From Residential Solar to Bitcoin Mining | Kent Halliburton, Center of Hash E010

Kent Halliburton, co-founder and CEO of Saz Mining, discusses how his background in residential solar, software and computer engineering ultimately led him to bitcoin mining, why hydro which powers all four of Saz’s sites (each on a different continent) is such an efficient underlying source of fuel, the role bitcoiners will naturally need to play in decentralizing mining away from fiat-minded businesses, and how the hosting model with individuals or principals directly owning miners is the best way to align economic incentives, despite challenges any individual hosting company might have had in the past.

Episode Transcript

(00:00):
kent thanks for coming to austin excited to record this podcast center of hash i think we're at

(00:10):
episode 10 and we skipped a few weeks but uh first how was your first crossfit this morning
oh it was fun man it's been a lot of years since i've been in a gym and working out with a bunch
of dudes like that so yeah it was fun um and i will be sore and not certain if i'm going to be
able to put my bag in the overhead bin after all those presses. Guys and girls, we've got a

(00:33):
Bitcoin group that goes to CrossFit a couple of days a week. And so both represented, but you
hadn't done it before and it was good to get you out there. Yeah. Good way to start the day. Yeah.
Thank you. And it's fun to be here, man. I'm glad to be recording with you. And you were at TabConf
just before this? Yeah, that was the real motivation to get into the U.S. You know,

(00:57):
I live abroad, but I came for TabConf. You know, development and developers are a big part of our
business at SAS Mining. And so I came to, you know, rub elbows with that community and learn
what I could and then flew here to Austin afterwards to record with you. Quick shot over
to Austin from Atlanta before going back to South America. Appreciate you sliding through.

(01:20):
so you're founder and ceo co-founder co-founder yeah and ceo of saz mining so a bitcoin mining
company the set of baseline before we get into the mining business itself and how you guys approach it
explain a little bit about your background in energy and what led you to both bitcoin and

(01:44):
bitcoin mining but start specifically with with your background just to give some of that color
in context? Yeah. So I, I know everybody's got a unique path, right? I just think that mine is a
little, a wider weave than most, uh, to get here. So I, um, did computer engineering in California.
Um, actually did it on, if you know who Bob Burnett is CTO of gateway computers. I, uh,

(02:10):
got a computer engineering degree on one of his computers that he designed, which is very
synchronous because he's now a, an advisor for SAS mining and friend. Um, but, uh, I did computer
engineering and then I got quite passionate about solar rooftop solar specifically. And so from about
2008 until 2005, excuse me, to 2014, I worked in that industry and, um, there's a lot of parallels

(02:37):
to mining. I didn't realize it at the time, obviously. Uh, but in that industry, you know,
I ran sales software and post acquisition integration for a publicly traded company
where we had like nine figure revenue targets. And the odd thing was at that point in time,
I was competing with like Elon Musk cousins. He was helping to support. So those were kind of my

(02:58):
primary competitors. But then the board of the company I was working for, they decided to bring
in a new CEO. And I said, you know, I've always had a dream of seeing the world. So this seems like
a good time to exit Sage left. So I threw on a backpack and I traveled, took a couple of years
sabbatical. And during that two year timeframe between 2014 and 2016, I fell in love with a

(03:18):
Portuguese woman and Bitcoin. So my life restarted in Portugal in 2016. What was first, the Portuguese
woman or Bitcoin? Portuguese woman. Yeah. But it was oddly enough, both happened in Peru and within
about a year of each other. Yeah. So kind of, kind of odd. And I now live in Peru. But the,

(03:40):
the story for how I got to Peru is, is, is that I was in Portugal, tried my hand at all sorts of
different Bitcoin entrepreneurial activities. And ultimately after reading Jeff Booth, The Price of
Tomorrow, there's a chapter on solar and Bitcoin mining. I was just like, oh my gosh, what have I
been doing? Let me figure out how to get into mining. And so had a mutual acquaintance from

(04:02):
the solar industry that knew the founder of SAS Mining put us in touch and I joined up and helped
the founder raise some capital and pivot the business into what we're now doing. And then
eventually the founder actually handed it off to me to run the business. But during this time,
my wife and her work actually took us to Peru. So that's how I ended up in Peru since about 2021,

(04:26):
we've been living there.
At a top level, how do you think about solar energy
in relation to Bitcoin?
Bitcoin mining?
Yeah, I think there's an inevitable collision
that's going to happen there.
And I don't think that all the technology
has fully been worked out yet.
And I think the magic piece of that is batteries.

(04:48):
As the cost curve of those come down,
see the thing about solar that I think a lot of people
miss in our industry is that it's very analogous to Bitcoin mining. So it's decentralized,
distributed, disruptive to the grid. You're importing it from China primarily.
The infrastructure.

(05:09):
The infrastructure. Yeah, the panels themselves come mainly from China.
And then your profits are constrained by an energy network. All of those characteristics
are the same for mining. Now, the cost curves for solar have come down faster than any other
industry or energy source and you partner that with the fact that solar is the only way we can

(05:29):
make electricity without moving anything means that the longevity of solar panels is incredible,
truly. I think it's an application specific issue, but as solar integrates further and further
into the energy networks along with batteries, I think that Bitcoin mining is kind of the third
leg of that stool that's really going to make that come alive in a big way. And I'm not as big

(05:53):
a fan as like the industrial scare, the mass solar farms as I am, like use the real estate that's
already on people's roofs. But at a certain point when solar gets cheap enough, which it is
trending that direction, it's going to be pretty ubiquitous. I mean, you see China installing just
incredible amounts of solar power right now, more than any other energy source.

(06:14):
before we get to says you mentioned reading jeff booths the price of tomorrow having your background
if you could just discuss a little bit of that rabbit hole in your own kind of journey to bitcoin
at a more detailed like what made it click for you and then um kind of your initial thinking and

(06:36):
how that might have evolved from when that was oh man so i i first bumped into bitcoin in 2015
And this was during the time when I was on the sabbatical and I was traveling and, you know, getting money in different countries was always just kind of a pain in the arse, right?
And so as I just stumbled into, you know, I had free time.

(06:57):
I was living in the sacred valley of Peru for a couple of months and I was just going down different rabbit holes and studying different things.
And I came across the white paper, read it, and I was like, oh, this is interesting.
I'm going to go check it out and buy a little bit and play around with it.
And just as a computer engineer realizing, oh, I can transfer value all over the world and I don't have to be restricted in this way that I have been.

(07:18):
I've traveled and trying to get money out of various ATMs.
Like this is incredible.
So that was kind of the step one.
And then I got sucked into, you know, the shitcoin wheel of samsara, right?
It kind of pukes you out and you get to the other side, you know, purified and realizing that really I should be in Bitcoin.
You know, I did that for a couple of years.

(07:39):
But that process, I always came back to the signal that I was reading various books about
Bitcoin itself and money.
And I think really, you know, that fundamental question, what is money, came to the surface.
And as I studied that, there's just several aha moments.
You know, Breedlove's series with Sailor was probably one of those.

(08:00):
The Bitcoin Standard was another one of those.
They're just certain aha moments to where, oh, I get it.
And then you see the world differently.
It's like part of the matrix opens up to you, right?
And then you can't go back from that.
You know, it's like, okay, I could deny I've had this experience or I integrated into my
worldview and move from there.
So as I move forward, it just became clearer and clearer that this was the solution to

(08:25):
this age old problem, right?
Of basically human greed being sacrificed at the altar of the money printer that has
plagued us, I think, since 5,000 plus years at this point. And this is the first time we have a
way to escape that particular trap. And I think it's a civilizational shift that we're going

(08:46):
through as a result. And so you have an energy background working on the solar side.
At what point and how did your thinking evolve to connect those in a deep enough way to want to work
on Bitcoin mining specifically?
Yeah, it's just very simple.
So the cost curves of solar coming down

(09:08):
and getting to be the cheapest energy source on the planet
combined with Bitcoin mining's need for the cheapest energy
to be the most profitable, right?
The biggest input cost for mining is electricity.
So if you want to be the most profitable miner,
you're constantly seeking the cheapest energy you can find.
And if solar is going to become that,
and it seems inevitable that it will,

(09:30):
to me over time, which is what chapter five of Jeff Booth's The Price of Tomorrow also reflects.
Specifically on solar?
Yeah, the whole chapter's on solar and how the cost curves are coming down.
And if you just simply look at those cost curves over time, you know, it's not more as I forget what it's called,
but there's a similar governing rule in solar that every 18 months, basically,

(09:51):
the cost of production drops by like 10 or 20 percent, something like that.
So it's just cratering.
And as energy gets cheaper and cheaper and more ubiquitous, what does that unlock?
And then in your words, how do you describe the relationship between Bitcoin and energy?

