Sazmining Podcast Episode 18: Jesse Phillips on Modeling Bitcoin Mining

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Synopsis: 

In this episode, Will speaks with Jesse Phillips, Manager at Binance. They discuss the nuances of modeling Bitcoin mining businesses, mining pools, cloud mining, and more.

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Will Szamosszegi (00:04):

Welcome to the SA mining podcast at SaaS mining, we are bringing you into conversations with today's industry leaders and blockchain and cryptocurrency. Our goal with this podcast is to improve the understanding and adoption of blockchain and cryptocurrency. By giving you an insider's look at what's being built and inform predictions on what the future holds energy costs can make or break a crypto mining operation successful crypto miners all need low cost electricity. SaaS mining has partnered with Amex to give crypto miners the best procurement strategy for natural gas and low cost electricity. Go to SA mining.com/amex. That's spelled a M E R E X. To see if you qualify for Amex's energy procurement services. Once again, visit SA mining.com/amex to be served up some of the most competitive electricity rates globally. Yep.

Will Szamosszegi (01:04):

Welcome to the podcast, Jesse.

Jesse Phillips (01:06):

Thank you so much, William. How are

Will Szamosszegi (01:08):

You? I'm doing great. You have an incredible background. You've been in the mining space for a while and now you're working at Binance. So I guess to begin, why don't you talk about your background before Binance and what led you into what you're doing now?

Jesse Phillips (01:23):

Sure. Thank you so much. Um, <laugh> basically my background is in data analytics. Uh, before that in school I studied really social sciences on the AI side. So essentially really like deep into technology and when people go from comfortable to uncomfortable, um, and that kind of led me down, obviously the, the blockchain route, because at the time in 2017, when I was writing my thesis, that was really kind of one of the most new and emerging things that was happening in the technology space. Uh, I've been interested in entrepreneurship and different forms of capital for a long time. I was, uh, the first class through Draper university in 2013. And at that time, Tim Draper was discussing Bitcoin with our, our class, which was, you know, kind of crazy looking back. He's like, Hey, buy Bitcoin. And you know what I mean? And so, so being a young person at that time, I was like, all right, let's take a look into this.

Jesse Phillips (02:17):

I never would've expected to be as involved as I am right now, um, later on, but, uh, I basically graduated and, uh, got right into the ICO space. It was kind of the wild west for a while. There, uh, was quickly advising on a company out of Boston where I'm from after that, uh, that ended pretty abruptly due to the sec clamping down on, on everyone in this space at the same time. Uh, I wanted to quantify, use kind of that data analytics background and quantify something a little bit more stable in the space. And so myself and my co-founder at the time, uh, CEO of that company, uh, we went and basically tried to map out the, the entirety of the proof of work mining side, because we thought that that was going to be kind of the most stable way to get into, uh, into blockchain and into kind of into Bitcoin.

Jesse Phillips (03:10):

And we understood a very, very important thing, which was obviously you can mind Bitcoin for less than the open market price. And so that Delta was really interesting to us and really interesting to a lot of our investors. And that was operational from kind of the end of 2017 or mid 2017 through the end of 2019. And so after that, uh, Binance had launched a pool, um, and that was on April 27th of, of 2020, and shortly afterwards, they were looking for someone that had a lot of deep experience in more of the global markets. So, uh, stuff outside of China, um, in talking to minors, understanding what their pain points are, some of the, the, the data behind it. And that's kind of how I found myself there. It was really fortuitous to, you know, come in and basically be able to do a lot of the stuff that I had been doing in the last company and in that role, and then just transition over to really servicing the same group. But instead of, instead of providing kind of data analytics and I guess investment grade documents for minors, we were actually doing kind of the service level, right. And actually, uh, actually developing stuff for the pool and, and onboarding customers into the bin ecosystem. So that's kind of a brief summary of what's, you know, what's been going on.

Will Szamosszegi (04:28):

Yeah. And I definitely want to get into what you're doing with the Binance pool, but actually before we dive into that, can you talk a little bit more about what you were working on beforehand and all that, because that's one thing where a lot of minors, they know that hash rate is extremely important, but I don't think that they're going and running that type of deep analysis on it, uh, to the extent that that you were, if you were working in that full time. So would definitely love to hear your thoughts on what you learned there and, uh, some trends that you might have discovered that might not be known by many of the minors out there.

Jesse Phillips (05:01):

Sure. Yeah. Um, wow. There, so there is a lot, a lot that goes into the, into the blockchain analysis, right? I mean, when you look at this industry, you have a lot of people that plot these sometimes enormous, uh, you know, eight figure investments on linear difficulty and on other things that are quantifiable, but maybe not, uh, uh, maybe not super informed, right? And so that, that trend still continues today and you know, it for better or for worse. But what we were really trying to do at the time was extrapolate on proven data on block level data, and then understand how that affects the meta market. And then also, uh, the economics behind the entire, uh, the entire ecosystem. So the thing that was most fascinating and still is really fascinating to me is how you can have a network that just has an algorithm running and based on economic pressures allows, or basically forces people to self upgrade their actual hardware.

