Ben Gagnon CMO of BitFarms joins me to talk about the flaws of the overly cited Digiconomist’s work on Bitcoin Mining impact. We discuss:

  • Key flaws in methodology and assumptions
  • Carbon emissions per transaction is a flawed metric
  • Better comparisons and ways of reasoning about mining



Stephan Livera links:

Podcast Transcript:

Stephan Livera 00:00:00

Ben, welcome to the show.

Ben Gagnon 00:00:02

Thank you very much for having me. Great to be here.

Stephan Livera 00:00:04

So Ben, I thought it would be great to chat with you a little bit about Bitcoin mining metrics and sorting out the fact from the fiction as well as talking about some of the inaccuracies that have been pushed out there by certain people and well, for example, did economist, let’s be clear, is probably a clear example of this. But let’s just first have a brief intro from yourself. Who are you? What are you doing in the in the world of Bitcoin and Bitcoin mining?

Ben Gagnon 00:00:32

So, my name is Ben Gannon. I’m the chief mining officer at bit farms. Bit farms is one of the oldest and largest publicly traded Bitcoin mining companies in the world. Founded in 2017 in Quebec, we operate now 10 sites in four different countries where we’ve powered between one and 2% of the Bitcoin network since 2017. Personally, I’ve been in Bitcoin since it depends on how you look at it. I found out about Bitcoin and College in 2010 and missed out on a great opportunity to buy some a dollar. Instead, I went and bought beer so that, you know, watching the price go from $7.00 to over $1000 in college really makes you get interested in subject. I tried buying my first Bitcoin miners in 2013 from a company called Butterfly Labs and they never they never shipped my minors and then in 2015 with Ethereum actually quit my job and started mining Ethereum full time and quickly moved into mining Bitcoin.

Stephan Livera 00:01:21

I’m fortunate.

Ben Gagnon 00:01:34

Full time when I realized that Ethereum really wasn’t, you know, the asset that I was. I was hoping that to be especially after the Ethereum, Classic hard fork debacle. I became slowly became a maxi, starting around 2017, I think I completed my transition to a maxi in 2019 and I took the job with bit farms at December 2019. I’ve been with them ever since.

Stephan Livera 00:02:01  

And I guess while we’re here, obviously, as I’m sure you are aware right now, there is a lot of this BRC 20 garbage and I’m sure this is obviously there’s a lot of fees. So right now transacting is a lot more expensive. I do believe it’s temporary though, but I’m I guess while we’re here as a minor, I guess this is probably a great time for you guys, right?

Ben Gagnon 00:02:22

Oh yeah, I was looking at actually the we signed a block yesterday. We actually just had a milestone that we hit yesterday. We mined our 21,000 Bitcoin with a hydropower yesterday, so we signed that onto a block and I was looking. I was like the block Fees are 38% of the block reward? like that. How does that make any sense? Then they just kept getting higher and higher and I thought I was. I thought I was going crazy. Yesterday I was looking at these fees. So, it’s a great boon for us economically. I always talk that Bitcoin miners should be profit maximalist, and this is maximizing profit right now. So, I I’m all for these higher fees. I don’t think they can last for very long, but I will take them. You know when and as we get them.

Stephan Livera 00:03:11

Right. Yeah, I agree. I do believe it’s not really a sustainable thing, but you know, take a while it while it’s there. But let’s focus on the topic for today around Bitcoin mining metrics, how certain individuals are dishonest in how they prom ote A narrative that obviously you know benefits their kind of narrative. So, let’s talk a little bit about that do. You want to just contextualize this issue around. The so-called climate problem with Bitcoin mining.

Ben Gagnon 00:03:41

So, I mean, this is a pretty simple. You know business, it’s a very simple industry, you know, Bitcoin mining is, is just data centers and data centers consume electricity. It’s no different for Bitcoin mine as it is for a Google data Center, a Twitter data center, and Amazon Data center. Whatever it is, data centers consume electricity in order to provide a. The Dutch economist came out with what’s called a Bitcoin electricity consumption index in 2017. I think that was the first, you know, real attempt at somebody trying to measure and track the electricity consumption of the network going out, you know, every single day over time and you know the basic analysis of that is reasonable. You say, hey, we know what a Bitcoin mining computer produces in terms of a hash rate. We know what it consumes in terms of electricity. We know what it generates in terms of revenue and we can derive some expected costs out of that electricity consumption, right? So, you have, you know, basically a couple of different variables. Some of them are market driven, right? Like you know you can pull network cash rate out of out of blockchain data and out of block processing times. You pull difficulty, you pull Bitcoin price like you can calculate all the revenue side is fixed the part you know where you’re going to need to make your assumptions is on the operation side. Now, as a Bitcoin miner, the situation is actually reversed, like our revenue is not fixed, our revenue is the only part of our operations which are not fixed and we have to be really, really careful. That means on the control side of things, if we’re not monitoring and keeping track of our controls and trying to minimize costs, we can be in a situation because we don’t control the revenue. That the revenue you know dips below cost and then now we’re suddenly mining at a loss and operating at a loss. And so, for minors, you have to have a very, very strong cost focus. But if you’re trying to model this industry, you know, you’ve got to make assumptions around those, those costs. What Digi economist is done is and they have their own stated methodology on their website. And basic ally it says we’re going to assume. That you know at a fixed rate, 60% of all mining revenue is electricity. Trust, and they assume that the electricity cost is fixed at $0.05 per kWh. Now that’s a totally fine estimation for electricity costs. You know, obviously I think the industrial average cost is probably lower than $0.05, but there’s definitely people who are mining at $0.05 and above the real problem in their logic is assuming that 60%.

