podcasts
Kent Halliburton on why mining, not buying, is the most sovereign, cost-efficient way to stack “wild sats.”
Kent Halliburton (Saz Mining) and Parker Lewis argue that mining, not buying, is the most Bitcoin-native path to acquisition: it converts cheap, stranded, or flexible power directly into “wild sats,” avoids point-of-purchase volatility, and can undercut exchange prices when energy is sourced efficiently (e.g., hydro in Paraguay/Ethiopia/Norway/Wisconsin). Halliburton frames mining as an upstream manufacturing process where energy becomes digital scarcity, predicts “sats per kWh” will rival “dollars per barrel,” and stresses that decentralizing rig ownership plus pool choice (e.g., Ocean integration) strengthens Bitcoin’s social and technical resilience. Saz’s mining-as-a-service model aligns incentives by charging only a 15% share of mined rewards, vetting long-term partners, diversifying jurisdictions, and focusing on Bitcoiners who want to accumulate BTC, not fiat returns, thereby repatriating value to local grids and turning excess capacity into export income while building a broader Bitcoiner-run hash base.
“I actually don’t see Bitcoin and energy as separate, they’re flip sides of the same coin.”
“Mining is where reality hits Bitcoin.”
“Most of the network’s centralization issues exist because Bitcoiners stopped mining and started buying.”
“We only make money if you make Bitcoin.”
“Sats per kilowatt-hour will become the new dollars per barrel.”
“If every Bitcoiner visited a mine, they’d understand how real Bitcoin actually is.”
Mining anchors Bitcoin in physics, aligns operators with users, and decentralizes control of the network; by pairing low-cost renewable power with incentive-aligned operations and pool optionality, Saz’s approach shows how individuals can steadily accumulate BTC, strengthen grid and industry economics, and reduce central points of failure, pushing Bitcoin back into the hands of Bitcoiners while turning wasted energy into lasting monetary sovereignty.
(00:04) Kent, thanks for coming to Austin. Excited to record this podcast, Center of Hash. I think we're at episode 10. We skipped a few weeks, but uh first how was your first CrossFit this morning? Oh, it was fun, man.
(00:23) It's been a lot of years since I've been in a gym and working out with a bunch of dudes like that. So, yeah, it was fun. Um, and I will be sore and not certain if I'm going to be able to uh put my bag in the overhead bin after all those uh presses. Guys and girls, we got a we've got a a Bitcoin group that goes to uh CrossFit a couple days a week.
(00:44) And um so both both represented, but you hadn't done it before and it was good to get you out there. Yeah. Good way to start the day. Yeah. Thank you. And it's fun to be here, man. I'm glad to be recording with you. And you were at you were at Tabcom just before this. Yeah, that was real the real uh um motivation to to get into the US.
(01:04) You know, I live abroad, but uh came came for Tabcom, you know, uh development and developers are a big part of our our business at SAS Mining and so uh came to to, you know, rub elbows with that community and learn what I could and then flew here to Austin afterwards to record with you. Quick shot over to Austin from Atlanta before going back to South America. Appreciate you you sliding through. Um, so you're founder and CEO co-founder co-founder. Yeah.
(01:28) And CEO of SAS mining, a Bitcoin mining company to set a baseline. Before we get into the mining business itself and how you guys approach it, explain a little bit about your background in energy and what led you to both Bitcoin and Bitcoin mining. start specifically with with your background just to give some of that color and context. Yeah.
(01:54) So, I I know everybody's got a unique path, right? I just think that mine is a little a wider weave than most uh to get here. So, I um did computer engineering in California. um actually did it on if you know who Bob Bernett is, CTO of Gateway Computers. I uh got a computer engineering degree on one of his computers that he designed which is very synchronous because he's now a an adviser for SAS mining and friend.
(02:22) Um but uh I did computer engineering and then I got quite passionate about solar rooftop solar specifically. And so from about 2008 until 2005 excuse me to 2014 I worked in that industry and um there's a lot of parallels to mining. I didn't realize it at the time obviously uh but in that industry you know I ran sales software and postacquisition integration for a publicly traded company where we had like nine figure revenue targets and the odd thing was at that point in time I was competing with like Elon Musk's cousins that he was helping to support. So those were kind of my primary competitors. But then the board of the
(03:02) the company I was working for, they decided to bring in a new CEO and I said, you know, I've always had a dream of seeing the world, so this seems like a good time to exit Sage Left. So I threw on a backpack and I traveled, took a couple years satical.
(03:18) And during that 2-year time frame between 2014 and 2016, I fell in love with the Portuguese woman and Bitcoin. So my life restarted in Portugal in 2016. What was first? The Portuguese woman or Bitcoin? Portuguese woman. Yeah. But it was uh oddly enough uh both happened in Peru and within uh about a year of each other. Yeah. So kind of kind of odd and I now live in Peru. Um but the the story for how I got to Peru is is uh is that I was in Portugal.
(03:46) Um tried my hand at all sorts of different Bitcoin entrepreneurial activities. Um, and ultimately after reading Jeff Booth's The Price of Tomorrow, there's a chapter on solar and Bitcoin mining. I was just like, "Oh my gosh, what have I been doing? Let me figure out how to get into mining.
(04:03) " And so had a mutual acquaintance uh from the solar industry that knew uh the founder of SAS Mining put us in touch and I joined up and helped the founder raise some capital and pivot the business into what we're now doing. Uh and then eventually the founder actually handed it off to me uh to to run the business. But during this time uh my wife and her work uh actually took us to Peru.
(04:25) So that's how I ended up in Peru since about 2021. We've been living there. At a top level, how do you think about solar energy in relation to Bitcoin? Bitcoin mining. Yeah, I think there's an inevitable collision that's going to happen there. Um and I don't think that all the technologies fully been worked out yet. And I think the magic piece of that is batteries.
(04:50) Um, as the cost curve of those come down, see the thing about solar that I think a lot of people miss in our industry is that it's very analogous to Bitcoin mining. Um, so it's decentralized, distributed, disruptive to the grid. You're importing it from China primarily and the infrastructure the infrastructure. Yeah.
(05:15) panels themselves come mainly from China and then your uh profits are constrained by an energy network. All of those characteristics are the same for mining. Now the cost curves for solar have come down faster than any other industry uh or energy source and you partner that with the fact that solar is the only way we can make electricity without moving anything means that the longevity of solar panels is incredible truly.
(05:39) Um I think it's an applicationspecific issue, but as uh solar integrates further and further into the the energy networks along with batteries, I think that Bitcoin mining is kind of the third leg of that stool that's really going to make that come alive in a big way. And I'm not I'm not as big a fan as like the industrial or the the mass uh solar farms as I am like use the real estate that's already on people's roofs.
(06:02) But at a certain point when solar gets cheap enough, which it is trending that direction, it's going to be pretty ubiquitous. I mean, you see China installing just incredible amounts of solar power right now, more than any other energy source. Before we get to Saz, you mentioned reading Jeff Booth the the price of tomorrow, having your background, if you could just discuss a little bit of that rabbit hole and your own kind of journey to Bitcoin at a more detail like what made it click for you and then um kind of your initial thinking and how that might have evolved from when that
(06:39) was. Oh man. So I I first bumped into Bitcoin in 2015 and this was uh during the time when I was on the sbatical and I was traveling and you know getting money in different countries was always just kind of a pain in the ass, right? And so as I uh as I just stumbled into, you know, I had free time.
(07:03) I was living in the sacred valley of Peru for a couple of months and I was just going down different rabbit holes and studying different things and I came across the white paper, read it, I was like, "Oh, this is interesting. I'm going to go check it out and buy a little bit and play around with it." And just as a computer engineer realizing, "Oh, I can transfer value all over the world and I don't have to be restricted in this way that I have been as I've traveled and trying to get money out of various ATMs. like this is incredible.
(07:26) So that was kind of the step one and then I got sucked into, you know, the the the shitcoin wheel of Samsara, right? That kind of fukes you out and you get to the other side, you know, purified and realizing that really I should be in Bitcoin, you know, I I did that for a couple years. Um but that process uh I I always came back to the signal that I was reading various books about Bitcoin itself and money and I think really you know that that fundamental question what is money uh came to the surface and as I studied that there's just several aha moments you know breed love's uh series with Sailor was probably one of those the Bitcoin standard was another one of
(08:02) those there just certain aha moments to where oh I get it and and then you see the world differently it's like part of the matrix opens up to you, right? And and then you can't go back from that, you know? It's like, okay, I could deny I've had this experience or I integrated into my world view and and move from there.
