Turning Stranded Natural Gas Into Bitcoin Mining Hashes,

Welcome to the Stephan Livera podcast.

Welcome, podcast listeners. Today our guest is the founder and owner of Upstream Data. His name is Steve Barbour. Welcome, Steve. Hey Stephan, thanks for having me. Excellent to have you on. Steve, so I've seen a lot of your posts on Twitter and, you know, there's a bit of chatter around your- company, and I, I like some of your perspectives on energy, so I thought it would be a good, interview for the listeners to learn a little bit more about you and what you guys are doing at, Upstream Data. So maybe you just wanna start with a bit of background about yourself and what Upstream Data is.

Yeah, sure. yeah, so I'm a, I'm a mechanical engineer. I've been working in an oil field for the last, eight years or so since I graduated in, 2011. But yeah, I was doing production engineering, so like, you know, producing oil basically here in Canada. I, I live in Alberta, in a small town. we do like heavy oil production. And, yeah, so I was doing that for a bunch of years, and so I, I, I quit that job in, 2016. To go start my own company, which was-- and I still do this, but it's, sort of a product design company related to oilfield, like for downhole tools and that kind of thing. It's sort of one of my passions, I guess, and, In that timeframe, that's when I started Upstream Data as well. I actually, I didn't know a lot about Bitcoin at the time, like I'd-- so this is like early 2016, I'd, I'd heard of Bitcoin, Mainly just, I think I probably caught wind of it in the previous bubble in like twenty thirteen timeframe, but I never really looked into it at all, so I didn't really know anything about it. But it was in this downtime, like when I was, in between work, I just quit and I was trying to get this new thing off the ground that I, I learned about Bitcoin and I learned about- you know, like probably like yourself and like a lot of people, I just immediately thought it was really interesting and spent a lot of time, learning about it. And it was mining that really attracted me, to Bitcoin because, I sort of- It's sort of like I, I realized like pretty much right away when I was reading about mining and, and how you can just, at the time, you know, just all I really knew about it was you could just plug a computer into any power source and, and earn money. And that intrigued me because we have this problem in, in the oil and gas industry. of venting and flaring of, natural gas. So, yeah, I started Upstream Data to, effectively, create a product to solve that problem So, yeah, I started Upstream Data in twenty, in, I officially started it in 2017 early. And I, I had been thinking about it basically since from mid-sixteen when I was, learning about Bitcoin. Took me a little while to, take the plunge and, make an investment into it, but. So what I do is, I realize, you know, mining and a lot of people are, are aware that mining is pretty incredible in that you can, any energy source effectively, no matter where it is, has the same value if you apply the same, like, ASIC to it, like the same chip efficiency, doesn't really matter where it's located, you don't need it to be on a grid, doesn't matter what country it's in, as long as you have-- as long as you're mining with the same, ASIC, you're gonna be making the same amount of value. So this is really cool, and I, I know like guys like Andreas call it like energy arbitrage, and, so it's a really good solution to oil and gas, So far. But, my first prototype was basically, I call it a hash gen skid, and it's a, it's a shipping container, so anyone familiar with mining would already probably be familiar with people that build shipping container, Bitcoin mines, they're pretty useful in a sense 'cause they're highly portable. So if you have, if you have to move it from, for whatever reason, from one, one energy source to another, it's pretty useful that way. but with me, I, I build these things with a power plant inside it, and I move it from oil site to oil site. So if you have an oil well Yeah, or gas well, any, any natural gas source or any combustible fuel source that can basically power an engine or turbine, you could, yeah, you could mine Bitcoin with it. So So yeah, that's what I do. I build, these, portable, I just call them hash gen skids, and I-- the main, the main purpose is actually to sell them to oil, oil gas producers to, 'cause it's really their problem that they're meant to solve, which is the venting and the flaring of, of, Or essentially waste gas, I guess you could call it.

Right. So can you tell us a little bit more about the venting and flaring aspect, like why is that a waste? What, what's the difference between, you know, using your product versus not using your product?

Yeah, for sure. So like, I'll talk to you mostly about, like, the Canadian oil and gas industry, 'cause I'm, I'm very familiar with that, but this pretty much applies to any oil and gas industry anywhere in the world. so in Canada, we have a lot of heavy oil reserves. So heavy oil, the difference between heavy oil and conventional oil is the oil is a lot, more dense and more viscous. So it, it's, it's sort of like molasses. It can, it can literally come out, come out Up from the, the wellbore like almost like a solid. so being, this quality, and also, it ha- it's in an unconsolidated sand, is what we call it. So it's not in like a sandstone, which is like a hard Our sort of rock like, sandstone, it's in, it's in basically loose sand, so when the-- when it's produced to surface with a pump, you're pumping sand with the oil emulsion, oil and water. And the reason why that's relevant is because, in this industry, we can't use pipelines, in heavy oil production when you have all the sand, because you can't, you just can't, you can't pump sand down a pipeline, it just packs it off. So you have to pump it on surfac- just straight to surface into a tank and let the sand settle out. So the point is that we don't have pipelines like between all of our well sites. I mean, we do on some wells, it depends on the, on the quality of the- Emulsion, but on the vast majority in heavy oil, we produce into the, the facility on surface and then we truck it to the, to wherever it's getting treated. So We don't have pipelines, we don't have a lot of pipelines, and certainly when you produce oil, and this basically applies everywhere in oil and gas, there's a certain amount of solution gas that comes out of solution when, when the pressure's dropped off the, off the oil, basically it's called the bubble point pressure, but the, the gas breaks out and separates, in, in our case, it separates as it's produced up the tubing, the casing gas comes up the, the casing side. And so what is happening today, I guess the state of the art in, certainly in Canada, is actually there's a fair amount of venting. So there's a quite a large amount of venting actually, I was doing, I, I did a presentation recently and I quantified it. It's, it's on some of the regulator, regulators' websites, but in equivalent-- I can't remember the, the volume, but in, in equivalent, value, at like two dollars per giga joule, it's like seven hundred million dollars, a year. So it's quite a bit of, quite a bit of money even at low value gas. So, yeah, these companies, you know, we are-- nobody wants to vent methane. It's, it's, it's not really ideal. It's pretty bad for the environment. It's, well, to be spec-specific, it's, it's, it's considered, twenty-five times worse than if you combust it. So what, what I mean by that, like, is one kilogram of, let's say, methane vented into the atmosphere is equivalent to twenty-five kilograms of CO2, and that's using-- There's, there's something called a global warming potential scale. It's a hundred-year, timeframe, but- It's just really bad to vent methane. It's, it just has a really high, capacity to hold heat in the atmosphere. So a lot of, a lot of oil companies will, they'll try to, you know, it's all about economics, right? But when they can, we'll conserve it, like we'll put a pipeline in, get it to a market somewhere, but in a lot of cases, it's just not viable. So the second best option is to combust it, like just burn it, and that's where you see, you know, like, a lot of, one of the, one of the symbols for the oil, oil and gas industry is, is the flare, and, Yeah, that's, that's really what's happening in a lot of cases, but flares are also used at facilities for other reasons. But, but a lot of the time at upstream oil wells, all the gas is just flared off, like in the shale well plays in the, in the northern US, like when they frack these, these tight reservoirs, they produce a lot of gas and a lot of time they just flare it off 'cause they, they can't get a market to it. So, So yeah, and, and can-- like my solution is, but effectively, I w-- I try to work with these oil producers, and I sell these, I build and I fabricate and sell these, these skids that'll-- I mean, and, and the skid itself, it, all it is, is a, it's a natural gas engine, which e-- anyone in this industry is already familiar with, and it's just tied into electrical infrastructure to, power ASICs.

