The Economic–Energy Capital Markets of Bitcoin | Hashpower Academy

Video Transcript:

hello there and welcome to the Hashpower Academy my name is Jake Scanland i’m the lead educator here at the academy and this is a place that we delve into anything to do with Bitcoin and everything to do with Bitcoin starting with the fundamentals we go through the energy sector then the electrical grid stuff bitcoin mining hardware and the heat that they produce in fact I shall add that in while I’m thinking about it and what do Bitcoin mining hardware produce they produce hash rate so all of that heat is neither created nor destroyed only transferred out of the computer but those electrons running around the microchips are producing compute power which is adding Bitcoin blocks to the chain and earning that sweet Bitcoin and it’s all under 21 million units so you’ve got all of these different sectors expanding and the topic of today’s video is the different Bitcoin markets associated to all of these components now energy in terms of electricity is its own market but we’ll start with the energy sector in the context of carbon accounting so CO2E and that’s associated to kilowatt megawws you name it the different types of power sources have different carbon accounting associated to them in terms of electricity everyone may be familiar with dollar per kilowatt hour because think of it like this the two biggest markets that you may have association to are the energy any energy markets and financial markets those are the two core markets that just about any human interacts with when you go to fill up your gas or petrol shall I say from the uh petrol station or gas station um you’re interacting with the energy market from a consumer side of things uh utilities heating bills all those sorts of things have an energy cost associated to it to the the inputs to your life or to everything that you consume that’s the other side of things uh everything has a cost to produce and that that cost can be derived in energy energy markets now Bitcoin mining hardware mining hardware is something that converts electricity into hash rate we refer to this as jewels per terahash that’s electrical conversion of energy cost for hash rate output think of the miles per gallon of your car the the the gallon is the the cost of your fuel that energy that you’re filling up at the station and your miles is your distance your performance and that performance in in Bitcoin’s terms is hash rate the amount of computations per second which is finding and seeking Bitcoin blocks now jewels per terahash can be different for different machines the lower the the lower the energy per hash rate output which means the lower the jewels per terahash metric the more expensive the machine is so there’s there’s correlation to dollar per terahash so the bitcoin mining hardware market uh comes from two main manufacturers watts miner and bitmain those two make up the majority of the market share but there are new uh competitors entering on the US side of things so uh nearshoring the uh the microchip production line and the history of Bitcoin mining hardware started with Satoshi Nakamoto using his basic laptop CPUs uh or CPU should we say i don’t know if it’s more than one um but as Bitcoin mining got harder and the difficulty adjust raised it it made it more competitive competitiveness in Bitcoin mining hardware terms is keep lowering this conversion efficiency of jewels per terahash lower and lower and the lowest right now is about 10 jewels per terahash and the the average is about 22 jewels per terash which means that the lower it is the more expensive and the the higher the jewels per terash the less efficient and if anyone’s looking at uh buying a Bitcoin mining electric heater It’s wise that if you are uh try try to understand the the conversion efficiency and understand the the price premium associated to the chips because it will make sense that the older more inefficient higher jewels per terahash chips are the ones used for hardware heaters because the chips are a lot more cheaper think of it like the the the different iPhones the latest iPhone is the latest chips so it’s the most expensive the old iPhones are like onetenth of the price and it’s the same with Bitcoin mining hardware now next to hash rate hash rate you can think of as more of the the uptime of the computer think of it like uh this computer in a box in China versus a computer the exact same model brand new same as in the box but plugged in in the US so it’s been exported from China imported to the US uh shipping duties taxes logistics you name it and it’s actively plugged in on a power contract and uh consuming electricity to produce hash power in real time so you can think of it as the the uptime because if you look at the the public Bitcoin miners they’ll they’ll say they have a certain amount of hash rate but there’ll also be a metric maybe related to how much hash rate they have online so the uptime because you can only produce Bitcoin blocks with uh the combination of a power contract a computer and an internet connection so this is more associated to hash rate that is directly available and on the blockchain side of things uh the pricing system for this is a little bit unknown uh I’ll get to that another day but it’s more so to the mining pools i would say you’ve got this association that a lot of people don’t solo mine solo mine is when the miner is projecting their own hash rate to produce their own blocks and and create their own templates which is defining which transactions are going into their block and so uh most miners are actually just selling their hash rate at a certain amount so it’s amount of BTC per terash of performance over time um energy cost performance and time affords you money Bitcoin and so that’s selling to the pools and different pools have different uh payout s payout methods uh FPS uh f first pay share first uh there’s there’s several there there’s so many different