CEO at Be Structured Technology Group, a Los Angeles based provider of Managed IT Services for small business and CEO at Perforo, LLC a Los Angeles based Bitcoin, Litecoin, Dash, Ethereum and other alt-currency mining operation, investor, and node operator. Chad got interested and started mining crypto in about 2014 and has grown and continued his operations boot-strapping the whole thing. Chad will discuss how small to mid-size mining operation can overcome hurdles and be profitable today and in the future.
https://www.pscp.tv/w/1vOxwaaXbygGB
https://www.facebook.com/groups/crypto.mining.tools/permalink/468614457385861/
Transcription
Scott Offord: All right, we’re live. Today we have with us Chad, he’s a small or midsize miner, and we have our host, Ethan Zurka.
Ethan Zurka: Hey, everybody.
Scott Offord: Welcome, everybody. So Chad, I know you’ve been involved in the Bitcoin space for a few years now, and we just really wanted to understand your perspective about the industry and about the market and what it’s like to survive as a small or medium sized mining operation.
Chad Lauterbach: Yeah. Well, thanks for having me on. I’ve definitely been through the gauntlet, and so happy to share my experience for other people and hopefully some people find it useful. Especially, I think people that are interested in getting into the crypto mining space. I think it’s valuable to really be thinking about some things that we can discuss. So obviously, the right equipment, the right pricing, understanding what you’re getting into, before you do it.
Scott Offord: Why don’t you tell us a little bit about your background. Professionally, what do you do? Is this a side job, a hobby?
Chad Lauterbach: Yeah, Yeah. Well, I mean, if you go way back to the early days, right, I was a tinkerer, messing around with radios and early GPS units and the internet and computers, Macs and PCs dating back to my childhood. But I got my professional start actually, quite young. I was working on an AS/400 for an insurance company when I was 14, so in between junior high and high school. That kind of kicked off my career in IT. So in high school, in the summers, I worked IT jobs and then in the evenings I would work IT for Mayo Clinic. I grew up in Scottsdale, Arizona, so there’s a Mayo Clinic out there and obviously, I was doing pretty basic stuff. I was doing printer share setups on NT 4 and whatever but at the same time, very few 16 year olds are getting that kind of opportunity and so it was very cool to be so young and being in the IT space at that level.
Chad Lauterbach: And then I eventually got a full time job working at a transportation company that started fairly small and grew. Then I got involved similarly, in a healthcare company that was very small at the time and then grew. And then at the same time, I’d been moonlighting for other clients, and so I kicked off one of my two companies, the company that we’re not going to be talking about, which is Be Structured Technology Group and MSP. So we do IT outsourcing for small to mid-sized companies in Los Angeles. So, I’ve been doing that for 12 years, that’s been my primary business, but we won’t talk about that anymore other than that.
Chad Lauterbach: So, that’s kind of my background into how I knew about data centers. I’ve been in a lot of data centers, done a lot of data center work. I knew a fair amount about power, not as much as I do today, but I mean, I’d worked on some decent sized power equipment just because you do as you do when you’re doing data center work. I knew about servers and graphics processing units and all that stuff just from personal use. So, when I found out about Bitcoin, honestly the first time I found out about Bitcoin was probably 2013, and I was like, This is crazy. This is not going to work.” I was exactly that case. I was like, I saw some guys mining with Bitmain U1s and U2s, the USB miners and I was like, “This is just nuts. This is not going to work. I think you guys are all crazy.
Ethan Zurka: Do you regret thinking they’re crazy now?
Chad Lauterbach: I mean, you know what I regret is, I regret less thinking they’re crazy and I regret being less skeptical. I feel like, generally speaking, I’m interested and skeptical in all sorts of stuff. So right. I’m a Wikipedia obsessed person, so if I’m like, Oh, this is my first time flying on the Dreamline or the 787, I pull up the Wikipedia for the Boeing 787, even though I’m not a pilot. I read the whole page. I’m like, Oh, interesting what engines are on this thing? I’m always inquisitive and interested about whatever it is that is going on in my life. So, I think what I’m disappointed about is, less thinking they’re silly and more, I didn’t do what I normally do.
