The World of Crypto Currency with Fred Thiel | Not Your Father’s Data Center by Compass

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foreign [Music] to another edition of not your father's data center we are joined back by popular demand I might add the CEO of marathon digital Holdings Fred Theo Fred thank you so much for joining us again glad to be here Fred I think last time you and I spoke you were in London doing some world traveling stuff this time where you where are you connecting with us from so I am uh dialing in if you would from our new office in Irvine and California and uh we're still setting setting it up so it's not the fancy video Suite that

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uh we will have in the long run but it'll have to do for now well the fact that there's a video Suite coming just tells me we'll have to get you back for at least a third episode so we appreciate you joining us in transition thank you for that absolutely if you're willing why don't we just jump off with the the thing that is top of everybody's mind today with with the news cycle and the things that are happening in our world um you know certainly the oil price uh the human tragedy but I think that there's

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certainly a crypto angle or a crypto thought about um you know how could crypto influence a war impact a war impact the funds around a war impact people's assets during a war I think it's just a different way of thinking about currency and and um uh sanctions and those kinds of things in the context of a war so so as the CEO of marathon Holdings but more importantly somebody that's an expert in in the concept of digital currency how does digital currency in an age of a war um change things you know it's it's a really interesting

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use case for crypto so if you go back to World War II when uh people were being displaced and having to emigrate leave their countries uh based on the onslaught of the Nazis and um all the destruction that was going on uh they didn't have many opportunities for moving their money uh you know they couldn't obviously carry a lot of cash with them that was dangerous they couldn't carry gold with them and so what many people did is they bought diamonds and sewed the diamonds into the hems of their clothing

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as a way to essentially be able to carry their Bearer assets you know it's an asset you can carry with you across borders uh very risky obviously and you know you're going to pay a higher price to buy the diamonds because you're desperate and then when you sell them you're gonna sell them at a discount because that's what the way markets work with these things uh crypto provides a very unique thing in this world where sanctions have now become a essentially a weapon and weaponized so if you look at what the U.S and the

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Western countries have done uh to Russia uh with this uh war and their invasion of Ukraine essentially they've used sanctions as a weapon and essentially shut down the ability for Russian Banks to interact with the West for Russian businesses and Russian business people uh to a great extent to work with the west and so if you or somebody who had money in a bank and you wanted to transfer it uh to the West because you know the ruble has essentially been crushed by these sanctions um it's now very difficult to do that

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you know plus Russia won't necessarily let you move to foreign currency so your only options are what other Bearer asset can you take and uh you know Bitcoin happens to be a great example of one so there's been a lot of crypto buying going on and you know once you have crypto um essentially it's very portable because all you need to do is have your keys and you can access your crypto anywhere in the world where there's an internet connection so yes you do need to have an internet connection to do it

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um there are people trading Bitcoin by the way uh directly face to face um without uh internet connections they're literally doing it um uh you know live between each other uh exchanging keys and then as soon as they get uh access to the internet the transactions go live but um you know risky none nonetheless uh as to how you do it but it's certainly easier than carrying diamonds or gold with you so as a use case uh using Bitcoin has become very popular especially in the Ukraine where you know people are fleeing and so they're

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converting their uh local currency into uh Bitcoin and then uh safeguarding that uh outside of the country uh especially when you see these people having to flee leave everything behind um and you know not being able to carry a whole lot just being able to carry your keys is um enough to safeguard your assets if you're able to do that so that's been a great thing now people say well okay if um people who are refugees and people trying to avoid uh you know the depreciation of their assets by uh all these sanctions can

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move to crypto why can't crypto be used as a way to bust sanctions so think you know Russia used crypto as a way to essentially be paid for the oil exports that they're doing and then use that crypto to buy things well the crypto markets are not like the Fiat markets uh you know the total market cap of Bitcoin is uh sitting uh you know sub a trillion dollars and you look at the average amount of Bitcoin traded on a daily basis and it's typically about thirty thousand Bitcoin you know that's under two billion

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dollars at current prices of Bitcoin traded a day a nation-state like Russia can't operate uh sanction busting when they can only move you know a couple hundred million dollars a day it just doesn't work and so um plus you know obviously crypto is very transparent you can see where all these transaction goes and they go and today the tools that government officials have for tracking and identifying who holds the wallets uh you know are very sophisticated so I think as a tool for sanction Invasion bitcoin's not a good option

