Blocktime
Your go-to Bitcoin podcast hosted by Pierre Rochard, VP of Research at Riot. Tune in weekly for thought-provoking discussions, exclusive interviews, and a deep dive into the disruptive power of Bitcoin.
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Blocktime
Episode 32: Pierre Rochard on Debunking Bitcoin Mining Myths & Navigating Energy Regulations
Join Pierre for a solo episode! We tackle everything from the process of mining and transaction verification to the recent scrutinies made by political figures such as Senator Elizabeth Warren, juxtaposing these against the drive for renewable energy sources within the industry.
Venture into the realm of regulations and their historical ties to the U.S. economy, as we dissect the Energy Information Administration's methods and motivations for data collection. We question the urgency behind the government's approach to regulating Bitcoin mining, especially given the current environmental debates. This candid conversation scrutinizes the practical implications of such oversight and considers the broader impact on the industry, setting the stage for a robust discussion on the economic aspects of Bitcoin mining and its surprisingly harmonious relationship with our electricity grid.
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Welcome to the Block Time podcast produced by Riot Platforms, where we take a deep dive into issues relating to Bitcoin, bitcoin mining and the grid. Today's deep dive is really related to all three and it ties back to a prior episode we recorded with Brian Morgenstern, who is our head of public policy here at Riot. With regards to a federal emergency, big air quotes around that for essentially gathering data without getting any feedback from the public about how the survey data should be gathered. So we're going to take a deep dive here because there have been some developments over this past week or so and there's a lot of different moving parts, and I also find this story to be fascinating and really, if we want to find a place to start it at, it starts with our friend, senator Elizabeth Warren from the state of Massachusetts, who, in an April 26th hearing in 2023, so almost a year ago, not quite she was grilling the Secretary of Energy, jennifer Granholm. Let's watch that five minute clip here, as uncomfortable as it is.
Speaker 2:It's good to see you, Secretary Granholm. Now, as you know, Bitcoin mining involves companies using powerful computers to verify transactions to win a Bitcoin reward. You may remember that.
Speaker 1:So first of all, here let's start with the fact that Bitcoin mining hashing does not involve verifying transactions. Transactions are verified typically at two points One is before a transaction is added to the mempool and then two, if the transaction was not already in the mempool, when it's added to the blockchain by a node verifying the block data that was produced presumably by a mining pool. The verification part, the proof part, is really done by the nodes. The work part of proof of work, that hashing is what is done by the mining rigs. So I think that we just need to continue to have Bitcoin education in DC, but sorry to interrupt so quickly.
Speaker 2:At this same hearing a year ago, I asked you about the immense energy consumption of Bitcoin mining. Since then, the issue has aroused more public concern. A recent New York Times investigation found that just 34 Bitcoin mines in the US are using as much electricity as 3 million households. That is the equivalent of the entire state of Arizona or the entire state of Tennessee. That is a lot of energy and most of it is dirty. That causes as much carbon pollution as 3.5 million gasoline powered cars. So for every one new electric vehicle sold in the US last year, these Bitcoin miners did the climate equivalent of putting four additional gasoline powered cars right back on the road.
Speaker 3:That one is hard to follow.
Speaker 1:Basically, there is content here that we have covered in the past about whether Bitcoin mining emits who or not. I find it really funny that she brings up electric vehicles and mentions that these electric vehicles are making progress in terms of decarbonizing compared to a gas vehicle. Well, a Bitcoin miner is electric. You don't have gas powered Bitcoin miners, to my knowledge. It really comes down to what is the mix of electricity that is going towards Bitcoin mining, and the trend has really been the opposite of what she's describing. It's really been away from coal, so there's very little coal left here, coal-fired power plants left here in the United States, and we've seen a massive growth of wind, solar and batteries in the air cop market, and so when we look at Bitcoin miners citing themselves in the air cop market, they are consuming wind and solar when it's being overproduced and then they're able to curtail when there's not enough intermittent generation. And these are all things we've covered in past episodes, but it's interesting to hear that we need to continue to cover this perspective.
Speaker 2:I should note that my own investigation shows there are more mines than just the 34 that the New York Times analyzed, so the problem is even worse than reported. Secretary Granholm, when you came before this committee last year, I asked you if the federal government knew how many crypto miners are operating in the United States and how much energy they're consuming, and you said that wasn't being tracked.
