« Back

The Value Exchange: 2024 Bitcoin Halving

April 5, 2024

"The Value Exchange" webinar by Fidelity Digital Assets features a discussion on the 2024 Bitcoin halving with Fred Thiel, CEO of Marathon Digital Holdings. Thiel highlights the importance of energy efficiency and cost management in Bitcoin mining, especially in light of the halving event, which will reduce the reward for mining. He also introduces the concept of "energy harvesting" in mining, which involves using stranded energy sources to power mining operations.

Transcripts are autogenerated. May contain typos.


hello and welcome everyone to this edition of the value exchange from Fidelity digital assets I'm your host Chris Kyper director of research at Fidelity digital assets and I am very pleased to welcome our guest Fred teal chairman and CEO of marathon digital Holdings we'll get to our guest in one moment but first a quick introduction for those of you who may be new to the value exchange and who we are at Fidelity digital assets so the value exchange is a regular webinar we do where we focus on a key theme or topic


usually comes after we've released a research report or maybe there's something timely happening in the marketplace and in this case we've got both today we've got the upcoming Bitcoin having and we've got a couple of research reports that we've written on the having which you can find on our website Fidelity digital assets.


com uh then we always get an external speaker for one of these events um when we bring their knowledge and insight to you the listener and so of course we think this is very important from a research perspective to hear someone else's views and what better uh than to have someone in the actual mining industry uh CEO of a publicly traded large Bitcoin miner to talk to us about the having and how it might affect some of the Bitcoin Miners and uh the ecosystem and then real briefly uh who are what is Fidelity digital assets so Fidelity digital


assets is a subsidiary of Fidelity Investments that many of you probably know so we are a separate entity dedicated to the digital assets space our primary product in Services include custody of digital assets it's usually known as cold storage and then as well as a platform to buy sell and trade digital assets and then we've of course built a number of products and services on top of that some of those uh which you've seen we've released recently in the past few years and you can see on this slide as well I'm not going to go


through all of the the things on this slide but the point here is that we've been in the industry a very long time you can see it extends back a decade now uh which I think is is a testament to our dedication to the space I've got a few more housekeeping notes but before I get to those I do want to bring in our guest Fred uh Fred thanks so much for being with us today taking time out of your busy schedule we really appreciate it I wonder if you could just tell us a little bit about yourself what you do


today and I'm always interested in this question because this space is so new we've only been here 15 years since the idea was even a thing of of Bitcoin what's your origin story I'm always curious to hear people's origin stories how did you get into this space and what led you to what you're doing today sure thanks uh great to be here uh so Fred Teel chairman and CEO of marathon digital Holdings were one of the largest publicly traded miners in the US today um with operations on three continents


um across 11 sides uh my background is you know 40 years in the tech industry um I started writing software for banks when I was in high school in London um in uh my senior year and uh went on to go to uh stock talking School of economics and then ended up in the tech industry uh across every facet almost over the years uh super computers uh PCS data networking software semiconductors uh storage Technologies um data hosting internet services etc etc etc uh had a bit of a stint in private Equity running a fund of targeting uh investing in


technology companies uh just around the financial crisis where there was a great opportunity to essentially convert software companies from Perpetual license models to SAS models um which was uh at the time just a a great Arbitrage opportunity and then uh also have co-founded a venture firm uh called navigate Ventures uh which operates today uh still investing in B2B SAS companies I got involved in crypto um in about 2015 um co-founded a company whose Focus was to essentially take advantage uh of the Arbitrage that existed across exchanges


around the world U by building a common order book that people could in theory use to then trade across exchanges by having one account uh on our system and then that would allow them to trade on uh the exchanges around the world went to Regulators in the US was not going to happen in the US went to Switzerland um the Swiss authorities felt that this needed to be a bank doing it and then went to lonstein which didn't have any crypto laws and worked with the law firm to have the first crypto law on lonstein


written which essentially treated the trading of cryp of Bitcoin and ethereum uh as foreign exchange and so started an OTC operation there that um eventually got to a point where the authorities there told us you need to be a bank uh getting a banking license in the EU uh list sign is a very small country um but it's an EU country uh was going to be very difficult so we decided to move on at about the same time I was approached by a good friend of mine who I had known for 20 years who had been tasked with restructuring a company


called Marathon patent Group which was a patent troll um at the time and um patent trolls are companies that Acquire patents from bankrupt companies and they had acquired a patent uh that is one of the core underlying uh patents for what essentially is Siri or Alexa and had um gone to Apple litigated with apple apple had paid a license and then gone and litigated Amazon and uh used all the money that apple had paid them to do that so this was a a public shell that um could be used for other things and so uh my friend was asked to essentially


restructure the company uh and uh then go into the Bitcoin mining business and so he reached out to me and said hey Fred listen um I know you understand crypto much better than I do would you please join my board so I joined the board in 2018 and um we spent the first couple of years restructuring the company uh there were all of two employees at the time I think uh the CEO and um the head of operations and then in 2021 uh the board decided that I should step in a CEO and that um my predecessor should become


chairman and then he later retired at the end of 2021 uh for uh health issues um and in so April of 202 one I joined I was employee number five I think and it was Off to the Races to scale the business and here we are you know barely three years later and we're the largest publicly traded minor in the world so it's been quite quite the Run yeah absolutely that's fascinating well thank you for that history um always curious to hear people's stories uh so we'll get into our conversation just a second I'll