(08:28) So, as I move forward, it just became clear and clear that this was the solution to this age-old problem, right, of uh basically human greed being sacrificed at the altar of the money printer. um that has plagued us I think since what 5,000 plus years at this point and this is the first time we have a a way to escape that particular trap and I'm I think it's a civilizational shift that we're going through as a result and so you you had an energy background working on the solar side at what point and how did your thinking evolve to to connect those in a deep enough way to want to work on Bitcoin mining specifically? Yeah, it just very simple.
(09:05) So, uh the cost curves of of solar uh coming down uh and getting to be the cheapest energy source on the planet combined with Bitcoin mining's need for the cheapest energy uh to be the most profitable, right? The biggest input cost for mining is electricity. So, if you want to be the most profitable miner, you're constantly seeking the cheapest energy you can find.
(09:29) And if solar is going to become that, and it seems inevitable that it will to me over time, which is what chapter five of Jeff Boost, the price of tomorrow, also reflects, uh, specifically on solar. Yeah, the whole chapter is on solar and how the cost curves are coming down. And if you just simply look at those cost curves over time, um, you know, it's not Moors, forget what it's called, but there's a similar governing rule in solar that every 18 months basically the cost of production drops by like 10 or 20%. Something like that. So, it's just cratering and as energy gets cheaper and
(09:59) cheaper and more ubiquitous, what does that unlock? And then in your words, how do you describe the relationship between Bitcoin and energy? I actually don't see them as separate. Um, I actually think like SATs per kilowatt hour is going to become a meaningful metric.
(10:26) I think that they're they're flip sides of the same coin in I mean it's an abstraction, right? It's not like directly like you you take a Bitcoin and you've got electricity tied to it, but it is what is securing the ledger. And so from where I sit, I think that you're looking at um the kilowatt hour uh replacing like the the dollars per barrel metric over time as a result of the shift, not just for Bitcoin, but also when you look at AI and the the the direction society's going for electrification of the grid, electrical cars.
(11:01) I just think that we're moving in a way to where electricity, which is this prime force, right? It's electricity that fires our neurons or our synapses, right, and cause us to move. It's this prime driver in our in our reality, but it seems like it's tying us closer to um ultimately this thing that so many great thinkers before us have come to, right? like Henry Ford, Thomas Edison, uh Buckminister Fuller, they all saw that money tied to energy was the ultimate way that we could uh get away from uh the tie of uh fiat money printing. In fact, I think it's this week that Elon just tweeted the same thing, right? Yeah. Yeah. Yeah. He made a comment
(11:41) about how basically fiat can be faked and any country that has a fiat currency does. Yeah. and he basically he said something along the lines of and that's why Bitcoin is tied to energy. Yeah. Then how do you think about the the business of Bitcoin mining? That's a very broad question.
(12:09) So, like I can be more specific in terms of if you were, you know, at a green field looking at building a Bitcoin mining business, um, what do you what are the the most important levers to running a profitable Bitcoin mining business? Yeah, let me actually come back to your first question because there's a framing that I don't hear many people talk about that I use and I I actually think it's helpful to think about uh Bitcoin as a manufactur mining as a manufacturing process, right? Manufacturing processes have supply chains and if you look at
(12:45) what that supply chain looks like in our industry, talking about green field, right? So, you've got some raw source of power. Whether you're splitting an atom, you've got water falling, you got wind blowing, you've got uh photons coming from the sun, you've got some raw source of energy, you have to harness and turn that energy into electricity.
(13:03) That's the power generation. And maybe that generation isn't there on site. Maybe you're tying into some high voltage electricity that you need to bring down to a usable form of electricity, but so that's outsourced someplace else from the location of the mine. But ultimately you need that power generation.
(13:22) Uh then you need the physical site where it's going to be and you need to develop that site. Uh and then once it's developed uh then you need the like so going from green field maybe to brownfield then you need brownfield being like basic infrastructure for let's say like colllocation right where you still need containers you still need the the final transformers uh maybe and the racks to put the Bitcoin miners in and then somebody needs to bring the miners in and somebody needs to operate and maintain those and those to me are all different slices of the supply chain and
(13:54) the the output of all of that is Bitcoin that's sent to somebody's wallet, right? Uh and generally whoever owns the rig is who is getting the Bitcoin. You know, this is simplified what I'm saying, but those are kind of the various slices of the supply chain.
(14:12) Um Gideon Pal, do you know Gideon? I don't I've heard the name, but I don't know him by We co-authored a a piece in NAPE, which I think it's the North American Petroleum Expo. I always get the name wrong, so I probably got it wrong there, but we had co-authored a piece. It's a it's an oil and gas publication. He talked about Bitcoin and specifically um why Texas was a hot bed for Bitcoin mining and part of his contribution in the piece referred to this was from 2020 or 2021 possibly 2022 sometime in that time frame that that Bitcoin mining was the most fungeable manufacturing operation that exists with the principal cost being the cost of power. I obviously
(14:56) there's AS6, but in terms of the actual conversion of of power. So interesting that you kind of framed it the same way. Another way that that I've started to think about it is and and maybe this is in relation to how you think about it as as a manufacturing operation is that of all the goods that that could be manufactured, it's closest to its process is completed closest to the source of energy.
(15:23) Like everything else that would be manufactured or refined converts to electrons needs to move somewhere and be further refined to then ultimately reach an M market. But Bitcoin consumes the power right on site and the manufacturing operation is complete. And this is where I want to go into the sites and and how you think about sites because of that relationship does basically it's almost I don't want to say the simplest manufacturing operation but it's just that it's it's the most upstream.
(16:02) How does Bitcoin from an energy system perspective and I'd like to hear in relation to how you think about cheap power in different sites. How does it play into determining what might be an attractive site? And then how do you think how you have you operate on four continents, North America, South America, Europe, and Africa? Africa.
(16:32) How do you so the relationship between Bitcoin mining and energy systems, how it can help solve problems? And then when you think about site selection, what are the principal drivers of how you actually determine this is a good site for SAS? um in relation to an energy system. Yeah, it's it's interesting because um I think first it it makes sense to talk a little bit about SAS and and our slice of the supply chain to explain that because it directly impacts the sites that we look at.
(17:02) So when I looked at the supply chain, I compared it to the supply chain I knew coming from rooftop solar. And one of the things that I knew for another emergent industry, right, which was about 10 years ahead of the Bitcoin mining industry is that managing the customer relationship actually uh was incredibly difficult and there was value there uh and it seemed like it was being underserved in our industry.
(17:28) So that that's where I placed myself and I also took the bet um that and describe that customer relationship in the context of SAS. So the yeah there's a lot of there's a lot of folks that want to get Bitcoin that's wild and min right so KYC free Bitcoin but they don't have cheap electricity at home to be able to do it in a cost-effective means and so therefore there is this business demand for um lowcost energy data centers right that's where the hosting model ultimately springs from is because they're able to have energy at a price that uh a homeowner or somebody in
(18:04) most locations can't. So to put some numbers on it, right, I think the average cost of retail power right now in the US is like 19 cents and you need really sub 7 cents per kilowatt hour to be cost effective in Bitcoin mining. That's a big gap. Very few people in the US can get access to that. So that lack of access spurs the demand for like the traditional hosting business model.
(18:26) But what I saw coming from the rooftop solar industry was and it's sort of contrarian to our industry where a lot of people are saying, "Hey, you need to own as much of the supply chain as you can." Um, what I saw the winning play was in the rooftop solar business was there was in there's companies that tried to do the same, but the companies that focused on one niche and specialized, they were actually the ultimate winners in the long term.
(18:52) And so that's where I tried to focus is cool, let me just try to own the customer relationship and what's not working there. And what I saw not working there was trust. Um, and so I looked at and said, okay, how do we optimize for trust? Um, how do we make sure we align ourselves with our customers? And then this directly impacts how we choose sites because trust is involved with that.
(19:17) So, I see myself actually as kind of a rig custodian, if you will, or an ASIC custodian. Um, because we manage property that our clients own, right? And so, there's three ways that you can make money in that type of a business model. Uh, you can make money selling hardware, you can make money selling electricity, or you can figure out a way to participate with the rewards that are generated. And if you do that, and you tie yourself to only that, then you're suddenly aligned with your client.
