pull them out of the weeds for a second to kind of take a higher level view and challenge their assumptions.

Speaking of Bitcoin base load, hi buddy. - Good evening. - And why are we here today? - We're here because energy is life. Without it, we have problems. And I just want things to work. I'm okay with being wrong and most people I would think also want things to work.

So we're trying to understand the how. How is this done? How are things priced? How do things work in the energy electricity world? - It is a very complex and certainly we can go down many rabbit holes this evening.

But I'm very excited to be with Troy because he makes me think more than just traditional stuff that I've thought about and learned about over the years of my career in energy. - Can you go over with us what your career is?

We always can say Bitcoin base load, energy market experts. - Yeah, I thought it was a pro skater. - Yeah, that's all I ever see you do, mate. - I do love the keyboard. That is the thing.

However, sure. I've been an energy consultant for eight years. And what that really means is I advise clients on a number of different, you know, strategy in regards to the procurement of electricity and natural gas, the physical buying and purchasing in markets that you're allowed to do that in

because there's plenty of different strategies. I help them understand those. I help them understand the markets that they're in, the market construct, what you're able to do, what you're not able to do.

I bring the counterparties together, suppliers, meeting with and marrying customers, consumers of electricity and natural gas. Based on the strategy that we would provide them on their load consumption or their energy consumption, I help them understand demand response related activities.

I help them understand macro energy economics, micro energy economics. I help them understand utility tariffs. I help them and advise them on different ways to effectively and efficiently procure the different commodities that I've been focused on, which is electricity and natural gas.

And helping all of that strategy get printed on a contract. So I also do all of the terms and conditions type of negotiations between the two parties, suppliers and consumers. And that's nuanced, but it's a thing because the strategy means nothing unless it's in writing.

So I do that and do a lot of market intelligence all over the place, North America, even sometimes overseas and electricity and natural gas has been my specialty, if you will. In electricity markets, you have a generation fleet and then you have the cost that that's going to cost the electricity generator

and then you have the price that somebody is going to purchase that. So given that that's your wheelhouse, right? Could you explain the auction process for us? And then I think from there we can kind of branch off and find out who's making the energy and who's buying the energy.

- Are we gonna let Troy introduce himself also? - Troy did introduce himself. - So I'll have to edit this out too, I guess. - We're not doing any of the same thing, Mike. You fucked it. - Well then.

- You let me run the pod, pal. - Can I go skate now? This is dumb. No, no, no, okay, so there are consumers of electricity and natural gas, okay? Anybody with a meter and account number, they're buying retail power or more technically electricity or natural gas.

If any of the machines in the facility, whether it's an industrial facility that I focused on and help clients mostly with on that side or just a residential home, whether the devices are powered by electric energy or powered by natural gas, there is a price for that and it's in a retail fashion, right?

So you understand the kind of economics between wholesale retail stuff. So the flow of the price, you have a generation or power plant, a generation asset that produces or generates electricity from a certain fuel type, right?

So it could be coal, could be nuclear, could be wind, solar, could be the water, hydro, could be biofuel, okay, all different kinds. And there is a price associated with generating that electricity.

There's a price for the fuel, you know, coal costs a certain price, nuclear costs a certain price, natural gas obviously, which is the most common used fuel for electricity in most markets today in North America anyway, it has definitely a certain price.

And generating that electricity, there's a wholesale market from the generator to, you know, wholesale entities and wholesale entities are more like the retail electric providers, okay, which are, you know, I call them suppliers.

They're sometimes banks, hedge funds, anybody that has great credit worthiness and great credit requirements to function. And there's rules and regulations associated with who can transact and wholesale and who can't.

And then that energy, the electric energy in this, in the electric energy example will then get sold back to the consumer, right? So flows from power plant to wholesale market, wholesale market to retail market, right?

And, you know, the folks, you know, it's a common misconception that people say I can buy wholesale power or wholesale electricity or, you know, wholesale natural gas. All of that is false because it's all, it all flows into the consumer as a retail product.

And there's language with contracts associated so you can see, even though, okay, the contract says I can buy what would be described as locational marginal pricing of electric energy or a regional pipeline price for natural gas, right?

That, although is a component, 'cause there's many inside of the price, there's multiple layers of it. It's not a true wholesale purchase because if you would buy the wholesale energy cost, you're still having retail components which we can get into later that ultimately end up on your bill, okay?

There's no line item that says wholesale energy or wholesale electric energy, wholesale natural gas. That's not a thing. So that's kind of a high level, very general overview from generator to consumer.

And there's a couple of charts I could share with the flow of that, you know, flows through the wires, flows into the step down, like a substation, right? Then continues to flow through more wires, step down, you know, generators generate power.

They're traveling from anywhere from 69,000 volts all the way up to 745,000 volts and sometimes even beyond that, slightly beyond that. But, you know, you're not consuming electricity at your home.

It's 74,000 volts. That's not gonna fry your house. So, you know, that needs to be stepped down and that's kind of the generation to transmission, to distribution funnel, right? But price related, it's from generator into the wholesale market.

And that's in the ISO kind of RTO realm, there's other fancier things you could do like bilateral transactions between, you know, consumer generation. - Okay, all right, well. - Yeah, that's in the ISO RTO.

Go over those very quickly and then I want to get to Troy. - Okay, so RTO, Regional Transmission Organization, well, RTO, Regional Transmission Organization ISO, Independent System Operator.

- So, what you just laid out is relevant to those two structures? - Correct, in fact, these were designed by FERC. Okay, the Federal Energy Regulatory Commission. FERC originally designed RTOs and ISOs, you know, these organizations and operators.

They're kind of one and the same. It's a little nuanced and kind of semantics to kind of argue between if there's a difference or not. And FERC originally created these kind of inner response to, there was like an oil crisis.

I have some notes here I could share. But essentially there was, in '96, the first RTO was created and basically power pools became ISOs and FERC had kind of control over how that's all organized and relevant to the market.

And so they're essentially transmission operators that were able to compete in the wholesale market. PJM is one of them, Pennsylvania, and Sanjay, Maryland, and there's multiple. - The long and short of this is that it is a complicated system, the whole pricing mechanism of electricity.

It's not just tied to the cost of generation and delivery. But Troy has an interesting concept and I suppose it's not particularly novel in this way, is that in Bitcoin mining, 70% of your expense is energy.

Troy, you recently wrote an article for a coin desk and in it you have why Bitcoin miners will only use the world's cheapest electricity. So given the complicated nature of generation and generation mix with renewables and hydro's and on-demand services, you say that Bitcoin miners are going to chase the cheapest forms of electricity.

Do you think, Troy, that will have an effect on price in a way where generators and these pricing mechanisms change because of what Bitcoin miners are doing? - Oh yeah, that's a great question.

Yeah, I'll step back a bit. The mechanisms that base is describing are complex. I wanna call them fiat. They are political organizations that determine price, that determine market structures, that determine pricing.

