Why Bitcoin Miners Are Becoming AI and Energy Companies

In this business, there's probably about five things that you have to think about. The first one is the price of Bitcoin. That changes demand, and that changes is your electricity cost, expensive or cheap. What really determines that is the cost of Bitcoin. For the public miners, or for any sort of large-scale miner, and I'm sure even solo miners care about how do we get our edge and the edges of efficiency. So how can we do a better faster cheaper? But your machines have to last longer as well. One of the reasons we chose the US was because some of the experiences that we had in other places around the globe seemed like a great idea at the time. And then overnight, you know, the government would catch wins that somebody's Bitcoin mining over here. Okay, thank you for doing this. I really appreciate that. To start with, can you please tell me your name and what you do? Yes, I'm Gwen Lauber. I work with a company named Kingman, and I'm in charge of their corporate affairs and other or small companies, so other things that come along. Okay, very, very good. We'll get to what you're doing now, but I'd like to just a brief history. What were you doing before this? What took you to where you are today? So I started my career doing investor relations for technology companies. Spent 25, 30 years doing that, specializing in hardware companies, semiconductors, which made me comfortable with the company like Canaan. When the company approached me, I knew nothing about Bitcoin. I knew nothing about Bitcoin mining, but I was comfortable with the semiconductor aspect of their business, so I knew that I could at least talk intelligently about the products that they're making, understand the development cycle, those sorts of things. So when Canaan called, I thought, well, okay, learn a little bit new, but have the comfort of knowing semiconductors. Were you skeptical of Bitcoin? Like, what is this magic internet money thing? Well, I did. Everybody knows somebody who, you know, they. We're on a dark market. They were sort of like the outcast of the family who was, you know, putting all their money in Bitcoin. And everybody thought, you know, no, get a real job. Do whatever, you know what, but then as Bitcoin went up and up and up, you know, these people suddenly became the ones who were the, the smart ones in the room who were sort of going, no, no, I got it. We're here for all those years. You let me couch serve, you know. So I heard those stories. Wasn't really skeptical, but wasn't really 100% sure. I knew that the rest of the world was going to say, you move what? You left what company to go work in a Bitcoin company? What are you nuts? Next thing you'll be working in a cannabis company or something. So, yeah, there was a lot of skepticism from those around me, less from me. Okay. What exactly do you do on a daily basis now? I just started trying to figure out exactly with it. Yeah, a little bit of everything. My core job is doing investor relations. So I talk to cell side analysts, talk to professional investment community, talk to retail investors, particularly with Bitcoin mining. A lot of the people interested in company, the majority of our shareholders, I think at one point, at least 70% of our shareholders were retail investors. Oh, wow. Where in my past companies, you know, was flipped the other way. So 70% were institutional investors and 30% retail maybe. So it was a whole different animal talking to retail investors. So that's most of what I do. But then I also am in charge of public relations and government relations, which is extremely interesting because, as you know, policy in Washington DC, as well as in London and Paris, wherever around the globe, policy is being formed today. But what should we do about Bitcoin? And this magic currency, as you called it. Yeah, yeah, exactly. Okay, there's a couple of things here I want to talk about. So for the retail, I'm assuming those retail people were like Bitcoiners. That'd be just me and my guess. Yeah, I would think most of them are Bitcoiners, who, and then some more people who were interested, maybe not interested in buying Bitcoin, but they were interested in participating in Bitcoin. So maybe I want to be on some of the Bitcoin mining stocks. Yeah, that's not quite Bitcoin. Pics and shovels play. Exactly. Pics and shovels. But it was harder for them because, you know, a lot of people wonder, if I wanted to buy Bitcoin, how would I do that? Do I go to one of the Bitcoin ATMs in a mall or where do I do that? But, you know, they could buy an ETF nowadays, or they could buy companies that participate. Hopefully, you know, it's not just the price of Bitcoin. It's also how's the company doing in the fundamentals behind the company? Right. Okay. And so, yeah, maybe up to now, retail has been a bigger presence. But I have to imagine that starting to change, imagine the institutions are starting to get more interested in picks and shovels play. It seems like something institutions love. Yeah, I think, especially now that it's sort of, there's a synergy between Bitcoin mining and HPC AI companies. So I think a lot of institutional investors are thinking about, okay, we can look at you in terms of a Bitcoin mining company, but we can also look at you in the