(10:13):
I actually don't see them as separate.
I actually think like sats per kilowatt hour is going to become a meaningful metric.
I think that they're flip sides of the same coin.
in, I mean, it's an abstraction, right?
It's not like directly, like you take a Bitcoin
and you've got electricity tied to it,

(10:34):
but it is what is securing the ledger.
And so from where I sit,
I think that you're looking at the kilowatt hour
replacing like the dollars per barrel metric over time
as a result of this shift, not just for Bitcoin,
But also when you look at AI and the direction society is going for electrification of the grid, electrical cars, I just think that we're moving in a way to where electricity, which is this prime force, right?

(11:04):
It's electricity that fires our neurons or our synapses, right?
And cause us to move.
It's this prime driver in our reality.
but it seems like it's tying us closer to ultimately this thing
that so many great thinkers before us have come to, right?
Like Henry Ford, Thomas Edison, Buckminster Fuller,

(11:25):
they all saw that money tied to energy was the ultimate way
that we could get away from the tie of fiat money printing.
In fact, I think it's this week that Elon just tweeted the same thing, right?
Yeah, yeah.
Yeah, he made a comment about how,
basically fiat can be faked and any country that has a fiat currency does yeah and he basically he

(11:48):
says something along the lines of and that's why bitcoin is tied to energy yeah then how do you
think about the the business of bitcoin mining oh that's a very broad question so
like and i can be more specific yeah please in terms of
if you were, you know, at a greenfield looking at building a Bitcoin mining business,

(12:15):
what do you, what are the most important levers to running a profitable Bitcoin mining business?
Yeah. Let me actually come back to your first question because there's a framing that I don't
hear many people talk about that I use, and I actually think it's helpful to think about

(12:36):
Bitcoin as a manufacturer, mining as a manufacturing process, right?
Manufacturing processes have supply chains. And if you look at what that supply chain looks like
in our industry, talking about greenfield, right? So you've got some raw source of power,
whether you're splitting an atom, you've got water falling, you've got wind blowing,
you've got photons coming from the sun, you've got some raw source of energy you have to harness

(13:00):
and turn that energy into electricity.
That's the power generation.
And maybe that generation isn't there on site.
Maybe you're tying into some high voltage electricity
that you need to bring down to a usable form of electricity.
So that's outsourced someplace else from the location of the mine.
But ultimately, you need that power generation.
Then you need the physical site where it's going to be,

(13:21):
and you need to develop that site.
And then once it's developed, then you need the...
So going from greenfield maybe to brownfield,
Then you need brownfield being like basic infrastructure for, let's say, like co-location, right, where you still need containers.
You still need the final transformers maybe and the racks to put the Bitcoin miners in.

(13:44):
And then somebody needs to bring the miners in and somebody needs to operate and maintain those.
And those to me are all different slices of the supply chain.
And the output of all of that is Bitcoin that's sent to somebody's wallet, right?
and generally whoever owns the rig
is who is getting the Bitcoin.
This is simplified what I'm saying,

(14:04):
but those are kind of the various slices of the supply chain.
Gideon Powell, do you know Gideon?
I don't.
I've heard the name, but I don't know him by name.
We co-authored a piece in NAEP,
which I think it's the North American Petroleum Expo.
I always get the name wrong,
so I probably got it wrong there.
But we had co-authored a piece.
It's an oil and gas publication.
We talked about Bitcoin and specifically why Texas was a hotbed for Bitcoin mining.

(14:31):
And part of his contribution in the piece referred to, this was from 2020 or 2021, possibly 2022, sometime in that timeframe,
that Bitcoin mining was the most fungible manufacturing operation that exists with the principal cost being the cost of power

(14:55):
Obviously, there's ASICs, but in terms of the actual conversion of power.
So interesting that you kind of framed it the same way.
Another way that I've started to think about it is, and maybe this is in relation to how you think about it as a manufacturing operation,
is that of all the goods that could be manufactured,

(15:16):
its process is completed closest to the source of energy.
Like everything else that would be manufactured or refined
converts to electrons, needs to move somewhere
and be further refined to then ultimately reach an end market.
But Bitcoin consumes the power right on site

(15:38):
and the manufacturing operation is complete.
and this is where I want to go into the sites and how you think about sites
because of that relationship does basically it's almost I don't want to say the simplest
manufacturing operation but it's just that it's it's the most upstream

(16:00):
how does bitcoin from an energy system perspective and I'd like to hear in relation to how you think
about cheap power in different sites,
how does it play into determining
what might be an attractive site?
And then how do you think,
you operate on four continents,

(16:21):
North America, South America, Europe, and...
Africa.
Africa.
So the relationship between Bitcoin mining
and energy systems,
how it can help solve problems.
And then when you think about site selection,
what are the principal drivers
of how you actually determined this is a good site for SAS

(16:41):
in relation to an energy system.
Yeah, it's interesting because I think first it makes sense
to talk a little bit about SAS and our slice of the supply chain
to explain that because it directly impacts the sites that we look at.
So when I looked at the supply chain,
I compared it to the supply chain I knew coming from rooftop solar.

(17:04):
And one of the things that I knew for another emergent industry, right, which was about 10 years ahead of the Bitcoin mining industry, is that managing the customer relationship actually was incredibly difficult.
And there is value there.
And it seemed like it was being underserved in our industry.

(17:25):
So that's where I placed myself.
And I also took the bet that—
Describe that customer relationship in the context of SaaS.
So, yeah, there's a lot of folks that want to get Bitcoin.
It's wild in mind, right?
So KYC free Bitcoin, but they don't have cheap electricity at home to be able to do it in a cost effective means.

(17:48):
And so, therefore, there is this business demand for low cost energy data centers, right?
That's where the hosting model ultimately springs from is because they're able to have energy at a price that a homeowner or somebody in most locations can't.
So to put some numbers on it, right, I think the average cost of retail power right now in the U.S. is like 19 cents.

(18:11):
And you need really sub 7 cents per kilowatt hour to be cost effective in Bitcoin mining.
That's a big gap.
Very few people in the U.S. can get access to that.
So that lack of access spurs the demand for like the traditional hosting business model.
But what I saw coming from the rooftop solar industry was, and it's sort of contrarian to our industry, where a lot of people are saying, hey, you need to own as much of the supply chain as you can.

(18:37):
And what I saw the winning play was in the rooftop solar business was there was in there's companies that tried to do the same.
But the companies that focus on one niche and specialized, they were actually the ultimate winners in the long term.
And so that's where I tried to focus is cool.
Let me just try to own the customer relationship and what's not working there.

(18:57):
And what I saw not working there was trust.
And so I looked at it and said, OK, how do we optimize for trust?
How do we make sure we align ourselves with our customers?
And then this directly impacts how we choose sites because trust is involved with that.
So I see myself actually as kind of a rig custodian, if you will, or an ASIC custodian,

(19:17):
because we manage property that our clients own, right?
And so there's three ways that you can make money in that type of a business model.
You can make money selling hardware.
You can make money selling electricity.
Or you can figure out a way to participate with the rewards that are generated.
And if you do that and you tie yourself to only that, then you're suddenly aligned with your client.

(19:40):
And so that's what we did.
We said, cool, you have to pay the cost of our customer of your hardware and your electricity, but we're going to make money only if you generate Bitcoin.
That way, if we're not successful, you're not getting what you want and we're not getting paid either.
And so we take 15% of the Bitcoin that's mined.
It's paid out by the mining pool, but that's our management fee.

(20:02):
and so
two
one thing you said
another thing I've heard you talk about in the past
you referred to wild sats
but then also
the way that
you think about it is that the bitcoin mining
is the most
is the best way to acquire bitcoin

(20:23):
rather than buying it on a third party exchange
so just go into a little details of like
how you think about
that concept of wild sats
and why, in your view, acquiring Bitcoin via Bitcoin mining is the best way to acquire it?
Yeah, I think it's also helpful to talk about a little bit of history too.

(20:44):
And I will explain that.
But I think, you know, if you look at how we've acquired Bitcoin historically from 2010 to 2013,
most people were actually mining it, right?
If you were running Bitcoin on your computer, you were likely also mining it.
And if you talk to anybody that got into Bitcoin during that time frame, you kind of see a romanticism around mining.

