The Flare Gas Bitcoin Mining Business - Matt Lohstroh from Giga Energy - e17

Hey, Michael here. You will now hear some episodes of the Michael Girdley Show that we had branded differently, called Unusual Profits or some such like that. Same show, same person, just me interviewing people and producing content that could be helpful on your journey and mine as well. So with no further ado, here's the episode. Hey, Michael here. Sponsor for today's show is actually a product that I'm a part of called DM Bridge. And what DMBridge is, uh, is a service that we built, uh, to solve the problem that Twitter's direct messaging functionality is a total mess. So we built DMBridge to help you fix that. Um, a lot of the other solutions, uh, do things like requiring you to install a whole nother inbox. We didn't want another inbox, so we created DMBridge. And what it does is it takes all of your Twitter DMs and has them appear inside of your email inbox. So you can reply to them just like it's a regular email. You see them just like it's a regular email. You can search them later like it's one of your regular emails, all just by using DMBridge. So, uh, we're currently live with the product. Uh, would love for you to sign up and become a customer, uh, and check it out. So you can find that at dmbridge.app, uh, and go on there, put in your name, uh, and be either part of the beta or join us as part of the live use of the product. And again, check it out, dmbridge.app. All right. I am Michael Girdley. Welcome to another episode of the Unusual Profits Podcast. This is the internet's number one podcast about unique niche businesses, the people that run them, and how they make money. Today I have a super exciting guest and a cool business that I'm really excited to dig into. Matt Lustro is with me out of Beaumont, Texas, and we are coming to you live across the internet. And I'm super excited to dig in. Matt, Matt, welcome to the podcast today.

Yeah, thank you for having me, Michael. I appreciate it.

Cool. Well, let's just dig right in. So tell us what the business does. And I know we have some visual aids, so if people are on YouTube, I'm going to pull those up. But tell us what your business is, what it's called. It's called Giga Energy. Like, what do you guys do? What's the mission?

Yeah, yeah. So, so Giga Energy, our mission is we are vertically integrated natural gas Bitcoin-only mining company with a focus on the lowest expenditure possible. Are you familiar with the flare in terms of flaring on a natural gas well site?

Somewhat, but it'd be good. Tell us what that is.

Okay, so oil producers, when they make natural gas, it's called oil and gas for a reason. You have that hole in the ground, oil and gas flows with it. And so oil comes in liquid form, natural gas is in gaseous form. And so transporting oil, especially at high price points when it's at $60, $70 a barrel, is very easy, right? You can truck it in and out and it's very dense. Natural gas, on the other hand, is very cheap. It goes from anywhere right now from $2 to $4 a unit. Problem is, in its gaseous form, it requires pipelines majority of the time. And so when there is lack of infrastructure on an actual location, for instance, a pipeline to actually pull that natural gas out economically, it's more advantageous for the oil and gas producer to say, hey, I just want my oil and the natural gas becomes a byproduct. I'm going to actually burn it off on location on the oil well in a big torch, if you would think of it. And so the visual is very striking when you see it of here's this power that's just being wasted just so we can get this other power which has a higher power density and economically incentivized to do so and legally allowed by the state. And so what we do is instead of flaring that gas or combusting it in a torch on oil well, we redirect the gas to a natural gas engine which generates electricity, combusts the natural gas, electricity is generated, and from there that electricity then powers shipping containers on an oil well, right? We're still on the same oil well at location, like 40 feet away from the natural gas source.

Yeah. And so for those of you on YouTube, I pulled up— Matt shared two pictures of, of these devices. I just pulled that up. But so, so we have this natural gas engine which basically just looks like a big tractor engine. It's even painted yellow. And that's taking the flare gas. It looks like straight out of the ground.

Exactly. Yeah. So you see those pipes coming in on the side. Um, and so on the right-hand side, you'll see, uh, that, that kind of shiny black pipe that goes what's into a separator or scrubber is what we call it. And so that natural gas flows in and any liquids it'll pick up and they'll separate that. Uh, so liquids fall to the bottom, which is generally oil or what's called condensate. So when you have natural gas, the over time, the colder it gets, you have different percentages of methane, ethane, propane, butane, and at different temperature points, those liquids or those natural gases condense into liquids. So they're called NGLs or condensate. And so it separates out and then we pull the natural gas, which is nice and dry out of the top. So we have multiple scrubbers at each point in time catching that. Those liquids and natural gas and collecting them later. And then finally, right, we have that matte black pipe which runs into that generator. So it's actually very small. We're running relatively 1 to 2 PSI into there and powering the whole engine with all that volume from there. So we actually have— you see in the far left-hand corner, you'll see the specs of another yellow engine that's also being powered out there. And so we actually have 3 of these generators on location. They're quite large. I mean, V12 engines out here combusting, uh, natural gas. So this is a picture right towards the end of setup when we were deploying these units. And so on the right-hand side, natural gas creates electricity, and on the left-hand side, uh, what's consuming that load or that electricity is Bitcoin computers. So we mine Bitcoin on the actual oil well.

That's awesome. So, okay, so the gas— this— the normal flare gas comes out You guys do a bit of condensation around it to make sure kind of that stuff that's in between oil and in between pure natural gas goes into the engine. And then how big is a typical, typical engine in one of your deployments? So that's like a 400-horsepower engine, 300. I mean, this is— these are big suckers, at least from looking at the picture.

Yeah, yeah. They're— this engine you're looking at is actually 500 horsepower. So quite, quite a bit of load that you are turning out here on these locations.

And then, so a 500-horsepower engine, how much power, like from a kW, kilowatt standpoint, do I get out of that?

That would be 350 kilowatts of power that you are outputting.

Okay, so that's 3,500. Okay, great. So then, and I want to come back to this definitely, but so then, then the power comes out of that and then, then what happens? So you have, you have these, I just pulled up another picture and there's like a shipping container looking thing that has it looks like some windows on it and some lights on the inside. So what, what's happening after the power comes out of the generator?

Yeah. So these shipping containers we custom fabricate in-house at our manufacturing facility and we build them out. Essentially what we're doing is we're waterproofing, doing hot, hot aisle and cold aisle alignment with computers, which is separating. So you have the intake of cold air and then separating that hot air. As it gets vacuumed out. So what you're seeing on these window sides are actually industrial fans that are pulling or vacuuming out the hot air. And so a particular Bitcoin miner, the way they're designed, they have their chips that consume a significant amount of load all lined with heat sinks to dissipate that heat. And then on the actual computer, there's an intake fan and an outtake fan pulling air in, pulling it out at the same time, vacuuming that through. but you have to displace that heat from the computer, especially when you have hundreds of computers in here. And so then what we do at that point is, uh, continue to pull the load of hot air through the back through those vacuum fans. And then as well as in there, it's waterproofed. Uh, you have intake, air intake, air filtration, uh, on these dusty oil field locations. You'll have electrical distribution because keep in mind, 350 kilowatts is a massive amount of power.

Yeah.

For reference, my townhouse consumes approximately 1 megawatt a month. So in 3 hours, I'm consuming more than my home did in a whole month. And so it's a massive amount of power on the electrical side of saying, from an electrical engineering standpoint, it's like, okay, how do I fit all this power into a 20-foot shipping container? And then of course, networking equipment, network switches, all of those things. Because when you multiply by a couple hundred, right, it gets a little convoluted in terms of, okay, how am I going to engineer and architecture all of this?

Wow. Okay. So then if I double-click like inside of one of these shipping containers, there's a bunch of fans pushing air through in line with kind of the, the classic miners. And then are the miners you're running, they're just like the typical ones I've seen. There's like a, 2-foot by 6-inch by 6-inch kind of tube, like the Antminer style?

