[00:02:34] I think if you’re listening to this show, you probably know that The subsidy is going down and that over time, the miners will become more dependent on fees. So I’ve been putting a lot of thought into that for a couple of years, frankly, and I continue to kind of challenge myself to think about what changes.

[00:02:52] And there’s by the way, some obvious things that I think are kind of the first layer of thinking. It’s kind of where I started. And I said, well, if we become more fee dependent, that introduces volatility, because if you measure the revenue of the mining industry, let’s even take the whole thing holistically, we’re sitting at a point right now where it’s about 94 percent subsidy and 6 percent fees.

[00:03:17] Now, historically, it’s more like 98 and two. So we’ve had a shift just recently, like where fees have been going up and obviously subsidies going down. So we, I think we’ve probably talked about this in the past. I think one of the things I try to do, and I comes back from my earlier parts of my career, I try to look forward a lot.

[00:03:36] And so I started to put myself. Out 10 years, 20 years, 30 years, and then work backwards from that point. Yeah. Yeah. And so the first realization was, well, we’re effectively five years away from, in my mind, the subsidy being essentially irrelevant. Only five years.

[00:03:56] Preston Pysh: Really? What was the percent that you said that we’re currently in right now?

[00:04:00] We’re here in the summer of 2024 for people that are maybe listening to this in the future. Yeah. You said it was 94 percent 6 percent was the breakdown. Is that about right? Correct. Yeah. So 94 percent of the revenue that you’re making as a minor is coming from the protocol itself, issuing the coins. 6 percent is coming from the fees that people were paying to get in each one of those blocks and you’re saying that within five years

[00:04:25] Bob Burnett: Oh, I misspoke 15 years.

[00:04:26] Preston Pysh: Okay within 15 years like this is really being driven completely by fees Which has an enormous amount of volatility in what’s happening in the next block Right. Okay.

[00:04:37] Bob Burnett: And that comes from, I mean, it starts from 15 years, we’ll have four more halvings. So three and an eighth to 1. 56 to 0. 75 to 0. 37 to 0. 18 or something like that. Right.

[00:04:54] Preston Pysh: What do you think that that percent breakdown will be? You think that the subsidy will be less than 50 percent or what?

[00:04:59] Bob Burnett: No, so that, I think that’s where I confused the five years and the 15 years together. Five years from today, I think we cross over.

[00:05:05] Really? Within five years, we have crossed over. Majority of the revenue is fees. And so we’ll call it 50 50 for right now. So subsidy is still material, but it’s changed a lot. Now, 50 percent of the revenue, it becomes a variable as measured in Bitcoin terms. 15 years from now, subsidy is irrelevant and it never gains relevancy again because now it’s 95 to 98%.

[00:05:33] And that’s just looking at the first layer of this. And I think it’s primarily looking at mining as a self contained industry and that the economic benefit only coming from the block reward, that’s kind of the first layer of The thought process, thinking that way, even some logical things start to come from that one would be, well, if we’re less than five years from the subsidy, at least being, or excuse me, the fees, at least being material.

[00:06:09] And I think as soon as you’d say, well, fees are 15 or 20 or 30 percent in that range ago, well now minor revenue has this component that has. Starting to get very volatile. Yeah. Yeah. Right. Because we all know if every block from the minor perspective, if every block mine today was empty and we collected the three and an eighth Bitcoin, it wouldn’t change the current state of the industry much.

[00:06:39] But let’s say three years from now, if the fees are 30 percent of minor revenue, and I think that’s the path that we’re going or something on that order, that changes a lot. If one block might have a 10th of a Bitcoin and another block might have three Bitcoin in it for a fees, who wins, which block? Or, do you win the blocks, a lot more blocks in a month where fees are high, or a window when fees are high, and less in periods when they’re low, or vice versa.

[00:07:05] So, I believe what’s going to happen, and I’m working on this, but there becomes a great need for miners to stabilize their revenue stream. Just from this, short term, reasonably short term. There’s a second side to that, which is, if you are a user of Blockspace, You’re a corporation that’s maybe starting to transact in Bitcoin.

[00:07:28] Maybe you’re just an active personal user, a high net worth person, a family office. You’re trying to do a lot of movements. You also might start looking at volatility and fees differently than you do today. I think Typical Bitcoiners, the typical attitude of a Bitcoiner is they have a need for a transaction that’s current.

[00:07:48] They look at the mempool, they decide and make an economic decision at that point whether or not it’s worth it or not. And if they don’t, they might come back in a week or two and try again, and, but if there’s urgency to the transaction, they bite the bullet and they buy it. But that’s kind of like going on a vacation and, Getting all your hotel rooms by walking up to the front desk of the hotel and saying, I want a room and then saying, oh, it’s 400 a night and you say, I’ll try the next one.

[00:08:18] And you’re kind of hopping around and then if you start thinking about blockspace in a different manner, it’s a scarce commodity and that it’s finite. It’s not just scarce. It is finite. And so if you’re a business moving toward me. a world where your business will need to run on this, then it’s logical that you would want to buy the blockspace now for the future, whether that’s two weeks from now or six months from now.

