033 - Bob Burnett, Deep Dive: Block Space Scarcity

The conversation delves into the concept of block space within the Bitcoin network, exploring its implications for miners, nations, and economic sovereignty.

Bob Burnett discusses the role of miners, the geopolitical aspects of block space, and the future of mining in a world where access to block space is crucial for maintaining economic independence. The discussion emphasizes the need for predictability in transaction costs and availability, as well as the potential for banks and corporations to dominate the mining landscape. The discussion highlights the absolute scarcity of both Bitcoin and block space, positioning them as critical components of the future financial ecosystem.

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Chapters
00:00 Understanding Block Space and Its Importance
06:11 The Role of Miners in the Bitcoin Network
11:56 Geopolitical Implications of Block Space
18:11 Economic Sovereignty and Access to Block Space
23:59 The Future of Mining: Corporations and Nations
29:58 Block Space as a Commodity
35:55 The Evolution of Bitcoin Mining Revenue
39:46 The Future of Bitcoin as a Transaction Medium
44:03 The Shift from Subsidy to Fees in Bitcoin Mining
49:16 Preparing for a Block Space Marketplace
56:02 The Emergence of a Block Space Commodity Marketplace
01:01:12 Insurance and Risk Management in Block Space Transactions
01:06:03 The Scarcity of Bitcoin and Block Space

References:
https://www.barefootmining.com/
Previous BwB Episode "Bob Burnett: Building with a 1,000 year Lens"

https://www.buildwithbitcoin.xyz/
https://x.com/BuildwBitcoin
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❗ DISCLAIMER: This show is for entertainment purposes only. Before making any decisions consult a professional.

Transcript

Build With Bitcoin (00:00)
Welcome to another episode of Build with Bitcoin. I'm co-host Israel Munoz. I'm joined with co-host Lynne Bairstow today to welcome Bob Burnett. Bob, very happy and excited to have you back on. Welcome. 

Wonderful to see you both. Thanks for having me. 

Bob has been a guest of ours before and we'll reference that in the show notes. And he is the CEO of Barefoot Mining and also is involved with Ocean Mining and is just one of the best thought leaders in the Bitcoin space, not only about mining, but also about potential attack vectors or just thinking in the big picture about Bitcoin. And so one of the topics he's been speaking about quite a bit over the last several years since I first heard him speak about it is block space and the scarcity or the coming scarcity of block space and what that means. So we wanted Bob to do a deep dive with us today and talk about block space and talk about block space in terms of becoming a financial asset or the financialization of block space. And what, what that means in the community and also what opportunities it presents for entrepreneurs and for investors. with that, Bob, maybe we start out by, talking a little bit about what the concept of block space is in terms of Bitcoin mining for audience members that are less familiar with it. 

Great. I think to start, we must remember that Bitcoin is not just the asset Bitcoin that Just like we have in the fiat world, have dollars and we have things like the Swift network. So the dollars obviously are the money and represent the wealth, but there's a whole bunch of power and control that comes from whoever manages and has oversight over like in the case of the Swift system. We've gotten to the point in the fiat world where access to that system is somewhat analogous to power, right? know, and it's used as a weapon. It's used as a means of control. Well, in Bitcoin, we have somewhat the same thing. Now, I'm not saying it has to be used as a weapon, but we have Bitcoin the asset, but we also have a monetary network. access to the monetary network is really imperative to being able to access your wealth and maybe even more importantly, for an economy to run on top of Bitcoin.

So as we start diving in, maybe I'll give you an example. I was thinking about this recently, this very topic, the geopolitical implications of this. And I was thinking about Taiwan, specifically the country Taiwan. So if you look at Taiwan, what you'll find is Taiwan has a little bit less than 1 % of global GDP. Now,

They sit in a very precarious position, right? I believe there are three countries in the world that recognize them as a sovereign nation. They've got China looming over them, threat of war. I happen to have spent a lot of time in Taiwan in my career and I really like it there. I've always been concerned for them.

As I was thinking about it, I'd say, if I was the president of Taiwan right now, I would be less concerned about building a Bitcoin treasury, which that's very topical, right? You have different legislatures, the US is building a treasury. I'd be less concerned about building a treasury and more concerned about building a mining network. In fact, if you told me that as the president of Taiwan, had a choice.

Let's say I could have 100,000 Bitcoin in my treasury, or I could own 1 % of the mining network for the next century. I would choose 1 % of the mining network for the next century. Say, well, why is that? 100,000 Bitcoin over the next 100 years could be an obscenely large amount of wealth. That's true. However, if as a nation,

I cannot guarantee that the nation itself, the corporations and the individuals of the country can do commerce with the rest of the world. Do I really even have a country? Like the very sovereignty of that nation is what's at stake. So my advice really to every head of state around the world is even before you worry about building a strategic Bitcoin reserve,

start building a mining network. And my recommendation is to have a goal to have approximately a percentage of the mining capacity of the world roughly equivalent to your GDP. Can you just take a little bit of a step back and talk about what is the function of a miner? think there is, because of the terminology, it's a little bit of a misnomer where they think that you.