Jesse Phillips (06:04):

So on the most basic level, we set out to map that what we were doing at the time was really taking all of the Asics. So application specific integrated circuits, as well as GPUs and plotting them on efficiency curves. So we were really looking at the efficiency and more the electrical efficiency of each of these devices, right? And from there, we could also understand and, and extrapolate using ideas, some such as Moore's law, right, where it could go in the future, right? If you notice different trends that happen, I mean, Morris law is pretty simply, you know, uh, uh, basically computing power doubles every year. It's not quite on that, on that curve anymore. But if that, if you understand that as a baseline, right, then you can understand difficulty in terms of, or, or network difficulty. Right? So how many minors are competing for the same pie by, by basically looking at it and saying, all right, these next machines that are coming out should be at X, right? With X amount of shipping delay, we should understand that network difficulty. And thus basically potentially price will be at this point. And so we had a function of what we called Moore's index, where we would extrapolate that out. And so instead of looking at difficulty as a 5% a year linear, we would start looking at it at different price points with different minors.

Will Szamosszegi (07:30):

Sorry to pause there, just cuz uh, we're, we're diving real into the weeds here. And I think that,

Jesse Phillips (07:34):

Yeah, that's too much, right?

Will Szamosszegi (07:35):

No, no, no. I, I want to, but I just wanna make sure we lay the foundation properly to build up to it. Right. So you're explaining and trying to build out models to predict hash rate. You are looking at all the different variables that a minor needs to consider. So you were talking about that ratio of the amount of power consumed by these different minors and what their output is. And then simultaneously you're taking it that step further with the analysis of Moore's law and how those machines are going to evolve over time and building that into the model. So, um, yes, I guess we'll, we'll take it from there and uh, have you, have you continue

Jesse Phillips (08:10):

<laugh> it's definitely kind of heady stuff and, and I think it's meant to be right, because if this was really easy to understand, I think then it would be a little bit easier for people to quantify and make real like predictions on price. And so that was one of the things that we never did. Right. We would extrapolate on the idea of difficulty at different price points. So because we understand minors basically come into the market at different points, right there is shut off and turn on points for different minors, right? Depending on your efficiency, your underlying efficiency as a minor. So, um, that increases or decreases difficulty simultaneously. So that was really where we took that. And then we would, you know, allow miners to also plug into that model and say, say, well, if you bought this machine and we run it at this place, then this is what you could probably expect.

Jesse Phillips (09:00):

And so that was kind of the secret sauce behind it. There's a lot more that goes into that model block level data as well, historicals, but that was the idea. And that was the service that was provided at the time. And what I think was really important about that is it started to look at mining, not so much as let's go and boots on the ground, build this out and pray to let's. You know, I think there's a, an art, or at least a science or at least an art behind trying to figure this out and you know, and that's really, you know, that's, that's the basis and that still informs a lot of what, of how I think a lot of us think about mining now, right? We look for quantification where, where there is just kind of maybe sometimes more chaos in the industry. So

Will Szamosszegi (09:46):

Yeah, very, very fascinating stuff. And so after that you went and now you're working at Binance and you're very familiar with the way that these different pools work. So maybe a good foundation would be to lay out what exactly a mining pool is, what it does and why it's important. And then we can start digging into the weeds of the differences between different mining pools.

Jesse Phillips (10:10):

Sure. So, so let's take it back to, to kind of that previous point, cause it segues perfectly into it is efficiency on all fronts, right. That's mining in a nutshell. I mean, you know this as a minor, right. You're, we're always trying to get more efficient and so, um, and also quantification, right? So you can go and, and for those of the audience that are not too familiar with mining, I keep on using this analogy, but I think it's good. Uh, there's different types of mining, right? There's solo mining, there's pool mining, and then there's basically hacking. Um, and so, so, so if you, if you think about it like that, right, then, then it's quantification and it's and it's efficiency on all fronts. And what I mean by quantification is there's value to what we call pool mining, which we'll get into because it's more quantifiable than solo mining.

Jesse Phillips (11:00):

Right? So, um, let's take an example of, uh, of a school, right. A classroom, because we've all been there. The teacher says I've got a pie or a stickers bar or whatever for the first group or first person doesn't matter who to answer these eight math problems. Right. The smartest kids in the class are gonna be like, oh, I can answer those. I'm gonna get the whole Snickers bar then, you know, will you and I are, we're, we're, we're smart, but we're not, you know, we're not like Sarah over here. So, you know, we're gonna be like, Hey dude, we should, uh, you know, we should, uh, we're together on this exactly work together and, and bring in a couple of our friends. And then finally there's like, you know, the kid who's looking over everyone's shoulder. And so those are the three types of mining, right?