payout types now the overall approach is that um you want to be paid for your your share of the compute relative to the the whole pool and on the blockchain side of things you can consider this hash rate contracts now hash rate contracts are this same metric but you’re defining this this time period so the amount of Bitcoin per terash per day a pool is uh well you’re selling your hash rate to the pool in real time and that payout is more so related to they find a block they distribute the block to all the miners that are connected to their pool it’s it’s a pool they uh they generate revenue and distribute it out and take their fee but the hash rate contract side of things is there’s certain mining pools like Niceash um and Luxaw that are doing more sort of financial based hash rate hash rate contracts and uh it’s the same thing Bitcoin per terahash or even per xahash so you can multiply this all up by uh well a million um and and the time thing as well if it’s a 90-day contract or a oneweek contract or whatever the amount is you’re you’re adjusting the the time period here um so let’s just write 90 90 days and so the pricing there is it could be it could be dollarized you buy in it could be bitcoin but the whole point is it’s it’s uh a minor is effectively selling and locking in a certain rate a certain amount of bitcoin per terahash per x amount of time so they’re locking in a a hedge to the downside that if if mining revenue dropped if the price dropped because subsidy is the majority of mining revenue and subsidy is directly ti tied to a quantity of Bitcoin and a quantity of Bitcoin has a dollarized price and the buyer of these contracts would be speculators of going to the upside or even uh if a if a hardware if a person is trying to buy machines uh and they’re going to take a month to to deliver and they think that this month’s going to do really well with mining where you’d buy into a hash rate contract and you’re capturing that upside whilst your machine is uh on a boat from China and then on the Bitcoin side of things last but not least Bitcoin to the dollar and that isn’t the only one actually we can get rid of that because everyone’s heard of that one and we can actually use the one and only uh Bitcoin unit of account uh pricing system so far which is Bitcoin per virtual bite which is when you want to send Bitcoin you char you pay a fee and that fee is associated to the quantity of data that you’re filling in that block and all the different people uh trying to transact their their transaction amount the fee associated is the the data size multiplied by the uh by the fee rate multiplied by the amount of space that they’re filling in the block and yeah so these are all the different markets that are going to be associated and connected to the Bitcoin network carbon accounting of different energy sources uh the electrical grid and the pricing whether it’s in a contract or paying the variable rate of um of you know the live energy market of of supply and demand um production of compute power so the hardware in of itself has an efficiency metric which is based on its price and the location being is it a you know the age of the machine the efficiency of the machine uh the thermal damage maybe to the machine more so to relate to the age um hash rate being sold to mining pools and the different payout options and types that they have the Bitcoin blockchain and the well the delivery and and financialization of hash rate contracts um there’s going to be hash rate bonds in the future another topic and on the consumption side of finance which is when you send some Bitcoin the fee market the the mempool so yeah these are all the different markets of the entire Bitcoin network intrinsic to the economic energy ecosystem of energy and finance as a circular economy these are all the core components of Bitcoin and there’s other little bits that that slot in here like uh hash rate is is that internet connection component so it’s the the computer connected to power source and to an internet connection and the blockchain side of things is data uh connected to a node bitcoin miners have the right access to add blocks and decide which transactions go into the blockchain and once they’re in the blockchain and that the that information is distributed to all the different nodes and those nodes are well tracking all of the information associated to the blockchain um and all they’ve all got a copy and that’s the the that’s the decentralization on the consumption side of things and uh the owners of that that data the the Bitcoin wallets and holders and yeah none of that Bitcoin moves unless the physical decentralization of the network um updates the the chain and on the digital side that person has signed their transaction with their with their encryption through a private key and and Yeah so these sorts of there’s such a beautiful amount of interplay between energy and finance consumption and production and all of these different these different levels have different markets within themselves and they’re all expanding in their own directions you got energy companies utilities hardware manufacturers resellers hash rate heaters mining pools different blockchains and different layers and liquid and lightning um Bitcoin and the financial sector in every platform requiring to move Bitcoin around so they’re always contending with paying for block space and all the sort of financialization of Bitcoin bonds and capital markets and it’s all exploding in its own directions but it’s good to understand it all i hope this was an interesting video i’m going to explore all of these different topics in more videos to come i hope you like this video uh share it to the group chat share it to the best Bitcoiner or you’re the biggest hater of Bitcoiner i don’t mind all of this is intrinsically connected to each other through physics and maths and if if someone wants to argue 1 plus 1 is two then uh let’s have at it see you next time goodbye