Ben Gagnon 00:06:21

Of mining revenue goes to electricity costs in all scenarios, and that really fell apart during the 2021 China mining ban. Where we had a situation where we have the largest changes in network variables that we’ve ever seen in the network ever and we have the largest reduction in network hash rate. We have the largest single change in network difficulty. We have very real things happening on the ground. You have extremely long processing times; you have extremely few blocks per day. I think we had almost a one-month difficulty adjustment cycle just because there were there were so few blocks going through. And so, you know, at that time, if you have falling network cash rate, you’ve got falling competition and you’ve got an increasing price or even a flat price. What you’re going to see is increasing mining profitability. Now, if you’re assuming that you know 60% of all revenue is going towards. Then you’re also going to assume that at the same time the network difficulty is decreasing. That actually your costs are going up and so what you see here is that it’s a real. Trend right at that China Mining Band when every other electricity consumption index is going down in line with measured hash rate and difficulty, the digit economist index goes up to its all-time high and it goes up from something like 10 gigawatts to 26 gigawatts of demand in a couple of months. So. You know, they’re talking about a growth factor of 2 1/2 times in a matter of months. The real-world practicalities of even getting those miners securing that much power, that much capital investment like forget all of that like that, that’s not only impossible, we’re just going to ignore it for now and we’re going to assume that 60% of the costs are going up.

Ben Gagnon 00:08:10

And so, what we saw, and this is this is the best way I think to look at that. You have to look at like what the Watt per tera hash assumptions are, right? If you have a network cache rate variable which is given to you by. The estimated, you know, time that you’re finding blocks you can derive network cash rate from that and then you actually are looking at what the electricity consumption indexes are saying. You could put one on top of. The other and you get what is your energy for? What is your house rate that comes down to a whopper Terra hash number, which you can look at the same of Bitmain S 19 or an S9 or any minor right and what we see is that on the Digi Economist index it went from 60 watts per Terra, half before the tiny mine band to almost 200 watts per Terra hash during the tiny mini? And so, what that means is that at the time when you know 60% of the network went offline, there is a shortage of infrastructure. Mining profitability is soaring what miners are actually doing is they’re taking down their newer, higher productive, more profitable rigs and they’re installing. Older, less profitable rigs on their racks, you know, so you can clearly see this math is, is, is broken. Their model is based on a really flawed assumption there that 60% of all costs are fixed for all time. That does not work in both scenarios, and what that does is it really overestimates the amount of electricity that’s consumed. Especially in bull markets, so in bull markets, when everybody’s paying the most attention and everybody cares the most, you’re going to have the most inflated numbers. You know the highest metrics, the highest KPIs, whatever you’re looking at, they’re going to be the worst and it’s during the bear markets where you actually start to see those numbers come back to reality. But nobody cares during the bear markets, and so digitalis is very successful at this, they’ve. You know, put up their index in 2017. They’re cited constantly by every major news publication, the White House, every, you know, sort of politician or bureaucrat that goes up there.

Ben Gagnon 00:10:18

They say ditch economist over and over and over again, and this guy’s been proven wrong by multiple people, including myself and he has all his information available on public API like this is this is not difficult math to verify. It’s actually very easy map to verify anybody can go and download that data, download some price data, download some hash rate index data and run a simple divide calculation and figure this out in 15 minutes. But nobody does and so This is why it’s constantly cited.

Stephan Livera 00:10:50

That’s a real shame, man. So just to walk that through, as you mentioned, the test case, let’s say of the China mining ban, which happened I believe in May of 2021. So just to give some context that you probably know, know the numbers better, but as I recall, I think the network hash rate was something close to 200 X hash, something like that and it. Dropped like half basically, what do you have that rough number or do you do you, are you? Do you recall that? Yeah. So back there in the China Mining Band, 2020.

Ben Gagnon 00:11:23

One, we had a network hash rate of. Let’s see here. It was trending upwards of like 15170 and then during the China mining ban, it crashed. We lost like 60. Got it. See here 180. It went down to 188 ninety. I mean we lost. Half the network hash rate in the matter of about a month or two, so by July, we’re looking at roughly 90X a hash worth of hash rate from 170. Right before that, half the network just gone, you know, and the amazing thing about that is you know other than one very slow difficulty adjustment.

Stephan Livera 00:12:01

Gotcha. Yeah. Cycle Bitcoin just healed itself, right? Like all the transactions continued processing, we lost half the network. Everything worked totally fine Bitcoin mining profitability was good. Really the only people who would have.