Jesse Phillips (11:46):

You've got solo miners who on a massive scale are basically submitting or, or basically trying to, to, you know, figure, figure the entire thing out on the top level. Right. And basically get the whole block reward for doing so. Right. So at this 0.6 0.25, right? So, um, you know, they, they basically brute force their way in and that that's it. And then you've got, you know, all of us, uh, who are potentially smaller, but also, you know, more quantifiable that are on the pool level side right. Where we're working together and then being paid out proportionally. And then finally you've got botnets and other, you know, hacking where they're not paying for electricity. They're not paying for your computer. They're just kind of coming in. So those are the couple levels of mining, right. And the pool serves a really interesting function because not only does it allow smaller miners to operate, but it also allows you to quantify much better than, oh, you know, I guess I'll, uh, you know, X percent of the time I may reach this or I may basically reach the consensus before, you know, before the others and then, and submit my data before the others.

Jesse Phillips (12:56):

And that's, that's kind of, you know, that's kind of where a pool goes, right? So they're

Will Szamosszegi (13:01):

Extremely important, especially if you're a smaller mining operation. You just, as you said, you wouldn't be able to compete on that total network because you make up such a small piece of the pie. But when you're part of a mining pool, now you have predictable, uh, revenue. You're not just hoping that you hit a one in a million type shot getting that next block. So it makes it more feasible for a smaller business to actually run a mining business because they have those predictable revenue streams, payout methods that these minors are, uh, receiving. What's the different types of payout methods that mining pools like to employ.

Jesse Phillips (13:37):

So there's a variety of different settlement systems that happen, uh, on the pool level. And that's really important for miners to understand, because basically even if you're getting say 1% from, you know, fees, uh, purported from another pool, you need to understand that maybe that pool is not actually paying you as much as even say 1.5% on a different settlement system. So it's very confusing because there's just a variety of different, uh, a variety of different ways you can quantify hash rate and thus the value of mining on the most basic level. And probably the easiest to understand is full paper share. Um, so that means that minors are getting both, uh, their proportional amount of the block reward. So that's 6.25, roughly every 10 minutes, um, as well as transaction fees. So that's kind of the, as, as we call it the full, the full stack or full paper share, um, as, as, you know, as opposed to stuff like a score system where you're, you're getting a proportional reward, but it's, uh, it's on basically a time based system.

Jesse Phillips (14:41):

Right. So, so, so instead of basically having it quantified on the block reward and transaction fee level, it's basically taking an aggregate of, uh, of the value of your hash rate over time. And then it's kind of like a weighted, uh, system there. Um, so it makes over time, uh, the value kind of worth quite a bit, but as soon as you kind of leave the pool, right, and you're your, your value diminishes very quickly. So if you have an outage or, or if you have an inconsistent mining schedule, generally not the, the, the greatest way to go, uh, paper share is another system that is used. Um, it's basically like full paper share, but they're not always distributing, um, all or any of the transaction fees. Um, and then there's also stuff like pay per last end share, um, which is, you're basically looking at the number of shares in a certain round of mining.

Jesse Phillips (15:41):

Um, and then looking at the last, um, quantification or N amount of shares. Um, so they're all very, very confusing. Um, it's just different ways to, to slice up the same pie. Um, but overall, what minors should be looking for and understanding is that they should run their own data and understand, or talk to pool operators and really understand deeply how that value is quantified, because what it looks like on paper may not actually be what you're getting on the other side, right. Obviously, you know, this is really important for, for pool miners, but even for solo miners, right? When you look at all of this, you have to also still at the end of the day, make the quantification of, do I go with a pool or do I solo mine, right. What can pay me out better? And so for, even for, for operators on that scale, which there are very few, it is still worth looking at this kind of thing and saying, all right, how is it settled? Right? Because if you're solo mining, this doesn't take into come into play, but you always have to do that value, uh, proposition and play it out to see, all right, am I better going where the pool, or am I better solar mining? And in this case, and most cases, uh, for, you know, for a vast majority of the industry, uh, the pool system is, is much, much better and much more quantifiable. So, um, that's, that's kind of a, a BA a background and, and kind of an understanding of settlement systems here.

Will Szamosszegi (17:06):

I feel like a lot of times as a minor, until you've really spoken with a number of different pools, you don't really understand how much you should be paying in fees. It is a very small percentage, um, yeah. In any case, no matter what pool you go with, but there actually is a big difference between fees. And then, uh, also depending on the size of the minor, these are all considerations that if you're a minor, you want to understand. So from someone who actually works at a pool, can you talk about, I guess, industry standards and, and some of those considerations that minors should take into account when they're going and deciding on what pool they should, uh, they should put their hash rate on.