Speaker 1:So we need to dig up the clip from 2022, because apparently there's another interaction she's referring to here from 2022 of asking for data from Bitcoin miners. So I mean clearly amongst themselves. This issue has been dragging on for at least a couple of years, so that was an interesting tidbit to get. I imagine if you're on the receiving end of this question, it's like your annual performance review with your manager is like hey, last year we discussed you doing this, Didn't do it.
Speaker 2:More data would be needed. So here we are a year later is the Department of Energy formally tracking crypto miners? Yet Great.
Speaker 4:First of all, thank you so much for your leadership in this, because I do think that you have unearthed a massive problem. And so we don't know how many miners there are, we don't know where they are, we all of them. I mean some of them you do, but some of them you, many of them you don't. A lot of them are just underground. Some of them are small operators. So underground.
Speaker 1:I won't take that too literally, because I do like the idea of having like an underground bunker that has Bitcoin miners in it, but it would be very uneconomical. It just makes more sense to build them above ground. But also, I mean, when we think about like underground, like you can't really be underground Bitcoin mining because unless you're completely off the grid, but in which case, why would they care? And it's interesting, there's actually research from Texas A&M using ERCOT data You're able to show even at the residential level, you could show hey, this person is mining Bitcoin just based off of fingerprinting the device, basically.
Speaker 4:As you and I have discussed, we have charged our energy information administration with figuring out how to mandate a reporting of these entities. Now, that's complicated, as you know, because they are many of them are underground and even the utilities may not know the other thing here.
Speaker 1:it's like, okay, she's claiming many of them are underground, but she's also saying that she doesn't have the data on whether they're underground or not. Like, I haven't seen any data about underground Bitcoin mining in the United States. It's not even a trend I've heard of like within the industry.
Speaker 3:But when she's saying underground, I mean that's a metaphor for hidden. That's not yeah but like, how do you hide a Bitcoin mine when you're consuming so much electricity? And even if they are generating their own electricity to mine Bitcoin off the grid, then that would be an entity that you're not concerned about because they're not using, you know, federal or public utilities.
Speaker 1:That's right, and let's say they were mining off grid using something really bad. They're just like burning oil, cude oil yeah.
Speaker 1:Yeah, just the worst. Somebody could be doing that for non-Bitcoin mining related reasons, and I would kind of expect the federal government to have some kind of satellite imagery that would say hey look, big smoke stack coming over here. Somebody is obviously just lighting crude oil on fire to generate electricity. You know, it's like again, we're not really talking about Bitcoin mining, we're talking about power generation technology and the but I mean maybe underground, you know so in the sense of illegal right or black market or gray market, and maybe she's also conflating that with, like off grid, you know, flared gas mining, which is good for the environment, so, but it's also, I feel like, do we really want to live in a country where, if the government is not closely tracking an activity, we label it as underground?
Speaker 3:Yeah, it's just so hard to wrap your head around the mentality that they're coming at this from.
Speaker 1:Let's keep. Let's keep watching.
Speaker 4:So where the dry is coming from.
Speaker 2:So let's talk about that. Given that crypto mining undermines all of our other climate work, we can't afford to delay on this. There's a lot of urgency around this, so I want to talk for just a second about the authority you have to gather information on this.
Speaker 1:You know it's. You know she mentions that this is undermining climate related work. No-transcript, I don't think it is. And you know, if we look at the successes of the Biden administration with regards to you know their stated policy agenda, agree with it or not, I think they have made a tremendous amount of strides in advancing renewable energy in the United States, of wind, solar and batteries. I was just at an ERCOP market summit here in Austin and that is the big trend and they are succeeding. So I don't really see what she means by it being undermined. In fact, I'd argue that perhaps Bitcoin miners are helping with this trend, given their flexibility, the Knobset, intermittent generation. But anyway, we'll continue here.
Speaker 2:Let me ask Secretary Graham hope do you have the authority to mandate that crypto miners disclose information about their energy consumption? We have the mandate authority, Good. So in your response to, we'll discuss that.
Speaker 1:But she is correct that the Department of Energy and the Energy Information Agency that is part of that. They do have a law in the books that says that they can collect energy consumption data from large consumers of electricity. But we'll see where that goes off the rails pretty soon.
Speaker 2:The letter I sent you in February, you indicated that the Energy Information Administration will first need to develop a new survey program to begin collecting information from crypto miners. By when do you expect to field this survey and use it to gather data from crypto miners on a mandatory basis?
Speaker 4:We are. We, first of all, are looking at creating the survey from a regular report, that is, an electricity gathering report that we have now asked to include crypto as part of it. That report from NRL will be completed by the end of this year, on which the Energy Information Administration can base its survey.