I'll make these few housekeeping notes real quick here number one this is being recorded so uh we'll post this publicly shortly after the event and then most importantly um since this is live and being recorded thank you to all of you who are tuning in and listening uh taking time out of your day to join us a big thank you and of course the benefit to you of joining us live is that you get to ask your questions to Fred so please do that uh we're going to save some time at the end but don't feel you


have to wait till the end to ask the question you can start typing them in hit the the Q&A or question box on the bottom of the zoom screen of the controls there uh and we'll start collecting those questions as we have our conversation so you can enter them at any any time um other participants won't see the questions you can even ask them anonymously so we won't see who asked the question so please do that and then I'll remind you at the end hopefully but we'll have a quick survey so as soon as you close out the zoom or


if you might get it via email shortly after uh please take 30 60 seconds to answer this survey from us just so we know how we're doing and we can make these more valuable to you all right so let's get into it um I want to level set we're going to talk about the having here but I think we need to back up and just briefly talk about coin mining just so everyone's on the same page um we've written a report understanding proof of work and you can find this on our website but it really goes through what


Bitcoin mining is on a non-technical level so we really really tried to strip out all the jargon we don't use words like nons I don't even think you find Hash in there at all which is kind of amazing um but the the way we describe it in the paper and as other people have have described I like these analogies is the whole point of mining is how do you get this network of decentralized comp computers there's no one in charge no one in control how do you get them to agree on the true state of The Ledger


how do you get them to agree to what the what the real truth is and a lot of times when we want a group of people to agree on something we have a vote and so you'd think why not just one vote per person but of course you'd have to introduce a third party intermediary to administer the vote make sure people don't cheat and only vote once um some people might say well if these are all just computers why don't you just have one vote per computer but as you know it's very cheap to spin up even the most


basic computer that can plug into the Bitcoin Network 100 bucks or less uh could get you a node to plug in uh so that wouldn't really work because an attacker could just overwhelm the system with with votes of spinning up computers so the Real Genius and this is what we try to get through in the paper the Real Genius of Satoshi was to take this idea of proof of work expending electricity and computing power so instead of one vote per computer it's really one vote per unit of computing power and I know


it's it's a little more complex than that but that's the way I like to think of it you it's like a a lottery that anyone can enter no one has to administer it and you can generate as many lottery tickets as you want by expending computing power and if you win you get the privilege of writing to The Ledger and you also get the privilege of of these newly minted Bitcoin so that's kind of how I describe Bitcoin mining I don't know if you have a better analogy Fred but more importantly what does this


look like from the business perspective you know is it accurate to call it mining how is it similar or different to mining gold or other Commodities like copper or silver um by the way a great explanation of what mining is um when you think about the business of mining it it's really uh you're operating data centers and you're running a business um where you are applying compute power uh to calculate essentially uh guess this hash so it's really two things one is you could almost think think of the the the


analog is kind of the Visa Mastercard Network we operate a network of computers together with our peers in the industry and as people transact on the Bitcoin blockchain the Bitcoin blockchain is a ledger system so people are moving Bitcoin from one wallet address to another those transactions go into a hopper think of it as a a funnel uh where transactions are prioritized based on a fee somebody wants to pay to have that transaction process and when satosi Nakamoto he them uh created the Bitcoin Network software design it was


essentially designed such that when you uh assemble blocks and put them together miners would have to have an incentive for essentially doing this work uh buying the computers buying the power and investing in this and so there are two components to how miners are paid one is a block subsidy think of it as an incentive to get paid and then there are transaction fees which is really kind of how the Visa Mastercard network works today the goal was that over time these subsidies would decline as transaction volumes increase such that miners would


subside essentially would uh subsist rather on just the transaction fees and that's why every four years this this concept of a having the subsidy is haved every four years uh with the expectation that transaction fees would grow and then at the same time the expectation is that bitcoin's price would increase such that these transaction fees would become subst you know substantial in size and keep Bitcoin miners interested in in investing and supporting and securing the network so that's high level what


what the business really is so it's more operating data centers uh quasi um energy investors as well as essentially asset managers so if you think about the day-to-day in our business it's we are constantly looking at how do we lower our cost of operations because we know every four years our costs essentially will double meaning that we'll have to expend twice as much energy to do the same amount of work which means we're constantly looking for uh compute power that is more energy efficient we're


looking for uh lower cost energy um and that means that we are a buyer of stranded energy the buyer of Last Resort we typically partner with utility companies in what we call utility scale mining these are large mining sites where you're using 50 megawatts 100 megawatts potentially more and we act as a load balancer to the grid so this is something that I think not a lot of people really understand about the business the utilities um if you think about the electrical grid everybody has an expectation that the electrons coming


out of your plug are always going to be there and when they're not you're not happy right your air conditioning won't work your heating won't work your cooking won't work etc and so the electrical grid is constantly trying to maintain balance and you have to think of the electrical grid as like the plumbing in your house if you put too much water pressure in it and you're not relieving that pressure by by using the water your pipes blow up same thing happens with the grid if there's too


much energy being generated electricity going into the grid and people aren't consuming enough of it then Transformers blow up and so the utilities and the transmission operators are constantly trying to balance load to demand and so there's this concept of demand response where many utility companies have talked about oh we want to be able to turn on and off your air conditioning we want to regulate your temperature in your house because that's how we can regulate demand well you can think of Bitcoin


