BITCOIN MINING CENTRALIZATION & NATION-STATE GAME THEORY | Bob Burnett (THE Bitcoin Podcast) - THE Bitcoin Podcast

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
If you believe, like I do, that Bitcoin in the course of the next century,

(00:05):
and probably much, much sooner, becomes the base layer of all money,
then access to that base layer becomes existential to your viability as a nation.
So if I have that, if I have twice a week, I have 8,000 transactions
that I can make with anybody in the world, I can do the business of my country,

(00:26):
I can do the business of the corporations,
and I can do the business of the citizens of my country
in a way that cannot be impeded by anybody else.
Biden can't ban it, Putin can't ban it, the new bricks can't ban it.
Like, I have achieved true financial sovereignty for my nation.
And if I do not, if I have no blocks,

(00:49):
even if I have 5,000 Bitcoin or 50,000 Bitcoin, it doesn't matter,
I am subject to the whims of the others, whomever they are.
And I believe at a nation-state level, that presents an existential problem.

(01:29):
And today, that guest is Bob Burnett.
Bob is the founder and CEO at Barefoot Mining, a board member at Ocean,
and he was also the ex-CTO of a little company called Gateway, you may have heard of them.
Bob and I took a deep dive into the biggest risks to Bitcoin,
focusing on Bitcoin mining pools, centralization, and templates,

(01:52):
but we also discussed nation-state Bitcoin adoption, the future of block space,
the importance of home mining, and a whole lot more.
I know you are going to love this conversation with Bob and learn a lot,
but before we dive in, just do me a quick favor and subscribe to The Bitcoin Podcast,
wherever you're listening, and make sure to subscribe on YouTube or Rumble as well,
just search Walker America.

(02:13):
Head to the show notes, grab discount links for my sponsored Bitbox,
or go to bitbox.swiss-walker and use promo code Walker.
Send an email to hello at bitcoinpodcast.net if you have feedback
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(02:33):
Without further ado, let's get into this Bitcoin talk with Bob Burnett.
Well, Bob, it is great to see you again.
Wish it could be in person. This will have to do for now, though.
At least we've both got good microphones,
so what else can you ask for for doing this from one cold part of the US

(02:57):
to one very nice and warm part of the US?
Well, great to see you, Walker.
Yeah, all the mic setups are top notch here,
so audio quality should not be a problem today.
Not at all.
Bob, there is a bunch of stuff I want to get into with you.
I've always appreciated your perspective on things

(03:18):
because I think you're a very future forward guy.
You also are a very positive guy, but you're a very realistic guy.
And you're not afraid to say some inconvenient truths
just because they may ruffle a few feathers.
So before we just dive in a little bit,
I think your background is super fascinating.
And I think it gives a really good setup to how you got into Bitcoin mining now

(03:43):
and just kind of where you are.
Can you walk us through just a little bit?
Who are you? How did you get here today?
To be a Bitcoin miner, but with quite an interesting path that led there.
Sure, sure. Yeah, thanks for having me, Danny Walker.
So my background is really technology-based.

(04:04):
If I had to say one thing, what are you, I would say I'm a technologist.
And I think the role of a technologist
is kind of a combination of an engineer and a sociologist and a futurist.
Like it's kind of taking all those things and putting them together.

(04:28):
And so my roots as a technologist go way back into the mid-80s.
Actually, technically even the late 70s.
I started as a kid coding in the 70s.
Pre-IBMPC days, I was doing a lot of coding work.
And then got an engineering degree.

(04:50):
In 1986, I was working for a company called Zenith,
which older members will remember as one of the bigger TV companies in the world.
But there was a personal computer division there.
And I was fortunate to be assigned to the personal computer group while I was there.
And even more fortunate, as a very junior member, I do not want to overstate my role

(05:13):
as one of the members of the team that designed what I believe to be the world's first laptop.
There's a lot of controversy about where it was, because defining the line.
But I believe firmly that we brought the world's first laptop to market in that era.

(05:33):
Eventually, I spent the next 20 years roughly in the personal computer industry,
ultimately as the chief technical officer for a company called Gateway,
which again, some of you may remember.
Just a little company.
Just a little company.
But yeah, we ended up becoming a Fortune 200 company.

(05:54):
Ten billion in revenue, we were making about 10 million PCs a year.
And I was honored to be able to lead the product development there.
So, which by the time we got into the early 2000s was not just laptops and desktops and servers,
but also TVs and cameras and MP3 players.

(06:16):
And it was a phenomenal ride.
I left there and started a technology incubator.
Did a lot of very seed-level funding and work with very early companies.
And not really anything probably worthwhile to talk about in this conversation.

(06:40):
Other than, in 2017, I got a phone call one day from somebody from back in my Gateway days that said,
hey, Bob, can you design some Ethereum mining servers for me?
And for people listening, don't worry, I am a Bitcoin Maxi-List, but we all start somewhere.
And I was a computer guy.

(07:01):
I mean, I looked at the world.
I was not, I was certainly aware of Bitcoin and Ethereum and these things,
but it was certainly something in the background of my life.
And this guy said, hey, can you build some Ethereum mining servers?
And make a long story short, I said, yes, I could.
And he wanted a whole bunch of them.
So he issued about a $6 million purchase order to us to build them.

(07:25):
So we did.
Not bad.
And we did well with it.
And then we said, well, we have this design and we had a great relationship with Nvidia.
So they were willing to give us the chips.
And so we went to other people and said, do you want to buy some?
And a lot of people did.

(07:47):
But most of them that said that they did only wanted to buy them if we would host them.
So we had to start hosting these systems.
And then we quickly realized they were making a lot of money.
So we started taking our profits and putting it into our own equipment and started making money.

(08:09):
Now, I'm talking about a period of maybe nine to 12 months upon which this occurred.
And at that point, I started to look seriously at what Ethereum was.
And it didn't smell very good.
Let's put it that way.
When we really got into it, there's a lot of warts here.

(08:31):
The biggest one being that, number one, they were trying to move off the proof of work.
Like, OK, you're making a fundamental error here.
But second, not that we don't want to make this an Ethereum conversation,
but just to review, it doesn't use proof of work.
It uses proof of stake, big mistake.

(08:51):
It's highly centralized.
One person or a small group of people pick the product roadmap.
And number three, it's massively complex.
And my experience with software projects of that level of complexity are they basically never work.

(09:12):
They're really, really cumbersome and difficult.
And so that led me to look more seriously at, well, what else was out there.
And I took my first really hard look at Bitcoin and started to see that the three things I just talked about,

(09:32):
being a problem with Ethereum or not a problem with Bitcoin.
And here we are now, eight years later, deep, deep in the bowels of the rabbit hole.
So that's my story, Walker.
I mean, it's quite a ride and one that still has a lot of room left in it to ride, I think.

(09:56):
And again, one of the things that I've always appreciated about you and just enjoy talking to you,
enjoy following you when we're not able to chat in person, but it's just kind of very easy to get caught up in the NGU side of things.
And okay, fiat price is pumping, things are looking great.
Let's not worry about anything.
Yeah, we won.

(10:16):
And you always do a great job of kind of bringing some sobering realities about Bitcoin and Bitcoin mining specifically.
And kind of ringing an alarm bell at times about, hey,
these are some things you should pay attention to.
And so maybe a good place to start is kind of what are these things that you're looking at right now?

(10:37):
Obviously, you are a Bitcoin miner.
You have a Bitcoin mining company.
This is something that you are personally heavily invested in and care a lot about.
What are the things that you worry about as a Bitcoin miner, as a Bitcoiner, just as a human being?
What are the things that make you kind of go, hmm, something is, maybe we're on the wrong path here.

(10:58):
Maybe there's something that we can do about it.
Yeah, it's a great question.
You know what I'll say first of all is I think Bitcoin's greatest risk is not just mining.
Bitcoin's greatest risk is complacency or overconfidence.

(11:20):
And my biggest worry is actually not today.
It's not next Tuesday.
It's not next year.
My concern is you have a new baby, a one year old.
I have a couple grandchildren, some as young as three years old.

(11:41):
They may grow up in a world where they never see the problem or maybe their kids never see the problem.
We know what the problem is.
We know about the Fed.
We know about the IMF.
We know about the corrupt monetary system.
We understand inflation.
We understand debt based money.

(12:02):
We understand all these sorts of things.
They may not.
And so I think one of the reasons I like to come on these shows is that the hope that
my grandkids, my great grandkids, my great, great grandkids wonder who great, great, great

(12:24):
grandpa was and go find him and hear these messages and they know why we're doing this.
Because they might not fight against decentralization.
They might not fight for massive concentrations.

(12:44):
They might not fight for self custody.
They might not fight.
Like these may not be issues that they can feel tangibly.
So I think we start with that.
I appreciate what you said about me.
But this is why I do it.
And I call it 10th Man Syndrome, by the way.