Yeah, exactly. Yeah, yeah, yeah, yeah, yeah. So it's 5 inches by 5 inches wide and then about 14 inches deep. No computer screen on them, nothing like that. Just a little Ethernet port. And so they just require power and internet at a consistent basis. The trick is getting that power at a low enough cost so that you have margins to run a profitable business.

Got it. Okay. Well, and then like you talk about this cost. So in practice, say when you have one of these set up, right? And if I'm paying whatever it is, 6 cents a kilowatt hour at home, like what is your— what in these ones that you've deployed, what is your effective kind of power cost now based on having everything in?

Yeah. So for reference in the big scheme of things, the average cost of electricity in Texas is about 11 cents. Worldwide. No, I'm sorry, within Texas. Within, think of it like a really good industrial contract, they're going to be in that 8 cents range, maybe if you're a factory consuming high amounts of energy. Really good miner hosting capacity around the world is going to be anywhere from 4 to 6 cents per kilowatt hour. And past that, when you have these hyper Bitcoin world-class facilities, they're going to be in that 3-cent range. Oftentimes, we are below 1 cent per kilowatt hour on these oil well locations. So a big part and the main cost in that comes into how efficiently can you operate a natural gas generator? How often— You have oil changes and they have regular preventative maintenance. You got to do compression tests. You got to maintain them. Stuff will break on them. Each one of these generators, It's not B2B SaaS, right? There are 200 moving parts on a generator that will break over 50,000 hours in a couple of years. And so the trick is how do you predict that unpredicted downtime and prevent it long-term into keeping your uptime as best as possible for your kilowatt hours?

That's cool. Okay, well, and then there's one thing we haven't really talked about here, and I noticed there's antennas on the top of the on top of the miner, because the Bitcoin miners have to be constantly going out to the internet. So how do you guys— how have you solved that? Because it looks like this device is also out in the middle of a field in the middle of nowhere. It's not like it's downtown Manhattan. Like, so what is— how does the connectivity work?

So, okay, the way Bitcoin mining compute, compute power works is it's high compute, low bandwidth. So it's very easy on cell signal. And so what we do is we actually run cellular modems This is a very common oil field application. We're using maybe 2 megabytes up. So I just need to get anything over 4G and I can use Bitcoin mining. In some locations, we are using satellite as well. And I will be using Starlink once it's available in my area. So we'll be transitioning over to that. But in terms of cell signal, it's not bad at all. The hardest thing sometimes is tree lines. And so I'll have to run maybe a 300-foot power Ethernet cable just to get out of these areas and then create a waterproof housing and run those. So that all that is, is a cellular modem picking up AT&T cell network.

Got it. Okay. And then so how much, how much— so you have big— it looks like a huge capital expenditure. So how much, you know, could you break down like what's the total budget to do, say, like a middle-of-the-road deployment of one of these? Then what are those costs as they break down?

Yeah. So I'll give it on a generalized megawatt basis of cost, because again, you're speaking my bread and butter. The biggest thing with Bitcoin miners is they're so focused on getting a low operating cost. How can I get down to 3 cents? How can I get down to 2 cents? They'll spend $2 million to get there. It's like, well, you're never going to pay that off. So it's this very cash flow game where, especially the guys in China, they literally never have any money. They're always out of money. And so there's just this constant game of getting ahead. And so our mission on this side of things, oil and gas is used to this kind of infrastructure, is to say, how can we have the lowest capital expenditure possible and optimize for that? And so starting with the shipping containers, those are about $80 to $75 per kilowatt. So if I'm building 1 megawatt of infrastructure, this can be $75,000 to $80,000. And as it gets higher, it'll get cheaper with economies of scale. And so on the Bitcoin mining side of things, what that particular computer in there that you see is called an S9. It was built between 2016 and 2017, and they have 14-nanometer semiconductor chips from TSMC in there. So the M1 Apple MacBook that I'm on, that's 5 nanometers. The newest generation of Bitcoin mining computers are at 5 nanometer. And so these are 3 generations older than those latest and greatest. Those computers have a fluctuation with the market rate. The capital cost of an S9 really just tracks its future cash flows. It's fascinating to see these free market dynamics work. In that, so back when Bitcoin profitability was nearing an all-time low in October of 2020, the S9s were maybe $40 or $50 apiece. At some points, they were $30 and people were saying, "If you just pay the shipping cost, I'll give them to you for free." Because there is a— along with payback, there's also just a breakeven cost. And so the breakeven cost at its lowest point for an S9 was about 3.8 cents per kilowatt-hour. Think about that. With all of your overhead and your electrical costs, you have to be at least cheaper than 3.8 cents. For me, that makes sense. I can pay those suckers off in weeks, but for most people, it doesn't make sense. That's why you see people going to the Gen 2, Gen 1 models of computers. The actual S9 will track its cash flows. Market rate today, because again, mining profitability is at an all-time high, is around $400, $450. And that is generally kind of what it is today. And it could literally just change next week based on profits. And so people will change on that end of things. And so for a megawatt, okay, do some quick math. 666 S9s, 2.5. Yeah. So 666 times $400. So yeah, you're looking around a little, little over $250,000 for a megawatt of S9s.

Okay. So like you said, this is 35— 3.5 megawatts, 3,500.

No, this is 350. So this is 1/3 of a megawatt.

1/3 of a megawatt. Okay.

Okay.

So probably it looks like then just all in is doing mental math like it's $250,000 to set up one of these at this size of the one you just showed me.

Yeah, around that today it's about $250,000.

Okay. And then, so payback-wise, in terms of after you guys deploy one of these things, I guess you just talked about the vagaries of Bitcoin prices versus the difficulty in mining, that, that all affects your, your payback, but like, so middle of the road, kind of, what do you model as, okay, if I'm going to put one of these down, our payback is, is X number of months. Like, do you, how do you guys, how do you guys typically see your, your payback there?

Well, and on the other side of things, when looking at the capital expenditure, there's also the cost of the generator. So that's a big price point for those. And so generator, right? Because you got to buy those too. That's where it's at, right? You can get this free energy. However, you have to have an upfront capital cost to get free energy. And so those generators cost anywhere from $200 to $300 per kilowatt.

$200 to $300 per kilowatt. Okay. You're giving it to me precisely the way I think you've analyzed these and my model them out.

I've—

and I'm trying to come at it from the other way, which is, okay, this one you just showed me, how much did that cost to build? And then— about a quarter million. About a quarter million. Okay. And then about— it sounds like about half of that was liners and a quarter of it was generator and the rest was just all the other stuff.

Yeah.

Is that—

install, rock pad installation, right? Because you got to do all that. You got to get the plumbing, the actual piping to get it into there. I mean, we have to do the whole, whole nine yards as an oiling because we consider ourselves, right? My business partner is third generation oil and gas. And so we are in the neck of it of doing all of it ourselves and being— and we have the operational ability to do it all ourselves.

So yeah, super cool. Okay. And then so, so $250,000, what based on your models is the payback for, say, this particular unit that you showed me? Like how many months until you get all your money back?

You're looking about 9 to 12 months.

9 to 12 months. That's pretty good.

Yeah. And that's, again, very fluctuant on Bitcoin side of things, but in terms of on the longer end of it, when you're trying to be as low capital expenditure as possible, you're really able to get quick payback on these things. Buying used generators instead of brand new generators, buying used computers instead of brand new computers, making your own data centers instead of buying them out in the market. And then I can make a data center or that shipping container in 5 days, whereas it'll take you 3 months to ship one in from a manufacturer. On that side of things, that's really why we do it, is not just the capital expenditure side of things, but it's like Bitcoin is so much in its infancy that owning the production and avoiding the bottlenecks can make you so much on your opportunity cost.

