The Last Trade E044: Bitcoin Mining’s Next Epoch with Bob Burnett

Brian Cubellis (00:02.83) Woo! Gentlemen, Bob or not, welcome to the show. Thanks for having me. Great to see you guys. I'm a little, I road dogged it hard yesterday to and from Houston up at 5 a .m. in the car by 5 45 Houston by nine back in Austin by 7 15 at night. That one will take it out of you. We did, me and Cam did that a few months ago and you go there in the morning and you get back. It's nice to be home, but it's also, it's just rough. just being in a car for like six hours in the day and then meetings in between. It was rough when it was energizing. The Empower conference was good. I like those guys. Do you feel empowered? Yeah, I feel energized. It was good. I got to see Steve Barber whenever you get to see Steve Barber. It's a good day. Oh Yeah, that's one of my favorites You know what? I always like though. I miss it when I was younger I lived in Chicago and I had an hour and a half commute every each way every day I did that for seven years was a horrible way to live by the way horrible way to live But what I will say is it really gave me a lot of time to think you know and so I I always found the drive time like to be good for mental clarity. And I don't do it very much anymore. Although I live in Naples, Florida now and much like between Houston and Austin, you know, it's roughly a similar distance from where I live to Miami. And I have to go to Miami a lot for, you know, Bitcoin related stuff. And that drive, there's a place called Alligator Alley in Florida. It connects the Southern, you know, the Southern part. There's nothing there. Right. So, so I always just kind of zone out. And I have a lot of mental clarity comes to me through Alligator Alley. I was telling Jesse, it's between Houston and Austin when you get to the ranch, the stretch of road that's just a bunch of ranches, hundreds of cattle, wildflowers blooming. It's a beautiful ride home. Yeah, and the Alligator Alley, they've got the alligator farms and fan boat tours and stuff like that. Oh, yeah. Yeah, yeah, yeah. Brian Cubellis (02:13.774) Yeah, I don't have to. I have him right in my backyard though. I have my house. You're not interested in alligators. Yeah. Well, I'm still fascinated by them. When you get up close to an alligator, I mean, there's something just kind of mesmerizing about it because they are just, you know, we have a couple. So I live, it's in a golf course community, but I have a lake right behind my house. And we have several alligators living in there. One's about an 11 footer. And whenever that bad boy comes out and he's kind of just takes command and just lays on the bank and it's just awesome. Like the power of those things. It's terrific. It reminds me of when I used live in Charleston, South Carolina. We used to have gators all throughout our development and we were bad kids. We used to go fishing. If we got bored fishing, we'd pull out the slingshot and shoot rocks at the gators. It was bad. Just the ear and take them off. Yeah. Got to be glad that was a one way interaction there, Marty. Well, you learn, you learn quick. You run in zigzags. Yeah. Yeah. The gators come at you. They can't turn. So you got to just get horizontal. It's the it's very Darwinian too. Like so only only the quick and smart survive. Brian Cubellis (03:38.926) That's a great segue into the topic of this conversation, which is mining. Only the quick and smart survive. You know what? That is great. That is a great segue. Yeah, it is a great segue. I think, yeah, building on where I came from yesterday, the Empower Conference run by Digital Wildcatters, who are doing really cool things in the energy sector, and they're attuned to what's going on in Bitcoin mining. So they throw this conference annually. I think this was the third annual Empower Conference trying to get the energy sector. and the Bitcoin mining sector together to cross pollinate some ideas and give updates on where everybody is. And I think I was only there for one day out of the two day conference yesterday. And I think that was one of the larger themes is that we're heading into a new paradigm for the mining industry, particularly the publicly traded miners where historically they've been able to raise money by ASICs. Announced pr is that they have more a six that are going to grow their hash rate than their stock price has appreciated from that it seems that Now that the market has other options in the equity In the equities markets to get proxy Bitcoin exposure that that strategy is probably not going to be as successful as it has been in the past especially when you consider how competitive the markets gotten that we have another having on the way and that equity analysts are becoming more privy to the actual economics of mining operations and the fact that just raising money, buying ASIC futures orders and announcing that may not be the best strategy from a profitability standpoint. So with that in mind, Bob, what are your thoughts on where we are now in the mining sector, particularly for the publicly traded miners? Yeah, well, to your point, Marty, I think all you have to do is look back at the last handful of years and you look at the big, the financial performance of the bigger companies, you know, riot marathon, um, clean spark, that class of minor. And what you'll just see is all these companies bleeding red year after year, but they even in the best time. So if you look at like, uh, 2021, which should have been. Brian Cubellis (06:02.286) just an absolute bonanza, you still see red in terms of operating profit. And, you know, as you said, I think it was a game of leveraging access to capital for them and then getting this insane market reaction to any news that they put out because they were acting somewhat as a proxy for Bitcoin for those who... Maybe couldn't get it in other ways and the EFTs change that. So I think this focus to like, hey, businesses are meant to make money, whether you measure that in fiat or you measure that in Bitcoin, they have to do something positive and they haven't been doing something positive. And I think part of that is we were kind of joking. We're talking about being fast and smart. Well, I remember going back in that time period because my company Barefoot Mining, we've been doing this since 2017. And I remember having that. that philosophical discussion with myself and some members of my team and some of my close friends, like, you know, should we consider going public? And for those of you who don't know my background, I was at Gateway, the personal computer company. I was the chief technology officer there. And I helped take Gateway public. We became a Fortune 200 company. And so I know what it's like to sit in the C -suite of a big public company. And I... just personally didn't want to do that anymore. It's a terrible place to be. And it incites or incents behaviors that I don't think you can get away from that force you into this high time preference mode of operation that goes completely against the ethos of Bitcoin. Brian Cubellis (08:06.286) Right. You know, so and you might say it might be easy for an individual to say that, no, they're real Bitcoiners or Bitcoin Maxi, whatever. But the truth of the matter is they signed in blood to adhere to a different ethos, which is they have to serve their shareholders and they get very beholden to 90 day time cycles and what analysts think and not what's not what's really best for. for the long term of their company or the long term of Bitcoin. And I kind of operate from the ethos like, hey, I'll do what's best for Bitcoin in the long run in the belief that it ultimately comes back to me. So, you know, we talk a lot about economic incentives in Bitcoin and how it has those, but I think the time horizon is also part of it. So, you know, I do what I think is best. for the long run and I'm willing to forego the short run for the long run and that's true for me and it's true for the company. But this thing about being fast and smart, I think the big miners also have a problem. And the problem is that if we were gonna go put up a new site and say we had our choice of... doing one 100 megawatt site, or we're gonna try to do, let's say, 52 megawatt sites. Most people would say, well, let's just go build the 100 megawatt site, the one site. More efficient, you know, blah, blah, blah. But doing so means you're probably looking at maybe a 12 to 18 month horizon to get something like that done, between finding the energy, raising the capital, all the... all their approvals, acquiring all the transformers and the servers and all that other stuff. That's a lot to put together. And so you raise all this money and then the return on the money doesn't come for a long time. And the Bitcoin world can change dramatically over that time period. So what I'm about for Barefoot is we decided that doing small things quickly, Brian Cubellis (10:26.445) is a much better approach than trying to do big things slowly. And so, you know, we're, we're all about like, Hey, if we find an advantageous energy situation and it's 300 kilowatts, bam, we'll go do it, you know, cause we probably can do it in a matter of weeks. If it's a megawatt or two megawatts, like that's our sweet spot. Like do, do, do small things quickly where we can get. money into play, we can start generating Bitcoin quickly for the investors. We start creating returns quickly. And by the way, we're forced to be cashflow positive and profitable almost from the beginning by definition, because we don't have the, we don't have the big bags from an IPO or, or a new stock issuance or something like that. That's really just to jump in like, Bob and I were catching up early in the week and he was telling me this story and I was like, A, I think we knew it. We had the luxury by not being close to mining, but being close to you and the gigas of the world and understanding this natural order of congruence with everything is you have to generate cashflow. You have to have a natural order of growth from a first principles perspective. And Bob, you made the point of it's from a long -term Bitcoin like altruistic. And I think a lot of people align with that in the sense of if you do good, in this space, it comes back to you. But then it's also from like a first principles to get to that other side. You have to be thinking in the short order of like, how do you do good for yourself as well? And Bitcoin in the sense of you have to produce value at a lower cost and the market's returning it to you so you can stay around. And so then I think there's something too, and I'm glad you talked about the gateway background and seeing that because that alludes or signifies you, you know, I was looking at your LinkedIn, I think 1991 to 2004, like there's a lot of learnings from the older markets and traditional tech and the growth that was seen there that I think you're bringing to what you're explaining because what you're describing doesn't get told to the general pop populace or the