Whit Gibbs of Compass Mining joins me on the show to talk about his background in mining, and how the mining market is developing.

We chat:

• Hitting ROI on a mining machine
• Current prices and costs
• How to do it
• Learning by doing and making mistakes
• Mining equipment
• Mining facilities
• Hashrate distribution around the world
• Recent raise

Links:

• Twitter: @BitcoinBroski
• Site: Now everyone can mine bitcoin

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:

Welcome to the show,

Whit Gibbs:

Stephan. Thanks for having me on, I appreciate this, I’ve been a long time listener. It’s going to be on the show.

Stephan Livera:

Yeah, for sure. I like what you’re doing over at Compass Mining. I thought it was time to get you on the show and we’ll talk about it and hear a little bit from you. So just for anyone who doesn’t know who you are, tell us a little bit about your background.

Whit Gibbs:

Sure. So I am the co-founder and CEO of Compass mining. Compass is a Bitcoin mining marketplace. Basically our goal is to help as many people as we can have access to mining Bitcoin. Right? We’ve heard for many years that the Bitcoin mining network needs to be decentralized. We think more about it being democratized, and that is giving everyone the ability to mine Bitcoin. And that’s really our mission is we just set out every day to help everyone get started, whether they’re a big miner or a small miner, we want to help them, start mining Bitcoin and help distribute and secure the Bitcoin network.

Stephan Livera:

Right. And I think the typical story for a long time has been, “Oh, you’re new. You shouldn’t be doing it. You need millions of dollars to get started.” Is that true? Or is that changing now?

Whit Gibbs:

You know, that is what I kept hearing. And for me, I’m just one of those guys that like, if you tell me I can’t do something, I want to find a way to do it. And that’s really how this all came to be is I heard you had to have a lot of capital. It was a very hard process to get into. You had to have a big network in China with the distributors. So my co-founders and I, when we set out, we were just trying to figure out how we could we overcome this? Because certainly there are people who aren’t millionaires, who want to mine Bitcoin. I mean, we weren’t millionaires, aren’t millionaires. We wanted to buy Bitcoin right. So that’s really, I think the narrative change that’s occurring right now is it’s been for years that you mean you had to have a million plus to get into the game. And it’s really not the case. If you want to just buy one ASIC you can get it set up somewhere, now you can do it.

Stephan Livera:

Yeah. And I think the other one is there has been so many scams in the space, right? It’s cloud mining. Right. So how, I guess for people who in you, and maybe you haven’t seen this in the space historically, and even today, there are probably still a whole bunch of cloud mining scams out there. And unfortunately it is a space rife with scams and there are some legitimate players in the industry. So can you tell us a little bit about how you’re thinking about that and how you explain the difference between the cloud mining and legitimate mining?

Whit Gibbs:

Yeah. So cloud mining is one of those things where, I mean, like you’ve got Genesis mining who, I mean, clearly they’re not a scam. But it’s not often favourable if you’re in a bull market, everyone’s making money at everything. It’s chances that you’re going to buy into anything, whether it’s cloud mining or mining, or really just buying Bitcoin and holding, you’re going to make more money. That’s going to, your value is going to appreciate. But with the way that we look at it’s not really mining, right, because you don’t own your hardware. So it opens you up to the opportunity to be scammed because you have people on the counterparty, that people on the other side of this, who they can sell you anything. And because you don’t physically own the hardware, you have no way of protecting yourself.

Whit Gibbs:

Right? If I sell you a cloud mining contract, basically what I’m saying is, okay, I have hardware that’s hosted in some facility and I’m just going to transfer you the Bitcoin associated with the hash rate that you’re purchasing. Now, if Bitcoin’s price goes up, Bitcoin’s price goes down, you’ve committed to a contract that you’re locked into. And you’re generally not going to benefit from the big price moves. Whereas with mining, you have an asset in the ASIC that’s correlated to the price of Bitcoin. Take this year as an example. People who were buying ASICs in October, 2020, they’re buying them for a thousand Bucks, 2000 Bucks. Now those same basics are worth 3, 4, 5, $10,000, and they’ve mined the Bitcoin associated with it. So you’ve got that double benefit of being an actual miner versus cloud mining.

Stephan Livera:

Yeah, of course. And I think with Bitcoin mining, it seems to be very much a case where obviously the ideal case is to get into it during the bear market. Because at that point, nobody wants the Bitcoin mining equipment or relatively less people wants to Bitcoin mining equipment. And potentially it’s easier to get the relevant deals done in terms of power sourcing and things like that. So can you maybe explain some of that dynamic where maybe people get a bit exuberant in a bull market and then they’re running to things and they’re kind of overpaying for things compared to relatively in the bear market, and not having the expertise needed to actually make it work for the long-term.

Whit Gibbs:

Well, I mean, look, FOMO is real, right? Like we all get it you see Bitcoin at 3,500 and maybe it’s attractive to you. Maybe you’re not really hip to the game and it’s not, it’s a scary thing. But then when Bitcoin’s at 50K everybody wants to buy, right. That’s when we start getting the messages from all of our friends and family about how do I get into this? It’s the same with everything subconsciously we’re programmed to buy at the top of the market. Right. And what we try to do at compass is we guide people like, okay, you give in a little bit to your FOMO. Bitcoin’s at $54,000 right now, maybe buy an ASIC, but don’t spend all of your capital on ASICs right now, string this out. Let’s assume that you’re going to be mining for the rest of your life.

