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Bob Burnett | Sovereign Bitcoin Mining | Simply Bitcoin IRL · Simply Bitcoin

0:04
Hello, everybody. Welcome to another episode of
0:06
Simply Bitcoin IRL. Today we have a very special
0:09
guest. We have Bob Burnett.
0:11
He is the CEO of Barefoot Mining and I believe an investor in
0:16
Ocean, which we're going to talk about as well.
0:18
They threw this amazing event a couple weeks ago, A month ago I
0:22
had the privilege to be able to attend.
0:25
So I'm really excited to talk to Bob about that.
0:27
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0:53
All right, let me bring up Bob. We've crossed paths over these
0:58
last couple weeks many, many times.
1:01
And I'm so happy to have you at my wedding.
1:05
You and and and your wife, who? I, I, I I don't know why I
1:09
didn't, didn't know this, but your wife is also a Bitcoin star
1:14
for anyone who knows anything about the Bitcoin trading cards.
1:19
So how you doing, man? How's life?
1:23
I'm doing great Lola and I were honored and and so happy to be
1:27
at at Aaron Sophie's wedding. That was a was a real treat.
1:31
We're so happy for you guys. So you know that first and
1:35
foremost that's the most important thing right that there
1:38
are very few things bigger than Bitcoin but one of them is
1:40
family. So family and friends you know
1:42
that that comes first Bitcoin comes second.
1:46
So. 100%, Well, no, the honor was truly ours.
1:51
We really, really appreciate you guys coming.
1:55
So, OK, Bob, there there's been so many incredible presentations
2:00
that I've had the privilege to be able to see and attend.
2:04
One of them was at the Ocean event, and that's really when
2:07
you exposed my when you exposed me that you did this incredible
2:11
presentation the first time. The way that you broke it down
2:14
and the way you broke it down is that there's really three types
2:17
of miners, right? There's three subsects.
2:19
There's the the hares, is there the rabbits, there's the horses,
2:24
the wild horses and the captured horses, and then there are the
2:29
elephants. And it was such an interesting
2:32
way of just kind of describing the mining space.
2:38
So for anyone who hasn't seen that presentation, anyone who
2:40
hasn't, you know is isn't familiar with those categories
2:44
In those terms, could you explain to everybody what
2:48
rabbits are, what horses are, and what elephants are?
2:52
Sure. You know the the genesis of of
2:56
coming up with that was as barefoot was kind of getting
3:01
started, we were evolving. There was a point where we had
3:05
to decide what we wanted to be, and most of the mining industry
3:13
is geared toward being big and trying to get big quickly.
3:19
And as I looked at that, I had some concerns.
3:24
They're, they're they're they're best exemplified in an article I
3:28
did called Satoshi's Heel, which is in the Coin magazine.
3:34
But the concept of elephant is very classic, right?
3:38
You, you read press releases frequently about company X or
3:42
company Y. They're building 100 megawatts
3:44
here or 300 megawatts there. These sites, they're big and
3:49
powerful, right? I mean, that's what an elephant
3:52
is. An elephant is a big and
3:53
powerful beast, but they take a long time to grow, right?
3:59
An elephant doesn't grow overnight, so there's a long
4:01
lead time. If if you look at it as a
4:03
business person, you can say, hey, from the moment you start
4:06
deploying capital to the moment that you're start mining,
4:10
there's a big gap. And there's a lot of things in
4:13
the Bitcoin world that can change because these sites might
4:17
take 15 months to develop. The other thing about elephants
4:22
is they're very easy to find, meaning they're very easy to
4:27
hunt. And maybe we'll talk a little
4:29
bit about the Elizabeth Warren, the the Digital Asset Anti Money
4:37
Laundering Act and the attacks coming.
4:39
But but I think it is a lot easier to attack an elephant and
4:44
to hunt them. And because there are fewer of
4:48
them, the ability to hunt them into extinction is probably
4:53
higher. Now on the other end of the
4:55
spectrum, we have the rabbits. The rabbits are, they could
4:58
think of them as the individual miners, the home miners.
5:02
They're the plebs out there. Individually, they may have an S
5:06
17 in their garage or a couple S nineteens out in the shed.
5:12
Individually, they're not very important, but collectively they
5:16
are very important. At least they could be right.
5:20
So if you think about one rabbit in a farmer's field, no big
5:24
deal, right? A a whole bunch of rabbits in a
5:26
farmer's field, that's a big problem, at least for the
5:30
farmer, right? And the other thing about
5:33
rabbits though is if you start hunting rabbits, they can they
5:37
can scatter and hide very quickly.
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So if you if a farmer has 300 rabbits in a field and he goes
5:44
and shoots one, the other 299 are going to hide real quickly
5:50
And so they they're there. On the other end of the
5:54
spectrum, the horses sit in the middle, the horses are the small
5:57
to medium sized commercial operations.
6:00
They might be in kilowatts, like a couple 100 kilowatts to a few
6:05
megawatts. You might see them being a dozen
6:09
servers to several 100 servers, but they're kind of in that
6:12
spot. Done properly, they're scattered
6:16
all over the place. They're also very hard to find.
6:20
They're also typically built in a mobile fashion.
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So unlike the elephants, if if if somebody starts hunting wild
6:28
horses, they can go and hide pretty quickly.
6:33
That, by the way, is what Barefoot decided to do.
6:35
We said, hey, we we want to develop horse class sites.
6:40
That doesn't mean we don't want to have a lot of sites and a lot
6:43
of hash power. It just means we want to have a
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lot of sites we'd rather. One of the things I've said is,
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hey, if you said, Bob, you can have one 100 MW site or you
6:52
could have 52 MW sites, I'll take the 52 MW sites.
6:57
Now a lot of my compatriots at some of the bigger companies
7:00
would say that's insanity. But I I believe wholeheartedly
7:05
that when you factor in all the risk variables and the RO is
7:09
that it's the better, it's the better path.
7:14
Now each of those site sizes can either be captive or wild.
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And I was telling Nikko earlier, when I first started this, I was
7:25
thinking about energy, but I realized later on as it was
7:29
developing that it's not just about energy.
7:33
So. So if we think of a captive
7:35
site, what I mean by a captive site or a captive company is one
7:39
that gets its energy from somebody else.
7:42
It requires the permission of a third party to exist.
