Public Key Podcast

Bitcoin Mining and Data Centre Innovations: Podcast Ep. 76

October 2, 2023 | by Chainalysis Team

Bitcoin Mining and Data Centre Innovations: Podcast Ep. 76

Episode 76 of the Public Key podcast is here and we have a brand new look! 

During the downturn in the crypto market, several miners have shut off their rigs and closed up shop. In this episode, we speak to Jaime Leverton (Chief Executive Officer at publicly traded bitcoin mining organization, Hut 8), who shares diversification strategies and discusses the impact that energy, dropping prices, and equipment costs have had on the crypto-mining ecosystem. 

You can listen or subscribe now on Spotify, Apple, or Audible. Keep reading for a full preview of episode 76.

Public Key Episode 76: The future of Bitcoin mining and diversification and environmental opportunities

Bitcoin Mining is not for the faint of heart and with the constant fluctuation of Bitcoin prices and available energy, many operations had to power off their operations within the last year.

In this episode, Ian Andrews (CMO, Chainalysis) talks with Jaime Leverton (CEO of publicly trading bitcoin mining and data center operation, Hut 8). Jaime breaks down the economics behind bitcoin mining and the need for mining operations to diversify, and explains how Hut 8 brought on traditional data centers under its services. She addresses the criticisms surrounding the environmental impact of Bitcoin mining, emphasizing the industry’s efforts to use renewable energy sources and reduce carbon emissions. 

Jaime also discusses the convergence of AI and blockchain technology as the next frontier for innovation and provides updates about material partnerships with US Bitcoin Corp (USBTC) and Coinbase. 

Quote of the episode

“AI is scalable everything. There’s no limit to where AI could ultimately go, but what AI lacks is truth, is hardcoded truth. It lacks provenance, it lacks identity, and that’s what blockchain technology can really provide.” – Jaime Leverton (Chief Executive Officer, Hut 8)

Minute-by-minute episode breakdown

  • (2:17) – Overview of Hut 8, one of the first publicly traded Bitcoin mining company  
  • (6:03) – What drew Jaime into crypto and the potential for disruption
  • (10:20) – Challenges and cycles in the Bitcoin  mining industry
  • (15:35) – Excitement about the merger with US Bitcoin Corp (USBTC) and its benefits
  • (20:25) – Discussion on the current market for mining GPUs and AI
  • (25:21) – Addressing the environmental criticisms of Bitcoin mining
  • (29:43) – Explanation of how Bitcoin miners interact with power providers
  • (32:37) – Bitcoin mines can be set up anywhere with an energy source
  • (35:49) – Future focus on AI, nuclear energy and blockchain intersection for innovation

 

Related resources

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Speakers on today’s episode

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Transcript

Ian:

Hey, everyone. Welcome to another episode of Public Key. This is your host, Ian Andrews. Today, I’m joined by Jaime Leverton, who is CEO at Hut 8. Jamie, welcome to the program.

Jaime:

Thanks so much for having me. It’s great to be here.

Ian:

We have been planning this I think for over eight months. So it holds the record as the longest in the works Public Key episode. I don’t know about the audience, but I’ve got a ton of anticipation. You are famous, I think, in crypto circles. You’re one of Coin Telegraphs 15 Most Influential Entrepreneurs in Web3, and you run a publicly traded cryptocurrency firm, which is a rare, rare thing. Tell us a little bit about Hut 8 for people that aren’t familiar.

Jaime:

Sure, happy to. So Hut 8 is one of the oldest publicly traded Bitcoin miners. We started as a pure self-mining Bitcoin company. We went public initially on the Toronto Venture Exchange in 2018. We’re headquartered in Canada. All of our operations today are in Canada as well. Then we moved up to the Toronto Stock Exchange proper in 2020, and then we’re the first Canadian company in our space to do a list onto the Nasdaq, which we did in the spring of ’21. Since I took over the company, which is coming up on three years now, we’ve diversified the business model quite a bit. We still do self-mining of Bitcoin, but at the end of January 2022, we closed on the transaction to purchase five traditional data centers across Canada, two in Toronto, two in Vancouver, and one in Northern BC and Kelowna. So those are five data centers that do traditional types of workloads, co-location, cloud managed services.