future. Are you going to pivot to HPC AI data center? Or are you somehow going to, you know, we had talked about earlier that, you know, the company has stated that we want to have had a gigawatt of energy by the end of the year. So is there a play in there? You know, investors are always looking for the future. What's going to happen? So, you know, there's so many opportunities with Bitcoin mining companies for institutional investors to get really interested in. Nice, nice. Crypto, stocks, commodities, one app, trade Bitcoin and crypto, trade Apple and Tesla, trade gold, oil and everything in between. Up to 40 times leverage, low fees, fast execution, no signups, no surveillance, no limits, orange rock, trade without limits. All right, and the last thing I want to just mention, we're going to return to this is the government relations thing, because that'll come into play when we start talking about where we are right now. But before that, what are all the products that Keenan offers? Exactly. So at our core, we're an industrial mining machine maker. So we do R&D, chip design, R&D for new products. I'm trying to say that it's cutting edge of technology all the time. Which probably if you work in Bitcoin mining as an engineer, it's probably the most exciting, because you're always trying to be better, faster, always in the most advanced node. So it's just I'm sure they're way overworked. A little bit. Sorry, they should all get raises. But so that's our core business. I think 80%, it's probably decreasing, but about 80% of our revenue comes from the industrial side of the business. Making the big industrial miner, making we have, we're sitting outside of Dana Center currently, and inside are those big industrial loud machines with big fans that are extremely efficient. Yeah, do you just gain and make everything? Do they make the containers? No, they just the mining machine itself. And we design the machine because part of the secret sauce isn't just the chip design. It's also one of the things here in a hospitable climate where we find ourselves in Texas. It's how do you deal with the heat? Yeah, it's like at any data center, it's dealing with heat, any compute the byproduct is heat. So how do you deal with that? So Cain and took a different idea about how do you design the fan? So somebody else might make the fan, but it's our design and our thought process. And how do we get rid of it most efficiently? Yeah, yeah, so I mean, that's one thing I've noticed, this is the third side I've been to. It does really remind me of like the oil industry, where the physical degradation of the machine, it's just innate, right? And it has to be planned for. Yeah. And it has to be like accounted for. And so yeah, yeah, if you can improve the efficiencies of that, I mean, obviously your margins and whatnot. Yes. Yeah, especially for the public miners or for any sort of large scale miner. And I'm sure even solar miners care about how efficient, you know, how do we get our edge and the edges efficiency? So how can we do it better faster, cheaper, but your machines have to last longer as well. Yeah, yeah, yeah. All right, so there's the physical thing and then that's the majority of it. What else is there for our product? Yeah, yeah, yeah, yeah, so we have consumer products about a year and a half ago, maybe almost two years ago now, we came out with our first consumer product, which is the size of like a VHS tape or an old beta max tape. Nice. And it's nice. You can put it on your desk to keep your fans warm. I have one under my feet in my office all winter long. And it does quietly, extremely quietly, hums along keeps my feet warm. Then we have a baseboard heater unit. And then we have this thing that looks like a old desktop tower back in the day. It's also a heater, but you know, these these the machines that we're making are using the same chips that the industrial machines are making. So they have actual real horsepower. Nice. But it allows consumers to participate in big. for mining easily, you know, one 10 volt. I can set it up, your grandmother could set it up, anybody can set it up, which is, you know, kind of a nice-- - Yeah, that's awesome. We're at a site now, and this site is unique for me, in that we're kind of in a residential area. - Yes, we're in a town, we're in a small town in the Panhandle of Texas. We walked over from a little restaurant. - That's right. - We're right in the middle of the town. - Yeah. - Without anybody knowing that we're in this town. - Yeah, yeah, yeah. So, first of all, is this the first one you have like this, where it's kind of embedded in a town? - Yes. - Yeah. - And can you just tell me a little bit about how, like again, you said, you talk about government relations. How did that process start and go through? Was it more difficult about the same as other sites? - Yeah. - What to know? - So, it's a small site. It's only 10 megawatts currently expandable to 12. So, it's small. The owner of the land just wanted to sell their site. It's located close to a substation. So, we're able to easily build the site without much hassle. We're not in the middle of nowhere. From a regulatory perspective, from a permitting perspective, the town didn't give us trouble. So, I think it's probably about the same as anywhere. - Well, well. - Or a small