Signals Through the Noise: What is Bitcoin Mining Becoming?

[00:00:04] This is the Crypto Hipster Podcast. This is not a traditional interview show. These are perspective driven conversations with founders, builders and independent creators shaping what comes next.

[00:00:26] We go beyond headlines, beyond hype and beyond price to explore ownership, freedom and opportunity in the digital economy. Where builders talk freedom, not price.

[00:00:47] Most people still think Bitcoin mining is just speculation wrapped around massive energy consumption. But over the last several years, another narrative emerged that mining could monetize stranded energy, stabilize infrastructure and even reshape how energy itself gets used.

[00:01:09] And yet, many of the companies that have originally built around those ideas evolved, shifted or abandoned parts of these models entirely. So today's conversation is not really about hash rate or the price of Bitcoin, which always changes. It's about what happens when industrial reality collides with technological ideology.

[00:01:34] So, because when an industry survives after its original narrative changes, you start learning what the industry actually is. Today I have Sergey Garysin-Mashiv with Easy Blockchain. Sergey, welcome to our conversation. I'm happy to talk to you today. Thank you for having me. It's a pleasure to be on this podcast and on this conversation. And I like where you're taking it.

[00:02:00] Great. Hopefully we're going to uncover some really excellent things to talk about. So, you know, I want to first find out, you know, what does the public fundamentally misunderstand about Bitcoin mining? Yeah, I think the first thing about Bitcoin mining when it comes to mine is energy consumption. People are kind of worried that Bitcoin mining going to use a lot of power and it has been using a lot of power.

[00:02:30] But what I think people are misunderstanding is that this power is more a distributed consumption across the globe. It's not one location where its power being pulled. Additionally, one of the kind of myth is that Bitcoin is going to be boiling the oceans and the power that it uses is taken away from the people.

[00:02:53] However, in reality, the Bitcoin mining is usually done in the locations where there is a stranded energy, where there is pockets of energy on the substations or be it flare gas, be it an area where there needs to be a flexible load user, which Bitcoin mining is.

[00:03:15] So the public still talks about mining like it's 2021. It's not. So is mining actually energy infrastructure business disguised as a crypto business? Absolutely. And I'm glad you brought this up, because when you talk about Bitcoin mining and people think, oh, it's another crypto thing, it's another token, it's another thing that just goes up or down.

[00:03:39] But in reality, it is it is a literal physical infrastructure build out. It's just traditional data center. Maybe it's not that traditional, but at the end of the day, the work that gets into it is very much traditional. You have to build the power infrastructure. You have to build an electrical substation. Well, technically, build a road, you know, and have the compute somewhere hosted. So you have to build a shell, PowerShell to have the computers hosted so they can be there and be cooled.

[00:04:09] So it's literally like physical world. It's more physical world than virtual, to be honest. So is Bitcoin mining really about Bitcoin anymore at all? It's a good question. It's a very good question. I think today it's a mix, right? Bitcoin mining would be a mix.

[00:04:27] We, our company, EasyBlockchain, have been positioning ourselves as a provider of flexible load on electrical grid. However, our end user would be like technically a Bitcoin mining equipment. But I don't think that Bitcoin mining is only about the crypto anymore.

[00:04:55] I think it's more about literally finding the way to use Bitcoin mining as a tool to solve energy problems. Be it, for example, a user of stranded energy, be it a flexible user where we need to turn off Bitcoin mining to reduce load on the grid so we can reduce, so we can release that power back to the people so they do not sustain blackouts.

[00:05:24] And Bitcoin mining could be, you know, like an additional user of a peaker plant that's sitting there doing nothing. And it's basically a waste of money. So it is becoming kind of an integrated part of an energy systems in general. So I'm not looking at how the Bitcoin prices have changed and adapted over the years.

[00:05:54] I'm looking more at operational reality. So like what operational realities have changed over the last few years? What's in what's what's survived and what's died? The operational reality does depend on the price, though. And people are getting to this business to make money from a speculative asset, which Bitcoin is.