Obviously, there’s a lot going on in that space right now with the boom in AI compute demand we’re seeing. So within the realm of Bitcoin miners, we’re unique in that we are fully diversified between traditional data center compute and Bitcoin mining compute. The other thing that makes us stand out from our peers is we’re actually the first public company to start holding Bitcoin on balance sheet, which we did really from inception going back to 2018.

Ian:

We’ll definitely dive into Bitcoin on balance sheet. We’ve had a number of folks who specialize in the accounting and some of the legal technicalities of dealing with that. I’d love the CEO perspective, but maybe we can start at the beginning because I think you and I have a shared enterprise IT background prior to crypto. You’re a relatively recent joiner to the space. Talk about your career that led you into the world of cryptocurrency. I’m always fascinated by the origin stories here.

Jaime:

It’s a long story. I’ll try to keep it as net as possible. I started my career in trad tech back in 2000. I did my MBA at Dalhousie University on the East Coast of Canada with a concentration in marketing informatics, which was really the precursor to what we would now consider big data or business intelligence, and because that program was so unique, IBM recruited myself and one other from that program and moved me from Halifax, Nova Scotia to Toronto. I’m actually from a small town about two and a half hours east of Toronto. So that was me coming to the big city for the first time in the spring of 2000.

I started working for IBM. I spent the first 10 years of my career working at IBM in a variety of different roles, quite a bit of it spent in the media and entertainment sector, doing a lot with emerging technologies in that space. Then I ultimately made the decision to leave IBM at the end of 2009, and that really kicked off the second half of my career journey, where I’ve worked for a number of companies, all Canadian owned and operated, really focusing on more transformation type of mandates, so going into business units or companies that are struggling with something and really driving or attempting to drive a fix of the business unit or the problem or grow it out in a significant way.

So over the course of the 10 years from me leaving IBM to me ultimately taking over at Hut 8, I had the opportunity to work for companies like Blackberry, Bell Canada, National Bank, Cogeco Peer 1, a lot of it spent on the infrastructure side. So the majority of my career has been in and around the data center world. So when I got the call to look at this opportunity with Hut 8, ultimately, what a Bitcoin mine really is is an industrial scale stripped down data center.

So it’s a technology I really understand. I understand the operations, the vendors, how the whole system works, albeit they’re completely different from a security and a redundancy perspective, how you build a Bitcoin mining data center versus a traditional data center, but because I understood the motion and the operations and I had gone down the rabbit hole with respect to Bitcoin in the 2017-’18 run, so I was already a big believer in the space, I had looked at other opportunities to come into the space, but ultimately didn’t find the right fit until it was the opportunity to take over Hut, which I did did in December of 2020.

Ian:

Wow. When you first saw crypto back in 2017, what drew you into it? What appealed? Also maybe the other side of that, what scared you a little bit since you didn’t immediately jump into the industry professionally at least at that time?

Jaime:

Well, so a couple things happened. I spent some time working within one of Canada’s large banks in their capital markets division and really had the opportunity to see how capital markets was functioning from the inside. I had the opportunity to go across the capital markets business and understand how they were interacting with each other, with customers, within the broader industry. It really felt like an industry that was ripe for some disruption. It appeared to me to be behaving the same way it had behaved for decades.

So I went proactively searching for what could be that disruptor for the finance industry and ultimately found Bitcoin, but it was still early, it was still speculative. There were a lot of bad actors in the space. There was a lot of drama. So I just paid attention to it from a peripheral perspective.

At that time, ’17-’18, run I was running Canada and Asia Pacific for Cogeco Peer 1, which is a traditional data center company. Almost overnight, we saw this overwhelming demand come in from a completely new segment of customers, and really what they were were Bitcoin miners looking for anywhere to plug in servers. They were willing to come into traditional data center environments despite the fact that they were paying arguably retail rates for co-location, but they were so desperate to get somewhere to plug these miners in that they were willing to come into, as I say, traditional spaces.

Now, there are a whole lot of problems that get introduced when you actually try to mix ASIC-based computing in a traditional data center environment. The industry learned those the hard way in that ’17-’18 run. Then ultimately, because the economics didn’t hold, most of those Bitcoin miners that came into a traditional data center environment quickly went under when the economics turned against them as that bear came around quite quickly in ’18, but through that process, I learned about mining and got just really, really interested in, ultimately, the promise of this technology.

Initially for me, it was about banking the unbanked. It was about really bringing something completely different to every world without borders, without centralization. Then I think for many of us, once you go down that rabbit hole and that fire sparks within you, it’s really, really hard not to eventually make your way into this space.