Chad Lauterbach: I mean, my normal M.O. in life is like, Oh, this is really interesting. Let’s be inquisitive and find out about it. That doesn’t mean I wouldn’t have come to the conclusion, This is crazy, I’m not going to do it, but I wish I would have been inquisitive about it. Because when I heard about Ethereum, that’s really where this got started for me. When I heard about Ethereum and ETH mining, I was like, Oh wow, there’s a second thing. What does this do? I started reading some articles about Ethereum and about Vitalik and about a Turing-complete blockchain and Turing-complete computer system, that’s a global computer and I was like, This is a whole other level of thing. This is really interesting to me and then I said, “But it’s all tied back to this Bitcoin thing, so I guess I got to do some research.”
Chad Lauterbach: That’s when I finally read the white paper and the white paper, I think anybody that spends the time to read it and have some understanding and some time, for me the reading came fairly easily outside of not necessarily understanding the math around the elliptic-curve cryptography. I understand how, generally speaking, it functions. I’m technical enough to understand it at a conceptual level. Having read the white paper, I was like, “Oh wow.” Then I wished, yeah, I would have read about it a couple of years before, not in 2015, having wished I would have read the white paper in 2013, because I probably would have done something very different. Whether it be mining and/or buying it or both.
Chad Lauterbach: But I read the white paper and then I just went on a tirade. I immediately read the Internet of Money, part one and part two. I read Mastering Bitcoin, and then I just went down the rabbit hole. Mastering Bitcoin was really, really interesting to me. Really seeing that the system could work. Understanding the system could work, understanding the roles that nodes and miners played, spinning up some full nodes. I bought a couple of just old, old S3s, not to thinking I was going to make money, just literally to mess around with, right, to understand how they worked and things like that. And built a couple of GP rigs and was just …
Chad Lauterbach: Literally, I thought, this is just a fun hobby. I bought a couple of cheap S3s and some GP rigs to mess around with and like, I’m not going to get that involved with it.
Scott Offord: You were doing this in your home or in your home office or?
Chad Lauterbach: I was doing it in my office. I probably shouldn’t speak too loudly, but I have about 10 kilowatts here in my space and it’s a full service [crosstalk 00:07:06].
Ethan Zurka: Wow.
Chad Lauterbach: So, and I mean I had… When we were doing the build out, I had just normal IT stuff, we’re an IT company, so I have a couple 20 amp, 208 volt circuits for servers and testing starts and spinning up test gear and stuff like that. So I have like 10 kilowatts in the space. And so that’s how I was able to do this stuff right is I just, it’s included in my lease. I didn’t have to… I’m paying for it, right, but I didn’t have to pay extra for it to mess around. Right. 10 kilowatts is a mess around level of power too. Right. So it wasn’t like I had power to scale this thing out, but that’s what gave me the ability to mess around without having to worry about the cost. Right.
Chad Lauterbach: I could spin up some stuff here at the office. Not a lot, but some stuff and mess around with it, which is the same thing we do with servers and other stuff too. Right. That’s why we have the power in the first place. So yeah, I spun up these ETH rigs and then they started making some real money and I, of course, I really regret it now I sold a bunch of a Ethereum at like 20 bucks, but it was real money. Right. The rigs paid for themselves. I mean, I’m still running one of them. It just hangs out and runs all day. But it’s mining like EQ BEAM I think right now. Right. So, but yeah so I mean, that’s kind of how I got started. And then I got really interested. I got the bug, right. I was like, I really want to do something bigger and this is where I started making a bunch of mistakes so your listeners can learn from me and hopefully not make the same mistakes.
Chad Lauterbach: And I feel like we’re going to come into this exact same thing happening all over again. Right. I mean, the bull market had started to move again. Right. So I bought some Bitcoin right when I read the white paper and Mastering Bitcoin, and I bought some Etherium, I bought some Bitcoin when it was like 380 bucks. So, and I still have most, if not all of it. I sold a little bit in 2017 but not a lot. So I’ve held it all the way through. So I’m a holder. So yeah, I sold, I don’t know, maybe two in January of 2017.
Ethan Zurka: Hey, that’s still a chunk of change though.