7:47
By the way, a very UN Bitcoin thing, like a Bitcoin, a very
7:51
unlike Bitcoin thing. It means that you're not self
7:54
sovereign, right? So you you if you're a captive
7:58
elephant, you have this massive site that is essentially useless
8:02
if somebody else decides to not grant you permission for the
8:06
energy. And you can have all the
8:09
contracts you want and all the affirmations, but really it just
8:13
takes Elizabeth Warren getting one bill through and you're
8:18
you're cooked the Biden energy tax on mining that was attempted
8:23
last spring. It just takes one of those to
8:25
get through. But captive means other things
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too. Captive can mean regulatory
8:30
capture where you have auditors and regulators that oversee what
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you do and have to approve changes in your company.
8:42
You know those are those are also substantive risks.
8:45
So wild mining means hey you you control the energy source,
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you're the one generating the energy and short of somebody
8:56
pointing a gun at your head and saying turn it off, they can't
9:01
be done. And by the way, they have to
9:02
find you to begin with, right. So, but it also means being free
9:08
from as much as possible from the regulators and the auditors.
9:13
So at Barefoot, we choose to be free.
9:17
We we as much as possible we do wild mining.
9:20
We do have some captive, but we love wild mining and we love
9:23
doing it in this horse class site, just kind of stay under
9:27
the radar. And and I was fortunate enough
9:31
to be able to visit one of these sites and it was absolutely
9:35
incredible. It was an old it was a it was a
9:39
an old factory, right, that you guys converted.
9:42
You put a turbine in there. In my memory, I'm, I'm totally
9:47
going to say the story, 'cause I it makes me giddy.
9:51
I had it was Bob, Jimmy Song and Jack Dorsey.
9:55
And you guys are all looking to the turbine.
9:57
And I'm just like looking at you guys looking at this room like
10:00
where this is incredible, Where am I?
10:02
This is, this is so cool. But could you describe the site
10:09
Bob, to everyone because I think they would really, you know,
10:13
it's like yes, this is a wild horse site, but what it what
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does that mean? So could you describe this site?
10:20
Why is it special? The fact that it's completely
10:23
it's not connected to the grid, yeah.
10:27
Yeah, well, I'm first of all, I'm glad you enjoyed that.
10:30
And you know that was a treat to be able to, I'll explain kind of
10:35
how this system works to everybody.
10:37
But you know, it was, it was a it was a lot of fun to be able
10:41
to, you know, I actually took Jack to the to the, you know,
10:45
the top of the the whole system and walked him through and
10:48
explained it to him. And then as you said, we got to
10:51
the bottom where the turbine was actually spinning in the
10:53
generator. And to be able to, you know
10:56
witness it and feel it with with Jack and Jimmy was was pretty
11:00
special for me too. So the the story behind this
11:05
site was several years ago, I guess it was three years ago now
11:11
I was looking for wild energy like what could I do?
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How can I, how can I implement this?
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And through a friend of a friend I found out about this site in
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South Carolina which was a textile mill that had been built
11:24
in 1888 and the textile mill had not worked for 20 plus years.
11:33
I think it was in the year 2000 or 2001 it had shut down.
11:37
What was unique about the textile mill though was you know
11:40
back in that time frame, if you go back 120 years or So what
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you'll find was well there was no electrical grid, right.
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If you wanted electricity or you wanted power actually started
11:50
pre electricity. They first used this system to
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drive like looms as a textile mill.
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So weaving fabric using the the the power of a river.
12:02
And then in the early 1900s it got converted to electricity.
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Well, it it it hadn't worked for a long time.
12:09
It was in great disrepair. However, the dam was still
12:13
working properly and some of the guts were still working
12:18
properly. So it it took some some vision,
12:24
it took some money and it took some blood, sweat and tears.
12:27
But what we did was we rehabilitated that whole
12:30
infrastructure from what's called the head of the dam,
12:33
which is kind of up where the water is, right at the top of
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the dam, down into the powerhouse, which is where the
12:38
generators and the turbines are. And we rebuilt that whole
12:43
infrastructure and then we had an interesting choice.
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And it kind of really goes into this philosophical thing that
12:49
I've talked about a little bit too, which is we had the choice
12:53
that if the facility was producing extra energy, we could
13:01
tie back into the grid and sell that energy back.
13:05
We made the choice to cut that cord though it actually existed.
13:08
And we cut it because we wanted to be wild, we wanted to be free
13:13
and we didn't want to give any regulatory authority the
13:18
possibility of saying you have to redirect your energy, you
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know, because we're in it to mine Bitcoin and and so we're
13:26
probably at certain times for going a little bit of revenue by
13:30
not selling the energy back to the grid.
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But we think that the independence that we gain is a
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lot more important. Gotcha.
13:40
No and and I and I agree and let's and this is perfect, this
13:46
is a great time to talk about this, right.
13:49
Let's talk about essentially the regulatory hostility that has
13:53
been really, really manifesting itself as we get closer to this
14:00
spot ATF and the series of events and Bob cuz we do like a
14:06
Daily News show, we cover these things and we start and we've
14:10
been seeing this from a mile away, just just the the
14:13
strategic moves that you know Elizabeth Warren and Co have
14:18
been making. First the Wall Street Journal
14:20
article that led to the fin CEN not to mention Operation Choke
14:24
.2 point O that's been happening, you know earlier on
14:28
the year Caitlin Long's bank was denied a week after they
14:32
announced the American version of the central bank digital
14:35
currency, the Fed now. So, lots of coincidences, to say
14:38
the least. Not to mention, go ahead.
14:40
Oh. I just said amazing
14:42
coincidences, aren't they? Such coincidences not to mention
14:45
all the reports coming out of the Treasury coming out of the
14:49
White House. In the Presidential Economic
14:52
Report this year, they they dedicated 20 entire pages as to
14:57
making the case why a central bank digital currency is
15:00
necessary, why you need to state for money, and why Bitcoin is a
15:04
bad idea, right, And why central banking is actually a good
15:08
thing. So the writing's been on the
15:10
wall, but it really wasn't until the Wall Street Journal article
15:15
dropped and they were caught red handed, essentially lying.
15:21
Like if the the data was manipulated.
15:23
But you can tell that it was a strategic move.