(13:07):
To be the 10th Man is a take on the movie World War Z, which was an old Brad Pitt zombie
movie.
So here I am extolling the philosophical virtue of a zombie movie, but the truth is.

(13:29):
And there's a scene in the movie, which I would encourage everybody to go find, where
Brad Pitt, there's this area around Jerusalem that the zombies haven't gotten to.
Brad Pitt is a UN ambassador and he flies to Jerusalem, which is like the only place
in the world not infected by the zombies.

(13:49):
And he says to the head of security, how did you know?
Because what they had done is they had built a wall completely around the city to protect
themselves from all the zombies and everybody was safe.
How did you know?
And he said, well, it's because of the 10th Man.
And he tells this story about how in Israeli history, like in the Munich Olympics in 1970,

(14:10):
there had been these warning signs that a terrorist group might attack the Israeli athletes.
And the Security Council at the time decided it wasn't a legitimate threat and they ignored
it.
And then he tells a couple other stories about times in the history of Israel where the threat
of the attacks was there and the signs were there, but people ignored it as not a big

(14:34):
enough threat, nothing to worry about.
And so they decided that would never again happen.
And so the Israeli Security Council is 10 people and they created the 10th Man rule.
And the 10th Man rule is that if a threat is presented and the first nine members of
the Security Council agree to ignore the threat, it is imprudent on the 10th Man to take the

(15:04):
position against it regardless of whether he or she believes in the threat.
And they must present, it's like a devil's advocate on steroids, like you have to be
this.
So when I look at Bitcoin, and I think about my great, great grandkids or whatever, and
I look at Bitcoin as our chance to fix money for 1,000 years.

(15:29):
And so as an engineer, as a technologist, I look at something that is a 0.1% threat,
let's say.
Say, well, in a one-year period, is that a threat worthy of really worrying about?
No, not really.
But if you think about something you want to last for 1,000 years, a 0.1% threat starts

(15:53):
looking a lot more likely to happen.
In fact, it becomes very likely to happen in that 1,000 years.
And so a whole series of 0.1% threats applied to the same thing.
I'm really going a long way around your question, but mining pool centralization as an example

(16:18):
of somebody says, well, that's not really a threat.
Don't worry about it.
The minor incentives, the blah, blah, blah, will, and we'll talk about all this in a minute,
they aren't worthy of worrying about.
Well, that's somebody not taking a very 10th man mentality.
That's somebody showing me complacency.
And that's dangerous.

(16:39):
So all right.
So I know they just know about this.
Maybe I'll take a breath, let me respond to that before we go to the next.
No, I was just going to say, safe space for rants, for tangents, for long-winded runaround,
so however you want to do it, there's no rules on this show.
But no, I think that that's a really good way of looking at things.

(16:59):
And again, we all like to talk about, oh yeah, Bitcoin's going to be like, this is it.
This is the last money, right?
This is the paradigm shift.
Fiat was a blip.
We had gold for 5,000 years.
The blip of Fiat now a lot of Bitcoin for 5,000 years.
But a lot of the ways that we actually think through these things kind of make it seem as
though we're not actually thinking that long term about it.

(17:21):
We're not actually looking long into the future.
Yeah, something's not a huge risk now.
But as you said, that risk compounds becomes greater and over a long enough time horizon,
there's a decent chance that it may happen.
So let's start out with kind of, excuse me, you brought it up to the end there, mining
pool centralization.
And there was a chart that a mechanic had shared, which I think is, maybe I'll pop it

(17:44):
up in the screen here, because I think it's a pretty good one just for giving people a
visual aid to what we're looking at here.
And maybe you can talk through, is this something that people should worry about?
Is this a legitimate risk?
And kind of what, you know, what, like, is this going to get worse before it gets better?
Are there things that are happening now that are actually making this a little bit better?

(18:05):
Or are we generally trending in the wrong direction?
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So thank you.

(19:08):
Yeah, it's a great question and a very deep one.
I do always want to be up front too.
So everyone understands I am on the board of directors at Ocean.
I do have a financial interest in Ocean.
I am not here to promote Ocean though, but I do want to be transparent about that.

(19:30):
And just for completeness sake, because maybe we'll touch on it later, I'm also part of
a group on the board of advisors and an owner in a company called M5'ers, where we are
designing our own ASIC.
So maybe we'll touch on that.
I'd love to talk about that later as well.
Which is another area where there's a big centralization occurring.

(19:54):
So the chart that's been brought up, it's a snapshot.
This changes with time, but it's holistically true that if you look at this chart, you'll
see foundry at 40% of global hash rate.
These are estimates based on who won what blocks in a given time period.
It might be 33, it might be 28, it might be 46, but foundry is by far the biggest.

(20:23):
Now the next three, ant pool via BTC and F2 pool all have between 10 and 15%.
Collectively those four are now at like 7, well in this case it would be 55 and 15, that
would be 70%.
So we have four pools with 70% of the hash rate.

(20:47):
And then a whole list of them, there are more than are listed on here, for instance,
Oceans not even on this chart, with single digit percentage or sub-single digit percentage.
So why should anybody care?
Now there's always been a belief in the industry, within the community maybe is a better way
to say it, that we never have to worry about somebody getting too much hash rate because

(21:17):
the community will correct itself if anybody either starts behaving badly or they put themselves
in a 51% situation.
And I think the 51% attack, which I assume the audience is probably mostly Bitcoiners,
I'm sure you've heard a 51% attack, but the thought is somebody tries to control the whole

(21:39):
network through this 51% and that the network would reject anybody getting up there.
And there's a couple cases in history in the past where pools got really big and then as
they approached that level suddenly got really small.
Because of 51% attack, I do not lose any sleep over 51% attack at the moment.

(22:02):
I don't think it's legitimate.
The problem in the current scenario is this.
The block templates, which we probably should, I guess, back up and talk about the block
templates, right?
Can we talk about just for people that maybe aren't familiar what you mean by block template?

(22:24):
So we'll give the high level version.
At this moment, when I checked this morning, there are about 150,000 transactions waiting
for confirmation.
So they've been signed, but they haven't been confirmed and included in a block.

(22:44):
Every block has a finite size.
And the technical basis is 4 million weight units, but for purposes of this conversation,
think of it as about 4,000 transactions that can go into that block.
So that means that with the 150,000 transactions waiting to get confirmed, there has to be

(23:07):
some criteria by which the 4,000, the miners are going to pick to include the block that's
going to, they're going to attempt to mine now, takes place, right?
So that process, that algorithm is called the filtering.

(23:28):
So now every pool, every template creator can do that independently.
So right in today's world, Foundry picks their 4,000, F2 pool picks theirs, and pool picks
theirs, and all the others, even the little guys, each pick their own group of 4,000,

(23:48):
and they go off and they try to mine it.
Now for the most part, the algorithm that they use is this algorithm.
The first is, is there business of the pool that needs to take place?
So in other words, are there payouts that have to be made?

(24:09):
Well, they'll put those transactions in usually at no fee.
It's their own transaction.
It's the prerogative of the miner to mine their own transactions.
So they prioritize them, and they put them in at the lowest fee.
And then for the most part, most of the algorithms in the filter system is set up to say pick
the most expensive ones.

(24:33):
But it doesn't have to be.
To be honest, one of the prerogatives of being a template creator is to pick whatever you
wish.
And we'll talk more about this probably later.
But in my mind, there's a great responsibility that goes with it, and there's a great amount
of power that comes from it.

(24:55):
Because, and we'll probably talk about this more, there are only 53,000 blocks a year.
That's what a 10-minute block time results in.
An average 10-minute block time results in 53,000 blocks a year.
There are 4,000 transactions per block.
That means there's about 200 million transactions per year.

(25:15):
And for the most part, there's some argument within the technical side of Bitcoin about
whether or not we can do something about that or should do something about that.
But it's my opinion that that's what we have.
That's what we're going to have for a long time.
200 million transactions.
Now, if four companies, four organizations, one American company, Foundry, and three Chinese

(25:43):
organizations, F2 pool, Ant Pool, and, Dogen, I forgot the other one.
Maybe it was Binance.
I'm not sure what the other one was.
Oh, VibTc, sorry.
Those organizations are each creating their own.

(26:03):
But as you can see, those, if 70% of the transactions are going through those organizations, the
real risk is censorship in the short term.
So should these organizations, either of their own accord or forced by a government, start

(26:25):
implementing blacklists and whitelists type filters on top of their algorithm, we have
a major situation, right?
I should also point out that there's a belief that a lot of these smaller pools that you
have listed here plus some others are actually just proxies for Bitmain.

