[00:01:51] Preston Pysh: I mean, it’s pretty insane when you think about the application now. This is where I want to start the conversation from your experience as a professional miner and somebody who’s dealt with this infrastructure and this hardware for as long as you have, just because it’s possible, doesn’t mean that it’s likely at scale or volume.

[00:02:14] Preston Pysh: So I’m curious to hear your point of view on this particular type thing evolving from here, like. Are we five years out, 10 years out from this being something that we’re, that’s seen more commonly walk us through what you, what you think about this.

[00:02:31] Harry Sudock: I think it continues down this kind of trend of barbellification across mining, where you either need to be a really scaled operator to achieve, you know, industrial economics, or you need to have a differentiated use case for the heat or for the natural output.

[00:02:51] Harry Sudock: That a mining machine generates. And so I think there’s a ton of folks who are going to put 5686 in their house and replace their hot water heater. They’re going to replace their, the way that they heat their homes, it’s going to replace, you know, propane and nat gas in some instances for household heating.

[00:03:09] Harry Sudock: So I think those types of micro use cases are probably in the earliest of days. The guys at future bit are doing it with their space heater. Denver Bitcoin just heats his whole house. He did his own ductwork for it. And then there’s, you know, there’s folks who are, you know, refitting, you know, their boiler basically to run off of the output from ASIC.

[00:03:28] Harry Sudock: So, you know, I think we’re, we’re just at the beginning of sort of the, the tinkering phase for this long tail of home usage. And we only need to get to a few hundred thousand households to represent a really serious portion of the network. So I think. The road towards additional household level decentralization is really interesting, but I also think that we’re not going to see any slowing in the growth of the mega site as well.

[00:03:56] Preston Pysh: You know, when I’m thinking of how does this actually work itself into everyday use, it almost seems like you have all these apartment buildings that are constantly going up all over the country. Is somebody who’s building these things, does it start to become part of just the common build or the common infrastructure of an apartment building where you have, say, 40 people running off of you, you’re providing the hot water or the heat into the building.

[00:04:24] Preston Pysh: Because there’s some type of mining setup because it’s advantageous for the person who’s, who’s renting out this property, because then you’re able to do it at scale. Do you see that kind of emerging first? Or do you see these onesies and twosies of people doing this at their house? Cause the issue is, is more on the service side, right?

[00:04:42] Preston Pysh: Like you need to have a little bit of technical, you need a lot of technical competence to service it, to just handle the complexity of it all. So is, is that how this gets going or walk us through kind of your thoughts on this?

[00:04:56] Harry Sudock: Yeah, I think there’s a number of different historical analogies that, that makes sense, right?

[00:05:02] Harry Sudock: The internet was really a household toy early on, right? If you go to the, you know, whether it was the phone freaking era or the build your own computer era. These are hobbyists who are going to tinker sort of at the home level, and they’re going to be the ones that drive, you know, round one of innovation, right?

[00:05:22] Harry Sudock: This is how Apple got started. This is how a lot of the personal computing revolution got started in the 70s and 80s. So I think we’re going to see that growing up. My dad’s no technologist, but he sure knew how to make the router and the dial up work. And so I think that, you know, mining represents a kind of a similar level of competence to that.

[00:05:43] Harry Sudock: And then, you know, once you graduate, you know, do you service your own HVAC at this point? No. So I think there’s a layer of service providers that will spin up around this idea as well. And it’s going to be the same way that you hire an electrician or a plumber or an HVAC, you know, service. You’re going to start to see folks who say, okay, well, you know, I’m an HVAC service with ASIC integration and I’m adding that to, you know, to my own competitive differentiation.

[00:06:08] Harry Sudock: But you know, this is, this is what’s so beautiful about McKinney is that it’s a infrastructure enabled and Bitcoin enabled revenue stream or cost saving stream. You know, so if you say, all right, I’m going to go spend 25 cents a kilowatt hour to heat my house. Well, if I strap a minor on that, maybe I’m dropping that to 10 or 15 cents net of the Bitcoin reward. Anytime there’s an opportunity to execute against those types of cost savings, I think industry springs up around it. So we’re going to see growth on the home use case at the level. I think we’ll see some of call it, let’s call it micro industrial, which I would put it like anything less than 100 a 6 is kind of micro industrial.

[00:06:51] Harry Sudock: And I think, you know, that that’s plenty to heat houses or maybe a multifamily. That’s all kind of well within scope. And then you look at, at some of these firms that do contract industrial scale servicing, why wouldn’t they just strap a truck fleet onto their business? And when they’re under booked at sort of the industrial scale, go send the guys out.

[00:07:13] Harry Sudock: I was involved in a business which was a, an airline maintenance business. Years and years ago, and they did exactly that. They had two hangers where they would do the full blown inspection. That was a big ticket item. You know, you take the plane out of service for four or eight weeks, but then there was a huge, it was called AOG air on ground.

[00:07:33] Harry Sudock: Servicing business, and that was a fleet of 15 trucks with mechanics in them, and they would be dispatchable across a region. So, I don’t see why you wouldn’t have a similar kind of maintenance business model spin up around this idea, but, you know, like with everything in mining. You know, there’s 2 key drivers, which is the CapEx and the OpEx.

[00:07:51] Harry Sudock: A6 and the infrastructure, the OpEx is the electricity and the servicing. And so I think, you know, folks are going to need to kind of wrap their head around, well, maybe it’s a 40, 000 heat installation rather than a 10, 000 or 20, 000 heat installation. But you amortize that you get some depreciation benefits based on something like that.

[00:08:11] Harry Sudock: And so, you know, people have to wrap their head around a little bit of a different cost structure than what they’re used to, but the benefits and the sovereign revenue is a huge, huge net benefit. Once you get your head wrapped around it.

[00:08:23] Preston Pysh: Well, when we look at how many people are just highly indebted and don’t have the capital for something, that’s 4 times the cost of an HVAC, they already struggle with the cost of an HVAC putting it in.

[00:08:35] Preston Pysh: And now something is four times more expensive than that, it almost seems like it’s going to force this into being a model where you’re, you’re relying on some type of service provider to provide that service just because of that upfront cost that that’s going to be there for a majority of market participants.

