Weekend Bonus: Crypto IRL, Episode 3 with Tim and Katie

slash qt or check it out on YouTube. You hate talking about bitcoin and energy? Why? I just feel like you have two sides. They have their opinions, they're very entrenched opinions, neither side are going to change, and because of that, it becomes just very heated and emotional, very very quickly. I don't I mean that sounds like good content. It's just it's like watching a presidential debate, like maybe there's going to be some singers or like some viral moments,

but it doesn't feel like we're actually discussing. So you think nobody changes their mind? I don't think so. Okay, we're gonna try to We're not gonna try to necessarily change anyone's mind today, but I want to give everyone all the information that they need to sort of understand bitcoin and energy. Bitcoin uses a lot of energy. Experts

say crypto uses more power each year than Argentina. The energy it takes to process one single Bitcoin transaction could power the typical American home for more than fifty days. Bitcoin is so energy intensive because it relies on miners high powered computers that process transactions. These attempts to solve really complex problems and then get rewarded in the form of bitcoin when they succeed, and more computers are trying to do this. The amount of computing power needed to

process transactions hit a record earlier this year. Miners are trying to lower their carbon footprint by using renewables, but the share of renewables used to power bitcoins network actually fell between. All of this is happening at a time when the world is seeing one of its works of energy crisis in decades, and it raises quite a few big questions. Is there an eco friendly way to power crypto, and perhaps even more importantly, should energy even be going

to crypto? While the world struggles to keep the lights on at it's good to see you, thanks for joining us. So it's not really in dispute that crypto uses a lot of energy, that bitcoin uses a lot of energy. I think that the dispute the argument is that it's not worth it to use a finite resource for something like cryptocurrency. But what would you say to somebody who says, no, I believe in the promise of crypto, and it is worth it for for us to actually spend a finite

resource like energy mining it and on maintaining it. I would indeed agree that if any amount of energy is being spent, you always have to look at what do you ultimately get back from that. And the thing is, when we look at the Bitcoin network, we know that is it is a digital currency, a payment system, and we also know that it is a payment system that is currently handling about one million transactions a year. So that means that it's actually not handling more than a

handful of transactions per second. And that's it, which is completely negligible if you look at it from a regular oral the finance perspective, because the traditional financial institutions are responsible for handling more than seven hundred billion digital payments every year, and that amount is still growing, So I mean, that's an amazing stat But to be totally honest, part of the reason I don't like having conversations about energy is because and bitcoin and cryptos energy uses because on

both sides, it sort of devolves into a toxic conversation, is what I've found. And I found that there's a lot of bad faith arguments on both sides. And I know that you're deeply rooted in the numbers, in the actual facts, but what's your best sense about why people get so emotional over these numbers. Well, it's not that

hard to see why that is the case. We see that a lot of people have invested money in bitcoin, and we see that this type of data reflects extremely poorly on bitcoin, and well, actually to the extent where we see that China took action to completely banned cryptocurrency mining from their country in the spring of the European Union almost banned bitcoin trading in the EU a few months ago, and actually the White House just released a

report that also recommended considered potentially eliminating cryptocurrency mining. So, of course, with a lot of people having invested in this, they definitely won't like this whole discussion, definitely and certainly not if that's going to resolve in outright bands. It's hard to have a conversation about energy and cryptos use

of energy without talking about the ethereum merge. Of course, the transition from that blockchain from proof of work to proof of stake, which of course is much less energy intensive. Could that be the green solution for the industry broadly

beyond just ethereum? Well, I think so. I mean, if if you run on proof of steak or well, I must say it's not the only alternative to the process that is responsible for so much energy consumption in bitcoin, but it is definitely the most popular alternative in any case. Let me just say, if you make use of proof for steak, you can probably get away where using something like ten thousand times less power than you would need

if you were to run on proof of work. So just changing that part of the software can lead to incredible energy savings. And we see that there are many cryptocurrencies already available in the market that are running on proof of steak and have been running on poof for steake for years. So if yeah, if if if you do that, and if that becomes the standard for the industry, Uh, then a big part or well almost the entirety of

the energy consumption we're talking about could be solved. Alex de Vreese, thank you so much for joining us, Very welcome. If if I can say one thing, is I I have we talked about poof for stake, but we didn't really bother to explain anything. Have we just mentioned that it could save a lot of energy? Is that something you might want to spend a few extra words on, like why is it even possible to save so much

energy if you do that? But it's a bit of a lengthy explanation and maybe two technical but it can it be in thirty seconds? Do you think, like in a in a way that's digestible for normal people in thirty seconds? Well, um, digestible maybe thirty seconds challenging. Challenging, Well, when you have it scripted by a Bloomberg journalist and thrown in a teleprapter, it's actually atty easy. So in under thirty seconds, here's the difference in proof of work.

