Marathon Digital prepares for Bitcoin halving in 2024

0:00I'm Ashton Addison from Block West capital for investment pitch media and today on the Crypto Coin Show we have Fred teal CEO of marathon digital Holdings Fred welcome to the show and thank you for taking the time today great to be here you're very welcome let's dive straight into a little bit on yourself first because I'm very interested in you know your experience in leading up to

0:22Marathon digital Holdings and how you got into the Bitcoin mining space so let's just hear a little bit about yourself and then we'll dive into marathon and the rest of the operations sure so basically started in Tech in my late teens writing software in a commercial Bank in London actually as I was in my senior year of high school I had always been interested

0:46in computers and you know back in those days you wrote software on Punch Cards it's kind of an older model but just love technology and you know have been in the tech industry ever since so nearly 40 years at this point across all Spectrum everything Hardware software you know enterprise software SAS internet media digital media ad Tech

1:14online games iot semiconductors storage pretty much every single part of the industry you can think of went kind of from you know software engineering into product management into kind of you know General management and then became a CEO and just I've always loved creating value in companies have always loved new disruptive Technologies I took a company public

1:43in 2000 company's name was landtronic or islantronics it still exists today was one of the Pioneers in providing technology to connect devices to networks so you could create iot Solutions and went from there into the online game space and really pioneered some of the technology that went into some of the original kind of multiplayer gaming

2:08networks and then also digital ad Tech and I've spent time ran a fund for a private Equity Firm focused on enterprise software applications kind of in the mid kind of 2007-2008 period did that for about the life cycle of that fund have started Venture funds still a general partner and a venture fund today

2:35called navigate Ventures which focuses on B2B SAS software sat on a lot of boards advised a lot of private Equity firms and just I've always loved leveraging Technologies to do new things whether that's you know AI was very early in the kind of AI modern AI space involved in sort of Predictive Analytics technology companies that were about predicting patient outcomes in

2:59healthcare and I've just loved kind of any type of technology that was kind of disruptive or would cause some new innovation and I got exposed to bitcoin originally back you know I'm going to say 2014-ish something like that I had a former CTO who worked for me who you know told me he was fed up with kind of the existing world of Fiat and government control and

3:27was going all in on this thing called Bitcoin and I thought well that's curious and then lo and behold a few years later totally orange pilled I was focused on building a company that was think of it as kind of a an exchange or a global order book that could trade across multiple exchanges all over the world and due to lack of regulatory Clarity

3:52even back then in the U.S you know built that offshore in Lichtenstein where they were much more open to Bitcoin and ether as kind of currencies from a perspective of you know the only licensing you needed back then was foreign exchange trading license which was easier to achieve and at that point got connected to Marathon patent Group which is the

4:18predecessor to Marathon digital Holdings and a good friend of mine had just been named CEO in 2017 and asked me to join the board because he was going to take the company from being a patent troll into Bitcoin mining and so joined the board in early 2018 and then you know work with Merica Komodo the then CEO to kind of recapitalize the company

4:46And then in April of 2021 became CEO of marathon and we began really scaling and so you know super excited about where we are today and you know I was employee number four in 2021 and today we're a little over 40 people I think at this point and continuing to grow quite nicely so wow incredible experience Fred and it sounds like you've you've done a little bit of

5:11everything and you choose to focus on Bitcoin mining now which is really cool to see and I think a lot of people that first get into Bitcoin that They Don't Really connect with the hardware or the mining part of it they don't really think a lot about it but it is so important because without it there would be no Bitcoin there would be

5:33no Bitcoin Network and I'm sure you've sort of sat into that as you've become the CEO and seen that it's probably continuing to grow the industry I'm curious on the operations of it are you focusing mainly on just mining the Bitcoin or and you know how wide do the operations extend in Marathon now so today when we initially started we were your typical small scale minor hosting

6:01with third-party hosting providers and over time that model has evolved where now we're migrating more and more to developing our own sites from the ground up our operation in UAE is the first of those sites where you know designed and built by us Taylor with our partners we've spent a lot of time developing some core Technologies to make

6:27ourselves more efficient you know as you get bigger using third-party solutions for things becomes less efficient right so we developed our own pool why did we develop our own pool well most mining pools are designed to support miners that are using everything from old S9 machines all the way to the state-of-the-art kind of s19 XPS and so they have to deal with all sorts of

6:51inefficiencies because they have to have a lowest common denominator effect in our case we could design a pool to operate specifically for our requirements and because we don't have any third parties in our pool it's just us we don't have to have any of that extra software overhead in the pool to deal with validating third parties validating their hashes things like that