And they're different depending on where you are and the convoluted history of bringing electricity to the general populace. What was going on in the region at the time? Who was in charge?

Who got a piece of what? They're historical artifacts and that's why there's no like clean and simple way to understand them. Now contrast Bitcoin. Bitcoin is really clean and simple. Whatever people might say about it or complain about it.

The basic concept of Bitcoin as an energy consumer is extremely simple. It's miners worldwide are chasing the block reward. The block reward is block subsidy plus transaction fees. And that's their entire revenue.

Okay, maybe some of them are developing alternative revenue streams now that are minor like selling ancillary services or selling waste heat or maybe getting carbon credits. But let's just set that aside, the pure picture of Bitcoin mining is very simple.

All miners worldwide run basically the same machines. Anybody can buy the same machines. And they hash at the same rate, roughly. Of course, there are many other aspects of the business than plugging in a machine and running it.

And we can get into that. But at its core, an S19 is an S19 running the same firmware. And so it's an amazingly perfect market for electricity. I think the first person I read who made this point really clearly was Hasmakuk, one of his articles in Bitcoin magazine from like 10 years ago,

that there's never been a market as perfect as Bitcoin. And what that means is a perfect market. The good that is produced is fungible. Every Bitcoin is like every other Bitcoin. They're interchangeable.

So you don't get like special made in America Bitcoin or whatever. And they're instantly transportable across space because the Bitcoin never leaves the blockchain. The Bitcoin reside if they reside anywhere on the distributed ledger itself.

So if you want to ship some Bitcoin to someone, you just make a transaction. They hold network updates, right? So you don't have any shipping costs. You have a fungible good that's identical.

You have machines producing it that make it out of energy, so to speak, at the same rate. The efficiency of the machine is fixed. And you have a fixed reward. And this is unlike any other good in the world.

Right now, it's 900 Bitcoin a day in the block subsidy. And there's nothing anybody can do about that until roughly next April. And that's all miners in the world have to split it. So it's not like, you know, you're mining gold in South Africa, but I can go mine some gold in Alaska and we'll just kind of add to the supply.

It's like there's one chunk of Bitcoin in the center of the earth. And all miners are going after it except, you know, it's a daily chunk or really a block by block chunk. So now if we think, okay, how does this market behave given that it's perfect, nearly perfect?

Of course there are differences that I've ignored. Well, what does the e-context book say about a perfect market? It says that in a perfect market margins drop to zero. There's basically a very low barrier to entry in a perfect market.

Profit margins go to zero in any perfect market. And the only thing that keeps any, you know, any business really from going to zero profit margin is the barriers to entry and the imperfection of the market.

So the most perfect market really should have like the lowest margins in theory. And now if you look at the expense side of Bitcoin, it's 70%, 60%, 80% depends on who you ask and how they run their business.

But it's largely energy as the number one expense. The hypothesis is, I mean, it's kind of obvious. If that's your biggest expense and it's a perfect market, it's like perfectly competitive, you're going to see that industry move to the cheapest power in the world because if they don't, all somebody has to do

is get some of these identical machines from Bitmain and plug them in where the energy is the cheapest. Once some miners are on the margin, then if there's cheaper power elsewhere, as soon as you plug in those machines, the difficulty adjusts upward, the marginal miner goes out of business.

If there's no friction at all, there's nothing to worry about, the jurisdictional risk, whatever. You can always make more money if you can find cheaper power. Of course, I'm simplifying here, but that's the overall picture.

And then I'm going to just step back and wait 'cause maybe base load wants to jump in here. But what does that do to electricity markets is a much, much more complicated question. But I think that first part is like, I'm just rock solid on that.

I mean, any perfect market where the primary input is electricity and it has very low barriers to entry, we'll find the cheapest electricity in the world. Maybe that electricity will be cheap because it's subsidized, maybe it'll be cheap because it's stranded, maybe it'll be cheap because of transmission constraints.

I don't know why it's cheap, and maybe it's cheap because of technology, because there's some technological breakthrough that makes energy in a very cheap way. But when that is your number one input in a perfect market, you can always gain an advantage over your competitors by finding cheaper energy.

And an advantage isn't like, oh gee, I have an advantage. No, it's a zero-sum game because of the fixed supply. So when you have an advantage over time, somebody else is gonna go out of business because we're in a super low margin business.

That part of the thesis, I think, it's like a fact. It should be like, it should be a common assumption for everybody before we even begin getting into the weeds of controversy. And I think it's totally independent of how electricity pricing actually works.

Like if you have some screwed up market that doesn't really replace price, electricity in an efficient way that reflects the physics, that reflects supply and demand. Like Bitcoin doesn't care.

If it's priced too high, then Bitcoiners be like, okay, we won't use it. If it's priced too low, Bitcoin will come in and eat it up. Bitcoin will just come in and suck up that inefficient pricing wherever it is.

And we've seen that in a number of places, right? So anyway, I think the non-controversial side and the starting point and basically the conclusion of that article was like, can we at least start here?

All you like critics of Bitcoin, proponents of Bitcoin, can we at least just get on the same page that ultimately, price is going to drive where mining goes. And you know, there's a reason why that isn't a common ground right now.

It's because people are ignorant of Bitcoin's underlying nature. They haven't thought it through. It's a brand new animal in the ecosystem of power users. There's nothing, there's never been anything like it, portable, scalable, attainable, interruptable, fungible, you know, nothing like this.

But also because historically we had a little episode, which is really fresh in everybody's mind, where the price of power was pretty much irrelevant. And that's when we had a huge spike in the price of Bitcoin and we had to run up to 69,000 from, I don't know, a couple thousand and then we had China band mining

and China had half of the hash rate. So in that situation, you could profitably mine on any power that anybody was selling anywhere. - That was a unicorn times. - Exactly, that was a unicorn.

But the problem is that that unicorn is what, you know, the Sierra Club saw when they saw fossil plants that were scheduled to close, staying open and Bitcoin miners moving in there. And that's what the academics saw.

And that's what lawmakers saw. And they were like, this is Bitcoin's nature. Bitcoin is ravenous consumer of energy and nothing limits its consumption. And you know, I was at this conference in Paris where somebody on stage with me from one of the shitcoins said, you know, Bitcoin's gonna build a Dyson sphere around the sun.

Ultimately, it could consume all of the sun's energy, which was kind of based, but at the same time, it's like, well, how is this gonna work exactly with the halving every four years? You know, where's the money gonna come from to build the Dyson sphere?

- Yeah, well, some may have, they boil the ocean's arguments fall flat because they're so hyperbolic. - They're incredibly bullish. I mean, they're incredibly bullish. Bitcoin's price has to double every four years in order for its security budget or whatever you wanna call it.

Let's say the subsidy, the block subsidy to remain of the same value in energy terms, you know, the ability to buy energy. It has to double in price every four years. If you think that the energy consumption of Bitcoin is only and always ever going up, you are either a laser-eyed maxi or you're an environmentalist critic, right?