Chad Lauterbach: It’s a chunk of change. And I mean, the rest of it I’ve just kept, and the bigger red is selling all that Ethereum. I mean I had like 180 Ethereum and I sold it like 20 bucks and I mean hindsight’s 2020 of course. But yeah, I mean the big mistake I ended up making was, I was mining Bitcoin and I was mining a little bit of Via Bitcoin. I was mining a little bit of Ethereum and I was like, okay, I want to scale this out, it’s profitable. Right.
Chad Lauterbach: And the problem was it was the beginning of the bull run, right? So, your profitability on a rig was essentially going up almost every day or if you averaged it out at least to the week it was going up virtually every week because people weren’t able to turn on hash power faster than the value was going up essentially. And I didn’t fully understand the market dynamics that I understand today or really understand the impact of the halvening events. I think looking at the stock, the flow model that a PlanB’s put together, I mean I really buy into that model now. I think the supply halvening and deflationary model is going to be something that’s going to happen and I think unfortunately for Bitcoin, I think over the next probably decade or two we’re going to have these boom bust cycles.
Chad Lauterbach: I’m anticipating another boom bust cycle post halvening probably in mid to late 2021 which kind of is one of the reasons I wanted to go on the podcast was to partially be a warning bell for people that like, Hey, when people are selling us seventeens for $6,000 and they look really profitable because Bitcoin’s price is 50 grand and Bitmain can’t keep up again. Right now, you and I, we all know that we’re in a spot where hardware’s not moving Bitmain can’t move their stuff, hash rates not growing that fast because price is declining. So it’s not that profitable. You can still make money mining right now, right. But you have to be really careful. You have to buy the best hardware and put it in the cheapest possible hosting facility you can get your hands on, which is going to be directly correlated to your scale, right?
Chad Lauterbach: At a hundred kilowatts, you’re going to be at like 8 cents probably, right? Seven and a half cents at a megawatt, you might be able to get down to six, right? At five megawatts it might be able to get down to five and a half. Depending, right? And so your level of investment’s going to be directly correlated to how profitable you can be. But the word of warning I think is we’re going to have another cycle. I believe this may not happen, but I believe we’re going to have another cycle and I think the smart money is going to dump their gear, which is essentially what happened to me the first time around. Right? Like I bought the gear that was getting dumped, right? I bought the S7s and the S9s and then DragonMint T1s ones when they were super expensive. And I bought the D3s, I bought all this stuff that you could spend way too much money on. I bought it all. I bought every single piece of it.
Scott Offord: See, sounds like a very familiar story. Yeah.
Chad Lauterbach: Yeah, yeah. I mean I know and I feel like it’s a story that’s not told a lot, which is why I thought on your podcast, I thought it could be an interesting in different guests, because I know you’re going to have a lot of toolmakers and you’re going to have people selling miners and you have all sorts of stuff and that’s all great. I’m not anti mining obviously because I’m mining, but I wanted to be kind of a word of caution. I lost more money, 2017 to now than I have ever lost on a business venture before. In my life.
Scott Offord: That’s an important warning because if Bitcoin does start taking off and it’s getting close to 15,000 and it’s holding, people are going to start thinking, Aw man maybe I should have gotten into mining and yeah, but what happens when the price of Bitcoin goes up price of miners goes back up, right.
Chad Lauterbach: Right. That’s right and they start to move too really fast. So yeah, I mean I see this probably playing out all over again. And that’s where I think interestingly enough, I think if people are interested in mining right now is actually a fantastic time to get in the game. Right? Right now there is-
Scott Offord: Right now as in December, 2019 if you’re watching this video in March, maybe it might not be the case.
Chad Lauterbach: Yes, it might not be the case even though you even starting not that long from now. I think obviously the halvening is right now targeted at May 15th, 2020 it’ll probably move a few days but, it’s going to happen probably sometime in mid May. And I think we’re going to start to see the needle move, last time we saw the needle start to move a little bit before the halvening and then it just kept moving through it like for an extended period of time. If you look at the stock, the flow model that PlanB put together, you’d anticipate the price to just spike at the halvening, but we know just human nature market dynamics, that’s not going to happen, right? There’s going to be other stuff. There’s going to be psychology that’s going to cause that to take some time.