Super Powerful computers owned by miners compete to be the first to unlock a cryptographic puzzle. After multiple attempts using up lots of energy, one miner solves the puzzle. If their first they get a token and a transaction is recorded. Proof of State dispenses with the problem solving, removing excessive energy use. Instead, transactions are approved by participants who put up coins. Is guarantees of their work, and if that work is validated, you get a reward. If it isn't

you don't see it wasn't so hard. Zach Bradford, CEO and president of clean Spark with us Now in studio. What's interesting about clean Spark is it sounds a little bit like an oxymoron, a sustainable bitcoin mining operation. What does that actually mean in practice? How do you fulfill that sustainable check mark? Our focus on sustainability really comes down to you know, bualth sustainable energy, but also sustainable business practice is and how we interact with the community.

So for us, you know, energy is a big deal around bitcoin. We approach it with the acknowledgement that energy is a feature and not a flaw. And you know, we focus on sustainably interacting with the grid, but also we use about carbon free power with a goal of ultimately getting to at some point in the future. Um, but it takes time. We think that being part of the transition is what what matters, you know, getting from point A to point B. And in a sustainable process.

What is carbon free power? So carbon free power can come in many forms. It can be solar, it can be wind. We actually use a lot of nuclear energy which puts off no carbon into the atmosphere, so that those are kind of the cornerstone of the energy sources with that we use. Do also tell us about the role of carbon offsets because I know that there are a lot of miners who do use carbon offsets. How much of that is part of your business model? Very little?

So again we we focus on the source. So we're only using about ten of the power has any sort of carbon offput right now? Um, it can be a strategy, right, but not all renewable energy credits or carbon offsets or created equal. Right. So anything that we do we try and you know, go through a mechanism that results in new solar generation being added to the grid. So that's that that's the only one that we've participated in. Right now, do you buy power that is carbon free or are

you actually generating it? Yourself. We're buying power, so so you don't have your own solar arrays or anything not right now, we don't. We are adding a solar ray to one of our facilities in the near future, but it will still just be part of what it is. So we we connect directly to the grid in the

areas we operating. I want to get existential a question that I have about the bitcoin mining industry because there's a lot of pressure on the entire industry right now, and then you layer on the need or the push to become sustainable. It feels like it's fallen way down the priority list because there's a lot of miners who are just trying to stay in business right now and in this path to a sustainable, a green bitcoin mining future,

how much has that timeline been pushed out? You know, I think it's actually been shortened in some ways, um, because it's actually getting more important. You know, some of the conversations are actually leading to quicker change, so you know, depending on how you pull the industry. But it's estimated about six the power used by the industry is already renewable or carbon free UM. Now, that still leaves a

big gap to close. But if you were to compare it to any other industry, we're actually doing a lot better in most cases. What would you say to someone who says, Okay, electricity is still a finite resource, even if we're getting it from renewable sources, and they just don't think it's a good use of energy to be mining crypto. They would rather that energy be used for keeping the lights on or running air conditioning in hot places. I would say, you know, look at the regions that

miners are operating in. UM miners focus on finding cheap power. It's part of our strategy, right and you know, we operate a lot in Georgia where there's actually abundant power. So would I say it would be a good use to come into California, which has a very you know, the grid is unstable and under a lot of stress

and open up bitcoin mine. Probably not. But ultimately, if you do it in Georgia or a few other places like that where there is abundant energy, we're actually focusing on using the underutilized resources that do exist and then adding to the generation. So again you have to think of it as a transition about what we can add. I have a series of simple questions. If we can go there, let's talk about the ethere emerged um the

switch from proof of work to proof of steak. We've all seen the headlines that it cuts ethereum's power usage down or something. Why can't bitcoin just go to proof of steak? It seems like a pretty easy solution. Well, I would point to again, proof of work is and the energy uses is a feature and not a flaw. Um Again, proof of work. What is bitcoin? You know, there is no CEO of bitcoin. It's fully decentralized, and really proof of work is the really the only good