[00:08:48] Preston Pysh: Tied to the calendar day, not necessarily the block height.

[00:08:53] So like if you’re entering into some type of derivative of like, I want to pay this amount of fee on the 31st of December, you would define it in terms of the calendar year, not necessarily the block height. And then as the block height hits on that day, because you’re closing out your accounting, your gap accounting or whatever.

[00:09:10] Bob Burnett: I’m glad you picked that particular day because I think what’s going to happen in the future as portions of the world economy start to become more Bitcoin centric for tax purposes and reporting purposes and like those sort of things, I think we’re going to find that quarter closes and annual closes are going to become extremely valued.

[00:09:32] Getting blockspace in those periods is going to be very expensive and you’re going to have to reserve it way ahead of time.

[00:09:38] You’re going to have a lot of companies that reset their calendar dates potentially with this in 15, 20

[00:09:44] years. Yeah, they might. You may have public companies. I remember, I don’t know if they still do, but back in my PC days, I remember Dell had Dell used to always close offset by one month.

[00:09:55] So they didn’t use the standard calendar closes and they had some advantages because of that. It would make sometimes reviewing things a little funky because of their calendar period and the fiscal period were offset. Yeah. But, but yeah, that’s certainly could happen. And it’s not just closing books by the way.

[00:10:12] And then we would talk about this a little more, but it’s also where a lot of deal making takes place. So If I am buying something. So a lot of times company X has a bunch of inventory. They need to sell before the end of the year. They want a balance sheet that looks better. Yeah. They start, are they going out to the market and say, well, I’ll offer some deals here.

[00:10:34] You buy my inventory and, make my cash on hand look better. And my inventory look lower. I mean, those are very natural things, especially public companies to want to do is, settle the year with their books. In a good position, one way to approach that is to again, look at blockspace as a commodity with a natural market being a producer of blockspace being the miners and the consumer of blockspace being these type of organizations or people that would talk on the backside.

[00:11:07] And it’s very similar to, let’s say wheat. If I’m a farmer in Nebraska and I’ve got a wheat field and I plant my crop in May, I have a pretty good idea of how many bushels of wheat I’m going to produce in the October harvest. What do I do? I, I start maybe in May or June, maybe even before that, maybe even before I’ve planted it, I start selling part of the October harvest.

[00:11:33] Right. So I may sell 20 percent of it at some price that I feel comfortable with. And now I’ve locked in, okay, that part of my harvest I know is right. And come July. I may decide to sell more of it. So by the time I get to October, there may only be 20 percent of the harvest that will get sold at market rate, maybe none of it.

[00:11:54] So I don’t think mining will be any different. So if we’ll use a simple example, if I am a minor and there’s about 150 blocks produced per day. So if I’m a minor with 2 percent of the world’s hash, statistically, I’m typically going to produce three blocks per day. So, given that, I can start looking into the future, and I won’t sell 100 percent of it.

[00:12:17] But I can go into the future and say, Hey, in October, or maybe even better, the last week of December, I’m going to offer 4 million weight units on, I may put a three day window or a seven day window around it, by the way, probably not a one day window, just to be sure that I can do it, but say, okay, I’m going to offer 4 million weight units.

[00:12:38] It is. 37 sats per V bite. And so I offer that to the market, a consumer of that, a financial institution, a big corporation might come in and say, okay, I will buy that. And now we’ve locked in this 37 cents per V bite or 37 sats per V bite. I’m sorry for that window. Now, as time goes by, if that consumer starts seeing.

[00:13:02] But they don’t need all that. Maybe they can sell half of that contract off to somebody else, or they decide they really don’t need it. Well, there’s going to be a whole market. I believe of speculators, natural derivative market, right? Of people buying and selling these things. Now, me as the supplier of.

[00:13:22] The blockspace, I’m going to have to have certainty that I put forward this just like you wouldn’t because even though this is the virtual world, it’s much like that farmer with the wheat that farmer has to deliver a bushel of wheat if somebody buys one, right? And if he doesn’t have, if his harvest is poor, he has to go into the market.

[00:13:42] And buy it from somebody else because the buyer has to be in that same way. We can go into this later, but the point being that I think that this is going to become a very sophisticated infrastructure. I think it’s going to be available here within the next handful of months, even that this will be able to start, but it’s ahead of its time.

[00:14:00] The need may not be pressing at the moment.

[00:14:02] Preston Pysh: You’re just talking about the derivative side of the price, but I’m immediately thinking about the insurance policy of if you sign up for a window that you’re going to deliver so many blocks and two or three day window and you don’t deliver, it’s almost like the same thing that the farmer’s dealing with if I had low, way lower yields than I was expecting with my corn.

[00:14:20] And I have some type of insurance policy and I’m going to have a claim against this. And you can quickly see the financialization of all of this stuff really fast. The other thing that I think is also a natural consolidation, which isn’t a really a word that a lot of Bitcoiners like to use or that scares Bitcoiners when they hear a word like consolidation, when you’re talking about, I can provide a three day window with X amount of statistical certainty.

