Marco Streng: Genesis Mining – Taking Bitcoin Mining to the Cloud (#338)

Transcript

this is epicenter episode 338 with guest marko string hi welcome to epicenter my name is sibbeston Cuchillo today our guest is marco Strang Marco is the CEO of Genesis mining they are the world's largest cloud mining company Genesis was founded in 2013 and it's grown to a team of hundreds of people and according to their website they service over two million customers they have mining farms in Sweden and Iceland and they offer mining for Bitcoin Z cash - aetherium

litecoin and Manero their mining operations are just one part of the business the parent company Genesis group also operates Genesis cloud and this subsidiary offers GPU cloud computing for a variety of applications things like machine learning rendering data analysis and other forms of computing obviously this is an immensely successful business and there's lots of room to grow and as much traction as we've seen improve of stake in recent years proof of work isn't going away anytime soon and neither is the need for highly specialized and paralyzed computing I really enjoyed this interview because we got an inside look into a large-scale mining operation and really understand the unique economics

of that business it's a business where there's lots of variables at play things like electricity cost an ASIC supply and the price of Bitcoin of course and any slight variation can have a huge impact on profit and that as Marko explains something as benign as a customs agent not signing off on a shipment of ASIC chips before he goes home for the weekend well that can have huge costs on the business but what I took away from this conversation is that over the last seven years of operations they've tuned the business so that it's fully optimized and as vertically integrated as possible and I think the success of Genesis is largely due to marco's skills as an entrepreneur after the interview Brian and I were talking and saying that

whatever business this guy could have started in his 20s while he probably would have been success so here's what you learn in this interview Marcos background and how he got started with Genesis mining the biggest challenges they faced in the early days the companies cost structures and their vertical integration why they got into cloud computing and the applications for GPUs would have been the major shifts in the mining industry since they were founded the ecological footprint of Bitcoin mining why people should buy cloud mining and if it's profitable the risks of mining centralization the impacts of the Bitcoin having on the mining industry Marcos views on proof of stake and the role of Bitcoin in the current economic

crisis so reset everything just wrapped up last week it happened on Wednesday and Thursday and I just want to say that this thing exceeded all of my expectations this was kind of a grassroots kind of thing and we didn't have very many expectations for it but it was so cool it was it was phenomenal I mean there we had over a thousand sign ups and on the first day a total of about four people came in on the second day about 300 and it was just two days of really thoughtful and intelligent conversations around all of the lasting impacts and lasting effects of the covert crisis and I was just ecstatic

about I was so happy about how it turned out and I want to thank everybody all of you who came to the conference who were in the Xoom and asking questions and interacting with the speakers you guys really made it what it turned out to be because of like all this discussion and all this back-and-forth so it was really fantastic I also want to thank all of our speakers for giving us their time their expertise their insights and for sharing their vision for the future and I also want to thank the group of people who made this possible Alex mass mash Samantha Yap and her team over at Yap global and Bettina Boone feta who organized ECC this year they were helping out for the last couple

weeks getting this all together and they were also there during the conference emceeing and coordinating in different ways and so it wouldn't have been possible without them this has taught me a lot it's taught me obvious a lot about the code crisis and how it might impact us in the years to come but it's been sort of a personal development journey for me too it's taught me that you know if I want to do something I can just do it and it could be successful it's also giving me some ideas about where I want to spend my time and you know talking about all of the things that were discussed during the conference and having discussions like this is something that I'd like to spend more time on so I'm gonna wrap this up and just take a step back and internalize a lot of lessons learned

here and also take a little break because the last couple of weeks have been really intense but one thing's for sure is I want to continue this conversation and I've got a couple of ideas of where I want to take this like maybe a newsletter or another podcast but one thing's for sure is I'd like this to be a community thing and so I'm gonna be reaching out to everybody who signed up soliciting people's feedback and asking people you know what they think I should be doing with this what directions they'd like to see this going and what they would find valuable and whenever I'm ready to take this further well you guys will be the first to know and I would be more than happy to have you be part of this new adventure and with that here's her interview with Marco string we have Marco strengh Marco

is the founder and the CEO of the Genesis group known Marco for a long time he was very very early in the crypto space and has built over the years like a very impressive company Genesis being one of the largest mining companies a large cloud mining company they're doing a bunch of other stuff as well so thanks so much for joining us today Marco thanks for having me tell us like how did you first learn about Bitcoin what did this initial face look like if you slowly getting into this community into this ecosystem I think it all started by the time of 2011 when I first learned and read about Bitcoin online and by that time I was

studying mathematics and I read about the concept and I found it really fascinating I realized that a lot of the discussions are going on and happening about Bitcoin actually blockchain was not even a main topic I mean blockchain was where Bitcoin was happening nobody really talked about the blockchain technology itself everybody was driven by Bitcoin as the main news and I realized that a lot is happening on Bitcoin talk and that the community was really rather small and it was mainly interesting very intriguing ideas that got me really very interested and I

actually because I kept on reading and participated a little bit but I had to say that I had to focus primarily again really my attention on studying and when it really dragged me in was basically one year later when I heard about it again and then I looked back and observed what happened and I was fascinated how in one year that community has actually already grown and businesses have emerged a real economy was going from that time on I also engaged actively in projects and really participated and it all started from there that really economy talking about that was in 2012 then yeah exactly 2012

