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Marathon's CEO Talks Tech and the Future of Bitcoin Mining | Fred Thiel | Texas Block-Cast

September 28, 2023

Fred Thiel discusses Marathon's distinctive approach to Bitcoin mining, which revolves around an asset-light model, emphasizing the allocation of capital to miners rather than infrastructure, resulting in increased operational efficiency. The company also leverages technological innovations, such as immersion cooling and custom firmware for miners, to maintain a competitive edge. Thiel underscores the significance of utilizing renewable energy sources for Bitcoin mining to ensure long-term sustainability and explores potential financial instruments and derivative markets for miners in the future.

0:00 Intro

0:21 Fred's background

6:28 Marathons model

8:49 Technology

12:25 Luck

17:35 Flare Gas

19:23 Renewable Energy

22:07 Model A

24:46 Natural Migration

30:49 Marathons Future

Transcripts are autogenerated. May contain typos.


hey guys welcome to another episode of the Texas blockcast we are here with Fred teal the CEO of marathon Marathon being one of the largest Bitcoin miners in the world a publicly traded company [Music] uh Fred I know people know Marathon they know you but before we dive into what you guys are doing let's uh if you don't mind give the audience a little bit of a sense of your background and and what you did in Industry moving uh to where you are today uh sure uh so first pleasure to be here um I've been in the tech industry for 40


years I started writing software for banks in London when I was 17. so you know go back a lot of years so late 70s uh Punch Cards you know IBM 360 machine Mainframe uh back in those days you had to kind of include job control language in your instruction set so the operator knew what disk pack to put on which reader and you had to advance the head on the disk pack to the right sector and old-fashioned Computing wow um and have pretty much been in every sector you know semiconductors data comms networking um digital ad Tech digital media


Enterprise software SAS transition uh storage um PC peripherals kind of you name it um and uh also went to the dark side spend some time it ran a private Equity Fund focused on Enterprise software companies and uh co-foundered Adventure fund um and have advised a lot of very large um you know technology investors in their in their M A strategies over the years but I got involved with crypto back in the mid teens um and uh saw the kind of this problem of these islands of trading that were going on between Japan South Korea Europe us


and the inability to move money amongst cross exchanges and two exchanges and so the people who were trying to do the Arbitrage trade which was kind of the Alameda trade if you would um you know they had their issue was moving money between accounts and so wrote a white paper to basically build um a common order book that would aggregate the order books of all these exchanges you'd have an account on one system the system would allow you to trade across all the exchanges you'd only be moving money in and out of one place went to


the U.S Regulators um who kind of laughed this is 28 late 2015 early 2016. they kind of laughed and said we don't even have rules for how we would consider this uh plus you would need money transmitter licenses uh Etc in 50 states so went to Switzerland spoke to the finma which is the Swiss monetary Authority um and they said yeah you know in zoo we have this crypto Valley you could do something in the sandbox but eventually you'll have to get a banking license and we don't give U.S companies Swiss


banking licenses and so you know thank you very much but no thank you uh and then went to Liechtenstein next door and uh the listings Indian Authority said gosh we don't have exchanges in our country we don't have any rules regarding crypto what would you suggest and we went to a law firm and they said well you know why don't you just try and get the permit to trade crypto in Lichtenstein Lichtenstein is an EU country so you that would give you the right to do it across the EU so um the law firm approached the


government and the government said sure we'll write a law that lets you trade Bitcoin and ethers if it was um a currency it's not making it a currency but just the regulatory framework would be foreign exchange uh rules sure so we started a trading operation to do that and uh after becoming uh you know getting that up and running they came to us and said gosh you know you really need to have a banking license and so um but by that point I was totally bitten by the Bitcoin bug and had gone way down the rabbit hole and


um you know had good understanding for the economics and the benefits that Bitcoin really bring to economies and to the underbanked and how you could use it for uh International settlement and being a technologist I was focused on both the technology of Bitcoin and the store value of Bitcoin um and at about the same time as all this was happening a good friend of mine uh Marico Komodo who was my predecessor here at Marathon he had been asked to become CEO of what was then Marathon patent Group which was a patent troll


um interestingly their claim to fame was that they had uh one of the patents that essentially underlies the ability to use voice control on a mobile device to tell to do stuff so think of Siri think of Alexa they had sued apple and successfully got an apple to pay a licensing fee they had sued Amazon and spent all of the Apple licensing money suing Amazon and had not gotten a good outcome and that's hasn't been settled yet and it's still years later now so Merrick had been asked to buy a group um who had kind of Taken control of


