Sazmining Podcast Episode 33: Fred Thiel on the Nuances of Bitcoin


In this episode of The Sazmining Podcast, Will speaks with Fred Thiel, CEO of Marathon Digital Holdings. They discuss the next phase of the energy industry, blockchain applications beyond Bitcoin, and more.

Will Szamosszegi (00:32):

So Fred, thank you so much for coming onto the podcast when diving through your background. It's, it's really incredible because everyone has heard about marathon, especially if they're in, uh, mining, but I don't think a lot of people understand all the different facets that you have coming into it in your career. It's almost like your background shaped you perfectly to run a Bitcoin mining company. Um, and you're quite the futurist. So, um, I think that everyone listening, you're gonna learn a lot and get a lot of value from listening to Fred today.

Fred Thiel (01:03):

Well, thank you, setting a very high expectation. <laugh>

Will Szamosszegi (01:06):

Well, Hey, I'm, I'm sure you're gonna meet it and blow everyone else away to, to dive right into it with the stuff that you're doing at marathon. What really led you on this path to deciding, to say, Hey, I'm gonna go and I'm gonna run one of the biggest mining companies in the entire world. How, how did you land in the position that you're in right now?

Fred Thiel (01:25):

Well, I've been in the tech industry for 40 years and have kind of operated in every segment of it. Hardware, software, semiconductors, internet, data, coms, internet services. Online games was a very avid gamer for a number of years and ran one of the largest digital media companies in that space games by, for a while. And so I've always been kind of at the forefront of these little bit more disruptive technologies, and I'm old enough to have programmed on punch cards and IBM 360 mainframes where I got kind of my early day start, uh, even using acoustic couplers and telex machines all the way through the advent of the PC, kind of the death of the minicomputer, if you would, and then just saw the whole internet and data coms business. And a lot of the work that I did early on in my career was actually writing software and banks.

Fred Thiel (02:12):

So I was very familiar with the banking space and my dad was a banker and, uh, my stepmom was senior economist at the O C D responsible for writing banking regulations. And so I kind of grew up in this environment where God, you know, this is a very inefficient industry and how do you make it more efficient? And, um, long story short, about 2016, uh, I got very involved in looking at kind of crypto and what Bitcoin could do. One of my former CTOs had gone all in, in crypto in 2013 and was just kept calling me saying, you'll listen, you gotta get, you gotta get in on this, this, you know, this is for you. This is the right industry. And thought about looking at building an exchange crypto exchange for trading and interconnecting, a bunch of exchanges globally. And this was very early days, but coming from a kind of family where regulatory was kind of the dinner table conversation, I thought, well, why don't I see how illegal is this <laugh> <laugh> and you know, what I realized pretty quickly was in the us, there was no way you could open a license exchange, cuz nobody would give you a license.

Fred Thiel (03:12):

I mean, a bank wouldn't even open a bank account for you if you said the word crypto in those days. So I went to Switzerland, worked with the folks at FMA there, which is the equivalent of the financial regulator. If you would, and quickly saw that a us company in Switzerland, this is post UBS and, and or credit suites and the IRS issues. They just, Americans were kind of persona on grata in the financial market there because they didn't want the regulatory backlash. And so went to list Stein and actually worked for the law firm there to get their first crypto law instantiated and then got the first licensed OTC trading desk done there. And you know, it was early days when anybody trading crypto, you kind of had to look at them little sideways and wonder, okay, now how are you talking about trading a hundred thousand BTC?

Fred Thiel (03:53):

And where are these from? And K Y C a L was kind of a little wonky fast forward to 2017 and Marico Komoto who's the former CEO and former chairman of marathon, uh, who I've known for many, many years said to me, Hey, listen, I'm stepping into this role as CEO of this company called marathon patent group. And we wanna do some Bitcoin mining. And I know that, you know, you're Mr. Technology, would you, would you join our board? So I got on the board of marathon. I joined in April of 2018 and worked with Merrick on his kind of strategy of, uh, recapitalizing, the company and, uh, positioning as a, as a leading minor. And, um, my expertise being in scaling businesses and his expertise being in really, you know, um, the financing of businesses. It was a great kind of teamwork effort, you know, fast forward to kind of last year.

Fred Thiel (04:38):

And it was clear that now was time to just focus on scaling. He had done an excellent job at getting the company financed and properly set up. So it was all about execution. And so we decided to swap roles at that point. And I stepped in as CEO, he went into an executive chairman role and then he decided that it was time for him to retire at the end of last year, which he did. And, um, that's kind of how I got involved in the mining business. I think it it's an exciting space in that we're on the one hand creating the next generation of financial systems and the role of minors is really that, of being the securitizer, if you would, you know, by processing our blocks and doing it, um, the way we do it, we're helping secure the blockchain and ensure the safety and security of data on the blockchain while at the same time effectively, if you think about the Bitcoin blockchain, it's effectively the equivalent to what T C P I P was to the internet.

Fred Thiel (05:30):

And, you know, our perspective, at least my perspective is we're kind of in 1997 in internet time, you've got this thing called an Netscape browser. You can browse some websites, but you still haven't really gotten to the point where you can write content and, uh, share content or where you can effectively own things on the internet. So, you know, 1997, if you think back to that time, it was pretty rudimentary. Um, and that's where we are today, uh, in the world of blockchain. And I, I think we're going to see with web 3.0 data separating itself from applications, data will reside on the blockchain applications will run on servers on demand you, if you think about how Amazon AWS or Google cloud or Microsoft Azure run today, there are this constantly on application, married to data architectures and web three world that can change, right?

Fred Thiel (06:21):

You only have to turn on the applications when you need them. And oh, by the way, on your customer data, you could use a CRM tool from a number of different vendors, depending on what you want to do with your data, right? And your data's independent of the application. So, you know, it's not gonna happen next year. It's not gonna happen in the next two or three years. But if you look at a lot of the money that the large venture firms are putting into the space today around web 3.0, it's all really focused on this abstracting data from applications and building these next generation systems where companies and individuals own their data. And as you look at the two primary blockchain ecosystems, Bitcoin and Ethereum, and the Ethereum like blockchains, the Bitcoin blockchain is all about ownership and security. If security is your primary concern, then the Bitcoin blockchain is where you want to build stuff.

