The Case for Bitcoin Mining

Every passage, on the record.

1. 00:00Claim

   A large part of this podcast is dedicated to understanding energy, understanding how money is a representation of stored accessible energy, and how energy usage and our ability to channel energy is what allows us to evolve, both in the biological sense, where stronger systems are ones that can channel more energy and use that energy to transform reserves and access those reserves when they need to.

2. 00:37Idea

   Money represents the allocation or the storage of energy within an economy.

3. 01:08Claim · condensed

   An economy is just a group of individuals who come together and decide that it is in their best interest to share and pool energy, and money is the tool, the technology, that lets us exchange and share that energy more efficiently through the division of labor and specialization.

4. 02:19Claim

   Life is anything that is lowering entropy in its immediate environment so as to access energy reserves when necessary, because the more energy reserves an organism has access to, the higher the likelihood that it is able to deal with an uncertain future.

5. 03:27Analogy

   The systems inside of our body, the circulatory system, the respiratory system, these are all energy channeling systems that out competed the other possibilities, and they did that by allowing or channeling energy more efficiently.

6. 04:12Analogy

   Think of a hunter gatherer society where there's a field of wild berries: that field represents energy, but it is not in a useful form because it's scattered across the field, so we need to perform work to transform that random energy into stored accessible energy, ideally in the most compact, most energy dense form possible. We do that by going around, collecting all the random berries and putting them in a big basket; now the energy is centrally located, and if you need energy you go to the basket rather than spending excess energy going out and searching for it.

7. 05:55Claim

   As soon as these organisms or these systems are able to store more accessible energy than they can possibly use, another level of life emerges from that, something that can take advantage of this newfound, abundant storage of energy that cannot be used by the lower system.

8. 06:57Analogy · condensed

   Think about how much wasted energy it would take if you had to think about beating your heart, or expanding your lungs, or pumping the blood inside your system, versus what you do now, where all of the chemical energy you intake in terms of food is allocated where it's necessary and you don't have to think about it, because the lower level systems are taking care of it, and out of that consciousness emerges.

9. 07:28Analogy

   So breaking down chemical energy outside of the body rather than inside of the three cows' stomachs that it takes to break down all of the nutrients necessary to produce the energy required for the chemical energy process to keep the body going in a cow, human beings don't have to do that. We've done that outside of the body, right, through cooking the food beforehand.

10. 08:07Claim

    You take that and you fast forward all the way to the Industrial Revolution, where now we can consume and use and transform energy outside of our own bodies: the technology is an extension of our minds, and our minds are trying to constantly gather as much energy reserves as possible because energy reserves equal a stronger likelihood of being able to deal with the unknown future.

11. 08:38Analogy

    If you are alone in the woods with nothing but the clothes on your back, you're in a serious predicament. If you're alone in the woods and you have a barn full of food and a barn full of firewood and shelter, you have a significantly different mindset for survival, because you have a longer time due to the reserves you have built up, and you can start to use your mind to figure out how to better your position and build up even more energy reserves.

12. 09:48Claim

    If I built up energy reserves on my own but didn't have a good way of expending that energy to transform even more energy into reserves, someone else could borrow that energy from me: they take the energy and give me a token, a representation of that energy in the future, knowing I had provided it to the pool. That is the economy, and that is what money represents, that shared energy resource we trade back and forth.

13. 10:52Reference

    We've heard Michael Saylor talk about why was the Roman army the best in the land at the time. Well, it was better at channeling energy over space and time, right? They had better infrastructure in place, logistics, to supply the troops with the necessary energy that they needed to fight at their best.

14. 11:30Claim · condensed

    They had better organization, training and weaponry; instead of standing toe to toe and beating each other over the heads, they realized that if they stood back and used kinetic energy to throw or launch something, they could do it accurately and not be at risk of immediate retaliation. So they were channeling energy over space and time, and the better you do that, the more success you have against others who are not doing it.