(19:40) And so, that's what we did. We said, "Cool, you have to pay the cost or customer of your hardware and your electricity, but we're going to make money only if you uh generate Bitcoin. Uh that way, if we're not su successful, you're not getting what you want and we're not getting paid either.
(20:00) " And so we take 15% of the Bitcoin that's mined, it's paid out by the mining pool, but that's our management fee. Um, and so two, one thing you said, but then another thing I've heard you talk about in the past, you you referred to wild sats. Mhm. But then also the way that you think about it is that the bitcoin mining is the most or is the best way to acquire bitcoin rather than buying on a third party exchange.
(20:30) So just go into a little details of like how you think about you know that concept of wild sats and why in your view acquiring bitcoin via bitcoin mining is the best way to acquire it. Yeah, I think I think it's also helpful to talk about a little bit of history, too. Uh, and I I will explain that, but I think, you know, if you look at how we've acquired Bitcoin historically from 2010 to 2013, most people were actually mining it, right? If you were running Bitcoin on your computer, you were likely also mining it. Uh, and if you talk to anybody that got into Bitcoin during that time frame,
(21:02) you kind of see a romanticism around mining. Like, they think very highly of it. 2013 is when the first AS6 came out and Coinbase also launched, right? So, you had two things that sort of suddenly pushed people into buying instead of mining.
(21:20) The AS6 made it harder to mine yourself and Coinbase made it easier to buy, right? And so, I actually think our timeline shifted at that point and you see most of our industry, most of our most of the Bitcoiners uh buying instead of mining. In fact, if you go to a Bitcoin conference, you usually see very few miners. And if you go to a mining conference, you see very few Bitcoiners.
(21:39) That split actually, I think, has had some downstream consequences. But why I think that Bitcoin uh through mining it is a better acquisition strategy is because you have counterparty risk, right? You're just shifting it from an exchange to somebody that's going to be operating.
(21:57) Like for us, we're the first to bring software as a service and then build the software and then apply it to a data center. So we call that mining as a service but we you still have operational risk that you're betting on with us if you're acquiring it and there's execute or there's exchange based risks right but the they're different set of risks um but the advantage to mining is first of all on an energy cost basis so this is like how much bitcoin do I get for how many dollars of energy like right now in Ethiopia which is our primary offering that energy cost per bitcoin is $50,000 that's substantial discount to buying it on an exchange, right? So, more sats for your dollar on a DCA basis. Now, I'm not
(22:34) talking about the hardware when I say this. That's what I was about to ask. Yeah. So, I'm I'm I'm not trying to handwave that away. That does have a a return and typically that's a two to threeyear like inflection point before you're totally at that DCA price, right? But that's one one reason is people like that energy cost DCA.
(22:58) Uh two, they like that they're wild sats, you know? So they're it's it is cipher punk, right? You're plugging in this hardware, you're obeying the rules of the network, and the network is paying you for that service. Uh and so being able to get the SATs outside of the traditional, you know, surveillance banking system is a prime driver for a lot of our clients. And then the third one which I don't think is talked about nearly enough but I think actually represents an opportunity to bring in more no coiners into our ecosystem is the fact that there's no point of purchase volatility. That single fact I believe keeps people away from Bitcoin in a massive way. It
(23:30) is scary for a lot of people to put money on an exchange to trade it for Bitcoin and they don't feel very confident with Bitcoin yet and then suddenly Bitcoin has a price plunge and they feel stupid, right? Like I think that that I don't want to be stupid for my my investment in Bitcoin keeps people away.
(23:47) But you have a fundamentally different experience. You buy a piece of hardware, we're managing it for you. You're just getting a constant flow of SAS. You don't really think about it. They're just showing up in your wallet. Yeah. So on that, I mean, you h you have the the the purchase risk of, I'd say in in the hardware itself because a Bitcoin mining rig is somewhere like at the top end machine, correct me if I'm wrong, is $5,000 plus, right? So if you were thinking about buying $5,000 worth of Bitcoin, the the price of miners are fairly
(24:22) volatile with the price of Bitcoin. Is that a fair thing to say? Not not as volatile, but I'm saying like if Bitcoin went up 20% and you called Nasich broker, the price isn't what it was a month month ago. No, I I actually I so I think that was true a cycle ago. This cycle I'm not seeing that though.
(24:44) The the rig prices have been pretty consistently steady. What you see is as the new versions come out, those those have a premium and then that premium sort of decays over time and then the next version comes out and then that's the the top the top price unit.
(25:02) But I don't see the price volatility in rigs near as much um these days as I did, you know, four years ago. Yeah. And that that's kind of that's some of the history that I'm thinking of like 2021 Yeah. 2020 21 2022 very volatile price Bitcoin was very volatile as with any business as there's more competition you know Square entering the space with with proto it should trend to the cost to produce rather than the market value kind of swing but but just highlighting for people saying like there is some at time of purchase volley because you're going to buy a piece of hardware or multiple and then have a a a
(25:38) set of SAT stream from there. But I do understand also it puts something more tangible to it and it is a a functional way to to DCA or to to basically average in set it and forget it. What I do want to highlight though and get your view on this that then comes back to to the sites that you select is or at least the way I think about it.
(26:04) The only consistent way to reliably generate a Bitcoin denominator return or to outperform Bitcoin, however you want to think about it, in a commoditized way is Bitcoin mining because there has to be and there is built into the incentive structure of the Bitcoin network, an incentive for miners to secure the network such that a minor could produce Bitcoin at a cost below below the secondary market price that that if that did not exist then there wouldn't be a profit margin for miners. But there is risk inherent to Bitcoin
(26:47) mining. Certain Bitcoin miners will produce above the current secondary market price or on average above the secondary market price because they're inefficient miners. and others, the profitable ones, the ones at the lowest end of the cost curve, will produce below that umbrella. When you're selecting sites and thinking about the energy side of it, what do you guys look for at SAS to ensure that you're on the low end of the cost curve and mining profitably, both kind of in aggregate all in, but also as it relates to to your customers that you you host and manage for. Yeah. So, so really there's one one
(27:35) slight nuance there, right? It's it's our job to provide the opportunity to our clients to mine profitably, right? Not us because we're not the miners. They're the clients are. So, our job is to find those right opportunities and the easiest energy source for us.
(27:56) So, we've got a mandate as part of our brand promise to do uh Bitcoin mining on sources that are at least 20% more carbon-f free than the network. And the reason for that is because there's a lot of those type of opportunities out there. And it helps people that purchase feel good about their purchase so we can bring more people in. You know, it's bragging rights.
(28:14) It doesn't make the decision for people, but it does help a lot of our clients uh feel comfortable and about talking about it with other people. So, it helps our referral business. But in terms of the uh the sites, hydro is the easiest. Uh so we look for excess hydro situations. Um when you say easiest, because I I have I have Well, I have two question. Yeah. When you say easiest, what do you mean by easiest? Well, it's the easiest power source because there's consistent power.
(28:37) It's it's a great base uh power source, right? Because it's a consistent output. It doesn't have the variability of solar and wind right now. So, you can get reliable uptime uh at the data center. So, that makes it easy. So strategically what I've looked at uh for where we choose sites is and this wasn't what I did at first but strategically it's actually more about who we're going to partner with uh than anything.
(29:08) Now we have built great relationships with different data center operators in different jurisdictions and having lived outside the US now you know 10 plus years myself understanding how to navigate like international waters is something that I feel I've got a bit of strength in but we find data center operators ultimately that we can trust because just like we are a custodian for our clients we also have to make sure that where we're going to place them that those data center operators are reliable people and are able to deliver what they're contractually committing themselves to. And that's a long vetting process. Like a typical data center
(29:42) opportunity takes me about 6 months to bring to market. Um, and that's part of, you know, my rooftop solar uh contracting years that I leverage there to totally vet. The diligence is deep, but we have to ultimately trust uh that end operator. And so the energy source is important.
(30:03) uh hydro makes it easy to know that there is uh more reliability and uptime but beyond that it's it's more actually who we're going to partner with than it is even like the energy now geopolitically or geostrategically um we want to be jurisdictionally agnostic right I mean even though the US is a relatively lowrisk place to mine there is still a period of time here this year with the tariffs that caused disruption in supply chains right Um, and I'm not certain how those have totally been worked out.
(30:34) We're not actively importing in the US at this moment, so I can't really comment on that. But you face jurisdictional risk in almost any location. And so for me, part of the strategy has actually been to be spread over multiple continents. And that allows our clients to spread out their fleets across multiple continents as well to diversify that risk. Okay, there's a lot there.