and until end of 2013 where we then actively started Genesis mining but I was like engaged in the community before and I my main observation and interest was not only that the whole blockchain idea like that everything was transparent and that you could monitor every cash flow on the blockchain that was quite interesting for me from a mathematical economical perspective actually there was also real economical incent like that you realized I mean the trading on the exchanges that were existing by that time that was like Tradehill or like the early stage exchanges pits them and Kraken existed

already by then I think they started 2011 or so even and there were major major arbitrage opportunities the market was so extremely inefficient and I actually besides the arbitrage of course I was also really interested in I thought coming from mathematics that there must be an opportunity or there must be basically some patterns that emerge that can be correlated to certain price movements like for example a major Bitcoin holder is now selling on the market and they must see maybe a lot of volume getting into one of the exchange wallet for example like a mount Cox

wallet or so and then a follow up price move and so I was looking for that pattern I I was modeling the blockchain on a graphical model and then seeing whether I can find these patterns and correlations that was actually before genesis mining but towards 2013 I mean I started with mining as a hobby for myself I made my own mining computer that was first done both CPUs then as you know GPUs and by the end of 2013 like it turned into a complete craziness I would say a real gold rush because Bitcoin I think November 2013 went from 100 to 1000 and also litecoin went from

$1 to 30 so it really got very profitable actually so profitable that within a few days or weeks you you could get your capex back and as I already had my rigs running and I knew how mining works I originally just wanted to participate as a form of participating in the network but I saw that wow this is a very economical opportunity and basically I was telling my partner that we need to make that beacon we make to have to have this rig and we create thousands of these computers and to make a big data center and start mining in large-scale that's how Genesis

mining was formed and originally actually we really wanted to do only a large-scale mining for ourselves but then as things progressed and very interestingly a lot of our our friends saw how we are building up this this data sector and are running these operations and they thought wow how crazy is this for them it was so interesting that you could make basically print it digital currency of course they didn't necessarily understand so much that it's actually not real arbitrarily printing and it's really it's a very good way of giving more coins into the market but yeah it started from there and everybody wanted to participate so we basically had to

find a way how to let our give some capacity also make it available for friends to also participate while we are building our own data center and continue to do that and that's where basically we also got into cloud mining and we wanted to find ways out for everybody to participate in mining and from then on it grew like Genesis mining went from really few people to a lot of people now globally and it went from there back then if there are other companies that were also exploring this idea of cloud mining because there was a also a brand new concept were you the only ones at that time we were the only ones that

generalized the concept for also art coins and offered a broad spectrum of possibilities to do that and I think we had also unique ways how people could distribute had their hair shred over different alt coins and make basically also the opportunity from the alt coin market accessible for everybody and that let us get started in a with a real unique offer and when the prices also we had a lot of ups and downs in between primarily more ups than downs obviously I mean from really $30 Bitcoin prizes and lower to now 7,000 but yeah a lot of people realize that actually it's a very

interesting offer and that let us grow and we have big believers in the underlying assets and in mining itself so we really expanded our operations globally over the last seven years in a very significant and large large way you mentioned right basically these early beginnings where he came from and at this point right with Genesis group having you know hundreds of employees what were the biggest challenges you've had on the way to growing this business and what have been the biggest learnings for you Bitcoin blockchain in general but really particularly the mining space is just a completely crazy time-sensitive business incredible I mean I know what the

traders are doing out there they are a wake day and night like they are looking for every opportunities the markets never closed but in mining you have additionally that huge pressure that you have like the production of the of the machines it needs to go as fast as possible and then you need to bring the machines to the deployment sites as quickly as possible and you need to really knock out all the ore the most of the unpredictable factors or you try to really mitigate the risks along the way and that was a very challenging process from the beginning I think now after seven years we basically know everything really in detail there are still

surprises but I mean in the first years we had things like for example large batches of machines came in on a Friday on the custom and the customs officer he wanted to go on his weekend now and but for us it's a huge difference if we deploy these machines three days earlier or three days later this whole process has been really optimized to the last bit from our side we know basically all of the as much everything that is linked to the whole process but that's certainly our learning on the yeah that's probably one of the major ones and then I think I learned a lot about complexity I mean personally having seen there's rarely markets that

have seen so much huge ups and downs then Bitcoin I think if you trade it that's one thing but if you have like a whole business linked to that with several hundred people then it's a really nerve-wracking thing and you really need to act coordinated and very planned and deal with the circumstances in a very good way and I think in that regard the genesis group besides the mining I think we of course also did a lot of investments and we did a lot of also side projects particularly when there was so much upset and when the market was so high probably every major cryptocurrency or every major blockchain

company did that and what I learned is really to still stay focused and emphasize the importance of the core business and not lose the attention and focus a while exploring other opportunities I think some businesses have never made that they basically when the market went down again from these huge ups of 16,000 back to like 5,000 or so they got completely crushed and some basically scratched a curve and had to make some adjustments in the personnel but we're able to really get through that in an optimized way and I think that's also for us like we learned a lot

from these ups and downs and I think we really made our whole core business as efficient as it print probably get and we are continuously learning but I think really the experience and learning so far it has been tremendous for me in terms of personnel costs where do most of those costs reside is it in infrastructure management or other areas of the business you have to deal with a lot of to maintain really large-scale operations and several hundreds of megawatts there is a lot of human personnel that is involved in all sorts let it be this shipment it really it goes from constructing and assembling the machines to making sure that the shipments are