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um but what's interesting is you are seeing a lot of people where they may be uh fearful of the volatility of Bitcoin there's been a huge uptick in tether and uh usdc volumes lately so that's also clearly people are piling into those as ways to um have access to a cryptocurrency that's paid to the dollar and more stable potentially and uh easier to trade uh in different markets but it's definitely improving the use case I think we've also seen Bitcoin decoupling itself um from the markets a little bit the equity

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markets which has been good and uh you know it's generally a very exciting time yeah Fred as we think about um the decoupling comment that you made uh how are how has Bitcoin trading in regards to equities on a whole I think when you say decoupling you're talking about that they're not tracking uh quite the same so you expand on that a little bit yeah so where uh since the fall um late fall and you know the beginning of this year we saw Bitcoin moving very much uh kind of in lockstep to the NASDAQ into technology stocks as people

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move to risk off with you know fear of the FED raising interest rates and the impact that that would have uh on equities uh what you started to see at the beginning of the war was a decoupling where the correlation between Bitcoin and equities started separating and decreasing because obviously all of a sudden now there was a real use case for Bitcoin uh that was very actual and um very urgent and so you started seeing Bitcoin move uh in opposite direction of uh equities and even Bitcoin related stocks which track the price of Bitcoin

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obviously started moving separately so there were days where the Dow and the NASDAQ would go down yet Bitcoin would go up and you saw uh the NASDAQ traded Bitcoin related stocks like Marathon for example move in lockstep with Bitcoin and so uh we're starting to see that decoupling Fred is the thesis there that um you use this term the use case and I'm gonna just play it out in my head I'm uh a desperate immigrant wanting for my family not to be injured in Ukraine um there's only so much I can carry I'm

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going to liquidate my Holdings uh and and I'm going to take it with me in a digital wallet format uh I'm gonna and I'm gonna sell my and I don't know what the Ukraine local currency is but I'm going to sell my currency I'm going to convert it to bitcoin and I'm physically getting me and my family out of the country that that created a demand spike in digital currencies in Bitcoin in this case and and while the uncertainty of of a war on a war of this scale and and this visible um Equity markets don't like uncertainty

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so you see the equity markets um weighing but yet you saw this spike in demand is is that the Confluence of events we're describing here generally speaking yes uh essentially what happens is um we've seen since the kind of the late fall the retail trading of Bitcoin decrease and institutional trading being kind of the general the bulk of the volume being traded and you know when institutions are buying Bitcoin or trading a Bitcoin is because it's a store of value um and what then what happened leading

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up to the invasion It Was Fear of the invasion and then the invasion of Ukraine happening people quickly look to crypto as a way to safeguard their assets um and so you know because if you think about it if Russia invades any Ukrainian banks are going to be out of business pretty quickly right so right uh quickly moving their their funds uh to Dollar denominated accounts or into Bitcoin and so that creates a spike in retail and Retail moves the price um considerably you know again there's not a lot of Bitcoin traded on a daily

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basis when you compare it to stock markets uh and so a spike in demand uh can move the price of Bitcoin significantly I mean if you look at a one-hour candle uh of Bitcoin trading or you know a 15-minute candle um it's you know sub a thousand Bitcoin that are traded and so you imagine somebody who has maybe twenty thousand dollars in savings you know that's half a Bitcoin they want to convert it we'll take a hundred people uh you know it have a Bitcoin and now you have 50 Bitcoin all of a sudden you know that's

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going to move the price and you could see it even by the time of day that these trades were happening uh tended to be more European time-centric so you know one of the great things about Bitcoin and crypto trading in general is the transparency it's so easy to see what people are doing um and it's easy to see you know where those trades are happening they're happening in the US are they happening in Europe are they happening in Asia um and you can get a better feel for sentiment um and that level of transparency makes

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it much easier to kind of figure out what's going on in the marketplace compared to the equity markets where it's very small movements that uh are driven by sentiment yeah I just think the inherent uh transparency in a blockchain environment versus a traditional Market maker environment where an inequity trading right you they're just much everything's visible right not only everything's visible everything's validated by the by the the larger whole right that's a whole blockchain concept so very very cool we appreciate

