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Hello, everyone. Welcome to this week’s edition of American Consequences. I am Trish Regan. And if you have been reading my writing in americanconsequences.com recently, you will know how much a believer I am in the future of our economy, our digital economy… Because our digital economy is about to undergo some massive changes, and there are going to be some massive opportunities for everyday Americans. Some people call it the “Web 3.0,” some people call it the “metaverse.” Whatever you want to call it, the Internet, as we know it, is about to change. And this is happening as we speak. Virtual reality is going to become the norm. I’ve written about Roblox, for example, and how I first got interested in all of this because my kids were playing Roblox during COVID. And I went on to this program and saw this whole world that was out there.
And it’s not yet in 3D, but that’s what’s coming. Can you imagine a 3D experience? And not just for video games, I’m talking about everything. I’m talking about going and seeing someone, doing a company meeting. And forget Zoom, it’s going to be your sort of “Beam me up, Scotty,” Avatar, à la Star Trek-style, going and having these meetings. I mean, this is just a tremendous future ahead. And a big part of this future is going to involve blockchain technology, NFTs, and the currency, if you would, or the store of value of the future, which is bitcoin. So I wanted to take some time today to really drill down into what bitcoin is, how it gets mined, what the future of this will be.
And so I’m thrilled. I have on the program today with me, a gentleman who has been around bitcoin for some time going all the way back to the days of 2012, 2013, back when I first became interested in it. He was a former professional poker player and computer scientist who wound up just being fascinated by everything that bitcoin could offer for our future. He now is the CEO of one of the largest bitcoin mining companies in the world. I am so thrilled to have with me here today to talk all about this for the next hour, Jason Les, the CEO of Riot Blockchain. Welcome Jason.
Jason Les: Thank you for having me. Yeah, happy to come on and talk about the industry, a very exciting time.
Trish Regan: It is an exciting time. It’s fascinating. I’ve been writing a lot on the power of, I guess you could call it Web 3.0 or the metaverse or sort of this next leg, right? In the Internet. And the power of things like bitcoin in other cryptocurrencies, NFTs, all of this that I think is going to play such an important role in our future. And I know obviously, given your involvement in the company, you’re a big believer in that. I want to get to that, but first let’s start with sort of how you got turned on, if you would, to bitcoin. It’s my understanding you’ve kind of been around this space since 2013?
Jason Les: Yeah. So I heard about bitcoin very early on. Like most people, my origin story at bitcoin as I heard about it and then didn’t buy it soon enough. I think everyone kind of has a similar story and regret about getting in sooner. But yeah, I have been involved in a long time. My background actually was playing professional poker. I was one of the top players at Heads-up No-Limit Hold’em for over a decade. And it was through that world that I first discovered bitcoin. People were using bitcoin to send money all over the world because poker is a very international business.
And just by using it, I became very interested in the technology. I started to grasp and really consuming the implications that this would have on the entire world, as it gave people the opportunity to completely rethink how they viewed money and store value. And eventually, I just became so interested that I did not want to do anything except focus on bitcoin. I didn’t even have aspirations to work in the industry. I just wanted to spend full-time studying bitcoin and doing mining and software engineering relative to bitcoin. And my expertise just kind of built and built from there. And that’s how I eventually found myself working for Riot.
Trish Regan: Well, and we should point out to the listeners, that is your background. I mean, you had a bachelor’s in computer science from UC Irvine. So it makes sense, I guess, that you would gravitate to this space, although the pokers, that’s a great connection. I love that. And it’s interesting that people were using it way back then. But you had sort of a background that I think probably made you naturally inclined to want to know more about this?
Jason Les: Yeah. That’s exactly how it played out for me. My kind of roots in computer science came back. That’s something I’ve been involved with my entire life. And so I became very interested in how bitcoin worked at a very core level. And it was that understanding that made me feel so excited and comfortable with my investment. I understood the technical properties that drove the security. I understood how mining worked. I understood how that was so important. So coming from that background, yeah, it really helped me understand bitcoin and jumpstarted my interest in the industry.
Trish Regan: The other thing that I think is fascinating is your interest in artificial intelligence and what you had been doing in the poker world that was related to artificial intelligence, because I would think that that also helped prime you for this mining business, where you’ve got to have these really sophisticated algorithms to mine this stuff. And that’s a kind of, if you would, I think, artificial intelligence. Is there a correlation there between all that?
Jason Les: Well, there’s a correlation in just being involved in something that’s new and exciting. So yeah, my work in artificial intelligence was another thing that was kind of bringing my background in computer science and then my work in poker together. I participated in – In 2015 and 2017, Carnegie Mellon University had two challenges after they believed they had developed poker-playing artificial intelligence that could be better than the best humans in the world. So I was selected to be the human benchmark for those challenges. Kind of like Deep Blue, Garry Kasparov-style kind of thing. And through that, we were successful in 2015 and then the AI defeated the humans in 2017. So that got me interested in that space trying to combine two passions to building software that looked at how to play poker and help people play poker better using artificial intelligence. I think that was more of a stepping stone in my career but got me learning a lot about developing new technologies like what bitcoin mining is.
Trish Regan: Well, I just think it’s a fascinating, really, really interesting background. And I’ve learned a little bit about poker over the years in part from a documentary I did years ago at Bloomberg Television on Las Vegas. And then we had a really fascinating poker game that we put on with some of the world’s biggest hedge fund investors like David Einhorn. Oh, there were just a bunch of them, Jim Chanos. And they all, it turns out, loved poker. And so we did this, we filmed this little poker. I can’t remember who won actually. Maybe it was Chanos. I got to go back and look at that. But it got me a little bit more acquainted with poker. So I appreciate all that goes into playing the game and the intelligence it takes.
