Sazmining Podcast Episode 20: Scot Johnson on Power Efficiency in Mining
Synopsis: On this episode of The Sazmining Podcast, Will speaks with Scot Johnson, Founder of Digital Shovel. They discuss the importance of power efficiency in Bitcoin mining, immersion cooling mining solutions, and more.
Will Szamosszegi (00:05):
Welcome to the podcast, Scott,
Scot Johnson (00:08):
Thanks for having us.
Will Szamosszegi (00:10):
Definitely. I think a good place to start would be having you run through a little bit about your background and your journey and what really brought you to what you're doing today with digital shovel.
Scot Johnson (00:21):
Awesome. Um, yeah, so I, I I've had a couple different startups prior to this. I had one, um, renting cars for Uber drivers who didn't have their own vehicles when Uber first started in Toronto. Uh, and, and crypto was starting to, to at least just, I mean, it, wasn't starting to take off. It already had a couple times, but at least to me, it seemed like it was starting to take off. I started dabbled into it. Um, never on the trading side, uh, a little bit of Ethereum, mine, you know, one GPU, I think it was like a RX two 80, or I, I can't remember R two 80 or something like that. Graphics guard, a couple of those in my condo. One thing led to another, it was, you know, convert a couple, a room in the condo convert two rooms in the condo, then an industrial unit that was, um, let's see that would've been early 2017.
Scot Johnson (01:09):
So it was a pretty good rush there from like, you know, low hundreds, sub hundred dollars up to the, I think it was 400, some odd dollars in July, 2017. Um, and as we kept on running it at a space to put these units, uh, we decided, okay, let's, let's go to the container route and pulled some money together. I think we got, I wanna say three or 400 graphics cards that we put into built our first container with, um, hired some trades to do that, designed the container, but hired trades to, to do the assembly of it. Um, and that was going good. And people started asking us, oh, he built this container. Can, can you coordinate one for me? And again, remember this is like start of 2018. So even though the price had fallen off, people were still crazy about mining. Um, and I kind of pivoted and started building containers and that formed digital shovel and, and the rest was kind of history.
Will Szamosszegi (02:01):
Yeah. And that's really interesting that you guys just kind of did it because people were asking you to kind of build out those containers. And it's also interesting that you went with the containerized design because there are many different just depending on the minor you're speaking with, some are very into shipping containers. Others are more, um, into the facility type of build out. So maybe if you could speak a little bit about, uh, what the, uh, idea behind going the shipping container route is, and maybe what those considerations are when you're deciding how you want to build out your facility.
Scot Johnson (02:36):
Yeah. There's two elements that I, I like about shipping containers are, are containerized solutions. I mean, we'll get into this later, but we've actually moved completely away from using contain shipping containers. We build our own structures. They're still modular from scratch now. Um, but the repeatability of it. So, I mean, when you do it in a building, that's fine. And there's lots of great opportunities with buildings, but either you're gonna build your own building from scratch, which some people have the resources and funds to do that. Um, but there's a lot more permitting and it's a longer process to do that. And there's, and if you're going to convert a brownfield or an existing site, um, there's lots of, kind of one off headaches that come with that. Whereas when you're doing a container and you're copying and pasting over and over again, it's the same thing.
Scot Johnson (03:18):
And there's some consistency there, which is nice. Um, the other thing that I like a lot about containers is the ratio of intake area to exhaust area in relation to your amount of floor space. Um, if you're going to do a building and you've got, you know, 50,000 square foot building, you don't have generally speaking 50,000 square feet of wall surface to do, to use exhaust and intake area. So you have to move a much higher volume of air through a much smaller aperture, uh, which require, I mean, it can be done and lots of people do it. It just requires a lot more work and a lot more, um, engineering to make that happen. And generally speaking, your, your Poe or the energy cost for that ventilation in relation to the amount of energy, your data center's consuming, uh, is not going to be as efficient. That's not to say it can't be made efficient, but it's not gonna be as efficient because those, those fans are having to work that much harder to pull that air, uh, through an atmosphere of higher negative static pressure.
Will Szamosszegi (04:13):
Yeah. And so when you're thinking about actually, um, designing these and, and building out those facilities, what are those main components that you're paying attention to? I mean, it seems like you've, you've learned a lot as you've continued to go and build and scale your operations. What, what are some of those lessons
Scot Johnson (04:36):
Where to start? Um,
Will Szamosszegi (04:38):
I know that minors have a lot of stories. There's, there's a lot of, uh, trial and errors. So, uh, a lot to that question <laugh>
Scot Johnson (04:46):
In, in our first container, um, that we built for ourself, uh, with louvers, um, we were definitely trying to pull a lot of error through there and, and when you get into a situ and, and generally speaking the engineering, I'll say, okay, the, the range shouldn't be able to penetrate through there. Well, if you get horizontal rain and wind blowing at the container on top of your wind, you're gonna get water penetration. Um, that was the lesson we learned early on with our own containers. Um, we didn't sell any units with those. We, we, we generally try to build everything for itself. Um, do dry runs of it, do dry runs and new evolutions to make sure they work and then sell them to customers. Um, that's kind of one of the hallmarks of our, our new units or not new units. We've been making them like this now for, um, two and a half years, but with, uh, these large awning based intakes.