miners as this one big demand partner and if they need if the utility needs 100 megawatts we can turn off 100 megawatts of load instantaneously and less than 10 minutes and then the electrical grid can have that and they love it because it enables them to regulate the balance on the grid very efficiently with dealing with only a limited number of Partners they're not dealing with millions of consumers who could potentially be a little angry because now instead of their home being at 68 degrees it's going to have to be


at 74 degrees um so that's really the partnership we have with utility companies um and you know if you look at our business it really is is one of being very Savvy at operating cost-efficient data centers buying machines that are the most energy efficient and then partnering with utility companies so there's no mining per se um but you know o over time the business has this uh incentive to become more and more energy efficient and if you look over the past uh you know you said in your Preamble kind of 15 years


of Bitcoin if you look really across the past 10 years the amount of energy needed to process one hash as we call it hash is a calculation um has decreased substantially I mean to the tune of we went from using personal computers to do this to now special purpose computers that are so energy efficient um that we over the past three years alone have haved the amount of energy we use to do the same amount of work so while um the Bitcoin network does use um a fair amount of energy uh our efficiency is increasing and most importantly 56% of


the global energy used by Bitcoin miners is renewable so by no means are we kind of uh as an industry overall turning on more fossil fuel consumption we're actually the biggest incentive renewable energy providers have because uh if you're building a solar farm today or a wind farm your biggest challenge is interconnect getting that connected to Consumers and the interconnect time lag today could be almost 2 3 years and so if you want to get your solar farm financed you have to have interconnect it's kind of chicken and


egg um so we can go in as a customer Basel load customer for a solar farm and take energy until they have an interconnect that allows them to sell energy to Consumers that means that solar project can get financed it means they can build it they can operate it and then the utility companies have an incentive because it's already built an operating to then connect that to the grid uh for consumers so that's another way that there's very symbiotic relationship yeah that's that's fascinating you you packed in so much


there so I'm going to go over and if you just let me recap a little no I think you gave an excellent insight into how complex this business is because I think on one hand people look at Bitcoin M they say you guys buy all basically the same machines they're called these Asic machines they're purpose-built to just uh do guesses some people say calculations in my mind they they're really just trying to plug and chug guess a number you're trying to guess the number to kind of a combination lock


and and we go over this in the report that our report this is actually important that it's it's kind of this dumb thing they're not doing complex math problems because you want everyone to be doing the same thing of expending this electricity there's no shortcuts right um so people look at this they say you just plug in these machines your biggest input is power I get that uh what what more is there to it but I think you've already shown just in your comments here um there's a lot more to


it there's a ton of risk factors in terms of weather uh securing the power uh and then there's all these Rel relationships that you guys have to manage with the power companies with um different vendors that sort of thing to try to secure uh this power for for your Bitcoin mining operations but to to step back just a little bit more um you went over the having which I I want to touch on just a little bit so people understand it so you said the miners get two things they get the subsidy so that's like newly minted coins that come


out of the protocol itself and then they get uh that whatever transaction fees people are paying like you and I are paying to send some Bitcoin to each other and um here you can see the the Bitcoin issuance rate so that subsidy started at 50 Bitcoin per block and that comes about every 10 minutes on average that's what the network is designed to do keep it keep it at 10 minutes on average 50 Bitcoin every 10 minutes got cut in half to 25 then 12.


5 we're currently at 6.25 and in just a couple weeks here around April 1819 or so we're going to get cut in half again to 3.125 so 900 Bitcoin are created per day that's going to the miners that's going to get cut overnight to 450 and and you touch on this a little bit but we we talk about the investment implication of this that this is potentially a a good thing from an Investor's perspective bitcoin's becoming um in some ways more scarce it's got a hard cap because of these uh that sounds like a nightmare scenario


you've talked a little bit about how this could work so if we put up this chart of Bitcoin mining revenues so you see in the Orange Line the number of Bitcoin like the actual native coin drops overnight gets cut in half and if you look at the blue chart this is total minor Revenue so all miners in terms of dollars not in terms of Bitcoin uh you do see some big drop offs but then they go up um and so so far the price of Bitcoin has risen to compensate for this cut in the number of coins so yeah your your number of coins get cut in half but


the price has doubled or even more um is this time different are you expecting the same thing to to kind of bail you out or or how do you prepare for such a nightmare scenario here as as an operator well the good thing is that we know it's going to happen so it's not a a Black Swan event that you have five days notice Hurricane's about to hit you um this is something you know is going to happen every four years so you plan accordingly and you plan your business around constantly investing in more and


more efficient systems you're looking for lower and lower cost power and you're looking for ways to increase transaction volumes so we think about this business as ER what we call uh energize which is grow capacity because if you think about that chart you just showed total mining revenues as the this business attracts people when it's profitable people invest the become Miners and they invest in the business and it's a zero sum game so where the big difference between Bitcoin and gold or oil mining uh and


extraction happens is that oil companies and gold miners and mineral miners can sit on reserves they can sit on a mine and decide when they're going to exploit it or not based on price and so you'll see oil companies turn on and off production depending on the price of oil Bitcoin miners can't do that because to your uh you know you mentioned there are 900 Bitcoin today per day awarded if I don't have my miners running somebody else is getting my share of those Bitcoin and so you are incentivized to keep your