Jesse Phillips (17:42):

So, I mean, on the most basic level pools operate in this weird situation, because we are the aggregation points for this, you know, multinational, supernational, uh, uh, uh, phenomenon that's going on, right? This, this algorithm that continues running and, you know, people from all around the world, and that's an important distinction. People from all around the world can connect to, um, to a pool to get paid out. Right? So things that things that minors need to be aware of are, I mean, first and foremost fees, right? We talk about efficiency on the electrical level, the, the, you know, as this gains prominence in the world and as Bitcoin becomes and, and other cryptos become more valuable, just, I mean, in the most basic sense, right. In terms of usage, as well as price, you want to have less going to your service provider, your aggregation point, right.

Jesse Phillips (18:36):

Uh, in, in terms of, out of that stack that you, that you, uh, that, that value stack, right. So minors that are connecting to kind of a standard pool may expect to pay, I mean, depend on size, right? There's a lot of discounts for larger, uh, larger size, but, um, anywhere from 3% down to 1.5, generally speaking, um, of the, of the total amount of Bitcoin that they've quote mined or, or, or cryptos that they've mined. And so that, that value that whole, you know, that, that whole charge is specifically because most mining pools operate in a, like a software as a service level. Right. And what that means really is that they are deriving value from basically connecting you into their, into their system and then paying you out proportionally to your work. Right. So, so that's, that's it as a, as a minor, maybe what you should be looking at is what extraneous, um, and ancillary services do you, does your pool provide?

Jesse Phillips (19:41):

And that may be more of the future in terms of what's, uh, what's valuable because it's a race to zero on pool fees, right. Because I mean, this, this is kind of the, the way that everything scales. If you look at the automobile, right. It's super expensive at the beginning. And then you get it to the point where you've got like a Hugo, right. Where like anyone can get in a car or the model Ts, like the first to do this. Right. So it's, it's a race to zero in terms of, oh, I can beat this other pool. You know, the minors will come to me because I'll take less fees. Right. And so that's really important as a, a, as a minor is to be looking where you're gonna pay the least, but then also looking at where you can make the most, and that's a distinction, right?

Jesse Phillips (20:23):

So, um, for example, at Binance pool, what we're really strong with is fundamentally kind of flipping this narrative on its head, right. Instead of just being a service provider, we know what we're good at, which is these exchange, uh, or the exchange side of everything and all the financial products we can stack on top. And so that's where we derive our value in the stack, not so much in just, you know, you know, 3%, maybe 1%. And so, and that allows us to take less fees because there are other ways that we can, uh, derive value and thus give value back to the user. And so a really good example of this, I like to mention is pool savings, right? And pool savings is essentially a flexible staking. Um, I'm sorry, a flexible savings product where you are adding essentially mind Bitcoin to, uh, to our internal liquidity and in return, it's kinda like a mortgage, right.

Jesse Phillips (21:18):

We're paying you out interest. And that interest is pretty heavy. Like right now it's, it's 9%. Um, and so, you know, that's an additional 9% that as a, as a minor, you can make so separate from pool fees, which are some of the lowest in the industry, right. You know, starting at basically baseline 2.5 and scaling down in terms of terms of power, you know, on our east side, 0.5, which is pretty industry leading, right? I mean, we, we offer a lot of these services that can, that can positively impact, uh, uh, the, the amount of Bitcoin or, or other cryptos that you make. So that's something that minors really should be aware of is that, is that there is a traditional model. And then there is what we call an exchange or mining trading model that is coming into prominence. And I think you'll see that a lot more. And the benefit of that really is also on other fees as well on the exchange side. Right? So we're not, you know, it's, it's kind of meshed it's fluid, right? The same VIP level you'd get at Binance pool is the same that you get on our, on our exchange. And so you're, you're, you're, you're creating and saving value throughout the stack. And that's, I think where we're all going,

Will Szamosszegi (22:27):

Fascinating hearing you talk through that because you guys have that advantage of actually having an exchange behind you and the exchange can derive that value from the minor. So rather than the pool, a regular pool, that's not tied to an exchange having to extract value from their mining clients, you guys are willing to pass along those savings because the exchange business is benefiting from having all that additional liquidity being added to their exchange over time.

Jesse Phillips (22:54):

Yeah. And, and volume too. Right. I mean, if you look at kind of, we're the largest exchange by volume, it, it, it becomes basically a play of, alright, how can we benefit our users? Because at the end of the day, more users is a beneficial thing for Binance, right? And so if you look at, like, if you look at a standalone item, right, like a normal pool versus like a, a wheel with spokes, right? Like this is a core exchange. And then you've got all these products branching off from it. Like it, it ends up basically being, um, a lot different value proposition and a really cool way to move the move, uh, kind of move the industry forward is by reinventing the idea of a pool instead of just, you know, instead of just dropping the fees, which we have done, but you know what I mean, that's, it goes back to a lot of the, uh, the stuff that I like the most, which is the mining, like the mining theory, right. Let's try to take this from a different angle. Let's try to look at, you know, difficulty in a different way. All right. Let's try to look at pools in a different way. Right.