Whit Gibbs:

Right. You’re going to be supporting Bitcoin’s network for the rest of your life. So deploy some capital now and start mining, but save some up for price swings. For example the price drops 20 or 30,000. These Bitcoin ASICs are going to be less expensive, buy two or three times as many as you would buy right now. It’s all about just structuring that. And really, I think people are getting, they’re getting smarter. We’ve seen a couple of these cycles now people understand that when the price of Bitcoin turns down and we see a price drop, should we see a price drop that these machines are going to be less expensive. On the flip side of that though. I mean, it seems to be right now, like every time the price drops 10 to 15%, there’s a lot of buyers that are stepping in and not many sellers to fill those orders. So it’s really hard to project that we’re going to dip down to much lower, but I’ll knock on some wood just in case.

Stephan Livera:

Of course. It is a very interesting dynamic as well because there’s all these different moving parts, right? So obviously the price of Bitcoin is a very important part. The price of electricity is an important part. The price of mining equipment, how reliable that mining equipment is. What are some of the key, I guess those are probably some of the key inputs, right? So maybe if you could spell out what’s the impact of some of these different inputs on a person’s decision when they want to become a miner.

Whit Gibbs:

Sure. So if you’re looking at getting into mining, really there’s four major inputs, right? You’ve got your CAPEX or OPEX. You’ve got the price of Bitcoin, you’ve got the price of power. Your CAPEX is your upfront cost. What’s it going to cost you to build a facility, buy your equipment. Your OPEX is your monthly expenditures, right? What’s it going to cost you to maintain the operation of your machines, whether it’s repairs or staffing or whatever that may be, then you’ve got your power cost, which is pretty straightforward. You’re buying the power that’s going make your machines, hash and mine Bitcoin for you. Then you’ve got the price of Bitcoin, which is a variable that is not within our control. So when you’re looking at a market, like now the beautiful thing is that there’s an abundant amount of cheap power, right?

Whit Gibbs:

Because of COVID, because of people working from home, because of less people just being out and about there’s a lot of companies, there’s a lot of industries that they’re not able to consume the power that they once did, which of course changes the supply and the demand and drives the prices of power down. We’re seeing now that there’s a ton of abundant cheap power. The challenge now, though is there enough hardware to support it? Right? Because that’s the other thing is where do you get the ASICs and Bitmain, Whatsminer, Innosilicon. All of these companies, they’re working really hard to meet the demands. But the real reason that we’re seeing the prices on these machines skyrocketed just not enough supply. I mean, there’s just what are you going to do if you cannot get machines? It’s been interesting to navigate in these markets because we’ve been very fortunate. We’ve got a good network in China that helps us to keep supply up. But we’re seeing tons of very big miners that are just not able to secure enough hardware to meet the capacity that they have available to mine bitcoin.

Stephan Livera:

Yeah. So that’s a really interesting dynamic that I have heard of where essentially the Bitcoin mining manufacturers, so people like Bitmain and Whatsminer and so on. They are competing for space in the chip fab. As I understand, there’s a bit of a variability in that demand because of obviously Bitcoin has gone through these boom and bust cycles, if you will. Then what’s happening over at say the TSMC of the world, the Taiwan, semi conductor manufacturing companies of the world. They have been more like, Oh, you guys are a bit too variable in your demand. I would rather sell that space to Nvidia or something like that. And I guess it’s kind of that dynamic. That’s making it hard for a Bitcoin miners to go and create more, to build more ASICs which in turn allow, everyday like you and me and others to actually, if we want to mine Bitcoin to buy the mining equipment. And so that’s what we’re seeing this mining equipment price is just going through the roof right now, right?

Whit Gibbs:

Yeah. I mean, if you think about it, you’ve got TSMC and their biggest clients or one of their biggest clients is Apple.Every Apple product has a chip and we all have an Apple product in our home. I mean, I’m talking to you on one, I’m wearing one, right? And then the other major fab is Samsung. And then of course, Samsung is a massive player. So not only are we competing, these Bitcoin ASICs manufacturing companies competing to get the allocations with each other, they’re also competing with the biggest international companies that are out there. And as we get to a place where everything has a chip, everything is smart now, right? Before you could walk in your house and like your refrigerator didn’t need a chip and your stove didn’t need a chip, but now everything does, if it’s any device in your house is going to use these smart chips.

Whit Gibbs:

So we’re now competing and Bitmain and MicroBT are now competing with these different massive industries. And of course, if you’re TSMC or your Samsung, who are you going to give your allocation to, right. You’re not going to shun Apple for Bitmain you’ve got to give it to your biggest clients. Which is why I think a lot of people are excited to see that TSMC is building a factory in Arizona and Samsung is going to be opening up another factory in the state. So it’s hopeful that some of the allocation that’s being manufactured at these facilities is going to go to Bitcoin miners, mining ASIC manufacturers, hopefully we’ll see.

Stephan Livera:

Yep. I guess what we’re getting at there is that if you are an individual getting into this space, not having the networks, the relations built up that knowing who to go to, where to buy it, how to buy it, the logistics, those elements can be challenging for somebody who’s new to the space. And you might end up overpaying relative to going to and using a partner who can help you source the equipment in an appropriate way and in a cost-effective way. Right? Yeah.

