07 - The controversy around bitcoin and energy with Nima Tabatabai (CPO @ Modo)

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Hey everybody. Quentin here from Moto, and I'm sat here with Nima, who is a good friend actually and a colleague we've worked together for a while. And we are going to try and talk about one of the most controversial topics in energy.

And Nima, you're sat here because--

well, we're going to talk about Bitcoin and energy consumption in Bitcoin. And Nima, why are you here talking about that? I guess we've been talking about this topic for five years now together.

Yeah.

Yeah, what do you know about it before we get started?

Yeah.

Sure, I agree with you. One of the most controversial topics in energy today.

I think we're going to bust a bunch of myths, though on this pod and hopefully show people that it's something that can be discussed and understood. My background, I guess, I've been in Bitcoin since 2013.

Around 2017, that's when I started to understand the connection to energy, and things started kind of clicking for me. And we've seen this space growing massively in the last few years. It's become a topic. You've seen companies going into this.

It's a booming space, so very relevant, and yeah, I'm on the board of a company in the US that is trying to connect solar with Bitcoin mining in general. And we're not the only ones. There's a whole sector growing about renewables, Bitcoin, flexible loads, et cetera. So growing space.

Cool, and so you've been--

so people talk about being red pilled, you've been down the rabbit hole for a while, right. There's a little hole--

there's a whole lot of lingo out there that actually it's probably bad for the space in general.

Yes.

Because it stops it. It's a barrier for entry, but you've been talking about, thinking about this for long enough, where now let's have a sensible conversation about it.

Absolutely.

And hopefully, this will get listened to and watched by some folks in energy who will see the bigger picture hopefully. Let's see how we can do that.

Yeah, that's right. I mean, we're going to try and have a fact-based conversation today.

At the level that I think energy professionals should be having that discussion, right. So that's kind of the goal. I'm trying--

we're going to try and frame it today. How should energy people be thinking about this opportunity space?

Cool. Well, let's do it.

So before we get started, do you want to just do a quick one minute overview of what Bitcoin is? We're not going to spend ages on this because we have to assume people have a basic knowledge. Otherwise, we'll spend the whole hour just talking about what it is and what it isn't. But do you want to just spend a minute explaining that, and then we'll talk about energy?

Sure. Yeah, so I mean, everyone has heard about Bitcoin today, right? It's 2021.

2022.

Yes, sir. Oh, man. [LAUGHING]

And people know about it, but there's still a lot of misconception about what it is. I mean, ultimately, Bitcoin is a global decentralized leaderless form of money that operates on the internet. It's essentially a ledger of transactions that goes back to the very beginning of Bitcoin 2009. And it says who owns what Bitcoin and that's operated on databases all over the world.

Protected by miners, which is something--

that's what we're going to talk to about extensively today.

But that's really what Bitcoin is. It's a decentralized form of money that anyone in the world can opt to use.

They can't be censored from using it, and they can't be--

their holding of Bitcoin cannot be inflated. So in that sense, it's a very powerful monetary good.

And completely separate from any nation state, I guess, is another important thing.

Absolutely.

There's no central bank of Bitcoin, or there's no controlling entity.

No.

It is its own thing.

It is. It's just autonomous code that runs. There's only going to be 21 million Bitcoin. There's nothing anyone can ever do about that.

It's not going away.

It's not going away. Yeah, as many people have predicted hundreds of times over the last 12 years of Bitcoin's existence. How many times it's been predicted to be dead. So it's not going away, which is why this debate is important.

Yeah.

And people should start looking at it as a real thing that is worth understanding.

And then one other clarification before we get started here. We're not talking about crypto here. We're talking about Bitcoin.

That's right.

Do you just talk about that for a second. We don't have to--

again, this is a very emotive subject, but--

Yeah.

Yeah, why are we just talking about Bitcoin?

So I mean Bitcoin is the--

it was the first that came out. It's the largest asset this--

if you think of these cryptos as all kind of being the same thing, but Bitcoin is trying to be global money. One of the most important economic tools in the world is the money that everybody uses to do all their economic exchange.

That's what Bitcoin is trying to be, and it's made significant gains towards that. People are coming up with all kinds of other uses for some of the technologies used in Bitcoin, and that's broadly, what's called crypto. None of those is really--

has as important a mission as what Bitcoin is trying to do.

Yeah.

Bitcoin is trying to change the money that the world uses. Right, and to impose new rules on that, scarcity, censorship, resistance, immutability, et cetera.

So it's on a very important mission which is quite separate to the rest of crypto. It's not to say there's not things that are not interesting there, but it's kind of important to separate the importance of what's trying to be achieved.

OK. So we've done scoping. So we're talking about Bitcoin and energy. We're talking about Bitcoin, not crypto.

And now, let's get stuck into it. So I'm going to say some--

I'm going to ask some questions now a bit like a sort of five-year-old would ask because they're the most difficult ones to answer. And that's how we should be approaching this problem, right. So Bitcoin uses energy. Why?

OK. Good question, right. That's totally the place to start.