Scot Johnson (05:33):
So it's like a big vent that comes off, extends off the side, the container, um, it's similar to the design that you would find on a natural gas. Turine, it's not something we invented. Um, but it allows you to increase the surface area of the amount of filter substrate. And then also the water has to actually travel that much further to actually be able to get into the container versus a loop where you've only got, you know, four inches, our audience set out about four feet, uh, which goes a long way to help with it. I mean, that was definitely one of the early lessons. Um, a and the other is really understanding, um, the nuances of, of electrical code, um, and being willing to question, um, the contractors to trades that sometimes are working for you, um, oftentimes, and it is not to discredit anybody. Oftentimes somebody's done something one way for a long time. They just assume that's the only way it could be done in any can else of, um, you know, not legal or not to code, but there's lots of things that lots of electricians, just because they aren't familiar with it doesn't mean they're they're wrong, but there there's other ways to do things than just the standard way. So, I mean, those are definitely, um, two of the things that, that, that I've learned over the last two years that stick in.
Will Szamosszegi (06:49):
Yeah. And then from three years, I should say, taken a step back from the design side. Uh, I mean, as you mentioned, there's, there's a lot that goes into this. We're still really early in the industry and, uh, it's pretty exciting to see where it's gonna continue to go in the future. Uh, but aside from just the purely designed side, what are some of those other ways that you've continued to try and opt optimize operations? Uh, maybe, uh, more on the software side or automation side?
Scot Johnson (07:17):
Yeah, we, we really dived into that, um, in the start of 2020, um, I wanted to make our containers more smart. Um, it historically had been pretty cost prohibitive. I mean, not, not that certain installations weren't doing it, but the cost on a per minor basis versus what it would cost out a human there was quite high. Um, we've now launched our line of smart PDs and, and done beyond just monitoring and being able to turn it on and off.
Will Szamosszegi (07:46):
And also just sorry to cut you off, but, um, just for everyone who doesn't know what a PDU is, can you talk a little bit about how a PDU, um, play into play into all this?
Scot Johnson (07:57):
Yeah, so sorry. Um, I, sometimes you get tunnel vision and just assume you're in a space and everybody knows what you're talking about. Um, so PD is a power distribution unit. Um, in, in some instances it doubles as your electrical panel in, in our case, it does. Um, so it's in our case, there's a large main breaker at the top. And then he's got all your branch breakers similar to what you find on a, on a household or industrial electrical panel. Um, and then generally in the case of a PDU, those, those breakers go directly to an outlet, which you could plug your minor into. Um, you, you have basic dumb PDs as people call them, uh, which would just have a simple, uh, breaker function. Uh, and then a smart PDU can have, um, there, there's, there's a variety of tier of smart PDU use, and this is not something that's specific to, uh, the blockchain space data center as a whole, use it as well, and used it for a long time where you can switch each port on and off.
Scot Johnson (08:51):
Uh, you can monitor each port to know how much current's going through it. Um, and then you can get into, you know, gen two and gen three smart PDs, which will have atmospheric sensors built into the PDU. So it's monitoring temperature humidity, uh, in the case of our PDs, they can measure differential pressure, uh, which allows you to tell how much vacuum you have in the space. So you can start to tell if your filters are clogging up. Um, so yeah, that, that's kind of a high level of what goes into the smart PDs, uh, or what a smart PDU is rather. Um, what we've been trying to move into now is creating more smart automation and rules, uh, and watchdogs that can be built into the PDU to alleviate the need for, uh, human interaction. Um, as we all know, running S nine S 90% of the time when something's acting up, it just needs to be unplugged and plugged back in.
Scot Johnson (09:40):
Um, so, you know, on our PD, you can, you can tell it, um, Hey, this port is an S nine. Um, it should be consuming this amount of wattage. You set your minimum threshold. So if it drops below 20%, for more than five minutes, the PD will automatically do a reset. It'll try that a couple times. If it doesn't work, it'll send a text or an email out to the, um, out to the, uh, network admin to let them know, call it necessary to actually go see it. Cause most of the time that's all required. It didn't actually require somebody physically to go out there. Uh, which, which saves quite a bit of time.
Will Szamosszegi (10:13):
Yeah, definitely. That I, I can definitely say that that's something that, uh, will save a lot of time, especially from just the, the human, uh, interaction side with these machines.
Scot Johnson (10:25):
One of the other neat things we're, we're working on right now, um, it's basic, but it saves a pile of time when you do a deployment, it's a, um, a mechanism. So the PD can figure out which minor is on which outlet and label the IP address to that. So what it does is it slowly, it pings all the devices on the network and then slowly turns them off on and off one by one, it takes about an hour to go through it, totally to do it properly. Um, but it'll correspond with, as soon as it turns that port off, which IP dropped, and then you now know on your PDU, which IP is which port cause when you're plugging in, you know, a thousand S nine S that all look identical or whatever, minor that all look identical it's and you're using DHCP, it's often difficult to identify, uh, which IP is which minor, which minors on which port. Um, these are all things we're just trying to, you know, from experience in terms of doing deployments and putting minors out features that I wish I had when we were doing it for the first while that we were trying to implement.