coordinated to making sure that everything gets imported well making sure that the data center is ready by deployment and then when everything is deployed you need to make sure that everything is maintained in the best way and that's a science for itself I mean the data centers that we are using and that are best for mining very and have really some unique features and the whole business is extremely cost focused and cost sensitive if you have the best cause the lowest cost of production you have a very stable and good business if you are not on that edge you can have the danger to get wiped out it's as brutal as it

sounds and you have a lot of other costs that are involved are like the energy that is also not so easy to coordinate because if you're dealing with several hundreds of megawatts you buy or you produce large scale power you're not in a position where for example a whole mind I can just say okay today I just switch off my operation you need to plan much ahead because if you produce significant amount of power that even can lead to like a whole power plant now producing significantly less power you cannot make fast moves you need to really make confident and stable decisions to plan ahead and make the

best out of it maybe it's helpful that you understand the level of vertical integration in your business so you're manufacturing chips and deploying them in in data centers but are you also producing electricity give us a sense of like scope of the vertical integration that you've grown to I don't consider Genesis Group a power producing business I not excluding the fact that it is good to produce it on your own it has some benefits what I've learned really is that I think it is of great advantage to use really the focus and knowledge on the core business of what you can deliver and we particularly

realize that the Genesis group and particularly Genesis mining is very good in producing computing capacity computing operations at the absolute lowest cost globally that you can imagine and so much roles play into that power you have to get cheap power is one but the infrastructure needs to be right the machines and the chips need to be right and many other things and I think on the power side what you really need to make sure is that you have really secured the power and whether you produce it or not that's in a different paper but you need to be sure that you absolutely can be certain that you're getting their power and you're getting

it for the right price you don't want to be in a position where you have like a large-scale operation and then suddenly a hydro dam doesn't have enough water in it for a bad season for example and suddenly the prices are increasing and you are completely unhatched going into a scenario like that this can kill your whole business and we have seen competitors that have gone down because of these things and what we have also seen is that competitors have completely underestimated the importancy of really lowest cost especially when the profits were high when the profits are so high that you don't even care about your electricity bill everybody goes into

euphoria mode and says yeah the best that makes so much money but then if the price goes down or the hash rate goes up then they suddenly realize oh yeah it matters actually quite a lot and that determines their survival in that market I hope that answers the question I think it's extremely important to have the control over the electricity so cool to hear about the hardest business has evolved now you mentioned you know the key thing about focusing on the core business and that has been crypto mining for you guys recently you also started a new business around general cloud computing like why did you guys get into that and is it doesn't

that kind of deviate from this core focus it deviates a little bit but if you look closer what we have done from the start is actually large-scale GPU mining particularly coming from the al Cowen's base of course besides large-scale basic mining also from the beginning so we actually had quite a good amount of GPU capacities and also we had the knowledge to really build up the data centers in a very very very cost-efficient way and combining these two core abilities we by now three years ago made that strategic move and we

really made it well planned and committed to that idea that we really want to contribute in to also the AI market and into the high-performance computing market and we did that really we took that very serious we started Genesis cloud years back and I know that there are also other mining companies that were using that as a marketing but I don't know anybody that took it really as serious that then we did we can offer now a very unique offer for researchers for AI startups and for many others like even pharmaceutical companies we work

together with universities and large scale organizations to give them the possibility to get access to GPU based high-performance computing for very low prices probably a lot of the people know Amazon AWS it's a very good business and it it grew quite a lot in the past we have prices and genesis cloud that are sometimes 20% of the price of Amazon AWS so we have really an a tremendous difference on the pricing and that comes from the fact that our data centers are not necessarily in San Francisco or in LA they are sometimes at the end of the world I think that really is a great

thing and everybody can check it out on genesis cloud comm everything written together you can really buy GPU core hours for low price and actually I'm not sure whether you remember but there was a time where when the GPU mining was so profitable people went to Amazon AWS and booted GPU nodes to do Alcoa mining you can do that there is people that are looking into that also with Genesis cloud but the difference is that it's just much lower price but then Amazon AWS but anyway that business really is absolutely focused on AI infrastructure tensor flow applications rendering applications and these sorts of high performance computing and yeah it's a

very exciting thing because also this world of AI I think I don't need to tell I mean everybody knows like what applications are coming like the self-driving cars and all of that needs so much more computing capacity and also on the rendering side I mean I'm not sure I mean if you have looked into the Lion King for example that that movie that was the level of detail how you can animate things like it's incredibly high at this stage and you can even now make George Clooney movie without george clooney himself because you can just simulate it these use cases are basically really what we can offer very well on the Genesis cloud you mention AWS and years of cost

advantage because you're operating in places where presumably you know rent is cheaper perhaps also labor electricity cost etc what are some of the downsides then in operating in those areas I'm thinking perhaps is it like access to bandwidth or as a consumer what am I giving up by going with like a Genesis cloud over in AWS if there's anything it depends on the use case we are extremely GPU oriented and focused and if your use case is within our offers that we provide there's nothing you give up it actually really the gain is significant because you just have to pay much much less and we really can focus a

