Episode 8: The Economics of Mining Cryptocurrencies (Panel)

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Join our moderator, StartWell’s CEO Qasim Virjee in a discussion about how cryptocurrencies are ‘mined’ and the business models supporting this new sector’s evolution.  This live panel discussion was recorded in person as part of StartWell’s guest speaker series on July 12, 2018 and included: Scott Howard (Cofounder, ePic Blockchain Technologies), Shelly Gray (ex-COO Greenminer, now Canada Blockchain Group), Scot Johnson (CEO, Digital Shovel) and Alim Khamisa (Director – Research & Business Development, HyperBlock)

[expand title=”Podcast Transcript”]

Qasim Virjee 0:18
Is my cryptocurrency the economics of that? And I don’t know where this conversation is gonna go, because I don’t know, personally one person sitting up here with me. And to that end I’ve done my introduction and we’re going to get them to do their and so if you guys could just tell the miner Governor like randomly that was yours you’re going to share it just introduce yourself

Alim Khamisa 0:42
kick it off so my name is Leanne Cammisa you work for hyper block comm have a research there. We are primarily a mining company but also focusing on custody trading and

Scott Howard 0:55
buttresses Scott Howard are one of the cofounders of epic blockchain. So we’re Tennant Castle, so we hang out here

Qasim Virjee 1:04
at Paramount.

Scott Howard 1:07
And we build microchips for blockchain mining. So we’re in the design space we build, we build machines, that doesn’t matter.

Shelly Gray 1:17
Hi, everyone. My name is Shelley green. I’m from Canada blockchain group. And we do a variety of stuff we do. Mining, we are hosted. We are also in developments with chips similar to spots, maybe a little bit more advanced but but similar, I’m also into the the education of just spreading the word if regards to this industry, what we can do to improve how we can work together, we can build it, we can ensure that we have a very long and successful future.

Scot Johnson 1:57
Everything they do is Scott Johnson, I’m with digital shovel. We focus on building modular mobile mining units who act as a host and to sell a solution to other miners, like the rest of them here.

Qasim Virjee 2:14
Well, that’s all I got my own. I’m good. Thank you. Why is louder than you’re really really good panel. And I’m very excited to engage you guys in this discussion, we’ve got to do a little bit of one on one to start, because I’m an ignoramus. And I don’t know much about this topic. Except for what Scott as one of our member candidates, that struggle is told me the corridor and bathrooms and stuff. Yeah. Throw that out there to see, you know, bathroom Chatter is very important. So the topic is the economics of mining. And I think it’s really interesting that out of the four people here, two people are involved in no three people involved involved in hardware. Three people are miners, or run operations that do calculations for money. Matt, Matt pimps and prostitutes all of you to some degree. So, okay, so we could take this topic in many ways. But let’s talk really quickly about the basic tenets of money. What is the justification for it? What is it? And how currency dependent or specific is the process? And then we just, you know, ad hoc it from there?

Scot Johnson 3:45
Well, I guess it depends on what type of consensus algorithm you’re working on. There’s a variety of different ways of thinking of process ammonia, but consensus is agreeing on a transaction being valid. And mining in terms of hardware, which a lot of us do, is the process of doing some work, in this case, trying to solve a random puzzle, to show that you have put enough effort in to get a vote on that consensus. I’ll let somebody else expand on that

Qasim Virjee 4:13
also, assesses you for the audience’s that you want to

Scot Johnson 4:17
consensus. And so like let’s say I started a cryptocurrency today. And I want to call it the scotcoin. And I wanted to send a coin to you. I’m going to yellow to the rest of the room and say, Hey, I’m sending 1.2 camera. Everybody else in the room has a copy of the public ledger, which is the blockchain of every transactions ever exist. They can then vote on whether or not that transaction is legitimate or not. And in order to get rights to vote, votes the wrong term and I’m just simplifying it. They have to solve a puzzle in order to be part of that consensus pool and consensus is that that group coming to an agreed consensus that contract that transaction is valid and adding it to the blockchain. So it says like what’s the correct thing?

Qasim Virjee 4:57
That’s a calculated thing or like there’s a rule rules are established to come to a consensus or in some, some guy’s raising his hands and

Scot Johnson 5:05
each blockchain has its own. Each blockchain has its own certain number of what they call confirmations or people that need to go from a transaction in order for that consensus to be reached. There is some religiosity

Qasim Virjee 5:15
to this outcome, he is

Scot Johnson 5:17
very structured. In fact, I’m really dumbing it down no offense. I think that’s a very, very good

Shelly Gray 5:24
explanation. I always say, it’s like a neighbor going over to borrow a cup of sugar. And then they are very nosy neighbors all around, and the person says, Hey, I’m going there. To get a cup of sugar and everybody pizza, let’s say this, uh, yeah, she went over there, she got a cup of sugar, you know, and then all this information, depending on how many people you want to justify that, yes, she went over there to get a cup of sugar. And then it gets stopped. She went up today yesterday, and she got a cup of sugar, even dumber.