(26:49):
And it has to do with, again, we get a deeper rabbit hole.
It's hard to run a pool using what's called the FPPS payout method today.
You have to have massive financial reserves in order to do that, and you can only do that
if you have the backing of a really big organization.
So it may well be that more like 90% of the blocks are really controlled by essentially

(27:14):
Foundry and Bitmain in the end.
Like you got 90% through these two organizations.
Now that's a real problem.
Like that's a real concern.
And we've seen in the past, F2 pool, for instance, show behavior that they were trying to follow

(27:36):
olfak compliance.
Mara tried it for a while.
They got slayed, and they backed off of it, but Marathon was doing that themselves.
So this is a real concern.
Now, a lot of people then look at what I've just said about it being a concern and say,

(28:01):
Bob, it's not a problem because any of the hash rate that's attached to those pools can
move immediately.
So if these organizations exhibit that behavior, and that's historically what happened, the
problem is it's not true for a whole bunch of the hash rate anymore.

(28:24):
And why is that?
So the reason is we have 30-ish percent, probably a little more than 30% of the hash rate now
controlled by public miners.
And most of the public miners have contracts with the pool that they work with.

(28:56):
Number one, they pay really, really low fees.
Some have been negative at times in the past.
In other words, the pool wanting to have access to hash rate needs a certain amount of volume
to win a certain number of blocks, so they'll allow some of the big guys that maybe have
20x of hash just to come in it next to nothing or nothing or even less than free.

(29:24):
So that's one issue.
So they're not going to switch to a different pool unless those economics change.
That's one problem.
Second problem is they may have a contractual obligation to provide the pool with a certain
hash rate, and some of them have equity that's tied to that, meaning they own part of the

(29:49):
pool.
That's the second thing that happens.
The third thing is large mining organizations have very sophisticated tools.
We have decent ones.
We're, I guess, maybe called some mid-sized miners.
We have pretty good tools, but all the big miners have tools, and they have very specific
APIs that tie into the reporting tools and the data, and so it's not an overnight change

(30:18):
to do that.
The third thing is the pools are usually approved by auditors and regulators on behalf
of the public companies.
So the pools have to have a certain level of financial reserve in place to back up

(30:41):
the hash rate because, well, in an FPPS pool, which stands for full pay per share, the miner
gets paid whether the pool wins a block or not.
And so in periods of bad luck, the pool has to have a huge financial reserve in order
to pay the people.

(31:02):
So you have auditors and regulators and people that have to come in and examine the financials
of the pool to make sure that they can pay.
You're not going to direct hash rate to them and find out a couple weeks later that you're
not getting paid.
And that has happened, by the way.
Later in the last two years, two FPPS pools have gone bankrupt, smaller ones, but you

(31:24):
get a bet, run a bad luck, and you don't have enough money, and you're cooked.
So these are examples of why a guy running an S19 in his garage can change from foundry
to brains to ocean to whatever in a heartbeat and I think extrapolates what he can do to

(31:50):
what they can do.
But it even goes deeper than that.
There are things like SOC2 compliance, like a pool that doesn't have SOC2 compliance,
the public miners can't use them.
There's all these sorts of things.
So I guess I'll say one more thing, which is the financial motivation really may not

(32:16):
be there.
Because if you look at it, right now if we look at the block reward, the block reward,
which is the subsidy, which currently is three and an eighth Bitcoin plus the fees.
So if the block template creator, being the pool in this case, happens to ignore, let's

(32:46):
say 5% of the transactions in the mem pool, even though they're more expensive, they are
forgoing a small amount of revenue.
The block would be a little more valuable.
But the way FPPS works, and kind of reel me back in if I need to explain this in more

(33:12):
detail, Walker, but here, if you connect to what's called an FPPS pool, which I've mentioned
several times, this is how you get paid.
The FPPS pool has a formula and the formula says, every time a block is one, whether by
that pool or anybody else, you get paid.
And the amount you get paid is your percentage of the pool times that pool's percentage

(33:40):
of the global hash rate, and times the average block reward of the previous 144 blocks.
So they throw out in the 144, the three highest and the three lowest as well.
So when you sum that whole thing up, it really will make no material difference to the payout

(34:13):
of a company connected to an FPPS pool, whether or not that pool is censoring transactions
or not.
So what it comes back to is, are they principled?
Do they carry the ethos?
I'll just say on the whole, it's not impossible for a public company to do so, but it's very

(34:38):
difficult.
Like, my company, we have an ethos pledge.
Like the pledge to all of my employees and my entire organization is, we do what's best
for Bitcoin first.
If something does harm to Bitcoin, even if it means better for us in the short term,

(34:58):
we won't do it.
The founding documents of Ocean, which I'm on the board of, we have a do no harm.
It's like our Hippocratic oath to Bitcoin as part of Ocean.
We shall do no harm, even if it makes gain to us.
So I think a public company could certainly incorporate something like that.

(35:19):
I think that would be wonderful.
I'd love to see a public company do that, but to my knowledge, nobody has that.
In fact, I think they look at it very much in a fiat mindset.
So the momentum is toward these pools centralizing.

(35:41):
We're seeing more and more hashrate go there.
We're also seeing, there's a nomenclature, there's a nomenclature issue, I'll put it
this way.
What we have taken to calling the miners, a riot or a clean spark or a iron or whatever,

(36:07):
and I'm not saying this to belittle them, but they are not actually miners.
They are hashers.
They are mercenary hashers.
And if you want to be a miner, you must run a node, you must create a template, and you

(36:29):
must direct your hashrate to that.
It's only then that you become a guardian of the network.
It's only then that you express your vote and truly contribute to the network.
It's only then that you have a voice in things like soft force activations.

(36:51):
If you're not doing that, you're not really part of it.
I'm not saying you're not doing something valuable, but it is a misnomer to call yourself
a miner until you do these other things.
Some people may be offended by that, I'm sorry.
I'm not, so don't worry.
But that's the truth of the matter.

(37:12):
I think we've, I wasn't there, unfortunately.
If we wound the clock back to 2009, 2010, everybody was a miner.
Even if you read, I think I got it back here somewhere, a book of Satoshi or Phil Champagne's

(37:34):
book, great book, Phil.
I love Phil.
What you'll see is Satoshi didn't separate running a node from being a miner.
Those were synonymous activities.
It's only in modern times, the last 70, about the time I was getting involved, we started

(37:59):
to see this big parsing.
For some reason, I probably should put more thought in it, but for some reason, the community
of hashers abdicated their mining responsibility or right to the pools.

(38:21):
The pools take on this tremendous power at that point.
They get to pick the transactions.
They get to hold the money, like the coin-based transaction goes to them.
The voice in things like soft forked activations, they get to make the template, by the way,

(38:43):
usually soft forked activations have to do with turning certain flags on in the block.
Hopefully, I'm really prone to this and I apologize, I've given you some idea of why,
hey, we need more pools.
We especially need a whole bunch more template creators.

(39:08):
If we don't, and you think of this 1,000-year runway or even think of a 20 or 30-year runway,
especially as we see nation-states understanding Bitcoin better, big financial institutions
understanding things better, we're in a position where those things can get very captured very
easily.

(39:28):
I want to get into the nation-state side of things a little bit, but before we do, just
want to kind of confirm in terms of, because you mentioned you're like a 51% attack doesn't
necessarily keep you up at night.
Does that mean that in your mind the larger risk in terms of mining pool centralization
is actually the censorship component of it?

(39:50):
I would say two risks.
The answer to the question is yes, number one is censorship.
The second is, as we are presented with soft forks or maybe even hard forks in the future,
do we have a democracy or an oligopoly making that decision?

(40:19):
Because usually, and it kind of goes back to Taproot and then Seguin, some of those
sort of things from the past, we have used a trigger of a certain percentage of the blocks
over a certain percentage of the time signaling a favorable vote as essentially the mechanism

(40:41):
by which that happens.
While it's a whole nother rabbit hole, my feelings about what are a valid transaction or an appropriate
transaction for the network and what is spam, I have very strong opinions about it.

(41:05):
There are others obviously who disagree with me.
Well, we're going to face things like new op codes, activations for instance.
We may see groups, there are rumblings of people who want to play with block size again,
these sort of things are rumbling out there in technical back rooms.

(41:31):
The normal Bitcoin, Twitter, and Nostra group probably doesn't see, but they're there.
They're rumbling.
There are some ugly confrontations amongst these groups by the way.
It's not all kumbaya in the back rooms, I'll tell you that.

(41:51):
This could ultimately get resolved by BIPs that either get activated or not activated
through this and we need to help a lot more than Foundry, F2Pool via BTC and AntPool deciding.