The other thing around that time that I started to learn about myself as well as bitcoin, not through poker, but because I met a fellow who ran a nightclub. It was the first nightclub. I read about it in the paper and called them up, that was going to take bitcoin for beers basically, or drinks, right? Like they were opening Saturday night and they were going to have a bitcoin wallet. It was BitInstant, I think was the name of the company. And unfortunately, he wound up doing time because the feds were, I mean, especially in those early days, right, they were like all over this. And he’s out, I believe now, and has been an active speaker on the bitcoin circuit, but he was one of those sort of pioneers in that space. And I remember first learning about it there as that nightclub was taking this quote-unquote “currency.” And I thought, “Wow.” I mean, it’s incredible the potential, but like you, I wish I had invested back then because I think it was like a hundred bucks.
Jason Les: Oh, yeah. I was putting the timeline together in my head. I was like, you’re talking about BitInstant, that’s 2012 era. Yeah, you’re talking about bitcoin in the double digit.
Trish Regan: I know, but I feel very proud. I guess I should be proud and ashamed. I was proud that I was there. I knew enough to say, “This is a big deal. I’m going to hustle down there.” It might have been a Saturday or Sunday rainy night. I got my team out on the weekend. I said, “We got to be with camera crews.” I recorded this whole thing. I knew it was a big story, but I clearly didn’t know enough to actually buy it back then. Anyway, fast forward, just looking at these astronomical valuations. I mean, the valuations to me are sort of tough because it’s like what is it really worth. To me, I love the idea of it. I’ve always loved the idea of it. I think it will play a prominent role in our future whether or not it becomes a hard currency that you can kind of just exchange back and forth and not worry about whether it’s going to go up 10, 30%, or down 20% the next day. I don’t know as we’re quite there, but gimme your sense of whether this ever becomes a quote-unquote “currency”?
Jason Les: Well, to me, bitcoin is more interesting from a store value than a currency. I think a lot of people are interested in bitcoin because it has this limited supply, especially in an era when inflation is so rampant, prices get out of control, market discovery of pricing is all out of whack. I think people look to sound money like bitcoin as a more safe haven for storing value. So that’s personally how I’m the most interested in bitcoin. But I think currency is the second order of that as the store-of-value adoption takes off then people want to use that to spend money, buy things. And it’s been really exciting to see over the past few years, the innovation that’s occurred within bitcoin to make payments easier, cheaper, and quicker. Bitcoin is historically honestly been a little tough to use to capture the full properties.
It’s very easy to buy bitcoin on an exchange and hold it there. That isn’t exactly using bitcoin because when you start using a wallet, when you start transacting around, that is a whole new experience. And that’s when you’re really truly taking your money in your own hands, and you have sovereign control over your wealth. So because bitcoin offers that user experience, it has been admittedly a little tough to use in the past. And I think about that very similar to what, for example, the Internet was in the mid-’90s, late ’90s. It wasn’t that easy to use. You have to get a modem, you have to connect it, you’re dialing up, someone in your family picks up the phone. The user experience with the Internet was not great. But like many things, since the interest was there, innovation occurs and it becomes easier over time.
And what we see today is a bunch of interesting wallets and tools for businesses to use, to accept bitcoin for users, to hold bitcoin on their phone, and send it around. And it makes the whole experience a lot easier. And you are actually using bitcoin on itself and not relying on an exchange to just hold it or move it around for you. So I think that’s very interesting, and I think the more people we see driven to bitcoin, the more incentive there is for businesses to accept bitcoin. I know for me, right over here down the beach, there’s a burger place that’ll accept bitcoin in small scale but as more and more takes off, I think that’s very encouraging for the bitcoin ecosystem as a whole.
Trish Regan: Sure. I mean, I’m going to tell you, it sort of hit me this week. And I think I’ve got to write on this because I got a birthday invitation for a little kid’s party. And it popped up on the screen. It said, “Send a present with Amazon or send the gift of bitcoin.” I’m like, you got to be kidding me. What little kid wants money or bitcoin for their birthday? But hey, that strikes me as again, sort of society embracing this in new ways. And I suspect that that’s a big part of how this gets adopted, right? Anybody can create a currency or some kind of store value and we can all – But it’s a question of whether others will take it and whether others will hold it. Right? And so its popularity and sort of mainstream value matters.
Jason Les: Yeah. And I think the confidence around that comes with and is strengthened every day bitcoin stays around longer. It’s further cemented in history, but the system is up working insecure. You mentioned earlier covering a story about BitInstant back in 2012, 2013. Now, that was the time of a big bull market. Bitcoin had gone from $20 earlier in the year and peaked up just shy of 1,300. And when that bull market ended, a lot of people thought that was the end of bitcoin. Oh, well, that’s it. Bitcoin went up and down, businesses shut down, the Silk Road is shut down. I guess that’s it for bitcoin. And then a few years passed and then bull market of 2017 happens. And more adoption and users come to bitcoin but then that crashes down and then people think, there’s news chatter again. Oh, well, I guess that’s it for bitcoin. That was a fun experiment.
And now here we are, again, going through 2021, bitcoin up to reaching as high as 69,000. And you have publicly traded companies putting billions of dollars in bitcoin on its balance sheet. These market cycles occur and this history is played out. And that every day that bitcoin remains it becomes stronger, the network effect becomes stronger, and it gets more people interested in thinking about this system. Now we’re at a point where kids’ birthdays are accepting bitcoin and little gifts and stuff.
