The Last Trade E069: A Random Walk Down the Timechain with Bob Burnett

Jackson Mikalic (00:01.704) All right, welcome everyone back to The Last Trade. This week we have Bob Burnett. Bob, thanks for joining the show. How are you doing today? Bob Burnett (00:10.166) I'm doing well. I'm trying to stay dry and safe with a hurricane looming just off the coast of Florida. So what better way to spend time killing time than chatting with you guys. Michael (00:24.0) We appreciate you joining and this is the first like ninja launch kind of for the last trade where you were blowing our minds behind the scenes. we just, Jess was like, let's just start the pod. Let's get it ripping. So appreciate you joining and excited to talk about some of the stuff. Jesse Myers (Croesus) (00:35.537) Yeah. Yeah, Bob, you got a lot going on over there. It's a question whether the water stops at your doorstep or one foot into your house. So there's some randomness that you're going to be dealing with over the next day or so. And then you were just showing us an unbelievably cool bit of randomness that you've been working on too. Bob Burnett (00:50.915) Yeah. Bob Burnett (00:56.814) Yeah, well, I'm glad I was able to give you guys a sneak peek of that and you know, we'll obviously can go into that here. But I guess, you know, jumping in with that, I don't know, for those that don't know me, I guess just real quickly, I'm the CEO of a company called Barefoot Mining. So we specialize in small to medium sized commercial mining, which I feel is a critical part of the infrastructure. Jackson Mikalic (01:05.673) guess, you know, jumping in with that. don't know, for those that don't know me, I guess, just real quickly, I'm the CEO of a company called Barefoot Mining. Jesse Myers (Croesus) (01:10.555) Yes, that'd be great. Bob Burnett (01:26.258) And honestly, the part of the infrastructure that gives us the greatest advantage too, and we can talk about that more a bit later. I'm also on the board of directors at Ocean and an investor there. So we may touch on some of that. I'm also on the board of advisors of a company called M5ers, which is a group where we are designing our own ASIC. So at the silicon level. And I'm also on the board of advisors at a company called Block Spaces where we're developing a Block Space forward contract platform. potentially depending on what you guys want to talk about, something that we can go into. But I'm also the CEO or chairman, I guess probably best call me the chairman. We just hired a CEO. Chairman of something called Chaos Enterprises. And the genesis of Chaos Enterprises was I started a few years ago. objecting to the community referring to mining rigs, mining systems, computers, mining servers, pick your choice, as ASICs. That term really bothered me because as an engineer, believe in specificity of language. think language specificity is very important and terms that get misused especially in general, can be very dangerous. In fact, I think that's something happening with ordinals right now, for instance. But again, we can talk about where I think that the term SAT has been abused and misused and it's creating confusion. But I was really concerned about ASIC because ASIC is an application specific integrated circuit. It refers to a chip. ASICs have been used for 30 years. Bob Burnett (03:26.904) I designed my first ASIC in the late 80s to control some battery circuitry on a laptop computer, but they're used in your car headlight control, the TV dimming when the lights go on. mean, all these sort of things are all ASIC controlled. But when we call the system in ASIC, so we have ASICs in our world, right? perform the hashing function, right? That's the guts of what happens in Bitcoin. But when we call the system in ASIC, we are saying that that system is now application specific. And one, I believe it's incorrect and confusing, but two, I believe that by using that term, in a consistent manner across the industry, we're doing is we're giving tax authorities and regulators and bureaucrats a mechanism by which they can easily attack us. So if we say an S-19 sitting in a closet over in a certain spot is application specific, it makes that much easier for them to say, well, we are going to tax the power consumption of that unit because we don't like Bitcoin. I mean, that would be Elizabeth Warren's pipe dream, right? So, don't like Elizabeth Warren. I think there's a lot of evil that goes on. And I wanna fight that. So, I started by trying to, I think, send a warning to the industry, like we have to do this. But then in the spring of 2023, The Biden administration did what I feared, which was they proposed a 30 % tax on energy consumption by Bitcoin miners. It got defeated, but by the way, it reappeared in the 2024 budget. But in that spring of 2023, when it happened, I said, okay, I need to prove to the world that a product like an S-19 is not application specific. Bob Burnett (05:42.686) And I, but it's kind of interesting. I said this publicly to many people and inside the technical community, I got ridiculed quite a bit. Several people said, you know, you're an idiot. These machines can only do one thing, you know, blah, blah, blah. And so I just, I was quiet. I started a skunkworks project because I knew what I could do with it. At least one other thing. And, and that was to create proof of work based random numbers, meaning that I could create auditable and verifiable random numbers. And on the surface you might think, well, random numbers, who cares? But you find out when you think about it and you do a little research that random numbers permeate all over the place. Obviously they're important in cryptography, they're important in online gambling, they're important in pharmaceutical research. There are all these different places where random numbers play a really important role in the world. And then when you dig deeper, what you find out is it's very difficult to generate a truly random number, especially a provable random number, because you can do things like everybody knows, like lotteries have been gamed, casinos have been gamed, military drafts have been gamed. Like there are all these different things where people have manipulated randomness. Or it just turns out that the method itself wasn't truly random. So while nature, like Jesse, you mentioned, you know, the hurricane, yeah, there's a whole bunch of randomness, but we can't really prove that randomness. There's no way to audit the randomness. Like where will hurricane Milton hit? We don't know. You know, what will the wind speed be when it makes landfall? We don't know. Those are, those are random, but even to the degree we're random, if, let's say we were going to make a bet about the wind speed at the moment that Bob Burnett (07:49.262) Hurricane Milton hits landfall or use that number as the seed of something else. The problem we have is we are reliant on third parties in that chain, right? So if Jesse and I had a bet on what the wind speed was, well, who's reporting the number? What equipment did they use to report the number? How can I audit and verify that the wind speed as measured at the moment, like there's all these different things, right? So the seemingly random thing is, turns out to be able to be highly manipulated. So what I did was I said, well, let's use the thing we learned from Bitcoin, which was proof of work with difficulty, right? And apply it to the random number world. And so anybody listening, can go to a website called chaosengine.com and you can see the first incarnation of what we've done and it's up on the screen for those watching now. so. Jesse Myers (Croesus) (08:57.574) And that's chaos. C A O S. Bob Burnett (09:00.984) Yeah, chaos engine.com. Correct. And obviously the word chaos comes from entropy. I view the proper way to look at a product like an S-19 is as an entropy engine. If I've kind of come to that realization, the best way to refer to that is it is an entropy engine. entropy, chaos, and randomness are all They're not exactly the same thing, but they are intimately connected, right? And so that's where this term, where the genesis of this website comes from in the name of the overall organization. And so as you look at the screen and you pull down, say on the numbers, our decision making, excuse me, and you do a coin flip, sorry, decision making coin flip, see, this was the very first thing we did to prove that that a product like an S9 key could do something other than just mine Bitcoin, what we did is we have a blockchain of coin flips that are linked to each other and feed each other just like one block in Bitcoin feeds another, we're using that same block construct but with a completely different data set. And when you hit coin flip, what's happening is we have a certain difficulty that In this case, it's two leading zeros. So we don't have a high difficulty on it. We just have one S 19 sitting behind this website right now. So I don't have a lot of traffic on it, but we can very quickly generate the result of a coin flip. And we realized once we could do that and we proved that the equipment could do something else, we realized, well, hell, can, we can roll a dice, which you can, you know, also, also if you pull down on decision making, can. show that as well. Bob Burnett (11:00.056) And so, and this one was done with three leading zeros. So we started to get this concept in place that it was useful, that we could prove this. And I view it as what we've done is really created the third incarnation of proof of work, the first being practical application of proof of work, the first being Adam Back. with Hashcash, the second being Satoshi with Bitcoin and this being the third, which is auditable and verifiable random numbers. So, fortunately we can't show you today, it's still in beta, but we have created, now knowing that we can roll dice and flip coins, it means we can shuffle a deck of cards and we can do those things. So we have created now in beta, We have a group of beta users. It's called Chaos House. And it is a Bitcoin based online casino. We have blackjack, roulette, craps, slot machines, et cetera. And what makes our casino unique is that it is the first casino in the world where you can literally click a button, you play a blackjack hand, let's say, and you lose and you go, can't believe the dealer. the dealer, you know, started with a 12 and hit four cards and ended up with a 21. Like, and so, but you