market from a larger perspective and just like that they're not naturally organic, fundamental driven businesses on the large scale miners. And so I think there's a lot of your background that you're bringing to this that is important to discuss and also just like. Brian Cubellis (12:45.389) from people building, whether it's miners or just like anything, financial services, custody, it's like this notion of you got to kind of produce value at a lower cost in the market. We'll give you, because if that cost of capital changes, we've seen it change. If you're caught off sides, that liquidity dries up and now you're looking at effectively unit economics that don't make sense. And this is like the tale of the past 20 years when you look at WeWork all the way down. Yeah. Yeah. And I think the small scale, Quick deployment approach. I think it's becoming very apparent in the Bitcoin mining world that maybe it's not very apparent. It's apparent to me at least that this is advantageous because when you think about it, when you deploy the capital, whether that's to get ASICs or get infrastructure, that's when the clock starts ticking on the opportunity costs because you could have deployed that capital into Bitcoin directly. And when that clock's ticking, if the price is going up, if difficulty is going up, if hash rate's going up, you are missing out on... The opportunity cost is increasing throughout that time. So the name of the game is to shorten the amount of time between that capital being deployed and those ASICs being up and hashing. Absolutely. Absolutely. Because you guys all well know, but you know, comparing what I can mine today versus what I can mine six months from now. Almost by definition, today is more valuable than the day six months from now. Right. So. Like we use typically a four year cycle in our models as we're looking at it. But we also, so in other words, if we're, if we're doing a new site and we basically always believe in investing in new technology. So, you know, like over the last six months or so, everything we bought has been an S 19 K pro. I'll use the bit main models, but an S 19 K pro or better. like up to S21, 200s, like, you know, everything's been in that range. We don't, we don't, you know, and we're expecting three to five years of operation out of those machines. And then, you know, with the expectation of about four. But the best day is the first day we turn it on typically, right? So that's the most profitable day. And certainly dealing with the halving that's been a... Brian Cubellis (15:12.973) big rush to get in front of the halving. The other thing about small, too, that I didn't mention is I think a lot of people probably perceive that only people doing big things can get the great deals on energy. You're talking about in power and all that. And obviously, the energy, the relationship between the energy sector and the Bitcoin miners is very important. But there are a lot of small opportunities out there that I understand that Rioter Marathon probably wouldn't even think about. But like, I'll give you an example. I've talked about this one publicly before is our home base is in South Dakota. We know that area really well. About a year and a half ago, we were aware of a company leaving a building in an industrial park. And it was a building that had a lot of refrigeration in it. So a new company moved in and the new company, ironically, was a burrito company. So they were making burritos. The ones that you get like in 7 -Eleven, like that you throw in the microwave, right? The guys that make those. So we suspected that they were going to use less power than the previous tenant. And so we went and talked to the landlord. And it was true. Talked to the landlord and the burrito guys and they had about 2 .2 megawatts of excess power there. So he said, Hey, how about we drop a couple of containers on the backside of your building? You won't even know they're there. And, um, um, you know, this is by the way, uh, energy in the, we'll just say four cent range. Right. So, uh, decent. decent price per kilowatt hour. And, you know, we were able to work that deal. We've been mining there for a year and a half and nobody knows we're there. We're adding value kind of to the industrial park and that local area. And it's probably something that most, all the big mining companies would just ignore that sort of thing, right? But for us, Brian Cubellis (17:39.309) That's almost the ideal thing. We go in, we deploy quick, quickly. No one really even knows we're there. I don't know if you've ever heard me talk about what I call horse class sites, but that's what I call those are kind of these small to medium sized commercial sites, horse class sites, because they're still big and powerful, but we're still mobile. Like if there's ever a problem, we can get up and go without. without too much trouble versus an elephant site, which is what I would call a, you know, a 50, a hundred, several hundred megawatt site. You know, they're big and powerful, but they take forever to grow. And they're, they're also easy to hunt. And, you know, I think that when you look at like the, the Biden tax proposal, which came back, if I assume you guys are aware of that in the 20, 25 budget, they're trying to put that 30 % tax in. You know, you're very exposed to, you know, community activism, eco -activism and terrorism. There's a lot of different vectors, I think, upon which those bigger sites are going to have to fend and protect themselves that the smaller guys won't have to worry about. Yeah, the energy arbitrage opportunity that is out there if you're willing to do it. Because I think that's the problem that the elephant sites don't want to solve is it's really a logistics problem. Because that's my personal miners are in a hash hut on a stranded natural gas well that's producing like 21 MCFD. It's a 600 kilowatt hash hut or 300 kilowatt hash hut. It's even smaller. And it just sits. in the middle of Appalachia mining Bitcoin using generator, using a generator that's converting the natural gas to electricity. And we simply like that is one example of an opportunity where there's hundreds of thousands of stranded natural gas wells out there. And there's people that have liabilities on these wells where they need to maintain them. And if they don't maintain them, they get dinged by the EPA. So we're able to come in and say, Hey, Brian Cubellis (19:55.309) We'll maintain your well for you if you just let us use the gas for free. Maybe we'll pay your land lease for the year, which is very cheap and is very low cost energy and allows us to mine at a small scale in a remote area. But if you were to try to scale that operation up, it's just a logistics problem. How can you, if you're doing many of those types of operations, it just comes down to how can you maintain all the generators and work the geographic distribution of your... of your operations. Yeah, that's, that's the downside. I should say the downside. But that's the that's trade off. The trade off. Yeah, that's the probably the right way to do it. And by the way, we're we're looking, you know, right now, I've got a deal, I think we're very close to initiating in Pennsylvania, about an hour and a half out of Pittsburgh, doing the same thing. It's about 600 kilowatt project. We'll throw a couple upstream. Ash Huts with the generators and, you know, off we'll go. And, you know, we're looking at something a little bigger in Alberta right now, too, that's a couple megawatts. And as you said, there are thousands and thousands and thousands. And I think to a certain degree, it's a lot easier. Like, for instance, riot was a public thing this week. They were, I forgot the name of the county. But they were trying to do a bigger project and got rejected by the county commissioners and they had had a lot of pushback from the local community. And I don't know where they'll go from there. Maybe they can overcome it. I certainly I'm not wishing ill on anybody, but those are those are hard problems. Right. And when you keep trying to build these elephants and and now the miners, you know, for the last. couple years, I think we were pretty much the only game in town out searching for big energy. Well, now, like we're running into it. Like even in South Dakota right now, we were talking to, this is on our on -grid side, we're talking to the energy company that we work with a lot, MidAmerican Energy. And, you know, they're seeing massive, massive requests from the AI community for Brian Cubellis (22:19.309) for double digit to several hundred megawatt requests. But they don't have, by the way, they don't have that laying around. But now the Bitcoin community is going to have to fight the AI folks and also probably all the EV charging stations and all that. There's going to be a lot of competition for this energy. So I think only the we would go back to that. If you're fast and you're smart, then, and you're willing to do these small ones, then I think you'll still find plenty of places to be successful. But it's gonna be harder and harder to chase the big ones. It's interesting to me that, well, first of all, Marty, I love that somehow the way you framed what you were talking, you know, your hut in Appalachia, just sort of reminded me that like we've done this before. This is like moonshiners with copper stills wherever it makes sense to have a small time operation. Like there's a model for this that has worked in the past. Granted, it was for different reasons, but kind of funny thing about. And Bob, as you're talking about like the, you know, the advantages of small scale versus just going like the monolithic route. I was trying to think about like, what are the, it seems to me that mining will ultimately, is ultimately a barbell sort of outcome where you have just pure economies of scale on the large scale side, the monolithic riots of the world. But then there's also advantages or reasons why someone might do very small scale mining and small to medium scale mining. Whether that's somebody who's set up like a couple of miners in their garage, either for ideological purposes because they want to contribute or because they're going to heat their home with it. And so the heating applications in particular, I think, are very exciting on that other end of the barbell, the smaller scale, because when you're adding the Brian Cubellis (24:32.077) the economics of getting two birds for one stone, of being able to heat something like growing flowers in a greenhouse or something like that, while also mining Bitcoin and getting that use out of the same energy. That makes it possible for the economics to make sense on the small side when in any other industry, larger wins out because of economies of scale and there's no sort of two birds, one stone phenomenon that's possible. I guess, first of all, do you see that as one of the advantages for smaller scale mining? Do you guys think about or will you start thinking about how to get heating applications out of your installations