Fred Thiel (07:09):

And with lightning in the layer, two systems that are coming online, there's no limit really, uh, practical limit on transaction speed or, or, you know, low cost of transactions. And you're seeing that with kind of the applications that strike is rolling out around the world and other people are doing there. You're gonna see a lot of identity management tools being built on the Bitcoin blockchain health data, things like that. The Ethereum blockchain is all about innovation and program abilities. So that's where people can really innovate, create these smart contract based systems and do some really cool things. But it's not a network that's necessarily, uh, built on the same security premises that the Bitcoin blockchain is built on. And as you look at the world of smart contracts and a lot of these defi businesses, yeah, you continually read about systems are being hacked. You know, there was a thing in the news this week about open sea and people being able to do all sorts of sh shenanigans there.

Fred Thiel (08:00):

So I, I think that's just the difference, right? Kind of, you've got this great sandbox in the Ethereum world where all this really cool stuff is happening. And then you've got stodgy kind of Bitcoin. And the Maxima hate me for that. But things move slowly on purpose in the Bitcoin world because it's secure because it's fully decentralized there isn't the central governance organization. You know, you don't have 70 or 80 big holders of Bitcoin that determine what happens in the Bitcoin world like you do in other blockchain. You know, we're super excited and I, I love the innovation pace that's happening here. I think there's some, you know, um, Jack, Dorsey's doing some great things. I think Jack, Muller's doing some great things. There's a lot of great things happening in the space. And so we're super excited.

Will Szamosszegi (08:38):

You just brought us down amazing rabbit hole that I want to dig further down with you, uh, regarding the web 3.0 right. And talking about how you're seeing smart contract functionality being brought into Bitcoin, be a tap route. And as you mentioned, it moves much more slowly, but that's not, uh, it, it's not a bug. It's an actual feature of Bitcoin and it gives you a lot of that security. And then you have the other end where you have web 3.0 on things like Ethereum, and it can move much more quickly. But I guess the big question that, that I want to ask you is how do you view those applications being built outside of the Bitcoin ecosystem now that you're seeing Bitcoin come up to speed, cuz Bitcoin, obviously it's much more slower moving, but at the base layer you have much more security with Bitcoin. And that is going down to the ethos of decentralization and blockchain to meant to a large degree saying, Hey, this is great that we have this. How do you think that these other cryptos fare now that Bitcoin is implementing smart contract functionality and you're seeing developers go and trying to implement with Bitcoin as the base layer?

Fred Thiel (09:46):

Yeah. I don't think it's a zero sum game by any means. I, I think just like, as you look at any technology, there's a period of innovation and evolution where all sorts of things come up, you know, there's you think of it as, uh, you know, mutation's the wrong word, but the term of nature, it really is a type of morphing that happens. And you get all these different things that start rising up and then eventually people start gravitating to the technologies in the platforms that make the most sense. And then you get some sort of Darwinism where eventually the ones that are less efficient, you know, won't survive. Look at the search engine world in world of the traditional internet, right? Google wasn't the first search engine by far, you had all sorts of search engines before that same thing in social media, you had lots of things before Facebook and yet eventually one platform managed to kind of become the most relevant because it provided the closest to what the consumers wanted.

Fred Thiel (10:38):

I think the difference between the world of blockchain and the world of the internet is that the internet is one internet. And that was because there was no economic incentive around owning the internet. It was a national security thing. The us started it with DARPA and then the universities leveraged it. And there wasn't an economic incentive ever. The economic incentive was all at layer two and above in the world of blockchain. It's very different. Uh, there are economic incentives in owning the governance token and issuing the governance token again in the world of Bitcoin, that's fully decentralized. There isn't, uh, an economic interest there, but in the other blockchains, there is. And so as you have this kind of development, that's going to occur, there are incentives for companies to develop their own layer. One blockchains question is, will they survive or not? So I tend to find that development over the next three years will migrate to layer two and layer three.

Fred Thiel (11:26):

And you're really going to have either the EVM kind of theum world, or you're going to have the Bitcoin world, but you're gonna have all these bridging protocols between them and these bridging tools that will allow you to, for example, there's a protocol that's being built for settlement where it's a proof of stake model, but it uses proof of work leveraging the Bitcoin blockchains proof of work. So not having to do double work as the independent control, such that the proof of stake is truly managed in a way that can't be controlled. And so I think you're gonna start seeing some of these hybrids where it's kind of proof of stake with a proof of work component to it, which piggybacks on top of the Bitcoin blockchains proof of work. So I think that's super exciting and we're gonna start seeing also the ability to where people are gonna just start the, what I call the consumerization, a little bit of Bitcoin mining and crypto mining in general, where you know, that people are gonna set up things in their garage and in their basement and, um, run various coins and mind various coins.

Fred Thiel (12:25):

And you'll eventually start seeing this becoming a integrating to a core part of kind of infrastructure and ecosystems, you know, as power generation moves from central utilities out to community edge power generations. So a community would have its own solar panels and battery storage. They may want to add a small number of Bitcoin mins as a way to monetize excess electricity when they're generating more than they're consuming, use that to pay for the whole solar infrastructure. And then, you know, take that at a larger scale and you'll find cities wanting to do that and schools possibly doing it. And so Bitcoin mining starts becoming an integral part of the energy infrastructure system as a key financing tool for financing, this renewable energy that we all depend on. And you know, the thing people forget about the energy world is a, it's not a zero sum game.

Fred Thiel (13:10):

There is lots of energy available if you just invest in it, which is something Bitcoin miners obviously are doing. The other thing is solar and wind doesn't run 24 7. And so there are times of the day where you have free energy is being wasted because the grid can't use it because consumers don't want it. Industry doesn't want it. And so mine Bitcoin with that energy, cuz otherwise you're wasting it. You're essentially having to throw it away effectively, uh, cuz you can't store it. So I think we're gonna see a lot of changes as proof of work really becomes just a function of home solar systems. It becomes a function of some electric vehicles. It'll just be a built in function. And uh, that's gonna be a real exciting time, I

Will Szamosszegi (13:46):

Think. Yeah. When you talk with a lot of these miners, you see that a lot of them are talking about mining and energy in this way. And the people outside the industry are the ones really attacking Bitcoin for its energy use. But I don't think that they really understand at its core what's happening when these miners come in. And as you mentioned, like many of the other miners, uh, big miners who understand how the energy sector works and understand how mining works, you see that it's very good to help spur renewable development. Um, that it brings me to this next point or this next question for you is where are we in this journey? Cause as we see today, it looks a lot different in mining than it did four years ago. And I'm sure that four years from now the mining industry's gonna look a lot different.