can click a called an literally called an audit button on the screen, and you can pull up and you can you can actually see the blockchain of all the cards dealt in, for instance, the blackjack game. And you can, if you want to put in the work, you can extract and see exactly how each of those cards was dealt. so it becomes the world's first online casino where you can with confidence know that you're playing a fair game. Bob Burnett (13:07.802) In fact, it's so fair. I'll tell you this about it as well. It's unfortunate We we couldn't get my share working or I would have demoed it for everybody But we let you decide if you want to be the house or you want to be a player? So it's that fair that that You know if you if you want you can you can play the house side so So there's there's no in other words, there's no motivation for the house to ever be corrupt because each user can come in and decide if they want to be a player or they want to be part of the house. In fact, you could be part of the house in the roulette game at the same time that you're a player on the blackjack game. Like we allow you to do that. You can kind of sit in the background, put some liquidity into, for instance, the roulette game and let that go. And at the same time, go over and play blackjack. And again, knowing all the time that you can audit the results at any time. And then we have another website called digitalhoroscope.ai. We've taken it kind of another level and we looked at kind of the whole, I guess, I don't know if you call it the mystic world, the esoteric world. Jesse Myers (Croesus) (14:16.753) Mwah. Bob Burnett (14:35.482) To be honest, it's not something I particularly believe in, but it's an area where I know people get manipulated a lot. And so what we're doing is we're tapping into the randomness that we can get from this. The massive randomness, right? think if you're a Bitcoiner, you probably realize that the number set that we're dealing with, know, two to the 56th is this massive number. So, and all we're showing is, for instance, this is a tarot card reading. So, we're using the same concept to shuffle a deck, I believe it's 78 cards in a tarot card deck, a past, present, and future card. But once the result comes in, what we do is we've built a custom AI front end. So we take the results of those cards and whatever information we can get about the user, and we feed that into an AI engine to create the reading. So it is what it is. I'm not making any claims about its accuracy. But what I can say is that if you want a tarot card reading, you'll get a genuine tarot card reading. The cards dealt are genuine and the reading is genuine with no reason or intent to be misleading or to manipulate somebody. So we have some fun things on this site, like fork, can get a digital fortune cookie. We have a magic eight ball game. We've got horoscope settings, but at the kind of to get back to the, the, the main thing here at the center of all this is equipment that has traditionally only been used for Bitcoin mining. So now, and what will our plan is we will, as we bring this up, Jackson Mikalic (16:05.766) fun things on this site. You can get a digital fortune cookie. We have a magic eight ball game. We've got horoscope settings. But at the center of all this is equipment that has traditionally only been used for Bitcoin mining. So now What will our plan is we will as we bring this up, we will let Bitcoin miners. Bob Burnett (16:34.104) We will let Bitcoin miners direct their hash rate to us for this purpose. And then we'll kind of look like a pool. And then if we use them for the digital horoscope stuff or the casino, they're gonna get paid something from that. But if we don't need their hash rate, then we'll direct it to to Bitcoin. So what that does is that means that anybody that points their machine at this will not even know whether or not their machine is working on Bitcoin or working on this. Now, I'm not trying to encourage, I want to be clear, I'm a Bitcoiner, I'm a Bitcoin maxi. I'm not trying to take and steal a whole bunch of the Bitcoin network to make this happen. But what I do want to do is give anybody that is in a position where they think they may be exposed to a tax authority or regulator. Now they have absolutely no idea what that machine is doing. And they have a very plausible and economically viable reason to say, hey, I might be running a casino. I might be helping do tarot card readings or I might be mining Bitcoin. I don't know. Michael (17:33.919) you Bob Burnett (18:00.664) You can't tax me. Jesse Myers (Croesus) (18:02.695) Hm. Hmph. Michael (18:03.232) Bob, I'm gonna jump in because you're kind of blowing our brains here. there's a few thoughts or things that come to mind. One is I genuinely appreciate it since the very first time we chatted your independent thinking. I think this is what makes individuals special in this world of you reference bringing it up as it's not an ASIC. You can break down why based on your background. And then you got ridiculed a bit because we have these tropes in Bitcoin and people stick to them and they don't ever think about like, why is it? They're not your keys, not your coin one is the one that we come to. Everybody's believed this, but then what happens when somebody robs your house or a hurricane hits? It's like, well, maybe I shouldn't have had all my keys in my house. And so point being is just genuinely appreciate that because I think that's how very cool things. build the world and somebody looks at it from a first principle, is what you're doing here. And then to extend to the mind blowing side is like, I don't really gamble, but I appreciate that there's a big business of gambling online. And what's kind of blowing my mind is like a... you know, if you've heard of nitrogen sports, it's like a Bitcoin only on and off ramp for sports gambling. And I've always thought that's very interesting because it's like the Bitmex version of you don't touch any fiat. So they're just, it's very, it's very like anti-fragile in the sense that they can always operate, they can always move around. But you take that and then you couple it with a Bitcoin native or quote unquote, auditable way to prove it. Now you're just, you've built the best casino overnight that somebody can go online and be auditable. And that's kind of crazy, but then that goes across the board like, you know, passwords and how, you know, the bit wardens of the world, like they have to generate the randomness and we just trust that it's random and too fat. Bob Burnett (19:50.042) Yeah, two factor like else like that's on our roadmap is to create two factor with the same technology that's on our road. Michael (19:58.792) Yeah, and so you think about fantasy, even if I was just thinking about fantasy football, people do a draft, they're like, how do I know it was random that you just gave me this thing? But point being is like, I don't know if this is being too like hyperbolic overzealous, but you would imagine if this is a construct that is easily verifiable for somebody to back into the randomness, this becomes just an open standard for the internet. Because you go and you're just like, why would you use a website that isn't standard, isn't... Bob Burnett (20:05.796) Yeah. Michael (20:25.36) auditable that the randomness was generated wasn't done by that because we just assumed that everything's random and we're perfectly fine with it and we know it's not and we know like you know the the poker one comes to mind because I love playing hold of it I never play online because you see all the stories of how the the house is like You know just like manipulated that Bob Burnett (20:44.538) Sure, Yeah, we do intend to have APIs. And there is a big commercial market for it too. There are markets where somebody will say, hey, I six million random numbers between one and four quadrillion or something like that. Well, we'll be able to provide that and again, provide the proof of work behind the generation of all that. So there will be those commercial applications. And yeah, I hope I hope that is the case. You know, we, we believe that not only casino gaming, but all types of online gaming or any any type of gaming, right? If it's a first person shooter game, there is randomness within the games like they have to be right, you know, they have to say is it raining or not? How hard is the wind blowing? Like if you're playing certain types of games, but that randomness is coming from within the game itself, first of all, and the algorithms and the techniques that they use always have a gap. Like there's always some degree of uncertainty about whatever random number. Now in some cases, if you're, I don't know, playing a Mario Brothers game or something like that, who cares? But as soon as you're a serious gamer, whether you're playing for money or for, you know, in a serious competition, I think you want to know that the randomness is really random and that you're not manipulated. So I appreciate the kind words, Michael, and I hope people understand what we're trying to accomplish. We started out, as I said, we started out from, it was somewhat of my, I need to prove that these do something else, because I want to beat the regulators. Jackson Mikalic (22:29.324) started out Bob Burnett (22:40.89) to very quickly realizing, no, really there is a market for this, that it's genuine, it genuinely can be a massive business in and of itself. Jesse Myers (Croesus) (22:44.027) Mm-hmm. Michael (22:50.752) Yeah, and one can make the case it only 10 to 100 X's from here because if we're living in an increasingly digital world, which we all know we are, then you need to create randomness from authentication tokens. And from a listener perspective, the gravity is like the easiest example that's tangible is, I forget, and I know there was like a mix up, so I don't want to like completely out butchers, but directionally. Jesse Myers (Croesus) (22:50.769) Completely. Jackson Mikalic (22:50.979) Yep. Michael (23:18.366) because it was happening between Foundation and Cold Card. That Cold Card and they think that Rodolfo's gonna kill me if you listen to it. like MK2, something happened with the randomness of rolling the dice that effectively, I think it wasn't fully random in the way it was set up where funds were lost and they made a big stink Foundation did. But point being is that humans were very bad at creating randomness to the point of the most