(42:12):
Before we get into some nation state side of things, because I do want to explore the
game theory there a little bit.
In terms of actionable things, is this out of the hands of the everyday Bitcoin pleb
who might be doing some home mining or something like that?
Do you think that at a certain point does home mining just become a relic of the past

(42:35):
or do you think there's a chance still for a resurgence in this?
Obviously overall Bitcoin adoption is still very early, where I'm probably at a generous
level 1% of people globally and of that a tiny percent that mines, an even smaller percent.
Do you think there's still a chance for individual mining to make this big resurgence or is there

(42:59):
so many large institutional, industrial, whatever you want to call them, miners or hashers that
that's just, it's going to be drops in the ocean basically.
I don't believe it's too late, so the short version of the answer is no, it's not too

(43:20):
late.
Secondly, I would say I think there is a responsibility for people to be guardians of the network.
It's usually, you know, people, like the concept of running your own node I think is well propagated

(43:42):
within the community.
Hopefully people get that, but a whole bunch of people still don't do it, right?
But even more importantly, I think people should be miners too.
I don't care if you get a very small 1TH per second device, but I believe if you have

(44:07):
a material percentage of your wealth, whatever that is to you, I don't care.
If that's, you have 100,000 sats or you have 100 Bitcoin, I don't care.
I think you have a responsibility to the rest of the community and the ecosystem and you

(44:27):
have a responsibility to yourself to not let a small group of people control this whole
thing.
And millions of those small individual people, I call them rabbits by the way, and there's
a reason I call them rabbits, which we can get into in a second.

(44:49):
But the rabbits can have a voice and the reason I call them rabbits, maybe I should explain
that.
So I believe there are three fundamental types of miners, elephants, horses and rabbits.
Okay, the elephants are probably obvious.
They're really large organizations building really large sites.

(45:10):
And what I say about them is they are big and powerful.
A tremendous amount of the community's attention says look at the rabbit or look at the elephants,
like everybody wants to see the elephants.
And the 100 megawatt site, the 300 megawatt site, whatever, they're cool.

(45:31):
But there's problem.
They're big and powerful, but they're immobile.
They're inflexible.
They take forever to put up and they're easy to hunt.
So again, this is again, I'm right, we talked about complacency and like those sort of things.
Yeah, oh, thank you.

(45:51):
Wow, you should be found that one.
I had a feeling we might get into this.
So I saved this photo from your timeline.
Oh, thank you.
Thank you.
That's cool.
So the elephants, this term is like they're easy to hunt.
So we're coming into a world, I think with the Trump election, where again this complacency

(46:12):
and putting our guard down is very possible.
Because two years ago, three years ago, people were really worried about Elizabeth Warren
and people like that on witch hunts and are they going to try to shut it down and now we're
coming into this other environment?
It might lead a lot of people to think that there's nothing to worry about.

(46:36):
So the cool thing about the elephants is they do provide a lot of hash rate and they do,
in that sense to a certain degree, help secure the network.
But they also expose the network because a very small number of sites start controlling
a massive amount of the hash power.
And the other end of the spectrum is the rabbits.

(46:57):
So the rabbits are the home miner.
It may be an accountant who has an extra server slot and throws a S-19 in his server closet.
It's like that sort of activity.
Individually, it doesn't matter.
But collectively, it can be a very powerful force.

(47:21):
Much like one rabbit in a field of cabbage is not a problem, but a colony of rabbits,
of thousands of rabbits in the cabbage field can destroy it.
Now, the thing is, if that was the case and somebody went and tried to hunt the rabbits,

(47:44):
the moment they start hunting rabbits, they scatter.
You can't find them all.
And there's a certain security that the network acquires because of that by this massive number
of numbers that we have, maybe this base.
And I would love to see 10% or 15% of the network always come from the rabbits.

(48:07):
And I think a lot of people that are potential rabbits have to stop thinking about it as
to whether or not, let's say you've got a bid-axe, well, realistically, you might lose
$100 a year or something like that, depending on where you are, running a bid-axe.

(48:30):
That's probably your likely output.
But to me, that's almost your obligation.
You need to be doing that.
You need to be helping secure the network.
It's your obligation.
And by the way, you're going to learn a shitload about the way that the network really operates.
And some of the things we're talking about today will start to click for you.

(48:56):
You start to really understand the way Bitcoin really works.
Now I won't dwell on it, but the horses are kind of in the middle ground.
They're actually where barefoot is.
We're small to medium-sized commercial miners, a megawatt here, three megawatts there, a
half a megawatt there.
We generally can put them up quickly.

(49:17):
They're mobile.
We can move them around.
They're easier to hunt than rabbits, but way more difficult to hunt than elephants.
And if threats occur, again, we can scatter pretty well, too.
Since you have this chart up, those looking at it visually, any of those three elephants,

(49:39):
horses, or rabbits, can also be wild or captive.
So captive, for the most part, means that you're on grid, that you are dependent on a third
party to provide you the energy, meaning you're permissioned.
So trying to use some of the same vernacular that we use in Bitcoin, a captive elephant,

(50:05):
easy to hunt, easy to identify, you can turn them off, you can control them, you can put
shackles on them, you can change their access to power, really at will.

(50:26):
Wild, for the most part, means you are producing your own energy.
And I have a combination, by the way, of wild and captive.
I have both.
Although we're doing more and more wild, like what we're doing, we own a hydroelectric
facility in South Carolina.
It's not even connected to the grid.
We just run our own facility.

(50:46):
We create our own energy.
That's awesome.
We have stranded natural gas wells, not flared stranded natural gas wells that we own and
we are operating in Pennsylvania.
We just did a new project in Indiana using anaerobic digestion from the excrement of

(51:07):
the cows from a dairy farm.
So we're producing our own energy there.
I think these types of things really help secure the network.
And by the way, they are very economical.
The best economics are coming from the wild ones these days.

(51:28):
I appreciate that breakdown a lot.
Because I think, first of all, it's on a personal level.
I've wanted to start doing some home mining.
I just ordered one of those, the brains ones that they have.
Just the little ones.
Because I live in Illinois and our electricity prices are god-awful.
So as much as I'd like to fill the garage with some higher power units, I don't know

(51:52):
how much the wife would appreciate that or how economical they'd be.
But I do still need to grab myself a bid-axe or a three as well.
And I think it's very cool that those types of solutions are now available to people with
a really low barrier to entry.
And that in terms of getting them up and running, it's a nice little project you can do and

(52:12):
feel like you're at least doing some small thing.
And who knows, maybe you get lucky.
Yeah.
And first of all, I applaud that.
I really encourage you to do it.
Anybody listening?
Just a couple hundred bucks and just play around.
Even if you don't want to run it 24 by 7, you want to just run it on Saturdays, whatever.

(52:34):
I don't care.
But go through the process, learn.
If in and I'm part of Ocean and we have a technology there called Datum, which it's
not step one, but what Datum does is it allows you to be in our pool but still create your

(53:00):
own template.
So it's a process.
Like even for you, Walker, I'm not saying like as soon as you get your bid-axe, it's
a big step to say, well, I'm going to run a Datum server in addition.
I'm going to create my own templates.
I'm going to do all that.
But over the course of a year or something like that, you might get more comfortable
and get to that point and then if there is a soft fork activation sitting out there and

(53:28):
you want to decide if you want to vote on op-cat activation or something like that, great.
You have a voice.
You are part of the system.
What's interesting about all that, it doesn't matter how much Bitcoin you have.
You don't get a vote if you're not part of that.

(53:53):
Michael Saylor doesn't get a vote in this process unless he's a miner.
Now, obviously, he could become a miner at a significant level pretty quickly if something
happened in his case, but he doesn't have a vote until he does that.
If censoring is occurring, does he want to fight it or ignore it?

(54:15):
Those are the two choices.
You fight it by running your own node and either directing it to a pool that doesn't
do it, that's creating templates or not.
I would also say if you're out there and you're a miner, align yourself with pools that are
philosophically aligned to you.

(54:36):
If you're not sure, what is their template creation criteria?
How do they feel if there's a soft fork activation?
Give them your hash rate if they're not doing that.
I think people are thinking way too much about just the economics and not about these other

(54:57):
aspects of mining.
As I said, abdicating too much power to these other people.
I think that's a very good message for folks.
One thing I would say to play devil's advocate on the, let's say, a Michael Saylor type who
both personally and then obviously through micro strategy holds a lot of Bitcoin is that

(55:20):
he does have economic power to be able to, in the event of a hard fork, sell the chain
that he does not want and retain the chain that he does, which does have a meaningful
impact in terms of which chain do people end up ultimately buying.
You see the differences there.
Look at Bitcoin Cash versus Bitcoin.

(55:41):
There's quite a large economic difference.
That's a very true statement, Walker.
That's kind of a hard fork thing.
Some of this is a little more subtle.
Like I said, censorship within the network.
In other words, if suddenly we wake up tomorrow and these five or six pools, big pools are

(56:09):
suddenly saying we're all olfak compliance.
I mean, there's some game theory that will play out, but Bitcoin will march on.
I'm not sure it affects much of the way the way the market will react to Bitcoin right

(56:34):
now.
I think we've kind of moved to a different place and we might not see the kind of violent
negative reaction that would have maybe caused four or five years ago because I think a lot
of the market doesn't care.
I would agree with that.
We may look at that and say, well, we obviously care and a lot of hardcore Bitcoiners do care

(56:56):
about these things, but if we're being honest, the vast majority of people don't actually
care about censorship resistance and decentralization.
It's just a sad fact of life.
Whether that's in Bitcoin or that's in communications and social media, they honestly just can't
be bothered to care because they think, well, I'm a law abiding citizen.

