Leveraging Compute For Sustainability and Energy Re-use | AIM Summit London 2024

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00:02

thanks Fred I mean you covered the subject so well I'm not quite sure what we're going to do on this panel here but I know we have two more show uh here is Jason and and Sam uh maybe do intros uh from Jason what we doing over there at Riot and of course you had some kind words from people already for for what you're doing with Mining and such yeah well I think you covered it Jason Les CEO Riot platforms uh publicly traded Bitcoin miner in uh the United States Sam yeah Sam tabar CEO of bit digital uh tickers at uh btbt on NASDAQ

00:32

we have operations in Iceland Canada and the US very good we're in Canada because I'm kind of from there we uh we try to somewhere cold somewhere cold okay very good uh so let's let's talk about remember early on when we went to these conferences it was always oh bitcoin's not efficient it's very very bad for the environment and all this it's 6 to 2.

00:51

3% of the world's energy use or whever that number is you guys probably know it heck of a lot better than I do but uh and now I noticed that we've kind of gone from before we used to not talk about hedge funds we talked about alternative Investments now we're not talking about Bitcoin necessarily we're talking about how the uh the energy harvesting is happening so how maybe Sam start with you how does your process differentiate and really play to the strengths of what uh what Bitcoin can produce and and the

01:16

energy use to to do the mining yeah with respect to the energy use uh our our Fleet is 93% carbon free uh I do believe that the environmental arguments against the sector is somewhat disingenuous we can get into that later if you wish but uh I feel that the sector will not really be green until investors demand it so if investors make it clear to bitcoin miners that it's okay to pay premium on carbon free sources of power then and be rewarded for an increased market cap as as a result then the industry will become green if investors

01:52

are simply looking at costs then Bitcoin miners will be just driven to the lowest and the cheapest cost of power regardless of that source of power and Jason have we your side with Riot so Riot uh has really focused on uh the utility scale model that Fred was talking about earlier uh we operate two very large sites in Texas uh the second has just now come online but our first site in Rockdale we have been very proactive in the demand response game um we essentially own a huge chunk of the energy that we use we don't own it

02:29

because we produce it but because we entered into long-term agreements to uh use that energy that has given us a low fixed predictable cost and the utility the generators have a predictable off-taker of that energy for a period of time so what we have essentially do is use this excess energy and make that energy available to the Grid in periods of peak demand these are very limited periods but we live in a society where energy is needed all the time there's uh a standard of living uh cannot be satisfied by in least in the United

03:04

States and the most of the Western World of uh shutting off P power for different periods of the day most industrial loads cannot do that Bitcoin mining is the unique large industrial load that can shut off at any time has not lost the work that it did before and then can resume operations uh when uh the power demand is subsided so by doing this we work closely with our grid operator and uh we help stabilize frequency in that grid and for doing this we are essentially arbitraging power as well which has led to us having a very low

03:38

cost to mine and that helps us accomplish our ultimate goal of accumulating Bitcoin at a discount to its market price right and then Fred you're your presentation said a ton there but a question I had from that too is like if you said it's going to this long taale of being very like down to the Tesla walls and such how would uh would your shop Marathon take advantage of that because you you have your own data Cent would it be like some sort of farming or giving them the computing power it's why we have a technology

04:06

division so we co-founded the only us Asic developer for Bitcoin miners called orine together funded by um Mayfield uh and Celesta two the most prestigious VC firms in Silicon Valley we took the semiconductor design team from paloalto networks which is one of the top technology companies in Silicon Valley and designed uh as6 the first product was a 4 nanometer design that current product that'll ship later this year is a 3 nanometer design same geometry is used in apple cell phones for example so state-of-the-art with very efficient

04:40

performance but most importantly designed with Bitcoin miners in mind and the needs of Bitcoin miners around total cost of ownership fault tolerance the ability to lose as6 on a hash board without the hash board going down all these things you need to be able to do to be able to operate on a Tesla power wall because you can't have a technician there on site watching it in case it goes offline true and the whole software stack so we view ourselves as a very Diversified business and how about you mentioned the cost of bitcoin are you at

05:07

the cost of zero or how's how's your costing uh no I mean today absolutely not I mean we are sit in the same boat as kind of the vast majority of other large scale miners but we believe over time and by the next having in 2028 you have to have costs that are at or below 2 cents a kilowatt hour okay to be able to mine efficiently and so finding Ways to Mine with z zero cost is a way to offset some of your higher cost energy does that take into account the externalities like growing tomatoes and such or is that well no that's so we

05:38

give you an example shrimp farming generates a 20% net profit over and above the energy side of it right so you know if you provide energy to the shrimp farm they pay you back in profits from their business as well so it's a very interesting as you look at energy being the core of everything everybody does think about it 50% of energy used by industry is used to heat things that's a huge Tam you just have to have little bits of that every here and there and you have a you know billion dollar business yeah