[00:14:48] You quickly see how there’s an incentive for a market maker to step up and say, I’m going to take your hash rate. I’m going to take your hash rate. I’m going to take your hash rate. And then I can provide somebody a one day window or an eight hour window at this exact time, because I’m dealing with these many partners in order to provide.

[00:15:06] So what is, I think the natural question there is, is there a concern about something like that happening from a centralizing force. It, the financialization and the pooling of hash rate.

[00:15:18] Bob Burnett: Well, I’m not saying I necessarily like everything. I just want to be clear, but I’m just telling you, I think if you’re listening to this show, then you probably somebody that has a strong belief in Bitcoin and you’re waiting for the global economy to adopt Bitcoin and embrace it.

[00:15:34] And so. The current system that we have is inconsistent with that vision, the way big companies work, the way big financial institutions work, they will require this sort of stuff. They’re going to require these kinds of services like to know with essentially certainty that I will have access to the base layer at a certain cost.

[00:15:52] And then as you’ve said, all these other things that go with it, the insurances and the market makers and all that. They’re almost going to be impossible to stop. Now, what I think we can do, and it’s a side light is it’s very important for small and medium sized miners. And I think the number is about 30%.

[00:16:12] We need that kind of hash rate still coming from the smaller folks so that there’s a certain percentage of the blocks being produced. That do look a little more like today, but don’t expect all of it. Expect the vast majority of it be taken over by the big boys, the behemoths.

[00:16:33] Preston Pysh: But the fact that you still have small miners out there that are able to mint blocks means that, it’s not captured and there’s a Bitcoin still executing on its promise.

[00:16:44] I think that’s what you’re saying, right? Yeah.

[00:16:46] Bob Burnett: And there’s some technical reasons too. So if it was, let’s say 5%, then there is a real problem. I’m not saying Bitcoin is over, but maybe Bitcoin with the spirit and all of the attributes, I think that we love may not exist because the big guys might start ignoring the blocks from the small guys.

[00:17:08] And so I don’t want to get too technical, but basically if a small guy produces a block and the big guys essentially mine right over it. Okay. They essentially could say, we’re going to ignore this block

[00:17:20] Preston Pysh: Cartel. It’s like a cartel.

[00:17:23] Bob Burnett: Yeah. Yeah. So that’s possible. But if you get like 30 percent of the blocks or so coming from this other base, then they don’t realistically have the power.

[00:17:34] To do that, the math starts breaking down. They spend, they try to mine over our blocks, but they waste a whole bunch of energy because if we get two in a row, now they’re really in trouble. Now they’ve lost a lot. Ideally it would be over 50%. I’m just saying 30%, I think is kind of the lower number, but. As you opened, there’s incentives for the energy companies to want to get involved.

[00:17:59] But, we can go deeper on this in a little bit, but there’s going to be incentives for financial services companies and big corporations to do this because We’ve talked about blockspace as a commodity, and it’s an absolutely scarce commodity in any window of time. And there’s going to be a massive power that comes from the ability to control a block.

[00:18:21] And it goes well beyond just the block reward, the subsidy and the fees.

[00:18:27] Preston Pysh: So the narrative that I mentioned at the beginning of the show with respect to energy companies, kind of merging with miners. When do you really think that this financialization piece is going to start kicking into high gear? I suspect it’s the five years it’s going to really start to take hold.

[00:18:41] But do you think that the financiers are going to come in and really start to dominate this? How do you see it kind of playing out once it starts getting hot and heavy?

[00:18:51] Bob Burnett: Yeah, as you said, it’s not that I don’t believe there is a symbiotic and synergistic relationship between the energy side and the mining side, but I think it’s been overplayed.

[00:19:02] So let me start with that. So last year, just as an example, last year, Bitcoin mining, the whole global revenue was about 12 billion. So you could think of that as The budget for electricity purchases, energy purchases for the industry, right? We couldn’t consistently exceed that number. In fact, we probably can only do 20 or 25 percent less than that because we have other expenses of running the organization.

[00:19:27] So what percentage of the world’s electricity can we buy for that amount of money? Essentially nothing, right? Or it’s terrible. Even if we 10x that, even if we 50x that number, we’re still buying a very small percentage of the world’s electricity and energy. We also, Bitcoiners have a tendency, and I get it, like, we talk about grid balancing, curtailment, all these sort of things.

[00:19:55] They’re wonderful, but we can’t consume enough electricity. We don’t have a budget for it. To fix that everywhere in the world. It’s working. It’s making an impact on Texas. Let’s say, okay.

[00:20:08] But that’s 30 percent of the world’s hash rate sitting in one state and one country. Yeah, we can’t solve this for the whole world.