Ian:

That’s right. It’s hard to go back once you’ve seen it. You bring up a point that I would love your perspective on, which is as an outsider to the mining industry, it seems like it’s a boom and bust market mixed with geopolitics, right? So when I was coming into the industry two and a half, almost three years ago, everybody was getting kicked out of China, where it seemed like at least 50% of the mining activity had migrated to, I think, driven off of cheap power, and suddenly China said, “No more. Everybody’s out.”

Then we’ve seen over the last year with the downturn in asset prices it seems like a lot of people were turning off their rigs or actually going outright bankrupt and having asset sales. What is the economics around the mining industry? How does this work? How do you manage to successfully run a publicly traded company in that context? It seems like it would be really challenging.

Jaime:

You’re not wrong. It is very, very challenging. We do see cycles in crypto. I think the Bitcoin cycle, historically, is quite predictable. It all centers around the halving. Generally, we have seen the halving creates a bit of a supply shock because the amount of block rewards available to miners drops by 50% every four years, and that shock to the industry ultimately tends to trigger a new bull cycle, so a new cycle of price appreciation for Bitcoin, which generally happens about six months after the halving.

So initially, that shock causes really challenging economics for miners because, obviously, the amount of revenue you can generate drops by 50%, but what we see in the network, just based on how the network is designed, the most inefficient miners tend to also shut off immediately following the halving because they just can’t afford to run. So the network is always dynamically self-adjusting based on where the economics are.

So really, the strategy going into any halving event is to make sure you’re in the top 50% as far as the efficiency curve so that you can continue to mine even after the halving award drops by half, but really, the industry is optimistically waiting for that next cycle of price appreciation for Bitcoin, which is where all of the economics turn in in a Bitcoin miner’s favor in that window. My perspective, and actually I’ll take a step back, we did see a lot of pain in the industry last year across crypto, but that miners were not immune to that. Much of it had to do with leverage.

So the miners that got into the worst trouble and the bankruptcies that we saw in the space were really driven off of having too much debt that they couldn’t service when mining economics turned suddenly and more negatively than anyone expected. We did have the perfect storm of events last year between an energy crisis, which drove up our number one operating expense as a miner is energy. So prices skyrocketed. Bitcoin price turned earlier than people expected. It didn’t hit the all time highs that people were expecting and it dipped lower than people were expecting. So that obviously has a dramatic impact on our economics.

Then the third factor, which really nobody expected, was the network cash rate continued to hit all time highs, and we’re seeing that momentum also flow into 2023. So our economics are the most challenged perhaps that they’ve ever been since Bitcoin mining really started back in ’08-’09. So from my perspective, one of the things we’ve been very, very focused on since I took over was taking on as little leverage as possible, really having a balance sheet first approach to the business so that you’ve got some insulation from these cycles that can be difficult to predict.

Then the other thing is really looking at a diversified business model, as I talked about. So one of the reasons that we went into the traditional data center space was so that we would have a mix of fiat-based income streams, as well as the self-mining, which ultimately generates the Bitcoin as the output. So from my perspective, those are the two most important things you can do to manage the cycles is a diversified business model that gives you fiat-based income streams that aren’t directly related to Bitcoin mining economics and cycles, and to make sure your balance sheet is robust. So again, I mentioned we’ve been keeping Bitcoin on balance sheets since inception. We now have over 9,000 Bitcoin on our balance sheet, and that gives us a lot of optionality throughout market conditions.

Ian:

What’s the strategy with Bitcoin on the balance sheet? Are you holding forever as some of the folks in the community might claim to be or is there a more active trading strategy behind that?

Jaime:

This is something we’re constantly looking at. I have no intention to sell down our Bitcoin stack at present. We are selling monthly production to fund operations. As we’re going through, we’re going through a merger, which I’m very, very hopeful we’ll ultimately get final shareholder and regulatory approvals in the next few weeks. I’m happy to talk a little bit about what that will look like and what Hut 8 will be on the other side, assuming that transaction is ultimately approved and successful.

So our view in the bull market, one of the things we were doing with the stack of Bitcoin that we had on our balance sheet was actually putting it to work. So we had strategic relationships with both Galaxy and Genesys, and we were using a portion of our Bitcoin stack to generate a fiat-based yield. Now, ultimately, when market conditions turned and there was a lot of pain and noise in the industry, we pulled that back so that all of our Bitcoin would be custodied and wouldn’t have any direct market exposure.

