Latest / Bitcoin for Financial Services Podcast / Mine Bitcoin for Half the Price: Inside the Tax Play Nobody's Talking About

Transcript

Mine Bitcoin for Half the Price: Inside the Tax Play Nobody's Talking About · Bitcoin for Financial Services Podcast

• 0:00
  I mean, buying a Bitcoin is easy. You go on to a platform, you pay the money. And right now, I think it was this morning, like 78,000, you know, for a Bitcoin. And that's a pretty simple purchase. You know, you just go on, you buy it, you own it. If it, you know, goes down and you sell, you have a loss. If it goes up and you sell, you have a gain.
• 0:25
  Bitcoin is a currency on the internet.
• 0:28
  If you don't trust any other currency, this is where you go.
• 0:31
  It's going to outperform everything.
• 0:32
  Bitcoin could eventually be worthless.
• 0:34
  Every day is a good day to buy Bitcoin.
• 0:36
  Bitcoin reached its highest price to date.
• 0:38
  Bitcoin hitting a new high.
• 0:40
  It really has reached escape velocity.
• 0:42
  There is no second best.
• 0:43
  Who cares about Bitcoin?
• 0:44
  It's the only secure database that's ever been invented.
• 0:47
  Antisocial.
• 0:48
  Bitcoin is the real deal.
• 0:50
  Stupid.
• 0:50
  Everything is bullish for Bitcoin.
• 0:53
  Immoral.
• 0:53
  It's going up forever, Laura.
• 0:55
  Fix the money.
• 0:57
  Fix the world.
• 1:25
  Any statements or opinions are subject to change without notice.
• 1:55
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• 1:57
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• 2:01
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• 2:06
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• 2:11
  Looking forward to seeing you there.
• 2:13
  Today, we're joined by Paul Palmer,
• 2:15
  Chief Revenue Officer at SustainHash.
• 2:17
  Let's get started.
• 2:19
  hey welcome back to the bitcoin for financial services podcast today we have paul palmer the
• 2:30
  chief revenue officer over at sustain hash joining us and very excited about this episode because
• 2:36
  i'm mainly uh involved with you know individual mining companies as well as some hosted companies
• 2:44
  but what they do i think is super unique in terms of helping family offices and high network
• 2:49
  individuals come into the mining space. And so we're going to learn a lot about what they do
• 2:53
  today. So Paul, thanks for joining us. Absolutely. Thanks for having me.
• 2:59
  So I always like to kick the conversations off with, you know, it's, I think it's always
• 3:04
  interesting to hear, you know, how you got into Bitcoin, maybe even touch on what you did before
• 3:10
  you were in the Bitcoin space and the mining space of people. I think it's helpful for newer
• 3:15
  listeners that are thinking about Bitcoin, but they're not sure how they might fit in. And I
• 3:22
  think hearing people's stories can say, oh, okay, I resonate with that background. Okay, I understand
• 3:26
  how this fits in. So maybe just give us a quick background of how you got into Bitcoin, what you
• 3:31
  did prior. Yeah, so I've spent the last 30 years doing business development, primarily in the
• 3:40
  financial services industry. So I spent a good amount of time in the payments industry,
• 3:45
  working with check processing, credit card payments, debit, things like that.
• 3:53
  I also did a stint as a financial advisor.
• 3:58
  So I was an RA myself and, you know, have always been interested in that sector.
• 4:05
  Got introduced to the SustainHash team about three years ago.
• 4:09
  and Sustain Hash was started in Alberta, Canada by two guys who had been doing hobby mining since
• 4:18
  2013 and turned it into a business in 2022. Primary business at that time was a repair center.
• 4:30
  So we've got a repair center up in Alberta where we do all levels of repair on miners.
• 4:40
  And then shortly after we opened the business, we got our first site operations client up in Alberta.
• 4:48
  And that's still one of our sites today.
• 4:52
  And a gas site we're running on generators, which is kind of a different world than on grid.
• 4:58
  And that been the biggest growth in our business has been on the site operations side So when I started about three years ago we were running somewhere around five megawatts of mining operations And currently we running 130 megawatts and we doing that across North America
• 5:23
  So we've got quite a few sites up in Alberta, some on grid, a lot of gas sites up there, some smaller sites.
• 5:30
  And then we've got several sites here in Texas, our largest being 40 megawatts. We've got some at 20, another one at 17. We've got sites in Iowa and Kansas as well.
• 5:45
  So, you know, we really the thing that we're trying to offer to our clients is a full service mining operations company that can handle every aspect of a Bitcoin mine.
• 6:00
  So we're normally taking investors, high net worth individuals or groups or companies that are sold on Bitcoin.
• 6:10
  They know they can go mine Bitcoin cheaper than they can buy a Bitcoin and they get all the tax write offs.
• 6:19
  But they don't want to do the mining.
• 6:22
  You know, it's it's difficult to do a mining operation and do it well.
• 6:28
  There's a lot of factors involved, and that's the thing that we do really well.
• 6:32
  So our clients trust us to take the investment that they've made in miners and modular data centers and gas contracts or electricity contracts and convert that into Bitcoin in the most efficient manner that we can.
• 6:50
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• 7:00
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• 7:06
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• 7:13
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• 7:17
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• 7:47
  And but I'm like that Alex Jones meme where where my wife is like, you know, kicking me under the table, like, you know, don't scare off these new friends.
• 7:56
  And so, you know, I went into just a little bit, but then the gentleman and the other couple, he was he started talking about Bitcoin mining.
• 8:03
  He was like solving like a complex math problem.
• 8:06
  And his wife was like, I don't know what you're talking about.
• 8:08
  I was like, mining is such a rabbit hole, right?
• 8:11
  It is like there's the Bitcoin rabbit hole and then there's the mining rabbit hole.