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you talking out uh there's there's lots of conversations clearly the war is on top of everyone's mind but uh conversations about how I I loved your explanation about why Bitcoin couldn't be used as a way to circumvent sanctions it's just a sheer volume conversation right I mean when when you when you have a you know a GDP the size of Russia the entire if you soaked up the entire Bitcoin Market it's still a blip on the radar it's just a rounding error and so so clearly not a vehicle by which any

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nation state could circumvent um uh economic sanctions so it's a that's that's a clear picture or or even a an oligarch when you think about it you know uh right these oligarchs are starting to feel the pain you know you know Yachts worth you know hundreds of millions of dollars are being um essentially uh impounded uh you're seeing you know their assets being essentially impounded by Banks and uh you know while they may have a net worth of 10 billion dollars that's not all in cash a lot of that is held in assets

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like homes and Yachts and airplanes and uh equities and you know it's not easy to dump all that stuff right and so uh it's very hard for them so when they move into crypto as I'm sure some of them have done it's been I would assume it's fairly easy to trace those bigger transactions and just like the way the SEC looks at any all of a sudden change in the trading patterns of a particular Equity to see if an individual is trying or a group of individuals are trying to kind of manipulate or pump a stock the

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same thing can be done in the crypto world and I think you're going to start seeing um the kind of law enforcement or the financial enforcement agency's response possible for dealing with sanctions use these tools to really identify who's doing what out there and make sure that you know those trades are being stopped or you know those assets are being frozen got it well Fred thank you for helping us think through uh crypto in in the in when the world is at War and and hate the human suffering and don't want

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to Discount that at all but certainly wanted to have the conversation of how is crypto influencing or impacting or being utilized uh for good or bad either way in in the war um let's shift gears to a little bit of a data center topic as as I think through cryptocurrency I I appreciate you coaching me up that there there's the proof of work currency and then there's the proof of stake currencies and and can you walk us through the difference between the two and and then how this leads into uh when I think

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about ESG which is also on people's minds today you know how it impacts the energy being utilized by the crypto space for us as a data center company our industry gets looked at pretty intensely because we're large users of electricity same for my friends in the in the digital currency space can you talk to us about the difference between us between those two ways and I hope I'm going to say it right there's different ways in hashing is that is that right um yeah it's it's not different ways of

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hashing but it's different ways of validating transactions so if you think about proof of work um what proof of work is uh companies invest capital in mining Rigs and energy to essentially validate transactions we're processing transactions assembling them into blocks and then guessing a number and if we guess the right number um we win the block and we're paid by the the coinbase if you would the core Network pays Us in the case of proof of stake proof of stake is essentially no different than banking you know people

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say oh it's decentralized no it's not if you look at ethereum uh the vast majority of um you know staking that's been done is resides on four platforms so those platforms are essentially the core validators no different than the banking world so when you process a transaction on the Bitcoin blockchain for example where it's proof of work it gets processed by Miners And it typically uh will get um will reach finality uh within a relatively short period of time and the fact of the matter is no one person can manipulate

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that transaction because it's a consensus-based algorithm and there are enough people that do Mining and Mining is so distributed around not just the world but amongst individual companies and pools that um you know it's no one individual can do anything uh to manipulate that transaction without having 51 of the hash rate uh so the investment in capital and machines and energy is what makes this uh the Bitcoin blockchain the absolute most secure blockchain in the world and it's because of proof of work

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in the case of proof of stake essentially individuals are staking their crypto holding so if you're in the case of ether to be an Ethernet um an ethereum rather uh Staker I believe the number was you had to provide 32 each um and you'd stake 32 eth and that was locked up for a year and then um you had the opportunity to become a validator now the way the validators in ethereum work uh and I may have this a little bit wrong but this is my understanding at least um essentially uh the transactions you'll be chosen to validate

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transactions based on the size of how much you have staped and so the larger staking um groups will have the bulk of the validation well it's really no different than having a group of banks validating transactions and oh by the way it is very easy in a staking proof of stake model to manipulate transactions because if you're a big enough stake node then you could essentially um sell uh or rather you could buy let's just say 100 each and then you right away turn around and sell it and then you go back and erase the buy

