Crypto & The Carbon Emissions Debate

With exploding interest and adoption of Crypto, once again the debate over "Crypto's Carbon Footprint" has returned, with critics lobbing wild assertions about the energy footprint of Proof-of-Work network security. We will break down the facts, the research, and a view into not just how crypto is driving renewable energy innovation, but also examine the carbon footprint of security infrastructure backing the US Dollar.

[00:00:09] This is going to be a fun topic and obviously read your piece from like two days ago or very recent, so obviously super topical, you know, across the board. [00:00:25][16.4]

[00:00:28] I just want to give it a sec here while people kind of filter in as well. [00:00:32][4.2]

[00:00:34] But maybe just a quick question for you. How has the reaction been to your most recent piece? [00:00:40][5.4]

[00:00:41] Well, yeah, it was actually really just designed to be a rebuttal to Smith's blog about people on missions. [00:00:51][10.1]

[00:00:52] And it blew up more than I expected. I think people like that I pulled in know real data on China's grid, which I haven't seen before. [00:01:04][12.2]

[00:01:04] So I I was trawling through the archives of the Chinese grid data, which was on a province by province basis, which was pretty hard to find. [00:01:14][9.8]

[00:01:15] Yeah, people people like to for the most part, of course, you know, you get the mixed reactions, but anything anything you got, you know, criticism and so on. [00:01:24][8.8]

[00:01:25] Of course. Hamilton, welcome. [00:01:27][1.2]

[00:01:31] And it's good to be here. It's my favorite and least favorite discussion as I look ahead to the energy industry. Like to next point, when he talks about in his article and something I shared in an associated real vision last Monday, like I don't think people realize the issue we're talking about here is the use of energy. We use energy for a lot of different things, a lot of different things. The issue isn't the fact that we use energy. The issue is sources of energy. And Bitcoin is one arguably very small industry does not dictate how energy is produced. Policy dictates how energy is produced. And I think today is actually really timely day to be having this conversation because the Biden administration just rolled out their. Absolutely insane infrastructure spending plan, if we want to talk about moving towards decarbonization and a less carbon intensive energy grid, we need to talk about investing in renewables. And the fact of the matter is, is that in the last year alone in 2020, China added more renewable generation to their grid than all other countries in the world combined. That's incredible. And so, yeah, and the fact of the matter is, 20 percent of China's energy grid comes from renewables. [00:03:00][89.1]

[00:03:04] And more renewable production in the United States, the US is at about nine percent renewables on the energy grid, China's at about 20 percent as of 2020. The other thing is China has invested very heavily in the manufacturing of solar panels, of solar inverters, battery technology. And now I think there's this massive, massive, really interesting political battle underway where Western nations want to decarbonize and add renewables to their grid, have to procure parts and equipment from China. And so the issue is extremely nuanced and extremely complex. But what I think is absolutely fucking preposterous and I'm going to go ahead and do this in the area because I can on this forum is this in the United States of America, the CAFE standards. Which dictate the fuel efficiency of cars, cars are one of the largest sources of fuel carbon emissions in the United States of America. The CAFE standards have not really changed since 1997. [00:04:02][57.7]

[00:04:04] Nineteen ninety seven. [00:04:06][1.3]

[00:04:08] And yet we have a group of people in Washington, D.C. and elsewhere who all of a sudden have a tremendous issue with the fact that they can't use this energy. Like I feel like we're living in Klown world. There's so many places where we can begin to decarbonize. And I think inherently, like most Bitcoin mining trends towards renewable energy and other very low cost sources of energy, that we're talking about the wrong thing. And that's really the issue I have. If we want to talk about decarbonization, we have to talk about sources of energy, which requires better policy. So I'll just pause there. But I'd like to have. [00:04:46][38.2]

[00:04:46] Yeah, I mean, it's a great it's a great you know, it's a great framing. And I want to I want to explore that because there's there's the the sort of what are the macro policy issues and sort of what's the relative focus that people should have in different dimensions of energy usage and so on. But maybe I want to frame a couple of things, you know, here at the at the at the top two, which is obviously, you know, we have this phenomenon of incredible growth in crypto and crypto adoption. We have this phenomenon of obviously very significant growth in the monetized value of bitcoins outstanding. And and obviously, it's an enormous industry and the industry of operators that provide that, you know, the infrastructure to secure that network is also growing enormously. And so there's a lot of attention on this. And I think people are looking for, you know, various forms of policy perspectives on this. And and obviously, I bringing you guys on here because I think you both bring, I think, very detailed and nuanced perspectives on the reality here. And I think it's not something that most people just sort of take for granted. Popular press, they take for granted what someone you know, the kind of throwaway comments and foud and other things. And as we know, it's significantly more, you know, more detailed. We're going to get into some of those details because there's amazing work that's being done on this thing for both of you. I want to share a little tidbit, which is a little known fact about Circle, which is when when Sean and I were starting Circle in early 2013, we looked at a bunch of different businesses and we had a theory that, you know, you might actually want to run mining operations if you're going to run a payment infrastructure around this. And so we actually we we actually almost started operating a kind of industrial scale mining infrastructure. And I think the really noteworthy thing is, you know, back then, a lot of the people who are thinking about this, we're thinking about energy efficiency. And so like a bunch of folks, we were speaking out data centers and, you know, you know, near the North Pole, we were looking at renewable energy sources, geothermal sources. We were looking at, you know, cooling solutions that would allow this to be essentially as energy efficient as possible. Because the conclusion that I had reached very early on was that as Bitcoin achieved mass market scale and as it became a, you know, a a really significant kind of reserve currency status asset, that naturally the the process of mining, it would kind of tend towards the most energy efficient form that it could find in the world. And there was almost like this frontier of like thermodynamics that would converge with the securing of this asset. And and it's interesting to see what has transpired since we ended up punting on that, we didn't we didn't do it. It's never too late. It's never, you know, clearly I mean, look, I mean, people are financing these things with facts. I mean, why not so clearly? Clearly, it's still a very, very large commercial opportunity for a lot of people. [00:08:24][218.1]