find Bitcoin, but the Bitcoin already exists, it's just releasing it onto the network. how that, and what is block space in the mining equation, how miners are paid? Sure. So in the Bitcoin network, we'll start with some numbers. So the Bitcoin is based on blocks. I think everybody's familiar with the term blockchain. But what that really means is that you can think of it as a batch of transactions that get

confirmed together. And so there because the Bitcoin network runs on a cadence of approximately 10 minute intervals. That means that there are about 53,000 blocks per year that are processed. Now those blocks have a maximum capacity. That capacity is on a technical basis called 4 million weight units for

purposes of today we'll just say it's four megabytes of space that it maxes out on. And it turns out that that equates to about 4,000 transactions maximum. So if you take 4,000 transactions times 53,000 blocks what you'll see is there are about 200 million transactions that the network can handle and confirm in a given

annual period. Unfortunately, I shouldn't say unfortunately, but this design I think is kind of paramount to the way Bitcoin works and it's probably a little deeper than we probably want to go today. But if we increase that too much, let's say we quadrupled that number, well, there might be so much block space, especially in a future state. We think about

five years from now, 10 years from now, a hyper Bitcoinized world, that it exceeds the demand for it. Now, if it exceeds the demand for it, then nobody wants to pay for it, right? Now, if there's not enough, if let's say the capacity instead of 200 million was only 10 million, well, there's not enough transactions for a global economy to sit on top of it and

be managed. Now it turns out, we don't know because I don't, ever asks Satoshi this question, it turns out that the capacity of the Bitcoin network and the capacity of Fedwire are identical. Fedwire has about 200 million annual transactions and that's about what Bitcoin has. So I have a feeling it's probably a little more coincidental than planned but

Who knows, right? Like I often like to say, I believe Bitcoin is divinely inspired. So whether Satoshi knew it or not, I think it was destined for this to be the way that it was. Now, as we sit here today, though, if we think about those 200 million transactions, they are not selected. The process by which

decision is made about which ones get into individual blocks is made by the miners. Okay, so what happens is that at the point that a let's let's pretend that a block just got mined okay so just got added we've got you know and and now we're going to work on the next one. Well what will happen is each individual miner has the opportunity

Some of them defer that by the way, we'll talk about that later, but some of them abdicate that responsibility to others. But some miners, like my company, what we, we are part of the network. So what we do is we go look at all the transactions that are pending. They're like right now there's a couple hundred thousand of them. And we have a criteria by which we decide which 4,000 or so we are going to put in the block. We are going to try to mine.

Other miners can make similar decisions. If we happen to win the block, meaning we create a hash of that block that has a difficulty, we find a hash with a number lower than what's called the target difficulty level, we essentially win the block.

And for winning the block, we are rewarded with two things. We are rewarded with the subsidy, which currently is 3.125 Bitcoin, plus whatever fees are associated with the transactions in the block. Today, that's typically about 0.15 Bitcoin or thereabouts. Well, that can vary greatly over time. Sometimes it could be as much as a couple of Bitcoins. Sometimes it's...

less than tenth of a Bitcoin. So the people who are adding their transactions or want their transactions to be part of the block, they can be competitive and offer to pay more to have it included. And that would seem the natural kind of criteria for miners to select one transaction over the other. But there could be moral issues or just preferential or it could be your own transaction that you want to have included in that block. of course you're going to include the ones that are more important for you. Is that?

fair to say? Yeah, well I think you put it very succinctly there. The miner will select the transactions most important to the miner. Now a mistake I believe that has been made pretty much throughout the entire Bitcoin community is the assumption is that the

Transactions most important to the miner are those with highest fees. I think that's a mistake And I think a lot of people believe there's this incentive structure that permeates through the Bitcoin ecosystem that These miners are kind of perfectly motivated for that But I think you you highlighted one reason why they won't always pick the most expensive one the first one is if let's say

We were trying to do some transaction, Lynn, I was going to send you a Bitcoin because I was buying your car. Well, we may, if I was a minor as well, and you didn't, you were willing to wait a little bit for the payment on the car till I won the next block, why wouldn't I put that transaction in at no fees and put it in my block? Okay. So in other words,

I'm picking my transaction and paying no fees on it. Now, because we're friends, you might also have a situation where you call me up and you say, Bob, I, can you do me a favor? I have X, Y, and Z transaction that I'm trying to get. trying to get money to let's say somebody, and I don't want to actually broadcast.

this transaction, I want it, I don't want the entire network to see it. Can, can you just kind of handle it for me? That's another possibility. So it just, it's kind of a, it might be a little more private that may be a higher priority and more private for that to happen. Now we'll talk about some other things too, but as we go forward in this conversation, but it could be that I have pre-sold space on that block.

So I'm actually not looking at kind of the pending transactions that sit in what's called the mempool. So the mempool, and I may have glossed over that earlier. around the world right now, there are, as I mentioned earlier, a couple hundred thousand transactions that are pending. What that means is somebody has initiated a Bitcoin transaction

They have signed it, right? They've used their key and they have signed that transaction. So it's a valid transaction, but it's not confirmed. that until it's actually on the ledger in the blockchain, it's not considered confirmed. And the deeper it gets into the blockchain, the more secure that transaction is. So if two people were doing a large transaction,

I'm sure you guys have heard this before. They'll often say, well, wait three confirmations or six confirmations, because at that point you're pretty much mathematically guaranteed that nothing, nothing will change that. that, that the money will be reversed, right? Cause that would be your nightmare is I bought your car and you, you thought you received the Bitcoin from me.