Bitcoin uses energy by design.

Bitcoin does not use energy because it's inefficient. Right, that's one of the biggest misconceptions that are out there. Bitcoin is designed to be energy backed money. And what does that mean?

That means Bitcoin is a digital thing. It exists only in the digital sphere. But for it to be really, truly scarce, it has to somehow tie back into the real world. And Bitcoin does that through thermodynamics essentially. Through energy.

Right, so that's literally the way it was designed, and it's those--

it's that energy connection that gives Bitcoin the properties that everybody values. So a lot of people think blockchains, that blockchain buzzword that's going around, people think blockchains are immutable, and blockchains are censorship resistant.

What do you mean by immutable?

That nobody can change the history of that ledger. So I sent you Bitcoin, no one can go back five days later, and kind of scribble that out and say that never happened.

Once something happens, it happens. Censorship resistance so nobody can stop me from sending Bitcoin to you.

The fact that it's leaderless, decentralized global, and open. Those characteristics of Bitcoin, which is what really makes it valuable.

Those are not because Bitcoin is a blockchain. Those are there because Bitcoin is designed around energy.

OK.

So it's fundamental to the design of it.

You can think of mining, right, like the use of energy. Why does it use energy? You can think of it like, there's a ledger of transactions that's being up--

A list?

A list of transactions. Yeah.

Like an old fashioned book of ins and outs.

Exactly. Yeah, and that's hosted on thousands--

tens of thousands of computers around the world. The exact copy. So no copy is critical to the network because everyone has a copy of all the transactions. But what the energy is being used to do, you can think of it like erecting a wall of protection around that ledger.

And that wall cannot be breached unless someone spends more energy than the defenders are spending on the network. Someone has to expend more energy than is being used to defend the network to try and attack it. So the energy expenditure of Bitcoin is security. That's the security of the entire network. That's what makes the whole ledger valuable is that it's that secure.

OK. So it's a feature, not a bug.

It's a feature, absolutely. Yeah.

OK, let's get started. So most of the energy is used in the mining process.

Yeah.

Right, and the mining process creates new bitcoins, right. As a sort of thank you, for people who are doing the mining.

As a reward. But also, it uses a load of--

a lot of energy to hash together a lot of complicated mathematical puzzles to get an answer, right?

Yeah.

And so there's a lot of kickback from people in the energy community who say randomly hashing together a load of numbers to try and find the answer to a really difficult mathematical problem is not a good use of energy.

Yeah.

So what do you say to that?

So to that I would say, first of all, it's not complex maths. It's actually very simple maths. They're just taking a random number and hashing it and hashing it as many times as they can until someone finds the right answer, right. So it's not a complex problem. It's a simple problem, and it's repeated at scale trillions of hashes.

I don't even know how many it's like, beyond trillions per second, right. That's the security of the whole network. It's no different than if you had a--

let's say you had a renewable energy asset today and you signed a PPA with a super--

a university that had a supercomputer.

Yeah, or data center or--

Or a data center or something that was trying to solve complex mathematical problems, right. That would not be viewed as a bad use of energy, right.

No one goes, dude, you just moving ones and zeros around.

That's right.

Yeah.

But with Bitcoin, for some reason, people do say that, right. And I think this whole narrative, right, is what's starting to kind of be deconstructed, is that we spend lots of energy on lots of things that are purely digital.

The whole internet, the data centers that run the internet, et cetera. And there's none of this kickback about any of these other uses, and that's kind of like the kicker is if someone doesn't see the value of Bitcoin.

Like what Bitcoin actually does that--

see the value in that network what it enables people to do around the world. There's no way to have this debate with them. So if someone thinks Bitcoin has no value. It doesn't have a place in the world.

Then there's basically no point discussing the energy because it doesn't matter even if Bitcoin uses one kilowatt that's too much--

Yeah, yeah, yeah.

--for something that's valueless, right.

OK.

So there's like a precursor to this whole discussion, which is have to come in with the mindset that OK, Bitcoin does something of value. Maybe not to me, but just hundreds of millions of people that appear to be using it around the world it's doing something of value. It uses energy.

Now, what can we learn from that? What can we do with that?

So there's kind of like that base level. And a lot of the debate you'll see around Bitcoin is, around Bitcoin's energy use, is from people who don't see value in the network and the asset itself. And then they can use energy as a vector to kind of attack it from--

Yeah, yeah.

But you can't come with that mindset. Otherwise, there's no way to have a rational debate about something that's valueless, right.

And so let's put some numbers around it. So how--

I'm going to put you on the spot here. How much energy does Bitcoin use?

It's really--

That's a really difficult--

that's a bit of a silly question. How much does the whole network use?

That's a great question, and if you just go on what you read in the papers, and the Guardian headlines, and the New York Times, and stuff, you're going to think--

It's more than the whole world times 50.

Exactly. You're going to think--

It's boiling the ocean.

--Bitcoin is off the charts, and the good news is there's a lot of facts because the whole Bitcoin network is open, right. So all the data it's open source code, and all the data of the network, you can see what it's doing in real time. So you can back calculate all this stuff and see what's actually happening.