lot on GPUs and dedicate everything towards GPUs because that's our main focus whereas Amazon AWS is very broadly placed very complicated also and it's a much broader offer so I think if your use case is really within our core product and we have seen that we have a lot of people that are coming over to us and coming from saying oh wow we're a startup we don't have so much money for our computing bill to just that we can train our neuronal networks we cannot pay these high bills anymore please help us it's a very flourishing business but it costed a lot of time and I think we are also still in a really big growing

phase and we can do much more in that regard it is a major component of the whole Genesis group besides of course our mining business that where we would believe in let's talk about mining so you guys were super early to get into the mining space over the that time since you've been involved what have been the major like shifts and transformations in that industry what I find remarkable is how drastic that change was from originally 2012-2013 really a distributed network where where you had home miners whole miners in the

early days with CPU GPU I mean Satoshi mined with CPU starting and a lot of people mined with CPU then everyone GPU and then of course Asics no matter which device like the whole miners were there and you had people that had their ASIC machine in the basement it's not a very good example but that word that was the time with butterfly labs etc I don't it was a very actually bad example with butterfly labs because it was you know what happened and a lot of people got really burned but yeah it shifted rapidly and we knew we saw that coming also that people who doing home mining they have no chance of competing against large-scale miners and the whole

miners now there's only a fraction of the mining that is done really their whole miners and the vast majority of miners are doing it in larger scale and I think that's probably the biggest difference it's remarkable to see like really that the industry has become a very heavy in dust industry comparable also to gold mining really way where at the beginning people were trying to find the gold nuggets in the rivers and look at where gold mining is now I mean you have huge gold mines with massive of machines that are digging the the gold and I think it's really a good comparison

you really have large large-scale operations that consume a lot of electricity and have really high degree of economy of scale and very very optimized setups that a home miner cannot achieve that make the large scale operators more efficient another interesting analogy know between like gold mining and crypto mining it's just the cost structure to write you know a gold mine has like a certain amount it costs them to produce like an ounce of gold and if the gold price goes down right and maybe you and lose money or be like break even if it goes up they make a ton of money so you probably have a similar you know fluctuation and this exposure to this commodity price

absolutely that is very similar and there is one slight difference actually and that is a very good difference I would say for the cryptocurrency mining and that is the difference that the supply is fixed whereas in gold the supply is not fixed it is in gold basically if you have high gold prices then there is more gold miners and you produce more gold per day usually on the globe and whereas if gold prices go down and let's say in an extreme scenario the gold prices goes so low that no gold mine makes a profit then you have suddenly no excavation of new gold on the globe and in Bitcoin mining as we

all know we have a fixed amount of coins that are emitted every day now 1800 after the having its 900 on average statistically and that dynamic makes a little bit of a change compared to gold mining and that basically leads to the fact that you have to be the most efficient miner in order to succeed in the crypto mining and now that the important point is if you can make sure that you are that then you have a very strongly protected downside because assuming you are really under the more efficient miners and the profitability goes down then the other miners who are not so efficient they

have to drop out because they are getting into the reds and while you can continue to mine and when the others then are in the Reds they turn off their machines and then the difficulty as a consequence goes down and you gain the miners that are remaining to mine market that they gain on market share and suddenly produce more coins so that's what I'm saying about the protected downside that you don't have that necessarily in gold if your gold mine has a cost of X and the gold price goes below that you just don't dig but I guess another thing that I'm curious about this kind of place another topic

we want to get into there has been much discussed which is the energy footprint I think what you have this this interesting situation knowing in crypto mining that you can basically you can go anywhere and mine anywhere so you can go to where you know you have these cheap energy sources and I guess from what I've read is that's often renewables and I love gonna love to you expand on that but I guess on the gold side what you have to go where the gold is is it the case that gold mining they're mostly used I don't know oil and energy sources like that or you know anything about how that footprint compares absolutely right you're hitting a very key differentiator and that really is as you say gold mining is not so flexible

on the energy sources they are bind to the locations and that is also a major advantage on the crypto side basically the high degree of flexibility with regards to the data centers and where you start your minds and that actually leads to the fact that you have an innate move and an innate incentive for the miners to choose the locations where they can get lowest electricity and deploy the data centers ideally there and now comes a great point that these locations are the cheapest sources of power globally are luckily the renewable sources like hydro etc wind etc

geothermal and that's an amazing fact Orsola is that it that actually means that the crypto mining industry is going towards using renewable sources and then you know that there's such a large amount of resources on renewables I mean the Sun has so much energy right the hydro dams there is so much power available if you look at that picture really you see that there is no real harm and it's actually even a support of the renewable energy industry so the crypto mining industry actually supports the renewable sources industry and I think that's a great fact that not so many people know and there's a big

misconception I think globally that has been really driven by the media really to emphasize yeah you know how it is like the drama always sells very good in the media and there was such a thrashing of the mining world and Bitcoin is environmentally not friendly etc I think this is just wrong this was used to be one of the things that I was most felt most mixed about when it came to Bitcoin and one of the things I was kind of worried about and then you know in the last years there's been a bunch of reports I think coin shares did some analysis and I saw some other ones too where they did try to analyze you know the Bitcoin network overall and where does the energy come from and what's the set up and so it was very you know great for me

