Future of Energy: How Digital Asset Mining Advances Development - DC Blockchain Summit 2023
The discussion at the DC Blockchain Summit 2023 revolved around the creation of laws aimed at regulating proof-of-work Bitcoin mining operations in the United States. Notably, New York passed a law in November targeting Bitcoin mining operations that used carbon-based power sources, specifically those with fossil fuel energy generation. There is a growing perception that regulators are intensifying their efforts to make it more challenging for crypto-based operations to function within the U.S., prompting some companies to consider offshoring their operations. Bitcoin mining was highlighted as a way to benefit the energy grid by consuming excess energy and helping to subsidize the cost of energy generation. Bitcoin mining companies are also exploring partnerships with local communities and utilities to support clean energy generation and grid stability.
Transcripts are autogenerated. May contain typos.
[Music] so we're in DC there are lawmakers and Regulators here so let's start with the talk centering around creating laws targeting proof of work Bitcoin mines across the country which is essentially synonymous now that if ethereum has had its transition so I want to begin with this idea of what we saw in New York so in November there was a new law passed that targeted certain Bitcoin mining operations that run on carbon-based power sources and and Fred I tossed this first question to you and then I will
widen it out to the the panel but I feel like this has to do like my question is more about who these rules are targeting so right now the attention is on attacks on proof of work mind so the people who are buying the energy rather than creating more of an energy excise tax so you're looking at where the power sources begin and I wonder if you can kind of walk me through this Dynamic of how lawmakers are thinking about how to create rules around this industry yeah it's an interesting topic because especially in New York the utilities can
choose who they want to sell electricity to so you could have just as easily told the utilities don't sell any electricity to crypto miners but what they specifically said was don't allow a crypto Miner to turn back on a fossil fuel plant that had been shut off you could still mine using Renewables and you could still mine just taking electricity off the grid if you could get a permit to do it but it was very much targeting specifically proof-of-work miners with a fossil fuel energy generation source so it seemed
very logical they already had the tools to control it if they wanted to and they chose to do that kind of to send a message specifically any other thoughts on how New York went about regulating around this industry now I would agree with what Fred said and I think it's a little bit misplaced because I think there's a lack of understanding in how our industry actually supports new energy generation rather than being a burden on the system that it's it's actually a benefit we see the energy consumption as a feature not
a flaw yeah and I think we're definitely going to unpack a lot of what you just brought up one other question on the regulation front though you know there is this narrative out there that in the last few weeks it's exacerbated operation choke point and so I think about this in the context of the on and off ramps to between U.
S dollars So you're you know your Fiat currencies and Bitcoin so we've seen that as dovetail with the series of bank failures that took out a lot of liquidity from the market now that's not mining but it is part of this larger narrative that there is a push by Regulators to make it more difficult for crypto based operations to operate in the U.
S and I I just wonder my question is this has been a narrative for a while but it's become like a year ago at this time it was not nearly as intensive as as it is now and do you feel as though there's more hostility in terms of the rules and regulations that are being discussed or either uh passed into law at this point I mean on my end I mean we're a Canadian company so so for us it's really um we've been very close to coming into the United States at several different occasions we're still looking at different opportunities uh but we need
that stability we seek out stable jurisdictions and and and we need to feel comfortable uh with where we're going to be putting our investments and and right now uh we're operating in Sweden Iceland and Canada and we would love to um also grow into the U.S I think the big challenge for the Bitcoin mining industry specifically is you know we're not dealing with consumers we aren't doing things anyway related to the trading of Bitcoin these FTX scandals Celsius Etc we mind Bitcoin we operate data centers we consume energy and we
secure the Bitcoin blockchain and yet we get bundled into this kind of uh regulatory morass where instead of having clear rules the FDI C and Treasury Department simply tell Banks you know if you have crypto clients we're going to raise the bar on how we evaluate you and so all the banks all of a sudden say we don't want crypto clients when signature got shut down and um the FDIC clearly said no no we're not targeting crypto customers yet the person who bought the assets of signature specifically said no crypto