[00:06:18] But what the operational reality has become is more a traditional data center operation where you have to get focused on your operational cost. You have to get focused on electrical electrical equipment, making sure it works. So now you basically an operating an asset which is industrial asset. And that's a big change versus back in the day.

[00:06:47] It was just a speculative jump. Let's buy a few miners and put them online and let them run. Today, it's like mid to large size manufacturing per se location where you have to have all the ducks in your own from operational perspective. Because if you don't, I mean, it's like a manufacturing facility. If it stops working, it doesn't produce any product.

[00:07:16] And how has your evolution changed or been different than the evolution of places like Amazon data centers and Alibaba data centers? How is it different? It is different that it is smaller in a footprint. We have started from actually leasing data centers, larger data centers. And we have been focused on, you know, bring power to the building.

[00:07:44] Now we're bringing building to the power, if we can call it that way. So we built modular data center sites next to the energy source. Modular data centers would be a container. Like if you imagine a container, 40 foot container, shipping container with full with computers inside. We would take their modular data centers and deliver them next to the source of power. That could be power plant. That could be a substation or that could be even a generator sitting in the oil and gas field.

[00:08:14] So that's where the focus is right now. And that's where the whole industry, Bitcoin mining industry, and to be honest, any data center industry moving towards. Got it. I said gas. I know you left the flare gas business. So I want to find out why you and others in the industry moved away from parts of that model.

[00:08:35] I think the answer to that is it's very difficult to be responsible for power generation as well as operation of a crypto mine. Power generation in itself is a separate business. It requires a lot of work. It requires different type of skill set.

[00:09:02] And you have to have professional engineers, technicians, oil and gas experts running a generation facility. And usually it doesn't work 24 seven. So that's one thing. Another thing is cost. Cost of operating natural gas generation is not that low anymore. The cost of buying the natural gas generation went up because there is a big demand for natural gas generators from data center,

[00:09:31] traditional data centers and AI data centers, and the cost went up. And the third thing would be the natural gas itself. It's a volatile asset. So imagine you have a volatile asset commodity that is part of your input costs, and you have a volatile asset as your outcome from your input. So now you are basically taking too much risk.

[00:10:01] You would want to take less risk. So by going back to that grid and buying power directly from the grid, you basically make your operation less risky. That's why we decided to leave this business because it only works when it is a big scale. So it sounds to me that flare gas was not economically durable.

[00:10:27] It was not economically durable for a long time on the scale we were doing it. It's better to do it on the scale where it's industrial scale, where you pour hundreds of millions of dollars in it. You work directly with oil and gas companies. You buy gas, contracted gas for a long term. Then it works. But if you don't do it, it's pretty hard. Another thing is like securing financing.

[00:10:51] If your offtake for energy is a Bitcoin mining, it's a risky, risky offtake. So you have to finance your generation power generation with cash upfront. You can't secure any loans and financing, which is a big problem in a highly capital intensive business. I can see that. So you're more dependent on your, you're, you would say you would, you're much more dependent now on the grid.

[00:11:19] Yes, we are fully focused on the power grid right now. We were using Bitcoin mining assets only on the grid. However, we are looking for locations where power is cheap because there is no demand in that area. And we would want to be able to operate and make profit on the difference of power. So it's tough business.

[00:11:43] It's always been a tough business, but we want to make sure that we still kind of find those pockets of power across the country where we can find the best economical model to make it work even during hard times as we are in right now. Talk about this hard time. Say, for example, say just happens to grid goes down for a prolonged period. What happens to you?

[00:12:12] We're just not making money at that point. We are, we are off for the time before the grid goes up, which is actually not a big risk for us, to be honest. We are not worried about that. And I think any other manufacturing facility or other industrial business would have a problem with that. We don't because we could go up online anytime again.

[00:12:36] And that's the beauty about Bitcoin mining being so flexible that if the grid is off, I mean, which is off? I mean, we are not making money, of course, but we don't have like a big damage from that. So you haven't, so there's no stress test necessary to say, okay, what are you going to do now in case things go south in the economy? Exactly. Exactly.