at least of course I'm not as inside in industry you are but for me it was a very positive surprise just how large percentages that came from renewable sources I really see the future of the mining world where the large-scale data centers are below the hydro dams are close to the geothermal sources for example in Iceland or cetera and really near the solar fears and the area where there is a lot of the wind farms and I think that's a sustainable picture and that would be a really amazing thing when we're ending up there so your company of course it's best known as as a cloud mining business

although we're discovering that there's just so much more to that business than simply you know running data centers can you explain what is cloud mining I mean most people of course kind of understand what it is but as a product as a consumer like what do you buy when you purchase cloud mining and you know how does that fit into the greater an overall mining space and you know we all the different types of mining that is going on whether you know whether that's mining operations as a business or home miner is all right cetera absolutely with pleasure so cloud mining is a product and the possibility for that let's everybody gives everybody the opportunity to use already existing

mining machines and mining capacities and basically by computing resources and miners in the data centers or computing power itself in the data centers and then basically buy that for a certain amount of time say two years one year to year or shoulder then get basically the reward get that computing power and get the bitcoins that are mined with that computing power the output over that certain amount of time and I think that this is a product that is really highly underestimated and actually quite important for for the industry

particularly looking at the fact of more and more centralization and the mining space satoshi had the vision that ideally mining everybody should do mining itself and we should have a decentralized home mining ecosystem we realized very soon that this is unfortunately not gonna happen because of that economically advantage of the larger scale miners due to economies of scale and other like infrastructure optimizations etc that basically means that the large businesses will always have a winning edge over the whole miners how

can you go against that innate dynamics of centralization I think that one of the few possibilities is to be a large-scale mining yourself but give everybody the possibility to take these large-scale economics and benefits that the large-scale data center has and give it to the users and this way you can have a possibility that everybody has the chance to participate in mining in in an economical way and I think that makes the product really important because otherwise we're steering we have a market where there is a couple of

operators you can probably count them in one or two hands that are running the mines and they have a bigger advantage against everyone that comes new and basically everybody who wants to get into mining will have a major difficulty and we're completely off of satoshis vision where everybody should have the possibility to participate in mining so I think we're working really against that trend of centralization and in that regard I think it is important that everyone has the possibility to do that and therefore it's important that there is cloud mining out there and that basically I'll offer that and I think

obviously it has to be done right there's a lot of obstacles and you really ideally want to even do it trust less which is another step that we are having on our roadmap it's not an easy one but I think it's a really important component of our ecosystem that's an interesting perspective and I agree and I think I follow you on the aspect of in order to be able to bring more people and expose people to the possibility of mining and growing the ecosystem of people who are who kind of have skin in the game when it terms the Bitcoin cloud mining plays an important role however you know the underlying argument that somehow cloud mining would

contribute to to decentralizing the sort of centralized aspect of mining you know you mentioned you know big data centers running mining rigs and owning a large portion of mining power that central point of failure isn't addressed by cloud mining itself because you guys are also running a big data center that is a central point of failure do you see that nuance between like the Satoshi's vision you know satoshis vision as you put it to have like everybody mining but in a more strictly decentralized sense than on the back using cloud services or other people's infrastructure yes absolutely that's right and I clearly see that and know that and I can say

that it's not perfect as it is right now the solution to basically to address your problem - really even decentralize the control so I think you have two levels like giving people the accessibility to do it in an economical way and then the more idealistic and I think even probably more important one is to to basically also decentralized the control this problem is a very difficult problem and it's basically what you're saying is the trustless cloud mining it's something that we are constantly discussing and engaging with and actually we work towards more and

more trustless cloud mining I have really have to say though that it's a very hard cryptic right it not only cryptographically but also in general hard problem because I see there are ideal ways how you can do that would be basically that to give away control is to basically not even give us the control over the machines that we're selling in the cloud and basically only let that machine be able to run with the permission of a user and you can do that by basically fingerprinting each machine to a customer at home and only with a

certain signing of a digital signature that machine really is allowed to run those ideas would already go closer towards decentralizing control there is still of course the fact that it's at one place this physical access to the machines yeah yeah the physical access but you can counter that argument by basically saying well who would be incentivized to take over a data center that is centralized but if he takes it over he does have he cannot use the machines to mine itself basically and that would strongly descent advise someone to do that that would have to be

at the hardware level essentially there's different parts of this problem one is an attacker you know presumably like a state wanting to shut down a mining operation well they could do that by turning off the power or seizing the actual physical hardware and I don't think that there's any way really around that if you screw up any cloud mining operation or any any kind of mining large-scale mining operation the other is simply the you know the ability to take over the hardware to to mine for oneself if I understand correctly which you're alluding to here is some solution by which the hardware itself or usages of that infrastructure we depend on someone signing a message but if unless that's actually built in to the hardware

itself whoever takes over that hardware it could you reinstall the software and have access to the mining power it am i understanding that correctly I agree to a certain degree you can basically there's ways how to design it that you cannot reflash and basically there are ways how you can make sure that not even that would be possible but that would require basically a really hard coding of some cryptographic system and then making sure that really yeah you basically have to yeah really fix it in the hardware and then you have to trust for example the chip manufacturer that these

cryptographic or elements are not exposed and that again leads to shifts the problem of trust to the chip manufacturer so that's what exactly what I was saying it is not a trivial problem it's really a hard one and I don't think we are close to a solution and I don't think really yeah I I think that there can be optimization in many ways but I think that this goes towards at least in the right direction and I think this is for now the best direction I see to make it to make give more incentive and to make it more Dee Central because I don't see another way how you can basically