Trish Regan: And I think about – It was actually Charlie Shrem who founded BitInstant. And I remember he was super young at the time too. And I was just like, wow, this is pretty wild stuff. And he sort of predicted that a lot of that would happen. I mean, I think about all that was going on and I believe Ross Ulbricht, the founder of Silk Road is still in jail for his website that was actually using a lot. That was like the early – That’s why everybody was freaked out by it. Right? Because it seemed like it was just for criminals, because people were buying drugs or other things that they shouldn’t buy that were illegal on websites like Silk Road. And so the feds were all over it. And I think it was pretty scary because it’s still kind of scary to the government. I mean, Hillary Clinton’s telling us all the time how another nation could totally hack into us effectively with bitcoin. So the government was all over it. And it felt like back then it was really kind of just totally fringe. So you’re right, it’s come so far.
Jason Les: Yeah. From 2012, primary use of bitcoin point is buying illegal items on Silk Road to multiple publicly traded companies very much involved in the space. So it’s been just nine years. So it has evolved quite a bit. And like you mentioned, there are still critics out there. There are some politicians that have a very negative view of bitcoin maybe because bitcoin disempowers some of the tools that they have to do things that the population might not necessarily like as much. But there’s also a lot of supporters and government as well. There are numerous senators, congressmen, and women that see the value of bitcoin, see the value that bitcoin brings to their community, and they are interested and support it. So now what comes with this increased adoption and interest in bitcoin was what we’re talking about now is regulator highlights. And we’ve seen discussion about cryptocurrency and bitcoin quite a bit in the past few months.
There is another example of how much bitcoin has grown. When they’re looking to pass that infrastructure bill in this summer, an amendment relating to cryptocurrency was holding up that bill from getting passed. Which to me, I thought that was a negative bill, but the fact remains the fact that cryptocurrency has risen to such levels that an amendment related to it could hold up a – one of the year’s biggest piece of legislation shows you how much interest and eyes are on that now. So regulators are starting to take a look and I think the onus is on all of us in the industry to engage policymakers, engage lawmakers and talk to them about this, educate them about bitcoin and clear up a lot of the misnomers that exist around it.
Trish Regan: Well, there are a lot of misnomers. And for one I would say, everybody thinks it’s totally anonymous. And I’m like, it’s not really, like if someone wants to go back and do the due diligence and sift the whole blockchain, they can. I mean, the FBI just proved that. When a company, an American company was sort of being held hostage, if you would, by some hackers who wanted millions of dollars worth of bitcoin, they said, OK, go pay them. And then they went and got all the money back.
Jason Les: Exactly. Bitcoin does not have the anonymity that people may think it does. It has what we would call pseudo anonymity. The wallet addresses aren’t your name or your address or anything like that. They look like a bunch of random letters and numbers, but there are a lot of tools out there for figuring out who these addresses belong to. And I actually remember a quote from an FBI agent many years ago that said, he said, “We love bitcoin. Because of the blockchain, you’re creating a set of evidence for a crime before you even commit it.”
Because a blockchain is this immutable ledger of all transactions. So you do something, you move it around and then you commit a crime, and they have all the evidence of where all this money moved around already. And I recall, I think it was a news story last year, someone who had made money on the Silk Road in like 2012 or something like that, they waited until 2020 to deposit their money on Coinbase and try and sell it. So they waited eight years, boom, immediately arrested.
Trish Regan: Amazing. Amazing. See? I mean, look, maybe it’s going to take some more brainpower and some more computer power to go and track any potential criminals, but hey, the evidence to your point is there. And in some ways, you’d think that that law enforcement would sort of welcome it for that reason. And the hackers, I guess, ultimately were proven pretty thoughtless and stupid for trying to hack and ask for bitcoin because the FBI can go after it. Let me ask you about this. Because people worry, well, how can I buy something or hold something that we don’t know the creator of? For example, you know that the U.S. Treasury is backing every single dollar. We don’t even know who created this.
There’s lots of theories as to who, including Satoshi and the feeling that he was sort of the original, or maybe it was a group of people, right, that originally created this. And then I want to share with you a recent comment that Elon Musk said on a podcast when he was asked about whether or not he was the creator, because there’s all kinds of rumors about everything out there. And he said, “No.” He felt that Nick Sebo was actually the guy who was responsible for the creation of this. Any thoughts on that? Do you have any view on who might have been the original creator?
Jason Les: There’s a bunch of interesting theories around it. Obviously, I do not know for sure who made it. I’ve seen the evidence around it being Nick Sebo, which is pretty interesting, could very well be him. Another good theory is one of the, I should say, the second user of bitcoin, a gentleman named Hal Finney. He’s another good theory because his background and the fact that he was just subtly the second person talking to Satoshi and working on this kind of stuff. And another under circumstances led credibility to him being the creator. And unfortunately, he passed away of ALS in 2013, which was coincidentally just about around the same time. I’m sorry, 2012. So just about around the same time that Satoshi stopped posting any messages online. So I mean, it’s kind of anyone one’s guess. But the important thing here is, bitcoin is 100% transparent.
The code, the way it works is completely open for anyone to see. There are hundreds, thousands of people that analyze and work on this code on a regular basis. So there’s no back door or any trick for any creator to have any other access. Satoshi made bitcoin and now bitcoin belongs to the world. He has no controller or anything to do with it. So that’s a huge advantage of bitcoin. That’s what I think drives a lot of value for bitcoin. And that level of transparency, you really don’t get in anything else, particularly with the Federal Reserve. So I feel very comfortable about bitcoin not being controlled by any one person or entity or government or anything like that.
Trish Regan: What about hackers? What about some – Because that’s one of the questions that keeps coming up from people. Could somebody – I know there’s only so many bitcoins out there and the mining, we’re going to get to that in a second because that’s what you do and the equations keep getting harder and harder. But who’s to say that some really, really brilliant, brilliant computer scientist couldn’t just actually put more bitcoin out there. What do you say to that?