Ben Gagnon 00:12:24

And probably at a loss during that period would have been the mining pools themselves because they’ve got to pay out on theoretical hash rate, not on actual blocks mined. And so, the Bitcoin mining pools would have would have been taking a loss during that difficulty adjustment period. But the miners did totally fine. All the users did totally fine and then after one difficulty adjustment, we were kind of back at a new foundation and we continued to grow from there. So, you know, we’re at more than roughly 300 and 53140 X hash today. Given you know different averages over time, so we’ve. They’ve grown, you know, almost three times from that recovery period.

Stephan Livera 00:13:04

Yeah, gotcha. And so just for context, that shift that call it 160 or 170 X hash down to call it 90, what we’re talking about here just for context, that’s hundreds of thousands of Bitcoin mining machines had to be, yeah, basically what was happening is a lot of the miners are scrambling to kind of take miners out of China and plug them in somewhere else. Perhaps in the US, in USA, Canada and other places around the world, right?

Ben Gagnon 00:13:29

Yeah, absolutely. You know, there had to be a massive mining migration. Has China, for the longest time, was the biggest Center for Bitcoin mining. It was the biggest Center for everything Bitcoin and this this goes back to a number of different issues there with Chinese and especially with their capital controls that they have within the country. You know, a lot of people don’t understand how restrictive it is to move money in and out of China. But essentially, you’re limited to about 50 thousand U.S. dollars per year. It’s just a normal civil Yeah. So, you look at all the you know for instance, all the kids that are leaving mainland China and going to the United States going to the UK, going to Canada for university, you know, $50,000 doesn’t cut it for tuition, let alone airfare and housing and everything else. And that’s just one example. You know, if you want to make investments abroad, you know, $50,000 is not cutting it. And so, Bitcoin was really a way for a lot of Chinese to be able to transact and interact with the world in a way that they were never able to before. And so that’s why there’s huge adoption in China. Because of these capital controls and actually one of the most interesting things about the Chinese capital controls and a lot of people outside China don’t know this, I happen to be raised and born and raised in Hong Kong. I did my elementary and high school in Hong Kong. I did my masters in Hong Kong I set up my first Bitcoin mines in Hong Kong, Taiwan and China, so. I have a long experience with China and Chinese culture and Chinese language. And what happened with these capital controls in 2017? Beijing actually came out and said, you know, we’re tired people sending their RMB to a cryptocurrency exchange, buying Bitcoin and pulling it off and sending it to international exchange and selling it for USD because you’re circumventing our capital controls. And so, they said, OK, you can’t use the top 4 cryptocurrencies. To do this anymore, and at the time, that was like Bitcoin, Litecoin.

Ben Gagnon 00:15:28

I can’t even remember what the other ones are. You know, nobody really uses them, but Bitcoin and Litecoin were two of the two of the ones including that restriction. Ethereum was #5 and so it just it just squeaked out on that list. And if you look. At the price action on Ethereum within two days of this currency control restriction being put in place for Bitcoin, Litecoin, and others, Ethereum started taking off in value and you see it going from 10 dollars 11/12/20, a hundred, 200, four $130.00. And it was entirely driven by the Chinese demand to get, you know, dollars out of the country via cryptocurrency that was no longer being fulfilled with Bitcoin. And in the West, everybody says, hey, its smart contracts, it’s Ethereum, it’s defi, it’s everything that Ethereum is going to be. No, this is Chinese demand. To access international markets that’s being recognized for a very, very limited frame and you can see the demand for that in, in the price action that that takes. Place and so China has always been the number one area for Bitcoin. It’s been the number one area for Bitcoin mining manufacturing for Bitcoin miners themselves for Bitcoin buying for Bitcoin trading. And so, when you lost this infrastructure, 5060% of the infrastructure, it just didn’t exist anywhere else in the world. You know, you didn’t have the megawatts. You don’t have the power. Generation capacity you don’t have the facilities, you don’t have the Transformers, the distribution lines, the agreements in place. That all takes time, and it’s not as fast as it is in China and China.

Ben Gagnon 00:17:03

You can build a Bitcoin mine in eight weeks, you know, in the West it might be 8 months and that’s if you have everything lined up and you have it organized and you’ve got, you know, the various entities and parties who are involved, who are supportive of the project. If you’re going up against headwinds. Eight months is nothing. It could be 12 months. It could be 20-4 months. You could go 24 months and. Never get approved

Stephan Livera 00:17:29

OK. And so yeah, bring it back to the estimates needed to estimate, you know, Bitcoin mining impact. I think there’s so many different things that go into this because you have to think about what is the average minor machine being used, what’s like the power you know being used. There’s all these assumptions that are built into that. To try to come up with this number. On you know how? What’s the supposed impact to the environmental? Some of you know, some of these numbers that get thrown around. So, could we just talk through some of those assumptions that would be required and where you might challenge or question that Judge economist story?

Ben Gagnon 00:18:09

I mean the first thing. Is like I said before, Bitcoin miners are profit Max. And so, any assumptions that you make can be back tested with profitability. And if it doesn’t match that, hey, these assumptions are lining up with profitability metrics and one year you’ve already proven yourself wrong and you’ve proven your model wrong because miners will not continue to operate. At a loss and so the way that you do that is you say, OK. A Walker Terra hash is a fixed unit on a machine and you can you can use software to overclocked underclocked auto tune to improve the efficiency metrics one way or the other, but effectively an S 19 has a whopper Terra hash efficiency in M30 has a whopper Terra hash efficiency and they both have a hash rate now if you take. The Whopper Terra ash efficiency. You multiply that by 24 hours in a day. You multiply that by 1.04 which is, you know, roughly the amount of electricity that you’re going to need to run for fans and lights and networking servers and all the other electricity components in your facility. And then you multiply that by the electricity price that you receive per kWh, and you divide by 1000 to change. Watts to kilowatts you get an operating cost per terahash.