The Cambridge University they have the Center for Alternative Finance.

I checked yesterday they have a live kind of energy calculator. They estimate right now, about 15 gigawatts of power is being used by the network.

But let's put that into a bit of context, right, and that's that 15 gigawatts, first of all, is all around the world. All the individual miners in every country, if you add them all together, that's what they estimate they're all using at any time.

So my gut feeling hearing that as an energy person is that is a lot of energy.

That's right.

Because if you look at peak demand in the UK, is probably like 45ish gigawatt. Someone's going to put it in the comments that I've got this wrong, but.

I tried. Period might be 45-50 gigawatts or whatever in the UK, and so we're saying like a third of that peak UK demand that the whole country is being used by Bitcoin.

That's right.

This is awful, right.

Right.

This is terrible.

Yeah, so let's put it in context.

No, all right, yeah.

Yeah. A report came out on Friday, so this is literally like the most up to data from a company called CoinShares. They're a research and analytics company in the crypto Bitcoin space.

Moto for Bitcoin.

That's right. Yeah. [LAUGHING]

They put out a really good report. I think this is the new gold standard. So they did a really in-depth energy analysis and the carbon analysis. So we can just run through some of those stats. So in 2021, they estimated Bitcoin used 89 terawatt hours of energy.

OK.

Sounds like a big number, right. Terawatt, tera itself is like people get scared of that. But what does that number actually mean in context?

'89 terawatt hours is 0.05% of the energy used.

Car alarms going off outside. Hopefully, this isn't picking up. But yeah, sorry if you can hear a car alarm, that's Birmingham. So yeah, sorry.

0.05% of global energy usage. The world uses 162,000 terawatt hours.

Yeah.

Bitcoin was using 89, right.

OK, these numbers are already too big for my little brain,

This is a rounding error.

OK, yeah.

0.05% right is Bitcoin's energy usage.

They also took that into the next level doing the carbon analysis. So they looked at where is mining located in the world? What's the carbon intensity of the grids that are there, et cetera. Et cetera. And there's a lot of analysis that you can do on that, and they estimated that Bitcoin emitted 41 megatons of carbon emissions.

OK.

In 2021. That's 0.08 of global emissions. So again, a fraction of a tenth of a percent.

Yeah.

Same as the energy use.

Do the pie chart somewhere to explain this, but it's a sliver.

They have some great charts in the report.

OK.

And we can put the report in the show notes or photos somewhere.

Yeah, that's good.

So like 41 megatons. What is that? That's about one quarter of what the gold industry emits in terms of carbon.

Gold as in jewelry and gold bullion?

Yeah, gold mining, storage, transport, et cetera. It's about a quarter of gold. It's about a third of what the banking system emits globally. So again, we're talking--

Bitcoin is lower than all of these other industries, right.

Perhaps the one that puts like the nail in the coffin is that Bitcoin emits less carbon than the aviation industry. Than the shipping industry. Than air conditioners. Than data centers.

And I think the most brutal one is it emits less carbon than just tumble dryers in the United States.

They have big tumble dryers, and I mean, I couldn't believe that.

Everything is bigger in the State's. Yeah.

Top loading bad boys, yeah.

But if you put it in context, you see we're talking about a rounding error on the global scale. But the amount of attention it garners and--

Oh, man, yeah.

--the strength of opinions that come out about this you would think Bitcoin is emitting more carbon than all the airplanes in the world. In reality, it's like a small fraction of all these other industries that we all use every day, and we know we need to solve the carbon problem for all these other things. And we're happy to find pathways for doing that, and Bitcoin is no different.

So can I have a go around in this up--

if I understand what you said. So your core thesis, if I understand this correctly, is that Bitcoin--

the Bitcoin network uses energy by design. And that is a good thing because that is part of why the Bitcoin network is so secure and so it can be defended against everything. Including the biggest countries in the world.

So it's here to stay, and your argument is that a good thing. And so, the energy usage that goes into it is worthwhile.

That's right.

And it's not as big as perhaps when you take into consideration considering the rest of the world, it's not as big as perhaps some folks out there may think it is, especially when you first see these numbers.

Yeah. Yeah. OK. So let's talk about Bitcoin mining for a second.

Yeah. So right back to basics, what is a Bitcoin miner, and what is the business model?

Yeah, good question.

Can we start a Bitcoin mining company today?

Yes.

Yeah, we could, and it's very easy to do.

Which is why you see it happening all around the world. I mean, what is a Bitcoin miner? It's a computer. It's a small--

it's called an ASIC. It's a specialized type of computer good at solving a certain type of problem. That hashing algorithm that secures the network.

It's made all these gamers mad because they can't get graphics cards, right? It's all the GeForce graphics cards are in these ASICs.

They used to be. ASICs are one level beyond graphics cards. So the industry used to use graphics cards. Now, they've got these specialized machines. They're about the size of a shoebox, like a big shoebox.

Cool.