[00:13:02] We, we are pretty much safe from that perspective. I mean, of course, if the grid goes down for like months, that's a different question. But I don't think this is, this is a very high, high probability of that happening. Okay. So you would say that mining became much more industrialized than it was originally envisioned to be? Yeah.

[00:13:26] Well, originally it was not actually envisioned to be that much, right, that much industrialized. It's in the white paper of Satoshi Nakamoto, Bitcoin should have served as a digital cash and Bitcoin mining should have been just the support of the network. Now it became a big business.

[00:13:48] We have big manufacturers of crypto mining equipment that are basically printing chips and building machines every other year, releasing new models. And there are financial companies that raise capital to buy those machines and make a quick profit on mining Bitcoin. So that, that created a little, a cohort of companies there became very large because they capitalized themselves very much.

[00:14:15] And now the hash rate of, of Bitcoin is concentrated in the, in the hands of a small number of people, to be honest. But Bitcoin remember is a decentralized technology. So it is against the roots of the tech. But I think you follow the money. People started seeing the opportunity to make dollars on Bitcoin mining and they started pouring capital into it.

[00:14:42] So white paper, the few, the hands of the few said Bitcoin may be decentralized digitally while it has become centralized physically. I would agree with that. I would actually very much agree with that. We have many users, many wallets, millions and millions of people who are using Bitcoin, Bitcoin as a, as a cash Bitcoin as an asset.

[00:15:05] But the, the backing of like a network backing is, is concentrated in, in the hands of a few companies. So it is pretty, pretty centralized. So it is pretty, pretty centralized. I would say, especially if you take a look at the pool level on pool level.

[00:15:23] So pool it's a, it's a group of people that start working together to mine one Bitcoin and they have a highly high probability of success to, to make a mind Bitcoin there. That being said, those pools, I mean, they control the network. So technically there is a consensus amongst them and they can attack the, the whole Bitcoin network and make a 51% attack.

[00:15:51] I mean, the probability is low, but we can see the centralization become an issue. Nothing. Yeah. I agree with that. I want to step back a little bit though, at a higher level. And I talk about, talk about energy, right? Yes. And you say the hands of a few, right? So say those hands of a few are one country, one against everybody else. Is energy access becoming geopolitical leverage?

[00:16:23] Hmm. Very good question. I think energy access becoming geopolitical leverage in any industry and Bitcoin would be a part of that as well. Energy. Energy. We don't, we don't think about it, but energy is a part of our lives, right? Like we turn the lights on. We, we receive goods delivered to our grocery stores. We receive goods that we wear clothes. Energy is part of those goods.

[00:16:53] It's either logistics, either manufacturing. So it's, it's connected to every day of our life. And if you are not dependent on, on, on, on, on. On your own energy, but you dependent on energy from a different country. And there is a risk that a different country may technically pull a plug per se. Right. And so I think Bitcoin mining has that, that problem.

[00:17:21] It's not that big of a problem today because Bitcoin miners, they migrate. They go from place to a place depending where energy is cheaper. But before there was the hash rate concentration in China, before China made a ban on Bitcoin mining. And then concentration was a, was a pretty significant.

[00:17:41] So technically, I mean, if you could mine Bitcoin, let's say for a dollar in China, in America, it would cost you to mine $3, for example. So because of them having cheaper energy, they had a leverage. But that can apply to any industry today, any industry. That's why China, for example, can build cars cheaper than America because their cost of energy is lower. And that means the cost of raw goods is lower. The steel is cheaper.

[00:18:11] The aluminum is cheaper inside the country. And we have been in America, have been not focusing on energy that much as a, as a growth industry. We've been focused more on, on honestly, which energy we use. Is it clean? Is it green? Is it, is it dirty? Is it not? We're not thinking about like, what will, what will the country, country need in terms of energy in the next 5, 10, 20 years.

[00:18:41] And not enough capital was coming into this industry. I know it's a long answer, but you touched the topic that I'm very, very sensitive towards. And, and now, now we have this demand from AI data centers, crypto data centers, and the grid is starting cracking. And everyone's like, oh my God, we don't have enough energy. It's like, well, yeah, but we haven't been investing in it.