(57:17):
This isn't going to affect me.
This is just affecting those criminals out there.
Of course, everybody can become a criminal when the laws are changed to treat them as
such.
But I wanted to shift gears a little bit because you brought up just kind of like where we're
at right now with like just regarding, let's say, olfak compliance or something like that.
With all these institutional players in, they may look at that and say, oh, great, that

(57:40):
actually makes this more investable for us, something like that.
But I'm curious at the kind of nation, at the national level, Trump very famously said
in his speech at Bitcoin Nashville that he wants to, I forget the exact phrasing, but
have all Bitcoins going to the future, mind in America basically.
He's looking at this, which drew a lot of laughs, I think, from a lot of people, drew

(58:03):
some consternation from others, drew some yee-haw, let's get it from others.
How do you see this playing out with this moment that we're at right now where you have
a very good chance, I think, at a strategic reserve level, which is what a lot of people
are paying attention to right now, that that's going to be something Trump gets going and

(58:24):
gets passed through, whether through Congress or through executive order fairly quickly.
And a lot of people are focusing on that, but if I had to guess, you're probably focused
more on not so much who's holding the Bitcoin, but who's controlling the hash from a geopolitical
level.
Is that fair to say?
And kind of maybe what are your thoughts on this right now?
Are we entering kind of a new era of global hashing?

(58:48):
Yeah, I would say even more specifically who controls the template.
So but that said, yeah, it's a great point.
And I think this is the easiest way to answer that.
Let's pick a small country.

(59:14):
I'm Lithuania.
It's pulling.
Sure.
Okay.
So, and I'm going to guess, forgive me if I'm wrong.
Let's say Lithuania has one quarter of one percent of the world GDP.
I'm guessing it's probably not off by a great deal.
Yeah.
Okay.
So I'm, I'm happened to be the head of state for Lithuania.

(59:37):
Okay.
Now, if, if you said, Hey, Bob, you're the head of, of Lithuania, you can either put
an initiative in for the country to go acquire one quarter of one percent of all the world's
Bitcoin, kind of get its share of the world's Bitcoin, or you can put an initiative in place

(01:00:04):
to make sure that it has a quarter of one percent of all the world's hash rate for the
next century to two, two choices.
Okay.
I would choose the latter.
The reason is that it's essentially guaranteeing the financial sovereignty of my nation for

(01:00:29):
the next century.
The quarter, what would be a quarter of the world's Bitcoin, a 5,000 ish Bitcoin, something
like that.
Is that right?
A quarter of a percent.
That's, that sounds, that sounds right.
I think that's right.
I think you're better at whatever the number is.
Yeah.
I'm doing that in my head real quickly.
You know, a lot of people might say, well, that's going to be worth a tremendous amount,

(01:00:52):
but the problem is, this is the problem.
Okay.
We'll go back to, there's 53,000 blocks per year.
There are 4,000 transactions per block.
There's 200 million transactions a year.
If I can control one quarter of one percent of all of the world's hash rate, okay, I'm

(01:01:22):
going to get about 100 blocks, okay, a year, two a week.
If, if, if, if you believe like I do, you both, you Walker and you, anybody listening,

(01:01:45):
that Bitcoin in the course of the next century and probably much, much sooner becomes the
base layer of all money, then access to that base layer becomes existential to your viability
as a nation.

(01:02:07):
So if I have that, if I have twice a week, I have 8,000 transactions that I can make
with anybody in the world.
I can do the business of my country.
I can do the business of the corporations and I can do the business of the citizens of
my country in a way that cannot be impeded by anybody else.

(01:02:31):
Putin can't ban it, Putin can't ban it, the new bricks can't ban it.
Like I have achieved true financial sovereignty for my nation.
And if I do not, if I have no blocks, even if I have 5,000 Bitcoin or 50,000 Bitcoin,

(01:02:54):
it doesn't matter, I am subject to the whims of the others, whomever they are.
And I believe at a nation state level that presents an existential problem.
So I think when we look at things like whether it's El Salvador mining or Bhutan mining or

(01:03:17):
we're pretty sure Masha is mining, actually the Russian trade minister has, has said they
are even using Bitcoin in these transactions.
Well, I can promise you they're smart enough to know they have to control some blocks too.
So at the high level, I think we've, not that strategic Bitcoin reserves are not materially

(01:03:42):
significant.
I mean, that is a very significant thing.
I think it's cool.
When Trump said I want to mine the rest of the Bitcoin, I seriously doubt he understands
what you and I are talking about right now, but he's getting the right answer for the
wrong reason, I believe.
And that's like, hey, if you're the United States and you're used to being in such a

(01:04:10):
dominant position in the financial community, if the US doesn't have control over some of
the block creation, that same thing could happen to them.
And so, and I believe now is the time, like you don't want to be a nation that gets a
decade behind in trying to build this out.

(01:04:32):
Like, you know, you need to build it out now and keep up with it.
And by the way, you don't give a shit about how much money you're making because it is,
it is a cost of sovereignty, right?
Now the next part, people may or may not like that.
I'm not even saying I like it.
I'm just saying this is what I think the reality is.

(01:04:54):
And I think that's one of those things with Bitcoin.
Like, Bitcoiners, like we want the separation of money from state.
I get that, but we can't, we don't have any mechanism to prevent the state from participating.
And you know, the old saying Bitcoin is for enemies.
I think it applies here too.
Like we can't, you know, we can't stop it.

(01:05:16):
And we also can't say that it's good for the US to mine or for Bhutan to mine, but it's
bad for Russia or North Korea that doesn't work.
Like it's not what we're building.
Now the next thing I'll say though, probably gets even more controversial.

(01:05:38):
So actually before I go there, any, you want to make any comments or any questions?
Yeah.
Well, the one thing I would say is I think that you're, you're kind of touch of realism
as far as the separation of money and state.
I'm in the same boat there too.
And I've started thinking about it instead of just, you know, oh, it's, it's just separating
money and state, which sounds very nice by itself.

(01:06:01):
But what we're really talking about is the separation of money creation from state, from
the ability to arbitrarily inflate and to print ex-Nelo, print money out of thin air
whenever they choose in whatever amounts they want with absolutely no oversight.
Bitcoin has already separated the creation of money from state.

(01:06:22):
Now that doesn't mean that they can't mine Bitcoin, but they're not, they're not creating
the Bitcoin.
The Bitcoin's already there.
They're just mining it, right?
As long as Bitcoin, as Jeff Booth would say remains decentralized and secure, then we
have separated money creation from state.
And like you said, you're never going to stop.
If Bitcoin is doing what we think it is doing, of course, every nation in the world is going

(01:06:46):
to want to own some, to try and mine some, that this is natural.
This was always going to happen unless Bitcoin failed, in which case they wouldn't want to.
Right.
And it would be hypocritical of us to say that any entity or any person is not entitled
to do that.

(01:07:06):
That would just, I mean, that is against the ethos.
Well, that's a great segue to what I'm about to tell you, or at least my vision.
Now part of this, before I go into my next kind of vector on this, is we've been talking

(01:07:26):
about block space.
So we have these 53,000 blocks a year and the 4,000 transactions.
I think you could think of those much like seats in a concert, or seats on airplanes,
or hotel rooms, or things like that, right?

(01:07:48):
There's a finite number of them in any window of time.
And they're there whether they get used or not, right?
But if you think about the mining function, to date, we're 16 years in, right?

(01:08:12):
To date, the output of the mining process would be best thought of as producing Bitcoin,
the issuance that we were just talking about.
This role has been the issuance via the subsidy.
I think we are in that point where that's changing.

(01:08:36):
It's a gradually then suddenly sort of situation.
So most people aren't aware of it.
But we're at the point now where the output of the mining process is about to no longer
be about the subsidy, it's going to be about the block space.

(01:08:56):
So we say Bitcoin is a commodity.
Block space is a commodity as well.
And it is an absolutely scarce commodity in any window of time.
And if you start thinking about it in that context, the fight for those 53,000 blocks

(01:09:20):
and the 2 million transaction it represents becomes a race.
And today what happens, what we're used to, and I think we always have to be careful,
like what we're used to, like it doesn't always remain the same, right?

(01:09:42):
Sometimes things change.
And I think this is a case.
What we're used to as Bitcoiners is kind of a real time free and open marketplace for
access to the block space.
And we generally think of it as always available and for all intents and purposes it's free.

(01:10:05):
Well, we will soon discover that it is precious, that there are extremely long lines for it.
It is a luxury.
It is access to the world's most secure digital network, the most decentralized network.