assets so yeah they're definitely targeting crypto companies are is this affecting the way that you think about your business and whether you know the minds need to be offshored and and kind of you know upend your U.S business a bit well it's we announced recently a joint venture in a UAE uh to build the largest uh data center in the Middle East 250 megawatts we're clearly looking at offshore as an opportunity not just to find more stranded energy but we clearly feel that the industry is being targeted
in the US and we need to diversify so I would I would agree with that as well I think um watching the trailer for the video um two segments ago there was an interesting comment and it said banking doesn't have a crypto problem but crypto has a banking problem in light of what's gone on here and I think that you know with the the public response to what Bitcoin represents and how it's fulfilling what it was designed to do in light of all this uncertainty surrounding banking is kind of a testament to it as well so we were
hopeful and optimistic that forums like this will push forward appropriate legislation because once we have a clearly defined set of rules I think it'll it'll differentiate us you know there there was a debate as to whether or not Bitcoin mining companies had an obligation to report on the end use or the end buyer of the Bitcoin we don't have access to that data so we would all instantly be deficient on those reporting requirements so I think that the the US will be a safe haven for it but I think it's going to require more
Outreach and work to make sure that we're educating people about what it exactly exactly it is we do and how we benefit the the communities in which we operate yeah I think that idea of Education around what the Bitcoin mining industry can offer other sectors I mean let's look at energy in the United States like a lot of the fundamentals of proof of work mining are fundamentally misunderstood there's not uh you know this this nuanced conversation happening around how proof of work mining can actually help incentivize the build out
of you know infrastructure needed to harness the power from renewable energy we're seeing that going on in West Texas among other places there's also this Dynamic that was just being discussed in the previous panel around how Bitcoin mines can serve as a way to help stabilize power grids oil and gas Majors have very aggressive ESG targets again uh using you know having Bitcoin mines on site to mind you know otherwise uh gas would be flared it these my point is just that there are all of these ways that it is
very constructive and I want to unpack those so let's start on stranded Renewables in West Texas and how Bitcoin mining is actually creating this financial incentive to so if you look in West Texas um energy markets need two things they need generation they need transmission you can have all the generation in the world but if you don't have transmission you can't get that power to the consumers that's the challenge in West Texas you have all this renewable energy wind energy solar energy amazing amounts
of energy the problem is the transmission to get it from the underpopulated west Texas to where the population is in Austin Dallas Fort Worth Etc is lacking and so you have energy that's stranded there's this concept called the duck curve which is basically how energy is consumed during the day and it looks like the shape of a duck the tail is the morning it starts you turn on your heating your cook then the middle of the day you don't consume a lot of power and then you come home at four o'clock in the afternoon you turn
on the air conditioning or you turn on the heating you're cooking and that's Peak demand four to nine pm well solar energy is created primarily from 9 A.M to 3 P.M right in the middle of the duck curve and if you look at how energy is consumed in the stack you have nuclear energy at the bottom then comes coal then comes gas which you can regulate up and down and last of all is solar and wind if you want to build out renewable energy in this country you have to find a way to consume that solar and wind
energy because there's no economic incentive for an energy generator to build a solar plant if they can't sell the energy and in Texas 20 of the day of the time it's negatively priced energy they basically have to pay you to take the energy so the only way to do that is have a base load customer like Bitcoin miners who can cite their equipment at the point of energy generation no need for Transit transmission you can consume the energy and when the grid needs it you just shut off your systems just like the
prior panel said and then when they don't need it it comes right back up and you're mining Bitcoin again the energy generator earns Revenue which helps subsidize and finance the cost of building out more which makes the price of that energy to the consumer lower and I think that is something that people don't if you think adding more Renewables to a grid is automatically a good thing but it also requires a lot more logistical Hoops to jump through I.