[00:20:16] So I’m not trying to tell people who are involved in that, that it’s not meaningful and important, but I think it gets oversold. I’ll say that it’s not. As important, in my opinion, where things are going globally. So one way to put it is that the relationship Bitcoin mining companies have with energy companies, you might be able to say that that’s an existential relationship from the perspective of the miner, but it is not existential to the energy companies.

[00:20:45] They really, whether they have Bitcoin or they don’t. It won’t likely move a major piece of their long term business. Now let’s look at the other side. The reason I said all that was now let’s look at the other side. If we’re on a path to Bitcoin being the base layer of money, if we’re on a path where we’re expecting the base layer to replace the Fedwire, now Bitcoin is existential to all the financial services companies.

[00:21:16] And governments. Governments. In governments, right? If they don’t have access to it, then it is existential. They will fail. So when we look at control of a block, the 53, 000 blocks per year, it’s my opinion, we can probably debate the time frame, but We are on a path where wars will be fought over control of those 53, 000 blocks, potentially literal wars at a minimum, virtual wars to secure that access.

[00:21:45] And if it’s existential, then I believe the financial services companies and the sovereigns, as you’ve said, will move in hard. And they’re not looking at the economic value of a block as the reward plus the fees. They’re looking at it a completely different way. They’re looking at it as infrastructure.

[00:22:03] Preston Pysh: Access to exchange energy with foreign partners or companies or whatever large entities, right?

[00:22:09] Bob Burnett: Yes. I believe there will be alliances. I think I sent a T in one of the emails. I learned something a long time ago. It goes back to the early nineties, actually 1990. So I had just left Xena in the personal computer days, but those are hearing me the first time I used to, I come from the personal computer industry and I had done a lot of the early design work in the early days of the personal computer industry.

[00:22:32] And I did a startup in 1990 and we got funded by a company called Mitsui and to put it in perspective, a lot of people in the West probably haven’t heard of them, but they are virtually the exact same size as Bank of America in terms of the assets that they hold. But they are structured in something called the curetsu that I learned.

[00:22:50] So they funded my company. They did a 15 million investment in my company in 1990, which was a lot back then. It was a big deal to raise that much.

[00:22:57] Preston Pysh: That’s a lot of money these days.

[00:22:59] Bob Burnett: Yeah, it is. It is still meaningful. Yes. And so it was to design a new class of laptop computer. And a part of the deal was at the beginning, me and a couple of the other team members, we had to work inside the Mitsui offices.

[00:23:12] That was in Chicago, suburb of Chicago, Skokie, Illinois, actually. So we worked in those offices and the office was just filled with Japanese guys. Almost all the guys were imports from Japan, working locally and cutting deals here in the U. S. But I got to see how they worked and their culture and their system.

[00:23:29] And one of the things I learned from them was the way Akiretsu works, which is what Mitsui is. So the way it works is this. So Mitsui is a massive financial services company. They have all the banking and financial services that you’d expect from any big boy sort of institution. But they also own parts of a whole bunch of companies.

[00:23:49] 8%, 11%. And these are companies like Toyota and Asahi Glass and Sanyo Electronics. These sorts of things. At the time, those were like some of their investments. So, what was interesting was, in that case, they had Sanyo Electronics, they had Asahi Glass, and they had Kikoman Soy Sauce, the Kikoman brand. What was interesting, what I learned was, they own parts of all three of those companies, but each of those companies owned a small piece of each other as well.

[00:24:17] So, if you go into a cafeteria in a Sanyo production facility, it’s all Kikoman Soy Sauce. Okay. Kikkoman soy sauce bottles all come from Asahi Glass. You walk into their offices, their Samuel branded computers running everywhere. So what they’re doing is creating this economy. Yeah. With built in customers.

[00:24:41] They’re all independent. So they have enough independence. If they really didn’t want to buy Kikkoman soy sauce, they want to buy a different brand. They could, but they almost never did because. Yeah. One, they would get a good deal, and two, they’d just have this. So, in the future, what I would see is, for instance, Mitsui, providing blockspace access to all the members of its Kiretsu on a preferred basis.

[00:25:05] That being a member of that Kiretsu would come with this privilege. And it may be at a fixed cost, it may be like, Hey, this year, guys, It’s 10 sats per V byte. That’s the price for the year. And Mitsui may own 1 percent of the world’s hash rate, and they’ll service everything in their community first.

[00:25:26] Regardless of how much people are offering fees from other places, it doesn’t matter to them because their economic interest does not come from the fees in the subsidy. Their interest is in supporting these companies.

[00:25:40] Preston Pysh: Longer term business relationship and self reinforcing kind of nature. I love that.

[00:25:46] It’s awesome.

[00:25:47] Bob Burnett: So I think part of the opening here, what I’d like at least to encourage people to do is not just think about the value of a block as that subsidy but fee, but also what is the economic value of all the transactions inside the block, especially to whomever is mining the block.

[00:26:08] Preston Pysh: Okay. So pull on that thread. Help us understand that.