[00:08:24] But, you know, my point here is, is just that I always felt that the long term destiny of Bitcoin and of of similar proof of work infrastructures was towards would actually lead to probably many of the most important breakthroughs in in energy efficiency in the world, and that there was a long term ultimate industrial convergence between the growth of this network and energy efficiency. And most people, when I would say this would looked to me like you're out of your mind, what are you talking about? [00:08:59][34.8]

[00:09:00] You know, there's all these coal fired plants in China and this is you're out of your mind. [00:09:04][3.9]

[00:09:04] And really, that thud started then and now as the queen takes on a greater role and as proof of work networks themselves just continue to to scale. There's there's even more being thrown at this. And these are really immediate, though. [00:09:21][17.1]

[00:09:22] Can we make just a quick distinction now? You keep referring to proof of work. Is the implication here that other forms of consensus don't have the same issues? No, not at all. [00:09:34][11.9]

[00:09:34] I mean, I think we should explore that tonight because it's clearly Exxxotica. [00:09:38][3.3]

[00:09:39] Yeah. And I think, again, some of what you articulated, if I could just draw a parallel, which I think is an interesting one, is we got into other types of consensus and just computing connectivity more broadly. And if we look at how the Internet space and data center space started. Right. Like people used to run their own Bernado, then company companies like FX, which is now 70 billion dollar company, started enterprises with large scale hosting services and helping them find colocation services and host equipment and build enterprise grade redundant infrastructure to host and run and manage their footprint in a more efficient and streamlined way. Then that industry started to grow and you saw the emergence know data center giants and huge, huge market for cloud computing and cloud based services. Now you see many large corporates not only consuming tremendous amounts of compute and it being one of their largest line item is actually going to be one of the largest line items for the defense industry as well, which I think is really interesting. Just today was announced the U.S. military can carry twenty two billion dollars in VR equipment from Microsoft. Last year, they awarded over 18 billion dollars in cloud computing contracts to two large Arcus, but also corporate started buying carbon offsets to offset the footprint of their current usage rate. So I don't think the trend of us using compute services goes away. [00:11:06][86.7]

[00:11:07] Not at all. No, clearly. Clearly, it's enormous. And I think you touched on something that I think Nick has written about as well, and is one of the things that I sort of was including in the kind of concept and description here that I want to talk about, too, which is when we think about an economic system and we think about a currency and what secures the value of that currency, there's a lot right there. Right. [00:11:32][24.5]

[00:11:32] We're not just talking about like where the pipes cost. Right. And, you know, I think I'm going fundamentally understands that, you know, at the end of World War Two, there was a geopolitical situation and that geopolitical situation had to do with control over energy reserves. And there was a kind of carving up of energy reserves and the US was the winner and the US was able to dictate a lot of the economic system that was the dollar based economic system. [00:12:01][28.9]

[00:12:02] And and ultimately. [00:12:03][1.1]

[00:12:06] And the fundamental global economic liquidity was based on dollar priced oil and then the securing of the oil reserves in the Middle East, and I mean, this is obviously the sort of very well understood. [00:12:19][13.1]

[00:12:20] But you're underpinning it. Carrie. [00:12:27][6.6]

[00:12:28] Infrastructure that has been there supporting it, so we should be thinking about what is the energy cost of that. And Nick, I know you've written about this. I'd love to hear you share at a high level. That's kind of it's a little bit of geopolitical macro thesis on this, but it's actually real and very important. [00:12:44][15.9]

[00:12:46] When we think about the energy footprint of a currency or an economic system, it's deeper than just what was in the pipes that people are using. [00:12:54][8.9]

[00:12:55] Totally. Yeah. And. [00:12:56][1.4]

[00:12:59] Think about the petrodollar system, but it's. It's just a fact, really. [00:13:05][5.6]

[00:13:06] There's no conspiracy. [00:13:06][0.3]

[00:13:07] Obviously, the world order, as it sounds conspiratorial to say, the US provides military support to the Saudis and in exchange, you know, against Saudi enemies, including the Houthis. [00:13:21][13.9]

[00:13:22] Those are Raytheon missiles. And in exchange, you know, the Saudis agree to sell oil exclusively for dollars and recycle those profits into US Treasuries and thus backstopping the value of the dollar and providing a buyer for our debt. That sounds like a conspiracy, but it's true. And, you know, when when we had the Nixon shock and we needed to find a way to stabilize the value of the dollar after the 70s, that was the system with total was. That tried to sell their commodities for something that's nine dollars those. Individuals, their regimes were toppled, Gadhafi and Saddam, both of them tried to sell oil for something other than dollars and we invaded them. So the military order here is an inextricable part of the dollar system. And, of course, the US military is the single largest institutional consumer of energy on the planet. So, you know, it's a little more diffuse. It's kind of hard to say. The dollar is literally backed by oil. But the global dollar infrastructure is certainly part of the reason that the US accounts for about 50 percent of global military spending. It's because we maintain that dollar system through soft and hard power and it takes a lot of resources to. [00:14:55][92.9]