15:27
If not, I would describe it a surgical move because she just
15:31
went on a media blitz after that.
15:34
And Bob, I swear to God, I remember I we were, we were
15:38
streaming the DOJ press conference of Binance, right?
15:44
And this is when I knew they mentioned the word terrorism 25
15:48
times. And I remember and Opti was like
15:51
listening in it. We were streaming the swan
15:52
spaces and my voice broke and I said they're going to try to ban
15:58
self custody in the United States of America.
16:00
I saw the writing on the wall. And then a week later is when
16:04
you see Jamie Dimon testifying in front of Congress.
16:08
That's when you see Elizabeth Warren, you know, the gathering
16:12
more and more support for this bill.
16:14
She has up to 20 senators now. So when you talk about that
16:18
regulatory risk, it's real and it's coming and it's going to
16:23
intensify because I I think people don't understand what the
16:28
significance is if Bitcoin succeeds.
16:31
This is the separation of money in state after all.
16:33
How did you know that? How did you know that?
16:36
Like from miles away, how did you know that even if you create
16:40
jobs, even if you check all the boxes, even if you support the
16:45
right politicians, how did you know, like on a fundamental
16:48
level, that they're just not going to be OK with this?
16:51
And of course, it's not all of them, but they're not just going
16:54
to be OK with this thing. How did you know that?
16:58
Well, there's there's two reasons.
17:01
The first reason is that he mentioned it.
17:08
We threaten the wealth infrastructure of the world and
17:12
the power infrastructure of the world and they won't go lightly.
17:18
So that's the first reason, but the second.
17:21
I talked about this a little bit in in South Carolina at the
17:25
event and also at Unconfiscatable.
17:27
But one of the things I try to do is look at everything through
17:34
really long term lenses. So I I look at Bitcoin from the
17:42
lens that we want to build a monetary system that will last
17:47
for 1000 years. And so if what you do is you you
17:52
then look at like I look at my company and I look at what I'm
17:57
trying to do is I have to build something that will resist the
18:00
threats over 1000 years well over 1000 year window.
18:04
It's very easy to see that these threats will come.
18:08
It was, it would be impossible for me to say well that that I
18:11
knew that Elizabeth Warren was going to do this in December of
18:15
2023, but I did know with essentially 100% probability
18:20
over an extended period of time this would come.
18:23
So I think that's the big thing. You know bitcoiners, I I don't
18:28
mean to diminish the importance of some of the things that maybe
18:34
are happening happening positively and we have the
18:37
having we have hopefully but hopefully I shouldn't say you
18:41
know who knows I'm not sure but you know we have the ETF coming
18:45
we have these sort of things coming but they're those are
18:48
really short term things. I think what we have to do is
18:52
you know think about where we're going in the long run we have to
18:54
build that immunity. So you know as an older guy I
19:00
know I won't live till the end of Bitcoin I but but what I do
19:04
want to build is to the best of my ability at a personal level,
19:08
a world that that has Bitcoin, that allows my kids and my
19:12
grandkids a chance at a free and fair society and without sound
19:19
money. We don't have that right and and
19:21
if not only sound money but a monetary system that is free and
19:26
uncensored right. I mean those things have to go
19:28
together. I think we forget that sometimes
19:29
we talk about, you know, Bitcoin is not only money, sound money,
19:33
but it is a monetary system and we have to maintain the purity
19:38
of all those things. But you know, at the end of the
19:43
day, the reason I had this was, was because I look at the long
19:48
term. I don't.
19:49
And I don't trust any of those people, by the way, either.
19:53
Yeah, no and and no and and it, excuse me, it's an interesting
19:57
it's you're looking on 1000 year time scale.
20:03
And this is where the conversation about the rabbits
20:07
and the horses and the elephants becomes very, very interesting.
20:10
Because if you look at it, if you zoom out from that
20:14
perspective, the elephants are all going to be captured or
20:18
dead. And you know some of the horses
20:21
are going to be casualties as well.
20:23
The rabbits are always going to do what rabbits do.
20:25
But it's clear to me that the future of Bitcoin mining is wild
20:31
horses, right? And and another thing that gets
20:34
me extremely excited, Bob, and you know, Tarantula is really
20:38
pushing this forward is, you know, and this is this is all
20:42
over the world. This isn't just happening in the
20:44
US, right, where, you know, you go to these like in the middle
20:49
of nowhere oil fields, right? Or gas, you know, gas fields and
20:54
they just have all this bent up, stranded energy.
20:59
It's way too far away from anything for it to be economic
21:02
until Bitcoin. And that's just ready, that's
21:06
just waiting for it to be tapped.
21:08
I see that as a as an industry that hasn't even begun yet.
21:12
Am I wrong to say that? No, you're you're nuts on and
21:17
and it's critical. I again refer to the article I
21:20
wrote, Satoshi's Heel, which illustrates in unlikely
21:24
circumstance where the world becomes all captive elephants
21:30
and then the existential risk that comes from that and the
21:33
mathematics behind that. But we can 100% prevent it
21:37
simply by having some balance in the ecosystem, right?
21:41
So if you think of Bitcoin as a living, breathing thing and you
21:45
know kind of the, especially the mining infrastructure as
21:48
something that must follow that, well, you can't have a in the
21:52
real world you can't have all elephants, right?
21:54
I mean you have to have predators and prey and A and a
21:57
whole chain of of hierarchy in in those animals and the same
22:03
things. And you know, like they'll
22:05
always say like you know if if the nuclear bomb comes and blows
22:10
everything up, you know what lives, it's probably the rats
22:13
and the cockroaches, right? So the rabbits are kind of like
22:16
that. And and I said that I say that
22:19
in the most respectful manner, right?
22:21
Like you got to, you got to preserve them because if if if
22:24
you didn't, then life would cease to exist.
22:30
So actually, I kind of lost my train of thought there.
22:33
Nico. Where?
22:33
Where were we going? We were, we were going, I don't
22:36
know. I'm just so fascinated about the
22:37
conversation. But essentially we were talking
22:40
about this idea that that the future is wild horses.
22:46
That I was, I was, I was theorizing that and I was
22:49
talking about tarantula and the oil fields and all that.