• 8:15
  So we didn't get into it over dinner and, you know, I kept the friends and all that good stuff.
• 8:21
  So but maybe we just take a step back, right, for like an audience that doesn't know a ton about mining, maybe has heard about it a little bit or on previous episodes.
• 8:30
  Can you just explain this honestly a question for me?
• 8:33
  How do you how do you explain a megawatt to someone who has no idea what that means?
• 8:39
  like in terms of like size, scope? Are we talking about a football field? Are we talking about,
• 8:45
  you know, like something that someone can visualize in terms of a megawatt or 140 megawatts?
• 8:52
  Yeah. So a megawatt is a unit of electricity. But to put that into context, it would be
• 8:59
  usually that would be like one container. And if you visualize a shipping container,
• 9:05
  We've all seen shipping containers, you know, but this would be a specialized shipping container with, you know, shelves built, electrical infrastructure to hold the computers.
• 9:17
  And one of those containers, a megawatt, depending on the type of equipment you get, is probably going to be somewhere around 300, 350 machines, you know, computers that are running in a single shipping container.
• 9:32
  And, you know, there's a lot of different styles of containers, modular data centers, people are converting buildings.
• 9:41
  But if you just imagine like one shipping container, that's about one megawatt.
• 9:46
  Okay.
• 9:48
  And then you'll see like, you know, we'll do this on a gas site where there'll be a small gas well.
• 9:55
  It's being flared off or, you know, they're trying to get rid of the gas.
• 10:00
  because you know when you pull up oil, gas comes with it.
• 10:03
  The oil is more valuable.
• 10:05
  It's easier to transport than gas.
• 10:08
  You can put oil in a truck and ship it somewhere.
• 10:11
  Gas, you got to have pipelines, all that.
• 10:14
  So we'll come in and put in a modular data center
• 10:17
  with a generator and convert that to electricity And then off we go to mining And on a large scale like 40 megawatts
• 10:31
  what you'll see are maybe some larger containers. They may hold two megawatts worth of equipment,
• 10:37
  which may be around 600 or so machines. And you'll see them just lined up one after the other
• 10:43
  in a big line. And usually those are connected to grid power, where we're helping that grid to,
• 10:50
  you know, balance their power loads and take some of that stranded energy.
• 10:57
  Yeah. And let's like dig a little bit deeper into that. Because I mean, just for the audience,
• 11:01
  the simple equation here is Bitcoin mind, minus your electricity costs, right? I mean, that's,
• 11:08
  I don't know if you'd agree with that. But in my head, if I'm just trying to make it as simple as
• 11:12
  possible. That's really what you're trying to control for. Obviously, the Bitcoin stuff fluctuates,
• 11:18
  so you can really hone in and control the price of energy that you're paying for, and that could
• 11:24
  be geographical or this off-grid, on-grid. So maybe go a little bit deeper on you all are doing
• 11:29
  some stuff off-grid with these oil and gas wells, and then you're also doing stuff that's on-grid.
• 11:35
  Maybe talk through the distinction and the price of electricity comparisons there.
• 11:39
  Mm hmm. Yeah. So like in an on grid situation, there will be a power company that has some excess power in certain regions based off of the infrastructure that they've built.
• 11:55
  So we've got a site close to where I'm at. I'm just outside of Houston. About an hour away, there's a site where there was 17 megawatts of power that was not being used.
• 12:06
  So the electricity company has put out the capital to create the electricity to put in the infrastructure.
• 12:13
  Nobody's using this power. And so what we'll come in and do is put in 17 megawatts worth of mining so that that electricity company is selling all of their power.
• 12:27
  Otherwise, that power gets wasted.
• 12:29
  So there's a lot of talk around like, oh, you guys are using all the power and taking that away from the consumers.
• 12:37
  When in actuality, it's really the opposite of that.
• 12:40
  The consumers are paying for that infrastructure already because the power company had to put that infrastructure in.
• 12:46
  But no one's using that power.
• 12:48
  So we'll come in and use that power.
• 12:50
  That takes that revenue, sends it to the electricity company.
• 12:54
  So now they can extend their network. They can provide better services for consumers.
• 13:00
  And the other part of that equation for the consumer is that we will balance that electricity network.
• 13:10
  So let's say a storm blows through and it takes out a section of, you know, power infrastructure.
• 13:18
  They can do what's called a curtailment. And they basically send us a message and say, hey, guys,
• 13:23
  we need that 17 megawatts of power because, you know, people are out of electricity.
• 13:29
  So we'll turn off the equipment, send that power to the electricity company, and then they send it to consumers.
• 13:36
  And there's an agreement that we have in place that really is beneficial for everybody involved.
• 13:43
  It gets us the chance to get some lower cost power because it's not being used now.
• 13:47
  It gets the electricity company more revenue so that they can extend their network and provide better services to consumers.
• 13:55
  And then for a consumer, it gives them backup power that they can now get in the case of like a storm.
• 14:01
  So there's a real benefit to everybody involved when you're doing on grid.
• 14:07
  And then to contrast that with like off grid mining or mining on gas.
• 14:14
  you're if you've ever driven around like the the coastal area especially here in houston
• 14:20
  you'll see these huge pipes and flames just shooting out the top of the pipe
• 14:25
  that's flare gas and instead of just letting this methane go into the atmosphere which is not good
• 14:31
  for any of us they'll burn it and that's just wasting that uh that gas um so what we'll do is
• 14:39
  come in and put in a generator that'll take that gas, run it through the generator, create
• 14:45
  electricity, and then mine Bitcoin. So the gas company is winning because they're selling gas
• 14:52
  that they couldn't sell before, or they were just wasting or flaring. And it allows us to come in
• 14:59
  and get that stranded power and less expensive energy than we would have to pay on grid.