[00:14:55] I mean, it is the trade settlement currency for a lot of different reasons. But a very significant one of those is the sort of nexus of energy, commodity pricing and the role that that sort of kind of privilege that that provides to the United States and obviously a broader agenda that that aligns with with enforcing that. [00:15:23][28.0]

[00:15:23] So, I mean, I think it's not it shouldn't be lost on anyone. This isn't this is just the fact of how our global political and economic system has worked largely since World War Two and very much since the 70s. And so I don't want to go too long on this topic because I think it is one component of the debate. But if we're doing an apples to apples, when we think about what actually backs a currency system, what actually secures it, what actually allows it to hold its value and what is the energy footprint of that we have to do that comparison is not reasonable not to, if I might me, if we just extend that analogy or that, you know, narrative a bit further. [00:16:07][43.7]

[00:16:08] My thesis, I left the energy in 2013 and in 2015, I joined the Bitcoin industry full time, which was one of my best decisions, actually, probably the single best decision I've made in my life. I think one of the really interesting trends that is now unfolding on the macro stage that most people don't appreciate is oil and petrochemicals are no longer going to define the shape of the world to come. What will define the shape of the world to come is semiconductors, computers and a new form of energy in the form of renewables as renewables. In terms of their share of the energy grid and what I think is really important to underscore here and what you and Nick have both touched on with this idea of power, money, energy and the military industrial complex having tightly run together is in a world where petrochemicals no longer dominate and the war machine and physical violence no longer dominates. The current monetary system becomes less relevant, i.e., the US dollar becomes less relevant. So I think there is a larger narrative here. If we look at where semiconductor fab happens today, it's not the United States or Western Europe. If we look at where renewable energy generation happens and mass and where that hardware is produced and where that intellectual property is largely being utilized, it's not in the US and not in Western Europe. So I think from an investment perspective, you know, we see now initiatives to invest in this type of infrastructure in the United States. [00:17:50][101.6]

[00:17:51] And I'm sure it and we've got an infrastructure bill that's aimed at parts of this, obviously. My question is, should the infrastructure bill include a strategic imperative for North America to be building the best possible crypto mining infrastructure in the world? [00:18:09][18.2]

[00:18:09] That's exactly that's exactly what I want to lobby for Jeremy Allaire. I think any infrastructure spending plan should include everyone, incentives for more renewables, capacity build and incentives for North American Bitcoin mining to help bring those facilities online by making it economic in the near to mid-term for those facilities to to be economically viable. It takes a long time for foreign consumptive demand to get built around locations where where this energy supply is. So I actually think it's one of the better investments we could be making. Now, will it happen? I don't know. But again, I think there are a number of industry efforts underway that I'm excited to be working on to try to sort of highlight this opportunity and to try to ensure that any bill that incorporates Bitcoin as a potential industry that can help accelerate the buildout of energy infrastructure as well as more resilient. [00:19:11][61.7]

[00:19:16] Different states and cities in different parts of the nine states where there is, in effect, a form of industrial policy that's being executed in a localized way to support the development of energy efficient infrastructure in the mining space. And so we have pockets of that. But, you know, it has not risen to the the the national level or the national security level. [00:19:39][23.2]

[00:19:39] But but maybe we're on the cusp of that. [00:19:41][1.6]

[00:19:43] I think the best people to make it happen are probably in the clubhouse room, and so, you know, I think this industry you know, Jeremy, I've had the pleasure of working with you since since twenty fifteen. You know, I think the industry has always been very forward thinking has organized. [00:20:03][20.1]

[00:20:05] It's a new existential threat than just narrative threats. [00:20:13][8.7]

[00:20:14] So I think the first step will be the industry's self organizing. And I think right now there are a number of really cool efforts underway to at least create a broad consensus among participants in the Bitcoin ecosystem to drive towards a carbon neutral sort of approaches by 20 30 and to fully mitigate the carbon footprint of the industry in line with the Paris climate accord timeline, which is 20 30. And I think look, just like in the data center space, large corporates are purchasing carbon credits to offset their compute consumption. There's no reason that large corporates have endowments, were concerned about mandates, can't also purchase carbon credits to offset any potential concerns they have about Blockchains carbon footprint like this is no different. So I'm just I find it very clear that the plan somehow gets a different moral treatment, which I think again goes back to. There's a difference between an argument about usage of energy versus sources of energy. And the fact of the matter is there is no electricity police because energy, economics and market pricing dictates how energy is consumed. [00:21:18][64.1]

[00:21:20] But I want to turn to your piece that just came out, which was was a rebuttal, but it included some, I think, incredible data. I you're making a lot of points here that maybe just start. [00:21:34][14.0]

[00:21:36] Level four about this position of. [00:21:40][4.2]