Speaker 1:So I haven't seen the NRL report. I've looked for it. Nobody has referred to it since this was recorded nine months ago or whatever. So if anybody has the NRL report that has, you know, bitcoin mining in it, let me know. I'm interested in reading it. But it seems like that this is where things went off. The rails is that? I guess, based on my understanding right now, it's that nobody wrote that report or they did not include Bitcoin miners for whatever reason, and then that kind of threw all the timing of this off and we'll see about that.
Speaker 4:So it's going to take some time for them to be able to craft the survey from the information that they receive from the NRL report, but know that that is happening and we are pushing to accelerate the timeline because it is so by the end of this year, you will have a report on mandatory reporting.
Speaker 2:Putting a I want to make sure I know what we're going to do. Yeah, yeah, no.
Speaker 4:No, we'll have a report that will have gathered, not fully but enough information to be able to craft the framework for the survey. So we won't be able to get the survey out the mandatory survey by the end of this year, but we will have the report done and the survey will be constructed from that Okay, and we are certain we're going to get that mandatory survey out then sometime in 2024.
Speaker 2:I hope so, but I don't want to Tick tock, I know, okay, I mean, look, we're running out of time here. Crypto mining's energy use truly undermines our efforts to fight climate change, and we are out of time. We need to understand the full scope of the problem, and that starts with the authorities you have. So I hope that the next time we come back, you will tell me that you now have that survey in place and we are getting mandatory reporting from the crypto mining companies. I hope so too. I'm going to hold you to it.
Speaker 3:Thank you, going to hold you to it Tick tock so this seems like doomsday that they're the way that they're talking about this. It's like I don't understand.
Speaker 1:Well, I think that they're running out of time, probably more from a political perspective than from a scientific perspective. Right that you know it's coming to the end of the first part of this administration, if it's not the only part of this administration. And also, you know, I get it from Elizabeth Horn's perspective. This has been dragging on for a while and she's kind of getting the run around from Secretary Granholm here of oh, we have to write another report before we can start working on this. So that you know we essentially this survey has been in the works for a little while. But let's fast forward nine months later, so January 24, 2024, the EIA administrator, who he essentially you know is working for Secretary Granholm, sends a letter to the Office of Management and Budget asking for an emergency approval of the crypto mining survey. And you know, much like we saw with Elizabeth Warren's let's call it scaremongering, alarmism he said that public harm is reasonably likely if normal clearance procedures are followed, and by normal clearance procedures I mean, really what they're talking about is just making sure that you have the input from the public and from the industry and from academia and from state regulators, input onto what should the survey be? What should it ask for, so that then the survey is more useful, right, and so it actually does make some. Does make sense for us to take our time and develop a really great survey, rather than rushing into it pretending it's an emergency. So, in any case, two days later, the Office of Management and Budget approves the emergency request, and then, five days later, they announced hey, we've got a mandatory monthly survey. So presumably Elizabeth Warren is off our back. We've checked that box.
Speaker 1:But you know, unfortunately, as a last resort, texas Blockchain Council and Riot platforms had to file a lawsuit on February 22, 2024, challenging this administrative process here. So why is litigation appropriate in this context? Obviously, you know, first of all, we want to have a positive, constructive relationship with regulatory bodies, including the EIA and the Department of Energy, and we have to balance that with the truth, right, which is that they have put out an emergency that says that Bitcoin mining is bad, when the truth is that Bitcoin mining is actually good. It's the opposite of an emergency. It's not a public harm, it's a public good, and so when we're in a situation like this, where you've got two sides that just fundamentally disagree on an issue, I think that this is an area where it can actually be good to have some kind of mediator, a judge, for example, a federal judge in district court, to take a look at what both parties are saying and maybe try to, you know, find some set of principles going forward that will work for everyone.
Speaker 1:So where does all of this come from? It comes back to when the US dollar abandoned gold, right when we went to a full fiat financial system in 1971. And that really you know that money printing led to lots of inflation. It also coincided with the 1973 oil crisis, which you know further contributed to inflation. And when there's inflation, something that governments do quite often is implement price controls. So they say, okay, you cannot increase the price of oil or, you know, of gas at the gas station by more than X amount. And when they put a ceiling like that on the price, that causes shortages, because now it's not economical to bring the gasoline to market and so people can't buy it. And so now people just can't get gasoline at any price because you've set this price control in place. And so Congress created, you know, to address this symptom of price controls, they created the Federal Energy Administration and that's eventually what became the Department of Energy and the EIA.