• 15:07
  Um, so, you know, the price of electricity can vary based off of the region you're in
• 15:14
  and the availability, but, um, you know, you can expect on grid power to be anywhere from,
• 15:22
  you know, five, six, seven cents per kilowatt hour. Um, whereas a consumer, I may pay,
• 15:30
  you know 10 12 15 cents a kilowatt hour I just not buying as much You know house here I probably paying twice as much as someone would pay for a mining operation because they buying in quantity
• 15:47
  Just like going to Costco and you buy a case of something versus a small package,
• 15:52
  you get it for less money. Right. And those settlement agreements are interesting too.
• 15:58
  So, yeah, sorry, finish your thought.
• 15:59
  I apologize.
• 16:01
  Yeah, no, no, no.
• 16:02
  Well, the Gertellin agreements are very interesting because, you know, when we are turning off the miners, we're basically selling that power back to the grid.
• 16:11
  So we still have a revenue stream.
• 16:13
  So it's still a win for us.
• 16:15
  It's still a win for the consumer.
• 16:17
  It's still a win for the electricity company.
• 16:20
  But if you're looking at the insurance agreement, right?
• 16:24
  Yes.
• 16:25
  Yeah.
• 16:26
  Yeah.
• 16:28
  If you're looking at doing off grid or on gas mining, you're going to be a little more capital intensive because you may have to buy a generator.
• 16:38
  But that generator is like a 30 year asset. You know, they hold their value really well.
• 16:42
  So it's a different type of investment. So someone's wanted to convert dollars into cryptocurrency.
• 16:49
  That's a really good way to do it because they can get lower cost electricity.
• 16:54
  They have an investment in their generators, the electricity production as well.
• 17:01
  Sometimes people even buy the land.
• 17:04
  So you have a real estate play.
• 17:06
  You have a generator where you've got a long-term asset that retains its value.
• 17:11
  And then you've got mining equipment, which we can now depreciate 100% in the first year with a new tax law in place.
• 17:19
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• 17:28
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• 17:34
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• 17:39
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• 17:48
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• 17:54
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• 17:59
  Yeah. Have you seen many on the off-grid side specifically, have you seen many joint ventures
• 18:06
  between a family office that comes in and purchases the mining equipment and then they pair up for the
• 18:15
  other side of the JV is an oil and gas rig, and they actually put up the money for the generator.
• 18:21
  And then they're mining Bitcoin and splitting the mining rewards with some split after the cost.
• 18:30
  Have you seen any of that out in the wild? Yeah, absolutely. There is a
• 18:36
  group of people that will want to invest in Bitcoin because they believe in Bitcoin.
• 18:43
  They believe in cryptocurrency. And then there's other people that don't believe in that, but they believe in hard assets like generators or land.
• 18:53
  So that JV will be made up of those two types of investors who will say, I don't want to do Bitcoin, but I'll sell you electricity.
• 19:03
  So I'm going to buy the generators. I'll fund that and I'll buy the land and fund that because that's my risk tolerance.
• 19:11
  And then the other half of that would be the guys that are like, perfect, because what I want to do is invest in Bitcoin.
• 19:18
  So you do that piece. I'll buy the mining equipment. I'll buy the containers.
• 19:25
  And then, you know, we'll either and you know how joint ventures, I mean, you can create anything you want in a JV and, you know, have a rev share.
• 19:34
  You could just pay people outright. There could be some mix of those where, you know, you're going to take some of the upside of Bitcoin.
• 19:42
  It's really up to the investors. I mean, they can work that part out. That's the financial piece.
• 19:48
  What we do is just make sure that everything runs well so that everybody can get paid.
• 19:53
  Yeah. No, that makes perfect sense.
• 19:56
  I mean, between that and the curtailment, I don't think the general public really wraps their mind around the difference between Bitcoin mining sites and the ease at which you all can switch those machines off and redirect that energy back to the grid versus, you know, something like an AWS site.
• 20:18
  That's like, one, those guys can't shut those things off or else critical infrastructure, like my understanding is like stop lines, right?
• 20:27
  Might not keep working if they shut those down.
• 20:30
  And it takes a lot longer for them to power all of those sites down versus, again, my understanding with Bitcoin mining sites, it's almost like when you flip a switch on in a room, you can flip it off and it's off and it's redirected.
• 20:44
  It's very quick, right?
• 20:45
  Is that the correct understanding there?
• 20:48
  Absolutely, yeah.
• 20:50
  It's a real time.
• 20:52
  They send an electronic notification and we power down equipment and that energy gets transferred to whoever needs it.
• 21:01
  That could last like two minutes.
• 21:05
  That could last 20 minutes.
• 21:06
  That could last two hours.
• 21:08
  And for us, it really doesn't matter.
• 21:12
  You know, the infrastructure that we have can be powered down.
• 21:15
  And that's another distinction is like when you're talking about AI data centers or HPC data centers, we kind of get lumped in with that because we're a data center and AI is a data center.
• 21:28
  But very, very different in that very specific aspect of you can't turn off AI.
• 21:35
  They're not going to power down because someone's out of electricity.
• 21:40
  And that's something that we do.
• 21:42
  So there's a lot of similarities in data centers, but there's also some really big differences.
• 21:49
  And what the consumers need to know is that the biggest difference is that we are a pro-consumer data center and AI and HPC are not.
• 21:59
  They're going to run regardless. They don't care if you're out of electricity.
• 22:02
  They don't care if your power is down. They don't care if a storm is blowing through.
• 22:06
  Their contracts state that they have to have that electricity 100 percent of the time.
• 22:11
  Yeah. And the curtailment's good for the investor side as well, because that helps to make sure that the payouts are consistent, whether the machines are plugged in or not.
• 22:23
  And I was looking, this is something I've heard in the mining space a lot, right?
• 22:28
  I mean, we've been at this for, I guess, 16 years as a network, that there were a lot of actors in the beginning that burned some bridges in the mining space.