[00:26:11] Bob Burnett: Okay. All right. If we’ll use our Kiritsu example. Okay, if somebody is trying to buy the equivalent of a hundred million dollars worth of goods from Sanyo, Best Buy is going to purchase a whole bunch of TVs from Sanyo for the Christmas season. Okay. And there’s 20 percent profit in that.

[00:26:30] Now, and it, but it’s going to be a Bitcoin based transaction. Yeah. Well, if the fees associated with that, the Bitcoin transaction fees are 50, just as an example. But the profit associated with that is 30 million.

[00:26:48] Preston Pysh: This is similar to the idea you were explaining about getting your miners that much faster.

[00:26:52] Bob Burnett: Yes. Very similar. Exactly. Yes. It’s the time value of that. Yes. And it may be extremely important because they’re not going to start. All the supply chain, right? Like until that money lands from Best Buy, like they’re not going to go, then go by capacitors and resistors and diodes and other things. Like that’s a big deal.

[00:27:12] Yeah, it’s a big deal. So whether if somebody else on the outside is offering 1, 000 for their transaction, if that’s their fees. Yeah. And this one only has 50. Does Mitsui care? No, they don’t. They’re going to put their stuff in because they Now, the guy that offered a thousand, he’s got a shot that maybe in the next one it will, it will get picked up.

[00:27:35] But also remember that that may not move the needle much because a whole bunch of the space may have already been pre sold to other people.

[00:27:43] Preston Pysh: So don’t you see a secondary, like it would be considered like an overnight money rate, but let’s call this an over 10 minute. Money rate for getting in the block that you have a service provider that is specialized in a derivative of every 10 minutes.

[00:28:00] Yeah. Right. I would think that there would be some type of provider.

[00:28:03] Bob Burnett: I’m sure it will emerge what I’m trying to, I think, maybe prepare for people, by the way, there’s a whole bunch of ideas. I’m working on a few of them. You’ve talked about probably four or five different ideas about. Pieces of the infrastructure that will need to be developed and probably become highly profitable.

[00:28:19] Yeah. The days of just looking at the mempool and saying, Oh, it’s 15 sats per vbyte to get in the next one and 10 if I’m willing to wait for six blocks. Those days are over and the simplified accelerators, there’s a couple accelerators out there, but I’m glad people are doing it. It’s part of the evolution, but I don’t think they really are meaningful in the long run because of what we’re talking about that the maturity forces this to go way back.

[00:28:47] So when a mining company, if you’re just a mining company, you look at the world one way. You’d look at it as subsidy in the fees. If you’re a financial services company, you look at the block, not so much from the block reward, but from what it enables for your clients and your own company.

[00:29:06] Preston Pysh: I love it.

[00:29:07] Bob, let’s shift gears just a little bit.

[00:29:09] So Michael Dell. What are your thoughts on this with your background that you have? I mean, people look at Saylor, they know he’s a multi billionaire and like his influence on Bitcoin and how much he’s really kind of more from an education standpoint, but obviously from a buying standpoint too, but Michael is nothing compared to the size and firepower of a, like a Michael Dell.

[00:29:30] And now he’s talking about it. And we have Many other people that are massive names in business talking about Bitcoin. What are your overall thoughts? Are we kind of at a Really important moment in time in the history of Bitcoin and what’s coming in the coming year? Like what are your thoughts on all this?

[00:29:49] Bob Burnett: I think we’re just starting to see the sprouts come through the ground. The reality is, I can’t speak to Michael Dell specifically, although obviously I have a lot of respect for him. But I can say, like, even in my small company, we have investors inside our mining operations that are multi billionaires.

[00:30:09] I’m not able to publicly disclose who they are. But I can say that multi billionaires have invested in mining operations with barefoot. And somebody like Michael Dell, especially if he does it in corporate treasury with Dell itself, would certainly be earth shattering. But what I would say is the roots are all over the place already.

[00:30:30] That’s, I guess what I’m trying to say. Yeah. Yeah. We’re just seeing the first visible signs of these things having happened. And I honestly love the way he’s doing it. I hope what happens is it extends well beyond his personal, and it includes treasury for Dell.

[00:30:46] Preston Pysh: Do you know the governance on the, so like one of the reasons Michael has been able to do it with so much firepower at MicroStrategy is really the governance and how much voting rights he has with the common stock.

[00:30:56] Bob Burnett: I don’t know what that is for Dell. I’m pretty sure it’s still got a majority of the company. Yeah, wow. That he can, basically, the question you’re asking is, can he pull it off? Yeah, I think he has. Even with a board that’s reluctant, I think he can force it if that’s what he really wants.

[00:31:12] Preston Pysh: Wow. Any other big names like Michael Dell that you’ve heard or that you think are on the horizon or through the close of 2024, what are you thinking?

[00:31:22] Bob Burnett: The only question is how public do some of these guys want it to be? Yeah. I’m telling you that they’re toes in the water.

[00:31:30] Preston Pysh: Yeah.

[00:31:30] Bob Burnett: They’re a million here, a million there, which is, that’s a taster for those kind of folks in that class of wealth. But there’s a whole bunch of them that are already there.