Will Szamosszegi (14:32):

Uh, we had the haveing back in 2020, and so the next one's coming up in 2024. So there are so many different factors here. And you guys, as, as a very big player in this have a lot of different variables that you have to take into account. So I'll, I'll leave it more so open-ended but how are you looking at this entire space as a minor and as a participant and understanding that you're dealing with all these market forces that are quite frankly out of any minor's control. How, how are you looking at it today? Uh, in the beginning of, uh, 2022,

Fred Thiel (15:04):

I think the environment has changed over the years for one thing, minors, aren't selling their Bitcoin, they're holding their Bitcoin. So that's impacting the available supply of Bitcoin in the marketplace. And since the having in 2020, obviously they're only 900 Bitcoin minted a day or rewarded a day. And so as a minor, you know, we're obviously constantly competing with our colleagues in the industry for those 900 Bitcoin and you know, in a little over two years from now, 26 months, we'll have another having and then it'll be 450 Bitcoin a day. So we're very focused on growing our capacity as quickly as possible because we think growth is gonna get harder and harder over time. If you look at the expectations of global hash rate growth, you take bid UDAs numbers. For example, they're expecting it to go from, you know, we ended 2021 at around 180 ex aha or between 170 and 190.

Fred Thiel (15:56):

So I'll use 180 as the average. And you know, the expectation is we'll be at 320 at the end of 2022. You know, that's not too far short of a doubling and then figure another 50% increase in 2023. And then you have a having in 20, early, 20, 24, March of 2024 at this point. So you're essentially looking at a threefold increase in cost to mine between now and the haveing. And when the haveing happens, it'll double that cost. So, you know, a six X increase in the cost of mining. If you are going to deploy a lot of minors next year, then the rewards you're gonna get are gonna be that much less than if you deployed that, um, hash rate today. So we're very focused on as quickly as possible deploying as much capacity as possible, such that the harder it gets to mine in the future will already have our minors in place will already have paid for them.

Fred Thiel (16:48):

And we'll be able to benefit from that. Uh, granted we have a very unique model in how we operate. Uh, we don't invest in infrastructure. We don't own the infrastructure and we're fully focused on being a hundred percent carbon neutral. So what that means is all our investment dollars are going into just minors. We're not buying facilities, we're not tying down power in the traditional way. And so unlike some of our competitors in the industry, we have the ability to, you know, when our hosting agreements are up, pick up our miners and move somewhere else. And we personally believe that while 2021 was a year of many constraints, there weren't many miners available to purchase and there wasn't hosting capacity available to put mins into 2022, especially the back half of 2022. You're gonna see a huge amount of capacity to come online, both hosting facilities and, uh, availability of minors.

Fred Thiel (17:39):

And that's gonna continue in 2023, we believe the power companies are gonna play a bigger and bigger role in building and investing in hosting facilities. Even some of them doing their own mining. You know, I would say, you know, keep your eyes peeled to the news lines because more than likely over the next three to six months, you'll see a number of power companies announce they're actively coming into this business and power being our single biggest input cost by partnering with the power companies and them providing the hosting for us. We think we're uniquely positioned for the long term and our cost today to mine, a Bitcoin energy plus hosting is a little over $6,000. So six X increase in that cost would be $36,000. So as long as Bitcoin is trading somewhere north of $60,000 in 2024, we'll still have a very profitable business that won't necessarily be the case for some other miners whose cost structures don't provide for that low cost today. So I think you'll also see some consolidation down the road in this

Will Szamosszegi (18:35):

Business, hearing you talk through it is really interesting how you guys take a very mathematical approach to this and a very pragmatic approach. Sometimes when you talk with minors, who are a lot of times just getting into the business, they won't take these things into account. It's crazy because it's something that directly affects your bottom line. And so you wanna understand where the hash rate's going and where the price might be going, uh, in terms of the machines that you guys have online because you're not going and you're not investing in that infrastructure. It allows you to take a more aggressive approach to actually scaling up purely with minors. What are, do you have any highlights or recent updates in terms of some of the deployments that you have going out and some of the areas in which you're focused on mining, is it EV all in the us, or are you looking at any other countries around the world in terms of where you're placing those minors? We made

Fred Thiel (19:27):

A decision to stick to north America at this point, we're only in the us, we're not in, um, in Canada at all. The reason being rule of law is really important to us. Uh, you know, we're a public company. Last thing I want to do is put 500 million of miners in a location where all of a sudden, some Jeeps roll up because there's a new government and they've decided they wanna own my Bitcoin mins and there's nothing I can do about it. So, you know, you've seen what happened in China. You know, last year they made crypto mining and all the crypto industry effectively illegal. And so those miners got shut down. Kazakhstan is having power problems. Europe, not for regulatory reasons is having some problems with energy because they decided to curtail their nuclear and their fossil fuel power generation rely on renewable a little too early and they hadn't built up enough capacity such that, uh, they could deal with shortages of energy.

Fred Thiel (20:20):

And now when they have the hydro is under producing and the wind isn't blowing enough, they're having pretty big energy shortages in the us. We don't have those issues. We generate 14% more energy than we consume in this country. And that's even before all of the new, renewable energy that's coming online here this year and next year by people like NextEra and constellation comes online. And so you're gonna see gigawatts of additional power come online in the us and energy. If you can't sell it, you can't earn any revenue. And so, you know, having customers like big Bitcoin miners, like ourselves is a huge benefit to the power companies because they now have one large customer who will more than pay for the cost of that infrastructure that they're building. But more importantly, if the grid does need the extra electricity, you know, they can always curtail us and will voluntarily curtail such that they can take, you know, a hundred megawatts, 200 megawatts and put it into the grid as opposed to telling you as a consumer, Hey, I'm gonna have to turn you off your air conditioner because it's 105 degrees where you are, which you're not gonna want.

