Gideon Powell

Bitcoin mining

Bitcoin has been one of the most interesting rides of my life. I come from an oil/gas family. I lived in Midland after college. I became very interested in monetary policy, inflation and its effects on the world. Through that, really discovered bitcoin and what it is capable of doing. I come from the energy perspective and Austrian school of economics.

Mining

This is our first large scale project-- that's a 100 MW substation. That's a lot of power. We consume a lot of power. Some people might think it's bad, but I'm in the camp that thinks it's awesome. When you think about bitcoin, you have to understnad to a high degree what bitcoin mining is. It's a decentralized network of lots of computers that are all communicating and making sure that everyone is being honest. We pay Visa, Mastercard and banks some sort of fee so that they act like a third party group that helps elevate trust in the system. One of the unique features of bitcoin is that there's no one person that does that. It's a system, it's an algorithm that every 10 minutes it's communicating to validate that decentralized third party network is behaving correctly and being honest.

Every 10 minutes, a block is generated. In the beginning, 50 BTC were generated every 10 minutes. We're now down to 12.5 BTC/block. To earn more bitcoin, you need more computers and more powerful computers. So your two costs are buying the computers and buying the power. Bitcoin is the largest network in the world, and it will be the largest power consumer in our lifetimes, probably within the next one or two decades.

The network consumes about 7-8 GW of power, and to put that in perspective, the city of Dallas consumes that much energy right now. Energy is acting as a defense mechanism to help secure the network.

Mining difficulty adjustment

When you're wondering what this asset class is worth, the supply of it is important. When is the next QE policy going to roll out? We don't really know. What are the interest rates going to be? I really don't think that any person should have that much power over something that dictates our life. A pencil, a car, all of those are assets. Before bitcoin, in the last few hundred years, you didn't have innovation you just had academia. They have a purpose, but academia's role has never been innovation. Now you have decentralized bottom-up innovators that can make the network better.

Another cool thing is that if you increase the amount of bitcoin miners or mining activity, you don't increase the supply. If you double the amount of oil wells, you can get more oil. But if you double the number of miners, it's twice as hard to earn a bitcoin. That's a different model.

Here's a graph of the hashrate behind bitcoin. Every single shitcoin out there, it has computing power behind it, but any large corporate entity or nation state can attack every single shitcoin out there--- but not bitcoin. Bitcoin is just too expensive. One of the features of bitcoin is that the specialized hardware; it started with CPUs, then GPUs, and now ASICs. The physical architecture of a 7nm chip to be more efficient and consume less energy and thereby increase profitability. You continue to see hashpower, even through bitcoin winter of 2018, and you saw mining hashpower increase because better chips came out. So we know the fixed supply, and the more energy and higher the hashrate behind the network, you just cannot fake that.

Bitcoin halvening

The halvening is a really big deal. This next halvening should take the inflation rate below the last several hundred years of gold's supply, so that's pretty cool, when we're talking about bitcoin being a digital gold then this will continue to prove out more over time. This will happen around April 30, 2020 approximately. When that happens, the amount of bitcoin being released will be cut in half. We went from 12.5 BTC to 6.25 BTC every 10 minutes. So if you have half as many coming online, then demand can't get the same amount for the same price. I know that the higher cost miners are going to be shaken out. Is it already priced into the market? I don't know.

Texas

Texas is going to dominate bitcoin mining. Why has Texas historically been successful? It's permissionless innovation, and we have a deregulated energy market. We burn a lot of power. You're basically plugging into a giant decentralized electricity grid. 99.9% of the world's power is controlled by monopolies and governments, where you have to make a deal, kiss an ass, talk to some government official, and in Texas, we don't care. We just don't care. We approach you, we say we give you money, and that works. Money helps induce more trust in that system. Texas power is really cheap. Gas prices have gone negative in the basin. In europe, they are at 12-20 dollars per MCF. But in America, we're at 2 dollars per MCF. That is insane and has benefited all of us. Texas is number one in wind, we continue to dominate, California doesn't even come close. Solar, we're 5th and ramping that up. I could buy combined cycle natural gas turbine power; and cole plants are going bankrupt. Economics above all else, it's been fascinating to watch.

Anyone in here, if you have ideas for how to make cheaper power, go test it and you can dominate the bitcoin mining game. We are pretty small at the moment, but anywhere, we have tested--- we had an industrial paint facility at our ranch, and turned into a 2 MW bitcoin mine. Our hodl ranch project, that was the world's first greenfield commercial scale bitcoin development. Everywhere else they repurchased aluminum plants. Over a few months of banging our heads against a wall, we figured we would build it ourselves and take the average cost from $0.05/kWH down to $0.03/kWH and the market has validated this and we're going to scale this.

Texas will be the number one mining destination in a very short amount of time.

Why bitcoin is different

You need nobody's permission to go make bitcoin better. Early on, we were wondering, if we are going to spend millions of dollars to build this facility in very far West Texas where ther'es maybe 100 people in a town-- will people in China come to host there? We had people from Georgia, Russia, Canada, China, Khazikhstan, Argentina, Chile, they all flew to West Texas to look at something we decided to do. Every single one of them said "wow, this is the best". Miners follow value. Subsidizable plants in China right now, there's probably 3-4 GW there. We're bringing all of that to Texas.

I think you will see innovation. Iceland used to be talked about; government started to get a fat check, and hten they decided to raise prices. Well, you just can't do that in Texas.

Just economic incentives. I think economics dictates everything in our lives. Bitcoin is more than just sound money, it's an entirely new way of transacting. We just can't conceptualize when we introduce sound money into the system, what are we going to build? It all starts with sound money. There's cool, fancy futuristic stuff out there, but we're going to get sound money right first, and then we're going to use bitcoin to elevate the human experience and it's going to be fantastic.