Samson Mow CSO of Blockstream rejoins me on the show to chat about what’s going on with the new Jade hardware wallet, updates on Liquid & Bitcoin Mining:

• Jade hardware wallet
• Blockstream Green
• Why use Liquid vs Lightning
• Blockstream Mining
• Mining industry generally

Samson links:

• Twitter @Excellion
• Site: Blockstream.com

Sponsors: 

• Swan Bitcoin
• Hodl Hodl Lend
• Compass Mining
• Unchained Capital (code LIVERA)
• CypherSafe (code LIVERA)
• CoinKite.com (code LIVERA)

Stephan Livera links:

• Show notes and website
• Follow me on twitter @stephanlivera
• Subscribe to the podcast
• Patreon @stephanlivera

Podcast Transcript:

Stephan Livera:

Samson welcome back to the show.

Samson Mow :

Thanks Stephan. It’s great to be back.

Stephan Livera:

So Samsun has been a while since we’ve spoken and there’s been a lot of stuff going on with Blockstream and Bitcoin as an industry. I guess let’s just hear from you a little bit. What’s kind of the latest with Blockstream and with what you’re doing in the Bitcoin world?

Samson Mow :

Lots of stuff we’ve been busy building out more liquid network usage and adoption getting more people, onboarded, getting more exchanges onboarded. As you know, we’ve launched Jade, a new hardware wallet from Blockstream we continue our mining expansion just a usual.

Stephan Livera:

Yeah, there’s so much going on and obviously it’s kind of crazy. So just for listeners, this, we are recording 17th of February Wednesday. And so it just last night we kind of touched over 50,000 as well. So there was a lot of excitement over that also. But certainly a lot more newbie people coming into the space and they’re looking for ways to learn how to custody. So I’m actually quite excited about Blockstream Jade. So maybe we should chat a little bit about that. I’ve ordered mine as well. I’m just waiting for it to arrive. Obviously there has been with all the COVID stuff, there’s been some delays in shipping and stuff like that, not on the Blockstream side. I think it’s on the postal side, but anyway, tell us a little bit about Blockstream Jade.

Samson Mow :

Blockstream Jade is a hardware wallet that we released to maybe a month or so ago, and it’s completely open source. So open source hardware and open source software. And the idea is that you could build your own if you wan it to. It runs on M5 stack fire and potentially other devices too. So you’re not constrained to just buying it from Blockstream. You could order parts yourself build it yourself and this mitigates some of that supply chain risk. But I think a bigger driver for us to build this is just because we wanted more hardware Wallet support for liquid and liquid assets. So the easiest way for us to do that was to build our own and Lawrence Nahum our chief architect was tinkering around his spare time. And I think this is a year or so ago and said I could probably make something really quickly. It took a bit longer than we thought, but still it was pretty quick relative to most Hardware Wallet development, I think, and we got it to market. And I think people are very excited to see this.

Stephan Livera:

One thing I really like is that it comes at a really cheap price point. I think it’s about $40 USD. How’d you get it that cheap? Tell us a little bit about that.

Samson Mow :

We want it to be very accessible. So I think it’s $39.99, that’s the introductory price. It might go up a bit in the future for our next batch, but we want to, we want a hardware wallet that is very accessible to the market and we want to get more people using Hardware Wallets for a multisig because I personally, I think it’s better for security. In that case, you want people to buy a couple of them, maybe three or more and have their own custom multisig setups down the road. That’s kind of why we wanted to price it to and make it accessible. But this is not a primary business line for us at Blockstream. It’s more about getting more adoption of hardware wallet, usage, and more liquid usage too. So that’s why it’s priced pretty competitively. We just intentionally wanted to make it very accessible for people.

Stephan Livera:

Yeah. That’s certainly a great objective that I’m supportive of. I think that’s a really cool thing to see because you get a lot of new people coming into the space and they might balk at the cost of the more, some of the larger well known hardware wallet prices. Now, obviously there’s a tradeoff here in terms of security. So let’s be clear about that, but for some, I could see this being a great first Hardware Wallet for people, and then potentially they could even once, things move down the line, they might then start looking at multisignature and have Blockstream Jade as part of their multisig quorum.

Samson Mow :

Exactly. Also it’s our first hardware wallet. So we didn’t want to set a high price and set expectations really high. We thought it’s better, we’d go out close to cost and see how the market reacts because it is our first one. It’s not it doesn’t have all the features we want rolled out quite yet. We’re going to be basically building out as we go this week if you’re releasing the pod this week we’ll actually release support for desktop. Yeah. And then BLE on iOS is coming maybe in a couple of weeks after that. And then hopefully we’ll get the camera working. So it’s not like it’s perfectly ready to go. It’s going to be iterative process and we’re going to roll features out gradually. So that’s also another consideration for the price point.

Stephan Livera:

Yep. And so at this price point as well, it’s not going to have like a secure element and things like that, but I think as long as you’re kind of open about that and it might still be superior for the newbie, who’s just bought their first maybe a couple hundred dollars worth of Bitcoin off the exchange and maybe they want to start their journey of self custody and this, I think probably a great spot for them to start.

Samson Mow :

Yeah, definitely. We do have a PIN server. So in a way there is something that acts like a secure element. So if you enter the wrong pin a couple of times, then you’ll be locked out and you’ll need to restore from your seed. So there is that extra layer of security, even though there is no secure element, but it’s cool to have secure elements, I think.