Then over the past nine months as we really wanted to be able to enter into the right types of growth opportunities, including the merger we’re working through with USBTC, having that much Bitcoin on balance sheet gives us a lot of optionality to grow the business because, ultimately, it serves as a great currency to put towards growth.

We did announce about six weeks ago or so a credit facility with Coinbase, so it’s a $50 million US credit facility, where we’re using a portion of our Bitcoin to secure that facility. Coinbase is one of our custodians as well. So it’s a very elegant way to access non-dilutive capital at competitive rates to allow for us to continue to fund and grow the business. So that Bitcoin on balance sheet gives us a lot of optionality, more security and downside protection for cycles.

Over time, I believe, as we get more regulatory clarity and more sophisticated counterparties coming into this space, I think there will be an even greater opportunity for us to really put that stack to work in an increasingly meaningful way, and that is my intention going forward.

Ian:

Yeah, that’s exciting. It’s such a diversified business. Talk about what’s going on with the merger. I think this is a pretty exciting development for Hut.

Jaime:

Yeah, I couldn’t be more pleased. So we were vocal with our intention to continue looking for inorganic growth opportunities, the first one being the transaction that we closed to buy the Tarago data center assets at the end of January 22. Then we continue to look for the right opportunity to grow further. Really, I think one of the most important things that I was looking for in a strategic partnership like this was I think cultural fit is incredibly important. The USBTC team, really great group of entrepreneurs, young, positive, hungry, they had also been able to capitalize on some amazing growth opportunities during the bear market and really grow their business out in a meaningful way.

I was looking for an opportunity to get geographic diversification. As I mentioned, we’re entirely Canadian based from an operational perspective, and USBTC is entirely US-based. So their assets are in Texas, Nebraska, and Niagara Falls, and then their corporate team is based in Miami. So very synergistic. There’s really no overlap as far as where we’re positioned on the map.

They had also embarked on a diversified approach. So they have three primary business lines. They do self-mining of Bitcoin. They also do hosting. Then they built out a category called managed infrastructure operations, where they take their team and their purpose-built in-house software, and they actually go to other people’s sites and manage Bitcoin mining operations for them. That really provides … It’s two product lines that are fiat-based cash flows, one that’s Bitcoin-based in the prop mining, and different levels of capital intensity. So self-mining of Bitcoin is the most capital intensive in that you have to build and pay for all of the infrastructure, as well as the miners themselves.

The hosting side of the business, much less capital intensive in that you only have to put capital towards the infrastructure and the clients you’re hosting bring the miners. Then with respect to the managed infrastructure operations, really no capital intensity. It’s software and labor. So that gives us, when we think about ultimately if we’re successful in the merger, these businesses coming together. We have three different primary fiat-based revenue lines. In addition to the repair center, we also have a repair business where we repair third parties mining equipment, and there’s a fiat-based revenue component to that. Then we’ve got, obviously, the self-mining side of our business and my data center business.

So as these things all come together, it allows us to be very opportunistic in when and how we deploy capital based on what we’re seeing in the markets in which we participate. Obviously, one of the things we would like to be able to avoid and are lucky that we historically have been, you don’t want to be deploying capital into mining equipment in the peak bull market. We saw a lot of people in the last cycle deploying significant amounts of capital into machines that we’re trading at a hundred dollars, north of a hundred dollars per terahash when the real market price is more like high teens, low twenties for that equipment.

So having the optionality to allow us to flex in and out of segments based on where we think the right deployment of capital exists or makes the most sense is one of the things I really, really like about our business and is incredibly differentiated from anyone else in the space.

Ian:

The strategy makes a ton of sense. One of the things that’s interesting, I’m curious your perspective because you sit on both the GPU, a purview into the world of artificial intelligence and into crypto, and it feels like we’re in a similar cycle to what you just mentioned about the overpriced, overheated market when it comes to GPUs right now.

I had a conversation with somebody the other day that said they were doing an M&A type activity and the value being placed on the GPUs that the to-be-acquired company had was greater than the enterprise book value of the entire company. So GPUs are a hot thing to get right now. Are you seeing that in your business as well, like access to Nvidia chips just being challenged or is this driving demand for you because you had a stockpile ready to go in advance?