• 22:41
  I was just curious if the two co-founders of SustainHash, you know, ran into anything themselves when they were getting into mining that kind of said, hey, this can be done better.
• 22:54
  I had a bad experience here. I lost money here. You don't have to name any names, but I'm just curious if that was part of the driving force for them to create SustainHash and create a better customer experience.
• 23:05
  Yeah, I think that if you start doing mining, you're going to have learning curve problems, challenges that come up. And if you don't do it well, then you're not profitable.
• 23:21
  And so finding the right electricity rates, you know, is a big part of it. Finding trustworthy partners. You know, the other part of our industry is that we've gotten a bad rap because there's a lot of bad players that historically have been in this industry that are really just more about like making a profit.
• 23:51
  or being dishonest.
• 23:53
  Like a lot of the issues that,
• 23:55
  that the two founders came across in the beginning was,
• 23:59
  you know,
• 23:59
  if they have miners that are broken and they want to get them repaired,
• 24:03
  they'd send them to a repair shop.
• 24:05
  And then,
• 24:06
  you know,
• 24:06
  the repair shop would go dark.
• 24:08
  They wouldn't return calls or they would take six months to repair
• 24:12
  something.
• 24:13
  And what we found out is that they would repair the miner,
• 24:17
  put it in their facility and run it.
• 24:20
  So they're basically using a free miner that they repaired and they would run it for several months before they would send it back.
• 24:26
  Just a lot of, you know, dishonesty in the industry.
• 24:32
  And the thing that we've really built our reputation on is integrity and being honest and not going dark on people and making sure that, you know, in order to have a good business relationship, everyone has to win.
• 24:48
  You know, I have to do my part. They have to do their part. And together, you know, we fill those voids that the other doesn't have. And if one of those is dishonest or, you know, playing the game wrong, then the other person loses. And so that's not a sustainable business model.
• 25:07
  A sustainable business model has to mean that everyone does their part, everyone wins.
• 25:13
  That way you can continue in the business.
• 25:15
  That's why we've grown from, you know, five megawatts to 130 megawatts is because we take care of our clients.
• 25:23
  We take care of the sites as if they're our own sites, because really they are our sites.
• 25:27
  That's our bread and butter.
• 25:28
  That's where we get our income from is making sure those are running well, running efficiently and profitable.
• 25:36
  Yeah No that great And I want to pivot a little bit over to you know I know a question that we get and Wyatt and I get from advisors a lot is okay so you know there basically three ways to obtain Bitcoin right You can purchase it on the exchange you can mine it you could sell goods and services exchange for Bitcoin point And if we just focus on those those first two right the versus mining if you can kind of go into some of the mechanics that go into the calculation of hey you can get this you can get
• 26:11
  access to Bitcoin for below the market rate on the exchange. I think that would be super helpful
• 26:18
  for people to understand and maybe even touch on, you know, how hash rate and Bitcoin price
• 26:25
  play into that? Because I know that that's also a bit of a rabbit hole, right? With the difficulty
• 26:31
  adjustment. So. Yeah. I mean, buying a Bitcoin is easy. You go on to a platform, you pay the money.
• 26:43
  And right now, I think it was this morning, like 78,000, you know, for a Bitcoin. And that's a
• 26:49
  pretty simple purchase. You just go on, you buy it, you own it. If it goes down and you sell,
• 26:58
  you have a loss. If it goes up and you sell, you have a gain. Then you have unrealized gains and
• 27:05
  losses, just like in any investment that you're doing with stocks or bonds. If you're mining a
• 27:13
  Bitcoin, then you have the expenses that go into mining that Bitcoin. And so there's a lot of
• 27:21
  different factors. Like you had mentioned, there's the hash price, which is what we're being paid for
• 27:28
  the hash rate. So when a computer does a calculation, it's a hash. And that accumulation of
• 27:36
  hashes is your hash rate that you're sending to a pool that will be accumulating those.
• 27:43
  And so we get paid based off of hash rate.
• 27:46
  That calculation for hash rate has a lot of factors, but a big one is the price of Bitcoin.
• 27:52
  And also how many people are mining.
• 27:56
  And then, of course, there's the without going too deep down the rabbit hole, there's the difficulty as well.
• 28:02
  So if you've got 10 people mining to make it simple, then there's a difficulty associated with that.
• 28:09
  And there's a block solved every 10 minutes.
• 28:11
  And part of the algorithm of Bitcoin is that there's going to be a block solved every 10 minutes.
• 28:18
  So if then 20 people start mining, then the difficulty gets increased so that it's still solved in 10 minutes.
• 28:28
  It's like that raw computing power that you're putting into solving that equation.
• 28:33
  The the algorithm of Bitcoin takes that in consideration.
• 28:38
  So then you have 100 people that start mining or 100 machines that are mining.
• 28:44
  Difficulty goes up so that that block is solved in 10 minutes.
• 28:49
  So all of those factors come into play, which is the computing side of it.
• 28:57
  And then you've got the actual computer itself, the Bitcoin miner.
• 29:01
  And those have a hash rate associated with them.
• 29:05
  And so, you know, today your average miners are probably, you know, 250 to 500 terahash per second.
• 29:16
  And so they also have a joules per terahash or how much energy that they consume to produce that hash rate.
• 29:26
  So as you're looking at equipment, you have to look at the equipment.
• 29:30
  And if you buy something that's an older piece of equipment that consumes a lot of electricity and has a low hash rate, it could be unprofitable.
• 29:39
  So you plug that thing in and you're losing money.
• 29:42
  Well, it's really that that that entire complex formula that has to be considered.
• 29:52
  So when people come to us and they say, OK, I've got this fiat currency, I want to turn it into digital gold.
• 30:00
  We have to look at all of those factors. How much is your electricity cost?