They're the only people who think that. - Max, you have your hand up. - I do. Do you like how polite I am today? - Yeah, it's very British of you. I just had a couple of thoughts. Firstly, I completely agree with what Troy's saying there.

Like, in terms of Bitcoin miners are going to seek out the lowest cost energy because that makes running their business the most efficient. It's an obvious thing they're gonna do, but what I would think is that sometimes when you're looking at what is perceived to be cheap energy,

cheap isn't always cheap because if there's jurisdictional risk or some other risk, something that seems cheap can suddenly become very expensive very fast. I assume and base will probably go into this.

That presumably has to be factored in. And the other thing which we've seen in Pledminder Monthly and with all the stuff going on is that sometimes people are actually offsetting the cost of their energy against their waste heat being repurposed and that can bring up their efficiency.

So I wondered if base has any sort of thoughts on that and whether that means that there's some hope that we actually have these smaller, less attackable miners rather than just it being the big boys coming in with the most money getting contracts at the lowest rate and it makes it near impossible in the future

for smaller Pled miners because that would be an issue. - That's a great assessment. - Max, why thank you. - I think, again, it really interests me because as Troy was mentioning, if you're a consumer of electricity and it is your main cost, okay?

It's not even an operating expense. It's like a cost of goods sold. The very gross profit margin is and can be manipulated based on the price of electricity in the Bitcoin mining world, right?

You have to. In fact, you must be forced to understand what you're discussing, Max, about how is it priced, okay? I've used many examples and John, you know, beats a dead horse out of it a lot, you know, with any type of commodity you're looking at, whether you own a pizza shop or, you know, a tire manufacturer or whatever.

You know, if you're a pizza shop, you probably want to understand the price of tomatoes, the price of dough and the price of cheese. If you don't understand that, how are you going to sell a large pizza for 15 bucks or 20 bucks or whatever it costs in the UK, right?

- A thousand dollars for a pizza in the UK. - Right, and so I use that example as a kind of a general example, but still, I mean, you have to, you know, any pizza shop, the plastics manufacturer, I mean, they are very price sensitive.

They have to be because their competitors are also price sensitive, right? So if I sell a pizza for 15 bucks and I find out that, you know, they're selling pizza for 15 bucks, what I'm selling a pizza for 20 bucks 'cause my tomato guy can't get me a cheaper tomato, obviously this guy's, you know, either he's doing something

in a financial transactional way that he's manipulating that price or, you know, he's receiving costs at a different price than I am. So knowing how things are priced with electricity, again, is very complex.

You have to know the market and you need the transparency in the market. I feel like a lot of folks fall on their face with this because how many of all of us have been in conversations with people that they spot up a Bitcoin mining operation and four months later, they're defaulting on electricity contracts because either, well,

defaulting on electricity contracts and/or they're in a, you know, there's two different types of markets. You can, you know, there's a choice market, which is what I would describe as a deregulated market where the customer or the consumer has the ability to choose what strategy you want to buy, you know,

and this is the kind of stuff that I deal with on a daily basis where, you know, you can decide what type of strategy you'd like to use to purchase electricity, what type of supplier, which supplier is best, right?

All of that stuff, you can do that or you're in a vertically integrated market, regulated market where you have no choice, you know? The price is 10 cents a kilowatt hour, the end. And then we'll change it, we'll do rate case filings with public utility commissions and all like that.

And we set the rate and you go. I mean, how many times have we talked to people that have said, you know, either A, I didn't know how it was priced, I thought I chose correctly in a deregulated market I didn't and now, you know, I'm on my face or the tariff has changed, right?

The tariff has changed and the rate base filing has gone through and now it's impacted me negatively, meaning the price went up instead of down. So there's plenty of, there's, I mean, if I had a nickel for every time somebody, I mean, literally one sat actually to be more pointed here.

If I had one sat for every person I've talked to with that, I'd have a whole Bitcoin, right? It's really crazy what's interesting. - That's a lot of people. - I did, I mean, I'm serious, there is a lot of folks.

I mean, maybe not quite a hundred million, but still, there's a lot of people, maybe that was slightly exaggerated by my apologies, but it feels like that. - I just started writing zeros here on piece of paper.

- It feels that way because, you know, when people talk to me, they ask me what I do and they go through that whole thing we talked about earlier, they go into these horror stories, right?

And I'm actually trying to prevent that because there is a level of transparency that I and many others like me can provide folks with knowing the market construct, knowing, okay, you're in Iowa, right?

Or you're in New Jersey, or you're in California, or you're in Alberta, Canada, or you're in the UK, right? Wherever it is, hey, there's a tariff to read. There is a market designed to understand if it's in an ISO and dependence is some operator, right?

You can understand that. You can see the ways that you can transact with electricity. Guys, it really just comes down to reading stuff, right? But the problem is the stuff that you're reading, I mean, these tariffs are 400 pages sometimes, okay?

And now you don't have to read the 400 pages, you kind of get to the meat of the stuff, but even reading that, you know, kill a lot divided by kill a lot hours, right? What does that mean?

You know, all these weird buzz words that people use all the time that I'd melt people's faces with, it's just very complicated. - It's not sexy. You know, and hearing you in Troy speaks side by side, you know, when Troy's talking about all these concepts of miners being cheapskates and chasing the cheapest energy

and well, just doesn't that make sense? It's really speaking from a logical perspective, from an engineering and technical perspective in a way too, because you have generators, you have the different fuels that a generator may use, they have a delivery system, and then you have a user.

And that's kind of fun to talk about for Bitcoiners, and it's simple for people to talk about. And then when you come into the mix, and I'm not meaning this to insult you whatsoever, but it is so complicated and in the weeds, and not sexy and technical, that you almost just want to say like, well, anybody please listen to me,

we have a fantastic looking flat load shape, and you know exactly what we want to take, and can you just skim off all of this bullshit, and we just talk about the physical grid, instead of getting into the policy grid, how do we simplify that Troy and base, how do we kind of skim off all of this bullshit?

The problem is you can't do this. I mean, here's the one thought I have, and this is not my question really, it's for base, but the one way to do it is to just produce your own power. And if you build a power plant on your property, and it's not even hooked up to the grid, then you get a direct cost of like your inputs,

your capex, and your output, which is electricity, then you're free of all this. But I think that's really hard to do, and I've asked some power people even, you can correct me if I'm wrong base about like, well, am I allowed to just throw down a power plant, and it's not so simple.

You know, you have to get it permitted, they want you to be part of the system. What I've learned is that the Bitcoin or impulse is to be a sovereign individual, and that means you're sovereign with respect to your money.

But energy, it's very difficult to be a sovereign individual with respect to energy. The grid is a public good. The reason it's so messy is because it serves the public. You know, and the actions that individual actor takes, whether they're a consumer or a generator, or whatever role they play in this many layered system,

you know, the distributor, the wholesale market, whatever the public utility commission, every one of these like entities serves that public good in a system that works together. And so you have to coordinate those actors with regulations if you want the grid to function, and you want it not just for it to function,

but like for it to reliably function in a guaranteed way so that when anybody flips on any device, there's power there for them at that time, and the system works as efficiently as possible to deliver that good, right?

