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Synopsis: 

In Episode 5 of The Sazmining Podcast, Will speaks with Mason Jappa, CEO of Blockware Solutions. They discuss differences between Bitcoin mining hadrware and altcoin mining hardware, the process of developing a mine in the U.S., and more.

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Will Szamosszegi (00:04):

Welcome to the SA mining podcast at SA mining, we are bringing you into conversations with today's industry leaders in blockchain and cryptocurrency. Our goal with this podcast is to improve the understanding and adoption of blockchain and cryptocurrency. By giving you an insider's look at what's being built and inform predictions on what the future holds.

Will Szamosszegi (00:25):

William Simi is the CEO and founder of SA mining, Inc. All opinions expressed by William or his guests on this podcast are solely their opinions and do not reflect the opinions of SaaS mining. You should not treat any opinion expressed by William as a specific recommendation to make a particular investment or follow a particular strategy, but only as an expression of his opinion, this podcast is for informational purposes. Only

Will Szamosszegi (00:53):

Today's episode is sponsored by block by in cogent law group. Our listeners can visit block by.com/sa mining for an exclusive offer for cryptocurrency management and check out cogent law group for all your legal needs. Mason JPA is a graduate of Indiana university's Kelly school of business, where he received a bachelor's in finance and a master's in information systems. He has worked in management consulting information technology transformations, and as a solution engineer at fusion risk management today, Mason is at block where solutions welcome to the podcast, Mason.

Mason Jappa (01:38):

Hey, good to be on will.

Will Szamosszegi (01:40):

Yeah, definitely. I, uh, was going through everything that you've been doing with block wear and it's absolutely incredible. All the research that you guys are putting out all the work that you're doing in the space. You're not just in one country, you're you have your footprint really in, uh, many different countries around the world. Can you talk about your journey with the company and how you got involved within the space?

Mason Jappa (02:05):

Yeah. Uh, so we've definitely done a lot of interesting things since, since we founded blocker in 2017. Um, so my initial entrance in this space, uh, started late 2015, early 2016. Um, I was actually, um, interested in mining before I was interested in Bitcoin and, and cryptocurrency in general. Um, so my, my, my family comes from a manufacturing industry, um, a wood manufacturing company. My GRA grandfather started in the 1970s. So we had, you know, a warehouse space and some excess energy where I, where I wanted to put in servers. So then I started doing research about, you know, what servers I could put in there, um, whether it was, you know, hosting data or, or generating some type of revenue from that. And it kind of led me down the rabbit hole of, of finding, uh, Bitcoin mins. Um, so I started purchasing those in early 2017 and I realized how hard it was to, to buy a machine from China.

Mason Jappa (03:02):

Um, you, you had to have, you know, thousands of dollars in currency. It's not so easy getting Bitcoin, especially back then. Right. Um, so you have to get verified and, and be able to purchase the Bitcoin, which you send to a, an address to a Chinese company such as Bitmain, uh, hope that it gets there and then hope that you hear back and then, you know, low and behold, two or three months later, your machines will show up. Um, so we saw an opportunity with fragmentation in the market, um, and, and there was, there was a need of a middle man, um, that was trusted and transparent that could become a gateway for north American minors to purchase machines. Um, so after that took place, um, I called one of the smartest people I know, which was, uh, my bus, my former business partner, Matt Suza.

Mason Jappa (03:44):

Um, unfortunately he just passed away. I'm happy to discuss that, but, um, got some big shoes to fill there, but he, he actually had run a, uh, a digital currency hedge fund that he launched in early 2017. So I thought he was the perfect partner and we launched red at the right time. Um, it was, there's an August, 2017, right before the bull run that took place in late 2017, early 2018. When you saw Bitcoin, you know, rise from 5,000 to 20,000, um, in, in a matter of moments and along the way, um, machinery, which is correlated to price at Bitcoin was going up in price. So I saw these machines, I bought from my personal farm, you know, appreciate and value, like sometimes even tenfold. Um, so it was very interesting and, you know, we kind of caught that wave and, and we started the business just agreeing to have a, a base, uh, premium price that we charge, uh, our clients, you know, a base, you know, very fair, you know, to be five or 10% margin on the machine. And then, you know, we grew up from there and now we're, you know, in many, um, different areas within blockchain, um, not just mining and we have, you know, we're vertically integrated, um, happy to go further into that.

Will Szamosszegi (04:49):

Yeah, definitely. Well, you, it seems like you guys kind of got your foot in the door, uh, early on with the sourcing of equipment and that's, I'm kind of interested in talking through how you guys went about doing that. So I'm sure when you started, you're kind of in the same boat as of everyone else, you kind of see that there's a difficulty in getting equipment reliably and having, uh, a partner in the us that can, that you can deal with more easily to transact and do business. So how did you kind of go from there to being the broker that all these other miners wanted to work through to actually get equipment?

Mason Jappa (05:27):

No, it's a great question. Um, and I think, you know, we had some card stacked in our favor. Um, so first off, uh, back in the day, you know, Bitmain was the main, you know, manufacturer that everyone bought from. Um, and, and I look at the manufacturers back then and I viewed, you know, Bitman as having monopoly, right. They released the S nine in, in 2016 and there was really no other competitor with Asics. Um, you know, they all said D threes and LP plus is all coin mins. Um, and interesting enough, they didn't accept U S D wire. Um, so luckily for me, you know, I partnered with, um, my, my colleague and business partner who ran a digital currency hedge fund. So we had the opportunity to get ahold of, you know, hundreds of thousands of dollars of Bitcoin or Bitcoin cash that was required to pay for these equipment when, you know, retail buyers, and even some, you know, institutional buyers couldn't get access to that amount of coin.