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transaction and leave only the sale transaction so now you didn't actually buy you just sold but it's almost like you never paid for these and it's an oversimplification but essentially if somebody has a large enough percentage of uh large enough steak they can do a transaction like that and um it may go for some period of time before that gets Unwound or even discovered whereas in the Bitcoin proof of work model you would need to have 51 percent of the global hash rate which is an amount of capital that no company is

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Unthinkable it has yeah um to be able to do something like that because you would have to essentially um you know manipulate enough uh nodes to make that happen so from a security perspective proof of stake is let's just call it people uh and I think you know uh uh you know vitalik the Taran has said this a couple of times it's good enough you have to trust it well it's people trust their Banks but now go back to sanctions here we are and um you know you have your money uh your ethereum locked up uh on a stake note or

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you're just trading ethereum and all of a sudden uh there's a sanction event that happens and the stake node that's responsible for validating your transactions gets sanctioned now if you have staked your eat you may not be able to get it back more importantly that your transactions may not get validated so you know the concept of proof of stake is really just a digital version quasi decentralized it's not fully decentralized uh model that's really just emulated of banks uh operating all on a blockchain so

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um just I I personally think that if you want certainty and security uh and a fully decentralized Network there is no other choice than the proof of work so Fred in this proof of stake world are there aggregators of you know someone shows up there's a bunch of individuals are there aggregators who collect up people that want to stake you mentioned that they're only a handful that was tightly held I think you said four are they aggregating multiple people in that stake is that how it happens yeah so you have your large exchanges

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like coinbase where you can essentially use your Eve to stake and then you have a company called Lido which is sorry one of the largest and Lido I think has a couple hundred thousand people who have staked through Lido um they're ethereum but essentially Lido becomes the validator and so you have four organizations represent uh you know nearly 50 percent of all the ethereum that's staked out there granted people have staked through them but again it's just like you deposit money in the bank and the bank gets to use your money to

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do things uh so you know these organizations are earning money on the on the capital you've staked or the cryptocurrency you've staked and they're using that and then they're paying you as well a portion of that but you know they're earning a margin on that themselves I got that's a that's a great analogy thinking about traditional banking I put a thousand dollars in the bank a small dollar amount I could walk up and get my thousand dollars at any time but the bank doesn't anticipate

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everyone coming and getting their thousand dollars every day so the bank invests that money and earns a return on that money and then pays their depositors a small portion of that return and what I think I hear you saying is in the proof of stake very similar model that um that uh people staking their ethereum for this example are providing liquidity into the ethereum market and providing a pool of staking and that transaction there's margin in that transaction that which gets shared with the individual all right all right very very good well

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Fred I know when when we had you on the first time you did a great job and we've had lots of people email and ask about the basics behind um uh about behind blockchain the basics behind Bitcoin do you mind giving us a five minute tutorial just going back to the beginning and going hey here's how it started and when I think about that I think about the total number of Bitcoin uh the having uh you know the the number that is available every month just some of the basics for people who don't understand and I know it's a Bitcoin

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based conversation for for your business but would you give us some of those Basics around Bitcoin that people that are thinking about Bitcoin for the first time uh just may not understand sure so um Bitcoin was a initially conceptualized by a white paper written by um somebody using the pseudonym Satoshi Nakamura in 2008 and they wrote the white paper and then um basically published it a group of people core developers started developing the software and the software was the network was launched in 2009 and at that time

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there was a little bit of a lag and then the first transaction happened and uh if you look at the Bitcoin blockchain it's designed as a cryptocurrency based on a finite number of Bitcoin that can exist and that number is 21 million and essentially every four years since 2009 um the Bitcoin blockchain uh goes through a having or a happening as some people call it um and where the rewards dropped by 50 and today for example we're down at only 900 Bitcoin awarded per day no matter how many people are mining no matter how many uh Terra hash

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of compute power are contributed to the global blockchain it's 900 Bitcoin per day or about 6.25 per block and there's a block mind every 10 minutes essentially and um the last halving event was in 2020 the next having event is in 2024 and at that point the Bitcoin blockchain will go from 900 Bitcoin issue today to 450 and then four years after that 225 and so on until the year 2140 when the last Bitcoin will be issued to date we've already issued uh or mined 90 of the 21 Bill 21 million Bitcoin that will ever be mined so the