(21:04):
Like they think very highly of it.
2013 is when the first ASICs came out and Coinbase also launched, right?
So you had two things that sort of suddenly pushed people into buying instead of mining.
The ASICs made it harder to mine yourself and Coinbase made it easier to buy, right?
And so I actually think our timeline shifted at that point.
And you see most of our industry, most of the Bitcoiners buying instead of mining.

(21:30):
In fact, if you go to a Bitcoin conference, you usually see very few miners.
And if you go to a mining conference, you see very few Bitcoiners.
That split actually, I think, has had some downstream consequences.
But why I think that Bitcoin, through mining it, is a better acquisition strategy is because you have counterparty risk, right?
You're just shifting it from an exchange to somebody that's going to be operating.

(21:50):
Like for us, we are the first to bring software as a service and then build the software and then apply it to a data center.
So we call that mining as a service.
But you still have operational risk that you're betting on with us if you're acquiring it.
And there's exchange-based risks, right?
But they're a different set of risks.

(22:11):
But the advantage to mining is, first of all, on an energy cost basis.
So this is like how much Bitcoin do I get for how many dollars of energy?
Like right now in Ethiopia, which is our primary offering, that energy cost per Bitcoin is $50,000.
That's a substantial discount to buying it on an exchange, right?
So more sats for your dollar on a DCA basis.

(22:33):
Now, I'm not talking about the hardware when I say this.
That's what I was about to ask.
Yeah, so I'm not trying to hand wave that away.
That does have a return.
And typically that's a two to three year like inflection point before you're totally at that DCA price, right?
But that's one reason is people like that energy cost TCA.
Two, they like that they're wild SATs, you know, so they're, it is cypherpunk, right?

(22:57):
You're plugging in this hardware, you're obeying the rules of the network, and the network is paying you for that service.
And so being able to get the SATs outside of the traditional, you know, surveillance banking system is a prime driver for a lot of our clients.
And then the third one, which I don't think is talked about nearly enough, but I think actually represents an opportunity to bring in more no-coiners into our ecosystem, is the fact that there's no point of purchase volatility.

(23:25):
That single fact, I believe, keeps people away from Bitcoin in a massive way.
It is scary for a lot of people to put money on an exchange, to trade it for Bitcoin, and they don't feel very confident with Bitcoin yet.
And then suddenly Bitcoin has a price plunge and they feel stupid, right?
Like I think that that, I don't want to be stupid for my investment in Bitcoin keeps people away, but you have a fundamentally different experience. You buy a piece of hardware, we're managing it for you. You're just getting a constant flow of sats. You don't really think about it. They're just showing up in your wallet.

(23:55):
Yeah, so on that, you have the purchase risk of, I'd say, in the hardware itself.
Because a Bitcoin mining rig is somewhere like the top end machine, correct me if I'm wrong, is $5,000 plus.
So if you were thinking about buying $5,000 worth of Bitcoin, the price of miners are fairly volatile with the price of Bitcoin.

(24:25):
Is that a fair thing to say?
Not as volatile, but I'm saying like if Bitcoin went up 20% and you call it an ASIC broker, the price isn't what it was a month ago.
No, I actually – so I think that was true a cycle ago.
This cycle, I'm not seeing that though.
The rig prices have been pretty consistently steady.

(24:45):
What you see is as the new versions come out, those have a premium and then that premium sort of decays over time.
and then the next version comes out
and then that's the top price unit.
But I don't see the price volatility
in rigs near as much these days
as I did four years ago.
Yeah, and that's some of the history
that I'm thinking of.
In like 2021,

(25:06):
2020, 2021, 2022,
very volatile.
Price Bitcoin was very volatile.
As with any business,
as there's more competition,
Square entering the space with Proto,
it should trend to the cost to produce.
rather than the market value kind of swinging.

(25:28):
But just highlighting for people saying,
there is some at time of purchase,
because you're going to buy a piece of hardware or multiple
and then have a set of SAT stream from there.
But I do understand also it puts something more tangible to it,
and it is a functional way to DCA,

(25:49):
or to basically average and set it and forget it.
And what I do want to highlight, though, and get your view on this that then comes back to the sites that you select is, or at least the way I think about it, the only consistent way to reliably generate a Bitcoin denominator return or to outperform Bitcoin, however you want to think about it, in a commoditized way is Bitcoin mining.

(26:17):
because there has to be,
and there is built into the incentive structure
of the Bitcoin network,
an incentive for miners to secure the network
such that a miner could produce Bitcoin
at a cost below the secondary market price.
That if that did not exist,

(26:38):
then there wouldn't be a profit margin for miners.
But there is risk inherent to Bitcoin mining.
Certain Bitcoin miners will produce above the current secondary market price or on average above the secondary market price because they're inefficient miners.

(26:59):
And others, the profitable ones, the ones at the lowest end of the cost curve, will produce below that umbrella.
When you're selecting sites and thinking about the energy side of it, what do you guys look for at SaaS to ensure that you're on the low end of the cost curve and mining profitably?

(27:24):
Both kind of in aggregate, all in, but also as it relates to your customers that you host and manage for.
Yeah, so really there's one slight nuance there, right?
It's our job to provide the opportunity to our clients to mine profitably, right?
Not us, because we're not the miners.
The clients are.

(27:45):
So our job is to find those right opportunities.
And the easiest energy source for us, so we've got a mandate as part of our brand promise to do Bitcoin mining on sources that are at least 20% more carbon free than the network.
And the reason for that is because there's a lot of those type of opportunities out there.
and it helps people that purchase feel good about their purchase

(28:08):
so we can bring more people in.
You know, it's bragging rights.
It doesn't make the decision for people,
but it does help a lot of our clients feel comfortable
about talking about it with other people,
so it helps our referral business.
But in terms of the sites, hydro is the easiest.
So we look for excess hydro situations.
When you say easiest, because I have two questions.

(28:31):
When you say easiest, what do you mean by easiest?
Well, it's the easiest power source because there's consistent power. It's a great base power source, right? Because it's a consistent output. It doesn't have the variability of solar and wind right now. So you can get reliable uptime at the data center. So that makes it easy.

(28:51):
So strategically, what I've looked at for where we choose sites is, and this wasn't what I did at first, but strategically, it's actually more about who we're going to partner with than anything.
Now, we have built great relationships with different data center operators in different jurisdictions.
And having lived outside the U.S. now, you know, 10 plus years myself, understanding how to navigate like international waters is something that I feel I've got a bit of strength in.

(29:19):
But we find data center operators ultimately that we can trust because just like we are
a custodian for our clients, we also have to make sure that where we're going to place
them that those data center operators are reliable people and are able to deliver what they contractually committing themselves to And that a long vetting process Like a typical data center opportunity takes me about six months to bring to market

(29:45):
And that's part of, you know, my rooftop solar contracting years that I leveraged there to totally vet.
The diligence is deep, but we have to ultimately trust that end operator.
And so the energy source is important.
Hydro makes it easy to know that there is more reliability and uptime.

(30:06):
But beyond that, it's more actually who we're going to partner with than it is even like the energy.
Now, geopolitically or geostrategically, we want to be jurisdictionally agnostic, right?
I mean, even though the U.S. is a relatively low risk place to mine, there is still a period of time here this year with the tariffs that cause disruption in supply chains, right?

(30:30):
And I'm not certain how those have totally been worked out.
We're not actively importing in the U.S. at this moment, so I can't really comment on that.
But you face jurisdictional risk in almost any location.
And so for me, part of the strategy has actually been to be spread over multiple continents,
and that allows our clients to spread out their fleets across multiple continents as well to diversify that risk.