Fred Thiel (21:22):

So I think most people, most consumers, most voters would prefer that, Hey, shut down the Bitcoin minor. When I, when there's a shortage of electricity, especially if the Bitcoin minor volunteering to do it. So, and I think most of my peers in the industry are all generally speaking, you know, good citizens and want to participate, but we like north America, good rule of law. There's some great markets. Texas has an unregulated kind of power grid through ACOT. You have other, uh, grid operators, uh, throughout the us who are great places. We today mine kind of Nebraska down through to Texas and, you know, we'll continue to expand across the country wherever it makes sense. We don't want to be too concentrated in any one area such that, uh, you know, we suffer any particular regional outages or other things because of, you know, weather, climate, energy conditions, grid technology, regulatory issues, or whatever, the bigger you get, the more you have to worry about those types of risks, where when you're small, you don't, and you know, we're scaling from, if you think about, you know, we exited 20, 21 nearing kind of four aha of capacity and this time next year.

Fred Thiel (22:27):

So January 20, 23, we'll be at 23 ex aha. I mean, that's a huge jump in capacity. And, you know, that's all based on the mins we have on order today. So we'll have, you know, 199,000 miners. And by the way, people always ask me why couldn't we order another thousand miners to make it around 200,000. There aren't any available. We'll be one of the largest miners globally at that point and all doing it in the us. And, you know, looking forward to kind of contributing to the Bitcoin ecosystem as a great participant and

Will Szamosszegi (22:54):

Citizen. That's great. And it makes a lot of sense. It it's a lot easier to move 199 miners than 199,000. So <laugh>, you don't wanna, that would be quite quite the feat. Uh <laugh>. So going off of that and talking about your view of the energy sector, it it's fascinating cuz one of the things that we've tried to do on this podcast is speak with a lot of people who understand energy, who are active in the energy sector and get their views on it. And one of the interesting things that I heard from someone who's in the mining space, uh, Lee Bratcher president of the Texas blockchain council, when those rolling blackouts were happening in Texas, the minors, they were all doing exactly what you mentioned. They were curtailing their load and they were contributing that to the grid. And I think it's, it's like a virtual battery and it build builds grid resiliency. Um, so I think that that's something that's going to continue to happen, but just going off of that, going towards the next phase of this industry, what do you think is going to be happening with the energy sector in this next phase? Right? Because you mentioned that they're moving towards possibly becoming minors, but in this whole timeline, is this something that's hap that you see happening in scale, like over the next six months to a year? Or is this something that is maybe like three to five years away,

Fred Thiel (24:13):

You're going to see some energy companies putting their toes in the water this year, actually in the next six months. And you know, I'll let them make those pronouncements themselves. But you know, we're very familiar with the number of them because we're partnering with them. You'll also see as you look at the renewable energy space. So there, there are two challenges. One is renewable. Energy is intermittent, right? It basically there's this concept called the duck curve, which is in the middle of the day when consumers actually aren't using electricity. Most consumers use power from 4:00 PM until eight or 9:00 PM at night because it's air conditioning, heating, it's washing machines, dishwashers, cooking, et cetera. Most renewable energy is made during the day, middle of the day. And so that duck curve, cuz it represents the belly of a duck on the demand. Normally the grid would shut down the power generator, Hey, don't send us more power.

Fred Thiel (25:02):

So they could use that excess energy for Bitcoin mining so that it's not losing that value and return on investment from that Bitcoin mining would help pay off a renewable energy deployment so they could deploy even more. And then they take a portion of that renewable energy during the middle of the day. And they use it for essentially making hydrogen green hydrogen. The way you make green hydrogen is use electricity and you take a water molecule, you split it into oxygen and hydrogen and then you store the hydrogen. And then when your renewable energy source goes offline, because there's no sun or wind, you then spin up a turbine that runs hydrogen and you have very clean energy generation for the dark hours. And that's a much better battery than lots of physical batteries because it's, uh, easy to store and uh, you can turn it on and off as you want it.

Fred Thiel (25:51):

Whereas batteries are very expensive and when you're not using them, they just cost a lot of money. I think what you're gonna see is the renewable energy companies are gonna be doing Bitcoin mining, use Bitcoin miners as a capacitor for when the grid needs excess capacity. They can take it away from the Bitcoin miners and bleed it into the grid. They'll use hydrogen for generating more consistent base load energy, which will give them more of a 27 24 7 profile, which will allow the rest of the power industry to start shutting down more fossil fuel. Because one of the key things is you need nuclear and you need fossil fuel power generation for that 24 7 base load, which renewable can't do yet, but renewable will be able to do it with the augmentation of energy storage and hydrogen. And so as that starts developing, then what you're also gonna see is this movement of power from central utilities out to the edge where communities start generating their own power, which essentially brings us back to a world where the grid was originally designed for, which is balancing energy load, as opposed to transmitting energy load.

Fred Thiel (26:53):

You know, you can only send electricity 500 miles before it starts being highly wasted. And in the us today, arguably we waste upwards of 8% of the energy we generate through just load losses. So not curtailment. This is just loss of energy because you're sending it down a wire and you know, that is enough gigawatts of energy to more than power, the whole Bitcoin mining industry globally, which again, you know, the whole Bitcoin mining industry globally uses less than 0.2 of a percent of the electrical energy generated in the world. So very, very, very small amount of energy. And we're very focused also on deploying latest generation hardware. So we're deploying S 19 XPS in the back half of this year. So our fleet will be 50, 50 X, nineteens and X 19 XPS. The XPS are 30% more energy efficient than S 19, uh, J pros. You know, in that way, we're also reducing the energy consumption, uh, from our mining operations. And we're very focused as an investor in investing in technologies that will continue to bring Bitcoin mining to a net, zero energy

Will Szamosszegi (27:56):

Going off of that with the regulation that's going to be happening. A lot of people are looking at it. What's gonna happen with regulation in the us. What's gonna happen in some of these other countries. And how is that going to affect the mining industry and mm-hmm <affirmative> and, uh, the sector as a whole. How do you think in particular, the us is going to respond now that, I mean, we're talking about much more institutional capital coming in. We're talking about really being at the beginning of this industry in many ways like 1997 for the internet, you have a lot of people talking about how scary this could be. If things are put into law, they could limit this industry. Or if the us makes a crazy move like China did, uh, what, what do you think the possibilities are? How this will shake up in the us really

Fred Thiel (28:40):

The best way to figure out what somebody's gonna do is look at what the incentives are driving in an industry. The Bitcoin in the crypto industry today is a multi-trillion dollar industry. If the government were to shut it down completely, a you have to ask the reason why in the case of China, in the case of Russia, in the case of countries where they've lost control of their own currencies, you have to shut down crypto because it's an easy way for people to put their value, their assets into crypto. And at that point, it's outside of the current financial world that that government controls in the case of China, for example, it was the issue that they wanted to be able to control people's assets and control currency. And the minute people put money in Bitcoin, it's outside of the country, you know, instantly. And so they needed to put a stop to that, to control their currency.