Jaime:

Well, right now, the biggest demand is for a specific card Nvidia manufacturers called the H100. So that’s absolutely supply constrained, but yes, we are seeing demand, obviously, has exponentially increased for space for people to be able to … Right now, it’s all about generative AI. That’s what’s driving a lot of the demand coming into this space. I think we’ve seen AI hype cycles go … Well, the first paper on neural networks, I believe, dates back to 1943, and we’ve seen many cycles for AI as well where it’s the next big thing, robots are going to take over the world, and then it peters off and then it comes back. I think this time does feel materially different than prior cycles. I think that the big difference is the way consumers are actually able to interact with AI in a meaningful way, which has not occurred in the past. So I’m not saying that this is the cycle that is here to stay, but it definitely feels different would be my perspective.

I think one of the really fascinating things about how Hut has evolved as well, the company was named after Hut 8, which is the Hut number that Alan Touring worked in during World War II. He built out the bomb and ultimately helped to crack the code that allowed the winning of the war. So that cryptography ultimately formed the basis on which blockchain and Bitcoin technology was built.

The other thing that is interesting though, Alan went on to write about AI and, ultimately, machines being able to be indistinguishable from humans, and he wrote that paper, I believe, in 1950. So our company is named after the godfather of crypto and AI and where the unique public company that is existing in trying to lead in the convergence of these two worlds.

Ian:

I didn’t know the history around the name, but I love that. That’s such a great insider reference. One of the big criticisms that I think the industry at large gets is environmental in nature. I think I’ll summarize as being like, “Hey, this Bitcoin thing doesn’t need to exist, so therefore any amount of power consumed by Bitcoin is wasted power.” We’re in an energy constrained world, and we’re in a situation with climate change where, “Hey, we should stop all unnecessary power consumption.”

When you and I first met, we got into this discussion on this topic, so I know you’ve got some strong opinions here. Build the case why what I just said, the poor man’s summary of, I think, the anti Bitcoin mining argument doesn’t make sense.” Then I think your organization’s also done some pretty exciting stuff specifically related to greening of the industry that we should also touch on.

Jaime:

This is a big topic that I’m very passionate about and could spend an hour on my soapbox on. So I’m going to try to not do that. I’ll break it into three categories. First of all, having a value-based conversation about compute workload, which is ultimately what that is and the value Bitcoin, does Bitcoin deserve energy, that’s a very dangerous argument to have. Are we then saying that all other workloads we should debate on their value to society? There are a lot of very terrible workloads out there that have never debated their energy profile. So that is complicated.

I would also say if you look at where we’re seeing the highest level of Bitcoin adoption right now, it’s in Argentina for obvious reasons. So if you’re going to talk about values, you really have to have to talk to people who don’t sit in a privileged position from being me in Canada or those of us that are in the United States or Europe that have stable currencies and stable governments.

Bitcoin solves a really serious problem that affects a large portion of the globe, and we’ve still got just under two billion people unbanked that Bitcoin is an answer for. So a challenging argument and one that I really don’t think holds any water if you think about the promise of Bitcoin and what it does that no other technology in the history of the world has been able to do from a store of value perspective and transfer of value perspective.

When we get into the energy conversation, I think it’s really driven on people not understanding the industry or how it works. I think the easiest way for me to describe a real life use case is our site in Medicine Hat. So our largest site in Canada is in Medicine Hat, Alberta. We’ve got 67 megawatts. Medicine Hat is an independent power authority in that the city also owns their own power generation. When we set up our Bitcoin mining facility, we built it directly next to one of their cogen facilities.

Now, that facility always was producing the same amount of power, but for the most part, that power would sit idle waiting for peak demand. It was always there to support the constituents, but it wasn’t being monetized or put to productive use until we built the Bitcoin mine next to it. So what that did for the community as a whole, now that 67 megawatts of power is being utilized and monetized at all times, but when there’s peak demand on the grid, we power off.

So Bitcoin mines are built to power up and down based on the cost of electricity because if it’s not economical for us to mine Bitcoin, we’re not going to mine Bitcoin, we shut down, and that always coincides with peak demand. So the community at large gets to use the power when they need the power, but the power that’s available is never being wasted. It’s always being monetized and utilized and going where it’s most needed.

That made us one of the largest sources of revenue, obviously, for the power side of the community or one of the largest taxpayers for the community. We brought 30 skilled labor jobs into a community that really, really needs them without taking anything away from the community or the constituents. We are purely a net benefit. We almost operate like a battery in that we move up and down as required by the needs of the grid.