[00:08:55] Preston Pysh: Similar to when solar city or whatever was rolling out, Hey, you, it’s basically the same cost. And the cost to put this in is you get it back after 20, 30 years or whatever it was. But I think in this scenario, the return on the upfront cost is way faster compared to solar. It almost seems like that’s what’s going to have to kind of be the model moving forward because most households aren’t going to have the upfront cost.

[00:09:23] Preston Pysh: Is that a correct assumption or the way to look at it?

[00:09:27] Harry Sudock: I think that’s reasonable. And I think, you know, the important piece, at least the lesson that I learned were. The operating model you deploy for one unit, 10 units, a hundred units, a thousand units, 10, 000 units. Those are almost independent businesses, right?

[00:09:42] Harry Sudock: You’ve got to rebuild your whole operating system. You know, if you, if you think of like a, like an SOP document, like imagine that you and I are going to write a standard operating procedure for each of those sets of scale, you know, you’d almost have a completely different document for each one of them.

[00:09:58] Harry Sudock: You know, how do you manage network? How do you manage power? How do you manage? You know, he and sound and all the different components that go into a mining installation. Each of those levels of scale. So every time you add a 0, it’s almost an entirely different operating model. So I think, what do you do with 1 unit?

[00:10:17] Harry Sudock: What do you do with 10 units? That’s pretty similar. But what do you do with 100 units? And what do you do with 1000 units? Totally different. I would not anticipate an owner operator taking on a thousand units. I think they can totally take on one unit. I think they can totally take on 10 units. You know, you know, if you, if you have access to YouTube, you can figure out 10 units.

[00:10:40] Harry Sudock: A hundred units. That’s a lot of work. And at a thousand units, you’re hiring and staffing that out.

[00:10:46] Preston Pysh: I think this is going to take longer than many of us suspect or that some might suspect because at the core piece of this, you still have an education burden that’s associated with the underlying coins that are being mined because your majority of your populace is just looking at this and be like, these people are crazy.

[00:11:04] Preston Pysh: These magic internet money that they’re mining with this. Heating unit, this guy, and they’re just not there. Like they, they look at all of it still to be very super speculative and they’re not going to want to change out an HVAC on this premise that there’s money that can be made out of something that’s mining it.

[00:11:23] Preston Pysh: I think you just, we might have to go through a whole nother cycle before people even begin to kind of go down that path of this is very real. This thing’s staying around for a very long time. I’m assuming you, you agree with that, Harry?

[00:11:38] Harry Sudock: Yeah. And again, I think that ties directly into this CapEx idea that another cycle from now being able to put 10 or a hundred units online.

[00:11:47] Harry Sudock: You can go a generation older, you can get them for a lot more kind of cost effective pricing per unit. The value is that you’re monetizing the energy. You don’t need best in class efficiency in order to achieve that. So I think, you know, the ability to go down market or into the used market on those units unlocks a whole other layer of this business model just because you’re not out of pocket so significantly.

[00:12:12] Harry Sudock: You know, we saw this with the S9s in 2020, you know, they basically traded for scrap value. They traded for a dollar or two a terahash. So I think, you know, if you’re able, if you want to do this in your multifamily, doing it at the absolute depth of the bear on a previous generation machine where, you know, the process heat and the little bit of Bitcoin, you know, makes sense.

[00:12:35] Harry Sudock: Don’t overspend on a top of the line unit and kind of get your hands dirty with the first version. And then if you’re like, you know, this is incredible and I’ve got a really, really good power cost, you know, then you might say, all right, the cap apps is justifiable. But I think in terms of just getting from, from sort of zero to one going mid market, going older gen, and then, you know, making the acquisition of the units in sort of the most distressed time period, that’s a reasonable recipe for how to make something like this work.

[00:13:05] Preston Pysh: Yeah. Hey, you’ve been with a grid for quite a while now and they went public. They have a public listing.

[00:13:12] Harry Sudock: We sure did. It’ll be, it’ll be five years next month. Wow. If you can believe it. Wow. Yeah. We listed on CBOE Canada. Our ticker is GRDI, but we’re just, we’re just thrilled to be in kind of the next phase of growth.

[00:13:25] Harry Sudock: There’s a lot of growth that we have planned and all of that stuff gets facilitated by our role in the public markets.

[00:13:32] Preston Pysh: When I think about mining, like, I think one of the biggest competitive moats you can have is just your relationship with your government at the local level combined with, well, really kind of three main things that combined with just really cheap energy cost.

[00:13:48] Preston Pysh: Right. And then the third thing I would say is just operational excellence. Is there something else that you would quantify in there as being setting a mining company apart from others other than those three?

[00:14:01] Harry Sudock: I think it’s sort of two sides of the same coin, but it’s access to capital and capital efficiency.

[00:14:07] Harry Sudock: If you bought a hundred dollar S 19s at the top of last cycle, those are really hard to ROI. You bought so far ahead of what they’re able to produce that it’s tricky. So I would say, you know, the same way that if you’re a hedge fund, You and you leg into, you know, Bitcoin or ETF Bitcoin, you know, you’re assigned a cost basis.

[00:14:27] Harry Sudock: I think of miners assigning themselves a cost basis for their ASICs and generating our internal rate of return against that cost basis is a key idea. You know, so I always think like they’re the legs of the stool in a mining business, and you can screw up 1, you really can’t screw up 2, are exactly what you said, which is, you know, power cost, operating experience, capital efficiency, and then, you know, sort of jurisdictional risk or jurisdictional quality, you know, those are all, those are all things that matter a lot.

[00:14:58] Harry Sudock: You know, the things we’ve been incredibly thoughtful over the last 5 years around. But the opportunity in mining, I think is just kind of scratching the surface of the mainstream, even though other than exchanges, I think the mining business is sort of the other place in Bitcoin land that’s demonstrated an opportunity to achieve actual scale.

[00:15:19] Preston Pysh: Similar to just mining raw commodities. One of the big advantages you get by being a public listed company is access to liquidity on demand effectively. And you can take advantage of the cycles in commodity. So when the underlying that, that you’re, you know, you’re mining is ripping a great time to issue some more common stock, maybe squat on the funds that you raise until the market corrects.