Chad Lauterbach: Last time it took about 18 months. Maybe it’ll take even a little bit longer this time around, but assuming that the those same dynamics occur again, I think you’re going to be in the same position where you’re going to see really expensive equipment that’s going to look super cashflow positive, but if it happens exactly on the same timeline, December 2019 we hit this all time… I’m sorry, December 2021 we hit this all time high, miners are at an all time high cost, power is at an all time high costs. Everything’s crazy, but you can still make money. You can make money at 18 cents a kilowatt hour on a $6,000 S17 and it looks amazing except it’s all going to fall out underneath you. You know what I mean? And so that’s kind of what I expect is going to happen. So on the flip side, if you’re really interested in this, now is a great time.
Chad Lauterbach: You can pick up inexpensive S17Es, T17Es you can put them in sub eight cent maybe even if you’re at scale sub seven or sub six cent power facilities talk to Scott he’ll hook you up and run them. But I think the other thing that I would say is a word of warning and this is what I think would be an interesting conversation I’d love your guys’ take on it is I really question at least after this halvening especially, but looking at what Bitmain and Peter Thiel are doing. I think fewer and fewer miners are going to be able to operate their miners by selling Bitcoin for their operational expenses. I think people are going to be using other cash flows to run their operational expenses and just accumulate Bitcoin and if that occurs, which I think it’s already occurring, but I think it’s going to occur more. I think it’s going to be really hard for small to mid sized miners like myself that rely on the ability to sell Bitcoin for operational expenses to be profitable. And I wanted your guys’ take on, do you see that happening in the market? I’ve seen a little bit of it and what do you think the impact on small to midsize miners is going to be?
Scott Offord: Absolutely. I think there’s two different ways that we can look at this. There’s the people that have to sell their crypto in order to just even keep them running because they have to pay their hosting bill. Then there’s the other people that might have another company or two that they own and they want to offset some of their revenue or profit by sinking some US dollars into electricity costs. Right? So it could be advantageous for some people, but it’s a different story for everybody. What do you think, Ethan?
Ethan Zurka: Well, before I give my comment on this, I’d first like to thank our sponsor NovaBlock. NovaBlock is a mining pool that got established here in North America in August of this year and in four short months they’ve managed to make it within the top 15 of the public pools in the world. They’re fundamentally thinking about how the hash rate needs to decentralize, it needs to move away from China and they’re great supporters of that. They want to give increased transparency to their users and help educate their users on what the best pools are to use.
Ethan Zurka: So with that being said my thought is supply and demand. So from what I’m hearing from you, Chad, is that in the future, the people that are mining Bitcoin, they’re not going to be readily selling it into the market. And my thinking is wouldn’t that then lower the supply to the demand and in turn, wouldn’t that actually benefit you as a smaller miner because you’re still having to cover your expenses every month, so you have to pay these bills. But because the larger mining operations they’re just holding everything so their supply isn’t on the market and it’s your supply that’s now available in the market. So wouldn’t the prices be higher now for the coins that you mined?
Chad Lauterbach: I mean, that’s, that’s an interesting take. Is it could restrict, artificially maybe is the wrong word, but you know what I’m saying it could restrict the supply more than the original white papers intention. Right? The new halvening is supposed to be 6.25 Bitcoin per block. If some fraction or some of those aren’t being sold then supplies actually even stricter. I see what you’re saying. Supplies even tighter than it really even appears to be because those coins are just being held. I mean I would say we have yet to see that. I mean I don’t know, we saw a run up to 13.5 this summer and we’ve seen it climb back down to 6.7 K I think it remains… One of the things that I think is hard about the whole market is the volatility of Bitcoin makes it very difficult to operate when you have to sell for op ex.
Chad Lauterbach: Right? In the summer we were sitting pretty right. Hash rate was at 70 X a hash and we were and prices were 13 grand. We could sell everything and do really well. Now at a hundred X a hash or 110 X a hash or whatever it’s at right now and 6,700 bucks. Even it only our best equipment is really making decent money even though we’re at a decent power rate. So I think it’s still challenging because I would say at the very least, if you’re a small miner I think you really have to be prepared when you’re thinking about it. Let’s say you’re like, okay, I want to invest $200,000 I’m a small time miner. I want to invest 200 grand in mining equipment and hosting. I really think what I did wrong and I think what somebody should do if they’re thinking about doing this, is look at the electrical costs and say your electrical costs for six months are going to be $50,000 take 150 for gear and 50 for electrical costs because you need the ability to sell at opportune times.