Scot Johnson 5:56
And more importantly, and more importantly, they tell the whole tech Yeah, and the whole town knows. And everybody recognize, hey, you know what, that that group of people there realized 100% that occurred. And they they then publish that as a block to the blockchain, which everybody then gets a copy. And so you didn’t necessarily need to be present for that a certain number of nodes did and the next time you go online, your node is going to get a copy of the rest of the blockchain and you will know that that transaction did occur with finality. I mean, are we going to get into stake in long term?

Scott Howard 6:32
So I think the key of that, like those are both pretty good explanations is is the proof of work. So that kind of goes into a really specifically what mining is doing. So that’s in order for everyone’s voice to be valid, like, Yes, I saw my neighbor walk across the street and exchange that cup of sugar, I have to put something on the line. I gotta make an expanse of the Bible lying. I’ve actually expended resources that that cost me something. So in the case of proof of work algorithms, Bitcoin being the biggest and best of all, that is not true. I fired a whole lot of electricity through a bunch of machines that validate that block. And that’s the expense. That’s the proof of work that makes my book and my witnessing of that transaction valid. In the neck kind of goes into the broader economic theory of game theory. Why should I have I just spent 1000s of dollars on machines and electricity that witness that? Therefore right now, and you’re not.

Scot Johnson 7:35
And to expand on that, I mean, that’s just one form of consensus. So when I started earlier, I said consensus algorithms. Trying to solve a puzzle and spending money on electricity is one example of consensus or consensus algorithm, which the four of us happen to work on, you might hear things or see articles online referring to proof of work versus proof of stake. Proof of stake is a slightly different way of doing it, where you simply put up money, which one could argue it’s the same because you’re spending money on hardware versus spending money that you’re pledging and if you get caught lying or trying to post false transaction, you lose that money. The argument right now I’d like to hear everybody else’s opinion on this. The argument right now is proof of stake has more of a penalty because like let’s say I spend $10,000 on mining equipment, if I and I spend 1000 bucks on electricity for the month to mine X number of coins and I make a return. Now if I try to publish a false transaction to defraud the network, I only lose my $1,000 I don’t lose my machines with proof of stake you need to put $10,000 for example to get the same return but if I get caught publishing a false transaction I lose my whole $10,000 I’m had mixed feelings on this topic but I’m I’m interested to hear what the rest of you think about this.

Shelly Gray 8:59
Personally, I think that proof of stake just really limits the participation and the amount of people that can participate because it just makes it a big boys game and right now there’s just it makes the market smaller and just feel like it’s not something that I like

Qasim Virjee 9:18
so shall we break it down for the people that face or any you know, let’s talk about the libertarian kind of perspective here of someone goes out get some computing hardware hacks it together and starts firing off your calculations based economics unit economics of consumer produced you know, Bitcoin algorithm calculations what’s the cost of spent to make how much of that back in what timeframe? You guys don’t need? limos

Alim Khamisa 9:56
Yes. So for for Bitcoin for example. As you know, running a standard, does anyone here know what like an ant miner s nine miners, a lot of people might know, it’s kind of like the standard mining unit right now. Think of it like a there’s a hardware. Yeah. And it’s kind of like an aluminum box filled with this async chip. And it’s doing all these calculations. So it’s really hot. If you if you look at how much you can mind today, it’s about $4 per day, based on the current economics based on the current price of Bitcoin, the current difficulty level, we can get into all that detail. And if you look at how much power it uses, it’s about 13 150 Watts, give or take. If you’re really competitive on the cost of electricity, that’s going to be about a buck 30 a day. So that’s like electricity at around four to five cents per kilowatt hour. Just to put that into perspective, we can order residential rates today, but we’re paying anywhere from 15 to 20 cents for the cost of electricity plus the delivery, not including the delivery. So 45 cents is an extremely competitive rate. And I think only at those levels. Can you really mined Bitcoin and all these cryptocurrencies profitably? So based on you know, in, I’m just gonna get into one other things like

Qasim Virjee 11:22
that $4 that you can make out of one break that you can buy online for six $700 Right now, I’ve

Alim Khamisa 11:28
been made site for selling for about 700. Us and that’s $4. Us.

Qasim Virjee 11:32
So 1000 bucks, Canadian ish. You make $4? Gross. Yeah. And then you unless your expense on your electricity. And so, yeah, okay, what’s on track people?

Scot Johnson 11:43
In retrospect, so and you’ll know these numbers? Why don’t you give them numbers and what it was like at the start of December?