Stephan Livera:

Yeah. Fantastic. And so in terms of using the device, as you mentioned, desktop support is coming very soon, iPhone support is coming soon. So for now, does that mean it is Android only, and basically a USB-C cable to plug directly to your Android phone and using Blockstream Green, the wallet. Is that how we use it right now?

Samson Mow :

Correct. So the limitation right now is just Android. There is a little bit of clunkiness when you switch between Bitcoin and the liquid network, but all these things, we’ll iron them out and improve over.

Stephan Livera:

Excellent. Yes. I’m looking forward to getting mine. I’m obviously keen to give it and try out in practice. And also I think the other easy part is that if we’re getting desktop support quite soon, I know Green came out with desktop support. So can you tell us a little bit about Green on the desktop?

Samson Mow :

Yeah, I think green first started out to mainly like a web app and then in my graded into mobile apps primarily. We’ve always had a desktop support for it, for quite some time, but we’re adding more resources behind the desktop client that’s pretty powerful. It allows you to create multiple wallets. If you’re familiar with the mobile version, it’s just one wallet per network, but on desktop you can have multiple wallets and you can easily navigate between Bitcoin wallets and liquid wallets and even testnet wallets as well. So I think it’s pretty handy once we get support for Jade, because you’ll be able to secure all of those with your Hardware Wallet now.

Stephan Livera:

That’s cool. Can you tell us a little bit about I’m not sure how familiar you are kind of with the deeper, maybe we’re going into the technicals of green, but I know that there was a change recently around I think it was CSV instead of, so green has a two of two, can you tell us a little bit about that setup and what that, what that’s Mo changing into?

Samson Mow :

Yeah, so previously before CSV you had to get a backup file in case like the green service goes away to recover your Bitcoin, but with CSV, then you can basically set up another address where if it times out it’ll be retrievable through that address. It’s just a way to make people less reliant on us as the service provider. And I think it’s more elegant too, because then you don’t have to give your email address to get your backups or anything like that. You just create your CSV setup and you’re done.

Stephan Livera:

Right. I understand. And in fairness, it’s one of those things where maybe for a new Bitcoin user, they’re not as focused in on the privacy and they’re still learning. Whereas maybe the more hardcore Bitcoin Twitter guys are more like, no, I want full privacy. I don’t want to have to give my email. I want to be able to recover on my own, et cetera, but I think it’s all part of that journey. You kind of have to find ways that people can choose what they want. Certainly it’s a good thing you’re giving that possibility as an option now. So can you tell us a little bit about the new setup now with the CSV? So I guess first of all, for anyone who doesn’t know what’s CSV and how are you incorporating that?

Samson Mow :

Well, CSV is check sequence verify, but I don’t know how good I can explain the technical. So maybe we can, we can skip that.

Stephan Livera:

We can skip past that.

Samson Mow :

I can talk a bit more about have two actually.

Stephan Livera:

Sure. Let’s do that.

Samson Mow :

Okay. So green also is two of two multisig. You can also do a two of three but typically when you first set up a wallet, it’s defaulting to two of two where Blockstream is one of the signers. Some people don’t like that. So we’re actually working on a single sig as well. If you saw maybe a couple of months ago, we launched Blockstream Aqua or just the Aqua wallet. That actually is a single sig wallet. So we do have the capability to do single sig and that will be coming out in green, hopefully in the next couple months. And then you’re not reliant on Blockstream at all. You set up a single sig wallet and you’re done, but right now typically defaults that you have to, and you have to rely on us. And that’s one of the reasons why CSV is useful because it reduces that reliance on Blockstream as the service provider.

Stephan Livera:

Gotcha. I haven’t checked this recently, but in terms of the ability to use green with your own Bitcoin node, is that something planned or is that possible at the moment or is it currently, it’s all going back to the Blockstream node

Samson Mow :

Currently, it’s all Blockstream node. But if you look at Aqua if you look at the code its actually using Electrum backend. So potentially later on, you can switch it to, use different backends, but we’ll have to see.

Stephan Livera:

Yeah, of course. And I look at the same time, I don’t want to like impose this incredibly high requirement on everyone. Because at the same time you have to consider who’s the user, who’s the typical person who is going to be using this and is it better for them to just have a nice, easy user interface to, start on their journey? Of course. And I’m also excited to see what’s coming. I think you’ve mentioned. And I saw in some of the blog posts around Blockstream Jade that you’re going to have HWI and a partially signed Bitcoin transactions coming. And then also have QR code support. So can you tell us a little bit about what you’re hoping to achieve with the QR code support?

Samson Mow :

Yeah, so a lot of stuff, a lot of stuff in development, there’s always more work than there is time to do it. I mean, we still need to finish Aqua android, but one thing at a time with the, so if you notice with Jade there is actually a camera on it, and the idea is that we’ll be able to support to QR codes. You could do a complete air gapped signing just by using the camera and QR codes. We’ll probably need to do something like an animated QR code, just because there’s a lot of data in Liquid transactions specifically, and also because of the screen size too. So maybe the resolution may not be high enough, but this is still stuff Lawrence has working on. But the idea is that you would have this like animated QR code that would scroll through, I don’t know, maybe a couple screens of QR codes, and then that would be your transaction. So you could broadcast that without ever having to connect your device. And you could potentially use it with say Blockstream.info because you can broadcast a transaction over blockchain info, a raw transaction. So you could also do the same, like scan the QR code from your device and send it through a blockstream.info.