Ian:

Can I ask a question on this because I’ve heard the Bitcoin battery argument before, and I’m such a novice when it comes to understanding the energy industry? So I think the way it goes is power plants, hugely capital intensive to build, take years if not decades to construct a new power plant of any generation technology, and once it’s built, you may not have … Let’s say that it has 100 megawatt supply capacity. That 100 megawatts, you may not have demand for that most of the time, but there’s no-

Jaime:

Exactly. Generally, you’re only hitting that peak demand maybe 10%, 15% of the year on the very, very cold days, the very, very hot days, but it has to be available to support those days. Otherwise, it-

Ian:

This is where the power plant concept seems strange to me. If I was talking about in my house, I would just turn things off and I would be consuming nothing, but in a power plant, it’s not trivial to cut down the power generation capacity, particularly if I have to, and it’s hard to scale up quickly to meet that peak demand when it comes.

Jaime:

That’s right. Exactly.

Ian:

So the operators want to run at full capacity all the time.

Jaime:

Correct. That’s right.

Ian:

Most of the time, they’re just dumping that power into nothing.

Jaime:

That’s right. That’s absolutely right. Yup.

Ian:

I’m glad I’m not as clueless as I thought on this.

Jaime:

Absolutely.

Ian:

So you’re suddenly there with your infrastructure to consume this. Do you have a formal agreement with the power generator to say, “Okay. When you hit some point of consumption, we will start powering off machines,” and you match their demand from other consumers in line?

Jaime:

So most Bitcoin miners have exactly this relationship with their power provider and their local community. We see a lot of this in Texas in ERCOT, where miners are helping to support grid stabilization during peak weather events and those kinds of things. It makes the most headlines. The mechanics of each contractor are slightly different, but I would take it back to first principles, which is if there’s a spike in demand for power, power prices naturally go up and we naturally have to shut down when power prices go up because it’s no longer economical for us to mine. There’s a price at which it no longer makes sense to have those miners running, and it’s always going to coincide with peaked grid demands. It’s just how it’s built.

Ian:

Yeah, and is your pricing dynamic? I know my home energy bill is fairly static. I’m not seeing changes in price throughout the billing period of a month, but I assume you’re a wholesale consumer, not a retail consumer, so your billing probably works a little different.

Jaime:

Each miner’s PPAs are slightly different. Some have fixed components, variable components. Again, no PPA is created exactly equal, but the other thing that I think is so exciting and not talked about very often in our space is because a miner’s number one operating expense is energy, we’re constantly on a mission to find lowest cost energy solutions.

So one of the most exciting things happening in this space over the last couple of years have been miners that are going and using flare gas directly in oil and gas fields, capturing flare gas, using that to mine Bitcoin right at the site, which means that that carbon isn’t being flared off or emitted into the environment. So the beautiful thing about a Bitcoin mine, you can really set it up anywhere there’s an energy source. It does not need to be connected to the grid.

Transmission and distribution has always been the biggest challenge for these stranded negative energy assets, which Bitcoin solves for. Again, captures a flare gas uses that to mine, makes sure that carbon doesn’t go into the atmosphere, and when that flaring site runs out of gas, the rigs can literally just pick up and move to the next flare site. They’re broadly portable.

The other great area of innovation is in waste methane. So we’re seeing miners set up next to landfill sites, which have a similar problem. So you can use waste methane to create energy, but the landfills generally aren’t able to dump that energy into the grid so they don’t have an offtaker for it. Whereas if you set a mining facility up next to a landfill, you can actually use that waste methane to power the mine and keep that methane out of the atmosphere.

All of this is happening directly by the industry. The industry’s coming up with this innovation. The industry is funding it. We’re not dependent on government programs or government subsidies. This is all private sector driven, which is an entirely net benefit to the environment. It’s a net benefit to have less gas being flared. It’s a net benefit to have less methane going into the atmosphere, and Bitcoin miners are the only offtaker right now that can set up in all of these remote locations.

Ian:

What does it look like when you set up next to a landfill or a natural gas drilling site? Is it like a trailer full of racks of servers?

Jaime:

Yeah, they’re generally on trailers, skids on trailers. Most Bitcoin mines are set up in containers. So picture a shipping container. Generally, they’re between one megawatt and two and a half megawatts per container, and you can put those on flatbeds and drive them around.