• 30:04
  How much is your infrastructure cost? What are you going to pay us to run the equipment?
• 30:09
  And then we can recommend the type of equipment, which also, you know, there's the two main types of equipment now are air cooled and hydro,
• 30:20
  where you're running water over the chips to cool them. And air cooled is a cooling method. Hydro is a cooling method.
• 30:27
  And so there's costs associated with each one.
• 30:30
  Usually hydros are a little more expensive, air-cooled or less expensive.
• 30:34
  So all of that has to be factored into the equation so that when you run the mine, you're running it profitably.
• 30:41
  That's the thing that we do really well is we can look at a site, let's say here in Texas.
• 30:48
  And if they're looking at air-cooled miners, it's like, OK, well, if you're down south, you're going to be dealing with a lot of humidity.
• 30:55
  And with an air cool miner, it's harder to control that humidity.
• 30:59
  It's easier with a hydro miner.
• 31:02
  So we'll take that in consideration.
• 31:05
  You know there just there so many different factors in making sure that you got a well run site that profitable And kind of going back to where we started where our guys were our founders were making mistakes
• 31:21
  It's those kinds of mistakes that you start learning.
• 31:23
  Okay, in this area, we need to do this type of setup.
• 31:27
  If we're up in Canada,
• 31:29
  where it is literally this frozen tundra of a place,
• 31:34
  then that's a different type of mining.
• 31:36
  So we've got experience in, you know, hot, humid climates, you know, climates like Canada where it's extremely cold and we're running hydro, we're running air-cooled, we're on-grid, we're off-grid.
• 31:52
  And it's that experience level that helps us to take an investor, understand their goals, and then put together the right formula that makes them the lowest-cost Bitcoin they can get.
• 32:04
  But, you know, and depending on how you set that up, instead of buying a Bitcoin for $78,000, you could mine a Bitcoin for probably half of that if you're really efficient.
• 32:19
  Then you have instant, you know, profit, unrealized profit on your on the upside.
• 32:26
  So if you can mine a Bitcoin for, say, $40,000 and the current value is $78,000, you've got that unrealized return that you can do whatever you want with.
• 32:36
  Yeah, no, it's a very, it's a very interesting arbitrage, assuming you're working with the right partners, right?
• 32:42
  Because like you said, if it, it could go the other way, or you could be mining at the same, like you're putting in all this work to mine at the same cost, which is mainly driven by the electricity cost.
• 32:52
  So, and I know you all do a lot of, you know, you're having to, one of the biggest things you're doing is going and negotiating power contracts.
• 33:01
  I think that's something that, you know, consumers, family offices are probably not super in tune with of like, oh, someone has to go sit down at a, you know, at an office, you know, conference room and say, all right, well, can we get this?
• 33:16
  Can we, can we negotiate here?
• 33:18
  And can we lock in these rates for a certain amount of time?
• 33:21
  So just want to say that out loud.
• 33:23
  I know for a lot of the people who listen to this, obviously, they work with a lot of small business owners.
• 33:29
  I saw on your blog that you're seeing that small business owners are using Bitcoin mining as a treasury strategy.
• 33:36
  And I've even heard one story where a guy with his company was using the mining rewards to then even pay employee benefits out of.
• 33:46
  Just curious to ask, you know, what have you seen out in the wild as creative strategies that small business owners are implementing with the Bitcoin treasury and with mining specifically?
• 34:00
  Yeah, I mean, now our clients don't share their books and how they're doing things.
• 34:06
  That's, you know, their business on their side.
• 34:08
  But there are a lot of different strategies to use a cryptocurrency versus fiat currency.
• 34:18
  And what we've seen with Bitcoin is a continued increase in the value of that asset.
• 34:26
  So it is a very good store of value.
• 34:29
  So if someone has extra cash that they don't want to leave in cash, which depreciates daily, you know, fiat currency is a debt instrument.
• 34:40
  So it's decreasing in value by design. That's what inflation is. It's a it's a decrease in value on a daily basis.
• 34:48
  So if you're holding cash, you're losing money. And if you're an investor or an RIA, you know that. I mean, that's why we invest is to counteract the effect of inflation and also to increase our holdings.
• 35:04
  So taking Bitcoin and using that instead of cash is another way to do it. And it's something that the U.S. government's doing. I mean, you know, Trump came in and was pro Bitcoin. The U.S. government owns Bitcoin and has a plan to continue to buy more Bitcoin.
• 35:25
  it's doing that treasury asset play itself as well as other countries around the world.
• 35:33
  So I think that small businesses are looking at that as an example and saying, oh, we could do the same thing for ourselves.
• 35:39
  Why don't we hold Bitcoin? And then also, like like you said, benefits.
• 35:44
  I mean, there's so many different ways. If you can do it with cash or assets, you could do the same thing with Bitcoin.
• 35:52
  And what Bitcoin has proven is that it's going to outperform cash by far, and it's going to outperform most assets as well.
• 36:04
  One thing I also wanted to ask you about is I think it's really cool that you will have your own internal repair shop.
• 36:14
  You know one of at least what I seen one of the main components in terms of how profitable Bitcoin mining can be you know is around uptime And you know the the lower that uptime leaks down right then you not getting the full you not having the full capacity of your fleet And so maybe just talk through what what does that process look like to try to maintain as high of an uptime as possible How does it practically work with machines having to possibly be shipped or you know shipped up to Alberta from
• 36:52
  Texas or the, or people coming down and working on site on those. I'm just curious to hear a little
• 36:58
  bit more about that. Cause that, that, I think that's so important and cool that you guys do that.
• 37:03
  Yeah. Um, uh, uptime is, is very key. Um, if you buy a piece of equipment and let's say you spend,
• 37:10
  you know, $2,000 on a piece of equipment, you plug it in and it, and something break,
• 37:17
  something breaks on it, it's not mining, it's losing money. There's a $2,000 asset that is
• 37:23
  not producing any income. So, you know, that's a huge negative on the profitability of the whole
• 37:30
  the whole endeavor. So getting those back online as fast as possible is key to profitability.