06:08

how about your side Sam for your costing well here we're a little bit different not many people in this room know that we have the largest AI business of all the public uh listed uh Bitcoin miners we have uh We've locked in 150 million of Revenue that's paid every month over the next three years in fact we just announced doubling the size of that business so by far we're the leader in that business and uh we like that we love that business the margins are very fat they're fatter than Bitcoin mining

06:36

was even on a prehab basis and the energy use is actually quite good in the sense that we we can produce takes 90% less energy to produce the same Revenue in AI versus Bitcoin mining and I know that Fred mentioned earlier that it cost about 10 to 20 million dollar per megawatt but you don't have to do that in fact for us it was Zero because you partner up with existing data centers and you negotiate a fee and so that way you can reduce the costs and crystallize these very fat margins on the ai ai business so you don't really have to

07:10

spend that kind of money on um on the infrastructure wow that Ed Jason you guys prer play or you got something else happening too we are pure play Bitcoin miner and you know maybe expanding on what I spoke about earlier what we do with demand response so we own these blocks of power at a price and when the market when the spot price of power in our grid is exceptionally higher than uh Bitcoin mining we are opting to pause our Bitcoin mining operations and instead sell the power that we own back into that grid now the the decision is

07:43

typically not a close one you know Bitcoin mining Revenue well right now after the having without transaction fees it it's it's quite poor but if you just say on average you're looking at $100 a mega hour if you equate Bitcoin mining revenue on a per megawatt hour basis we're we typically don't see power trading around 100 it's well below 100 or it's 1,000 2,000 $3,000 a megawatt hour so the the decision is very clear so when you see these Peak periods of volatility in uh at least the Texas grid

08:14

where we operate typically in Q3 we earn quite a bit of offsets to our power bill by participating in that trading game so all together with that and our uh direct cost on on on the ground there our cost per coin for 2023 at least was about $7,500 uh dollars per coin that's you know over the average of the whole year though that includes the the power strategy it's very focused in Q3 and um you know it's also before uh the having and before uh Network difficulty is gone up so substantially over the past 12 months so I think uh

08:50

it's going to be a quite interesting time for the industry right now because of the having because of how Bitcoin mining economics have been so strained and we're really going to start to see who are those lowcost producers that can navigate through these turbulent Waters and uh who are those that have some changes to be made and how does you mention in the preall the OT which I thought was a sitcom from the 80s the energy reliability Council of Texas I mean energy Texas they go together but how how does how does that affect what

09:19

you're doing uh I didn't hear the first part the OT grid the OT grid yeah so the urot um Texas is a deregulated energy market and it's Unique in that it's specifically all within Texas so you have an energy Island it's because it's a massive state with so much industry people generation natural resources high potential for renewable generation you have a lot of energy going on there um however there's a lot of renewable energy now that's a great source of energy when the sun is shining and the

09:49

wind is blowing that does not always match up with demand though and that's when you see these periods of volatility with power when the Sun is setting but consumer demand is still there and that drives the spot price to power up so uh we participate in a number of programs with the urot uh uh uh operator in Texas and uh we work closely with them and help provide a lot of research for what they do and uh I I I believe that they you know truly see and value the presence of Bitcoin mining there in Texas another thing that we do is

10:22

participate in something called ancillary services and you can think of that as selling an insurance contract to the grid where we are giving urot the ability to control our load we tell them the hours and how much load on a day ahead basis that we're willing to participate in this program and the price that we'll do it at that gives them a tool that they can use the balance grid frequency they because no other large load can let a grid operator typically do that hey we want you to keep running or not running

10:53

and it's not always not running sometimes there are periods where you would otherwise want to curtail but they need you to keep running to balance grid frequency in that specific part of the grid by doing this Bitcoin miners are actually actually lowering the cost of energy in markets like urot because it's consumers that are ultimately paying for those ancillary Services yeah coal peaker plants batteries they don't want bid as low as Bitcoin miners because they have higher cost so Bitcoin miners

11:19

are in here helping stabilize the grid give grid operators tools to accomplish that and lowering energy volatility and pricing as a result well speaking of Island you're an ice so how is it different there maybe from how does it work with Iceland is it very well regulated by the the state and how did how did you guys start yeah Iceland is 100% renewable it's all geothermal it's all geothermal and hydro so we have a a Bitcoin mining site uh um near rovic uh and that's our Bitcoin mining operations

11:50

and our uh our HPC business is in the north part of Iceland nowhere near where the volcano is high performance Computing as you might say yes HBC high performance Computing or Ai and we have that located in a very remote part uh in Iceland you won't say where of course yeah but uh it's I mean we we actually disclose that oh cool yeah so that that's that's our strategy for that country and it's completely geothermal and and um and uh Hydro so we're we're pretty happy about that how's the