[00:21:42] Unused energy, the alignment of of of mining infrastructure with unused energy and actually what we understand from the actual data about that in this industry today and what we can infer from that, they will just start there. [00:21:58][15.9]

[00:21:59] Yeah, one thing I really tried to convey in that piece, and it's called it's a pun, basically the title Noah Injectivity on Bitcoin Mining. It's riffing on no opinion, which is the title of this blog. So you want to look that up? That's on medium. [00:22:16][17.1]

[00:22:16] So basically, the point I was really trying to make is that it's not a coincidence that a lot of Bitcoin is mined in China and B, a lot of Bitcoin is mined in four Chinese provinces. [00:22:29][12.5]

[00:22:29] Specifically, it was A. [00:22:32][2.7]

[00:22:36] Is Bitcoin in that regard sort of map and said, OK, we're going to mine in situ on union thinking and Inner Mongolia, there's a very specific reason they chose to miner. [00:22:47][11.4]

[00:22:47] And we know from from the data that that's basically where the overwhelming majority of Chinese bitcoins are. Mine is those four provinces. And the reason is and I went through and looked to the province level grid data. The reason is there is a massive overabundance of energy in each of those four provinces and those four provinces specifically and not other Chinese provinces. And if you look at some of the maps they put together, it'll be extremely apparent to you. And the reason there's an overabundance is because China overbuilt their energy infrastructure. They built too much wind and solar. And in the southwest parts of China, there's tons of rivers and they built enormous amounts of dams. And all those four provinces are really distant from the big population centers, which are mostly on the east coast of China, the thousands of miles away from those population centers. [00:23:45][57.1]

[00:23:45] And as we all know, electricity doesn't travel very well. [00:23:47][1.8]

[00:23:48] So Bitcoin emerged, you know, twenty, sixteen, twenty, seventeen and really emerged. Bitcoin mining became this big industry at a time. Twenty sixteen was really the peak when the Chinese energy grid was the most unbalanced ever been because of China's energy investment, which was way over the top, basically. And they had this enormous problem with curtailment. And this might be too much detail, but I really want to drive the point home that's really important. Really important. So you got Bitcoin mining in two kinds of provinces with twenty nine or one and basically almost exclusively hydropower. [00:24:29][41.1]

[00:24:33] They just water out of the dams because the dams can't accommodate all the water and there's just not enough power draw from the grid is really not that many big cities in Sichuan. Or, you know, they can export the energy to a certain degree, but again, doesn't. In Inner Mongolia, lots of coal undeniably, but also 30 to 35 percent wind and solar. People don't know that. [00:24:57][24.2]

[00:24:59] So and they also curtail a huge amount of energy, in fact, you know, China in twenty sixteen curtailed something like 100 terawatt hours of wind and solar alone with those with those provinces being the main ones. And so that's a big part of the reason why you had so much mining happening in those four provinces and China specifically, as opposed to anywhere else on Earth. [00:25:28][29.0]

[00:25:28] That's also part of the reason you had other commodities that have high amounts of energy embodiment in them, like aluminum, aluminum smelting. A lot of it happens in Sichuan, in Yunnan. So Bitcoin is not the only commodity that's produced. That settles where the production settles in these places with abundant energy. There's others like Bitcoin and Bitcoin is a pure form of aluminum because it has an infinite energy to weight ratio. So this is kind of why Bitcoin ended up in this position. And this is sort of indicative of what I expect to happen. Now, China is actually fixing their grant. People don't know this, but they're building in long distance transmission lines. They're trying to make the grid more balanced to match the supply to the demand. They're making it easier to export the energy from these provinces. At the same time, the local authorities also banned Bitcoin mining Inner Mongolia, which is great news because that was a fairly coal coal driven province. So the epic of Chinese bitcoin mining is actually ended. Believe it or not, it's not going to end overnight. But if you trace where these things are being purchased, a lot of American buyers is a huge amount of firms in the US now that are engaged in mining. You're seeing Inner Mongolia closed down the opportunity. You're seeing the great become more balanced. And as it does, this going can be less curtailment and hence less opportunity. And this arbitrage is going to go away. So Bitcoin cash power will just get routed to other locations around the globe where there aren't these local arbitragers and where there's this abundant energy waiting to be monetized. And so it'll flow to the next location. And I believe that a big share of that is the USA. And that was another thing I'd try to quantify in the article. But there's a lot more work to be done on that. So I'll take a breather and pause there. [00:27:32][123.6]

[00:27:33] I mean, it's fascinating. And we're seeing, you know, you know, various provinces in Canada, various states and locales in states where there is abundant, you know, abundant energy sources, natural energy sources that, you know, essentially, you know, that there is this fundamental convergence to energy efficiency. Right. The more energy efficient you are, the more successful you will be securing, you know, securing Bitcoin and this network. And again, that's that's that's sort of played out over the last five years all over the world. Right. There's these incredible stories of of how that's that's taking place. [00:28:18][45.3]

[00:28:21] I mean, I'm interested in other anecdotes on on that sort of topic. Where are those kind of capital investments going? [00:28:33][11.8]

[00:28:34] What are that energy storage, energy cooling, other technologies that are getting applied here to make this as energy efficient as possible? [00:28:44][10.4]

[00:28:46] Well, not to me can happen at any point, one I wanted to point to, and this is a little controversial, is also something I covered in the piece, which was this what I call a pipe to crypto, basically taking otherwise vented or flared natural gas, which is a byproduct of oil extraction and capturing that and putting it into a generator and using it to mine. [00:29:09][23.0]