but it turns out that it was a, it's called an orphaned chain that you saw it on and oops, it didn't really happen. so anyway, you're trying to prevent that. So what we're really saying though is that the miners that are choosing the transactions that go in the block, and that by the way is called block template creation, they,

won't necessarily pick those that are the most expensive, which is kind of the way it typically works today. And I think people think it will work in the future. And so I'll go back to the Taiwan example. So why was I saying Taiwan should own 1 % of the global hash rate? Well, they're a big country, right? 1 % of global GDP. If they have 1 % of the hash rate,

That means that pretty much every day, one block could be processed by the Taiwanese. So if the Taiwanese government had control over 1 % of the hash rate, then no matter what happened geopolitically, they could continue to do economic activity with the rest of the world every single day. They could pick.

whatever 4,000 transactions they wanted. Now what would make sense in that case, especially in a case where they were trying to be oppressed by either the fiat system or the brick system or whatever other activity. So maybe they're trying to buy something from Venezuela as an example. So we've got two parties that are both kind of maybe frowned upon by certain factions within the world.

They would have a mechanism then because Taiwan could include that transaction in their block and essentially maintain their economic sovereignty and ensure that their economy continued to run. They could accept purchase orders. They could buy supplies. The Taiwanese citizens could move money around the world. All those sort of things could occur.

In fact, I believe it's so important that at some point, I can't say if this is 10 years, 20 years, 30 years in time, but somewhere out in that timeframe, countries which do not have control of block space may well completely lose their sovereignty. I think if you lose economic sovereignty, you've probably lost all your sovereignty, right? I think you could make that argument.

People talk about like Jason Lowry's work and software and a little bit of what I'm talking about may be analogous, but I'm not looking at it so much from the perspective of like defense and things like that. I'm looking at it about it from the perspective of economic sovereignty and financial sovereignty of a nation or of an organization or potentially even of an individual. I mean, you could extend it.

kind of all the way down. Because if you do not have a means to which you can access block space, even if you own a bunch of Bitcoin and you have the private keys, you may have difficulty getting at them. Now don't want to scare people too much with that. I do believe that given enough time,

If you have your keys, you'll get access to your Bitcoin and you'll be able to make movements. But it's not necessarily that you'll be able to do it just on a dime whenever you want. There may be extended periods, weeks or months. You know, I'm glad you bring this up, Bob. And I do want to kind of dig into it a little bit before we get into the maybe other economic opportunities that lay ahead as this develops.

So you're basically saying, I mean, let's recognize that today, how most people, corporations, or even countries view it is, okay, if I want to get my transaction through, I'm just going to pay more. And you're saying that's not necessarily how this can develop, right? There's other incentives behind the scenes and you want to be a part of this infrastructure if a large portion of global economy

is moving through this network. And you mentioned earlier, it's interesting, mean, your Taiwan example or your advice to Taiwan, if you were to give them one, is be part of this infrastructure, not necessarily the treasury approach. And you mentioned to Swift earlier, I think is a pretty good visualization of this.

I actually used to work there. don't know if you know that, it is Swift. didn't know that. Yeah. Yeah. I spent some time there and I saw this as well because, you know, I mentioned it because Swift did to your point, it started roughly 50 years ago as a neutral cooperative. And I saw it personally at my time there and the whole world saw it recently how it eventually developed into not so much a neutral cooperative and being influenced by geopolitics and.

The whole world saw what happened with Russia recently and how that's changing the dynamics and now you have Russia scrambling to build out their own infrastructure network. So, mean, I kind of want to link that up and circle it back to your first point because I understand you're not trying to scare anyone. I think the Bitcoin network is just naturally a lot more resilient to these types of capturing, right? But I do agree with you greatly that it's very important to recognize that.

what we, the reality of today and what we see today as far as, I can just bump up with an extra fee, my transaction. That might not be what, what this develops into a few years from now. Right? Is that fair to say? That, that is correct. I'll also say that if we think about a world where maybe we haven't even hyper Bitcoinized yet, meaning, you know, everything is kind of Bitcoin based, but

We have major factions in regions around the world that have built some stockpiles of Bitcoin and they're starting to use it for economic activity, right? It's not just store value, but there's some medium of exchange and it may even be big pieces. Well, meaning bigger money movements, right? Well, in that case, if you have corporations,

large organizations that are gonna start using Bitcoin. They need to know two things for that to happen. They need to know approximately how much it's gonna cost them for these transactions to occur. And they need to know that they can get reasonable response times, right? Because what I will say about the SWIFT system,

or just even the basic, I mean, all the basic banking infrastructure on the fiat side is nobody ever thinks about the capacity of that network to their credit. I still have to send wires frequently in the fiat side for my business. I don't ever wonder if, is there enough capacity? I know what the lead times are. I may not always like them.

But if it's a domestic wire, I usually pretty much know if I get it in by three o'clock, it gets done the same day. If not, it happens the next day. If it's international, I need like three to five days for the whole thing to clear. But I know the rules and I know the expectations and I can build my business around it. We can't expect that an economy with Bitcoin at its base will be acceptable.

for businesses when the cost and the availability are completely unknown. And that's a problem. Bitcoin has to solve that. And I think a lot of Bitcoiners, and I consider myself a maxi, I think I've even pissed some people off, as I've talked about this in the past, because what I've said is, I believe that it's highly likely that organizations like Citibank, like Bank of America,

like Deutsche Bank or Mitsui in Japan or, you know, organizations like this will become miners. Like I believe they may become the biggest miners. They may do it in conjunction with their governments. Let's say Mitsui in Japan, which I know the Mitsui folks, well, I say used to, used to work a lot with them. Wouldn't surprise me that they have a relationship with the federal government and the central bank of Japan, but that they

run their own mining operation and their own mining pool. And what they do is for the companies that are part of their financial network, they offer preferred access to block space for those people. And they, in other words, if they use them as an example, I think Japan's like 4 % of GDPs. I might be off on that number, but something on that order.