(30:52):
Okay, there's a lot there.
one of the questions is
would it be fair to say you're not agnostic to jurisdiction
is that you want diversification
and you want some degree of regulatory clarity
at the jurisdictional level, right?
Then you talked about it being important

(31:15):
selecting the partners,
the partners that are actually operating the sites
in terms of the data centers.
but whether or not they're able to achieve a low cost of power,
which then you're purchased.
Like if I'm understanding correctly,
you're purchasing power from a,
a data center operator,

(31:36):
but some energy economics underlie that.
Yes.
And so one,
one example that you brought up is hydro is one,
like one of your sites.
Are you comfortable saying one of your sites is a hydro site or multiple?
They all are.
Oh,
they all are.
Yeah.
they're all hydro sites, all four of them. And in fact, they were specifically, so Paraguay and
Ethiopia were specifically targeted because there's long-term growing hydro opportunity there,

(32:02):
right? Like these are, these are sort of like across the planet, there's a few jurisdictions
that seem like they're just going to be around for a very long time in terms of excess hydropower.
So having a seat at the table there, just a wise thing to do. And, you know, several publicly
traded mining companies are also of that same mindset and making that decision. So that's
Paraguay and Ethiopia. And then Norway was kind of a chance opportunity for us. It was a heat

(32:28):
reuse project. It's in the Arctic Circle, kind of a boutique project that we felt was in align with
our brand and the data center operator. It was a smaller project, but the data center operator
we had trust with and we went with it and that's leading to more opportunities with them.
but even the Norway site is, is a hydro. Yeah. The primary power source there is hydro. Uh,

(32:50):
it's a grid powered, uh, but there's a, but the primary, yeah. Um, fuel source of the grid or
is hydro. Given that, given that a lot of the, or all of your sites are in some way tightly
connected to hydropower.

(33:11):
Can you describe a little bit about
the dynamics in those energy systems
that make it attractive to mine Bitcoin,
whether it's excess power,
but then also how Bitcoin mining helps
or should help overall increase utilization,
reduce cost of power,
or how you think about that?

(33:32):
Yeah, no, it's...
So let me talk Paraguay first and then Ethiopia.
So Ethiopia is new.
I don't have as much context to it yet, still learning.
But Paraguay, you know, I believe it was an IMF project.
In fact, I think they talk about it in the, what's it, about the Economic Hitman book.
I'm forgetting the name of it.

(33:53):
Not sure.
Anyway, IMF project, right, this massive dam built in the 70s.
It's 14 gigawatts.
But the way it was developed is it goes across a river that's the border between Brazil and Paraguay.
right and so the imf helped develop this i believe it's imf uh and there's 14 gigawatts
seven gigawatts each well paraguay's total consumption uh has historically been under

(34:17):
three gigawatts right so being under three gigawatts what did they do with the rest well
the way the contract has been developed uh with imf they've been selling it at a loss
uh to brazil right so below the cost of production there's been a net drag on the economy so bitcoin
And miners showing up there helping to repatriate that electricity is actually an uplift on the entire GDP of the country.

(34:43):
So not only that, but, you know, like we are operating on a site that's 100 megawatt site.
It's built a massive substation.
There may come a point where, you know, the competitiveness of the network makes it so this isn't the place that a person can mine profitably, but that infrastructure is still going to be there, right?
So that's going to leave behind the opportunity for more manufacturing in that area.

(35:07):
Heavy industry can be done there now.
And that didn't exist before.
So there's these high tension lines, right?
Those are the big, massive lines that you see in those big steel structures, right?
And those high tension lines are across the country, but you need to bring it down to usable electricity.
And that's what Bitcoin miners are doing there in Paraguay, right?

(35:28):
So there's all this infrastructure, there's jobs that are created, bringing, taking a drag on the GDP and turning it into a positive on the GDP.
So politicians like it.
The unfortunate part is sometimes politicians and developing nations like it a little too much and try to squeeze the golden goose.
And so we've seen a bit of that too, but that's where the industry is organizing and pushing back.

(35:51):
And, you know, there'll be a stasis there that's reached because they don't want to do is kill that golden goose.
And in fact, you know, talking about Ethiopia, for instance, like that's what I ultimately realized about Ethiopia as well is there's a similar like fundamental dynamic that means Bitcoin mining is going to be around for the long term there.
And that's that they also have a desperate need for dollars to service IMF debt that they have.

(36:14):
And last year they brought in a quarter billion dollars, nearly a quarter billion dollars.
And they don't have another way, another export other than Bitcoin, Bitcoin mining.
Because that power effectively would not be used.
Yeah, exactly. Exactly. And so there are some frictions with, again, a developing nation. They oversold the power contracts and then there's too much demand on the grid as the grid has been ramping up. And so there's been some friction there politically as a result. And there's been a backlash. But that has also led to a situation where they've chosen winners and losers.

(36:48):
And it was the perfect opportunity right at that inflection point for us to come in, sort of buy the blood in the street, so to speak, and take a seat at the table because there's some leaked things about the EEP, which is the governing authority for the utility there.
And they're taken out of context and it put a negative light on it.
But Ethiopia itself is fundamentally desperate for those dollars and they're going to keep miners around, especially ones that they've sort of chosen are the winners and that's who we're partnering with.

(37:18):
And this is, hydro is a source of power that I'm less familiar with, but if there's less, if there's a certain capacity and there's less demand, how does that actually affect the operation of the hydro facility? Is it able to ramp down and up similar to like a natural gas peaker plant?

(37:38):
Yeah. So this is, this is getting a bit out of my depth as well, but there's several,
so usually a dam has several power generators. It's not one. So if you go down to the Atapu dam,
which is what we were just talking about, the 14 gigawatt dam in Paraguay, like there's seven
different two gigawatt generators on that, right? So you can effectively, you know, cut the water
flow to each of those generators and take off two gigawatts at a time. But as far as ramping up and

(38:04):
down past that, like water flows is the other one that can be impacted. So for instance, we're on a
fairly small drainage in Wisconsin and the water flow does have a seasonality to it. You know,
this is actually the worst time of year for us with mining up there. Do you guys basically have
to throttle or like turn up? Yeah. There's just simply not enough power to keep the mine going.

(38:29):
And yeah, there's been other things like, you know, a beaver knocks down. There's four different
uh, individual dams, um, that, uh, feed together with a single line and then route out to the
utility through a substation. And we mine on that last dam that has the, the substation. Um,
but a beaver came and knocked over, uh, one of the lines this last week. So we had a force

(38:50):
majeure event and we're down for about a week while that got that repaired. But you know,
I mean, those are the type of things as funny as it, like the story is like that when people
think about Bitcoin mining that don't do it. And I'm one of those people, but as I get more and more
educated, they think it's plugging in a box to a power source, but in the real world, there's just

(39:13):
a lot of things that can go wrong. And there's forecastable things that can go wrong, but
probably never thought about a beaver screwing up a dam and then that affecting your Bitcoin mining
and having a force majeure in a contract.
Yeah, no, absolutely not.
And I think that's actually something
I'm really passionate about
because mining is where reality hits Bitcoin, right?

(39:36):
And I think I would love to take every single person
that's in Bitcoin to a big mining operation
to just have the visceral experience
of all this electricity being harnessed to mine Bitcoin
because it takes it from this abstract thing
to actually something concrete and real.
And to me, that's the fact that Bitcoin
is tied to the laws of physics is the fundamental thing that actually makes it a viable form of

(40:00):
money. Without that, it just would be another, another abstract crypto. Yeah. I mean, it's a,
well, and then all those other abstract cryptos are snake oil and going to zero. Um, but the,
the fact that you bring that up and I do recommend it for anybody that has the opportunity,
any Bitcoin or that hasn't actually gone to a Bitcoin mine needs to go to a Bitcoin mine.

(40:20):
but also when I went I'd seen a number of mines but one of the things that I had the benefit of
seeing a year or two ago went to a site here in Waco which is about an hour north and actually got
to see the miner interacting in real time with the power company on a ramp up schedule so basically
coordinating it then seeing on their digital dashboard as the miners coming up seeing kind of

(40:47):
the power supply come up as the miners were coming up and having a very visceral connection
with how big of an asset Bitcoin and Bitcoin miners are to a grid, particularly in the
case that you're on a grid, but that you couldn't really appreciate that unless you, you know,
it's one thing to say it.

(41:07):
It's another thing to be in a facility as it happens and then realize that functionally
speaking, there's no other source of power, or sorry, no other source of demand for power
that could be as responsive, that could be as flexible.
People talk about, I don't need to get into the details, but people talk about how AI could

(41:29):
be more flexible than it is today, but nothing will be as flexible as Bitcoin.
Yeah.
It's purely economic because that manufacturing ends at the point of the hash.
the electron being converted into a computer function right there there's no end customer

(41:51):
beyond that yeah i don't see how how there theoretically could be anything that is more
disruptible than bitcoin mining um but i you actually are touching on something that i i
also feel very passionate about which is that i i think this experience should be had by more
bitcoiners not just necessarily going to that site and seeing that center of command

(42:14):
in that ramp up, but just by mining.
I strongly believe that we've seeded the network largely
to fiat hashers is how I think about them.
People that are on the network that are hashing
and using Bitcoin as a proxy to actually get more dollars.
I think most of the publicly traded companies
are in that camp.
Their dollars are expecting a dollar-based return.