They're very scalable. So you can put one of them on a mining site, or you can put thousands of them, right. It's a data center, right, and you just kind of plug-in as many of these things as you have energy to use them.

That's actually what mining looks like, and that's when you see these pictures of just row and row and row of these ASICs. They're screwed into like a data center rack.

And they make a lot of noise.

They're quite noisy. Yeah, exactly.

The business model of a miner, right, so what do they do with these things is it's actually relatively simple. So they have basically two main cost lines. One is Capex. They have to buy the miners. So they have to put in a bunch of upfront investment. They buy these machines.

What they do with them is they get access to energy, and they have to put that through the miners. That's their oper--

that's their main operating expense, is the energy cost.

Relatively little labor. I mean, like any data center, you need people to operate and run it, but it's not like a huge cost, right. So the main expense is energy, and you need an internet connection. No, it doesn't have to be broadband. It's not millions of megabytes of data going back and forth. It's actually a very low bandwidth connection that you need.

You can run a mining center on 4G or on a satellite connection. So that's all you need is access to energy, the ASICs, and a internet connection of some sort.

It sounds a bit like building energy storage sites, right? So you need a massive grid connection. You need to put containers somewhere or wherever these things are in the big units. You need planning permission because you might make a bit of noise because you've got air conditioning or cooling.

And then you need a grid connection, a connection to the internet.

That's pretty much it. And then your biggest cost item is the power, well, I mean, energy storage is a bit different but yeah. Your CapEx and energy costs.

That it. Yeah, and from the outside, it'll look very similar to an energy storage site. Just some shipping containers on a grid connection or co-located with a renewable energy asset, and all they do is operate those miners. Obviously, they would like to operate them as much as possible because you have to assume every unit of energy that they're consuming is profitable.

So they want to do it as much as--

Sort of base-load, basically.

Ideally. However, there's a couple key attributes. One is you don't--

the sites are fully interruptible. When you mine for the Bitcoin network, you don't make any commitment. It's not like a data center that needs 100% uptime. There's no commitment to the network that I will continue.

I can leave or enter the mining network at any time that I want.

If I get a price signal from the grid that it's better for me to turn off my load, I can do that with no penalty.

So I might see I don't know the intraday--

the price and for like, I say 400 pounds a megawatt hour or some of the craziness we've had recently, and you can just switch the thing off. What do you do it straight away or do you have to give notice or--

Nothing.

Nothing.

You're entirely voluntary. The security you provide to the network is totally voluntary, can be turned off at any time. You're fully interruptible load. There's almost no other types of loads in the world other than energy storage, I would say, that can be this flexible. Because everything else is trying to do something in the real world.

It's funny because if you build an energy storage system and you get a 50 megawatt connection, and you put a two hour system on there. You maybe do I say a one hour system because it's simple maths and you do a cycle a day. Then that 50 megawatt connection isn't being used most of the time.

You may charge at a low price and no middle of the day in summer and sell back to the grid later on in the day when it's cold. But the rest of the time, you're paying for that grid connection or not using it. What you're saying, if I understand this correctly, is the mining rig will use that--

will utilize every last kilowatt of that connection.

Absolutely. And it can change its profile its usage profile to match to perfectly match the energy storage site.

Like the DSR.

Yeah. It's like perfectly flexible DSR, right. So these are like fully flexible sites that--

they don't have any other function other than to secure the network, right. So there's no like worker shift patterns, there's no heating and cooling times, there's no storage containers, there's no supply chains. There's no--

even the bitcoins that you're producing, you haven't committed them to a customer. If you don't make it, if you don't produce them, you don't produce them. You can make decision making purely based on economics and price signals.

So we build a Moto Bitcoining rig, right. Bitcoining. [LAUGHING]

The Bitcoin mining rig, we get like a 50 megawatt connection. We put a lot of containers on. We run it. If I got this right, we've got to spend Capex upfront to buy the units.

The Bitcoin miners, where do they come from China, I imagine?

Yeah, China currently, basically all electronics, is made there. Although there has been some recent announcements. Intel is planning to set up foundries in Arizona and Ohio as part of the re-shoring process of semiconductors in general.

Yeah, so we've got to buy some miners put them on there, and then we run it, and our cost item is we pay in pounds in the UK for electricity. And then what do we get? What's our revenue look like? Is our revenue in bitcoins?

It is.

And then we have to sell the bitcoins to turn that into pounds and then pay all our costs. Is that how it works?

That's right. The mine network pays us automatically. There's no central company that says, OK, you mined this much this month, and here's your payment. The network automatically the code of the network running rewards the miners for what they're doing. There's no counterparty risk. There's no risk that the Bitcoin network doesn't pay you.

Right, they are just issued by the network in every block that's produced, and your job as a miner is to manage your CapEx and your OpEx, take the Bitcoin in, and yes, you need to see how much of it do I need--

how much in the Bitcoin do I need to sell?

Into whatever currency my costs are in. In our case, it would be pounds. Pay those off, and then you decide what to do with what's left.

So, at current prices, is it a good business model in the UK?