Preston Pysh Yeah. I hear you. I guess one thing I've been curious about is what is the business model with you and the gas supply? Are you selling your units to— the upstream guys, the drillers, or are you going to them with a joint venture, or are you just paying them a flat rate? What is your business model vis-à-vis them and also the capital required to build these things?

Yeah. So oil and gas producers don't care about Bitcoin, especially the smaller ones. Bigger ones like Exxon and people like that, they're dabbling in it in the publicly traded companies, but the medium to little guys, they literally don't care. They just want to get more money. And so much less, they don't want to put, sink a quarter million dollars into something they don't understand with revenues that are a complete different stream of revenue from what they actually make. And so we did this whole sales pitch. We're like, "All right, this just doesn't work. They don't care about this. They don't care about that. They just want to get paid in a language they understand." And their language is called MCF, so thousand cubic feet. And that is the metric that natural gas is measured in. So market rate today for one MCF or 1,000 cubic feet of gas is about $4. And so what we do is we come in, we just do what's called a gas purchasing agreement. And we say, "Hey, we will pay you X amount of pennies per MCF. You were getting zero before. Now you'll get something. You'll look better on the ESG side of things. You won't have this nasty flare on your site and it'll create goodwill with your investors and what you're doing." "And we can take this gas and we'll be out of your hair." That's the way we model it on that side of things. And then we bring in our own generators, bring in all of the power load and infrastructure, manage everything on that end of things. And all they have to do is provide us a hose of natural gas, if you would, that provides to us, and then they go on and do their own thing. We cut them a check. And so it's in the language that they understand and it makes it very simple on that side of things.

So how— so I know there are times in which wells become unprofitable for the upstream guys to operate. So how are you choosing which— which— well, first of all, which, you know, MCF providers, which drillers to work with? And second of all, how are you choosing which sites you want to deploy at?

Yeah. So mainly just comes down to cost of gas. I mean, that's your cost of power. And so If one guy's at 10 cents and the other guy's at 20 cents, we'll go with the guy with 10 cents just to make sure we're keeping it as low as possible. Obviously, on the side of due diligence, we'll make sure that these wells, when oil drops to $20 a barrel, will still be fine on our contractual basis. But in the big scheme of things, the types of wells that we go after, vertical wells, low-producing wells, older wells, their cost of production is very low. They're the ones that will have the best margins. And so we don't have to worry about them going under as much. Whereas if you go out to Midland or the Permian Basin, or you go up to North Dakota in the Bakken Basin, those are horizontal wells. And so they're doing a lot of fracking and that stuff has a very high cost of production. So when oil drops to $40 a barrel, they're the first ones to fall off and you don't want your stream of natural gas to be cutoff.

Yeah. So you're just— to make sure I understand that you're picking, you're picking well sites that are ones that they're just straight up and down, low producing. You know, this is going to be material to whoever the producer is, but the big gushers or the high risk, high reward, like this isn't happening in the North Sea, North Atlantic type stuff. So, okay.

Uh, yeah, there are a lot of Bitcoin miners out there, but strategically we have decided not to go there. So there are a lot of Bitcoin miners in Midland, in the Bakken. We just— our business model-wise, we've decided not to do that.

Yeah, I hear you. Okay. So, and then so I'd love to dig into operationally, like, so you get the thing set up, you get it going. Like, what is your strategy to deal with like maintenance on the engines? Like, do you geographically try to cluster these? Like, you know, when a miner goes out and you have to swap it out, like, how do you— how does that affect your profitability and how do you kind of strategically deal with those kind of operational challenges?

Yeah. So first on the generator maintenance side of things, right? We're trying to be vertically integrated. And so that's what we're growing for. Uh, one of my next hires is going to be a mechanic full-time, and we're just going to have a mechanic in-house that does all of our preventative maintenance so I can stop paying $95 an hour plus mileage to repair these generators. Right. And so my cost of production is super low. I'm just trying to figure out how do you get it even lower? And so that's the kind of vertical integration we're looking for where We're not just a Bitcoin mining company, we are also an oil and gas company where we understand the nuances of all of this. Heck, we're even a generator company, optimizing all these generators out here. So on that side of things, right now, we have contractors who come out there and repair it on a regular basis. Generally, there aren't that many repairs. It's just when something does go down, it is critical that you get it fixed as quickly as possible. On the other side of things is the Bitcoin maintenance and just the general maintenance of checking on that generator. So the generator's going to run fine, but you need someone to check up on it every at least 2 days just to see that it's going well. So on a monitoring basis, we have IP in-house where these are real old generators. That generator you saw is from the 1970s. What happens though, is called a remanufacturing process. So the actual metal on the outside of the engine stays the same, and you go and you tear the guts out and you put new guts in, and it's essentially a brand new engine. It's called a zero-hour engine. And so on that side of things, with the engine from the 1970s, it's really old. And so what we've done is you can actually put universal equipment on there that will digitize the whole thing. From a monitoring basis. So I can get my oil pressure, my water temp, right? All of that remote start and stop, everything that I need to know. So one, if it throws a code, if it goes down, and to identify what needs to be done or prevent it. Is my water temp, my coolant temperature too high? Right. Okay. What does that lead to? Oh, there's a leak over here. How do we get a barrel of antifreeze out here to fill that up? Or is it burning oil? Or. Right. All of those nuances. We can monitor on a remote basis. And then as a— so that's our secondary. And then our primary is having someone physically out there. So when we pair those two data points together, it gives us a very powerful monitoring of these really old engines. And so all that's done remotely. We have what's called PLCs, programmable logic controllers, that allow us to monitor everything remotely. And then we have what's called a pumper. In the oil and gas realm, there's things called pumpers. What they do is every day, they go to the well, they check it, and they may check 15, 20 wells a day, and they get paid on a monthly basis per well they check. They just check the oil well level and they make sure that this is running or any equipment on site is running well. So we found an oil pumper and said, "Hey, do you want to be a Bitcoin pumper?" He already had this knowledge of Managing the generators and checking the well pressure and all that side of things, all we had to do is train them on the Bitcoin side of things. Breaker flips, trip this. If a computer needs to be swapped out, do this. And so it's very simple on that side of things. And so they're full-time on with the company. Unbelievable. Really, really— One of the guys we have is just unbelievable. And go in and just train them on that side of things. And so the actual knowledge of maintaining these things isn't hard. On the Bitcoin side of things. The generator's pretty hard, but the barrier to entry is so high and the capital is so high, and then you combine it with oil and gas and it's like, what are we even doing? Having that, we've been doing this for over 2 years now, being able to smooth out all those bumps and everything and making sure we can get it really perfected. That's what we're trying to do on an entire basis as a company.

Yeah. What seems like the real, like this, this whole thing boils down to operational effectiveness. You know, unlike, I think there's like in typical upstream where you're drilling holes, like there's some luck there and combined with skill. And maybe that's just a computer guy describing, describing the core of an upstream.

Yeah. 100% write-off. Yeah.

Uh, this is why I don't invest in oil wells, people. So anyway, but it sounds like this whole business, like whether you win or lose and how much, how much money you make, it all comes down to just operational effectiveness. Or is there some element— I mean, I guess there's some luck too from the macroeconomic Bitcoin environment, but everything you've told me is just like, how do we squeeze out an extra 0.5% in all of these 50 different things? Or do you look at the business a different way than that? No.