Mason Jappa (06:17):

And, and secondly, you have to realize when you're, when you're purchasing the Mach these machines, um, it's during off hours. So for us, you know, we were young I'm I'm about turned 30. So we were all like 26, 25. When, when we launched this, we would stay up all night and wait for these batch releases to come out. Um, so Bitman, we release batches at 4:00 AM. We'd have, you know, a little late night party and stay up, um, quickly. And at the time we were able to, um, take order order fills from our clients, collecting USB, and we'd have funds ready, and we'd quickly convert. Um, the amount of funds we'd required, uh, to Bitcoin to pay for the machines, you know, and even at 4:00 AM, um, which you can do, of course, as you know, <laugh>, and then we'd send that Bitcoin immediately over commitment pay for the machine.

Mason Jappa (07:02):

So you saw at the time there was first off, um, timing issues with, with sourcing the equipment at a tangible hour. Secondly, um, you took on currency risk. So even if you could get Bitcoin in advance, you didn't know when they were gonna release batches and, and, you know, everyone knows the volatility of digital currency. You know, Bitcoin could, could have fallen from 8,000 to 6,000, you know, in one day while you're trying to use that money to buy machines, which is, you know, at a stable price at the time. Um, so, so that, that kind of evolved over time and, and with that, the manufacturers evolved over time. So, um, now it's it, you know, there's, there's really two main manufacturers, in my opinion, in the Bitcoin mining space, which is micro BT, what's minor and Bitmain, um, that, that, you know, run the game and then, and it's become a little more seamless to get machines. And, and, and it's really about having the relationships in place. Um, still your average, Joe will have trouble sourcing, um, machines. We're seeing more supply constraint now than ever, but, um, you know, having those prebuilt relationships that started, you know, several re years ago, you know, kind of helped us, um, become, you know, top source of machines in north America.

Will Szamosszegi (08:10):

Yeah. And actually you touched on a great point there. Some of the people I've been speaking with have been talking about that constraint, just cuz of what's happening at the Foundry and when they're actually trying to make these chips, everything that happened with COVID has really shocked a lot of these supply chains. What are some of the things that you're seeing from the sourcing equipment side of things? Are brokers still playing a massive role within the flow of equipment into the north American market? Or maybe just talk about some of the trends that you're seeing?

Mason Jappa (08:42):

No. Yeah, I think that's a great question. Um, so for starts, you know, today we're seeing, um, financing come into play more than ever, and, and we're seeing large institutions and, and public companies starting to buy up all the available machines that, you know, prior, you know, the, the brokers would have a shot at, at acquiring. Um, so a manufacturer like Bitman, or what's minor, um, controls the supply of, of machinery. And they do that, um, very intelligently because for them, um, if you look at the, the value of a machine, the value of a machine is the future cash flow that it will earn for you. So a machine's, uh, revenue is based off first, the price of Bitcoin second difficulty. So if, if the manufacturers are releasing too many machines into the market, it'll decrease their profitability. And if you, you know, reverse back the cash flow, it'll, it'll reduce the price that they're able to sell machines.

Mason Jappa (09:39):

Um, so it's interesting in that the thus the manufacturers are, are only releasing a limited supply and they're doing that very strategically. Um, therefore these large companies like riots, like, um, marathon, like, um, bit farms, um, and, and a few other players are, are getting financing from, from banks and, and well known institutions and buying up tens of thousands of the newest and latest and greatest machinery, making it impossible for retail, um, buyers to acquire, you know, the newest series of minors, which would be like the, the what's minor M 30 S series or M 31 S or the Bitmain S 19 series. Um, so then what we're seeing is a transition of all the brokers that, um, used to be able to get that equipment very easily to now putting their time into the secondary market. Um, so the secondary market is a very fun and interesting space where you have people selling used equipment, right, or, or whatever, they can get their hands on, whether it's infrastructure, you know, transformers, power supplies, PDUs, and then they use machinery, um, the less efficient and older equipment.

Mason Jappa (10:45):

Um, so we're seeing a, a transition of brokers, um, selling in the secondary when they used to sell, you know, the premium equipment, because no one could get a hold of anything. Um, with that being said, you know, block wear and, and some of the more established brokers still do get allocations from Bitmain and what's minor. And, you know, we kind of have a competitive advantage with, with Bitmain and these companies, because we've been buying, you know, thousands of machines on, you know, a monthly basis for the last two or three years. Um, these, these Chinese companies do favor their largest clients. And, you know, that's just the game that we play here.

Will Szamosszegi (11:20):

Yeah. So you like two major manufacturers who are dominating the game, uh, what's minor in Bitmain. There are some other manufacturers out there, but their equipment might not necessarily be performing at the same level. Is that kind of, one of the reasons why you're, you're seeing that almost like this, this market, where there are many manufacturers, but there are two that are really the only ones who are, who, who are putting out equipment that all the mins are trying to get.