Whit Gibbs:

Being a smaller player in the game, it’s nearly impossible to be able to source hardware for yourself. And that was really the onus for us as we were getting started, as we wanted to be able to provide this collective buying power for smaller, smaller miners. We’re able to group together a lot of small orders and then make a big order with a Bitmain or a large distributor so that we can then pass on this cost savings, you know, because the alternative is, I mean, there are people that sell one ASIC, but you’re going to be paying a hefty premium, which of course turns and digs into your return on your investment and your ability to profitably mine Bitcoin, but you’re absolutely right. It’s a very difficult thing. If you don’t have an established network, it’s nearly impossible to get started mining on your own. And I think that’s really why most people just, they may consider it, but then they immediately stopped because as you start to dig down the rabbit hole, you get so many No’s before you ever get to a Yes. That it’s disheartening.

Stephan Livera:

Then some of the other difficulties I can think of, if you are just thinking like you’re an individual and you just want to try and do home mining you’ve also got to think about factors like noise and heat. And these are all depending on what your home, if you’re going to do it at home, well then have you got somewhere you’re going to do that. I mean, you’re not just going to have it in your home and these things aren’t quiet. Right. It’s true. Our families or friends might not be comfortable with that. So I think these are all factors that we have to think about then for that retail individual who wants to be able to contribute in terms of security and potentially they want to try and earn some Bitcoin as well.

Stephan Livera:

So might also be good to just talk about from an ROI perspective. I think that’s also been really interesting to see over the last few months, we’ve seen a few people try and do the home mining thing and say, Hey, I found some people on telegram chat groups. I ordered the Bitcoin miner and I set it up in my garage and I found some cooling, or I found some way to deal with the noise. And because of the price run up, a lot of them have actually ROI’ed very quickly. They made back their money very quickly. Right?

Whit Gibbs:

Yeah. It’s right now. And as I mentioned before, is in a bull market, everything is profitable. Your breakeven on your power price is higher. You can mine at a higher price per kilowatt hour. And it seems like it’s working right, but we get a year down the road and maybe now you’re losing money every month from mining. I mean, there’s a reason that people who do it at an industrial level, they set certain benchmarks for what they’re willing to pay for power. They don’t pay above that. Most home, I can only speak for the States, but most home miners in the States are paying between 12 and 14 cents per kilowatt hour as like a national average. And there are machines that will allow you to turn a profit right now, if you’re mining at that. But once hash rate increases, once difficulty increases, your machines are just not going to net the same that they did. And it’s no longer going to be a profitable game. And if you haven’t already ROI’ed now you’re, it’s basically sunk costs, right? Because once that market turns on you, you’re really never going to be able to ROI on those machines. If you’re paying too high of a power price. It’s something that I think we take for granted, right? We take for granted the fact that like what’s going on today is probably going to keep going on forever when in reality that’s generally never the case.

Stephan Livera:

Yeah. I see, I guess there’s a few different dynamics here. So one is Bitcoin has, what’s called a difficulty adjustment. So as more hash power comes to the network, the difficulty rises, meaning your mining equipment becomes less profitable in a sense. But right now, as we were saying earlier, there’s kind of this shortage, if you will, in the ability to create new Bitcoin miners. It’s kind of like, there’s like a ceiling or a cap on how much higher the difficulty you can go just for now, until that sort of supply blockage if you will gets alleviated a little bit, right.

Whit Gibbs:

See, it’s a very unique time in the market. Obviously we’ve never seen Bitcoin’s price where it is, but also this is like a golden period for miners because difficulty isn’t increasing right now. The last epoch difficulty dropped. It should be increasing. Everyone’s saying like, Hey, look it should be increasing, but you get the news out of inner Mongolia that they’re going to be regulating or increasing the prices for crypto miners, power, Bitcoin miners power. And that causes hashrate to drop because those people have to move. You got like 10% of Bitcoin’s hash rate located in an inner Mongolia. That allows others to keep mining profitably, even though there’s tons of people that are ordering machines for some reason, they’re not all coming online. It’s a big quandary. We talk about this internally in our mining groups.

Whit Gibbs:

It’s like, where, where are these machines? You hear all the time that like so-and-so’s ordered multiple thousands or tens of thousands of machines and they’re spaced out over a year or so, but still an assumption they’re online. And it just, it makes me wonder if people are buying these machines without building their facilities. Maybe they’re just sitting on hoards of machines and one month we’re going to see a massive spike in hash rate and difficulty, but we’ve really kind of stayed steady for the past few months. And it’s been, I mean, it’s been great as a miner, like you’re making good money. But you’re just kind of waiting for that hammer to drop.

Stephan Livera:

Yeah. Because eventually like, so it could be that maybe some less experienced miners have bought equipment and they haven’t been able to plug it in yet or maybe they were more like, let’s buy it now while we still can and plug it in when we can aspect. Maybe they, so they’ve got all these miners that are literally not being plugged in yet. Obviously they’re leaving a lot of money on the table to do that. I guess it’s a funny dynamic there, but it’s, I think to the point you were making though, is that this is like a golden age right now because you want to be careful because you want to make sure you’re staying within the reasonable ranges that are conservative. So even if we weren’t in a crazy bull market, would you still be profitable? I think those are some interesting sort of points. Maybe if you could outline like when you’re not in a crazy bull market golden age, what are some of the typical levels people would be looking at at least historically like from a power perspective and like the unit, the mining equipment perspective.

Whit Gibbs:

We always when we we’re putting together bundles for newer miners, our benchmark is to try to help them return on their investment in 12 months or less, right. I mean, Bitcoin’s price is going to do what it does, but we look at a couple of key metrics to make sure that we’re setting them up for success, as best as we can. One of those is the power price. We want to make sure that they’re as close to 6 cents per kilowatt hour or less as possible on Compass’s site. We have a very hefty screening process for facilities that want to list basically anyone that comes on the site and tries to list at 7 cents is an auto reject for us because we just see that as people trying to capitalize on the bull market, they’re going to end up locking people into contracts that are unfavourable, and that’s just not what we’re about.