[00:31:41] And I think a lot of them, you’ll never know, but hopefully a few of them get public, but it’s happening.

[00:31:47] Preston Pysh: You had Cuban come out just yesterday or I think it was yesterday saying that he thinks that the whole Republican leaning into Bitcoin is a function of Silicon Valley, basically leaning into Bitcoin.

[00:32:00] And that the reason everybody’s getting behind Trump is because of Bitcoin. I mean, this is coming from a billionaire, a person who’s been pretty anti Bitcoin, very pro crypto, but very anti Bitcoin. I’ve had a debate with him on Twitter just four years ago or three years ago or whatever. So it’s kind of interesting to see a guy like that starting to come around and saying these things.

[00:32:21] Bob Burnett: Sure. The political winds have changed a lot. Massively. Right? I don’t want to violate confidences. I had lunch. About three weeks ago with a really prominent congressman. And then I had another meeting with the head of his staff a week ago. This is on their radar at a whole different level. And what’s refreshing to me, what I’m surprising is it is not crypto.

[00:32:47] It is Bitcoin. That’s probably the biggest surprise to me. Even like you said, like coming out of Silicon Valley, even Cuban, I saw some of the stuff yesterday. It was not what I would have expected, which would have been probably a crypto ish thing, maybe including Bitcoin, but yeah.

[00:33:04] Preston Pysh: I have three engagements with three U. S. Senators at Bitcoin in Nashville next week. And I mean, that’s awesome. I’m nobody, right? And so I’m saying it because it’s so different than anything, anything that we’ve seen in the history of Bitcoin, that we have all these, it’s like they’re coming out of the woodwork right now for whatever reason.

[00:33:27] Bob Burnett: Yeah. And I’ll point out too, it’s not just the U S too. I was in Prague three weeks ago for BTC Prague. Yeah. Like the middle of June, I met with a Senator from the Czech Republic when I was there and it was very supportive, very supportive. Yeah. So the winds, as you’ve said, have changed a lot. And I hope that it’s a genuine that there is some substance.

[00:33:51] I think all of us go on a Bitcoin journey, right? I think almost all these people are in an early stage of the journey for them. I think it’s about votes and power for a lot of early Bitcoiners. It’s about number go up. And then we, after we go through that phase, we usually find the ethos and the other things.

[00:34:08] I hope the same thing happens for them. But we’ve seen, look at Larry Fink’s interview. Was that last week?

[00:34:13] Preston Pysh: Yeah, on CNBC, right?

[00:34:15] Bob Burnett: Oh my goodness. That was crazy. And now even this rumor of Trump saying, well, if I’m elected, I want Jamie Dimon to be the secretary of the treasury.

[00:34:24] Preston Pysh: Yes. Well, But, but it’s to the point, it’s to the point of, it’s such a 180 from like what we were, I mean, he was in Davos just six months ago.

[00:34:33] Yeah. Literally said on camera, I’m never going to talk about Bitcoin ever again. Right. And now you’re seeing these headlines and Trump literally saying that he’s changed his opinion on Bitcoin. I mean, it’s just also weird. It’s also fast. And I think the knock on effect for me is this is happening in the United States.

[00:34:50] So what’s going to happen in all these other countries that are kind of looking at the U S from the lens of, well, if they’re doing this, well, we need to have some type of point of view or position on this. If they’re leaning into it is what I suspect we’re going to start seeing the knock on effects. I would assume you agree.

[00:35:06] Bob Burnett: Yeah, I definitely agree if trump takes the move again twitter for whatever it’s worth the things about oh trump’s gonna announce it’s part of the strategic reserve and I don’t know that would have a pretty dramatic crazy Global effect.

[00:35:22] Preston Pysh: And this is a rumor for people that are listening to this. And yeah, there’s a rumor that he’s going to come out with that announcement at the Bitcoin conference. He’s going to come out and say that he wants Bitcoin to be part of the strategic reserve of the country. Now, whether that happens, I have no idea these rumors, who knows what’s real.

[00:35:36] Yeah. I mean, but that would be like a shot heard around the world. If I would think that that would make mainstream news everywhere.

[00:35:43] Bob Burnett: Well, he also made a statement. This goes back a couple of weeks. She was while I was in Prague and he said. He wants all the remaining Bitcoin to be mined in the U. S., the last part of the subsidy.

[00:35:54] Preston Pysh: Now, I don’t even want that. This is hilarious.

[00:35:57] Bob Burnett: But if he aggressively said, hey, this is a sovereign issue, much like…

[00:36:03] Preston Pysh: Because that’s what he is saying indirectly, right? That’s what he is saying.

[00:36:06] Bob Burnett: Yeah. And so we certainly have the capability of making something close to that happen. The U. S. could mine.

[00:36:15] A massive percentage of it. And I think some others in the world would respond to that. Yeah. But they’d have to be big ones, right? I mean, you’d have to be like Russia, China sort of initiatives to go try to fight that.