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vast majority of Bitcoin to be mined have already been mined and are essentially in the uh Supply today most miners don't sell their Bitcoin they tend to hold their Bitcoin and so that limits Supply even further and when you look at the overall Bitcoin in circulation uh roughly about 83 percent based on recent numbers I saw of the Bitcoin uh that has been mined is uh has not moved in three months so that's indicating that people are hoddling their Bitcoin um about 12 to 18 of the Bitcoin that have been mined

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um are essentially have been lost they've never moved so these were mined put in a wallet and then never moved if you look at the number of Bitcoin that haven't moved in over a year um it's you know somewhere around uh 30 uh 20 30 of the total Bitcoin so a lot of Bitcoin is sitting in long-term holders hands um some of it's in the holders of Wales uh but there are more and more Bitcoin while it's being created every day and we're approaching I think roughly uh somewhere around between 30 and 35

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million Bitcoin wallets uh in existence today uh with a balance of greater than zero on them so so can I stick a stake in the lost one for a second so so you say 12 to 18 around that number has have never moved um is that somebody uh and I know you don't know for certain but as I think through that is that someone that um maybe bought a a Bitcoin in the early days 2009 2010 2011.

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they didn't know what it was worth or they were somebody that was very technologically curious and it was on a hard drive somewhere in a digital wallet somewhere and they've forgotten about it uh they've passed away what's the thesis behind almost you know somewhere between 12 and 20 12 and 18 never moving so these are coins that have been mined but never left the wallet where they were mine so Satoshi Nakamura has a large number of Bitcoin in a wallet for example and those Bitcoin have never moved okay uh you have if you look at a

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Bitcoin that haven't moved in over a year you know it's a significantly larger number than that uh if you look at five years you know it's a subset of that and then you know the 12 to 18 percent is kind of the Bitcoin that have never moved so yes you know there's the proverbial story The Legend urban legend if you would of the guy in the UK who would mined a bunch of Bitcoin uh or had a bunch of Bitcoin in a wallet on a hard drive on his computer uh or rather had the keys to the wall on his hard drive

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and uh the hard drive crashed and you know at the time Bitcoin was maybe worth fractions of a penny and he had maybe a hundred thousand Bitcoin it was eh you know I'm not gonna it's not worth it trying to salvage this and the computer went on the trash Heap and then uh to the city dump and then lo and behold Bitcoin you know hits nineteen thousand package a few years back and I was like oh no it's a lot of money and so you know this is the guy who's been trying to get the city to dig up the dump to

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find his hard drive to salvage his keys there are lots of stories like that is that a real story Fred or is that an urban legend is that a real it's a real story interesting okay yeah yeah because I would think you know you can Google it yeah okay all right it is a real story got it I'm I'm not uh in tune with the market enough to know but yeah I think about lost treasure right I think about a ship sailing across and sinks and we've got records and that and there are whole companies that go around looking

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for gold bars and coins on the bottom of the ocean uh but but similar now that the Bitcoin is is got the value it does I got to think that there are hard drives somewhere that someone has a digital wallet and at the time they just just exactly the story I gotta believe that that's there's more than one of those stories globally yeah yeah and you know the the thing with the Bitcoin blockchain is there are people looking all the time to see if there's any movement in these old wallets that have never moved so for example if coins

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were to move out of Satoshi nakamura's wallet then it's either one of two things one somebody has the keys to his wallet and uh whether it's him or somebody else and they're moving the coins or B somebody hacked the wallet and is moving coins both of which would be major news events in the world of Bitcoin um yeah it would be splashed all over the place but when you look at the really active trading on a daily basis you know it is 20 000 Bitcoin across all the exchanges that are traded on average

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a day that's not a lot of Bitcoin you brought up a comment there when you talked about shatoshi's wallet so I've been in the technology business my whole life got in the business in the late 80s um accidentally and and you know you hear uh the conversations around digital security and the concept of a seesaw right when I started in technology nobody knew what a security officer was much less a chief information security officer right and I think there's a a phrase that gets said in the security

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space that that nothing is unhackable right at some point somebody can figure out how to break into something digital as I think about a digital currency um it is because it's transparent invisible in the blockchain is there some level of inherent security because I think about if I have you know tens of millions of dollars in a digital currency how secure can how certain can I be that that wallet and those keys are are secure well um a Brute Force attack on a Bitcoin wallet um is really difficult unless you have some