Alim Khamisa 11:50
Oh, yeah, it was like mining back then. It was stupid, profitable. And this is what I was gonna get into. So the next thing that I think is really important for anyone that’s interested in mining is to think about difficulty. So difficulty is essentially like the Bitcoin Blockchain built into its kind of governance model and its algorithms A, it wants to produce a block every 10 minutes. So if the four of us have a miner, and you know, we’re producing blocks every 10 minutes, now Qasim joins and he’s got a miner a now there’s more hash power on the network, the block time is probably going to decrease a little bit. And so the Bitcoin Blockchain automatically adjusts the difficulty up to maintain that 10 minute come standard. So what’s happened since December, is there’s been a shit ton of hash power that has kind of joined the Bitcoin mining network and you know, for almost every blockchain for that matter. And I’m gonna, I’m gonna throw out some numbers, just to kind of put this into perspective. So in 2017, the difficulty rate went up by 490% for just the Bitcoin Blockchain. If you look at Aetherium, it went up by 20 300%. So

Qasim Virjee 13:07
that means the direct correlation between that increased and the, you know, the revenue, yeah, like,

Alim Khamisa 13:14
yeah, so so like, I mean, if I’m a hypothetical, I’m just gonna, you know, in December, if I was able to mine a Bitcoin in, let’s say, six months, it’s gonna take me two years now, two years or longer. So based on like art, I think it needs correlation to the price increase, both to the present value. So that’s a good point. I’m gonna say one more thing before I pass the mic. So basically, what’s happened is the difficulty rate has continued to climb as more hash rate years join the network, the price is kind of stagnated. So effectively, what has happened is, you have this massive, massive margin compression, and so only the most lean operations can survive. So you have to have very good access to low cost electricity. Very, very low overhead, and sort of, you know, high hash rate, of course, and, and yeah, that’s the only way to kind of weather the storm that we’re

Qasim Virjee 14:04
kind of in right now. Okay, so before we get into like server farms, and China owning the internet, because two of you are involved in hardware, and hardware that extensively is going to beat this curve even further in the next few years, until you get your hardware fully in the market ASICs chips coming out to squash these algorithms a lot more efficiently and faster, cheaper, which seems like the right way to go here. I’ve got a kind of a cyborg question. So if we’re talking about Bitcoin, and there’s a chap inside of the machine named Satoshi, this virtual Japanese fellow, the supposedly inventor of the Bitcoin, yes. Okay. The question is, what was this specifically? I’m trying to try to do the economic theory here of justifying any endeavor in this space. Aside from looking at your costs going down, and guesstimating, the fact that the price in the market for what you’re producing is going to fluctuate advantageously in the long run, you know, I’ll leave it there.

Scott Howard 15:15
So, from a hardware perspective, it’s maximizing the hash rate value per kilowatt hour. That’s the core fundamental the business of the more hash I get per kilowatt applied, the better performance by business as the mining operations, like our job is the hybrid producers give you as much possible hash for the least amount of kilowatt hour consumed. And those kilowatts fundamentally from an economics perspective, are they underwriting the value of the asset. All that electricity in the equipment attached that electricity is the underwriting of the $250 billion of value that Bitcoin is the why that’s valuable isn’t it’s, it’s the security of that network. It is the immutability of the network that I have one and you have zero be immutable. All that electricity applied to those machines is what underwrites and secures. So essentially, it’s creating that bank vault, around those points. That underwriting is why we have faith, it’s, it’s a store of value. There’s no bank that can take that away from me, there’s no government that can take it away from me, there’s no other hacker that can take it away from me unless I do something dumb with my keys. Because there’s a massive network of three to 4 billion machines running,

Qasim Virjee 16:33
it’s Sorry, what does being done with my keys mean? Maybe you have an anecdote that you can share.

Scott Howard 16:38
So if I live, if I leave cash on the table, and just hope that you guys are all just gonna leave it there and leave, I was hoping you’re honest. Whereas if everyone in this room is staring at that money permanently, and knows that the the, the essentially the consequence of you taking that in like now you’re gonna kick that inevitably, everyone in the room know you still have money.

Qasim Virjee 17:02
But then there’s also these examples of people losing their keys, right?

Scott Howard 17:08
Let’s go 4 million coins worth.

Scot Johnson 17:12
That’s no different than you losing your walk to

Qasim Virjee 17:14
his office. Except the money doesn’t go

Scot Johnson 17:16
anywhere. But yet as somebody else’s pocket

Qasim Virjee 17:19
with a kid with the backpack, the last $30 million in cash in a corner. So no one’s spending that Bitcoin is just opening. It’s sort of like you know, all of those cash reserves that belonged to that buried in the soil, but how’s that about

Scot Johnson 17:38
each and every element that actually makes the rest of our Bitcoin more valuable?

Qasim Virjee 17:41
Is it actually deflationary? It’s just

Scot Johnson 17:45
taking money out of circulation, this definition of deflation.

Qasim Virjee 17:49
Okay, but, okay, so I guess this could someone explained to me, inflation and deflation are natural in the natural sense.

Alim Khamisa 17:59
Because well, okay, well, maybe we’ll say is, you know, at a high level, like the deflationary aspect of Bitcoin, which is, you know, going off of what Scott was saying, is there are 21 million Bitcoin, as most people will probably know here that will ever be produced in the history of Bitcoin, I’ll be the last one’s gonna be created in the year 2140. And what happens is, the block reward right now is 12 and a half Bitcoin. So every time a miner solves a block of transactions that gets added to the blockchain. For Bitcoin, specifically, it’s 12, to half a point. Now every four years, that block reward actually gets cut in half. So in 2020, I think it’s gonna be around June or July 2020, we’re gonna see that that block reward get reduced to 6.25. And I’m sitting, I cut half in half and half. It’s really like an asymptotic curve, right? So eventually, there’s going to be very, very little Bitcoin being mined. But the reason we’re probably still gonna be buying it is because we’re hoping that it’s going to be worth like 10s of millions of dollars at that point. So that that’s kind of like the deflationary aspect of it. And I know you wanted to get into like, you know, like economic theory. So, feel like could anyone ask, so this looks like that colors, the picture? Okay.