(30:58) What one of the questions is would it be fair to say you're not agnostic to jurisdiction? It's that you you want diversification and you want some degree of regulatory clarity at the jurisdictional level. Right? Then you talked about it being important selecting the partners, the partners that are actually operating the sites in terms of the data centers.
(31:24) But whether or not they're able to achieve a low cost of power, which then you're purchas like, if I'm understanding correctly, you're purchasing power from a a data center operator. Mhm. But some energy economics underly that. Yes. And so one one example that you brought up is hydro.
(31:47) Is one like one of your sites are you comfortable saying one of your sites is a hydro site or multiple? They all are. Oh, they all are. Yeah, they're all hydro sites. All four of them. And in fact, they were specifically so Paraguay and Ethiopia were specifically targeted uh because there's long-term growing hydro opportunity there, right? Like these are these are sort of like across the planet there's a few jurisdictions that seem like they're just going to be around for a very long time in terms of excess hydro power. So having a seat at the
(32:13) table there just a wise thing to do. And you know several publicly traded mining companies are also of that same mindset in making that decision. So um that's Paraguay in Ethiopia. Uh and then Norway was kind of a a chance opportunity uh for us. It was a heat reuse project.
(32:32) It was in the Arctic Circle kind of a boutique project that we felt was in align with our brand and the data center operator. It was a smaller project but the data center operator uh we had trust with and we went with it and that's leading to more opportunities with them. But even the Norway site is is a hydro. Yeah. The primary power source there is hydro.
(32:52) Uh it's a grid powered uh but there's a but the primary um fuel source of the grid or grid there is hydro. Given that given that a a lot of the or all of your sites are in in some way tightly connected to hydro power. Can you describe a little bit about the dynamics in those energy systems that make it attractive to mine Bitcoin, whether it's excess power, but then also how Bitcoin mining helps or should help overall increase utilization, reduce cost of power, how you think about that.
(33:33) Yeah. No, it's so let me talk Paraguay first and then Ethiopia. So Ethiopia is newer. I don't have as much uh context to it yet. still learning. But um Paraguay, you know, the I believe it was an IMF project. In fact, I think they talk about it in in uh the what's it the about the economic hitman book. Forgetting the name of it.
(33:58) Anyway, uh IMF project, right? This massive dam built in the 70s. It's it's 14 gigawatts. Uh but the way it was developed is it goes across a river that's the border between Brazil and Paraguay, right? And so the IMF helped develop this. I believe on IMF uh and there's 14 gawatts 7 gawatt each. Well, Paraguay's total consumption uh has historically been under 3 gawatt, right? So being under 3 gawatt, what did they do with the rest? Well, the way the contract has been developed uh with the IMF, they they've been selling it at a loss uh to Brazil, right? So below the cost of production. So it's been a net drag on the economy. So Bitcoin miners
(34:35) showing up there helping to repatriate that electricity is actually an uplift on the entire GDP of the country. So not only that, but you know like we're operating on a site that's 100 megawatt site. It's built a massive substation. There may come a point where you know the competitiveness of the network makes it so this isn't the place that that a person can mine profitably but that infrastructure is still going to be there, right? So that's going to leave behind um the opportunity for more manufacturing in that area. Heavy industry can be done there now. And that
(35:10) didn't exist before. So there's these high tension lines, right? The the uh those are the big massive uh lines that you see in those big steel structures, right? And those high tension lines are across the country, but you need to bring it down to usable electricity. And that's what Bitcoin miners are doing there in in uh Paraguay, right? Right.
(35:28) So there's all this infrastructure, there's jobs that are created uh bringing uh taking a a drag on the GDP and turning it into a positive on the GDP. So politicians like it. Uh the unfortunate part is sometimes politicians in developing nations like it a little too much and try to squeeze the golden goose.
(35:47) Um and so we've seen a bit of that too. But that's where the industry is organizing and pushing back and you know there'll be a stasis there that's reached because they don't want to do is kill that golden goose. And and in fact, you know, talking about Ethiopia for instance, like that's what I ultimately realized about Ethiopia as well is there's a similar like fundamental dynamic that means Bitcoin mining is going to be around for the long term there.
(36:12) And that's that they need also have a a desperate need for dollars to service IMF debt that they have. And last year they brought in a quarter billion dollars, nearly a quart billion dollars. And they don't have another way, another export other than Bitcoin, uh Bitcoin mining. That power effectively would not be used. Yeah, exactly. Exactly. Um, and so there are some frictions with again a developing nation.
(36:36) They over oversold the the the power contracts and then there's too much demand on the grid as the grid has been ramping up and so there's been some friction there politically as a result and there's been a backlash. But that has also led to a situation where they've chosen winners and losers.
(36:53) And it was the perfect opportunity right at that inflection point for us to come in sort of buy the blood in the street so to speak uh and and take a seat at the table because there's some leaked things about the EP which is the the governing authority for the utility there. Uh and they're taken out of context and it it it put a negative light on it.
(37:13) But Ethiopia itself is fundamentally desperate for those dollars and they're going to keep miners around. Uh especially the ones that they've sort of chosen are the winners and that's who we're partnering with. And this is hydro is a source of power that I'm I'm less familiar with. But if if there's less if there's a certain capacity and there's less demand, how does that actually affect the operation of the the hydro facilities? Is it able to ramp down and up? um similar to like a natural gas peaker plant.
(37:39) Yeah. So this is this is getting a bit out of my depth as well, but there's several. So usually a dam has several power generators. It's not one. So if you go down to the Atapu dam, which is what we were just talking about, the 14 gawatt dam in Paraguay, like there's seven different 2 gawatt generators on that, right? So you can effectively, you know, cut the water flow to each of those generators and take off 2 gawatts at a time.
(38:04) Um, but as far as ramping up and down uh past that, like water flows is the other one uh that can be impacted. So, for instance, we're on a fairly small um drainage in Wisconsin and the water flow does have a seasonality to it. You know, this is actually the worst time of year for us with mining up there.
(38:26) Um do you guys basically have to throttle or like turn up curtail? Yeah, there's just simply not enough power uh to keep the mine going. And yeah, there's been other things like, you know, a beaver knocks down. There's four different uh individual dams um that uh feed together with a single line and then route out to the utility through a substation and we mine on that last dam that has the the substation.
(38:46) Um but a beaver came and knocked over uh one of the lines this last week. So we had a force majour event and we're down for about a week while they got that repaired. But, you know, I mean, those are the type of things, as funny as it like the story is, like that when people think about Bitcoin mining, that don't do it. And I'm I'm one of those people.
(39:07) But I, as I get more and more educated, they think it's plugging in a a box to a power source. But in the real world, there's just a lot of things that can go wrong. And there's forecastable things that that can go wrong, but probably never thought about a beaver screwing up a dam and then that affecting your Bitcoin mining and having a force measure in a contract. Yeah. No, absolutely not.
(39:32) And I think that's actually something I'm really passionate about because mining is where reality hits Bitcoin, right? And I think I would love to take every single person that's in Bitcoin to a big mining operation to just have the visceral experience of all this electricity being harnessed to mine Bitcoin because it takes it from this abstract thing to actually something concrete and real.
(39:56) And to me, that's that's the fact that Bitcoin is tied to the laws of physics is the fundamental thing that actually makes it a viable form of money. Without that, it just would be another another abstract crypto. Yeah. I mean, it's a well and all those other abstract cryptos are snake oil and going to zero. Um, but the the fact you bring that up and I do recommend it for anybody that has the opportunity.
(40:20) Any Bitcoiner that hasn't actually gone to a Bitcoin mine needs to go to a Bitcoin mine. But also when I went I had seen a number of mines, but one of the things that I had the benefit of seeing a year or two ago, I went to a site here in Waco, which is about an hour north, and actually got to see the miner interacting in real time with the power company on a ramp up schedule.
(40:41) So basically coordinating it, then seeing on their digital dashboard as the miners coming up, seeing kind of the the the power supply come up as the minor were coming up and and having a very visceral connection with how big of an asset Bitcoin and Bitcoin miners are to a grid, particularly in the case that you're that you're on a grid, but that you couldn't really appreciate that unless you you know, it's one thing to say it, it's another thing to be in a facility as it happens and then realize that functionally speaking there's there's no other source of power or sorry no other source of demand for
(41:21) power that could be as responsive that could be as flexible. People talk about we don't need to get into the details but people talk about how AI could be more f you know could could be flex more flexible than it is today but nothing will be as flexible as Bitcoin. because it's purely economic and because that manufacturing ends at the point of the hash the electron being converted into a computer function right there. There's no end customer beyond that. Yeah, I don't see how how there theoretically could be anything that is
(41:56) more disruptible than Bitcoin mining. Um, but I you actually are touching on something that I I also feel very passionate about, which is that I I think this experience should be had by more Bitcoiners, not just necessarily going to that site and seeing that center of command and that ramp up, but just by mining.