Fred Thiel (29:30):

Cause that's part of how they want to control their economy. In the case of Russia today here kind of some bluster about they're gonna make it illegal, same reason they need to control the economy. If Oli GARS and people put all their money into crypto, Russian government can't freeze it. They can't seize it. They can't do anything, right? It's think of all the reasons why Bitcoin exists. I was at a conference a couple weeks ago in Switzerland, the CFC conference, the crypto finance conference and spoke. And one of the other people speaking was a senior member of the bank of England. This official was asked the question, is the UK going to ban crypto like other countries? He said, well, you know, there's, you gotta realize we have a very well developed economy. And our financial systems are very well developed. So we don't need to control currency flight like that in the same way.

Fred Thiel (30:15):

You know, we're more focused on protecting consumers. And I think in the us, it's a very similar thing. I think if the us had wanted to disallow people from holding assets in crypto, like they did with gold back in the thirties, you would've seen that long ago. Uh, crypto isn't a threat to the us dollar Bitcoin is an asset class that like art, any collectibles will be a portion of people's store of value. Bitcoin is a store of value. It's not a security, it's not a monetary unit that is gonna displace the dollar anytime soon. So I don't think the us government feels threatened in that way. What I think the us regulators are focused on, however, is things that look, act and smell like banks or securities should be regulated the same way those incumbents are regulated. So if I'm raising money for a company in the traditional kind of equity world, I sell shares of stock in my company to investors.

Fred Thiel (31:06):

Those investors need to have certain protections. Well, if I'm issuing tokens to people that represent an ownership interest in my company or a, a right on royalty streams or whatever, it might be, those investors should have the same protections. And so why do you necessarily need a different regime of regulation for securities if one's digital and one's not. So there's some logic in having a common regulatory framework, stable coins and alt coins. If I'm taking deposits from consumers and then I'm issuing them something else, well that's what a bank does. It lends money against deposits? Well, maybe those alt coin and stable coin issuers should be licensed the same way banks are so that the consumers aren't harmed because as investors in stable coins and alt coins, we'd all love to have the F D I C ensure them for us well, but if they're not banks, they can't do it.

Fred Thiel (31:55):

So I think you're gonna see a lot of regulation around alt coins, stable coins, some of the more creative instruments that are out there, more from a consumer protection perspective and trying to create a unified regimen or regime for regulatory frameworks. You'll see the white house has been, there's been some noise lately about an executive order, the white household issue. Um, not that I'm privy to it, but my belief is that it will be very focused on these things, consumer protection, and also defining who of the many regulators that exist in the us is actually gonna be responsible for it because you know, the SEC's responsible for securities, the CFTC for commodities, you've got the banking, treasury, et cetera. You've got all these people who are responsible for different aspects of this. And there's in clear guidance, especially when it's not clear whether a particular token is a security, a utility coin or a store of value.

Fred Thiel (32:46):

So yeah, I think the, the one cryptocurrency, if you would, the one token that has the least to fear is Bitcoin because the government has a very clear stance that Bitcoin is property. It's a commodity, it's not a security, it's something you own. You pay capital gains on it. The IRS, there's a little check box on your 10 40 form where you, you know, do you own any, any crypto, do you own any Bitcoin? And I, I think, you know, Bitcoin is here to stay in many other cryptos as well. I think there's a lot of cleanup that has to happen, but again, it's like any new industry, you kind of let this Darwinism happen. And at some point the, the regulators have to step in and create some order. You know, I'm not pro regulation from a government oversight perspective when it's done in excess, I think the right amount of regulation to give people comfort.

Fred Thiel (33:33):

So they understand how the market's going to operate. And they know there are rules around the market and consumers can have protections only will adoption of crypto accelerate. Uh, you know, the fact that whether it's Robin hood or whether it's, uh, Coinbase, you can't call when there's a drop in the market, because your trade isn't being executed, whether it's stocks or crypto, that's a consumer issue. And so that needs to get fixed necessarily. So I, I think, you know, good regulation, light regulation and clarity will just make the institutional investors put more money into this business, which will be great for everybody. It'll give consumers a reason to hold some, uh, of their assets in crypto. And you'll start seeing normal main street banks rolling out digital wallets, where people will be able to custody and buy and sell Bitcoin and ether, whatever other cryptocurrencies make

Will Szamosszegi (34:19):

Sense. Yeah, that makes sense. They wanna protect me a consumer. They don't want a random group with a white paper to go out and raise $10 billion with a kitty coin or something. They gotta do their job. And I guess, uh, it's gonna be interesting to see who's in charge of regulating the industry and how that's all gonna play out. So in terms of minor financing where it is today and predictions for the future, obviously a lot more capitals float into the space. You're seeing a lot of companies try and go public, uh, via specs, or just get access to those capital streams. How do you see this playing out for the rest of the year? And over the following years, as the industry continues to grow, becomes more competitive, more institutionalized. How, how is all this looking today? And, and over the next few years,

Fred Thiel (35:06):

Go back to the tech boom of late nineties. Again, you know, we talk about the internet in 1997, I took a company public in 2000, that was in the internet of things space. And I remember being on the road show, talking to investors and they were saying, you know, you gotta lose more money. Everybody on the internet is losing lots of money. So you gotta lose a lot more money to get more eyeballs. And, you know, we weren't in the eyeball business. And so I found it kind of funny because in 2001, when we did our secondary road show for that company and, you know, the internet crash had happened as opposed to there being 30 other people out raising money at the same time as I was, I was the only one. And they were saying, thank God you guys are profitable. <laugh> yeah, what's happening now is you've got all these companies, all this investor dollars chasing Bitcoin mining, you know, they're arguably 23, 24 publicly traded or on the 18 now listed and six more on their way, whatever the number is Bitcoin mins.