Will Szamosszegi (11:21):
Yeah. I mean, just keeping track of all of those minors, uh, you, you kind of don't realize how important it is until you've gone and you've built like your first facility and, and you kind of realize that just having that organization is really just gonna save so much time in the long run
Scot Johnson (11:36):
Mm-hmm <affirmative> definitely.
Will Szamosszegi (11:38):
So Scott, one of the things that I would say is, uh, gonna be very important for the mining industry moving forward is the concept of, uh, load shedding or, uh, peaker shaver type program. And maybe if, if, uh, you could talk a little bit about what exactly, uh, load shedding or, or something like that for a minor entails and why it's beneficial and something that minor should pay attention to.
Scot Johnson (12:05):
Yeah, certainly. So, um, that varies obviously a lot based on the region you're in different utilities, uh, we'll have different programs based on how they price their electricity. Um, Texas, for example, with Orco, uh, will settle 15 minutes before. So you know what the price is going to be 15 minutes ahead of time. Um, if you're not on a prefixed contract, um, you can play that market and have your power turned on and off based on when the price is going up. Um, other markets, New York, it's the day ahead. Um, as an example, uh, with our smart PDs, what we've been working to integrate is the ability to automate that process. So, um, right now you can schedule when you're off times are going to be, um, and then we're adding a feature where it can use an outside Oracle or a piece of data, um, to define when it turns on and off.
Scot Johnson (12:59):
So for example, you can point the PDU to, um, the ICOT website in your particular market. You can read what the power price is, and you can say, okay, look, if it's gonna go above 5 cents, a kilowatt hour or 7 cents a kilowatt hour, we want to be off, which is generally that that's a fine threshold because you're not always gonna be at 7 cents. Other times you might be at, you know, 1.7 or 2 cents in the middle of the night until your blended average that you're mainly concerned about. Um, and then the smart PD will cascade all the devices off slowly. So it doesn't just shut off one megawatt or two megawatts all at once, which can be quite hard on the system. It'll slowly turn it off and then it'll slowly turn it back on. So you don't get a huge amount of in rush current into your system.
Scot Johnson (13:40):
Um, yeah, so that's something we've been working on quite closely. Um, it's, you can use a variety of factors. You can use, uh, external power pricing. You can use, uh, temperature. So as an example, if you're running off a natural gas gen set, um, a, your data, center's gonna get quite hot when you're above 105 degrees, but your generator also can't run at full speed or not at full speed at full output at higher temperatures, you have a derating factor once you start to go above. Uh, I think it depends on the motor between 85 to 95 degrees Fahrenheit. Uh, so the PDU can be monitoring that temperature and slowly curtail load, uh, based on whatever inputs, uh, you've defined this, this is all everything's variable, everything's programmable. Uh, we also have an open API, some clients like to program their own stuff. They have their own minor management and they want to have that interact with our smart PD, uh, so they can take and control that, um, on any level they want.
Will Szamosszegi (14:35):
Yeah. And I mean, this is just such that you touched on so many, uh, important things there. Uh, I mean, just from a mining perspective, especially for all of you out there who are minors, this is something that you really, uh, would benefit from figuring out. And the reason for that is, uh, as you, you touched on there's, you, you can tie into the floating rate that the pricing and ERCO is for example, and kind of govern through, uh, APIs the most that you're willing to pay for power. So every time that you speak with a minor, they'll give you a, some sort of power rate, how much they're paying for power. This other option allows you to go with the realtime market and you could be buying power for one and a half cents, 2 cents, 4 cents, uh, 5 cents, 7 cents. But the thing is, is that if you're tied into the realtime pricing, the big problem is, is that there are peak hours of the year where just the pricing is off the charts expensive, and it doesn't make sense to mine if you're paying, uh, 150 cents per kilowatt hour.
Will Szamosszegi (15:39):
And so then in those types of cases, your machine, if you're tied into an API would automatically shut off and you would only be mining at a maximum threshold of, as you mentioned in that example, 7 cents, which, um, from a minor's perspective, you can procure a much lower cost of power if you have a system like that set up. And I think that's just, that's really, uh, important and great that, that you touched on that to let everyone know that they have that ability. If they're trying to get that power rate down, they can just go and, and tie it into the real time pricing.
Scot Johnson (16:15):
Yeah. Another feature or benefit that, that comes with that in a lot of markets, Texas included your, a lot of your transmission and delivery cost is set based on how much you were consuming during peak times. So if you've automated the process to make sure that you're always offering peak times, you can eliminate or almost eliminate or greatly reduce at least your transmission and delivery costs, which in, in many instances makes up a large portion of the bill, you get your net power and then, and then the T and D that comes along with it. Um, so that, that can definitely go a long way to, to further help produce the bill.
Will Szamosszegi (16:49):
Yeah, I mean, just, it, it's kind of crazy when the more that I, I dove into the way that, uh, the economics of the power industry worked and everything else, it, I was just blown away by how much money is made during those peak hours. And in terms of the pricing, and I mean, as a minor, you definitely don't wanna be paying those high rates, but then you realize the flip side of that, where if you're not turned on during those extremely high times, your average power rate is extremely, extremely low. And I mean, the other big piece of that is that as a mining company, you have a huge advantage compared to other minor or other, uh, minors, if you do the strategy, but a huge advantage to other industries because many other industries don't have the ability to shut off on a dime, whereas minors, we're fine with that.