It's hard to say.

Because it comes down to how you can procure the ASICs, obviously, there's--

that comes down to the volume that you buy.

What I will say is it's a globally competitive power market.

Right, that's transformational in itself. We've never had in market for electricity because grids naturally don't compete.

A wind turbine in the UK does not compete on power cost with a wind turbine in China, right. They fundamentally don't, but Bitcoin miners do. You can be located anywhere in the world, and you have to be extremely competitive i.e., you have to have access to extreme low energy. Low cost energy.

Which means essentially renewables, or run of the river hydro, or solar, or yeah.

In essentially excess. The energy if that energy has another use on the grid, it's more like it's likely that someone's willing to pay more than a miner is willing to pay for it. So this is why you see miners migrating to areas with massive amounts of excess energy.

Quebec in Canada hydro that they can't ship through transmission cables to the US. West Texas, where there's like a massive build-out of solar and wind happening. When the miners were in China, they were in largely in the Sichuan region.

Where there's hydro or--

and this wasn't a great thing for Bitcoin. Like areas of the country where they had massively overbuilt coal capacity.

Well, let's talk about that for a second. So here comes the clickbait question. China banned Bitcoin, right.

Yeah.

What does that mean?

Good question.

China banned Bitcoin, and what happened?

Well, essentially nothing right from the Bitcoin network point of view.

The network completely continued to operate reliably.

This would have been a catastrophic thing for a less anti-fragile, less resilient network. Because 50% to 60% of the global mining of mining power of Bitcoin was in China.

This was for historic reasons again, because China has so massively overbuilt energy capacity in more than any other country in the world, right. They've been building energy, their energy system out. So they have huge excesses of energy that and their transmission system can't keep up with it. So miners were natural--

they were like a sponge they went and soaked up energy.

And they literally would migrate seasonally during the summer months when there's excess hydro. They would move to the part of the country with hydro. And then they would move to the less renewable parts of the country.

They pack up all these miners, stick them on a lorry, and then take with them.

That's right. There's not a lot of assets you can do that with around the world that monetize energy, right. So China banned Bitcoin mining for political reasons that we don't need to discuss here.

Yeah, yeah, yeah.

They did it.

What happened? The network continued to operate exactly as it did. 50% of the security of the network disappeared but the network fundamentally continued to operate. What the miners did was they relocated. They literally picked up their devices. They went to Canada, to the US, to Kazakhstan, to Sweden, to South America. El Salvador, all these countries.

I saw some photos of private jets just round full of these ASICs just getting out of China.

Yeah, they were desperate to get them plugged in somewhere else.

They might look back in 100 years and think that was a huge, huge mistake.

I think they will, but I think Bitcoin doesn't really jive with some of the--

I would say more authoritarian vibes coming out of that regime, so.

We're not going to touch that today though.

No. But nothing happened to the network.

The network continued to operate.

It's absolutely fine and what's happened is those miners all relocated. They essentially found other sources of energy.

They plugged in, and in the last six months, we've seen all the hash-rate come back online. And just in the last two or three weeks, the security of the network has exceeded where it was before the China ban.

When you say hash-rate, we mean the computing power that protects the network that miners do?

Yeah, and where we are at now, in terms of that hash rate, we've compensated for everything that like the China ban did. So the network is bounced back in six months, right. Which is not a lot of time if you think about globally relocating infrastructure, which it's incredible that that's even happened.

The network is so secure right now that if you took the 500 most powerful supercomputers, the ones in CERN, and Switzerland, and in NASA, and these types of things, and you put them all together. They would not be able to attack the network. The 500 most powerful computers in the world combined could not attack this network.

That's how secure that hashing power is, and that's what gives people the confidence to put, I think whatever it is, the $700 billion of assets that people hold within the Bitcoin network.

That's what gives them the confidence. It's that security, and that's the energy, right. Because that's the encrypted wall of energy.

Well, let's come back to energy now. So how does Bitcoin fit in? We talk a lot about the Future Energy Systems, or energy transition, or decarbonization, which is probably the most important mission of our time, right, as a human race. As the human race. So where does Bitcoin sit-in the energy transition? And what role does it play?

Really good question.

It is a great enabler of the energy transition, and it's fully symbiotic and even more so than people may realize.

One thing to point out is Bitcoin is already providing more of an incentive to renewable energy than any other industry out there. So the Bitcoin, if you look at the latest data, the Bitcoin network is roughly they estimate around 60% renewable powered.

That's more than any other grid of any major country even Germany is 489% renewable powered. US is on like 30% or something like that. So the Bitcoin network is more renewable powered than every major industry and every major grid. And that's purely--

that's not because anyone dictated that had to be slow or any regulations or anything.

Purely based on the incentive of miners to find cheap excess low cost energy. They have gone and hunted out the best renewable assets, and what are they doing? They're paying those renewable assets to generate electricity. So they're providing a financial incentive to renewable operators to produce more renewable energy.

