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BITCOIN: This Country Is Secretly Mining

July 10, 2023

This conversation delves into the concept of a vertically integrated technology stack in Bitcoin mining. Fred Thiel draws parallels with Apple's ecosystem and explains that MARA's approach involves owning and optimizing their own mining pool, developing their operating system and firmware for miners, and even investing in the creation of a Bitcoin ASICs. This strategy enables Marathon to fine-tune performance, improve energy efficiency, and increase overall mining effectiveness. Fred also emphasizes the advantages of geographical diversification in mining operations, citing examples in the UAE and potential opportunities in various regions.

00:00 Vertically integrated technology

04:03 Geography approach

06:50 Nuclear power

09:28 Competition around the world

11:54 Zero-cost energy

13:30 Mining facilities

18:21 Revenue, hash rate, bitcoin price predictions

20:06 Find online

Transcripts are autogenerated. May contain typos.


all right Fred I thought a great place for us to start our conversation here would be around this idea of vertically integrated technology stack that's something that you all hang your hat on and are very proud to kind of take this uh very unique approach in the Bitcoin mining space explain what a vertically integrated technology stack is and then why you all feel so confident that this is the right strategy for you so if you think about how Apple has developed their whole ecosystem around the iPhone they own the cloud software


they own a lot of the core apps they own the operating system and the phone they own the silicon and the phone and they own a lot of the distribution medium if you take that analogy to Bitcoin mining we have our own pool that we operate we don't participate in a third-party pool why well if we're operating in our own pool our pool doesn't have to be designed to deal with a lot of third-party Miners and dealing with people logging in and security and how do you make sure that a miner connecting to your pool is actually supposed to be


there plus as third party pools you have to be prepared to take s9s s19s hashes from all sorts of machines we have two machines running in our pool in our Fleet today it's s19j pros and it's XPS that's all we have to worry about so we can optimize the pool to be super efficient and by efficiency it's communication latency things like that so we can pull out a nanosecond here a couple milliseconds here it just makes it more efficient then we run our own uh operating system our own firmware in our


miners more and more today we're in the process of rolling it out across our whole Fleet but the site we built in UAE is built Soup To Nuts on our own stack and so by using our own firmware it means we can overclock we can under clock we can adjust the exact performance of the minor specific to the environmental conditions the energy pricing whatever's going on wherever we happen to be so we get more efficiency gains there plus because we control the firmware most miners have bloatware in them so if you think about it the average


Miner has to have all the software it needs in it so it can run standalone well if you're running 200 000 miners connecting to your own pool you need very little firmware actually in the miner and so we can strip out a bunch of stuff that again takes up clock Cycles it uses more electricity and allows us to operate that Miner more efficiently we have our own controller boards which allow us to do a number of things on the miner and in our immersion solution we've co-developed the immersion technology so we can fine-tune the minor


and the immersion system together so now you have this whole system from the operating system in the cloud for the pool all the way down to the minor the firmware in it and the immersion plus we also made an investment last year in a company called oradine which is really designing the Next Generation uh Bitcoin miner it's a U.


S firm designed by engineers in Silicon Valley an amazing product um that'll be coming to the market this year and so there the reason for that was we needed a couple of things one is bit main uh while they make a good product they have 60 70 market share it's almost a monopoly and that's a high risk issue if the U.


S and China get involved in a trade War there could be supply issues so we needed to make sure there was a U.S manufacturer more importantly we wanted to be able to adjust the performance of a miner all the way down to the individual Asic level because in times of high energy costs or high temperature we needed to be able to tweak The Miner all the way down at the Asic level and we wanted the miner to be configured in a way so we could do industrial scale mining with blades as opposed to using the shoe boxes that everybody else uses


and so we needed to have access to custom designing The Miner so think of us more like apple and how they address things than how traditional miners do so that's the nature of the vertical technology stack what's fascinating to me is you basically are trying to reduce diversification in this technology stack and that you want control right you want the centralization in your geography approach though you are seeking diversification and kind of trying to go all around the world talk a little bit about that specific strategy