Will Szamosszegi (23:57):

I feel like you would have a very fascinating answer to this question, because one, you've done the analysis on hash rate two, you've been involved on the pool side and you understand the landscape of mining very well, where it's been and where it is today. So if you were to make any sort of prediction about the future of where the mining industry is going, and you can take the question and whatever direction you want, you could make it more on the price side. You could make it more on just the hardware, the, um, just any piece of the mining industry. Yeah. The one thing that you think is true that will play out that the majority of people are not aware of.

Jesse Phillips (24:34):

It's such an interesting question. Um, I mean, first off this, this space is moving at such a rapid speed, right? It does not look like it used to in 2017 and, you know, three years or, you know, four years is an eternity in mining. I mean, you can, you, you know, this too, as a, as someone who's actively involved in this space, it's like, you know, it, it kind of goes back buying a blink of an eye, but it's really just such a huge difference. So it's, it's interesting. And, and it kind of hard to predict the future, but I think there are some meta trends that are going on that are, that should be, you know, people should be aware of one, we see this on the machine side, right. Um, on the Foundry level. So that like literally the chip creation level, um, it's very hard for, uh, for machine manufacturers to, um, to basically service demand.

Jesse Phillips (25:27):

Right? So I, so a lot of minors right now are waiting for specific hardware to come out and really kind of gobbling up whatever they can get their hands on. A good example of this is if you look at like, you know, you can go on YouTube right now and go to trackers for Nvidia 30 series and new AMD cards, because it's like, there's oodles of people waiting to give them their money. And there's not enough of these things to go around and that's due in part to how profitable they are in mining, but I digress. Right. So, so on the most basic level you've got, uh, I, I, I think one of the things that's gonna change is maybe the players that are making these, uh, making these, uh, these chips or, or the, or the quantity at least of these chips being made.

Jesse Phillips (26:14):

And that's based on the prominence of Bitcoin and other cryptos in the world, right. Because the same manufacturing processes are being done. For example, Tesla who, you know, we gotta, we gotta mention, just bought a, a, a, a serious amount of Bitcoin the other day. Um, they're, you know, their, their AI chips for their full self driving are on seven nanometer. Right. And so, and, and the same processes are being used for Asics and, and GPUs. So these foundries and these, these, you know, these companies have to allot different chip, um, uh, chips to different things. So I think you're gonna see coupling of markets there. And, and that's really interesting. Um, I, I think there will probably end up being more dedicated space for, uh, for mining, uh, mining stuff just to, to, to fill out demand. Um, and that in turn will increase difficulty network difficulty, as we've been talking about.

Jesse Phillips (27:09):

And then with network difficulty, I think you're going to see, uh, a difference in the vision of what mining is, because right now it's, I do thing here and it spits out thing here. Right? So that thing would be I'm, you know, mining away on the blockchain and it spits out Bitcoin, but there is this like thing in between that we call hash rate, which is the quantifiable side of it. And if you look at hash rate, instead of just as kind of the, the entry point for getting Bitcoin over here, but more as the value in it of itself, it starts to look a little bit more like a commodity. And so I think there's a lot of, I mean, the earliest stages of this were cloud mining, which has, you know, various different, uh, um, ways that it can be used, but basically this value of this computing power, you know, will spit out Bitcoin on the other side.

Jesse Phillips (28:02):

And so, uh, so that's inherently valuable, right? So I think you're gonna start seeing a lot more of that, um, that, you know, kind of taking prominence in the space and, and, and that is also why, you know, we, we not only on Binance pool allow for earnings transfer. So, so I can, you know, we'll, if you're on the other side and you're, you're a co-location client or something, I can transfer the earnings of your machines, or I can give you a gift and transfer some of that earnings, but I can also now on Binance pool transfer, just hash rate. And so that idea, I think, is gonna be a lot bigger in the industry in terms of where we're going is the quantification and maybe sale of hash rate in and of itself as valuable. There's a couple of other things that I think are really important to understand.

Jesse Phillips (28:49):

I think that there's starting to be this idea of composable demand and a real, I, a real kind of a, a system that mins are going for. Um, and so I think you're gonna start seeing more and more mining as it gets more and more competitive on, uh, uh, on non-G grid, tide stuff. Um, and especially with stuff like Starlink and, and other, you know, uh, uh, uh, basically other ways to get out there in, into places where no one else can operate and then go mind Bitcoin. I think that's a big, you know, a big thing. And then finally, I think you're gonna start seeing a lot of different types of investors in here, right? We're already starting to see this in terms of institutions coming in, but, uh, fundamentally the, the value I, I, if you understand that the value of Bitcoin is, or in the meta market is going up, then I think you also start to see a difference in the way that miners are looking at mining, right.