Cool. So tell us a little bit about then how the- So instead, so basically it gives them the option of instead of venting, instead of that, it does what?

Yeah, so like, so for example, I have one customer, So the way it is in Canada, there's a certain amount of gas you're allowed to vent, like compliantly with regulations, and then if you're over that volume, you're non-compliant and you're, you effectively have to shut your well in, so there's an economic cost there. You have to shut it in or you have to do something like Conserve it or combust it. so I have one customer right now, I'm moving a skid there next week. he, they're not, they're not sure yet about investing in, in like a Bitcoin skid, but they're really interested in trying it out. And, seeing how it works and just seeing if-- I guess just, you know, trialing the viability. But effectively, so they have a site, it's gonna-- it, I'm told it's venting around eight hundred cubes, cubic meters of gas per day. I'm not sure what that is off the top of my head in standard, in, in, in cubic feet, but, yeah, it's a fair amount. And it's, they're allowed to Oh, sorry, on this site, they're only allowed to vent five hundred cubes a day, and that's all you're allowed to do. That's the, that's the rules in Alberta. I live right on the border with Alberta and Saskatchewan, so in, in Saskatchewan, the rules are a little different, but, so what, this skid will basically, the engine will consume the gas, I'll just tie it in. It's, it's, the skid is fully like, it's plug and play, I guess, is what I call it. Like, ev In the gas, and the gas goes through the gas tree, so basically through some regulators into the engine. Engine consumes it, and the engine is loaded up with, you know, Bitcoin ASICs. So I can control the, the gas, the rate of gas consumption by how much I load the engine up. So if, you know, if I want to, I have a certain max limitation on what I have in these skids right now, which is up to a hundred and thirty kilowatt, so I can Basically power up to 130 kilowatt, the one I'm moving to his site next week is only 75 kilowatt, but that'll do about, like, it depends on the gas quality, like the heating value of the gas, but it'll consume approximately like 700 to 800 cubes a day, so it should pretty much bring him It should take all of his excess gas and consume all of it. And if I find that it's consuming too much or, or, or I don't have enough gas to run all the, all the miners I put out there, I can just take some miners off and redeploy it elsewhere. So it's right, okay. It's like the right way to think about it, it's just a form of combustion that is actually doing something useful, whereas if they didn't do-- if they didn't do this, they would You know, they would have to basically, because they're non-compliant, they'd either have to shut the well in or like slow it down, 'cause if you slow down your production rate, you'll slow down the gas rate, but that's not good either, 'cause you're, you're, they're losing money by, not being as productive. They really, they can either do that, which is losing money, or they can pay for a flare, which is quite a bit of money as well. And so all their options are to lose money. So, my option actually, has a pretty, pretty decent net present value, or at least, you know, you know, depends where the Bitcoin price goes, but the operating cost is quite low, so it's, it's pretty competitive even in this mining environment, which is really tough right now.

Okay, great. So let's talk about the hash chain. I understand you've had a prototype or a first model of it going for the first year. Do you wanna tell us a bit about that?