(01:10:29):
And it's going to get super expensive.
We're learning a lot about scarcity with Bitcoin, but I think we're going to even learn about
it more quickly, what absolute scarcity means with block space.
Because block space is a one time use thing.

(01:10:51):
So Bitcoin is liquid, right?
So yes, there's only 21 million Bitcoin, but there are things that, it's still a medium
of exchange.
So whether that's a fiat price or a car or a house or whatever, there's probably some,
like if I have a Bitcoin, there's probably something you could entice me with to make

(01:11:14):
me part with it and create liquidity.
But block space, it's a one time use thing.
And you have to wait again and again and again, and there's a big line.
Well, we have been in a position for almost two years now.
The mem pool, which is the repository of transactions waiting for confirmation, has not been clear

(01:11:38):
for almost two years.
We have seen periods where fees have gotten really expensive, and then they will come
back down.
Sometimes absurdly inexpensive even, but also absurdly expensive.
I'm going to oversimplify, but the reason why sometimes it's absurdly expensive and

(01:12:01):
sometimes it's absurdly inexpensive have only to do with urgency.
Now a lot of the activity that occurs on the base layer is non-monetary today.
Some of it relates to the spam stuff, which we'll forgo for another time maybe.
Some of it relates to, let's say, UTXO consolidation.

(01:12:22):
Well, UTXO consolidation rarely has urgency.
But if I'm going to buy your house, if I'm going to buy your car, if the type of activities
that I do see continuing on on the base layer for a long time, institutional movements of
money, like those sort of stuff, we're going to start to see more and more urgency tied

(01:12:47):
to those transactions.
And also the value of the transactions going higher and higher.
So I think the fees are going to start getting more and more expensive, number one.
And now here's where we're really going to get controversial.
Organizations like Bank of America and Wells Fargo and Citibank, JPMorgan, some percentage

(01:13:14):
of them are going to realize that access to the base layer becomes existential to them
as well.
If we see SAB 121 get lifted and they start custodying, they start doing more economic
activity, what we're going to see is that big financial institutions, the current big

(01:13:37):
financial institutions are going to realize that their ability to attract customers, big
corporations, high net worth individuals, their prime customers is going to require
them to have access to block space.

(01:13:59):
So they are going to build, this is my opinion, they will do two things.
The first one is they will become active participants in block space future or forward
marketplaces.
So what you're going to start seeing are the people that control the block templates starting

(01:14:20):
to pre-sell access to space in the future.
And I've been working on this product actually for two years with a group out of Tampa called
Block Spaces and I'll say this, we are building on the lightning network this whole marketplace.
And so the idea would be like we're sitting here in January and let's just keep it simple.

(01:14:44):
If I own 1% of the world's hash rate, I'm not that big, but let's say I did.
That means on average I would control one and a half blocks a day or about 10 a week.
So I could go to a big user of block space, like let's say Coinbase, and say, hey, how

(01:15:06):
would you like to right now buy access to three blocks in the first two weeks of April?
And we'll agree on a price right now of 13 sats per V-Bite.
And when you hit April 1st, you've got to give me the transactions you want and I will guarantee

(01:15:29):
you they will be in a block in the next 10 days or next 14 days.
So what that's going to do is it will give bigger customers of the network the ability
to lock in access at an own price, which I think is the only way for the market to mature.

(01:15:53):
But it'll also give everybody else visibility to demand for block space in the future, which
we don't have today.
Like right now we only know the current state, right?
We always live in the now we have no access.
But then I think what it leads to is the banking institutions themselves realizing they have

(01:16:17):
to be miners.
And so my guess, I'm just playing futurist a little bit, is that as we sit here 10 to
15 years from now, the biggest miners in the world will be a combination of nation states
and very large bank and financial institutions.

(01:16:40):
And by the way, they won't care about the block reward or the fees.
What they will care about, the nation states will care about the sovereignty and the financial
institutions will care about attracting the right kind of customers to their institution
and giving them preferred access to the base layer.

(01:17:04):
So you think also, I mean, one of the pieces of FUD you usually hear from, let's say the
shit coiner types is that, oh, the once the block subsidy is small enough, fees won't
be enough to guarantee the security of the network.
So you would say that's a ridiculous statement just because there is going to be so much,

(01:17:25):
let's say the fight for the control of block space isn't just about who's getting the fees,
it's about who's getting to create the template, who's getting to decide what goes in there
and having a guarantee as a nation state or a large financial institution that you will
have, you will be able to get transactions through that network when you need to.
Is that a fair assessment?

(01:17:47):
Within a window, within a reasonable window, you will know when and how much.
Like just the reason I think to think about block space as a commodity is think about
it this way.
If you're a farmer there in Illinois and you plant corn, okay, and you plant it in the
spring, you at almost probably the time you plant the crop already are in a futures marketplace

(01:18:20):
and you know what your harvest is going to be, you call that X, right?
Well, by early June, you've maybe sold 25% of your expected harvest already into the
marketplace, into a futures marketplace.
On the other side of that, there's some guy that makes commercial tortillas, corn tortillas,

(01:18:43):
and he's trying to lock in his availability and cost of corn for October when the harvest
occurs.
So he's buying that contract, right?
The same thing is occurring with block space.
I as a hasher and block template creator know how many blocks I'm going to create and roughly

(01:19:11):
when I'm going to create them.
I can't say like to the hour, but I can say with really high probability within certain
windows.
And there are organizations, I use Coinbase as an example, it's probably the easiest one
in the current world.

(01:19:32):
Well, they have all kinds of base layer interactions they have to do.
They have withdrawals and deposits and they're doing their own back-end administration with
UTXO consolidation and all that.
They're a massive user of block space.
So they are running a portion of their business.

(01:19:54):
It's dangerous to them, right?
They don't know what their costs are going to be on a day-to-day basis in today's world
for doing those activities.
They don't know for sure that they can even do them.
They can't guarantee service levels to their clients without doing them.

(01:20:16):
And so it kind of goes back to something we said before.
We can't expect the world to run on Bitcoin and not have things like that.
You can't have a world where people don't know when their transaction is going to get
in and how much it's going to cost.
There has to be certainty to it.

(01:20:36):
Now, I don't want to go too far off the path, but the reason partly we need the rabbits
and the horses, at least at an appreciable level, is to preserve what we have today,
which is a portion that is available to the pleb, that is available to the average guy

(01:20:57):
and runs much like we do today.
We need the rabbits and the horses in order to have a chance to do that.
Because as you said, we can't have a world where Bitcoin becomes successful and there's
no nation states and there's no big financial institutions and there's no corporate clients
and there's no high net worth people.
No, those are mutually exclusive.

(01:21:22):
Yeah.
I think that it's going to be really interesting to see this play out.
Bob, we're going to have to do this again because I'm pretty sure I probably still have
about eight more hours of questions for you.
One thing I did want to get in, if you're okay with a slight switch of gears, we've
talked a lot about the mining pool centralization, about the fact that he who controls the template

(01:21:47):
is ultimately really has the power there, right? There's another angle to this risk
of centralization, I think, that I believe from what you hinted at earlier about manufacturing
your own ASICs, you're clearly thinking about too, which is supply chain centralization
when it comes to ASIC production.

(01:22:07):
Then there's another angle that is geographic centralization of miners in certain jurisdictions
that are of course going to be subject to the political wins of those jurisdictions.
Now, we saw some of that in China with the now famous whatever it was, their 13th mining
ban or whatever it was, but the real one where people actually picked up and left, hash rate

(01:22:30):
crashed and we saw it rebound pretty quickly as they relocated.
So I'm curious between maybe let's start out on the supply chain centralization side with
things like Bitmain and whatnot, where are you at on this? How big of a risk is this
maybe in relation to mining pool centralization?

(01:22:55):
The present state is probably worse than pools. I mean, we have nobody knows for sure, but
something on the order of 85% of all the systems are produced by Bitmain. This is a bit of
me being the engineer and me being a little anal retentive, but I say it for very important

(01:23:17):
reasons. So I want to be clear when I say ASIC, I'm talking about the development of
a chip not of a system.
And there's a reason for it I won't bore people with today, but it's very important to separate
those two. So today, Bitmain makes an ASIC and they make a system and like 85% of the

(01:23:39):
systems end up being Bitmain based. Then we have, you know, what's minor and a few other
people kind of coming up, but it's improving. We have companies like Block and Blockstream
both doing their own ASIC. We had Intel for a while. We'll see if they come back.