Scot Johnson 19:14
I actually want to ask you a question. Just to follow up on that. So and this is something I argue with myself and other monitors so you just mentioned that

Qasim Virjee 19:25
you wrote the second Michaels? No, no, I mean for both of you so

Scot Johnson 19:36
he’s talking about mining coins, with the the thought of it going up. And it might be a minimal profit or no profit. What’s the difference between just buying Bitcoin at the point because he here and like, not not so much on the e6 side, but especially specifically guys that are doing GPU mining. I’ve come across a lot that are like okay, I’m gonna mind this new machine. should point that’s worth nothing, but I think it’s gonna go up and money. Like it might be theory, but I could buy 500 Shit coins and you just mined 100 of those shit coins? What’s the point in mind something based on future perceived value, then you can just purchase it?

Alim Khamisa 20:16
That’s a really good question. I think it really comes down to cost of production. Right? So if I can purchase Bitcoin today for what is that, like 6200 bucks us. And I get the money that Bitcoin for, you know, our I don’t know if I can save or constant production is but you know, if our cost of production is let’s say your $4,000 us, there’s a spread there where I gave about, I’m referring

Scot Johnson 20:42
to if there is not a spread? Sorry, I’m referring because there’s people that do it without

Alim Khamisa 20:46
a spread. Okay, so you’re saying which is baffling? Yes. And I agree with

Scot Johnson 20:50
you one of the one where the spread of that hashing power could have been better used on another point. And then going back to by the point the whole thought was gonna be long term,

Qasim Virjee 20:57
is that also what applies to people with their home breaks or small production levels? You know, like, it’s less cost efficient for them to be applying recommendation power to Bitcoin? And of course, for something else.

Shelly Gray 21:09
Yes, I just wanted to answer. So I agree that there are times when you’re supposed to mind some coins in a pause, and mine others and other persons stick to my coins, even when it’s not, that doesn’t make any sense, it would be better for you just to purchase the coins. And that’s, I guess, one of the advantages a person would have that knows the industry. And that’s how a lot of times you make a lot of money, you mind some shit coins, at the right time and the stable coins at the right time. And I think just having that balance is what’s keeping a lot of us in the game, when things don’t go as well. And also, it’s secure this against what you said, which is the perceived value, because we’re able to do certain things right now. And so we are making money now. But we’re also protecting ourselves for the opportunity of the client going out or reaching certain boundaries.

Qasim Virjee 22:02
Okay, and that three kind of connected questions on this, I don’t know, whatever the more your script monologue at once, so that you guys can know that. It’s four years from here. So the first thing is, okay, great. So you’ve got all this computing power, right? It’s amazing and powerful, it can make you ship coins, Bitcoins, wherever you want, as long as cheap, right.

Qasim Virjee 22:28
So the thing is, from what I gather, in order to be far more efficient at doing this and lower your costs and make more coins, you’re going to go out and buy some chips from Mr. Epic of blockchain technologies or wherever something that’s,

Scot Johnson 22:44
you know,

Scott Howard 22:45

Qasim Virjee 22:47
geared for this particular type of algorithm calculative Lee, that it can’t do anything else or to repurpose it, it would be very inefficient at the other cast. So there’s one thing to leave hanging there is that like, you know, that seems like a very risky proposition to me, this little stick that

Scot Johnson 23:04
is that we’re going to have conflicting opinions here. And that’s to clarify, so async. And what he does is, is an application specific integrated circuit that only does that. So it’s exactly what you’re talking about GPU mining, what we’re talking about, are literally purchasing your NVIDIA or AMD graphics cards, which is how I got into the industry when I first started mining, and I still have an operation does that because of not wanting to buy something that potentially could be obsolete or that I couldn’t use down the road. And that’s a matter of your confidence in that quote. So if you’re going to buy something that can do a SHA 256 algorithm, which is what Bitcoin and a couple other forked coins use. You’re married to that algorithm, if something changes, you have a very expensive fancy paperweight at that point. Whereas if Aetherium, which was considering going to proof of steak, which would have rendered obsolete changed, there’s a bunch of other coins you can do to use that same algorithm

Qasim Virjee 24:04
outside of cryptocurrency, are there other cloud based applications that you could focus your technology on computing that are similarly lucrative or otherwise follow? Hopefully paths to further profitability in line with Bitcoin right now or they’re, you know, like graphics computing clouds that are on demand for online gaming itself,

Scot Johnson 24:27
AI and machine learning. AI and machine learning has become relatively popular for an alternate use for GPU. I have not heard of anything per se that’s it yet.