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information that would help you figure out what the seed phrase for the keys to that wallet are uh and so you know people who specialize in helping people try and recover their keys and there are a few success stories they had enough knowledge that allowed them to generate enough of the seed phrase that they were able to because obviously the owner of the wallet was a willing participant they were able to figure it out in the end of the day but if you're doing just a pure Brute Force attack it would take

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so much compute power today um and uh you know the minute something moved from that wallet it would you know alarm Bells would go off so uh it's very hard it's actually much easier by the way to hack into a banking system to hack somebody's phone or hack into a mobile app and take money out of somebody's bank account than it is to hack a Bitcoin wallet and so most hackers focus on that because it's easier um then trying to hack you know the Bitcoin blockchain or or somebody's wallet but you know

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um there are some people who through social engineering um uh use you know very simple seed phrases and you know if somebody spends enough time looking over your Facebook page and your social media posting and things like that they may be able to get data that helps in doing that but it's still really really difficult um you know the bigger issue is more uh somebody gets uh has a phishing attack and I know people who for example um have gotten emails from an exchange saying hey you know we're upgrading you

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to the pro service move your you know key move your coins from this wallet to this wallet and you'll get you know preferred service excuse me and um and all of a sudden uh you know that's actually a hacker who has now taken their coins and you know because of finality once you send coins you can't get them back very easily and um you know that that aspect of finality is a detriment if you're a novice or you don't really feel safe in moving money from one wallet to another and that's why a lot of people like to custody

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their Bitcoin on an exchange because it's easier you can call hey you know I want to do this how do I do this and you can get help uh just like for the stock market um and it's only really people who are very concerned about security and being the able to have their own sovereignty over their assets uh or sovereignty over their assets who will move their coins to uh proprietary wallet and keep them off chain um but for most people you know it's all about making the trading and the use of cryptocurrencies easier and as you do

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that it reduces the friction and more people will adopt it and more people will start using it um but you know Bitcoin is essentially today a store of value uh and over time uh it'll continue to spread amongst institutional holders you know more and more of the big banks are starting to offer Bitcoin custody and trading Services you're starting to see more Commerce opportunities for it you know eBay has been saying that they're potentially going to allow uh crypto to be used for paying things you're

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starting to see States adopt the ability or offer the ability hey pay your taxes in crypto now they're not going to custody and hold that crypto they're going to sell it right away as soon as they get it but as more and more of those types of transactions start happening you'll start seeing crypto coming more and more into the mainstream and you'll eventually start seeing easier wallets and easier tools for people to use and that in itself will drive more and more adoption again go back to the internet 1997 1998 you know

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you have this thing called a Netscape browser and you can go look at a few websites and where are we today we do everything you know you think about these um devices like a smartphone phone uh you know it's a ubiquitous human machine interface and if it wasn't for the smartphone you know Facebook wouldn't be anywhere near as large as it is because people do 70 of their postings Etc on Facebook using their smartphone they don't do it at a computer typically uh you know Instagram is pretty unusable at a computer you

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have to have a smartphone to use Instagram and the world of crypto is moving in that direction very very rapidly and uh people were afraid that the White House was going to try and mandate a ban of crypto and instead they're embracing it in a very big way even to the extent that it looks like they're being very abrasive of a central bank digital currency issued by the Fed so this is going to be a very interesting over the next six to 12 months as the uh execution of the executive order happens which essentially mandated a bunch of studies

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to be done look at security look at environmental impact look at uh you know Central Bank and facilitating faster trading and more Innovation it very much appears that the White House is embracing crypto and trying to direct the federal government and its various branches to really educate itself and not just have knee-jerk reactions and then craft legislation that really allows the U.