sure so um most minors tend to locate um trying to build a large site for economic economies of scale right in one location well that makes you subject to two things climatology and Regulatory and grid pricing right so if you look at um you know all the people that operate in Texas and we have considerable sites in Texas now you're subject to aircot you're subject to the climate in Texas you know we're going right now into summertime here and as we're recording this in June uh we're having some of the


hottest days of the year so that's impacting performance so by having Geographic diversity in the U.S you separate yourself from uh issues specific to one grid operator you separate yourself from um climate specifically so we're in Texas and North Dakota opposite ends of the country right different types of climates lets us operate very differently at the same time by moving offshore and our partnership in the UA is the first example of this we're also creating diversification away from the U.


S which you never know from a regulatory perspective may or may not be important at some point in the future but most importantly for us it was the ability to partner with a sovereign wealth fund who controls the energy generation the energy distribution and the land and the government regulations in a way that allows us to have the ideal partner so that we're sure about our energy costs for the full term of this agreement we are you know we've nailed the energy cost um we have the benefit of it being um


fully offset with Rex It's a combination of natural gas and nuclear energy over the life of the agreement um and they invested enough capital in this so they have so much skin in the game so it's really critical for them to make this successful now the benefit of this kind of poster child installation in the UAE is that now we have other countries coming to us uh people in Qatar coming to us saying hey Marathon we'd love for you to mine here Oman hey Marathon we want you to come here Bhutan hey we want


you to come here countries in Latin America countries in Africa we're looking at geothermal opportunities so now these opportunities are starting to come to us because we think of it as your technology company you just won the perfect reference customer as your partner and so people want to come to you because they say well if you can work with these guys and you can do this then you obviously are serious you're well capitalized and so we believe we're very well positioned to continue to grow internationally to the point where we'll


have about 50 of our mining capacity outside of the U.S 50 in the U.S so you mentioned nuclear power and that's something that I think people have always dreamed about is like why don't we hook this up to those types of power generation uh facilities what are you seeing on that front is that something that you think will become the standard do you think that it's still kind of Fringe idea where are we so uh it varies by region um you know in the U.


S uh and generally speaking in the developed world after Three Mile Island Chernobyl uh and fukushiyama there's been this kind of fear about nuclear energy um the Ukraine crisis and the energy crisis that came from that got people to kind of revisit that and we now have things like smrs small modular nuclear reactors the difference between smrs and the traditional large-scale nuclear reactors is for one thing they're um not one-offs you're making the same nuclear reactor over and over and over again they're of a scale that's similar to


what the U.S Navy operates in submarines or aircraft carriers these things are super safe most importantly they use the spent fuel from traditional nuclear reactors so now you're actually using up that old fuel so you don't have to go dig up more uranium to make them operate and they're very safe because if something happens in one of these things you're talking about an area of just about a couple of Acres around it that are potentially going to be irradiated versus a whole city and so granted they


also generate less electricity 30 megawatts 50 megawatts but these are perfect for solving the biggest problem we have with the energy Grid in the US today which is lack of transmission lines you know you can build solar farms in rural areas all day long you can build wind farms all day long what's the problem is you can't get that electricity to where people live all right bulk of the population of the U.


S lives east of the Mississippi most of the solar generation is west of the Mississippi transmission lines are missing it's going to take hundreds of billions of dollars to build the transmission lines so you're much better off putting energy generation next to where the consumers are and California today they're building lots of solar on houses you have solar at the community level you have batteries together with that now the grid operators in California can actually borrow electricity from consumers battery Falls when they need it to avoid brownouts do


that at industrial scale across the country and now all of a sudden transmission becomes less of an issue and it's just the way the internet works you put all the intelligence at the edge of the network and you leave the network as being kind of just dumb that's exactly what we need to do with power generation so smrs are a great solution they're combined with solar and wind and other renewable energy needs so as you guys kind of go around the world are you pushing into these other geographies are


you going out and seeking power generation opportunities are you going and trying to figure out where you kind of fit in in these geographies or are you being pulled are you getting phone calls from whether it's governments or private companies and they're saying hey please please come here and there's almost like a competition to get where you're going to go open your next site similar to how Amazon HQ kind of has a competition among cities how how is that uh from a push or a poll standpoint