(42:34):
So functionally, their Bitcoin has to be converted into dollars.
And as a result, I think most of these mining centralization worries
are downstream of the fact that, in essence, we've chosen to buy instead of mine.
And when you mine, you have a fundamentally different experience.
You're watching it, and you sort of get a visceral sense of the network
and what's going on, what's going on with blocks, and it brings you closer.

(42:58):
And I think it builds our social layer to protect the network
in a much more substantive way as well.
So I would love to see more Bitcoiners.
I mean, forget if it's SaaS mining that you choose to do it through,
But just getting bed axes, like seeing the bed axe movement take off has been a wonderful thing for me to see.
I didn't expect it because if you look at the dollars per terahash, you know, how expensive that compute is.

(43:21):
Like to me, I was just like, oh, no, this isn't going to really take off.
But I totally underestimated the power of just having something physical that people could actually plug in, get educated on.
And, you know, I don't even think the lottery ticket is, well, the lottery ticket I think is somewhat motivational, but I think it's mainly driven by just a sense of I want to touch something.

(43:42):
Yeah, make it more tangible.
I was looking around.
I think we have a BitX in here.
You're there, but it's not running.
We have a BitX running or at least one or two out there.
And I do think I was kind of, originally when I saw a BitX, I was like, ah, this is kind of a LARP.
but then I also co-run the Houston Bitcoin Meetup
and we had Nolan from Club Source,

(44:05):
which is Marshall Long's bid-axe company.
He just described it as a way to educate people on mining
and then that connected up like, oh wow, yeah,
you can literally with a bid-axe do everything
that a mega miner is doing from a protocol level
and there really isn a comparable operation that you could do at that small of a scale that is you know again managing a large power site is obviously very different than plugging something into a wall

(44:36):
But I found that to be, you know, I connected with it when I was actually, you know, seeing one in person and hearing someone that works on it talk about it.
And I do want to get into the discussion of minor centralization.
The one thing I want to ask before that, you had made a comment about how the average price of power in the United States is like 19 cents and to be profitable or maybe break even for a Bitcoin miner is somewhere around 7 cents.

(45:04):
A lot of – every miner has a different break even point.
So there's not like one break even for the network.
but there is something inherent to that that is if there's a higher and better use of power
if someone's willing to pay more for the power that the owner of that power is going to sell it

(45:25):
to the highest bidder and that bitcoin mining necessarily has to seek out the cheapest cost
of power because virtually everything else in terms of whether it's power to power a home
or a hospital or a foundry to manufacture chips or to manufacture cars.

(45:47):
Those are all higher and better uses.
So really it does drive a surge for the lowest cost power.
And when there is and becomes a higher and better use,
that that power will become available if someone's willing to pay more.
When you think about your power contracts,
are you typically trying to lock in a fixed rate over a certain duration or

(46:11):
having flexibility to sell power back?
How do you think about that when you're interacting with the data center
companies?
Yeah.
So this is a subjective thing,
but you know,
you look at the minimum useful life of mining rig and,
and the industry sort of settled on three years is that minimum,

(46:32):
right?
where maybe it's five in reality.
And useful life isn't that your mining rate's dead
in three years.
It's just that maybe it's not competitive, right?
That's what I think of more.
And looking at-
More profitable.
Yeah, that's what I mean.
Yeah, it's the same thing.
But if you look at it, you know,
at what point do I contract this power

(46:53):
and could that happen, right?
To where I'm no longer offering
a valuable price point to clients.
And so the number I've come up with
is three years to lock in
And after that, leave it open to renegotiate.
And I think, you know, to your point-
Login the power contract to basically-
Yeah, fixed price power for three years.
Yeah, yeah.
And that's what we typically do.

(47:13):
There's also just a cost to the setup and the transaction on our side to integrate our efforts with theirs on the ground in that data center.
And so we want to make sure that that cost is sort of recovered in a fair amount of time.
So doing that for too short a duration wouldn't be justifiable either.
But you're talking about that higher value that somebody is going to pay for the power if it's not Bitcoin miners.

(47:36):
And I think we're seeing that right now with AI, right?
I think there's a competitiveness that's going on for the power that Bitcoin miners have.
And that's why you see all the many publicly traded mining companies pivoting that direction is because they have these low cost power contracts.
And here the AI companies are looking for power.
And so they're willing to pay a premium.
So it's playing out right now in real time in the US.

(47:57):
and then when you think about your business,
which you're operating these sites,
so you're identifying the sites that you think will deliver
a cost-competitive price of power.
You're also selecting machines
or maybe giving a few different choices to your customers.

(48:19):
So while they're the actual ones,
ultimately owning the miners and mining,
you are functionally managing all the inputs of the cost,
if that's fair.
Yeah.
Traditionally,
people have referred to your business as a hosting business.
You think about it a little bit differently.

(48:42):
Maybe explain that,
but then also in terms of how you think about the hosting business
and what SAS's approach is specifically.
But a lot of people look at, oh, if I'm aggregating a bunch of individuals and then having customer service costs, that might not be cost competitive.

(49:09):
But a lot of these massive miners that people think would be or not, like Marathon Mines Bitcoin at a loss.
so if you could how do you how do you think about you know if you if you are hosting people
how do you think about it relative to the history of people that have that have hosted in some in

(49:29):
some ways had a checkered past but then why in your mind it's the right alignment in terms of
who is actually owning the infrastructure and getting the benefit of it being
more decentralized, more individual-based versus, say, a megamine that's a public company

(49:50):
and the way that you're accessing mining is through owning a security?
Yeah, so there's a lot there to impact, but let me take it from a philosophical level
approaching this industry and how to come in.
I think we found a sweet spot, and it tends to be reflecting in our demand and the growth
as well.
So I'm compelled to believe the market is validating it right now.

(50:15):
And so the sweet spot, we actually built software for a year before it came to market.
And then we found the data center we were going to attach that software to.
And the whole intention behind our approach was, hey, there's a winning playbook we can look to in Web 2.0.
It's called software as a service.
You know, Uber applied it to the taxi industry.

(50:35):
Airbnb applied it to the home share industry.
You know, Shopify applied it to the, you know, small store, small retail store.
So there's all these industries where software as a service has been applied to successfully.
And the argument was, why not mining?
So that was our entire approach to begin with.
And then taking it from that and peeling the onion back further, it was like, okay, those three different levers, how are we going to make money?

(51:01):
Well, if we only make money and we will get audited financials here and get those out to the public at some point.
We're not there at that stage yet.
But, you know, I can look at my financial and see that my inputs and outputs for the electricity and hardware are equally matched.
So the only thing that's driving the growth of our business is that management fee, which means I don't make you Bitcoin, then I'm not getting paid, right?

(51:23):
And so that alignment combined with the ease of use of a software as a service product is, you know, kind of the secret niche, not even secret, but the niche that we decided to land on and put our chips on.
Now, as far as, ask the rest of the question.
So building on the question of, you just explained your approach, software as a service, building that software first, figuring out what you needed to then connect it to a data center.

(51:54):
But in terms of a business model and ultimately financing the underlying hardware, you're hosting miners that are owned by individuals or businesses potentially.
Discuss in your mind why the incentives and cost structure work for hosting, maybe in a way that's better than might be perceived for a large public company mining Bitcoin.

(52:23):
Yeah, I think first of all, so it's hard to tell just how big the hosting market is. But, you know, even Mara, right, is traditionally done hosting with their business model. So there's a lot of people that have separated those two. And in some ways, it's natural. If you think about it, the people operating the mining rigs might not necessarily need to own the mining rigs. Like maybe that's just a form of specialization that's naturally coming up.

(52:50):
But the best data I've been able to find is about 55% of the network right now is by hosted mining, is where the mining comes from.
And now I don't know how valid that is.
That's an LLM driven data point and it's hard to find good data on that particular point.
But if I look at that, that is ripe for disruption because if most of that is the publicly traded mining companies,

(53:17):
They have all this corporate governance necessary to be publicly traded that is a cost that I can compete against as a privately held company.
And in fact, I was just running data just this morning, actually, to kind of look, what is their cost of Bitcoin?
I did a very simplistic way, right?
So I just said, hey, Grock, go back and take on all the publicly traded companies, add up all their expenses over the last three years, add up all their Bitcoin that they've generated and divide.