[00:19:03] So I think in the next decade, there will be a huge, huge revolution in the energy in the United States. And we will be massively updating the grid, massively upgrading the grid and massively investing in all energy types. I'm talking natural gas, nuclear. I'm talking wind, solar, even coal going to be a big part of it.

[00:19:32] I'd like to see it. So we're going to stay here on, on, on the air. You feel uncomfortable. Donald Trump. People don't want to talk. I want to talk like, says the US is going to be a Bitcoin leader, right? And people think that's ETFs. People think that's finances. And I'm looking at it and what you say through the lens is say, is compute now a strategic national resource?

[00:19:59] It's a very, very deep question, I would say. So the short answer, 150%, 150%. It's a, it's a new form of compute is a new form of hard power. I would say before it was, you know, ships, planes, war machine, right?

[00:20:28] That's a, that's a something that you can influence, influence world order. Right now, compute is something you can influence world order with because we see Bitcoin compute, crypto compute. We can see AI compute being used as a big tool. And I mean, Bitcoin is not that much right now.

[00:20:51] However, America is ahead of China right now in, in, in compute based in, in its territory. But specifically we can see this race in AI. AI compute is becoming a huge, a huge leverage in the, in the world. And America is way ahead of it for now. The constraint we have is again, energy. Compute itself is not a constraint.

[00:21:19] The energy and development of the data centers is the, is the big bottleneck. And I think the speed of development is also a big bottleneck. We have too many problems in, from like, from a government, local government perspective on building the compute.

[00:21:41] Like for example, if I go to Georgia and I go to Illinois and I may talk to a city in Illinois and city in Georgia, all of them have different rules how they want me to build the data center. And that could be a problem because if we do want to win AI race, a compute race and be a dominant power for another 250 years. This country has to focus on the inputs of energy and compute is the next huge leverage.

[00:22:09] And it will be more important than having missiles and, and, and bombs in my opinion. So that's interesting between, between the states. So my question here is based on what you said about this, the difference in the states and the importance of industrialization. Can digital decentralization co-exist with physical infrastructure concentration?

[00:22:36] Very good question. I think naturally it will naturally, it will do that. I did say that Bitcoin miners migrate, right? So they migrate from one place to another and the same happens. I mean, the same happens in any, in any industry, right?

[00:22:57] Like you're going to be, if, if for example, state of Ohio is more business friendly than a state of Idaho, for example, you're going to go to state of Ohio. And you're going to move, move your business there. So I think the digital infrastructure that we have today, specifically for Bitcoin, can be decentralized and it will be decentralized. Cause that's just a natural aspect.

[00:23:23] You want, you can't, it's, it's not as like nowadays world. And I, again, I'll go on a kind of higher level world is not a set place. It's not a permanent thing anymore. Everything is very fluid. Everything is moving very fast. And that, that means that no one builds like something here, like for, for hundreds of years. People want to build something and be very flexible.

[00:23:49] That's why we started building modular data centers, because we want to be flexible. We want to be able to be in one location for three years, five years. And if it doesn't work, we would like to move somewhere else. Um, and, and that's how we got to a point where the decentralization has become not only a feature of cryptocurrency, but the centralization became a part of the whole economy. Like it's, it's becoming, it's like, we have more businesses.

[00:24:19] We don't have, we have more businesses coming up even today with AI. Like we had Microsoft and Amazon Web Services controlling this area. A hundred percent. And Google a bit. Now we have a rise of small companies that became big companies practically overnight, taking a piece of that business, which could be unheard of two, three, five years ago.

[00:24:43] Now we can see that even business and money is being decentralized more and more. With the migration, you know, you're saying that, um, mining naturally, naturally centralizes around cheap power. Right. So how does the modular framework, I guess, threaten these massive companies?