it's definitely more of a poll situation today uh you know after our success with the UAE site you know uh we've gotten calls from Qatar Oman uh Bhutan uh Kenya and Africa um Latin America countries there so it's uh governments but it's also private Enterprises you know there are people who have the concession for energy in a particular location and they want to build out more capacity they don't have off take for it and you know you don't want to partner with somebody who's gonna potentially have challenges


raising capital or executing and we've proven that we are very good at raising Capital we're mostly one of the best of the publicly traded miners at raising Capital um we're also very good at executing and very challenging conditions you know the UAE site runs for the ambient temperature is over 100 degrees every single day pretty much and our pilot site ran there for over 100 Days with no human intervention all right so when you can operate sites with very little human intervention it means you can put them in places where


they're very few humans so you can put them in the Hinterlands of deserts and places like that and because the energy we consume doesn't need to be transmitted to a consumer we can partner with people to build these renewable sites in locations where otherwise it would make no economic sense to do it and as you look at things like geothermal energy you can't move that energy right you got to get it out of the ground where it's available and so those are sites that we think are really interesting and we're also


looking at things like landfill gas you know the methane gas that comes out of landfills is 80 times more damaging to the environment than carbon dioxide if you can build small enough Bitcoin mining site together with energy generation at the landfill site you can use that gas to create Bitcoin and you can offset a lot of your energy generating costs because of the renewable energy credits you can generate and that's part of our Tech stack is to be able to build these small totally automated self-contained Bitcoin


mining sites you can put out in the field somewhere talk about one of the other things I think you guys are really focused on which is chasing the non-parasitic load right so when you think about this there's kind of the zero cost energy you're talking about renewable credits there's a bunch of different strategies as to how you kind of get here but explain maybe the way that you all are approaching this in this pursuit of that zero cost energy and non-parasitic load yeah so if you think about parasitic


load is you're sitting on the grid and you're really competing with the consumer in other Industries primarily other Industries for energy and so you have to curtail as a good citizen um when the grid operator needs it if you're sitting behind the meter especially with a lot of renewable sites they oftentimes have stranded energy if you think about solar and wind it's the top of the energy stack meaning it's the first to be shut off and the last to be turned on and if you think about solar


you know it shines 9 A.M to 3 P.M well if you believe in the duck curve of energy which is kind of when energy is consumed it looks like the bottom of a duck the belly is nine to three PM that's when the least amount of energy is used so solar sites get curtailed and that's why in places like Texas you have negative energy pricing upwards of 20 of the time sometimes in that middle of the day so weeks that for example in West Texas on a large Wind Farm behind the meter and when that wind farm isn't


selling energy into the grid we can consume it all it's non-parasitic we're not competing with the Grid or consumers for that energy and if the grid needs it we can give it up and so um it's a different model than sitting on the grid where you're competing for every electron as we continue to watch this uh industry play out it seems like people are building uh mining equipment mining facilities and they're going and they're seeking out the power do you envision a world where people will say no this is


actually one single uh kind of facility we're actually going to build ground up from scratch power generation and the facility you're talking about kind of being behind the meter and going into some of the existing Renewables but like could someone build a wind farm specifically for Bitcoin mining kind of integrate everything from day one or are we still a ways away from that uh the answer is yes and it's happening today and it's an area we're very focused on right now got it and when you think about that


strategy do you think that becomes the majority of what people do or that's just really difficult to do and only a couple of companies will be able to so most people just go seek out existing power generation so you know most Bitcoin mining today to do it economically is done at utility scale you know 50 megawatts 100 megawatts 200 megawatts because you got to build a building or a field of containers and you got to have people there to operate it if you're going to operate in a lot of these um self-generating environments methane


flare gas for example in oil fields or landfill gas or smaller solar Farms they don't generate that much energy on a consistent enough basis so you need to be able to operate these things very much as automated facility where there aren't human beings and so you got to have the technology to do that so I've got tons of years in the world of iot and Industrial Automation we have built our Tech Stacks specifically for this opportunity our next Generation immersion technology will have three or four times the compute power density of