visceral feeling or... Relationship to that is literally losing your Bitcoin because they were able to go and like cycle through addresses and sweep the funds because they didn't weren't able to create the amount of randomness and entropy to create the private key that was needed. Yeah, so that's just like a small example, but it's one that's the most relatable today because we operate all day with encryption and Bitcoin, but in cruising world that's digital is increasingly encrypted and you need that randomness to exist. Jackson Mikalic (24:11.643) Yeah, I know. I was just going to say that I think Michael's excitement really stems from the fact that he does read his horoscope every morning and he just he wants to pretend that he's excited about the other use cases. But no, seriously. Jesse Myers (Croesus) (24:11.921) Yeah. Okay. Go ahead, Jackson. Jesse Myers (Croesus) (24:20.871) The tarot cards got him. Michael (24:20.894) Ha! Jackson Mikalic (24:27.0) Exactly. But Bob, it's really fascinating, especially like from how you stumbled into it, not in a derogatory way, but I guess more so you mentioned the idea of having an S-19 machine and the ability to tell a government or a regulator or whoever may be asking or infringing on your privacy that this could be doing many other things aside from mining Bitcoin. And that is really powerful just from a perspective of property rights and preserving that. But I also I think it sounds very compelling from an optionality as it relates to revenue of owning these machines as well, right? Because I'm sure we could talk about it during this podcast, but just how looking forward into the coming cycles, fee markets will develop and thinking about the block reward. And maybe there's going to be an increased demand for this type of monetization of these machines. it's just really, I mean, there's, could do an entire podcast on this topic alone because it's really I've never heard anything like this before, so it's just, it's really fascinating to get your perspectives on it. Bob Burnett (25:34.712) Yeah, I mean, we'll see how economically viable it is. It's too early to tell. It depends on really the demand for it. It's certainly possible. Jesse Myers (Croesus) (25:44.249) I I think it takes Vegas and puts it in anybody's browser, potentially. Bob Burnett (25:50.328) Well, yeah, that's certainly the objective of that. And I will say that while we haven't worked out the whole model exactly that we are looking at, for instance, as it pertains to the casino, we are looking at those that provide hashrate to back it as part of the house. So it's like providing liquidity to the house. So depending on how well the house is doing, will determine the reward of the the person contributing or the machine contributing hash. So, yeah, so. Michael (26:31.592) Yeah, the casino one, and that's where it's fascinating, because you change the dynamic of running a casino. Like in the sense of, in my mind, is if the back end is sound and it's random, and then the front end is the consumer, the liquidity person coming, well, they naturally do not want to be gained. So if a market forms around, you know. a non-game version, you have more liquidity, more people coming. And then it becomes around the user experience of creating the best incentives, pools, right? There's all these interesting things you can do. But what's kind of just mind-bending for me is it can all be done on Bitcoin, and then that effectively just becomes uncensored. You cannot ever stop anything like that because you can't stop the payment of the flow of either direction. Bob Burnett (26:59.3) Yes. Bob Burnett (27:16.259) Yeah. Bob Burnett (27:19.64) Yeah, that's how a creation takes place. Basically with Bitcoin, it's a Bitcoin based casino as well, which I can show you guys offline at the end of this, we can figure out a different way to share a screen and I'll show you people out there listening. Hopefully we'll have something soon that you'll all be able to look at. But yeah, I think it changes the game. If you think about how much, how much effort goes in and how much overhead goes into the gaming industry to try to prove that it's fair or to regulate it or to manage it. And if you go, well, I don't have to do any of that in a lot of ways it does for gaming what Bitcoin did for money, right? You know, so what Bitcoin did for money was say, I don't have to trust all these other people, all these regulators, all these tools to make sure that nothing bad is happening. Go away with Bitcoin. Well, same thing with this, like Jesse Myers (Croesus) (28:03.452) Mm-hmm. Bob Burnett (28:19.588) we can and so I think it's fascinating that proof of work gets used again and I'm you know and you know I think we've done something innovative but I want to you know give full credit to Satoshi because I mean I don't I don't come up with this without without Satoshi and understanding Bitcoin I mean it it you know it's it's truly a standing on the shoulders of Giants kind of thing Jesse Myers (Croesus) (28:26.78) Yeah. Jesse Myers (Croesus) (28:49.627) Yeah. It, one of the things that like, think one of the reasons I thought that Bitcoin was a big deal was because of a background in accounting. And here's this thing that audits everything in the world every 10 minutes. Like, of course that's better. And this is another extension of that same sort of phenomenon of this technology makes it auditability and transparency. Bob Burnett (29:06.756) Yeah. Yes. Jesse Myers (Croesus) (29:18.427) a million times better than what's possible in the physical world. And so I have a few questions of like, how would you characterize what an S-19 is then? So it's not an ASIC, is it that it's a random number generator? Like what is a characterization of what that work is? Michael (29:21.311) you Bob Burnett (29:42.508) I've somewhat settled on entropy engine as I think the best descriptor of what it is. Jesse Myers (Croesus) (29:52.811) And is that perfect entropy? so I may be mixing things up here, but I recall there's something from Satoshi's coins about the extra nonce being a little different. And I don't remember if that pattern has any bearing on the randomness of the nonce that's selected by that machine. Is that, am I conflating things or is it perfectly random what an S19 spits out or does it matter? Yeah. Bob Burnett (30:21.048) Well, there's a lot of elements that determine it. So, You know, first is, and we keep, so the seed, right, so what it is you're hashing, right, is dependent on the previous block. So first of all, we are taking a timestamp in there as well, you know, at the microsecond level. We have all these elements that sit within there. And so, the. the output and then we have the difficulty level of course too, right? So we have all these things. mean, it's my belief that we have created as best as mankind can do to create an auditable and verifiable number. know, we can't, like we, there are certain things that I think we know as Bitcoiners and we, Jesse Myers (Croesus) (31:05.543) Mm-hmm. Bob Burnett (31:30.778) Probably learned a little bit about hashing like you can't prove that there aren't collisions right that two unique set of inputs Don't create the same output. I don't think we have an example of it yet but but it's technically possible that that could happen so Jesse Myers (Croesus) (31:40.347) Mm-hmm. Jesse Myers (Croesus) (31:47.973) Yeah. So you're sort of allowing for the vanishingly small possibility of like ghosts in the code or something funny unexpected happening where the randomness is being generated. Bob Burnett (32:01.538) Yeah, well, I mean, that's how that's how in the past, a lot of that happened. Like there was a there's a great story, not a great story, but there was a guy who wrote the algorithm for like lotto numbers at one point. And of course, he, he had a back door in that thing. And he could he could on certain days, like it wasn't every day, but on certain days, Jesse Myers (Croesus) (32:17.649) Mm-hmm. Jesse Myers (Croesus) (32:23.111) You Bob Burnett (32:31.438) he could predict what numbers were gonna be output. So he would go around the country to different friends and say, buy this lottery ticket on this day. And he was smart enough to not do it himself, but he had all these different people. But he eventually got uncovered and they found the back door. That stuff's impossible with what we're doing. And that's where the difficulty adjustment really... Jesse Myers (Croesus) (32:54.865) Mm-hmm. Bob Burnett (32:59.226) kind of a, you know, cause we're going for a certain difficulty level too, which as we get more hash power, we'll get bigger and bigger. So the, could quote unquote, the quality of this. I mean, I think the quality even at like that you guys saw in the demo, which is really just two or three leading zeros is pretty good, but we can increase the quality by simply changing the difficulty level. Jesse Myers (Croesus) (33:21.029) Right. And correct me if I'm wrong, but I mean, the, the sheer scale of hashing that's happening in a single machine is probably enough to run like every casino in the world. No problem. Bob Burnett (33:35.448) Well, it depends on how many people we have playing. If we had a couple thousand people playing, we wouldn't need more than maybe two or three machines. Jesse Myers (Croesus) (33:38.083) on the difficulty. Yeah. Michael (33:51.123) The thing this reminds me of is a little bit of open source software where, again, still being early to the internet, but the way it seems like it's shaking out is that open source, open networks, and specifically around password managers, it's kind of a best practice that you're using open source because there's somebody technical able to verify and then the market coalesces around. a trusted software to use and you can't read the code but somebody can. And then they query a foul if they look at something that doesn't make sense. And so this kind of reminds me of that in the sense of... you have these generators that are spinning for certain places on the internet and people can back into it and prove that it's malicious or not and then the market just starts to form around, that's a trusted source to go and do things for or I won't. Like that's how I can kind of see this shaking out. Yeah. Bob Burnett (34:48.44) Yeah, I mean, we have to, we have to be honest and transparent because we're dead if we don't, right? I mean, the the moment somebody says, no, this