Scot Johnson (17:38):
Yeah, we did some analysis on very on a couple. I think it was Texas north hub, um, at Houston hub, if you were down for just three to 4% of the year, uh, you were averaging sub 3 cent net power, still T and D above that, but you, you can almost eliminate a good chunk of that charge if you're buying at a transmission voltage, uh, and your transmission charge is gonna be based on, uh, your four peak points of the year. Most of the time you're gonna be off by doing that. Most of those peak points are also the days when it's insanely hotted. So you're also alleviating that stress on your equipment. Uh, and then another feature built into the PD is oftentimes when you turn off 2000 devices and you turn them back on not all 2000 of those devices will start up properly.
Scot Johnson (18:22):
So the PDs will monitor those devices, give them adequate time to boot up. And then if they haven't booted up, they'll perform a power cycle automatically. So a lot of, especially with S nines, it's not as bad of a problem with a lot of the newer gen stuff, but with S nine S you could turn off 2000 miners turn 'em back on, and maybe 1500 will start up, um, or 1700. And you're gonna spend, you know, half the day going through that cycle, getting the devices started back up. And if you're doing that daily, the times that your staff are gonna spend on it, it wouldn't be daily. Um, but you're gonna spend quite a bit staff wise trying to identify which minors weren't running, and you're gonna rapidly offset, uh, your power savings because you didn't have those minors running and being turned back on as quickly as possible. So the smart PD system, we have automates a lot of that process,
Will Szamosszegi (19:11):
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Scot Johnson (20:07):
Um, we've really been moving a lot into, uh, the stranded and flare gas tech projects. Um, not accidently as an operator, but as an equipment provider to a variety of different peoples, uh, or companies rather, um, some will white label and relabel our product. Um, some will just market it as it is. Uh, our new mini pod line is a 12 foot by seven and a half foot unit that can be picked up with a forklift. It doesn't require any assembly in the field, complete seal steel construction can just be dropped on the ground and plugged directly into a generator. Um, that has probably been our largest growth market over the last six months. Uh, we've sold, I think we sold a hundred units and we've delivered almost 45 of those units in the last six months alone. So that that's been growing quite quickly. Um, we're doing quite a bit of research and development on the smart PDs side, um, both for regular data center and, uh, for, uh, the blockchain space. And then lastly, we we've been it'll, it'll be a while before we come to market with something, but we've been doing a lot of research on product development on, uh, both an immersion and a relatively unique, um, uh, power supply unit and our PSU replacement, uh, that can actually do numerous minors at once through a single PSU.
Will Szamosszegi (21:27):
Yeah. Actually on, on the immersion side, that's, you're one of the, I would say handful of companies out there that are exploring immersion, trying to actually come up with your own immersion type design, maybe talk about what immersion cooling actually is and what some of the benefits you see, uh, a minor getting if they decided to move in that direction.
Scot Johnson (21:51):
Um, to be honest, it's something we're just starting to dabble in and research. So we're a while before we have an MVP that we, we start to push, but I mean, um, there's a whole variety of benefits. I mean, it was quite prohibitive for some time because of the cost of the, uh, the liquid to actually, uh, immerse the device in. So emerging cooling is when you take, uh, a device and place it in liquid and use that liquid as a transfer medium to remove the heat, um, from the chip rather than using air, uh, it's quite an efficient way of doing it. There's still two phase and single phase immersion single phase is when the liquid changes state or sorry, single phase is when it does not change states. So it stays with the liquid and you could pump it into a heat exchanger or to a dry cooler and exhaust the heat through that mechanism either through, uh, in the case of a heat exchanger you use usually would have, uh, wide water, can't speak water, glyco loop, um, that would go out to, to, to some other medium to exhaust that heat in two phase, you don't, there are some guys that experimented with it early on for the purpose of blockchain.
Scot Johnson (22:54):
I don't really see anybody using it right now, but two phase is when the liquid actually, um, boils rapidly on the surface of the chip and turns into a gas, uh, then goes and hits a, a heat exchange, coil and releases that heat exhausts back down. Uh, there have been several people that have done that for the blockchain space. Um, I don't see it, or haven't seen it recently. Uh, that doesn't mean they're not at there. Um, and I'm, I'm not doing as much research to as I should. So hopefully they don't get a nasty email from somebody's saying that there's player in the space that I didn't know about.
Will Szamosszegi (23:28):
Sounds good. Yeah. And, and then, um, one of the interesting things on just on the liquid cooling side, just diving in a little bit more depth, there is really just the ability to per preserve the longevity of the chips. I mean, yeah. Uh, having that, and, and that's one of the things just from a, a minor perspective, uh, that I feel like a lot of people outside the mining space might not be aware of is that, I mean, computer hardware, it does, it doesn't automatically always work all the time. There are failures, there are times where minors are, are gonna go down and it's not as easy as just going on to crypto compare and typing in your hash rate and typing in all these other things, pool fees and getting a, a number spit out. And so in terms of thinking about, uh, minor longevity or just approaching, uh, kind of planning, I would say planning how long your minors are going to last, what are some of the things that you pay attention to or think about when you're thinking about that topic of minor longevity?