(01:24:00):
In my mind, it's a situation where investment is being made and there is impetus to break
that what's close to a monopoly from Bitmain. And I think it's very important that that

(01:24:21):
happen. It can happen because there's always a chance of them doing something malicious,
but there's also a chance of them just having a problem. Like, you know, we have, you know,
it's like everything's from the same gene pool. You could think of it like that way.
Like, you know, hey, the virus came in and we don't have any genetic diversity. So the

(01:24:46):
other problem though, and the group I'm working on, which is called M5ers, which I'm working
with some ex-Samsung and Intel people, part of the guys were part of the team that developed
all of Samsung's solid state disks. And like the Intel guy was part of the Intel 486 processor

(01:25:10):
development, really great guys. And I think we're doing something really cool. But our
intent is to only build chips. We are not trying to build systems because what we want
to do is we want to offer much like Intel does to the world, our AMD does to the world.
We want to offer chips and let people build whatever systems they want around it and segregate

(01:25:35):
those two things from each other. And I think that's the best path for innovation. It's
the best path for creating a competitive environment, giving the market lots of choices. Like you
mentioned, you know, whether it's, you know, BitAx, Avalon has a new nano, the of the brains
product, you're going to see a lot of people developing products for the home market. We

(01:26:00):
have a lot of these reuse markets, whether they're hot water heaters, furnaces, like these
pet beds, aquarium heaters, like pool heaters, like all this sort of stuff. Like having these
poor guys today, God bless them because they're doing great work. Most of them, what they

(01:26:23):
have to do is they have to buy hashboards that have failed from old equipment, they have
to desolder the chips. They have to reverse engineer because bitmain doesn't provide what's
called a data book. Nobody knows what the pins are or the timing diagrams or any of those
sort of things. They have to reverse engineer it. It's a terrible process. And they have

(01:26:47):
no way of knowing if bitmain made a change from chip A to chip B. So anyway, it's a nightmare
for that community. All kinds of the R&D and budget for them to develop a product goes
into the reverse engineering instead of just innovating on what they're trying to do.

(01:27:15):
So I think that one is getting better, but here's the fear. Like our organization, by
the time we go to market, it will have cost somewhere probably in the 50 to 80 million
dollars to come to market. It's huge capital deployments. And so the partners that we have,

(01:27:44):
the partners that we'll need in the future to get through this process, and we're about
15 months into the process, we're probably nine to 13 months from production. So we're
over halfway. But there's a lot of risk associated with it. But if we're successful for the people

(01:28:06):
putting the capital up, it can be wildly lucrative. But it's feast or famine, to be honest. There's
not a lot of semi successful chip ventures. They either turn into Intel, AMD, NVIDIA,
or you never heard of them. And they go away. It's what Silicon Valley was built upon, was

(01:28:32):
these kind of high risk ventures. So I want block and block stream. I want us to succeed.
There's a few others I think trying. But it's a difficult game. And if all of us fail for
whatever reason, then that would be really bad. Then we'd be in a bit main dominated

(01:28:54):
world. And I'm not even trying to shit on bit main because pick whatever name you want.
We don't need one company having that sort of dominance. That's really, really an uncomfortable
thing. There was another question I forgot. I answered the chip part. What was the other
part of the question?
Well, just wondering is geographic centralization of actual hasher is something that you worry

(01:29:20):
about at all in terms of, we've obviously got a lot of hash power coming from the US.
There's pockets of large centralization all over. Is that something you worry about at
all? Or just from like a, okay, a government decides it's no longer going to be too friendly
or it's going to nationalize some miners or something like that.

(01:29:40):
Well, the answer is yes, I'm still worried about it because I try to keep that thousand
year hat on that we talked about. I mean, I think I was, I'm not worried right now about
somebody coming in and trying to shut me down in the US. That's the good news. But I think

(01:30:01):
the threat still exists because politics changes. We sit in this environment today. I don't
mind in Texas, I have nothing against it. I have a lot of minor compatriots that do.
And one of the things I've told some of them in the past, they'll say, hey, because I think
they, a lot of them continue to pump a lot of money into Texas. Like they don't even

(01:30:25):
look outside the Texas, not even outside the US, they don't even look outside Texas. And
what I say is like, imagine a world, let's say it's 2028 and you know, it becomes election
time. What if we have a world where the next president is AOC, the Secretary of Energy is

(01:30:48):
Elizabeth Warren, the governor of Texas is beta auroric. Like if that's if that happens
and you can't say it's a non zero possibility, right? It is a possibility. So we talked about
those odds before. Well, I'm sorry, man, but some bad shit's gonna go down if that's the

(01:31:09):
case. And you got four years. When I say you, I'm talking about the greater community four
years to correct this. And the fear is that the community feels too comfortable. It feels
too confident. And instead of using this four year window to really decentralize geographically,

(01:31:37):
it actually even more centralizes because the threat's not there. So that that worries
me. I mean, we are I've spent fair amount of time overseas this year. I sure I will
spend more this. Well, in 2024, I spent some material time working a fairly big opportunity

(01:32:02):
in the year in Europe. This year, which which hasn't come to fruition yet, but I'm still
hopeful. And I'm sure I'll spend time this year in South America, Central America, maybe
Africa, looking at things because I definitely feel the need for barefoot to have this footprint

(01:32:24):
changed because I do not want to all be in the US. And you know, we do run the threat,
like we talked about with the nationalization. When I gave you that Lithuania example, if
I was the president of Lithuania, I didn't I'll finish that thought to a certain degree.

(01:32:48):
What I would do is I would say, hey, instead of me spending all the money, what I'm going
to do is let me put a message out to the world. So all the miners of the world. And the message
is, hey, we we will offer three cent energy, three cent per kilowatt hour energy to the

(01:33:08):
first 30 x a hash is or whatever the number is, probably not even that much. It'll only
be like three or four x a hash is maybe of miners that come here. The only caveat is you
have to use the Lithuania pool. So, you know, we're going to give you an opportunity to

(01:33:29):
compete, but we're going to control the template. I mean, that's, you know, that's the that's
the plan I would deploy if I was the president of one of these countries.
Are there any other risks that like we haven't covered yet? Like do you mean, obviously,
there's ongoing talk of quantum computing and how, you know, there's various things.

(01:33:52):
Oh, you know, it's going to be able to crack Bitcoin private keys, things like that. I
mean, I think there if it's done that, then it's cracked, you know, every other encryption
algorithm in the world as well, you know, like, but the point being, is there from the
mining side of things, is there anything that you think about with regard to quantum, you
know, looking at this, you know, thousand year view, or are there any other kind of risks

(01:34:14):
that you see out there? Or are these have we covered kind of the big ones that are in
your mind, the most material potential threats?
You know, those are the, those are the biggest ones. Yeah, nothing else really comes to mind.

(01:34:34):
I think maybe to just add a little color to it, though, something that I think is worthy
of thought is what would cause Bitcoin to end? It doesn't necessarily be in a bad way.
And I've done a few talks on this, but like, are you familiar with the Kardashev scale?

(01:34:59):
Yeah. Okay. Yeah. So depends on how you measure it, but you know, as a society with the with
everybody listening, no, feel free to go through it. I mean, I think it's it's always fascinating
to talk about. Okay. So the Kardashev scale is a scale looking at how well any society

(01:35:23):
civilization has the ability to harness energy and specifically directed to the creation
of information. That's the part people miss often a lot. But so and it's rated as on a
scale of zero being nothing, that's caveman to one, meaning you have the ability to harness

(01:35:49):
all of the energy on whatever planet you're on. The the second scale, Kardashev two scale
is you're able to harness all of the energy within your solar system. So the energy of
the sun plus the energy of the earth. And the third scale, Kardashev three society can

(01:36:11):
harness the power of a galaxy. So we sit with some harnessing capability. And this is a kind
of a log scale, you could think of it as a log scale, right? So different estimates put
us between like point four and point seven now. And I think when we reach the point that

(01:36:38):
we are a full Kardashev one society, Bitcoin will start having issues. Because energy itself
will be so inexpensive. Because you know, we talk about it representing digital energy
or it is digital energy. I don't love those analogies, but it kind of works. And certainly

(01:37:00):
the biggest cost input is energy. Jeff Booth, will you mention, you know, a buddy of ours,
you know, he'll say, well, it falls to the marginal cost of production. Well, the cost
of production is almost all energy based. And when I say that, I don't mean just the

(01:37:21):
energy like running the systems, but the energy to create the chips that run the systems,
right? So so if you live in a society that can reasonably harness all of that energy,
you just have a such a massive amount of energy available per person, I think Bitcoin kind
of fails at that point, and we need something else to replace it. So I believe Bitcoin is

(01:37:46):
our our our money. If we treat it right, if we're responsible, we don't eff it up that
it can ride till till we reach Kardashev one levels. And and you know, then then we'll
need another one. Some people think that could be 200 years, I think it's more like 1000.

(01:38:10):
And that's why I say money for 1000 years. Okay, it'd be interesting to think about what
what comes next. I mean, I guess if energy is like is so abundant and so, you know, materially
just free basically, at the marginal cost of production is essentially zero. That has
some really interesting implications. Obviously, you still, you know, need to have raw materials

(01:38:35):
and things like that. Like there's a lot of other components that go into it. But it's
a it's quite an interesting thought experiments that, you know, are probably, you know, great,
great, great times a few more grandchildren may be living out in real time.
But the thing, you know, and I have put a decent amount of thought into it. And I've
got into some obviously, it's just a debate, right? Nobody can prove it right or wrong.