machines running no matter what uh because otherwise you won't get your Bitcoin and there's this concept there's this thing we call the global hash rate it's the sum of all the compute power all the miners are applying to mining Bitcoin and if you look at last year last year industry went through a having event that was caused by the fact that twice as much compute power came onto the network over the course of last year as there was from the beginning of the year that's essentially a having event


because 900 Bitcoin are awarded per day and if twice as much compute is going and you're not doubling your compute capacity your revenues we going to have and so we went through a having last year price of Bitcoin went from 15,000 uh up to you know uh almost a little over 40 over the course of the year and the industry survived that fine miners continue to invest here we are price of Bitcoin is in the mid-60s as we speak um and miners continue to invest the cost to Ming Bitcoin today in our industry is somewhere on average in the


mid 20s $20,000 per Bitcoin so essentially simplistically that cost will double what really doubles is not your uh overhead meaning people plant uh property equipment it's the energy cost and the energy cost may represent 80% of your cost to m a Bitcoin it may represent a little more um depending on the minor but essentially your cost is going to double so if the average cost in the industry is 20 $25,000 today and it goes to4 to $50,000 well Bitcoin at $65,000 you're not losing money on a marginal basis and so what we believe uh


is going to happen this cycle is that growth will continue as opposed to drop off uh post having historically in the having mining capacity shuts down a little bit because there are always some people who are on the cusp of profitability post having and those miners will shut down operations typically until price appreciates more this time around we haven't had that now you could argue why is the price running ahead of where it normally would I think the ETFs that were um uh launched in Janu January have driven some of that


there's obviously a lot of demand for Bitcoin and you know Bitcoin is essentially uh a market with fairly finite Supply with only 900 new Bitcoin coming into the market a day potentially a lot of miners actually aren't selling their production they're holding it so it's not actually 900 a day coming into the market but you've had this demand of about two excess demand of about 2,000 Bitcoin a day which has been supporting the higher price um so until that demand either drops off or increases you know


miners are going to continue to do what they've been doing so the cycle going forward is going to be very interesting historically typically there's a dip post having then six months after the having you achieve the prior all-time high and then about 12 months after that you achieve 2x the prior all-time high and then you typically have a winter period or a bare Market where things uh drop back down to kind of the prior all-time highs and everybody has to reconstitute kind of their business a little bit and become more efficient I


don't know if that's going to happen this time I think that we're in for a different uh Market because a you have the ETFs that are creating demand you have uh institutional investors who have yet really to come into the market um and that demand we have yet to see and then you have nation states now looking at holding Bitcoin as a reserve asset and so uh you know unlike gold which you can continue to produce and pull out of the ground we've already mined over 19.


8 million Bitcoin approximately and there will only ever be 21 million Bitcoin which means the continued extraction rate if you would the the inflation uh is decreasing and we're at a point we're post having as you clearly mentioned 450 Bitcoin a day um is not going to have a huge impact on the marketplace in the sense of increasing Supply especially with current demand so uh I think this is going to be a very different cycle to Prior Cycles especially as institutional uh demand comes into the market they have


different holding patterns than retail does retail tends to be more fickle um but at this point today almost every Bitcoin that has been purchased is in profit when you think about that and over 70% of Bitcoin hasn't really moved in six plus months um 50% of Bitcoin hasn't moved in five years so this is Bitcoin sitting on the sidelines so if price were to run to 120 i' you'd see a lot of that Bitcoin trans acting out I think um one comment I will mention is you know people say they're commenting about the ETFs and and the


outflows really most of the outflows in the ETFs have been related to grayscale and a lot of people don't understand that people bought shares in grayscale when they were selling priced in Bitcoin terms at 40% discount to the actual price of Bitcoin so imagine when Bitcoin was 15,000 you could buy Bitcoin at $8,000 and then now Bitcoin hits $70,000 you would likely want to take those profits off the table and uh move your Bitcoin uh ETF Holdings if you would from grayscale possibly to uh another ETF uh or just take the profits


and so you look at the the ETF the net inflows you know 12 billion dollar of net inflows in under three months even with all the grayscale selling and grayscale has sold 50% of their Bitcoin at this point so it's uh really amazing how successful these ETFs have been so these are things I think are changing the Dynamics in the marketplace so we'll have to see what the cycle looks like yeah absolutely now you already answered a couple question I had which was is this time different with the having and the cycle um and


then also it it sounds like you're a little more in the camp of maybe not as big of a supply shock this time around because it's it's getting cut in half on a smaller and smaller base but what's different is we've got potentially way more of a demand side shock here um with the etps and everything else so um I think the other thing that's interesting too is um the mention you had on the illiquid coins uh again going back to this idea of bitcoin's uh supplies completely programmed in I don't know of


any other commodity where the supply is completely inelastic to price the supply will not change no matter what price does uh it's absolutely fascinating I don't I don't know of any other thing out there and then the fact that you have these long held coins uh is really setting up for what we saw as tight Supply conditions now I will say I was just looking at some charts this morning and and we are seeing some of those long held coins getting moved so people are uh getting incentivized with the higher


prices to start moving them and selling them which is is normal U you start to see that as the bull market starts to run um but I want to move on to to the future of mining here one question we get too is um is bitcoin's security budget a concern with the having so in other words if if these subsidies are what's incentivizing the miners and we've got a chart here showing uh that's where the bulk of their profits come from their revenue comes from it comes from the the built-in subsidy the newly