marathon patent group to put Marathon into the Bitcoin mining space and um he had never done Bitcoin mining and uh so he studied it for a while and then he reached out to me and he said hey Fred listen I need somebody on my board who knows understands crypto understands how the scale technology companies would you join the board so I joined the board of marathon in 2018 um and we spent a lot of time cleaning up the balance sheet getting things organized so that we could really scale the business and then you know the


um fate opportunity and preparedness all happened across at the same time and um we were able to raise a lot of money in 2020 and then 2021 bought a lot of minors and uh you know here we are uh you know one of the biggest publicly traded miners in the world today um with a lot of miners running uh in Texas uh and you know thank you for uh having such a wonderful State and then we also operate in North Dakota and a UAE so that's kind of the the long and the short of it that's awesome uh and and a lot of new info for me too


I I wasn't aware of some of those uh things in your background so very cool and and cool for the listeners to be able to hear that let's dive into the mining piece a little bit here so Marathon has a different model than than most uh there are efficiencies that you guys are pulling from your different model that that give you a competitive advantage perhaps if you are able to share some of those efficiencies and and how are you pulling those efficiencies out what are you doing differently from some of the


other uh some of your competitors that that really gives you some of that competitive advantage sure so um we think of ourselves as capital allocators and maybe this is I'm a little jaded having spent time in the private Equity world in the Venture world and having scaled a lot of technology companies it's really about you have to time the way you deploy Capital to the conditions in the market right and if you think back to 2020 2021 um it was all about number go up you know the price of Bitcoin was going


through the roof and it was all about scaling and if you think about traditional Bitcoin mining operations you secure a site you have to negotiate a power agreement you have to order Transformers you have to build this infrastructure and then you get Miners and then you plug those miners in and then you start mining 18 to 24 month process we knew that winter was going to come because that's those are the cycles Bitcoin goes through every four years um and we knew we needed to get scale quickly so that we were able to generate


a lot of revenues and profits so that when winter came we'd have a war chest to be able to take advantage of the opportunities that arose uh during the winter so what's the fastest way to scale well it's if you think about if you can Short Circuit the timeline so you can just plug miners into existing sites you need to find people who have sites under development ideally they're spending all their money to develop the site so you spend all of your money just on minors so our asset light model was really


designed around deploy 100 of your capital on minors instead of 30 to 40 percent on infrastructure and you know 60 to 70 percent of miners so that's how you scale faster what about the technology piece you have a technology background marathon is leans into the technology a little bit more than some whereas Others May lean into infrastructure or power trading you guys are leading into you've developed your own pool you know mining pool you've leaned into technology in other ways including with some strategic


Investments can you talk about the importance of the technology sure so um if you think about um the world of computers you've got the Microsoft world uh kind of the PC World where you have Intel makes microprocessors um different systems integrators build the PCS Microsoft is the operating system predominantly then you have applications from third-party vendors and then you have all these cloud services now look at the Apple ecosystem Apple makes the chips Apple makes the computers Apple makes the operating


system Apple makes the cloud service Apple makes some of the up the applications why does Apple do that instead of doing the traditional model well because of the high level of integration between all of their services they can make the user experience not only better more magical if you would but they can do things that you can't do when you're constantly relying on third parties to do things so if you think about the Bitcoin mining industry you have third-party pools who are designed to operate with


um all of the miners that are out there old machines like s9s and s17s connecting from sites with horrible network connectivity so they have to build all this infrastructure so it works with the lowest common denominator and then they have the issue of these miners are coming online going offline coming online coming offline depending on curtailment and stuff like that so there are a lot of operational complexities to running a third-party pool now look at the individual minor bit main microbt Kane and everybody they


ship miners so they can be plugged in Standalone which means they have a lot of software on them if you're running a hundred two hundred thousand miners you want to have as little software running on them as possible so the only thing they're doing is hashing and you want to let the rest of it be directed by an orchestration layer or the pool and so we designed the pool because we knew there were inefficiencies in third-party pools because we had benchmarked them against each other we designed our own firmware so that we


could not only strip out the inefficiencies in the miner which by the way means you get a little bit more energy applied to mining than the mechanical load if you would but more importantly we added in our firmware the capability which you don't have in the stock firmware to under clock overclock and do all sorts of nice things with the miners right and so when you then integrate that with the pool where you strip out the inefficiencies and having to deal with lowest common denominator we only operate two types of machines it's


really simple we use the exact same generally speaking standard network connectivity um to connect them so we don't have issues with latencies Etc um you get you know one two three percent more efficiency well in the long run that adds up to a lot of Bitcoin especially when you're doing it at scale yeah and you know people can look at our production numbers because we operate our own pool so people can see and there are times where we just generate a lot more Bitcoin than we should for our size and part of that is due to when our