[00:29:11] That, in my view, is not positive from a carbon perspective. As long as you assume that that oil extraction is going to happen, if the oil extraction is outlawed or stops, then, you know, you're not going to have that excess resource of natural gas. That's a really interesting way. I've seen a ton of startups financed to pursue this opportunity, and that's there's a lot of supply in Texas for it. [00:29:41][30.1]

[00:29:41] But the let's be clear, the shale gas industry is an economic anomaly, and that won't persist forever because the decline curve on the shale well is roughly two years needs to have and we have massive US energy companies that are heavily subsidized, sitting on massive CapEx assets, i.e. 20 to 30 year mineral rights leases that they secured in the early 20 teams when gas was trading at fourteen dollars million cubic feet. [00:30:11][29.3]

[00:30:11] So they're sitting on an economically unviable asset and attempting to minimize the damage of owning an economically unproductive asset. I think the more interesting opportunity, in my view and I got my own opinion piece about two months ago, I had tweeted Bitcoin is a money battery. And in fact, I think Bitcoin is one of the most sophisticated batteries the world has ever seen. And I got a lovely Lévesque from Noah and his his newsletter, you know, saying, oh, well, how do you take energy out of Bitcoin, which is quite funny to me, because money I eat in the form of gold. Really. Right. [00:30:59][47.3]

[00:30:59] That's the shiny rock has been the primary means that humanity has had over the last four or five millennia to transmute energy into value, which could be moved across vast distances in terms of both space and time. [00:31:15][16.3]

[00:31:17] But what I think is really interesting, Nick, what I think you're alluding to is we have to dispel the myth that energy is is finite. And when I say that I'm not talking about the laws of thermodynamics, no one is disagreeing with those. I certainly am not. But there is a tremendous, tremendous amount of energy that is accessible, available, but not utilized and cannot be utilized. And so I think the interesting question is, you know, battery technology today is not capable of harnessing and moving that energy to consumption points where it can be utilized. [00:31:57][40.6]

[00:31:59] But other forms of energy, i.e. monitoring energy, monetary value, can allow us to move that energy from places where it's produced to places where it can be consumed and utilized in an economically productive way. [00:32:13][14.7]

[00:32:14] So what I'd like to see more of is a narrative around where it can actually be used as a bitcoin mining can be used as a means to balance the energy grid. A great example I'll give, Jeremy, is recently when we had the ice storms in Texas, there was a large mining facility in Texas that had secured a large offtake agreement with a local utility. [00:32:38][23.6]

[00:32:39] And during that crisis, they were actually able to switch off their miners and direct energy back to the grid for a period of several days right when energy was needed. So in this capacity, because Bitcoin miners can be switched on and off, they become very good tools at balancing energy grids, particularly because they slow demand and peak demand are often quite far apart. We build our energy grid around peak demand. Yeah, most times we can only monetize the baseload demands. And so I think Bitcoin miners, you can switch them off in an instant, a combined cycle gas plant or coal fired plant and takes you two to three days to power that up or down. You're not necessarily able to cycle it on or off. I think Bitcoin mining can be a great addition to the energy grid to help balance some of these peaks and troughs in demand. So that's a great example. The second example that goes a bit beyond Bitcoin's energy use, it goes a bit more into thermodynamics of Bitcoin, as I just invested in a really cool company. That is actually utilizing the heat generated by Bitcoin mining to fuel industrial processes and centralized heating grids. Now in many Nordic countries, the energy grid has this thing called district energy, which is centralized heating. So, for example, in Vancouver and places in Norway and other Nordic countries, there's a tremendous amount of electricity that's burned by these small-scale districts, energy plants that are one to two megawatts that generate centralized heat for a city or for an industrial process or for office buildings. And so you're basically just burning electricity. And security is heat is the output. And what this company, McBreen, has done is they've put Bitcoin miners inside of this immersion cooled keg, slightly submerged in liquid keg. And what they're doing is thermodynamic exchange. It has about 97 percent efficiency where they're actually able to capture the heat that's generated by Bitcoin mining and pipe it into the district energy grid, meaning that they're able to actually effectively monetize bitcoins, heat generating capacity. And in fact, in Norway, there's now a bill that's being contemplated for data centers, which would require data centers to harvest the heat that is produced in these data centers and to pipe it back into the district energy grid and into the centralized heating grid. So I think there are a lot of interesting ways that we can think about utilizing Bitcoin not just in isolation, but in conjunction with other localized. So energy needs that just happen to also exist in places where there is a tremendous drive towards zero carbon footprint by year 20 30. So those are just two examples of I think those are fascinating. [00:35:41][182.1]

[00:35:42] In fact, there was last week I saw an announcement of a startup should have brought the name for for for the podcast here. But it's a startup that basically is is building consumer space heaters that that use the heat generated from mining for space, having basically and I think just from Hodler Ranch has the hot tub powered by Bitcoin like forty fifty six guys. That's awesome. I actually want I want to talk about thermodynamics here for a second because, you know, recently, obviously Bill Gates has been very emphatically saying that we need to embrace nuclear power at scale as a critical component of the future of energy in the world. And I think there are a lot of scientists who believe that nuclear power actually is critical alongside our investments in renewable energy sources. You know, from an energy efficiency perspective, nuclear power has a number of ramifications. But at what point are we seeing nuclear powered Bitcoin mining? [00:37:02][80.6]