Ben Gagnon 00:19:26

And that should be your base metric, like that’s our base metric as a minor when we’re looking at where do we stand competitively with cost, we’re looking at what is our operating cost per Terra hash and then we’re comparing that to revenue per Terra hash, right. And we’re doing all of this in U.S. dollar basis Now there are two ways to improve your U.S. dollar per Tera hash cost basis you can either improve your energy efficiency or you can drive down your cost of electricity. And when you look at those two variables and which one is a bigger impact on the two, it’s cost of electricity. You can you can improve your efficiency and obviously that’s going to have a direct measurable benefit. But improving your cost of energy efficiency or improving your energy efficiency comes at a direct cost in terms of more expensive hardware, right. And so, the better way to address your cost is with lower and lower energy prices. And that’s also true because you don’t like. You don’t want to be mining even on a very high efficiency machine. If your energy costs are too high, like if you’re at $0.10 electricity, you shouldn’t be mining even on the best hardware, right? This is really an incentive built into the system to keep minors away from overly priced. Energy and trying to focus on this kind of overlooked, underutilized marginal sources of energy that you can acquire for lower cost. And so, when you look at it on an operating cost per Tera hash basis, you can start making these assumptions. And the second thing that you start doing is you have to say, OK, well, these are my assumptions for electricity cost now you got to make assumptions for what the entire industry might be doing or and competitive then you have to make assumptions in terms of how long? A minor might actually be good for, and the reality is that and this ties in with his e-waste metrics. He expects a minor to be good for 1 1/2 years before it’s obsolete, and it’s like no, that’s wrong. Miners are just computers and if you leave a computer in a good operating condition. And good environment that computer will turn on 10 years later. It will turn on 20 years later. It will still work it will still run. Now you might be used to a faster computer at that point, but it doesn’t mean that that computer is necessarily any slower than it was 10 years ago. It’s just your understanding of the relative speed. You know, these miners, even from five years ago are still profitable today. And that’s generally the math like you expect that a miner should run for five to seven years with an economic useful lifespan.

Ben Gagnon 00:21:56

And what we see is over time they’ll transition from higher cost sources of energy to lower cost. So, places like Venezuela, who have very low cost of energy, they become the buyer of last resort for all this hardware. So, you have all these different assumptions and what I look at is an assumption that says, OK, let’s take a look at what is the Whopper Terra hash of every machine that that’s ever been produced. Let’s look at the data it was produced. Right. And then let’s look at historical time range and let’s say, OK for any minor within the last 3 1/2 years, look at their efficiency. Is this efficiency profitable at this price of power, right? If this miner is not even profitable, sorry, not including it in my mix of minors that are out there if the minor in the last 3 1/2 years is profitable, I’m including in the mix. Now, could you extend that out to five years because that’s kind of the minimal use lifespan, yes. We can, but there’s also such improvement in the minor’s overtime that, you know, a minor from five years ago, share of the market is relatively small. It becomes kind of an outlier and a meaningless number, so I look at the minors for the last 3 1/2 years. I look at their energy efficiency and I compare that with unexpected electricity. Costs to say hey. These are the range of minors that are available out there in the world and are profitable. And we’re assuming that it’s going to look at some sort of a mixture of these various minors and then we make some average assumptions based. And what I found is that this is a metric that tracks really, really well throughout bearish and bullish scenarios, whereas the digiconomist model works decently well and bearish.

Ben Gagnon 00:23:39

But completely fails. In bullish scenarios and overestimates, this is. This is a model that actually tracks really well, because it’s a model that’s based on the logic of an opera. Right. It’s based on the logic that I have when operating our business. It’s not based on what an academic think that we would model our business on. It’s not based on what they think that we might encounter as economic scenarios. Now this is based on 8 years of real-world Bitcoin mining experience and what we need to do to optimize and build. Long term sustainable facilities and so that’s the way that you need to do it. That’s why you should do it and you know there’s going to be variances over time. Anybody can tweak the assumptions and get slightly different figures. I think the key thing here is to be open about your methodology to be open with your data and be open for critiques, right?

Ben Gagnon 00:24:32

You know, in the academic world. The whole thing is supposed to be peer reviewed and checked by other sorts of academics the reality is, is that none of the people writing any of these academic papers have ever mined Bitcoin have ever touched a Bitcoin miner, have ever really even been in facilities that a lot of them have. An actual hatred and bias towards Bitcoin and so they’ve got a bit of an agenda when they’re doing their academic research and it’s not actually being done by experts in the field or people on the ground or people with real hand experience. And when you do comment and you do critique, you know, the work of Digi economist. It doesn’t go over so well. It’s really not picked up by any meaningful, you know, outlet New York Times is not going to write that the number one, you know source for all of their articles on Bitcoin mining is a fraud. And that’s a really uphill battle to fight because you know. You know our company here; we we’ve been operated with over 99% hydropower for six years. We’ve mined over 21,000 bitcoins with hydropower, I’ve had dozens of conversations with mainstream journalists since 20/21. When people really started paying attention to electricity consumption and the question is always the same. Why is Bitcoin mining dirty? And why is Bitcoin mining bad for the environment? I’ll spend an hour saying no, this is not why. This is why it’s not bad this is why it’s actually good. This is why it’s, you know, the information that you have is wrong. This is the right information so that’s really interesting, but that’s not the story we’re trying to write and. At the end of the day, people are literally looking for something that they can.