Yeah, so I spent the first half of, 2016, just thinking about how I wanted to, design this thing. I guess my challenge is a little different than what, typical, 'cause, you know, like at the time, I was doing everything I, I, I was new to Bitcoin mining and I was trying to learn everything I could about it, scouring like Bitcoin Talk forums and that kind of thing. And, there were, there were some people, you know, like I said, doing some, mining in Sea Cans So, the challenge I had is I also have an engine in there which produces a, a lot more heat than, than the load it, than it's powering because engines are generally pretty inefficient at that twenty-five to thirty percent, thermal efficiency. So, how do I also deal with engine heat? So, I, I spent the first, part of twenty sixteen just contemplating and thinking about how I wanted to, design my first skid. And especially because I'm pretty much on my own on this, I do have a, a, a partner, who's sort of a silent partner, but other than that, it's, it was, it's been fully bootstrapped by myself. I wanted to make sure that I didn't screw it up the first time. So, yeah, the first like few months, 2016 or 2017, I was in the design phase, and then- Had a design done, I think, by June, and ordered the equipment, and I, I got the, so I got the first prototype built, and mining in, Early October. So, just in time for, for the real, bull run to really, start going. So, this skid was, there's, you know, I live in, mid-northern Alberta, it gets pretty cold here get-- we had days actually on Christmas Day, it was down to minus forty degrees Celsius. So definitely a bit of a challenging environment for mining, but, the skid, is pretty well designed. Like, I have it designed such that I can use the heat from the engine In the winter, to preheat the air for the ASICs, and then in the summer when it's hot, I can just direct vent out the engine heat so it doesn't preheat the air. But, yeah, no, over the-- it was actually, pretty surprised at how reliable it ran. aside from like general engine maintenance issues, like, you know, you, you know, belts or spark plugs might go, and your, your- Routine oil changes and that kind of stuff. Other than that, like there was certainly a stretch there in the winter I probably didn't have to go out to site a single time in like three months, I just called a Call the mechanic to go do an oil change, he did it, and I, I can now, I, I can also, completely shut down and, configure, everything in the skid remotely. I can even turn on and off circuits. and a-and everything like that, so even if like if there's a hardware failure or something in an ASIC, I can just do a hard reset on the circuit. with this prototype, I really wanted to have I call it like my Cadillac version, like I wanted to have it, I could, I wanted to be able to do everything with it remotely, as a, well, one as a proof of concept, but also, Certainly when you're dealing with oil and gas producers, they don't want to have to call out their guys really ever, like to, to do maint- like to, restart an engine or something like that, 'cause certainly on occasion what can happen is like, the casing gas line, like the line feeding the engine can freeze off. And you get, you get your, your inflow choked so your engine can go down and that kind of thing. So I wanted to make sure that, I wasn't a burden on anybody, especially for this prototype when it wasn't really, it was pre-commercial, I guess you could say. So, yeah, it's, it's around for a year. So, yeah, I made a little tweet about that recently. It started in October 2017, and it's just about a full year, so, yeah, it's been pretty, pretty reliable.

Yeah, okay, cool. So tell us a little bit about what miners you use in the, like, in the actual skid.

Yeah, well, you know, I'll just, I'll just use like whatever I consider to be the most profitable ASIC at the time. I mean, the skid itself, you could put anything in there, like any proof of work, you know, GPU miner if you wanted, The way I this first one was set up, it wouldn't be that great for that, just the way I did the shelving, it wouldn't have been, it wouldn't be ideal, but I designed it for like ant miners, that kind of ASIC and, and if you look at all the new equipment, it's all, they're all standard, standardized around the ant miner design, this sort of the profile, so fits really well for that.

Right, so how many, as an example, how many ant miners would you fit in one skid?

the first skid I did, it can do up to 110 kilowatt, the first skid I did, or actually 115. So that is,

what is that divided by 1.4, like 80-70 odds, S-nines? I never did, I never did max out that first skid 'cause basically I built a skid to, accommodate the biggest, engine that I was, that I wanted-- well, that I could really fit in there, but also when I choose engines, like when I'm choosing these power plants, I'm not choosing like one off Power plants that nobody's familiar with, I'm, I'm just going with the stuff that everyone's really familiar with and knows how to do maintenance on. So I designed it around, around what's commonly available. but what I ended up putting in there was I put a small block Chevy in there which can do only about forty, forty-five kilowatt. So I, I'm still using that small block Chevy at the moment, and I'm actually finding that the small block Chevy, at least for my application, is, is the, is the ideal engine at this point just from a From a upfront capital cost per kilowatt perspective.

Right, right, okay. okay. And then how about with getting internet out to the remote location? And I suppose you, you mentioned earlier that you have to remotely control, you have to be able to remotely control the skid, how do you, how do you get reliable internet out there?

Yeah, I just use cell modems right now. so I, I don't have any redundancy, I just have one single cellular connection. I found that, well, first of all, you know, we're talking about somewhat small scale, like per skid, like we're only talking the, the newest skids I'm coming out with, we're looking at like around ninety S-nines could probably fit in there, which is still pretty small scale, relative to what other, some other people are doing. So, it's not that important to have redundant network

single modem on cellular, it's where we are in oil field, like pretty much most oil well facilities have some kind of communication already, and there's already cell tower infrastructure built for them, so it works really well. I, you could go with even satellite mining and you'd have probably a bit more stale shares due to latency, but other than that, cell, cell works quite good.

Okay, cool. And then in terms of the setup of the mining, is it basically you would, so the mining, do you set it up to then- Pick what pool you want to contribute to, or how does-- or do the customers pick that, or how does that work?

Yeah, I only do-- I, I only personally do pool mining, like I don't mine to my-- I don't, I don't solo miner or run my own, pool. So I start, I've, I've mostly done Slush Pool, but I've, I've done others like CK Pool, and the like. I did sell one skid to an oil field customer, he's, he's mining on Slush Pool. Slashpool is just, it's very user friendly, especially for like a new or a brand new guy, like, like the guy who, recently bought one. So it's pretty suitable, for that, and, and the profitability there is still quite good, they seem to have decent luck. But, but yeah, it's just pool mining at the moment for sure.

Yeah, okay. And then the economics wise, do you like, what's the model? Is it like a flat rate for the skid or is it a renting model? And who kind of owns the hashes, let's say? Do you own those or do the customer own those?