way to truly secure a blockchain without an overseer. And that has value because bitcoin is used worldwide as a currency without you know, somebody changing the mechanism. What creates that value is Ultimately, there's only going to be twenty one million bitcoin. Ever, so somebody can't just decide tomorrow, hey there's gonna be forty million. It's kind of like, you know, we're all experiencing what the Fed is doing right now to kind of pull back from inflationary you know,

money printing. That won't happen in bitcoin. But that reminds me of another simple question I have one million bitcoin will ever only be mind we're at nineteen million now. I believe what happens to the miners when we get to twenty one million. They will essentially live off of very small fees. So think of Visa, master cardamic. These are all companies that are very large and function very well and actually very small incremental fees. That's what will happen.

But you know that doesn't happen until so every four years there's a halfing. So basically the reward right now gets cut in half every four years. So even though you say, oh, there's only two million left, how do we get to where it's a hundred and twenty years before the reward runs out? By that time, the expectation is that the bitcoin essentially truly functions the worldwide currency, and the small fractional t action fees can be support all miners even started planning for that. Yet we have

not started planning. Twenty years from now, we're still talking about bitcoin. Yeah exactly, you know which is and everybody will be using bitcoin there. So this special audio only episode of Crypto I r L will be right back with more from Katie Greifeld and Tim Stanovic. If you want the full video experience, head to Bloomberg dot com slash qt. If we think about crypto mining compared to mining of natural resources, a lot of the competitive advantage

has to do with location. So you know, de Beers has rate access to diamonds, and Rio Tinto perhaps in the US has great access to copper, whether or not they can get it's a different story. Um, what's the competitive advantage for a bitcoin minor for for your company? Yeah, and it is partially location, right. So for example, we have four facilities in Georgia, and the reason we chose

are the ones you guys recently bought. Yeah, yeah, we've we've we've had you know, we've been operating in Georgia. We recently did buy two more. Um and these areas where we're at is we're kind of on grid edge areas, areas where there's actually excess infrastructure, excess energy that's not being used. And because they used to be a factory or something like that. So yes, it allows us to

get good rates on power. But we're also bringing back to communities, Um, you know, workforces factories that used to be there closed, so we have a workforce that's ready to go. We have energy that's ready to go and lower rates. But couldn't any minor do that? Yes, you know, absolutely, And to the point that you recently made a few acquisitions. When you broaden out and look at the broader industry in this moment where we've gone through a pig downturn,

would you expect more consolidation between some of these miners. Absolutely, you know for us, we we saw it as a big opportunity. But you had to have a healthy balance sheet, you had to not be over leverage, you had to be ready for this, you know, downturn. Um. It's something that we've been preparing for for a long time, and so the miners and we're not the only one the miners that have prepared. There's definitely gonna be some consolidation

in the space. Can you explain his kitty? And I've talked about this a lot, and I don't know if anyone really has been able to answer this for us. When we think about mining, if we if we take it back to like pulling you know, natural resources out of the ground, that's clear to understand how somebody gets gold or or oil or copper out of the ground. Bitcoin miners don't just find new bitcoin. They also help keep the bitcoin network running. Yes, can you explain the

difference between like discovering new bitcoin versus maintenance on the network. Yeah. So really, what we're doing all the time is we're processing data. So you know, we have tens of thousands of computers processing data. And what that data ultimately is is it's you know, locked by a cryptographic key, and that's what our machines are trying to guess and so they're putting in all this effort to do that. But ultimately, when you get a block, so what is the block?

The block is the ledger of all the transactions that got recorded. So if you know, you sent bitcoin to your rather whatever it may be, right, that ledger has to then be compared to all the ledgers before it, and so all of this work is going in to make sure that it's secure and that block doesn't get placed without verifying everything behind it, and if there's an error, then the block doesn't get placed. You also don't get

the reward. Do you actually need to be on the grid, Like, couldn't you find a spot in the Mojave desert that during the day it's hot and it's sunny and it provides solar power, and then at night it's windy, so you can get wind power. So you could, you know, in a perfect world, be run seven. Couldn't you just be self sustained? Absolutely, you could, and but I would I would also argue that then you're providing your own

benefit with that energy, right. I think that there's true and this is how we've always set up the company. There's true ancillary benefits to the grid that provide value. We actually operated out of California for the first six years of our business, not as a cryptocurrency mining company, but as a renewable energy company. That's how we got into the space. And what we found is the interaction with the grid was incredibly important, so we had software