(53:44):
and that average price per bitcoin was 166 000 so no wonder why they're running at a loss right
like their expenses are exceeding the cost of actual bitcoin out there now i know that's not
a refined approach that is a very rough sought approach to getting to the right number but when
you look at it um and uh at my cost structure so this is sas mining our management fee what does it

(54:08):
cost for me to get a Bitcoin. And this year we're running at about like $80,000 per Bitcoin, right?
So we represent if I can continue to grow and scale that, which is different. It's just a 15%
management fee that is driving my business model. But if I can continue to scale that, then that
represents, you know, fundamentally disruptive force to those approaches. If the entire goal

(54:33):
is ultimately to get the lowest cost Bitcoin.
Right.
And I guess another way to think about it is
if you are self-costing Bitcoin,
you hold a hardware,
you have a hardware wallet or use a multi-sig
versus potentially holding it at,
I won't say the name,
but using River, which love River, great service,

(54:57):
but it's a custodian,
or you could get another derivative away from that,
which is holding it, or not holding it at all,
but owning an ETF to have some exposure to it,
that I think there's a bias and likely an incorrect frame
that would think, hey, at large scale,

(55:19):
of somebody who might have a 500 megawatt site
running the site themselves
would naturally be able to be more cost competitive
than hosting how many, like on the order of magnitude, how many customers do you guys have?
Oh, we've got a bit over 400 at this point.

(55:43):
Then managing all the communications with them. But if you're a large miner, you're having to
manage investors and someone like Riot certainly has more than 400. So people think of like that
as adding cost to a, to a business that, and it's really just a shift of cost. And when I was looking
at Marathon, their direct mining costs are $125,000 a coin in the last quarter when the

(56:08):
price of Bitcoin that they mined was $98,000.
And that does not include all of their overhead.
Those are direct mining costs.
The depreciation of the machines, the power costs, but things specifically to the operation
of mining.
And then when you layer in all the G&A costs, it would be easy to see how, using one example,

(56:28):
that would go from $125,000 to $150,000 to $175,000,
whatever that estimate is.
So even though it's not a hard number,
it's also reasonable.
But that comparing it to if you actually own the rig itself,

(56:49):
not you, but as someone that you're operating for,
it's more analogous to
owning Bitcoin
non-custodially
than
mining through a public company
or owning a security. You're not actually owning the miner
so it would actually make more sense that if you were

(57:10):
to own them directly
that that would be
an incentive structure that would align
you the operator
versus the person who's actually mining
if that makes sense.
I'm not sure that it totally does, but I think I want to pick apart one thing that you're saying here that is, I think, important, which is ultimately what is my expense for acquiring all these customers?

(57:40):
It's a different way of going about it, right?
It's just comparing apples and oranges.
And so I've got a cost to acquire customers and I've got a cost to manage those.
But that again is back to where the fundamental thesis is. If I build the right software, I'm not having to communicate all the time with all the customers. I'm transparently providing the information that they need so that their needs are met. And then it becomes lightweight. And sort of as proof of that, you know, we started off this business model January 2023 operationally, took 2022 to build the software. But 2023 is when we got operational, we had 11 staff members.

(58:17):
Here we are, 400 customers later, and I've got 13 staff members, right?
That's the power of building software to automate this.
And that, to me, is direct evidence of how we can keep those costs low over time for the end customer to continue to get a valuable proposition.
Yeah, that makes sense.
And I was just saying that I think some of the hang up that people have when they think about the umbrella of a Bitcoin miner that hosts others and specifically hosts individuals is the perceived and potentially incorrect perception of the encumbrance of a customer service business.

(58:57):
But what you're saying is that you solve a lot of that via software.
so that it's not somebody
constantly managing phones
of customer issues.
The more pain points
that you can eliminate and automate
that it's lower.
And I was just making the point that

(59:18):
If you looked at a public company, they might not have that that was assumed that they were mining themselves.
They might not have the customers and have to manage those, but they have other costs.
They have to manage investors and regulators and filing costs.
And so even though it might not be intuitive to people that hosting does create the incentives to drive the cost down the most, it actually likely does, given the direct incentive that you're owning the rigs themselves and cutting out a lot of general and administrative costs that very large companies have to necessarily deal with.

(59:58):
Yeah, that's right.
And I think I inadvertently actually answered your question then.
Yeah, you did.
Yeah.
Going from the business, and one other point I just want to clarify for folks that might not be as familiar with the hosted mining concept.

(01:00:18):
The 400 customers that you use, you have four sites on four different continents.
The individuals own basically rack space and miners in individual facilities.
They're not having some exposure to four different sites unless they own equipment in four different sites.

(01:00:39):
And as you bring new sites online, you basically have capacity.
And so when you're selling that capacity, it is tied to a specific site.
So someone can know what they're buying and where and what the cost structure is for the site itself.
Is that correct?
That is correct. And I think to just go one level deeper on it, you know, we started from the very beginning, and I received a lot of pushback from my developers for doing this, but I wanted to tie our software down to the smallest possible unit, which is a single mining rig.

(01:01:11):
And so we've built our entire platform based on ownership of a single mining rig.
That's the discrete unit.
So serial numbers are tied to every single mining rig.
So it's your mining rig and you own the outcome of that, right?
So if it goes out for maintenance, of course, because of the alignment of incentives, I want to resolve that for you as quickly as possible because I'm not making money either.

(01:01:33):
But we ultimately make sure that the experience that you are having is tied to the ownership of the hardware that you own.
And then while you have mining sites that are warehoused and operated within larger data center sites, are there SaaS team members that are actually on site or at least geographically located?

(01:02:00):
Or do you have contractors?
Like if there's downtime, repairs, how does that get managed?
Yeah, so that's all managed up front with the contract negotiation.
So our data center operators are managing all of that.
So in the same way that software as a service and all those other industries that I mentioned before, you know, Uber doesn't own the cars or the car drivers.

(01:02:20):
You know, they contract that.
And so we've arranged the same.
But the way that we go about contracting that is pretty specific.
There's a long process that we go through to vet everything out.
my philosophy with contracting and I, I actually got lucky and was able to work under somebody that
taught contract law, uh, in my solar career. But the way that I approach contracting is that we're

(01:02:43):
going into a marriage situation, not a transaction here. And I want to go through all the tough
conflict and negotiation upfront. That way, when problems happen, we've already discussed how we're
going to handle them. Um, and so we negotiate in how repairs are going to be handled in term times
and penalties. Same with downtime. We negotiate to our data center operators and they commit to

(01:03:05):
deliver. But they're actually doing the repairs on the mining equipment themselves. So they're...
Some, some. There's a split in repairs, right? Like popping off fans, replacing power supplies,
control boards. Those are all onsite, typical, easy things to do. Make sure that they have
bench parts and pay for those ahead of time so that they can make swaps quickly and get them up.

(01:03:25):
But then if there's hashboard level repairs, oftentimes those are sent out to, you know, most of our equipment right now is coming in from Bitmain.
So we can send out to the Bitmain repair center because they're under warranty.
And our prices actually include warranty costs as well.
So we just cover warranty costs.
We've taken a statistical average that, hey, look, let's look at our fleet year over year and see how much it costs.

(01:03:51):
And let's just assume that is part of our service fees.
That way we don't have to nickel and dime our clients for it.
So we backstop that up to $150 a year in case there's some catastrophic failure that happens and takes out a bunch of our fleet.
And we have to tell clients, hey, look, we can't afford to cover you here.
But we've used that once in our three years of operations.

(01:04:11):
And so your customers, what's the typical profile?
Yeah, that is a good question.
I'm still trying to get that.
So because we don't require any KYC information, right?
Like we get all sorts of unusual names and phone numbers and emails.
So what we can tell is that there's a few different types of customers.

(01:04:32):
We find a lot of our customers are actually service oriented.
So in the various service industries, whether that's military, police, firefighter, nurses.
But generally Bitcoiners.
Yeah, Bitcoiners.
People that are.
A hundred percent.
We don't actually, we intentionally have focused the value proposition.
Actually, this is an important thing to share.
Um, so if you look at Bitcoin mining, whether people realize it consciously or not, they

(01:04:56):
have an implicit bias and that bias is defined by what they consider money to be.
And the, the client base breaks in two at the point of, am I looking for a fiat based
return or am I looking at acquiring Bitcoin?
And that distinction on what your money is decides who you're going to, how you're actually
going to be as a customer.