Fred Thiel (35:58):

And they're not all gonna survive long term. You've got a lot of capital, arguably, you know, somewhere in excess of, uh, 15 billion, that's gone into the space in investment capital. And as people continue to need capital to grow, it's gonna really be a kind of, you've gotta be a quality company with a good business. It's gonna be a lot harder for the company that you know, has thousand miners today and is going to have says they're gonna have a hundred thousand miners next year and is gonna have to go out and raise money to do it because an investor's gonna have a choice. I can either go buy stock of one who's already public or one who's, you know, got scale and stability and low cost. Or I can bet on somebody who says they're gonna do it, but they don't have orders yet for minors and they don't have hosting, et cetera.

Fred Thiel (36:42):

So I think you're gonna start seeing a maturation of the capital markets, and it's gonna get harder for newcomers unless they have a unique angle on what they're doing, you know, free energy, they've developed their own minor. And so, you know, think about the constraints in this industry. It's access to power access to hosting access to minors, and then what prices you're paying for that. And if somebody has a unique spin on it, then they'll be able to raise capital, not unlike in the technology industry. If I were to come up with a new way to do online search, I'd have to prove to somebody that I'm 10 times better than Google at it. And that I could somehow be successful, I think, or the automobile industry, which is a very mature industry. You know, if you're an upstart, you know, there have been very few upstart companies that have succeeded.

Fred Thiel (37:27):

Tesla's, you know, a unique case, for example, of a company that's brand new to such a mature industry, but they're leveraging a disruptive technology to do it. And I think over the next three or four years, uh, larger minors will kind of become more and more established. And you'll have like in any typical industry, four or five large players, handful of medium tier players, and then a bunch of small niche players. And, you know, somebody will come up with something disruptive and eventually display us, who knows that's the way these, these markets work. And I'm super excited to see all of the technology innovation. That's gonna be driven by all the capital that, you know, we're all generating as minors because we're not selling our Bitcoin. We're gonna do something with it. We're gonna reinvest it. And it'll all be in next generation technologies.

Will Szamosszegi (38:10):

What are you most excited about right now that, that you're seeing it could be mining related or, um, tangential to, to exactly what marathon's working on? Like what, what technology from the technologist himself <laugh> are you most excited about, uh, that you see right

Fred Thiel (38:26):

Now? Very excited about web 3.0, and by that I don't mean the metaverse. What I do mean is the, the abstraction of data from applications. So, you know, know today, if you're using SAP for your finance system, the data is held by SAP. It's not held by you. If you're using Salesforce for your CRM, your data's held by Salesforce. If you're doing social media, all of your content is being held by Facebook and oh, by the way, they're monetizing it and making money on it, uh, and on you. So by data coming down and residing on the blockchain, you resolve a lot of problems for one thing, I, as the owner of my data can control who can use it and monetize it. And I can choose to lend my data to, or provide Facebook with access to some of my data. So I can have access to some of their services, or I can have them pay me for my data because I don't want to use their services, or I can tell them, no, you can't have access to my data.

Fred Thiel (39:18):

So data ownership becomes very important and the blockchain is a great way of doing that. Same thing applies to your healthcare data. You know, your medical records, you go to a doctor, you can give them access to view your data on the blockchain, but they're never copying it or being able to hold it. So when your data only resides in one place, granted, you know, on the blockchain replicated millions of places all over the world, can't be ransomware to ever because you can't, reencrypt the blockchain, right? That's the whole premise how the blockchain is secure. So ransomware disappears as a business completely. You start doing things like, okay, this is something Michael sailors talked about. And the folks at Twitter are starting to talk about as well, where basically, okay, if you want to communicate with me on Twitter or DM me on Twitter, or send me an email, you have to have staked at least a hundred Satoshi.

Fred Thiel (40:03):

And here's why if you send me a bunch of spam or you DM me a bunch of trash, or you're trying to do something fraudulent, you can lose that stake. So imagine all these spam houses that have, they're sending, you know, millions of email accounts a day they're using, they'd have to stake a lot of money. And then if they're caught spamming, they're gonna lose those stakes. And the financial incentive of spamming will disappear. The financial incentive of trolling will disappear. And so instead of having a central authority, regulating that, let me, if I don't wanna receive your emails, guess what hand over those Satoshi? I think we're gonna see a lot more of that. Where as soon as data moves down onto the blockchain users, start getting control of their data. You now have a real, the user gets their power back and companies like Facebook will have to deal with you, the consumer to get access to your data if you wanna give it to them.

Fred Thiel (40:51):

But the key thing is you'll be in control of your data. Data will never be in transit anywhere, and it won't be able to be a ransom word, but I think that's, you know, that solves a foundational challenge. That's really critical the internet today. Wouldn't be what it is if it wasn't for the apple smartphone or the smartphone in general, not just apple, but Android as well. Why this is the most ubiquitous human machine interface on the planet. And 70% of what people do on Facebook, YouTube, whatever is all done on the phone. So if you had to do that at your desktop, it would never have blossomed into the industry that it is today. And I think in the world of blockchain and crypto, we're not quite there yet. We don't have that key technology that all of a sudden makes this ubiquitous all over the place.