I guess the argument then we'll come back here, and I'm going to put it to you is it's about displacement, right. Because if you--

we're going to have to overbuild renewables capacity if we're going to meet the demand of the world, plus Bitcoin as a proof of work chain, right?

So and I guess the question that will come up is, if Bitcoin is buying that energy from renewable generators, then that means that somewhere else, someone's having to burn fossil fuels. Which means there is a--

due to displacement, there is a carbon cost of the Bitcoin. So I guess something to get our head around here, which is that we're going to have to overbuild.

Yeah, and so it's important not to look at it as a zero sum game, right. I use energy here, so someone else has to--

I guess the word overbuild does that inherently, so maybe we've got a different word we can use.

What Bitcoin does is it enables the energy transition to boom, right. What do I mean by that? So if you're building a renewable project today, what are your biggest risks?

One is the economics of the grid that you're building on. What do I mean by that? So, for example, a few years ago in Spain when they rolled back the subsidies for solar retrospectively.

Yeah, ouch.

You built a solar project in Spain based on some 20 year commitment from the government that your economics were going to look good, and they change that. What do you do with that project?

That's like the UK government stopping CFDs five years in.

Retrospectively, yeah.

I can't even believe that happened. But anyway, yeah.

And these risks exist all over the world. So you may think, well, that's not a problem in the UK, right.

Our government's credit worthy, and we take their word, and they're going to meet their commitments. But climate change is a global problem.

Right, how many renewable assets are not being built today all over the world in developing countries because investors do not think that they can trust the economics long term? Right, how many projects are not being built all over Africa? Solar hydro, wind, whatever the resources may be in certain locations because they can't trust the counterparty.

Geopolitical risk, right.

Yeah, or the National Energy company right is not creditworthy enough to build XYZ. That's not a problem anymore. If you want to build a project in the world anywhere in the world, you now have a reliable buyer for that energy.

This is the biggest thing, right. Because everybody can get their head around the idea that we should have loads of solar in Africa. Simple, but it's not there because of all these other structural and like societal things that we've created--

--as the human race. And this is saying screw that, right. You can do it.

Yeah, build it.

Build it.

Build it, and there's a buyer. And then you might think, OK, so we build a solar site in a very sunny location, let's say in Africa.

So and it powers the mining network. Well, let's think long term.

What happens then? You have this energy resource that's built. You have a load that's monetizing that. You can--

you're going to start to have economic activity congregate around that site, right.

So people are going to move there. You can start to build essentially a micro-grid around that asset using the mining.

And the mining can be scaled back because, like we said, miners they don't have any commitment to operate that site. If there's other uses for that energy, if a city starts to develop around that reliable source of energy, the mining can go somewhere else.

Right, so what we could see and what I think we will see is like a blossoming of build-out of energy resources bootstrapped by mining at the beginning, right. You bootstrap a grid effectively, and then as economic activity builds, you can take the mining.

The connectors or whatever, yeah.

That site connects to the grid, or you build it into a microgrid. The mining can always be there as a backup load, so that--

because you need something on the grid, right. To soak up the power that's produced, but in that sense, it's very symbiotic. Very symbiotic with energy storage, right. Because you could do that with energy storage as well, mining provides you with a pathway to monetization though in a way that energy storage doesn't.

But they work very well together.

We've been taught about this for a while.

Bitcoin mining is, so it's like a digital version of energy storage. You're basically--

because you're storing the value in current terms dollars, right. But in the future, maybe, Bitcoin's, Satoshi's, or whatever, and then you're going to spend it elsewhere, but you're storing that value and spending it. Ah, it's incredible.

Yeah, and batteries obviously can move energy through time.

Right, so you can delay, you can shift forward and backward the profile of energy.

The additional degree of freedom that Bitcoin adds is an alternative monetization pathway.

So energy storage, you can shift the profile, but ultimately, you're still reliant on the grid to buy. At some point, the price on the grid you have to take it, right.

With Bitcoin mining, you can arbitrage the grid because if the price on the grid doesn't look good enough, you can use it for mining, and you can effectively be paid the rate that the mining network is paying. So every asset in the world has a choice to make now, which is should I go with the grid, should I go with mining, should I go with both, should I arbitrage them? Should I have batteries as well to make the site fully flexible?

So batteries are the time machine, and Bitcoin mining is a teleportation machine, I guess.

Yes.

Because you're removing the locational constraints.

That's right. You're not tied to your grid. You can build a project in the UK but compete on a global--

on a global power market effectively. The other thing I will say is we're building a lot of renewables today in locations that are not ideal. So the sunniest spots in the US, they don't have grid capacity.

Yes. So we're not building there.

We're not building there. We build non-optimal renewable sites because of where we have infrastructure to move the energy back into the grid.

That's also a problem that's now been solved. Because you can build--

you can have mining anywhere. So for the UK, I think the clearest example is the Scottish Isles.

Right, where we know, we have one of the best energy assets in the world.

Wind up in Scotland.

A lot of those sites are not developed because of lack of transmission capacity.

There might be plans to add capacity in the decades to come. But really we're sitting on our hands and every day that that wind blows over Scotland--

It's a missed opportunity.