So there's the clean part of my mind that I, you know, it's really like the Econ 101 analysis of Bitcoin, like, hey, it's gonna seek out cheap power. This should be easy, runs up against the reality of the grid as a public good and the pricing as highly regulated, even when there are markets, those markets

are really regulated to protect that public good and price it fairly. And this is also where we have a lot of controversy, of course, because there are lots of things we can do to negatively or positively affect that grid.

And then there's an open question of like, how much should we get compensated for that? You know, if you're stabilizing the grid or destabilizing it, how much should you be rewarded or should you pay for that?

And that's ultimately going to be politically mediated. So we'll never get away from these kinds of conversations instead of like just addressing things in the hash war. You know, like I think the appropriate way for Bitcoiners to address things is like by mining.

You know, it's like you want mining to be done a certain way, do it that way. I wrote a paper with Andrew Bailey, you know, saying that's our ethos. But in general for Bitcoin, you want the software to be updated in a certain respect?

Well, there is a way for you to submit your updates. There's a way for you to change the software you run on your node, right? Like just do it, let's hash and let the chips fall where they may.

That's the Bitcoiner way. But I think with power, it's not as simple. It's not so simple because it's a public good. It will always be politically mediated and messy. - So the very easy and very simple answer I could give to you, Troy, about what you just said?

- Yeah. - Is that we do not make those rules. We do not make the rules that allow electricity markets to function the way that they do because they've been designed a certain way to satisfy what other humans deem as the appropriate way to transact, whether it's in an ISO, whether it's in a vertically integrated utility

or a vertically integrated regulated market. - Just go over that real quick base the vertically integrated system, please. - That's basically the generation transmission and distribution of electricity is all done by one entity.

They tell you how we're gonna generate electricity, what fuel we're gonna use, what wires are available, what size voltage those wires are, how it's transmitted through the wires, all the way into a local distribution company's distribution network.

So the high voltage down to the lower voltage or medium to lower voltage. And then delivered through distribution lines to you. All of those are done by one entity, right? Vertically integrate, they own everything.

And I wanted to kind of get back to what I was talking about FERC because FERC is, you know, the Federal Energy Regulatory Commission. I mean, these are the folks that kind of gave the leeway for ISIS to come in, RTOs to be created, right?

You know, in my notes and you could certainly share these with the folks listening. - We'll post up all of these notes. When Mr. Crown posts this on the Ungovernable Visits website, we'll include a few links to Troy's articles, the minor values one and the miners chasing cheap electricity.

And we'll also link these notes that you've sent base because they're very thorough and detailed. And if you want to talk about electricity, you should probably have these in front of you.

- So there's certain things that FERC does and FERC does not do, right? I can go into details there, but essentially like I was saying before, I mean, FERC was created due to a response to oil crisis in 1973, okay?

And they passed the Department of Energy Organization Act of 1977, the DOE, the Department of Energy was born, and then fast forward, okay? To 1996, order 888 was issued and RTOs Regional Transmission Organizations came into the mix in response to the Energy Policy Act in 1992, okay?

So that allowed this kind of wholesale marketplace to be born. Some of the traditional markets were Southeast, Northwest, Northwest, all that. But my point is with all of that, and like here's a good example, FERC, what they do, what FERC does, they regulate transmission of wholesale sale of electricity and interstate commerce.

They regulate the transmission and sale of natural gas for resale and interstate commerce. They license and inspect private municipal and state hydroelectric projects. And that's just some example, FERC doesn't, what they don't do, they don't regulate nuclear power plants, they don't issue state water quality certifications,

and they don't regulate retail electricity and natural gas sales to consumers, okay? See the difference? They regulate the wholesale, but they don't regulate the retail. So my point is all of this is that there are rules in place, gentlemen, that one has to follow to achieve cheap electricity.

If one doesn't know the rules, and again, the market construct of which you're in, how are you going to know that Bitcoin is the buyer of last resort for electricity? That they always are going to consume electricity.

In fact, to Troy's point earlier, most of the local distribution companies, the utilities, generators, I mean, they just view this as another consumer. Generally speaking, some are kind of getting their, and again, this is all very new to a lot of these folks, right?

They're still trying to learn. There's people out there really going after, you know, public utility commissions, local distribution companies, generators, even, to explain to them the benefits of this really good consumer of electricity called Bitcoin mining, or Bitcoin miners.

But to them, they're thinking, okay, well, now I gotta run more wires to deliver to these people. I gotta spin up another generator to deliver a metric shit ton of electricity to them. So now we have to figure out how a new consumer, 'cause they're just, you know, some of these guys, not all, okay?

But some of them just view them as like another industrial loot. And I don't see the issue with that really, because of, in fact, if you're sizable, to me, anything over, you know, I mean, five megawatts of consumption for electricity is a large consumer, okay?

It just is, all right? There's a lot of physical stuff that needs to happen in order to bring that five megawatts to the consumer, right? All the way through that process we talked about earlier.

So again, FERC instituted some rules. There's rules at the PUC, the Public Utility Commission level. Every state's got one. It may not be called a Public Utility Commission, but there's other terms for that.

Every state's got it, okay? And those, like what Troy was saying, those are for the people, right? We're not gonna, you know, say you're in a deregulated market, like say you live in Ohio or, you know, or Illinois, or not really all of Illinois, but let's say New Jersey, for example, right?

The irregular market. You can go to the utility commission and say, you know what? There's a problem with my bill, and I believe that there's some scandalous or nefarious stuff going on. I'd like you to create a case, open a case for me, because I want further research done towards what I believe is a wrong doing here, right?

They're for the people, so they're also for these utility commissions. They're for the utilities also, right? So not only are they there for the people, but they're there for the utilities, and what are utilities always run by?

Rules and regulations. The regulatory side is huge for energy, right? 'Cause it makes the market construct work in a way. I'm not saying it works great, okay? That's not what I'm saying, but I'm saying it works in a way that all of us plebs have to adhere to, okay?

We have to run this. You can't, as much as Troy would want to say, and I don't disagree with you, Troy, to be honest, I mean, heck, I would love to have my own electric generation in my backyard.

I mean, that would be great. That's a sovereign way of thinking, right? But there's rules in place to not allow that to go down in the way that maybe the view as the plug would want it to go down, right?

Say I wanted a five megawatt gas turbine in my backyard, right? Or a megawatt. Say I wanted to have a thousand KW natural gas fired. I have gas, I live in Erie, Pennsylvania. I have all this gas.

It's all over the place, right? The shale land, okay? I want to put a thousand KW electric generation asset that is fueled by natural gas on my property. You know what I have to do? I have to ask people if I could do this.