site. - Yeah. - Okay, very, very cool. I'm assuming this was a conscious decision. Like, oh, we want to try this new thing. - Or was it? - Okay. - So, for Canaan, like we talked about, we were just the pick and shovel maker. And at some point, we decided that, you know, we want to be more. We want to, our goal is to be a vertically integrated Bitcoin mining company where we not only design and make the machines, but we also do some mining ourselves. And we work with partners on projects where oftentimes that's how we dipped our toe into it was, can we work with you? You have the experience mining. We have the machines. You have low cost energy. Between the two, we can find a really good, efficient way to mine because, you know, the cost of machines from us, us making our own machines. And you having low cost power equals really low cost Bitcoin mining. - Yeah, that's awesome. Right now, there are kind of big headlines about, especially in East Coast communities, stopping data AI, new data AI centers from, I guess, starting, breaking ground even. - Yes. - So it's kind of in the air, the air of like the community's getting upset about that. - Yeah. - There was no pushback or there was no trouble down here for the-- - No, and there are people who live, you know, I don't know. - I mean, you can see it's not going to show you that way. You know, there are people who live here who don't know we're here. And that's because not all data center operations are created the same way. And I think we took thoughtful measures because we wanted to be a good neighbor. We didn't want to invest in, you know, buy the land and invest in community only to have the community hate us. We wanted to be able to not only come here and set up our business here, we also wanted to be able to create jobs here or be here for the long term and a partner in the community. Not just somebody who just comes in, takes the land and then leaves once we get all, we need out of it. - Yeah, yeah, absolutely. Obviously, you also probably were in tension when you chose Texas. So do you have mining operations in other areas? - Yeah, so when we started mining, we didn't start in the U.S., necessarily we tried a few other places around the globe. - Yeah. - And then in 2022, Cain and actually opened operations in the U.S., sales operations just to sell our machines, work with the public miners. And then we found opportunities here in the U.S. And now this is one of our primary focuses is the U.S., North America, in general. But here specifically, and we found Texas to be really, really open to Bitcoin mining. And you know, as you said, you were in a couple other sites. That's because Texas is very welcoming. They have great resources from a regulatory perspective. They're willing to talk to businesses and find out, "Okay, what do you need?" And then of course, the low cost power is helpful. - So again, from my naive perspective, I look at somewhere like Indonesia, or I don't know, in the Middle East, maybe UAE, where power is heavily subsidized. - Yeah. - How exactly, and also the cost of labor, this is quite a bit lower than the U.S., how is Cain, Texas the globally competitive? - So one of the reasons we chose the U.S. was because some of the experiences that we had in other places around the globe turned out, you know, it seemed like a great idea at the time. So I won my share of it too. So, you know, what was extremely affordable one day over the course of the next day, it could be extremely expensive. - So we found that the U.S., in general, and Texas specifically, you know what the policy is, the policy, and if changes are going to be made, you see the changes coming, you have time to adapt. And if you're a business, you know, you can't change every day that quickly, you need to be able to plan and execute your plan as opposed to just sort of being reactive every day, or finding out, waking up one day and finding, you know, you're to send electric costs per kilowatt hour. Suddenly is $20 per kilowatt hour. So, you know, you have to. It's so important to work with it in a region that has regulation that you know is not going to change. - Very, very interesting. Yeah, yeah, yeah. So you have that regulatory stability. - Yes. - On that note, before we were filming, you were telling me about like an anecdote that ERCOT, right, so they are the ones who are kind of overseeing and they also regulate, I'm not sure, or did they just mostly oversee the, you know. - They overseen, yeah. - So, but they were, they were some, I guess rumors or something that some of the permitting or something was going to change. - Yeah, yeah. - Again, so maybe like, oh no, is this stability thing, but-- - Yeah, please tell me. - So it was sort of like, you know, Texas, people understood that there was lots of opportunity, whether it be for Bitcoin mining or, you know, the future of HPCI data centers could be a windfall for speculators, so as always happens, speculators moved in and started buying up land or getting power contracts where they had no intention to ever use, but they were going to flip it to somebody else and make up their profit that way. And that was really clogging up the permitting process through ERCOT and the regulatory, you know, it was becoming a nightmare. So ERCOT decided that, okay, we're going to change the