Chad Lauterbach: You need to be able to play with the Peter Thiels and Bitmains of the world without necessarily being able to permanently run off of not selling Bitcoin for op ex. So for example for us had I been more intelligent at the start and set aside more cash rather than just spending all of it on equipment because I thought it was always all going to be cashflow positive. I should have had a bigger reserve fund for electricity so that when there were declines like there are right now I want to hold it all. I don’t want to sell any of it.
Scott Offord: Today if you are with a hosting company and you had to pay your electric bill at the middle of the month or at the end of the month for example, today would be a horrible day to have to do that.
Ethan Zurka: Horrible. I know because I paid my electric bill today at the hosting company.
Scott Offord: Now some hosting companies are flexible and they will give you a little bit of grace period because they know that hey, if they want to keep you on long term then everybody needs to be profitable. But yeah, I hear what you’re saying Chad, about that. One thing I want to ask you specifically is, how do you do mining? What does your setup look like right now? It sounds like maybe you’re paying somebody to host your miners for you?
Chad Lauterbach: Yeah. Am I allowed to name names on here, company names or is that…
Scott Offord: If you want.
Chad Lauterbach: Okay, sir. So I’m mining with Frontier Mining. I’ve known the guys over there for quite some time. I won’t name them individually just in case they don’t want to be named. But you can look them up online and give them a call. They’re great guys. I also don’t want to mention my power rate because that’s always a thing. You got to call them and negotiate with them if you want to host with them. But I’ve had a good experience with them like you said they’ve been fairly flexible with… I shouldn’t even say fairly, they’ve been very flexible with me. So for example because we are selling Bitcoin for our operational expenses, I was very frank with them. I said, “Hey guys, like all of our old gen stuff is underwater. We’re going to be in trouble.” Right. So they worked with me. Luckily I had some new stuff coming in already, so we were able to move enough load around to keep the load fairly static while getting rid of all of our old gen stuff. Right. So all of our old gen stuff turned off now. So like-
Scott Offord: So it’s turned off. What is your experience been like trying to get rid of that old gear or sell it to have more money to buy new gear?
Chad Lauterbach: Well, I think you know.
Scott Offord: Well, I know but…
Chad Lauterbach: Unfortunately right now, and I’ve talked to Frontier as well, they have a lot of… I mean I think I can say this without… They have a lot of people that unfortunately have defaulted on them, right. They have a lot of old gen equipment that is just sitting around like, because people just abandon it, right? They said, oh it’s under water I’m just going to go bankrupt and take my gear. I don’t care because it’s not worth anything. So it’s tough. I’ve been, I mean I’ve been trying to lower the prices on some of the old gen stuff I have over and over and over again and the question with all of it becomes, do you wait for the price to rise and sell it? And here I am wanting to sell some of this old gen gear. Whereas I don’t I understand why people aren’t buying it for one and for two, if you’re out there listening saying like, oh wow, I can pick up some S9s for 70 bucks there’s a reason they’re 70 bucks. You’re probably not going to get 70 bucks out of them unless you have 2 cent power. So-
Scott Offord: And at that point really, it’s just a game of some people might think it’s capitulation, but it’s really just the old gear is getting purchased by people that have cheaper power or being sent to countries that have a lower power.
Chad Lauterbach: Iran, North Korea,
Ethan Zurka: Turkey.
Chad Lauterbach: Yeah. I mean it’s interesting. It’s been a big challenge to unload the equipment unfortunately and that’s put some strain on us for sure. And so unfortunately we’re probably going to have to unload some next gen equipment too, just to keep everything above board and again, it all comes down to timing. I don’t want to sell everything we’ve mined and because then what was the point, right. It was a whole lot of work for no benefit.
Ethan Zurka: Right, at that point it is just a hobby.