minted coins only about um I think if you go to the other chart Daniel only about a couple percentage points like single to Mid uh percent of their revenue comes from the transaction fees and you mentioned the idea is transaction fees maybe take a bigger percentage of this but people say if if this subsidy keeps getting cut in half cut in half cut in half are these miners going to start dropping out because it's not profitable and then we have a we have a concern over bitcoin's network not being as secure because


these miners help secure the network great question and it's been a topic of uh discussion amongst people in the industry and outside the industry for some time uh essentially if you look at this chart you can see that the mining revenues from fees there have been a few times where the mining revenues from fees have exceeded the block subsidy uh last year in May and in December we had uh two months where 18% of our revenues uh were essentially coming from fees versus subsidies and so that was driven by ordinals and uh if


you think think about block space as a finite resource there's a block produced every 10 minutes that block has essentially four megabytes of data available in it and if you want to record something in that block you have to pay for it and so go back to the um comment I made earlier about this Hopper where all the transactions go in and people bid essentially uh on a transaction to have their transaction processed sooner or later there are now systems similar to uh we launched a system called um slipstream which essentially allows


you to reserve block space which provides the ability for people to now price in reserve space uh so that they can get their transactions processed and what we believe is going to happen over time is services like that offered by miners will allow miners to generate fees in excess of the traditional transaction fees um and fees their subsidies such that they can continue to increase their revenues on a per block basis for a minor to be able to do that uh offer like what we're doing with slipstream a they have to be a minor of


enough capacity and scale so that uh if you're going to reserve a block the likelihood that they're going to win a block is fairly high and Marathon for example um you know operates typically 3 to 5% of the global hash rate and so uh you know every 20th block essentially could be block statistically speaking Additionally you have to operate your own pool so this is where marathon is very different than other miners we have we're fully vertically integrated from a technology perspective we're more like


apple than the uh Microsoft if you would in the sense that our systems uh we have our own pool we have our own firmware that we can run in our miners uh we have our own immersion technology and we also invested in co-founding our own mining Asic manufacturer which is a us-based company called oradine located in Silicon Valley that we co-founded together with um some of the co-founders uh from a number of uh top Silicon Valley uh companies and U funded together with uh top Silicon Valley VCS like Mayfield and Celesta and so they're


the only us developer and manufacturer of as6 we also have uh proprietary immersion technology that we have built which allows us to operate this technology going forward in the future here at much more efficient levels so by being vertically integrated from a technology perspective and then having scale miners can essentially uh Drive additional transaction revenues uh which will allow them to continue to operate the other thing we're doing differently I think than some other miners is I talked about utility scale mining where we work with


utilities we also have started now a portion of our business that we call Energy harvesting and in the energy harvesting business what we do which nobody else at scale does today is essentially we take stranded methane gas from oil fields or landfills or even biomass uh think of it as agricultural waste could be manure from dairies it could be corn husks it could be other material we take that material generate electricity using it we use that electricity to generate heat and then we feed heat back into an industrial


process so if you imagine how methanol or ethanol as many factured today you take corn and things like that um you use that as feed stock and then there's a bunch of agricultural waste that comes from that and then those systems need heat to produce the ethanol and so what we can do is take that biomass generate electricity generate Heat by mining Bitcoin which is by the way one of the most efficient ways to generate heat because 95% of the energy we put in comes out as heat we capture that heat as a liquid at 50° Centigrade which we


can then feed back into an industrial process the net of this is that we get paid to take and process the biomass and we get paid for the heat which essentially means our cost of electricity is zero so if you can mine Bitcoin with zero cost energy then the security budget issue is moot because you're mining Bitcoin is a way to generate heat and any Bitcoin that you're mining is essentially free because you're getting PA paid through the other means to do that uh so I think that again Bitcoin mining will continue


to evolve and as we look over the to the next having in 2028 we are very focused on driving our cost of energy to zero in our mining operations and doing things that essentially subsidize the cost to mine and the energy budget so that we get to a place where mining Bitcoin um is really just a means to an end versus the end itself yeah I think that's fascinating of flipping this entire equation around where the primary goal is not pay for and mind Bitcoin the primary goal is to take on biomass or generate heat and then the bitcoin's


just like an extra uh kicker on top of it um but it did I understand you right that you're currently doing this or this has been demonstrated or is it a certain percentage already of your company's uh operations or Revenue so this is a new initiative that we started this year we have done this in a pilot uh we've been mining we announced last year that we were mining on a landfill for example so that was a pilot study uh we we have a number of um early deployments that we're in the process of uh working on


right now which we'll announce uh once they're up and live these projects are a little bit more complex than just traditional data centers because there's the whole biomass processing energy generation and heat recapture piece but if you look across our energy harvesting portfolio of projects that we're working on we have we're working with companies in the um uh alcohol and Spirits industry we're working with ethanol producers and we're also working uh simply to heat buildings uh in