22:53
Yeah. So first is there's this massive
22:56
amount of energy spread all over the world, as you've
22:58
illustrated, and it's stranded gas, it's hydro, it's biomass,
23:03
by the way. That's another big one, whether
23:07
that's waste sites or or human excrement or pig farms or, you
23:14
know, whatever. But there's a whole bunch of
23:18
energy out there that can't practically ever be utilized on
23:24
a on a large scale. There's no way to economically
23:27
ever tie that into the grid. But obviously we provide a
23:30
solution to utilize that energy and it not only makes use of
23:35
that energy but it but it double S as building out this wild
23:40
infrastructure. So you know, as I said in my
23:43
mathematics, we, we, we really need a minimum of 15% of the
23:49
infrastructure as wild, but 30 would be way better.
23:54
And there's a vector right now toward the big elephants, right
24:00
the toward the captive elephants.
24:02
That's not healthy and we're a long way from hitting these
24:07
numbers, but it can creep up pretty quickly, right?
24:11
You know, we could if if we lose 5 or 10% a year, I think most
24:17
people probably understand the power of compounding well, that
24:19
can get away from you very quickly.
24:23
So you know, that's that's my fear.
24:25
That's what we have to build out.
24:26
But there's phenomenal opportunity.
24:29
You know I can say for for us at Barefoot in 2023, we expanded a
24:34
lot to be honest, we did a fair amount of it on grid.
24:37
We had some very easy opportunities.
24:40
So those are those are captured from a grid standpoint, but we
24:44
build them out. But 2024 for us is going to be
24:47
the year of of wild site development.
24:49
So we've got several, several additional sites that we're
24:54
we're working on by the way, it's hard, I mean they don't all
24:58
make it to the finish line like there's a lot of stuff that goes
25:01
wrong. And so you know we'll we'll
25:05
probably start 4 to 8 of them and maybe 50% of them get to the
25:12
finish line next. Year oh wow, I why?
25:15
Why such a like what is it? Is it because like why is the
25:20
number go? Ahead.
25:22
Well, because well when it's hard, I mean that like some of
25:29
it's, it's deals like I'll, I'll talk stranded gas for a minute.
25:33
OK. There's so there's flared gas
25:34
and stranded gas like what what what Tarantula's doing with you
25:38
know, heats us a lot of flared gas stuff, wonderful stuff.
25:42
Right. I, I, I applaud him.
25:45
Let's say stranded gas though, let's say like we've done a lot
25:50
of looking in the Marcellus basin.
25:51
The Marcellus basin is a massive natural gas deposit, West
25:55
Virginia, Pennsylvania and parts of Ohio, OK.
25:58
So there's this massive piece up there.
26:02
We're exploring several deals in that area right now.
26:05
But what what this is, what they constitute, we find somebody who
26:10
has land that sits on top of the natural gas deposit.
26:15
Ideally they already have a well drill and a lot of people have
26:18
done that. However, they may be 20-30 fifty
26:24
miles away from a pipeline. So that piece of never being
26:29
economically able to to to withdraw that gas from the
26:36
ground and get it to an end point is very real right?
26:40
Because to get to a pipeline, it may cost like $1,000,000 a mile
26:46
in piping and infrastructure and they may have to go through 20
26:52
or 50 land owners getting permission, right.
26:55
So it's just it's never going to happen, right.
26:58
So then we come in and we say, hey, let us, let's cut a deal,
27:04
right. So the deal can work one of two
27:10
ways. The deal can be, well, do you
27:13
guys want to own part of the entity that we're developing?
27:16
But most of these are not bitcoiners, right?
27:19
You know, so they said no, I want you to pay me for the gas,
27:22
OK, But we don't want to pay market rate for the gas, right,
27:25
because it it, it's stranded and we're trying to hit a a price
27:29
point. So then, in most of these deals,
27:34
and I I've learned more about this than I ever wanted to know,
27:36
but I'm still not an expert by any means.
27:39
It turns out that when you pull gas out of the ground, even
27:42
though you like this landowner that we're dealing with, he has
27:46
to share that money with a whole bunch of other people who
27:51
essentially his neighbors, he has to share the money with.
27:53
Really. I didn't know that.
27:55
Yeah. So because you know what you're,
27:58
if you think about it, so you think about this big bubble of
28:01
gas underneath, right. So if if one guy sits there and
28:04
pulls all the gas out of the ground and these other guys
28:08
never get any, it's not fair to them.
28:10
So, so the the where these things fall apart is usually not
28:16
the ability to technically implement.
28:19
So it's usually in the deal making stage and something goes
28:24
wrong and it turns out that you so you have to share.
28:29
So there's there's the rights to the gas that's shared and then
28:35
sometimes there's a different person who has what's called the
28:37
surface rights. So then you have to have a a
28:40
lease with them to to do all that sort of stuff.
28:44
And then you have to, you do have to get like it depends on
28:47
where you are and what you're doing, but you may have to get
28:50
an EPA or a state regulator to approve that you're you're not
28:57
doing it in a way that creates an ecological problem.
29:00
Obviously we don't like that if we can get away with it because
29:02
we'd rather them not know we're there, but depends on where we
29:06
are. So.
29:08
So anyway, those are those are some of the the the reasons why
29:12
they don't all make it to the finish line.
29:14
Gotcha. So it's essentially it's the
29:15
human element. The human element that sometimes
29:20
is, is not as dependable, so to speak.
29:23
So OK, so you find this site, right?
29:25
You find this site. What is it?
29:27
And then let's say you know everyone is happy.
29:30
You got the deal signed. What is the next step, right?
29:34
Like how do you build this? You know this this sweet, sweet
29:39
Satoshi generator in the middle of nowhere from scratch.
29:45
Well, in this case like if we take the case of stranded gas,
29:48
if we if we have a site that has an existing well, it's often
29:51
capped the and. And so we, we signed some sort
29:56
of letter of intent or or memorandum of understanding and
30:03
MOU one of these sort of documents that OK, well we're
30:06
locked in now. What we'll do is we'll quickly
30:10
put together a budget, a capital budget and a pro forma like how,
30:15
how, how much, what will it take to operate this site on a
30:19
monthly basis based on the capital we deploy, what you
30:24
know, what machines are we picking, are we picking S 20
30:26
ones or S19KS or S19 XPS or M 30s or whatever it is we pick,
30:32
right. We got to pay for those.