[00:15:50] Preston Pysh: And then you can deploy that capital into more equipment. In this case, it would be mining rigs at a, at a much cheaper price, but you have to be patient and you have to really deeply understand those cycles. And not get sucked in with the exuberance in the speculative animal spirits that kind of happened through these things.

[00:16:09] Preston Pysh: I’m assuming you agree with this, but in application, I guess is where my real question is, is that how, like, in your opinion, really great operators in this space, look at this and are they actually able to put it into practice?

[00:16:26] Harry Sudock: Yeah, I think the commodity production business gives companies an opportunity to be very pro cyclical on their earnings and to be very counter cyclical on their asset acquisition approach, which means that you’re always kind of.

[00:16:42] Harry Sudock: You can be pro growth on both a cyclical basis and a counter cyclical basis. And that’s exciting as an industry, you know, I think for the most part, there’s a little bit of divergence across business models, whether hosting provider, hosting client, vertically integrated, own the racks, you know. There’s nuance across all of that.

[00:17:02] Harry Sudock: I think the market hasn’t quite figured out that miners aren’t just a Bitcoin beta trade. There may be a hash price beta trade plus differentiated operating capabilities. So, you know, I think we’re still kind of early days in. You know, equity analyst coverage and deeper understanding of minor a versus B versus C, but I think you’re right.

[00:17:25] Harry Sudock: Like, at the end of the day, it’s, it’s a capital formation and capital deployment business. And so who’s forming what type of capital? What does that mean on a cost of capital basis? And then. What are they deploying it into and what kind of future cash flows or future SAS flows? Can those businesses reasonably expect?

[00:17:44] Preston Pysh: I think that it’s when I compare a private miner versus a public miner, the process to go through raising capital is just so much different than what a public miner can just issue more stuff. I mean, they can, they can say, Hey, we’re going to, we’re going to issue 25 percent more shares outstanding than we currently have.

[00:18:03] Preston Pysh: The price is obviously ripping because it’s correlated to the underlying. And then they can just kind of really squat on that cash and that buying that potential energy that they’re basically tapping into for when there’s a correction, I would think on the private equity side, like going through that process to raise a similar amount would be just brutal.

[00:18:26] Preston Pysh: And, and you don’t really have total control over that time.

[00:18:31] Harry Sudock: There’s a lot. And there’s a lot of hooks, I think. Anytime you sign up for a deal in the private markets that has a real kind of duration lock on it, you know, that private equity is looking to liquidate the asset in three to five years. And, you know, it puts all this kind of, you know, not that in the public markets, there isn’t kind of quarterly earning pressure and other kinds of pressure.

[00:18:51] Harry Sudock: But at the end of the day, I think pubco guys are looking to earn the trust and respect of long term shareholders and, you know, judiciously issue stock and judiciously. Acquire assets in order to, in order to kind of build a compounding lever on these businesses that outpaces, you know, Bitcoin price outpaces difficulty and outpaces the having because there are forces that work against you sort of in a Bitcoin native way as well.

[00:19:21] Harry Sudock: So, you know, these are all things, you know, I spend an enormous amount of time. Thinking about when we made the decision that we wanted to be a public company, it was really to be able to put all of the different levers on the table and available to us across the board because the opportunity is so broad and so exciting and the integrations with the energy systems that are out there is so new that we wanted to put every opportunity on the table for us.

[00:19:48] Harry Sudock: And I think, you know, we’ve seen a lot of folks take different kind of angles at it, you know, many with an enormous amount of success. And so I think it’s a sector that is in its earliest days. Now, I joke is half heartedly that, like, we’re kind of ending the Bitcoin mining level 1 phase with this having, and I think, you know, Bitcoin level 2 is coming next.

[00:20:12] Harry Sudock: And that definitely applies to the minors because, you know, the stuff that was, you know, outside successful in the previous cycle, you know, we’re going to need new tricks up our sleeve in order to continue to differentiate.

[00:20:26] Preston Pysh: What do you mean by that? What, when you say we’re going to need more trips?

[00:20:30] Harry Sudock: Well, so I think there’s been an operating model, which is put as much hash rate online as humanly possible.

[00:20:36] Harry Sudock: No, one’s looking at, at us across a number of the different guys around dilution and capital destruction. So there’s really been sort of an interesting relationship between some capital destruction that’s happened, but equity value growth. So if I issue, you know, a billion dollars in stock, does my stock go up more than a billion dollars in many cases?

[00:20:55] Harry Sudock: Yes. Not in every case. You know, we saw the sort of basic finance loan book explode across all of the underwriters that all happened, you know, in the prior cycle. So I think there’s a deeper respect for the volatility across the mining space. On the capital side, and I think that the entire mining space was kind of on easy mode the previous having, you know, even though there were incredibly difficult periods, enormously deep drawdowns, you know, hash price was not static whatsoever, but we got a lot of kind of fee relief.

[00:21:29] Harry Sudock: Heading into the end of 2023 and now into 2024. So, you know, I think with the having coming, the cost of power is going to come sharply into focus and the multiple on invested capital is going to be something that all the miners are going to have a deeper focus on in the coming years than they did maybe in the previous years.

[00:21:49] Preston Pysh: There’s been a ton of talk with Ocean coming on to the, to the scene with their pool. And one of the things that I think is really important that they’re talking about is this idea that if you’re bringing one rig to the equation, that you should be able to submit a block template. And as long as, is your rig found the block.

[00:22:10] Preston Pysh: It should be able to put forth that template with with a certain margin of safety factored in as like a base template. Like, if the fees aren’t at least 10%, then I don’t know if this is how oceans going to necessarily. I think they’ve got like 3 different things, but I think if other pools start operating this way.

[00:22:28] Preston Pysh: Which I think they should, and they need to, I think it’d be better for Bitcoin from a decentralization standpoint, if we got more pools to kind of do this. And this is why I’m really happy with ocean has kind of brought to the attention of everybody in the over to windows.

[00:22:42] Harry Sudock: Yeah.

[00:22:43] Preston Pysh: Yes. Walk us through the perception deep inside of the mining industry as to how they think about this idea of individual miners or rigs being able to put forth a block template.

[00:22:57] Harry Sudock: It’s a little bit technical. So right now there’s an enormous amount of decentralization across the production of ashes. And there’s a pretty limited amount of decentralization across the pool. So right now, the way that the system basically works is that the pool runs software, typically it’s Bitcoin core that generates a block template.