7:12so that gives us slight little you know tiny little efficiency gains and then we designed our own firmware for our miners so that we could overclock them under clock them and dial them up and down as we needed because the stock firmware doesn't do that and then we designed custom controller boards for our Miners and then we co-developed immersion technology specifically for in the case

7:33of our operation in UAE operate in an environment where the temperature ambient temperature is 45 to 50 degrees Centigrade or you know well over 100 degrees Fahrenheit with very high humidity and the pilot that we ran in UAE actually it ran for over a hundred days before an engineer or human being had to go in and touch anything so it was you know

7:54huge success in that regard so we're very focused on a technology-centric approach to Bitcoin mining how do we make it more efficient how do we go all the way down to the Asic and you know we made an investment in a company called oradine which is very active in the hardware space in this area and we think that you know the efficiency gains that technology can

8:19provide over time are going to drive energy consumption down significantly lower if you look at our Fleet our efficiency come mid this year will be about 24 joules of Terra hash so think 24 watts per Terra hash where the average industry Miner is using 43 44 Watts or joules per terahash so significantly more energy efficient what that means is we can operate in

8:44environments where economic environments where the price of Bitcoin is low or the cost of energy is high where other miners necessarily can't and with a having coming up next year it's very important for us to be at that bleeding edge of efficiency yeah and then you know we're busy scaling the business not just domestically but also internationally UAE is our first International site and

9:07we're looking at sites on a bunch of different continents at this point so wow very cool and I was reading is there eight operational areas right now yeah so predominantly today we've been in West Texas we've added a couple of other sites in Texas we have a big site in North Dakota in Ellendale that's been coming online here kind of weekly over the past few months

9:35and so we'll be pretty much about 60-ish percent Texas 40 North Dakota and then as UAE comes online later this year that'll start deluding us even further from Texas and our goal is to kind of longer term be at 50 50 domestic International hash rate and be able to operate in multiple different

10:02climate zones you know the while Texas is a very you know it has been an ideal location because of how ercot and the markets work there this just extreme surplus of renewable energy that's stranded there that is perfect for Bitcoin mining the challenge is you know it's concentration risk you know as you build a bigger business then all of a

10:27sudden you know if you have a major storm or a heat event where you have to curtail for an extended period of time that can have a really detrimental effect on your revenues so by diversifying locations diversifying climates you know we kind of hedge against that a little bit and you know you decrease risk and one of the things I learned in private equity and Venture Capital

10:49was you always want to maintain your optionality while decreasing risk so that's one of the things we're very focused on is that diversification yeah that's a great point and I when I think of international expansions I would think you know cold climates which in the past I've heard some of these Bitcoin Miners and they open up the doors and like they help with

11:10natural cooling of the mining operations but the UAE would be the opposite of that but of course you know I'm guessing the cost of electricity and you know subsidies and from the government's Innovation probably way factors in there as well well it's interesting it's actually not those things UAE and the Gulf region you know it's very hot in the summer and

11:34they need to use a lot of air conditioning and in the rest of the year they don't need that much so and specifically to UAE four gigawatts of energy a peak in summer one gigawatt otherwise so you've got this three gigawatt swing which is stranded energy because unfortunately or fortunately in UAE most of the water is from desalination so they're taking sea water

11:59and they're desalinating how do they do that well they use the heat from the energy generation and if they're not generating a lot of energy they can't do a lot of D cell so they have to kind of keep this energy generation going even though there might not be off take and they just added a five gigawatt nuclear reactor to their energy mix and so now

12:18they have lots of energy and so they had need to find a way to consume the energy create base load consumption which we do and then at the same time because we're now providing more steady revenues to the power company in the off-peak times the government has before been subsidizing energy to the consumers and now the revenues from the Bitcoin mining

12:42Their ownership interest in this will essentially help mitigate that subsidy so that the consumers will still get low power cost but the government won't be having to pay for it and so it's a very symbiotic relationship and this is kind of how we like to work with Partners around the world is go into areas where there either is stranded power or there's excess energy

13:05and we can take advantage of working with the local power utility the government to create value-add that exceeds kind of the cost if you would having Bitcoin mining yeah that's really cool because I feel like on the surface people think that you know it's a huge inefficiency altogether to be mining Bitcoin but from what I understand it's actually you're

13:28able to solve some of the inefficiencies of just the current electrical grid and that inserting Bitcoin strategically in certain spots will actually have a benefit for all parties yeah absolutely it's if you were to look at the number of renewable energy projects that are kind of in the pipeline these projects need transmission or interconnect as it's technically called

13:53which is how you connect a solar farm or a wind farm to the grid so they can sell the energy the problem is there is a lack of interconnect matter of fact there is currently a backlog of over two years to get interconnect for the renewable energy projects domestically in the U.S that exist and so an estimate by the eia which is a government institution that sort of