30:34
We've built a fairly sophisticated model to try to
30:37
predict Bitcoin output over an extended period.
30:41
Like all models it it's not perfect but it's pretty good
30:46
because we you know we have to forecast global hash rate, we
30:49
have to forecast the price of Bitcoin.
30:51
All these sort of things have a have a material impact on what
30:56
we're doing and of course fees now are becoming a huge piece of
31:00
that modelling modelling fees and in the minor revenue thing
31:02
is becoming wild. So then what we typically do
31:08
unless we have the funds available at the time to do it
31:12
all ourselves, which is we've we've done a lot of these.
31:15
So we've got our money kind of spread out right now.
31:18
We typically go and we start raising money and we'll bring in
31:23
a group of investors. It's usually a group of three to
31:28
eight people or organizations that fund it.
31:32
And then because we're a horse class site, we're usually trying
31:35
to target like on a wild site we're trying to target maybe a
31:40
four or five month maximum from the time the investment comes in
31:46
to the time that we're producing.
31:48
And you know we we love the six to eight week ones which if all
31:53
the stars align, you know sometimes that will happen.
31:56
We did a couple this year in in under a month, but they were on
31:58
grid, which is a little less complicated, but we did, we did
32:01
them as fast as horse class sites in as fast as four weeks
32:05
this year. That's incredible.
32:07
So the name is so fitting that you you the name Barefoot.
32:11
But like, yes, I love it. It's so cool.
32:14
So Bob, you've said in the past, also fascinating when you talk
32:18
about this, that Bitcoin block space will be the most precious
32:22
real estate in the world. What do you mean by that?
32:26
Yeah, I think people are starting to to to see some
32:31
physical signs of what I've what I've been trying.
32:33
To Yeah, absolutely. But so first of all, if if I can
32:43
hat tip to Satoshi one more time, you can't do that enough,
32:46
right? Satoshi obviously created
32:48
Bitcoin and he created this concept of absolute scarcity,
32:52
which in reality had never existed before.
32:54
And I think the community largely thinks about it as the
32:57
21 million Bitcoin. But there is a second absolute
33:01
scarcity that he created and that's block space.
33:05
Now in one perspective, you can say, well, isn't block space
33:07
infinite every 10 minutes? There's more.
33:09
Yes. However, it is.
33:14
It is not reusable, right. So once block space is created,
33:17
it gets used one time. And it.
33:19
That's it, it and and the. So if you give me any period of
33:23
time, you say, hey Bob, how much, how much block space is
33:27
available in the next week or the next month or the next 10
33:29
years. I can tell you with almost exact
33:32
certainty exactly how much block space there is.
33:36
You know, we know that roughly it's actually just under 10
33:40
minutes is the mean block time of the network, about 9 minutes
33:44
and 49 seconds in the last year. And we know that the block size
33:51
is 4 million weight units. We know that on average right
33:57
now about 3000 transactions are are in the 4 million weight
34:04
units of the block space and and so we can extrapolate and say,
34:10
hey there's about 53,000 blocks per year and and by the way that
34:15
number, the tolerance on that number is probably a couple 100
34:17
either way that's it, 53,000. We know that there's 3000
34:23
transactions per block. Do the math.
34:27
That's about 150 million transactions per year.
34:34
Access to that, those 150 million transactions is shared
34:41
by the 8 billion people of the world and the 330 million
34:46
companies of the world. Now that math alone should
34:53
should tell you that we're headed toward an absolute
34:57
collision, right, of scarcity because there's very little that
35:03
can be done to increase that 150 million.
35:08
You know, now there's some, there's some things like I could
35:10
say, well, if I owe money to two people, instead of doing 2
35:13
transactions, I'm only going to do one right now.
35:16
I might get sloppy with it. I think there will be some
35:20
things I had. I had a little Twitter exchange
35:23
with Rockstar recently about that.
35:25
And you know, there's some faith that the the coders of the world
35:29
will figure out some ways to make transactions more compact
35:31
and all that. But but let's just say even they
35:34
go nuts and they figure out how to get us to 500 million
35:40
transactions on an annual basis. And by the way, that's probably
35:43
a long way off getting to that point.
35:46
If there's 8 billion people in the world and 10% of them start
35:51
living in a Bitcoin world, even even 5% of them, actually that's
35:56
a better number. Let's say 5% of 8 billion people
35:58
is 400 million people. What does that mean?
36:02
That means there's an opportunity for each individual
36:05
of the world to do one base layer interaction per year.
36:09
That's it. Now what about the 330 million
36:13
companies though? So, So you if you see 5% of them
36:18
on that standard, companies are not going to do one Bitcoin
36:21
transaction per year, They're going to do a whole multiple.
36:24
So we have this scarcity situation playing out.
36:31
If you, if you think about scarcity it's it's a greatly
36:37
misunderstood phenomenon because it typically has never truly
36:43
existed. Anything that is in demand has
36:48
almost always had inability for the supply side to respond.
36:53
We talked about that with Bitcoin, you know, frequently,
36:56
but this is true in block space too.
36:58
There really is no way for the block space to respond to an
37:01
increase in demand. So I give this example that I
37:05
think might help people a little bit.
37:07
Imagine there's an apple tree that produces 100 apples per
37:12
day, every day, and there is demand for 95 apples every day
37:20
at some point in time. OK, well, the apples from the
37:25
apple grower are probably really, really cheap, right?
37:29
He's throwing 5 apples away a day.
37:32
The moment 101 people want apples, the price of apples will
37:39
start to skyrocket. It doesn't.
37:42
So. In other words, simply the
37:44
addition of six apples of demand takes it from almost free to now
37:50
being something that is seeing the price go up as soon as you
37:55
have 150 or 200 people wanting apples every day.
38:00
It's stratospheric. So what does that mean?
38:02
It means that scarcity is a non linear function.
38:06
It it it, it means there's exponential explosion in the
38:11
price of that commodity as soon as demand cannot be met by
38:18
supply. I believe for the last year I
38:23
use that 95 apple thing very specifically.
38:26
What we've sat on is a situation where a normal day over the last
38:34
year has been around 95 apples, but we've seen spikes where we
38:39
taste 101 apples of demand. We we're kind of just going
38:43
through one right now. We had one in the spring, we had
38:45
another one I think it was in the late summer where you know
38:48
boom and and So what happened fees didn't go up, you know 50%
38:55
fees went up like 20 * 100 times and that's that scarcity in
39:00
action. And by the way, guys, I mean
39:02
we're still at a point with what well under 1% adoption.