Mason Jappa (11:48):

Yeah. I mean, it, it goes into too far discussion. So, you know, in the Bitcoin mining game, um, you wanna buy the machine that is the most efficient and the most technologically advanced, um, and it's kind of a race between the manufacturers to come out with the latest and greatest machine. Right. Um, we're seeing now, um, this year, um, you know, at the beginning year of Bitman released the, the 70 te Ash model, which was a huge deal prior, you know, there's yes, 17, which was 50 te Ash. There was the anti Silicon T3, um, at the beginning of the year. And now we're, you know, towards the second half of the year, and there's a hundred, 1,015 te hash machines that have been produced by the main what minor. Um, and, and you know, what you've seen in this space is those two companies have had first the access to the chips, which is the most important, um, second the access to the most quality chips, which is the second most important.

Mason Jappa (12:36):

And, and thirdly, you know, they have the resources and, and, and the, um, the vertical integration with, um, distribution that they have a competitive edge over the, the tier two mine, you know, mining companies like in the Silicon, like EBA, um, like Penan right. Um, those companies are still in the game. They just, they don't have a machinery that competes with Bitman and what minor they, you know, their, their top machines may produce, you know, 60 to 80 te Ash. Um, so that's why you see in the Bitcoin mining game, um, you want the, what miner or Bitmain machines, then there's a whole nother ball game where you have alt coin mins. Um, you know, for example, I know silicon's a leader in Ethereum, um, mining, um, at, with their a 10 pro series, and they're releasing an, a 10 pro um, you know, Bitmain had some older Ethereum minors and, you know, who knows they may come out with a new one. Um, you know, Bittman's a leader in Z cash mining with the Z 15 that came out, um, alt alt coin. Mining's very interesting. I think if you wanna be successful with alt coin mining, you really need to get the first batch of, of that new minor that was released so that you can be mining immediately. Um, you can chase your quick ROI and then you, you know, flip your machine, um, before it comes obsolete. Um, it, it's more of a, a gamble as, as opposed to Bitcoin mining, which is a long term strategic play.

Will Szamosszegi (13:53):

Yeah, that's interesting, cuz I mean, you, you probably have a really like inside look at what's happening with the pricing of all this equipment. So kind of to, to segment it out, you just laid out how these different manufacturers, they're going to have different levels of equipment in terms of how well they perform, how quick you can ROI on them. Many times when people talk about ASIC mining, they're referring to BIS Bitcoin because that's just the standard. Uh, we're talking a lot in depth about Bitcoin mining and Bitcoin mining hardware, but then there's the whole other world of Asics and alt coin mining. And you, I, I honestly haven't spoken with anyone in much depth about what that looks like from a hardware side in terms of like ROI versus the pricing on Bitcoin miners. Can you speak a little bit about how that looks? You mentioned that when you're all coin mining, you might just try an ROI and then flip, whereas Bitcoin mining, it's more long-term play. Can you just kind of compare how those ROI times look and what those considerations are if you're choosing to mine with a Bitcoin ASIC or mine with an alt coin ASIC?

Mason Jappa (15:03):

Yeah, no problem. Um, I, I think that I appreciate you, uh, circling back on that conversation point. Um, so the way I look at it, minors are the most bullish people on Bitcoin in, in the entire world. They're, they're investing billions of dollars to acquire energy contracts, set up, you know, lean and mean data centers. Um, whether that's a container or an actual manufacturing site or, or warehouse to buy this ASIC hardware. Um, the typical, you know, ROI on, on a Bitcoin minor is, you know, can be anywhere from, uh, 18 to 24 months. And, and what minors are during, during that timeframe is their dollar cost averaging Bitcoin. Um, so you can view mining as, as truly the best way to dollar cost average Bitcoin. Um, the goal of a minor is to generate and produce Bitcoin at a lower price than it would be to acquire Bitcoin on a free market.

Mason Jappa (15:58):

Um, so it's, it's interesting if you look at Bitcoin's chart from 2018 to 2019, um, during horizontal on a down period, if you're a hoer of Bitcoin, you either broke even or lost money minors during that period, we're generating revenue and profit and, you know, may have made a hundred or 150%, um, you know, accumulating and trying to catch the next bull cycle, um, for the alt coin mins, you know, it's a different story. Like I said, you're, you can chase a quicker ROI timeline, but timing is more important than anything. Um, Bitcoin, mining's very istic in that. Um, there's a happening every four years. Um, that's set by the monetary policy of the Bitcoin network, which is coded, um, and it's very predictable. Um, investors and traders are, are fascinated with predictable markets. Um, so as a Bitcoin minor right now is one of the best times to enter if you buy the latest and greatest equipment, because you can expect to run your machine until the next having, um, with all coin mins, you know, there's, havings that take place in the coins as well, you know, the Z cash havings taking place in November.

Mason Jappa (16:58):

Um, so, you know, you wanna take that in account, you're seeing, um, you know, as we call it a puke of Z cash machinery prior to that having, um, of the less efficient Z cash ASIC equipment. Um, so for an elk coin minor, you know, I've, I've had experience in the past where I've roid in two or three months by getting the, you know, the, the BI giant B, right, when it came out that was mining decorat, you know, in January of 2018 during this whole, uh, crypto goldmine bull rush, um, you can have those opportunities and not only can you ROI in the machine itself, um, but you'll notice machinery is perfectly positive, positively correlated to the price of the underlying asset that it mines. So you can sell your machinery, um, for potentially an equivalent gain that you made from mining itself. So the greatest, you know, trade in exit is I buy a machine, I mine it for four months, you know, let's say I was mining decorat and decorat increase price from 50 to $300. I made all of what I mined in decorat over that three month period. And then I sold my machine for three times the amount I paid for, um, those scenarios exist. And there's, there's some incredible stories, um, that I've, I've heard within the space of people capturing opportunity like that.