Speaker 1:Okay, so, as I mentioned earlier, they do have a statutory authority to gather energy information, including on the demand side, and I think that Bitcoin miners would certainly want to find a way to provide that information, because it's actually really interesting information and the truth is on our side. And so I think that if the survey is even handed and kind of looks at both the costs and the benefits of Bitcoin mining and tracks both, then it puts itself in a really strong spot. But if the survey is written away, that is really just punitive and just trying to provide kind of a one-sided look at an industry, then it's not really conducive to policymaking that is in the public interest. So you can imagine that this information gathering power could get abused, that suddenly the government started asking for way too much information, and that's what they did. So then, in 1980, the Paperwork Reduction Act was passed in order to kind of put a lid on the amount of information that was being requested by federal agencies. And quite often these information requests are mandatory and they come with criminal penalties and civil fines if they are not properly responded to.
Speaker 1:So the Paperwork Reduction Act it's really simple. I mean, it's saying that before you do a survey like this, you should put it out there to the public, have a public notice, say hey, we're planning on doing the survey in a few months or a few weeks or whatever you know timeframe ideally longer so that people have time to comment. And then you invite the public to submit comments before the data collection is approved. And what this allows you to do is to, first of all, evaluate the practical utility of the information and, second and this is really important evaluate the accuracy of the estimate of how long it'll take to collect this information. So, when the EIA put out their Bitcoin mining survey, they estimated that it would take 30 minutes to fill out this survey, which is kind of an absurd number on a number of different levels. One is that if this 30 minutes, it's basically saying, ok, if you have one person and they have already memorized all of this information, how long would it take for them to fill out this form? Well then, yeah, maybe you could get it to 30 minutes.
Speaker 1:But if it's a company, you can't have single individuals performing tasks on their own in a vacuum and then expect it all to work out.
Speaker 1:You have to have policies and procedures in place so that, rather than having one person fill out a form and send it in, that that response would actually get evaluated by the various stakeholders that are involved in this data, and so otherwise you could be providing the wrong information and there's criminal penalties attached. So rushing out and filling out a form as quickly as you can in 30 minutes is not prudent, when you could go to jail or you could find if you put the wrong information on there. And it's also that in Bitcoin mining there's not a lot of room for mistakes. It's a very competitive industry and so if Bitcoin mining companies got into the habit of quickly rushing things out like this in 30 minutes, there'd be too many mistakes and they'd quickly go out of business. So filling out forms, I don't think should be taken so lightly. The 30 minutes that EIA attached to the survey was almost like a troll of like they're making fun of us or something but feels like they're diminishing the importance of like accuracy on that.
Speaker 1:Well, yeah, that's right, and that you know it takes teamwork. We can't, yeah, so I. But the strange part is that they thought that like nobody would look at that and scratch their heads and be like, hey, that doesn't look right. You know there's lots of reasonable people looking at this. It's not like it's their way or the highway. But you know, the Paper Work Reduction Act wanted to avoid situations like this. They don't want agencies saying, hey, don't worry, it'll only take you a minute, and then before you know it, they've got 5,000 surveys out there because each one only takes a minute, and so you know it's just flooding the private sector with forms.
Speaker 1:So the Paper Work Reduction Act has lots of really you know, great stipulations to it. And that's where they define what an emergency is right. They say, ok, an emergency is when public harm is reasonably likely to result if normal clearance procedures are followed. And I asked CHATGPT to illustrate public harm is reasonably likely to result. And what they illustrated was a street being flooded and there's lots of danger signs and you know there's public harm happening. Ok, so what was the EIA's reasoning for public harm? Now it's interesting to note that Elizabeth Warren's reasoning for public harm was related to carbon emissions and to climate change and achieving those climate goals.
Speaker 1:Now, the EIA did not adopt that reasoning as kind of what their view of the emergency is. Instead, they talked about the growth rate of Bitcoin mining. Now, one thing they pointed to the first thing they pointed to was the tremendous increase in Bitcoin's exchange rate, in the purchasing power of Bitcoin. So, as some of you may have noticed, bitcoin has gone from being around $17,000 per Bitcoin at the bottom of the bear market to now $60,000 plus per Bitcoin. And you know the EIA's thinking and it's not entirely wrong on this is that, hey, this is going to attract more Bitcoin mining.