You know, so, and maybe Mitsui has 1 % of the 4 % in theirs and some other big kuretsus in Japanese institutions have the rest. The Japanese government mandates to them that they prioritize certain transactions. But this is kind of the opposite of blacklisting. I think a lot of Bitcoiners have worried about censorship and being excluded for censorship. That may happen.

But I think the bigger issue is that in a hyper-Bitcoinized world, you're gonna have people and organizations that have preferred access. And I'm sorry, but that's the way it really has to happen. And we can't have our cake like the world hyper-Bitcoinizes, but it suddenly gives up its ability to predict for big organizations and large money transfers

when the block space will be available for them and how much it'll cost. So just to finish that thought on Mitsui, like if you were a big customer of Mitsui, let's say you're the Toyota Corporation, you're a customer of Mitsui, I'm pretty sure that on an annual basis, Mitsui would sit down with you and make an arrangement and say, you can have on average 15 base layer transactions every day.

And the cost is 22 sats per V byte fixed for the year as an example. And no matter what's happening in the network, whether it's congested or not congested or whatever, that they guarantee that to their customers. I just want to, this isn't the topic of this, but I just want to make mention for people who are listening that might be thinking, that means like, you know, the opportunities to use Bitcoin in the future are really limited.

This is why there's so much development taking place on layer twos like Lightning and Liquid and ARK and I'm sure there'll be many others to facilitate a larger number of transactions without it having to be done on the base layer. But you still need the base layer transactions. And so from your perspective, I mean, I'd like to dig deeper into the financialization of BlockSpace and why banks will

do this, you've also kind of alluded, but you haven't really talked about the fact of securing future block space. You had mentioned that maybe if you are a miner, but you've promised that block space will be available for a certain client. mean, these are really interesting opportunities. And I think this is where people are not really thinking about just the way this can go. the opportunities, mean, yes, there challenges, but there's also opportunities for creating businesses around this too.

Yeah, there's a lot there. So let's back up a little bit. So if we look at a minor, I think there will be, in the future, there will be two kinds of minors. The first kind of minor is really the kind we were talking about primarily thus far, which is a new kind of minor.

It's a nation state or a large financial organization, or it might even be just a really large corporation. And they want to have direct control of the block space, not because they want to earn the block reward, but because they want to guarantee access into the financial system at a known cost with a known predictability of availability. Right? So that's one type. The second type will be.

the, I guess what I would call a pure mining company that's in the, and that could be individuals by the way too. And so companies like mine bear foot mining. Now the, I should point out too, I think what will happen is to a certain degree, you'll see the big public miners start to go away. Now a lot of them will probably be absorbed. There will be &A activity.

that will, you know, they'll get sucked into these other organizations. And that's how, that's how Citigroup, you know, they come in and buy Hive or something like that. Right. And, and okay, now they've got, now they've got their mining operation and they won't run it as a P and L center so much. You know, it'll, it'll be more just like an infrastructure cost for them.

Then there will be companies and individuals who mine for the sake of mining. And we should hope by the way, my number is 30%. We should hold as Bitcoiners that about 30 % of the network or greater remains in the hands of those types of groups because it keeps enough of organizations that are bringing the ethos and the perspective.

that that we're kind of used to, but even at that expect to change. And this is the change that gets into the marketplace and all that. So if, like, if I were to ask you guys and say, you know, do you view a mining company, pick, pick, you can pick mine or pick any one of the public ones or whatever. Would you categorize them as either a, techno, would you categorize them as like a technology growth kind of company?

or as a commodity company, commodity producer? I would lean towards commodity producer, but I mean, I can see how there's components, strong technology growth components there as well. And you actually do see some of them also kind of dabbling into AI and other things, right? But maybe that's, that's off topic. Why, why the question? Well, it's because I'm glad you answered that way. Cause I would, I would argue they are surely commodity producers.

And all of us are commodity companies. And even that next piece of like the AI is sexy in technology, but the piece being provided by a hosting company is not the technology. It's the infrastructure. I believe all of it's a commodity. we won't do it today, but you know, I believe the market has improperly probably valued public miners because they've largely valued them with multiples and expectations of technology and growth companies.

and they've often built themselves.

infrastructure wise with overheads and all that like growth companies, but it's really commodity. So, and the commodity that miners produce, and this is where it gets, it gets hard for people. The commodity that miners produce is block space. Now that's probably different than most people would ever think, but that's what they do is they produce block space. And

So again, I'll use that example. I've used it a couple of times. If I am a mining company, I have a mining company and I have 1 % of the world's hash rate. There are about 150 blocks produced per day. And on average, I'm going to produce one and a half of those. whatever the subsidy at the time is, I am entitled to that and I'm entitled to the fees. But what I'm getting paid for is the block space.