(42:19) Like I I I strongly believe that we've seated the network largely to uh fiat hashers is how I think about them. people that are on the network that are hashing and using Bitcoin as a proxy to actually get more dollars. Like I think most of the publicly traded companies are in that in that camp. Their dollars are expecting a dollar-based return.
(42:36) So functionally their Bitcoin has to be converted into dollars. And as a result, I think most of these mining centralization worries are downstream of the fact that in essence we've chosen to buy instead of mine. And when you mine, you have a fundamentally different experience.
(42:55) you get you're watching it and you sort of get get a visceral sense of the network and what's going on what's going on with blocks and and it brings you closer and I think it builds our social layer uh to protect the network in a much more substantive way as well. So I I would love to see more more Bitcoiners I mean forget if it's SAZ mining that you choose to do it through but just getting Bedaxes like seeing the Bedax movement take off has been a wonderful thing for me to see.
(43:18) I didn't expect it because if you look at the dollars per terahash, you know, how expensive uh that compute is, like to me, I was just like, oh no, this isn't going to really take off. But I totally underestimated the the the power of just having something physical that people could actually plug in, get educated on, you know, I don't even think the lottery ticket is is well, the lottery ticket, I think, is somewhat motivational, but I think it's it's mainly driven by just a sense of I want to touch something.
(43:43) Um yeah, make it more tangible. I was looking around. I think we have a bit in here. I think it might be right there, but it's not running. We have a we have a bit running or at least one or two out there and I I do think I was originally when I saw Bitax, I was like, "Ah, this is kind of a LAR.
(44:02) " But then I was I I also co-run the Houston Bitcoin meet up and we had Nolan from Club Source which is Marshall Long's Bitax company and he just described it as a way to educate people on mining and then that connected of like oh wow yeah you can literally with a Bitax do everything that a mega miner is doing from a from a protocol level and there really isn't a comparable operation that you could do at that small of a scale.
(44:33) That is, you know, again, managing a large power site is obviously very different than plugging something into a wall. But I I found that to be, you know, I connected with it when I was actually, you know, seeing one in person and hearing someone that works on it talk about it. Um I and I do want to get into the discussion of minor centralization.
(44:54) The one thing I want to ask before that, you made a comment about how the average price of power in the United States is like 19 cents and to be profitable or maybe break even for a Bitcoin miner is somewhere around 7 cents. A lot of, you know, every minor has a different break even point. So there's not like one break even for the network.
(45:14) But there is something inherent to that that that is if there's a higher and better use of power. or someone's willing to pay more for the power that the owner of that power is going to sell it to to the highest bidder and that Bitcoin mining necessarily has to seek out the cheapest cost of power because virtually everything else in terms of whether it's power to power a home or a hospital or uh a foundry to to manufacture chips or to to manufacture cars. there's going those are all higher and better uses.
(45:50) So really it does drive a search for the lowest cost power and when there is and becomes a higher and better use that that power will become available if someone's willing to pay more. When you think about your power contracts, are you typically trying to lock in a fixed rate over a uh a certain duration or having flexibility to sell power back? How do you think about that when you're interacting with the data center companies? Yeah. So, this is a subjective uh thing, but you know, you look at the minimum
(46:28) useful life of a mining rig and and the industry is sort of settled on three years as that minimum, right? Where maybe it's five in reality. And useful life isn't that your mining rig's dead in three years. It's just that maybe it's not competitive, right? That's that's what I I think of more. and looking at profitable.
(46:45) Yeah, that's what I mean. Yeah, it's the same same thing. Um, but if you look at it, you know, at what point do I contract this power and could that happen, right? To where I'm no longer offering uh a valuable price point to clients. And so the number I've come up with is three years to lock in and after that leave it open to renegotiate.
(47:06) And I think, you know, to your point, if lock in the power contract to basically Yeah. fixed price power for three years. Yeah. Yeah. And that's that's what we typically do. There's also just a cost to the setup and the transaction on our side to integrate um our efforts with theirs on the ground in that data center.
(47:23) And so we want to make sure that that cost is sort of recovered in a fair amount of time. So doing that for too short a duration wouldn't wouldn't be justifiable either. But you're talking about that higher uh value that somebody's going to pay for the power if it's not Bitcoin miners.
(47:41) And I think we're seeing that right now with AI, right? I think there's a competitiveness that's that's going on for the power the Bitcoin miners have and that's why you see all the many publicly traded mining companies pivoting that direction is because they have these lowcost power contracts and here the AI companies are looking for power and so they're willing to pay a premium so it's playing out right now in real time in the US and um and then when you think about your business which you're you're operating these sites So you're you're identifying the the sites that you think will deliver
(48:15) cost competitive price of power. You're also selecting machines or maybe giving a few different choices to your customer. So while they're the actual ones ultimately owning the miners and mining, you are functionally managing all the inputs of the cost if that's fair. Yeah. Um, traditionally people have referred to your business as as a hosting business you think about it a little bit differently.
(48:48) Can maybe explain that, but then also in terms of how you think about the hosting business and what SAS's approach is specifically. But a lot of people look at, oh, if I'm aggregating a bunch of individuals and then having customer service costs, that might not be cost competitive, but a lot of these massive miners that people think would be are not like, you know, Marathon mines Bitcoin at a loss.
(49:19) So if you could how do you how do you think about I you know if you if if you are hosting people how do you think about it relative to the history of people that have that have hosted in some in some ways had a checkered past but then why in your mind it's the right alignment in terms of who is actually owning the infrastructure and getting the benefit of it and being more decentralized more individualbased versus say a mega mine that's a public company and then the way that you're accessing mining is through owning a security. Yeah. So that's that's a there's a lot there to impact but let me let me take
(50:00) it from a philosophical level approaching uh this industry and how to how to how to how to come in. I I think we found a sweet spot and it tends to be reflecting in our demand and and the growth as well. So it I I'm I'm compelled to believe the market is validating it right now.
(50:18) And so the sweet spot we actually built software for a year before we came to market and then we found the data center we were going to attach that software to. And the whole intention behind our approach was hey there's a winning playbook that we can look to in web 2.0. It's called software as a service. You know uh Uber applied it to the taxi industry.
(50:36) Airbnb applied it to the home share industry. you know, Shopify applied it to the, you know, uh, small store, uh, small retail store. So, there's all these industries where m where software as a service has applied been applied to successfully. And the argument was, why not mining? Uh, so that was our entire approach to begin with.
(50:56) And then taking it from that and peeling the onion back further, it was like, okay, those three different levers, how are we going to make money? Well, if we only make money and we will get audited financials here and and get those out to the public at some point. We're not there at that at that stage yet.
(51:13) But, you know, I can look at my financial and see that my my inputs and outputs for the electricity and hardware are equally matched. So, the only thing that's that's is driving the growth of our business is that management fee, which means I don't make you Bitcoin. Uh, then I'm not getting paid, right? And so, that alignment combined with the ease of use of a software as a service product is, you know, kind of the the secret niche that not even secret, but the niche that we decided to to land on and put our chips on.
(51:38) Now as far as um ask the rest of the question that you so building on the question of like how you know you just explained your approach software as a service building that software first figuring out what you needed to then connect it to a data center. But in terms of a business model and ultimately financing the underlying hardware, you're hosting miners that are owned by individuals or businesses potentially.
(52:10) Discuss in your mind why the incentives and cost structure work for hosting maybe in a way that's better than might be perceived for, you know, a large public company mining Bitcoin. Yeah, I I think first of all, so it's it's hard to tell just how big the hosting market is, but you know, you know, even MEA, right, has traditionally done hosting uh with their business model.
(52:37) There's so there's a lot of people that have separated those two and in some ways it's it's natural um if you think about it, the people operating the mining rigs might not necessarily need to own the mining rigs. Like maybe that's just a form of specialization that's naturally coming up.