Whit Gibbs:

And then the other side of that is the hardware costs for newer miners. We try to work out secondhand hardware deals that have some kind of guarantee, but that are going to come in at a more favourable price per terahash. Our first bundle that we ever put together was with S 17s, and S17s are like notoriously the worst ASICs that they may never released. But we had a very good guarantee that would able to get on them. The people who bought those in October, they ROI’ed on those machines at 90 days. I mean, for us, that was a huge win for them. It was a huge win. We’ve just kind a tried to continue that trend, like finding good value that we can then pass on to people who are getting started because like your first couple of machines, it’s a learning process.

Whit Gibbs:

Unlike college, we don’t want to make it something that riddles you with debt forever.It needs to be a learning experience that you can enjoy, you can come out of it profitable. So that’s what we’re always focused on when people are looking now at getting into hardware, it’s just very important to stay cognizant of where we’re at in the market. Like the exuberance can overtake you very quickly. While I think that now is as good of a time as any to get into mining, it’s just you crawl, then you walk, then you run. You got to pace yourself and get into it slowly.

Stephan Livera:

Yeah. That’s a good analogy. And I mean, we often use that when we’re teaching Bitcoin newbies about self custody, right. We say, start with a phone wallet, then get a hardware wallet. Now start thinking about like Multisignature and more advanced things. So I guess this is maybe a good way then, what are some of those steps in the mining world?

Whit Gibbs:

Yeah. I mean, the first thing is that you need to have someone that you can lean on for advice. Because mining is it’s cutthroat by nature. If you were coming into the market with a hundred million dollars, chances are, you would not be able to find anyone that would give you advice because you would basically be the person that’s about to wreck difficulty for them. Right but with us, we don’t really self mine like compass is not in the business of competing with our customers. We’re here just to help people get started. So we’re keen on that. We want to make sure, like when you come in, how do you set up a pool account? How do you get your wallet connected? Where should you look to source hardware? Where’s a good place to host it? We want to be your Sherpa of sorts to get you up the mountain so that you can mine Bitcoin profitably.

Whit Gibbs:

I mean, It’s very important to have that per that person or that party you can rely on. And it’s in such a cutthroat business it’s very rare that you’re going to be able to find a ton of credible sources of information, or at least that would be what a lot of people have you believe. But there are so many really great people in the mining community that are willing to at least get you started, give you some kind of tidbits of information that will help you just really have to be ready to study. If you’re just coming in with money and you expect that you’re going to make money right away, it’s not going to happen. You have to have a willingness to really dedicate yourself to learning just like with anything with Bitcoin. Because one misstep. Put your keys in the wrong place, lose a wallet, anything like that. You’re stuck this is a beautiful opportunity as Bitcoin is, but it’s very unforgiving. If you make a misstep in any aspect there are definitely fallbacks to being your own bank, certain pitfall,

Stephan Livera:

Of course. I think, yeah, it’s just like Bitcoin. Like you have to just, sometimes you have to get your hands dirty and make a mistake and then learn that way because sometimes someone can guide you and they can try to put guard rails there and try to steer you in the right direction. But sometimes you just have to make a mistake before you’ve really learnt it properly. And that’s unfortunate, but now I’ve got to ask you man, so yeah.

Whit Gibbs:

Somebody comes to you and they’re new, they’re green, right? No experience. What’s your first step to guide them into kind of getting into things.

Stephan Livera:

Well, for me, I’ll say, Hey, buy a small amount and start learning. And I might set them up on a phone wallet and say, Hey, do you want to buy 20 bucks or something like that? Just a small amount just to kind of get them started. And it might be just a small amount on a lightning wallet, right. Just because of on chain fees, et cetera. And then I’ll sort of tell them, Hey, you need to start listening to my podcast or start reading, read Vijay’s bullish case for Bitcoin read Saifedean’s the Bitcoin standard read Parker Lewis watch what’s going on in the space and then ask me your questions as you go. That’s kind of how I typically, if I’m talking to a total newcoiner or precoiner, that’s basically the kind of the guidance step I’ll give them.

Stephan Livera:

But within the mining world is another whole thing, right? Because, and this is an area where obviously I’m not as I’m more, I’m like a Bitcoin generalist, right. I can’t be as specially knowledgeable about mining as you are. So I guess that’s kind of a funny yeah, that’s kind of just the way it goes. Right. and I think there’ll be all these little dynamics and things that I wouldn’t understand. As an example, let’s say understanding that being a miner is not the same as being a mining pool. And then when you’re a miner, you sign up with a mining pool and then you’re having a payout and you’re getting paid out from that mining pool. If you want to, you can re point your hash power to a different pool. Let’s say, if you don’t like what they’re doing, or maybe you’re getting a better deal somewhere else. These are some of the dynamics that you have to learn about when you’re becoming a miner.