I mean, I was talking to someone the other day and they asked, what is your competitive edge? And we said, operational perfection. That's our bread and butter, not just on the Bitcoin side of things, not just on the generator side of things, but also on the natural gas, all three. In that triangle of things. That's what we're best at.

Super cool. Well, and so one more question about site selection and strategy. Where are you guys putting these now? Is it mostly East Texas or where have you been placing them?

Yeah. So right now we're mainly out in East Texas, looking to expand in the next 6 to 12 months. But just in terms of natural gas that we found out there, it's plentiful and that's what we've been rolling with.

Yeah. That's great. So we've talked a bit about the team. Love to dig in there. So Well, first of all, how many of these do you have out deployed now in terms of—

Right now we haven't disclosed that in terms of our total, total production of units, but—

Okay. Is it more than this many? I just held up 10 figures, but anyway, but I'm just trying to get an idea of scale, like, and maybe this is where you could, like, how you can kind of explain that in terms of how many people are on your team currently, or is the team just still you, which is it?

Oh yeah. Yeah. So the team right now comprises of, we have, uh, 3 full-time employees in manufacturing, building these units and manufacturing them in-house on a timely basis. We have myself, my business partner Brent Whitehead, who we can talk about third-generation oil and gas. Anything I tell you about oil and gas, it's not because I knew it. It's not because I Googled it. It's because Brent told me. And then I learned it when something broke. And he said, "Oh yeah, that's how this works." Right? So that's my experience of these things. So do not assume I am an expert by any means in the oil and gas realm. Brent is. We're out on location. I'm hooking up the electrical and Brent's out there with a union and a pipe hammer and running all this plumbing and oil equipment. Right?

You're the Bitcoin kid showing up. I'm the Bitcoin kid. Yeah. Okay. Got it.

So yeah, one time we were in a meeting and we were talking about a basin in Pennsylvania and it's called the Marcellus and I was calling it the Mycéan. And Brent was like, "What are you doing?" Just about to go nuts with my lack of knowledge on that side of things sometimes. And so, um, so there's myself, uh, Brent, and then, uh, we have some, some full-time, some part-time employees in the operation sides of things because, right, we're remote, we're hours away from where we manufacture versus where we run these units. And so that's kind of our team on the side of things and, and, uh, making some hires and growing on that side of things as, as we lean into it.

Yeah. Okay. So 6 or 7 full-time people all kind of spread around at this point. Yeah.

Got it.

Okay. Well, I guess I can kind of guess how many you have. It's somewhere less than this many. And I held up 10 fingers again. All right. So, so in, in terms of how the company got started, like why did you guys decide to work on this idea? It sounds like you're very passionate about Bitcoin. It also sounds like you're very passionate about operations, but why, why this amongst, instead of all the other things that you could possibly work on in, in life?

Yeah. Uh, so I mean, in I discovered Bitcoin in 2016, didn't really understand it until early 2017, then became obsessed with it, just in terms of financial independence and what that does for you. I think a lot of people use money. Well, I know a lot of people use money, but I believe very few people understand how money works. So once I understood generally how money works, I was fascinated and enthralled with it. So in my opinion, Bitcoin is the most important thing I can work on in my lifetime as a professional career. I was like, "Okay, awesome. I've made that decision. Now, how do I go do it?" So this business really formed out of a byproduct of I need to get into Bitcoin any which way I can. In July of 2019, I was scrolling on Twitter and saw the first guy in Texas do this and saw the tweet, put down my phone, called Brent. I was like, "Go look at that tweet I just sent you." Because we'd been friends for like 2 years and I knew he was in oil and gas. I was like, "Do you have any gas we can do this with?" He's like, "Yes." I was like, "Sweet. After both of our internships are done, we're going to go fly up to Canada and find out." Because there's a manufacturer up there, these units. I was like, "We're going to fly up there, see his production, and then buy one of these things." Then we got to Canada and I was still 20 years old and I forgot that I couldn't rent a car. And so we Ubered to a U-Haul. And then we just drove a couple hours in a U-Haul to that location, saw it, bought it, and then had our first unit up and running in October of 2019.

That's cool. Okay. And then, so, and how did you meet? How do you know Brent? Is that from college or?

Yeah. So we went to Texas A&M, Harvard of the South, and known him for about 2 years and just had that friendship. And then I was like, hey, what about this? And then we just, it just very organically started happening. I think for the first 5, 7 months, we didn't even sign anything. We were just building. We were just like, we just implicitly knew we were in this business together and just started building stuff. It's like, how do we get this going? We got to get this going. And, and I, that's what I love so much about this business is just so organically filmed.

Yeah, no, I dig it. And so walk me through kind of the decision to start manufacturing the devices yourself. And, you know, it seems like you're somewhat vertically integrated. You're not making ASICs, right? The chips. So, so like, walk me through kind of your thought process of deciding, okay, well, we're going to have a manufacturing plant where we're going to do what, what we do. Because it sounds like in Beaumont you have a shop where you're putting these together. And walk me through that.

Yeah. So we have a 6,000-square-foot manufacturing facility out in Beaumont, Texas. Again, it formed very organically from the side of we use exclusively S9s, both for economics and durability standpoint. From a power density standpoint, they're pretty crappy. So if I were to go buy, say, 600 kilowatts worth of S9s, I would need 1,200 kilowatts worth of power infrastructure just to hold the units because there's literally not enough physical space to put all those computers in. And so from that side of things, we're like, "Okay, we need to build this ourselves to fit everything." We can customize the electrical infrastructure to Specifically what we want. Everyone out there, well, majority of people out there that sell setups like this are not customized to S9s. They're for the newer generation of computers, which we don't want to run. And so it just formed organically from that side of things. We built his first unit in his backyard back in during COVID out there. We had a crane out there. We had the generator out there. We were hauling things around. We broke a boom truck from the contractor that came in. I mean, there's all stuff that happened. Then just progressively, we were like, "Okay, now we need to optimize this. Okay, now we need a factory. Okay, now we need to get all this stuff rolling. How do we pump these things out as quickly as possible and have it customized specifically to our needs? Oh, by the way, we also save 50% because we're not buying this stuff from other people. Oh, by the way, we're not waiting 3 to 4 months and then another month because of COVID delays from buying something from Canada," is our reasoning.

Yeah. Super interesting. This is a hugely capital-intensive business. How did you guys get started in terms of funding it? Maybe you have a huge inheritance we haven't talked about yet, but how did you go about doing that in terms of starting up the business and funding getting off the ground or funding each incremental one? What's the model there?

Yeah. Specifically on that side, we had a unique setup with— No one wanted to give 20-year-olds money to build a unit to do Bitcoin thing. They didn't trust us. We had no track record. We did revenue splits. And so we sold these units to producers saying, "Hey, we'll sell you a unit." I'm sorry, not to producers, to high-net-worth individuals. And so specifically, if you think of it as a special vehicle of investment, you don't want to spend a quarter million dollars on Bitcoin, but you would spend a quarter million dollars on equipment that has salvage value that produces Bitcoin. And so that was our in. It was like, "Hey, we'll build this first one at cost." And I assume I can depreciate these pretty darn quickly, right? 100% write-off in the first year because it is classified as oilfield equipment.

Wow. Yeah. Okay.

And just to think— So ASICs are oilfield equipment.

Just to think I delete all those spammy messages on LinkedIn where somebody wants me to buy cloud Bitcoin mining.