Scandinavia uh so we have pilot projects in all those areas that we're in the process of uh finalizing once we've proven those out we'll begin to scale those operations um but we think that there is a ton of opportunity in the space uh it's very interesting also from a financial perspective because these energy harvesting projects because the objective is not to mine Bitcoin it's really to generate revenues from processing biomass and generating heat and by the way 50% of industrial energy


goes to generating heat today so the Tam on this Market is very large and that's even before you look at Commercial Heating of buildings and homes Etc so we believe this is the future of Bitcoin mining it's a long tail where instead of large data centers doing hundreds of megawatts of energy it's thousands and thousands of very small data centers that are self-contained that are part of some other industrial process and located all over the world and now you're actually being uh essentially you


know you get paid to generate heat um where before somebody was essentially buying electricity and running some form of water heating or or other heating system so we think this is the future of the industry going forward there's tons of biomass available all over the planet there's tons of methane that needs to be mitigated so we think that the environmental benefits of this are huge we think that the cost benefits are huge and one other thing that I think is important to note the Bitcoin mining industry has a very large competitor for


energy and that is the AI industry the AI industry today will consume more than tenfold the amount of energy the Bitcoin mining industry consumes and what people don't realize as they look at kind of the environmental impact of Bitcoin mining versus AI a lot of AI data centers and this has been reported by the Press consume a lot of water resources because they need to cool their miners using water in the Bitcoin mining industry we use closed loop systems that don't use water to cool our systems the other thing is uh AI systems


typically can't curtail you know this uh symbiotic relationship we have with utilities where we can shut down our systems you know you can't shut down um a system like chat GPT you know if you enter a prompt and all of a sudden it's says sorry I'm offline because I'm curtailed for power purposes people will stop using your product and so these AI data centers need to be up you know uh 247 365 they consume huge amounts of energy and they need to be near um points of presence of the internet where


they can have high-speed connections all of which means they need to be located near population centers typically and so we believe that in the US Bitcoin miners will be continually competing with AI companies for access to utility scale power and that's one reason why we're also very focused on our International expansion we've built one of the largest data centers um in the Middle East in Abu Dhabi that uh is a immersion cooled system that operates two sites in Abu Dhabi we also have systems running in


Paraguay off of stranded Hydro energy and will continue to grow and we're very actively looking at Africa for example today where there's lots of stranded energy in the form of hydroelectric energy that's stranded so we believe that the future of minding is that long taale I've described but it's also moving offshore interesting because one of the questions I had was um if I kind of put on my former Equity analyst hat and I look at the Bitcoin mining industry I say this is seems like a commodity business you're all mining


the same thing you mentioned you're all competing against each other Zero Sum so isn't this just a game of scale of who can create the biggest uh mining centers secure the the best power um and then and really just roll up others through m&a um and then that leads to the question we get too is their concern over centralization with Miners and maybe if it's a game of scale one minor dominating the the global hash power and I think we've got a chart showing the current uh setup of the different mining


pools so for those who don't know um miners can often form or join pools so they they work together and share the rewards so they get a little more even payout rather than going at a loan um but right now it's pretty fairly distributed but there's questions of whether pools will get too big or even uh publicly traded companies like yourself getting too big um maybe you've touched a little bit on this I'm kind of seeing a pathway out of this where maybe it's not as big of a game of scale as I


think it is where maybe it's more of a game of vertical integration and going to Source these these other stranded uh energy sources and that's what keeps it decentralized but I'm curious to hear your thoughts on on this concern of too much centralization on the mining side sure um so mining pools don't mine Bitcoin the miners do the mining and a miner chooses what pool to point their hash rate at if you would um so that they can get the best aggregated uh kind of uh payouts um so a mining pool really


is nothing but a bunch of computers that are orchestrating block building and then the miners do the actual work so if you look at miners uh you know we're amongst one of the largest miners in the world and we have 5% or less of the global hash rate so there's no concentration risk there the mining pools themselves don't have a lot of power in decision making it's the miners that have that power in decisionmaking so people worry about concentration risk because oh if you have 51% of the uh hash rate you could potentially rewrite


blocks uh well again it's the miners that write the blocks not the pools the pools assemble blocks uh and orchestrate so uh think of the pool as trying to maximize the if you think of Miners and blocks as uh airplanes or train cars the pool is trying to optimize the amount of revenue from ticket sales for those train cars uh and then the miners are doing the work because we're vertically integrated we can optimize that ourselves um so I don't think there's a concentration risk and the fact of the


matter is if you were to be able to change a block somewhere um you would have to maintain 51% of the global hash rate to keep that those blocks you wrote valid which is very difficult because if a minor spends a few hundred million dollars and all of a sudden now you're below 50% now those blocks you wrote potentially will become invalid because you're not able to sustain the hash rate to validate them miners mine blocks but node operators validate them so there are tens of thousands even hundreds of


thousands of node validators all over the world who um are doing this and so even back in 2017 when 93% of the global hash rate decided that they wanted to change bitcoin's block size that didn't pass because the node operators wouldn't validated so I don't think there's a concentration risk there at all I think it's really more a question of this um Bitcoin mining is constantly adjusting to um the profitability so you mentioned there's a block gener at every 10 minutes as people add more hash rate


more compute power to the network that block can be calculated in under 10 minutes and when that happens there's What's called the difficulty adjustment and this is built into the software of the Bitcoin blockchain and it basically says hm people are too productive we're going to slow things down and how do we slow it down we make the calculation even harder to guess so what do you do you now have to change the accuracy by the number of decimal places of accuracy that you have to guess your number and


that's how the difficulty rate is adjusted up and down and every two weeks the difficulty rate adjusts either up because there's more hash rate available or down if there's less hash rate and sometimes you'll go three weeks up one week down and so forth so that's constantly adjusting and as the profitability decreases miners will shut down systems and then when profitability increases they will add systems and so we're constantly chasing a place where you're earning enough money to keep the Bitcoin


blockchain operating keep your systems operating um and you're driven to be more efficient as I said because of the [Music] energy possibly or they have other things and um if you look at the energy harvesting business I mentioned earlier I think that long tale of opportunities uh will provide uh essentially any device that consumes energy could be a Bitcoin minor right every Tesla power wall out there could do energy Arbitrage if it wanted to it's just adding a little bit of intelligence to it and then you could direct that energy toward