12:19

pricing the pricing the pricing is actually not as not as it's like five depends on depends on the business it varies but it's not much more than the uh average the industry average but the HPC business is very is very much apples and oranges compared to the Bitcoin mining business when you look at pricing and um and we've been very comfortable with uh the pricing regard here's the thing about the HPC business we don't have to care so much about the pricing of the energy like Bitcoin mining

12:46

because the margins are so fat and because we have this HPC business that more than covers our GNA more than covers our fixed cost even if we made no money in Bitcoin mining over three years we'd still be quite profitable that's a that's a position we wanted to be in to win in all weathers and uh Fred you've been noding through through everything I I feel like you know both both theirs and your businesses quite well so how how is uh how would you compare to to these two well I think as I described before we're

13:15

kind of operating in three different Realms of of Diversified businesses the utility scale mining similar to Jason's model energy harvesting which is fairly unique uh and then a technology business which is really all about leveraging technology to make even AI more efficient you we have our imersion Technologies being evaluated by aiems now as a way to get that power density and cool which on chip cooling doesn't provide Power density right so uh I think that everybody's approaching this in different ways everybody uh is

13:46

identifying what business model works best for them and I think you'll see lots of different strategies HPC I think is a race right now I think the hyperscalers will win it um and they'll win it with Spades because they have Capital they have experience and they have the government clout to get it done the single biggest Lobby working against Bitcoin miners today is the AI industry uh they're funding huge efforts in Washington DC to try and get laws and Regulators to view AI as a better use of power uh Talon energy recently did this

14:18

deal um with Amazon AWS $650 million for $650 megawatts or something like that and uh nuclear energy 2.1 cents you know Green energy that otherwise could have been used for Bitcoin miners yeah I do have to mention something about the hyperscalers that Fred mentions a lot so we actually went we actually win our businesses from clients who we with the hyperscalers these hyperscalers are building their own llms our clients don't want to be in bed with people who are building a competitive product so we've actually

14:49

been able to build this giant business again the biggest one in the sector winning Business from The hyperscalers because they have a conflict of interest building their own LMS with the clients that are bu building the same product so there is actually a huge opportunity in the ecosystem to win against we're not trying to win against the hypers SKS we're winning business from clients who don't want to be in bed with the hypers skolar there's a huge market for that and we're proving it we're proving it

15:16

love it and you mentioned regulations so everybody's in different jurisdictions how how do regulations affect what you're doing like you have the Texan ones and such or is that is that a challenge or an opportunity or how's how's that playing out regulation is definitely a challenge when you have the president of the United states trying to put a 30% energy tax on Bitcoin mining specifically um you have countries like Sweden who repeal their uh tax abatement for data centers and then go and find

15:41

people operating in the spaces countries like Iceland where the minister has said that they want to take energy use away from other things other than food because they want to be food independent so no matter where you operate whether it's a very developed country or an undeveloped country you have to deal with government regulation and risk it sometimes helps you sometimes it doesn't and certainly in Texas I know Jason and I have both experienced some of the challenges that exist in that state um but we think that longer term the good

16:11

side of Bitcoin mining will win out and people will see the light and understand the benefits we provide to the grid the value proposition of Bitcoin andit Bitcoin mining specifically is so clear and we don't need special regulation or rules or assistance from the government to be successful we simp simply are just playing by the same rules that have been laid out by everyone else um with reference you play off uh uh Fred's point there is a hole of government attack from the Biden Administration on the Bitcoin Bitcoin mining is just part

16:45

of that you can look at so many different parts of this of this Administration that is going after the Bitcoin and the broader digital asset ecosystem why I don't know we can come up with lots of theories but it's not productive it's not uh to the benefit uh for the citizens and residents of the United States and it's ultimately driving business elsewhere you know I know Marathon uh historically has had all operations in the United States and has recently launched a uh you know a plan to put 50% of its operations

17:18

overseas over the next few years why you know I we obviously rhetorical question um so this industry as a whole has a lot of work that we have to do in the education and advocacy space and I the good news is uh so much of us worked so well together in accomplishing this we have a shared objective we understand that together we're stronger than we are alone and it's a cohesive message that's required and I think we are seeing good results for this I think there are many regulators and lawmakers the local state

17:53

and federal level who understand Bitcoin mining earlier and understand Bitcoin earlier this year the information uh uh the Energy Information agency a part of the Department of energy in the uh United States launched this very unlawful survey to try and collect all this information uh around Bitcoin miners with you know one objective probably to justify a 30 30% tax and in the wake of that we saw lawmakers defending Bitcoin mining onx Twitter uh writing letters to these agents genes uh pushing back against this type of government overreach and I