Stephan Livera:

Oh, that’s a very cool function as well. So the way I’m thinking about that is if people are currently concerned about broadcasting, a transaction from their own internet, and if it’s broadcast off their own IP, well then usually IP addresses are a little easier to trace back down to who was the person who paid for that IP service. Whereas if in the Bitcoin world, the transaction can be composed and signed, and then it’s ready in the form of that. I’m not sure the correct technical term, but I think it’s the transaction hex or that info that you could, then you’re saying you could get blockstream.info to be the one to broadcast that transaction.

Samson Mow :

Yeah, exactly.

Stephan Livera:

Yeah. That’s really cool. I’m excited to sort of say some of these things calm and also that is aligned with the approach I’ve seen at some of the other hardware wallets take.

Stephan Livera:

So for example, Specter, DIY and KoboVolt, who are also doing QR codes and I know with say specter, desktop they they’ve got the animated QR code thing going. I know Christopher Allen from lockchain Commons has been did some of the work around some of that QR code stuff. So that’s really exciting to see and kind of this whole enabling this future of being able to do all of these different things together. We’ve got to chat a little bit about Liquid, obviously. So I guess we’ll start with the Blockstream Jade component of that, because this is now another way that people can hold if they want to some L-BTC or perhaps some L-USDt. Right?

Samson Mow :

That’s right. Just a funny note, I’m actually holding a specter DIY in my hand, I just got a shipment from Moritz. So timing you mentioned that was perfect.

Stephan Livera:

Yeah. I mean, it’s really cool. I’ve had to play around with that and I’m kind of excited to see what comes over the course of this next call it 6 to 12 months. I think there’s going to be a lot of development in the multisignature space. There’s talk about a new multisignature standard to get all the different wallets, to talk to each other in a nice, easy way or a coordinated fashion. So I’m just excited to see where that goes and see kind of the potential. I could see Blockstream Jade being a part of people’s Multisig Quorums. Let’s say in that example. But yeah, I guess in the Liquid case, this might help people who need to do exchange arbitrage. They need to send Liquid and they need some way to self custody, their tether or their Liquid Bitcoins. Correct.

Samson Mow :

Yeah, that’s right. Someone just posted today, James I can’t pronounce his last name, James Viggiano and he’s talking about taking funds off exchange and only moving it. Moving extra funds onto exchange when there is a margin call or when you’re getting close to liquidated or something like that. So there is a good use case here because he even identified it, which is a liquid Bitcoin is not at risk of a single custodian, right? If you put your funds on one exchange, they’re on one exchange, whereas L-BTC you could, you could convert back to Bitcoin through any number of liquid members. So you minimize that risk of having just one group or one party in charge of your coins. So with Jade, then you have hardware wallet support. So you could have green desktop move large amounts of L-USDt onto Green secured with Jade. And you don’t have to worry so much. You can technically do that already now with just a two factor authentication. But I think having that hardware component will put people more at ease to transact and hold large amounts on their computer.

Stephan Livera:

Correct. Right. Because I guess they might be concerned, Oh, it’s a big, hot wallet risk. I want something that’s unlike an offline device, et cetera. And it can also, like you mentioned, have the whole liquidation use case. So in the case of let’s say for example, you’re using a Hodl Hodl Lend and you need to pay back. You say, you put up some Bitcoins and now you need to pay back stable coins. Well, this could also be another way that helps you facilitate that process of holding your L-USDT and doing the transactions there. So I can sort of see a use case there for people who need some kind of bridging between the Fiat world and the Bitcoin world, obviously you and we would love to just be a hundred percent in the Bitcoin world. But for now I think we still need ways to try to minimize some of the trust in the Fiat system kind of. But I guess that’s maybe a debatable point, right. Because someone could say, Oh, but what about tether, blah, blah, blah. But that’s, I guess that’s something to think about. I mean, have you got any comments on that or do you want to, maybe we can chat a little bit about Liquid as well, just in general.

Samson Mow :

I think there is a use case for stablecoins. There’s always people that say only Bitcoin, but the reality is there’s a lot of fiat in the world still. We need to suck all that fee into Bitcoin and it’s going to be a gradual process over the next a hundred years and there will be trading. There is a very practical use case for stablecoins and a need for stable coins. You can’t really trade Bitcoin for Bitcoin. So services, like you mentioned, Hodl Hodl . They’re very useful when you want to by trade or even, I think you can borrow and lend now. And they’ve set liquid USDT is their default. So I think with the hardware wallet with Jade, it’ll help accelerate that trend. And just today, I think we saw $55 million of Bitcoin pegged into the Liquid network. So I think this is the trajectory we’re going in having this improved way to transact and trade with privacy through confidential transactions and even having stablecoins confidential as well through confidential assets.

Stephan Livera:

Yeah. So as you mentioned I checked on our friend Clark Moody’s dashboard and I see that there are now over 2,800 BTC locked in to the Liquid network or pegged into the Liquid network. So do you have any comments there just around how Liquid is growing and what it’s looking like these days?

Samson Mow :

I mean the growth of liquid is pretty much in line with the growth of Bitcoin. If you look at historically we’re doing probably under a thousand or around a thousand transactions a day, at least when I checked last, but that’s almost the same as Bitcoin when Bitcoin was about two years old. So I think a lot of people forget that Liquid is only about two years old, so it’s still very young and it’s not going to happen overnight, but it is a superior technology compared to a lot of other chains out there. If you want to transact Bitcoin and you want to transact a stablecoins, it’s just designed for financial transactions with improved privacy, and you don’t have that with other networks that transact stablecoins at this time.