[00:36:28] Preston Pysh: So I had this conversation in the last interview that I had, where we’re talking about AI and we’re talking about the energy that’s required to run all these models.

[00:36:38] And especially if you’re going to continue to expand them and make them more powerful, you need tons of power and energy to plow through these models. And when you’re looking at maybe a country that doesn’t have any type of grid infrastructure or power, Bitcoin becomes this thing that solves the chicken and egg problem for these countries that want to try and play in that space.

[00:36:58] And I think everybody is going to want to try and play in that space. Especially if models are very centralized and controlled and biased towards certain learning. If you’re a small independent country and you want to have your own models or whatever, like you got to have the energy to build them out.

[00:37:16] So it seems like Bitcoin becomes a critical component. I’m curious if you agree with that, or would these countries just outsource that here to a country that has a ton of power already in the infrastructure and has these GPUs at their disposal. Are we putting too much weight on Bitcoin’s importance to be upstream of becoming dominant in AI?

[00:37:36] Or is it, does this kind of go hand in hand?

[00:37:39] Bob Burnett: Well, I think there’s something there. It probably depends on the type of country that we’re talking about too, because the AI stuff, we’ve continued to look at it. We haven’t done anything yet in it, but it is really expensive to bring up even the smaller end of the scale, tens of millions of dollars like that, just of capital.

[00:38:00] Preston Pysh: Mostly for the acquisition of the GPUs. Is that where that cost is coming from? And then I’m assuming like once you get those things in place, it’s very expensive to try to move them or store them. Like you’re just trying to keep another customer on the hook to basically run them. Right?

[00:38:16] Bob Burnett: Yeah. You have to build a data center. It’s not, you cannot build the type of thing that we typically build.

[00:38:23] The infrastructure around that, the cooling systems, the power source backups, the failovers of your internet provider. Like we can, as an example, like an internet. Okay, so basically all of our operations we have dual internet. And if what we do is we have failovers, So like if we’re running an operation and we lose one of the internet connections, which happens sometimes the second one does fail over and take up the missing link.

[00:38:52] But it’s honestly a pretty inexpensive solution. We buy a solution for, let’s say, hundreds of dollars that lets us do that. There are situations where it might fail. And if they do, we have to have a technician go and fix it manually. And if that happens, We might lose hash power on a block or two, not good, but not that much.

[00:39:14] Or we could spend tens of thousands of dollars on a much more sophisticated solution that would make that sort of stuff almost impossible to happen. But we can’t justify that level of solution because what we’re doing just doesn’t have, again, the opportunity cost of a block. Maybe it happens a couple of times a year at most.

[00:39:35] So, okay. So the AI guys can’t do that. They need a whole different level of solution. I think what will more likely happen is that in the U S any big energy that is available, but I’m talking about is a concentration of a large amount of energy, 50 megawatts, a hundred megawatts, a bigger number that typically.

[00:39:58] Recently have only been the target of Bitcoin mining are going to get usurped by the AI guys. They can pay more.

[00:40:06] Preston Pysh: They can pay a lot higher price. So they’re not as sensitive to the cheap energy. They’re more sensitive to where is the infrastructure even exist to basically run this through without turning everything else on that particular grid off.

[00:40:20] Is that properly characterized?

[00:40:21] Bob Burnett: However, in places where either the grid is less stable or some country where the grid is less stable, Ethiopia, let’s say as an example, Nigeria, Central American country, or where the energy is stranded. And the person running the mining operation is also the power producer.

[00:40:40] For instance, like if we have a stranded gas site somewhere, well, those generators come down for maintenance. We have to change spark plugs and change oil and do all those types of things, right? Just as I said before, it’s not a big deal. If we’re off for a little bit, we build that into the business plan.

[00:40:55] We know how often that’s going to happen. And so I think what AI will do is it will push Bitcoin mining into secondary territories. Like you talked about Africa, Central America, South America in the U S it will push it off the grid into what I call wild mining, which I think is the best thing for it.

[00:41:15] That it’s going to be less subject to government control and capture and those sort of things. And if the government does get into mining, like we talked about, if the U. S. government wants to mine the last 1. 2 million Bitcoin or whatever we have left, remember that probably means they control all the blocks.

[00:41:33] For that period too. It’s not just that they’re acquiring the Bitcoin, they’re acquiring a whole bunch of access to the block control. They’re gonna want OAC compliance, they’re gonna have blacklists, they’re gonna have whitelists. They’re gonna have things that Bitcoiners don’t like. So having some part of the infrastructure that can run independent of that is gonna be really important.

[00:41:53] Preston Pysh: And the power of those lists, because people hear you say that and they’re wigging out, but the power of that list isn’t that they can. Fully stop a transaction from happening. They can just pun it and kick it way further out than what maybe somebody would like. So you might be accustomed to being able to get right into the next block, but maybe in this world 20 years from now or whatever, you might have to wait two months before your transaction, even though you’re paying a very high fee gets included.

[00:42:21] Is that properly characterized?

[00:42:23] Bob Burnett: It could potentially be worse.