is manipulated. Yeah, we're you, you, you, the algorithm says the car dealt should have been an eight of clubs and you guys put up a 10 of hearts. Well, we're done. We're done at that point, right? And we should be if that was ever the case. Jesse Myers (Croesus) (35:12.593) Yeah. Jesse Myers (Croesus) (35:16.011) And so on that point, the way that you ensure that this thing isn't like running a number and it spits out, you know, eight of clubs and then the house is like, eh, let's try another card and then show that one. You would then see that there was a card in the chain that wasn't dealt, that should have been dealt. that how you would be revealing that? Bob Burnett (35:40.536) Yeah, yeah, I mean the chain. Yeah, I mean, and so the just like Bitcoin, to be honest, in the early days, theoretically, somebody could redo the whole chain, right. But as we get further and further in, and the chain gets bigger and bigger and bigger, it becomes harder and harder. So Jesse Myers (Croesus) (35:54.8) Right. Jesse Myers (Croesus) (36:02.791) Yeah. So I guess in that sense, you can have like a 51 % attack on like, let's, let's go back to that prior nonce and then, and then run again and have a fork here. And I guess that's something got to solve for. Yeah. Bob Burnett (36:15.448) Yeah, you could. You could. And you know, that's why I think, just, we're still thinking through a lot of things. But I think what will happen is that in the early days, until it establishes itself, I would recommend people come in and have fun with it and play for low stakes. Like, you know, and, and I know that's that's a terrible, it's terrible for business to a certain degree. But I think Jesse Myers (Croesus) (36:24.313) Yeah, sure. Jesse Myers (Croesus) (36:36.568) Yeah. Bob Burnett (36:45.54) You know, at some point it just becomes so big and really, and because we're going to build this chain really, really quickly too. That's the other thing is that unlike Bitcoin, which is 144 blocks a day ish, right? You know, well, we're adding blocks at a massive rate, you know, really, really quickly. So the chain, the chain, the chain will get to, I think this critical point where people can trust it more and more. Michael (37:16.327) Is it current to, like, theoretically you would want more hash power behind that because for a certain application you could reorganize that chain by going backwards with more hash rate, right, to change what you would want to manipulate in the blocks. Jesse Myers (Croesus) (37:32.276) And you would want it distributed hash rate, right? So not all owned by a single entity. Bob Burnett (37:36.962) Yeah, and you know, we obviously right now we own it all. But I'm not telling people to go play it yet. Right? You know, so you know, our our intention is that anybody can throw hash rate at it. And, you know, there are, there are places where we have vulnerabilities. I think they lessen with time, as I said, and we'll be transparent about what those are. And But the more participation we get, the safer it gets. Jesse Myers (Croesus) (38:11.249) Yeah. And it seems like it could also be more profitable for hash rate to be used for this sort of use case. there, I think you mentioned that there's some sort of economics share with the hash rate. Bob Burnett (38:25.594) Yeah. Yeah, it's possible, but it'll, it'll like anything. It's like in Bitcoin. I mean, it's how many people are playing again? It'll really be a function of how many people are playing the game and generating hash. if too much hashrate comes in though, it, it'll, it'll balance back out. So I, and that's important to me because Bitcoin is more important to me than this. Jesse Myers (Croesus) (38:46.139) Yeah, it'll balance out anyway. Jesse Myers (Croesus) (38:55.206) Mm-hmm. Bob Burnett (38:55.258) And so if, if for some reason the Bitcoin network started to weaken because of what we were doing, then I would say, well, we got to, we got to shut it down. But I just, I can't imagine that happening that, you know, we're not going to see 50 X of hashes flee the Bitcoin network and, and come over to the chaos thing quickly. Michael (39:22.695) Yeah, I see this as the opposite. It reminds me of like AI and the co-location happening that you just end up with more robustness for a Michael (39:33.641) the use case, right? Like, I don't know what's better printing that money than a casino. And so if that's starting to do, you can shift that hash, but then you can always move it, you know, depending on where you need to. Jesse Myers (Croesus) (39:45.639) Bob, do you have a threshold in mind of if you get 1 % of the hash rate is doing this application rather than just Bitcoin mining? that that becomes the sort of magic threshold for saying like, look, we're not, you know, it's not an ASIC. So regulators get it straight. This is a entropy generator and 1 % of that entropy generation is being used for this totally different thing. Is there like a magic number in your head? Bob Burnett (40:16.128) I it can be materially less than that. Because here's the thing. mean, all these efforts are really stupid, right? Because I'm having this call with you on a MacBook. Okay, I could be mining Bitcoin on this MacBook right now. I don't because it's not really economically viable. But... I've and what I view is if if if if a government regulator came in and said hey anybody that runs mining software on any platform whether it's something like an s-19 or a traditional PC or a GPU thing all these things have been part of our past right well we're gonna tax we're gonna tax you based on that energy consumption so well the only way The only way to do that is first, think, severely violate my privacy by forcing me to disclose to the government what software I'm running. And I believe I'm just trying to make it so that they have to look at an S19 the same way as they look at the MacBook. What I've proved is I already, and there's a reason why I have three websites going at first, not just one. across wildly different applications, know, one is kind of the chaos engines is really Kind of the core generator that's the core technology and that's the one that'll have the API's for commercial purposes So like if you were a pharmaceutical company or a financial services company running Monte Carlo analysis and you need a bunch of numbers You'll be able to tap that API and get them from there. And then we have the horoscope stuff the casino stuff so you know three three wildly different things All running off of the same machine and Not really a way for anybody on the outside to know without you know, I think a massive violation of of of privacy so Good luck Elizabeth Warren Jesse Myers (Croesus) (42:37.105) You Michael (42:38.515) I love it. Jackson had a whole list. thought we were talking about centralization and datum and ocean mining. And now we're talking about Monte Carlo analysis and casinos. Bob Burnett (42:49.954) Yeah, well we can go those other, I we can go wherever you guys want to go, so. Michael (42:53.119) You're on mute, Jackson. Jesse Myers (Croesus) (42:54.323) I mean, my mind is still blown that like you've just shown here that an application of Bitcoin that I'd never thought of before is having a more perfect and audible form of randomness in the world. And that is useful for every industry in various ways. That's awesome. Jackson Mikalic (43:11.098) Yeah, I love. Yeah, I echo that sentiment, Jesse. I love the idea of in a world where trust is declining and for many reasons and many types of institutions, this could be a really compelling use case to maybe regain trust in terms of having this type of auditable and verifiable randomness. yeah, I mean, there's probably so many other use cases, Bob, that we could touch on. To Michael's point, do want to get into some of the mining stuff as well but if there's anything else like you know you really wanted to cover on this topic we can before doing so. Jesse Myers (Croesus) (43:50.552) One more quip here. Bob, ironically, I think you've found the one viable alternative use case for blockchain technology besides Bitcoin as money. Bob Burnett (44:01.391) Well, thank you. Thank you. I appreciate that. Jackson Mikalic (44:09.438) Yeah, sorry, I was on mute, but Bob, maybe, I mean, I know you're involved in a lot of different businesses and pursuits these days. Barefoot being one of the businesses that we talked about on the last show. Could we explore the idea of your focus on small and medium sized mining and just A, why do you focus on that and how do you view that as a differentiator for Barefoot versus other players in the space? And then the other piece of that as well would just be, why do you view that as so crucial to the Bitcoin network and there's a lot of I think other questions I have top of mind as well but let's start there. Bob Burnett (44:48.334) All right, okay, this may take a while. All right. Jackson Mikalic (44:51.26) Haha Bob Burnett (44:58.298) So first, I'll start with this. I believe the most economically advantageous portion of mining will be in this space. That I believe I can chase power in this size range, several hundred kilowatts to single digit megawatts. And that stranded energy exists in those pockets that can be free or close to free. And the large mining companies look at it and say, it's not worth our time to go after it. And so it removes them from the competitive landscape. They almost all say, well, let's say, like, I'm doing a 1.7 megawatt project right now. It's using anaerobic digestion from the excrement of cows from a dairy farm in Indiana. Our cost of production is let's just say well under two cents per kilowatt hour. Now, most companies would look at that type of opportunity. Any bigger companies, let's say the Pubcos or those kind of, and they just say 1.7 Wegemots, what am I gonna do with that? And in the middle of nowhere, I don't even have anything else close by. And I'll go, hey, I run the numbers. That's a pretty fricking good opportunity. I may have to locate one or two bodies there, hire a couple people, but I can bring that operation up and from a ROI perspective, there's nothing better. It beats anything that the big guys are working on. Now I believe I can do that over and over and over and over again. Part of another group, we're buying our own stranded gas wells in Pennsylvania right now. And Bob Burnett (47:19.268) There's a lot of work with that. There is some risk with it, but you