Bitcoin mining so there are lots of opportuni I think for Bitcoin mining to have the same long tail that the search SEO business has that Google enabled essentially small companies to Market very efficiently online and I think Bitcoin mining uh where you do energy harvesting will enable lots of small miners um millions and millions of mining operations and devices will exist all over the world and that will eliminate any risk concentration yeah I think that's fascinating you talked about the beginning that you unique


nature of electricity you know if it doesn't get used it's got to be uh used by someone else or it blows up a Transformer I often like the analogy of electricity is like kind of like food that spoils immediately and it's hard to transport you lose it if you try to transport it if you don't use it right away nobody can use it it's very hard to store in batteries so this idea of of all these marginal longtail things using um you know if they've got Excess power that's just going to be spoiled wasted


uh have them have them do a little big coin mining on the side it's it's a fascinating idea to me um all right we'll turn to Q&A now we've got tons of questions coming in uh I I've seen a couple Roll by them I'm going to wrap up into one here um some some things on the basics so just to recap um some people are confused about the having so again these are new Bitcoin that come out every 10 minutes approximately and someone ask who pays for this subsidy well it's just in the code it's newly


minted Bitcoin newly created or printed if you kind of use analogy of of so you and I are kind of paying for it if we're Bitcoin holders we're getting slightly diluted but the inflation rate at about 1.8% and then it keeps getting cut in half um is lower than gold lower than currently any any other money supply out there um so I think that's that kind of answers how how we get paid or how how the miners get paid and who actually pays for it it's just newly created coins um someone asked you know


what happens how does it get to 21 million well bitcoin's only divisible to eight decimals so So eventually there's there's 5050 havingsex mind up until the year expected to happen 2140 um someone asked why do we even need the having and then this kind of combines with one of my silly questions it's a little silly but first of all you mentioned Bitcoin miners can't change the code there's there's nodes and they can't um there's a there's checks and balances in this system the nodes have


to verify transactions as well um so this is a silly question because Bitcoin miners can't do this but theoretically if they could as a minor would you like the having not to ever take place like maybe there's never having or maybe instead of every four years it happens every eight years again kind of a silly question but it gets to this other question that we got of why do we even need a having so the underlying premise of Bitcoin When U Satoshi nakam wrote the white paper was hard money a finite amount of money so if you think about


when the US dollar was backed by gold the US fed essentially could only print as many dollars as they had gold backing in and one of the things that post World War II the US did was essentially through rent and woods was the dollar would be backed by gold and every other currency would have an exchange rate to the US dollar and then uh in 72 when the US went off the gold standard and let the dollar float the the reason that happened uh if you study history was because the uh many of the uh countries whose gold reserves were in the US uh


were afraid that the US was spending more money than it had gold to back the dollar and so they started withdrawing their gold from the US and so the only thing the us could do to keep the money printer going was to essentially say we're going to go off the gold stand uh which they did and and uh that's why we're in the world we are today where fiat currency can be printed um until uh there's no end to it and the US is a very special situation in that being a world Reserve currency the rest of the


world really essentially subsidizes uh our treasury because they want to buy treasury bills and so the US is able to borrow money to cover their deficit um but that deficit has now gotten to $34 trillion almost which is uh uh unsustainable able long term uh because it's servicing that debt is almost uh you know the amount of debt we have is is uh you know approaching the point where it's 100 over 100% of GDP so Bitcoin is meant to be hard money which means there's a finite amount only and as demand for it goes up uh because


there's no Supply uh ability to increase Supply demand is going to drive price because it's finite Supply gold other Commodities oil there is a stock to flow ratio which is the amount of of new production that goes into the market uh and then demand reaches a balance which is a price goes up price goes down but if you have only a finite Supply that eventually stops generating new Supply then it's like art so the better analog to bitcoin Is Not Gold or oil it's art so imagine that um you have an artist uh


who dies and you limit the amount of uh copies of their work that can be sold or licensed and you say you know the only thing available are the the uh bronzes they have sculpted and that's it there's nothing more available what happens over time the price of those pieces of art continue to go up they continue to go up they continue to go up and that's the notion behind Bitcoin it's hard money and so the reason for the having being good is that it enforces this hard money nature and um you know you mentioned the


the emissions of Bitcoin in 2028 we will be at a point where sorry in 2032 will be the first having where we are uh the block subsidy will be less than one Bitcoin per block and now we're talking Satoshi and there are a 100 million Satoshi per Bitcoin and uh a number of economists have said that you know there will be a time in the very near future where every Millionaire on the planet will not be able to own a Bitcoin and we're actually there today because there are more millionaires than there are Bitcoin available will 60


million so yeah so essentially half of the millionar on the planet it's too late you can't own a Bitcoin um so you this is the only asset that operates this way outside of our yeah fascinating um Casey I know we've gotten tons of questions and you've been compiling um what else do we have here I have one specific one and then one maybe theoretical one we can get into but for specifics I know you guys both touched on ordinals what about layer twos and how that might be affecting uh mining Revenue great so layer twos um here