Ben Gagnon 00:26:14

Site that agrees with them. They’re not looking for a number to report on, you know, not looking for the truth to report on. They’re saying this is the article we want to write. Who agrees with me that we can put in here? They don’t care if it’s right or if it’s wrong because they’re not saying it’s right. They’re saying. That, that person said, it’s right and by pushing that accountability onto the citation, they absolve themselves of any sort of wrongdoing, right? Because they didn’t say it was the truth. They said this they’re reporting that this person said it was the truth and that is true. And so, it’s really, misleading. It’s really. Designed to skew how people think about our industry and how people think. About this. World and there’s probably no better metric that does that than the comparing Bitcoin mining electricity consumption to whole countries. That metric is designed to skew I can’t think of any other industry that is compared to whole countries uses of energy usage. You never see what? What is Amazon consume in terms of electricity compared to whole countries? Where is the Google consumes more electricity than Argentina narrative? Where is the Amazon? Consumes more electricity than Argentina narrative it does. Exist right? And when you do have a reduction in electricity consumption like we saw did, economist models gone from 26 gigawatts down to 9 gigawatts? Where is the article that says Bitcoin mining operators have stopped consuming as much energy as Paraguay? Like where’s where is that article? You don’t see the article of it falling 16 gigawatts. You see the article of it going up 16 GW.

00:27:57 Stephan Livera

OK, so let’s summarize some of the key points. So, as you were saying, it’s the assumptions built into the digital economist modelling is flawed. So, as you said, probably the key one is this is this key notion that 60% of the cost is always electricity when that’s not always true. And then I think secondarily you were. Pointing out that there’s a there’s an inaccuracy, or it’s flawed to assume. Certain devices.

You know the useful life of different devices which drives a different calculation in terms of which devices are being used, as you said. So, this kind of assumption that after 1 1/2 years it’s you know it’s waste when in practice it’s more like 5 to 7 years that an ASIC machine has of useful, useful life. Would you say those are sort? Of the main 2 let’s say critiques of that particular model or how would you? Summarize it.

Ben Gagnon 00:28:50

Yeah, for sure. One, it’s assuming that, hey, your costs are fixed, you’re regardless of mining profitability, which is completely flawed like our gross mining margins swing wildly. I think we’ve seen our gross mining margins go from like 83% during the peak of 2021 down to like 12. Percent. I can’t remember the low that we hit last year. You know, as Bitcoin price was falling down to like 16 K, but it would have been sub 20%. And so, you know 83 to 20 like that’s. That’s already more than the 60% that you’re assuming you know. It’s a highly variable number and it’s not realistic to assume that that stays fixed. It also implies a lot of a lot of assumptions about the real world, which are not practical, right? Electricity prices don’t move like that. Electricity demand doesn’t move like that. You can’t buy machines and invest new capital like that. It just it doesn’t happen so quickly there’s huge lag effects to those sorts of things.

Stephan Livera 00:29:54

OK. And then I guess the other question people might be thinking is, OK, so if did you economist is getting it wrong? Is there anyone who gets it right? Is there somebody who is? Is there a better modelling or a better metric that’s maybe a little closer to reality?

Ben Gagnon 00:30:08

So, there’s really only two publicly available, one that people tend to cite and stitch economists is Cambridge. You know, both the models have their severe limitations. I say Digi economist, you know they’re fundamentally wrong in terms of their assumptions and their methodology. So that’s obviously the more grave of the two. You know, Cambridge is something that I think started out with a lot more transparency and honesty associated with it, but they’ve had a lot of turnovers in terms of their organization, who’s running the project. And so, it’s kind of out of date. I wouldn’t say that either of those models really pumping out good numbers right now. The best model that I’m aware of is the one that I created for us internally to like counter the FUD and it’s something that I I’m speaking about with Bitcoin Mining Council about whether or not we want to just pass this on to Bitcoin Mining Council for them to. Start utilizing and start pushing out our own data because you know we as an industry are being attacked by all sides and we’re not being attacked with good information We’re being attacked with bad information, which is a it’s a very frustrating battle to have.