Speaker 1:And I think they miss is that Bitcoin mining does not happen overnight. It takes years of preparing to do essentially the end to end of purchasing the real estate, all the way to energizing your first Bitcoin miner. You know for an industrial scale Bitcoin mining facility, like our new Corsicanic site, it's really you're looking at probably a two year process there. It's not overnight. And so, even if the Bitcoin price goes up tremendously, you might look at it from kind of a capital budgeting perspective and think, well, ok, it's up right now, but we don't know if it's going to be up for a long time. We can't immediately start making capital investments just because Bitcoin's price is pumping over the past week. It is a much more long term drawn out process than that.
Speaker 3:The process which, by the way, has to be approved through entities, correct.
Speaker 1:That's correct. There is a extensive list of permitting involved in developing an industrial scale facility, including getting interconnect with ERCOT. And let's be clear, ERCOT will not connect a load if they think that that load is going to cause public harm, Right. So yeah, it's kind of just the emergency can begin and end there, of hey, actually you know.
Speaker 3:ERCOT's not going to give you a connection if they think that you're going to disrupt their ability to provide stable power to the grid.
Speaker 1:That's exactly right, and if the Department of Energy disagrees with that statement, they've got a much bigger problem on their hands than Bitcoin mine, right Then the problem is not the miners, these entities that are granting these miners this interconnect. That's right.
Speaker 3:Which obviously isn't the problem.
Speaker 1:Right, because the grid, in a way, is a public good and we have to be good grid citizens, and I think that that's a really important part of rice culture and of the Bitcoin mining industry as a whole is to responsibly integrate with the grid. But Elizabeth Warren and the Department of Energy have not really shown any substantive evidence that there's public harm being caused in this area. Now, I think something else that is really interesting to note is that while the Bitcoin price has increased, the Bitcoin hash price it also has increased, but not really by a lot, and what I mean by that is that if we look back at 2021, the Bitcoin hash price, which was basically one way to think about it, is how much money, how many dollars do you make per pedahash per second? And it's a good proxy measure for thinking about what's the break even of a Bitcoin miner when they're consuming electricity. And so in 2021, we were up hitting $400 per megawatt, let's say of break even, meaning that a Bitcoin miner would not economically curtail until the grid price was $400 per megawatt, and that was the top of the bull market in 2021. To put the $400 per megawatt into perspective, the regulatory cap, the price limit in ERCA is $5,000 per megawatt, so we're talking about 10 times less than the overall system limit, and let's fast forward to 2024. We're still hovering around $100 a megawatt, and we also, let's keep in mind, have a halving happening in a couple of months, and when you have a halving, that cuts your revenue by half, and so it'll knock us back down to below $100 per megawatt, which is a really low price of electricity on a global basis. So as a residential user of electricity here in Texas, I pay way more than that for my electricity because somebody's making a dollar there at the distribution level.
Speaker 1:So in order for Bitcoin mining to really have a break even that let's say, to get it to $5,000 a megawatt you'd basically have to have the Bitcoin price go to $2.5 million overnight. I'd like for it to do that, but it's not going to do that. Let's just let's be real here. The Bitcoin price is not going to $2.5 million, and so I would see an argument for an emergency if the Bitcoin price went to $2.5 million. But I feel like there would be other emergencies happening that would be of greater magnitude than worrying about Bitcoin miners at that point. But we'll see. I mean, maybe they are that bullish.
Speaker 1:Okay, so why is hash price so low, even though the Bitcoin price is up a lot? It gets to two factors. One is the network efficiency and the other is the total hash rate of the network, and so Bitcoin mining rigs have been getting increasingly efficient, and that accelerates when you have more deployment of latest generation mining rigs. The total hash rate for the network has also increased. When we look at it from an electrical perspective, that means that there's about 18 gigawatts of electricity capacity going towards Bitcoin mining, and is that number big or small? I think that that just is a matter of perspective. So the EIA estimates that between 1 and 2% of electricity in the United States is consumed by Bitcoin miners, so we can look at that as a fixed pie of okay, so that means that they took 1% of the electricity from everyone else. I think that would be short-sighted. I think that it makes more sense to look at it from the perspective of a growing pie, because we actually do have a growing electricity grid here in the United States, a growing amount of generation and of load, and so Bitcoin mining. If we look at it as a, if we look at Bitcoin mining purely from a market share perspective, we could think that oh okay, it has grown from 0% to 1% of the grid. This is cost for concern, but the reality is that the grid has grown tremendously as well, and so it's not the case that Bitcoin mining is taking electricity from anyone else. It's just adding to the total pie, and that that is good for economic growth, it's good for jobs and obviously it's good for Bitcoin.