Jason Les: So bitcoin operates on a set of rules that everyone using the bitcoin software is validating on a regular basis. This includes miners, businesses, wallets, exchanges, and users run the software for themselves. And this software, every 10 minutes when a block comes, it verifies that that block is following the same rules. And I don’t want to jump ahead, but mining helps drive the security too. So if someone tried to change the rules, if they tried to put out their own version of a block that unlock additional bitcoin outside of what’s allowed in the code, the rest of the network would reject that. The beauty of how these blockchains work is they are distributed amongst so many individuals running the software, verifying the rules for themselves. And if the rules are broken, hacked, or whatever, then that block is rejected as being invalid.
So then the only thing we’re really left with is could someone break the encryption that bitcoin uses and start spending other people’s bitcoin. Bitcoin uses elliptical curve cryptography. I mean, it uses the strongest encryption in the world. If the encryption that underpins bitcoin was broken, our entire world and information security system, banking, whatever would completely collapse alongside that as well. So I am not too concerned about that or I should say I’m not concerned about that at all. Bitcoin has incredibly strong security. It has the brightest minds in the world working separately to make sure it remains secure. It has been the number one hacking target, I think it’s safe to say, for many years now, and it remains strong. Now, that is bitcoin itself. Individuals who are using bitcoin, if they make their own security mistakes, they do have a risk of losing to hackers. That’s why it’s important that you learn how to use bitcoin. You learn how this works. You have a good suite of tools to secure your bitcoin. Just like someone can hack into your online banking and do something. Well, they didn’t hack, for example, Bank of America, but they maybe hack the way you stored your password or something like that. So there’s onus on the user as well to secure their bitcoin. But it is a very, very secure system and that security is completely transparent and audible.
Trish Regan: So I remember back when I did this story. One of my friends who is a reporter on air at Bloomberg at the time decided to buy me and my co-host part of the bitcoin. I mean, I don’t even think it was – I don’t know if he got us a whole bitcoin for 20 bucks or a part of a bitcoin for 20 bucks. But again, this was back in 2012. So it was in just double digits. And my co-host held it up to the TV camera and basically someone got it. The code on the bitcoin was then sort of out there for the whole world. And that kind of shocked me. Does that make sense to you, Jason?
Jason Les: In fact, I think I remember that exact story. So yeah, that’s pretty interesting. And I think that’s an example of how it is a simple kind of open system for everyone to use. And it takes just one code out there. You put out your private key or something and then anyone can send it.
Trish Regan: Yeah, well, that was a lesson learned. So there is some onus on the individual as there is in anything. Perhaps a little bit more here because the other thing is if you can’t remember your password, you’re also kind of out of luck. There was a story about a guy who tried his password like nine times and I think has one time left or maybe he already lost. What happens to the lost bitcoin by the way? Does it go back into the world?
Jason Les: It is lost forever. So that’s actually another interesting point about bitcoin, especially given the history when so much was moving around and it did not have a market value, people did not know what the future would be. Passwords get forgotten, things get hacked, etc. In bitcoin when you forget a password or someone just keeps it, hacks it to never do anything with it, that bitcoin is out of the system already. So bitcoin has a fixed supply of only 21 million bitcoin. About 19 million of that has already been mine and is in circulation. And of all those numbers, I think the latest estimate is about 4 million bitcoin has been lost or hacked or is never going to be moved again. So a good portion of the supply is just gone based on the history of people just kind of losing it. And simple kind of market dynamics with less supply out there, the greater positive impact that potentially has on the price.
Trish Regan: So now we’re getting to sort of your specialty at present, which is mining. So you mentioned there’s about 21 million bitcoin out there. We know that from Satoshi Nakamoto and his writings?
Jason Les: From the code in bitcoin. And actually, when Satoshi released the first white paper describing bitcoin, he did not even include anything about a fixed 21 million coins. That came out in the code, and that is open for anyone to kind of verify. If you know how to read code, you can see that there is a fixed supply of 21 million coins. You can see this schedule at which that is released, and that is something that cannot be changed in bitcoin.
Trish Regan: So 19 million have already been mined. So you guys are working on that remainder right now. What happens in terms of the computer engineering that goes into cryptocurrency mining as you get closer to that 21 million coin level?
Jason Les: So for miners, we’re doing work that helps drive the consensus. The consensus system that allows people all over the world to agree on what the valid state of the blockchain is, is underpinned by mining. Because we put in this work, miners all over the world put in work and that work goes behind each new block that’s added into the blockchain. And because that work is done, the users know, hey, there’s a very high credibility that this is a valid block because someone spent a lot of money to make it. And if that the block that miner put work into making ends up getting declared invalid because they try to cheat or change the rules, then all the money they spent to make that block is for nothing. And the bitcoin that they get as a reward for finding that block is then lost.
So that’s the motivation that miners have. Every time a new block is successfully found, you get a bitcoin reward as being the miner who found that block. And when bitcoin first launched in 2009, the block reward was 50 bitcoin per block. It was pretty amazing. Anyone could just fire up their laptop and get mining. There was very little competition. And you could probably just be mining hundreds of bitcoin a day, no problem at all. But then, as the competition of bitcoin mining increased, just using a home computer was no longer viable. There’s an adjusting kind of difficulty index in bitcoin that scales and makes it more difficult to mine bitcoin as there’s more competition around it. So now we’re at a stage, let’s fast forward to 2022 here.
Now that reward per block is only 6.25 bitcoin. So this is how bitcoin’s diminishing supply schedule works. A lot is it was introduced in the beginning and over time less and less is rolled out. And now you certainly cannot use a home computer to mine bitcoin. Now bitcoin mining exists at an industrial scale. For example, my company Riot, one of the largest bitcoin miners in the world, we have deployed hundreds of millions of dollars into bitcoin mining, over a billion dollars at this point. We run industrial-scale facilities. We have hundreds of people working to support what we’re doing.