(52:56) But the best data I've been able to find is about 55% of the network right now is uh by hosted mining um is where the mining comes from. And now I don't know how valid that is. That's an LLM driven data point and it's hard to find good data on that particular point. Um but if I look at that that is uh ripe for dis disruption. uh because if most of that is a publicly traded mining companies, they have all this corporate governance um necessary to be publicly traded that is a cost that I can compete against as a privately held company.
(53:29) And in fact, I was just running data uh just this morning actually to kind of look what is their cost of Bitcoin. And I did a very simplistic way, right? So, I just said, "Hey, Grock, go back and take on all the publicly traded companies, add up all their expenses over the last three years, add up all their Bitcoin that they've generated, and divide.
(53:48) " And that average price per Bitcoin was $166,000. So, no wonder why they're running at a loss, right? Like their expenses are exceeding the cost of actual Bitcoin out there. Now, I know that's not a refined approach. that is a very rough sawed approach to getting to the right number. But when you look at it um and uh at my cost structure, so this is SAS mining, our management fee.
(54:12) What does it cost for me to get a bitcoin? And this year we're running at about like 80 $80,000 per bitcoin, right? So we represent if we I can continue to grow and scale that, which is different. It's just a 15% management fee that is driving my business model.
(54:31) But if I can continue to scale that then that represents you know fundamentally a disruptive force to those those approaches if the entire goal is ultimately to get the lowest cost Bitcoin right and I guess another way to think about it is if you are self-cing Bitcoin you hold a hardware you know you have a hardware wallet or you use a multi-IG versus potentially holding it at um I won't say the name but using River Love River great service but it's a custodian or you could get another derivative away from that which is holding it you know with it or not holding it at all but owning an ETF to have some exposure to it that
(55:11) I think there's a a bias in and and likely a an incorrect frame that would think hey at large scale of somebody who might have a 500 megawatt site running the site themselves would naturally be able to be more cost competitive than hosting. How many like on the order of magnitude, how many customers do you guys have? Oh, we've got a bit over 400 at this point. Okay.
(55:44) Um then managing all the communications with them, but if you're a large minor, you're having to manage investors and someone like Riot certainly has more than 400. So people think of like that as adding cost to a to a a business that and it's really just a shift of cost.
(56:02) And when I was looking at Marathon, they they mine like their direct mining costs are 125,000 a coin in the last quarter when when the price of Bitcoin that they mined was was 98,000. And that does not include all of their overhead. that is those are those are direct mining costs the depreciation of the machines the power costs but things specifically to the operation of mining and then when you layer in all the GNA costs it would be easy to see how you know using one example that would go from 125,000 to 150 to 175,000 whatever that estimate is. So even though it's
(56:36) yeah not, you know, a hard number, it's also it's also reasonable. But that comparing it to if you actually own the rig itself as a not you but as someone that you're operating for, it's more analogous to owning Bitcoin non-custodially than um than mining through like a public company or owning a security. You're not actually owning the minor.
(57:09) So, it would actually make more sense that if you were to own them directly, that that would be an incentive structure that would align you, the operator, versus the person who's actually mining, if that makes sense. I'm I'm not sure that it totally does, but I think I want to pick apart one thing that that that you're saying here that um is I think important, which is ultimately what is my expense for acquiring all these customers? It's a different way of going about it, right? It's just comparing apples and and oranges. And so I've got a cost to acquire customers and I've got a cost to
(57:49) manage those. But that again is back to where the fundamental thesis is. If I build the right software, I'm not having to communicate all the time with all the customers. I'm transparently providing the information that they need so that they're their needs are met. And then it becomes lightweight.
(58:08) And sort of as proof of that, you know, we started off this business model January 2023 operationally. Took 2022 to build the software, but 2023 is when it got operational. We had 11 staff members. Here we are 400 customers later and I've got 13 staff members, right? Like that's the power of of building software to automate this. And that to me is direct evidence of how we can keep those costs low over time uh for the end customer to continue to get a valuable uh proposition. Yeah, that makes sense. And I I was just saying that I think some of some of the hangup that people have when they think
(58:41) about the umbrella of a Bitcoin miner that that hosts others and specifically hosts individuals is the perceived and and potentially incorrect perception of the incumbrance of a of a customer service business. But what you're saying is I see that you solve a lot of that via software. Yeah.
(59:09) So that there it's not somebody, you know, constantly managing phones of customer issues, the more pain points that you can eliminate and automate that that it's lower. And I was just making the point that if you looked at a public company, they might not have that that was assume that they were mining themselves. They might not have the customers and have to manage those, but they have other costs.
(59:34) They have to manage investors and regulators and filing costs. And so it even though it might not be intuitive to people that that hosting does create the incentives to drive the cost down the most, it actually likely does given the direct incentive that you're you're owning the rigs themselves and cutting out a lot of general and administrative costs that very large companies have to necessarily deal with.
(59:58) Yeah, that's right. And I think I inadvertently actually answered your question then. So yeah, you did. Um, going from the the business and then one one other point I just want to clarify for for folks that might not be as familiar with the hosted mining concept, the 400 customers that you use.
(1:00:21) You have four sites on four different continents. The individuals own basically rack space and miners in individual facilities. They're not having some exposure to four different sites unless they own equipment in four different sites. And as you bring new sites online, you basically have capacity.
(1:00:47) And so when you're selling that capacity, it is tied to a specific site. So someone can know what they're buying and where and what the cost structure is for the site itself. Is that correct? That is correct. And I think to just uh go go one level deeper on it, you know, we started from the very beginning uh and I received a lot of push back from my developers for doing this.
(1:01:12) But I wanted to tie our software down to the smallest possible unit which is a single mining rig. And so we've built our entire platform uh based on ownership of a single mining rig. That's the discrete unit. So serial numbers are tied to every single mining rig. So it's your mining rig.
(1:01:28) Uh and you own the outcome of that, right? So if it goes out for maintenance, of course, because of the alignment of incentives, I want to resolve that for you as quickly as possible because I'm not making money either. Uh but we ultimately make sure that the experience that you are having is tied to the ownership of the hardware that you own. And then while you're you have mining sites that are warehoused and operated within larger data center sites.
(1:01:55) Do are there SAS team members that are actually onsite or at least geographically located or do you have contractors? How like if there's downtime repairs, how does that get managed? Yeah, so that's all managed up front with the contract negotiation. So our data center operators are managing all of that.
(1:02:19) So in the same way that software as a service and all those other industries that I mentioned before, you know, Uber doesn't own the cars or the car drivers, you know, they contract that. Um, and so we've arranged the same, but the the way that we go about contracting that is pretty specific. Uh, there's a long process that we go through to vet everything out.
(1:02:38) my philosophy with contracting and I I actually got lucky and was able to work under somebody that taught contract law uh in my solar career, but the way that I approach contracting is that we're going into a marriage situation, not a transaction here, and I want to go through all the tough conflict and negotiation upfront. That way, when problems happen, we've already discussed how we're going to handle them.
(1:02:54) Um, and so we negotiate in uh how repairs are going to be handled and term times and penalties. Uh same with uh downtime. Uh we negotiate to our data center operators and they commit to delivering they're actually doing the repairs on the the mining equipment themselves. So they're they're some some there's there's a split in repairs, right? Like popping off fans, uh replacing power supplies, control boards. Those are all on-site typical easy things to do.
(1:03:20) Make sure that they have bench parts and pay for those ahead of time so that they can make swaps quickly and and get them up. But then if there's hashboard level repairs, oftentimes those are sent out to, you know, most of our equipment right now is is coming in from Bitmain.
(1:03:38) So sent out to the Bitmain uh repair center because they're under warranty and and our prices actually include uh warranty costs um as well. So we've kind we fix uh we just cover warranty costs. We've taken a statistical average said, "Hey, look, let's look at our fleet year-over-year and see how much it costs and let's just assume that as part of our service fees.
(1:03:54) That way we don't have to nickel and dime our clients for it. So we backs stop that up to $150 a year uh in case there's some catastrophic failure that happens and takes out a bunch of our fleet and we have to tell clients, hey, look, we can't afford to to cover you here, but we've used that once in our three years of operations.
(1:04:12) And so your customers, what's the typical profile? Yeah, it's that is a good question. I'm still trying to get that. So because we don't require any uh KYC information, right? like we get all sorts of unusual names and phone numbers and emails. Uh so I what we can tell is that there's a few different uh types of customers.
(1:04:33) Um we find a lot of our customers are actually serviceoriented. Uh so in in various service industries whether that's military, police, firefighter, nurses but generally bitcoiners like people that 100%. We don't actually we intentionally have focused the value proposition. Actually this is important thing to share.