that I create. That's what I'm being created. If you take that mindset of being a commodity producer, then what you realize is that as time goes by, the subsidy really becomes insignificant in the not too distant future. So as measured in Bitcoin terms, I'd say we're certainly under a decade away from the point

where the predominant form of revenue for the miners comes from the fees or however they happen to monetize the block space, put it that way, that's a better way to say it, not from the subsidy. And before we get into that component bottom, this kind of flip you're alluding to of the block fees coming from mostly transactions fees as opposed to the subsidy, right? Before we get into that component,

There's something I'm struggling to understand in your illustration previously and mostly just in my head trying to size like how big we're talking, right? As far as where this is going, how expensive these trends, this block space can get. You mentioned the Mitsui example for, you know, as an illustration. In my mind, it's, I mean, I'm trying to think through an example of, in a specific...

economic trade, when will I absolutely need to transact through the Bitcoin network? Because otherwise, I mean, if it just gets too expensive, like why wouldn't I just use the fiat rails, right? And in my mind, that's more relatable to maybe some commodity industry examples. I don't know. Let's say going back to Russia, you know, maybe they're saying, okay, now I'm only accepting Bitcoin and gold for oil. so you have some...

some, some specific niches where you have to transaction, transact in Bitcoin. And so then that block space becomes extremely expensive, in the more corporate or other, other industries, I'm struggling to understand when it just gets a little too expensive. Why wouldn't just use Fiat? Can you help me land that concept? If that makes any sense? Well, the first is, does the person on the selling end of the transaction want Fiat? So.

I mean, you believe whatever time horizon you wish, because we're all just speculating. It's my belief that in the relative near-term horizon, more and more companies are going to demand payment in Bitcoin and not FIA. Now, you could think otherwise and that's okay. But in my mind, all that does is shift the time horizon. So if I think that happens within the decade,

then you might think, well, it won't happen until 50 years from now when we hyperbitcoinize. But the point is it happens. There are countries like Argentina who don't want to accept, mean, obviously things are changing, but they only accept dollars for certain transactions. They don't want to accept Argentine pesos. So it's like you can see where the higher value a monetary unit has, it becomes

the required form of transaction. And I guess that would be maybe equivalent to where people say, I have to have Bitcoin. Yeah. I think there are, there's a lot of the world economy in countries now that are being rejected by the fiat system. Right? So even, even if it's a Russia and

Venezuela and North Korea and Iran and you know, like those kind of countries. they, I mean, we have a whole BRICS movement that is, I believe it's on the order of 40 countries now that have, that have aligned with the BRICS movement. I can't tell you for sure how fast that happens. I tend to be more aggressive in how I think about it. because I think that.

the world might lose faith in the dollar maybe faster than a lot of other people think it will happen. It doesn't mean I wish that necessarily. I can say to a certain degree I don't care, honestly. I actually think it's good for the US to not be the global reserve currency and for the world to use Bitcoin as the unit of account because of the Triffin dilemma and all that. That probably is a different conversation, right? But so

So the assumption, Israel, to your point though, is that 200 million transactions is not a really big number. 4,000 times 150 blocks a day, what is that? That's 60,000, right? Is that right? No, 70,000. 70,000 transactions a day to serve eight billion people and 330 million corporations.

So even in a world where Bitcoin is a niche, where 2, 3, 5 % of the global commerce is transacting on it, that gets gobbled up pretty quickly. And whether that's out of need or preference, right, for harder, better money. I follow your point. Yeah. And let's also remember that Bitcoin has a unique attribute in that

Like I don't even like you like the word transaction when I use it, I use it because I'm just kind of acquiescing to I think the way that people normally express it. like the term resolution because basically a resolution, because a lot of the things that are happening are things like UTXO consolidation. Well, which is really me. Transacting with myself essentially. Right? So that's why I like the word resolution, but that gobbles up.

that gobbles up a lot of block space. Opening and closing lightning channels, you talked about that, Lynn, and you're very sage in saying that, yes, don't be afraid out there about this at a personal level, but that's why we need lightning and arc and FETI and other movements to allow that to happen. But there's still a lot of channel opening and closing and splicing and that sort of stuff that's happening. That all counts. That's all part of the 70,000 a day that

you know, we have to deal with. like I said, my opinion is it gobbles up pretty quickly, Israel. Let's also remember that we are now approaching two years since the Bitcoin network has had no transactions pending. So, in fact, almost two years with at least 100,000 transactions waiting confirmation, two straight years of that.

I mean you guys pick your number but global adoption of and usage of gosh well under 1 % of the 8 billion people and a tiny tiny fraction of the percent of the world's corporations remember even if 330 million corporations let's say every single corporation now decides to have treasury in Bitcoin. Well one transaction

from every corporation in the world gobbles up two years of block space. And I mean, this completely changes. it's almost, I think like there's pre 2024, just to pick right now, because this is when we're talking about this, right? I mean, there's pre 2024 Bitcoin network throughput and cost of transacting, to call it that.