Scot Johnson (24:33):
Um, well, I mean, obviously, I mean, if you don't have a properly filtered, um, air cooled based system, you are going to rapidly degrade your minor. And, and we see laws of that and there's, you know, um, people underestimate just how sealed your container needs to be in order to prevent fine dust, dirt getting in there. And that will rapidly rapidly degrade your minors further. Um, if you're, you're in an environment where, uh, you're an salt water or salt, um, your salt water body, um, and, or, or a high level of moisture, those things can all wrap like, and I've seen F nine S come in that have just, they look like literally somebody pulled them out of a lake <laugh>, um, a muddy, a muddy lake at that. Um, and, and unless you're able to control all of those factors, which you can, and it can be done properly, um, immersion really removes a lot of those, those factors. You're, you're in a relatively closed loop system. Um, you can, you know, if you've cleaned your minor properly and you're filtering your oil before it goes in there, or not your oil, your, um, your immersion fluid, um, you really can preserve that card. I, I don't know if I wanna say indefinitely, cuz I mean, we haven't done the, the researcher testing for that, but I know guys that have been running steins and immersion that you pulled them out, clean them, move solvent. That seems to look brand new when they come out.
Will Szamosszegi (25:58):
Yeah. And one of the things that it's obviously affecting everyone right now in, in the mining space is actually just procuring and acquiring that hardware. Uh, so maybe just take the question however you want, but talk about how COVID has affected the crypto mining industry. And maybe when you get the chance touch on how that's affected just the minor pricing and the availability of these different minors.
Scot Johnson (26:25):
Yeah. To be honest, um, we try to stay as far away from minor procurement as possible. Um, I, I can more speak to, I guess, the supply chain in terms of other components for building at the data center and how that's been affected. Uh, I'm seeing things in logistics coming out of China that I've never seen in my life. And I mean, I've been importing things from China for over 15 years. Um, like I, I, I just, I had a shipping container of fans. We purchased in the start of January. Uh, they were already January 20th. I think that would normally be five weeks to Toronto. Uh, it's supposed to arrive at the end of March now, uh, like in excess of two months, which is crazy. Um, and not only that, it originally was costing three to $4,000 for a 44 high cube. Uh, I think we paid $8,000 for that one single container to ship over here.
Scot Johnson (27:21):
Um, pieces that you, you just come to expect is available, um, have had ridiculous lead times. The, uh, north American steel market has the pricing has just ballooned through the roof. Um, getting, getting sheet metal, um, as, as we moved into making our own containers and making our own enclosures, uh, we, we buy the raw sheet metal and get it, get it in coils and have it cheated down for us. Um, we used to be able to just pick up the phone call and order 30,000 pounds of metal. And it'd be here by Friday. Uh, that's a month, month and a half if we want that kind of volume more. So we're having to prepurchase the stuff well in advance. Um, trying to think of other components, um, you know, circuit break, just everything, any everything, any, and every component that we have that are coming that's coming in, unless it's something we haven't stocked has almost doubled to triple the lead time. Um, fortunately we, we were into a spot going into, um, 20, 21 where we're able to stock up and kind of had a feeling things were gonna start to continue to get busy and we stocked up pretty heavily. Uh, so we're in a good spot, uh, inventory wise now, fortunately,
Will Szamosszegi (28:33):
Scot Johnson (28:34):
Doesn't really answer the question on the, on the, doesn't really answer the question on the minors all that much. Um, but yeah, it's not something that I can speak to with a whole lot of authority. It's, it's always been, you know, in, in these kind of gold rush or Bitcoin rushes times a year, it's always insane to try and get minors. I mean, I remember when we were building our, our first GPU container trying to get three or 400 graphics cards. And what was it? January, 2019, January and February, 2019. It was insane. You're finding like $600 for a card, $600 us.
Will Szamosszegi (29:07):
Yeah, the, the gamers definitely are not happy with the crypto minors. <laugh> I read an article the other day that, uh, I think Nvidia had put out just saying that, that they're gonna have to make a, uh, a mining crypto mining specific graphics card, just because all of the, uh, like all their graphics cards that are traditionally being sold off to the gamers or just being eaten up by the minors.
Scot Johnson (29:30):
Well, I, I, I thought I read some, I, I have not say two up on them. I thought I read something about, they were trying to make a modified version that just would not work for crypto mining. It's something in the firm where if it was detected that it was doing that, it would prevent it from doing crypto mind. I, but I, again, I can't remember the article or not.
Will Szamosszegi (29:49):
Yeah. I mean, it's just fascinating how our industry just affects all these other, um, is affected by all these other industries, like, and obviously just on the manufacturing side COVID and then, um, even the minor procurement, that's another piece where, uh, I feel like it's kind of unique, um, from other industries because rather than it just being a cost plus type of arrangement, they're actually pricing a lot of these minors based on the ROI times. And so as a minor, it's really important that you're getting in at the right parts of the cycle and you're, you're not overpaying for equipment, um, especially with these different bull and, uh, bear markets, which leads me into this next question of right now, uh, as of today, I, what, what's the price of Bitcoin at like 50 something,
Scot Johnson (30:36):
54 it's up this morning.