because people are following economic interests usually and if you have the large-scale operators have the benefit then it's normal that you have large-scale operators of course so that's basically intrinsically I think that the only way of making the going into that more decentralized direction is to be one of them and then decentralize it but I think the community really has to emphasize that topic more and I think there are already great advancements and and innovations done on on a decentralized pool mining level like better hash or stratum vv2 and in these things but that physical Hardware body is still an issue and it

will be a tough one to crack if at all for the industry no I agree you know I think like it all comes down to the hardware right I mean everything is a hardware problem when it comes down to it and once an inability to produce their own hardware is that really the the last sort of piece to the trust issue you know even thinking about our own phones or our own computers etc let's stay on this topic a little bit and in terms of the centralized aspect I was reading on your website you recently did a study with I think some of your customers about 700 people surveyed and there were some questions there about mining centralization about things like Chinese control and it was interesting

to see that a decent portion of the people who responded I think somewhere in the like 1/3 felt that mining centralization was an issue and that it needed to be addressed meanwhile I presume that these are these are customers of yours so there's like an interesting dynamic there so you know one of the other things that was mentioned as a response to that question was you know in the hope that the community development would reduce centralized control in the long term is what you're talking about here that that Community Development or are there other protocols or attempts to decentralize mining that rely on the Bitcoin protocol itself I concretly talk about these

decentralized mining efforts from the community yes can you expand on more on some of the more tangible things that are being working on this side yeah I mean you mean on the on the physical centralization or on the software centralization on the software because we've kind of addressed the physical part but on the on the software side perhaps in terms of sort of game theory yes so I think on the software side I think the major issue and that is really being well addressed with really efforts like better hash or stratum b2 and other protocol actually f2 pool already addressed that also quite early and on a

software level the major issue on mining centralization is on the on the pool level you give the pool operator a lot of control and that can be misused obviously and the ways how you can mitigate and go against that is the smart way just basically yeah not mixing all of the hash right on one and then let the pool operator decide what to do you basically leave it on the miners themselves so you split the hash reduce you leave it split up and don't mix it all together in one that takes a lot of more power away from the pool operator

with regards to he cannot do he cannot do a lot of he cannot do a lot of wrong behaviors with that with the joint computing power holding back yeah there's a lot of a lot of details now I think we don't need to necessarily jump too deep into it but the benefits of that keeping the like if you have a hundred miners on the pool you have 100 different my the pool operator doesn't mix it all together and then distributes the reward again he basically ideally leaves it open and

don't have that mixing effect and I think that is a good a really good approach because the centralization pool is really a big threat as we have seen it many times in the past where we had like 50 percent that was not on the physical level necessarily a threat or on the controlling minor control level it was more a problem on the software level I think what one of the earlier ones I can remember was the G hash for example incident where the community acted very well basically was alarms going internally on Reddit and Bitcoin chalk that cheer is now approaching more

than 50 percent and then suddenly miners were switching off the pool and I think that this is what was referred to in the in our survey and this is really what is what what should continue to be developed on I think it's great that you guys are exploring this and it's definitely a hard topic that yeah hard to solve but let's move to another topic that's you know very timely at the moment of course pretty much all our listeners will be aware of bitcoins reward schedule and that every four years the block reward halves and of course we do have to Bitcoin having coming up now I think in roughly you know to a few weeks from

when we're recording this where you know the block rewards is gonna go from from twelve and a half to six point two five bitcoins so what do you think is going to be the impact of that you know on Genesis mining and on the mining industry overall so the major effect the Harvey has on the mining industry is that I mean obviously I mean the reward is affected directly it will get haft the indirect effect is that the mining industry will be more stressed and basically the result out of that is that the mining industry will be more

efficient because only the it's a survival of the fittest so to speak and only the most efficient miners are getting through that and gain strength and and it also leads to really drive innovation and R&D in this space because every mine and it constantly is in a race of staying ahead of the curve and having events are just brutal events that are just showing no mercy at one and one block after that one block you have that heavy half reduction on it in that regard I think it's a it's it has a good effect on the mining industry because we constantly have to keep

innovating and improve your efficiency and then of course on the icon and the Bitcoin side itself there you have that reward the price effect where there is a tendency that the price is going up because the the reward it and if you apply supply-and-demand on that that it should have a tendency to bring that to to increase the price one of the things that I've also you know read about and there was young I also reference a block where that it's a company in the mining space they've written a nice report on this topic but which is basically that when the price

goes down or basically they're the rewards go down in this scenario that then miners are forced to sell more of their bitcoins but because they're you know the profitability decreases so do you think that we can also see a kind of a downward pressure on price because a lot of miners now you know and a lot of pressure and they have to sell either maybe like you know all of the bitcoins they earn or maybe even bitcoins that they have you know still on their book certainly very good point I think that we are probably already past that we had a time actually where especially also when the price was because of Corona was dropping so much that you saw a lot of - already going

out and turning off that means that a lot of the - at the moment are already on that marginal edge we're on that on that really in that stage where they make marginal profits and are already in that mode where they have to basically sell a lot to not take too much risk and if it goes much lower than they just turn off and then they don't mind any anything so I would tend initially say that we already are in that stage and it might not yeah because when you are yeah because further drops will just decide for the for the miners to to turn off