(01:38:58):
But what I would say is, you certainly have these other materials. But if you look at
it, most of those materials, the cost of the material itself, let's say you need iridium,
or you need gold, or you need something like that in it. Well, the energy to to mine that
and process it is the majority of the cost of that material as well. And then to transport

(01:39:24):
it, most of the cost revolves around the energy to transport it. So it kind of like you just
kind of see a little like, almost everything, everything tends to free. Now, maybe we don't
need money at that point. I mean, I don't know. I that's probably not something I can
envision properly. You know, I'm also going to do I have a show, old man, the else that

(01:39:50):
I that I do, it's kind of me doing monologues, you know, but I'll sneak preview. My next
one is actually on money on Mars. I haven't I haven't recorded it yet. But it's because
there's a there's a faction of people that believe that as Mars settles Bitcoin is the
ideal money for them. And I don't believe that's true. Oh, interest. Okay, I'm gonna

(01:40:15):
have to I'm gonna have to turn in for that. I'll link the show to in the show notes. I
want to you know, so okay, we've we've talked about a lot of risks today. We've had a lot
of realism thrown out there. I want to just kind of close out with like what makes you
so yes, these risks are there. Yes, there are things that could be a lot better in terms

(01:40:35):
of the you know, decentralizing the network. What makes you hopeful right now? Like what
are some things that you think about where you're like, wow, that really, you know, that
gives me a lot of hope as we go forward. What are you seeing right now, whether it's in
mining or other open source projects, anything that you're looking at saying, you know what,
that's a that's a really amazing thing. And that gives me hope.

(01:40:57):
Yeah, well, first of all, I apologize to anybody out there if if my comments are a downer,
or in any way are deflating any enthusiasm you have for Bitcoin. You said I just try
to be a realist. And and I believe Bitcoin will succeed. It just that like anything,

(01:41:27):
we have to be vigilant. And it's only our it's only our lack of care or complacency
that can make it fail at this point. I think that's where we are. So that first of all,
that's that's in and of itself a lot of hope. Secondly, I already feel the next wave, the

(01:41:50):
next way, I mean, we see it politically. So what happened with the elections in the US?
I feel political wins. I spent I spent a fair amount of time in Europe this year, I can
feel political wins and society shifting there. And they're shifting not just to Bitcoin,

(01:42:12):
but to the things that Bitcoin stands for. The the thing we talked about about our enemies,
the Bitcoins enemies, they're adopting Bitcoin, I mean, to a certain degree. I think Bitcoins
enemies, if you want to say that, the big financial institutions in the nation states,

(01:42:37):
I am so impressed by the pace with which that is occurring, it's exceeding at least my
expectations. If you know, back from two, three, four years ago, the rate at which this
is happening is jaw dropping. And it's, it's what we should expect. You know, it's just

(01:43:01):
it's, it's, it's the only way for Bitcoin to fulfill its destiny. And that's, that's
for everybody to buy in. And, and, and it's happening, it's happening faster. Some of the,
I just did my, my most recently released episode of Oman Yeltsin's on the concept of collective

(01:43:27):
denial. And I'm seeing more and more people that were in collective denial break out of
it. That's a really hard thing to do. The poster child would be Larry Fink, by the way,
like, you know, there he thinks in Donald Trump is in. I mean, I think Mark Zuckerberg

(01:43:51):
is in like, I, I, I'm shocked that I am uttering these things. And, and whether you like these
people or you hate these people, they're very influential. And they are coming out of a

(01:44:13):
dominant position in the fiat system, both financially and from a power perspective, and
joining in like that. To me, that's wildly optimistic.
And amen to that. It's a, you know, you know, first they laugh at you, you know, and they

(01:44:33):
mock you, then they fight you. And then, well, then you, they join you and then you win.
And so, yeah, it's a, it, it would have time to be alive, you know, I'm just, I'm grateful
to be here at this moment, because I think it's going to be a very, very different world.
I hope changed for the better, you know, 50 years from now, even, even less than that.

(01:44:56):
But I think like 50 years from now, it's going to be a pretty wildly different one. And I
think that one will not without trials and tribulations, but I think it will have ultimately
been changed far for the better. Yeah.
I'm, I'm blessed. I would say this is my third time seeing the world do this. The first

(01:45:17):
was with the personal computer. The second was with the internet and now with Bitcoin.
By the way, I think they all build on each other. I think the internet doesn't happen
without the personal computer. Bitcoin doesn't happen without the internet. They all build.
But at the beginning, I told you a story, like what happened in my world, both through

(01:45:39):
my optics personally and the world in general, from 1986 to let's say 2000, that roughly
15 year window was absolutely flabbergasting. If you're younger, you probably don't realize
that in 1986, like nobody had a personal computer. Nobody. Like they were, they were $4,000.

(01:46:05):
Nobody had one in the home. Even a large office might have one. Like, you know, and, and 15
years later, in the under Christmas trees across the world, I was fortunate to be, you
know, part of Gateway, you know, there were, there were 10 million Gateway PCs and Dell

(01:46:29):
PCs and like all these others, you know, under Christmas trees of eight and 11 and 14 year
old kids. And, and we went from, you know, we went through this massive level of adoption,
you know, and I remember, and I'm sorry, I'm making this long, but I remember I was working

(01:46:52):
on these early laptops, right? And I'm guessing it was maybe like 1987. So I'd worked on this
in 86, we came out with the product on an airplane in 1987. And a guy walks into the
plane and he sits one row in front of me on the aisle. And he pulls out one of my laptops.

(01:47:18):
The very first time, like in the wild, like, it's not somebody I knew, it wasn't an engineer,
one of the guys, you know, working on it was like, boom, like the first time I see a laptop
on an airplane. And, you know, now, of course, I mean, whether it's an iPad or a phone or

(01:47:40):
a PC or whatever, there's nobody sitting on an airplane, not looking at one of those devices.
But even by the year 2000, that was so commonplace. And so I just, I say this because 15 years
happens so fast, like you just, you, like, I can't, as a six year old, I can't tell you

(01:48:05):
how fast 15 years is. And it's scary as a six year old guy because 15 years soon I'm
a 75 year old guy. And that's a scary thought in of itself. But, but, you know, we're changing
the world, you know, the old, you know, Parker Parker Lewis is gradually then suddenly, which

(01:48:26):
I know he stole from Hemingway, but I think it was Hemingway, right? But who ever he stole
from when he applied it to our world, it's so frickin true. And we are in the Bitcoin
adoption curve, we're way, way past that guy that got on that airplane. And that I was

(01:48:46):
talking about, like, we're way past that point, like, we're now at a point where there's a
lot of laptops on the plane already. And, and, and I just, you know, it gives me hope
because because I'm, I want to make money like everybody else, you know, obviously.

(01:49:09):
But if that doesn't work out for me, it's not the end of the world. And, but what will
be crushing for me would be if Bitcoin didn't work. So whenever, whenever I pass, whenever
I move on to the next level, if, if, if Bitcoin hasn't won, and I know that the world, my
kids and my grandkids and all those have to live in, doesn't have it, that would just

(01:49:32):
be soul crushing for me. And I mean that in a literal sense. But that's not going to
happen. It's,
And, and we've got people like yourself and many others who are fighting to make sure
that that, that that doesn't happen. And that our kids, grandkids, great grandkids grow
up in a bright orange future, right? That's a, it's a beautiful thought, you know, why

(01:49:59):
well, absolutely. This was, this was a treat picking your brain today. I really appreciate
it. I think people are going to get a lot from this, this episode. I know I did. Do you want
to send folks anywhere? I'll link your, your social media anywhere else you want to send
them, tell them to check something out.
You know, I'm, I'm still more an expert. I am a Nostra, but I am on Twitter or still

(01:50:22):
boomer underscore BTC there. You know, our company website, main one is barefoot mining
dot com and look for me on YouTube or Spotify or whatever for old man yells. And that's
just me. If, if you didn't get enough of me going off on tangents, well, you're filled
there. So,
Well, well, Bob, really thank you so much. This was, this was a pleasure looking forward

(01:50:47):
to doing it in person, hopefully again, sometime soon. But until then appreciate all you're
doing and appreciate you sharing that knowledge with us.
Thank you, Walker.
And that's a wrap on this Bitcoin talk episode of the Bitcoin podcast. If you are a Bitcoin

(01:51:09):
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(01:51:31):
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(01:51:55):
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BITCOIN MINING CENTRALIZATION & NATION-STATE GAME THEORY | Bob Burnett (THE Bitcoin Podcast)

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}BITCOIN MINING CENTRALIZATION & NATION-STATE GAME THEORY | Bob Burnett (THE Bitcoin Podcast)