as well? Or maybe it just doesn't make sense. And then are there any other advantages that you see to small scale mining that make it so that the barbell will happen? First, in terms of the multi -use, yeah, I think that'll be very, very important and very, very common. I think in this next cycle, it will become a lot more common. Certainly, I think by the end of this one and we start looking at the next halving, right, that the market will drive some of those efficiencies. We've done a little of it already. For instance, we worked with a greenhouse in northern Florida a commercial grower and what we did is we We worked with him because he has he's just far enough north where He needs on occasion Either heat or dry air and and so what we did is we worked with him we've got some of it, we talked about Steve, I don't think maybe that was before he started, but Steve Barber, you know, we had a, we've got some of his black boxes scattered around the outside of this guy's greenhouse. And then he has the choice of either venting them into that atmosphere or venting them into the greenhouse, depending on his condition. And so he's mining all the time. He's got a little, little bit of solar and a little bit of on -grid and kind of mixes those together to create the energy. Brian Cubellis (26:56.493) And then we vent in. So the economics of running there, even though in that case, the on -grid part's a little more expensive than you'd normally see, he doesn't view it that way. He's growing flowers. I think he's the biggest provider of poinsettias, like, for instance, with Easter coming up. Biggest provider of poinsettias to Target and Publix and things like that. And so if you see one of those in a Target, There's probably a little bit of Bitcoin in that poinsettia, right? Because of that. Yeah, a little bit of Bitcoin error. Yeah, yeah, help make that poinsettia happen. And I think that's a cool little story, right? But, you know, we've talked to people and we'll see if these come together. The guy that we're potentially working on the Stranded Gas up in Alberta with is also a grower. He grows a lot of the peppers and tomatoes and things like that. a lot of the grocery stores in Canada. But there are people like car washes in Northern climates, using mining to warm the water inside the car washes before, at the start of the car wash. Cement water, I don't know a lot about cement, but... I've talked to some people who said, yeah, we need warm water as part of the cement mixing process. So these sort of things are coming to the forefront. And things I haven't been involved with in the past, but are pretty cool. I think the topic of a lot of this for individuals, I know I've personally never been too fascinated because it's such a whole rabbit hole in itself as the mining, is just a decentralized component of it. I think like, This similar riot reminds me of almost like a Coinbase in the world. It's like a huge target for a lot of reasons. And that are also not naturally organic, whether it's Coinbase because of SVP and the banking situation or however they got to their size, that eventually they start to look at themselves and like, man, I don't really like being this big for a number of reasons. Similar to Bob, which you just described, whether it's via the target on the back from the tax perspective, government perspective. Brian Cubellis (29:19.113) drone attacks, whatever it is, it's just a not natural organic way. I think long -term we'll look back similar custody and miners that are this size and scale and probably won't make sense. And just purely from a Bitcoin perspective and the decentralized component of hashrate being further out on the edges is healthier for the industry. And like kind of on that thread, Bob, what's fascinating and I'm curious because I have no idea is like, your background, seeing the tech boom and growing gateway. Do you see any similarities or things that have either helped you as you navigate this whole field, not just mining, but just Bitcoin in general and the maturation of the industry? I'm just always fascinated with how I think what happened in the 90s is there's similar corollaries to what we're seeing here. And we can learn from them and kind of not either make the same mistakes or actually expand on what the first versions of things were built in the early 90s. I think there's just like a lot to learn from. There's a book called E -Boys that talks a lot about the very first iterations of technology companies that you kind of see if you squint like similar concepts that have happened here in Bitcoin. I'm curious if you thought about it in that way. Yeah, absolutely. The first thing that comes to mind is the cyclic nature and how companies respond to the cycles. So little history. So in the PC market, if you go back to, let's say, the early 90s, we could kind of as an industry see that this. thing was about to skyrocket. You know, the, the exponential part of the curve was starting to lift. You could just feel it. Right. So what happened though was it ended up being the point where a whole bunch of PC companies got wrecked. Why did they get wrecked? Well, they got wrecked because let's just say as an exam, I don't, I don't have the exact number, but it's something like this previous year. Brian Cubellis (31:32.237) say it was 1994, 70 million PCs were sold globally. And the next year we're expecting 90 million. And now if you look at the, the, a lot of the major companies in the world, they all saw that we all had a good feel that this was going to happen, but almost every company perceived that not only would the industry grow, but that their market share would also grow. So they start sending signals into the supply base that they're ordering memory and hard drives and CPUs and these things like that, which have fairly long lead times, not unlike buying a new bitmine machine or something like that in scale, right? That, hey, I was 8 % of 70 million. But now I'm going to be 10 % of 90. Right? But this is happening almost at every single company, every company deciding they're going to grow one, two, three, four percent market share on a 20 % growth. Well, what ends up happening is the supply base sees signals actually more for like a hundred million. And of course, maybe we get to the 90 million. But we don't get to a hundred. And so this massive saturation of supply came in and a lot of companies, even in this bull run, got wrecked because they were stuck with this massively overvalued industry. It's very similar if you think about what happened to our world. Well, in our world, the, especially the public, public miners, especially filled with all of this cash from the public markets went and way overbought the supply. And they got wrecked at core core actually literally going bankrupt and a few others going bankrupt, you know, through the same thing. So it's funny, but I've had this talk with my, my team. One of the things I've said is. Brian Cubellis (34:00.205) We have to be very careful once the bull run really starts. Once investors start contacting us and start trying to throw money at us, that might be the point when we have to pull back a little bit. We have to really watch the price of the mining equipment and make sure that we don't get caught up in it and start chasing high prices. We may have to, in other words, we may have to pause and just ride out what we have at the point that the market seems the best. It's counterintuitive. But it's another reason it's hard, I think, for the public guys, because they're getting shareholder pressure and analyst pressure if they're not expanding in the middle of the bull run, which is actually probably the worst time to be really expanding. that we saw. It's so profound. It's because it's a tell us all the time. Look at liquidity drowns companies. And I think about it like what you just mentioned in a similar vein is almost like lightning companies and that there's something there. But then when the market takes off, if you take on too much money or you deploy too much into lightning, it's like, is the infrastructure, is it really ready for adoption? So you take that money, you hire the people and then you look around and like, wait, I don't know if the market was ready to start using this yet. How do we figure it out versus like the slow and steady and staying around? owning more of your company. And that's just one example. I think, you know, AI is another application, but like these cycles continue. Like railroads was a good example of it, right? They've laid a bunch of tracks. Didn't know what they were going to use. And then the infrastructure gets picked up by the second and third people through the door that it's already been laid. And now you can see all the best practices. It's really fascinating. That's exactly what happened last cycle. I mean, he, I mean, in the peak of 2021 bull madness, I think ASICs were selling for $140 a terahash at their peak. Yeah. They fell all the way to $12 of tarahash over the course of the proceeding two years. And the other, like Bob, the other comment, like these publicly traded miners are pressured to expand at the top of the bull market. If they're not doing that, the analysts ding them. And then on top of that, when it would be advantageous for them to lock in some profits on the Bitcoin treasury, maybe sell some to bolster their cash balances. They can't do that either. And like Core is a perfect example. Brian Cubellis (36:24.461) They had, I think, 30 ,000 Bitcoin and they were forced to liquidate half of it at 25 ,000 or 21 ,000 instead of clipping off half of that at 60, 65. And it's fascinating because it's the main and that we're saying are completely like controversial or not said and they're so rooted in pragmatism and prudence that it's that's how far we've gotten away from like fundamentals. Yeah, I think some people don't want to hear it. I think. You know, one of the things I say is like, hey, you know, one of the beauties of Bitcoin is it's free, right? And it's a freedom based thing. So if you want to own stock in a public miner, then own stock in a public miner. It's not for me to say, but I will say this, you know, ask yourself, if you're a Bitcoiner, ask yourself whether or not they are a net positive or negative for the ecosystem as a whole. You make your own decision. I have, I have my opinion. Um, you make your decision, but core like core is a great example. And I've done a little bit on this, but you know, the highlights of core are they went public in January of 20, 22. They raised $200 million. 