way we do things. Well, we're going to, and a lot of people were worried that that meant that they weren't going to grant any permits anymore, but what they were really trying to do was get rid of the speculators and work with real people because, you know, we're the ones who are committed to the community, we're the ones who are building, well, we hope is a long lasting relationship with ERCOT. So, I think there was a great move by them. - Yeah, yeah, and I like that, though, right? There's probably, at the very beginning, like a little fear. Uh-oh, are these changes coming? I don't know, are we seeing this again? But then they were just, you're just trying to make it like even better. - When that is part of my role in government relations, I spend some time on Capitol Hill, and a lot of the staffers that I've met with, you know, the first thing is, you know, the congressman really appreciates what you're doing here in Texas or where you appreciate what you're doing in Pennsylvania, but our number one goal is to keep our constituents lights on. That's what we're concerned about. And for us, you know, I always have to tell them that, yes, that's our number one goal, too, is that you can keep your customers lights on, and that's not what Bitcoin miners do. They move into a community. It's great, would they provide jobs? They provide lots of opportunity within communities, particularly if you're in rural Texas, maybe you had, you know, you could work in oil and gas. You didn't have the opportunity to work in other fields, but now, you know, you could be in the middle of, you know, an extremely rural area, and you can work in oil and gas, or you can work in a Davis Center or mining site, and you can do other things. And then the rest of the community sort of brought up with that. We were at a huge facility a couple months ago, and it was crazy, but there were 700, I think it was 700 employees every day came to the site. - Wow. - It was because they were building the site, but the community was benefiting. They were all the restaurants were full. The hotels were full. Everything, you know, it can be win-win, I think, as long as both the community gets to participate, as well as the companies do, it benefits both sides, both in terms of long-term jobs, as well as short-term jobs. - Yeah, I mean, we were in Odessa, and there was just like, I don't know, 15 brand, it looked like 15 brand new hotels. Boom, boom, boom, boom, boom, boom, boom. - And cameraman, can't see them, but you know, cameraman and I were like, what, what, what are these, all these hotels here for, right? Like, people don't come in here for tourism, right? But then, yeah, we would go to the Obrechtvests and it's just like, like lots of construction, and all this stuff, so yeah, yeah, yeah, totally. - There's a boom, there's a boom going on here. - Definitely, definitely, definitely. Okay, so the last thing I want to talk about is, is like, what are the, what is it? biggest like potential problems or pain points, things to watch out for in this kind of Bitcoin mining space, is it like the cost of power, is it like you already mentioned, the regulatory, worried about some kind of regulatory changes, degradation of hardware, what are the things that are to do with this? The first one is the price of Bitcoin, that changes the demand, and the changes, you know, is your electricity cost expensive or cheap, what really determines that is the cost of Bitcoin, can you make a profit if you're mining, so it's a cost of Bitcoin, it's the network difficulty, is that increasing or decreasing, probably a third on the list is the cost of energy, fourth, I would say is regulatory, because regulations can change, but because you see things coming, you can adapt Bitcoin miners or nothing, if not adaptable. And then the fifth thing is the climate, what's happening with the weather, is it going to be extremely hot or extremely cold, and the weather affects the price of energy as well. That's right. Yeah, I don't know if it's up here anymore, but it's the cost of energy changes constantly, so yeah, yeah, yeah, yeah, yeah, yeah, yeah, so this site in particular, so you have the substation, so you get energy from the grid. The grid here in North Texas has a lot of wind farms, right? And so I think today, the general was saying that the cost right now was negative, right? Yeah, yeah, yeah, because it's a windy day, so it's in the daytime, there's solar panels too, apparently this site draws from as well, so I mean, yeah, you just like ticking all the boxes, you know, which Texas is perfect for, I mean, there's wind, and when you drive here, I'm sure you saw them and in mine coming from North West of here, you know, their wind farms along the road, there's solar panels everywhere, and Ercot and the grid in Texas has learned how to utilize that to maximize potential, and yeah, right now it's negative in North and West Texas, but if you're in Houston or somewhere else, you know, it's not negative. And it probably rarely is the people here, which is another great thing, you know, we're in a small town, but it's surrounded by a rural area, so, yeah, people here can take advantage of that. Exactly, exactly. All right, well, thank you very much, man, I appreciate it, it was lovely to be with you. Thank you. We're done. [MUSIC]