Stephan Livera 00:31:16

Yeah, of course and so yeah, bring it back to this idea of Bitcoin is using more energy than this. Three or the other big one that’s highly deceptive is, you see, sometimes people quote this static, this stat of every Bitcoin transaction uses this much, you know carbon and things like this which you know so it just it just presents an extremely dishonest view of the reality which is that. Transaction itself it’s difficult to place an exact amount even if you are gonna be in that world of, OK. You know, as our friend Pierre Richard has shown, Bitcoin miners emit 0 carbon, but in the same sense that people will count, let’s say Tesla, you know, they’ll say Tesla is 0 emission car. If you count the actual energy used as part of that Tesla, well then, it’s not a 0 emission car. And OK, fine in that sense, if you’re talking about, I think people use the term stage two or stage 3 emissions, right. But even in that sense It’s important to understand that the Bitcoin network could run theoretically off somebody’s laptop, right? Like if there was only one, you know, one CPU minor, it would be crazy to then say oh the let’s say for every block the you know, whatever 3000 or 4000 transactions that somehow you would divide the you know the like it could run. This is easily off like a laptop per say, and you would divide that energy by, you know, 4000 for 4000 transactions, right. You can sort of see where it doesn’t really line up with reality, because what we’re talking about is the miners sort of showing finality of that block rather than it being based off how many transactions are being done. And Bitcoin, because that can give people the wrong mental model as well, because if you say oh, every Bitcoin transaction uses as much as like this many houses or whatever it, it just doesn’t line up because people just scale it linearly and that’s simply not how Bitcoin transactions work, right?

Ben Gagnon 00:33:13

Yeah, I mean that those are two metrics that are designed to misinform. And this is the reason why they exist, they’re there to push forward an agenda. When you look at electricity consumption as countries, you know it’s an exponential curve starting with China as the largest electricity producer and generator and consumer. And then it goes down to the United States and so on and so forth and it’s and it’s in the exponential curve, it drops down really quickly. So, by the time you get down to a country like Argentina, you know which is a G7 like. I mean, it’s large, it’s actually, it’s not a G7, but it’s a very large, large economy. I think it’s in the G20, it’s not in the G7, it’s 20 I think it’s a very, very large economy. They consume about 0.1% of the world’s electricity, right? And so, you look at us like Argentina, it’s such a big country. Obviously, we’re talking about something that’s like 5% of the world’s electricity. It’s like, no, it’s an exponential curve. And you know, China is producing and consuming the most. Then in the United States, by the time you get down 2030 countries like we are talking about fractions of. Percent right. And the reality is, is that we’re not consuming kind of mainstream electricity like Bitcoin mining works really best if like if you’re looking at the normal distribution curve where Bitcoin mining is the best is at the tail end scenarios like. We’re here to monetize the inefficiencies that are already present in these systems, whether that be oversupply of renewables, right, that are leading to negative pricing or oversupply of electricity generation capacity and infrastructure and an under supply of demand like. Bitcoin mining is best suited for this kind of tail end scenarios. We are not in the middle in like Manhattan or, you know, the City of London or downtown LA and competing with people for megawatts like that. That doesn’t make any sense It’s not economically viable and so we’re in these, we’re in these remote parts. We’re in these areas where electricity is often wasted and underutilized. And so, when you look at the number one consumer of electricity worldwide, it’s waste 17% of basically every kilowatt of all the kilowatts generated. Total waste. And when you look at how much electricity we consume as a network, it’s like 0.1 percent 0.1% of the electricity, not even close to 1%. We are, we are many, many multiples away from hitting 1% of the network and 17% of the electricity is wasted on a daily basis. And that’s the electricity that we’re going after. And so, when you look at it, it’s like, OK, Bitcoin mining does not actually consume that much electricity. The amount of electricity that is wasted is massive and Bitcoin mining is actually an economic incentive to reduce waste and reducing emissions, and it’s actually the only natural economic incentive in the world that incentivizes the reduction of waste or the reduction of emissions.

Ben Gagnon 00:36:08

If it’s not for Bitcoin mining, the only incentives that exist in the world are subsidies, government subsidies. By tax dollars or inflation and so, you know, one this is a metric designed to mislead. And two, it’s actually getting rid of Bitcoin mining or fighting against Bitcoin mining is actually fighting against the only natural economic incentive in place on the entire planet. To reduce emissions and reduce waste and recycle your inputs into another valuable product. And so, it’s actually going to do the opposite of what they claim. The second thing that you have to look at there in terms of the Bitcoin energy per transaction, again it’s a metric that’s designed to misinform and mislead. And so, they’ll say, hey, you know this is the amount of electricity. Consumed by the network, this is the amount of transactions in a day and therefore this is the amount of Bitcoin energy per transaction. It’s like, well, one and you’re ignoring a lot of other transactions, like you’re ignoring all the transactions that happened on Lightning network. You’re ignoring all the transactions that happened on centralized exchanges, which are off chain records and happening on their private balance sheets and is and is the vast majority of transactions you know are. Are those invalid transactions or are those not real? Those are real transactions where the majority of data is taking place so you’re looking at a very, very small subset of transactions and then you’re saying, OK, well, all the energy that’s consumed by Bitcoin mining is just going to those trans. Actions and that really is, is a misnomer, and I think that’s designed to mislead as well because it goes on to this this idea of POS versus POW. And I think that’s the whole metric behind this. The whole reason for this metric of energy per kWh or energy kilowatt hours in terms of per. Transactions its they want to ascribe an energy value to per transactions they want to try and reduce the energy value by reducing our energy consumption well.