[00:42:25] Preston Pysh: Really? Okay. So go into that. Yeah.

[00:42:28] Bob Burnett: Let’s take an extreme example. So organizations which are maintaining these blacklists, let’s just say have 99 percent of the world’s hash rate. Just pretend that 1 percent is quote unquote, the good guys.

[00:42:41] So along we go and we start hashing one of every hundred times the good guys win. Now is where the nodes become important. And what chain are you following and all that? Because what can happen is they all ignore it. The 99 percent ignores it. And so they’re going to try to orphan. It’s called orphaning.

[00:43:00] They’re going to try to orphan this block. The cartel example that you were talking about earlier.

[00:43:05] So let’s just say it’s block 900, 000. So the good guys mine block 900, 000 and let’s say it includes a couple transactions that are not supposed to be in it from the perspective of the 99%. So the 99 percent would say we are going to mine a different block, 900, 000.

[00:43:24] It may come a few seconds after this one. Okay. Or a minute or two, and then we’re going to go mine block 900, 001 as well. So they now have the longer chain. Yeah. 99 percent has the longer chain and it does not include the transactions from this other one. So now the node has to decide it’s set up to follow the longer chain, which would be the 99%.

[00:43:48] Is it going to do that or are we going to fork? Yeah. Well, if you fork, then you got to have enough miners and enough people that place economic value on that now shorter chain to sustain it. And I can’t tell you what will happen, but it, I would probably bet on the 99%.

[00:44:07] Preston Pysh: I love that you’re bringing it up and I think that it’s something that needs to be talked about more.

[00:44:11] And I think it really kind of speaks to your push for this wild mining. You have smaller mining sites, not these massive, publicly owned mining companies that dominate everything to ensure the integrity and the execution of what Bitcoin is set out to accomplish from the beginning, which is decentralized money that can’t be censored and be stopped by the government.

[00:44:36] Bob Burnett: Yeah, I don’t want to make just sit here and spew things that make people afraid, but I think that it’s important to know what could happen, but also to know that it’s 100 percent avoidable. We just have to support those efforts that make this decentralization take place.

[00:44:55] And that’s hashrate diversity, especially privately held. What I call wild mining is the best. We need block template decentralization. And I’d love to see things like ASIC. Decentralization and there’s other things and some of us are working on some of those things too, but it’s why like for me I’m working on an ASIC project.

[00:45:16] I’m invested in a pool. You’re at our launch for ocean I’m working on the blockspace derivative product. I’m working on a lot of these things because I believe they are If we develop them now and we do it right, we can do it in a way that promotes the decentralization. If we wait too long till we see the threat, it’s too late and we feel the threat, well, it’s too late.

[00:45:37] Preston Pysh: Yeah. Bob, I love these conversations. You always teach me so much. If people wanna learn more about you or just hit a link after they’re done in the show notes. Where do you want them to look?

[00:45:48] Bob Burnett: Barefootmining.com is where you can learn about barefoot. I’m on Twitter at boomer btc. If I could too, but before I sign off, just the 30 seconds when I was on your show last time, it was like six months ago or so, whenever that was.

[00:46:02] I talked about our ASIC project. Yes. Which is a group called M fives. So I did wanna let you know that project is alive and well. Wow. That we’re about to close our seed round and with, I can’t say with whom, but we’ve got a phenomenal investment partner from the semiconductor industry. That we’re working on our foundry relationships.

[00:46:26] We’re very confident that we’re designing to two nanometers. So for that, we’re pushing the edge there for those of you geeking out in the mining industry. We’re very confident as we get into, it’ll be a year or so to still get to market. We’ll bring it down into the sub 10 joules per terahash in terms of energy efficiency.

[00:46:47] Hopefully way below that. So anyway, I want to let you know that that’s going, I’ve had a few people, we mentioned it on the last show and some people have asked me about it. So that’s what I can tell you about that project. And also my verifiable random number project is alive and well, if people want to play around, they can go to chaos engine.

[00:47:04] com it’s still in beta, but you can see it work. And if you ask on that website, you ask it to flip a coin or something like that for, that. And the back end, there’s an S 19 that’s doing the horse power behind that. So anyway, that project, and there’s a whole bunch of tentacles of that project, maybe for another time.

[00:47:20] Preston Pysh: Well, this is important. So if you’re hearing all that and you’re like, wow, that’s all that stuff sounds really interesting, but I don’t necessarily know the full extent of what he’s talking about. I’m going to have a link to our first conversation in the show notes. Definitely check it out because we covered some really interesting stuff that’s typically not talked about too much in, at least in my opinion, in this space.

[00:47:39] So we’ll have the link to that discussion in there as well. So you have a little bit more context on some of those ideas.

[00:47:45] Bob, thank you so much for coming on and making time and just keeping us educated on all this stuff. It’s amazing.

[00:47:51] Bob Burnett: Well, thanks. Thanks Preston. I love you. I love your platform and thanks for having me on man.

[00:47:55] Preston Pysh: Thank you, sir.

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