And I think the testament to the levels that bitcoin has grown, that bitcoin mining has gone from, just people on their computers at home to now industrial-scale operations. So we’re competing, as you said, for the remaining kind of 2 million bitcoin. And actually, most all of that is going to be mined in the next 10 years or so. The bitcoin supply schedule reduces every four years until the year 2140, and then no more new bitcoin will be introduced. But the bulk of that remaining 2 million is up for grab in the next 10 years. So a lot of competition around bitcoin mining, very exciting time to be involved.
Trish Regan: OK, well, this is going to be very disappointing for the little 12-year-old boy who lives next door, who’s a text savant. And not the one who wanted bitcoin for his birthday by the way. That was like an eight-year-old. So I must live in quite a community, but the 12-year-old I know told me that he’s trying to convince his mom to let him have more, I guess that the power supply that is needed for his computer to be able to try and mine bitcoin is a significant amount of money. So she’s trying to say, well, this really doesn’t make a whole lot of sense because I don’t think you’re going to be able to really mine enough to make the payments on the energy bills. Which brings us to another thing, although I’ll hold off on that for a moment.
I guess it’s bad news for, yes, the 12-year-old who wants to try to do this at home, because there are companies like yours that have just devoted so much in the way of resources. It’s just incredible. We’re speaking, by the way, I just want to remind the listener, with Jason Les, he’s the CEO of Riot Blockchain, one of the largest mining companies for bitcoin in the world. You can follow him on Twitter @JasonLes_. Again, @JasonLes_. You can also follow the company @RiotBlockchain. So there’s only a few years left to do this. What does it mean for your business and how do you guys get paid? Do you get paid based on the actual bitcoin that you mine?
Jason Les: So, yeah. So the supply of bitcoin that has been introduced is decreasing, but what we have seen is the value of that bitcoin is gone up quite a bit. So we talked about, you could mine, you get 50 bitcoin per block in 2009, bitcoin was worth nothing then, and now you get 6.25 bitcoin, but bitcoin is trading in the neighborhood at $50,000. So while the bitcoin denominated reward is less, the actual value of bitcoin mining rewards has gone up considerably over time. And as that slows down, what minors then become more incentivized to go after is transaction fees. And we get that now.
When you find a new bitcoin block and you collect all the new transactions to put into it, each of those transactions will have a fee attached to it because when you’re trying to do a transaction, you are incentivizing miners to include your transaction by attaching a fee. And we have seen this fee market increase over time in bitcoin history as more users are competing for the limited space in each block to have their transaction. So while that bitcoin block reward is going down, the incentive remains and will continue to remain and hopefully increase for miners over the long run. So we still remain very incentivized around that. And that’ll __underpin___ the security of the bitcoin network for its lifetime to come, even beyond the year 2140.
Trish Regan: You’re making the point that even if bitcoin goes up in value, you may be getting less coins, but it’s usually going up in value because the supply is restricted. But it’s also decently volatile. And as I look at your company stock price, it just wow, it just exploded. It looks like sort of in March of 2021. And you were seeing a lot of upside sort of through the pandemic. I wonder, was that in correlation with the upside that bitcoin was seeing?
Jason Les: Yeah, so our stock has seen a lot of correlation to the price of bitcoin like we were talking about. So Riot as a bitcoin miner, we get these block rewards in bitcoin, when we successfully find blocks. And that the amount of blocks that we find plus the amount of bitcoin that we mine is essentially a function of the ratio of what percentage we are of the overall mining competition. So the greater ratio we are the higher chance we have of getting a piece of the bitcoin rewards that are being released on a regular basis.
Right now, it’s hard to estimate for sure, but Riot is somewhere around close to two percent of the overall bitcoin network, probably a little bit less than that depending on how the competition is fluctuating. So the bitcoin rewards are fixed, but as you touched on the value of bitcoin is very volatile, and that therefore affects what our U.S.-dollar-denominated financial results are. So because of that, yeah, our stock tends to fluctuate a lot around the price of bitcoin because the thing we’re mining is going up in value.
Trish Regan: Not to interrupt, but it just kind of reminds me of gold. We don’t need to get into the whole gold-bitcoin debate. But you think about gold as a kind of commodity if you’re to think about bitcoin in a similar way and you have a chance to invest in gold-mining companies or in gold itself. This is a way I suspect for people to invest in bitcoin and maybe they’re worried about whether or not they’re going to lose it or whether someone’s going to get their code because they hold it up to the TV camera.
Jason Les: Yeah, exactly. Or maybe you’re an institution and then the regulatory framework doesn’t exist for you to hold bitcoin or buy bitcoin on behalf of your clients or customers. So because of that, I think there’s been a lot of interest in bitcoin mining stocks over particularly the last 12 months as basically public vehicles to get exposure to bitcoin. So at Riot, we are very much focused on exclusively bitcoin and we are very much focused on exclusively mining bitcoin. So we try to present ourselves as close to a pure-play exposure to bitcoin as you can get. And you’re right. For the investor, for the individual who isn’t comfortable with custody in bitcoin themselves, doesn’t want to run the risk of getting hacked, then buying good old stocks is maybe an option. That’s more interesting for that investor.
Trish Regan: I want to get to why you’re just doing bitcoin in a second. But first, when you say you get the block orders, who do the block orders come from?