[00:37:06] Well, I'm a huge nuclear power ball. I mean, I think, as Milton said at the beginning of the episode, this the solution ultimately lies in policy choices. And unfortunately, nuclear has been deemphasized from a policy perspective, not just in the US, but in places like Germany to where they decommissioned a bunch of high end nuclear plants after Fukushima, which really made very little sense as kind of a populist move. And I think it was an absolute tragedy because their grid quality declined subsequently and the carbon intensity of their grid increased, they had to rely on more fossil fuels. The interesting thing about nuclear is that it's incredibly predictable and static, whereas if you look at curtailed sources of energy like hydro or renewables, wind and solar are much less predictable. [00:38:06][60.0]

[00:38:07] And so they have just waxing and waning. And that means that, you know, maybe Bitcoin could be there to mop up the excess. And actors, that energy sponge, they wouldn't be the case with nuclear. But maturity, you know, perhaps the just be far more nuclear. And then we would have mining on grid. Right. So it does have to be part of the energy strategy. I don't see our grid functioning solely based on renewables. That doesn't seem right. [00:38:37][30.2]

[00:38:38] But about viability, I just augment that as well. I think there are a number of interesting startups that are working in this space. I've done a few clubhouses as well as a result real vision event with one of them called Okelo, which is building small scale nuclear power generators that can be used in microgrid applications. I think one of the more interesting trends that I'd like to see that I actually think Bitcoin lends itself well to is smaller scale grids helping make up more resilient energy infrastructure that is less dependent on really large but also really fragile energy infrastructure like pipelines, large transmission systems, cetera. I think as far as energy systems and energy grids grow, growing complexity and in scale, it becomes more and more challenging to have centralized coordination. And we've seen this in a number of instances. Whenever a hurricane hits the Gulf Coast and shuts down, you know, Freeport, Louisiana, which is the primary hub for that gas, important exports in the US when it shuts down Henry Hub, which is the primary hub for nat gas in the US, that gas transport. Right. It has ripple effects throughout the US. So I think what's interesting about nuclear, solar in particular is as a renewable and other forms of small scale generation and being able to put those assets on the grid and monetize, putting them on the grid through clean mining potentially is it can help drive us towards you know, we joke a bit quiet about this idea of the Citadel. But I think as a high level concept, this idea of smaller units of organization are actually highly relevant, especially in our global energy infrastructure. And so what I think is really interesting, right, is Bitcoin starts to intersect with a number of different sectors. My belief is Bitcoin in the energy sector should be best friends. I'm trying to make lots of friendships in the nuclear energy space because I actually think nuclear energy is Nick alluded to is the much maligned and very misunderstood industry, much like ours. And then ultimately, I think from a geopolitical perspective and a military industrial perspective and a national security perspective, we actually have a great incentive to move towards localized, less centralized, more resilient energy infrastructure that isn't so dependent and so sort of vulnerable to these potential threats, both natural threats as well as threats from state and non-state actors. So I actually think there's a larger narrative here around decentralization and energy grid that's really fascinating, especially when you start to get into small scale nuclear generation capacity. [00:41:49][191.0]

[00:41:51] That's that's awesome. I mean, I've I've been tracking some of the same things and I think it is not often discussed and certainly needs to be, which maybe, you know, as you talk about policy implications, we started off a little bit talking about. This, you know, from an infrastructure perspective, from an alignment of these different industries perspective, from a strategic competitor perspective, you know, what does your you're the the US Senate. You're the House of Representatives. You're the by the administration. What does a an infrastructure policy that actually embrace embraces this at a at a national economic infrastructure perspective, from a national green energy perspective, from a national security perspective, what are the policies look like? What should we be articulating as an industry in Washington right now? [00:42:47][56.7]

[00:42:50] I can take that one first and then pass it to Nick. It's interesting, I've been speaking to a number of congressional staffers and as you know, staffers are really the ones that are educating our representatives and congressmen and women on different issues and topics. I think right now the most important thing we need to do is help dispel the myth that Bitcoin is destroying the environment in this particular administration is very sensitive to and has made several very public statements about its intent to focus on sustainability issues and ESG issues from a variety of perspectives, but especially in the corporate sector. So I think that no one is making it clear that our industry is not the enemy, but actually we can be a part of the solution. And then I think number two is ensuring that in any infrastructure spending bill that emerges now, we can start to create federal mandates to provide tax incentives to companies that are engaging in Bitcoin mining and encourage them to establish themselves in the United States. I think it's really important for the security of the Bitcoin network. I think it's really important as more and more American corporations, American institutions, American insurance companies add Bitcoin to their balance. Our personal sort of investment portfolios, so I think we really need to help sort of show a path to Bitcoin mining and Bitcoin infrastructure being a core part of maintaining the security of the US financial system. Right. And Bitcoin is becoming increasingly financial, as I think it would be a mistake to neglect that fact. But I think step one right now is to really defang some of the loudest critics, because I do think there is consistent misperception out there. And there are a lot of people who are intent on fear mongering or somehow pushing this narrative that Bitcoin needs to be banned or something needs to be done around bitcoins, energy usage. So step one is really defending it. And then step two is being in those conversations and showing where and how infrastructure investments can be made. [00:45:31][160.4]