39:07
So that that block space again. And by the way, I believe in
39:16
2024 we will see instead of kind of these peaks and valleys,
39:25
we're just going to hit a steady state where it's expensive and
39:28
then it'll just keep getting more expensive from from there
39:31
forward. I don't really see relief.
39:36
Yeah. And I, you know, and a lot of
39:39
people, they feel certain ways about this.
39:42
And the reason that they feel certain ways about this is first
39:46
of all, the second layer solutions.
39:50
You know, me and Octi just went through this personally where
39:55
we're trying to essentially set up like a lightning back end
39:59
for, you know, for the simply Bitcoin store.
40:01
And you know, I have a start, nine and the whole
40:04
infrastructure, whatever. And I'm a media guy and I have
40:08
two jobs I have to work for. One I have to work for simply, I
40:11
do not have time. Like I can figure it out.
40:13
I can go to my buddy Ben's channel and like, OK, I'm going
40:17
to set up a Lightning wallet, right?
40:19
We're completely sovereign. And I'm going to, you know, it's
40:21
self, it's self custodial, all that stuff.
40:24
But I just don't like, I don't have time for it.
40:26
And I remember I was throwing OCTI and our CEO Winekiss and I
40:32
was like lightning it and I'm going to get murdered, but I'm
40:36
going to say it anyways. Lightning sucks right now.
40:39
It's not easy to use for the average everyday person.
40:43
That's not to say I can't figure it out, it's just it is not a
40:46
turnkey solution right now. So what are your thoughts on 2nd
40:50
layers? Because in my opinion, I think
40:53
they need a lot of work, you know, and and I know Wallet of
40:57
Satoshi did a great job for a long time, but then they got
41:01
freaked out with that DOJ press conference, right.
41:05
So what are your thoughts on second layer solutions from the
41:09
case that you're making? And I completely agree with you.
41:12
I might add, they're necessary. But what are your thoughts on
41:16
them? Well, they are absolutely
41:23
necessary. Bitcoin doesn't work without
41:25
them. Walada Satoshi was a big loss
41:29
for those of us in the USI obviously still have it on my
41:32
phone, but I love that I used it a lot as an individual.
41:37
I think that works. Obviously, at a commercial
41:39
level, if you're trying to set up a company store or something
41:42
that that you know you're going to need, you're going to need
41:45
some something more robust. But I see a massive amount of
41:52
activity. I agree with you that we're not
41:56
there yet. I am a little worried about a
41:58
disjoint here like how how fast because if if my prediction is
42:02
right, let's say that you know by the end of next year
42:05
basically our interactions are are really expensive.
42:11
I mean they're always going to be available but but you're
42:14
going to have to pay for it and we can come back to that a
42:17
little bit and and you know what does the subsidy mean.
42:19
But but whether it's Lightning, Fetty Liquid, we we probably
42:26
need several of these going. We need a massive amount of
42:30
attention. I, you know I said this if I was
42:35
a young person I I had some skills in coding or business
42:40
development or something like that.
42:42
I would jump on lightning like crazy.
42:44
You know, if if somebody's out there looking for a place to
42:47
find their way in the world, you know, jump in, there's there's
42:53
so much opportunity there. But I am worried.
42:57
I am worried a little bit about that disjoint because I think it
43:00
could it could create it won't stop Bitcoin in the long run but
43:07
it could make this next wave of adoption restricted that we we
43:16
scare some people off because that piece isn't ready yet and
43:21
then they look at the fees you know and and I think we also
43:25
have to change some of the this is where it gets hard, right.
43:30
This is maybe where I get where where I get I get slammed.
43:34
Nico you said you get slammed. I it's going to be really
43:38
difficult to say not your keys not your Bitcoin to everybody.
43:42
Now I'm not saying every day to go buy to go buy the BlackRock
43:46
ETF, but you know, we're going to have to find trusted second
43:51
layer solutions for people in custodial.
43:54
Because if you go back to that example, 5% of the world being
44:00
on Bitcoin is 400 million people.
44:02
That is over 2X the current capacity of the network.
44:07
Meaning that at the current, if we had 5% of the world adopting
44:12
Bitcoin at the current level, then once every two years each
44:16
person could do one base layer interaction.
44:21
So that's not going to work obviously, right.
44:23
So something has to give at the second layer.
44:26
Those people that are looking at Bitcoin as more store of value
44:29
that may be finding some sort of trusted custodial solution.
44:33
I know that's somewhat sacrilegious, but I don't know,
44:36
I don't have another answer that may be with a swan or somebody
44:40
like that. I'm a Full disclosure, I'm a
44:42
swan investor as well. So but.
44:45
But you know, hopefully there will be others, not necessarily
44:52
traditional exchanges, but others that we can trust with at
44:56
least some of our stack. But at the end of the day,
45:00
you've pointed out, yeah, a concern.
45:06
And it's it's it's it's not only so it's it's not so like you can
45:13
say it's hypothetical, you can make that argument.
45:16
It's something that I've experienced.
45:19
And then after listening to your presentations and just the way
45:23
that you describe it in terms of the the, the apple example, I
45:27
think it's phenomenal. Yeah, I mean it's obvious, it's
45:31
very obvious where this is going.
45:34
And in look, I, I maybe this sounds very privileged, but I
45:39
don't care paying $100, I don't care paying $100 for my fee if
45:45
if you know, I get you know the benefits of Bitcoin.
45:48
But at the same time, I also acknowledge the fact that that's
45:52
a very, very privileged stance. And I think people have been
45:57
their, their experience of Bitcoin for all these years has
46:00
been, you know, if they really wanted to they can you know buy
46:05
a coffee with it. And I think, you know as we're
46:09
seeing this institutional adoption you they're starting to
46:12
release all these commercials. Wall Street is investing money
46:16
in the marketing of Bitcoin, which is as nuts.
46:19
You know, there could be a reality where you're just priced
46:23
out fee wise and you should definitely be consolidating
46:27
ladies and gentlemen, I got to say that too.