know, once we once we buy the wells, it's our gas. It's free. I'm oversimplifying a little bit. But because there are still costs of production, right? I mean, we have to run generators and there's maintenance on those generators and their permits we have to get and standards we have to comply with. but again, we can beat anything on grid. So So that's one reason that we do it from an economic perspective. There's a second reason though. I don't have to compete for that power with anybody else. There's nobody else. The big guys trying to do big sites are now running straight into the AI world. They're running straight into the HPC world. They have to fight for those opportunities and they're not infinite. They are finite, especially in jurisdictions that are friendly, that have the right cost structure. It's a very finite group that they're going after and now they're competing with somebody else who's willing to pay more. Now some of the big guys are pivoting to that business, which I think is smart for them, because I think they're going to find that that's a better business. And I hope they do, frankly, because I think they do a lot of damage to the Bitcoin network because they, we could go down that rabbit hole later too, but I think they over, they overbuild and they're long, they're long amounts of time between capital deployment and starting hashing. means that they're almost always out of cycle in my opinion. So in other words, if I deploy capital to bring up a one megawatt site, a natural gas site in West Virginia, let's identify the site, I raise the money, I'm probably operating in eight to 12 weeks from the point of capital deployment. whatever market conditions were at the point that Bob Burnett (49:44.694) I made that business decision. I'm up and going inside those conditions. If I'm deploying $100 million on a 100 megawatt site and it takes me 15 months, I tie up capital for really long periods of time and who knows what I come into. What is global hash rate then? What is the price of Bitcoin? What's the fee market look like? I don't know any of those things. We can all speculate. We all do, of course. But they're coming up on these massive investments into a huge degree of uncertainty. And you know, there's this tendency in high growth businesses for people to underestimate what others are doing. So I saw this in the personal computer industry for Those that don't know, came from the personal computer industry. So in the early 90s, we saw this, the personal computer market was starting to grow like crazy. So if we look at a year like 1995, it was a seminal year in personal computing. We were starting to see just the early days of internet adoption, AOL was hot. The CD-ROM was now a standard part of personal computers. the Pentium processor, which was considered very powerful at that time, was coming to the forefront. But most importantly, Windows 95 was coming out. And so in 1994, all of a sudden, the personal computer industry knew 95 was gonna be a massive year. So, you know, I was at Gateway. So I'm going off the top of my head. These exact numbers are wrong, but I'm just talking conceptually. But, you know, let's say we had a 7 % global market share at that point. And we go, well, next year, because all these cool things are happening, the market's gonna grow 12%. But we're gonna grow our market share from seven to nine. So, okay, so our forecast is, you know, for all this growth. And we go off and set our supply chain and all our plans in action to capture all this. Well, guess what was happening at Dell? Guess what was happening at? Bob Burnett (52:06.916) compact, guess what happening at HP, guess what happening at all these other, they were doing exactly the same thing. Everybody knew the market was going to grow and everybody thought they were going to grow their market share. Well, what ended up happening? Well, market didn't grow quite as big as we all thought it would be. And some gain share some loss share, but what happened a massive glut. I see a very analogous thing that seems to happen. in mining, especially with the public miners and the public miners, they seem to be rewarded for growing not not making money, they seem to be rewarded for growing, which baffles me to be honest, like, because if you look at I don't want to call out any specific company here today. But if you look at the the public mining sector as a whole, it's been a catastrophe for quite a while, like their financials are horrible. yet they keep making these offerings, whether it's convertible debt or new share issuance, and they get gobbled up and that money often goes into expansion, which the market then rewards as soon as they say, well, we're going to add another three extra hashes or two extra hashes in 12 months. And the market goes nuts and rewards them and they do another offering. And we kind of have this feedback cycle that in my mind keeps rewarding. companies that haven't yet shown operational excellence. And that's that's bad because what it does do is the on the private side, we don't have that luxury, we don't have the luxury of operating with negative cash flow for any extended period of time, none of us do, whether we're big or small on the private side. Generally, we don't have that opportunity, right? And so. So there's a there's a possibility where Bob Burnett (54:06.85) What ends up happening is if this goes on for an extended period of time where at the end of it, you have an overbuilt infrastructure with only the least efficient people left. I'm not saying that's what's going to happen, but there is that possibility that that's what happens. Michael (54:31.975) So, Bob, maybe just jumping in for a second. think it's really important what you're describing because I don't think a lot of people think about the... from a public sector, hear the big names and they don't really, when you hear it broken down like that, it kind of makes sense. But I think what you're describing is effectively a product of loose money, whether it's on the traditional side. I've been at the WeWorks of the world and it was grow at all costs to get more money. We know BlockFi went under because they didn't want to lose the annual recurring revenue and stop out the loans and that's what cost them to be off sides from closing out positions on the lending capital. But then we experienced Bob Burnett (54:52.922) Absolutely. Michael (55:10.539) is firsthand similar to what you're describing on the custody side because ultimately the market subsidizes almost all like Bitcoin companies in general. What do you think about like the venture capital that comes in to grow at all costs and take either some kind of like market share or thought that you'll monetize in the future. And so there's this like fallacy built into Bitcoin that like custody should cost nothing. It's a bearer asset, it's easy. But when you really think about it, break it down, it's like, well, there's only 21 million and we believe it can go to exposition. Somebody has to pay for that cost, whether somebody pays for it in the security in their own home and guards or the custodian has to protect it. But this notion, if you're using a company, they don't charge or this flat fee, well, somebody's paying for it. And ultimately to your point at a certain time that runs out and then your counterparty may not be your counterparty because you have to get acquired or you go out of business. And these are just things that we experienced day in and day out because we charge for our product because it's, we think it's best in class and you have to pay the institutions to safeguard those cryptographic keys. but we see firsthand you compete against somebody paying zero and zero is inorganic and it can't last forever and so we just kind of hang around but so this is what reminds me very similar and I think there's probably little slivers across the board whether it's in the traditional world or in Bitcoin where different market specialists can see how this somebody trying to build the right way experiences this and you just have to be very prudent pragmatic about building in that environment. Bob Burnett (56:33.592) Yeah. I think you're you're nuts on when you said about the loose money. I agree with everything you said, but I think that's especially pertinent. And I'll just restate it a different way. I believe it is an infection of the fiat world into Bitcoin. You know, I believe that and and you know what I see sometimes, I don't spend too much time on it, but I see people kind of support the public miners. Now, my guess is a lot of them are people heavily invested in public miners, but they'll kind of cheer them on and say, they're, they're company X is copying sailor strategy. So well, no, they're not, they're not copying sailor strategy sailor. Sailor has a sound core business that generates positive cash flow. And he is using his, his, and so his treasury essentially has no exposure. Well, if you're a company, that is got negative cash flow and doesn't have a sound core business. You may be huddling, but that whole huddle stack is greatly exposed. In fact, it presents a threat to the network. And I will call out Core Scientific, at least the first incarnation of Core Scientific, which did massive damage to the Bitcoin ecosystem when they had a big stack. They were losing bunches of money. took on bunches of debt. And as they started to unwind, they had to sell massive amounts of Bitcoin into the market. This is a late 22 mid mid to late 2022. And, and it's my opinion, they that that brand should be held in the same vein as FTX and Celsius and Voyager that they did the same amount of damage. Michael (58:16.797) you Bob Burnett (58:32.77) and forced us into this extended bear market at the same level as those companies did. They took on a billion dollars of debt, they overbought equipment, they forced pricing very, very high, they locked out companies like mine from having access to equipment. And they sold thousands and thousands of Bitcoin between the spring and their ultimate bankruptcy in November till they had no Bitcoin left. I don't remember off the top of my head, I think it was It was might even be well over 10,000 Bitcoin. Like they were just dumped. were dumping everything they're producing plus their stash. And the more they dumped, the more the market went negative, which forced the price down, which means they had to sell more to cover it. And all of us were forced into the