11 months and as they went public they were they were essentially the biggest miner in the world 11 months later, they were bankrupt With a billion almost a billion and a half in debt So, you know that that's probably the like the gross Brian Cubellis (38:06.061) I mean, that exemplifies probably just the gross mismanagement and gross. I don't even know what to call it. Like it's just so catastrophic, but it also tells us that you were asking Mike about the like lessons. Well, in the early nineties, there were probably 150 legitimate personal computer companies as we, as we left and went into the next decade. There were only like six that mattered. Like the, and, and they weren't even, some of them weren't even the ones that started. Like, so, uh, again, I don't wish ill on anybody. I don't want to come off that way, but don't be shocked if riot or marathon or clean spark or, you know, pick your big one. Um, some of those are many of them don't exist a couple of years from now. Don't be shocked because. Um, that's true in like almost any market like this, that's technology driven, that requires, um, very nim, a lot of nimbleness. It requires, you know, continual improvement, like those sorts of things. Um, those industries turn over quickly and they become, it's very Darwinian. I'd be interested to get your perspective on this because it seems that it's becoming abundantly clear as time goes on and the competition within the mining industry becomes even more fierce margins become more compressed that vertical integration and optionality in terms of revenue stream becomes way more important for larger scale miners. And that's been the big question that's been thrown out there for many years. I remember we were talking about this, a great American mining is. What happens first to do miners become energy companies or energy companies become miners because the end state of this is getting the mining operation to the lowest cost possible. And the only way to do that is to actually own and vertically integrate from the molecule to the hashes that you're sending to the pool. Brian Cubellis (40:17.197) Yeah, I agree with that. Let me make a comment on it and then I'll say one thing that I want to throw one caveat though to what you've said. And so I, what I built for our company, which I mean, we're not massive. I mean, I guess we're big enough to not be small, but you know, not big enough to be big, right? We're kind of that way. But this vertical integration thing I think is critical. So. I've built something, I call it the miner stack. And it starts with energy, as you've said, the bottom part of the stack is like, I want to as much as possible, I want to own the energy access or at least have control of it. Right? That we're working toward trying to be self -sovereign as well, not only to be efficient, but also to be self -sovereign so that we're not permissioned in anything that we do. Because I think that's very important too. So like in our example, the one that I'll talk about publicly I've talked a little about some of the things we're trying to do with like Stranded gas but we own a hydro a small hydroelectric facility in South Carolina that we rehabbed and We we actually cut the cord back to the grid So we we don't even have the ability to push excess energy back to the grid And that was a choice that we made because we wanted that level of sovereignty and independence. Right. It probably costs us a little bit of money at times when we produce more than we have hash for, but you know, so be it. Um, so owning, owning that energy at a minimum being, uh, uh, not permission. The second one is ASIC and by ASIC, I mean the chip. Um, and so, um, I'm. I'll be talking more about this publicly, but I'm on the board of advisors and I'm working closely with a group of ex Samsung and Intel people to design our own ASIC. And you probably see that in 2025. And my background, I build systems, right? That's really what I do. Like starting in 1986, that's what I've done. I've designed laptops and desktops and servers and so. Brian Cubellis (42:39.501) Our intention is once we have access to our own chip to build our own systems, both for our own consumption as well as for the general market. Then there's, so this is kind of the sack, right? The energy, the ASIC, the system. Then there's kind of the operational excellence. You know, can you manage it, keep high up times, keep the machines operating at the highest efficiency possible, all that sort of stuff. I a lot of quote unquote mining companies, which are really hashing companies, we'll talk about that later, but that's really where their focus is. Then the next one is block template creation. I guess this leads to that. You are not a miner until you create a block template. And because if you're just a hasher, you're connecting to a pool that creates the template for you, you're not even connected to the network. You're a hired gun, basically selling your hash to the pool. And then the last part is the pool. And I'm on the board of directors and investor in Ocean in part because of all that. So there's these six pieces of the stack. And my intention is to have at least some ownership or control over each of the six pieces of the stack. both because I think I can save money, but also I don't have to get, if I do it right, I don't have to get anybody's permission to, to be a miner. But before Marty jumps, like I really wanted him to, I wanted him to hear the part about like the block space template creation. You referred to these, he was alluding to, uh, energy producers and miners, but. our previous discussion was sharing on like how financial institutions start to compete and maybe starting with like block space getting scarcer sooner than most people think about. Sure. Yeah. So I think there's, you alluded to it, Marty, and the, there's this certainly relationship between the energy companies and the miners. I do not mean to make that insignificant. Brian Cubellis (45:01.197) And certainly like you were just at the Empower Conference, I one of my guys there. It's very, very important. However, there's a second end of, so you're looking at that end, the bottom of the stack I just talked about. Well, the top of the stack is important too. So, and it's that if we look at block space, Brian Cubellis (45:23.853) Block space is absolutely scarce in any time window. So if you do the math, what you'll find is that there are about 53 ,000 blocks per year. There's basically nothing we can ever do to change that. And so that's what we're going to produce. And each one has 4 million weight units. And if you translate that, it's about 4 ,000 transactions. So what that tells us is that... The network at the base layer has about four or 200 million base layer resolutions. And I don't believe, some others believe it slightly differently, I don't believe that that will materially change. I think if you go into, you know, whether it's CTV or some of these other things, I don't believe they materially change the transaction capability of the network. We're still stuck with the four million and I don't think they can actually strip the transaction size in a way that materially changes that output. So, given that, if we just use that 200 million a year number, I believe those should be thought of as virtual real estate or a commodity and that over the course of the next few years, we're going to find that that is ungodly valuable, precious beyond belief, and that there will be a massive fight for control over that. Right now, block template creation is done at the pool level, pretty much basically across the whole world and six companies, four Chinese companies, which would include like Ant Pool and F2 Pool, plus Luxor and Foundry on the US side, those six control roughly 90 % of all block template creation. I think that's very dangerous and bad for the industry. Brian Cubellis (47:35.405) And I mentioned I'm an investor in Ocean and on the board, so I don't want to turn this into a pitch for them because I want this in lots of pools. But what we're really about, I think we've gotten caught up in a lot of the Ordinals debate and there's a reason for that. But what Ocean's really about is moving block template creation back to the miner. I would say moving, that's really the most important thing. And so I'll just use a simple example. If I create the block template, if I'm a miner and I create the block template and I own 1 % of the world's hash rate, then I will make the choices on 2 million of the 200 million transactions annually. And that's a very, very powerful position. I believe that financial institutions, Swann actually being at the front of the line right now, who've come out of nowhere to have literally 1 % of the world's global hash, I think are understanding this. I think they will be followed by the Black Rocks and Fidelities. And I know that's a cringe statement, but I believe they are all going to chase block template control. And the only way to control block templates is by owning miners. And so I believe that those, that sector. is going to aggressively move into mining. They will, and I believe they will look at it when they really start thinking about it, they will realize it's existential to their existence. That if they don't control the block template, they do not control the priority. They do not control the cost structure. And so it's my belief that we're going to, We will certainly see some energy companies trying to merge and move in and associate with mining companies, but I think it's going to be the financial services companies that really come in fast and hard and start buying up the miners. Public and press. Brian Cubellis (49:48.845) Yeah, and one other, because I talked about this at Empower yesterday, one other thing we need to figure out too is not only the block template, because that's been the big meme with Stratum V2, it's like, oh, the individual miners will be able to construct their own block templates, which is good, which is a net positive. But even in that scenario with Stratum V2, if it were to be massively adopted and individual miners were able to construct their own blocks, transactions, somebody needs to broadcast that transaction in a Stratum V2 world. the pool still has power over that broadcast. So you can give individual miners the ability to construct their own blocks, but at the end of the day, that could get audited by the pool that has the broadcast transaction and they can make a decision like, actually, I don't want to broadcast this because it has some transactions that I don't like in it. Of course, it has economic repercussions, but that I think is like the weak point of the stratum V2 model is the Transaction broadcast and on top and just to build on what you said about the financial institutions before I have to hop off here but yeah, that is something that everybody should be wary of and I wonder You can go back like first principles of why these institutions exist in the first place. They're An immagulation of the fiat world where people can't save their money And so they're forced to interact with the Black Rocks, the vanguards, all these financial institutions so that they can beat inflation. Is it a race to hyper -Bitcoinize as fast as possible to destroy their business models because you don't need them if people can save them Bitcoin so that they don't have as much power in the long run? I don't know the answer. It's certainly part of it and I guess only time will