14:19does research on electrical data in the U.S they're forecasting that only 14 of the renewable energy projects in the pipeline today will get built because there's just no interconnect and this interconnect if the U.S wants to get to Net Zero is estimated by eia to be about 250 billion dollars of investment by 2030 to hit the 2030 goals for renewable energy

14:44that's not going to happen and 2.4 trillion by 2050 to get to Net Zero and so if you want to build a renewable energy project and get it financed you have to have revenues in that project to get it financed and having a Bitcoin miner that sits behind the meter that can consume that energy until you get an interconnect has huge benefits and so renewable

15:09energy providers their only other alternative is batteries but if you're going to have batteries you still have to have an interconnect to sell the internet and so with Bitcoin miners the energy companies don't have to invest any capital and so we're this perfectly symbiotic partner for them and so that's and we're very happy to have been able to you know do this in West Texas where

15:30we sit behind a very large Wind Farm that otherwise had a lot of stranded energy and we're able to consume that energy and then anytime the grid needs its shed it completely in North Dakota that's also where we sit adjacent to a wind farm there and you know our focus is very much to use renewable energy sources as much as possible to not just incentivize the developers

15:52to build more of it but also because we're very focused on obviously not wanting to increase carbon footprint and so now we're also looking at things like methane gas not necessarily from oil fields but more from landfills you know methane is 80 times more damaging to the environment than carbon dioxide is and so if we can capture the methane gas convert it to carbon dioxide

16:14by generating electricity and then mining with it or adding a benefit wow yeah it's great to see that there almost every type of renewable energy can be used symbiotically with Bitcoin as well and it can solve all these inefficiencies and I feel like that's a message that the world needs to understand and sort of flip the narrative on its head that you know this

16:37is actually going to help people more efficiently use energy absolutely yeah awesome and I also was looking into just recently Marathon made a campaign surrounding raising capital for the Bitcoin core Developers and I think you know alongside Bitcoin mining a lot of people don't really think about the core development of

17:05Bitcoin or people that are actually coding and upgrading and working on the protocol I'm curious on your take on you know that initiative and sort of what's the goals for continuing to work on bitcoin and how that will help minors and everybody in the ecosystem sure so many people don't realize that there are only a handful of people really

17:31typically less than 10 core developers who are focused on maintaining the Integrity of the Bitcoin network but also adding new features and enhancements and they're not paid by anybody they're not on a salary by anybody they basically get grants from different organizations or they get contributions from miners sometimes and you know it's a tough job because

17:55not only are they busy doing what they have to do but you know some of them have unfortunately gotten involved in legal cases where you know the purported kind of people who believe that they are Satoshi and own copyrights to bitcoin have been suing them and you know so they have to deal with those hassles so we decided that we needed to do something about

18:21this and it's one thing if we just do a contribution but we wanted to really get the industry aware of what was going on and get the broader kind of Bitcoin enthusiasts if you would focused on this and so we looked at what organizations provide grants to the developers and you know which one was kind of best suited for what we wanted to do and we decided to partner

18:48with Brink which is one of these organizations and they basically provide grants to bitcoin core developers as well as providing them with other resources and so we said that we would help them raise a million dollars we would match up to five hundred thousand dollars every dollar that they could raise and then at the Bitcoin Miami Conference we

19:11announced we kicked this off I think on the Thursday and said that oh by the way any money that's donated during the conference will match two to one up to an aggregate of five hundred thousand dollars and lo and behold by the Monday morning after the conference between our 500 000 match and what was raised we were at seven hundred and ninety thousand

19:34dollars I think it was so you know very close to the million dollar goal so obviously we're still asking people to continue to donate and if I can just do a plug for that it's of course Brink b-r-i-n-k dot Dev forward slash donate so very simple please go there click on it donate whatever you feel you can because it's really important for

19:57these Bitcoin core developers to get funding for the strength and health of the Bitcoin Network yeah no I didn't know there's so few and yet to have to deal with the repercussions of other actors in the space is not good yeah and there should be honestly more decentralization more people you know have the ability to work on it but as

20:19you said they need grants and just like self-funded Bitcoin billionaires that you know can afford to do it without any pay just out of their altruistic nature I think it's important and I've seen a few updates of like Tap Root and security updates on bitcoin that I know core developers have been working on is there anything with regards to Bitcoin mining or efficiency

20:43of the network that might relate to benefiting Bitcoin miners in the future that the core developers are working on that you know of well there are a number of initiatives specific to minors you have really stratum V2 and the rollout of stratum V2 which is really more how pools and miners communicate with each other that really is a focus on further