technology fires on target the way it should you know things work uh yeah yeah luck factors into it but you know luck is this notion that you know over which over a period of time should normalize right exactly in reality if you think about what we do um and think about how the nonsense work if you tell your miners to start guessing in the right place and they guess the non faster than anybody else you win the block the science is all in knowing where to start guessing and if you apply some interesting logic to that


uh you can potentially get a little tiny fractional advantage and every now and again that fractional advantage and this is just like Quant Traders on Wall Street and maybe this is because our CTO is a former high frequency Trader but you start plugging a little of these capabilities into things and every now and again something pans out that works really nicely on top of that you layer in what we're doing in immersion technology and now you start getting operating efficiencies so for example in the UAE when we lit up our pilot there last year


it ran for a hundred days without an engineer having to go on site and touch a minor this is in the most hostile mining environment it makes Texas look like you know a temperate climate you know you're talking 115 degrees 120 degrees ambient temperature 95 humidity uh with a lot of dust Etc granted this is all immersion we do it in containers not in buildings and these things just run wow and so we're very focused today on leveraging our technology uh and by the way we if people want to buy or license our technology we're


happy to sell it to them um but um we really look at technology as a way to reach huge operating efficiencies out of what we do so that we're not like everybody else we can do things that other people can um we also look at you know the fact that we made the investment in oradine which is you know a U.


S Asic manufacturer why did we do that you know we don't want to be the biggest Bitcoin mining hardware company in the world not at all that's why we have a very small position in that company but what we did want to do is drive the technology spec of those machines so those machines are designed on the lowest possible total cost of ownership you know some of the amazing features built in these machines is the ability to using their cloud-based software you it automatically looks at the price of Bitcoin the cost of your


energy in the moment and the global hash rate and it optimizes every Asic in the miner and every Asic in the fleet of miners you're operating to the maximum profitable setting wow and you know that includes things like what's the temperature of that Asic at the moment you know what's attaching Etc so doing things like that you don't have to have the most energy efficient Miner then because you have the most economically efficient Miner running plus the fact that they're made in USA we think is important because God knows


if we ever get into a trade War full on trade war with China and the Customs Department decides to get really finicky about stuff maybe hard to import miners from offshore um so we think that's really important and then we've designed immersion technology to be very Hands-On uh because we think if you can um not need a lot of people to run your Bitcoin mining operations you can run much smaller mining operations in places where um these machines have to run and Standalone site so if you think about the world of flare gas


um you know these are one megawatt two megawatt sites these aren't 100 megawatt sites well be very expensive to do air cooled miners in these small sites but if they're immersion cooled self-contained and you only need to go once a month to have a look at them you can run a big oil field full of miners spread across uh generating Bitcoin so we we think that the technology is going to give us an edge in being able to be more agile in the opportunities we look at no matter where it is in the world where we're looking at it and then


lastly we also look at how we can leverage our technology on the power generation side because we think that while up until prior to our Abu Dhabi site we didn't own and operate sites uh you know we had the hardened site in Montana which we built and that's where we kind of learned the lesson of being asset light and why we did it at the time but today you know we're of a size and scale where it makes sense for us to own all the way down to actually owning power generation and so we're very focused now on doing everything from


Power all the way up through the pool um and all the technology components that fit there because we think we can continue to eke out efficiencies all the way down uh and whether that's generating lower cost electricity or just generating more Bitcoin with the same number of electrons uh it all goes to the benefit of our shareholders into the grid um well you mentioned flare gas there which is not something we talk about much with with our large corporate mining members that are on grid and it is interesting


though because we just uh had a continuing education event with the AAPL the American Association of professional landmen uh they're based here in Texas and they're a National Organization but we did a continuing education event where landmen came in person there was lots tuning in online and we did a panel and basically educated about what Bitcoin was what Bitcoin mining was and then talked about the synergies between Bitcoin our really stranded energy and Bitcoin mining and so what you're talking about is really just finding


stranded energy and monetizing it um so that's what you can do in the Middle East that's what you can do in Texas you can do it on grid you can do it Off Grid it's a little bit easier to conceptualize off-grid because people can see you're making zero dollars for flared gas or stranded gas and then you monetize it with an on-site buyer of electricity with on grid you do it as well but then you have to you have to play time of day location ancillary Services you know behind grid Trend uh when you have


transmission congestion you're kind of on the opposite side of the congestion there's ways to do that but it's a little more complex do you see uh further because right now we estimate that about 97 of Bitcoin mining in Texas is on grid um we only have about three percent of our aggregate you know almost almost 2 300 megawatts of Bitcoin mining in Texas being off-grid do you see that growing in the future um maybe 95 90 94 being on grid but then maybe doubling the amount of off-grid mining yeah I see it's the only way that