Stephan Livera:

I’m also curious. So the idea is that Liquid is not, I guess, created by Blockstream, but I think, I guess longer term the hope is that it becomes more like its own network and supported by a range of other providers and suppliers. Wouldn’t you say?

Samson Mow :

Yes when Liquid launched it was basically me picking people and selecting the members, like who would be the 15 functionaries that have the hardware. But now we have in place a governance board or several governance boards. We have an oversight board, which is in charge of general governance and management. We have a membership board that vets new members to the network who will get a functionary box down the road. So just if you don’t know what a functionary boxes, basically a server that extends the Liquid Blockchain. So they’re distributed all around the world. You can think of them like miners of the Liquid network. But we also have a technology board that helps us drive our roadmap, what we develop and bug fixes and everything like that. So the management of liquid is pretty much out of our hands now. We’re like the service provider that provides tech support to this Federation.

Stephan Livera:

Yeah. And it’s one of those things where I see on Twitter. Sometimes you see some of that discussion and you see, obviously people have strong opinions in the Twitter world. But you see some of these debates going back and forth, “no lightning for inter exchange settlement” and “no liquid for inter exchange settlement”. Now, personally, I’m a fan of both for that case. I wonder what your views are on that. And is it sort of like maybe one way to think of it is like for small transfers, Liquid is faster, but for high value transfers, liquid makes more sense in those cases. How are you thinking about that?

Samson Mow :

Well, I think you mean for small transfers, lightning is better.

Stephan Livera:

Yes.

Samson Mow :

Right? For large ones. Yes. So that’s pretty much it, that’s the general case because for lightning, you have to open up a channel, you have to have liquidity in the channels. It doesn’t make sense to transact large amounts through lightning, even though it can be done. I just can’t see it happening. There’s just too much risk. There’s too much hot wallet risk. Whereas with Liquid, the exchanges can effectively operate as they do with Bitcoin. They can have cold storage for L-BTC warm and hot wallets. And you’re not constrained by worrying about Liquidity. You can send a thousand Bitcoins from BTC Turk to Bitfinex using L-BTC and there’s no worries about having enough capacity. So I think there’s a place for both. And I think both are great lightning improves privacy, Liquid improves privacy.

Samson Mow :

I think lightning makes sense for smaller transactions and it’s great that exchanges are stepping up and integrating, so, OKex has now supported it. That’s a good thing because it lets people transact small amounts on to exchange. But I think if you’re moving large chunks of Bitcoin than Liquid is the better way to do it. And Liquid also has support for stable coins too. So you right now you can’t transact tether on lightning. I think Paulo is trying to get RGB going, but that’s still a ways out, but currently you can do L-BTC and Liquid USDt, and it’s going to be more reliable, faster and cheaper than a lot of other methods out there.

Stephan Livera:

Right. I think that makes a lot of sense to me. I suppose, the lightning maxi argument on this would be something like, Oh, but see lightning is so much faster because Liquid has the one minute block times, but I think there’s one point I think we have to remember here. Which is that, okay. So imagine you’re a trader trying to arbitrage across exchange A to exchange B. And so at this moment that there is a mispricing, you would also have to make sure that the lightning channels between those exchanges has enough capacity. And so maybe you could say, okay, fine. They would have a private lightning network between the exchanges and they would just have a huge channels. But even then there’s a capital cost to that. And I think it’s also, it might be the case that the channels would get what’s the word like extinguished or in terms of the capacity would be exhausted at the precise moment that the trader needs it to go that way. Right? What do you think?

Samson Mow :

Yeah. Pretty much like you can exhaust the channel if it’s all being pushed in one direction. It’s good because it’s good for people moving small amounts, then you don’t have to do a main chain transaction, but there is an upper bound to the practicality of using lightning. Sometimes people critique Blockstream and say, Oh, you guys are anti lightning and you’re fighting lightning, but they forget that we work on c-lightning, which is one of the main lightning implementations. So it’s just kinda funny watching that happen. We think there is a place for everything, but use the best tool at your disposal for the purpose that you want to achieve.

Stephan Livera:

Of course. Yeah. And yeah, so certainly listening to maybe if you’re newer, just make sure, make sure you’re aware that bloodstream is also contributing to see lightning and Rusty and Christian Decker and Lisa. Some are contributing at the protocol level of the lightning network as well. So it’s not like Blockstream is only pushing liquid. They are pushing both lightning and liquid. But yeah.

Samson Mow :

Yes, thank you.

Stephan Livera:

Just so that’s clear, but I mean, just, I think all my longtime listeners know that, but I think some of the newer ones that might not be so clear to them. So I mean, we have seen a bunch of exchanges recently either open up lightning support or commit publicly to say, yes, we’re going to have lightning support. So I know Kraken have done this. OKCoin, as you mentioned, have committed to this bit for next, I had it for a long time. Who else in terms of major exchanges?

Samson Mow :

I can’t think of any the big ones as you mentioned, are Kraken and OKCoin. I think a lot of people are also pressuring Kraken to support Liquid. I know internally we’ve talked a lot of people there and a lot of people think, yeah, we should do that. But we’re actively engaging to see when that could happen, but I think it will benefit a lot of people. The guys at BTC Turk that’s the biggest exchange in Turkey. They’ve said like a lot of their users are actually also Kraken users and they want to audible that market and they really want to Kraken to support Liquid. We facilitated a call and we’ll see where that’s going, but hopefully they will support it and OKCoin will support it too. And it’s all, it’s all to facilitate the cause of hyperbitcoinization. So it’s all for a good cause.