(01:05:16):
So we realized pretty early on that people that were trying to acquire fiat, they want
wound up frequently just being bad customers for us. So he said, no, no, no, we're going to get rid
of this. So we only focus on our messaging and everything on people that are focused on acquiring
more Bitcoin. And when you look at it from that standpoint, it's what does it cost for you to
acquire this Bitcoin versus buying it? And so we've baked that down to the energy cost per Bitcoin

(01:05:38):
because that's very simple to understand. The hardware costs, layering that in gets a little
bit more abstract because to your point, hardware prices do change. And most people, you know, you
buy your mining rig to get on the ride and you sell your mining rig to get off the ride
and the price points of both of those change.
So like doing an analysis on that is pretty, pretty tricky.

(01:05:59):
But in general, what we see from our customers is over a one to two year timeframe,
most of them are seeing that the rewards they received have more than offset their their purchase of that hardware That that historically looking what we what we seen
Yeah.
We actually do the same at,
uh,
at ZapRite is just really focusing on the Bitcoiners because work on the

(01:06:23):
payment side.
And one,
and one thing I want to touch on briefly,
but there's other things specific year business.
I want to spend more time on is just that if we built a product,
not for Bitcoiners, specifically in Bitcoin payments,
we'd build the wrong product.
If we were building people that just wanted to get fiat,
that that's not actually the signal.

(01:06:45):
And then the derivative of that is that the quality of the people
that you interact with and why they're there
and how they're thinking about it also then is just a lot more alignment,
both in terms of product feedback, in terms of the value that they derive,
how they approach it.
So I do think it's a,

(01:07:06):
it might not seem night and day,
but it really is.
If you flip the frame of mining for fiat
versus producing Bitcoin,
converting power to Bitcoin,
not thinking about it through that lens
and having that permeate through your business,
but then also through a customer base

(01:07:28):
and then how there are positive benefits
in terms of how those customers become advocates.
we've found it to be really important.
You guys are a customer of ours and we're appreciative of you.
Because you open up a range of payments,
but also your customer segment is a clear progression of who our customers

(01:07:49):
are.
And I think that's why it works so well in terms of where I want to go next.
So is something you brought up,
which was centralization.
Two questions.
why you think the hosted model is important to decentralization of hash,

(01:08:11):
but then also how you think about pool centralization from the SaaS side,
but then also derivatively in terms of what you make available to your customers.
Yeah, so I want to address something about ZapRite
because this is a fundamental lesson I learned in the first year of operating SAS mining.

(01:08:32):
It was Bitcoiners made better customers, but then lean into Bitcoin companies.
Because I truly believe that, you know, I live by the quote that Buckminster Fuller said,
which is you don't fight the existing system.
You just build a better system and people will move into it.
And I believe that's what we're doing with Bitcoin is we're building this parallel system.

(01:08:53):
And the more we lean into other Bitcoin companies, Bitcoiners, the more that the hubs and spokes of that network on the social layer come together and more ancillary benefits compound.
100%.
So that was one of the decisions that made it easy to choose ZapRite for our payment orchestration needs.
But then as far as the, as far as the decentralization side of things, you know, I think decentralizing ownership of mining rigs is what we are doing.

(01:09:26):
So there's a second order consequence that I want to get to.
But if you think about a data center that has 50, 100 people in it, or 50 to 100 customers that own mining rigs in that data center, well, if a regulator comes and knocks on my door, sure, and tells me, hey, you have to shut down.

(01:09:49):
Well, I have all these contracts with the people that have property there.
Mr. Regulator, you need to go talk to these other people and make sure it's okay. Like I'm,
you know, I have a contract with them, you know, so that's a, that's a little bit of a friction
point, but I think the more important point is actually building the social layer of Bitcoiners
that are mining because no, there's no more protective social part of our fabric than the

(01:10:12):
Bitcoin miners. You know, Bitcoiners that are mining, they have a tangible skin in the game
relationship with their Bitcoin acquisition that you just don't have if you're buying.
And I think that that's a very positive force that unfortunately, because there's not been
enough of it, I actually think most of our centralization issues that have occurred
have occurred downstream of that, right? Can you imagine if the majority of the Bitcoiners

(01:10:37):
on the network or if the majority of the hash rate on the network was coming from Bitcoiners
looking to acquire Bitcoin? I don't think that we'd have the mining centralization,
the mining pool centralization issue that we have today, we just wouldn't have allowed that to occur.
I think that's accurate.
Nor do I think like the hop return debate that's going on right now, it wouldn't have even come up.

(01:10:58):
So I think it's actually...
I agree with that as well.
I think if you look at the core issue behind mining centralization,
it's simply because we've ceded the network to others instead of the Bitcoin community owning the network.
and I think we can fix that through this mining as a service approach that we're taking as well
as bed access. I mean, the, the hash rate heating, you know, there's a, there's a litany of different

(01:11:22):
offtake. You know, the hash rate heaters. So like the in-home heaters, like kind of like use it or
the heat offtake is not the right term. Basically using the heat to make some use of it that then
reduces the cost to make it economically attractive or. Yeah, exactly. I mean, here's the thing. If
There's so many people that have plug-in electric heaters.

(01:11:44):
Why wouldn't you earn sats on the side for that?
It's just that simple for me, right?
And that could actually become a big, big thing.
Like I lived in Portugal for six years, and most people do not have central heating.
They plug in these little heaters there, right?
Like that is a big core heating element for several months of the year.
And so swapping those out for people being able to put some Bitcoin in their pocket, I think, is just trivial.

(01:12:07):
But that will add a substantial amount of hash rate.
The point being, though, that the more that we get the mining into the hands of the people, whether it's through, you know, mining as a service, hashrate heater, bid access, the more that the network itself will become protected and the less of these centralization issues that we'll see in the mining sector.

(01:12:28):
And so I agree with that, that mining centralization likely, maybe inevitably, is a function of the fact that those that control the hash rate are not as minded to, I don't want to say, I don't want to secure the network.

(01:12:53):
where there not a Bitcoin minded that they see it as a fiat business model or a way to make fiat And if you do that you going to think about every decision you could possibly make
whether it's working with a centralized pool or looking at pool centralization
and whether you ascribe it to be a problem to you, to your own self-interest,

(01:13:13):
not to the network, but saying, how is this point of centralization a risk to me?
If you were a Bitcoiner or if you're a Bitcoiner running,
because a Bitcoin could run a large megamind that's a public company.
If you look out at the landscape,
you can identify who the CEOs are and determine that they aren't, mostly.

(01:13:34):
I would say there are exceptions to that.
I particularly think very highly of someone like Jason Less at Riot.
But by and large, you go public company to public company
and not say that there aren't others,
but that you can see how they think about Bitcoin.

(01:13:55):
And point being that if you're not looking at it through the Bitcoin lens,
and it's not something altruistic for the network, it's risk yourself.
That if more people looked at risk the way that Bitcoiners typically do more adversarily,
they'd look at pool centralization differently and they'd help be the solution to that.

(01:14:15):
And I am confident, though, that that will evolve in a positive way.
but part of the solution is Bitcoiners participating in ownership of the hash rate.
You guys are hosting miners on behalf of others.
You recently made it available for people that mine with SaaS

(01:14:39):
to point their hash rate to Ocean's Pool.
Talk a little bit about that.
and you also uh or sas found a block or one of the sas miners found a block so just yeah talk about
in relation specifically to sas how you think about risk of pool centralization but then how

(01:15:02):
you how you think about that space evolving and de-risk it for the people that you host for
yeah so i think first of all mining pool centralization just to touch on that for a
minute and give, give, uh, listeners some stats if they're not aware of this, you know,
ant pool and foundry are the primary two. You add them up. And last I looked, it was like 47%

(01:15:25):
of the network. Right. So two throats to choke and you would be able to double spend, uh, in essence,
right. Or create censorship risks. Yeah. Create censorship risks, but the, that threat level
is too high. And then there's a bunch of ant pool proxies on top of that. So.
But one of the things that not, not censorship of the, of like the network of the network rules,
but potentially of you as a miner.

(01:15:46):
Yeah, exactly.
They could say, hey, you're not allowed to get your blocks out.
You know, like it's a serious risk and it's being addressed, right?
It's not trivial to bootstrap a mining pool, but Ocean has effectively done that.
And we know that that is not part of those two, right?
It was about 18 months in the making.
And I'm proud of the fact that we were the first to bring an Ocean integration to market.