18:34

think it's a testament to what we as an industry have done in an education and advocacy effort and uh as the result of that we as an industry came together um Industry Group and then RI as a co co plaintiff and we litigated against the federal government against the survey and we got it stopped that's an example of this industry working together and uh I think any government overreach should know that if they're going after this industry they are going to be met with opposition and no one's going to roll

19:04

over easy love it yeah and how about yours like he's like overseas but over Lakes how was Canada doing I I I don't have that much uh faith in the rationality of of politicians uh you know many years ago bit digital had its Fleet in China entire fleet was in China and uh we felt that was a a jurisdictional risk and we started to migrate our entire fleet uh and this is before the band on Bitcoin mining in China which is effectively what Biden is doing was a 30% tax is effectively a ban on the sector same

19:37

thing so you know before six months before uh China announced the ban we felt this is a this is a risk this is weird yeah and people thought we were paranoid tingling yeah and so we moved the entire fleet migrated that entire fleet Vice actually did a document you on it was quite funny but we we migrated the entire fleet from China into the United States during covid which was not an easy feat and uh and thank God we did that because China announced a ban on Bitcoin mining which is not rational so I don't know if the us is going to

20:11

follow suit attacks is the same thing effectively as uh Banning the industry and that's one of the reasons why we don't own our own infrastructure because we want to be infrastructure light if we owned our infrastructure in China we'd be screwed we were able to take our machines we're Nimble take the machines and pull them out today we have have seven operating partners and we create competitive tension with those partners and we're able to get out of one of the operating partners and go into a better

20:38

operating partner why if for economics or if there's a jurisdictional risk we can do that we could easily move out if you're own your own if you own your own infrastructure you can't easily do that now infrastructure is interesting if it has more than one use if you have just Bitcoin mining that's an I feel I feel that's an existential risk if Biden wins but if you could have that place used as an HPC business or some other business then there's still value in infrastructure that's that's a position

21:07

we've taken I realize it's Unique but I believe the paranoia survives love it yeah Andy Grove yeah only the paranoid yeah so how about uh kind of far-reaching they're going through this the fouryear cycle for the having and such uh obviously cap X changes you probably don't have too much to say on that one because you're you're very Nimble uh but how does it work with regard to uh you get the same amount of Bitcoin but fees like I think now it's about 3/4 of what miners are making is

21:32

is in is in fee revenue and just profitability how what's that cycle like and has it changed over the last few Cycles or is it relatively similar I'm it's it's actually maybe more my question then want if you look at there were a couple of instances last year where fees exceeded the block subsidy MH uh because of ordinals and uh the brc2 launch uh we had runes uh at this having which uh I think there were a couple blocks we won that had 18 Bitcoin in fees when the block subsidy was three um but there are other things that you can

22:08

do um so the the goal is that fees will eventually grow Beyond it so we've built some layer 2 Technologies one product service called slipstream which essentially lets uh somebody who wants to transact on the Bitcoin blockchain reserve space in a block oh so think of it like um with an airline wholesale travel company can buy seats on airplanes on every flight that goes and as an option to use them similar model so financial institutions can reserve block space we did a study looking at the end of last year and the beginning

22:40

of this year and if you were to design the optimal block assemble the maximum value of transactions you could typically the average pools out there that orchestrate what Bitcoin miners do the third party pools operated at about 98% of the maximum value our pool which is a proprietary pool up through the end of last year was about 2% higher than the optimum beginning of this year we're 7.

23:13

6% higher than the optimum block and the third party pools are 2.6 to 3.2% below the optimum block so what that tells us is we're earning 10% more in fees than everybody else right because of that we've also brought out a technology called Enduro which is a open- source technology that lets anybody build applications on top of the Bitcoin blockchain there's a lot of development activity going on and I think as people get more involved at layer 2 that's where Bitcoin mining kind of uh really will start to shine as basically as we build the ecosystem for

23:43

more transactions there'll be more fees that'll go to the miners that'll cover the security budget and then as mining goes down through its longtail um again it'll be very secure industry long term very common question that I'm I'm sure we all get is what are you going to do after all the Bitcoin is mind and you know first it's like okay don't worry that's not until 2140 but transaction fees is the bigger part of that answer and we're seing lots of volatility in that over the past year or so we've seen

24:11

these periods of huge transaction fees like Fred mentioned around the having ear earlier this year in the middle of last year so you know that that activity takes off and then it subsides but it shows the direction that Bitcoin mining rewards are going Bitcoin mining blocks have a fixed amount of space as there's more demand for scripts and signatures to be included in those blocks there's a more vibrant Market of fees that's what we as miners benefit from and that's going to be the core uh focus of block

24:42

rewards going forward

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