• 37:41
  So if you've got equipment that breaks and you have to ship it somewhere and they're going to take two to three months to repair it before you get it back and can get it back online and hashing, that's a two to three month window that it's not making money.
• 37:57
  So the things that we do to to mitigate that are like on a site with a bunch of different computers that are all hashing, there's going to be different levels of repairs.
• 38:11
  So one thing that can happen is a fan on the computer itself can go down.
• 38:18
  Fans break all the time.
• 38:20
  So that you don't want to pay to have it shipped to a repair shop to put a new fan on it, to ship it back, to plug it back in.
• 38:30
  We do that swap in real time at the site, pull the fan off, put a fan on.
• 38:35
  So we'll have an inventory of those type of parts like fans or PDUs or, you know, any of the infrastructure that can easily break and easily be repaired.
• 38:49
  We have that on site. So our site technicians are monitoring that on a daily basis.
• 38:56
  So if we can do a repair on site, you know, pull out a fan, replace it, we'll do that.
• 39:01
  If it's a PDU that goes down, we'll pull it off, put another one on. That's it.
• 39:05
  And then we'll stack up PDUs and ship those off to a repair facility to have those repaired in bulk so we can save on shipping costs, things like that.
• 39:15
  There's also usually about three boards inside of one of these miners.
• 39:20
  And each of those boards is full of chips, you know, the ASICs themselves.
• 39:25
  And so if a board goes down, let's say a few chips on a board goes down and that board shuts down, we'll pull a board and put in a new board so that computer never gets pulled.
• 39:40
  It's not being taken down for a lengthy amount of time.
• 39:44
  We're just going to do that repair on site, put a new board in and then get it back up and running.
• 39:49
  And then same thing, we stack those boards up. And then when we get a pallet of control boards that need to be repaired, we'll send those off to the repair center and we'll repair those in bulk.
• 40:01
  So it's really about doing a mix of on-site repairs and then also doing repairs in a timely fashion back at our shop.
• 40:12
  We do have a shop in Canada. We don't have one in the U.S., although we're looking at opening one in the U.S., but we do have the capability to do some repairs on site.
• 40:24
  And some of our larger facilities will bring in a repair tech, put them at the facility and have them repair things there at the site.
• 40:32
  That saves on shipping costs and it ultimately gets the uptime back where it needs to be by getting the computers back in and running as quick as possible.
• 40:43
  Some other strategies are to to have a based off of the type of equipment that you buy.
• 40:51
  We know what the expected failure rate is going to be with some pieces of equipment.
• 40:55
  It could be one to two percent a month. Other pieces of equipment, it could be 10 percent a month.
• 41:00
  So if you are buying equipment and uptime is key, then we'll factor into the equation buying an extra, you know, one to, you know, 5% equipment so that we can then pull a bad piece of equipment, put a brand new one in, and then fix this one.
• 41:21
  And if it needs to go to a shop, it goes to a shop.
• 41:24
  But that maintains the uptime to the highest level while you're doing return.
• 41:30
  are repairs.
• 41:39
  firm built to help our clients find balance between money and meaning. We integrate sound
• 41:44
  money strategies across four distinct personalized services, financial planning, individual wealth
• 41:48
  management, retirement services for SMBs, and Bitcoin financial services. Your prosperity,
• 41:54
  your purpose, intentionally guided at Bacillic Financial. Visit our website at bacillic.io
• 41:59
  to schedule free consultation. Yeah, yeah, yeah. No, that makes sense. So I love that. I think
• 42:06
  that that's so important. And I've seen that out in the wild where if you don't have a trusted
• 42:12
  partner on the repair side, things can really get delayed. And that obviously, like you said,
• 42:17
  that really eats into profitability. Maybe take a take the like a financial advisor or CPA who's
• 42:24
  got high net worth clients that is interested in this, you know, when, where do you see the
• 42:30
  distinction? Well, one, do you see a distinction between what you all do and like a traditional
• 42:36
  hosted mining site? Is there kind of a dollar cutoff that you normally see in like an investment
• 42:42
  size that where it starts to make more sense to live in your all's bucket? Or are they the same
• 42:47
  bucket in general? And then maybe just talk through like what the process looks like.
• 42:53
  If a CPA wanted to say, hey, there's this tax advantaged strategy that we can implement.
• 42:59
  And I'm going to send you over to these guys. Like, what does that process, what does that
• 43:03
  handoff introduction process look like and what happens after? Sorry, I know there's a lot of
• 43:07
  questions in there. I do that too much where I ask like five questions. No, that's okay. I think I got
• 43:11
  it. So we started with the hosting, like a hosting service versus our service. And I think that,
• 43:18
  you know, if you want to invest, let's say $50,000 in Bitcoin mining, your best option is to go to a
• 43:29
  hosting company and they'll have everything set up. They'll have the miners you can buy.
• 43:35
  You give them 50 grand. They assign you, let's call it 10 pieces of equipment and you're mining.
• 43:41
  And that's a pretty easy thing to do. There's nothing difficult about that. Hosting companies
• 43:50
  take care of everything for you and you just invest the money and then they start producing
• 43:56
  Bitcoin for you. That's going to come at a premium because they're doing everything for you.