Stephan Livera:

Of course that’s all right. And I wonder as well, I mean, in your place in the industry, obviously you’re very well connected and you’ve got a good insight into what’s going on. Obviously during 2017, during the crazy bull run, we saw a lot of demand on chain. Now it could be argued that there was a spam attack ongoing, but I’m sure a lot of that was also just legitimate people trying to transact on chain. So I’m wondering, what’s your view this time around, let’s say over the next call it six months or even 12 months, do you see it like we’re at a level now where enough people will have lightning and Liquid and that maybe that will have an impact on the fees or the block space market?

Samson Mow :

I think there will be some impact, but we need a couple more big exchanges to support Liquid, actually, not like a lot of them already support liquid or are members of liquid like, OKcoin is a member, but we just need them to integrate and expose it to their users. And that should help. Because I think a lot of inter exchange transfers or even to derivative exchanges, like deribit or a BitMEX that is what drives up the fees because if you’re moving large amounts of Bitcoin, you don’t really care if you’re paying a hundred dollar fee or a couple hundred dollar fee for that matter because you just want it to move quickly. And that generally will drive up fees for the average user. The more the exchanges can support liquid and to a lesser extent lightning, then the better it is for everyone that you’re reducing the stress on the main chain for these transactions.

Samson Mow :

I think Bitcoin transactions are, well, I think a couple of days ago, at least were over a hundred sats per vByte, right? And that’s pretty pricey. Even liquid transactions are getting up there. It’s like a 20, almost 20 cents per transaction now. So, down the road, if we believe that Bitcoin is going to keep going up in value, like as we’re talking right now, it’s like hovering around 50K and super distracting. But if we hit a 100K this year, which I think we will, and then we go to a million dollar coin down the road, I won’t say when, then fees are going to go up just because the transaction fee is a function of Bitcoin’s value. So we need all of these technologies. Liquid will reduce the cost and add efficiency, but still when it’s a million dollars a coin, liquid transactions are going to be pricey as well. So you’ll need, lightning on Liquid to support that demand and use case.

Stephan Livera:

Right. It’s funny that over the years in the early years, people were paying massive fees in Bitcoin terms, but they were cheap in Fiat terms. And so what’s happened is over time because of the optimization, because of SegWit, batching, lightning, et cetera, fees have come down a lot in Bitcoin terms, but we should anticipate that they, as you say, they’re going to keep going up in Fiat terms. Okay,

Samson Mow :

Exactly. I was actually quite surprised when we had that run-up in December that it wasn’t that bad. We weren’t that backlogged. So I think we’ve made progress, but we have to keep making progress and keep driving people to use off-chain solutions to keep the Bitcoin network viable.

Stephan Livera:

Do you think this time around it will be easier to get exchanges and other large users of the Bitcoin blockchain to optimize and use the new technologies? Or do you think it will be sort of a similar story where it’s kind of, they get dragged, kicking and screaming into it and in fairness to them, maybe that’s not their priority, right. That maybe that’s not where their main revenue comes from.

Samson Mow :

Yes. It’s really interesting. A lot of exchanges are not incentivized to optimize for their end users. Like if you look at the landscape a lot still have not supported SegWit and they’re lagging. I think a few of them only added support very recently, but they generally pass fees onto their end users. I know that BTC Turk pays for their fees for their users. So that’s why they’re very much driving to get liquid adoption because they’re eating those costs themselves. So they want people to use liquid. But I don’t think it will be as bad as before. Because I think generally people are more aware now that they do need to embrace these solutions. Like if you look at the adoption of lightning, then it’s a step forward, right? We didn’t need a UASF or something like that.

Samson Mow :

They’re just opting in to provide support and integrate the technology. So hopefully it’s not going to be a battle. And I think as Bitcoin price goes up, they just need to do it. Or else fees are going to get increasingly prohibitive for their users. It’s a perception issue too, that if you have some newb and he bought some Bitcoin and he’s got to pay 50 bucks to take it off, even though it’s not, it could be cheap in Bitcoin terms. It’s still high in fiat terms. And this problem is not going to go away because Bitcoin is just going to keep going up.

Stephan Livera:

Right. It’s also funny because well not funny, but it’s just more likely we will see sometimes people complain on Twitter saying. I had to withdraw from the exchange. And that was such a high fee. They sometimes blame Bitcoin when really it’s like the exchange who had like, who didn’t use a more optimized way of interacting with Bitcoin.

Samson Mow :

Exactly.

Stephan Livera:

I’m also curious as well. Do you see it kind of like, there’s going to be a few more dominoes to fall before Liquid becomes like really more, I guess, mainstream or lots of exchanges want to all support it and get all those inter exchange connections going?

Samson Mow :

Yeah, I think if we can get to a couple more derivative exchanges to add support and maybe OKex and Huobi, then I think we should be in a pretty good place.

Stephan Livera:

Awesome. so let’s also chat a little bit about mining, I know bloodstream mining has been advancing a little bit. Can you tell us what’s the latest with Blockstream mining?

Samson Mow :

Well, we’ve been plugging away. We first started our mining operations shortly after I joined in 2017. And we have about 300 megawatts between the U.S. and Canada. We’re still building a lot of that capacity. It just takes a lot of time. You have to buy a lot of transformers and equipment. We recently announced a big purchase of MicroBT equipment about twenty five million worth. It’s still growing and we’re making steady progress.