(1:04:55) Um, so if you look at Bitcoin mining, whether people realize it consciously or not, they have an implicit bias. And that bias is defined by what they consider money to be. And the the client base breaks in two at the point of am I looking for a fiat-based return or am I looking at acquiring Bitcoin? And that distinction on what your money is decides who you're going to how you're actually going to be as a customer.
(1:05:20) So we realized pretty early on that people that were trying to acquire fiat, they wound up frequently just being bad customers for us. So we said, "No, no, no. We're going to get rid of this." So we only focus on our messaging and everything on people that are focused on acquiring more Bitcoin. And when you look at it from that standpoint, it's what does it cost for you to acquire this Bitcoin versus buying it.
(1:05:37) And so we've baked that down to the energy cost per Bitcoin because that's very simple to understand. The hardware cost, layering that in gets a little bit more abstract. Uh because to your point, hardware prices do change and most people, you know, you buy your mining rig to get on the ride and you sell your mining rig to get off the ride and the price points of both of those change. So like doing an analysis on that is pretty pretty tricky.
(1:06:00) But in general, what we see from our customers is over a 1 to twoyear time frame, most of them are seeing that the rewards they've received have more than offset their uh their purchase of that hardware. That's that's historically looking what we've what we've seen. Yeah, we actually do the same at uh at Zaprite is just really focusing on the Bitcoiners because work on the payment side and one and one thing I I want to touch on briefly, but there's other things specific your business I want to spend more time on is
(1:06:31) just that if we built a product not for Bitcoiners specifically in Bitcoin payments, we'd build the wrong product. If we were building people that just wanted to get fiat, that that's not actually the signal. And then the derivative of that is that the quality of the people that you interact with and why they're there and how they're thinking about it also then is just a lot more alignment both in terms of product feedback, in terms of the value that they derive, how they approach it. So, I I do think it's a it
(1:07:07) it might not seem night and day, but it really is if you if you flip the frame of mining for fiat versus producing Bitcoin, converting power to Bitcoin and not thinking about it through that lens and and having that permeate through your business, but then also through a customer base and then how there are positive benefits in terms of how those customers become advocates. Um, we've found it to be really important.
(1:07:35) You guys are a customer of ours and we're appreciative of you. Um, because you open up a range of payments, but also your customer segment is a a clear progression of who our customers are and I think it's why it works so well. In terms of where I want to go next though is is something you brought up which was centralization.
(1:08:00) Two questions. Why you think the hosted model is important to decentralization of hash but then also how you think about pool centralization from the SAS side but then also derivatively to in terms of what you make available to your customers. Yeah.
(1:08:30) So um I want to address something about Zaprite because this was a fundamental lesson I learned in the first year of operating uh SAS mining. It was Bitcoiners made better customers but then lean into Bitcoin companies because I truly believe that you know I live by the quote that Buckminister Fuller said which is you don't fight the existing system you just build a better system and people will move into it.
(1:08:53) And I believe that's what we're doing with Bitcoin is we're building this parallel system. And the more we lean into bit other Bitcoin companies, Bitcoiners, uh the more that the hubs and spokes of that network on the social layer come together and more ancillary benefits compound 100%. Um so that was one of the decisions that made it easy to choose Zapright for our payment orchestration needs.
(1:09:17) But then as far as the um as far as the decentralization side of things, you know, I think decentralizing ownership of mining rigs is what we are doing. So there's there's a second order consequence that I want to get to. But if you think about a data center that has 50 100 people in it, uh, or 50 to 100 customers that are that own mining rigs in that data center, well, if a regulator comes and knocks on my door, sure.
(1:09:48) Um, I and tells me, hey, you have to shut down. Well, I have all these contracts with the people that have property there. Mr. Regulator, you need to go talk to these other people and and make sure it's okay. Like, I'm, you know, I have a contract with them, you know? So that's a that's a little bit of a friction point, but I think the more important point is actually building the social layer of Bitcoiners that are mining because no there's no more protective social uh part of our fabric than the Bitcoin miners. You know, Bitcoiners that are mining, they have a tangible uh skin in
(1:10:19) the game uh relationship with their Bitcoin acquisition that you just don't have if you're buying. And I think that that's a very positive force that unfortunately because there's not been enough of it. I actually think most of our centralization issues that have occurred have occurred downstream of that.
(1:10:36) Right? Can you imagine if if if the majority of the Bitcoiners on the network or if the majority of the hash rate on the network was coming from Bitcoiners looking to acquire Bitcoin, I don't think that we'd have the mining centralization, the mining pool centralization issue that we have today. We just wouldn't have allowed that to occur. I think that's accurate.
(1:10:53) Um, nor do I think like the opera turn debate that's going on right now, it wouldn't have even come up. So, I think it's actually I agree with that as well. I I think if you look at at the core issue behind mining centralization, it's simply because we've seated the network to others instead of the Bitcoin community owning the network.
(1:11:17) And I think we can fix that through this mining as a service approach that we're taking as well as Bedaxis. I mean the the hash rate heating, you know, there's a there's a litany of different offake you mean? Yeah. No, the the hash rate heaters. So like the inhome heaters like Oh, that's what I meant. Like kind of like use or heat off is not the right term.
(1:11:33) Um basically using the heat to make some use of it that then reduces the cost to make it economically attractive or Yeah, exactly. I mean, here's the thing. If you there's so many people that have plug-in electric heaters, why wouldn't you earn sats on the side for that? you know, like it's just that simple for me, right? Like, and that that could actually become a big big thing. Like I lived in Portugal for six years and most people do not have central heating.
(1:11:56) They plug in these little heaters there, right? Like that is a big core uh heating element for several months uh of the year. And so swapping those out for people being able to put some Bitcoin in their pocket, I think, is just uh trivial, but that will add a a substantial amount of hash rate.
(1:12:14) The point being though that the more that we get the mining into the hands of the people whether it's through you know mining as a service hash rate heater bid access the more that the network itself will become protected and the less of these centralization issues that we'll see and in the mining sector and so I agree with that that mining centralization likely maybe inevitably is a function of the fact that those that control the hash rate are not as minded to um I don't want to say I don't even secure the network there's not a Bitcoin minded that they they see it as a fiat business model or a way to make fiat
(1:13:01) and if you do that you're going to think about every decision you could possibly make whether it's working with a centralized pool or looking at pool centralization and whether whether you ascribe it to be a problem to you to your own self-interest not to the network but saying how is this point of centralization a risk to me the if you were a Bitcoiner or if you're a Bitcoiner running even you know because a Bitcoiner could run a large mega mine that's a public company if you look out at the landscape you can identify who the CEOs are and determine
(1:13:33) that they aren't you know mostly I would say there are exceptions to that you know um I particularly you just I I think very highly of someone like Jason Les, you know, at Riot. Um, but by and large, you go public company to public company and not say that there aren't others, but that you can see how they think about Bitcoin.
(1:14:00) And point being that if that if you're not looking at it through the Bitcoin lens and it's not something altruistic for the network, it's it's risk yourself. that if more people looked at risk the way that Bitcoiners typically do more adversarily, they'd look at pool centralization differently and they'd help be the solution to that.
(1:14:19) And I am confident though that that will evolve in a positive way is but but part of the solution is Bitcoiners, you know, participating in ownership of the hash rate. You guys are hosting miners on behalf of others. you recently made it available for people that mine with SAS to point their hash rate um to oceans pool. Talk a little bit about that.
(1:14:50) And you also uh or SAS found a block or one of the SAS miners found a block. So just yeah talk about in relation specifically to SAS how you think about risk of pool centralization but then how you how you think about that space evolving and derisk it for the people that you host for. Yeah.
(1:15:14) So I think first of all mining pool centralization just to touch on that for a minute and give give uh listeners some stats if they're not aware of this you know ant pool and foundry are the the primary two. you add them up and last I looked it was like 47% of the network right so two throats to choke and you would be able to double spend uh in essence right or create censorship risks yeah create censorship risk but the that threat level is too high and then there's a bunch of AMP pool proxies on top of that so well and but one one of the things that not not censorship of the of like the
(1:15:44) network and the network rules but potentially of you as a as a minor yeah exactly they could say hey you're not allowed to get your blocks out you know like it's it's it's it's It's a serious risk and it's being addressed, right? Um it's not trivial to bootstrap a mining pool, but Ocean has effectively done that and we know that that is not part of those those two, right? Uh it was about 18 months in the making and I'm I'm proud of the fact that we uh were the first to bring uh an ocean integration to Marcus. So doing a revenue share model
(1:16:14) in the sense of the revare. Okay. Yeah. Because our revshare model is unique. We're the only ones that I've seen in the space that have chosen to tie their fate to the output of their work, which is the the actually helping people produce Bitcoin. Right? So, as a result of that, there is a consequence that we have to integrate with the mining pool because we have to instruct the mining pool to split the block reward when it's being paid out. So, that's how we receive our management fee. So, our revenues are tied to the
(1:16:42) that mining pool integration. Ocean didn't have a good solution for us when we first approached them 18 months ago and so we worked with them for a while. We had to go through legal to make sure that the approach they were going to take was going to work for us but they ultimately had to code a solution that we were able to then integrate.