--and is not captured is a missed opportunity. It's not being monetized. It's not being captured.

That has changed now. You could build wind capacity at the best locations, use it--

monetize it using Bitcoin mining. When a grid connection is available, shift to grid export or do both or just get rid of the mining if you want.

Even if a grid connection is never available, you're still doing something good for--

Well, you're powering--

yeah, you're powering--

For the community or the level--

A monetary network that's used by everyone around the world. There's a lot of paradigm shifts that have happened with mining. Which is why I think it is so interesting for energy professionals. I think once people start to see this and get past some of those kind of hang ups about the energy usage issue, it's like a Swiss army knife.

So if you're like an energy developer and energy person that's trying to build energy capacity in the world, this is one of the most powerful tools you can have. Because it's like, wow, I can monetize energy and any energy asset anywhere in the world, any time.

No counterparty risk.

What can I do with this? We haven't even really scratched the surface of what people can do with it.

It's a huge stimulus really to get a building.

Yeah. I've heard a really good quote.

It's from Troy Crowe. He's a guy on Bitcoin Twitter. He said Bitcoin mining is the new Green Deal--

the Green New Deal for the entire world with no government involved. Every site around the world now has a pathway to finance and monetization for their energy assets.

And I think--

really, I think the real shift is going to be in developing countries. That's where we're going to see a huge shift because, like we said before, a lot of those markets struggle with just the reliability of the economics of these markets and the lack of load. So you might have a--

for example, there's a site the Virunga rainforest in Eastern Congo where the gorillas live, and there's what is it?

The poaching happens, and then they have the games keepers that are protecting these guys and stuff. There's a hydro asset running there, and the only reason it's running is because there's Bitcoin mining on site. There's no load to operate.

Because it's in the middle of nowhere.

It's in the middle of the rainforest in the Eastern Congo. But now that site is able to monetize that energy, and they can use that income to run the National Park.

Right, it was only the lack of load that prevented the site from operating. And no one is going to go and build a city or build a factory, or something there to soak up that excess hydro energy that they had.

Bitcoin mining can do that because it's super flexible. Drop a few containers in the middle of the rainforest, and suddenly there's an income for running a whole National Park, right. That's a model that's going to be scaled up all over the world.

And what about the internet usage? So I assume using satellite internet connections which are pretty cheap now. So.

Yeah.

Remote sites are using satellite. Like I said, you can use 4G.

So and you don't need a high bandwidth connection. So it's not like only well-served internet sites can participate.

I guess the last thing I want to ask you is, where do you see energy and Bitcoin mining going long term? And what--

you've obviously done a lot of thinking about this. You're involved in--

you're on the board of a company that's doing this.

What is your message to our industry? Our community of folks in energy, what next?

Yeah. Yeah, you're right. I have been thinking about it a lot.

What I've come to realize is that it's such a big shift that it's not really possible to know what's coming. But I think we have kind of unlocked a whole host of opportunities going forward. We don't really know what those are yet. We need the best and brightest of the energy industry to get behind this.

Because the number of opportunities that are lying in there and the amount of good that can come out of this is unbelievable. Right, so my first thing that I think is going to happen, I don't think this might sound radical, but I don't I actually don't think it is. I think that mining Bitcoin mining and energy are going to fully converge. They're going to become one industry.

Energy companies will mine because it's going to be one of the fundamental ways that you monetize energy, and that's really their goal at the end of the day. And if the energy companies don't move the miners--

Will come energy companies.

--are going to buy companies. They're going to buy energy companies. These companies are scaling up their large publicly traded companies now in the US.

They're on the NASDAQ and stuff. They're not hobby shop type. This is not a hobby industry anymore. Right, it's been corporatized, and they are looking for reliable low cost clean energy to scale up their operations.

Because they want to buy up supply chain, like all businesses that grow, right.

Exactly. So these companies these industries are going to merge and become very symbiotic. Energy and Bitcoin mining are going to be seen as kind of two sides of the same coin.

I think we're going to see nations and utilities or national utilities enter the game. And it's going to become like a strategic industry that a nation needs to have a strategy for.

The same way that the US has strategic reserves of oil or gas, right. And because it's part of the--

And Canada has strategic reserves of maple syrup, as we've discussed before.

That [LAUGHING]

is one of Canada's most important strategic assets.

But I think it's going to be like that. Countries are going to have a Bitcoin mining strategy, which is basically how do we monetize the wealth? The natural wealth of our country, right. Which is the sun shining, the wind blowing over the country every day.

How do we make the most of that for our citizens? Well, one of the ways we do that is with mining, and they're going to have--

So exciting.

So there's a lot of thinking to be done about how countries do that.

Secretary of State for Bitcoin mining. You heard it here first. It's going to happen.

The message for the energy industry for me is one, be open minded.

This is a positive development for our industry and for the energy transition.

We need people to come in and really harness the tool that's sitting there, right, and it is happening. But I think the energy industry needs to wake up a bit.