Jason Les: Block reward. The blocks are found on the bitcoin network about every 10 minutes on average. So that’s 144 blocks per day are found on average in the bitcoin network. And if you are the miner that finds that block or you are a part of a pool of miners that find that block, you get that block reward. And that reward is part of the bitcoin code. Essentially, the network is saying, you get to spend this 6.25 bitcoin at the current reward levels if you successfully find the block. And everyone else on the network they’re verifying that your block is valid and if it is and they are all accepting that block, then they kind of update their transaction ledger that says, OK, this miner gets to send this amount of bitcoin. It’s a completely automated thing that is a part of the bitcoin code. It is not decided by any one person or entity. And that is something that cannot be changed either.
Trish Regan: OK. So then do you take that 6.25 bitcoin and cash it in for actual dollars?
Jason Les: So, Riot over the last more than year, we have basically held onto most of all the bitcoin we mine. In 2021, we held on to all the bitcoin that we mined, and we did not sell any. In 2020, we made a couple discretionary sales here and there for balance sheet management, but overall we are believers in bitcoin and we have been holding on to bitcoin.
Trish Regan: So how do you get the hundreds of millions of dollars to invest in the sort of equipment, personnel, everything that you’re going to need to mine this stuff?
Jason Les: So the company has primarily been relying on equity financing over the past several years. We’ve had very successful at the market offering programs where we have been able to raise capital and then put that capital to work directly growing our business and increasing our exposure to bitcoin. So Riot has employed that technique and a number of other companies have employed that technique. And I know it sounds maybe counterintuitive to a lot of people. It’s dissimilar for most businesses. Most businesses, you make a widget, and you sell the widget. And here we are effectively minting bitcoin and then we’re just holding on to it. And that doesn’t make sense to a lot of people. We are very long-term believers in bitcoin, and we have –
Our thesis has been that holding on to this bitcoin is going to have greater long-term value than selling it immediately. And if you look over the history of the company when riot first launched bitcoin was around 4,000 and then here we are a little over four years later, bitcoin has gotten as high as 69,000. So that has been the approach that we’re taking. We are trying to maximize our exposure to bitcoin. We are trying to give our shareholders exposure to bitcoin. And we’ve been doing that by using equity financing to grow our business and then hold on to the bitcoin that we mine.
Trish Regan: No, that makes sense. And if you believe that bitcoin is going to the moon. And I spoke with an investor maybe about six months ago, who had some really aggressive price targets, might have been $2 million of coin. And that’s sort a worst-case scenario for the world, I guess, because if it were to suddenly go to $2 million of coin, it would tell you that a lot of the traditional systems that we currently have in place would be really gone. But he considered it kind of that insurance in some ways and had some aggressive price targets for the future on it.
So I get that. And while it may be counterintuitive, again, if you’re a believer in bitcoin and you want that exposure as a shareholder, it makes sense. Let me ask you this. Why only bitcoin? Because there’s a lot of other really interesting coins out there with great technology. I mean, Ethereum, Solana, why none of those?
Jason Les: I don’t believe any of those other projects, any of these other coins, fully address the store-of-value proposition that bitcoin does. Unlike all of these projects, we talked about the founder of bitcoin and who made it. Whoever it is is gone and they have no other control. And all these other projects, a lot of the people that are running these things are still around. They do not have the same organic growth, the same network effect, the same distributed properties that bitcoin has. And that’s what drives a lot of its value to me. The fact that there is absolutely no one that can control bitcoin, the fact that all the supply has been released entirely fairly. The only way you could have gotten bitcoin from bitcoin is by mining it, there was no kind of founders allotment that was released. There was no presale deal for early investors to get involved in like with all these other projects.
Bitcoin has truly had a fair launch. It is truly fairly distributed, and it is truly not controlled by any one party. And while someone might think, well, why can’t someone just do that again? That network effect is almost irreplaceable. You could make a new Twitter and people try to make a new Twitter, but that network effect that they have is so strong, the users around that, that that it’s hard to ever change. And I use that as just one example when it comes to money, when it comes to something like bitcoin that is even more challenging to ever replicate or get consumer confidence behind the use instead. So these other projects are interesting. OK, they do different things but they do not truly address that store-of-value proposition. They do not truly have this distributed out of control of any one individual entity property that bitcoin really does. So we believe bitcoin is the most pure store of value in this ecosystem. And that’s why we are the long-term believers in that and are focusing all our resources around specifically bitcoin
Trish Regan: Really interesting. That makes sense. Let me turn to what goes into the actual mining. You mentioned that it’s hundreds of millions of dollars of investment. There have been numerous articles this year about how bitcoin mining noise is driving people nuts, these bitcoin mining firms. And I guess, it took me by surprise because we’re going all the way back to 2012. And maybe at a time when people were still individually mining it, but it surprised me because I thought, and I guess I’m wrong on this, I thought it was sort of like a computer scientist sitting down thinking through the problems, coming up with the code, right, to be able to mine these. But in fact, it’s actually now computers that are coming up with the code to mine them. Can you explain that to me, Jason?
Jason Les: Yeah. So bitcoin mining very simply is, a miner is taking the collection of transactions, the block that they propose adding. And they are guessing numbers to attach to that. And each time they get the number, they combine it with that block, they put it into an algorithm, and if they get the correct output, which is the network sets a threshold of, we’re looking for a number less than this number. If your output is less than this number, then you have the right answer. So all the miners are guessing to do that. And you actually can do that by hand, but it’ll take you a very long time and you’ll not be able to compete with the computers that are doing trillions of guesses per second on that. So the technology around bitcoin mining has advanced where we now have these specialized machines, you want to call them computers or servers that are we call ASICS, which stands for application-specific integrated circuits. And they are solely designed for mining bitcoin. That is the only thing they can do.