Unknown Speaker 24:38
We’ll really dig it in there. I can I support basic mining? Yeah, making it a challenging Yeah. And I

Alim Khamisa 24:47
think it comes back to like the type of computing hardware right like GPUs are very like general purpose, right? You can do a lot of very different things with them. You can use them for, you know, for computational design and all these different things. 3d modeling applications or does very computationally there’s a big load to be able to do that. There’s one blockchain network out there that’s called Gollum, the Golem network which does exactly that. And we they pull all of these different resources GPU mining resources to, for for 3d Design and 3d modeling and all these very like intensive computation intensive use cases. So as you get up the stream, like, what else go back a little bit like, you know, when when Bitcoin first came out, we were mining with like CPUs, which is like a laptop or desktop computer, anyone anybody could imagine with that, and then very quickly, you know, we went to like, GPUs, and we went to like FPGA, which is like, even more specialized. And finally, to ASICs, which is kind of like the, the standard today. And, you know, I think we’re, as, as you kind of got down that level where you became less of general purpose and more specific, there’s less things you can do with that hardware. And as a buyer, you’re really concerned with, what’s the residual value of this like metal box that I have left after, like, the next generation monitor comes out? What can I do with it, and TierPoint with a GPU, which is like a graphics processing unit that any video gamers gonna have? Well, you know, once I have the money with that, and once it’s obsolete, it’s a better version of that that’s available that NVIDIA produces, or whoever, I could just sell that to like video games, or I could sell it to networks or cloud, like companies that want to do like AI or that want to do, you know, design and 3d modeling and all that kind of stuff. Now, with ASICs, it’s really difficult to do that. And so I think we’re starting to see and you might have a better better insight into this, but like, we’re starting to see application specific integrated circuits, in companies that are designed that are starting to layer in like an application, so that that end of life, I can still use that bottles to do something, and one of them, at least one of the most recent one ones I heard of last week was aI so when a big Bitcoin motor goes you know, reaches obsolescence, you know, you can kind of repurpose that, or you can sell it to a cloud computing company that’s doing AI computational model, or whatever it may be. And at least it’s not completely useless and it’s not just a paperweight at the end of the day. So we’re starting to see that and I think it’s really important for anyone that’s getting into into mining to think about, okay, I spent this capital on this box in three years or two years it’s going to be completely obsolete, don’t just throw it away or there’s a residual value where I can kind of gain back some of that initial capital but it’s

Shelly Gray 27:39
three years ROI a box hopefully with different love you guys

Scott Howard 27:48
so the channel so a thing I’d like to harp on often is all microchips are application specific. A CPU is applications specifically to computing you to run Excel on your on your laptop, etc. So all windows on your laptop running windows Excel all the concepts that we’ve got, so all chips are ASICs and Nvidia. GPUs are a prime example there are applications specific to graphics. So that these chips have been designed in order to run applications that some of them are broader. So graphics require a whole lot of parallel processing and use of memory and different things that that application makes it much more generalized just a CPU Mexico Journalisten is trying to run the whole laptop. The basic of the context of mining is I absolving this one out of over and over. So like a good example, shot to the six, the Christian algorithm, every single public key on this planet of the outside and outside of China run shot in six. So your bank account security sentences, your encrypted SSL and your email and shocking six, if we turn the Bitcoin network around and pointed at something else. We’ve opened up all the bank vaults literally. So there’s an interesting aspect of that. So there’s other applications that can be applied to both economics. Mining bitcoin is the most economical thing to do with a shockingly six basic versus trying to crack the NSA or doing something that much more legally law. There is no navy seals that knock down your door around the corner. The other life is interesting is under 400 talk about so we think about wrong the bitmain s nine is the predominant 80% plus of the Bitcoin networks running an S nines, at least. That’s mine. That is the that is the basic machine that is the server that it was running so like a hardware demo piece is hardware security and solving problems. basic economics. So they’ve been they’ve been around the longest. So this the hash rate there. So like the 45 million Tera hashes a second 40 million of that is coming off as nice. The, anyone who’s not is pretty much losing money, and there hasn’t been that many Dragon is shipped yet. Any feedback or like the combination. So the, the challenge is that we look at the last generation of machine, yes, seven, there’s a bunch of sevens out there. So there’s other, there’s other coins that have less hash rate difficulty, that make those assets valuable. You want to roll go roll Komodo coin in four or five other less interesting coins. And that’s my way of not saying check on. Those assets have value in that context. And then when the s nines get knocked out by the s elevens. And whatever, whatever Afric comes out of that if the random else comes in late this year, early 2018, it was as nicer to get flushed out those s nines will find application if not someone will build an application. But like that there’s 45 million Terra hashes of s nines out there. And I want a secure network, I’m going to build an ecosystem of technology and application around leveraging those s nines and that data power. The trick is I have to set some glue spend the electricity electricity will be the variable to machine.

Scot Johnson 31:33
Why would you do if you know, a bunch of other people have exponentially more powerful machines that can then be used to attack the system during development.