Yeah, there's a few way, ways I, I, I, I can do it. like I recently took off my website, like I, I was, I had, I was advertising, I was hosting. I had a lot of people, inquire about that, especially when, you know, when the, when the price was on the up, uptick, and even, even recently, I've been getting a lot of inquiries. I'm finding though right now, I'm not gonna offer that, just 'cause I'm not really at scale to-- there's a lot of overhead when you're dealing with multiple customers and that kind of thing. So, in terms of like, so first and foremost, like the product, the hashgen skid is, is a, it So they have a problem with their, with their gas vent, so it's a solution for them. So first and foremost, I'm here to build and sell it to them. I, I basically have pre designs made and I can do custom designs, so I, I can build, build basically to fit whatever facility they have, and even if they wanna go much, much larger scale, I can easily do that as well. so first and foremost, it's actually just to be a, a service provider to an oil company. However, what I'm finding is,

it's, to, like, m-a lot of these oil, oil and gas, a lot of people in this industry are pretty disconnected from, like, the Bitcoin industry and crypto, To some degree, there, there, there's some people I've met that are relatively knowledgeable and, you know, they've heard of Bitcoin, they have an idea what it is about, and there's other people that- Have a very negative opinion of Bitcoin, they, they sort of, I don't know, they've made their mind up already that, that it's not for them or it's sort of scammy. I've gotten, I've had conversations with all types of people now. but what I do also offer, aside from- offering a product like, like I, I mentioned that I have this one site that I'm putting on their site, at, like at no cost to them, they don't have to pay for the skid, but they're gonna just give me their fuel for free because their fuel is wasted anyway, they're just venting it. So I'm gonna, I'm, I'm able to fix their venting problem. And in consideration for that, they're happy to give me the fuel for free, so it works out that way too.

Oh, okay, very nice. So in a sense, you can go, you can kinda go there and have this sort of symbiotic relationship with, with, with the oil and gas companies. So tell us a little bit about the challenges then. I, I think you touched on that before, but let's talk about some of the challenges you faced of working with oil and gas companies and perhaps getting them interested in using this service or interested in Bitcoin.

Yeah, I think the Challenge is, you know, okay, so like certainly the oil and gas industry for the last several years has been coming through a bit of a recession or a downturn, Canada more than many, are, are, Our prices are terrible, just due to bottlenecks in our pipelines and a bunch of reasons that I won't get into. But so for the-- so when I approach these guys and I, and I talk about what we do, and it's always this-- especially when it's the first time I'm talking to these people, it's the first part is always just about educating on what mining is, how it's-- I try to spread, like, try to give them a bit of my enthusiasm, get them, interested in, in Bitcoin. Because I see it as such an, an amazing, powerful thing. And then it's always, we talk about, you know, economics, right? So right now, like, to ask, or for an oil company to contemplate spending a decent chunk of change on something that is unprecedented, like they've never heard of something like this, they're, they don't have any idea what Bitcoin is and, and let alone what mining is, and, and no one has ever approached them to mine Bitcoin in these skids. So it's definitely- a huge learning curve for every single person that I, that I talk to, but I generally get two reactions. Like I, I usually get a lot of interest 'cause once you start explaining Bitcoin to people and you can, and you can explain it the right way, I think, it really starts to engage people and they wanna, and they just ask question after question. it's certainly, there's other types that have already sort of, Dismiss Bitcoin as being like wasteful or, or just being not useful and sort of a fad, and those people are harder to get through, and honestly, I, I don't try, I don't try as hard with those people 'cause I, it's just a lot of work, a lot of effort. I, I just try to focus on the people that are, that seem more interested. But certainly pretty much everybody, when I actually show them the economics numbers, they, they go wide-eyed because, I mean, the price of gas in Canada right now, like these guys, what they're making on their gas is anywhere between-- it depends on the time of year, but it's been on average like one to two dollars Canadian per giga-joule, or that's about the same per MCF, and that's not very much money. That's why nobody's spending any money in gas in this country. and then, when I show them what they would earn if they mine, use that same amount of gas to mine Bitcoin, even considering like, you know, a conservative estimate on engine efficiency and that kind of thing, it's, it's much, much higher, and I actually publish a graph on my website that I update once in a while. my website's terrible, by the way, but I, I update it once in a while and, just to show what the recent numbers are like, and even- Now, when mining is literally at its lowest profitability it ever has been, at least in terms of like dollars per kilowatt earned, it's, It's still pretty lucrative and these skids pay themselves off in a decent amount of time, especially when you consider the secondary benefits they're getting, like compliance and they can, they can continue producing the well and all that stuff.

Yeah. So the idea is that you build the skid for them and- It then exists permanently for them at their site or is it like a temporary thing?

Yeah, well, okay, yeah, that's a good question 'cause the, the nature of, Especially this heavy oil industry is, you can have like the best well, the most like profitable oil well, like in your arsenal, right? Like it's, it can be making a lot of oil, be very pro-prolific, and then out of nowhere it just goes to zero, it starts producing all water, we call it watering out in this industry, and it's very common to happen dramatically, like instantly, like not even, we're not talking like days transition, but like from one hundred to zero, like just like That. So when that happens, now the well is no longer productive, and usually they, if they can, they re-complete the well to find another producing formation. but a lot of times there's nothing else there, so they have to shut the well in. And that's actually the beauty of this, this skid, like the whole point of the skid is, was meant to be portable, plug-and-play. You put it on a well site, you mine there as long as you can and as long as it's beneficial to do so, and then as soon as, the opportunity goes away, like as soon as the well is less productive or you have another well that needs it more, you can move it to the next site and, and these things, I just pick them up on a tilt deck truck, or you can use like a picker crane, but a tilt deck truck costs very little per hour, and you can just- pick it up with one driver, move it to the next site, drop it off, plumb it in. It's, it's really, really good that way.

Right. So it's very portable and I think that's very in line with some of the other, you know, Bitcoiners who've spoken about this idea of using, you know, energy that's trapped and kind of, in a sense, using this to go and mine and use that energy. so yeah, let's talk a little bit generally then about, you know, energy mining. what are some of your thoughts, in ter- just what's your background in terms of free market energy?

I would say I have no background.

Yeah. Okay. Sure. I'm,

I'm, I'm definitely, I'm, I'm, I'm, I'm a Bitcoin and a Bitcoin mining enthusiast, so I've, I've, I've learned a lot over the last while from,

from just seeing stuff on Twitter and then being corrected and then learning. That's, that's my, that's my main mechanism of learning actually.

Excellent, no, I think that's how many of us learn. Yeah, yeah. Yeah. It's interesting because, one of your tweets, it's, it's, you can't say energy is wasted when the market is paying for its use. All energy dissipates to heat, it is only wasted when nobody pays for it. So what are you, what's, what's going behind that?