same thing. So, so anyway, I don't, I don't want to be doom and gloom here, but, but I think that that those are things that we have to be cognizant of. there was a question asked earlier and I kind of went on a tangent there. You know, I think companies like Barefoot, whether it's Barefoot and there are other good players that are, I think following a somewhat similar strategy to Barefoot now. I think we provide a very important part of the ecosystem. And this leads to another thing, Michael, which you were leading to. So I have a very different view of the future of mining. I'm going to give a speech at LA Bitcoin next year. next week. And I'll hit on some of this, but I'll preface it today. and what I'm going to say is controversial. I think we are on the cusp of seeing major financial institutions take over the prominent role in mining. So whether that's, it may not be these names, but Citi blank and BlackRock. and Deutsche Bank and Mitsui and these types of companies in major markets, I believe, will move heavy into mining. The reason is, it's not about mining Bitcoin and acquiring Bitcoin, it's about controlling block space. If we project, what I'm going to say I think is true, the only question is the amount of time. Bob Burnett (01:00:55.318) The network has a capacity of about 200 million transactions annually. That's it. So if major portions of the world are running on a Bitcoin economy, then as a financial institution, if you don't have access to control transactions within that economy, you're dead. It's existential. So if I was Citibank right now, If I was Bank of America, if I was Mitsui in Japan, I would get into mining and I would set a goal of probably having at least 1 % of global hashrate and make sure that I can control roughly one block a day. It has nothing to do with the subsidy and the fees they could give a crap. Bank of America has an IT budget of about $11 billion a year. That is the same size as the entire revenue of the Bitcoin mining industry. last year and this year. they're just one bank. They don't give a crap. if they lose customers, if they lose the ability to have control about when transactions occur and what the cost of those transactions are, they're dead. So I believe we'll see a radical change. I also believe we'll see nation states move heavily into mining for the same reason. And I'm not saying they don't want to build Bitcoin treasury and we hear a lot of people talking about that. But I think people are missing the main point. The main point is going to be about block space control. If I was the president of Bolivia right now, what I would be doing is I would be building some mining operations of my own, number one. And number two, I would be putting sweetheart deals out to miners all over the world saying, come to Bolivia. Here's a sweetheart deal. The only caveat is you have to use the Bolivia pool. Michael (01:02:42.655) you Bob Burnett (01:02:53.302) And in the Bolivia pool, the either the government or the central bank or one of those will be deciding what transactions go in those blocks. But I'm not saying I like this. I'm just telling you what I think is going to happen. And so so I believe that those public companies, these big guys are going to some of them may be purchased, some of may be subsumed or just kind of overtaken. Michael (01:03:03.08) is Jackson Mikalic (01:03:03.22) Yep. Michael (01:03:07.006) it Bob Burnett (01:03:20.782) And I believe that it's the small, medium-sized commercial miners and the plebs. We need to maintain some level of control. I believe the ideal number is about 30 % of the network that maintains the true spirit and ethos of Bitcoin. So that at least, let's just say 50 blocks a day are coming out with that ethos because otherwise Bitcoin won't die, but you know, You're gonna see OFAC compliance. You're gonna see completely different criteria for transaction selection. Jackson Mikalic (01:03:52.408) different criteria for transaction selection. Bob, could you explain, so we're talking about sovereign nations and financial institutions wanting to get involved in the mining space and predominantly you said not because of fees and revenues tied to that but because of controlling block space. I think one piece of nuance that is often maybe overlooked as it to mining is taking a step back and talking about block templates, right? Before thinking about hashing. So could you maybe just describe what block templates are at a high level? You don't need to go into a ton of detail there, but then into that just, I think that's really ultimately what we're getting at, right? Like that's where having the control and the ability to determine what goes in blocks. Like how would these institutions think about constructing their own block templates and being able to get involved in the network that way? Bob Burnett (01:04:50.404) Yeah. Okay. great, great question, Jackson. Alright, so I think a lot of people out there think there is a mempool. Let's start with that. There is not a mempool. Every node has its own mempool. Now they're broadcasting to each other, but there are essentially filters set up that decide what each node is going to have in its mempool. Now most people don't play with these settings. They're a little harder on a core node if you use knots. It's a little easier. But regardless, it's there for you. You can decide what you want, you know, op return to be as an example. Those are all, are you going to accept something that has an 80 byte op return field or not? So those are decisions that can be made. And that sits in your mempool. Now, if you're a real miner, then what you do is you create your own template. Most miners in the world today are hashers. That means that they provide their hash rate to somebody else who creates the block and they're just providing the compute that goes against it. That was me by the way until two weeks ago. And we'll talk about why I'm no longer that I'm a real miner now. for the, so. So what happens is, in fact I'll kind of jump to that. So. What I do is if I want to be a miner, then I use a command called get block template. And so I look into my mempool and those transactions that I've picked. And I can set my criteria then to build my block from the transactions that are in my mempool. That means, let's say my mempool has 150,000 transactions in it. Bob Burnett (01:06:54.292) I can maybe fit 4,000 in. So what criteria will I use? Well, an example might be if I have some of my own transactions, include those first at no fee or minimal fee. If I have friends and family and other people, I can put those into. Then I might say, let's say I'm feeling philanthropic, I can say, Let me find the ones that have been sitting there the longest period of time and I'll fill those in. This is by the way not the normal template is I'm just exemplifying that you can kind of put whatever criteria is it just when you hit 4 million wait units which is usually about 4,000 transactions you're full. Okay. Then you start mining. Now as you're mining or as you're hashing you're trying to you're trying to solve the block. If new transactions come into your mempool Every few seconds you go and you look and see if there's something there that should have priority over one that's there and you can swap it out. So the block template that you've created isn't, is actually dynamic during the mining process. So the block template control is paramount because it's deciding what transactions you're going to try to mine and more importantly, which ones you're not. And, you know, that's why I believe like these financial institutions. So like if I, if I was Citibank, what I would do is I would say, hey, I'd go to all my commercial customers, and especially my prospects, and I would say, hey, if you bank with me, I will give you guaranteed access to to base layer transactions within a 72 hour period and you will pay no more than eight sats per VBITE. Regardless of what the market is, like I don't care. What I care about is the banking relationship, right? I think people often think of miners and they think of the block reward and think, miners are economically motivated. They're gonna pick the transactions that make them the most money. And they're right. Bob Burnett (01:09:21.178) But what they're missing is what makes them the most money might not be the block reward. It might be that relationship. If I was American Express, I would get into mining right now and I would go to all my high net worth people, all the people that have a credit score or a credit line over a certain level and I would say, good news, you get six base layer transactions a year for free. You just, you you... Here's how you notify us that you want a transaction done and we'll guarantee you it. So I think that that's where the future is going. And like said, it's a matter of time. And I think it's hard for probably most people to envision because they are used to a world. If you've been in Bitcoin for a while, for the last 15 years, you think of block space as just kind of a given. It's something that's there. Michael (01:09:59.775) But Bob Burnett (01:10:17.462) almost always available. It's almost always free. But I I'd say in essence, those days are over. And the new world will emerge. custody companies, you know, might might this might be important for custody companies, you may not mind, but you may, you may want to have a relationship with a minor, that you can offer that same service to your clients like cable will, you know, will give you ability to move anything into cold storage or from you know this vault to that fault or whatever for free within certain limits. I think companies like River and Swan will have to have those kind of relationships because a fold like you won't be able to do withdrawals. There's an interesting thing about the subsidy because I think like I'll pose it as a question to you guys like when you think about the subsidy how how do you define the subsidy and its purpose. Jesse Myers (Croesus) (01:11:22.023) A few birds with one stone. I think it's how you go from zero to 21 million fairly. I think it's also, think the real genius of it is it's how you create increasing scarcity and therefore that savings technology phenomenon of Bitcoin where you store purchasing power and then because of increasing scarcity of supply issuance in the future, it grows in purchasing power over time. So I think it... is it just an unbelievably clever way to