Scott Howard 31:48
So that’s pretty much true every coin that they coin. But you’re talking about other other ones? Yes. So there’s there’s a great deal, I would wager that I’ll go save you 200 megawatts worth of pretty much any hash out algorithm. If wanted to attack any network other than bit me other than Bitcoin. Slip at the top. You would have a 51% attack you unsecure that network. The question would defensively there is the elbow. So like any other shot to the six network, and it got whacked by 200 megawatts last night to get back.

Scot Johnson 32:32
But you don’t need to remember once you go on a stash when by 50% of 51% of the hash power and most major points today, without actually investing in the technology and rent the hash power

Qasim Virjee 32:43
kick, can we pass on that and just explain to everyone, I’m sure that people are kind of interested in this idea. Now we’re talking about industrial espionage, and cryptocurrency. So

Scot Johnson 32:54
what I was referring to earlier, when I was when I included the consensus there’s a certain number of people that need to agree on a transaction for it to be confirmed. One transaction after another are linked together through encryption. However, in theory, if I had enough hash power, and I sent money to you, you send to him and he says to her, I can go back and remind those blocks. And if I can prove that I got more confirmations, and that were confirmed on the other blocks, I could then create a new chain. So even though I sent money to you, and then you went and bought a car from him, and he won, or I can do that I can make those transactions not exist, because I have more hashing power, which means I can get more confirmations, which means I can have more people for the consensus on the transaction to invalidate your previous transaction. So when we refer to a 51% attack, that’s what we’re referring to. Aetherium has a really cool concept, which uses a hybrid mechanism of proof of stake and and proof of work to prevent that creates finality after your 50 blocks. But I could talk about that an hour. But what we’re referring to is when there’s websites where you can go to miners like us and say you know what, I’m going to pay you a premium for your hash power. I don’t actually want to build a farm that’s going to cost me $10 million, $20 million and $30 million to build. I’m going to pay you $2 million just for today. And we’re like okay, great. We’ve been great return off of our farm, you know, 10% return one day, but then they do that to a whole bunch of other miners take all their hashing power, put it together, and attack the network decreed a 51% attack which happened with verge coin, which happened with Tron, and a variety of others. And we’ve all known in fact, this is INSA Tasha Satoshi Nakamoto, his original white paper and literally references so it’s not like somebody created a new thing. Everybody knew what this attack everybody knew it was going to be a possibility. It’s just a matter of finding ways to prevent it.

Qasim Virjee 34:58
So what’s the cost? If anyone else out there had to rent computing power,

Scot Johnson 35:04
there was actually an article. What was that a medium article. And it shows specifically for like the top AI much hash power, how much money you need to spend the amount of 51% attack and then the argument is okay, I need to spend $5 million, can I find a way to spend 5 million or $10 million don’t have a $5 million return. And what guys did is they went, and this happened, they attacked exchanges. So they went to transfer money into an exchange, transferred it back out the exchanges, instead of waiting for 12 confirmations, because they’re greedy bastards, allowed you to use your money within three confirmations. Had they waited until the proper confirmation process had gone through? It would have been lost them

Qasim Virjee 35:45
like this. In some countries in the world, you can still do this with banks. And in the 80s, it was a big area of fraud is just checking fraud. So you deposit a check check. Yeah, and everything’s safe.

Scott Howard 36:00
That’s why there is no coin to Bitcoin.

Qasim Virjee 36:04
So we have two interesting question, at least is interesting. For me, I don’t know if anyone else is wondering this. So if the biggest input costs to your operation as a minor is not your pick axe, so they’re going to help me with a light on it. But instead, it’s electricity. Right? The man with the most electricity for the cheapest price wins. Or woman, or non gender person, you try gender neutral, or whatever. So who is that? And and why are electricity companies in all this game

Shelly Gray 36:38
right now? There’s a lot of fights in the mining industry, because I think big players don’t like the idea that these anonymous people are making a lot of money and it’s not being distributed and don’t really have their hands in it. So I kind of feel like that’s the resistance that we’re getting, they’ll tell you that you’re stealing power that couldn’t be going to build in a community blah, blah, blah, but I don’t think it’s that. Do you agree?

Alim Khamisa 37:23
Yeah. So I’ll give you guys like, you know, and we’re all you know, very well versed on what’s happening with big Maine and Quebec, but recently, so the province of Quebec has some of the cheapest electricity in the world, right? You can get electricity for two to three cents per kilowatt hour. And what’s happened is that they actually imposed a moratorium on miners and they said, you know, what, exactly what Shelly was saying, you miners are contributing nothing to our societies, there’s no sense of corporate social responsibility. You’re coming in, you’re taking all our energy.