[00:25:13] Yeah, it's a, it's a, it's a good question. Well, for example, like a big company would want to build one big location, one big, big, big project. Let's say, let's talk about energy aspects. Like, let's say they would want to build a hundred megawatts, a hundred megawatts would be enough to power. Let's say, uh, I think it's like 20,000 homes, um, and maybe 40,000 homes.

[00:25:36] And, uh, and they would want to focus and they will be looking around to do one project, but companies like ourselves, smaller companies. They could say, well, we'll probably build 10 projects, but 10 megawatts each. And we can do it with modular. So we can, we can put it one in Ohio, one in Idaho, another one in Illinois, the third one in Texas. So now we have an exposure to the same amount of capacity, compute capacity that let's say Microsoft would have.

[00:26:05] Uh, but it will take Microsoft three years to do it and we can do it in a year. So that's kind of speed that can help companies, smaller companies to, to be, um, uh, to be competitive. I would say, because you, you don't have that much leverage against Microsoft or like some type of that company of that scale. Right. So modular, modular business, decentralized business, I think going to win.

[00:26:32] We saw it during the pandemic, during the pandemic, all tech business was in California or people learned that they can work anywhere in the world. Most people didn't move out of America. They moved to a different areas in America. A lot of people moved in South to South Carolina, to Montana. A lot of people moved to Wisconsin, Indiana. Right. So now, now we can see that kind of inside migration of people bringing the same talent and making the same amount of dollars.

[00:27:01] And it's becoming tech industry, for example, becoming more decentralized. I brought up the big players because, you know, their focus. And now I believe their focus now has been AI.

[00:27:14] So, you know, why I'm looking at Bitcoin, I'm like, why is Bitcoin so attacked out there by the media and everybody for its energy use while AI receives less, far less, maybe even no criticism? I think because, um, well, first of all, I think the answer is simple. Because big media is being controlled by big corporations. So they're going to attack what they want to attack.

[00:27:44] Right. And they would say what they want, say, which good favors them. No one controls Bitcoin. Bitcoin is a decentralized asset, a decentralized money. So it's easy to, to, you know, institutions to attack the decentralized thing because the decentralized thing is a threat to them. Bitcoin is a decentralized asset, decentralized money. It's a threat to big corporations.

[00:28:10] So, secondly, I think that Bitcoin mining has been the industry that was growing too fast. It started being like mining sites start popping up across the country. And people are usually afraid of something like that. And they started like the easiest, the easiest way is to kind of, if you don't know it, you ban it.

[00:28:39] Well, but I'll give a little bit of kind of be a devil's advocate here. The AI data centers are also becoming, becoming a problem. And we can see that, that problem from, from perspective of media. People are seeing that AI data center is going to be big consumers. And the media is talking about them as well. Not that much as Bitcoin.

[00:29:07] And I think the reason to that is because AI has more applications, AI data center, AI compute, has more applications at the end of the day than Bitcoin. Bitcoin application is digital cash. It is an asset against inflation. It could be potential used as money. However, AI could be used for so many different things. You can use it for healthcare. You can use finance. You can use it for personal use.

[00:29:36] You can use it in different, different industries. So I think that's why AI is less attack because people can relate to that more. Like for example, like, am I using Bitcoin? No, then I hate it. But am I using AI? Yes, then probably I like it.

[00:29:59] So there's a risk then since AI is such larger that the Bitcoin miners will evolve into this broader compute infrastructure companies going forward. Absolutely. That's where the world is going. Bitcoin mining will coexist with AI data centers. Bitcoin mining will be a more flexible user on the back of AI data centers.

[00:30:25] I do believe it will be actually in one building and we will have a part of like Bitcoin mining and other part will be AI data centers. And that's where the things are kind of going more and more because we can see that a lot of Bitcoin miners actually converted to become AI data centers. You know, we can call Corvi, Crusoe, we can call a couple other names there, Core Scientific, Applied Digital, Iron.

[00:30:53] All of them have been big Bitcoin miners and now they became big AI data centers. So I think it's a natural progression. But I think it doesn't kill Bitcoin mining as an industry. I think on the contrary, it is a good pivot and it's a good mix of energy consumption.