(1:16:59) Is that because Ocean Pays out directly from the Coinbase or something else? It was it more of the the software side of the pool operation? It was more the software side of the pool operation uh and setting up how to split that. So they had to build something specific in datim for us to to work. Um and once that was built, our developers could work on our side to integrate um our offering with theirs and then brought it to market.
(1:17:24) And now it's as a simple choice with a drop- down menu um on per on a per data center um level. However many mining rigs you have in that data center, you can switch between Lux or an ocean. So quite a simple uh approach to shifting pools. Um, and yeah, we found our first block last week or two weeks ago now.
(1:17:48) Uh, and that was pretty momentous for us because how much time and effort went into getting to that point and I expect we'll see several more over the the coming months. But yeah, it's exciting. One thing that I realize is you you start seeing um individual miners names coming through on whether it's meool space or other block explorers that that makes a difference you know where it's like in certain times you see foundry foundry foundry or antpool antpool ampool ampool foundry antpool but then seeing s mining come across seeing barefoot mining come across seeing um peak mining seeing I think uh
(1:18:26) nice hash you know like it it impacts the culture you know so maybe if just the the way that cuz the other thing I realized through that was that a lot of miners will mine their entire lives and never know whether they actually hit a block or not is that I mean if they're if they're working in that model of the the centralized just mega pool model that that's functionally true and I do think that there is something visceral or infectious about like knowing that your work was actually the the work that solved the block. Was that how you like
(1:19:09) you and your team thought about it and then down I mean not even downstream because it was ultimately tied to a an individual rig owned by an individual minor. Did you guys share with that person who who it actually was? Yeah, we did. We did. Uh, and you know, I didn't I don't think I tied uh the cultural impact uh to to mining that block.
(1:19:31) I think you're right, but I I hadn't actually thought about it until just this moment. When I when I say that, I mean like it it drives others to want that. Yeah. I think it it creates something to aspire to, right? It's like, hey, cool. SAS Mining could do it. I can do it. you know, um, and so we did ask Luxor when we first did the integration, hey, can we identify if one of our mining rigs found a block? No.
(1:19:55) And so, yeah, I'm certain with the amount of hash rate we had, statistically, we had to have discovered blocks. We don't know. Uh, so there is something uh impactful. I would say it's analogous to the impact of uh when our clients mine their first Bitcoin and they receive it in their wallet. There's sort of a a disbelief until that occurs, but it's something similar.
(1:20:13) I think our company went through there's sort of a disbelief that we actually were mining until wow that's our block that we found and we shared it with that the client whose mining rig uh was behind that particular hash that found the block and he was of course all excited but yeah it was it was cool for sure. Yeah. No, I mean when I saw that I I was genuinely excited.
(1:20:32) So yeah, we were all we had a group of us just randomly. It just was appropriate time. You know, we're remote only team, but there's about six of us on a call and we were like a lot of fist bumps and yeah, we were all all jacked up. It was fun. Nice.
(1:20:49) Well, I'm not sure if you're familiar with the the time chain calendar app, but like you can set notifications on that that when a when a certain pool finds a block, you can get push notifications. So, it'd be fun if you may maybe I do in, you know, sometime in the re or near future. go ahead and get something set up. But just like whether it was you and your team or people that mine with you to have basically have an alert set that's like, you know, shoot me a push notification when SAS finds a block or if you're part of another mining team like when when we find a blog.
(1:21:18) I do think that there's something impactful to that that will drive a um a movement towards decentralization which I think will be positive. Yeah, I I haven't thought about those ideas uh until now, but I I agree with you.
(1:21:38) there's like a Pavlavian response that you're sort of invoking by doing that because it's like hey look this mining company generated all these rewards like you can do that too you know so I think back to the aspirational point like I I think it helps to encourage that behavior if there's more apps that are notifying when these smaller miners like us help help to find the blocks yeah I mean I just think about when I see that that somebody at Riot they want to see that they're like wait SAZ is Saz can do that we should be able to do that. That's true.
(1:22:06) You know, um not just right, I I say right because I I think finally of of them and the team, but you know, any large scale minor like driving that say, hey, maybe we should be doing this as well. Um so I think it's great and I think I do think that the economic incentives will dictate decentralization, but it actually has to be a a concerted effort.
(1:22:24) And so I guess on your side, the concerted effort was working with Ocean to create choice for people that mine with you because you had a sense that that was important to your customer base and and you've just now released that like in the last month or so. Yeah. Yeah. Yeah. And and and to be fair, it was driven by customer demand, right? We listened to our customers and and just repeatedly they were asking.
(1:22:48) I mean the same way like right now we're getting a similar request for for proton uh proto rigs right uh and I was going to ask about that earlier but we're we're running uh over on that segment so um yeah but there's no there's no uh opportunity to acquire them and so um we are you know we're not able to service that demand right now but similarly I think that coming out of the shoot like the those rigs are going to have a lot of a lot of demand and I'm curious about the fleet software as well like that's not on the market yet either, but that's also quite a big opportunity cuz the monitoring solution and how we manage
(1:23:23) all that is is quite Yeah, it's a it's a sophisticated layer. Well, I think it's also a testament because that's that is the other side of the the centralization is the the hardware manufacturing. And I think it's a testament to the fact that if there are more people that are actually Bitcoiners or Bitcoinminded, thinking about it as without having to define what a Bitcoiner is, somebody that is converting power into Bitcoin and their goal is ultimately to to have the Bitcoin that they will drive those type of decisions like being interested
(1:23:53) and aware of something like Proto and putting a priority on helping be a part of the solution to hardware centralization because because I mean we experienced this Zap right is like getting feedback from customers on what products to build then lets us build the right things that allow for our product to be adopted.
(1:24:15) And so if they're if if people in the industry are committed to making you know you can't make a business make a good mining rig work but someone like Square and Proto will benefit from having miners giving them feedback of what what's working and what's not. And the people most willing to uh have a stake in that are people that are minded that see this problem of of centralization and that they can be a part of decentralization that exists both on the manufacturing side hashing controlling how the how the hash rate is controlled which you are helping to democratize and
(1:24:50) then on the pool side. So I think all of that brings together and it's benefited by more people being bitcoin minded. So, just want to thank you for what you guys are doing at Saz. Appreciate you swinging through Austin on your way back to Peru to record. We're a little bit late to go get some Cooper's Barbecue.
(1:25:09) But before we wrap, just tell people where they can find you. Um, and where they can find SAS if they're interested. Yeah. No, it's uh it's been an absolute pleasure and I have to say thank you for also your part with Zapright and helping to create that virtuous circle. You know, it's Bitcoiners serving Bitcoiners. It ultimately leads us to a new reality is what I see.
(1:25:28) And I think that we're all working on that same journey, whether it's Square, Zap, right, SAS mining. But leaning into each other and building that that that alternate uh opportunity, the lifeboat is how we how we how we avoid the catastrophe that's that's dead ahead here.
(1:25:46) But um yeah, looking forward to grabbing some some food at Cooper with you. And if anybody wants to reach me, uh, Khallebertton on Yahoo and or not Yahoo, excuse me, Twitter. Um, you aged yourself. I did. I did age myself. Khallebertton on, uh, on Twitter is the way to, uh, to to reach me. DMs are always open. And then you can go to sasmining.com if you want to check out our latest offerings. Yeah.
(1:26:10) Well, you that made me remember that you you're also powered by Square on the processing side of the cards and and we worked with you guys and Square to help kind of get that to that point. So, it really is a um Bitcoiners working together to create solutions to then um benefit Bitcoin and and benefit ourselves certainly like in our own self-interest.
(1:26:30) So, um very grateful for you. So, thank you again and let's call it a wrap. Sounds good. Thanks, Kent.