Fred Thiel (41:34):

And that will not be a hardware device. I think it'll be software, but you know, that application, that set of tools that transacting trading, viewing, et cetera, across the broad internet, think of it as, uh, what the Netscape browser was to being able to read stuff on the internet. Google was to discovering it. We're not there yet. And that's what I'm excited about. You know, those are innovations that still have to come. And, uh, you look at what, you know, Andreen Horowitz and the big VC firms are doing. You know, they're putting billions of dollars into coming up with what the next, you know, if you would, Fang stocks are gonna be in the, um, Fang as in, you know, Facebook, Amazon, apple, et cetera, are going to be for, you know, web 3.0, and I that's super exciting. And crypto and blockchain obviously are core parts of that. And Bitcoin, mining's a core part of that. So that's what I'm super excited about. And, uh, you know, I've thankfully been in the tech world for long enough time to see a lot of change. And, uh, I, you know, I'm very excited to see what's yet to come

Will Szamosszegi (42:30):

The most interesting conversations that I feel like are the ones where you're speaking with people who not only an understanding foundational understanding of how the system works, how obviously markets work economics and the basic fundamentals of running a company, but then who can take at that next level and start talking about, okay, what if we take this innovation here, this innovation here, how do they overlap? How is this going to look? And, yeah, it's, it's very clear after speaking with so many people that we're still in such the early days, that 97 is, is a stat that's been thrown around. But also just when you look at how the mining difficulty works, if every four years you have a having, and this thing is the last Bitcoin's being mined in 2140, just given that much time to innovate with Bitcoin, it almost seems like this type of trajectory that we're on is almost inevitable just from where the incentives lie and, and having big minors like you guys coming in and help creating a more efficient system. A more sophistication in a mining industry, I think is really important because later on, if you believe Bitcoin is going to achieve a lot of the things that people talk about, you need that layer one to be extremely, extremely secure and tied to real world energy. So I got two questions left the second to last one. Uh, one I'm about to ask is gonna be related to your views on Bitcoin is money. And then the final one is, uh, what I like to call the Peter teal question. So <laugh>,

Fred Thiel (43:58):


Will Szamosszegi (43:59):

The, this one first here though, is in terms of Bitcoin, how do you view it in relation to what it is as money? A lot of people are talking about Bitcoin being this extremely, extremely disruptive innovation, not just at the technology level, but being the killer application for blockchain because it's tying energy to real world money. And it's being tied to, to real world money through energy, through minors like yourself and everyone else around the world that are decentralized, no single minor, no single government, no entity can change it cuz it's a distributed decentralized system. So what, what are your thoughts in terms of the implications of this technology and Bitcoin in how humans relate to energy and money?

Fred Thiel (44:45):

Okay, well sit down, uh, you know, brew a cup of coffee. <laugh> I, I could do a whole kind of doctoral thesis on this, but high level, everything that exists is a combination of energy and information. Molecular structures are just energy with information. Cellular structures are energy and then DNA, which is programming information, if you would. So everything that exists is a combination of energy and information. Bitcoin is the most efficient way to convert energy into something portable that is fungible. You can't take a tank of hydrogen and use it for a lot of things other than burning the hydrogen or whatever else, other inert properties, intrinsic properties, uh, hydrogen has, but you can convert all sorts of energy into Bitcoin and that Bitcoin, you can now use for all sorts of things. You can use it to pay for food. You can use it to pay for transportation.

Fred Thiel (45:35):

You can convert it back into energy. So, you know, Bitcoin is the optimal way to convert energy into something fungible and portable. That's how I kind of dumb it down. I know the hard money experts would you feel I'm giving very much of a kindergarten explanation here, but that's the way I explain it to people around a dinner table at Thanksgiving. It's kind of, you know, well, what is Bitcoin? Well think of it as it's essentially just energy in a very portable form. And when it is in that form, you can now use it for lots of things. Now, Bitcoin, as a currency, you know, what are important characteristics of a currency? Well, people want currencies to be relatively stable because there's an understanding that you and I have about a dollar bill and what its purchasing power is. And granted, yes, it's suffering from all sorts of inflation and its value decreasing, but it's not fluctuating 50% a day.

Fred Thiel (46:22):

It's moving over the course of a year. The dollar arguably is losing 15% a year in value in purchasing value. So if everything we're denominated in Bitcoin and there wasn't another currency, yeah. Then you could consider Bitcoin a great currency. And I'm not saying it doesn't have the properties to be a currency or anything like that. It's just today the way the regulatory frameworks operate and with the relative illiquidity, there is in the market, meaning that not very high volume is needed to move the price of Bitcoin a lot and create volatility. You know, Bitcoin is taxed like a long lived intangible asset, which means if I buy a bus ticket with a Bitcoin, I have to worry about the capital gains tax on that Bitcoin compared to when I bought it. So there's friction today in our systems for using Bitcoin as a currency, which I think over time will be ameliorated.

Fred Thiel (47:08):

However, I think that the lightning network and stable coins are a great short term step there, meaning you can hold your assets in Bitcoin. And once a month you transfer some Bitcoin into stable coin and that's what you use for your spending. And it's one taxable transaction a month and you're off to the races. Well, the government issue a central bank, digital currency, I fully expect most Western governments to issue what we'll call a wholesale digital currency, which replaces fed wire swift, all of these interbank payment settlement systems. It won't be a digital currency where you as a consumer open an account at the federal reserve for you, us, you know, central bank, digital currency, they'll let the banks manage that. So the fed doesn't wanna be dealing with consumers. It's not structured to not designed to doesn't have the governance rules and you know, banks need to take deposits and do lending.

Fred Thiel (47:59):

They'll continue to do that. The us dollar today is very digital as it is. It's just, the challenge is the value of the dollar because government can print as much of it as they want, and they can issue debt, the purchasing value of the dollar declines, uh, over time. And so Bitcoin being a very finite asset in it's the number of Bitcoin that'll be available is a great store of value. And I think that over time, you'll see digital currencies becoming more than norm, but that's gonna take quite some time, uh, you know, today, Sweden. So I'm Swedish. Originally you look at Sweden, they're 97% cashless today. I mean, you can't buy a bus ticket with cash. People, look at you funny if you have cash and it's not because of any government regulation, it's just, people are very pragmatic and practical and you know, everything's done on your cell phone, in the us.

Fred Thiel (48:42):

We still have 30% of our economy in cash today. Uh, even during the pandemic, we still have 30% of transactions being done in cash retail and, and general purchases. So, um, you'd think with all the eCommerce going on, it, would've all gone digital cuz you know, credit cards effectively are digital currency. It's just fee out based. So if you think of the world that way you can say that. Well, 70% of our economy today, which is being done digitally though in us dollars is being done in a us dollar stable coin called the us dollar, right? So we're 70% digital and then we have 30% that's done in this paper unit of this stable coin called the us dollar. So what benefit do consumers have of having a central bank issue, digital currency? It's not really gonna impact the consumer now, will it impact banks and settlement than international transactions?