[00:31:16] Because now you can use more capital that will come in into AI data centers to upgrade electrical infrastructure, which eventually can be used for any other users, not only Bitcoin mining and AI. So the future really does belong to whoever controls power generation and compute access. Absolutely. 100%. 100%. I think America is winning on the compute.

[00:31:45] But America is behind on energy. I do think it will take a bit of a time for the country to catch up. And when I say behind, I probably would say they are behind on growth with China. China is growing their energy production very, very fast. They have less regulations. Believe it or not. I mean, it's a communist country and they have less regulations on building a data center.

[00:32:15] Excuse me, a power plan. So, but what I can tell you from where I'm sitting and talking to energy companies literally every day, those companies are thinking about investing into energy. Not only that, a lot of capital is being invested into energy. So, within the next few years, we're going to see the results of those investments and the result is going to be staggering. It's going to be great. Got it. That's exciting.

[00:32:45] It is exciting. I mean, couldn't be more excited about that. When I started doing Bitcoin mining, I thought myself, it would be more like a virtual business. You know, it's a virtual money. At the end of the day, I learned this is literally energy infrastructure business. It's a moving dirt, pulling cables and building stuff.

[00:33:09] So in that, so in that training, in that learning process, you know, what emotionally and spiritually and psychological changes after surviving multiple mining cycles? I think it gets harder every time. I think it gets harder every time.

[00:33:30] I think it gets harder every time. It's more industrial engineering, industrial building skill sets that you got.

[00:33:57] And it could be used for lots of other industries. Like we knew how to build crypto mines. Now we know how to build electrical infrastructure. We know how to build electrical infrastructure. We probably can learn how to build, you know, power plants. We can know how to build power plants. Maybe we can figure out how to build AI data centers or traditional data centers. So all those learning curves, they gave us amazing experience.

[00:34:26] Experience that you can't get while, if you don't leave for it. Well, that's why it's called experience. But so far today, I think we are at the place where we're comfortable. We're comfortable with Bitcoin mining downturns. And we're comfortable with building the next era of digital infrastructure. That makes a lot of sense to me.

[00:34:54] So I'm looking at, well, I never looked at Bitcoin from a speculation perspective. I've never been a miner, but speculators experience volatility emotionally. So, right? They do. They do. They do. Operators experience it infrastructurally, right? Absolutely. That's a good point. And that's the whole thing, right? Like it's unfortunately, it's very hard to go through that experience because the Bitcoin price goes down.

[00:35:22] And let's say it lost 30% of its value. Well, your capital expenditures that you spend on a transformer as an electrical infrastructure didn't lose value. You still own it since you operate it, which is a good thing. A bad thing is, well, your return on capital is lower now. So you will make less money. So we do feel infrastructure on our shoulders pretty much.

[00:35:51] But again, that's something we retain and that's something we can use for the next stage. So during downturns, what breaks first ideology, margins or conviction? Oh, wow. That's a very good faction. I think ideology breaks first. Because when you don't have the money, when you're losing money, I mean, you can believe in whatever.

[00:36:23] But the ideology will break anyway. However, the conviction, not breaking. If you are focused on making the business running, you focused on getting the projects, you know, making dollars, you focused on making sure that what you've done is valuable, then it doesn't matter. Ideology doesn't matter.

[00:36:49] You are focused and you're making sure that the business are going to survive and make money going forward. That's an invaluable thing. So you'd say if the ideology breaks first and Bitcoin is headed to roll into AI infrastructure, then the future of Bitcoin would just be rolled into AI. I think the future of Bitcoin mining would be rolled into AI.

[00:37:17] However, Bitcoin mining will become, again, less decentralized, excuse me, more decentralized. So we went through this shift from being very decentralized to very centralized. And now we're going back to decentralization. Some people will leave, some people will stay. Some people are doubling down and they say, well, look, if someone big goes to AI, good luck. I'll stay here. More food for me.

[00:37:46] So, yeah. When an industry survives after abandoning parts of its original story, you start seeing what the industry truly was underneath the narrative. So, what is Bitcoin mining actually becoming?