Stephan Livera:

You have any views on what kinds of mining equipment you’re looking at, what you like and why you like MicroBT?

Samson Mow :

Well MicroBT is just very reliable hardware. We’ve done a lot of testing of it. We’ve get off their models before they’re released to the public and we put them through the ringer. So I find they’re quite reliable. They’re generally, I mean, the competition is not strong. I think ebang is a close second maybe, Bitmain had a lot of issues with their previous Gen. We haven’t touched their newest Gen, but their earlier Gen had a lot of problems with quality, like heat sinks would just fall off. Maybe that was just due to their infighting. No one’s looking at quality control, it’s Jihan and Micree are fighting, but that hurt their perception, I think, in the marketplace a lot. And it’s doubtful if they can regain their dominance now, I think Micro BT has managed to leapfrog them.

Stephan Livera:

Right. And it’s interesting from what I can hear, it seems like there’s a little bit of a mining equipment squeeze on. It can be hard to get the equipment because so many people are trying to run to get demand. Right. Trying to get equipment.

Samson Mow :

It’s always the case, like when Bitcoin becomes hot, then people want in, because they do the calculations and they see, Oh, wow. If I bought the miner I could make a tidy profit on mining Bitcoin instead of buying Bitcoin. But then there’s a lot you have to have in place, you need that infrastructure. You need to have your mining farm, you have to negotiate your power deals. You need the equipment. It’s not easy to get the equipment like right now everybody’s constrained from the foundries from getting the chips themselves to make the miners. It really pays to understand Bitcoin and to get in when it’s not so hot, like back in 2017, when I was sourcing power for our mining operation in Quebec I did that before the big gold rush. Lot of people were not that hot on Bitcoin at that time. But then with the run up then suddenly everyone’s looking for clear power. And even the landlords were trying to squeeze you, trying to extract rent from you and trying to get every single nickel and dime they can out of you. The best thing to do is just get into Bitcoin when it’s boring and it’s dead.

Stephan Livera:

Yeah, no, that makes a lot of sense to me. I guess it’s also about getting your power arrangements going because obviously the power and the electricity price is a huge deal in terms of how profitable you will be. I’ve also seen this funny dynamic where people are using older mining equipment now because all of us, because of the massive price run recently, really old equipment is now profitable again.

Samson Mow :

Yeah. S9’s are profitable again that mining equipment never becomes obsolete. It just becomes obsolete for certain price points. People want to buy old stuff because they can’t get new stuff. It’s kind of a funny market in that sense. Hang on to your old miners, if you have them because you never know, one day they might be super profitable to run.

Stephan Livera:

You gotta HODL those miners guys!

Samson Mow :

HODL everything. HODL Bitcoin, HODL miners.

Stephan Livera:

Yeah. So from what I’ve heard, the dynamic there is almost like if you have a higher cost of electricity, you might need a newer, more efficient miner. Whereas if you are using older miners, you might only be able to make that work with really cheap cost of electricity. That’s sort of that dynamic there where it’s almost like the newer equipment goes to the people who have the highest electricity price. Over time it sort of flows down like water down the mountain. It sort of flows in the direction of the people who have as it ages, then it ends up with the people who actually have the cheapest possible electricity price. Is that similar to what you have seen?

Samson Mow :

Well, I think in general, even people with low power costs, they want to buy the latest gen stuff too. Right. It’s kind of like when you buy an iPhone, if you’re going to buy an iPhone, you buy it when it comes out. So you maximize how long you can use it for Apple, obviously. It’s same with the miners. If you’re going to buy something, you want to buy the new gen. Right? Because it’ll last longer. But even if you have cheap power, you still want the latest gen because you’re maximizing your profit margins at that point.

Stephan Livera:

Of course. Yeah. I think I was just referring more. So like, if you’re going to have that conversation around, when should you upgrade, because if you’ve already got miners and it’s kind of now you’ve got a few years old equipment, that kind of thing, right?

Samson Mow :

Yeah. But there’s a lot of people with free power. There are clever ways to get free power in the world. Those guys will buy old miners it costs nothing to them and they get money or Bitcoin. So there’s always demand.

Stephan Livera:

Yeah. And the other funny one I’ve heard is that because of how crazy it is and this market. It literally matters how quickly you get the equipment. And so if you can get the equipment delivered really quickly then plug it in really quickly, that’s like huge amount of money saving because otherwise you’re just leaving money on the table.

Samson Mow :

Yeah, exactly. And the challenge right now is that deliveries are stretching out to end of the year now. And a lot of the manufacturers are just not taking orders. They don’t want to over promise and they don’t want to be able to, they don’t want to be unable to deliver. If you go to some of the manufacturers now and you say, I want to buy some miners, they’ll say, yeah, we can’t sell you any right now.

Stephan Livera:

Yeah. Because I guess most of us are used to the world where if you want to buy something, you just go to the shop or you order it online. In a few days it’s delivered, but it’s like really the industry is hitting up against constraints that you just even if you were going to pay more for it, you wouldn’t be able to get it. You bought a secondhand machine off someone else.