Will Szamosszegi (18:08):

Yeah. Yeah. You definitely want to be on the upside of that versus the guy on the other end of that deal. Who's buy that. Oh,

Mason Jappa (18:14):

You could lose

Will Szamosszegi (18:15):

<laugh> yeah, yeah, yeah. You could

Mason Jappa (18:18):

Lose that same grid

Will Szamosszegi (18:19):

At the right time. Yeah. Yeah. So aside from that, one of the major pieces within mining, aside from the hardware's electricity cost, and I'm sure that, uh, that we could dive into depth on how that looks and how different miners are approaching, getting the cheapest electricity. Uh, but from your perspective, what, what are you seeing companies doing when they're, when they're out there looking for the lowest cost electricity, what I'm, I'm very curious to hear how you evaluate, uh, electricity cost and, uh, and how you approach procurement of the cheapest electricity.

Mason Jappa (18:57):

Yeah, it's a, it's a great question. Um, we put, we put out some research in, um, in March, right, right. During COVID timeframe where we developed GLAS of, of where we thought the global, um, minors, um, stood from an all in energy cost. Um, so we broke out the different energy in, in layers. Um, and you know, it tells a story that, um, there's not as many people that have this 1 cent energy cost, as you think, you know, if you have 1 cent energy, you truly have some of the cheapest energy in the entire world. Um, but more importantly, it's not about just chase chasing the cheapest energy cost, right. Um, you need to have good climate, right? You wanna cool climate because these machines produce a ton of heat. Um, so you having, being in a cool climate gives you a competitive and advantage because you have, you can spend less, less money on operational expenditures, you know, cooling your mins, you know, um, you know, I've heard stories of, of mining farms in Iceland that, you know, just open up their garage if, as temperature control, um, for short periods of time to get in, in a rush cold there, um, those could be mess or those could be true.

Mason Jappa (19:59):

Um, but you know, or you can have a fan, you know, entering it from the outside, you know, it's cold there, there's air conditioning, right. Um, you also need, um, excellent network redundancy. Um, so, you know, you need to have redundant internet, right? You, their machines are running a hundred percent of the time, you know, hopefully if you have good machines, it all goes well. Um, there's, there's third world countries where they don't have good, good internet. Um, there's some interesting things being developed with like SpaceX and, you know, satellite internet. Um, I haven't seen that come into play yet. Um, and then as well, you need good politics and regulations. Right. Um, and that's very key. So if you look at, um, you know, what what's happened in Washington, what happened in Plattsburgh, New York, um, in the states, what, what happens in China and Venezuela?

Mason Jappa (20:42):

Um, there there's, um, there's not good, um, relationships with the politicians in government, um, in, in those third world countries. And, and even in countries of China, um, you know, you can have your mining farm and all your assets seized at any point. Um, so having that political security is very important. Um, so the answer is it's not just a race to the cheapest energy. There's several factors that come into play. And in our opinion, the best place to mine in the world is United States. Um, you have, um, an excess of energy. You can find good climates and, or you can, you know, if you're in Texas, you can do immersion system and immersion cooling where, you know, you don't have to worry about, um, cooling your minors and you can ha you have very strong politics and regulations and, and redundant internet. It's something we take for granted. Um, so having, having those, you know, three to four key factors, um, truly played to where you should mind, um, and, and we think United States is position, um, to be the best place to mind in the world.

Will Szamosszegi (21:41):

Yeah. I mean, it is a really interesting topic to dive down where you're, when you're choosing where to mine, there are all these different variables that you're balancing and what variables are you giving a certain amount of risk to? So for example, people find it, if you're mining in the us as very, very safe as compared to mining in somewhere like China, or somewhere like Russia or wherever else it may be, but you might have cheaper electricity in that other location. So you're kind of balancing that, but one of the major things that at least from a lot of the discussions I've been having with, uh, people in the industry is that within the us, you really do have the opportunity to find some really cheap power. I mean, you might be looking at smaller pockets. You might be trying to look at stranded power assets or whatever it may be, but then you can have the benefit of a good climate regulatory, uh, a regulatory environment that's favorable for mining, and then, uh, be able to run very efficient, low cost operations. So it seems like a lot of that mining, as you said, is starting to move to the us. And we're seeing capital groups actually come and try and look for projects in the us as well.

Mason Jappa (22:50):

It, I couldn't agree more. Um, I think, um, the us, um, you know, our part of our company's mission statement, you know, is we wanna geographically decentralize mining, you know, the mining hub of the world is China. Um, you know, we're, we, we estimate that 65% of the global hash is based in China with that being said, it doesn't mean that Bitcoin's centralized, um, 65 at a hash being there doesn't mean that one entity controls 65%, there's, you know, a hundred thousand minor individual minors in, in, in some very large farms, um, that, you know, we, we were in Chandu last year, we saw, you know, 300 megawatt facility that's massive. Um, it'd probably be one of the largest in the states if it was here. Um, but that doesn't mean it's centralized in China, right. Um, we're trying to geographically decentralized mining and, and part of our mission statement is, is to bring hash to the United States.