- Sure. And that's the whole, you know, the rules part, man. It's just, it's just, you know, either you want to play by the rules or you want to say, I don't want to play by the rules and the end, right?

- Sure, case and point here, recently, stronghold wanted to burn tires in Pennsylvania, similar to what they were doing that burning that excess coal. And everybody was up in arms. No, I don't know the process for them recycling the tires and burning it.

I imagine they've probably figured out a way where it's not exactly like on the Simpsons with a great tire fire burning in the middle of town. I'm sure they figured out some things. But here's them trying to generate their own electricity and they're bumping up against regulations and they're bumping up against the community

'cause they don't like the word, the phrase burning tires. How do we get over things like that, Troy? You know, even if you had a small hydrodame, well, now you're, you know, all rivers and streams lead to a larger body of water, but you're always in some way going to spot up against these regulatory commissions.

- I mean, some of this is like, Bitcoin itself is permissionless and global. So you're describing a whole set of regulations that's local to a jurisdiction. And if that jurisdiction is saying no to something that physically makes sense, you know, chances are there's some other jurisdiction on the planet that will say yes.

- And Springfield. - Yes, exactly. Actually, the tire thing is interesting because it's like so many, it's much like strongholds main business of waste coal remediation. Burning tires, incinerating tires in a controlled environment is considered one way of remediating the hazard, environmental hazard of waste tires.

PRTI is already doing it to mine Bitcoin in another state, but it sounds bad, kind of like burning waste coal also sounds bad. You know, before you look into it deeply and realize it's polluting the air, it's polluting the water and the ground, and it's off-gassing CO2 and many other harmful gases just lying there.

Some of it is actually burning in Pennsylvania, you know, slowly, and that that waste coal is the legacy of 150, 200 years of coal development that basically powered the history of this country, including and most notably when Pennsylvania hit its peak in World War II, you know, where it built the military,

the skyscrapers, many of the skyscrapers, you know, over in Asia, in Japan and Korea, right? Like U.S. Steel, Bethlehem Steel. Like that, this is just like so many stories. Bitcoin exposes a kind of deep, deep facts about the power system, the way our energy system,

and I agree that energy is life. It's what makes the entire world that we live in possible without it, it's almost hard to imagine how quickly civilization would collapse and population would collapse down to like subsistence farming levels, but that energy system does impact our world in various ways that are unpleasant or harmful,

you know, locally, and all forms of energy production have impacts, all forms of human economic activity have impacts on the environment. So Bitcoin comes along as this kind of flashpoint, and it's not just that it interacts with existing rules.

If it were just treated like any other load, I think it would be fine, but it isn't. It's treated specially, it's like this new scary thing called Bitcoin, and the kind of normal ways in which we impact our environment all the time are only seen or highlighted once Bitcoin enters the picture, right?

I mean, as I see it, like Central Pennsylvania is this like side effect of the incredible American economic engine through the last 200 years, and that waist cold, that stronghold is dealing with imperfectly, but there isn't a perfect way to deal with it.

It's impacting the people that live in those regions, and most of the time, we just ignore it. I say we, not the people who are there, obviously, but, you know, I mean, coastal environmentalists like myself, right?

So Bitcoin has just got a way of revealing this. And in terms of where it goes and how it deals with all these rules, I mean, this is kind of the amazing thing. There's never been a tool of carbon arbitrage or regulatory arbitrage that is better than Bitcoin because normally the way you want to regulate

against some kind of externality in your local state, you pass a law that either prohibits it, that activity, or adds a tax onto it. And then you can prohibit or tax imports for other countries that produce the same good, right?

That's the Pigouvian tax structure. With Bitcoin, you can't stop its production anywhere. You can't even change the amount of Bitcoin that's produced. It's algorithmically fixed and that fixes the global reward.

So if you ban it locally, you have no effect on the global expenditure of energy for Bitcoin whatsoever. You might affect it in the first few weeks, but just like when China banned and we bounced back, you know, it'll come back.

You can't control how much Bitcoin mining there is. And then because Bitcoin is fungible and because it's transmitted on the blockchain itself, you cannot tax it with a tariff like coming across the board.

You can't stop it at the border and say, "Oh, you're a Bitcoin coming from elsewhere. We've banned Bitcoin mining." So you can't come in here or we've taxed it, so you have to pay a tax. So it's a carbon arbitrage tool.

I think going back to an earlier point, even the jurisdictions that make it hard to mine Bitcoin, whether that's true funky ways they price electricity or just outright bans or whatever, if there is physical energy that's not being used in some location around the world, let's take a large dam that's controlled

by a corrupt government that also is threatened by Bitcoin. So they make Bitcoin illegal. This is, I mean, this describes China. This may describe other places. They still have excess energy.

And there's nothing stopping that government themselves from mining with that cheap energy. Like bypassing the bullshit rules, making Bitcoin and then just selling it on the open market and using fiat while forbidding people from doing that.

So my hypothesis is, of course, jurisdictional risk matters, all this stuff matters. But ultimately, it's about the energy cost of energy, right? Not the fiat cost. Just ultimately our world has a fiat layer, an illegal layer, but at the bottom, it's physics.

Like food requires fertilizer to grow. Planes require jet fuel to make it from point A to point B. Machines require electricity to run. And if your political scheme is not allowing a perfectly fungible good that is mined in a uniform way to be mined where the energy is scarce.

Okay, there's like a slight discrepancy between like the fiat layer and the physical layer, but eventually machines will find their way to excess power, just in terms of supply and demand of that power.

And I know this isn't like, this is the opposite of like advice for miners right now. If you wanna secure power in the US, you know, obey the rules, you know, get somebody like base load to help you interpret a 400 page like tariff.

And make sure you don't get yourself in trouble and hedge yourself in the most sophisticated ways possible against the cost of power going up. That's all good advice for you. But then just thinking like stepping back, long term, none of that stuff is gonna matter, you know?

Like my hypothesis is that corrupt governments that are sitting on cheap energy terms, cheap in terms of supply and demand, will exploit those resources for Bitcoin. And when they do, they will drive out of business, Bitcoiners who are paying a lot for energy.

And likewise for governments that are subsidizing energy, if they overly subsidize energy, Bitcoin will come in and eat up those subsidies as much as possible and drive those governments into insolvency, right?

Like, it's like this purifying fire, you know, Bitcoin. It's just gonna eat through the, it's gonna eat through any bullshit that creates a misalignment between physics, supply and demand and what is legally, regularly, kosher.

- Max bit by bit, polite British gentleman. (laughs) - I hear what base is saying, I hear what Troy is saying, and I'm wondering if it's like a sort of middle ground, John, as you know, I like to bend rules if I can't break them.

Ideally we want, or I want as many small miners as possible to be able to compete is preferable. It's more decentralized, it's less attackable. I don't like this idea of only being able to compete if you have the economies of scale.