Whit Gibbs:

Yeah. Well, listen, you bring up a great point because I mean we really believe in this idea of your hash rate under management, right? If you look at some of the biggest wealth managers in the world, the biggest funds, their metric is assets under management. Well, if Bitcoin is the most important asset class of our generation, and you’re a miner, your hash rate that you personally have under management is power, because like you said, like, yeah, we vote every day with our spending dollar miners, but with their hashrate, if there’s a company that’s doing well, like let’s say you want to mine with Slush Pool or Luxor or F2Pool or one of these notable mining pools, you point your hash rate in their direction. And by doing that, it’s a vote of confidence that they’re going to do right by you. Right. But you have the ability to shift that, you have the ability to move your hatchery to wherever you’d like, or to self mine if you’re big enough. And it’s important to know that like everyone has that power. And for us getting more people to mind is putting like literally putting power back in each Bitcoiners hands. Because if not, we’re basically relying on like 20 people to control Bitcoin’s network because I mean, that’s, that’s really what it’s becoming. If we don’t start to kind of take that back and reclaim some of the power that, I mean, it was once only in the quote unquote little guy’s hands, right?

Stephan Livera:

Yeah. That’s a really good point you’re making there because it’s not purely an ROI play in some ways, in some cases it’s more like a you might want to defend your investment. So even if you are a large Bitcoin HODLer and you’ve never gotten into mining, you might think, well, now I want to actually defend my investment to some extent. And even if it’s not purely an ROI perspective, I want to ideologically mine, or I want to kind of defend the system in some sense, and it might make sense, like, okay, maybe you’re losing a little bit on the ROI just temporarily, but you’re doing it as an overall system play. I could see that. Or even for big companies, they might want to start doing that too.

Whit Gibbs:

Well and they do. Big companies that have exposure to Bitcoin, they are certainly looking to get into mining so that they can defend their position. Because I mean, you hear it all the time, right? There’s ton of hashrate in China and there’s a ton of hashrate in other places. While I don’t think that the Chinese government is going to step in and take over Bitcoin’s hashrate, it’s a non-zero chance. I mean, if you’re going to buy a house, you’re probably going to put a security system on it of some sort, right? You want to protect that investment. It’s the same thing with Bitcoin. You want to have the ability to have some control over everything. I mean, that’s why people run nodes it’s not just this like cool participation trophy. It’s allowing you to really participate in Bitcoin’s blockchain. Which, I mean, the coins are cool, but the technology that’s underlying those coins is really the important thing.

Stephan Livera:

Yeah. I see. Let’s say that person is new and they come to Compass Mining and they’re like, okay I want to buy a miner, like, what does that look like? What’s kind of the process there. If they want to buy a miner and set that up in one of the compass mining facilities.

Whit Gibbs:

Yeah. I mean, basically if people come to our site and they want to buy a miner, we have a great sales team that will guide them through the process. I mean, our site is automated, so they can certainly just do that all on their own. And right now we have bundles that are available where people can buy a machine and it comes with a 12 month hosting contract. We’ve got those offered right now in Russia and in Canada. Then those change with availability, but it’s all very straightforward, right? You have the ability to to get out of Fiat and get into Bitcoin. You can pay with credit card or bank transfer and spend your fiat and get into something more appropriate. If you want to spend Bitcoin, of course, we’ll take that as well. And you’re able to buy the machines buy your hosting contract. And then once everything is set up your pool account in your wallet, your mining, nobody ever touches your coins. Everything goes directly to your wallet. We simply bill you for power every month. And you pay that as you’d like on your mining, like anybody else would.

Stephan Livera:

Fantastic. And so if you could maybe outline, so I guess that example where you actually have some compass mining customers who are wide from, was it October, and then I think they ROI’ed in February, because obviously the crazy bull run that went on, but let’s say it wasn’t such a crazy bull run. What kind of ROI periods do you think like what kind of ranges would you say? Are we talking a year or a bit more?

Whit Gibbs:

Generally a year to 14 months. That’s kind of our benchmark. I mean it’s not anything that’s able to be promised or guaranteed, but that’s when we’re setting it up, that’s what we’re looking at right. 12 to 14 months in these kinds of market conditions is our aim. Right. We want people to be able to see that and continue to scale.

Whit Gibbs:

Yeah. I guess if people get lucky, right? Like, let’s say someone buys him now. I mean, as we speak now, what does it, 55 K or so someone could buy in now. And then let’s say later this year we hit some crazy bull run up to like 250,000. Well then they’re going to be ROI’ing really quickly then. And then who knows maybe then it crashes down to 50,000 again. So then they might have to deal with that volatility as we all do in the Bitcoin world.

Whit Gibbs:

Absolutely. I mean, look it’s a very real factor that, that is the gift and the curse of Bitcoin. Right? the beautiful thing is if you’re just looking at a way to stack sats, this is great, right? Because you’re able to basically how I look at it, as you get paid your fiat from work, you invest that into mining every month, you’re spending fiat on your power bill. You just keep accumulating the Bitcoin, right. On a long enough time preference, you’re always going to make money. It’s been proven, like, no matter the price of Bitcoin, if you buy it today, 10 years from now, you’re good. So if you’re able to do this and use this as a way to just get out of Fiat into Bitcoin, why not? You hear the argument all the time. Well, what if I just bought Bitcoin? But then the cliche comes in, like one Bitcoin equals one Bitcoin. So if I buy one Bitcoin today, 10 years from now, it’s still one Bitcoin. But if I buy a mining rig, I’m literally just going keep printing Bitcoin for as long as that mining rig is running.

Stephan Livera:

Yeah, that’s a good way to put it. And so I guess the real good point is once you have ROI, then you’re basically in kind of a, it’s all gravy baby situation. Right. Because now it’s just, Bitcoin’s coming in and free and clear, obviously you’re paying power, but it’s just, other than that, it’s all pure profit at that point.