[00:23:18] Harry Sudock: There’s nothing to say that I couldn’t run a node and try to do my own block template, though it may not be compatible with the pool. But there’s no reason why Bitcoin core has to be the block template producer. And there’s certainly additional optimizations that can be added to that piece of software as well.

[00:23:35] Harry Sudock: And so, you know, imagine there’s a pool that’s running a number of full nodes. That’s where those templates are getting generated. Then the pool has a mempool associated with those nodes that covers the surface area or the real estate from which the transactions are drawn to map to that Block template, you know, let’s just say there’s 100, 000 transactions sitting in the mempool 2, 000 of those put together make the best block with the most fees or 4, 000 or I think right now we’re able to get to about 4, 200 transactions in a single block and that process is how we arrive Oh, I have a crazy dog.

[00:24:15] Harry Sudock: That process is how we arrive at the current mining system. Pool has mempool, pulls the 4200 out of the mempool that are the highest revenue for the miners, and then sends those templates to the miners. Miners perform work against those templates. Miner discovers a compliant block or a found block. You know, I say compliant.

[00:24:36] Harry Sudock: Compliant relative to the template, not compliant. And then submits that block back to the pool, pool propagates the found block, and then a new round of templates get generated. And what is great about the system, how it’s functioned thus far. Is it allows for there to be this huge amount of decentralization across hash producers, even if there is not a huge amount of decentralization across block template proposers with sort of this implicit idea that if my pool starts.

[00:25:11] Harry Sudock: To behave poorly, the switching costs to go from pool A to pool B are, you know, near zero, even if I were to lose a whole day’s worth of revenue or any minor were to lose a whole day’s worth of revenue, that’s sort of the maximum exposure that you could ever face relative to a pool. So that’s, you know, less than a 3rd of a percent of your annual revenue is only ever really at risk.

[00:25:34] Harry Sudock: So it’s an infinitesimally small amount. So it’s important to know that and that the current kind of good actor sort of Damocles that’s hanging over the industry is that the switching costs between pools are very, very, very low. Now, does that mean we’re at an optimal state? No, but does it mean that we’re at a reasonable local maximum?

[00:25:52] Harry Sudock: Yes. So I don’t think that there’s like significant systemic risk to Bitcoin in any way, shape or form relative to the centralization of mining pools today. Doesn’t mean we don’t have an obligation to try to work towards a more perfect union, what the ocean guys are doing and what, what the Stratum B2 open source project is doing essentially takes the block suggesting function and jams that down to the same level as the hash production function.

[00:26:20] Harry Sudock: Now there’s a lot of like. Network engineering stuff that is above my pay grade around latency. And are you degrading your competitive quality as a minor by going towards this sort of self generating model?

[00:26:36] Preston Pysh: Is that kind of the argument is that, is that really kind of the argument? Like if a person, the stratum V2 that you’re talking about.

[00:26:44] Preston Pysh: What would be a person who’s really opposed to this in mining? What would the argument sound like?

[00:26:49] Harry Sudock: It would sound basically like this minor a and minor B are both participants in a pool that have pushed the block suggesting function to the minor. Minor a has a great network design and is doing really well.

[00:27:02] Harry Sudock: Minor B isn’t. And so let’s say they’re generating 10 X a hash per second, combined five and five. Five of those acts of hash have a 99. 999 percent competitive parity with the rest of the network. But minor B has 85 percent for instance. Minor A and minor B get paid the same for their pool shares, even though the likelihood of that pool or a participant in that pool finding the block has degraded.

[00:27:29] Harry Sudock: There’s nuance there where allowing a low performing minor on a network basis to equally participate on the pool, you know, that pool might find 1 out of 10 fewer blocks because of them. There’s an economic case that there’s a performance standard that they would need to introduce in parallel with this type of responsibility.

[00:27:48] Harry Sudock: I’m a believer that in any well organized system, you basically need like counterweighting KPIs. So, you know, if I were, let’s say I’m a credit card company, God help me. I’ve got two KPIs. One of them is number of new cards issued or number of total credit issued, because that’s how you generate money. But number two would be, I’d also want to minimize chargeback instances.

[00:28:12] Harry Sudock: Or you need these counterweighting KPIs. So maybe one is we’re going to push the block suggestion layer down to all the miners. But we’re also going to have this counterweight, which is that you also need to achieve some latency requirement, or you need to come up with some, you know, shares per new block counterweight.

[00:28:32] Harry Sudock: So, there are ways to do it, and there’s certainly really, really smart engineers who are going to follow it on a technical basis that I’m not able to, but at a conceptual level, you know, this all feels like it’s within the realm of solvable. The bigger issue is that there’s no economics associated with it right now.

[00:28:50] Harry Sudock: And so miners are, you know, the most relentlessly capitalists businesses in the world, because we know exactly what each unit of our work should deliver on a revenue basis. And, you know, continuing to push complexity down to the individual operator level. Not get you any more revenue. Yeah. Yeah. And so you’re, you’re really asking miners to take an altruistic approach, which is good.

[00:29:14] Harry Sudock: We all believe in a long term value of Bitcoin and it broadens maybe the area under the curve. Or the useful life or duration that Bitcoin can represent. So there’s, there’s this software case that the miners really. If every miner staffed their engineering team with two, three, four kind of template engineers, let’s say, that becomes a huge redundant cost across the entire industry.

[00:29:40] Harry Sudock: Whereas right now, those are basically offloaded into the service provider level. Cool. So the pool hires one team and maybe they have a hundred clients. Those are a hundred, three, four person engineering teams that don’t have to exist. So from a scale perspective and a best DNA kind of kind of corporate cost model basis.

[00:30:01] Harry Sudock: The way it’s designed today is probably advantageous. Now, could you achieve a lot through open source? Could you achieve a lot through, you know, maybe an independent service that does this or a not for profit or foundation that does block, you know, template production, you know, maybe that’s a happy medium.

[00:30:16] Harry Sudock: I’ve heard proposals, you know, bounce around around, you know, basically doing a foundation that does. All of the template push and and you basically disintermediate the pool role from the template role and the minor role. And there’s actually a 3rd leg to the school that belongs out there or a few 3rd legs of the stool.