So is there something where you can please the Greta Thumburg lovers by, for example, if you've got a collective together of enough small scale miners to buy very cheap land that's not buildable or not livable and potentially have like a load of solar that people bought collectively

and could then put their miners there? It's something along those lines where it would bring the cost down, it would keep the Thumburg lovers happy potentially. When you were talking the other week, John, too, was it Dave?

- Yeah, Dave at the desert. Dave, and he was talking about getting these solar units down to like $30 a pop 'cause he's getting them used. Presumably if you're buying loads, you get them even cheaper.

Is that like a pipe dream or is that something where we could do something? 'Cause we do have a fucking lot of plebs who do wanna mine and it is important to have them being able to do that.

Is that a sort of middle ground, something along those lines? - I'd like to answer that question or attempt to answer that question, Max, 'cause it's a great one. And I think the underestimation available in the community, there are a tremendous amount of unicorn situations that miners do on a daily basis, right?

I mean, you got guys, you know, trying to build their own sovereign, you know, mine where it's not connected to any grid, right? Totally disconnected. There's tremendous amount of people, you know, doing that, well, I wouldn't say tremendous, but there's a decent amount of the folks that we all kind of know and understand

in the community that are trying to kind of opt out, right? Of those rules and regulations that the Greta Thunberg, you know, waves her iron fist on, right? But what I could tell you is that dealing with the, what I would consider a small miner, you know, mining, you know, there are different rates

when you're mining for residential electricity consumption versus a commercial or industrial user of electricity, right? There's different rate structures just here in the US, I'm sure there is all over the world.

And so that's an uphill battle in itself, right? Mining at your house versus mining, you know, with a commercial meter, industrial meter is a total different thing. However, if you do these two things, you will please a lot of people in the energy industry.

If you print the load, when I say print the load, when you, if you're saying you're going to consume a certain amount of electricity, consume it, okay? And then if you pay at least one invoice, for crying out loud, just pay one invoice, right?

And that invoice can be determined based on a strategy you've implemented with folks helping you do this or a simple utility tariff that you like and you feel that it's cheap and it's around the clock electricity, right?

And it's priced accordingly. Just pay the invoice, print the load, pay the invoice and things will really turn out okay for you, okay? When I say okay, meaning you will please the Greta Thumburgs, okay?

Because there's been a lot of folks obviously coming in, I want, you know, 100 megawatts, 500 megawatts, I want all these megawatts, I want gigawatts, all this stuff. When you start using that type of request, you are nitching yourself into a small bucket of consumers of electricity, the lows, the Home Depot's of the world,

the targets of the world as a blanket example that are asking for those types of purchases from suppliers and alike, right? So when Billy Bob Mining LLC asked for 100 megawatts, everybody's gonna tilt their head to the side and go, "I'm not sure about that," right?

And then the sentiment gets created in the industry where it is quite ridiculous, right? Where we have people like myself trying to change and literally sort out and do a complete 180 of the sentiment from electricity suppliers, utilities and all of the folks alike, because Bitcoin miners are great consumers of electricity.

They will, if they so choose, if the humans that are operating the Bitcoin mines will be willing to cooperate and do what they say they're going to do. Hey, Mr. Bitcoin miner, this is your retail electric supplier or your qualified scheduling entity who schedules your load into the grid, we would like you to shut off in the next hour.

Can you do that? We'll actually pay you to do that. That's a unicorn thing, but we can talk about that. If they do this and you just are a good consumer of electricity, okay, back and forth mutually between all the parties, things get really good for you.

In fact, I've had some folks get the red carpet who laid out for them because they're actually doing that. You know, and there's big miners, small miners that are doing just that, right? And it's a relationship.

The relationship with the counter-parties between retail electric supplier utilities, you know, there's things called qualified scheduling entities, which are just parties that schedule load in, they're responsible for scheduling it, right?

And making the grid and the consumer kind of marry each other and have that relationship. There's other entities as well. Sorry, my family's screaming for some reason. If that is done, okay, it gets a lot better, right?

But the folks that have come in and out and in and out, you know, over the past, you know, maybe call it five or six years now, that creates just a negative sentiment that is really hard to go back on, especially when people are defaulting, you know, you're having folks just have accounts receivable

that are very high, the suppliers, you know? So it's just hard, you know, and like I said, there's unicorn stuff that people are doing, but there's also stuff where if you just had the right strategy, right?

If you're in a market that you truly know, you got folks in your side, the counter-parties that are all on the same page, supplier, utility, consumer, all those folks. And if you just do what you say you're going to do with consuming electricity, there's no problems.

My opinion. - Would you risk as a minor, putting up a bunch of capital expenditures just on your invoice to prove to the electricity suppliers that yes, I can pay, I've printed the load, I've paid a few invoices, can we talk now?

Would you take that risk in certain situations knowing that, okay, you prove it to us, then we'll talk? - I mean, I would. (laughs) You know, I mean, it's just like developing a relationship in any market between, you know, business owner and vendors, right?

- Yeah. - I mean, obviously if you've been doing business with a particular vendor for decades, right? You're going to get unicorn stuff that maybe the next guy's not, right? And if that relationship has been passed down from, you know, it's a family owned business, let's say, and it's been passed down over the years,

I mean, that relationship will continue to grow through generations, right? - I've heard this anecdotal even from where I sit that there's a lot of like local politics involved. You can develop a good reputation, build relationships as a small minor and be very well treated.

So there's a kind of deals don't necessarily scale with your size, but it's more complicated than that. I'd like to, if I can go back to Max's question about scale and whether, you know, whether there's some way to achieve distributed mining and avoid centralizing hashrate and maybe at the same time use renewables, local renewables.

I've spent a lot of time thinking about this. I'm still not sure what the answer is. I think we need more technical developments. We're not there yet. One of the things that kind of gets me excited about solar actually is staying in DC for the whole journey from the photovoltaic panel to the ASIC because right now we convert DC to AC

and then back to DC inside the minor. And there's efficiency losses there. And also I didn't know this until about a year ago, but the typical solar generation facility has a lot more nameplate capacity than it actually delivers to the grid.

And that's because it makes sense to buy undersized inverters that convert the DC power to AC to feed the grid because you get a nice flat profile of output when you size down the inverter.

So you say you've set the inverter to only handle two thirds of your maximum power output. Then during the part of the day where you're at or above that maximum, you have a nice flat output.

But also inverters are expensive and you don't have to pay for a big inverter when you take the strategy. So it makes sense to kind of overbuild the PV and then underbuild the inverters. And that means there's all this solar power in DC form that never reaches AC and just gets stranded.

There's different things to do about that. You could charge a battery with it, charge the battery in DC and later feed the grid with it. And batteries are kind of standard with new solar generation.

But there's a limited amount of that clipping that you can save with batteries depending on the situation. So I think we're going to see and we are starting to see technical innovations that allow you to stay in DC.

And that might, I'm thinking like solar installations of all sizes, it's getting really hard in a house, but could be paired with a certain amount of mining. One of the companies I work with optimize infrastructure, Ali Chaherazaz is this founder CEO.