Jesse Phillips (29:51):

It used to be okay, I'm gonna go mine and I'm gonna convert that. Or it happens across the, like, like all of these things happen, but, you know, for, uh, in 2017 and at least in last mining, boom, it was more like a, uh, uh, well, we're gonna go and, and mine, and we're gonna convert into Fiat. You know what I mean? Like, and, and now it's a lot more of like the hot behavior. And so I think the reason for mining and be being exposed to Bitcoin, um, and other assets at an underlying price, that's less than, you know, than, than, um, uh, than the market price, I think is a major reason for mining. And so too are the people that are involved. So I'm sure you see this in terms of the available capital out there, right. But there's, there's a lot more interest on the most basic level in this space than there used to be.

Jesse Phillips (30:39):

And it's not just from like Bitcoiners or hardcore blockchain enthusiasts. It's really from a lot of the companies that you and I see and maybe interact with on a day to day basis. You'd be surprised, you know, I'm sure that in the next coming years, they will at least understand what mining is if not be outright participating. So those are kind of the, the bold predictions. I also think at the, at the end of the day that the mining industry will be, um, more decentralized than it is right now. There's this idea of, you know, these mega corporations or mega companies coming in, but you, you also have, you know, a, a rise in just like you and I, and, and I mean, and, and other like normal people are also kind of doing this with their compute resources. And I don't think that stops on, on the most basic level. And I think blockchains scale out to meet that decentralized demand as well. So I'm very, I'm very excited for the common person, as well as these large companies in the mining space.

Will Szamosszegi (31:39):

Well, that was an even better answer than I could have asked for <laugh>. That was, that was incredible. I love how you touched on all those pieces. And at least from the perspective of someone who's more on the last two points that you touched on those or those, those later two trends of just seeing more mining happening and, uh, using stranded power assets and areas that might not be grid tied, where you can get that very cheap power. That's definitely something that, uh, that, that when we're talking with other minors and us ourselves are pursuing strategies, that's where you can really find very cheap power. So I agree. I, I tend to think of it. And I don't remember where I, I read this quote, but it was a quote where someone was talking about the mining industry and where mining facilities are gonna pop up.

Will Szamosszegi (32:25):

And it was like a Topo topographical map where the places with the higher price energy are further up and the places with lower place, lower price, energies are further down, and then you just pour water on it. And wherever it settles wow, is where the mining is going to go. Mining just naturally based on the market forces is going to go to the places with the lowest cost energy. And I think overall, when you're just thinking about the environmental impact of it, it really is a way to improve the efficiency of the grid of the power resources out there available. And the market's going to drive where the, uh, most efficient use of that energy is. And there's clearly a lot of people who've already bought into this system of Bitcoin. And, uh, and the amount of savings that you can really derive from a fully realized potential. Bitcoin, I think will have very beneficial impacts, not just on the people who are holding Bitcoin today, but the people who might be in countries that are not under the best governance and, and in areas where monetary policy might end up devaluing a lot of their, their hard earned savings over their life. So there's a lot of value that can be derived from what it is that, um, that we're working on. And it's, it's really interesting to see what you're doing on the pool side here.

Jesse Phillips (33:47):

I love that point because we talk about kind of the, the profit side, right. We spent this whole discussion really talking about, okay, like fundamentally we're out there, you know, we're out there in a way minting, minting this currency, right. It's kind of the process by which all new Bitcoin is created, right. Is this block reward system, transaction fees, et cetera, but, or more more of the block reward system. And then you also get paid on transaction fees, but, you know, there's also that existential thing that you're talking about, which is, okay, you know, this may be an entry point for the unbanked. This may be an entry point for people that would have hyperinflation otherwise. And you start to see that as a, as the prominence of cryptocurrencies. Um, and, and, and the, kind of the, the story of this all unfolds is, yeah, like this is a viable solution, not just for those people, but going back to your point for energy producers, right.

Jesse Phillips (34:39):

I love the idea of composable demand, right? If you look at mining as, as, as a Bitcoin battery, instead, it starts like people start getting it, then it's basically like, well, we have underutilized energy here, or we have energy that's being wasted. And how much does it cost to store that or transport it to the grid? Why do we just have this monopolistic buyer that we call the grid system? How can we derive value from those electrons, otherwise mining, you know what I mean? Yeah. So I love that idea of the, of the mountain and then, you know, and where it settles is essentially that arbitrage, right, exactly where it needs to be. And that's the purest competition in the world, right? It's the free market, you know, you, you let this thing go out into the wild and all these minors are competing for a zero sum game for the same pie, you know, and, but, but the beautiful thing is that if I'm mining to right, like the security and strength of that network is also benefited by you.

Jesse Phillips (35:40):

So am I really in competition with you or are we all working towards this future where, you know, where these systems gain in prominence and, and that's kind of the second part of that I think is really important to understand, like, yes, miners are in competition for the same pie, but the value of mining also benefits the entire, the entire network. Right. So really cool, really cool thing that, you know, it harnesses, greed, and then pits people against each other, you know, for the same, the same pie, but at the end of the day, you all benefit from each other in this weird and wacky way. So I, I mean, I, that kind of stuff is what always, you know, always keeps me up at night and, and I think it's very cool.