Ben Gagnon 00:38:02

Like the reason why we’re consuming more electricity is not because we’re processing more transactions. It’s because we need greater and greater levels of security and that is the one thing that POS does not address. Like, sure, they address energy consumption per transaction, but it does not in any way address the security angle. And the whole reason why we consume more electricity, the whole reason why we put more and more money into infrastructure is to make the network more and more secure, not more and more, you know, not pump out more and more transactions. And the reality is  like this is a metric specifically designed to. Take people who are unfamiliar with Bitcoin and unfamiliar with the value promise and don’t understand necessarily the benefits of a secure network that’s decentralized around the world. That would cost untold hundreds of billions of dollars, you know, to attack the network. You know, they’re trying to get away from that and just put it into this. Energy efficiency box and the reality is, is that the vast majority of what Bitcoin miners do on a daily. Does is prevent bad changes from happening to the network? Transactions are secondary like transactions are happening every single block but the miner’s function is to secure the network not to process your transaction.

Stephan Livera 00:39:17

That’s a great way to put it.

Ben Gagnon 00:39:18

That’s just one small part.

Stephan Livera 00:39:19

Yeah, I think that idea of securing the network or the validity of transactions, the finality of transactions is probably more accurate. That’s really what the energy usage is going towards is not per say per transaction and I think that’s the important point for people. To understand I’m curious, what’s did economist response mean to you? I’m sure you’ve been. You’ve been trying to put this out there to correct him or critique his modelling. Has he publicly responded to you at all, or has he just fully ignored you? What’s the response?

Ben Gagnon 00:39:47

I’ve gotten one or two comments back on Twitter. You know, the last time I put out a thing on his whopper Terra hash, the one word response was silly. So, you know, he doesn’t. He doesn’t take it seriously, you know, here’s an academic who’s only reviewed by other academics. I mean my I joke, but my dog has been in more Bitcoin mines and ditch economist like my dog has physically been in like over 10 different Bitcoin mines in three different countries and is going to go to another. Bitcoin mine in a fourth country here next. So my dog has more Bitcoin mining experience than Digi economist, probably the number one cited expert in the entire. World on Bitcoin mining and he’s never he has zero experience.

Stephan Livera 00:40:33

So it’s important to understand the state of the, the debate around the world. And we’re seeing all kinds of dishonest actors, like the propagandist blog known as The New York Times, who also came out with a with a, with a very dishonest piece. As I spoke about with my friend Pierre Rashad. So people can check out that. So I also think it’s important to really point out the benefits and I think I’m coming more from the Alex Epstein camp here in a way I’m saying we should be arguing that more energy use is a good thing. And that, you know, we shouldn’t be trying to sort of minimise ourselves and say ohh no, no, we’re trying to, we’re trying to incentivize the renewable quote UN quote, renewables. I think the benefit is worth it. I just think we should be using more energy and so be it you know, it’s a good thing for the world and. And so I think that’s, you know, one way of looking at it. I understand there’s a there’s a range of views amongst Bitcoiners and Bitcoin miners on how to criticize or critique that kind of attack. And so I think it’s important that there are a range of different views out there and more importantly, correct information to correct incorrect models around things like how much Bitcoin, how much energy is being used by each Bitcoin transaction, quote UN quote, or how much energy the network is using relative to various countries or relative to the world. Well, as you were saying, profitability and really assessing Bitcoin mining metrics based on that idea that, you know, miners are actually trying to be profitable here. They’re not just trying to run an operation, just merely for the sake of running an operation. They’re trying to make a profit

Ben Gagnon 00:42:08

Oh yeah.

Stephan Livera 00:42:09

And therefore the assumptions should be should be based on that. But I think maybe one of the challenges is. A lot of Bitcoin miners and naturally focus on trying to make money. They’re trying to, you know, stay alive. It’s a competitive industry they’re trying to stay alive. They’re not necessarily trying to go out and fight public battles to correct the record, and maybe that’s where people like Digi economists and other people like that are just getting they’re running unchecked in the media.

Ben Gagnon 00:42:37

For sure. That’s definitely been happening for a long time. I think Bitcoiners, especially Bitcoin miners, have really wanted to stay under the radar and you know, hey, I’m going to build my Bitcoin mine, I’m going to set it up like I just want to be left alone and to run my. Business, you know we have, I think every different having epoch. I think we have kind of a transition into a more industrialized, more professional phase of the industry, say phase one is like the entrepreneurial hobby, you know stage or stage one would be like a hobbyist enthusiast. Stage two, the 2nd halving would be more of like the entrepreneurial. And the maybe the speculator stage 3 would be like venture capital Stage 4 is like small cap. You know public companies where we are now, then you got mid cap and large cap in the next two and then you’re on to like sovereign nations. So each having that block is its own, it’s its own kind of phase, and people need to understand that, you know, over time the sophistication of the network growth, the sophistication of the user base grows and that with it needs to come a rising level of sophistication, security like you are not going to get. You know, major hedge funds, major institutions who are backing a asset class that’s run out of people’s garages like it’s not going to happen if there’s an element to it that’s no problem. But if that’s the entirety of the security. There’s no way that this reaches, you know, the escape velocity and this reaches the institutional adoption scale. So we have this kind of rising sophistication, overtime. And so I think only with this new sophistication, people becoming public and wanting to be not just under the radar anymore, but actually be out there in the public sphere, we are now starting to get companies who are starting to challenge this information because for a long time it was. I don’t want any attention paid. To me at all I just want to remain under the radar and now that we’ve hit this stage where? Companies realize, hey, you know, going public is kind of the. This phase, in order to continue growing and continue providing a greater level of service, greater level security and growing the company with cheaper, more plentiful dollars via public capital markets like. This is starting to change. It’s something that we we’ve been doing in Canada, bit farms and a number of other major Canadian companies to come together. We create a fair tax coalition. So we’ve been work. To educate and inform the politicians and bureaucrats in in Ottawa, you know about what is our industry.