I know. Yeah. Cloud Bitcoin mining. Yeah, all that. But because the ASICs turn into oilfield equipment because of their use, And so we're able to do a complete write-off. Yeah.

That's super genius. Okay. And then, so that's how you kind of got it started. You bootstrapped there. You didn't end up selling any equity in the company to get going.

Yeah, no. So we had no, we still have no equity dilution. Uh, so in-house, so we're able to capitalize on the end of things of selling. We've done a couple one-offs where we sold a pro— our product, uh, tested that business model. Uh, Didn't love it, made a lot of money, but didn't love it in terms of scaling long-term. So there's very unique ways that we're able to capitalize the business without debt or without equity and just, in some parts, just get lucky. But going in and having a specific business model of, "Hey, we will operate these things, take a revenue split, we will sell them to you," things like that, we're able to R&D for essentially free.

Got it. So is that still your model right now? You're doing a, a rev share with limited partners who are coming in and underwriting an individual unit.

So we're, we're, we're now building some of our own units on site. So still running the whole side of things where we're hosting for high net worth individuals and managing those units as well as we are building our, our own units in-house now that we kind of have significant capital under our belt.

Yeah, that's great. And then in terms of, you know, you've had one since 2019, like, you know, what sort of returns? So obviously that one's already paid off. You know, what sort of return on invested capital are the folks, the early folks with you starting to see?

Yeah. So on the— so that unit is 50-kilowatt unit back in October of 2019, ran it and sold it back. And then almost a year later, back in November of 2020, That produced roughly 1.5 Bitcoin throughout its lifetime. And then we were able to sell all that equipment. And we actually doubled our money on the S9s. So again, those are commodities. So we bought them at $300, sold them at $600 at the end of that unit's lifetime. So that was pretty wonky, but yeah, that unit paid off very quickly. And our big thing on the capitalization side. We are very bullish on Bitcoin. We're not irresponsibly bullish on Bitcoin, though, is what I would say. So from a business operating standpoint, we sell for operating expenses when needed and hold the rest. So if I have a check to pay for the oil company who's trucking out oil, and it's $5,000, I don't say, "Ooh, Bitcoin's a little low today. I'm going to see if it goes up tomorrow." We just write the check and sell the Bitcoin and pay that, and then hold the rest. On our balance sheet as a company for how we operate. And so on that side of things.

So you're keeping a lot of the profits then in Bitcoin, if I understand that correctly, which benefits the investors and y'all because that's technically not taxable until you sell it. Yeah.

Well, you do owe ordinary income when that revenue is earned. If I were to pay you in securities, Bitcoin is classified as security. If your compensation is in Bitcoin, which is very frustrating, I hope the IRS changes this. If I earn 1 Bitcoin, when Bitcoin's at $50,000, I owe $50,000 of ordinary income at that point. If I choose not to sell it, then I'm taking that risk of capital gains or losses.

Super cool. All right. Well, I mean, I think what's cool about this is how like it's taken all of the, like the tax benefits that like the real estate guys see and like, like injected steroids and then more steroids on them. Like, that's super cool because of the oilfield equipment and all that kind of stuff. But look, I mean, you deserve it because there's a lot of risk being assumed here. Right. Especially when you're, you know, you've seen what's happened when Bitcoin's gone down 50% in 2 days. Like that's pretty much on the regular.

On that side of things, the reason why all these nuances that I've told you, if you were to talk to different Bitcoiners, it'd actually be a very stark difference. Most Bitcoiners will rent generators and have the latest and greatest computers. On that side of things, our business model is set for a bear market. Our highest IRR will actually be in a bear market. Our cash flows overall will go down, But on a return basis with how much our capital decreases from the ASIC side of things, that's where we really thrive and where we can pick up computers on the cheap. Miners are going underwater and losing money. We can purchase their capital equipment from them for pennies on the dollar. So that's where we really believe we can thrive and grow the most is in a bear market. One, because in terms of margins, if you think of it like a a big stack, right? There's people at 7 cents, 8 cents, 9 cents, all the way down, right? We're at the bottom of it. So anytime someone drops out and is no longer profitable, that margin gets redistributed back to everyone else below them. And if we're at the bottom, we're the last to go with our power production for the long term. And so instead of leasing a generator, we own a generator to increase our margin and one, allow us to be profitable longer, and two, take advantage when there is a bear market. Our Bitcoin-denominated revenue goes up on that basis. The overall market share might decrease if Bitcoin has a 50% price drop in a day. Well, then I start making more BTC-denominated, even if USD-denominated, it's lower. There are nuances in that where we really model our business model off a bear market.

Yeah, super interesting. Is there any thought to consider mining some of the other stuff that's out there? I know I know Ethereum and another of the other protocols are going away from such energy-intensive mining structures like Bitcoin is stuck with. Is there any other stuff that's appealing to diversify outside of Bitcoin, or is it just all about the BTC?

Yeah. In our mission statement, we are a Bitcoin-only mining company. The reason why on that, some people would say that's Bitcoin maximalism. I would call it Bitcoin minimalism. Is the economies of scale and iterations of technology when it comes to mining equipment within Bitcoin side of things. One, I only invest my personal money into Bitcoin, no other altcoins, just because I believe the mission of Bitcoin to be the new world reserve currency has the highest return and the lowest risk. So that's why from an economic standpoint, we believe in that. as opposed to some random coin, which we don't know what it's going to do. And then from an economy standpoint, Bitcoin has been around since 2009. So the code risk has been the lowest. It's never been hacked. It's always being audited. It has the most amount of eyes on it. It has the most amount of capital in it. It has the most amount of iterations of technology. We are at— the ones I'm running are old computers and they're 14-nanometer ASIC computers that are specifically above that. That's for exponents above a CPU or GPU. So in my opinion, in terms of my ideologies about Bitcoin and the lowest risk, most infrastructure, there's the most liquidity to buy. There's 1 or 2 million S9s out there in the market, in the world. So that's our reasoning in terms of why Bitcoin and why Bitcoin only. Not to say it's not profitable on Ethereum, but in terms of building a long-term sustainable business, I, our opinion is Bitcoin only.

Yeah. I dig it. Okay. And this is going to be like the most insider baseball crypto question ever, but like in terms of like pooling and wallets and all that kind of stuff, I know there's stuff that you probably don't want to disclose because you don't want somebody to come in and hack and take all your Bitcoin, but like, are you guys participating in some of the, like the larger global pools or are you just running independently on that? Like, how is that all kind of going down and what you're thinking through that kind of stuff?

Yeah. We use a pool called Slush Pool. For people who don't know what mining pools are, this is going to get really little niche.

Yeah, that's why I put a disclaimer.

Okay. There are 900 Bitcoin produced per day, or 6.25 Bitcoin per minute, per 10 minutes. That would equate to 900 Bitcoin a day, and that is supposed to be split amongst all miners in the world. I have 10% of the compute power, which is also synonymous with hash rate. If I have 10% of the hash rate, I'm going to earn on average 90 Bitcoin per day. The catch is it's based off Poisson distribution. Over time, it's going to average 90 Bitcoin a day. On an actual daily basis, it could be different. It could be 45 Bitcoin and then 100 Bitcoin, but over time, it will average out to 90 Bitcoin per day. Issue is, in that example, I'm using 10% as my example. If you're 1 bips or 3 bips of the total Bitcoin network, your cash flows are all over the place. So you do what's called a mining pool. That is, you have this egalitarian society where everyone comes together and combines their hash rate together to make up some basis or some percentage of the network. On the one I'm on, it's probably 2% or 3% of the Bitcoin network. We earn or find Bitcoin roughly 4 or 5 hours every day on average. What it essentially does is it smooths out my cash flows. I have the sexy dashboard to monitor my computers, to have.CSVs of auditing financials, all these little gimmicks in there. Then the big thing is I can smooth out my cash flows. Instead, on average, right? If I had my unit on its own, I'd find Bitcoin every supposedly say 12 months, but it could be 15 months. It could be 8 months. And it just doesn't make sense from a business standpoint to do that. So mining pools are purely meant to smooth out cash flows because Bitcoin has gotten so ginormous with infrastructure.