that would do that. And as scale, though, you start to run into these interesting issues to where you know, renewables going onto the grid at the wrong times of the day is actually causing a problem for California. There's too much power hitting the grid. Um, well, the and is shining and everybody's at work and they're not using

all their power at their home. Then they go home at night, the sun goes down, they turn their TV on, they turned their A C. On Yeah, whatever they may be doing, and now there's not enough energy at that moment. So it was about balancing the time the energy is available and not available, and so you know, really interacting

with the grid. We see it's important because if we do a behind the grid project or behind the meter project where we're self generating wind and solar, yes, it means that we're only using renewables and we're not impacting the grid, but it means we're not helping the grid. So it's definitely one way to do it, um, but it's it's not the way that we've approached it because we want to drive change at the entire grid level. We really think that our sustainable strategy should provide a

benefit to everyone around us. So convince me who you know, for the sake of argument, just a total crypto skeptic, that we shouldn't be spending an energy on cryptocurrency, that it should all go toward, you know, actually essential things that we need power for, like this lightboard behind me that probably doesn't use much energy because it's led, but

you get the idea. Yeah, I would. I would point to the fact that that energy that we're using is generally already available, but it's no one's using it, and so you think of you know, I'm gonna point to you know, uh, one of the communities we operate in kay they have a goal to transition off of coal and they're in the process of doing so. Where this is in Georgia, Um, it's actually in College Park. It is the same city that serves the Jackson Heartsfield Airport.

We operate there and we are working with them to help them transition away from any reliance, right and this has been a multi year strategy for them. It's not that there isn't enough power, and I think that that's a mindset that that we we can change is power is abundant, it's around us. It's about how it's harnessed and if we're there to pay for it all the time. We can help support grid infrastructure, which in this country

we need to invest a lot in grid infrastructure. But why do you have to be mining bitcoin to do that? I guess, I guess what I'm still not hearing is like the argument about is the argument? And this is the argument that totally bothers you. I think of, like why bitcoin should exist? Well, let me ask what else? What is it going to be used for and how if I'm gonna put myself as the utility now right when you know, in Georgia it's been a hot summer.

When the power prices are peaking, that also means demand is peaking. We shut off we you know, all that power goes back into the community. UM. We can actually help reduce power rates in communities because being a large buyer, if it's not being purchased when you know it's off peak, then that means that they have to take those dollars and they have to put them back into the community somewhere, right. And so we're we're actually able to do all of

those things. So we're really providing a grid's service in addition to everything else. So the question is why bitcoin, I would say, point to another UM asset or another business that's willing to do that, come on the grid, off the grid and really interact in a way that balances both you know, the grid and the power itself,

but also balances the monetary system behind utilities. And you can't find one, you know, if you're a regular data center right now, UM, which which is a whole other conversation, but you have to be there all the time. You can't just shut down because there goes somebody's website, right, or there goes somebody's backup system. Um. You know something that we're not talking about just pointing to data centers,

is you know why why data centers? Why can Why is it okay to you know, host hundreds of megawatts of selfies of power all the time and set up in a system that cannot interact with Yeah, I know the people need my content, true, Yeah, yeah, Tim, I think I made it pretty clear that I did not want to talk about energy. You really did not want to do that episode. I actually got a lot out of it. Good. That's the idea, so much so that I believe we're going to do a whole another episode

on it. All right, let's do it, Okay. I want to see these episodes of Crypto I r L in video. Check them out on Bloomberg Quicktake at Bloomberg dot com, slash qt, or find Katie and Tim Over on YouTube on the next episode of Bloomberg Crypto. If you worked at a gaming studio in or around say, October, you might have been part of discussions about blockchain gaming or n f T s in gaming or some combination of

those things. It even looked for a while like major game developers, we're going to try to make in game non fungible tokens a whole thing. So what's happening with that a year later, Well, there's been a vibe shift. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from iHeart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you

get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net or find us on Twitter. We're at Crypto. The supervising producer of Bloomberg Crypto is Vicky Verglina. Our senior producer is Janet Babin. Our producers are Mohammed Faruke and Sharon Barriro. Our associate producers are Ty Butler and Moses on Them. Death to Wonder At is our engineer. Original music by Leo Sidron. I'm Stacy, Marie Ishmael. Have a great weekend. M