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S to remain sort of a dominant position as an innovator in this space an adopter of this technology Fred you mentioned the uh the executive order and and the government issuing a digital currency one of the things I you know and I'm not nearly immersed in it as you are but I think of fiat currency and Central Banking I think of the global economic system built on those two pillars right there are central banks and there is Fiat then they issue fiat currency and uh the Bitcoin or All Digital currency residing outside of that system if a

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central bank starts to issue its own digital currency that seems to me like a an odd melding of Two Worlds how do you think about that how do you think uh how does the let me let me rephrase how does the digital Community feel about that and how do you think that that will work when the idea I think one of the ideas at least behind digital currency is let's get outside of the central banking system yeah so the the Central Bank digital currencies are more a Technology Innovation to facilitate more rapid and immediate payment

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um than the traditional fed wire Swift system you know the Swift system was invented in the 70s and is essentially a messaging service that allows a bank to say hey um you know one of my clients wants to send one of your clients money so deduct from my bank account my this the bank you know the Central Bank deduct in my bank account X number of dollars and put them in your client's bank account and um I'll deduct from my client's bank account and put it in the central bank account and just it's a cumbersome way

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and that's why wires can take multiple days to get through and it's just a complex process um the idea with a central bank digital currency is not so much for consumers to use it as a replacement for dollars because let's face it you know every time you pay for something on a mobile app uh you're essentially paying with digital dollars whenever you use your credit card you're essentially using digital dollars it's just a ledger entry at the bank that's moving around so Central Bank digital currencies are

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really more about the wholesale aspect bank to bank transactions facilitating that it's like in the stock market when you buy and sell stocks um you know it typically takes you know two days to settle two to three days to settle uh and you know now they want to move to immediate settlement well the only way to do that is if it's done on some form of blockchain or some form of digital system without lots of intermediaries uh which are required today so you know you're going to start seeing you know cbdc's of

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these Central Bank digital currencies are called they're going to focus much more on alleviating all of the friction that exists in the plumbing of our financial system uh and they're not meant to you know necessarily compete with Bitcoin or other cryptocurrencies who are more focused on self sovereignty of your assets and the ability to kind of be outside of the system uh and have an asset that has a value that operates hopefully independently of Fiat currencies because if the US government issues a cbdc they can debase that cbdc

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the same way they debase the dollar because it will be dollars they'll just be digital dollars they're not going to create a separate currency that'll trade differently got it so um as I sit here and think about you walked us through there's 21 million forever but you know by the time we're done they're never going to be more than that if if this digital currency thing makes it and continues to to be a thing and I know people can laugh at me it's 13 years in and of course it's going to

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make it but if it if it continues to go this direction what would be an event that would drive the currency the other direction right because the notion of scarcity is already there it's already built in right we know there's a finite number and and when I think about Central Central banking system it's one of the things that frustrates me about the central banking system and I think frustrates a lot of people in America right now with you know seven eight nine percent inflation is that the that

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there's no guarantee of the value of my dollar right and as a matter of fact there's a pretty much a guarantee it's only going One Direction and that it's getting diluted certainly it's been nothing but deluded in my 54 years dollars rarely appreciate long term I don't understand as I look at a digital currency what would cause a significant deflationary event in a digital currency isn't it only going to increase in value and I know I'm kind of teeing up a softball there but I'm just

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trying to wrap my mind around what would cause a deflationary event in a digital currency with a finite Supply uh well you know at the end of the day it's supply and demand Dynamics are going to drive the drop in price of a digital currency so if all of a sudden um in the case of Bitcoin for example which has achieved uh you know amazing success over these 13 years um but it's still less than 10 percent of the scale of gold for example and by the way gold only has value because we attribute value to Gold

40:31

um right right exactly and diamonds even more so because they're manipulated by an oligopoly right consists of D beers and uh you know uh a handful of other including the Russians uh you know companies that manage that Marketplace and limit Supply um but what's going to drive you know a decrease in people's faith in Bitcoin as an asset are going to be if the blockchain is hacked for example that would definitely drive a loss of faith in the Bitcoin and the value of Bitcoin as this asset that can't be seized

41:06

um you know anything that changes people's perception of the trust they have in Bitcoin is going to affect it just like any other asset no different you know the value of a company on the stock market is theoretically based on the book value of the company but at the end of the day look at GameStop this was a perfect example of where you know you get a bunch of people who think it's going to be worth something more they'll pump up the price and then it can crash just as quickly back down you know

41:35

Dogecoin has gone through some of those Cycles uh you know you've certainly seen it uh in other places the one thing I think that you know Bitcoin has going for it is that because it's so decentralized there isn't one group of people one organization that decides um and makes decisions that can have those kind of negative impacts in the world of ethereum for example you know ethereum is essentially controlled by the ethereum foundation and the large holders of ether and there are 70 holders of ether who hold the vast