And then, mean, it's, if what you're alluding to Bob, which actually, I mean, it is quite logical demand and adoption is going to grow heavily. so basically your demand is going to grow heavily. but I mean, that changes things. I mean, just absolutely completely. you know, I, I heard you mention, 2023 in another interview, Bob, you mentioned that there are mining revenues globally were roughly 12 billion. I was looking through the, before the, interview.

where we were at year to day 2024. And I think it was about 12.9 or so. Let's just say we close the year at 14. mean, it's still a very small industry, but what I mean, what I noticed and to your point is most of these, I was looking at these monthly revenue figures, most of that is the block rewards, right? And so what you're alluding to is we're getting quickly to a point where that's completely flipped on its head. And that can just, I mean, these numbers we're referencing are just

almost obsolete, I mean, if that's the case, right? Yeah, that is true. It also points out, you know, I'm glad you brought that up. So, 2023, you're at about 12 billion, maybe 14 this year. If we assume Bitcoin, and we're doing a fiat thing here, right? If we assume Bitcoin averages, let's say $130,000 next year.

So the average daily price through the whole year. Then we're at like 24 billion. That may sound like a lot of money, it's tiny. It's still a tiny industry. I mentioned this in a few other interviews. I looked up Bank of America's IT budget from their last full year. It was like $11 billion. For one of the big banks, their IT budget was

roughly equivalent to the entire revenue of the Bitcoin Mining Network. Which by the way leads to some of my assumptions about these organizations potentially looking at Bitcoin, not from a P &L perspective, but really as an extension of their IT budget. Because their business,

is the relationships with those companies. That's what they care about, right? They want those companies interacting with them. They want to custody their Bitcoin. They want to provide on the fiat side their services. That's what they want. So providing access to the base layer in my mind for the big banks.

the block reward and subsidy are largely irrelevant. They care about the relationships. And now you guys both come from worlds where you'd be more familiar with the way that those organizations think than I do. I was always on the other side. I was the customer of them. But they would, if you were a big customer, they would go to pretty great lengths to make sure that they took care of you. You know, when I was at Gateway and we were a Fortune 200 company, those relationships with

you know, the major banks, they were, we were treated very well, put it that way, right? They took very good care of us. So, I did want to say, so if you are a large corporation and you want to make sure that you can secure block space, you mentioned like for sovereign nations, they should become involved in mining and have that control inherently. Corporations might also, like the big banks might also do that.

You talked a little bit about purchasing, like for an entity that's not a large corporation, it may be an auto manufacturer or computer manufacturer, somebody who still needs to have transactions process that works globally. What are some of the things that they should be thinking about in order to prepare? They can purchase BlockSpace in advance to ensure that they have it available when they need it.

Are there other that if they if they don't see a path forward to personally get involved with mining? You know, can what can what can a business do to help prepare for this future? Well, the first thing is they can look for relationship with one of these progressive financial institutions I think most people know in the Bitcoin community at least like fidelity has been aggressive in mining for a long time You know, they've been way ahead of the game I think

they should, if a corporation sees Bitcoin in their future, I think they should start talking to their banks right now and saying that this is going to be a requirement of theirs in the future. They want assurances. Now, actually the question you asked, Lynn, is very similar to where I was going because I realized I didn't finish answering a question earlier.

which was really about the marketplace and all that. I asked the question about commodity, right? And the reason I asked that was what I wanted to establish was that this is a commodity business. If you're on the miner side, what the commodity you're producing is block space. And in a world where subsidy, which in Bitcoin terms, in Bitcoin terms in 2025, I believe,

I'm going off the top of my head, there will be about 185,000 Bitcoin produced for the miners. Okay, so with Bitcoin as a unit account, that's what the mining network is going to share, give or take a very small amount. Then you can apply whatever fiat price you want to that. That's it. So, but most of that,

90 plus percent will have come from the subsidy. Five, seven years from now, we'll have gone through a couple more halvings. And at that point, it's my belief that we will be very close if not having already flipped to where most of the revenue comes from fees or other services or arrangements, you know. So in that world though, where subsidy has gone down, what it means is it

creates volatility in the revenue stream for the commodity producer. In Bitcoin terms, we've lived in a world up to this point, and probably will be for a couple more years, where it's extremely predictable what the output is for the commodity producers. You have 1 % of global hash rate, and there's 185,000 Bitcoin produced in 2025. Well, you'll get 1%, so you've got 1,850 Bitcoin.

The variance on that will be very small. In the future though, let's go five to seven years from now. Well, now if fees are a big part of your revenue stream, but fees are very volatile, it's hard to say what your revenue will be because you don't know which blocks you're going to win and when you're going to win them. And so you might get lucky and beat that number and you might get unlucky and

and missed that number just based on when you win blocks. So, I mean, at Ocean, see that very, like we at Ocean, we happened to get very unlucky in the week or so around the last halving. We didn't win a single block when fees were highest of all time. It's just bad luck, right? So we missed us and the people that were in our pool missed all that. Now, the other side though is what's important.

important as well. If you are a user of block space, you will likely see much higher volatility and availability of block space. block space starts to look like a traditional commodity. So if we take a commodity like wheat, if I am a farmer, I'm out there planting

wheat in May. I know in October I'm going to have a certain harvest. Let's just pretend it's a hundred thousand bushels. Now it might be 98 and it might be a hundred and four, but you know, I know about a hundred thousand bushels. So I don't know though, what the price of wheat is going to be in October. Now out, out in the world is a bakery as well. And that bakery,

Needs a lot of flour, meaning they need a lot of wheat, right? So they have the same problem. They might start kicking up their production, getting ready for the holiday season and all the bread and cakes and things they're going to make. They don't know either. So it makes sense in those communities, and it's happened obviously for a long, time, for the farmer to go and say, hey, I'm going to sell, maybe even at the same time I'm planning the wheat.