Fred Thiel (49:27):

Absolutely. And so by settling trade digitally, you shave time off, you eliminate costs in the intermediaries, but you know, there's a whole ecosystem of companies and institutions who live because of that friction that they create today. And they will eventually have to evolve or be eliminated just by the advent of these digital currencies. But, uh, I think Bitcoin is a currency that we spend on a daily basis. You need to change the tax regime for that to be practical. And that's likely not gonna happen soon though, when you think about it, the IRS has spent a lot of money building tools to be able to look at money movements on the blockchain. And, um, I think is a pretty good handle on taxes. So it wouldn't surprise me if within five years you saw Bitcoin being viewed more as a, um, you have to have a certain amount of it to be taxing on a capital gain basis.

Fred Thiel (50:24):

If you're just, you know, if you're buying and selling less than 10,000, $50,000 a year of Bitcoin equivalent, uh, you're not gonna have to declare it. So that'll allow for more active use of circulation, but again, it comes down to practical. What's the friction involved, you know, if I'm gonna pay for something with my phone, I can choose in my apple wallet to pay with a credit card, my debit card, apple cash, whatever. As a consumer, it's not gonna bother me. It's where do I wanna hold my money? I wanna hold my assets in Bitcoin because that's not gonna lose value. The dollar might, but I can move money from Bitcoin into the dollar once a month and get away with it. So, um, I know some of the hard money maxes will hate on me for that, but that's kind of my, my thinking on that. I, I think these things take time, you know, in 2000, uh, when the company I took public in the internet of things world, I was sure that by 2005, everything would be connected to the internet, cuz it just made all this sense. And here we are 20 plus years later and it's still not quite there. We're getting there, but it's still not quite there. I think this is gonna take time too. It's

Will Szamosszegi (51:25):

A great answer. <laugh> I, uh, I, I love digging into these types of things as well with minors because they just understand the energy side and uh, it's clear that you've, you've gone down the rabbit hole and uh, really thought, thought that through. So, um, appreciate you sharing that final question. The Peter teal question. What is one belief you hold to be true that the majority of people would disagree with you about?

Fred Thiel (51:50):

I think that we have a tendency as a society and as a species to look at situation and project on the future, an outcome, which is unreal. And I'm very optimistic about society. I'm very optimistic about what we're gonna do relative to saving the planet and climate change. If you believed what the naysayers were saying about Bitcoin and energy consumption a few years ago, Newsweek even said by 2020, the Bitcoin will use all the energy on the, on the planet. Well, you know, we're at 0.2 of a percent <laugh> of the global energy. So got a ways to go before we get there. Same thing in the 1970s, we're gonna run out of oil by the 1980s and uh, the planet won't have, uh, sufficient supply and here we are, and we're still, there's plenty of oil in the ground and we're actually moving away from oil.

Fred Thiel (52:42):

The world will populate itself into non-existence well, population growth is slowed dramatically and by 2050 we'll actually see global population decreases based on current demographic trends. You know, so all of these disaster scenarios that people have and project, I think the older you get the kind of developer realization that, you know, we adapt and evolve much better than people think and we solve problems through human ingenuity. And so I tend the one area where people would always argue with me is, uh, it's kind of this optimistic perspective I have on, you know, we will survive. We will make it through this, no matter how bad it is, we're gonna figure out a way to do it because that's how we are designed as by nature to be, you know, humans are designed as survival machines, just like a virus is a survival machine. Look at the pandemic.

Fred Thiel (53:33):

You look at, you know, COVID, it went from a highly lethal disease to a disease that spread easily because as if it was killing off its hosts too much, it wouldn't survive. And so what it does is it ends up surviving by making itself benign instead of malignant. And the common cold is a, COVID like it's a coronavirus and it may have been something absolutely lethal sometime in the past. And now every year you get a cold. And so what, so I think, uh, you know, we will find a way to innovate and survive always through all these there's no financial crisis. We won't be able to come out of. Will people get hurt? Yes, that always happen. But I think if you look at the greater good, um, you will always find a way to resolve it. So, you know, I, I tend to be verbal optimist if you would, not to the extent of saying, oh, no matter what things will be good, no, they'll be pain and they'll be trouble, but we will always find a way to resolve issues. Uh, whether it's an asteroid coming to hit this planet or whatever it might be, I think will find a ways to solve these problems. That's one area where people will argue with me and I I've spent more time in board meetings having these types of discussions with companies around the world over years, more times more often than not, I'm proven.

Will Szamosszegi (54:52):

Right. That's great. I mean, crypto, uh, Bitcoin, they have the Bitcoin maximalist, the answer you just gave make makes it sound like you're a, a human maximalist in a way I am. And, uh, and that's great. I think the more people that take that approach and are optimistic, that's what leads in my own personal opinion to a lot of the innovation that you see and the overcoming of challenges is cuz people go and they take that approach and they find that solution and they see the silver lining. And, and without that, there doesn't seem to be as much hope, but when people do have that type of view and I'm of, of that belief that you have people out there that take that type of approach, you have the ability to do pretty much anything. So thank you for, for that answer. Thank you for coming on. I really appreciate it. I think that's a great Sherry happy note to finish on.

Fred Thiel (55:40):

Thank you very much. Really appreciate I'll I'll share one little piece of Peter till trivia with you just because, you know, we share the last common, last name. And so, uh, there's always kind of a lot of stories that go around about him. And, and uh, if you think about when, um, uh, you know, he was one of the early investors in Facebook and Yahoo placed a billion dollar bid, and this is something he shared publicly. So it's, it is not a new story, but he was advocating to mark Zuckerberg. Yeah. Let's sell, let's sell to Yahoo for a billion dollars. And mark Zuckerberg said, no, you know, I'm gonna have to go build this company again. If I sell it, I don't want to do that. And that ended up being a very successful outcome for all those investors, you know, a hundred X bit more essentially. So even Peter can sometimes be wrong in his beliefs, but that's how we learn as humans. It's we only learn from our mistakes, our successes don't really teach us a whole lot.

Will Szamosszegi (56:30):

Very, very true. I'm glad that you had a Peter teal story. You're the first person that, despite that question always being asked to actually have, um, a story on Peter te chair.

Fred Thiel (56:40):

Great. Well, I thank you so much for having me on and, uh, you know, happy to come back anytime.

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