here's an easy way to understand this the internet runs on a protocol called tcpip on top of tcpip at layer 2 you have protocols like SMTP simple mail transfer protocol that's what email runs on and then you have HTTP which is what websites run on that's a layer two again so then you build an application that runs on HTTP and now you have a layer three in Bitcoin you have a ledger system which tracks uh the shift of Bitcoin from one ledger to another at Layer Two you can start building applications uh it's also called side


chains and uh marathon is a company that that partnered with a group of other industry leaders to build something called Enduro Enduro is a layer 2 protocol essentially that secures transactions on the Bitcoin blockchain but allows you to build custom blockchains to do anything from tracking property title uh automobiles collections uh you could build tokenize things on it whatever you want to do and it's a technology we have given out to the public domain so it's not something we make money on the whole goal with


Enduro is to create um an ecosystem where it's very easy for people to build things that they can secure on the Bitcoin blockchain why do we want to do that well that will drive transaction volumes if we drive transaction volumes that will drive fees to miners so it gets back to the security budget question but the layer tws are essentially a way to create applications that run on essentially secure themselves on the Bitcoin blockchain but are not uh reliant on this one block every 10 minutes you could build a


system a side chain that has much faster transaction processing uh that would enable cash transactions lightning some people may have heard of lightning is a protocol and a layer two that runs on top of Bitcoin um but I think there's a huge amount of innovation going on in this space right now you're going to see lots of layer twos come to Market and there's a lot of excitement around these protocols and um similar to how Microsoft and Intel and other companies operate we're investing in the ecosystem


to build the ecosystem around Bitcoin as more Bitcoin is adopted more Bitcoin will be trans acted more transaction fees Etc yeah one of the things we wrote in our 2024 look ahead report is this idea of maybe a Renaissance on bitcoin we've seen lots of data points lots of VC money flowing into this this L2 space so very exciting something we'll we'll continue to watch what was the other question Casey yeah so last one I know we're you know ways away from this but just theoretically from both of you like


what happens when there are no more Bitcoin to mine what is going to be you know this is years away but what is going to the incentive to monitor the blockchain network will it become all about fees just like Curious um one person wrote about both of your point of views on on what might happen then yeah I think Fred touched on number one transaction fees become a bigger percentage um and then number two maybe the subsidy isn't needed because your your Bitcoin mining is like a side benefit or something on on top of


whatever your primary purpose is um I don't know if you had more to add there Fred otherwise we'll get to another one I I think the goal here is that transaction fees should at some point exceed the cost to mine Bitcoin such that subsidies become irrelevant that's the long-term idea and that's how Satoshi wrote the the underlying uh premise of the technology yeah yeah absolutely um we unfortunately we were out of time we have tons of questions here that we were not able to get to so apologies I do notice a good chunk of


questions are on um what do miners do versus the the nodes how are the checks and balances between those different um what's some of the processes there uh if you Google understanding proof of work from fideli digital assets we go over a lot of that stuff in there so I encourage people to check that out um anything else you'd like to to close with Fred I I maybe I'll take moderator's prerogative here um one question I have is as a publicly traded company how does Wall Street and mainstream Finance view your business


and Bitcoin in general so when you're not going to the the Bitcoin conferences but you're just going to the regular sside Wall Street conferences uh how are people looking at you how's that changed and what do you think that looks like in a few years or what's Marathon doing to kind of uh move the the perception here well we're valued based on two things one is the amount of Bitcoin we hold in our balance sheet which today is over a billion dollars of Bitcoin uh on our balance sheet um the other is uh


obviously through the the amount of Bitcoin we're producing and U selling so there will come a time where our industry is valued based on traditional profits uh just like any mature industry and it's a multiple of profits determines what your what your price is in stock market uh today we're still viewed as a growth industry you know we tripled our size uh capacity wise last year um significantly increased revenues uh will be doubling our size uh again over the by the end of next year uh from a mining Capac capacity perspective and


we're going to continue to grow so there's an expectation of future profit flows which kind of drives the valuation today in the future it's going to come from really Diversified revenue streams um as a company we have one of the lowest sgas per Bitcoin mind if you would uh that we operate if you look at the energy harvesting business I talked about and then as we now begin to sell our technology um to not just Bitcoin miners but also our immersion technology is very viable for the AI industry and


Telecom industry to cool their um uh systems uh you'll start seeing more Diversified revenue streams which again go and subsidize our cost to M and so over time we will remain very competitive in the market place and our goal longer term is that we essentially have zero energy cost because either through energy harvesting or other revenue streams uh it subsidizes all of those costs so that uh we can be the last man standing in the event of uh bitcoin price and energy prices uh going uh to a bad place like they have in


wintertime uh so it's all about really being building a very resilient business that's also very agile yeah absolutely one thing we noticed that's unique about Bitcoin mining is you constantly have to be on your toes you constantly have to be improving refreshing your your equipment your capex everything uh so it's great to hear from you an Insider on all these things thank you again so much for your time thank you everyone who joined us today just a quick reminder of that survey that might pop


up or get emailed to you please take 30 to 60 seconds it' really help us out and then uh again go to Fidelity digital assets.com click on the research tab for all of our latest research we'll certainly be covering the upcoming having uh things that we notice after the having and in terms of the network as well as price and and Market action so stay tuned to our research there and we hope to see you on the next value Exchange but