He has software that basically models out solar installations with and without mining, including capturing this DC clip power. And it reduces the payback period for solar if you can mine along with it.

The amount of mining, the amount of batteries that optimizes that construction and how to split power on a moment by moment basic space between a six batteries and the grid is a complicated modeling question.

And that's kind of what the software does. But I do see a future for that because in a way, the solar that is not feeding into the grid at all, for instance, or for that matter, as the grid itself achieves higher and higher penetration of solar, that solar power becomes worth less and less because the demand of the grid doesn't match

the solar production curve. So the sunniest point of the day, you're not using any more power, but now you've got all these solar panels feeding into the grid. You get what's called solar deflation, you get curtailment during those times.

What's happening there is wasted power and the amount of wasted power we're gonna get is only going to increase as we throw up more and more solar panels. And the IRA and other incentive structures are encouraging more and more build out of solar.

So this problem is only gonna get worse. So as I see it, there's sort of, yes, there's wasted solar power to be harvested by Bitcoin miners and it should be basically free. The downside is that it's not there all day.

Bitcoin mining traditionally has been a 24/7 operation and it's been that way, not by choice, but because machines depreciate fast enough that even if you have free power, during a lot of times of our history as an industry, even with free power, you can't profitably mine if you only have four hours of uptime a day, for instance,

because you won't pay off your machine in time before it's worthless. So I think that's changing too. The improvement for ASICs is slowing pretty severely. I think we are approaching the physical limits of chip design.

I think we have a lot of gains left to be made in terms of cooling. There's a lot of design gains still on the table, but I think very few of them are gonna come from where most of them have come from in the past, which is just shrinking the circuits on the chips.

So that means that when you buy an ASIC, you might have a five-year useful life for it, or even more, if your power is free, maybe even more. And so I'm pretty optimistic about the ability to go grab this excess power at a large scale or a small scale without sweating the uptime, provided we get the right hardware advancements,

provided we get the ability to buffer the power in the appropriate way, or the ability to overclock and underclock as the solar intensity rises and falls, ideally, that'd be the ultimate for efficiency.

Cloud goes over and your machine just slows down, and then sun comes out, your machine speeds up. We need machines that are robust enough to handle that. But I'm optimistic about that kind of way forward.

And one other thing you mentioned real quickly was heat, and I agree with you that reusing waste heat is a scale-limited thing, right? Nobody needs as much heat as riots, rock-dill facilities producing.

Like they could heat if that was like district heating. Oh my God, they could, you know, they could heat Boston with that thing. Nobody needs that much heat in a small place. So needs for heat can be met with very small installations of miners, and if they provide an alternative revenue stream in a very, very low margin environment,

that makes a difference to the bottom line and favors the smaller miner. Of course, on the other hand, we have efficiencies of scale, particularly when it comes to maintaining machines, repairing machines, fetching them when something's wrong.

The labor to send somebody down in the warehouse, like down a few rows in upper ladder to pull a machine and fix it, is very different from sending a repair person out on the highway and down into a suburb into somebody's house or into an apartment complex.

Very different. So you get some economies of scale with mining, but you maybe don't have access to revenue streams that are limited in scale. And one more thing is demand response participation is also going to scale down, and that'll be available to plaid miners.

So the alternative revenue stream of that-- we see big miners taking advantage of not just price responsive curtailment, but participation in programs. What is it? FERC Rule 2222 makes these distributed energy resources that are smaller in size able to aggregate and participate in these kinds of programs.

I think we'll see more of that. So I'm actually cautiously optimistic and hopeful that pleb mining isn't just like a one-off of somebody heating their tub or drying their clothes or just like an off-grid, like 100 acres ranch guy, like off-grid operation.

But we'll have something in this intermediate scale that you're talking about that takes small mid-sized solar installations or wind farms and throws Bitcoin miners behind the meter there to take extremely cheap energy that is otherwise not being used, because our loads don't match our generation

in this new high renewable penetration grid. Troy, I think if we want to have our own electricity generation, all we have to do is not mention the word Bitcoin. I think that's where you do well.

Where you come into play. Because the wordsmiths of the world, the people that know how to speak to EPA folks, to environmentalists, that I think you do very well. You know, you, Jen or so, Andrew Bailey, even our buddy, Hashing to Heating, you guys do a pretty good job of speaking that language.

But you're on the right side, you're on our side. So you can say, listen, as far as coal remediation, well, you're already doing that. Why don't you allow somebody to come in who's probably going to make more money independently, not tied to the tit of government subsidies to get rid of this coal safely, or get rid of these tires safely.

But they're doing it on their own. Their profit model is their own. It's not dependent upon subsidies that do come from you. Oh, it comes from my tax dollars. Okay, well, I feel differently about that.

That's where I think you guys do well. - That's very kind of you. I just have to step in here, because stronghold is reimbursed by the state of Pennsylvania for that remediation. - It doesn't always have to be that way.

- It doesn't have to be that way. I want to make the point that this bothers me so much with the critics of stronghold. They basically allied the distinction between waste, coal, and coal.

And they just see it as a coal-fired plant that is polluting the atmosphere. And they say, you know, Bitcoin's destroying the planet. It's burning coal. They ignore that it's waste, coal remediation, but more importantly, they ignore that that business would not be profitable without subsidies.

And those subsidies are not for Bitcoin mining. They're for anybody to do this, right? And like, if you want to remediate coal, you could qualify for the subsidy in the same way. So it's frustrating because if you're just anti-subsidy, if you're anti-Bitcoin, it doesn't make sense to point to a state sanction and sponsored Bitcoin mining.

- Right? It's like, no, that's-- - It is subsidized. If we didn't have the subsidies, we wouldn't have the same electric generation we have today, the end. - I want to make a point here. And I don't mean to cut you off, Troy, what we're getting kind of long.

I have an idea, everybody. So who's in it with me? - No. - Yeah, no. Do you just wait a minute, Max? The centralia, coal-fire that's been burning since the '60s, I think there's an opportunity for us to mine Bitcoin there in some way.

Base, you gotta help us figure that out on a regulatory side. And Troy, you gotta get the messaging out there for everybody, that there's some way that we can sink in large amounts of water and then extract the steam power from it.

We need some good engineers on this. Before we go to final closing statements, Base, you haven't talked in a while. - Is there some messaging that you want to get out before we close things out here?

- I don't need to talk, man. You know, sometimes you just gotta listen. I love listening to Troy because, like I said, I mean, this kind of stuff really makes you think about, you know, what does Bitcoin mining look 20 years from now?

Right? - Exactly. - What does it look like 50 years from now? What does it look like when I'm long gone, when we're all long gone, right? Our kids are even long gone, right? What is it actually going to look like?

And I could tell you, can you guys hear me all right? Is the mic okay? - Yeah, you sound good. - Okay, okay, good. The electricity fleet, generation fleet mix is changing. Troy touched on that.