solve several things that needed to happen with an elegant little design. Michael (01:11:59.39) Yeah, think we talked about it the last one. It's the most simplest form. It's a way to kickstart the system. And then once the flywheel is done, you don't need tail emission because the block should keep the system running because of the transactions. Jesse Myers (Croesus) (01:12:14.206) Right. Yeah. And I think part of, yeah, one of those, one of the outcomes of it is that in theory, there should be a smooth transition from, you know, percent of block reward that is subsidy into, fee based, know, and you can sort of imagine over a hundred years how that should, you know, transition from a hundred percent block subsidy value to a hundred percent fee value. Bob Burnett (01:12:42.65) So I agree with all that. The reason I asked and I don't mean to put, I agree with 100 % of what you said. However, I gotta add one other thing that I think is important, which is I think most of the time people think of the subsidy and they view it as it's important to the miner. It's subsidized the mining function, right? But I think what gets missed is that It was subsidizing the users too. It was giving the users access to the most powerful digital network in the world for free, essentially on demand for 15 years. So, so, and, and I think that was both brilliant and a curse as well. And the brilliant part was in this, you hit this Michael, I mean, it really facilitated adoption. Jesse Myers (Croesus) (01:13:19.749) Mm-hmm. Jesse Myers (Croesus) (01:13:24.497) Yeah. Jesse Myers (Croesus) (01:13:31.269) Yeah. Bob Burnett (01:13:36.856) right? It's a sophisticated adoption and usage. But what it also did was it created bad behaviors and expectations for the long run. It's created people that have lots of small UTXOs. It's created this expectation that people will be able to access the base layer whenever they want. But the math, and we may have hit it up in the past, but it's worth repeating. There's only 53,000 blocks a year. There's only 200 million transactions a year. There are eight billion people in the world. There are 330 million companies in the world. The math doesn't work. Not everybody can live on the base layer. If I want to give 10,000 Sats to everybody in the world, I don't think I have that much, but let's say I did. I know I don't. If I did, And each one was an independent transaction. It would take 40 years for the network to process that. So not everybody can live on the base layer. We are a privileged group, those of us that got in when we did, because I'd say on the whole, people that have their Bitcoin and they're saving it on the base layer in cold storage. It's wonderful. You're there. whether you have a tenth of a Bitcoin or you have thousand Bitcoin, that's wonderful you have it there. X number of years from now, I think sooner than later, your ability to move that and access that will start to get really constrained. The math doesn't work, right? And so whether that's lightning or different custodial solutions or these types of relationships that I'm talking about, even though I don't like them, they become very important. And we have to even be careful. Bob Burnett (01:15:38.028) In my opinion, this is going to be controversial when we say not your keys, not your Bitcoin. It's a true statement. But eight billion people can't hold their keys. You know, so what do we do for them? How do we set the right expectation? How many people can hold their own keys? I don't I don't know that number. haven't done that math. But but how many can on a practical basis? Because only 200 million of them can either put more money into the base layer or take it out on an annual basis. Jesse Myers (Croesus) (01:15:57.745) Yeah. Bob Burnett (01:16:08.013) I mean, I'm assuming I mean, it's obviously you can have multiple inputs and multiple outputs. So you can you can multiply that number a little bit but Jesse Myers (Croesus) (01:16:08.017) Yo. Jesse Myers (Croesus) (01:16:16.859) Yeah, we struggle with that phrase at OnRamp. And recently I've been reflecting on what its value really is, because it's been an incredible mantra to adhere to, very valuable for Bitcoin's 15 year history, specifically because it is intended, I think, it gets to the core of like self custody versus third party custodian control of your coins. Like, you know, Mount Cox, quadriga, FTX, they're all on one side of that equation. And, and you're much better off if you're choosing between those two to avoid FTX or Mount Cox. But looking forward, I mean, it doesn't scale and it, that mantra just doesn't really have a place in, in the realities of like mainstream adoption. and I feel like what, you know, What I think that mantra is really all about is you want to have control as much as you can of your coins, whether or not you hold your keys. You know, it's really about control and risk mitigation among your possible options. So anyway, it's been interesting to be, you know, at OnRamp and really reflecting on how not your keys, not your coins has been very true, very Bob Burnett (01:17:24.366) Yes. Jesse Myers (Croesus) (01:17:43.655) helpful to keep people off of exchanges, keep their coins off of exchanges because that's been the big risk, but that its value is kind of limited to that foil between third party custody and self custody. Jackson Mikalic (01:18:00.205) Yeah, it's... Michael (01:18:00.477) It reminds me of Ocean a little bit, Bob, because it's tied into what Jackson had asked about the construction and kind of your involvement from, because I think there's a component of the ability of investment and sitting on the board of recognizing that there can't be X number of mining pools concentration because of the block. template that was like embedded into the financial institutions you mentioned. And this is something we looked at directly of like, well, not everybody's gonna hold their Bitcoin. It's not technically feasible. So then the opposite means that there are gonna be X number of custodians and that's not good for Bitcoin. That means that like we're just naturally. So it's a very similar thing, but you can't, there's a middle ground of pushing it out to the edges. And then there's some trust involved and there's some verification involved. And that's as best as we figured out so far. But the existing solutions do not make sense of having a centralized number of Bob Burnett (01:18:48.25) Yeah. Michael (01:18:53.323) of either A, custodians, or B, people incorporating the block template, creating the block templates, because that's how you can censor transactions and ultimately kind of kills the value prop of a permissionless asset. So it's very similar, like on different sides of the spectrum, but they kind of map directionally from a game theory perspective of you have to play within the confines. And they're not perfect, but they're the best that we have. Jackson Mikalic (01:19:15.939) Yeah, real quick on that, Bob, just to piggyback on Michael's thoughts there. One thing that we've talked about a lot internally and a bit on the podcast is the idea of over 10 percent of the Bitcoin, total Bitcoin, 21 million is cussied with one entity, which is Coinbase. And not to pick on them specifically, but and, you know, that could be any business. But really, the idea is just a decentralized asset should not be centralized as it relates to custody. Bob Burnett (01:19:15.992) Yeah. Jackson Mikalic (01:19:45.893) know you're focused on, like Michael said, a similar idea with Ocean and addressing the centralization of mining pools specifically. I've been digging into it more recently. I knew it was centralized, but I didn't realize to what extent. And I looked into some of the data. I looked into some of the research and podcasts that you've done recently. And it's just remarkable how everyone wants to talk about how bullsh-t bullish they are as it relates to Bitcoin the asset. Like if you go on, log into Twitter, almost every post or take is just about the number going up. And I find that frustrating being in the custody business because we have to have a realistic conversation about, how do you actually secure the asset from one trillion to five to 10 trillion? And I'd imagine that it's frustrating to you being in the mining space because a lot of people are just overlooking that Bitcoin mining pools are extremely centralized and that poses a big threat to our ability to use it in a permissionless way. Bob Burnett (01:20:53.09) Yeah, it is is frustrating. It's a little disappointing sometimes. I think there's a certain apathy. I think all of us are on some sort of a journey, right? And I think how how, how deep and broad we go in that journey is is up to us. I think there are a lot of people that stop at a certain point. They they almost think they understand it enough or they just think it will magically take care of itself somehow. Some people think Bitcoin is perfect. I obviously I hold Bitcoin in high esteem. I believe it's divinely inspired. I believe it has to be taken care of though. I think we've been given a phenomenal gift. But, but it, it won't just live for the next 1000 years, which is what I what I believe in. I speak on that sometimes say, you know, I believe Bitcoin is money for 1000 years. What's only going to do that, if we really take care of it. And we have to realize that naturally centralization, anything this powerful, anything worth this much, will constantly be subject to centralization. It'll also be subject to attack. So we have to be on our guard at all times. That's why I did the proof of work random number thing, right? I mean, there was one attack vector coming over there. Well, there's another attack vector. you know, that we're trying to solve with Ocean, was mining pool centralization and even more specifically template centralization because the template centralization is even worse than the mining pool centralization because it's obvious that a bitmain led group is a bitmain led initiative is controlling template creation and it's also controlling Bob Burnett (01:23:03.482) Coinbase distribution from the pools like different pools are sending the reward to the same place You can see the templates created by several of these pools are virtually identical Shouldn't be that way So when we launched ocean we did it from the perspective like eight we got a we got to have more pools but but number one thing is we got to have more template creators