Mason Jappa (23:40):

Um, and, and by doing that, you know, we're bringing awareness and, and we're, we're providing, you know, network security that is gonna go a long way. Um, and we don't want to be lost in the dust and, and miss this race, um, in, in, in Bitcoin mining. Um, you know, if, if we wait too long, we're, we're, we're not, we're never gonna make it. So I think it's important for, for funds and, and institutions and, and even retail participants to, you know, take action now and, and join the cause and, and, and mine in the states. Um, and to your point, yeah, there's, there's incredible power opportunities. I mean, you look at Texas, um, there there's that, that has some of the most, and, and best excess energy and energy contracts in the world. Um, if you can figure out how cool and, and mine there, um, do, can be very successful. Um, people have also, you know, target Washington state. Um, we see, um, people partnering with, you know, uh, steel mills. Um, we have a facility in T city, Kentucky, where we partnered with a steel plant that has a lot of excess energy and actually owns the substation with a government of Tennessee dating back to the 1930s. You know, that's, that's, that's having a good electricity contract and good political, you know, regulation in place.

Will Szamosszegi (24:49):

What are some of those key aspects that as a minor, if you're going into, uh, it seems like you guys kind of secured it with your place in Kentucky, but when you're trying to balance your regulatory approach, while building a project in the state, how are you approaching those discussions? Are you looking at it where you see that you wanna build a project there and you start reaching out to some of the people in government, or is it something where that you just pop up on their radar? And then when you're G getting ready to fall through, with a project, you start those discussions, like how, how does that process look from the point of view of someone who's actually going and building up a mind in the state?

Mason Jappa (25:30):

Yeah. So, um, you have to be very proactive. You know, first thing you identify is, is, you know, cheap land, right? Miners are, are, are natively cheap. We, we look for the cheapest energy contracts, the cheapest land and the minimum viable product in, in the warehouse or facility or wherever it is that we're for mining. Um, so you look for those things, but prior to doing that, you need to get ahold of the electricity company in the area and, and find out, um, where your energy source is. You know, whether you're pulling from the grid or you have a direct relationship with an energy provider, right? Like a wind farm or a hydro farm, or, or like a coal, you know, plant, right. Um, most, most minors in the states, um, pull, pull from the grid and, you know, it's a mix of different power sources.

Mason Jappa (26:14):

Um, so you need to have a good electricity contract and you, you need to make it long term. So when you're negotiating, you know, you wanna have a 5, 10, 20 year term on your electricity contract. It's fascinating. You'll find that minors hold some of the best energy contracts in the world. And, oh, I bet what's interesting is it's yeah, it's, it's an asset that is, could be so valuable, you know, in the event mining, you know, in eight years, um, you know, changes landscape and, and the big players kind of take over and make it, you know, too competitive for, for some of us to, to participate. Uh, you, you're holding a gold mine with like a two or 3 cent energy, all on energy rate, K H rate, um, that you can repurpose, you know, you could build an AI data center, you could sell that energy contract to, to Google.

Mason Jappa (27:01):

Um, so that's, you know, something that's overlooked. Um, and then the next thing that you need to look out for is of course the political aspect of it. Um, there's people think that, um, Bitcoin mins are wasting energy and, and they'll lobby against you. Um, there's towns that think that you're gonna steal all their energy and, and anytime they have an outage in the region, it, oh, it's, it's from that Bitcoin mining farm. That's 20 miles down the way. Um, in fact, it's actually not true. Um, we find that Bitcoin mins are actually, you know, helping, um, the energy network. Um, there's, we're, we, we there's there's programs that are, you know, very advanced they're called demand response programs, where, um, during, um, times when a city or an area, um, needs access, energy mining farms, um, will sign agreements to the power companies to turn off their farms during those, those surcharge times, um, and help reduce the retail energy costs.

Mason Jappa (27:54):

Um, the most typical time of that is during summer, you know, everyone's blasting their AC, especially during COVID sitting their couch and watching Netflix. Well, you're gonna cause an a power surge, you know, New York city. Um, they're gonna pull from, um, large energy, uh, consumers in the region to, to account for those surcharges. And, and, and therefore those minors are actually saving your, your cost. Um, and the second part of that of course, is a lot of minors are also using Korean energy. Right. Um, so we, I think it gets to batter up and a bad rap when it's in back the opposite.

Will Szamosszegi (28:26):

Yeah. I mean, that's one of those things in terms of like public narrative surrounding mining that I think was just very one sided. I'm not sure how that narrative got started, and it's really just stuck with everyone outside of like the mining community or outside of, I would say crypto, but you look at the amount of benefits that are brought in from a mining company going into a, a certain community. I, I definitely think that mining has an enormous benefit when being brought to any sort of community, especially a lot of the communities where it's actually being brought to because many times those are where you're gonna find economic development zones, those types of incentives to build. And yeah, I, I couldn't agree more that there are many benefits that tend to be overlooked in, in the public narrative surrounding mining.

Mason Jappa (29:17):

Yeah. You're spot on those, you know, couple of points I didn't address. Yeah. If you're employing, you're providing tax dollars, um, providing towns like, like where we're in us and core located, you know, great jobs that are, that are high pay, um, they're learning and, and participating in something that's greater than themselves. Um, you know, Bitcoin enthusiasts, you know, have true belief in, in the free market and, and what, they're, what they're bringing to the table. Um, so I think it's, you know, it's fascinating and people are, people are happy about it,

Will Szamosszegi (29:46):

So, yeah. And I want to get your view on where you think the industry's going. Right. So right now I feel like every single like month that goes by there's new news, there's things happening, but on a, on a scale of maybe like one to three years, what do you think is going to be happening in the big point space with the difficulty, with the amount of capital coming into the space and overall just what the overall landscape's gonna look like, how many players are there going to be?