I'm already selling a forward contract for the first 20,000 bushels of my production. And I may offer that, I have no idea what we cost today, but let's say it's $5 a bushel. And out there is a baker saying, well, I know I'm going to need a lot of flour. So let me, let me go buy 20,000 bushels, $5. I'm going to lock in the price. Now they can start planning with certainty what their, their input costs are for

for their production in the fourth quarter and the farmer locks in. And as time, as they get closer and closer to October, they'll sell more and more of the output. Well, I think the same thing happens with block space. We're recording this session the day before Thanksgiving in 2024. So I'll use that example again. If I have 1 % of the world's block space, I could go and look at the last week of December.

Which by the way, think would be a time period of very high desire for a lot of reasons, right? People would desire block space in the last week of December. So if I have 1%, I'm going to probably mine 10 to 11 blocks that week. So what I could go do is offer access to maybe two blocks at a, at a, at a rate right now. If I was a

a corporation, but it could also be an individual, I might want to go start saying, Hey, I want to be sure that I can get something through before the end of the year. So I'm going to go buy it. And even though the current market price of block space, let's say is 12 sats for per VBITE, I as the producer of the commodity might say, I'm going to offer this for 30 sats per VBITE.

I'm guaranteeing a price and I'm guaranteeing availability. So I believe there will be commodity buyers on the other side that will want that same thing. With an unknown fee market and an unknown backlog, they can guarantee themselves and move to the front of the line. So that's the product that we're working on. So I'm working with a company called Block Spaces. You guys may know Gabe and Rosa from

Blockspaces, which out of Tampa. We're building this marketplace, by the way, on top of Lightning, which will be a user of the Vox space itself. So it's a little recursive, incestuous here. But I believe this will be very important in the future. it gives companies of all sizes and individuals of all sizes an opportunity to look forward. The marketplace will be very transparent.

You know, you, will be able to see out in different periods of time where demand is high or low and where prices are high or low. So you can start as an individual planning. Cause we live in a really weird world if you think about it, like block space right now is a, is, is surely a real time marketplace. So if.

If we wake up tomorrow and I want to buy Lyn's car, we really have no clue what we're going to run into in terms of our ability to make that transaction tomorrow and how much it will cost. So anyway, I'll zip it up and let you guys comment and ask questions. No, I'm glad you brought up that.

that project that you're working on Bob, because I mean, think when you just really boil it down, I mean, you're thinking to me is you're kind of trying to see through all the complexity and technicality of what goes on when we transact in Bitcoin. And you're just basically saying, right? I mean, if you think of this as a commodity, there will be a commodities marketplace, just like there is in the real world full of consumers, producers, speculators, and that's where we're heading. Right. And I mean, I think if you just kind of look at it,

first principles from that approach. There's many areas of opportunity that are still to come. you're particularly involved, I mean, maybe we can kind of begin wrapping up the episode today, with touching on a few of the different projects, just to highlight the kind of different angles you can come at this through. you've mentioned the marketplace, you're involved in the mining pool.

You're involved with ASIC, so the hardware side. mean, what other just generally areas of opportunity or challenges are you, do you see in this infrastructure development? You know, first of all, you're right. think that it's very important to step back and look at a first principles basis to a lot of these things. And, you know, I've really spent my career doing that with technology and.

And it's what excites me and interests me and keeps me stimulated. As a Bitcoin community and Bitcoin ecosystem, we have to mature. Like we can't be the world's money. We can't be the world's monetary system without developing these things. We also can't expect that we're going to own it.

with and exclude the nation states and the big financial organizations and the corporations. You know, I, I believe in the premise that Bitcoin is for everybody. And while, even though it may sound like it, I'm really not excited about the nation states being involved. I'm not excited about big financial institutions taking over mining. saying, I don't see, the only way I see that not happening is Bitcoin not being successful.

I don't see a way for Bitcoin to be successful, for Bitcoin to be the base layer of the global economy and financial system and exclude all these organizations from having a big say in what happens. It's just not realistic. but using that, like if we look at this commodities marketplace, which is for block space, well, we're gonna have commodity producers, we're gonna have commodity

buyers, but we will have commodity speculators. Like I'm sure that that will occur. And I do want to point out, this is a, like what I would call a real commodities marketplace, meaning there's an actual delivery. There are, there are products out there. I'm not saying they're not useful. There are hash rate derivatives, hash price derivatives. Those are, there are those sort of things, but those are merely speculative and hedging tools.

This is a real deliverable marketplace, just like, so I don't think those things are really commodities. I don't think they tick all the boxes for whatever it's worth. It doesn't mean they don't have some use, but I think it's limited. So when you look at this, you know, you'll see trading of these commodities. So you'll have the buyers and speculators and the tools that they will need to do their job.