(01:16:12):
So doing a revenue share model.
In the sense of?
The rev share.
Okay.
Yeah, because our rev share model is unique.
We're the only ones that I've seen in the space that have chosen to tie their fate to the output of their work,
which is actually helping people produce Bitcoin, right?
So as a result of that, there is a consequence that we have to integrate with the mining pool

(01:16:34):
because we have to instruct the mining pool to split the block reward when it's being paid out.
So that's how we receive our management fee.
So our revenues are tied to that mining pool integration.
Ocean didn't have a good solution for us when we first approached them 18 months ago.
And so we worked with them for a while.
We had to go through legal to make sure that the approach they were going to take was going to work for us.
But they ultimately had to code a solution that we were able to then integrate.

(01:16:57):
Is that because Ocean pays out directly from the Coinbase or something else?
It was.
Or is it more of the software side of the pool operation?
It was more the software side of the pool operation and setting up how to split that.
So they had to build something specific in Datum for us to work.
And once that was built, our developers could work on our side to integrate our offering with theirs and then brought it to market.

(01:17:23):
And now it's a simple choice with a drop-down menu on a per data center level.
however many mining rigs you have in that data center you can switch between luxor and ocean
so quite a simple uh approach to shifting pools um and yeah we found our first block last week or

(01:17:43):
two weeks ago now and that was pretty momentous for us because how much time and effort went into
getting to that point i expect we'll see several more over the the coming months but yeah it's
exciting one thing that i realize is you start seeing um individual miners names coming through
on whether it's mempool space or other block explorers that that makes a difference you know

(01:18:09):
where it's like in certain times you see foundry foundry foundry or ant pool ant pool ant pool
ant pool foundry ant pool but then seeing sas mining come across seeing barefoot mining come
across seeing um peak mining seeing i think uh nice hash you know like it it impacts the culture

(01:18:31):
you know so maybe if just the the way that because the other thing i realized through that was that
a lot of miners will mine their entire lives and never know whether they actually hit a block or
I mean, if they're working in that model of the centralized mega pool model, that's functionally true.

(01:18:56):
And I do think that there is something visceral or infectious about knowing that your work was actually the work that solved the block.
Was that how you and your team thought about it?
And then down, I mean, not even downstream, because it was ultimately tied to an individual rig owned by an individual miner.
Did you guys share with that person who, who it actually was?

(01:19:19):
Yeah, we did.
We did.
And, you know, I didn't, I don't think I tied the cultural impact to, to mining that block.
I think you're right, but I hadn't actually thought about it until just this moment.
When I, when I say that, I mean like it, it drives others to want that.
Yeah.
I think it creates something to aspire to, right?

(01:19:39):
It's like, Hey, cool.
Saz mining could do it.
I can do it, you know?
Yeah.
And so we did ask Luxor when we first did the integration hey can we identify if one of our mining rigs found a block No And so yeah I certain with the amount of hash rate we had statistically we had to have discovered blocks We don know So there is something impactful I would say it analogous

(01:20:02):
to the impact of when our clients mine their first Bitcoin and they receive it in their wallet,
there's sort of a disbelief until that occurs. But it's something similar. I think our company
went through. There's sort of a disbelief that we actually were mining until, wow,
that's our block that we found.
And we shared it with that,
the client who's mining rig was behind that particular hash that found the

(01:20:23):
block.
And he was of course all excited,
but yeah,
it was,
it was for sure.
Yeah.
No,
I mean,
when I saw that,
I was genuinely excited.
So yeah,
we were all,
we had a group of us just randomly.
It just was appropriate time.
You know,
we're remote only team,
but there's about six of us on a call and we were like a lot of fist
bumps.
And yeah,
we were all,
all jacked up.
It was fun.
Yeah.

(01:20:43):
So I'm not sure if you're familiar with the,
the time chain calendar.
I am, yeah.
But you can set notifications on that
that when a certain pool finds a block,
you can get push notifications.
So it'd be fun if...
Maybe I do sometime in the near future
go ahead and get something set up,

(01:21:05):
but just whether it was you and your team
or people that mine with you
to basically have an alert set,
it's like shoot me a push notification
when Saz finds a block
or if you're part of another mining team,
Like when, when we find a blog, I do think that there's something impactful to that, that will drive a, um, a movement towards decentralization, which I think will be positive.

(01:21:27):
Yeah.
I haven't thought about those ideas, uh, until now, but I agree with you.
There's like a Pavlovian response that you're sort of invoking by doing that.
Cause it's like, Hey, look, this mining company generated all these rewards.
Like you can do that too, you know?
So I think back to the aspirational point, like I think it helps to encourage that behavior.
If there's more apps that are notifying when these smaller miners like us help to find the blocks.

(01:21:53):
Yeah.
I mean, I just think about when I see that somebody at Riot, they want to see that.
They're like, wait, SAS can do that?
We should be able to do that.
That's true.
You know, not just Riot.
I say Riot because I think fondly of them and the team.
but any large-scale miner driving that say,
hey, maybe we should be doing this as well.

(01:22:14):
So I think it's great.
And I do think that the economic incentives
will dictate decentralization,
but it actually has to be a concerted effort.
And so I guess on y'all's side,
the concerted effort was working with Ocean
to create choice for people that mine with you
because you had a sense that that was important
to your customer base.

(01:22:35):
And you've just now released that
like in the last month or so.
Yeah.
Yeah.
And to be fair, it was driven by customer demand, right?
We listened to our customers and just repeatedly they were asking.
I mean, the same way, like right now, we're getting a similar request for proton, proto rigs, right?
And I was going to ask about that earlier, but we're running over on that segment.

(01:22:58):
So, yeah, but there's no, there's no opportunity to acquire them.
And so we are, you know, we're not able to service that demand right now.
But similarly, I think that coming out of the chute, like those rigs are going to have a lot of demand.
And I'm curious about the fleet software as well.
Like that's not on the market yet either, but that's also quite a big opportunity because the monitoring solution and how we manage all that is quite, yeah, it's a sophisticated layer.

(01:23:26):
Well, I think it's also a testament because that is the other side of the centralization is the hardware manufacturing.
And I think it's a testament to the fact that if there are more people that are actually Bitcoiners or Bitcoin-minded, thinking about it as, without having to define what a Bitcoiner is, somebody that is converting power into Bitcoin, their goal is ultimately to have the Bitcoin, that they will drive those type of decisions.

(01:23:51):
like being interested and aware of something like Proto
and putting a priority on helping be a part of the solution
to hardware centralization.
Because we experienced this at Zaprize,
like getting feedback from customers on what products to build
then lets us build the right things that allow for our product to be adopted.
And so if people in the industry are committed to making,

(01:24:17):
you can't make a business make a good mining rig work,
But someone like Square and Proto will benefit from having miners giving them feedback of what's working and what's not.
And the people most willing to have a stake in that are people that are minded that see this problem of centralization and that they can be a part of decentralization that exists both on the manufacturing side, hashing, controlling how the hash rate is controlled, which you are helping to democratize.

(01:24:49):
and then on the poolside.
So I think all of that brings together
and it's benefited by more people being Bitcoin-minded.
So I just want to thank you for what you guys are doing at Saz.
Appreciate you swinging through Austin
on your way back to Peru to record.
We're a little bit late to go get some Cooper's Barbecue,
but before we wrap,
just tell people where they can find you

(01:25:09):
and where they can find Saz if they're interested.
Yeah, no, it's been an absolute pleasure
And I have to say thank you for also your part with ZapRite and helping to create that virtuous circle.
You know, it's Bitcoiners serving Bitcoiners.
It ultimately leads us to a new reality is what I see.
And I think that we're all working on that same journey, whether it's Square, ZapRite, SaaS, Mining.

(01:25:31):
But leaning into each other and building that alternate opportunity, the lifeboat, is how we avoid the catastrophe that's dead ahead here.
But yeah, looking forward to grabbing some food at Cooper with you.
And if anybody wants to reach me at Kay Halliburton on Yahoo, or not Yahoo, excuse me, Twitter.

(01:25:53):
You just aged yourself.
I did.
I did age myself.
At Kay Halliburton on Twitter is the way to reach me.
DMs are always open.
And then you can go to sasmining.com if you want to check out our latest offerings.
Yeah, well, that made me remember that you're also powered by Square on the processing side of the card zone.
And we worked with you guys and Square to help kind of get that to that point.

(01:26:16):
So it really is Bitcoiners working together to create solutions to then benefit Bitcoin and benefit ourselves, certainly, like in our own self-interest.
So very grateful for you.
So thank you again.
And let's call it a wrap.
Sounds good.
Thanks, Kent.

(01:26:41):
Thank you.