Will Szamosszegi (30:37):
Okay. Yeah. So of, uh, as of this morning, 54,000, um, and we're sitting at March 9th, so from, from where we are today and where you see the industry moving forward, where would you estimate we are in this, uh, in this cycle of this full market? It's a very, very difficult question. Um, but it I'm always interested to hear from this point of view,
Scot Johnson (31:04):
I try not to play the pricing game. I don't think, like, I think we'll see twenties again this year, but I also think we could see the, you know, two X of where we are right now. Like we're used to that volatility though. Like I we've been around like, it's like, it's always funny when you see the new, uh, you know, the new breeder, the new round of people that got into script, they're like, oh my God, it dropped 16% today. I'm like, it's Tuesday, it's normal. Um, uh, but yeah, I don't, I mean, I, don't a hundred K is not a crazy call. Um, but, uh, again, like there's gonna be a huge, massive pullback, like a big, big dump at some point in time. But, um, I, again, I, I don't, I don't play the trading game whatsoever, but there seems to be, you know, a massive pile of support in the high thirties right now. It's, you know, tried to fall off below that a couple times and hasn't been able to, so we'll see.
Will Szamosszegi (31:57):
Yeah, yeah. It's, it's one of those things where it's just, it's so hard to say. And I think that people who've been around the space are just used that volatility, whereas anyone else, I mean, they, they come into this industry and, and it's like the world's falling apart when you see a, a 16% drop <laugh>.
Scot Johnson (32:15):
Yeah. It's like, you know, two weeks ago everybody's like, yeah, Bitcoin crashed. Oh my God. It crashed. Yeah. To 10 times our, our lowest low of last year, like <laugh> bears.
Will Szamosszegi (32:26):
Yeah. Yeah. It it's, it's always talked about when it's crashing, but they don't really address too often that like a year ago it was in a com it was a completely different zone of, uh, of resistance. So in, in terms of, uh, the kind of stepping away from the crypto side and onto, um, just generally outside of the industry, what your favorite book is, what would you say is the book that has shaped the, uh, the way that you think about the world or a book that, uh, you would recommend to someone else listening,
Scot Johnson (33:00):
You know, watch your podcast. I've seen the question. Um, I, I think torn between you two, like I like business books, um, shoe, dog shoe dog was a great book. Uh, and Jack Welch was winning.
Will Szamosszegi (33:14):
Interesting. What, what's your, uh, I guess, going into each of those books, what was the most valuable thing or takeaway that you had from each of those books
Scot Johnson (33:24):
Hearing? Um, guys that I highly respect hearing their struggles, like hearing their point of where they feel they were failing, uh, and how they dealt with that, how they evolved from that and how they learned from that. Um, and in, in depth, um, I mean, I think I've read maybe not all of Jack Wilson's book, but the majority of them, and he goes into all these, you know, various, you know, failures, if they were that, um, and, you know, shoe dog was just his entire struggle of informing and building Nike, both, you know, the wind, then the losses through it. Uh, I find that, that stuff very inspiring. I find myself watching a lot of, uh, Elon Musk's earlier stuff talking about his challenges and his struggles. I mean, he's somebody, I, I, I greatly express respect and admire, um, hearing these hugely successful, uh, not, not just monetarily wise, but like people that were successful in creating something that almost nobody's been able to create and hearing their struggles and being able to relate to that in the early days is, uh, very inspiring.
Will Szamosszegi (34:26):
Yeah. That's one of my favorite things to go do. Um, when I, especially when I I'll go and dive down that YouTube rabbit hole, just pulling up some of those interviews from like 2000, 2012, just, uh, a long time ago, 2008, and just kind of seeing, uh, what they were going through at that point in time. It it's pretty inspiring and, and really crazy. Um, just taking a look back and kind of hearing the way that they thought about the world or what they were doing at that time.
Scot Johnson (34:55):
Yeah. Agreed completely. I, I was literally doing that this morning on that, the driving in my car, a bunch of older, uh, El love Musk interviews.
Will Szamosszegi (35:03):
Yeah. Actually, um, on the, I guess on the topic of those earlier interviews, um, I was watching, um, just trying to stay up to date with what was happening in the space and listening to some of Michael sailor's recent, uh, arguments or pro Bitcoin arguments that he was making. And they actually have some interviews online, uh, from Michael sailor, I think in 2000 and 2012, um, kind of talking about some of his predictions for the future and some of the stuff that he was writing about in his book, the mobile wave. And, uh, that's, that's another example of just someone who early on kind of had that technologist, uh, like visionary type of view on how things were gonna play out. And then, um, it's kind of crazy to see how, how accurate some of those predictions were just like, I mean, how, like Google, apple, Amazon, Facebook were just going to explode over the year because you had all these people who are gonna go and be, uh, there are gonna be more people in the world with iPhones. And so those companies were just perfectly positioned to disrupt a lot of industries and, and acquire a lot of market share.
Scot Johnson (36:07):
Mm-hmm <affirmative> yeah. Awesome. Have to check that out.
Will Szamosszegi (36:11):
Yeah. I'll, I'll definitely send it over to you.
Scot Johnson (36:13):
Um, yeah, please do.