Bitcoin mining can survive long term uh you know for example in our uh King Mountain site we sit behind the meter at a wind farm so we're taking wind energy as long as the wind blows then we have to take great energy when the wind doesn't flow right um and um we think that if you can power Bitcoin miners using renewable energy sources you know people argue well methane's not renewable well here's the thing methane gas is 80 times more damaging to the environment than carbon dioxide and if you can convert that to


carbon dioxide by turning it into electricity you're actually helping the planet because methane is 20 of our problem on this planet and so we think it's a very important thing to convert as much methane to electricity as possible um plus it's stranded so the other thing is that uh you know the political environment which you are very well aware of is uh at times and in different places antagonistic towards Bitcoin miners because of the um you know misapprehension and misunderstanding about you know Bitcoin Miners and how


they use energy and you know are they actually adding to the load are they or are they supporting you know load shedding and keeping actually the prices for consumers and the quality of life for consumers better you know I argue that we do help the grid and we do help consumers considerably um especially when it comes to avoiding blackouts um but you just don't know where that's going to go and uh electricity demand is only going to increase and the amount of development that needs to be done to meet that with all the EVS the


electrification um and the lack of proper transmission technology and availability as I look out five ten years into the future it tells me I need to generate my own electricity to be a Bitcoin miner because otherwise um there are too many exogenous factors that will negatively impact me in my life yeah and so is there a way for us to do that help the environment help communities um and do it in a way that makes economic sense to our shareholders then absolutely that's what we're going to focus on so we're very focused on


looking at you know how can we take true stranded energy and leverage it for Bitcoin mining um such that um you know and yes if there are opportunities to provide energy to the grid happy to do so but you know really looking at it from a perspective of you know um how can we as a Bitcoin miner operate in a way so we're not impacting anybody's lives in any way negatively and only doing it positively well said there's a Model A business model that you may be aware of and and some of our listeners probably are not yet aware of


because it's quite new that it really takes all three of those factors and arbitrages it allows you to simultaneously Arbitrage them so they're a an off-grid minor connected to the pipeline connected to the grid and they're able to either sell so they have a gas asset the right a gas asset so they're able to sell into the pipeline if you know the Henry Hub price is more than three dollars in mcf then well they'll sell in the pipeline or really if you need to be more than like five dollars in mcf


because they make about five dollars in mcf on their gas when they're mining Bitcoin right but they're also plugged into the grid so that they can sell power from their gen set to the grid now you would only do that in rare moments but this summer in Texas if you had been doing that there's there was so many days where we hit that Max uh cap of five thousand dollars a megawatt hour five thousand dollars a megawatt hour that would have been wildly profitable to sell into the grid for about two hours or maybe even 30 minutes because


those are five minute pricing intervals as you know so what do you think about that model I mean it it just creates so many more Dynamic factors at play maybe too complex no so here's I'll throw the fourth dimension in that okay now add now add some battery capacity to that there you go and and now you basically have this capacitor of the batteries that can play the energy Arbitrage game because to your point typically those pricing spikes are temporary in nature it's two hours yep three hours and the time it


typically takes a Bitcoin miner and again this is where technology is important but it typically takes a Bitcoin miner to ramp down and ramp back up it's a couple of hours round trip typically unless you've got unique technology that lets you do it faster um so your you know miners are constantly doing this you know where's the strike price and you know do I shut down do I not shut down well if you have battery capacity you can say I can just play Arbitrage with the battery all day long yeah and I leave my miners running


uh and uh you know if it's longer I'll shut down the miners and feed all the grid needs but uh that's definitely an opportunity I think that's very interesting um yeah but again that starts playing to bitcoin miners of scale can do that right it's a lot harder for the smaller guys right yeah I think there will be the more we get in touch with these these large energy companies the more their their ears are perking up on this uh because a lot of times they have no option but to sell into the pipeline and the Midstream


people are just gouging them you know not providing good contracts and gas you know oil is doing great right now but gas is doing terribly so you know you're not you're you're not over 250 an MCA 2.50 in mcf right now so um there's really not a lot of options so but there's a ton of money and a ton of of investment as you know in energy infrastructure across the country and in Texas in particular so they're we're starting to get an audience with a larger you know demographic of energy