E That Base load needing somebody who can toggle their power use on and off to balance out when it's not windy or it's not Sunny how how is this played out for you guys with your operations well we've seen it much the same so clean spark kind of evolved out of the energy space we built decentralized distributed Energy Resource Management Systems commonly called microgrids and we we would incorporate renewable energy with storage and distribution and the challenge to do this at scale is to over or to to build storage that will accommodate the generation when it's
created and then distribute distribute that later when it makes sense is problematic because energy storage systems are expensive they degrade over time and then they become a disposal issue Bitcoin is really the perfect solution to that in that you can over build generation we can take the Surplus capacity acting as that balance in the load and as Fred mentioned instantaneously curtail when there's demand elsewhere so it really is in partnership with the grid to further expand and add Renewables without the
risk of having to add a component of energy storage that creates problems later now we've seen this narrative play out in terms of being um Bitcoin mines being an advocate to the Grid in terms of helping to build ability that that narrative has really played out quite well in Texas and I know the previous session just spoke to that where else are you seeing this this relationship between lawmakers between the grid really work quite well with Bitcoin miners um I think States like North Dakota Montana um who really understand it you know
unfortunately it's right in the middle of the country um yeah part of the problem in New York for example is transmission again you've got Hydro in the north but all the consumptions in the South so you have a lot of north south you have Renewables on the East but there's very little East-West transmission capacity so that's the problem in New York the eastern part of the U.
S has this transmission issue and transmission's hard to build uh it's two million dollars a mile and nobody wants high power tension cables running over their property so it's really hard to do it so West Texas is a great area South Dakota Nebraska North Dakota parts of Oklahoma you know there's some great areas in the middle of the country Montana to do this you've got good wind you've got great solar capacity land is cheap and ample but it's again stranded energy if you're going to build energy generation there
there are no consumers and so you need a base load customer like Bitcoin miners to soak up that yeah we have a big presence in Georgia and Georgia has abundant nuclear power I mean our industry Bitcoin mining as a whole runs on more than 55 percent renewable energy so in Georgia we take advantage of the overbuilt capacity and we actually partner with the cities so the way that works is in these small rural communities where we have a lot of operations a big portion of the energy that we buy we buy from the city so the
city buys it from distribution and then they become our utility so the city makes profit on every kilowatt hour we buy benefiting the towns but more importantly their sales tax on all that power that we buy so we literally add hundreds of thousands of dollars a month in sales tax revenue that benefits schools and parks that enables the the citizens of the state of Georgia or in any jurisdiction that you would operate to benefit from the investment they made in these renewable resources decades ago so we we actually see opportunities
where there is Surplus capacity to kind of be that shock absorber and and support that going forward I think that the dynamic of nuclear co-locating with Bitcoin mines and toggling with uh you know other Renewables whether it's winter solar is fascinating so you mentioned Georgia there's an operation up in Pennsylvania is this the next not Frontier it's already going on but is this where you're going to see a lot more Focus going forward well I think clearly the crisis in the Ukraine has revitalized
nuclear as a viable energy source um you have smr's small modular nuclear reactors which are essentially traditional nuclear is you build a one-off power plant somewhere it has to be custom designed all the parts have to be custom built it has to be licensed smrs are assembly line nuclear reactors similar to what you would find on a nuclear submarine so 30 megawatts fairly small best of all they use the fuel that traditional nuclear reactors give up as spent fuel so they're consuming this waste nuclear product if you would but
they're perfect because they don't need water cooling they can be put in the middle of a community if you wanted to and the first ones of these will be licensed either in 2027 or 2029 in Wyoming I think it is um but you know there's a lot of investment going into these because they'll be relatively inexpensive because they're not one-offs um they'll be able to be cookie cutter so licensing is going to be much easier so I'm super excited about that it's certainly an energy source we think it's
going to be very viable and nuclear as a green energy if you would um is really viable it's just a question of there's this public stigma about it yeah there is I mean California exiting entirely from any sort of nuclear power generators so do you do you get around that stigma it is a clean power source um so this country you know everybody wants electric vehicles uh the problem with electric vehicles is they need energy and so think about Route 80 that goes east west a lot of corn fields there's no power generation there if