Will Szamosszegi (36:15):
And then in terms of your, uh, final, the, this, this question I've asked in some form or another on previous podcast, but this time I'm gonna change it up, I'm gonna give you a choice of which one you want to, uh, which one you want to answer here. So, okay. The, the question is, um, or I guess the, the challenges let's, you're speaking with someone, and you're trying to turn them into a Bitcoin believer or potentially get them to invest in Bitcoin and you only have 60 seconds to do so. The choice that you have is that you can either make that conversation with just a friend who is of a skeptic of Bitcoin or an investor who is thinking about investing in Bitcoin. You have 60 seconds, uh, which one do you want to go for?
Scot Johnson (37:02):
I mean, it could be either. I think my argument would be the same.
Will Szamosszegi (37:06):
All right. Let's
Scot Johnson (37:07):
<laugh> I mean, I mean, to those, you know, you think Bitcoin's a scam. I mean, what, what do you think the dollar is? Like? I mean, you know, it was originally a token based on gold, and then it was a token based on fractional gold. And then it was a, your gold that you had to give in, uh, or sorry, they made you give in your gold purse, then you got a token back on it, then they sold a little bit of your gold and you kept the same amount of tokens. And then they sold all of your gold and you kicked the same amount of tokens, and then they deflated your tokens and made them worth less. I mean, Bitcoin is, is fixed it doesn't we know exactly how many of them are there. It can't be inflated. It can't be deflated. It is, you know, it is digital gold. I mean, people use the analogy all the time. I don't think it's gonna be something you can transact with, but if you want something that's stable against deflation, when you have gov international governments, printing trillions and trillions of dollars, deflating your net worth, it is the only stable rock you can hold onto.
Will Szamosszegi (38:04):
Well said. I, I like the, the path that you took there
Scot Johnson (38:08):
<laugh>, but I've, I've used the same argument with, you know, with, with, uh, with people all the time. It's like, when you, when you think it's crazy, when you think about what we've come to accept with, you know, our, our, our nation state's currencies and like just, you know, okay, we're just gonna print $2 trillion because the country needs it and everybody else is gonna do it. It's just, it's, it's absolutely insane.
Will Szamosszegi (38:32):
Yeah. I mean, that's one of the things that I was, uh, that I was just thinking about the other day is just what, when you kind of take a step back and look at the full picture of how the entire system runs today, I think that it's not even in the AR like it's of course, in, in a lot of our hands to, to educate and get people aware of how the system works and how the Bitcoin system works. But once you understand those fundamentals, it's more so on. Just the Fiat system explaining why it deserves to, to stay operating the way that it is. I mean, if you are under the assumption that, uh, that money is just a representation of work and energy in a society, when you print and expand the monetary supply, by 15%, you're essentially stealing 15% of the work and energy from everyone who's using that currency. And I think that that's something like that idea is something that, uh, isn't well understood. And it's, it's a, a solution to, to that problem is something like Bitcoin or something that no single entity or government can suddenly change the supply of.
Scot Johnson (39:42):
Yep. Agreed completely. Like, I mean, to some of the other sample questions you had there, I, I think, you know, in, in, within the next five years, you will see more and more nation states tagging Bitcoin as a reserve currency to act as, you know, a state inflation hedge against their own currencies, because it it's gonna get so crazy with inflation. Uh, and you know, what are, what are other assets outside of gold? Can you, can you do that with,
Will Szamosszegi (40:08):
That's a good question. I mean,
Scot Johnson (40:09):
I mean, arguably, arguably Bitcoin is, you know, is more stable, um, in terms of like inflation of inventory. I mean, the price is all over the map, but that's just because of, you know, the, the small amount of circulation in terms of dollars relation to, to gold. Um, but it's far more stable in terms of the amounts available. I mean, gold can go and be amount can go and be mine, right? There's a lot of gold that's unaccounted for. Um, you know, in circulation, that's not in circulation, uh, Bitcoin, it's all out there. We all know exactly how much is there.
Will Szamosszegi (40:41):
Yeah, I, I say this a lot, but I, I really do view Bitcoin as the most transparent monetary policy as ever been created. And I think that in terms of the features that make gold very attractive as an inflation hedge asset Bitcoin is far in away better on each of those different characteristics. It's just that a lot of the, uh, world is still coming to, to learn about the technology. And, uh, as you mentioned, it's something that's definitely going to take some time and it's still, uh, in the very early stages.
Scot Johnson (41:14):
Yep. And you're seeing it with corporations starting to use it as an internal reserve currency of the road. I, I mean, it's more progressive ones obviously, but I think you're gonna see more and more of that throughout the year. Um, and, and then even, you know, it's not going to be Canada, us and the UK doing it right away, but you'll definitely see smaller countries within the next couple years.