And I wrote, if you guys really want to look at some really staggering numbers, you could read my info flows, specifically the one I released today. It is quite crazy what type of fuel mix that is being ushered in and what type of fuel mix is being ushered out.

And I'm not like waving my hand like it's some kind of alarm, but the base load generation, you know, the stuff that runs all the time, you don't need to ask it to turn on 'cause it can be on.

The demand for it is all the time. There's base load that runs consistently 24 hours a day, seven days a week, 365 days a year, okay? Maybe not 365, but you know, 'cause there's some maintenance involved, but it runs way more than some other fleet mixes that are out there, right?

So if that is changing, which it totally is, how do these industrial consumers of electricity or even all the way down to somebody that wants to run an ASIC all the time? How do they function?

It means that the way that they function is going, you're going to have to change the perception of how you operate that machine, okay? Because to Troy's point, the sun doesn't shine all the time in every place of the world all the time.

And the wind doesn't blow all the time. I'm sorry, folks, I don't make those rules. None of us make those rules and they're rules, okay?

This is a problem for me because when you buy an ASIC, do you wanna already buy a, you know, this application-specific integrated service, machine that is hashing functions, okay? Hashing nonsense.

Do you wanna buy it knowing that you're only gonna operate at 60% of the hours of the year? Are you okay with that? Because ultimately the generation fleet mix that generates electricity from energy resources like coal, nuclear, wind, solar, water, gas, natural gas, if the base goes out and the treble comes in

which it already does and it already is doing. And Troy even mentioned the mechanism that is ushering that fleet mix to change, which is the Inflation Reduction Act, tremendous amount of money coming into the marketplace.

And even though it's hard to get for some, for most folks, it's available and you can go get it, you know, you gotta work to get it, but you can, and it's being implemented, right? So this is, you know, I mean, those, if that changes, your automatically have to change the lifestyle of that machine, okay?

And when you change the lifestyle of that machine, that currently right now, that thing is designed to run all the time. It's not really designed to do fancy curtailment strategies and demand response related stuff, right?

I mean, it's forced to because again, it's a choice point. You know, there's demand response programs and silvery services you can provide back to the grid and all these different things that the machine has to do it.

In fact, there's, you know, firmware out there that is allowing those things to happen and it's a good thing, okay? But ultimately the thing is designed to run, right? It's kind of like a BMW is designed to run in the Audubon.

- There's a BMWs. - Hey, you know, but still, that's, you know, I just try to touch on that a little bit just 'cause, you know, nobody wants to buy an ASIC, in my opinion, that would automatically say and agree to and slap a high five to say, yep, I'm cool with the 65% uptime on this machine per year.

I'm cool with that. I don't know about it. It just kind of, I tilt my head to that a little bit, so. - Can I just jump in real quick here? - Sure, Jordan. - It's like everything to me. I mean, this question is everything.

How robust, first of all, how robust are machines that are designed to run with 100% uptime roughly? You know, when they're 65% uptime and also not in just solid blocks, but lots of switching.

And to what extent, and can that be remediated and how expensive would it be? That's like a technical question. I don't know the answer to have been asking people about it for a long time.

But another question or point I gotta make here is that as I see it, price and uptime are two of your biggest, most important considerations to have as a minor, right? So if you say, would you buy an ASIC with 65% uptime?

I'm like, no, what if your power is zero? And your alternative is to get 100% uptime, five cents a kilowatt hour. Okay, let me do the math. Suddenly I'm open to it. Suddenly it's like, oh, well, maybe, you know, if it's free, or what if it's like one cent?

Okay, so, you know, I have on my board, I'm at my office, on the board behind me, I've got like a graph of exactly this curve, which, you know, I've cut a plug through the spreadsheet, not including the failures to the robustness of the machine.

But basically the question that every minor is asking themselves, which is, once the really cheap high uptime power is gone, how much of a reduction in price makes it worthwhile for me to take how much of a reduction in uptime?

You know, that's gonna be like a graph. And I think that a year ago, two years ago, the answer was like, screw it. I won't take any reduction enough time for any reduction in price, right?

Because uptime was all, because we were printing, we were, because the electricity was not a big part of the expense. It was mostly capex. But now that depreciation is slowed, capex is shrinking relative to opex as a percentage of your expenditure.

It's like, hmm, let me calculate. So that's kind of where I'm at right now. - It's an interesting proposition to bring up to minors to say, you know, you expected 100% uptime and you were able to calculate that all out based on a rate that you were given.

But I wonder how many would take up on that. It's very tempting. It's extremely cheap power. You're gonna run into a number of different complications there and spending machines down and bringing them back up.

But I see the potential in it all that it is a possibility. But I also see the advantages of having a regulated structure. In some ways, I think there is an advantage to a vertically integrated structure.

You know, everything is controlled by one entity and you know what to expect. And then you have the really far out, you know, wild cat way of doing things completely stranded. That's also fascinating as well.

We're gonna wrap things up. I actually have three pages of notes and questions here that I didn't even get to. And I think that's because this conversation was excellent, really. Come from two different ends of the spectrum as far as thinking about energy and Bitcoin mining.

You've got the base and you have the treble. And I think we here we did a good job of making some beautiful music together. Thank you guys. Max, do you have anything to add before we head out?

No, that was really good. Need to keep the conversation going. I think there's some good points there. And I'm sure there's a way to weasel things for the smaller miners. We'll get there in the end.

We will win. We love weaseling. We do. Thank you gentlemen, both for joining us. Thank you so much for having me on. This was really, really fun. John, can I leave a closing remark? Absolutely.

I tweeted this and I'll be brief with this. You know, we have the halving coming up. The revenue stream is going to be cut by 50% and a lot of miners are talking about it. Okay, they're trying to understand what to do.

And I would sound this voice to the folks that are trying to understand what to do. If you're able to be in a market where you can arbitrage electricity and you can train the ASIC to be, if not the best electricity trader that's available by computational work with this ASIC.

And you have a market construct that allows you to function in that way. And the way you're doing that is through the ASIC mining Bitcoin and Bitcoin is the cherry on top. Not the other way around.

Not, I have to mine Bitcoin and I'll worry about my electricity price later. Switch it around to become focused on electricity pricing. The market constructs available and allow yourself to become with this ASIC, a very sophisticated electricity trader by telling it what to do.

There's programs out there that exist that can allow you to do that. In fact, you may be sophisticated enough to build your own opportunity. Fine, get in that mode because electricity pricing, it's a marketplace.

There's extreme volatility in certain markets and there's some that are more stable. But if you say, "I want to be electricity trader with this ASIC and then Bitcoin is my reward," you'll thank me later because you'll be having proof for multiple havings to come.

So when we talk about the long-term vision of Bitcoin mining, if you have that in the front of your mind and in a market that you can do this in, it's a great trade-off in my opinion. - Well, thank you very much for that base.

There you have it. Become a sophisticated electricity trader by mining Bitcoin. Thanks, everybody. This has been Swill.