then the machines and therefore I would say this effect doesn't play so much of a role anymore yeah but it is constantly it is constantly a something independent of having also you have D has that dynamics that when prices drop miners get into more difficult stressed situations and have a tendency to sell more but also that can on the upside create that effect that when it goes up again then miners are getting less and less worried about the electricity and don't need to don't have that urgency to sell and therefore reduce that pressure again and that creates a leveraged upside effect

so on on the bright side you also have to see that I presume from from what you've said or certainly hope so for you know for a Genesis sake that you guys are able to produce bitcoins at a price where you guys will end up beneficiary for that or where do you see you guys kind of like positioned in this landscape yeah absolutely that is what we are that's why we have invested heavily into R&D over the last years and that's why we are I would say still in the game and one of the leading operators because we managed to get through these times and I mean I know our competitive landscape around 2013

when we started I know our competitive landscape now and I know what has happened also in between there has been so much I mean first of all a lot of the companies by that time or significant amount are not existing anymore some of the ones that survived are now the leading ones with us I think it's you have similar dynamics also on the exchange level like their exchanges that existed 2011 and are still in existence they are now actually some of the top exchanges and there's really one that was existing 2011 survived in this a small player now that's rare actually

either you go really you grow or you fall out so I mean in the in the meantime you have seen also so much new businesses coming in to mining and think yeah I can do it myself or I can I can enter in that market and they have tremendously failed me a lot of examples we know and I think we know for example a business that 2014 has raised a hundred million dollar from Qualcomm and others and was a big boom and you don't hear about them anymore you have seen another Japanese business that went in with 200 million commitment didn't work out very well yeah you just see that if

you don't do it right you can lose a lot of capital in that market and if you do it right then it has a good potential but that doing it right is something that you have to learn over years and over many many iterations and and R&D investments there was also bunch of stories recently you know that there's a new mining operators I think it was like some fun if I peter thiel or some other ones like that what's he taking new entrance in this mining field yeah what's going on in that front that reminds me a lot about the times also about 2017 when it market went so much up I had a time I remember exactly when

I was sitting in New York in the hotel lobby and suddenly the group next to me which I didn't know was talking about wow I have this new a huge a business idea we can basically take miners and make a data center it mine for for ourselves in large scale it's called Bitcoin mining and Wow and I was just thinking ho wow this is crazy everybody now talks about these things and that was by the time where the taxi drivers were talking about I they just bought some bitcoins and that really reminds me about that I mean those are like efforts I would say even experiments people that haven't done

really any don't have a real or just gonna come new to that market knowing the history of those efforts and having seen so many new companies coming in in a late stage and being the first one that had that were bankrupt again its doomed to fail because mining is a very heavy brutal and intense business and you really really need to do know what you're doing and you need to be highly optimized and that's why I'm not very optimistic and bullish on any of these newcomers we have rarely seen someone that really came in late actually it's funny I don't know anyone interestingly in the exchange business we had that but

in the mining world I don't know anyone that came in really late and now grew and is one of the leading operators yeah it'll be interesting to see how that plays out one of the topic we wanted to bring up with you in is you know B we're seeing many many new blockchains launching and the vast majority of them practically all of them use some variation of proof of stake I've worked in this proof estate area also now for three years or something like that so what's it take on the interplay between proof of work and proof of stake and like how do you think about this topic and maybe the significance of proof of stake in general so I am and we always were Pro innovation when we offered alt coin

mining we were big fan of the alkaline space where many people were saying it's a distraction to Bitcoin but we always said it's an experimental field and good coins that have validity can should be there and should have a chance to blow I see it similarly now with Bitcoin and proof of work and proof of State and for example eater and others that that want to grow their well I don't see a reason why you should mitigate or stop any of these efforts it is a fundamentally different thing and I think also it cerium is a fundamental different thing than Bitcoin I see Bitcoin really as the the main feature of Bitcoin for me is the store of value and being really

there as an alternative and a hedge for investment for people and really the goal 2.0 I really like that and I think that this is really a key one and this component I don't see for aetherium at all cerium is much more on the application side and decentralized apps and more on the framework side and I think it offers great functionality and in that regard a lot of it still has to be developed but it certainly has a good validity and I think it will also grow and in the future if proof of stake serves it well then why not I think it is a difficult thing and I'm not sure

whether it will really work out that well I mean we have seen major obstacles on the way to proof of stake for aetherium we how often did we move the difficulty bump and how often did we have delays and etc and it just shows how complex that phenomenon is and it it will be a very difficult move then in the end to really make the move and switch it over to proof of stake and make that commitment because it's so much at risk with such a big block chain like this areum I think it would not proof of stake would not be something for Bitcoin at all because of Bitcoin as the store of value and that comparison to Gold I think there are many many

problems that occur if you just create it by staking a Bitcoin gold wouldn't be so so successful as a as a currency in the past and also as a store of value if gold would just increase its amount by itself so you have one gold coin and then in a year or in a few years you have one point three gold coins or so today I think that cannot be real in in nature but I think it would really have a different it would wouldn't make the gold really the gold as it is so I think it really depends on the use case and I I think it's good that there is work done on proof of stake I wish that it