existing Technologies today fully self-contained no need for external Cooling and will enable people to really set these things up one go out to megawatts three megawatts and operate them very hands-off so we totally see this as being one combined kind of unit when you don't have those humans there on site how does that change the unit economics and maybe some of the insulation you have from the cyclicality of of Bitcoin or does it not matter you know it doesn't change the cyclicality because at the end of the


day you know we don't control the price of Bitcoin we don't control Global hash rate um and then we have havings that happen every four years so the goal is to lower your marginal cost to produce a Bitcoin as much as possible and so you do that by finding the cheapest energy or ideally zero cost energy and you do it by sucking SG a out of your model and so you think about these big sites you know a company like a riot for example they have hundreds of employees per site um you know we're still a company with


sub 50 employees today and yet we're arguably one of the biggest miners in the world so our whole model is built on optimizing RSG a and being as efficient the minor as possible and so as we've transitioned from being kind of this acid light Miner who only work with third parties to being more of an owned and operated and moving to what we call a zero cost energy model uh we believe that you know that'll allow us to be amongst the most low-cost energy uh or low cost minor in the industry which means that as the margins compress over


time in this industry uh you know it's last man standing kind of gets the last Bitcoin right it's um I don't do public math but I think uh you're about 40 million dollars of market cap per employee if you kind of use a metric like that um that is a an incredible statistic compared to most businesses even in the tech industry and so um is it something where uh those are kind of fixed costs and let's say 50 maybe even 100 employees is kind of you know the plateau of what you'll need you can


scale infinitely or is there some linear relationship between the team size and as you bring more uh hash rate online yeah so the biggest expenses obviously your executive team your think of it your knowledge workers right so the engineers all have people that scales to a certain level and you don't need to scale it much bigger after that it becomes um what we call technicians right in the field so the technicians who are the people who build the sites get them provisioned and operating and then manage and service them and so if we can


have sites where we have minimal unplanned downtime because we have really good predictive systems we have really good Management systems and tools for looking at what's going to break when and fixing it plus Building Systems that are redundant then that technician tier can be smaller and smaller and smaller as we continue to scale and that's where you really get the scale Plus in some cases you work with outsourced resources which could be very low cost and part of the attraction in the international model is there are


opportunities to be at sites where between Automation and the lower cost of Labor there's just no other operator that can compete Fred my last question for you is if I had to ask you uh Bitcoin miners Revenue hash rate and then bitcoin price five years from now is those three things up or down so Bitcoin minor Revenue hash rate and price of Bitcoin where do you see those three metrics five years from now well they all tie so much together so um let's use is the point the having in 2028 right so as we come into that


having in 2028 uh I think what you're going to see is the price of Bitcoin is going to be somewhere in the low six digits you know we're going to be 100 to 200 000 somewhere in that range most probably um conservatively speaking right Global hash rate close to 900 most probably um and then minor revenues um total Global revenues um will obviously go up because the price of Bitcoin has gone up uh but total Bitcoin rewards will have had almost twice by that point right so um the expectation is you'll see revenues


most probably close to what they are today but the difference is there'll be a lot fewer miners you're going to have a handful of very large miners that are Global in scale that are quasi-energy companies that may even be highly Diversified in what they do not just doing Bitcoin mining but doing other data center type operations you know some of our colleagues in the industry are chasing HPC opportunities some are chasing AI opportunities there are lots of things that you could do as a minor um and then you're going to have a bunch


of smaller specialist Niche operators who you know they're particularly good at dealing with Latin American jungles and doing things in waterfalls uh you know things like that that makes uh that makes complete sense where can we send people if they want to follow up with you or they want to learn more about what you all are doing um so you know our website is mara.


com mara.com just like our stock symbol easy to find and we're publishing more and more data there uh on a regular basis you can reach me on Twitter at f g t l t h i e l and happy to answer questions and interact with people there I always enjoyed talking to you I learned so much thank you and we'll definitely do it again in the future appreciate it thank you very much [Music]