Qasim Virjee 37:59
And you’re saying you’re going

Alim Khamisa 38:00
to create all these jobs. But a lot of these money facilities don’t really need a lot of manpower, because a lot of it is controlled remotely. And you can restart things if they go offline or remotely, you don’t need to be really be there. You’re going to floaters going between different facilities. So what happened very recently is Quebec said, Okay, we’re going to lift this moratorium now. And we are going to do this closed, kind of negotiation behind closed doors and not open it up to like everyone that wants access to this electricity. And they’re negotiating with the big guys, the big boys and the big boys. What I mean by that is bitmain. So bitmain is effectively the largest miner in the world. They’re also the same people that produce this ENSPIRE s nine and a bunch of other mining hardware units as well for different whether it’s for Z cash or Aetherium. Now and so on and so forth. And so they’re negotiating with this one big player swinging their weight around and lobbying the government very, very, like quite a lot. And, and bit maids come in and said, We want one gigawatt worth of electricity. Just to put that into perspective, one gigawatt is more than met what many countries use in a year. It’s a lot of electricity. And so they’ve come in and they’ve said, we want this electricity, but we’re going to put some conditions on it. We don’t want you to accept other miners, new miners coming in and giving them access. And for the miners that are currently operating in Quebec when their power purchase agreements when their contracts expire. We don’t want you to renew them. So it’s like a read. They’re playing really like they’re playing hardball with the province of Quebec, and it’s really unfair to other miners. But what I will say is that it really doesn’t matter that much because Canada is a massive country. We are the world’s second largest producer of hydropower. And there you can have access to electricity like today. three cents per kilowatt hour, for example, and a Newfoundland. In Alberta, there is a lot of industry that’s since gone under a, whether it’s oil and gas or processing facilities. And so they’d have all these power plants, these like private power plants that are kind of what we call behind the fence, which is not really connected to the public grid. And their sole purpose was to power these industries located on, you know, in close proximity. And so these are kind of distressed, or distressed power opportunity where you can go in, and you can negotiate really cheap rates, and you can get access to mind you it’s not, I mean, most of these are natural gas. So it’s probably not the best for the environment. But it’s better than coal, which is what most of China is based on. Right? Most of their energy comes from coal power lines.

Qasim Virjee 40:46
So a lot of our still,

Alim Khamisa 40:47
no, actually, we should Ontario shut down, or our last coal power plant a few years ago, and it was actually the biggest one in the world and the rest of Canada. There are still coal power plants, I think, in Alberta, but think that’s it. Yeah, we’re in Saskatchewan. And you guys ever been to a coal power plant? No, no, never. There’s

Qasim Virjee 41:06
fascinating. Johannesburg ones. It was, it was the city of Johannesburg kept this Macquarie Bank owned, you know, asset on a $1 million a month section, pretty low retainer, can you imagine this massive 100 year old machine or set of machines that can do it on a retainer, they just paid the owners of the asset to keep it in case we need more power, it takes like two weeks to turn on that factory to turn on the power anyway. And it’s literally a big oven, and they shovel coal into work. And it’s very inefficient, scary, this utopian factory to power factory,

Scot Johnson 41:49
just to your point on the natural gas and environmental impacts my lot of the natural gas and Alberta miners that are not miners, oil producers watch the pages to flare their gas, right. So in theory, I see using the natural gas and burning it to great power, then to mine Bitcoin is a lot better use compared to somebody just sitting there, they’ll literally just burn the natural gas off because their money is in the bill that producing they’re not making any money off the gas, it cost them more to transport it to grid. So they’ll pay a penalty, just to burn the oil or point bring the natural gas component off. So it’s not necessarily as bad of an environmental impact. At least we’re

Qasim Virjee 42:28
doing some use case for it. Interesting. And then also I have a question, which I think is a pretty I’m gonna follow by this absolutely befuddled by this. I don’t know what’s the Delta? Let’s say in Ontario, if you know it, of if I want to produce electricity, let’s call it through solar and sell it back to the grid. What’s the Delta on the sale price back to the grid versus what I would pay to retail from the grid for that power? And how does that price compare to the efforts of mining Bitcoin?

Scott Howard 43:03
I’ll let you give you the real number after stuff guy, I had some involvement in solar energy in the fit contract. So the Fit contracts were essentially like 25 year annuities that the McGuinty government offered to people to do solar firms, which I think was somewhere between 14 cents and 16 cents a kilowatt hour guaranteed pay from Hydro One and OPG. So I would estimate my mining friends are trying to operate about an income level of somewhere in that 12 to 14 cent kilowatt hour return on on energy at furrows, so there’s probably a pretty good bake off if I had to fit contract verses I wouldn’t mind that, but I would hope I’m in a good bitcoin price should go Bitcoin, operating those things, getting those things set up. So there’s all kinds of different environments. So they’re good examples, Mongolia, like they’re gonna put silicone across all of all, the Gobi Desert going to be a solar panel, and they’re going to run a lot of mining, they’re mining, both in the traditional sense of they’re going to dig holes in the ground in order and oil and stuff like that. But they’re also setting up mining operations from a crypto perspective around that offer solar because that solar is that cheap and the trade off of those solar firmers. In Mongolia, for example, what happens is a similar type of 14 cent kilowatt hour and they sell back of the grid that go to the goldmine next door, or if they can make 16 cents a kilowatt hour and a Bitcoin keep it and that they can do this trades around that they’re going to bounce around. So there’s a lot of opportunity in that the natural gas coming off from oil operations, that’s great liability. All these guys don’t word I have nothing but a liability rolling in the liquid natural gas. We got to store it, they got to ship it until someone builds a pipeline. It’s it’s a liability. And so what we’re doing is taking that captured energy and converting it to actual value.