[00:45:31] I mean, it seems like I agree with all that. And it seems it seems like a big piece of this is is is even you go up a level from, you know, talking about the alignment of interests on long term energy efficiency and competitiveness of economic infrastructure. You know, I think we're really at a moment right now and this isn't just in the United States. [00:45:56][24.1]

[00:45:56] This is with national governments all around the world who are confronting the reality of a global new form of global digital commodity money. And this is here. [00:46:08][12.1]

[00:46:08] It's here to stay. It is scaling. It is monetizing will be many trillions of dollars a month as we go forward. And so I think there is a higher order issue. [00:46:18][9.6]

[00:46:19] And I don't expect this to come from Jerome Powell or Janet Yellen. But there is a higher level issue which is having the leaders not just in the United States and other governments understand that. On sovereign commodity, money is here and it's not going away and it is here and it's not going away. [00:46:36][17.2]

[00:46:37] What role do individual governments want to have interacting with that? [00:46:43][6.4]

[00:46:44] There's they put your head in the sand and just wish you guys as a wish. It goes away. There's your you know, let's just we're going to try and ban the Internet, basically, and hopefully it'll go away. [00:46:54][10.2]

[00:46:55] But I mean, really, we're talking about a much broader. [00:46:58][2.8]

[00:46:59] Level of understanding, comprehension and acceptance, and if you can get to that level of understanding and acceptance, then I think the discussion shifts very quickly to, oh, what are we going to do to be competitive here and what are we going to do to be part of securing the infrastructure? What are we going to do to align infrastructure incentives for this new significant form of global economic activity? And so I'd be interested in your reactions to to that. [00:47:28][28.8]

[00:47:31] Well, I'll just that I mean, not in contact with with staffers on the Hill as at all, frankly. But what I would emphasize to them is that Bitcoin is a utility like any other. It's just dematerialized in terms of what it produces. [00:47:48][17.2]

[00:47:49] It's not physical, but that doesn't mean it's not real and it doesn't have genuine utility to millions of people and firms globally. And there's plenty of industries out there that consume a huge amount of energy. Like the airline industry. Airlines buy carbon offsets. And, you know, that's considered normal and that's an acceptable tradeoff in society. You produce something useful and you consume energy to prove to reduce that thing. And the other thing I would emphasize is that as China bans mining and my guess is they'll keep banning mining, you know, because they probably take exception to the grid power being used to mine Bitcoin, given that Bitcoin is probably ultimately disruptive to the Chinese state, uses the opportunity to take of the side of that. [00:48:46][57.8]

[00:48:47] And become this is underwriter or steward of this technology in the suite of technologies, and as it just so happens, a lot of the world's most influential crypto firms and developers and users are all of based. So the U.S. has been handed this opportunity on a golden platter. [00:49:09][21.1]

[00:49:11] I don't have the numbers, of course, but I think if you looked at crypto wealth, a huge share of it would be here in the US and a lot of the custodians are here in the US, even here in Boston, frankly. So there's such an enormous opportunity to be a neutral underwriter of this technology. And I think the US doesn't have that much to fear from the free flow of capital, unlike other countries that have a managed exchange rate and that have capital controls. [00:49:38][27.0]

[00:49:39] So that's something that always puzzled me, was the resistance to this asset. If the US is in a strong position, what do they have to fear from an asset that's one tenth the size gold ultimately? [00:49:50][10.7]

[00:49:52] Right. All right. [00:49:54][1.6]

[00:49:54] We're we're going to wrap in about 10 minutes, but I want to see if there are some questions from folks. I saw someone raise your hand. I'm going to add you up here, Mustafa. And and then anyone else who wants to jump in with a question, please feel free to come on line. [00:50:07][13.3]

[00:50:11] All right, adding J.P.. [00:50:14][2.3]

[00:50:19] And how's it going? Appreciate the talk, guys, it's been agreed on the Bitcoin mining front. We want to understand what your thoughts are and how we can help change the industry perspective that why Bitcoin mining is bad for the environment, specifically here in the U.S. maybe how we can get capital partners behind it for advertising and PR campaigns to change that message. [00:50:36][17.3]

[00:50:39] Well, frankly, I think the facts are in our favor, so we need to do a better job of exposing the facts. There is a lot that mitigates the mining story. Certainly Bitcoin is playing with some gold and some fossil fuels, but it's just a lot of good money. And I think the progressive change in mining, if you look at where power is migrating over the next twenty four months, that is incredibly positive and it's just a matter of time until those developments become clear. But the number one thing I'm trying to do right now is basically expose the facts surrounding mining and see about, you know, publishing more formal work. So that's just from my perspective, is engaging in education funding. [00:51:32][52.3]

[00:51:32] More fundamental research here is obviously is is important for society. It's important for this industry as well. Meltem, sorry. [00:51:38][5.9]