tell, but it's very clear that within the Bitcoin world, we have companies like Swann that are public and now have over 1 % of the world's hash. I guess you could at least call them one of the good guys, right? And I do know them well. I don't want to disclose anything that's not public, but... Brian Cubellis (52:09.805) I can say this, like if you're swan and part of your business model is that you let people buy Bitcoin and you encourage them to self custody and you offer that service for free in a world where Bitcoin fees become ungodly, then that model breaks, right? So you could look at it potentially as existential to them in the way that they do business to be able to control the block template. because then they could theoretically look at it like, hey, for people that buy Bitcoin from us, we can offer the ability to move Bitcoin into self custody at a more modest fee because we can control the blocks in which that happens, right? Because they'll control at 1 % of the world's hash, they're going to control one and a half ish blocks per day. Do you think that's why they do it though? Because I would say that's a flawed assumption if that's why they're getting into mining. Like the fact that if you were forward thinking people are going to take delivery of the Bitcoin from a scalable perspective. Like it's from a theory it sounds great. No, I think it's just an example. Yeah. That the power of that position is much greater. Well, one, I mean, I'm assuming they're doing it right. They're making money right now. Right. So, I mean, we'll start with that. I think that's the number one reason. but it gives them also the ability to control this block space in the long run. That would be, I gave you an example of I think a small piece of the decision, but I do believe this, and I think we talked about this a little privately, Michael, and that's that if we look at, the block reward right now. Okay, so we sit here today, four miners, the block reward is six and a quarter of the subsidy plus fees. The last year, those fees have averaged right around 0 .4. Okay. So we're at like six, we'll call it six and two thirds is the average reward. Brian Cubellis (54:31.597) were 23 days away from that changing to 3 .125 plus most likely in the short term still the 0 .4, right? So the having changed one part of the equation but not the other. It means that the miner revenue, the mining company's revenues go from What would that be? Maybe 6 % of... 7 -8 %? And so you basically have the fees doubling. So what I'm going to say will be controversial, but I have some models that I've developed. I'm probably wrong, but hopefully I'm not wrong by any order of magnitude. I believe as we exit the next cycle and we're staring at the next halving, we will have reached parity. Interesting. So... So if I'm right or close to right, what does that mean? That means that interestingly, as measured in Bitcoin, we exit the next halving at almost the same rate we entered this one. So in other words, because we'd be at over six, right? That would be over six Bitcoin per block. if I'm right. It also means that in the next cycle that follows, because the 3 .125 would drop to 1 .562, whatever that is, right? Now we're at two -thirds. So now we'd go into the next cycle at two -thirds fees. So let's think about what happens in that world. Brian Cubellis (56:29.995) ramification of that is that as measured in Bitcoin, minor revenue starts getting much more variable. So today we basically have a very fixed Bitcoin output. Okay, so there's really not, when we're running our models and we're thinking about the future, We don't have a lot of variance in the Bitcoin output, but we could see great variance block to block or day to day in the future. Right? Now, if you're... If you're in a situation where your revenue starts having great variance, what do you do? You want to moderate that some, right? So I think that's going back to the block space thing that we were talking about. I think what that leads to is a futures marketplace for block space where the miners, let's say me, again, we'll pretend I have 1%. If I have 1 % of the world's hash rate. I don't by the way, I'm not that big. But if I had 1 % of the world's hash rate and I have 200 million transactions per year that I will choose in my block templates, then that's like 180 ,000 a month. So think of me as a farmer now. So that's no different than maybe a farmer who produces... a certain amount of corn every month or something like that. Well, if as I'm looking at sitting here in March and I'm looking at August, let's say, would I be willing to sell 25 % of my August output at a known price that is fair and profitable to me? Yes, I would, to lock that in, right? Brian Cubellis (58:34.727) So I think that's what's actually going to happen. And then there's a counterparty to that, the other side of that, which is the users of the block space. So if you were a company or potentially even an individual and you knew that in August you were going to have a lot of unchained activity, would you like to just wait to see what the market offers you in August? Or would you like to lock in a known and fair price now? I think for some percentage of the market, they will want to do that. So, and I'm working on this, by the way. I mentioned this a few times before, but I'm working on that right now. And we're going to bring a futures marketplace for block space to market. It will happen this year. And with, by the way, all contracts on the Lightning Network. So we're going to use the Lightning Network as the, for the marketplace and for all the contracts. This makes, I'm glad Jesse's here hearing this, cause we had this conversation and I think there's going to be a lot to discuss on this. But one thing, Bob, I think it tracks, I think also the, the idea of derivatives for it. Like I think generally it's been talked about from a hashrate perspective, but not block space and block space makes a lot more sense. The one thing that, so from the financial service perspective, it's, it is to your point existential or their whole business model. our business model, anybody's business model, if you're moving around UTXOs, you have to pay those fees. And so to get in the middle or figure that part out is important. The thing that I'm curious on how you make the leap, because I didn't think of it at the time, but now as you work through this is why would a financial service or institution get to make the leap from the block template? simply from what would change now to then in the sense of like, it's not their core competency and the bidding situation or how people they bid is effectively how they get, how we get UTXOs by paying the fees into the block. Why would it change in the future? Because everybody's competing for those UTX or competing for those fees. I'm struggling to understand that leap and why the institutions would start to mine. Um, and. Brian Cubellis (01:00:55.437) do something that's not core to their business model from just like their competency and execution around it. Does that make sense? I think I got your question. I'm going to try to answer it. If I answer the wrong question, let me know. So if I'm a financial institution and I want to... I want to make sure that all of my transactions are with a predictable time window and a predictable price. Then I have two options. One is to own the mining operation or the second is to own and participate in this derivative marketplace. Okay. So if I'm a smaller guy, I'm probably going to pick the derivative marketplace. But if I'm a bigger guy, if I'm BlackRock or I'm Swann or I'm some organization like that, I believe we're going to see them wanting more absolute control over this. Now, I do want to point out something, because some people might be afraid. What I view is that some people might say, well, are you going to disrupt the mempool? Are you going to do, is this going to make it harder to really see what's going on? And I've been vocal about it. Like, I think everything has to be transparent. We have to have transparency in all these things. Well, the more I thought about it and the reason, part of the reasons I support this is that today we know the present. Brian Cubellis (01:02:54.893) situation of the mempool and based on the Transaction sitting in the mempool we can get a future look but the future look is maybe hours, right? You can see hours ahead of what what might be out there. This is going to give us visibility days ahead and You know our our marketplace will make sure that that All the fees end up in the blocks and it's part of the coinbase number one and number two, you know, that, that it all is fully visible and you can separate those transactions that are part of the futures marketplace from those that are part of more of the real time marketplace. Um, which I got off of on a tangent there. Um, I have no idea if I covered the question that you asked. No, it makes sense. I think that covers it's like, it's giving more control at the end of the day. You still have the natural mechanism of the bed, uh, for block space via just fees, right? Like somebody will be able to, because somebody's going to mind that. that transaction if you pay a higher fee. So that's always exists no matter who who's out there. It's just that the financial institution, if they want better clarity or if they want to hedge out those fees, then they'll be able to participate in what you're describing, just to have better clarity of their business model. Yeah, and you know, um, And this part. Brian Cubellis (01:04:20.237) This is the part that I think we probably all get a little uncomfortable with too, is if BlackRock goes and buys 10 % of the world's mining capacity or control of it, they're going to control 20 million of the transactions annually. And what do they do with them? Is it OFAC? Is it? I mean, there's a lot of that sort of stuff going on and we need lots of pools. Marty talked about one issue, which is could you have situations where pools, even though you have a lot of hundreds or thousands of Block Template creators, which we need, could you get in a situation where individual pools are enforcing OFAC compliance, rejecting block templates that are coming from theirs. I guess the only good thing would be that there would at least be visibility to the miner that the pool was rejecting them and hopefully they could find another pool that they could work with that wouldn't block them. I think we need pools in lots of jurisdictions around the world, by the way. I mean, having the top six be... comprised of only US and China is not good. You know, we've got, what is the one? There's one out of Japan in the top 10. Brains is obviously out of central Europe. Volcanoes trying to come up in El Salvador, but we need these. And I think, for those of us at Ocean, I'll just say we think about that a lot and making sure that, you know. We keep a path so that that sort of stuff never happens to us too. It seems like there's a lot of ambiguity and risks further