• 44:02
  So that's how they make money is making it easy. Now, when someone decides, OK, I want to go to a
• 44:09
  bigger scale, let's call it half a million, a million or up. Then they're like, OK, I'm not
• 44:16
  going to pay hosting rates because that's too expensive. I can go buy my own container. I can
• 44:21
  buy my own equipment and I can run it on a site with a company like SustainHash and I can do that
• 44:27
  way cheaper than what a hosting company will do. So if someone comes to us, you know, any customer
• 44:34
  that comes to us, we're going to take care of them. So if they come to us and say, hey, you know,
• 44:38
  we saw you guys on the podcast, we'd love to invest 50 grand. I'm going to put you with a
• 44:42
  trusted partner that we have a referral relationship with that we know are going to take care of you
• 44:48
  and just know that it's going to be a little more expensive than if you did it yourself through a
• 44:54
  group like ours. But to do it with us, you're going to have to have enough money to buy,
• 45:00
  you know, one, two, five, 10 megawatts worth of equipment. If you're going to go to that level,
• 45:06
  if you're really serious about mining, that's where we come in. Then we would have that whole
• 45:12
  conversation about what equipment to buy, where to put it, air-cooled, hydro, on-grid, off-grid,
• 45:19
  you know, what you want to invest in. All of those things would be part of that discussion.
• 45:23
  That's part of our consultation in the beginning. And so for the second half of that question about,
• 45:31
  you know, if you're an investment advisor and a client comes to you and wants to do this,
• 45:37
  then what we normally do is have a conversation with the investment advisor first.
• 45:46
  We explain what we do, how we do it, how the relationship works,
• 45:51
  provide any insight or information that they need to kind of bring their knowledge level up about Bitcoin and mining Then they make an introduction to the client We usually will have a call with the client and the investment advisor at the same time
• 46:08
  These two guys have a trusted relationship.
• 46:11
  We want to be a trusted partner.
• 46:13
  So we'll come in and answer all of the investors questions in front of the investor advisor
• 46:19
  so that he gets those answers as well.
• 46:21
  so that there's more of a trust that's built between all three parties.
• 46:27
  And we invite the investment advisors to stay involved in the process
• 46:32
  as long as them and their client want them to be involved.
• 46:36
  So that, again, we can just build that trust between everybody.
• 46:41
  But then we take that investor and they say, OK, I want to mine Bitcoin.
• 46:46
  I got a bunch of stocks and bonds with my investment advisor,
• 46:49
  but they don't mind Bitcoin.
• 46:51
  So now that's where we come in and we would take them through that whole process.
• 46:55
  What's the amount you want to invest? What's your overall goals?
• 46:59
  And from there, we'll start pairing them up with a site that they could get on, showing them equipment, showing them containers, generators if they're going on gas, introducing them to like an EPC company.
• 47:14
  So a lot of these sites will be greenfield. There'll be a bunch of land and a bunch of electricity.
• 47:19
  Someone needs to come in and flatten the land, put down gravel, build a road so that trucks can get in there, put up a fence, you know, all those kind of things that those companies do.
• 47:32
  It's not what we do. But again, we have several trusted partners in that space that we'll bring in and they'll say, OK, here's what we're going to do for you.
• 47:40
  And they do their piece. And then when it comes to electricity, same thing. We'll need to bring in if it's gas, we'll bring in the gas experts. That's what they do. They'll work on the contracts, testing the gas, all of the regulatory things that need to happen.
• 47:58
  There's companies that do that really well. So we'll bring those guys in. And then, you know, same thing on the equipment. We'll show them all the different equipment options there are, what the math looks like.
• 48:13
  If you buy this piece of equipment with this hash rate, this efficiency, these containers with this electricity cost, here's what your margin is going to be.
• 48:24
  And then ultimately the investor makes the decision.
• 48:27
  They would make the investment.
• 48:29
  We would go set everything up, get it running.
• 48:34
  And then all they have to do from that point is just watch the thing run.
• 48:38
  We send, you know, all of the Bitcoin straight to their their wallet, wherever they want that.
• 48:45
  And they'll have, you know, they have full insight.
• 48:47
  Like our customers are able to talk to the team that's managing.
• 48:52
  So we'll have people on site physically there every day.
• 48:56
  And then we have 24 seven remote support, which is kind of spread around the world so that someone's watching those sites 24 hours a day, seven days a week.
• 49:06
  And then if something happens, they can make adjustments in real time with software.
• 49:11
  And if someone needs to go out in the middle of the night, one of our remote guys will send a message that'll go to a tech.
• 49:17
  That tech will get woken up because he'll be on call and he'll go out in the middle of the night and take care of that site.
• 49:23
  They can watch all of this on cameras like they'll have full axles.
• 49:27
  So they can sit there and watch. Oh, there's a technician working on a piece of equipment.
• 49:31
  They can see what the hash rate is.
• 49:33
  they can see every aspect of the site electronically sitting from wherever they are in the world.
• 49:39
  So it's very transparent what we do. Yeah, no, I love that. I mean, I've seen I've seen the
• 49:44
  the software where you get in here, you're tracking like, okay, this one's this specific
• 49:49
  machine is getting a little too hot, you know, can someone go look at that one. So yeah, the software
• 49:55
  that's out there to track all of it is very, very helpful to one one quick question. And I know that
• 50:00
  this is this can be sometimes a little bit of an issue.
• 50:05
  And that's why I asked the question is, what does the insurance look like?
• 50:10
  Like do you all have a partner on that You kind of have like a out of the box Hey this is how your clients normally insure the machines the site overall I just I curious about that because I seen it where that can be that can just be an issue because insurance companies are not as familiar
• 50:32
  So just curious how you all seen that play out in real time.
• 50:36
  Yeah, there's insurance companies that know mining and ones that don't. So we work with obviously the ones that do understand that. And there's two sides to the insurance. There's the insurance that SustainHash has as an operator so that we're insured for everything that we do on the site.
• 50:56
  So if one of our site techs is driving a telehandler and he's got a load of miners and something happens and they break, that's on our insurance.
• 51:07
  And then the customer themselves will have insurance on their own property.
• 51:14
  So let's say their generator, you know, something happens to that act of God, lightning strike, whatever that goes to their insurance company.