Mason Jappa (30:17):

You know, I think so right now, you know, at current time in place, um, you know, we're wrapping up on China hydro season. Um, so I, I think, you know, hash right now is, is very high. Um, I'm expecting some less efficient machines to turn off, you know, in the short term and, and, and things to balance out, um, Bitcoin as a whole, you know, it's a checks and balance system, right? Um, the difficulty is, is driven by the total amount of net, um, new miners and new hash, um, subtracted by the miners that turn off the network, which gives you the total net hash. Um, and just, just about every 14 days, you'll, you'll see a new difficulty adjustment and that's, um, driven by, um, blocks, right? And, and typically there's 2016 blocks, um, between each, um, difficulty cycle. And, um, the difficulty adjustment will actually be based on, um, the time it takes for minors to mine, that block.

Mason Jappa (31:11):

So if, if it's above 10 minutes, um, to mine, a block on average, then the difficulty will increase. Um, if it's below, then the difficulty adjustment will decrease. Um, so that, you know, that's just education on what difficulty means. Um, that being said, you know, there's a ton of new mins that are gonna hit the market. You know, we talked about these, these large public mining companies and, and some of the largest minors are minors you don't know about, and they prefer to be private. Um, these, these type of companies are, you know, bought up, you know, all the S 19 and all the latest and greatest minors that are coming out and tens and thousands of those machines. Um, so those new machines will be coming online over the next, you know, 10 months when that happens. Um, you'll see the less efficient minors and less efficient machines turn off, right.

Mason Jappa (31:57):

So there should be a checks and balance system. Um, with that being said, um, you know, our prediction is, you know, we're very bullish Bitcoin. Um, we do expect hash to continually increase. Um, but with that, um, if Bitcoin increases in price, then there there's gonna be a balance because, you know, minors will still be accumulating and achieving the profit and, and revenue streams that they would have, you know, at today's level, um, with current difficulty and price, um, with, with hash where it is. Um, and, you know, on a three year outlook, I, I expect hash to continually rise as, as more, um, large players enter the space. Um, you may see a shakeout of retail, um, you know, over the next, you know, three to eight years where it, it, you know, it becomes harder for retail to participate, right? They're not, they're not gonna get the best energy prices. They may pay, you know, a little premium on machinery. And, um, the, the largest players will have a competitive advantage, but, you know, that's the glory of the Bitcoin, um, market. It's, it's a free market, right? If you do have the cheapest resources, if you do have access, um, to, to, uh, you know, the cheapest energy land. And, and, and if you do have access to get machinery at lower cost, because the amount of capital you deploy, then, then you should win. Um, that's, that's, that's a free market.

Will Szamosszegi (33:15):

Yeah. And do you think, well, I guess in that context, you, you mentioned that retailers, the retail investors might get shaken out. How are you defining retail from a capital standpoint? Like how much, how much capital or I guess, how little capital do you have to have to be considered retail where you think you're not gonna be able to mine anymore in the next three years?

Mason Jappa (33:37):

Yeah, that's a, that's a great question. So I think, you know, I think of a retail minor as someone that, you know, purchases between, you know, one and, and, and 20 or 30 machines, right. Um, you know, with a, with a new, with the newest and latest, greatest machinery costing, you know, anywhere from two to, uh, 3,500 do 2000 to $3,500, um, you'll, you'll see those individuals investing anywhere from, you know, 3,500 all the way up to, you know, under a hundred grand. And you might think that's a large number, but, you know, I assure you that's, you know, I still consider that in a retail range. And then from there, you get into, you know, small miners, midsize minors, large minors, um, you know, and, and the scales from there go from people purchasing, you know, 30 to a hundred machines, a hundred to 500, 500 to thousand and then upwards.

Mason Jappa (34:24):

Um, but with that being said, um, you know, a part of our company, um, position is that, you know, we'll, we'll take on a retail client, well, someone that wants to buy one machine and, and, you know, requires a ton of education, um, requires a lot more time than, you know, someone that gets the game and has, you know, wants to buy 50 machines. You know, we invest time and I spend, you know, most of my time in the rest of the block team, um, does, was in, you know, educating individuals and helping them enter. Um, so company, you know, companies like us, we also provide them cheaper energy rates then they would usually get, um, and that's, that's a part of our motto and pitch. We don't want retail to get shaken out. I think it's important to have more participants in the network with that being said, it may become more and more competitive where, you know, companies like us may not have the, the energy costs or, or the, um, the capability to, to assist retail in, in entering. So it'll be interesting to see how it all shakes

Will Szamosszegi (35:19):

Out. That's a good segue to just talking about how we think, like the capital capital formation's gonna continue to, uh, transpire in, in this market. I mean, right now we're seeing a lot of groups that are looking to deploy capital here in north America. And you mentioned earlier, and I, I agree with this, that if you're a minor, you're as bullish as they come on the future of Bitcoin and you're, you are in a sense dollar cost averaging into Bitcoin, you're producing a certain amount of Bitcoin, uh, continuously. You're producing Bitcoin every single day. And you're building up a reservoir of, of Bitcoin over time. I mean, where do you see mining going in the next three years in terms of the amount of capital coming into this space?