out there. But I guess one of the things you were pointing out, Bob, that actually gives me some comfort, gives me a fair bit of comfort, is you walked through how the Brian Cubellis (01:06:44.415) percentage of fees is growing relative to this block subsidy. And that's already happening. And that's pretty certain at this point, that we shift into a fee -dominant incentive model for miners. It depends who you ask. It's already underway. And that's good, because one of the classic FUD tropes that people always brought out is, how will Bitcoin survive when the block subsidy is gone? There's no evidence of a market developing. Well, there's the evidence. It's right here. Actually, I don't know if you know this off the top of your head, Bob, but you pointed out that the key data point of averaging 0 .4 Bitcoin per block in fees. And I wonder what that number was four years ago. I would guess I do know it. I do know it. It's actually interesting. Yeah, so I the all time number from the very if you take the average from the very beginning, it's point three three five. Okay. In the first half of 2023, it was it was point three three five. The We averaged in 2023 .4. So we did the second half of 2023, lifted the overall average off of the base. However, remember that the, this is what's interesting, the 0 .335. It's been pretty consistent for 15 years. So even though the subsidy went 50, 25, 12 and a half, right? That it stayed 3 .335. Brian Cubellis (01:08:38.253) for that and basically for that entire time. So we're seeing this lift now for the first time. And I can the reason isn't directly ordinals and inscriptions. But I think you had a question there or a comment. Well, I was going to point out that like the math there means that even if it was to stay at point three, three, five, like in that 15 year trend was just to continue going forward, eventually the growth of of. the total value of Bitcoin, all you need is a 20X in order for that 0 .335 to now equal the current block subsidy in terms of economic value. And that means getting to a million dollars per Bitcoin. And there's pretty clear line of sight, I think, to do that based on the current tailwinds and demand dynamics playing out over the next... or whatever. So anyway, I think that it's interesting that, you this conversation about what happens to mempool and how pools operate comes with like a lot of new questions and a lot of new ambiguities. But in that we're also you're sort of pointing out that the fee market is proving out and that's like, that's such a huge win. that we check off one major box and then granted introduces some other big questions, but then you kind of have to fall back to the assumption that free market will win out and that the incentives are sound and will cause decentralization and a lack of capture of the market by you know, Black Rock and OFAC or whatever was to, you know, sort of try to hijack it. Yeah. You know, what's interesting, I'm glad you brought up the whole point about, you know, bringing this up again, like what were the historical fees? Because like I'm making a guess. It's my highest probability guess that we will exit. Brian Cubellis (01:10:58.861) that we're going to see essentially like a, what would that be like a seven, eight X jump in the fee structure between now and the end of the next having, which by the way, it's not a massive stretch by the way, because we've already seen in 2023, several periods where the preview of what's possible when the blocks are fully full. Right. And, and well, here's the thing. Okay. The, The issue is not actually blocks being full exactly, because here's another stat. I have a little team. We pull a lot of block metrics. We do it ourselves, because we're looking for a couple metrics that aren't available. Like Glass Node, for instance, and all that, they're great services, but there's a couple things we look for that they don't have. And... Like one of them, or one piece I can tell you, is that in 2023, every single block was full. There were, I happen to know this off the top of my head, there were 147 empty blocks, which are a part of the mining process. If you want to dive in there, we can talk about that a little bit. But outside of those, every single block was full. It was like 3 .98 million weight units average on the rest of the blocks. So there's like no space. Every single block was full. Whether the ordinals and inscription people were active or not, they were always full. And remember too that the mempool is kicking out a whole bunch of transactions, right? That it's... They're too long. They don't have the right fees. They're getting kicked out. And then there's a whole bunch of people who wanted to do things but would look at the market and say, hey, I'm not even going to try right now because it's too expensive. So the mempool is not truly a reflection of total demand. Total demand is always much higher than whatever the mempool reflects. So the question is, Brian Cubellis (01:13:23.821) not demand, but also the urgency of the demand. Right. Yes. So we're at a point where we're already, already full. So now it's just the component of, okay, you know, how many transactions now reach that point of, I can't wait. I have to do it. Like I had one I did earlier this week where it was, We have different companies, right? And I had a, I had a move, I don't know, it was like 500 ,000 sats from one company to another company. Very non -urgent, you know, I threw it in there at four sats for B -Byte and the very lower end of the threshold. If it happens in a week, fine. I don't really care that money is going to sit there for a long time. Yeah, this is, you know, but I have other things, excuse me. No, sorry. I was going to say this is basically the beauty of the fee market and all the things we've discussed get solved literally because if there's, if scarce and it's valuable, then whoever takes, you know, OFAC and BlackRock and have 20%, but the other 80 % will get bid up to take those transactions. They can go to 50 % of the hash rates blocked, but eventually like that's where it's less concern. It's still concerning, but if six out of seven of the pools are not taking the transactions, another pool, just by definition of the pool makes money. by the hashing and all the things associated with it, another pool would step in to mine or construct the blocks to take those transactions because the fees would go up. Yeah, that's true. But we really don't want, like there are six pools that are doing about 90 % and there's another about nine that are active. They have enough hashrate, they win a block every week or two, right? So that's what we're dealing with today. That's not enough. Or it's certainly not enough if the block template creation is not occurring at the miner level. And the pool is just acting as the pool, not the... Because in reality, the pool is the miner, right? On a technical basis, the pool looks to the network like the miner. And the miners that we call miners are just hashers who are giving their... Brian Cubellis (01:15:50.381) hash rate over to the pool and it's the discretion of the pool how to use it and they get compensated. And you know I'm not trying to say anything too alarming but... As a hasher, you really don't even know what they're giving you. Like they could be giving you Bitcoin Cash or Bitcoin SV, I'm not saying that they are, but you really don't know what it is they're giving you. Right? They could give you any set of work. They could only send you empty blocks. They could send you blocks full of stuff that you don't agree with philosophically. And you really have no way of knowing what's... what's in there, right? So, but that changes dramatically at the point you create the block template, which I'm very passionate about. Bob, one of the things - But - Or go ahead. No, no, go ahead. I was gonna go back to what Jess used kind of the fees and some of those sort of things. So if you had a question there - No, no, no. It's more related to scarcity and block space, but we'll cover that and then - Oh, okay. So, well, yeah, just kind of back on the feed. So - I'm probably at the most aggressive edge of people predicting these sort of things in terms of where fees will go. But I want to just, you know, where Jesse was going was, if we look at it, we're at the halving of, we'll call it we're already in the 3 .125 era. We'll be at 1 .5 something, we'll be at 0 .75. Well then we're going to be at 0 .37. Okay? So, the question is not whether I'm right or wrong. Even in the worst case, I believe we're only those, what would that be? Three more? Three more halvings? So the question is whether it's a four -year window or like a 15 -year window. But that's basically what we're saying in terms of this period. Right. So, Brian Cubellis (01:18:02.413) I just want to, like you said, dispel the fud, first of all, about security. Not a problem. Do not lose sleep over it, number one. Number two, this problem of the minor income becoming highly variable is eminent as well. That's also there. Saudi is a very interesting, like... I never thought about how that ambiguity is going to come up. It's going to turn into, frankly, it's going to turn into a major new arena of FUD and a debate of considerable debate, I'm sure, of is this a mortal threat to Bitcoin if we have these incentives at work that could cause the fracturing of the mempool and... you know, like the, the swan example of they could try to have habits that they're pushing through in the 1 % of blocks, um, you know, a discounted rate for swan customers doing on -chain transactions. And then would they want that to be visit with those transactions to be sitting visibly in a, in a mempool or would they want their own mempool that they feed directly into the blocks that they're mining? You start to see the potential for the fracturing of. of the mempool as we know it, which is probably inevitable. But then it turns into just like kind of a higher level, the next level up of competition between not just competition, but in the existing singular mempool between transactions, but competition between mempools and philosophies that ultimately are still competing and settled on block space. via the existing infrastructure of mining and the competition that plays out there. So it'll be a very interesting like new debate and arena of FUD. It's gonna be the new hot topic as that starts to become, you know, clear that that's what's happening. And Bob, I think you're just seeing around the corner for maybe eight years earlier than everybody else. Yeah, and Bob, I think where this ties in, it's really fascinating that... Brian Cubellis (01:20:26.029) We were having a conversation about unpopular opinions. And one of them was just referencing what Jesse described in block space from UTXOs and everybody holding their keys and how it's just like not feasibly possible and working from a first principles perspective. I think he said like 10 ,000 sats or whatever the number was. And you try to send them out to every person on planet earth. It would take 40 years, but just curious of like sharing kind of like that, like working through that logic. How you think about like, what'd you just describe the scalability of Bitcoin and how, you know, the different things that are coming to market. play into that? Sure. Well, yeah, let's just, it's not an opinion. It's just the fundamental structure of what we have. And, and by the way, I think it is the right structure and it promotes this layered approach, but let's talk about the base layer. So we've already established that there's 200 million transaction capacity annually. Well, there's 8 billion people in the world and there's 330 million companies in the world. So those entities all have to share that base layer. So one way to look at it is if every company in the world wanted to do one base layer transaction annually, we couldn't handle it. We only have room for one every roughly two years for every company. So that's number one. Number two, as you mentioned, if I want to send some Bitcoin to every person in the world, so everybody owns some Bitcoin. 