Whit Gibbs:

Yeah. I mean, the ROI is a mental thing, right? Because it gives you this like warm and fuzzy feeling. But in reality, all you’re doing when you’re buying a mining, a piece of mining hardware is you’re looking to generate that amount of Bitcoin in return. But chances are, you’re not going to sell it and put the fiat back in your bank account. Right. It’s just going to be this like mental thing where you’re like, Oh, I’ve made my money back on the machine. That’s something that it’s a very important hurdle to overcome. Now, if you’re mining at scale and let’s say you’re borrowing money to buy rigs. Okay. Different thing entirely. But if you’re a small miner and you’re getting started, let’s say you invest five or $10,000 when you have five or $10,000 in Bitcoin, especially in this market cycle. It’s not like you’re getting liquidity. Right. You’re just going to keep mining and keep accumulating and just feel good about the fact that the sound is a sound investment.

Stephan Livera:

Yeah. It’s funny as well, because I think people thought that older miners would kind of eventually like older mining equipment would eventually just become not worthwhile, right? Like it’s not even worthwhile plugging in, but I’ve heard at this current price rates and the current difficulty people are plugging in S9s And they’re still like, which is really old money equipment for listening to a, not familiar. But it’s like this funny world where now old mining equipment is actually still viable. Listen,

Whit Gibbs:

You have any mining equipment plug it in. Like right now, it’s just, everything is making money. The Bitmain S9s which are now five, six years old they’re making bank depending on your power price you’re doing really well. And I think the break even power price on those is like 11 or 12 cents per kilowatt hour, which is crazy. If you think about it, considering that like during the summer of 2020 people we’re literally paying, like if you would pay shipping, people would send you as many as you wanted. Right. And now each of these machines is selling for three or $400 and their ROI and eight to 12 months. It’s crazy.

Stephan Livera:

I guess, it’s like that equivalent of what’s that saying? It’s like you don’t know who’s swimming naked until the tide goes out. Right? It’s like, there might be a lot of people out there who are on these really old mining equipment and with bad power prices, but still profitable for now. That’s the crucial part for now they are very profitable, but then who knows if difficulty rises or if the price tanks that’s where things get a bit more difficult. So I guess it’s also important to think about getting electricity deals because the typical home mining person might be paying a lot more in electricity compared to the kind of, if it’s specifically sourced as part of a data centre, mining data centre, where you get a specific rate at 5 cents or 6 cents per kilowatt hour.

Whit Gibbs:

Yeah. It absolutely is. It’s critical to be in a favorable contract. You can’t really mine at home. Right. I’d never advise anyone to mind at home, especially if you’re married, there’s nothing more repellent. Like ASICs are wife repellent, they’re loud, they draw a lot of electricity. They’re hot it’s just nothing that’s favorable to run in your house. Which for us is a big reason why most of our power rates are basically passthrough, we’re not in the business of like adding crazy markups on power because it’s really, it’s critical for people to get those rates. What you’re paying for an e-cig is important. What you’re paying for power is equally, if not more important, because that ensures the longevity of every machine. I mean, especially with like the newer machines that are very efficient, your power, it makes a pretty significant difference. 6 cents versus 7 cents is a game changer in any market. It’s very important to be looking at that.

Stephan Livera:

Yeah. Let’s say that hypothetical new customer they’re walking through, they go to compassmining.io. They’ve purchased a machine and then the next step, I guess, is probably looking at a facility. If you could talk through like some of the options around that how do they kind of get the machine to the facility and then get it all hooked up?

Whit Gibbs:

I mean, this is kind of a funny analogy, but prior to Bitcoin, I worked a website called puppyspot.com, right? And there we were an online dog brokerage, and we spent a lot of time screening breeders because when you’re buying a puppy, it’s like a, it’s a part of your family. So if I’m buying a dog online and I don’t get to meet the parents, I don’t get to see where it’s raised. I need to know that I have a trusted third party that can do that. That taught me a lot about the buying experience as I was coming into compass. And with compass, we do a lot of due diligence on these facilities. We make sure that they’re properly screened. We either have machines with them, or we know customers that have machines with them. We’ve done interviews, virtual tours.

Whit Gibbs:

We’re making sure that this is a facility where we would put our machines, right. Because if we wouldn’t, there’s no chance that we would put other people’s machines there. As a part of that, once they’re able to list on the site, we will then roll those into bundles for people who are new to the space. So if you want to come on to compass and you wanted to buy a machine and let’s say, you just wanted to buy one that machine would already be pre-allocated to a facility. So like the T-17s that we have for sale that are in Canada, right there at a facility in Winnipeg, if you buy them, the machines are already there. They don’t have to ship. You don’t have to wait. They will switch over to your wallet, address after purchase. And then you’re mining Bitcoin. Now you’ll get the serial number. It’s your machine. It’s already at the facility. You don’t have to worry about anything. That’s generally how we try to operate.

Stephan Livera:

Gotcha. So it’s kind of already there and that way you’re getting a fast set up as well, rather than spending the time waiting for shipping, especially during all of this COVID drama it might take more time to get over there and all that.

Whit Gibbs:

Yeah the logistics can be a challenge. You’ve got machines that are coming from China. I mean, especially if they’re going to the States or to Canada, you’ve got customs, you have to clear, you’ve got the shipping times. There’s potential for delays it’s we would much rather have them be at the facility because then it just makes for a better experience for people who want to start mining. Cause you, I mean, when you buy it, you wanna start mining right now. Right. So we wanna help you.