Ian:

Drive them anywhere.

Jaime:

It’s a little bit more complicated than that, but we’re simplifying here. Then from an industry perspective, wherever we can, one of the things that has driven a lot in ERCOT in West Texas, there was a huge boom in renewable projects going on out there, solar farms, wind farms. Those are intermittent power sources, and many of them ended up being constructed in areas where there wasn’t actual enough demand, load demand to support the projects. So we’ve seen a number of Bitcoin miners set up directly next to wind farms, solar farms, and they’re able to consume that energy when it’s available. Then otherwise, they’re using grid energy.

So just a ton of great stories coming out of innovation in this space. In fact, KPMG wrote and published an article a few weeks ago talking about the benefits of Bitcoin mining to the renewables transition, which is the best thing that our industry could hope for, to now have credible third parties that have done the work, that understand the space, that understand the incredible potential that Bitcoin miners have to help more rapidly and sustainably drive and help fund the renewable energy transition is incredible. So I expect we’ll see a lot more of that research start to come out in the next six to 12 months.

Ian:

Awesome. We’ll link to that article in the show notes so that people can go and read it themselves. This is where I wanted to go with the conversation is, what’s your perspective on getting the industry to carbon neutrality or potentially all sourced green energy? I don’t know if the economics make sense today to do something like that. Obviously, you’re not going to catapult the business into bankruptcy. So is there a transition plan on which you foresee this happening where you’re 100% sourced from green energy? Is it possible to look that far into the future?

Jaime:

It’s not possible to look that far into the future, for sure. Where we use natural gas, we’ve established a program to start offsetting that natural gas consumption to ultimately get to a carbon neutral state. We came together as an industry over two years ago and formed the Bitcoin Mining Council. That council publishes research on a regular basis and has been able to demonstrate that the industry is broadly run, it’s run on … The majority of the industry uses renewables. I think it’s up to over 58% of Bitcoin mining uses renewable sources today, and that’s research that will continue.

We do see some miners in the US now using nuclear as a source, which is, obviously, emission-free. I think we’re going to see a lot more nuclear in our future. Then one of the things we are challenged with is how do you really capture the benefit of miners converting flare. So it’s almost using flare to power. Flare isn’t a renewable source, but you’re actually taking carbon out of the atmosphere. So that’s something that I don’t think has been fully standardized or thought through, and the same would be true with waste methane.

Ian:

You’re still burning it. So there’s still some carbon emission, but I’m guessing the argument is that it’s quite a bit lower than just releasing the methane or releasing the flare directly into the environment.

Jaime:

Yeah, materially lower.

Ian:

Yeah. That’s interesting. We’ll see if we can find a reference of somebody that’s done some research on this and include it in the show notes too.

Jaime:

Yeah. Dennis Porter’s done some great research. Daniel Batten’s done some great research. Luckily, there’s increasingly bodies of good research out there.

Ian:

Yeah. I’m curious as you look to the future, you’ve obviously got a great diversification strategy for the business. What comes next? You’ve got the merger, obviously, that’s in the near future, but I imagine you’re thinking a few steps ahead. Where do you go after that?

Jaime:

I’m always trying to think a few steps ahead. Hut’s got such a great track record of being where the puck’s going. So I think I’ve put a lot of pressure on myself to keep that track record alive. Our focus is getting to the other side of this transaction successfully this fall, but we’ll certainly continue to push the envelope when it comes to driving and leading innovation in this space. Really, I spent a lot of time thinking about how these worlds come together.

I think when we think about what is AI, really, AI is scalable everything. There’s no limit to where AI could ultimately go, but what AI lacks is truth, is hardcoded truth. It lacks provenance, it lacks identity, and that’s what blockchain technology can really provide. It’s really scalable truth at the end of the day. So I think these worlds, in order for them to both reach their maximum potential, they need to work together. I think that’s the intersection that’s going to get the most innovation and attention over the next few years.

Ian:

The service level discussion there on the AI meets blockchain, I haven’t seen people going deep on it. So it’s interesting for you to bring that up, but I think you’re incredibly well-positioned to lead these two things together into the future. So Jaime, this was a fantastic conversation. Thanks so much for joining us, and I’ll talk to you again soon.

Jaime:

Thanks again for having me, and sorry for making the record of the most difficult interview to schedule.

Ian:

It was absolutely worth it.

Jaime:

Good. Thanks again.

 

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