you're going to have a Tesla semi truck pull up to a supercharger to get charged that needs 30 megawatts of power where are you going to find 30 megawatts of power you're going to put solar farms around these charging stations so this country needs to build out a huge amount of electrical infrastructure California is Banning gas heating gas cooking for electric California doesn't have enough electricity as it is so this country's got a problem that needs to be solved nuclear is one solution to it
more Renewables than other but we need to fix how energy is stored and distributed and in the meanwhile Bitcoin mining fulfills a really important purpose which is we consume the energy while that infrastructure is being built out in terms of scaling operations when I think of Renewables I think of behind the meter operations and then I think about things that are on grid what do you lean toward like what are the benefits or you know the the some of the disadvantages of going behind the meter when you operate
so behind the meter and most of our operations are behind the meter so that what that means is you sit at the power plant before the electricity leaves the generator and goes to the grid you're consuming it at that point of power generation so um other I won't get into the legal and utility rule-ish benefits to it but essentially um you at that point aren't connected to the transmission medium so you're not creating more grid congestion by having to take the energy from the generator onto the grid then take it off the grid
any energy that goes onto the grid is being transported to Consumers you're just using the excess energy at point of generation so you're not contributing to grid congestion in that way so that's our preference but so oh this one I was just going to comment that you know that having had the Energy background in working in the demand response space that that's absolutely true and and we we believe that that's a viable component of what we do but we also feel like the economic value in being part of
the grid and being a consumer for that subsequent distribution kind of enables eases that transmission congestion as well and just to touch on that demand response side I mean part of what we do is operate and build data centers at least for for Hive but another thing that we do is we're a service provider to the grid to the utilities really we are viewed in the jurisdictions that we operate in as providing demand response as a service and frequency response as a service so there are different types of demand response that you could offer
different programs that you could sign up for an onboard to with the utility uh and and you know a lot of them are paid they really view us as a critical part of their infrastructure and in a lot of cases almost all cases for us we are invited to the jurisdictions where we are operating and we are tied in uh very closely with the utility the community and all the other stakeholders so Gabriel when you talk about the hospital quality that you've had in your target market so we're talking about Sweden
Iceland Canada and and have you thought about expanding into the us or is it just that there when you have other places that are inviting you in it just makes it easier to do business yeah so definitely the invite is what we're looking for um we were very close to coming into the U.
S last year and then some of the news with it kind of change in policy with aircot gave us cold feeds we said we would okay step back from this take another look and see how this develops but we're we're still looking for those opportunities I mean Hive in particular is focused on stranded Surplus Renewable Power so our focus is on hydro and geothermal and and hydro for us I mean one of the things that we were talking about with um with with Peak and base load and and balancing the grid another fact that is very interesting is that we actually
saved the utilities on top of making utility is a lot of money by monetizing an underused resource which is basically water flowing around a dam rather than actually through the turbine we actually saved them a lot of money because in these jurisdictions where they're relying predominantly on hydropower to hit that Peak that they need to hit they need to hit it quickly and in a lot of cases they're using combustion and non-renewable power to be able to supply that power to the community so with what
we're doing in Boden suite and we are bringing up that base load to the point where basically Whenever there is a peak it's diverted from us and we are integrated with the grid operator so that is completely automatic and we are paid for those services seeing in some operations that are actually using Bitcoin mines to heat entire cities when placed in Canada is doing that I was speaking to some Bitcoin miners in Lebanon who actually turned to crypto mining just because there's Capital controls that make it
impossible to access your cash it's very difficult to earn money and and he's in the process of building out a similar infrastructure where he lives does anyone want to speak more to like these ancillary benefits we're doing that right now I mean in Quebec uh we have a 40 000 square foot Data Center and we are heating a 200 000 square foot facility that's right next door uh their uh spa and jacuzzi manufacturer called Trevi and we saved them about three hundred thousand dollars a year in heating so we're already doing that in