Speaker 1:This map shows kind of where the big Bitcoin mining sites are. You can see a lot of them are in Texas, in Georgia, upstate New York. A lot of them are located alongside renewables, so what you'll find with a lot of these facilities is that there's a lot of wind and solar in the area, so, for example, urca is a leader in wind and solar. You'll also see nuclear in Georgia that is zero carbon, and then in upstate New York there's the hydroplans, and so there's lots of ways to generate electricity that don't involve carbon emissions. And this is really where kind of the wheels fall off the wagon for Elizabeth Warren's argument, which is that it's all fine for Elizabeth Warren to say, hey, the production of electricity in the United States should emit less CO2.
Speaker 1:Sure, that's a policy discussion for power generating companies. But for her to say that, oh, electric vehicles consuming electricity that was produced by a natural gas power plant, that's fine, that's good. In fact, we should encourage it. But an electric Bitcoin miner using electricity from a natural gas power plant is an emergency. Well, it's just nonsensical. And it's clearly motivated by the fact that she sees value in getting from point A to point B with an electric vehicle. She sees the value of that. In fact, I've even seen her fly in a private jet, so she also sees the value of that. But she doesn't see the value of Bitcoin. She doesn't see the value of a monetary asset where each user can control their own currency, can control their money and does not have to rely on a third party.
Speaker 3:But peer CBDC.
Speaker 1:Right, that's what she sees the value of. Is that? Hey, if I can, from Elizabeth Warren's perspective, what she wants to do is to crush Bitcoin. Crush Bitcoin, mining, put them in a box and make them drive them out of the US in order to create room for central bank digital currency, where the Federal Reserve and Elizabeth Warren would allow would have total and complete visibility and control over how you use your money. So in that scenario, they would be able to use the monetary system to stop you from, for example, getting a tank of gas. Instead, you should be recharging your Tesla battery, If you ask me, that's just on American right there.
Speaker 1:Well, I think whether it's American or not should be decided by the voters, not by Elizabeth Warren or by the Federal Reserve. I think that if we want to have policies, policy preferences that reflect what Americans want, I'm fully supportive of that, and I think that the reason Elizabeth Warren is having to bully Secretary Granholm in a hearing is because she does not have the popular support needed in order for this to have momentum on its own.
Speaker 3:It just summarizes. I'll hold you to that. It's like she is bullying her into this.
Speaker 1:Yeah, I mean, I think it's inappropriate in the sense that the EIA is supposed to be an independent and nonpartisan, and so I think, though, that and Warren is just using her agenda to push them into doing what she asks.
Speaker 1:Yeah, she's politicizing their work and she's weaponizing it against an industry that she sees disfavorably In the emergency application. They say that the combined effects of Bitcoin mining and the weather here they were talking about the cold snap that happened earlier this year create heightened uncertainty in electric power markets, which could result in demand peaks that affect system operations and consumer prices. So that's kind of what they said, but they failed to reference the existing body of literature on this exact topic, which very clearly demonstrates, using empirical data from ERCOT and established by researchers at Texas A&M University, that there is a negative correlation, that is, that Bitcoin miners turn off before demand peaks and that the demand peaks are driven in Texas at least, it's either driven by people turning on their AC during the summer because it's 110 degrees outside, or the demand peak is by people turning on their electric heater because it is 20 degrees Fahrenheit outside. The net demand peaks. That is when people talk about net load. What they're talking about is the demand minus the solar and the wind, because you don't control the solar and the wind, just like you don't control the demand. Those are driven by those factors. So the Bitcoin miners they look at net load, they look at demand peaks, and they want to avoid those, because during those times of grid stress assuming the market is working properly, which, again, if the market's not working properly the Department of Energy has a completely different problem on its hands. It needs to go to ERCOT, it needs to go to the Texas legislature.
Speaker 1:If the market is working properly, though, grid stress causes high electricity prices in the spot wholesale market, and Bitcoin miners are price responsive, and so they do curtail, and that is what makes it so that we're shaving the peaks and filling the valleys. The valley filling is really important, because here we're really talking about the utilization of the assets. You know, elizabeth Horan talks a big game about how important it is to have renewables, how important it is to have wind and solar and batteries, and I think that what she's missing is that Riot and other Bitcoin miners have paid wind and solar and battery operators millions of dollars for their electricity. Elizabeth Horan has not right. So Bitcoin mining has given way more money to renewables than Elizabeth Horan ever could hope to in her entire lifetime, and she just doesn't have enough money to pay for the renewables, the renewable electricity the Bitcoin miners pay for, and so you know, it's one thing to lecture people about renewables. It's another to put your money where your mouth is and actually pay for them. And so you know, by participating on the Texas grid that has the greatest renewable growth in the country, bitcoin miners have really helped drive revenue for those generating assets, and by all accounts that should be a good thing.