Yeah, for sure. I mean, like the- The, what I, what I foresee anyways being like, you see it already, like there's, there's a lot of people, even people that have been in the space for a while that are I, I wouldn't call them Bitcoiners, but they're people that have been promoting the mining is wasteful narrative. There's a plenty of those people already, and mainstream media or just media in general have latched onto that a little bit. I saw several articles on that, like over this last bull cycle, and now, now that we're in a bear cycle, you just don't see as much posted about Bitcoin these days, but I per- I, I, I surely would expect, like, when, when we enter this next bull run and everyone's going- Bonkers over Bitcoin again. I do expect some, anti-Bitcoin people to really latch onto this social form of social attack, I guess you could say. But it really it's, the idea that, Bitcoin mining is wasteful,

it's pretty much a fallacy, in, in as far as I'm concerned. So yeah, that tweet, like, what I'm basically talking about, like, for me as a mechanical engineer, what I think is wasteful is when you- You know, you have a potential energy source and it dissipates, like it-- just think about these engines I run, like they're running at twenty-five to thirty percent efficiency, probably closer to that twenty-five actually. And so seventy-five percent of that power, that potential power and that gas, is literally wasted. It just turns into heat, it's just combusted and, and vented out the exhaust. That to me is waste. the energy actually used to mine Bitcoin isn't wasted, And that's, that, that's where, you know, you gotta, you gotta talk about like, subjective value. Like, what is, what is waste? If someone is, if someone is paying for something, if someone finds something useful, then who are you to say that's wasted? Whatever that is. I mean, there's no other way but to, to say that whatever you think about that is the subjective opinion. So I pretty much feel that, you know, the-- for me, the definition of waste is, is potential energy that literally dissipates to heat, that's waste. Nothing got any use out of it at all. No, no, no human being, no organism, nothing. Yeah. So, so if someone's willing to pay for something, then you can't really say that it's wasted. But and I mean, other people have written some good top-- good stuff on this, like Eric Voskuil, I have no idea if I say his last name right. He has something called Bitcoin, which goes into a bit more detail and it's, I mean, it's, I just don't see how you can consider it wasted when, like, examples for like what I'm doing and there's other, you know, all the hydrominers out there, for example, they're using low utility energy, like energy that doesn't have, much value. It's, it's a lot of that energy actually is actually just diverted down the river, like it's energy that's not even used. And so all this surplus, like Bitcoin mining it's just so competitive, it always seeks out the lowest cost of energy, which happens to be surplus energy sources, and obviously I'm an example of a case where we're talking about energy that has zero market, like we're, we're bringing a market to energy that is completely wasted. So, yeah, I, I think the, the energy waste, Our argument is complete fallacy and I don't know, some people need to, to educate themselves on that, I think.

Yeah. And it tends to be, the sort of people who- You know, they don't necessarily have much consistency between these arguments that they make and then their own actions in their personal lives, because they might, you know, for example, are they the type of person who would refuse to fly ever and try to, you know, truly minimize their use of energy?

Yeah, exactly. I mean, the industry I'm in, I'm in, I'm in Bitcoin mining and the oil and gas industry, so I, I get it from both sides. Like, I, you know, there's a lot of people out there, You know, bashing on fossil fuels, but like they're, they're, they're doing it as like their home is like heated through like natural gas or they're, you know, in the comfort of their home, right? Or like they're using infrastructure built upon fossil fuel products. there's, it's a lot, there's a lot of hypoc-hypocrisy out there. Like I think a lot of people certainly, they like to wa- they like to talk the talk, but they don't really walk the walk. Like they're, they're, they're happy to use all the infrastructure that's built off of layers upon layers of manufacturing and materials that come from oil and gas and fossil fuels, so yeah, it sort of is related to, to Bitcoin mining. I mean, I, I just don't see how People can say that something is wasteful and then, turn around, yeah, and get on like, drive their car. Like, you can't say, you can't say fossil fuels are bad and then, and then drive a car and use, like, use, fossil fuel-derived products like clothing and all that stuff. So yeah, there's a lot of hip-- I agree, there's a lot of hypocrisy out there for sure.

Yeah, and one other thing that's really interesting is the, basically the argument around fossil fuels, I think people, they, they haven't thought about this the right way. I'm not sure if you've read this, Steve, but there is an argument by Alex Epstein, it's called The Moral Case for Fossil Fuels. So that was a book he wrote, and one of the key arguments, and I think it'll probably resonate with you, is that We need fossil fuels because they are cheap, reliable, and scalable. And the other thing that he was pointing out is that actually, if you look at human history, it's actually that when we use more energy, it's that we have more comfortable lives, people live longer, they have better access to healthcare, better access to all these other things. And I think that's probably something that resonates with you, as you're a guy in the energy industry. do you have any thoughts on that?