Samson Mow :

Yeah, the challenge I think is that we are too small as an industry in terms of like, when you look at the Foundry level of business they do business with Apple, Samsung does their own. But they want big orders and they want consistent orders. So there might be a peak or a spike in demand for ASICs to mine, Bitcoin, but they just won’t do that business because it’s not stable. Right. They want that quarter after quarter reliable customer, that’s going to buy in volume and sustain their business. They don’t want to cut off those customers and supply you because Bitcoin is hot this year and the next year, “Okay, Bitcoin’s dead again”. Now you don’t want to buy anything. I lost my big customer, so that’s the nature of the market. And I think it well improve over time, but we need more mining and we need more people making miners and ASICs so that we have that sustained constant demand.

Stephan Livera:

Let’s say Bitcoin goes 5X or something like that from here. How would that sort of change? The, that dynamic there would, it would like say like another five X from here, would that then start having serious that would presumably have very serious implications in terms of how much demand there is for miners and then in turn getting access to chip fab.

Samson Mow :

Right. Well, I think it’s more about, it’s less about the price spike and it’s more about sustained demand. We need to have a constant demand for equipment and then we’ll be able to like the not we, but the ASIC manufacturer-

Stephan Livera:

the industry broadly.

Samson Mow :

They’ll be able to go to foundry and say we always want to buy 500 million worth of chips every quarter, and then they’ll start allocating more pipeline to basic makers my Bitcoin ASICS makers. So that is the key, having sustained constant demand versus spiky and dippy demand.

Stephan Livera:

Right. I see. I mean, as an example, let’s say we spike to 5X and then we crashed down to, I don’t whatever, a 100K or whatever it is, I wonder then, is there an argument there is also that over time the fine, we have bull and bear cycles in Bitcoin and maybe it’s like, the winters are getting progressively less cold, perhaps.

Samson Mow :

Yeah, maybe that will do it. Or the other thing that could happen is that the paradigm of demand changes, whereas it’s not about mining for profit, but it’s mining to secure your Bitcoin. So if you look at the big companies like MicroStrategy, that are buying billions in Bitcoin. There should be rationally, some equilibrium where they say, okay, now we’re going to mine Bitcoin too, because it’s a big risk to sit on this big pile of Bitcoin and not be securing the network. So every quarter we’re going to allocate 25 million just to buy miners and to mine Bitcoin as well. For those of us like you and me have gone through those wars we know what it feels like to be threatened by malicious miners, even if they don’t have the power, but to feel that threat and to have them standing over you saying “we’re going to do this”, and that’s not a good feeling. And I think there needs to be some education around that too. A lot of the new players that have come into this space and educating them on the need to be a miner, because then you’re actually participating in the network and securing it.

Stephan Livera:

That’s a good point because it’s like defending your investment. So one way you might defend your investment is, putting up some funding for Bitcoin development, whether that’s Bitcoin core or lightning or something else. And then as you mentioning another ways to put some money into mining or put the money into these different aspects of it. And I think MicroStrategy really has been one of the leading, I guess, examples of a company going hard on Bitcoin. And so perhaps there’ll be others who follow them as well. So as MicroStrategy keep increasing the size of their Bitcoin stack, it starts to make more and more sense for them to actually start playing in the mining game. Maybe not directly on an ROI for the mining, but on a protection of the investment sense.

Samson Mow :

Yeah. I mean, if you have Bitcoin, it doesn’t make sense to, Oh, it doesn’t make that much sense to sell your Bitcoin to buy miners. But if you have cash flow, which a lot of these public market companies do, it makes sense to reinvest that cash flow in miners or mining facilities. Secure the network and effectively get Bitcoin for securing the network. It may, depending on the market conditions, difficulty and whatnot, it may not be as effective cost-wise versus buying Bitcoin, but at least then you’ve protected your investment to some extent, but that is what I think will smooth out that demand curve when you have people mining just to secure the network versus mining for profit period.

Stephan Livera:

So I wonder though, how far away is that kind of understanding in terms of the common narrative right? So maybe micro strategy are a leading company in terms of buying Bitcoin and other companies might start to follow them in the months to come. But then it might take some time for them to come around to the mining idea and other companies kind of on a bit more of a delay from them, right?

Samson Mow :

Yeah. But it’s not as crazy as you think, like one of our customers at Blockstream mining is Fidelity, so it is happening. It’s just who’s next. And I think Michael Saylor will do it. It’s just he’s busy with a lot of other things he’s busy stacking, but he’ll come around to it.

Stephan Livera:

Yeah. And what are your thoughts on the whole future of North America mining? So there’s been this whole, I mean, it seems to be a canard that comes up every now and again of China mining, blah, blah, blah. I’m sure the story, but what are your thoughts on that idea of the mining distributing out?

Samson Mow :

I think it’s important that much like liquid we try to keep the functionaries very dispersed geographically and geopolitically. I think it makes sense for Bitcoin to, and that was one of the reasons why, I thought Blockstream should get into mining to help move some of that hash rate around, get it into North America versus having it mostly in China. There are numbers out there where it’s still like 70, some odd percent in China. I think it’s actually lower. We’re probably down to about 60 or so in China versus the rest of the world at this point. But that’s just my feeling. The issue is a lot of people, even if they’re mining in North America, they might be still using a pool that’s considered to be based in China. So then people do the math and they say, okay, well, it’s still very much all centralized to China, but I think it’s better than most people think it is.

Stephan Livera:

Yeah. And in terms of underlying factors, or I don’t know how to put it, but people might argue “Oh see, China has cheap electricity, and that’s why it’s just going to stay that way.” Do you see any counter arguments there? Is there some other competitive advantage that North America can bring?