Stephan Livera:

Yeah. You don’t want to leave money on the table there. And when it comes to mining equipment why the Whatsminer miner and how are you thinking about the different brands and different pieces of equipment out there? Why the Whatsminer m30+?

Whit Gibbs:

Yeah, the Whatsminers are, I would say they’re by far the most popular they’re the most requested. But they have, their production, has decreased, I would say, or maybe not decreased. Maybe they’re just sold out. They don’t have as much available inventory. So a lot of people are now turning to BitMain because of the recent transition in their leadership, I think they got a lot of negative press, but the machines so far that they’ve been putting out are great. We’re not we’re brand agnostic, right. We want people to have what they want. And then we want to steer them towards machines that are reliable. At this stage, from what we’ve seen, really anything coming out of the Whatsminer camp has been super durable, very profitable. And the newer Bitmain machines have also been great.

Stephan Livera:

Okay. I guess also from a reliability perspective what happens then if you buy a machine and it starts to break down and you need maintenance on it, or you need to replace it, what’s the kind of process in that case then?

Whit Gibbs:

Now all the manufacturers provide warranties, which is great. So generally across the board, it’s 12 months older machines, you know, those are more bespoke based on the seller’s wishes. But if you’re buying a new machine, generally you’re going have a 12 month warranty on it, which is great. Used to be six months, but everyone’s kind of stepped up their game. Whatsminer set that standard and now everyone’s reaching for it.

Stephan Livera:

Yeah. It’s funny. It’s like you see even car manufacturers, they compete on their warranty as well. So some, I think it was like some of the German manufacturers they recently went up to, I think five-year warranty. So then some of the other ones had to go up to that as well. So it’s kind of an interesting, that’s like another area where they are the mining machine manufacturers are having to compete on that level as well.

Whit Gibbs:

Yeah. I think we’re going to start seeing a lot more insurance products that come available for people who are buying ASICs. I think this is something that we’re going to see more and more because the current process of returning these it’s a bit clunky and it takes a long time. I think we’re going to start seeing people that are going to compete over, being able to provide the insurance products for people who are buying ASICs.

Stephan Livera:

Yeah. That’s an interesting one as well. How are you thinking about some of these more, I guess, financial products that are coming out into the mining world, whether it’s insurance or maybe other use of financial products, maybe whether it’s loans for new miners and things like that. Is that something you’re starting to see more in the space.

Whit Gibbs:

We are seeing it more in this space and I’m super bullish on those. Anything that, that gives more financial options to miners, I think is a great step towards legitimacy. If you look at any other commodity, you’ve got the futures contracts, you’ve got different loan products or financial services that are available to people who are producing commodities, whether it’s loans for farmers or people who are mining gold or whichever commodity you’d like to use. Those being offered to Bitcoin mining is just a further step. It shows the maturity of the industry. And I really think that it’s going to actually bring stability to the market overall.

Stephan Livera:

And there’s also been a little more discussion because I think historically the discussion was Oh see miners have to sell some coins for their operating costs and so on. But then it seems like that narrative is almost changing a little bit as well with some miners coming out and saying “No, see we’re actually getting fiat loans and using fiat credit to fund our operating expense so that we can keep on holding Bitcoin”. Has that been the experience that you’ve seen from your discussions in the space too?

Whit Gibbs:

I tend to look at these larger miners and do as best as I can to figure out why they’re thinking the way that they’re thinking. Right. And there’s no one that’s more long Bitcoin than someone who’s invested a hundred million dollars in infrastructure. This is the mindset that they’re all starting to adopt. I don’t want to sell my Bitcoin. I just want to keep borrowing Fiat and I’ll deploy Fiat. In that way I can see the appreciation and the value that the asset that I really value, which is Bitcoin. And that’s why I kind of talk like that as well on a monthly basis, spend your fiat on Bitcoin mining equipment so you can get out of it and into Bitcoin because that’s what all the big guys are doing. I think we’re going to see that continue.

Stephan Livera:

Yeah. It’s interesting how the conversation has shifted. And part of that is I think the availability, so maybe in the past, it wasn’t as easy to get a fiat loan for these things, but maybe now it’s becoming a bit more feasible for some people.

Whit Gibbs:

Yeah it is, and I mean, we had the black Thursday event, which has actually almost, it’s almost been a year since then. Right. and that was basically due to cascading liquidations across the mining space and that was traced back to loan products that were out and people who were just over levered. But I think that that actually created that was an event that needed to occur to help people get better perspective on how to properly use those tools. So we’re seeing now this year people they’re just they’re hip to the game and they’re not selling Bitcoin. That dried up sales side is really, I think what’s contributing to the positive price action we’re seeing. I mean, you see these big buys coming in, but it’s supply and demand nobody’s selling, it doesn’t matter how many people are buying the prices are going to get higher and higher.

Stephan Livera:

Yeah. that whole conversation as well around how if you think long-term holders bullish well long-term miners are even more because they’ve put in a massive investment in terms of capital costs, ongoing operating costs. And so if we’re thinking more objectively, really long-term miners are actually even more bullish on Bitcoin than say a typical holder.

Whit Gibbs:

Yeah. I mean, if you think about, like, there are people who have invested hundreds of millions of dollars in infrastructure, right. We have public companies that are, I mean, DMG just announced that they did a $70 million private sale to to raise money, to buy equipment. You see a lot of the American companies, I mean, hundreds of millions that they’re investing in infrastructure. And I mean, if that doesn’t indicate that somebody long on Bitcoin, I don’t know what does.