Yeah. And what does that cost you? Is it like 1% or 2% or 2%?

Yeah.

Um, so I, I don't, we haven't talked about it, but I, I bought an Antminer on Amazon like 2 years ago. The price is really low. I ran it in my shed at my house. And, uh, first of all, those things are super loud and I had an S9. I can only imagine what having several hundred of them in a shipping container sounds like. Oh yeah.

Yeah. I mean, you gotta wear— well, the thing is, is you gotta run the generators too. So you basically wear headphones at all times on that wall site because you just, you won't have hearing. So yeah.

Pretty cool. Pretty cool.

Okay.

So, you know, you've kind of danced around like the market dynamics here. Like I'd love to dig into like, who are the players, right? It sounds like there's vertically integrated folks like you guys. It sounds like there's the Chinese that are making the ASICs. Who are all the actors if this was a play? Who's the cast of characters?

Yeah. So there's this whole China drama. So there's China, which used to have 50% of the hash rate or the compute power in the world, roughly. And then there are Essentially, I mean, on a large-scale basis, I'd say more people look at it as power sources. So there's hydro miners, there's Bitcoin miners on natural gas, there's Bitcoin miners on solar, there's Bitcoin miners on coal. That's really what it seems to how people categorize these. There are companies, but the big problem is no one declares their hash rate unless they're publicly traded. There are a couple publicly traded companies, Blockchain, and other people of that sort that are out there. But on evaluating people in the market, I'd really say it's based on China plus energy sources is how people view the market participants is, "Okay. Well, how many people are mining off coal? How many people are doing this whole natural gas Bitcoin thing? How big is it going to grow to? How hard is it to do?" The big side of things is in Texas is where I'd say the most growth is happening. In terms of Bitcoin mining because of ERCOT. So with ERCOT, we have our own grid. There's the Western grid, the Eastern grid, and then the Texas grid, because we all have to have our own thing. So what that has provided is very unique economic incentives as our population grows. So our population is growing, the grid is becoming stressed both during winter times and heat times. If power fails or it's not able to get out, It's hard. And so what Bitcoin miners are doing within Texas are arbitraging that opportunity. So not just the energy arbitrage, but also the grid arbitrage. And so as of, I believe it was late 2019, a company called Layer One out in West Texas got what's called the CLR, controllable load resource. And so this was the first program with ERCOT. They made an entirely new program for it. You might as well call it for Bitcoin mining, but it's called CLR, called controllable load resource. What that does is essentially all they do is shut down when the grid gets stressed, and they get compensated for that within their contract on a long-term basis. So if they're at 3 cents, they say, "Hey, whenever the grid is stressed, we'll shut down our power, et cetera, et cetera." Then with a bunch of nuances, it comes down to 2 cents as their average cost of power. What that allows it to do is provide a base of power for new electrical infrastructure to be built out to support the grid, but still have economic incentive for someone who literally just wants to purchase it. Then when the grid needs it to support the whole grid, it can be spread out. So that's what's been happening within Texas, widespread out. So there was at least one CLR back in 2019. There's a couple more. There's one out near Rockdale called Windstone where they have a lot of hosting capacity. And so there's a lot of 1-gigawatt projects out there. So 1,000 megawatts of power out there in the big scheme of things. And so that's what's really been growing within Texas is ERCOT is providing unique— and especially to natural gas, that's why I'm here— is there's all these new things happening within the Bitcoin space. So those are the kind of two big things in my opinion.

Yeah. Well, and then how does, um, definitely want to dig into Texas, but like, how does what's happened kind of from a, like a macro standpoint in China affect you guys? So like 9 months ago or so, China just basically said like no more mining. And like next thing, next thing I saw on Twitter was a bunch of pictures of like Chinese guys flying over here. Like what, how has that affected what, what y'all are doing? Like, are Has it affected the price of the S9s? Did a bunch flood on the market? What happened in China, and then how has that affected you guys?

Yeah, I made a lot more money. There was 900 Bitcoin a day. If you think of it very, very high level, it's 450 Bitcoin was going to the rest of the world, and it's 450 Bitcoin a day was going to China. Well, now all those Chinese miners are essentially shut down, at least the massive ones. and that 450 Bitcoin is now redistributed to the rest of everyone else. So their profits double. So I think I had about 40% increase or 37% increase in profits the first, just from a Bitcoin-denominated basis, increase when all that drama happened. In terms of market dynamics on the ASIC supply, this is what's interesting is we're actually not seeing the ASIC prices drop a ton. They did a little bit in the beginning, and then what we're seeing is there's reports that Chinese miners are actually holding the supply back and one, trying to relocate them, or two, slowly let them trickle onto the market so they don't crash the market all at once and get nothing for their computers because they bought them for $10,000 back in December. And so they're slowly letting them trickle out. So Bitcoin mining revenue's at near all-time high, and then they're just letting them slowly come onto the market little by little so they can still maintain return when they sell that stuff.

Yeah, super cool. And so then Texas has— come back to Texas. It has this ERCOT thing happening, which, you know, we had the snowpocalypse here and like power goes out. That was pretty bad. So you have the ERCOT thing happening, you have the natural gas thing happening, and then I presume the kind of renewable and the continued explosion of like all of the wind and solar that's going out in West Texas. Like, are those kind of the three kind of big things that are pushing things forward in Texas?

Yeah. And so what they're really trying to do is provide an economic incentive outside of government subsidies to build renewables, right? Because solar and wind both have intermittencies, oftentimes opposite of when market people need them, right? When the grid is stressed in the middle of the day and it's super hot, wind's not blowing, but it'll blow at night all day long when people don't need the power. That's nice and cool. And so It's this inverse relationship of incentives. What Bitcoin's doing is just building a base to allow people to build those windmills and windmill farms and solar farms out there.

Preston Pysh Yeah, super fascinating. As you think about the competitive dynamic now and going forward, how do you think about the competitive landscape for your business?

Austin Mitchell Yeah. Everyone's like, "Well, what about all the other natural gas miners out there?" I don't really view them as competitors any more or less than I do a Bitcoin miner. When they put computers on, they dilute my market rate, my market share, just as much as any other power source. So from an economic standpoint, I'm looking at Bitcoin profitability, and competitors is anyone that mines Bitcoin, not just natural gas Bitcoin miners. From there, you can just look at the macro trends of Okay. Who is— I'm sorry, let me preface this. There's enough flared gas in the state of Texas to power the state of Texas. It's just stranded. So I'm prefacing that with the fact that there's literally so much natural gas out there that it could power the Bitcoin network 7 times over, that that is not a bottleneck on that side of things, the natural gas side. So that would lead me to the Bitcoin side of, okay, if the natural gas isn't a bottleneck, what does dilute my profitability? There's no land grab going on for natural gas. I wouldn't even call them competitors, just all the natural gas miners in the space. We all talk to each other. Everyone knows what's going on in that side of things, but we really just evaluate the market overall as what is market sentiment, what is my total profitability, how is that total profitability going to decline over time, and how do I insulate myself in the market long-term from that? That's what we look at. Yeah. Profitability, you know what it's doing? It's doing this. Down and to the right, all day long. Naturally so, because no matter the parabolic increases in the price of Bitcoin, there's this spread of margin, and that margin gets shorter and shorter over time as guys like you become interested in Bitcoin and say, "Hey, I'm going to put money in that," and the market becomes more and more efficient. Even with— Hash rate or compute power follows the price of Bitcoin, Over time, it's getting closer, and there's going to be less and less margins. Similar is with trading world reserve currencies, spending millions to make thousands. When Bitcoin is the world reserve currency and has $10 million of today's purchasing power per one Bitcoin, it's going to be spending millions to make pennies on that, and there's just going to be a small differential basis. In my opinion. And right when that price is stable.

