Podcast Summary
Mining revenue shift: In the next 15 years, fees are expected to surpass subsidies as the primary source of revenue for miners, introducing significant volatility due to unpredictable fees per block, leading to potential financialization and strategic importance of securing block space.
The mining industry's reliance on subsidies is decreasing, and within the next 15 years, fees are expected to surpass subsidies as the primary source of revenue for miners. This shift towards fee-dependent mining introduces significant volatility due to the unpredictability of fees per block. Miners, including expert Bob Burnett, are starting to consider the financialization of mining and the evolving role of block space in the marketplace. As fees become more significant, corporations and even governments may find it strategically important to secure block space. This trend highlights the importance of looking beyond the traditional narrative of energy companies and miners and recognizing the financial implications of mining.
Bitcoin block space commoditization: Miners may sell future block space to secure revenue and users may reserve block space for important transactions, leading to a potential commoditization of block space and changes to accounting practices and deal-making.
As Bitcoin's transaction fees continue to rise and become more volatile, both miners and users will need to adapt to secure a stable revenue stream and ensure the availability of block space for their transactions. Miners may begin selling future block space to secure revenue, while users, particularly businesses, may start reserving block space for important transactions during high-demand periods. This could lead to a commoditization of block space, with miners acting as producers and users as consumers. This trend could potentially result in significant changes to accounting practices and deal-making in the future. The comparison to farming and selling future harvests highlights the potential for miners to lock in future revenue by selling block space in advance.
Bitcoin's financialization: The financialization of Bitcoin brings opportunities for derivatives, market makers, and insurances, but challenges include potential centralization of hash rate and the need for small miners to maintain a decentralized network.
The blockchain industry, specifically Bitcoin, is evolving towards a more sophisticated and financialized infrastructure. This means that consumers and suppliers will need to have certainty and delivery in their contracts, similar to traditional farming or real estate transactions. The emergence of derivatives, market makers, and insurances are expected to become a natural part of this system. However, there are concerns about the potential centralization of hash rate and the impact it may have on the decentralized nature of Bitcoin. It's important for small and medium-sized miners to continue contributing to the network to maintain a decentralized hash rate distribution. The financialization of Bitcoin is inevitable due to the requirements of large companies and financial institutions, and it's essential for the global economy's adoption of Bitcoin. Overall, this evolution will bring both opportunities and challenges to the industry.
Bitcoin blocks control: Control of Bitcoin blocks by large entities could lead to conflicts and power struggles, impacting smaller miners and the financial services industry
While Bitcoin mining still has small players contributing to the network, the dominance of large miners could potentially lead to issues if they control a significant portion of the blocks. This could result in smaller miners being ignored, creating a cartel-like situation. However, if larger entities like energy companies and financial services firms gain control of a significant number of blocks, the consequences could be more severe as Bitcoin becomes increasingly important as a base layer for global finance. Bitcoin's role as infrastructure rather than just a commodity with rewards and fees could lead to wars, both literal and virtual, for control of these blocks. While the relationship between Bitcoin mining and energy companies is important for miners, it is not existential for energy companies. Conversely, for financial services companies and governments, access to Bitcoin's blockchain is existential, making control of the blocks a potential source of significant power and conflict.
Economic value of transactions: Miners prioritize transactions that contribute to the stability and growth of the network, not just those with the highest fees, as they have a vested interest in the overall health and success of the blockchain ecosystem
The economic value of transactions within a block, especially for the miner, can be significant. Using the example of a keiretsu, a business network in Japan, Mitsui owned parts of various companies, and each company owned a small piece of the others. This created a mutually beneficial economy where companies relied on each other for business, leading to preferential treatment and long-term relationships. Similarly, in the context of Bitcoin mining, a miner may prioritize transactions with lower fees, even if other transactions offer higher fees, because they have a vested interest in the overall health and success of the network. The time value of these transactions can be substantial, and miners may prefer to prioritize transactions that contribute to the stability and growth of the network. Therefore, it's essential to consider the broader economic value of transactions within the blockchain ecosystem, not just the subsidy or fees associated with mining. This perspective can lead to a deeper understanding of the incentives and motivations driving the actions of miners and other network participants.
Shopify, Bitcoin: Shopify is a leading commerce platform for businesses to sell online and in-person. Bitcoin's potential impact on businesses is gaining attention, with notable figures investing and political landscape shifting. Shopify offers a $1 trial for further exploration.
Shopify is a comprehensive global commerce platform that offers businesses tools to sell online and in-person, with a commitment to helping businesses grow. Shopify's checkout system is known for converting browsers into buyers, making it an attractive option for entrepreneurs at any stage. The discussion also touched on the evolving landscape of Bitcoin and its potential impact on businesses, with notable figures like Michael Dell showing interest. Multi-billionaires are already investing in Bitcoin and other related ventures, and the political landscape is starting to shift in its favor. The emergence of simplified accelerators and specialized service providers in the Bitcoin mining industry is part of the evolution, but may not be meaningful in the long run. Overall, the conversation highlights the growing significance of Shopify and Bitcoin in the business world. To explore Shopify's offerings further, sign up for a $1 per month trial period at Shopify.com/WSB.
Political landscape towards Bitcoin: Rumors of Trump considering Bitcoin for strategic reserve and multiple senators' interest in Bitcoin could lead to other countries following suit, potentially impacting global implications. Bitcoin's potential role in powering AI and data centers, especially in countries lacking infrastructure, is emerging as a critical consideration due to high costs.
The political landscape towards Bitcoin is shifting rapidly in the United States, with multiple senators expressing interest and even rumors of Trump considering it for the strategic reserve. This could have significant global implications as other countries may follow suit. Bitcoin's potential role in powering AI and data centers, especially in countries lacking infrastructure, is also emerging as a critical consideration. The high costs associated with setting up and maintaining these operations make Bitcoin a potential solution. However, the extent of Bitcoin's importance in this context may depend on the specific country and its resources.
Bitcoin mining decentralization: As AI advances, Bitcoin mining may become more decentralized to avoid government control, but it's crucial to prevent cartels from controlling the hash rate and creating longer chains, promoting hash rate diversity through smaller, privately-held mining operations and decentralized technologies.
As AI becomes more advanced and energy-intensive, it may push Bitcoin mining into secondary territories, making it less centralized and subject to government control. This decentralization is crucial for maintaining Bitcoin's original mission as a decentralized, uncensored currency. However, it's essential to be aware of potential threats, such as cartels controlling the hash rate and creating longer chains that nodes might follow. To avoid this, promoting hash rate diversity through smaller, privately-held mining operations and decentralized technologies is crucial. By doing so, we can ensure the long-term integrity and execution of Bitcoin's decentralized vision.
ASIC project, Verifiable random number project: Bob from barefootmining.com is working on an ASIC project with M fibers, aiming for energy efficiency below 10 joules per terahash. He also has a verifiable random number project in beta, gaining traction with an S19 miner in the background.
Bob from barefootmining.com shared exciting updates on his ongoing projects during his recent appearance on the podcast. Firstly, the ASIC project, led by M fibers, is progressing well with a significant investment partner from the semiconductor industry. The team is confident in designing chips at the 2nm level and aims to bring energy efficiency below 10 joules per terahash. Secondly, Bob's verifiable random number project, accessible at chaosengine.com, is still in beta but gaining traction. This project includes an S19 miner in the background, and there are further developments to explore. For listeners who want more context on these intriguing topics, a link to their first conversation will be provided in the show notes. Overall, Bob's insights offer valuable perspectives on the mining industry and its ongoing advancements.