can work for a theorem but I think if it doesn't work I think if theorem can also remain on proof of work at the moment we know that it works we are seeing really how successful proof of work is securing the Bitcoin chain which is such a tremendous value now and over more than 10 years there has not been any anything that broke it I think that really shows the strength of proof of work but from a purely like business perspective though I mean in terms of proof of stake there aetherium is is not the only chain that will go to proof of stake and they're already you're dozens of chains that operate on this principle and since genesis also has this genesis

cloud and you have all this cloud infrastructure that you also rent do you not see a business opportunity for the genesis group to also move in to staking infrastructure I'm thinking of companies like like bison trails for example that have built this entire business around cloud staking infrastructure as a service is this something that you guys would consider going into at some point or you or you purely focus on proof of work in fact we had that discussion numerous times internally and I think it would be wrong to say that we would never do that it is a fundamentally different type of business I mean we have a lot of customers and I think we would probably

offer some value doing that but on the other hand it comes closer to a financial product and financial service I think it really needs to be discussed carefully to offer staking staking pools or services like that I don't want to exclude it but it's also know thinking about staking pools specifically I'm talking about staking infrastructure so if I want to launch a staking service for example I'm not gonna do that by myself because I don't have the technical expertise to do so so I'll go see a company like like bison trails and there are others and they provide that staking infrastructure and Brian knows a lot more about the intricacies of the society but but

essentially it's providing a service where others are building staking services on top of it right so like ah it's not the staking you're not a validator in itself but more of a service provider I mean I think the difference is like somewhat marginal in that case right like it's basically almost the same thing right it someone like bison trail okay you run a validator but we also run around at us and then one thing is you just put some basically front-end UI in front and maybe you duplicate the thing and and then say oh is siliceous validator now but like fundamentally there's no big difference there so I mean I agree with you Marko that I mean it's completely different as a business but like I mean

for example this entire focus on cost optimization it's not really a factor there right because it's a it's kind of more like a zero marginal cost business so you have just a completely different dynamic there you know energy prices status enter it's like all of those things are not take factors and then you have entirely different ones instead so I definitely agree a fundamentally different business that it does go more maybe in the direction of a of you know defy if your direction often who forsakes also very early and it's it's changing very quickly nothing to business models around it will change

very quickly I think that's also one of the major differences between proof of work and proof of stake is improve of work it's in essence it's what you're doing is something external to the network but you're producing these hashes so now you're subject to things like producing hardware energy costs and almost is like physical inputs outside of the blockchain that you have to optimize and deal with whereas proof of stake is purely software so that means you don't have kind of those constraints externally you don't have those as cost factors but you also have much more degrees of freedom because you can basically change the software and all of

a sudden to change the staking dynamic changes completely yes I think that's a very good point yes I think you're going to see it's just a tremendous amount of variation and innovation and change also around proof mistakes so it's very early and I agree with that I think really that's why I say I think that if we also see that it's a scalable business and it really is an important factor for the blockchain world I mean we are really in the in the core we are very big Bitcoin believers and blockchain believers and we are flexible to a certain degree if we think it is a good idea we can allocate resources towards that but we really need to make very thoughtful

decisions and and think about it carefully but there has been particularly Brian as you say those software moves when I look back for example when Z Kerr started we were the first one that offered C cash mining in the cloud that was also more a software issue because the hardware was the GPU infrastructure but we were very fast and good at that we we had a really strong opportunities to optimize the algorithm and get maximum hashes out of the hardware so in that regard we are flexible but it's it's a really good point what you say so I don't want to say no we certainly have to be wise when we make such major moves no of course I

mean the interest in this topic for me is that much like the centralization issue in Bitcoin sort of encouraged more of these staking infrastructure service providers to come into the market to kind of sort of like decentralize the infrastructure on which you know staking businesses are being built before I wrap up I I wanted to touch on final topic which is not necessarily related to mining directly but more about Bitcoin and the the current economic situation that we're faced with and I want to get your thoughts on what do you think bitcoins role is in this current crisis and you know how do you see things kind of playing out in the next six months onwards as the situation the economic situation probably will get worse

I think it's a major opportunity for Bitcoin right now crisis was what Bitcoin was made for the price crashed when the corona crisis hit and people were saying all it failed to be now really put a store of value I don't think that is a really valid argument because I think that move was really done at the whole market crashed and also gold and it not so much but also lost a lot of significant amount of value I think it was really the shock situation people just wanted to get out of everything they're in and maybe even subconsciously made that move and wanted their cash but I think now this the

whole what we're seeing now is that the whole world is really more conscious and more careful they are asking questions behind things and I think they think also they start to change their views on when they see so much money printing they also ask and challenge their views on the financial system and that's exactly what we wanted I mean this awareness of the benefit of what Bitcoin can bring to the financial world is what we really not haven't have seen so much but what really becomes more more important and that's why I say that this is now a very key time for Bitcoin that's where it can really shine and the only thing that I hope is that the

infrastructure is ready for for that so that it really can fulfill that that increasing demand that is likely to come when that crisis unfolds thanks so much for coming on mark I think it was awesome to speak with you and so impressive the company you've built and like through all these crazy evolution sites gone and yes pleasure to speak with you and I'm excited to see what Genesis is gonna do in the next year's thanks for having me guys it was a pleasure thank you for joining us on this week's episode we released new episodes every week you can find and subscribe to the show on iTunes Spotify YouTube SoundCloud or wherever you listen to podcasts and if you have a

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