Speaker 1:Now the other part of it is how interuptable Bitcoin mining is as a load. You know, with the increase of wind and solar, that wind and solar fluctuate very quickly based on the sun setting or you know gust of wind blowing through Texas. So you want to have, on the demand side, a load that can react very quickly to that as well. Bitcoin miners are uniquely positioned for that, and so one is their. You know the cost of reacting right the break evens. We saw that even in a bull market where you're talking about $400 a megawatt, that's still a lot less than the break evens for a data center that is trying to keep a website up. And what the reason for that is is that Bitcoin is decentralized. So the Bitcoin network continues to function. Even if all of the Texas Bitcoin miners are turned off right, because it's probably about 10% of the network, the 90% of the network can continue to propose blocks, add transactions, and that is, you know, a huge virtue of the decentralization is the flexibility from a load perspective that that affords the Bitcoin miners.
Speaker 1:So the court looked at the evidence that and the arguments that the Texas Blockchain Council and Riot put forward in our filing. You know, that was kind of establishing the the facts as we saw them. And, first of all, the court agreed that the 30 minutes time of completion for the form, what they said is is it's extremely inaccurate, if not grossly misleading. And so there, you know, I think that it's really important and I say this coming from, you know, kind of a product management perspective is that you want to have the best way to do this, I think, would be for somebody at EIA to kind of shadow somebody else filling out this form. Right, that's how you're going to get an accurate estimate. Is all right, let's watch you fill out this form, let's see how hard it is. You want to actually see the user interact with the product and see if it's taking as long as you think it is.
Speaker 1:Now the other thing to consider would be that they could conceivably get this data in other ways, whether it's on other surveys that are going, for example, to grid operators or to transmission companies, or you know there's lots of other actors in the grid process. You know qualifying service entities, queezies, load serving entities that have consumption data, and that they might actually be able to provide that data more easily than Bitcoin miners themselves, and so these are the kinds of things that you want to unearth during the process of public notice and comment, which, unfortunately, the government kind of short circuited by declaring a fake emergency. Now, on that fake emergency, the court does seem to be able to do that and it does seem to kind of agree or see that the direction this is going in is that the facts that the EIA is putting forward, that they don't support an emergency, they don't justify an emergency, and so declaring an emergency in this context, it likely violates the Administrative Procedure Act as arbitrary, concretious or an abuse of discretion. So you know, I understand that the critics of Bitcoin mining feel strongly about it. Elizabeth Warren wants there to be urgency on kind of gathering data and you know, I don't know what she wants to do with this data, because a lot of this data is already publicly available, which was kind of interesting to see, but really, maybe. Maybe what Elizabeth Warren is trying to do with this is not so much get to the truth, but, one, harass the industry and two, provide a very one-sided, narrow view of the industry that then her activists can latch onto and kind of try to get to the next step, which would be banning Bitcoin mining or limiting it and, you know, finding ways to further undermine kind of this public good that we're developing here.
Speaker 1:And lastly, you know the judge made this point and I think that this is a really important point that there's a significant public interest in making sure administrative agencies abide by boundaries set forth in regulations and statutes. The government is asking us to follow the law, and I don't think that's controversial. I think everyone should follow the law. What we're asking is simply that the government also follow the law right and that way, by having kind of equality before the law you know, nobody is above the law, rule of law. These are very important foundational concepts in the United States and I think that you know what really struck me going through this process was that the judiciary branch in the United States is so important for the checks and balances and to make sure that if somebody does something wrong, it doesn't matter what their title is, it doesn't matter if you know they work for the president of the United States, like there is a judge who will stop them, you know, from doing something illegal, and so the court granted the temporary restraining order.
Speaker 1:They had scheduled a hearing for Wednesday.
Speaker 1:That hearing got canceled because, thankfully, we've come to an agreement, you know, between the Texas Blockchain Council, riot platforms and the Department of Justice, the executive branch and, broadly, you know, what I think all parties are agreeing on is that the survey was flawed, it was illegal.
Speaker 1:You know how it came about, and so it is being scrapped entirely.