Samson Mow :

It’s actually not true? The cost of electricity in China is probably on average higher, if you factor in the seasonal cost changes. There’s a wet season in China and that’s when the cost really drops. But then when it’s not wet season, then it’s pretty high actually compared to North America. North America. If you’re good, you can get around two to 3 cents per kilowatt hour, and that’s better than China on average. So the cost factor is not really the primary reason. I think a lot of it has to do with economies of scale and efficiencies. The miners are manufactured in China. You can service them in China easily. There’s a really robust logistics network in China to move them from point a to point B. You can set up in China very rapidly. If you want to build a mining facility in North America, it could take you six months or a year, but if you want to spin up something in China it’s weeks. So a lot of it has to do with speed of everything in China. But I think we’ll see that becoming less of an issue. I know some of the manufacturers are planning to set up manufacturing plants in North America, so that that’s like their global expansion strategy. And that means you could have repairs in North America, assembly in North America, and maybe eventually down the road, you have foundries in North America too.

Stephan Livera:

Is there anything that let’s say US or Canadian politicians or regulators can do to ease that process? Do you see any ideas on that along that?

Samson Mow :

I think I have more faith in the free market than them trying to help it along.

Stephan Livera:

Yeah. So for you, it’s more, just a matter of seeing the competitive pressure and seeing now there are more entities and mining operations coming up in North America.

Samson Mow :

I think it will happen organically. If you’re setting up in North America, you have to be prepared for higher CapEx initially, but in the long run, it’ll pay off because power costs are generally lower and there’s a lot you can do in terms of automation to lower your costs for labor and OPEX. There’s a lot of cheap labor in China, but if you can optimize and have smarter systems in place, which is what we’re trying to do at Blockstream, then you can lower your costs a great deal.

Stephan Livera:

Yeah, that’s really interesting. Hey so in terms of. I guess the North America mining scene, is that like in terms of Blockstream mining, is are you focusing on North America particularly, or are you looking elsewhere also?

Samson Mow :

Well, right now, our focus is mainly in North America, but we’re open to other locations too wherever there is cheap power and conditions that are favourable. We can definitely take a look at those.

Stephan Livera:

And in terms of, I guess North America, is it also that there’s here’s a lot of capital there, obviously. So is that also one factor where maybe a lot of the investors in North America might be keen to invest in an operation that is more local let’s say?

Samson Mow :

Yeah, I think it’s definitely a factor. People like to invest in things that are close at home and nearby. But I don’t think it’s a huge barrier. I mean, if there was a site in Australia, then I’d happily go there and, grab lunch with you and set up a farm.

Stephan Livera:

Of course. Yeah. And I mean, it seems that there’s, there’s all sorts of different approaches going. So there are some people who are more just trying to get deals going with their local power plants. And then there were others who were saying, no, we’ll try and find renewables or we’ll be able to make it ourselves. How do you sort of see the split there going with renewables versus non renewable energy?

Samson Mow :

Well, generally new renewables are cheaper, so you’re generally going to see more use of renewables. The question is really, really your preference, right? Like a lot of our power in Georgia is nuclear. So do you think nuclear is renewable? I think it’s kind of renewable. It’s not burning coal, right. So it’s not polluting the environment I think its quite green actually. So it really just depends. I mean, some people will try to find green energy to mine with, but I think as long as you’re not actively using something that’s very polluting then it’s okay.

Stephan Livera:

I wonder what your take is on that whole what percentage of Bitcoin mining energy usage is being renewable versus nonrenewable? Do you have a thought on that or anything you can share?

Samson Mow :

I would say it’s probably like 60%, 70% renewable, just because hydropower is just so cheap. I mean some of the renewable power is pretty BS, like wind energy, it’s green and renewable, but there’s a huge dimension of nonrenewable stuff that is used to create those wind turbines and maintain them. Right. Even solar power is green and renewable, but it’s highly ineffective cost-wise to set up a solar farm to mine with like at this point. But generally I think renewables are cheaper. Like obviously there are people still burning coal to mine. Right? But I think it tends to be generally cleaner stuff that is cheaper, so they will tend to gravitate towards that.

Stephan Livera:

I wonder to what extent that is government subsidy driven, because it seems to me that there is a very large around the world. There’s all sorts of kinds of government subsidies for the so-called renewable energy. Even if they’re not as scalable or overall sort of maybe effective as the nonrenewable stuff.

Samson Mow :

Yeah. I think it definitely would play into it. I don’t know of any specific instances of subsidies helping Bitcoin mining. I know that in the past Bitmain has tapped into some covered subsidies and used it for mining when they weren’t supposed to. And then those got shut down. I haven’t heard anything directed towards helping the industry or an industry, but that’s typically like a foresight. Like if you look at Canada, we have massive amounts of extras, excess power that could be used for mining for many purposes. If you have it in Australia, but we have a crown corporations which are basically government owned corporations and those can generate profits. So you could set up a crown Corp to mine and pay off the debt or something. But no, that’s not happening. We just waste the power.

Stephan Livera:

Yes, definitely. So Samsom, that’s probably a good point to finish up here. Where can listeners find you online?

Samson Mow :

Yeah, I’m on Twitter @excellion and you can find more info about Blockstream just by following @Blockstream.com we’re on LinkedIn and Facebook too. And if you have questions, there’s lots of information out there. We have help guides and blog posts about our tech all the time. So feel free to check it out.