[00:30:35] Harry Sudock: But I think to say, well, wouldn’t it be great if minors did this themselves, but that doesn’t really capture the scope of of what’s really being asked.

[00:30:42] Preston Pysh: Now that helps out a lot. That helps me understand that a lot. And those are some points that I never thought about from their perspective. Help us. So when, when I’m looking at mempool space, mempool dot space, they have a, they have an awesome new feature there where they’re showing what the expected fee was going to be for the block.

[00:30:59] Preston Pysh: And you can see it real time there. And then after the block is found, you can see what was actually put in by the miner and the pool that, you know, found the block. And I’m finding anywhere from like two to maybe 8 percent of a Delta between what was expected from just the pure fee standpoint to what was actually produced.

[00:31:18] Preston Pysh: Explain to us exactly what’s happening from a minor in a pool perspective, as these numbers are pretty different.

[00:31:27] Harry Sudock: There’s a few categories of Delta that I think could be in play. One of them is just like straight up out of band transactions, though your favorite ordinal respectors go to a pool and say, Hey, please include all of these will pay on the side.

[00:31:43] Harry Sudock: It would be great if you’d include them kind of at one SAP review, bite, even though the men pool market is, is trading at 200 SAS per V bite. So I think a big piece of the Delta could come from situations like that.

[00:31:56] Preston Pysh: And so the other piece, help me understand. So they’re, they’re wanting the lower rate or they’ve had it in the mem pool and they’re not able to update it.

[00:32:04] Preston Pysh: Walk us through like, why would a minor entertain this if it’s not economically viable for them or they’re, they’re making more by bumping their transaction up into the pool.

[00:32:13] Harry Sudock: Well, so they’re maybe they are paying more. So maybe they propose one sap review, but maybe it’s 100 transactions. They propose 1 sap review, but on all those transactions, they give them a list of the transactions and they say, all right, this would have generated.

[00:32:27] Harry Sudock: I’m using a random number 1 Bitcoin and fees. Oh, they pay it’s akin to it on the side.

[00:32:33] Preston Pysh: Yeah. So what they don’t want to do is they don’t want to show how many they’re trying to stuff in there. Almost like an over the counter market where they don’t want the rest of the market.

[00:32:41] Harry Sudock: It’s a Disney fast pass.

[00:32:42] Harry Sudock: Got it. Yeah. Nobody knows what you paid for your fast pass or your special park accelerator, but, but you paid them. And so you walk to the front of the line. Yeah. Got it. It’s that kind of thing. So mempool is working on a product, which is basically the sort of the open version of that, which is the mempool accelerator, which I think is, is interesting.

[00:33:04] Harry Sudock: There’s also just noise in that data, where maybe a pool or two is using a different mempool than mempool’s using. There is no one mempool, there’s just your instance of the mempool. So there’s a whole whisper network, which is how all the transactions end up in a mempool. And then, maybe the one I’m, you know, right now there’s a, there’s sort of a norm, but not a hard limit, that a mempool’s 300 meg.

[00:33:27] Harry Sudock: Maybe i’m running a two gigabyte mempool for my pool because I need more visibility into more transactions and i’m seeing other things and Maybe there’s an rbf or a child pays for parent that’s getting included differently in my template production algorithm Like there’s lots of reasons why that data would also be noisy from mempool to mempool So i’m hesitant to say oh, it’s all otci band stuff.

[00:33:49] Harry Sudock: I don’t think that it is But I think there’s just some variability across mempools that the pools are using mempools that the mining pools are using, which attributes, you know, back to some of that noise, but there’s also definitely out of band stuff happening. Mempool themselves facilitate functionally and out of band.

[00:34:06] Harry Sudock: And it’s, it’s a, it’s visible, but it’s out of band. S2 pool has a transaction accelerator that they use. So this is going to become more of a Bitcoin norm. Again, thank goodness for Satoshi because the block time and the UTXO model, Is a huge friction coefficient on like an Ethereum style MEV data play.

[00:34:29] Harry Sudock: So I think that, you know, the risk is that you get into some of that.

[00:34:33] Preston Pysh: Explain that in a lot more detail for people.

[00:34:36] Harry Sudock: It’s easier to talk about Ethereum because it is there. It isn’t in Bitcoin. So there’s an essay that came out several years ago called Ethereum is a dark forest. Then there’s another really good thread by Alex B on Twitter where he basically captured a lot of the evidence of MEV on Ethereum, especially in a proof of stake environment relative to a proof of work environment.

[00:35:01] Harry Sudock: So there’s a couple of factors that make a theory. I’m sort of a hotbed for this, right? The 1st is, is that there’s this idea that you’re in what’s called state, which means if I put, let’s say the block is 100 transactions and I do a transaction, I do transaction 1. I can then do transactions two through a hundred with the output, the outputs of transaction one.

[00:35:26] Harry Sudock: So I can make multiple transactions occur within a single block based on the most, you know, the ordering of those. In Bitcoin, that doesn’t work, right? Because you have this unspent transaction output, the UTXO, that you can only spend a new UTXO. So, once the block confirms that your UTXO moved from A to B, then you can start to do something with B to C.

[00:35:49] Harry Sudock: You can’t do these multiple hops. And so If you were perhaps it doing any of the minor extracted value on a theorem, you would try to snipe value. Let’s say there’s a unit swap smart contract. That’s that’s the transaction you’re doing on a theorem and you’re moving a billion dollars from 1 side of a trade to another.

[00:36:11] Harry Sudock: You can do funny business within the same block in that environment. So the person who produces the block has a lot of potential value because there’s a lot of economics that are moving inside of that block in real time basically. And that’s what allows for this. So there’s, there’s much more opportunity for incentives to the block producer than there is just relative to what we, we do in Bitcoin, which is just like a straight up auction for block space.

[00:36:39] Preston Pysh: Got it. Got it. Okay. So the havings coming up, this is always a very big deal. Everybody talks about it. Everyone’s got an opinion. I think we have a pretty good idea of what happens after that happening.

[00:36:51] Harry Sudock: I’ll tell you exactly what’s going to happen. Yeah. We’re going to go from 6. 25. Bitcoin minted per block.