15. 12:33Claim

    Now what we haven't talked about is how Bitcoin itself uses energy, and what that means for the world around it, for the physical world outside of Bitcoin, how that can benefit the world, and how it's completely misunderstood.

16. 13:40Claim

    It has gotten to escape velocity where just managing to purchase or gain control over the necessary ASICs that will give you the hash rate to control the network is almost impossible, because you would see the footprint. That's how powerful the network has gotten.

17. 13:40Quote

    That's how powerful the number of defenders on the network has become over the last 12 years.

18. 14:51Claim

    There is a war, and the legacy system that has built up and can take advantage of the fiat world will do everything in its power to fight to the very last second to prevent Bitcoin from taking over, to prevent proof of work, because they significantly benefit from the system as it is now, so we should anticipate them to put up the largest possible fight, because the end result is either they continue to win as they have for the last 100 years, or they are made completely irrelevant.

19. 15:29Quote

    You're not going to leave things on the table if the choice is success or defeat.

20. 16:48Claim

    Right now, the default for people that don't want to pay attention or don't have time to pay attention, which is the vast majority of people, is entering the fiat system, and the goal is to change the default into the Bitcoin system.

21. 16:48Claim · condensed

    The more energy that we can use to defend the network, the more beneficial that system is to the network, and that is what makes number go up technology: if there is enough hash rate in the system to make it secure, that increases adoption, which brings in more revenue, which makes mining more profitable, which puts more money into mining, which makes the system more secure, and it keeps going again and again, mixed in with the halving of issuance getting cut in half every four years, so this number go up technology just does not stop.

22. 16:48Quote

    That is what makes number go up technology.

23. 18:01Claim

    It's not so much the nodes, which use very little comparable to the mining operation, can use very little energy compared to the mining.

24. 18:01Claim

    Bitcoin uses hash rate to protect the network, and hash has three inputs: it has energy, it has technology, which is at the semiconductor level, and it has the engineering of the data center itself, wherever the miner lives, which is going to make the miner and the semiconductor more efficient or less efficient.

25. 19:04Claim · condensed

    Since the very beginning of the Bitcoin network, we've seen a 58 times improvement in joules per tera hash, so we have significantly more hash with significantly less power, and it's projected now, from Bitcoin Mining Council data, that this does not always have to move in the direction of using more and more energy to get more secure.

26. 19:35Reference

    All of the stuff, all of these numbers that I'm using today are from the Bitcoin mining council. The latest update, which is Q4 of 2021. Bitcoin mining council is the association of miners voluntarily, put together by Michael Saylor, who get together and share information about the energy usage, the makeup of that energy, so we can use the facts and figures to our advantage.

27. 20:14Claim

    The Bitcoin mining council represents 46 percent of the total hash on the Bitcoin network, which is the largest computer network in the world by orders of magnitude.

28. 20:45Prediction

    The Bitcoin mining council is saying that Bitcoin has the possibility to do another 24x in energy efficiency in the next eight years, coming from semiconductor technology, from the engineering of data centers, and also from where the energy usage is coming from.

29. 20:45Reference

    That comes from semiconductor technology, that comes from the engineering of the data centers, but really it's the semiconductors there that will continue to get more efficient as more people enter the market like Intel, which we've just seen has come out. They're going to do their own miners.

30. 20:45Reference

    Block is going to do their own miners, and it's going to be a fight for efficiency in terms of hash, in terms of joules per terra hash.

31. 21:17Claim

    To say that the Bitcoin uses energy to protect the network is only partially correct, and it's important that we understand the other two aspects of that system, so that we know that it's not just energy, because that is a prevailing narrative, that it will just continue to eat energy as it gets bigger and bigger and bigger.

32. 21:50Claim

    At the moment, Bitcoin represents 14 basis points of the total world energy usage, 14 basis points, and a basis point is one one-hundredth of a percentage. So in decimal terms, that's point zero zero one four of the total energy usage in the world.