46:31
But but yeah, I mean it, it I, I, I, I could see a lot of
46:37
people react negatively to that in a way.
46:40
They they could say that, you know, Bitcoin is money for the
46:43
privileged elite in a way. And and what would your response
46:47
to that be? You know, you you wish there was
46:53
a a a Bitcoin PR group, right? So that we could work on on
46:58
creating the right messaging and the positioning.
47:01
But I think the answer is the Bitcoin ecosystem, which
47:06
includes all the layer two stuff, is set up to do that.
47:10
But but layer one I I you said it earlier that real estate is
47:18
the most precious real estate in the world.
47:20
It's not real estate that's meant for coffee transactions
47:26
and it's also not meant for people DCA ING, you know, $2.00
47:32
a Bitcoin a day, it it, it is the world's most secure and
47:39
trusted digital network. And that comes with the price I
47:46
I mentioned earlier, subsidy, right.
47:48
So I think most people are probably familiar with the
47:51
subsidy, the block subsidy, which is currently 6 1/4 and
47:54
we're going to celebrate the halving in four months or so.
47:59
And I think a lot of people think about that as a subsidy
48:02
for the miners. But that's a misnomer.
48:06
And in my opinion that the subsidy was a subsidy for all of
48:12
us. It was for all of us as users of
48:15
Bitcoin and and and champions of Bitcoin to use this period of
48:22
time where fees were very low to get comfortable with the base
48:28
layer to be in a position where we can evangelize it but and
48:36
also time for these layer twos to develop.
48:40
So the subsidy is essentially over the otherwise I like to say
48:49
it is the free ride is basically over.
48:51
Now we've had 15 years to interact with the base layer
48:56
whenever we want for essentially free and that's a phenomenal,
49:04
you know that's a phenomenal privilege and now we're at a
49:08
point where you have to pay. It's like anything else.
49:11
You know you you may sign up for a new gym like we're starting
49:16
the new year, right. And so people will go sign up at
49:19
a new gym and they get the first two months at 75% off and then
49:24
you have to pay the full price, right.
49:26
So those are Bitcoin is the same way I think and and so we have
49:31
to look at that. I think it is hard, it's been
49:36
there and available for everybody for 15 years.
49:40
There's a certain reality that people who are late to the game
49:46
will will get less of the benefit of the subsidy because
49:52
they're getting in late. It's just it's just the way it
49:55
is now. You've what you feel badly for.
49:58
Like my my wife Lola, we mentioned, she's from the
50:00
Philippines. Philippines, a country of about
50:02
110 million people, 50% of the population lives on $2.00 a day
50:07
or less. There's several other countries
50:09
in the world like that. It's ideal for Bitcoin.
50:14
They're not adopting it at the rate that we'd like to see.
50:16
In fact Lola and I are hoping to get there this spring and we'll
50:20
do some evangelizing and education in the Philippines
50:24
while we're there. But, but you know, that's that's
50:29
the part that bothers me. But I I don't have an answer for
50:32
it. There's no good answer for it
50:35
other than you hope they get on fast and that that, as you said
50:41
before, that lightning gets there and comes up the curve
50:44
quicker because they're going to really need it.
50:46
Yeah, 100% and and it and that window's closing fast.
50:52
You know and and I we've had the way that you said it, it was, it
50:56
was beautiful. We've had 15 years, right, not
50:59
only cheap fees but 15 years to front run Wall Street.
51:04
You know, we had a bunch of time to front run, you know, the
51:07
first billionaire going absolutely bananas and just you
51:10
know buying it. But that that window is slowly
51:15
closing. You know I think there's been so
51:19
many signs all over the place to to kind of point point to this,
51:24
you know and and I agree. I think 2024 not only fee wise
51:29
but also you know you're no longer front running Wall
51:32
Street. Wall Street's right, right there
51:34
with you right And they're going to want to get a good deal
51:38
right. So anyways, I, I we have about 7
51:42
minutes left Bob, and there's been something really, really
51:46
interesting that you've that you've said in the past and it's
51:50
this scenario, it's this potential scenario in a world of
51:56
only captured elephants and a type of attack that governments
52:01
could do that could governments, nation states, whatever you
52:05
wanna call it that could potentially they could
52:07
potentially do to the Bitcoin network where they control a
52:10
massive amount of the hash rate and then they shut it off all at
52:14
once. So could you describe that
52:17
hypothetical attack just so that, you know, if you're
52:21
looking to get into mining, you know you could be a rabbit right
52:25
now with an S 9, they're they're they're pretty cheap these days.
52:29
So what are your what, what are your thoughts, Bob?
52:32
Yeah, so this is this is something I call Satoshi's heel.
52:37
I want to start by stating that it is #1A situation that we can
52:42
100% avoid simply by having ecosystem diversity and #2.
52:48
Even with that, in any short term window it's a low
52:51
probability. But put your thousand year hat
52:55
on and say, well if this scenario I'm going to talk about
52:59
has let's say a .1% chance in any given year, then over 1000
53:08
year period it's highly likely to happen, right?
53:11
So now the scenario is this. Imagine a world, it's in the
53:16
future. 99% of all the hash rate is with captured elephants, and
53:21
it's let's say it's even been that way for several years.
53:25
The rabbits and the horses have been largely dead for a long
53:28
time. So in other words, there's not
53:30
hash rate sitting on the sidelines.
53:32
There's not S nines collecting dust in somebody's garage.
53:36
We're past that point at the point of a difficulty
53:42
adjustment. The the governments of the world
53:47
at that point, maybe there's only only even one world
53:50
government. In other words, throw away your
53:51
thoughts about the US and China and all that sort of stuff.
53:54
They may not even exist. A coordinated effort shuts down
54:02
all of the captive elephants simultaneously and not just
54:06
simultaneously, but in a calculated manner.
54:08
They do it right at the point of a difficulty adjustment.
54:14
So for those of you not familiar with it, Bitcoin adjusts its
54:17
difficulty every 2016 blocks and it's resets the difficulty with
54:24
the expectation of trying to keep the mean or average block
54:28
time right around the 10 minute mark.
54:31
So however, it's a backward looking system.
54:38
So if what happens is right at the point of a difficulty
54:41
adjustment happening, the algorithm thinks there's all
54:46
this hash right there. But now suddenly it disappears
54:49
and now only 1% of the hash rate remains the the the stealth
54:54
rabbits kind of scattered out all over the world.