and a pool implemented properly can allow individual miners to create their own templates but still be part of the same pool. So that's the part that people missed. And that's what we fixed with the datum announcement. I guess we're on the order of 10 days ago or so. And it was the number one reason when I aligned with Ocean, which was, I think it was... July, July of 2023 is when I first started meeting with the Ocean team. I'm proud to say Barefoot was the very first company to commit hashrate back then. And I did it, I did it after the initial meeting. I said, when you guys are ready to go, I'm gonna commit X amount of hashrate to you. I was the first miner to sign up for that. And by the way, we... you know, we did do that and we were blessed to actually mine the first ocean block. And that was back in, I think December 1 ish was when the first ocean block happened. But the long term vision was to announce what we just announced, which is called datum. So the way datum works is each miner in the pool can create their own template. However, we must We get the information about how to share the output of the template from Ocean. So Ocean tells us that, if whatever block is being worked on, say Bob should get 1%, and Jackson should get half a percent, Michael should get 3%, Jesse should get 10%, whatever those numbers are. We all will share that, but we create our own decisions about the template creation. Bob Burnett (01:25:27.82) And Ocean has been very controversial because some people view us as censorship, anti-spam, whole thing with ordinals and inscriptions. Still fighting some of those battles, by the way. I was just on a call last night on a space last night talking about that. what we do is we've said, hey, it's up to the miner. Miners, a real miner. creates their own template. Okay, so you're not part of the Bitcoin network. So like to create my own template, I run a node and I have to put the parameters in for the template I want to create. And then my hash rate is directed to it. And if I win, I simply have directed that block when it was constructed, I share it in the appropriate percentages offered by the pool. And if one of you guys want it, you have to share with me. So it brings pools back to what they should be, which is a revenue sharing, revenue stabilization tool. That's the purpose of a pool. Purpose of a pool is not to remove the function of being a miner. And I should also point out that, you know, we're not in a real controversial time right now, but those template creators usually signal like soft force activation, soft fork activations too. So if you're out there and you have hash power, do you want your pool to vote on this or do you want to do it yourself? I mean, I think the spirit of Bitcoin is for you to take an active role and voice your opinion. you're not, I mean, in my mind, you're not fulfilling your obligation. I basically have this, I call it the miners' creed and I don't have it in front of me, but I basically think It's a voluntary thing, it basically says that if you're a miner, think you take on a responsibility to guard the network and preserve the integrity of the network. And you should make the ethos of Bitcoin and living within that ethos your priority. Bob Burnett (01:27:46.494) Like I take this job very, very seriously and what my company does very seriously. I would say the same thing. You guys are in custody. I think another really important thing you guys should have the same. I would expect you to have the same thing. So when I see companies that behave outside of that, they call themselves miners when they're not miners because they're just hashers and they're constantly making decisions outside the ethos. get, I get concerned and I would say on the whole, I don't want to call out any specific company or any specific individual, but I would say the ethocentric people, the people that really are doing this for the betterment of Bitcoin and the betterment of the world and fixing broken money are the plebs and the small and medium sized commercial miners. Michael (01:28:37.993) Bob, I know Jackson has to run shortly, but I think one thing that this has been such a great recap of talking about the market structure is this notion of fixed fee per share and then what Ocean's doing and why the market aggregates around, like just to help the audience and us understand the incentive model and how it's kind of moved to centralization and this like notion of variance. And then the last part is just the... I actually don't know this like from a is it a proportion from the template so whoever finds the block Is it a proportion of their hash that they're sending to like the ocean pool or is it the entire? Pool like how does that work for a block construction at ocean and? This is data data Bob Burnett (01:29:26.242) Okay, so what Datum is essentially doing is it's saying, hey, if you want to be a miner and create your own templates, so if you connect to the Ocean Pool, you have two choices. There are still four standard templates created by the pool and you can pick one of them. Bob Burnett (01:29:49.434) Or you have a fifth choice, which is you create your own template. If you create your own template, you need to run a Datum server. And what will happen if you run a Datum server is the pool will communicate to you and say, this is the split. This is the split of the hash rate of the network. Okay. So here's a list of like, have 660 participants roughly in the pool right now from a guy running a bid ax to you know farms right all shapes and sizes but they each get a slice and that slice is determined I'm going to oversimplify based on the percentage of activity that they have contributed over the last eight blocks ocean has mined so it's not it's not a current state it's looking back for the last eight blocks How much have you helped mine the last eight blocks? And so ocean provides that so me as a template creator I get that and I said, okay This is the split I have to put that information into the coinbase transaction in the appropriate percentages then I can pick whatever transactions I want and I start hashing If I think I have solved the block I notify the pool say I got it they verify that I have adequately represented the splits and then it gets presented to the network. So, and by that, that's happening in like milliseconds, right? I mean, that's very, a very quick process. So, that answer the question, Michael? Michael (01:31:45.563) Yes, I guess just a template of what's like what's What transactions are being filled is that by the person that found it and or is it just their proportion? They do the full template or they just do a proportion of like the hash that they provided and then everybody else that's participating is putting their proportion of the the transactions in that block Bob Burnett (01:32:05.912) No, ocean. So okay, so ocean, ocean. So a block just got mined. Let's just pretend okay, block just got mined. Ocean's gonna snapshot then the and count up all of the work contributed by companies attached to its pool over the last eight blocks. And it will then come up with those percentages. Michael is 3 % of ocean, Jesse is a half a percent, Jackson's 4%, Bob's a tenth of a percent, whatever those numbers are. I must, if I'm gonna create my own template, I must use those figures provided by ocean. And so those percentages. when I, if I solve a block, so we're hashing now, I pick whatever transactions I want, including by the way, I can fill the whole fricking thing with spam. Even as anti-spam, you know, as Ocean is, Ocean will not reject anything. Okay. As long as it's a valid block, they will let me do whatever the hell I want. The caveat is I must. have divided up the share of that block appropriately with all of my fellow pool members. Bob Burnett (01:33:34.33) Is that clear? Michael (01:33:35.111) Yep, that makes sense. Jackson Mikalic (01:33:38.481) Yeah, well, Bob, I do have to run. The unfortunate thing is there's so much to unpack just with the work that you're doing. If ocean barefoot chaos, mean, there's there's so much going on. So I'd love to just give a handoff to you as where people could just find more about the various projects you have and the best way to get in touch if if they want to learn more or get connected with you directly. Bob Burnett (01:34:07.77) Thank you. So I'm on Twitter at boomer underscore BTC. So I guess that kind of is a focal point for for all this stuff. Barefoot is at barefoot mining calm. block spaces calm, we didn't talk about it. But I have this block space forwards project that is coming along very well. And it essentially is a way of selling future access to block space. And we view block space as a commodity that will be traded just like any other commodity, just like corn or apples. So you can see that there. Look for announcements coming soon from a project I have called M5ers, where we have a top notch team developing our own ASIC. Really an ASIC, a chip, like we're really designing our own. And we think we're doing some really innovative and creative things that will move the industry forward to new levels of efficiency and more importantly you could think of this as more of an Intel like company our desire is just to make chips not to make systems I believe that we're going to have a much healthier Bitcoin network if people can buy chips and anybody can design a system any system they want based on our chips, much like anybody can buy an Intel CPU and build their own computer. And what am I missing? and then chaos. can check out chaos engine.com for some of the random number stuff or digital horoscope.ai. Those are those are both like I sort of call them live betas right now. They're not finished products. So if If something's a little buggy or a little funky, don't get upset with us yet. But we do encourage feedback. So if anybody sees it and wants to tell us how to do something better or add a feature or whatever, we would love to hear about it. Michael (01:36:21.235) Thanks so much for joining, Bob. This was fantastic. We got to figure out how to do it on a quarterly or bi-annually cadence, because there's a lot to unpack. Bob Burnett (01:36:31.194) Well, thank you guys. Always a pleasure to talk to you. Jackson Mikalic (01:36:31.418) Yeah. Yeah, thanks Bob and stay safe with the hurricane. Jesse Myers (Croesus) (01:36:33.573) Yeah, really cool. Thanks, Bob. Yes. Bob Burnett (01:36:37.214) Thank you. Will do.