[00:36:57] Harry Sudock: It’s 3. 125. That’s right. That’s exactly what’s going to happen.

[00:37:02] Preston Pysh: The impacts everybody’s got to take on whether this is as significant as it used to be. What’s your opinion here moving forward?

[00:37:12] Harry Sudock: I’m super conflicted. The first is that I love the having not as a minor, but as a Bitcoiner because it is the, it is the evidence in the world that Bitcoin’s monetary policy is functioning as it was written.

[00:37:26] Harry Sudock: And so the certainty that we have around Bitcoin and the financial asset is all a function of the certainty that we have that the monetary policy functions the way we expect. That’s how we achieve a 21 million hard cap. It’s, you know, you know, imagine that we woke up on what is it? 840, 000 block.

[00:37:45] Preston Pysh: Satoshi shows up and says, no, it’s going to stay at 6. 25. That this is your point. Right?

[00:37:51] Harry Sudock: Exactly. Right. If we were to go, if we were to go the other way, and we didn’t have. It means that Bitcoin doesn’t work. The monetary policy didn’t work. And so the 21 million hard cap didn’t work and it would be incredibly disruptive to all of our expectations around how Bitcoin, the software is supposed to function.

[00:38:12] Preston Pysh: So I think you didn’t even laugh at my joke, the Satoshi joke.

[00:38:17] Harry Sudock: Well, you mean, well, that’s what Jamie told me is going to happen.

[00:38:20] Preston Pysh: I’m sorry to interrupt. Let’s stay on task. Keep going. I interrupted you.

[00:38:23] Harry Sudock: Like, this is why, you know, I think having this are, I think everybody kind of delves into what you’re saying, which are what are the impacts of it.

[00:38:30] Harry Sudock: But I, I, I come at it always from first principles, which is this is the edification of Bitcoin’s monetary policy. And so it is ridiculously important that they go off without a hitch. They have every time previously. The other thing is, and this is just the elegant brilliance that is, that is Satoshi Nakamoto.

[00:38:50] Harry Sudock: I don’t know if you’ve ever seen this, but, and I can’t attribute to the person who showed me on x. com because I forget to tweet, but the first epoch was 50 Bitcoin per block. And 50 percent of the supply was issued the second epoch, 25 Bitcoin per block and 25 percent of the total supply was issued the third 12 and a half and 12 and a half percent of the total supply was issued.

[00:39:12] Harry Sudock: And so every epoch is the percentage of inflation demonstrated in how many units per block. Yeah, isn’t that amazing? It’s just so elegant and the mythology continues to grow, you know, with every, with every little design choice. All right, let’s leave that aside. What are all the actual impacts on people running businesses on people holding Bitcoin on price?

[00:39:37] Harry Sudock: And the short answer is, is that, you know, miners are going to generate a lot less Bitcoin denominated revenue unless fees rise significantly. I think the amount of net new Bitcoin available to the market. It’s going to go down. So there’s a market microstructure argument. I was having this discussion with Jack at strike and probably a couple of months ago.

[00:39:57] Harry Sudock: And we both agree that there’s 100 percent of market microstructure impact. And we have no idea how to quantify how big it actually is. Because you see, you know, you see a sailor wake up in the morning or an ETF wake up in the morning. They might buy a month’s worth of net new issuance. Or a year’s worth of net new issuance, as the case may be, as we get further and further out the epochs.

[00:40:20] Harry Sudock: So, I don’t know, but I think that the impact isn’t zero, and it obviously isn’t everything. You know, I think, like with, like with everything around sort of a geometric adoption curve, it’s just more time in the market, and as you get into the out years, especially on sort of the, the southern hemisphere of the S curve, which I think we’re still on.

[00:40:41] Harry Sudock: You know, you get, you get some of these exponential years, you know, not in terms of price necessarily, but in terms of functionality and user adoption. So it’s a huge opportunity to continue to put more Bitcoin into more people’s hands and to put stronger freedom tech tools into more people’s hands. And that’s all incredibly meaningful.

[00:41:00] Harry Sudock: But, you know, why, you know, I love the American model meme of green, green, green, red and I love, you know, I love that we sort of have this historical cycle of price appreciating significantly in conjunction with a having, I have no idea what the chicken or the egg in that is, but it isn’t a bad thing.

[00:41:18] Preston Pysh: Yeah. I mean, it’s amazing how you get these cycles of speculators coming in that then some of them turn into long term investors and long term holders. And when we look at where we’re at right now in the cycle, we are aggressively being dominated by long term holders just through what we can see on the on chain data, I’m just curious as to the potency of the having at this point and whether that is going to be akin to previous cycles.

[00:41:45] Preston Pysh: And I think that. I guess I’m hopeful that it is, but, but who knows, who knows whether this is going to be like the last, I suspect it is though.

[00:41:53] Harry Sudock: And this, but this is why I go back to the most important part of the happening is the demonstration of the monetary policy. Yeah. I think that’s a great. Because that’s inarguable.

[00:42:01] Preston Pysh: Yeah. It’s inarguable, right? And it’s, and it’s a real, it’s a really big deal. Like we say it and it’s like, well, yeah, of course that’s what it does. But. When you think about it, there’s no person that can step in and say, nope, not this time. I have all of these coins. I’m Michael Saylor. I have all these coins and I don’t want it to, to, or I want it to not go in half.

[00:42:22] Preston Pysh: I want it to be a 90 percent reduction or whatever, right? No person has that authority, whether you’re Satoshi or not.

[00:42:30] Harry Sudock: Exactly. It is. It is the demonstration of the system functioning.

[00:42:35] Preston Pysh: Yeah. And yes, I can say so. I can say it correctly. It’s Satoshi, by the way.

[00:42:39] Harry Sudock: We know you’re smart. But so, you know, I, I stay away from the prediction game just because I don’t know.

[00:42:46] Harry Sudock: And I don’t want to pretend to know. But I do with absolute certainty know. That the demonstration of Bitcoin’s monetary policy functioning as intended is what I latch on to the most because otherwise it’s painful because, you know, Bitcoin mining revenue goes down in Bitcoin terms.

[00:43:02] Preston Pysh: Any other topics that you’re really excited about kind of moving into the, you know, this next cycle?