Will Szamosszegi (36:24):

Yeah. And it's interesting too, you, you mentioned from the power producer side, we haven't even really talked about that, but it's crazy when you start talking with them and teaching them about the potential of Bitcoin mining and how it works, because they're not used to the types of flex, the type of flexibility that you can provide as a customer when you're a mining customer versus another type of customer. So like, what do I mean by this? I mean that you have something that doesn't have to be running a hundred percent of the time. You can, you can shut off your machines when it's time for those peak hours and deliver that electricity to the grid. And that's just something where they're not used to being able to have the ability to shut off a customer on the, at the blink of an eye and be able to maximize those, uh, those grid payments.

Will Szamosszegi (37:09):

But if you think about it in essence, what that means is that you're going, you're helping bring investment and infrastructure to a energy company in some sort of community that now has all this additional power to contribute to the grid, um, and their customers whenever, whenever it's time for those peak hours. So in essence, you're going to make the grid more efficient. You're going to reduce the cost for the people in that community. Um, and it's just, it's an overall win-win for that area. Yeah. And I think that, that in supporting the general, uh, Bitcoin vision is, is extremely, extremely powerful.

Jesse Phillips (37:46):

That's really fascinating. Um, it's also interesting cuz there was moratoriums placed on mining in specific locals because it scaled too quickly or, or, or, or, you know, the underlying, the, the, the, the people in that place were not happy with, you know, potentially a rise price. But if it's scaled correctly to these, uh, to these energy providers, right, there's nothing better than composable demand because I mean, what other data center can you turn off at the blink of an eye with nothing but economic, you know, uh, economic downturn for yourself, right. You know, you could lose customer data, you don't have to have the same redundancy on your, on your systems as a traditional data center. You don't even have to have the same connectivity. I mean, theoretically you can run these things in the middle of the, you know, middle of wherever off an LTE connection.

Jesse Phillips (38:33):

So, you know what I mean, mean like, so, so if you look at it like that, you, you know what I mean, there's, there's constantly these articles that come out about Bitcoin's power usage, but we have to start from the idea that these systems are inherently valuable. The decentralization of systems are inherently valuable. And then we have to extrapolate and say, not all power usage is a bad thing because there's more power being made than is used. And it's just these inefficiencies that we're plugging the holes on. Right. And so it's really interesting to, to, for, for energy providers to start understanding that and look at Bitcoin, not as the speculative thing, but as like the best customer. Right. <laugh> and, and so like slowly, they're starting to get it, I think. And that's really, you know, I think when that starts switching and when a lot of these companies actually start doing this for themselves, which we've seen in the market, um, then it's, you know, then proven operators and people that have been working in this space for long time are really gonna shine because it is, you know, it's not rocket science, it's just Bitcoin, but there are a lot of things that go into the mining, you know, mining efficiently, mining properly, you know, safety, all of these other things.

Jesse Phillips (39:46):

So really a fascinating switch, I think, and a cool arbitrage for places, especially locals that have kind of fallen by the wayside. Right? You see these epicenters spring up in places oftentimes that were, you know, left by the last industrial wave or, you know, other places around the world where there was an inefficiency that's plugged by this because mins are excellent at going and finding the fringes.

Will Szamosszegi (40:09):

Bitcoin mining has so many strengths that you just need to communicate it to the right type of people out there who are the capital allocators. I mean, on the real estate side, real estate investors now are looking around thinking, okay, I gotta understand this because there's definitely real estate involved in building up these data centers. And then on the other side, you're speaking with investors who just are trying to have something that's backed by hard assets. So, I mean, it's very clearly hard assets. You can see the, uh, you can see the facilities being built. You can see all of the, um, all of the hardware, everything else. So it's just finding the right people and educating them. And I think that, especially when other things are going well in the market, it makes it a lot more attractive for, uh, for the mining piece as well, because with a higher price of Bitcoin, that technically is what you're producing. So, um, yeah, it makes the financials look a lot better if Bitcoin's at 40,000 than if Bitcoin's at like 10,000.

Jesse Phillips (41:05):

Yeah. Yeah. But, but the, but the growing trend, right? Like I, I think you can agree to this is education. And then there's what you touched on. There is the hard asset underneath, right. Which is also kind of your, your safety net, right? Because if you just buy a digital asset, it's not a bad thing by any means. I mean, we see the value of this in and of itself, but you're exposed to, uh, underlying price going up, going down, whatever where, you know, in circles, sideways, whatever, wherever it goes, but you now have a hard asset underneath. And then there's this digital gold narrative that's really taking prominence right now of Bitcoin as basically this digital scarcity. And so you're kind of sitting there with two hard assets, right. And, and, and really a way to derive value from that beyond just kind of price speculation.