Chad Lauterbach: At that point it’s just a hobby. Exactly. So yeah, I mean it’s a tough and very, very competitive market and I think people should understand that and I’m in it and I’m really I’m seriously considering closing up shop sometime between 2020 and 2021 I just, I don’t know that… I’m optimistic and I really believe that there’s going to be another run up in price, which is going to put me in a position to both sell some Bitcoin at an opportune price and sell equipment at an opportune price and have an exit.
Chad Lauterbach: Unfortunately, if you look at the whole of Perforo, which is the name of my mining company, it’s not unlikely that it’s going to make money unless I hang onto a few Bitcoin and it goes to $1 million in five years it’s unlikely that it’s going to be profitable unfortunately. And I just think it’s, for me it’s been a larger amount of work than I expected, even hosting with other people and not profitable enough and it’s been a distraction from my primary business. So I think longterm I’m looking to exit, but now is just not the right moment to exit. So I’m hoping there’s a more opportune moment to exit in 2020 or 2021 when the equipment has better value. But I think it’s a good thing.
Chad Lauterbach: I’m still really optimistic and excited about Bitcoin, but I think the maturity around the landscape, I’ve been extremely surprised, if you would’ve told me in 2015 you’re going to see industrial scale mining by serious people. I know I’ve invoked his name a million times but the Bitmains and Peter Thiels of the world and I know there’s others, right? There’s that big Canadian one in Quebec or whatever, that’s like 40 or 50 megawatts. And I’ve seen the news articles coming out of these facilities and I would’ve said in four years we’re going to see 50 megawatt facility. No way. You’re not going to see… And then I was completely wrong. Right. There’s hundred megawatt facilities I’m just, I’ve been blown away at the pace at which the scale has changed and I think it’s going to make it very hard for small time miners because there’s… the people that are building up facilities like that have no middleman and there’s not room for a middleman right.
Chad Lauterbach: The mining, the smalltime miner hosting companies like Frontier, not to bag on them because they’ve been great to me and they’ve been great people to work with and I wish them all the best and I hope they do have success and they are doing some decent size implementations. There’s people dropping one to five megawatts with them. I know that. But I think it’s going to be hard for people that have a middleman. I think the people that can afford to buy a building go direct to the power company and get power for four and a half cents. It is possible. I know it’s possible. From what I’ve learned about the industry, I think it’s possible to get less than that in certain places. Right?
Chad Lauterbach: You can’t get that if you’re going through somebody else. You just can’t compete. So even if somebody like a Bitmain or whoever is selling bitcoin for operational expenses, their operational expenses, they’re still so much lower than yours. You can’t really be competitive. So, and then when you take into account that a lot of the mining is occurring in China and other countries that have, not just lower power costs but lower labor costs. I even question the fact.
Scott Offord: Lower tariffs.
Chad Lauterbach: Lower everything. I really even questioned the ability to [crosstalk 00:28:36]
Scott Offord: That the miners are being made in China and there one of the first people to get them online and hooked up and hashing too.
Chad Lauterbach: They’re getting the very first ones. Exactly. And that’s super critical because I’ve described the miner to people like a wet rag, you squeeze an S17 plus, right? If you get one right when it lands the first one, right? And you get the first one in America, right? It’s going to be a really wet rag. Right? You just squeeze it the tiniest bit and like water just starts coming out, right, but the longer you go you know we’ve all squeezed a wet rag, right? You have to squeeze harder and harder, harder and less and less comes out until there’s just not no amount of squeezing that’s going to get anything out of it. Right? and-
Ethan Zurka: I like that analogy. I’m going to use that if you don’t mind.
Chad Lauterbach: So like you’re mentioning, time is of the essence because if they get S17 pluses on a month before they even ship any to America, it doesn’t matter, it’s actually, it’s a little bit more ethereal than that, right, because the model is actually the wet rag, so that S17 plus has already been squeezed some and now they’re shipping it to America and it’s already been squeezed a little bit essentially. I mean it’s a new product, but you get what I’m saying, right? It’s their ability to turn those things on and use them first gives them this competitive advantage that is hard to compete with. Plus labor costs plus tariff costs and taxes and all the other stuff plus lower power costs. I really question even the guys that are making gigantic investments in the US and Canada as much as I’d like to see the US be a leader in mining because I think the centralization to Bitcoin mining in these other countries is not great for the ecosystem.