Sweden we have a project that's underway we're going to be heating a greenhouse we're going to bring cucumbers tomatoes and a fish farm uh into Northern Sweden so first of all we're just reusing the byproduct of our operation and the byproduct of our operation is hot air that's it we're using renewable sources all we generate is Bitcoin and hot air so um our our you know company DNA and ESG focus is leading us to kind of push forward in these types of initiatives um and and then the secondary
consequence of that is that there won't be shipping of cucumbers and tomatoes all the way from Spain to Northern Sweden so it's it's really just a benefit and and I see that over the next well very near term there's going to be a lot more integration uh into um you know public uh infrastructure for example we're in talks to put a special uh heating solution for a hockey arena um there's a you know a lot of calls that we're getting to heat um uh different types of industrial parks and for example this is where it's
really important to kind of very be very thoughtful in your regulation in Quebec where we are operating new regulation has come in which says that basically there's a moratorium on on on any type of new crypto uh power consumption for crypto and and on top of that there's also a mandatory curtailment so companies like ours are very happy to curtail is part of our DNA it's how we kind of integrate with the utilities but certain mandatory curtailments that don't take individual fact is into consideration lead to kind of the death
of really interesting projects how are we supposed to heat a greenhouse if the curtailment is abusive mandatory and takes down the operations 95 percent you know it's just impossible to innovate with that type of Regulation so industry consultation is just so important in this new and ever-changing space I want to ask one more question on demand response because there are a lot of people who feel that questions of what is proprietary Tech like who owns patents and and the IP that is involved there are legal battles going on around
demand response what is the vibe on the ground in Texas so we we're operating primarily in Georgia and in New York so we have an option for 500 megawatts in Texas and it just so happens that our partner on that agreement happens to be one of the companies that holds that patent we from from our perspective see that it disincentivizes opportunities to be creative and and leverage that so the the question or the concern the debate is is it software that makes a decision or is it a human you know does a person make the decision
and then how do you communicate it how do you protect it so I and this is this is the tech where I should have like teed this up a bit better essentially where you know you can turn Bitcoin miners off and on depending on what the demand is on the grid this technology is like highly highly precise you can do it real quick and you can do it to varying degrees based upon the exact uh demand that you're trying to counteract correct um we we do a similar version of that at our at our proprietary mining facilities
and we have models that it calculates in real time the the price of energy per kilowatt hour the the global difficulty of Bitcoin you know what the hash price is and what the price of Bitcoin is so we can make a decision if if it makes sense to overclock or in some instances to underclock or to curtail but right now that there's a human component to that it's not software enabled and I think until somebody challenges that patent and we see kind of what the outcome of those of that litigation is yeah I think there's going to be a
degree of uncertainty um but but until then I think there are ways around that to be you know to have that human interaction in the middle of it and ever since the Alice decision in the Supreme Court any software automation of a manual process is already now essentially you can overturn those patents and so I think that you know we'll likely see if somebody decides to contest it it will likely be overturned now during the last bear Market I'm thinking around 2016 to 2020 it took a while for Bitcoin mining
companies to run out of cash so it you know the bankruptcies didn't come nearly as quickly as they did during this most recent bear market and it's been tough you know and like bitcoin's on a tear the last 10 days but we're still talking about trading in the 20K range versus 60k Range and my question to you is you who's getting rolled up to who like who's buying who what does the m a space look like in the next six months the next year for Bitcoin mining companies we we've been pretty active
um in the bear Market we uh we grew from January to January we grew about 230 percent um some of that was building out our facilities deploying resources that we had been acquiring in the spot markets but others other growth was through acquisition we bought a couple of facilities in Georgia um and and what we found is that it's really about scale it's about implementing all those efficiencies and the models that we talked about and then continuing to maintain that efficiency so I I believe that especially with the
the having a year from now in May of next year you're going to see a greater degree of consolidation for those mining companies that have a fleet that's less efficient so you know it's measured our processing power is is called hash rate so a computer that the Asics obviously they they they process power and there's a ratio how many joules of energy or how many watts essentially per terahash and globally that number is about 47 watts per terahash domestically it's closer to 40.