33. 22:26Claim

    If Bitcoin is using 14 basis points of the world's energy, we have to think about what it is using it for: are we becoming more efficient because of it? Yes, Bitcoin makes individuals, makes the economy, makes the world more energy efficient, and we are going to have to use more energy to become more efficient, because that is the only way that we can transform energy, we have to use it in the first place.

34. 22:59Claim

    We should be pumping in as much energy as humanly possible, or even removing the human from it, just as much energy as possible, so that we can reap the rewards on the other side, because if you think about all the things that Bitcoin makes inefficient, no longer do we need the currency settlers, we don't need the banking system, we don't need any of these things that used to take chemical energy from food to power the individuals to do these actions, that has all been removed.

35. 23:29Quote

    We can now outsource trust to this network because it cannot actually do it.

36. 24:07Claim

    The idea that energy is a zero-sum game, meaning that if a Bitcoin miner is using energy you can't use it for your air conditioning, is completely false. In the US alone, the grid produces 14% more power than is consumed.

37. 24:40Quote

    So the grid is not a battery, right?

38. 24:40Analogy

    It's not like they're loading this energy into a battery and that battery can stay there forever, and we can pull energy from there whenever we want. That is not what is happening with solar, with wind, with any of the energy providers. Except in something like an oil: with an oil, you can take it out of the ground and store it, and use that whenever we need to, which is why it revolutionized the world, because we were able to transport that energy comparatively quite easily, then something like electricity, where you begin to see bleed very, very quickly, and it's very hard to transport, and it's very hard to store.

39. 25:48Claim

    That is most evident in your renewable energy sources, like solar, like wind: when that energy is not being immediately used, it's gone, it's wasted, it does nothing. It doesn't relieve any of the costs that it took to build that system or the transmission lines to get it to the grid. It's never being used, and in fact they can't put it onto the grid in the first place, so it has to just die before it even gets on the grid, or else the whole system will no longer work.

40. 26:19Quote

    So it has to just die before it even gets on the grid.

41. 26:55Claim · condensed

    We need a constant baseload of power, and then we need different sectors, like your solar and your wind, to top up that baseload power. Normally baseload is natural gas or nuclear, some form of power that is always going to be there. But if we're already 14% over supplied, where is the incentive for power companies to continue to go out and generate more power?

42. 27:27Idea

    Bitcoin miners really are the customers of last resort. Energy is one of the major costs, if not the biggest cost, that Bitcoin miners have; they are chasing the absolute cheapest, most abundant energy that they can. And because these centers can be put up extremely quickly, they are highly mobile, so they can go to where the energy is cheapest seasonally, or where it is before transmission lines are in place.

43. 28:36Analogy

    Bitcoin miners can become that customer of last resort, also, you know, also known as a capacitor, right? That is what it is doing inside of the grid system, it is acting like a capacitor.

44. 30:15Claim · condensed

    These mining operations can suck up base load power and be curtailed or interrupted at any time, under contracts that say the power company will curtail the miners' usage when it's needed so that energy can flow to customers who are actually paying, which, since Bitcoin miners are paying for energy that would have been wasted before, should lower the prices for all of the energy customers on that grid.

45. 30:51Prediction

    Renewable energy is already being curtailed now, because there's too much power going into the grid at times of day when people don't actually need the power, but that curtailment is only going to accelerate as those technologies themselves get more efficient, so this energy loss is going to continue to happen faster and faster and faster.

46. 31:25Claim · condensed

    On the generation side, more power generation can be built up before transmission exists: we can go to areas that before would not have been profitable, because a power company would have had to wait for customers or for transmission lines to reach the existing grid. Now, as soon as that power generation is up and running, Bitcoin miners can be there, being the first customer, the customer of last resort, and the power company can immediately start to see returns on its investment.