Mason Jappa (36:07):

I think there is a ton of capital that it will be entering mining over the next three years. And, and it, and it's gonna greatly outweigh, you know, all the capital that's been deployed, you know, today to today's weight, uh, today's date. Um, there's very reputable, um, institutions and, and hedge funds and, and bench and BC funds that are investing in mining. Um, you, you, you just saw that DCG spun off boundary, right? They're already giving loans to minors in, in, in the tens of millions of dollars, um, so that they can expand and, and, you know, buy more infrastructure and buy more machinery. Um, we, I'm a managing partner in, in a fund called block for mining fund. Um, we, we actually, um, accrued the first of its kind loan where we, we actually, um, did a sale on lease back of equipment that we already owned, um, to get a loan, to buy more equipment.

Mason Jappa (37:01):

So essentially we, we put up, you know, a thousand or 700 machines that we already own, um, as collateral against a loan, um, with a company called artose since then, you're starting to see, um, defi come into play big time, um, within the financing game and, and these, these really, you know, well, capitalized, um, funds and institutions come in and, and they're more willing to invest in mining because they understand it now, you know, people are educated and people believe in Bitcoin. You know, you saw Paul tutor, Jones, you know, one of the greatest fund managers of all time, um, allocate 2% of his, his global assets into Bitcoin, you know, that speaks for itself. Um, therefore these, these well backed institutions are, are like, oh, Paul Terry Jones, then I wanna get into mining because mining is dollar cost saging. It's a way to produce Bitcoin cheaper than it is to buy it on the free market. Um, so that, and, and you'll see the more reputable mining companies, um, you know, acquire these funds from these institutions. Um, it

Will Szamosszegi (38:00):

Makes sense when you look at it from a macro perspective, looking at how Bitcoin's an uncorrelated asset. I mean, I think that as more institutional investors get educated on, on Bitcoin and cryptocurrency and how we could benefit their portfolio, I think that's gonna be a huge catalyst for a lot more capital to come into the space.

Mason Jappa (38:21):

Yeah. And, and we missed out on fidelity, uh, goes five months ago, I saw, uh, they listed like 10 Bitcoin mining specialist positions, you know, all throughout the United States, uh, where they're, we're, they're hiring people to, to research and analyze and, and do, who knows what within Bitcoin mining, um, they'll be relatively private. Um, but you know, they're certainly in the space, um, you see some, you know, other very large institutions like fidelity that are taking more of a private entry into this space. Um, so I think, you know, indicators like that, you know, speak volumes and, and you, you, you don't need, you don't need me to sit here and tell you that

Will Szamosszegi (38:57):

<laugh> yeah. Well, you, I mean, overall, you're really on the front lines with everything that's being built, you are very, very involved, not only from an operational standpoint, but from a actual, like brokering and ordering all this equipment. So my question here is based on everything that you're seeing, everything that you've been exposed to, what's one piece of knowledge or one belief that you hold to be true right now that many people listening might not necessarily be aware of or, uh, agree with at this point in time,

Mason Jappa (39:34):

My hot take is, is Bitcoin mining is here to stay. Um, my position is that, um, we're, we're, you know, at least for the next four year cycle, um, I think it's an excellent time to enter, uh, we, the having just took place, you have the opportunity to buy the, the newest and most efficient machinery that just came out and, and run it for the next four years. Um, people get caught up in, in ROI and forecasting. Um, one thing that people miss in these ROI and forecasting is, is right now, in my opinion, you know, the, the profitability of these new machines, depending on your energy costs is, is, is at a low, um, when you're actually forecasting, um, your mining revenue and profit, you should be taking the mean return over the period that you plan to run the minor. So if you're forecasting, you should, um, forecast, you know, what you expect to return over the next four years.

Mason Jappa (40:24):

Um, with that, that becomes a very complex model, right? And, and you're gonna have to guess, um, and make educated guesses. So within that guess, you're gonna have to speculate where Bitcoin price is gonna be over that timeframe. Um, you can run multiple scenarios, right? You know, let's say Bitcoin hits 50 K in four years. That's great. You know, my mining will have been very successful. Um, what's also important is your strategy as a minor. Um, you can take several different strategies. Um, you can be a hoer where you will accumulate all of the coins that you mind and, and you don't sell off and you cover the electricity expense expenses and the other expenses out of pocket with, you know, us dollar Fiat. Um, therefore, you know, let's say in year one, Bitcoin right now is at 10,500, all the Bitcoin you mind in year one, if in, at year three or four, that Bitcoin's at 50,000, that same one Bitcoin you had in year.

Mason Jappa (41:14):

One is not, is worth 50,000, um, you know, four years later that you accumulated. Um, so when forecasting it's, your strategy is, is extremely important. And then another thing that I see people miss when they're running these forecast forecasts and ROI models, is that the machinery and the assets that you have have an exit value. Um, so you can, you, you know, even the S nine that, that came out four years ago and is nearly obsolete to, to most people in the world still has a value. So you should take into account the value that your machine can potentially be sold for in four years and, and, and make that a part of your model. Um, so my belief is that people get caught up in ROI and forecasting way too much. Um, and, and they're not properly forecasting. Um, and these are, you know, these are the many conversations I have on a daily basis with, you know, very smart individuals, um, that I think they miss. So, you know, I'm, you know, I have a heavy conviction conviction and Bitcoin mining, you know, I'll be here to stay. Um, and, and I think, you know, Bitcoin mining will survive, you know, for, for many years to come, even for the retail participants

Will Szamosszegi (42:21):

To thank block by for sponsoring today's episode block by provides wealth management products for crypto investors. I personally hold my crypto with block by because they pay me up to 6.2% interest annually on all of my crypto holdings at SA mining. We've hooked up all of our listeners with a special signup bonus. All you have to do is go to block five.com/sa mining, and sign up again, visit block five.com/sa mining for an exclusive bonus offer a no brainer to earn additional interest with block buy today's episode is also made possible by cogent law group, finding reliable legal representation in blockchain is one of the biggest challenges. When building a business, you need to make sure that you work with a law firm that understands the legal frameworks that apply to the industry, and has the ability to strategically help you grow your business. When researching law firms for SA mining, I found that cogent law group checked all of the boxes. Not only do their lawyers have expert level experience, but they also understand the blockchain industry, cogent law group gives you access to high end lawyers without breaking the bank. Next part, which is not necessarily blockchain related. What is your favorite book?