Ben Gagnon 00:45:08

You know, what are the implications of the different tax legislations that they want to put forward, what that would do to our industry, how that would make things unfair to different Canadians in different parts of the country. And you know a lot of these politicians have never seen even a photo of a Bitcoin mine. And so it’s really hard, I think, to go out. There and say how are you supposed to regulate and legislate on something you you’ve literally never even seen a photo of, let alone understand the complexities within like you haven’t even seen a photo. I mean, it’s like that’s like swiping right on Tinder, you know, while wearing a blindfold like, you literally have never seen anything and you’re just swiping. You know It doesn’t make any sense. Yeah, I think there’s a lot of problems with that and unfortunately, we live in a world where people, you know, shoot first, ask questions later, and that’s often the case with politicians and regulators.

Stephan Livera 00:46:02

But that said, let’s talk about ways to try and improve that situation of course, you know we’re doing this podcast now so listeners can learn and understand, but let me put it to you this way, let’s say to help listeners. Maybe they’re getting stuck in arguments with people, because people generally, if you’re stuck in an argument, somebody they might have, maybe you’re at a party or something and they might have just read a headline, right? They might have read a headline saying  Bitcoin uses more energy than Argentina. You know or, you know, they might have heard some of these metrics or these, you know, dishonest or inaccurate metrics if you had a way to give a short answer. Like, let’s say, someone’s listening now and they need a short answer. You know, in the space of, you know, 30 seconds. How would you kind of counter this? Would you say something like, oh, well, actually the studies base the studies that this. Metric is based on their floor they’re using. They’re using an incorrect methodology, actually. Bitcoin mining, you know, does not use as much energy as what they are saying. But that said, it’s still a good thing that uses, you know, energy like it’s kind of a complicated thing to sort of explain. If you had a kind of like an elevator pitch answer, what would you, what would you give?

Ben Gagnon 00:47:07

Yeah, that’s a tough one because there’s multiple things wrapped up in there. But I would say first thing is that you know 99% of the articles you read are attached to one source and that’s did economist and his methodology is flawed and his model has been proven wrong by multiple people and multiple experts over multiple years. This is not somebody who’s taken criticism very well or implemented any sort of change in their model when addressed. So this is all based off of. Squad reasoning The second thing I would say is again with the Alex Gladstone model like Human Flourishing is directly tied with energy and the more energy that we consume, the better. Bitcoin mining is the incentive to reduce waste, increase productivity and do so without any sort of government. Subsidy like there is there’s no negative when you look at it from that way. Both people get what they want out of it. It’s a natural economic incentive to reduce waste, improve utilization of resources, improved jobs, GDP, economy. Everything else you have, Democrats and Republicans, or conservatives and liberals like you both get a win out of this and that’s what I think people should really be taken away from this. Bitcoin is not a polarizing issue. Bitcoin is the unifying issue that we’ve all been waiting for. You know, it’s the issue that both sides really should be able to get behind in in a very, very big way once you get past the headlines and you can actually dig into the substance here.

Stephan Livera 00:48:38

Yeah, one small correction. I think you mentioned Alex Gladstein I think you meant Alex Epstein. Right. But Yeah. Yeah. Sorry, sorry. Yeah. Other than that. But yeah, other than that, yeah, I think that was. A great fossil future  Yeah, right Fantastic book And I’ve spoken with Alex about that on the show. So we can see that episode also. So I think those are probably the key points to hit, right. I think there’s a key take away, which is understand the commonly cited model. Did you economist model is extremely flawed and that we are pursuing a world of energy abundance and we should be supportive of producing more energy and using more energy. Because it’s a massive, massive net benefit for all humanity. And so that’s kind of the short answer that I guess I would give. I’m not as into the detail as you are on it, but I think that’s kind of how I would answer it. And I think you  gave a great answer there as well. So if anyone wants to find you or follow you and your work, what’s the best place for them to do that?

Ben Gagnon 00:49:33

You can follow me on Twitter at @hashoveride or you can follow our company @Bitfarms_io on Twitter. Our website, we don’t have any like telegram channels or anything like that. There’s a lot of people who say. We are out there on Telegram channels. Do not trust us if you know, we’re never going to ask for your money. We only have a couple of authorized social channels. It’s my own personal channel and it’s the @Bitfarms_io and

Stephan Livera 00:50:02

Well, Ben, thank you for joining me and helping explain some Bitcoin mining metrics for me and for the listeners.

Ben Gagnon 00:50:09

Yeah, happy too. Thanks for having me,

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