Stephan Livera:

Right. Yeah. And I think it’s also a good, interesting scientists. See that mining is distributing a little bit more around the world, right? So this is more of a narrative in earlier years. It’s all in China and China could shut it down. I mean, even though that wasn’t a hundred percent true because it’s more like there are miners all over the world and they might be pointing some of their hash power to mining pools who are headquartered in China, but that doesn’t necessarily mean China controls those miners because they can repoint somewhere else. Right. and what’s your view on kind of how that’s going to develop over time and what kind of the current state of that is nowadays.

Whit Gibbs:

The hash rate is distributing. We’re definitely seeing more hashrate in North America. I think as we see more North American pools emerge we’ll see even more of a distribution, but all the main factories are in Asia.The fabs are in Korea and Taiwan. All of the Bitcoin ASIC factories are in China. I mean, some have manufacturing centers outside, but it’s basically Asia centric. So we’re going to keep seeing growth in Asia because they have first crack at all the hardware and hardware goes on sale from manufacturer. They opened it up to the Chinese market, usually a week or two before they opened up to the the Western markets. So that’s an edge hopefully we see a manufacturer emerge in the States that can help get another boost for the Western hemisphere. But it’s a stretch I would say. I don’t think we’re going to see that in the next five years.

Stephan Livera:

Yeah, I see. I understand, it’s also about the, having that ecosystem around it as well. Not just in manufacturing, but how do you repair it and logistics and all of these kinds of pieces that kind of have to work together to make it a good system and a good place to maybe quickly set up and get your mining equipment going in a North American setup, as opposed to the China setup let’s say.

Whit Gibbs:

Sure, man. I mean, it’s also very cost effective and very fast to get a mining farm set up in China. I mean, you can stand up a really good facility for a fraction of the price and a fraction of the time. Right. I mean, they’ve been doing this for a very long time. They’re good at it. They really are like, they’ve earned the edge. I know a lot of people may not like to hear that, but the Chinese miners, they’re not there by accident. It’s not like, just because they’re next to BitMain means that’s all they are, like they’re skilled. They know what they’re doing. And they really have busted theirs to get this edge. You can’t fault them for that.

Stephan Livera:

Yeah, For sure totally fair points. And certainly I think you know this industry a lot better than I do. Also might be a good spot to talk about compass mining has grown a lot recently. You did a raise recently. So tell us a little bit about how that went down.

Whit Gibbs:

It was a very exciting exciting time for us. The, the raise was it was a learning experience for us as a company. We were able to align with some great strategic partners, galaxy digital led the round, and we had Coinshares involved. Amanda from galaxy digital and Meltem from Coinshares were both gracious enough to join our board of directors. And I got to say learning from the two of them has been, it’s been Epic man, like getting to their brains. It’s, it’s been great, but especially for me as a first time founder and CEO of a company like this. But I think that the coolest part about the raise is that we were able to align with people who have a desire to be in exposure to mining, but are really just trying to find their way through it.

Whit Gibbs:

When we’re talking to people like CoinGecko or Zac Prince from BlockFi we’re seeing people who want to get involved and are trying to figure this space out and compass, we just, we make it an easy trusted partner for people like that because you’ve been in this space for so long. For us as a founding team it was validation for sure. Anytime you have people who have found success or are leaders in an industry that are willing to put their stamp on you I mean, it makes you work harder, but it’s also incredibly validating.

Stephan Livera:

Yeah. I mean, it’s great news for you guys. I think it’s it all bodes quite well, obviously we’re going through this kind of crazy bull run up. So we’ll see a lot of demand coming in in everything. And as we say basically everything in this space is indexed to the price, right? Hashpower, downloads, users, wallets, developers like everything, basically. So I wonder then what are some of the things you’re looking out for as Bitcoin takes goes to that next level

Whit Gibbs:

I mean, when it comes to where Bitcoin is going, I mean, I just moved to Miami because I’m excited about the things that the city is doing. I think that the things that I’m looking out for areas where I can support the Bitcoin ecosystem. For us, as a company, we really are. I mean, we want everyone to see, hear about Bitcoin whether it’s supporting podcasters that are doing great work, whether it’s working with people who are trying to help grow small communities in the space, whether it’s moving to a city, just because they say, Hey, we’re going to accept tax payments in Bitcoin, I’m going to do everything that we can because like we’re staking our future on Bitcoin. If we’re going to like the talk, we got to walk the walk. That’s really what we’re doing is we’re just always keeping an eye out for anything that we can do to support the ecosystem. Because we, I mean, it’s the most important thing that’s ever happened in my lifetime. Right. So I’d be negligent, frankly, if I didn’t throw full weight behind everything that’s going on in space.

Stephan Livera:

Yeah. That’s fantastic. And I think it’s probably a good spot to close it up here. But I think, it sounds to me like you guys are going from strength to strength and I want to make sure our listeners know where to find you online. So where can everyone find you?

Whit Gibbs:

So on Twitter, I am @bitcoinbroski. It’s an old throwback to the anon days and for compass, you can just go to Compassmining.io get on there, we’ll help you get set up and start mining.

Stephan Livera:

Fantastic. Thank you. It’s been a pleasure to chat and hopefully we can chat in person. If I manage to get out of here and get to Miami.

Whit Gibbs:

Let’s go, Stephan I expect to see you down here for Bitcoin 2021, it’ll be a blast.