8 billion divided by 200 million is 40, 40 years to accomplish that. Brian Cubellis (01:22:13.485) So it's completely unrealistic to think that everybody's going to hold their own keys and it's just like literally impossible, right? And by the way, we're not even counting the fact that people are dying and being born over that 40 year period, right? So you wouldn't even get there in the 40 years. So it's just not going to happen. The... Another way to look at it, I saw this stack, somebody else on Twitter had done this one, but I liked it too. Another way to look at it would be to say, in the lifetime of each individuals, if we exclude the companies, there's about one kilobyte of block space for every person existing in the world today in their lifetime. It's another way to look at it. Again, assuming no companies participated and no nobody died and was born. It just means that there's just not enough, number one, everybody can't hold their own keys. I talk about scarcity too. I think people sometimes don't understand scarcity, especially absolute scarcity. We talk about it with Bitcoin and how it will ultimately drive this. exponential growth in the price of Bitcoin, well, it's going to have the same effect on block space. And I give an example that I think kind of visualizes it for people pretty well and say, if I have an apple tree and it's the only apple tree in the world, and I produce 100 apples a day, if demand for apples is 95 apples per day, the price of apples is really cheap. I'm throwing five away every day. The moment 101 people want apples, the price of apples really spikes. When 120 or 150 people per day want apples, it gets insanely expensive. When 1 ,000 people want it, only the elite can afford apples. Well, that's what's going to happen to block space. It will be the same way. And I think it illustrates. Brian Cubellis (01:24:40.749) what will really happen at the base level. And Satoshi did something kind of interesting. Actually, he did more than one thing interesting. So if you look at the very terminology of the block reward, the block reward is the subsidy plus fees, right? And I think most people think of the subsidy as this reward to the miners to keep them incented to mine early on. It's partially true. But I also believe... It was to create user adoption. And so you could think of it as kind of like a free introductory period for users of Bitcoin. We've had 15 years of this introductory period of access to essentially instantaneous access for free to the world's most powerful network. And the subsidy is going down. I think we're reaching that point where the free period is over. It's like, hey, at a health club, January is free, but you gotta pay starting in February, right? The health clubs always do that sort of thing, right? Or it's a dollar the first month in January, but then it's 29 a month after that. Well, that's where we are. And I think some people have the mistaken impression that this free... instantaneous access to the base layer is something that should be there forever. Well, we're, we're in year 15 of what I believe to be the next thousand years of money. So, you know, it's, it's, it's just this little period and, and, and we're witnessing this flip. It's such a beautiful next. Yeah, sorry. It's just such a beautiful mental model to flip. In an invert effectively because when Jesse was alluding to the block size is like I agree I think everybody here agrees from fees but like, you know, certain people believe that the fees won't get there We have tail emission all the crap that goes along with it and they're literally looking at it the wrong like the lens is completely opposite of what you just described is it it's not the it's not the de facto protocol for it to consistently be this block as the majority of Value it was to get to a certain place for them the transactions Brian Cubellis (01:26:58.349) to make up the majority of the value. Right. And it's literally called subsidy. Like I think that's lost on people is literally called subsidy. Yeah. And talk about beauty from, from Satoshi, that one in particular smacks me over the head every now and then of like what talk about two birds with one stone. How many birds did Satoshi get with that, that design of the having of, of the subsidy? Because in one, in one go he managed to, to bootstrap proof of work and distribute coins fairly while introducing increasing scarcity as a mechanic to drive Bitcoin's monetization into the future where if you save now, it gets more valuable in the future because they're making less of it in the future. So he's bootstrapped an entire incentive model for saving and holding. And as you point out, it's an introductory model to an eventual fee market development. So you managed to create this like, all right, here's a trial phase and then slowly transition into a fee market. And like all of those things are packaged into this super elegant, oh, we're just going to cut the block subsidy in half every four years. It's unbelievable how many birds with one stone that accomplished. Yep. Yep. It is. Like I said, I'm continually impressed and I've been involved in this for since 2017. And, you know, these revelations still come at me, you know, this long, like the beauty of that, the depth of that, you know, there really are in the coming year, something else will come. And, you know, I want to say one thing, not to correct you, Jesse, just say one thing. I think that, use the word slowly in the fee market. This is where I differ from a lot of people, but I just want to kind of go back to the Apple example I gave. I believe it's more like an exponential thing, that fees will be exponential and that we sit on the cusp of this massive explosion. And in fact, this is an interesting thing too. Brian Cubellis (01:29:25.869) If you think about what a miner does, or the product of a miner, companies produce things. For the last 15 years, we have, as a mining industry or community, we have produced Bitcoin. And I mean that in the literal sense, we were producing the Coinbase. You talked about that, right? That's part of the whole thing was to produce the Coinbase. Well, that's almost over. I mean, I think you can make an argument that it almost is. Like, where do you want to draw that point? Is it this having the next one? But you say, in essence, it's over. So what do we produce now? Well, we produce block space. That's what miners do. Miners are in the transition of going from producing Bitcoin, the Coinbase, to producing block space. and being compensated for that. So again, that's another fundamental shift. To bring it back to your Apple analogy, you're right. So I'd say slowly, but exponentially is probably more right. But then it's also kind of binary. And I think you're pointing out how we've lived in a world where there's been more Apple supply than demand. If you know if we make that parallel to blast it and now like the last couple year or two really we've lived in a world where there's a hundred and one apples being demanded and a hundred being applied and So it's been it's sort of binary ultimately like there's there's the last 15 years where it's been more supply than demand and now looking forward there's probably more demand and supply and those are just, they're night and day. It's a pretty binary situation where like what happens to the value of block space in a world where there's more supply than demand versus more demand than supply. It's a light switch. Yeah. I was just gonna say, Brian Cubellis (01:31:44.605) We're going to finish that thought. And then I had one more before conscious of time, but wanted to ask something before. Yeah, I'm okay, by the way. Don't worry about time for me. If you guys got to go, that's fine. But I'm fine. You know, with this ETF, a lot of these, a lot of people talk about the multiplier effect on the ETF, you know, a dollar or, you know, a dollar into the ecosystem has a multiplier effect. I don't have any science behind this, but I would suspect there's something like that. Same thing. that will occur as demand for block space goes up that that each incremental unit of demand for block space has an inordinate impact on the fees associated with it. Yep. Interesting. Yeah, that makes sense. Bob, I know this is like reverse order, but before we wrap, I'm curious. It's so fascinating how you think about it. Like, how did you get into Bitcoin? And then what made you choose mining? Because you seem very multidisciplinary. You come at it from different angles. There's a lot of ways you could have had an impact. How did mining be the area, the angle you attack it from? Well, it starts a little shitcoiny, like a lot of people, but in a strange way. Didn't even start shitcoiny. What happened was I had somebody call me one day and he said, he was an old gateway person, hadn't spoken to him for over a decade, but he called me up out of the blue and he said, Bob, I've got a group, 2017 by the way, 2017. He said, Bob, I have a group. we are putting up a large Ethereum mining farm. Can you, but problem is I can't get a professionally built system and I can't get the Nvidia chips. So would you be able to help me? So I looked at it as a system person, a computer person, right? Can we design a professional Ethereum server? Brian Cubellis (01:33:58.157) not knowing much about it. And it just so happens from way back in the Gateway days, me, I was the CTO at Gateway and Keith Thomas, who's the president at Barefoot, he was the head of desktop engineering at Gateway. Well, turns out we have pretty good relationships with Nvidia. So we called up Nvidia and said, hey, if we build these systems, will you give us chips? Cause we needed eight, eight, 1070 or 1080 chips in every one, which at the time was kind of the pinnacle of the GPU world. And they said yes. So we ended up with an order for like 800 of these at, I don't know, was it like $6 ,800 or something like that? It was