Mason Jappa (43:42):

I gotta go with the J R Tolkin Lord of the ring series. Uh, read it, read all the books, uh, several times, um, as a kid, uh, watched all the movies several times. I, I just love that there's so much messaging that, that resonates, um, can craft, um, your beliefs. And, and it's just a great story. I, I like, you know, that the fantasy and, and, and the idea of, of living in another world. <laugh>

Will Szamosszegi (44:08):

Yeah, yeah. Those, how many books were there? Um, cuz I, I honestly, I haven't read any of the books, but I've watched the, the shorter form of the movies. Um, but I binge watched them all in like a very, very short period of time.

Mason Jappa (44:27):

No, that's a good question. I mean, when you factor in the Hobbit, I think, think there's a total of six books. Um, and with that, you know, they spun, they took the Hobbit and made like three movies out of it. Um, I think, I think they're making like an Amazon series that's coming out, um, which I'm super pumped about, but, um, you know, I think they're, I think they're great read then if you hadn't had a chance get to it.

Will Szamosszegi (44:49):

Yeah, yeah. Gotta read about FTO <laugh> and his journey. Yeah.

Mason Jappa (44:54):

Yeah. It's kinda reminds me of Bitcoin <laugh>

Will Szamosszegi (44:56):

Yeah. <laugh> awesome. Well, aside from favorite book, what is your favorite movie?

Mason Jappa (45:04):

I love all the oceans movies. Oh,

Will Szamosszegi (45:06):

I thought you were gonna say Lord rings. Just like,

Mason Jappa (45:10):

I'm not that much of a loser. I'm not that much a loser promise. <laugh> I'm not <laugh> God. I love the oceans movies, man. Danny oceans, like my idol. Um, gotta love the, uh, the intelligent and, and well polished criminal. Um, you know, throwing some, some gambling I'm a big card player. Uh, I think it, it crafts the perfect storm for the greatest movie series ever. I hope they make more <laugh> yeah.

Will Szamosszegi (45:37):

Yeah. All those movies are interesting. Like, I mean the oceans, especially, but I think that any type of Mo like even like 21, I thought that that movie was really good. Yeah. Those are interesting. So you're a big, uh, a big card player.

Mason Jappa (45:50):

Yeah. I've, I've played cards my whole life. Um, I think my father who started teaching me how to play, hold them when I was like eight years old, um, I grew up with three brothers, so we, we had a lot of competition in my house and, and amongst my three brothers were all like seven and a half years apart. Um, so there was, there was a lot of us in the short timeframe and, and we competed in everything. So it, it, it turned us all into becoming pretty good car players and I'm happy to be a Bitcoin and Bitcoin minor. Um, I think that's also, you know, had some sexy a deal to it. It's like, you know, being a poker professional does right. <laugh>

Will Szamosszegi (46:26):

Yeah.

Mason Jappa (46:27):

Yeah. I mean, you see blockchain, like there, I, you see a lot of poker players and gamblers and blockchain naturally, like some of the, you know, the, the biggest names that, you know, in the blockchain space, they they're all playing these like online underground games for like, you know, God knows how much money, you know, several Bitcoin on the line on a daily basis. Um, um, just like Bitcoin mining, right. Um, there's a lot factor in mining, a block

Will Szamosszegi (46:51):

<laugh> yeah. This has been a lot of fun speaking through not only the crypto stuff, but everything on the, uh, on the book recommendations, the, the poker side, especially. So, uh, really glad for that to have you on, uh, before we sign off, is there any place online that everyone listening can go and connect with you or the company?

Mason Jappa (47:11):

Yeah, no, I appreciate that this has been a great session. Um, it's always fun sharing about, um, Bitcoin mining, you know, it's something that I'm sure we could sit here and talk about for 10 hours, um, in, in the vast array of subjects. Um, but definitely go to our website, uh, block where solutions.com. Um, you you'll find a contact plus button there, if you, if you're, if you're looking for education, uh, if you're looking to get into mining, um, if you have any questions we're always happy to help. Um, you'll, you'll likely get a reply from me, um, and definitely check out our research. We have a research and publication section. Um, we, we list all the podcasts and, and, and research that we've written. Um, it's just worthwhile and, um, it's stuff that's been shared around the world. So we look, look forward to potentially meeting you.

Will Szamosszegi (47:53):

Definitely go check 'em out, guys. Thank you for listening to this episode of the SAS mining podcast. Be sure to follow us on social media and YouTube for the latest updates and previews of upcoming episodes, full episodes and transcripts can be found on SA mining.com every Thursday. If you want to hear us interview a particular guest on a future episode, please reach out to us@podcastsamining.com.

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