So these computers are guessing inputs into that algorithm over and over and over again, trying to race to get the right answer faster than the rest of the network. So the more of those that you have deployed, the greater opportunity you have to mine bitcoin. And that is why Riot’s at the scale right now. We have nearly 30,000 of these machines running that are doing a number of guesses. I cannot even tell you what the English word of it. Quintillion, gazillion, whatever guesses per second that are going on as we compete racing to find bitcoin. And to support that is a lot of large-scale industrial infrastructure. A lot of power and electric components are going in to support all these machines and keep them running smoothly.
And we have a facility out in Rockdale, Texas called Windstone. That facility is about 100-acre site. We have hundreds of thousands of square feet of, I guess you could call it data center space that has been built out to hold these machines. Some of the machines are on racks, getting cooled by air. Some of the machines we actually have submerged in a specialized dielectric fluid to help keep them cool as well. And these machines are guessing. We have about 200 people out there on that site. Our company as a whole is about 400 employees, and they’re all committed to bitcoin mining and supporting our operations, trying to get as many guesses in as possible.
Trish Regan: So are they coming up with code or at some point the computers? I mean, does somebody program them, does that give you a certain kind of edge or is it literally just how many machines you’ve got going?
Jason Les: It is just a game of scale. Now, the one edge you have is the efficiency of the machines. How many guesses is a machine able to do while using as little power as possible. So therefore you’re not having to spend as much on power for the amount of guesses. So the more efficient machine you have from that perspective is an advantage. But the machines are generally supplied. Most of the market is supplied by a single manufacturer called Bitmain that produces the industry-leading hardware. So from that sense, all of the major miners out there are kind of using the same equipment. And it is really just a game of scale at that point. These machines are just trying to do as many guesses as possible. There’s no advantage to guessing better. So there’s no real advantage to kind of having a technique that can guess a higher probability guess. Really it is a game of scale.
Trish Regan: Do you think Satoshi Nakamoto ever thought, I mean, whoever he was or she was or they were, ever thought that it would be like this? That it would be a company like Bitmain that was making the machines? Do you think that that was believed could be true when this was originally conceived?
Jason Les: Man, that’s very interesting question. Interesting to think about. Satoshi, what’s interesting is, he, she, they had a lot of public writings. Satoshi was just kind of participating in the bitcoin community, in the bitcoin forums, helped getting it off the ground when it first started. So if anyone’s interested that they can check out. I think the website is called the Nakamoto Institute. That it’s a collection of a bunch of all the things that Satoshi wrote and posted back then. And I would say that they definitely foresaw a huge future around bitcoin and made a lot of predictions that turned out to be true. And I don’t know if those predictions were based on, if this thing takes off, then this is what it’ll look like, or this thing will take off and this is what it will look like.
But one thing was for sure is that Satoshi believed that bitcoin was an important tool for human freedom. It was an important tool to give individuals sovereign control over their money. And it would be something that would help people for years to come. But the scale – there are actually posts from Satoshi, I believe, obviously over a decade ago now where they believe that bitcoin mining could get to a very large scale and be run out of a very large industrial center. I just wonder if they knew that was going to be the future or if they just thought that would be the future if this thing is able to get off the ground. But no matter what, Satoshi was quite a visionary.
Trish Regan: So the Chinese have their bitcoin firms, the Germans have theirs. I mean, this is a worldwide thing that’s going on. So I guess, let me ask you a question. Let me put you in the seat of the U.S. government for a moment. I mean, you have a choice. You can fight this thing, right? Or you can embrace it. Do you think it would make sense, I mean, if all these other countries are having their own companies doing their own things to try and mine this bitcoin. Is this a space that the government would actually want to be in at any point? I mean, I guess that would kind of make a lot of people uncomfortable given the sort of freedom principles surrounding bitcoin. But would the U.S. government want to be there so that they maybe had an edge over the Chinese?
Jason Les: I mean the short answer is yes. I think that countries, as they see bitcoin go on adoption, as government sees is really an unstoppable force that it almost becomes a national security priority for your country to have bitcoin mining infrastructure. So you are a part of the bitcoin network that distributed control and competition for that bitcoin mining power I think is a very good thing. You mentioned China is actually very interesting. Historically China had a huge portion of the world bitcoin mining power there. Like 50 to 70% of world’s mining was located in China. And in the middle of 2021, they banned mining completely. And that drove all that competition out of China into some nearby countries. But actually what we have seen as a result of that is the United States having a real growing footprint in bitcoin mining where historically it was very small.
And that’s a good thing. That’s good for bitcoin. And I think that’s good for the United States because what that means is the security and consensus system for the bitcoin network is now more located in this jurisdiction where there’s so much adoption in users in bitcoin. That’s something that we believe at Riot, is that the infrastructure that underpins bitcoin should be located in the similar area where all sorts of adoption is. So there’s American users of bitcoin and there’s American miners of bitcoin. Now, would the United States government itself get involved with bitcoin mining? They could, they would be competing just as the rest of us. There would not be a super meaningful advantage that they might have. Bitcoin was in fact, designed with the anticipation that a state as large as the United States would try to get involved in bitcoin and maybe try to take it over.
And the game theory that exists in bitcoin makes it such that any kind of malicious actor or if a state had malicious intentions, they would not be successful at what they were trying to succeed at. So in my opinion, it’s not the role of the government to get involved in the bitcoin, but I think it should be the role of the government to support the proliferation of the bitcoin industry and bitcoin mining within its borderers because this is the future of money, and it is good for a nation to be as closely tied to that as possible.
Trish Regan: Let me ask you about the environmental concerns. I mentioned to you my next-door neighbor, a young kid is trying to convince his mom and she’s like, “But wait a second, the electricity bills are going to be off the charts.” You’ve got this center down in Texas. How many square miles or square footage do you know? I mean, how big is that center?