Realize what's going on, get past that this thing uses energy, so it's not good. Everything uses energy. Every human activity that we do today consumes energy in some shape or form.

And the assumption that what I've noticed a lot, particularly on LinkedIn and Twitter, is that there's an assumption that if you're an energy expert. You're therefore--

you understand Bitcoin mining, and you understand the order of all of this stuff.

And it's like there's another jump, so we need to encourage people to take the next--

and we've been talking about this for years, and I still feel like I've only scratched the surface. I'm sure you do too, but there's another jump to happen, and while you are you making that jump, I guess, don't default to no. Default to yes.

Yeah. Yeah.

It is a bit of a mind bender, and it was for me as well. Because I definitely started from the point of view of why does this thing use energy, and that's not great. And then you start to see Bitcoin mining is not the usual buyer of energy. It's fully location agnostic. It's fully flexible.

It can be global anywhere in the world, and once you start to see these attributes of mining and you think through the incentives that creates. And you see where the cost curves of renewables are going, and you're like, so these people can be located anywhere in the world.

And they're looking for the cheapest energy that we have, and the cheapest energy is increasingly becoming solar and wind. But those assets are kind of like prisoners of geography because they are where they are. So how do we--

Great book, by the way. [LAUGHING]

It was a good plug there.

Yeah.

It wasn't meant to be, but, yeah.

Once you make those connections, I think it really opens it up. So I think Bitcoin mining is going somewhere with or without the energy industry on board. But I want the energy industry to be on board because I think we have a lot to offer.

The experience, the expertise, the knowledge, the leadership of the energy industry is essential here, and one of my missions is to make sure that the people that are in the energy transition lead this part of it as well, right. And right now, there's a huge disconnect. So the other thing is I get--

I post on LinkedIn about this topic a lot, and I get a lot of people in the energy industry who messaged me privately.

And they say, oh, I love that you write about this, but I feel I can't talk about it, and that's something that has to really change. This is not a taboo topic that if you're in energy, you feel like I can't talk about Bitcoin.

You can, and you should. And you should look into it and research it.

And get excited about it. It's an opportunity, right. We should all be we should all be absolutely buzzing about this.

Well, I'm not going to say the word should. No one should do anything, but it would be nice. [LAUGHING]

Yeah.

Yeah, it's a really positive thing.

And again, I think it helps people to think globally. I think one of the biggest challenges is that we've become accustomed to thinking about electricity and people like us that have worked in the electricity markets our whole life.

It's all constrained, yeah.

It's all constrained, and we think of it in very national terms, right.

What are the prices on the German grid? What are the prices on the French grid? And we think within our own--

we kind of like bounded, right. And one of the big shifts is this is a global opportunity, so you can think about how does this apply in another country, and it's the exact same physics.

It doesn't matter what their grid is like there, how that works. What the prices are like.

Transmission costs. Subsidies or blah, blah, blah.

Do they have a grid connection? That stuff doesn't matter. It's like, oh, I can develop assets anywhere in the world, and I know how I'm going to monetize them. And it works, and it's like a totally different way to think about the industry. Which is probably one of the things that kind of blew my mind the first time I was like, oh, this totally frees you from whatever happens on your grid.

It de-risks one of the greatest things that you have, which is that things don't go well for you economically on your grid, right.

The other thing is actually to touch on a very renewable specific point. There's something going on, which is only starting to become addressed in literature, which is what they call solar value deflation or wind value deflation. Which is when there's a lot of solar power on the grid. That's when prices are low, right. So the middle of the day in ERCOT, power prices are low.

Even negative sometimes.

Even negative, right.

The problem for the solar owners is that, by definition, that's when they generate solar.

They are the reason for the low prices, but they are fully trapped to have to accept those low prices because that's when they export their energy. So the more solar that you add to a grid past a certain point, it has what we call an anti-network effect.

It actually disincentives more solar to be built on that grid because the prices aren't good enough at the times when solar is available.

Bitcoin mining potentially helps to solve that massively. Energy storage--

that's why solar and storage is a big thing, so you can shift through time. But having that alternative monetization pathway through mining decouples you from the risk.

That the prices on that grid over the next 20 years, which is how you- that's the horizon you have to be thinking about when you build these types of assets. You now have something to de-risk you from this kind of value deflation problem.

Awesome. That's a big problem for anyone who's developing now.

How do you know what's going to happen in 25 years in advance? You don't, and these things have got a design life for that. So cool. Well, let's leave it there.

[MUSIC PLAYING]

I just to say thank you for coming on and also thanks for being--

I felt like there is a lot of ways to approach this, and I know you've got a lot of opinions about the wider Bitcoin movement. And its impact on the world and all that stuff, which it's all positive. But I just want to say thank you for coming on. Just talking about energy.

I think we covered a lot of ground here, and for anyone who's watching or listening to this, please do let us know what you think in the comments.

Let's continue this conversation, and maybe we can do another one of these in the future with questions. You know your stuff, and I'm sure there's a lot more questions out there. So thanks, everybody, for watching, and thanks, Nima, for coming on.

Thanks.