Yeah, I mean, the history, the history of like hu-humanity is, is, is like ever, increasing in like advanced technology, and, and when you use advanced technology, we're, we're constantly putting more load on the environment. Like, you know, you look at somebody who's a hunter-gatherer like many years ago, they're not using much technology, and their, their load on the environment is like some-somewhere equivalent to whatever their metabolic rate is, right? Like, whatever energy is burned in their body body on a, on a given, on a given day is really all the load they're putting on the environment. So I sort of, I, I personally look at things like, like how much, how many kilowatt hours are you burning? Like that's, that's what your load is on the environment. And every single one of us in the first world, like especially, like we're using infrastructure that uses massive amounts of, of energy, like even just using, you know, using your phone, like There's so many layers of infrastructure that make that work. So even though you might, you know, you might, you might not, you might feel like you're, you're being green, like sipping tea in Starbucks, like you're still, you're still like using many layers of, of infrastructure for sure. So I mean, we, I think it's only gonna really continue. And in terms of like the fossil fuel thing, like the reason fossil fuels are used and they're cheap and it's, it's just so useful, like fossil fuels are- They're a great way to-- well, it is stored energy, it's potential energy. I mean, all construction projects are basically using on diesel and other fossil fuels, like the power density of fossil fuels is just enormous. you know, there's this whole- you know, meme on the internet that like electric cars are taken over and that kind of thing, and I really don't see it yet. Like, I personally think electric cars are Way better performing than fossil fuel vehicles, but like the utility of the electric car isn't quite there, yet, and of course, like a lot of the energy that's generated to power these cars right now is fossil fuel based energy And, I think when you just, when you zoom out, like it's just the technology isn't there yet, and it'll be adopted when the, when, when the costs are in line. And Certainly, you know something's wrong if a technology needs to be subsidized to be used. there's something inherently wrong there, like there, maybe there's, maybe the upfront capital is so intensive that it's just not viable, and you gotta realize like upfront, upfront money spent on something has in it, in it of itself a carbon footprint. So, I mean, just 'cause you're getting subsidized, I don't know, whether it be solar panels or something like that, you gotta count for the carbon footprint for that capital spend, and I don't think that's being measured properly. Doesn't seem to be anyway, like I certainly don't spend too much time looking at that side of, side of things, but yeah.

Yeah, it's a great comment you make about how some of the infrastructure that many of us use, and if we're not necessarily energy experts or in the energy industry, we're not cognizant of the infrastructure and what it really took to make my smartphone work, to make my computer work, to make my TV work. and I think one example that you brought up, is this whole, you know, electric car Tesla kind of idea, but in reality, if you look at just the, you know, if you zoom out and look at the actual breakdown of energy, you know, production, a great percentage of that is fossil fuel. So people might- You know, buy a Tesla thinking that they're being more environmental, but not necessarily realizing that they're still using a lot of fossil fuels, and it still requires, say, battery technology and the setup of, you know, the infrastructure. You know, in, say, across of America and Canada, I'm sure there are many, many service stations, but that infrastructure would now have to be changed to, you know, Tesla-compatible style, you know, refueling stations or re-energizing, whatever they're called, right?

Yeah, no, I, I agree completely. I think like, you know, you look at solar as one, there's a lot of, you know, even the, even, even like Elon Musk is very bullish on solar and- As far, as far from what I've, you know, I'm, I'm certainly no expert on solar, but I've read a little bit about it, and the advances in like solar efficiency, like panel technology, haven't really improved a great deal over the last, like, you know, decade or so, even, you know, we're trying to get it better, and, and I really hope we do, but, we're not quite there yet. And a good way to, to real-- a good, a good way to just see what is viable for power generation, like See what people are mining Bitcoin off of. everyone's mining Bitcoin off of hydro right now. hydro is a great form of energy, it's very, very, relatively clean. Obviously, there's some environmental, Footprint, like, you know, you gotta destroy a certain amount of environment just to build the dams and that kind of thing, but, but overall, it's very, very clean and that's what people are doing for mining. Nobody's mining on solar, like, there are, I have seen like little pet projects of people mining Bitcoin on solar, but the economics just don't work because you, you look at the, the enormous amount of capital spend that you have to get the panels, and then you have to oversize your infrastructure. To like, I don't know what the, what the numbers are, but like, you're gonna have to have extra panels to make up more power and store it in a battery. So to, to have the continuous, one continuous kilowatt, Powered by solar is gonna have s- it's gonna be many multiples of one continuous kilowatt powered in something like, well, like a small-block Chevy natural gas engine. Like many, many orders of magnitude. Like you can get a, a small-block Chevy doing forty-five kilowatt, For, you can get that engine for like fifteen, fifteen to twenty thousand, no problem, capital spend upfront, the equivalent for, let's say the same, continuous kilowatt from a solar array, even if you're in the best spot on the planet, like I don't know where that would be, maybe like the Nevada desert or something, it's several, many multiples, higher. so it's not really, yeah, I think, I think mining is a good proxy for just looking at like what is viable power source. And I think the best way to judge it, like, it's sort of to account for like carbon footprints and all that stuff, there's a lot of, there's a lot of uncertainties and assumptions made when you do, when, when they make these, when they, when they make these calculations. I think one of the best, I guess, an al-analogous ways of just seeing what has a higher carbon footprint is just compare the net present value of both projects, right? Like, whichever has the higher upfront cost is probably gonna have the highest carbon footprint as well. That's the way I look at it, I don't know how accurate that is though, but and

I, I like this, insight. It's basically, you're saying capital cost of assets is steadily decreasing. This is because OpEx increasingly dominates mining profitability over CapEx, a function of the ever-increasing difficulty. Mining is decentralizing with time. Can you explain that a little further for people who are newer to Bitcoin mining?