Yeah. Super interesting. Well, yeah. So I, I guess that, that kind of ties in my next question. It sounds like, it sounds like the risks aren't that the flare gas prices are going to go way up or that all the good sites are going to get taken over. It sounds like an infinite resource, basically, from your perspective. It sounds like the core risk of your business really is what happens from a macro standpoint in the economy and in the Bitcoin ecosystem. Is that, is that how you think about it?

Bitcoin as a whole price, basically a non-issue, as opposed to when I have to write a check at the end of the month and it affects my return. What really matters is hash rate. How many of those 900 Bitcoin a day am I getting less of because more people participate in the market? Bitcoin stays stable at 10,000, but if my market share gets diluted 90%, it's like, well, shoot, that's going to be an issue. That's really what we evaluate from that standpoint of how can When there are only ever more computers coming online, how can we still stay profitable? And that's why we model our business the way we do to have the lowest cost of power possible, insulate ourselves during bear markets when there are cash flow issues, and take advantage of other people's cash flow issues when that does arise.

So it sounds like the best thing to happen to your business period was this Chinese banning. Were you pretty stoked that day?

It's like I didn't take it seriously. Brent was like, "Oh, hey, they banned Bitcoin in China again." I was like, "Yeah, sure they did. I've been hearing that since 2016." And then it's like, "No, no, no, no. Actually, here's the order from CCP from each province saying you have 20 days to get out." And it's like, "Oh, they actually did it." And then seeing, because you can see all these metrics, seeing the hash rate drop, you can see it real time. It's going from 160 exahashes to 100. So it's like 160 million terahashes to 100 million or 95, 90 trillion, 90 million is just shocking to see announcement data from separate source online and just tracking with it. It's like, how low is it going to go? How low is it going to go? And then seeing the difficulty adjustment pairing with that was just fascinating.

Yeah. Super cool. So I mean, risk-wise, it sounds like the macro and the hash rate is what this all comes down to. And you guys feel like you found a good niche to insulate yourself from that. Are there other risks that you're worried about from a business standpoint?

Oh yeah. I mean, operational. I mean, I own a logistics company, and so it's like, how do I run as lean as possible, as efficiently as possible, and bottleneck-wise? Just because I can buy 100 generators, how fast can I get those 100 generators? How long is it going to take me to get those 100 generators? In what condition are those 100 generators going to be in? Okay, I got to get a crane operator out. And it's like all those delays. So the operational Delay of opportunity, cost of not being able to have stuff online is probably my biggest concern and risk of a company. And then overall, right, it's just as efficient as I am. The more efficient I can run a business, the more insulated from the market I can be.

Super cool. I mean, does regulatory risk come into any of this? Like Green New Deal type, hey, anti-oil, anti-petroleum, anti-burning Burning petroleum for digital gold dollars. How do you think about that?

Yeah. In my opinion, what's going to pop this cycle is regulatory. Some form of something. It's going to happen. Someone's going to put something out. We got a little close to it with this infrastructure bill. Something's going to happen on that side of things. In terms of regulation, it's going to be on the oil and gas side, not necessarily the Bitcoin side in terms of my business. But it's a double-edged sword. The Railroad Commission, they govern all of the oil and gas within Texas on a state basis. Their new administration, their big mandate is reduce flaring. So on one side of things, I have economic incentive from these oil producers who can no longer flare and they need me or will need me. And so I'm operating right now in an unregulated environment with the— it's always going to the left in terms of politics and regulatory stuff. And so figuring out how to operate that in that is most important. And so recognizing that, hey, flaring's going to be banned in some amount of time. ExxonMobil, BP, they all have zero flaring mandates by X amount of years. Some of them are really early, 2030, 2035. And so they're doing this preemptively before the mandates come out to quit flaring. And so on that side of things, it's like, awesome, that regulation is helping me because right now I'm asking to come on oil producers' well sites, and being a thorn in their side, now I'm going to be removing a thorn in their side and helping them in some capacity. But on the flip side—

Do you think potentially they could pay you to come in and help them stop flaring? Yeah.

I mean, there's the possibility of negative rate gas. Largely in the big scheme of things, if there's an outright ban on flaring in the state of Texas, yeah, stuff would go negative very quickly because there's a lot of pipelines. There's a lot of regulation on pipelines. There's 100-year-old pipelines that are leaking methane, which is horrible for the environment. There's all this stuff out there. And so they're really cracking down on the pipelines and the flaring. However, as they crack on down on that, they're also going to be cracking down on air quality emissions. So figuring out how to remain in compliance to run my generators to burn this natural gas will also be tricky. Albeit people still— I think like 40% of the natural gas in— no, I'm sorry, 40% of electricity in Texas is powered off natural gas. We still need it. And so it's just going to be compliance with that. I can run my generators in EPA or federal lands of tech around the US. However, it's going to cost me money to get it certified up to that point. And so it'll be a little difficult. And so it's this double-edged sword regulation for us. Yeah, I think it helps us more than it hurts us.

It always does. That's the way it is. So you mentioned kind of, you know, all the other flare gas Bitcoin miner folks in Texas. How many of them are there?

Okay. There's a lot of one-off people doing it. There's also a lot of people that don't say anything. So it's hard to see sometimes. There's a couple of main people in the space. There's Olympia Creek. They're the first guy. They're actually the guys whose stuff I saw watching it and that side of things on Twitter. And then that spurred Brent and I to go do it. So they were the first guys. Brent and I were the second guys to purchase a product and do it. Maybe there were more people in the beginning. I'm not sure that were one-off doing it, but in terms of at scale, Olympia Creek, BitGas out of Kentucky, which I believe they renamed to Midstream Co. There is Upstream Data, who's really on the manufacturing side of things. So they sell the infrastructure for oil producers to do this. So an oil producer wants 2 or 3 units, they go do it and then whatnot. There is Great American Mining. They're kind of in North Dakota, Oklahoma side of things. And then Crusoe Energy Systems is really the main flagship company that people would recognize if they look into this. They've raised Like $230 million in total through their Series B since May of 2019. So they've raised a pretty large sum of money in there in the pocket.

Ah, okay. And then it's super interesting. We talked about this before we started. I went to go Google you and I couldn't find anything. Why is everybody so secretive?

I think just from an operational standpoint, I wouldn't call myself secretive. I just don't have a website on that side of things because it's all usually in the Twitter Space. And so I don't know if people are secretive so much as they just don't want to give out details of their operations in terms of how it operates, because any secret sauce you have— Bitcoin mining is completely democratized. It's literally just your cost of power. So if there's anything you can do to optimize that, you don't want to give that secret away, is what I would say, or that secret sauce.

Preston Pysh Got it. Is any of the stuff you guys have innovated on patentable? Is that stuff you're You've pursued stuff out there.

Yeah.