[00:43:11] Preston Pysh: I’ll tell you one that I heard that I thought was really interesting, but I want to hear your point of view.

[00:43:14] Harry Sudock: You go first.

[00:43:15] Preston Pysh: I didn’t mean to do that. Well, when I was up at the park, we were talking about mining and lightning, and one of the ideas that somebody came up with was almost like a derivatives market.

[00:43:25] Preston Pysh: For specifically closing channels the rate that you can close your channels out. So prior to basically the, the taproot asset protocol creating this, you know, massive fee event that’s been happening on chain here for quite a while, you know, we were dealing with two sats per a VB as being, you could probably get into like the next couple of blocks, but now it’s like way high.

[00:43:51] Preston Pysh: And so if you’re opening channels on the lightning network, it would be really nice to know that you can close those for whatever price. And it seems like there may be in this coming cycle, a demand for some type of derivatives market that, you know, you can close a channel at a certain rate because you’re protected through some type of derivative.

[00:44:11] Harry Sudock: I’ve spent a ton of time talking to the voltage team and the iron boss team and, you know, some of these other lightning businesses. And just putting it to them, what role can mining play in your business or in your network or in your ecosystem? And I think there’s, I think it’s a huge area of untapped opportunity.

[00:44:30] Harry Sudock: I think as the market for liquidity matures, the need for robust tooling addition, you know, you can pay for additional certainty. I channel open, I think all of those, you know, all of those are really interesting. You know, we talked about the pool being the block proposer versus the minor being a block proposer.

[00:44:50] Harry Sudock: I think, you know, having additional non men pool native transaction agreements. That go that go into effect around lightning or having them be transparent and open developing an open source, you know, financial market around these types of transaction categories, like all of that super exciting. And I think I love being long complexity in some of these ways, because I think that the amount of I think we under sell.

[00:45:18] Harry Sudock: How much work and development has gone into what has turned our current financial system into relatively functional. And we’re going to have to recreate all of that work on a different software basis. And so why is it easy to make a Venmo payment or a Zelle payment or a credit card payment? Like all of these money networks, Are huge businesses, you know, tens of billions of dollar businesses, 100 billion dollar businesses for Visa and Amex and MasterCard, you know, so I think the maintenance of an open source and permission lists and censorship resistant transaction layer, not just settlement layer is just going to take a lot of really good engineering.

[00:46:00] Harry Sudock: And from an economic perspective, if the generators of proof of work can participate in facilitating the advancement of that transaction layer, we’d love to. Anything else you’re excited about? I’m excited. You’re a general partner. Do you go to us?

[00:46:14] Preston Pysh: Thank you, sir. Appreciate that.

[00:46:16] Harry Sudock: Of course. Congratulations.

[00:46:18] Harry Sudock: You guys have, you guys have built a phenomenal team and you’re in incredible deals and, and your proof of work is just as good as the minors. Thank you. Of course, you know, 1 of the things that came out in the national energy and mining summit was just around the integration with energy assets. I think we’re in such early days of that.

[00:46:38] Harry Sudock: You know, for me, it feels very analogous to, you know, where Bitcoin was 5 or 10 years ago, where, you know, right now. The Bitcoin network represents somewhere between 15 and 20 gigawatts of global power on a nameplate basis. You know, that’s approaching 1%, depending on how firm those assets are, you know, between a half a percent, 1%.

[00:47:00] Harry Sudock: I think that number is going to go up a lot. Because not because Bitcoin miners are, you know, the parasites that we’re all told they are, but because Bitcoin miners fundamentally strengthen our market. So I’d expect nameplate install to go up, but up to go down because the need for the flexible consumer is becoming clearer and clearer and Bitcoin miners are are able to deliver that flexibility.

[00:47:24] Harry Sudock: An order of magnitude better than other industries. And so I think the integration between mining and energy generation and transmission and delivery, that’s all going up because I think the folks on the energy side get it. Oh yeah. I think so for sure. That’s wonderful. And, and there’s a huge amount of innovation on the contracting status of those relationships.

[00:47:48] Harry Sudock: So I think of, of innovation in a number of different ways, right? Figuring out that. Railroads worked was a technical innovation, but at the same era, the joint stock company was another huge innovation. And that’s a contractual innovation, not a technical innovation. So I think Bitcoin mining is getting the technical innovation down pat.

[00:48:11] Harry Sudock: And the contractual innovation is going to start to happen as time goes on. So that’s a-

[00:48:15] Preston Pysh: This coming cycle or?

[00:48:16] Harry Sudock: So yeah, yeah, yeah, I think, I think so. I think the need for America to build, especially America to build more generation has never been clearer, right? We’re having net inflows on a population basis and we’re going to need to build out more data center, more HPC, more.

[00:48:37] Harry Sudock: Manufacturing the onshoring movement is not over after a long, you know, after a long hiatus. So, I think it’s obvious to me that we’re going to demand more electricity in 10 years than we do today. That doesn’t even take into account that, you know, we basically went from 2 to 22%. Electrification of our energy, so you can consume energy in a number of different ways when you run your car, you’re consuming energy, but also when you turn your lights on, you’re consuming energy in the household.

[00:49:04] Harry Sudock: That’s electricity in the car. That’s combustion engine, the electrification comes with a different burden on the overall grid systems that power them. And so the higher the electric factor of your power system. The more specialized needs there are around how that electricity gets birthed into existence relative to how, you know, if you imagine switching your house from a propane tank to an electric heater, same jewels, different mechanism.

[00:49:33] Harry Sudock: And so I think the expansion of demand for energy is a clear and obvious trend, and the demand for electrified energy is also a clear and obvious trend. And Bitcoin mining has a role to play in both.

[00:49:44] Preston Pysh: Let’s wrap up the conversation talking about nuclear with the small modular nuclear. Yeah. This is, I know your opinion on this is that this is vital to growth inside of our country all over the world.

[00:49:58] Preston Pysh: What is the number one roadblock for this right now? Why? Why is this not taking hold faster?

[00:50:05] Harry Sudock: Regulation.

[00:50:06] Preston Pysh: Okay, so walk us through regulation. So walk us through that. How can that be fixed? How can the education on that change? Is it an education burden or what’s the, just typical bureaucracy yeah, that’s holding it up or what?