Yeah, the point, I guess the, the point, the point of that tweet is to counter The narrative that, some people have been pushing, that, you know, mining is, is, has been centralizing and it's getting worse. And there's been some prominent people that I, that I have a lot of respect for actually that, but I disagree with, that, that want to change, like they've suggested we change the proof of work, as a means to, punish these centralizing entities, like in, in particular Bitmain, right? Bitmain has dominated mining now for the last several years. But like, I guess the I guess the gist of that, that tweet, like what I'm talking about is mining is decentralizing with time. And I guess there's a few things to look at there, like, there's some like obvious, like obviously it started off with complete centralization, Satoshi was mining, Hal joined him, then plenty of other, Enthusiasts were started mining Bitcoin, and while I wasn't around in the early days, these very early days, this was pre-price discovery, and I just consider like these early days, literally Bitcoin was the definition of an experiment. I think it's sort of, a lot of people say it still is an experiment, but I think it's a little bit beyond that. But even in, even in those early days in particular, it was, it was a total experiment. There wasn't, there wasn't no price, and there wasn't, I, I wouldn't imagine I'm sure there was competition, but it wasn't like the competition we have now. So when the price was discovered, and I, I wouldn't know, I don't know exactly when the first ASIC chip was made, but I, it was somewhere around twenty twelve, I think. It might have been twenty eleven, but in that time, in that timeframe, I would consider that like the start of industrialization of ASICs and, and, and really Competition really started heating up in mining at that point. But I think like these people that, like, so I'm trying to counter this narrative that, like, you know, mining, people are saying mining's centralizing now, it's getting more centralized, and I, personally, I think it's actually the opposite. 'cause I think you gotta realize like pre Bitcoin and even today, like, wealth The wealth in the world is centralized, right? Like the-- there's already, you know, people talk about the one percent and the ninety-nine percent. To be successful in Bitcoin mining a, you need access to capital. Like, if you have a lot of capital, you're gonna have, you're gonna do better just by default than someone who doesn't. You're gonna get better discounts, you're gonna get economies of scale, industrial ma-mining, crushes, home mining in terms of profitability. so, a, like, to think that, like, s-some of these people seem to think, like, "Oh, Bitcoin should be, mining should be more decentralized," but it's sort of ridiculous notion because wealth is already so centralized. To think that it, like, to think that Bitcoin could already be decentralized is sort of silly, I think. But another, another aspect of this is like, if you look at the history of ASICs and the advancement and, you know, from CPU mining To like, you know, GPU rigs and I think they were doing like FPGA, I'm not that familiar with that kind of hardware, but, we've, we've evolved to ASICs, and then when you look at even ASICs, when you look at the When you look at the, price history, like what ASICs used to cost, they used to be, like, the capital cost, let's say per kilowatt, like per, for the power consumption, was rather enormous, like, and over time ASIC chips have been getting, more and more efficient, but at slower and slower rates. Like you're getting, like between, let's say, the Antminer S, S7 and the S9, you had I think the S7 was something like, point two five joules per giga hash or something like that, and then the S9 came out like, it was only six months later or something like that, like somewhere around that timeframe, and it was down to point one joules per giga hash, so like multiple fold increase in efficiency in only six months. And so obviously there's gonna be centralizing pressure there because the, the people who have access to this technology, it's, it's centralized access and then it, it distributes out. But over time, like we're seeing, like Then it took two years for someone to dethrone the S9, it was almost two years anyway, like how long at least came out with the first public ASIC, the Dragon Mint that was, that was better, and it wasn't that much better, it was only slightly better. more recently, like Watts Miner has come out with their M10. I haven't seen one yet in person, but, I, I know they're on, they're, there's some out there and there's some on pre-order and that kind of thing, and, and they're down to point something like point zero six joules per giga hash or something like that. But the point is, like, the rate of efficiency gains is, is decelerating 'cause we're approaching like our best technol-- like we're at our best technology and we're approaching tech-- technology Technological limits. So the, the technology centralization is going to dissipate 'cause you're-- because more and more, people are Or, more mi-more manufacturers are now competing than probably they have been in quite a while, 'cause everyone's hardware is starting to be like on par with each other. and of course, like any industry, like the-any product like approaches its marginal cost of production. So Bitcoin, certainly mining right now is so, such low profitability right now. That there's, there's probably not a lot of margins on these, on these units, certainly on the, on the older hardware. So you're getting, you're gonna see, I think you're gonna see more of a commoditization of ASICs, more competition in manufacturers. And so overall, more access to the hardware, to the technology for everybody. And then along with that, sort of in parallel with that whole topic of, of, capital costs and technology, Access is, is OpEx, like in the, the operating costs, which is, m-mainly power. Power consumption, of course, is, is the primary operating cost for mining, and that's already pretty well decentralized. Like, you, you know, you can literally generate power anywhere on the planet with a solar panel, even though, you know, I mentioned solar's not that great for mining, but Certainly, anywhere you have hydro, anywhere you have, existing grid power, whether it's powered off of, like geothermal or, or, fossil fuels, what have you, it's all over the world. Every country, generates their own power to some degree. So, so the operating, side of the whole equation is already decentralized. So when you combine the both, like, it, mining is decentralizing, and, yeah, so the point of that tweet, and I- I tweet a lot about that topic, is like, I, I really hate the narrative that mining, like, we need to, we need to change, like, you know, we need to change the proof of work 'cause, 'cause of, Mining is centralized. Well, that might be the case. Mining might be somewhat centralized. In fact, like I've probably tweeted myself at some point and talked about, and I mean, all my discussion is online, so I don't really know anybody in real life that knows anything about this stuff, but, Like Bitmain has certainly had, if not direct ownership of like over fifty-one percent of the hash rate, they've probably had very close to it or certainly influenced, close to, close to that. They probably could have, used their influence to conduct a fifty-one percent attack if they wanted to, and they haven't, so I would say the incentives are working. But regardless, I mean Every market participant needs to be aware, or every, you know, every merchant in, in the Bitcoin space needs to be aware of the state of the market, and if, if you feel like there's a high You know, if like some of these people that are, you know, wanting to change the proof of work, they're obviously feeling that we're under threat. And if that's the case, so they, they just need to act accordingly and just require-- they're gonna need to require more confirmations to feel safe, because, you know, you can censor with power You can censor with hash power, but your defense against that is, you know, deeper confirmation depth. So

now maybe you could explain for the newbies, there was some recent talk on, I think it's called SEI Coin or SEI, and they were basically resetting the proof of work algorithm and bricking existing hardware. Can you explain for the newbies what does this do to their coin's quote-unquote game theory and mining over the long run?