[00:51:38] You know, I think research is critical. So generating the data and the empirical evidence we've been doing that Aucoin shares since twenty seventeen. Christine Nixon on our research team, you know, was one of the first to actually put together formal research demonstrating that the majority of Bitcoin mining was happening with renewable energy. I think that's a big piece of it. I think the second piece of that that's actually very important is what's really interesting about Bitcoin that's so different from any other industry. And that, frankly, makes Bitcoin a target is Bitcoin is very transparent about its energy usage in a manner that no other industry is, which inevitably makes it a target for attack. So I do think it's important for people in that industry to focus on, you know, the facts. The fact is, yes, the Bitcoin network does consume the energy. I think what we have to steer away from again is this is not a conversation about the morality of energy usage. And what I am dismayed often to see is so many of the conversations that are happening online and in various forums are about the morality of energy usage, which has never been the role of government, and that's the role of energy markets and private industry. So I think it's very important to not get mired in arguments about the morality of energy, but to really focus on sources of energy and how better policy can shift sources of energy. So, again, I think I would just encourage, you know, don't wrestle with a pig like you're going to get covered in mud. And the pig likes that. I see a lot of people engaging in these arguments with people who, frankly, don't want to have their minds changed. I don't think that's a worthy exercise. I think, again, it needs to be really focused on facts. The fact is that, yes, the Bitcoin network does consume energy. Yes, most of that energy does come from renewables. And like, yes, we can build a future where bitcoin and sustainability and ESG mandates are highly compatible. But again, I would encourage people to just stay away from the morality arguments because they're impossible to win. [00:54:01][142.9]

[00:54:02] Yeah, that's a great, great perspective, Meltem. Tom, thanks for joining with up to hear your question. [00:54:09][6.4]

[00:54:10] Just ask you this question is more geared towards Meltem in conversations with Stouffer's. Do you see them, like sort of learning new information and gaining some insight about Bitcoin? Like is there is a conversation progressing because I fully agree with you. I think history is really important for this administration. And right now I'm getting a little worried. But, you know, a lot of the myths are going to keep increasing. And even though we're starting to see investors not buy into Bitcoin because they're worried about the history. So I really do think that this is one of the biggest hurdles that right now our industry is facing. [00:54:44][34.4]

[00:54:46] I start quickly. I will say my engagement with most staffers and frankly, most of the three letter agency is in the US. They are intellectually curious. They're engaging, they're trying to understand. But at the same time, you know, there are a large number of other issues, including the global pandemic. Again, massive amounts of debt and money printing. I think just in terms of prioritization and sometimes challenging for us, this feels like a really high priority. But for them, it's one of many important topics in terms of the ESG narrative, I'm actually really, really optimistic that in the next few months we'll see some really cool new things coming to market that are going to help investors and alleviate those concerns again. We discussed several times there is already policy in place of corporates buying carbon offsets to offset their emissions and their footprints as well as consumers. You know, when you fly, you can buy a carbon offset to offset the emissions generated by your travel. So we're working on bringing that to an industry, obviously. Share more on that one when there's more to share. But there are a number of companies that are really actively working on making that option available. At the end of the day, I think it's an individual choice. If you as an investor have a mandate to have a carbon neutral investment policy and we as the industry can provide you with those options. But the burden is not on us. It's really on the investor who wants to make those decisions. And so I'm optimistic that, again, in the next few months, we'll see investment vehicles emerge that couple Bitcoin with the appropriate amount of carbon offsets to get investors, not just the comfort that they're complying with their extreme mandate, but also hard data around the cash rate that's that's utilized by the Bitcoin they own and an easy way to translate that into an offsetting carbon credit purchase. So more to come. But again, you know, this is a matter of economics and markets are fantastic at creating economic solutions to two problems. The energy market is a great example of that. Right. We literally created a multitrillion dollar market to help manage the volatility of energy supply and energy prices. And there's no reason that Bitcoin won't have similar financial instruments and derivatives and assets that will allow people to do the same. [00:57:25][158.7]

[00:57:26] Seems like that's coming sooner than later. And just a shameless plug. I mean, we're trying to convene conversations like this to bring together the thought leadership to help provide a great education on these topics. So this is going to be a podcast on Spotify and iTunes in a few hours or sometime very quickly. So The Money Movement podcast, let people know about this episode, share it with people, share with folks who are not in this industry, share with people who might have, you know, sort of the classic food thrown around on this. And maybe with that, I want to wrap up this has been a really great conversation. Nick and Meltem just deeply appreciate the breadth of knowledge that you guys bring on these subjects and many other subjects, obviously. But it's just a great pleasure to have you on and such an important discussion and looking forward to continuing the conversation as we go forward here. [00:58:26][60.3]

[00:58:28] Thanks, Jeremy. [00:58:29][0.4]

[00:58:30] Yeah, thanks, Jeremy, for hosting these discussions and Nick, I look forward to reading more of your research. [00:58:37][6.9]

[00:58:39] Yeah, this is a coda. I mean, you don't we don't play to the audience. We don't actually have to be that optimistic. There's a lot of changes, structural ones underway in the North American mining market, which are going to change this picture for the better. [00:58:54][15.8]

[00:58:55] And I can absolutely attest to that. Yeah, not all of it is public yet, but it's absolutely happening. So the picture is getting much rosier by the month here. [00:59:07][11.4]

[00:59:08] Yeah, it's super exciting. We'll be tweeting it out. Thank you, guys. And and have an awesome night. Thanks, everyone, for joining. [00:59:08][0.0]


Nic Carter
General Partner, Castle Island Ventures
Meltem Demirors
Chief Strategy Officer, CoinShares