Qasim Virjee 44:52
As of right now, does anyone on this panel will have any, you know, nonprofits or B corpse or other it doesn’t matter what their moral law a motivator is, but any company’s looking at emerging markets and creating kind of sustainable sources of micro money through this solar power breaks that you put on your, you know, tin shelf, tin roof shack.

Scot Johnson 45:18
I don’t know that anybody’s like, if less, that’s your marketing ploy, that you’re doing green energy. Fossil fuels are simply cheaper degrees energy is also trying to be an evergreen producer, or you’re just trying to buy as much Bitcoin as cheap as you can. And burning oil or natural gas, and coal, nuclear power plants are the most efficient way to do that. So and even in Ontario, the only reason we made money here that those are the winners used to get 44 cents per kilowatt hour I was in that space, too. It was great. The only reason we did that is the reason why we paid the most expensive rates in Ontario, because we subsidized a bunch of shit programs that we should not tell that we’re now going to pay for for the next 25 years. But going into an emerging market or not. I mean, it really comes down to what your input offices, there’s, we’ve been presented options of going into regions that are less politically stable. Saudi Arabia’s already get power holiday for one to 1.5 cents. But who knows if they’re gonna decide one day, there’s some decree and they’re taking your mind. Right. So there are options to go to new markets. But the the issue with that is, the reason it’s virtually is because they usually have an unstable political structure, and the risk associated with putting your capital investment there and the probability and the insurability of it sure,

Qasim Virjee 46:39
is usually, yeah, no, it wasn’t talking about a commercial operator finding, you know, cheaper territoire is more about tightening up the self sustainable producing unit, and making it available to people that don’t have access to, you know, economic generators, to your broke, you know, person living in poverty, but you have access to the sun. If this computer that can itself be solar powered and connect to the internet and mined and run itself can earn you four or $5 a day. That’s pretty good.

Alim Khamisa 47:13
So I think one of the critical things behind even addressing solar for mining is, first of all, there are like mining outfits of the world that have started to look at solar. There’s a big one in Australia that was announced, I think, in q1 of 2018. And by big I mean, actually, it wasn’t that big was just a couple of megawatts. But I think one of the one of the key things with solar is, you know, the issue that’s pervasive is baseline energy, right? I mean, if you look at solar, one of the key problems is, if you look at its efficiency, right now, commercial level efficiency is anywhere between 15 and 20%. And I think like in labs, we would be able to have been able to get to theoretical efficiency, efficiency is like upwards of 30, closer to 40%. But it’s way too expensive to make solar panels like that with PV panels like that right now. So if you’re thinking about, let’s say, Bitcoin mining, and you want solar power, that’s great. There’s going to be this upfront capital expenditure, which you’re hoping you’re going to get a payback on, but you’re only going to get like five to six hours of peak, good summer, per day. And so what do you do for the rest of the time, you need some, some other kind of baseline energy. And this is actually an issue that’s common across like every energy grid Alto in the world today, there’s something called the duck curve. I don’t know if you guys have heard of it. I’m sure you guys that through the space. The duck curve is essentially, there’s this baseline level of demand. And now in the daytime, we’re starting to see more renewable energy like wind turbines and solar starts to come online. And so we’re starting to see less dependence on the grid. So are dependent on the grid is becoming false negative, but in the neck time, it started to really peak. So we have this like, you know, this kind of like huge or low depends dependency on the daytime, massive dependency like overnight when we need access to power or there’s no sunlight. And that’s a big issue. And that’s going to be an issue for mining as well as we think about warm renewables sources of mining, or energy providing, but right now, it’s not really like I wouldn’t really say it’s feasible. I think one of the things that will make it feasible is battery storage. I don’t think the technology is there, it’s getting closer we’ve seen Tesla come out with like, you know, their home battery units, which can power home at some point in the day and if we can kind of scale up those batteries and make them very, very efficient. For sure. You know, within the next like few years, I wouldn’t be surprised to see a like a whole mining operation and several megawatts running off of solar and a battery.

Scott Howard 49:57
And that will change every industry not mine. Like every industry

Scot Johnson 50:04
they are oriented that way they the, the stuff they’ve done with batteries is crazy. If you go down to the bottom of Carlisle here near Lake Shore, we’re really going off in a tangent here. But they actually, I mean, you traditionally would use natural gas generators to do what’s called Peak shaving or deal with peak power demand. And it is way more economically feasible now known as your baseline power low but at least for your peak load, to use batteries to fill that gap rather than having to turn a gas generator on like that. If you go down to your car log Lakeshore, just environment gas station is there’s a huge battery plant there. And it’s lit and they’re running it off the power plant, they’re loaded into the nature of the event, and then using exhaust at the picture to

Qasim Virjee 50:52
awesome, I think we should wrap it up any closing statements anyone wants to make? Otherwise we’ll turn on some tunes and have a drink and everybody was able to talk to the key stuff. Hodel Yes. December, all the mind. No, come back. Don’t panic. It’s like any stock. Don’t panic.