Jason Les: The facility sits on 100-acre site. There’s multiple buildings that make it up. We’ve built out about 180,000 square feet so far. And we’re in the process of completing an additional 240,000 square feet. That’ll be completed over the next few months. So altogether this site is going to be in the neighborhood of half a million square feet of bitcoin mining data center space when completed. But to get after your question here. So we talked about the major input to bitcoin mining being this computational power, these computers, and of course these computer require power to do what they’re doing. And so first off, that’s an important factor that makes bitcoin work. The fact is you have to take in energy, you have to use energy to try and participate in the bitcoin network system.
And this incentivizes honest behavior. Because if you are being dishonest, if you had nothing to lose, then you could be a lot more malicious. But the fact is, if you want to try to participate in the bitcoin consensus system through mining, you have to use energy. And energy is scarce. It always costs money. There is no way to duplicate, fabricate it or hack it. It is something the entire world competes around. And so because this is the primary input, this is what drives this trustless consensus system that makes bitcoin what it is. And so as a result of that, we’re very incentivized to use energy and to use cheap energy. Where you find cheap energy is typically an underutilized portions of the grid. You’re finding places on the energy grid, so for example, we’re in ERCOT down in Texas. Parts of that grid, where there is an abundance in generation and not enough buyers.
And typically, where you find this abundance of generation is where there are renewable energy sources that are producing a lot of power that is not otherwise being used. The wind will blow a lot at night, the sun will shine during the day, the water will flow 24/7. But that doesn’t always mean there are buyers of that energy. So a lot of that energy gets wasted. Your listeners might be surprised to know about one-third of all energy that is produced globally is wasted. It is unused. It is lost in transmission. It is just produced for nothing. And bitcoin mining, since it is agnostic to the location where it operates at, will go after this low-price underutilized energy and capture it. As a result, this helps finance and make renewable generation projects more economical.
And it makes energy grids more reliable because there are flex fluctuation in the demand for energy. So all of this being said, bitcoin mining uses more renewable energy than any other major industry. The latest estimate is about 50% of bitcoin mining globally is powered by renewable energy. You compare that to countries as a whole, the United States is I think somewhere around the neighborhood of 20% of utilized renewable energy. So because of bitcoin’s flexibility, a time of day that it operates because of the flexibility of where it operates, it uses so much renewable energy. And in my opinion, it has helped capitalize a ton of renewable generation that is being built in states like Texas, that has a high potential for wind energy, that has a high potential for solar energy. And now they have a buyer like bitcoin miners who will come in wherever and take that energy when it is in low demand.
Trish Regan: It’s truly, truly fascinating, Jason. So you came to the company around 2017 as an advisor. What made you go on to be CEO?
Jason Les: I joined the company when it first launched on Nasdaq through a reverse March of 2017. I was just on the advisory board. I had started getting involved in the industry. Like I said earlier, not with aspirations of working, I just wanted to study and commit my life to bitcoin. So this company started, and they asked me if I wanted to join the advisory board. And I said, sure, happy to help. And then about a month goes in and they said, well, actually, we’d like you to join the board of directors. I said, sure, happy to help. Joined the board of directors where I served for a number of years kind of guiding and leading the company through that bear market that followed the 2017 bull market. And the company was initially focused on a number of things which included bitcoin mining.
But I saw the opportunity to get rid of the other things and focus specifically on bitcoin and bitcoin mining. And through my leadership and through all of us as a team at Riot working together, we were able to turn the company around and focus on specifically bitcoin mining. And through that, the board asked me to become CEO of the company earlier in 2021. So been around for the company from the beginning. We have a terrific team of very motivated individuals who are behind the company’s vision, who are believers in bitcoin, and very grateful to be in this position here today.
Trish Regan: Wow, it’s incredible. And I know you’re going to be speaking at the Bitcoin Conference hosted by Bitcoin Magazine coming up in April in Miami, Florida. So people can check that out. And they should check out your company, ticker symbol, R-I-O-T, right? Riot.
Jason Les: Yep. Ticker symbol, R-I-O-T. Our website is riotblockchain.com as you mentioned in the beginning. You can follow us on Twitter @RiotBlockchain. We have a bunch of videos and updates we’re providing all the time on the expansion and building we have going on at the site, our facility out in Texas. So I encourage any of your listeners who are interested to check that out and they can really get a grasp of the scope and scale that bitcoin mining and bitcoin infrastructure is at these days.
Trish Regan: I encourage them too because I’ve looked at the videos myself down there in Rockdale, Texas and it’s incredible. Let me just ask you by the way, what happens once all the bitcoins mined? What’s the company do then?
Jason Les: Then the company is still mining. Mining still exists and will go on. And the competition is now no longer around those block rewards, but it is around the transaction fees that are included in the block. So there will always be a financial incentive to be mining bitcoin as long as there’s competition around getting your transaction included in the block.
Trish Regan: Really cool. Well, you’re on the cutting edge of some pretty amazing stuff. And I appreciate you taking the time for sure today, Jason Les. @JasonLes_ on Twitter, CEO of Riot Blockchain, @RiotBlockchain. Thank you so much.
Jason Les: Thank you for having me, Trish. I appreciate the opportunity.
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Trish Regan: Again, my thanks to Jason Les. Just such a fascinating look at what is our future and it’s happening right now in the here and now in this country. Which you know me, I like that. That’s a good thing to have it happening in Texas and the United States of America. Anyway, do me this favor, make sure that you have subscribed to this podcast. You can go to americanconsequences.com for it. Make sure that you subscribe to my other podcast, my daily show, the Trish Regan Show. And I will be back with you here, probably talking about bitcoin again because I’m really into this, next week. I’ll see you then.
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