Jesse Phillips (41:52):

And so that's, that's really interesting for minors and then also really interesting for, uh, traditional investors because they see this and they're like, okay, you know, I'm gonna have something that has physical machines worrying away underneath, you know, rather than this thing that I can't hold that I can't, it's not tangible, right. That I understand has value based on scarcity, based on economics, based on a variety of different things. I now have this thing that I can go visit. I can go call, will up and be like, I'm gonna go visit my mind. And I can see this hard asset that is worrying a way that is, you know, that I can collateralize that it's so that, so that's really, you know, when we talk about education, I think that's really important too. And bringing it all back to kind of where we started this conversation, right.

Jesse Phillips (42:37):

Then it starts then the pool, the, the pool starts to really make sense because now you're like, okay, I've got this thing worrying away. It's making this, how do I retain the, the, the maximum amount of that? And when we go back to Binance pool at the end of the day, that's our whole, that's our whole goal is like, you know, we're user focused at the end of the day, we're a global company. We started global, most companies start in a locale, then they branch out into a market. Then they branch out into the next market. We started up here servicing the world. And then, you know, it's kind of like a drip down, right? Like it's different look house, right? Yeah. Um, which is really, really interesting because it, it also mirrors mining and, and the Bitcoin idea much more fluidly. But when you go back to the pool side, if you are servicing those global users and those global users are going all over the world with that drip down mountain that you described, you know, basically finding the arbitrage, then they're gonna make efficiency here.

Jesse Phillips (43:36):

They're gonna make efficiency here. Right. You know, whether that's, that's, let's say operations then investment. And then finally, they're looking at all of the other stuff on top of the stack where they finally submit to get their payout. And that is like, you know, that's where you can exact a real change for, for real people on the ground. And going back to what you said about the price structure, right. Bitcoin at 40,000 versus Bitcoin at 10, right. We're just giving out kind of numbers here, right. That we've seen along the trajectory here, but you have minors that can't compete at 10 naturally. Right. It's just, that's, that's how efficiency works. That's how difficulty works. It's by design. But what if we can add another 9%? What if we can add a safety net? So you're hibernating up here. You don't have to ma necessarily turn off your machines.

Jesse Phillips (44:29):

You can use your, you can use your digital assets, you know, in a different way on a, on, on a platform that that will reward you for doing so, right. That's the value you can bring to, uh, to everyone. And when you start at a global top, top down approach, right. With a user focus, like that's, what's so cool. I think about what we offer is that you can offer those types of things. So, you know, you may be offering software as a service, but on the ground floor, you're impacting real people's lives, real minor's lives by just being able to, you know, maybe, maybe make them extra profit, or maybe it's more crucial than that. Maybe it's the, uh, uh, maybe it's the existential side of it. Okay. That percentage was the difference between us shutting off and, and losing jobs in, in our area to us continuing a, along this trajectory together. So I, I think that's really, you know, at the end of the day, I think that's super important. Right. And to understand that, you know, as a company, um, as a mining company, you can look towards the market for these highly optimized partners, like Binance pool and exact value in that way. And that we are on the other side, actively building different financial products and different ways of doing this mining thing to, to, to impact those people. So that's really,

Will Szamosszegi (45:49):

Yeah. Well, man, this has been so much fun. It's been a pleasure speaking with you and learning all about, uh, not only Binance pool, but, uh, your thoughts on the future of the industry. I think that this was an, an extremely insightful episode. So for, especially for anyone out there in the mining space, uh, definitely learned a lot today, but also gotta go check out Binance pool and what it is that they're doing. I know that personally, I was not aware of the in depth options that were available, uh, with Binance pool prior to this conversation. So, uh, Jesse, is there any place online where the people who are listening to this and who are minors can go and connect with you?

Jesse Phillips (46:30):

You can reach me, uh, at jesse.Phillips@binance.com. If you'd like to ask me, uh, <laugh> specific questions about it, I'm always happy to take a, a, a call. You can reach me on telegram at Jesse Phillips, J E S S D Phi L L I PS. Uh, but more importantly, you should visit our website pool.binance.com. Right? If you're in an English speaking country, you could put a little EAN at the end and it'll come up in English or should do it automatically. Um, we also offer a couple of tutorials on YouTube on how to connect to us. Um, as our system is a little bit different, we operate our account system. So if you have any questions for that, let me know. Um, we also have our VIP email, um, that is accessible on pull up.com. So, uh, come join us there, come take a look. And we're really excited to, you know, to, to provide these services for, for minors and see where we are in the next five years as we, uh, as we build this industry together. So thank you so much for your time will and all power to you. I love speaking with minors. I love talking to people on the ground floor of this. It's, you know, it's, it's what I, uh, what I enjoy in life. So thank you so much for the time and, and it's a pleasure to be on your podcast.

Will Szamosszegi (47:41):

Of course. Thank you for listening to this episode of the SAS mining podcast. Be sure to follow us on social media and YouTube for the latest updates and previews of upcoming episodes, full episodes and transcripts can be found on SA mining.com every Thursday. If you want to hear us interview a particular guest on a future episode, please reach out to us@podcastsamining.com.

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