Super cool. So when you wake up in the morning, and this is a question I wrote down, so just so you know, I did some prep work, which is like a huge high bar for me. Um, so as you wake up in the morning and you're like, what is the, what is the easiest thing about your job? And what is the hardest thing about running this business?

Uh, easiest thing about this job is I've never, since I put all of my wealth into Bitcoin, I have never woken up having doubts about the Bitcoin ecosystem. In fact, every day I wake up and I become more ingrained in my opinion of Bitcoin and the fact of what it'll do. I've never woken up and questioned my investment thesis. The Bitcoin investment thesis and how that relates to my business is literally the easiest thing in the world. It's like, yep, this is like— Sorry, some people think, oh, Bitcoin is like the risk. It's like, nope, that is the least risky thing in this room that to me, the hardest thing about my business is probably the logistical planning of it. I come from a finance background. And so getting into the engineering side of things and making sure every single piece is there or else it will break. If I have everything in place, but I don't have a coax to digital converter, then I can't get internet and all that capital is useless. And so learning from, especially getting into this thing for the past few years and getting my little engineering stamp of learning how to do this, that's what's been most difficult is like, okay, we're delayed a day. Okay, have we told every single person in the supply chain that we're delayed a day and can every single person do it tomorrow? Okay, now we have— I've had everything go wrong. I've ordered units that have— hardware is hard. I've ordered a shipping container, that got smashed in on the side of a highway on an underpass. I have had generators blow off the exhaust. There's so many things that can go wrong, and figuring out once they do go wrong, how do I solve this as quickly as possible, as smoothly as possible, is probably the hardest part.

Nice. So go back to the easiest part, which is the belief and the faith in Bitcoin. Are you also a religious person? I'm just curious.

Yes, yes, I am. So I am a Christian as well.

Yeah, it's very, it's very interesting because I, there's a segment of the population to me that has, that has the same level of faith in Christianity or in their religion. And that just seems to have been duplicated almost in that, uh, in, in Bitcoin or whatever they're going to blockchain. Like it just, it comes from the same like place in the brain. Uh, and it's just super interesting to me. To watch it happen.

I think it's interesting because I think it stems out of an economic— It's like a science. Bitcoin is essentially Austrian economics. One of my frustrations with the space is people will be like, "Well, economics will win out, therefore I can say whatever I want. It doesn't really matter." But I think that's really where it stems from is free market economically. That's where people are like, "No matter what, because this is my foundation," I know Bitcoin will win on an infinite timescale, therefore I'm not worried. Just because economically, people are incentivized to comply with Bitcoin. Not comply with it, but just participate in it. Therefore, it will win. I think is where that comes from. Then from there, you get this religious faith. If that's your faith, then the religion stems from that in terms of how people operate within Bitcoin of just making statements like I do, where Bitcoin's going to be worth $10 million. Right.

Well, and it, it aligns actually with how, like, I went through school, you went through school, where they, like, you think about the way the American system and government was portrayed to us. Like, it was never about the people. It's all about the system. And like, we're all conditioned to trust the system of Bitcoin as well. Like, it's just, it's a natural evolution from like, oh, hey, we have three branches of government and no matter how bad the people are involved in them, it's going to keep working. Like, trust the system. Like, We're all trained this way. So it's just fascinating to me.

I think too, it's funny because honestly, it's like I get so many more questions about Bitcoin because it's people's money and it's a form of money. It's not like an equity. It's a form of money. There's so many questions about it. At some point, when I think people's biggest issue is saying, "Hey, Bitcoin has been around since 2009." There are 3 things that you can basically take for granted and avoid a month of headache and needing to understand it. You don't understand how your credit card works. You just swipe it and then pay. Obviously, our UX isn't that good, but you will save yourself a lot more headache and probably get a lot more financial upside if you just take 3 things for granted with Bitcoin because of all this data since 2009. There are a lot of people smarter than me that have put out stuff and hundreds of eyes that have gone over stuff where it's like, "Okay, don't question me about the 51% attack and how this works and is there going to be quantum resistant?" These same things you see over and over and over the space. It's like, Sue the data out there and then make a decision off the data, not find out for yourself.

Yeah. That's just the way modern life has to work. Like nobody needs to know how their iPhone works. So, um, cool. So, um, coming up on time here, but, uh, definitely one, one question I want to dig into, like, what is the vision for you guys and where you want to take the company? Is it, you know, staying, staying nichey and safe, kind of not, not to insult you with that, but like, or is it, you do, do you eventually want to go kind of the, the big burst venture capital raise type stuff? Like where are you you guys going with the company and where do you want to take it?

Yeah, we are looking to grow on that side of things and continue to grow as a business. We'll probably start raising money at some point and grow pretty quickly on that side of things. But our basis is, hey, how do we get operational perfection and then scale? Not scale, then learn how to do it. Because I think that's the biggest issue I see with Bitcoin miners is they don't have operational perfection. And that's just on the power side of things. Now imagine on the power production side of things, like it's, it's so much, it's like, how do we get perfection and then lean into that to, to raise money and scale quickly from there? Because once I have the playbook, then I just have to duplicate it, but I have to make sure the playbook is written correctly. Yeah.

Well, it's really interesting over the weekend on Twitter, I was trying to think about like, as you look at like, um, quick service restaurants, like there's a certain percentage of them that outperform all the rest of them, right? There's Chick-fil-A. What's another one? Dutch Brothers, you know, in a space that I'm in and coffee and all this stuff. And, you know, Wingstop and you see these ones, Domino's, and you're just like, what, what is the common thread there? And it's exactly what you just said was like, they all grew at a rate that was not exceeding their ability to perform perfectly. Right. And it's just that continual pushing to where like Chick-fil-A is going to be. I think their sales are going to be bigger than, than McDonald's this year. Um, Don't quote me on that. I heard some stat about that. That's, that, that, that's a Girdley level, like, well, that sounds good. But anyway, like, but they're getting so big and so profitable with these, these spots, but it's because they've just like grounded out in terms of that operational perfection. Um, so anyway, you're, you're in good company there with the Bookies and the, uh, the, the Chick-fil-A and the outperformers of the hospitality industry.

So love to hear. Yeah.

Yeah.

No. Yeah. And it's fun too. I've not worked a day in my life yet. For the past 2 years I've been doing this. I haven't gotten paid yet. Um, just put all the money back into the business and haven't worked a day in my life yet. So much fun.

So super, super cool adventure to do, especially at this stage in life. So kudos to you. Um, really exciting stuff. And I'm sure you're learning a ton. Like this has got to be just like business school on steroids. Like totally crazy.

Yeah. It's like every year just drinking from a fire hose.

Well, great. Well, so you've been awesome. Super good. This is so fascinating. How can our listeners support you? What would be helpful for folks that have been listening to this and being able to support you and what you're doing?

Yeah, I mean, if there's anyone in the oil and gas space that thinks that there might be some opportunity, feel free to reach out to me. My email is matt@gigaenergysolutions.com. You can also find me on Twitter. @lohstro, L-O-H-S-T-R-O-H. Those are probably the two best methods to reach out to us and go from there. But pretty easy to get ahold of me and we're pretty responsive. So always looking for new opportunities and just let us know what's out there.

Yeah, super cool, man. Well, thanks for doing this. This is really fascinating. And we'll, we'll get the word out about what is just like a cool niche industry, like, and kudos to you for going after it.

Yeah, well, I appreciate it. Like I said, it's— I haven't worked a day in my life.

See, Rico. All right. Well, thanks for being here. I'll click stop and we'll see everybody next week.

All right. Thanks.