professionals that are saying Hold Up Wait you you add Bitcoin mining to this you you know there's now the battery thing I hadn't even thought of uh I I'm aware of some people that are doing the three-way Arbitrage but the you know adding a 4 to mention in there is is even more efficient I I think is the right word yeah exactly and you know you got to realize though now you're moving the needle from being a Bitcoin miner doing energy stuff to being in Energy company doing Bitcoin mining so honestly natural


migration yeah exactly I think that's the natural migration I agree and and from a political perspective it helps us too because then you won't see bills targeting Bitcoin miners because there will be no such thing you'll have energy companies that use Bitcoin mining uh and and you'll have energy companies that do a little bit of data center stuff but as I've heard you say before we have to be careful with the AI uh llms uh because they are not a flexible those those AI models are are a constant


on with five nines of redundancy and that's a different game when it comes to grids one question for you I know uh we probably have to let you go after this one question for you about um the monetization of hash rate what are your thoughts on the coming influx of products that are approved by the cftc around hedging hash rate non-deliverable forwards um what do we how do we expect to see is that going to evolve in a similar way that energy has evolved do you think um I I think there's a lot of Promise


we've certainly spent a fair amount of time looking at it um you know if you're in the oil and gas industry or if you're in you know a farmer uh you know these types of instruments are how you finance your business right um you know Russia's whole oil industry is finance choosing futures um so yes there's uh it's a good tool the issue I think is um you look at the overall Global Bitcoin mining industry and um how do you get enough volume and liquidity so it actually makes sense you know we're that's the problem these


things take time it takes time for these derivative markets to develop and I think once they do it will be very attractive especially for smaller scale miners uh to do it and bigger scale miners will allocate a portion of their uh production capacity to it we've certainly contributed capacity to some of these um structured instruments uh where you know as an experiment you know we'll give you you know a few Pita hash here a few Pita hash there and just see how it works um but we think there's not enough


liquidity in the market to do it at scale um and you need institutional buyers who are interested in doing the Arbitrage because if you think about it it's I'm going to essentially buy somebody's hash rate and I'll receive the Bitcoin that that produces and the Arbitrage I'm doing on is that the price of Bitcoin is or the luck that that minor has in that period of time is higher such that I'm actually getting a good return on my capital and um when bitcoin price is in a downward trajectory or it's just chopping


sideways it's less attractive for these instruments and you know you can look at what the clearing price of these things is um and kind of see how uh how those are doing yeah yeah I think one day uh hopefully there will be some added incentives from Capital allocators who require certain you know hash price Hedges to to then uh issue debt do you think that could potentially be on the radar um you know I think the debt providers today don't want to underwrite the risk yeah again if there's a liquid enough


market it's a different story you can pass out the risk to a Speculator kind of a capital yeah yeah it's like the options market right you know if a stock has to have enough liquidity so that you can underwrite the option use options or you know effectively as a way to short the stock or um as a way to reduce your risk you know it's like when we issue a convertible Bond uh you know those bondholders typically will go out and short the stock right away uh as a way to cover their risk um it's the same thing with a lot of


dead instruments lenders will typically do that uh you have to have enough liquidity to do that I'm just not there in the marketplace never not there yet but you know we may very well be in in three or four years who knows we'll see right um well Fred first of all I wanted to thank you and Marathon for supporting the North American blockchain Summit we look forward to having you there uh that's here coming up in about two months within the next say two to six months we've got the having we've got


some some major events what are you most excited about for marathon in that period um I just think it's looking at all of the various growth opportunities we're looking at you know the we spent up until kind of the middle of this year just nose to the grindstone focused on hitting our 23x a hash goal and now it's really focusing on okay now let's look at all the other stuff we put on hold and let's kind of cherry pick what we think uh we're gonna go after and there are a lot of opportunities on


the table and we've got a great balance sheet if it's important activity perhaps yeah possibly if you know we'll see it you know I think you know if Bitcoin is at these levels when we go into the having um it's going to be a very m a rich opportunity uh they're gonna be a lot of minors that are going to have some challenging situations and uh you know we've been stockpiling Bitcoin in cash uh ahead of that so that we're ready to go if anybody needs us so well it's it's exciting times to be sure I


know uh people will know where to find you guys uh on the stock market Mara is your ticker where can they find you um on Twitter or on the Internet uh you can find me on Twitter or X as it's called these days I still have a hard time remembering to say that as you uh at uh f g t h i e l uh is where you can find me uh or just uh Fred mara.


com awesome thank you sir thanks for coming on the show thank you very much appreciate it hey it's Amy click over here to subscribe click over here for more content and we'll see you next time