54:58
What that would mean was block times instead of being 10
55:01
minutes would now be around 18 hours.
55:05
And additionally, there's really no way outside of a hard fork of
55:10
accelerating the 2016 blocks. So meaning we have to slug
55:16
through 18 hour block times for 2016 blocks.
55:23
If you do that math, you'll find it's just short of four years.
55:27
So what would happen in that case is that Bitcoin would
55:32
essentially ground to halt. It would.
55:34
It would be no base layer interactions.
55:38
After a short period of time, even the layer twos would would
55:43
be impacted because for instance, like in lightning, you
55:46
couldn't open new channels, you couldn't close channels, you
55:49
couldn't splice channels, you couldn't do any of that sort of
55:52
stuff. It would just absolutely halt.
55:54
Now all the Bitcoin was there. Nobody's Bitcoin was stolen.
55:58
The government's wouldn't wouldn't.
56:00
Nobody could really say, well, you you stole my Bitcoin, you
56:03
seize my Bitcoin, you just shut it off and and proved that the
56:09
integrity of the monetary system was now impaired.
56:13
No 51% attack, nothing like that.
56:16
Now let's say we slug through the whole thing, finally get to
56:21
the four year point and feel like OK, well maybe now we can
56:25
get on with things. So the difficulty adjustment
56:28
takes place. There is a a piece in the code
56:32
that says we can only make at most a 4X change in the
56:36
difficulty, but it would it would go down by 75% then block
56:41
times would go I I'm going off the top of my head maybe they
56:44
would get down into the 30 or 40 minute range or something on
56:47
that order now. So reasonable and stuff would
56:50
start to process but what I would do if I were the
56:54
government's is I would then instantly turn all the 99% hash
56:59
rate back on and I would fly through that difficulty
57:03
adjustment. It would take about two days and
57:07
then I would immediately turn it all off again.
57:10
So what it would mean that we would, we would we would go
57:13
through a roughly 88 year period with something on the order of
57:20
4100 blocks being processed or something on that order and
57:25
that's that's it or no, suits me it'd be a little over 6000
57:28
blocks process. But you know I I believe that
57:34
would be the way to impair the network.
57:37
And again, I, I said this is low probability.
57:41
Some people have come at me and been critical like that'll never
57:44
happen, you know, and and this will happen instead and that'll
57:48
happen instead. And they say, well, I I think
57:51
people miss the point that, you know, we have to be vigilant and
57:56
that people that discount these kind of scenarios are people
57:59
that probably are not security experts, they're probably not
58:02
network designers, they're probably not people that
58:06
understand the risks. And so if something is a .1%
58:11
risk in any year, which is what I would put, I would put this
58:13
scenario at. That is an existential risk if
58:18
you're trying to build 1000 year money.
58:22
Actually, it would be attacking the very legitimacy of the
58:28
network, right? It'd be tacking.
58:30
It would be attacking the it's, it's what you said the your
58:35
Bitcoin would be safe. But you're looking at it and be
58:39
like could this really be the world's financial system, You
58:44
know because it's at a halt right now So it'd be attacking
58:48
you know it's reputation as A and a reputational attack is is
58:52
they're they're really, really rough because you can't really
58:55
defend yourself. You can't as Bitcoin's the best
58:58
money in the world. It's like, but it's not it's not
59:00
moving right. So, yeah, so and the final
59:04
question, Bob, so you said that it it's easy to protect against
59:07
this. What would you recommend?
59:09
What would you say? How does the Bitcoin network
59:13
protects itself from this type of potential future scenario?
59:20
Well, there are several things I think each individual can do.
59:24
The first thing is if you have even a remote capability of
59:29
operating a mining system yourself at even borderline
59:32
profitability or maybe a slight loss, consider doing it for the
59:36
network. We need, the rabbits.
59:39
If you can support at a little larger financial thing, if you
59:43
can support whether it's a barefoot project or some other
59:47
company out there trying to do something similar, you know, God
59:51
bless you and do that. I would also say a lot of people
59:57
invest in the stocks of the companies building the captive
1:00:03
elephants. So ask yourself if you really
1:00:09
support what they're doing. Nico and I offline before the
1:00:13
the meeting started. We were talking at a personal
1:00:17
level and you know, I said you know, for me.
1:00:22
My family comes first. My family and my close friends
1:00:24
come first. They're the most important thing
1:00:26
in my life. I'll make every decision in my
1:00:29
life to make sure that harm doesn't come to them.
1:00:33
The second most important thing in my life is, is Bitcoin.
1:00:38
And so if my actions at a personal level or a business
1:00:41
level do something that jeopardizes Bitcoin, I don't do
1:00:45
it. And and so if you're really a
1:00:50
bitcoiner, if you really believe you know, I guess consider where
1:00:53
is Bitcoin in your personal hierarchy when you make your
1:00:57
decisions. Because, for instance, I'm not
1:00:59
telling you to buy stock or not buy stock in a public mining
1:01:02
company. But if you do, you are giving
1:01:06
them power to build more captive elephants and you're supporting
1:01:13
that behavior set. So you know make your own
1:01:19
decision, it's it's fine. But but you know, be careful and
1:01:25
I would say you know very much watch these metrics of how much
1:01:29
hash rate we really think is in the hands of the big guys.
1:01:33
Yeah, 100%. And I just want to end it with
1:01:36
this comment. The recycling guy says it's our
1:01:39
network to safeguard and pass down well, said Burnett.
1:01:44
So, yes, I think it's very, very fitting.
1:01:47
Bob, always an honor to have you on the show.
1:01:50
Thank you so much for coming on tonight.
1:01:52
I really, really enjoyed this conversation and I'll be seeing
1:01:56
you in Naples in a couple weeks in person.
1:01:58
So looking forward to that. Yes.
1:01:59
All right. Thank you, Nico.
1:02:01
Thanks, Bob. All right guys, I hope you
1:02:03
enjoyed enjoyed another episode of Simply Bitcoin IRL.
1:02:06
We'll be back with the live show tomorrow, 12:15 PM Eastern
1:02:09
Standard Time, for another episode of Simply Bitcoin Live.
1:02:11
But until then, peace out everybody.
1:02:13
Have a great evening.