But you're also gonna need, for instance, insurance providers. So because, like as an example, part of the way the platform works is if I, as an entity, offer block space, we'll use that example of the last week of the year. If I go and I offer two blocks, I'm gonna probably have to pledge something on the order of five Bitcoin as collateral against the delivery of that. Meaning if I,

If the people that buy the block space from me, if I don't deliver it, I'm going to lose a big amount of Bitcoin because I didn't produce. So, well, why would I not produce? Well, maybe, maybe a hurricane came through and knocked out my facilities. Maybe, you know, there's obviously a variety of things that could happen. So what do I need? I need some insurance that...

allows me to protect myself, just like the farmer who planted the wheat. He has a whole host of insurance products that protect him in that case. And by the way, the buyer probably needs the same thing. The buyer may want to have an insurance product against me, for, not, you know, them getting screwed and not getting the block space when they need it. So in addition to the penalty I would pay, they may want to have insurance.

So that's an example of a, you know, as the market matures and we go into what, you know, the first order effect of, okay, there's a block space marketplace. Well, now there has to be insurance products. There may be reinsurance products. There may be people sitting behind the insurance providers. So those would be examples of new things. I think it's probably likely that

There will develop cooperatives where smaller miners, not a pool, but a cooperative, meaning let's say you don't have 1 % of global hash rate and you want to offer a block space forward contract though. Well, you may have to partner with 10 small miners may have enough to make 1 % of global hash rate. So they could work in a cooperative.

to offer that block space forward, where they all agree, even though they may create their own templates, they all agree that they will prioritize the transactions associated with a block space forward. There's another example. I'm not working on any of those things, by the way, yet. We may reserve the right to do it in the future, but my hands are pretty full right now, so I don't...

I'm not working on those, but I think all those things would be examples of what will happen. Thank you, Bob. think this is where we wanted so much to talk with you because where this is clearly a topic that we need to be thinking about and that businesses need to be planning for, and especially I think that the last couple of months have just seen an explosion in interest from nation states and from corporate treasuries.

and feeling that regulation might ease in the US and there'll be more opportunities for innovators to, you know, it presents challenges for business to think about that are considering doing more with Bitcoin, but also for entrepreneurs to be thinking about how to solve the problems relating to this. see seasonality being an issue for this commodity of digital block space and

for tax planning and inventory delivery, whether it's food products or tax settlements and things like this. So yeah, there's a lot of opportunities, I think, for innovation to occur on this and for investors to also take a look at it and see where they can make investments. Yeah. One thing we didn't say explicitly that's worth, I think, saying

Probably should have said it in the first two minutes is

think everybody understands the concept that there is an absolute scarcity to Bitcoin of 21 million. There is absolute scarcity to block space as well in any window of time. So whether it's the next day or the next month or the next year or the next decade, but I can already tell you how much block space is available and how many transactions will fit in that block space. Much like I can tell you how much Bitcoin will be released in that.

And regardless of what happens on the demand side, that number stays the same for block space, just stays the same for Bitcoin. So just as I think we all believe that as demand for Bitcoin goes up, the price is going to skyrocket because the supply will squeeze. The same thing happens in block space because it is also absolutely scarce. And I say, that's one of the amazing things about Bitcoin and what Satoshi created.

Because in my mind, there's only two examples in the history of mankind of absolute scarcity being achieved. And he did it in the same thing. It's phenomenal. you know, when I, when I see these things, I mean, we see a lot of the deniers and the, people who are fighting us. Like I wrote an article recently about the, you know, first

First they ignore you, they laugh at you, then they fight you, then you win, if you know that phrase. We're in this fight phase right now and they're losing and I feel like they're getting higher. I still keep seeing this no intrinsic value to Bitcoin and all this bullshit that just drives me crazy. But as a guy that's been around a long time that I...

I consider myself a technologist and pretty good at kind of condensing all of this stuff and projecting it into the future. I am just absolutely flabbergasted by the beauty and elegance and sophistication of Bitcoin. And what we've talked about today with BlockSpace.

Is the next layer, you you said it is really, you've been involved for 10 years in Bitcoin. I've been involved for seven. And, you know, it took me three to, probably, probably almost four years before I started seeing like the block space thing and started developing my thoughts and ideas about it. And they're still in process, you know, that, that, that I, I personally, others may have discovered it sooner.

I personally kind of uncovered this, like I said, about three years ago, and I'm still kind of seeing how just magical this whole thing works out. And I talked, I can't remember why we were talking about it. I think it was something you had said, Lynn, but this, the fact that we landed on this number of about 200 million transactions being the capacity, I think is, it's just amazingly perfect. Like it, it,

heaps, even though it's absolutely scarce. If it was absolutely scarce at 4 billion annual transactions, well, it wouldn't work. And as I said, if it was absolutely scarce, but it was 10 million or 50 million, it wouldn't work. It would break. And we'd be having these block size, like real block size ward kind of discussions at some point. But here we are. We have 10 minute block times. We have four megabyte blocks. And I think that's it.

I think, I think that's, that's where we're going to land and, and ultimately the world will understand that that scarcity, that block space, is the, the, the power structure of the future world. I mean, mean, I think that's, that's a perfect place to stop. Block space is still a concept that I'm, I'm beginning to only work through and

You know, many of us are only beginning to wrap our heads around and no one better to speak to it than you. So we appreciate the time. Thank you so much guys. Always great to spend time with you. are our first guest that we've had back for a second time. And we're very excited. I'm sure that this will be a conversation we want to continue. I know we talked on several other topics throughout it that we'd love to have more deep dives with you and we just appreciate so much what you do for the whole community.

And how much you help educate that Bitcoin, to your point earlier, is not just a financial asset, but a technology. And so there's so many assets, facets of it to explore, and we appreciate your deep thinking on it.