Well, I'm very happy to say that I'm not a SEI coin miner. like, I don't really know, I don't really know much about SEI coin. I had heard of it before. I know there's something to do with like a ut-utility token for a decentralized, like, cloud storage platform. I think that's what they advertise it as. I just got, interested in, in what they're up to 'cause, it was actually, you know, I was, I, I remember it was a few months back, you know, I, I, I'm, I'd, I'm interested in, At the topic of, you know, ASIC, like a lot of people, a lot of coins actually, like Monero for example, they try to be ASIC resistant in Ethereum, and they think, like, they think that that is somehow useful. and I've always- Tried to counter that idea and, with, with Seacoin, I sort of, I, I respected, this article that one of the developers wrote, They were talking about their plans to build an ASIC, I think, at the time, and they were talking about, ASIC resistance and effectively agreed with like my own thinking on it that it's futile it's a futile ideal, like it's, it doesn't really make any sense. And, so I, I sort of respected like what, what they were doing there, even though I had no interest in, in, like, the Sia coin. but recently I was just reading, like, it sort of, I saw it go viral a little bit on Twitter, and I, I probably bashed it myself, but, like, the, what's happened there is that But the, what I know about it is like the Sia community and, and mainly, you know, the head developer and their company went and spent a lot of money on building out an ASIC, and then they got beat by, Inosilicon and some other manufacturer, someone who's, you know, generally they just got beat, at At, at building out, they got outcompeted in terms of, building out ASICs. And the reaction to this is to brick their competitors' hardware Which is, well, I mean, like it's anti- it's like anti-competitive for sure. and it's like, how-- it's sort of, in my opinion, like it completely undermines the confidence you have in that. In that project, like in that coin for, regardless of your, you know, I don't know how you gauge if it's, has consensus to do that, but I guess what I should explain that how they're doing this is, the Sia developers built in a secret circuit into their ASIC that They, I think they could turn it on or turn it off or something that allows them anyway to keep mining, using their ASIC while everyone else can't. And it's just absurd because, these competitors like Inasillicon, I mean, regardless if you think, like, if they were, you know, mining in secret, it doesn't really matter. I mean, the coin is ag- should be agnostic to what's actually how miners are behaving as long as they're following the rules and, and building, building blocks like valid blocks on top of the- A protocol. And I don't know, I don't know how you can decide to just brick everyone who's invested in, in your, in the coin, and how do they know how many just regular Joes who actually believe in Sia, how do they know how many of them bought, ASICs and that kind of thing and, and invested themselves in it, and all of a sudden they're just gonna say, "Yeah, well, we're just, we're just gonna brick your investment." Like, what? I don't know how anyone can agree with that mentality

Of the, play stupid games, win stupid prizes. Yeah. Yeah. and then I think maybe if you could maybe wrap up with some thoughts on where you see Bitcoin mining and energy usage going over the next, you know, two to five years, let's say medium term?

yeah, well, For example,

do you see more usage, more energy?

Yeah, absolutely. Like, I, I, I, I was looking at the hash rate there the other day, just, you know, obviously as a miner, I'm just checking on things every now and then, and it seems to be tapering off a little bit, although it's too early to really tell, but I know that from Just based on if you look at the, if you just take, I, I sort of just graph things myself and just see like where things are going, and if you take like the historical, the historical revenue that you can generate off of a, off of a kilowatt, like how much Bitcoin can you make per kilowatt and what's that worth, it's really at all time lows. and it will always trend downwards 'cause, you know, it's just in-increase competition, but there will be some threshold I'm, I'm certain of, but I would say I would say difficulty will keep rising as is. Like, there's not really any precedent yet for difficulty dropping too dramatically, like I think in the last bear market, it, it stayed flat pretty good, but it, it never really dropped. I, I wouldn't be surprised if it dropped, in this bear market. I think there was a lot of, like, an excessive amount of irrational exuberance from, the mining community in terms of, like, I mean, some of these, some of these S-nines were going for absurd prices. I think a lot of capital was invested, irrationally, at the time. But, So it's hard to say if difficulty will, will correct. I think, I wonder if, like, I know there's some people I like that are, posting, they expect Bitcoin to go like the Bottom out, you know, in that forty-five hundred range. If that actually happens, mining will be absurdly unprofitable, so clearly there will have to be a lot of hash power go offline with that, or everyone just gets a hell of a lot more efficient. But, Yeah, I would say, I would say, I would say we'd, we're definitely gonna see more a narrative on this whole mining is wasteful, in the future, and hopefully, there's more people like myself trying to combat that a little bit, and I do see a lot of people are, so I think there's, I think, I think the, the logical, you know, if you, if you, if you think for yourself and you, and you take everything into consideration, it's pretty clear that mining isn't wasteful, so I'm not too But other than that, I mean, I'm interested in seeing where, these hard- these manufacturers are gonna go. Like, I know Bitmain seems to be struggling a bit, so it's, it'll be interesting to see, how they perform now over the next like year, like if they're still-- 'cause even now, like everyone, you know, people are bashing Bitmain, but they actually still have the- Probably the most profitable ASIC, like the R S nine is priced well enough that you might, you know, you might actually yield or ROI whereas like, like some of these new, rigs which are, which are great, like the Watts Miner, for the price, like it's just not worth it. So like I haven't bothered, I'm buying another batch right away. And I'm probably just gonna buy AntMiners, 'cause, why would I? I mean, it's just the-- I, I see it as being a better, more likely to ROI than, than some of these o-overpriced stuff. So it'll be fun to see what thing, what happens now over the next while, for sure.

Okay, so, where can the listeners find you?

you can find me, on Twitter, at s g barbour. That's really all I, that's pretty much it, and I, I have a website at, Upstream Data dot ca if you're like, if you're into oil and gas and that kinda stuff, and if you're into natural gas in any means, maybe take a look and see if it's something you like.

Excellent. Well, thank you very much. I think I've had a, it's been a fantastic conversation, and I hopefully, hopefully the listeners have found it very educational as well. So thanks for coming on, Steve.

Hey, it was my pleasure

Barbara, valuable. I thought it was interesting to understand more about the business model of turning stranded natural gas into Bitcoin mining hashes, as well as Steve's thoughts on mining decentralization. So remember, guys, you can follow me or DM me on Twitter, my handle is at stephan livera, my DMs are open. And before you go, if you enjoy these podcasts, please support my show by subscribing, giving it a five star rating, and comment on iTunes, and of course, share the podcast with your friends. Thanks, guys! Guys, see you next time.