um the more efficient miners are in the you know 30 to 22 watts per Tera hash range and so I think part of the m a cycle and part of the consolidation and growth will be more efficient miners rotating out of the less efficient parts of their Fleet and continuing to focus on growth organically which I think will ultimately lead to the less efficient miners having a lot of infrastructure come for sale when they can't compete I think that there's going to be a sunset on those less efficient rigs like what
we're seeing now I don't I don't think any of us have rigs that are in that 45 watts per Terra hash range it's just not economically viable anymore yeah and I think the as we look at our Fleet mid this year it'll be 24 joules or 24 watts per Terra hash as the average across our Fleet so one of the most energy efficient fleets uh in the industry but I think um Matthew's point when you look at the the m a opportunities can be about buying infrastructure not buying mining equipment it's buying power
infrastructure because as we come into the having you know if the Bitcoin price price of Bitcoin isn't somewhere near fifty thousand dollars come April of next year uh essentially they're going to be a lot of minors that are going to be stressing out that they can't raise capital in this environment today they're not going to be able to replace the old rigs they have with new energy efficient rigs and uh you know a number of prognosticators now are projecting that the global hash rate will actually drop
at the having because there's so much inefficient equipment still in use and the capital environment is such that you can't raise debt or Equity unless you're one of the largest miners um to replace your Fleet so it's going to be a very challenging situation I think do you think the biggest problem this time around was that a lot of companies were over leveraged they bought uh gear at prices that were way too high because it was a bull market or are there other Dynamics at play that kind of brought us
to where we are today you know this is a business where from when you say go I want to grow it can take anywhere from six months at the most optimistic to more likely 12 months and so people are making decisions when the numbers going up and they're thinking you know I have to mine more now I have to grow now so I place orders who do things because when the price is going up like it was in 2021 you know people just it was a just a frantic growth race and if you placed orders and you didn't have price
protection under your orders which basically means that when you actually pay for the equipment if the price in the market is dropped you get credited that drop um you were in a very bad situation and a lot of people had all the cash they had they invested in the power infrastructure and then they said well as the miners start being delivered I'll just go borrow more money or I'll go raise money and then when the capital markets in the debt markets dried up they all of a sudden have this power infrastructure but they couldn't pay for
the miners they had ordered and so we end up with a flood of equipment on the market at Bargain Basement prices yeah and cleansberg Matt I I you know you guys raised a lot of money and then you sat on it and then you kind of jumped in once those prices did fall which was you know very good business decision but did you feel fomo when it was a bear Market or walk us through the decision-making process there we had some fortuitous timing but we you know we ran some pretty extensive analysis and looking at the orders that were placed and what
that would do to Global hash rate it was clear that difficulty was going to increase and then as a an energy company in our DNA we were we model our energy pricing utilizing different metrics that are available and and some of the future pricing models indicated an increase in energy cost and obviously Bitcoin is a volatile asset so unlike oil where the volatility is the price of a barrel of oil we have the volatility of the energy cost we have the difficulty and then we have the volatility of Bitcoin so the
challenge is a lot of a lot of miners in the space built a business model on a snapshot in time assuming that everything is going to say stay November of 2021 and that's not realistic so I think you have to from our perspective I think we look to be strategic rather than ideological you know we we consider ourselves Bitcoin rationalists because you know while we're very bullish on the underlying commodity being Bitcoin we understand that it's a volatile market and you know to Fred's Point literally
in this business unlike anything else in the world if you're not growing you're absolutely dying last question we've got less than a minute uh what keeps you up at night right now when you think about your business and the work that you're doing Gabriel well I'd have to start by saying I mean the having there's just so much on top of the volatility there's a lot of uh uncertainty and so a lot of what we spoke about in this panel is efficiency and how important efficiency is to our business so we are focused
right now on doing everything we can to improve the efficiency uh while also just um well for on our part we are also working on diversification because we are a data center business at the end of the day we have a high performance compute branch of our company and we are growing that as well so for us you know as the as the having comes uh we're ready and we're ready to withstand and look for opportunities for those less efficient miners look for that new infrastructure and Equipment now is 10 cents on the dollar from where it was at
the highs last year so uh I mean we're all very well positioned and aware of what's coming you know we focus on energizing and optimizing that's it and then the rest we don't control don't control Global hash rate don't control regulatory don't control price of Bitcoin don't control price of energy control what you can yeah I think what keeps me up at night is is the regulatory environment just creating logical framework to make sure that we're all operating under the same rules
thank you for sharing your expertise and thank you for joining us today I hand it back to Perry Anne thank you [Applause]
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