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majority of these are out there and so uh you know just look at how frequently ether forks and you know how they do these changes in the marketplace today um you know that's all because it's more centrally controlled than Bitcoin which is fully decentralized there is no body there is no person who can make any decisions about Bitcoin right it requires consensus of you know all the miners and the pools Etc to get together and do that and you know back in 2017 with the segwit wars um you know you had nearly 90 percent of

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uh the miners in the Bitcoin blockchain who tried to get a change through and they couldn't get it through so that shows the kind of uh imperviousness the change that it has what does that mean it means that Innovation happens at a potentially slower Pace in Bitcoin but at a very steady pace and the same analogy can be viewed if you look at the lightning Network you know the lightning Network is continuing to grow slowly but surely just continues to grow as more and more people use it for creating payment

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channels and I think over time uh you know these Layer Two Payment Systems built on top of the Bitcoin blockchain are going to dominate The Marketplace because the Bitcoin blockchain offers you know Ultimate Security and finality for transactions and then these layer twos uh provide very high velocity very low cost transaction processing that then settles on the Bitcoin blockchain and we're now also starting to see back to the proof of stake proof of work uh discussion we're now starting to see also proof of stake networks that in

43:51

order to avoid the inherent conflict of interest that stakeholders have for validation that um essentially a proof of stake network will use the Bitcoin Network and its proof of work to write blocks uh essentially in code data on the Bitcoin blockchain such that nobody can go back and change a transaction on the proof of stake Network and now you're starting to see a really interesting hybrid so yeah uh if I were to put my wizard hat on and look in my crystal ball I think what you're going to see is the Bitcoin

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blockchain and proof of work will remain and become the basis for security among many of these uh upcoming proof-of-stake networks uh providing you know this essentially in unchangeable uh blockchain where you'll always be able to go back and audit that uh you know the proof of stake network is uh in proper state if you would and so I think you know you're going to see that you'll see a lot of these proven State networks come and go you know there are most of the new networks uh are trying to compete with ethereum uh you know

45:02

ethereum has you know some drawbacks very high gas fees uh you know limited amount of transactions that can be processed and you're seeing Solana and uh all of these other cardano and all these other um competitive blockchains that are really trying to solve for those issues um and you know giving ethereum a real run for its money I think but at the end of the day it's going to be the Bitcoin blockchain and then a bunch of other things um inclusion would you be willing to give us a marathon digital Holdings

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commercial uh how you guys doing how's the business why should my friends listening go out and buy uh your your stock what's going on a marathon well uh you know obviously I'm not going to go out and tell people you have to go buy our stuff that would be appropriate but um you know listen we are very much focused on growing to be one of the largest Bitcoin miners out there we're obviously huge proponents of the Bitcoin blockchain as a secure network and as the network upon the layer one on which

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many of identity Healthcare and other applications are going to get built uh in the future so we're busy scaling to 23x a hash from uh you know we ended last year at about 3x the hash we'll scale up to 23x a hash which for you know uh context uh 23 extra hash at the end you know this time next year will be about six percent of the global blockchain was probably based on the global cash rate growing uh by almost 100 this year um and so we're really busy deploying um you know we've had some uh fits and

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starts uh getting miners deployed uh due to the method we use which is behind the meter at renewable plants and there's some special permitting that goes on there's some issues related to getting the Grid electricity coming into the power generator versus going out from the power generator but I think we've resolved all of that and we're you know moving a lot of there's a lot of Earth being moved a lot of containers being put in place and we have a lot of miners sitting on the ground that we're getting

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ready to plug in uh and uh you know we expect to be deploying at a very uh fast rate here through the end of this quarter and into Q2 and by the end of Q2 have be fully caught with our growth plan so awesome well Fred thank you for telling us a little bit about Marathon I always think that we learn a bunch listening to you on top of the fact that you got a great radio voice so uh if you don't things don't work out in the digital space you can get some voiceover work I'm sure of that and we really

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really appreciate you educating us on on the blockchain and on digital currencies and also on what's going on at Marathon so thank you so much for joining us [Music] foreign

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