like a $6 million PO. So we just started a company that you would now know as Barefoot Mining to build these systems for this guy. So we did, and we shipped them to them. We did pretty well on it. So then we said, well, we have this design. I wonder if anybody else would want to buy them, right? So we could get more chips. So we found a pretty decent market for those. But most of the people that we were that were interested in it were somebody that wanted five of them or three of them or, you know, 10 of them or something like that. And almost all of them said, hey, I'll buy them from you. I'm interested, but I don't have anywhere to put them. Can you host them for me? So that forced us to open a hosting operation. And then we kind of saw how well these were doing, very fiat looking at that moment, right? It's like, hey, these are making a lot of money. Maybe we should take all the profits, pour it into our own equipment, which we did, and started mining Ethereum for ourselves. So then... After kind of going through several months of kind of getting all that in order, we're doing really well. I started to sit back and first I started looking at Ethereum. What is this thing really? And I started to have concerns. I saw a massively complex system. I saw highly centralized signals. I saw this, they had already signaled that they were going to move to proof of. Brian Cubellis (01:36:23.949) or a steak at some point. So I saw all these things that I didn't like. Just again, more of a technical lens. Like this doesn't look good to me. And then in parallel, I started looking harder at Bitcoin. And I have an economics background as well. I studied economics and found independent school as well as my engineering degree. And then I also in... the early 2000s found Austrian economics just coincidentally. So I started looking at Bitcoin and just the sound technical foundation and some of the early revelations of the beauty of the way that Satoshi had architected this thing started to appeal to me. And then I saw the Austrian principles kind of coming through all this. And so we started to pivot the company and away from Ethereum and to Bitcoin. So, um, so that was, that was the, the point for me of, you know, getting involved and, and ultimately landing more firmly in the Bitcoin side of the equation. That's awesome. Yeah. That's a, I think that's an interesting coming into altcoin story because I know Jesse shares his and everybody has their, their own, but generally it's like, they kind of stopped from there and then obviously like went to Bitcoin, but. You could literally were like mining or helping to support and then realize it's like, Oh, I found like this niche and understand how to build these systems, but I'm just building the wrong, uh, filling the wrong circuit. Yeah. Yeah. I can't help but find it interesting too, that like, you and, and Wozniak, uh, you know, are, are both like earlier computer infrastructure, engineering guys who both see the beauty of this. this system of engineered money. And there's something too that, you know, I guess anybody who is early to computers has a pattern recognition or like a style of thinking where you just see things, see the future playing out. And lo and behold, with Bitcoin, we see quite a few folks like yourself who have seen this movie before and are excited about this one too, you know, and that... Brian Cubellis (01:38:50.349) That says a lot. Yeah, absolutely. I appreciate you putting me and Wozniak in the same sentence. That's high praise. I appreciate that. But I'm not sure it's applicable. But what I will say is this, that to the degree I have some vision or ability to kind of. You know, see how technology is going to evolve and how it's going to impact society. I that was really my job when I was the chief technology officer at gateway. That was what I was chartered with. Right. My, my job was to direct where we were going to go with technology. And, and that meant. Trying to see where, um, how, how would people adapt? How would business adapt? Like, like, so, and it, and, you know, it forces me. And going back to my early days too, like as an engineer, yeah, how, how will this all come together? It's like when I was at gateway, um, like I'll tell you a little story. You may find it interesting. I have, um, I have a bunch of patents and, um, my, my favorite patent is a very simple patent. And the patent, um, was because it was roughly 2000, 2001. And probably people don't remember this, but Gateway wasn't just a PC company. We were the number one maker of plasma TVs in America in 2002. For instance, we like, we would be had, we sold more plasma TVs than anybody in America in 2002 under our own brand that my team developed. So I'm real proud of that. But we also did digital cameras. We did MP3 players, all kinds of other consumer electronics devices. And so one of the products we were developing was an early MP3 player. And this is a ledger, but it was like this size, right? So it was a USB stick MP3 player. And we had got the first prototype developed. And I guess to say that, so we could see what was happening with that music was moving from... Brian Cubellis (01:41:07.917) The CD, we had seen what Napster and some of LimeWire, and if you're old enough to remember, like how music distribution was changing. And that, you know, the future was people carrying around their music, thousands and thousands of songs and picking their own playlists and like all that. You know, that was part of what we envisioned. And Apple hadn't come up with the iPod yet. So. We were trying to scramble with the goal of hopefully having had the success of the iPod, which we didn't have. But anyway, so we're developing this little USB stick device. And in the first prototype, it had a play -pause button, so it could start and stop. And it had a button that would reverse you to the beginning of the track, or a forward button that would take you to the next track. This is all I had, right? It doesn't even have a display on it. So anyway, I'm out for a run, and I had downloaded an audio book in MP3 form to this device. I'm run, so I'm in a really good part of the book and I'm running along and I have a wired earbud in and my elbow catches the cable and it rips the device out of my hand. It goes flying, you know, tumbling down the sidewalk and the earbuds go another way. And I have to reassemble the whole thing, right? And I put it in and like, shit. The... the audio book has kept playing the whole time, right? And I missed like 90 seconds of this book. And remember, I only have two options, which were, this is an MP3 rip of the whole book. My choices are, go back to the beginning of the book or skip to the end of the book. I have no other options. I'm like, shit. So I'm sitting there on the sidewalk and I go, I'm an engineer. I, I, Brian Cubellis (01:43:24.737) should have the foresight to understand that the moment that the earbud pulled out of the device, I should have stopped the audio track. So, by the way, so if you have like earbuds and you're listening to music and you take them out and the music stops and you put it in and it starts again, that's my patent. And... So, which by the reason I'm proud of it, I think I have much more technical, much more intricate patents, but I'm really proud of this one patent because there are billions of people who have devices that get to use something that I invented every day, right? And so that's a kind of a cool thing. Even when I'm on an airplane or in a restaurant or you know, whatever, and I see somebody. listening to something and they take it out, I think, oh, you know, a little piece of my work kind of went into that. So there's a very long winded kind of tangential way of saying, I think that there are people and like, like a Wozniak is, is great and Jobs is great and Elon Musk is great. And, you know, for me to even be in the same room as those guys are in the same class, you know, that's. That's high praise. But I do think that there are people that can do that, that have that ability to say, I can think of the second order, the third order, the fourth order, the fifth order effects of these things, remove themselves from the present and bring it. Satoshi was absolutely marvelous at it. May have been the greatest of all time. I mean, I agree. Yeah. And, um, yeah, it's, it's a perfect way to wrap in the sense of like, Bob, that story is, I think, um, anyway, I'm glad we met and hope to be able to get your guidance on how we think about our business building feedback. But then in general, personally really excited for this next epoch is mainly from like the operational execution and talent coming into the space with backgrounds that were. Brian Cubellis (01:45:46.893) experts in their own field found Bitcoin and now bringing all of that second, third order thinking and vision into this world that we kind of haven't seen yet. And so yeah, that encapsulates it very well as hopefully there's other people coming in with very significant patents and things they've done that will port that over to Bitcoin. Yeah, we need it. You know, I maybe I'll say one last thing, which is, you I think we all have to be vigilant. Like, like, there's, if we ended a bull run, Probably my greatest fear is complacency. Like that, you know, we have to innovate just because, you know, we shouldn't ever think that we won. Like, you know, I mentioned this earlier, I think about Bitcoin from a thousand year perspective, and I may at times overreact to something that may seem like a trivial issue. And the reason I might react that way is that over time, over a thousand year window, there are going to be a lot of attacks. And it may be. that we fend them all off, but it may also be that a small one that we ignored, that we didn't think was significant, ends up being the one that defeats us. Just like Bitcoin got its very existence because the existing financial system and power system of the world ignored us for too long. Right? And then it came in and now we attack them and we're... too big and too powerful to fend off. Well, let's not fall victim to the same thing that brought us our success. Perfectly said. Anywhere to share where people can find you? Sure. Barefoot Mining is our company website, boomer BTC, underscore BTC on Twitter. I have a podcast called Old Man Yells on. Brian Cubellis (01:47:55.885) You find it on YouTube and Spotify and things like that, which is just me ranting about various things. Awesome. And then you'll be at Bitblock this year, right? I will be. Yeah, I will be at Bitblock this year. I will be in Prague as well. If anybody's in Europe, I'll be in Prague in June. Awesome. That's where you can find Bob. And then the Bitcoin John meetup this Monday in Philadelphia with Lynn Alden, we have some of our team down there. And I guess it's open to over a hundred people now. are going to attend of RSVP the most I think was 30 to 40. So if you still want to attend, sign up. Yep. That's cool. Awesome. All right. Thanks guys. Thank you guys.