21:07decentralizing or de-concentrating if you would pools so that miners can essentially decide exactly on a machine by Machine basis where they're going to send hash rate how they're going to work what blocks they're going to use so it's really moving the decision making about what tasking a miner is going to do down to the individual minor level as

21:32opposed to the pool level so it's further ensuring decentralization which is great there are also a number of other enhancements that are being looked at and I think the you know Taproot was a very big step because it now brought the opportunity to start bringing smart contract-like capabilities into Bitcoin you've seen lately with ordinals and these brc20 kind of token initiatives

21:55that there's a huge amount of interest in trying to build web 3 applications on top of the Bitcoin Network because it's the most secure network out there and obviously other networks have issues because they're more centrally controlled and even you know the ethereum network went offline for 25 minutes not long ago because of this concentration

22:16issue and this is a core concern that even vitalik has talked about a relatively ethereum but in the Bitcoin World you know ordinals and brc20s because they use the block space in each block they essentially compete with financial transactions or Bitcoin transactions for that block space and you know at one point earlier this month the transaction fees were

22:42greater than the mining subsidies you know some miners were getting over six Bitcoin per block in transaction fees in addition to the six and a quarter that they got in subsidies so you know the total blocker award was you know 13 in one case I think it was almost 13 Bitcoin that makes transacting very expensive which is not good for adoption so we're

23:05very focused in working with developers to develop applications at Layer Two and side chains where you don't necessarily need to use block space in Bitcoin for each of these items like you know brc20 tokens or ordinals but rather you can store them at a layer above and then secure them using the Bitcoin blockchain which is really what it should be you

23:32know if you think about it the Bitcoin network is very much like the Internet it's a very simple operation you know the internet runs on TCP if you think about email file transfer web everything else those are protocols that run on top of the internet Bitcoin should operate the exact same way and I think one of the advantages Bitcoin has is its actual Simplicity in that it's simple in

23:59its base and unlike ethereum which is a programmable Network offers you know ethereum offers some great advantages to developers and innovators but unfortunately maintaining the base layer becomes very complex because there's all this feature functionality in it in the world of Bitcoin you've abstracted all that to Layer Two and layer one the base

24:21layer is basically just just very secure operation and so I think over time what's going to happen is you're going to find more and more applications migrating to the Bitcoin Network and the Bitcoin blockchain because of its security and because of its decentralized nature and so I think we'll see that over time yeah yeah no there's no discussion around you know Bitcoin is

24:45very decentralized and to be able to host these applications nfts and ordinals I think it's going to add value long term and it is controversial because people don't like paying higher fees or if the network gets congested but you know I don't think it's always going to be like that so I'm excited to see how it plays out and at the beginning of our

25:05conversation you mentioned the Bitcoin having which I think is an exciting event and usually the price becomes more volatile and more to the upside hopefully prior to that what you know we don't have a lot of time left Fred but you know what are sort of the main things that you're hoping to get out with marathon in the next year leading up to the Bitcoin

25:27having so we're busy deploying a lot of hash rate we ended last year around 7x a hash will be about 23x a hash at mid-year this year we're well on our way there and then we'll add UAE in addition to that so we're growing significantly in a period where very few other miners are growing at all and so we're very focused on just deploying as much hash

25:53rate as we can we have the benefit of being able to raise lots of capital when Capital was inexpensive and easy to raise back in 21. And so we've been deploying that last year and now this year we're reaping the benefits of it and you know I think anybody who looks at the mempool can see we're having an absolutely amazing month of production

26:14compared to Prior month so all that's beginning to benefit us and benefiting the Bitcoin Network and then we're going to continue to grow we're going to continue to release new technologies you know the development efforts we've done around firmware controller boards immersion we're going to bring to market for other people to be able to benefit from that

26:34because again the more people that can operate more efficiently the healthier the network is going to be and so we're very focused on doing that and we'll continue to innovate and you know hopefully over the next year deliver some interesting Technologies and products at Layer Two and side chains and other things which I think you know developers and people who

26:57really want to leverage the Bitcoin blockchain will find very useful for easing the friction that exists today to build applications and deploy them you know at the end of the day it's all about removing the friction so people can accelerate their efforts yeah great I'm looking forward to that Fred and I will leave the link to the brink Dev donation in the description

27:19box below if the viewers want to find out anything more about marathon and follow along with these updates that you're talking about is there any specific Place that's best to learn more about this sure just go to mara.com m-a-r-a.com try to keep it as simple as possible amazing well thank you so much for your time your insights into to bitcoin and the ecosystem I really

27:41appreciate it Fred let's definitely follow up in the near future thank you Ashton appreciate it