[00:50:21] Harry Sudock: Yeah, let, let’s ground ourselves in the, in the history briefly. We built 95 gigawatts of nuclear power between 1970 and the early nineties. We basically are flat because we’ve shuttered plants since then. Mm-Hmm. So we’ve built a few more. We’ve shuttered others. Which is a crazy and the single most detrimental thing that we as a society had done to ourselves in recent times, maybe not the single most, but it’s too high on the list.

[00:50:46] Harry Sudock: And we basically had three mile island happen. I forgot if that was 87 or when exactly which year it was exactly, but basically three mile island happened. We already had a bunch that were in various stages of construction and planning. We finished those and we massively slowed down. After that, and I’m a nuclear EAC versus D cell, you know, so we basically saw, we’ve seen an example of what happens when the D cells win and it was nuclear power from 1990 to 2016 when we started energizing the Vogel plants in Georgia, the cultural impact around why that happened is that there were really scary things that happened that were broadly televised on the news.

[00:51:26] Harry Sudock: Those events didn’t really result in loss of life. Or environmental contamination, but they were big scary ideas. There’s a great essay by Nick Szabo that you should read relative to this idea, which is he takes a 2nd look at Pascal’s wager and he wrote a piece called Pascal’s stamp, which is, you know, if you take, you know, if I say there’s a 1 in 1, chance that the world ends.

[00:51:53] Harry Sudock: All of a sudden, I got to fight against a lot of demons, but that’s a total waste of time because the chances are one in a billion nuclear basically fell victim to a to Pascal’s wager. But I think the nuclear D cell movement was really Pascal scam. The likelihood that bad things were going to happen based on nuclear power is infinitesimally low.

[00:52:12] Harry Sudock: It’s significantly less dangerous than, than coal or oil. It’s roughly on par with solar on a loss of life per terawatt hour. It’s an incredibly safe technology. You know, Chernobyl was was the example that everybody kind of points to. There were three other reactors at the Chernobyl site. All of them ran for 17 more years after the meltdown.

[00:52:33] Harry Sudock: It only impacted one of the reactors. So, you know, and there were massive internal alarms and it was really a Soviet bureaucracy problem. That resulted in that in that catastrophe, not a system failure that system failure should have been caught significantly earlier. So, unfortunately, the HBO shows is very well made, but wildly historically inaccurate.

[00:52:55] Harry Sudock: You know, we go through this chilling period, then we wake up to, we just need to shut them down movement that took hold in Germany. It took hold in New York. You know, the loss of Indian point is, is a huge travesty. And if they hadn’t shut that down, I might’ve considered staying and not moved to Nashville, but you know, good for me.

[00:53:15] Harry Sudock: I’ve got to get out of there where TVA operates some of the best nuclear assets in the world in our backyard. The case against them is crazy. Do I think there’s an education problem? I think there’s more of a generational problem than there is a, an education problem. I know lots of young people who are really excited about nuclear outside of Bitcoin, but I think there’s, you know, there’s a lot of narrative work that the nuclear energy institute has done over the last 15 years to both fight against bad regulation.

[00:53:44] Harry Sudock: And legislation, but also improve the quality of education around what I believe is the best form of generation that we’ve discovered thus far. So, I think, you know, we see, we see China building a ton of SMR as we see Poland. We see areas of Africa that are looking to build them. And you know, the great news is, is that four of the incredible technology companies that are building the tech to actually put an SMR into the world, those are all American companies.

[00:54:14] Harry Sudock: We should build them here. Look, I think, you know, like with many things, you need the will to win and we need to find our will to win. And a lot of that is going to be a function of how we choose. To staff our nuclear regulatory commission, the NRC, that’s where a lot of this friction is coming from, whether it’s from a technology approval, new scale has an approved design, but they’ve been really hesitant to let any of the other designs into the wild.

[00:54:42] Harry Sudock: And then it comes down to being able to actually get a site to build 1 of these things, which also requires additional approval and zoning, geological study, et cetera. And to be clear, I am incredibly in favor of doing an enormous amount of diligence on what technology we’re willing to bring to market with, you know, an active isotope.

[00:55:03] Harry Sudock: And then also what location we choose to put there. There’s got to be community buy in, but go to go to either 99 nuclear reactors operating in the U. S. today. Go to one of those towns and ask them, how do they feel about the plant? Huge amount of property tax revenue. It’s quiet. It doesn’t emit anything like a coal plant does.

[00:55:26] Harry Sudock: It’s clean. It’s a big employer. Their power cost is low. So those communities love them. It’s really just sort of the, the ghost that we have put into many of our minds around what this, you know, Oh, nuclear equals bomb. That’s the talk track that we need to break out of and understand that. What if you didn’t name it nuclear?

[00:55:46] Harry Sudock: What if you named it clean, cheap power monument instead? You know, how many of those would we want? So I think there’s huge opportunity there. I’m, I’m really, really hopeful that the leadership that, that we look to today will, will understand this point of view. I think the utilities want it. I think the consumers want it.

[00:56:05] Harry Sudock: And I think, you know, the government, when they, when they think about the issue in the right way, they should want it to.

[00:56:10] Preston Pysh: I love it. Harry, I could talk to you all day. Thank you so much for coming on and doing this. What do you want to people can follow you online. I know on Twitter acts or whatever we’re calling it these days, Bitcoin Park, we’ll have a link to Bitcoin Park.

[00:56:25] Preston Pysh: What else do you want to throw out there?

[00:56:28] Harry Sudock: Check us out at griid.com. We love to mine Bitcoin. If you’re a energy utility, reach out and ask us about how mining can help you. Whether it’s us or somebody else. I just want to see more miners directly integrate with their electric systems because you know, that’s how we win.

[00:56:45] Preston Pysh: Yes. Yes. All right. Well, tons of just valuable information and we just really appreciate your time for coming on today.

[00:56:53] Harry Sudock: Preston, you’re the best. I appreciate you, brother. Thanks.

[00:56:56] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm.

[00:57:20] Preston Pysh: Preston Pysh: So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

[00:57:41] Outro: Thank you for listening to TIP. To access our show notes, courses, or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permissions must be granted before syndication or rebroadcasting.