Will Szamosszegi (41:34):
Yeah. I was speaking with, uh, one of my friends the other day and they're, they understand some of the fundamentals they're not working in the space, not, uh, definitely not, uh, at a deep understanding of how all of these things work. And I just asked them a simple question. I think I said, do you think that apple, Amazon, Facebook are ever going to add Bitcoin to their reserves knowing what's happening to the dollar. And they just kind of sat there for a second. And then like, that was the thing that suddenly you could see their eyes and their, the gears turning in their head where they kind of realized, oh, wait, this, I, I don't see a world where at some point these fortune 500 companies and large companies don't start incorporating, uh, Bitcoin as a way to protect their treasury or their reserve with all the, uh, monetary stimulus going on. And so, I mean, if, if you kind of believe in that world where there is going to be corporations adopting some sort of a treasury management strategy, then, uh, then we're still, we're still in chapter one or two of this industry. <laugh>
Will Szamosszegi (42:39):
So one of the most important considerations, uh, especially when anyone's investing in mining or going to build out their own mining operation is just from a regulatory perspective. Am I going to be able to continue mining in this country? And we've seen in some other countries, I would consider them more rogue states, uh, that have band Bitcoin band Bitcoin mining, and then kind of pulled a full 180. And, uh, in the case of, for example, Venezuela and Pakistan ban crypto mining, and then all of a sudden go in mine for the government, um, obviously as a cryptocurrency minor, we don't want to, uh, have to deal with all of those things and worry about actually being able to run our operations. And so, from your perspective, wh how do you look at where you're going to build these operations? What do you see as the, I would say more favorable jurisdictions to not have to worry about getting shut down from a government and, um, yeah. How do, how do you think about all that when you're looking to build out a facility?
Scot Johnson (43:39):
Yeah, we generally speaking, we sell our units to, to the end customer. That's gonna be doing a deployment. Um, however, we have had some exposure to that with Minnesota, for instance, um, where, you know, we, we really had the kind of backed from trying to sell or allowing anything to be directly sold into there because I mean, our, our device could be kind of seen as a mechanism to facilitate, uh, sanctions, right. Because I mean, that's why a lot of these nation states kind of went the whole 180 on it at first. Minnesota is like, no, no, no, we don't want this. And like, oh, wait a second. We can now find a way to get, uh, you know, we can convert our oil domestically into a currency that we can freely move across the border and skirt all of the sanctions that, um, the us and other countries have put 'em in Venezuela.
Scot Johnson (44:23):
Um, so we, it wasn't worth enough. Uh, yeah, it definitely wasn't worth the risk to even have to defend that action in, in selling the units in of the us. I didn't, it's tough enough being in the crypto space already. I remember when we started trying to set up a bank account, um, just because our description had blockchain, even though we didn't have anything, like we don't actually physically deal with the currency of the, um, you know, we had two different banks shut down our accounts at first during, you know, the end of 2017 started 2018 just because they were so anything, blockchain, they were stopping it. Um, so that kind of made us a little shy to be able to, to dive into anything that might, um, be questionable in terms of any authorities' minds, um, in terms of the regulation around Bitcoin, I guess we're not, in my opinion, we're not seeing a lot of it on Bitcoin itself.
Scot Johnson (45:18):
It's generally the converting into Fiat. They're kind of using that as the control mechanism where you can do whatever you want with Bitcoin it's when you want to convert it to, to cash. Now that's Bitcoin specific. It doesn't apply to security tokens, or all that other stuff. There's, there's a variety of regulation around that, but when it comes to actual Bitcoin, um, I, I personally, haven't seen a whole pile of regulation around what you can and can't do in terms of transacted with Bitcoin it's when you want to convert it into Fiat, but we're seeing most of the control mechanisms, uh, from, from various.
Will Szamosszegi (45:52):
Yeah, definitely. And I, it's funny that you mentioned the bank account piece, cuz that was another thing that I, I was running into earlier on is just having bank accounts shut down on us or being denied, uh, access to use the bank. And I kind of came to the conclusion that at all points in time, we need at least two bank accounts ready because if one of them gets shut down, we need to make sure we still have a bank that we can actually use
Scot Johnson (46:17):
<laugh> um, yeah. And even, even now, like for taking Bitcoin payment, um, for, for payment on our containers, uh, we, we still won't touch it. I mean, uh, we use a firm here in Toronto, secure digital markets to help facilitate all of that, um, and, and handle all of the AML and KYC just cause I don't, I don't want the risk of doing any of that wrong and some regulation coming in down the road and then being like wanting to audit every single transaction and have to deal with, you know, just everything that comes along with that and, and possibly, you know, possibly, uh, just not tarnished, but just have to deal with the extra head cuz they've made it so cumbersome to be able to do it. Um, legitimately not that we wouldn't be doing legitimately, but just to deal with the, all of everything that goes into taking a hundred thousand dollars payment in Bitcoin for AML and K YC wise, uh, we, you know, outsourced that side of it. Yeah, we do accept it, but we've outsourced it.
Will Szamosszegi (47:18):
Yeah, definitely. And that's ano that's another thing too, is just from a minor perspective, I feel like the infrastructure has gotten a lot better from being able to actually track your mining rewards and the payouts, and then making sure that you're paying the taxes properly, just cuz there there's so much legwork that needs to be done to do that properly based on the current tax law. So, um, maybe it's, it's, it's a little different in, in Canada, but in the us it's, it's definitely a lot of work and thankfully the, the tools and the tracking systems now are a little bit better equipped to help, uh, help a mine or do that.
Scot Johnson (47:55):
Yeah, definitely. We we've come a long way in uh, three years.
Will Szamosszegi (47:59):
Yeah. Great. Well, Scott, this has been an absolute pleasure speaking with you. Thank you so much for coming on and we will have to get you on in another episode in the future.
Scot Johnson (48:09):
Thank you very much for having me and I'm very much looking forward to it.
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