47. 32:49Claim

    In terms of transmission constraints, it's highly mobile and flexible and can absorb excess: it can go anywhere, as fast as you can move a shipping container, that's how fast you can move the miners. We've heard a lot about the methane flaring that happens in places like Texas; all it takes is the generator, the shipping container with the Bitcoin miners, and you can be up and running incredibly fast, which eliminates those transmission constraints.

48. 33:23Claim · condensed

    In terms of demand response, there are two choices for dealing with load strains to the system: you can impact customers by shutting down individual sectors, the rolling blackouts we've seen in California and Texas, or you can impact miners by curtailing power to their rigs. If you were a power company with a specific sector under contract, understanding the power will be cut off if necessary, it sounds like quite an easy choice to say you'd rather impact the miners than impact the customers who don't understand how the energy system or the grid works.

49. 34:14Claim · condensed

    Sustainable electricity usage on the network in 2021, from four quarters of Bitcoin Mining Council data: 36.8 percent of the entire network was being run on sustainable energy in Q1, jumping 52 percent in a single quarter to 56 percent in Q2 after all of the China mining chaos and the hash left China because it was banned, then a 3 percent increase to 57 percent in Q3, and a 1 percent increase to 58.5 percent in Q4, which is 12 weeks to increase total sustainable energy usage by 1 percent, not a small feat.

50. 35:07Event

    After all of the China mining chaos that ensued, all of the hash left China, because it was banned, and moved to North America and moved to parts of Kazakhstan and all over the world, really, and that is a maturing market.

51. 35:40Claim

    So in essence, the network is greening itself, and at the same time, it is becoming more efficient. Less power can equal more hash if you're becoming more efficient, the machines are getting better using less power. In the future, the electricity could actually plateau while hash rate continues to increase, so you're using less brute force power to secure the network and more ASIC efficiency tech to do the work.

52. 35:40Quote

    In essence, the network is greening itself, and at the same time, it is becoming more efficient.

53. 36:19Prediction

    It may not continue at the same rate, but it's going to continue, because the incentives are aligned for it to continue.

54. 36:19Claim

    Miners really are insurance providers, insurance for energy providers. It's a repeatable formula for others to emulate: this can be wherever there is energy, you can look to see what successful Bitcoin miners have done in the past and emulate that strategy, because all you need is the ASICs and the energy and the data centers.

55. 36:56Claim

    In terms of Bitcoin mining and the jobs that it creates, it indirectly funds entire communities at this stage, not just in tech hubs. This is where energy is the cheapest, where these data centers are going to be built up, and these data centers are now purpose built, requiring construction, engineering, operation staff, security, minor maintenance techs, admin staff, all of these things that go along with a Bitcoin mining center that are just not often talked about.

56. 38:02Claim

    The more that Bitcoin mining can go out and do that outside of the typical centralization of commerce that we see in major hubs, this is again going where the energy is the cheapest, it starts to decentralize those jobs, that flow of energy itself, and they begin to branch out and go to areas that wouldn't normally have benefited from something like this. It seeks underutilized energy in smaller population centers.

57. 38:37Open question

    Mining is actually maybe not the best name going forward that we can have for what is going on with miners, right? They are defending the network at the moment.

58. 38:37Claim

    The Coinbase transaction, the return that miners get for defending the network and for solving for the block, is by far the biggest incentive economically, but that will continue to decrease through the halving sequences, and in the end, it will be transaction fees, and those transaction fees make for a competitive marketplace for block space, which incentivizes the proper use of that block space.

59. 39:54Claim

    The defense of the network is, as I said before, the more energy that we can pump into the system, the harder it is to control the system, which then breeds confidence in the system. If we know that it cannot be overtaken, and we know that the transactions there are safe and sound and will not be tampered with, then more capital will begin to flow into the system in the first place, because that is the promise.

60. 39:54Quote

    The more energy that we can pump into the system, the harder it is to control the system, which then breeds confidence in the system.