Speaker 1:You know, for now, the responses that were received are destroyed, and that there's a new notice and comment process that is starting, but that all the old comments that you know were being accumulated before they're going to get rolled forward into the new notice and comment process, and so what this is going to allow is for the public to provide input on Bitcoin mining and what kind of data would really be useful and have value that the IA should be collecting, and so I think that this is a really positive direction for everyone to be going in, that we should be working on this together rather than kind of crying wolf or, you know, pulling the fire alarm just because the test is due. You know that kind of behavior. So hopefully this will get things back on track and we'll have future episodes, kind of looking through what some of the different comments are relating to information gathering for Bitcoin mining and what the future is for Bitcoin mining in the United States. So, yeah, that's, that's it in a nutshell, kind of what the lawsuit was and where it stands today.
Speaker 3:Those quotes Pierre seems so like, so, so starkly in favor of against this proposal. Like, how did the IA put this survey together and not see the holes in what they were trying to do?
Speaker 1:Well, if we rewind to kind of the time frame, I think that this was rushed out and so if you rush something out, you're going to make mistakes, and I mean it also speaks to them like saying, hey, you have 30 minutes to answer this. It's like nobody can do anything in 30 minutes like this. This is important. This is important and I think they would agree that this is important data. So, procedurally, they did not cross their T's and dot their I's because, from what I can see, they rushed this out. I don't think. I don't think it's a competence issue. You know, it's just a matter of how much time do you have in the day. They've got a lot of other competing priorities. You know, this administration is trying to move the ball forward on a lot of different policy areas, and it seems like this one was rushed through when they realized that Elizabeth Horn is going to, you know, get the secretary in hot water again for the third time.
Speaker 3:And my other question to this is why did it take TBC and Riot platforms to do this? Why was it? I mean, I just don't. You know what I mean.
Speaker 1:Yeah, I think that they they don't see Bitcoin mining as a valid, legitimate industry. It's kind of the overall, you know, impression I get that they do see us like as criminals. So it is, I mean, it's absurd, because then what did they do? They committed crimes because of that Right, and so the you know, in this case, the criminals were the government, and we were actually not doing anything illegal, and, and and you know, we do take following the law seriously. And so I think, though, that this will help them kind of realize that this is not a constructive path forward, because let's rewind If in January on, if on January 24th, instead of declaring an emergency, if they had kicked off the normal procedures for notice and comment, they would be further ahead than they are today. They have set themselves back by these shenanigans, and so I think that it is a kind of maybe it's a pride or an arrogance of hey, you know, we're the good guys, these Bitcoin miners, they're the bad guys. Everybody will see through, you know everyone will agree with that, and you can craft that narrative, you know, in kind of your echo chamber, but once it hits reality of federal court, then you know you've got to substantiate it, got to have evidence, right. So, yeah, this you know.
Speaker 1:I think that the other part of this is when we think about the regulatory risk of Bitcoin mining here in the United States. I think that by the actions of Texas Blotching Council and huge congratulations to Lee Bratcher on really being the tip of the spear on this and, you know, uniting the industry and all the trade associations, you know, to take decisive action to defend Bitcoin mining here in the United States. I think that Lee, the TBC riot, by joining in this lawsuit, you know, as a company, you don't really want to be suing the government, right? That's not a good position to be in. You only want to do that as a last resort, and that was the case here. We did it as a last resort and you only want to do it when you know you're right and when you know the truth is on your side and that you know it's important. Right, and this was important because what it did was it established Bitcoin mining not just as a, you know, one percent of the electricity grid, but as a legitimate industry that will go to court to defend its interests.
Speaker 1:And so it really is, you know, an invitation to regulators to engage with our industry early and often in a constructive manner, so that we can avoid outcomes like this, where it's really a it's a loss loss, like we had the cost of having to litigate this and they have the cost of not getting a survey out in time. We could have had a win-win if they had approached this in a far more let's call it, you know professional and diplomatic manner, and so we hope that in the future, regulators will take note of kind of this is the bad path, of sloppy process and kind of a witch hunt, whereas we could have a good path of hey, let's take our time, let's get feedback from the public, from the industry, from academia, and that way we can really craft good public policy around Bitcoin mining that takes into account both the risks associated with Bitcoin mining and also the tremendous benefits of Bitcoin mining that we are all too familiar with.
Speaker 3:Yeah, well, I think that covers it. Yeah, we got the message across, not only to you, know, the surveyors, but also to our, our listeners.
Speaker 1:All right, thanks all. If you have questions, feel free to reach out. Please leave a five star review on iTunes podcast or whatever podcast directory you use. Subscribe to our YouTube channel as well. Share with your friends, family and regulators as well, so that this can be a good learning opportunity for all. Thanks, and we'll see you again next week.
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