• 51:23
  If they don't know an insurance company that deals in Bitcoin, we'll send them to one because we know those as well. Sometimes they bring their own insurance providers. So it's really just making sure that they know that we have our insurance and that they know that they have their insurance that makes sure that everybody in the equation is covered.
• 51:43
  Okay, I love that. No, I think that's, that's a huge, that's a really big problem solve value add that you are doing there. So I don't think I mean, I know, I've just, there's so many rabbit holes, we could go down, you know, it's a fun, it's really always a fun conversation. I mean, maybe the last thing, you know, we see this a lot, maybe if you want to just touch on the the tax components, I think that that would be a good kind of last question.
• 52:13
  is just make sure that the audience,
• 52:16
  I know that the big, beautiful bill is out there,
• 52:19
  but just making sure the specific situations
• 52:22
  that you all see, whether it's like LPs
• 52:25
  in like a fund that are doing an investment
• 52:28
  or it's just a high net worth individual,
• 52:30
  just curious your thoughts on the tax component
• 52:33
  and how that plays into all of this.
• 52:36
  Yeah, and obviously I'm not a tax attorney.
• 52:41
  We have great ones that we work with. We can always refer you to them. But the easy way to understand it is if you go to a platform and buy a Bitcoin, there's no tax advantage to buying the Bitcoin.
• 52:55
  You've converted one asset like dollar bills into another asset like Bitcoin.
• 53:02
  The tax advantages come in when you are mining Bitcoin.
• 53:06
  So if you go buy a piece of mining equipment, you can write that off 100 percent the first year.
• 53:15
  So you can take that that tax advantage when you buy a container to put the miner in.
• 53:23
  You can write that off on taxes when you pay the electricity to run the miner.
• 53:28
  You can write that off on taxes when you pay our fees to manage the site.
• 53:33
  You can write that off on taxes.
• 53:34
  So you get Bitcoin for substantially less than what you would pay for it because you've mined it. And then you've got the tax advantages on top of that. So there is absolutely no question. It is a complete no brainer. If you're going to go big in Bitcoin, you want to mine versus buy.
• 53:57
  It's it's there's I don't think there's anyone that would honestly argue, oh, you should just go buy Bitcoin because there's there's a better tax play.
• 54:07
  You know, it's it's a pretty easy thing to understand when you start looking at it, you know, at a basic level like that.
• 54:14
  Everything that you do to mine the Bitcoin can be written off of taxes and nothing you can do will help you write off anything when you buy a Bitcoin.
• 54:23
  yeah no 100 i mean we've ever since that bill passed in july of last year you know i think
• 54:30
  it is i mean it just been it been crazy so it a it a it a really good vehicle to acquire Bitcoin and solve another problem that a lot of people have in their life which is you paying too much in taxes
• 54:43
  And then, of course, you're not really sure where all that is going at the end of the day.
• 54:46
  So, yes. All right. It's been exciting to watch.
• 54:51
  Oh, I was just going to add, it's been exciting to watch since Trump was elected.
• 54:56
  And I don't know if you were at the conference in Nashville when he came to speak during the elections and was talking about how he's pro-Bitcoin and all of that.
• 55:07
  As soon as he got elected, we saw the price go up.
• 55:11
  And it's been nothing but a positive since with all the tax benefits and the U.S. government saying, OK, now we're going to get involved in Bitcoin.
• 55:20
  So if you were ever worried about, oh, Bitcoin's a fad or it's going to go away.
• 55:26
  It's not going away. I mean, when you've got BlackRock creating ETFs around Bitcoin, it's not going away.
• 55:33
  The big boys are in now. So the whole idea that we had pre-Trump of maybe it's a fad, maybe it's a bunch of computer geeks just, you know, doing cool stuff.
• 55:45
  that should be out the window. Anyone who really understands now, like we'll see that the price of
• 55:52
  Bitcoin based off of its usage is what makes it go up. And the usage of Bitcoin is doing nothing
• 55:58
  but going up and up and up. So it's definitely sound investment in my humble opinion.
• 56:05
  Yeah. I mean, and the game theory between all the different nation states that have competing
• 56:09
  interest has been very interesting to to watch play out basically any nation state that has
• 56:15
  excess cheap energy and wants to go mine bitcoin well now everyone in the g7 you know of the bricks
• 56:23
  nations everyone has to kind of perk up and say okay well what do we what what's our strategy on
• 56:28
  this and so you kind of just let the uh the free market and human incentives play out and uh yeah
• 56:34
  it's been very interesting to to see the last couple years so yeah well this has been great
• 56:39
  I really appreciate you coming on.
• 56:41
  I know we didn't know each other before this conversation, and I really got to know you
• 56:45
  and really got to know SustainHash.
• 56:47
  So I guess any closing thoughts from your end?
• 56:50
  Any place that if an investment advisor, CPA, attorney wants to get in contact with you,
• 56:56
  where do they go next?
• 56:59
  Yeah, so we can be found at SustainHash.com.
• 57:03
  We're on social media under SustainHash.
• 57:06
  So if you go to LinkedIn and type in sustain hash, you'll find this same thing with, you know, Instagram and other platforms.
• 57:15
  And you can email me directly at Paul at sustain hash dot com.
• 57:22
  And yeah, I mean, we'd we'd love to talk to anybody that has an interest and whether we can help you directly or send you to a partner.
• 57:30
  We'll definitely make sure that you're taken care of. Perfect. All right.
• 57:34
  Well, thanks so much, Paul.
• 57:36
  Really appreciate it.
• 57:36
  Thank you, John.
• 57:37
  I appreciate it.
• 57:38
  Okay.
• 57:39
  All right.
• 57:40
  Talk to y'all soon.
• 57:41
  All right.
• 57:41
  Thank you.
• 57:46
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• 57:48
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• 58:12
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