Chad Lauterbach: It’d be better if it was decentralized across the globe for the same reason that we’re not making AirPods in America we’re not going to be making miners in here either. I don’t think. And I think longterm a lot of these mining facilities are going to struggle even to compete. Even the ones that are running their operational expenses directly, I think they’re going to be like, let’s just sell the building and move all this stuff to China. Right? The guy that could afford to do that, right? The guys that are really rich and can afford to do that, why would they not longterm eventually realize that and do that and say, Oh wow, I can get three and a half cent power in Turkey and buy a building and build something out there. And the government supportive of me because I’m hiring a bunch of their people and I’m doing a big enough deal, I can talk to the government.
Scott Offord: What we’re hearing from people is that there are Chinese mining companies that are looking to move into the United States, partly for example, because it seems like every second month China is either banning Bitcoin or they’re unbanning it or… They’re speaking something positive about it and then… So it’s volatile from that standpoint. So yeah I think they might be thinking some of these same things that we’re thinking, but just the opposite here.
Chad Lauterbach: Sure. Yeah. It’s interesting. It’s interesting to think about for sure. Yeah. I mean, it’ll be interesting to see what happens. I mean, I don’t think any of us have a crystal ball. I mean, I think what’s been surprising again for me is the scale, the pace of industrialization that the mining is what’s been mind blowing to me. And that I think is what’s hard for a small scale miner to compete with. And I don’t know, it’s going to be interesting to see. I think you can still… You certainly can still do it today, right? You can pick up some S17 or better miners, put them in a modestly priced facility, even something as high as 8 cents and still be cashflow positive, right? So you can do it even though Bitcoin’s price sucks and difficulties really high, you can still do it today.
Chad Lauterbach: The question is, will that miner ever pay for itself. If you’re selling the Bitcoin for operational expenses and that’s going to rely entirely on how fast difficulty goes up and how fast price goes up. And that remains to be seen, right? I mean we’ve seen the opposite happen since 2017 right? We’ve seen difficulty go up while price declines and-
Ethan Zurka: yeah, that was bizarre. I still don’t understand that.
Chad Lauterbach: I mean a whole other thing that surprised me, just talking about the actual equipment was one of the reasons I invested in a bunch of Innosilicone and DragonMint stuff was 7-nanometer stuff is the latest greatest stuff out there. Right. That’s stuff that Intel and AMD and Nvidia are working on. I did not think anybody was going to come out with a 7-nanometer miner before this.
Chad Lauterbach: I just didn’t think it was going to happen. I’m like, I just bought the latest AMD graphics card just to mess around with the 5,700 XT and it’s a 7-nanometer card. I’m like, it just came out 60 days ago there’s been S17s out for whatever… and they’re seven… I just can’t believe that, that industry was ahead of the GPU industry. I did not expect that in a second. Right. I was like… so when the 10-nanometers stuff came out, I was like, Oh, this is going to be the ticket for at least four years. I know Intel, AMD and Nvidia are going to come out with 7-nanometer stuff, but Bitmain is not going to be able to do that for like at least two, three or four years. Right.
Chad Lauterbach: I was wrong. I was driving straight up wrong. So now I’m like, are they going to get the first 5-nanometers stuff? We all know that Intel and AMD and Nvidia are all working on 5-nanometers and we all know that somewhere between three and 5-nanometers is going to be the minimum. Right. We know Moore’s law is going to break, but are they going to be the first? They were based [crosstalk 00:34:29].
Ethan Zurka: It looks like it’s a distinct possibility. Yeah.
Chad Lauterbach: Yeah, that blew me away and I was so wrong about that. Had I been again not… The pace has just been mind boggling to me. Because again, had I known that Bitmain was going to come out with 7-nanometers stuff, I wouldn’t have bought any 10- nanometer stuff. I was totally not expecting that. I was expecting them to come out with maybe a little bit better, 10 nanometers stuff. I wasn’t expecting them to just leapfrog 10 nanometers. That just totally shocked me. I couldn’t believe it.
Scott Offord: So we’re going to, we’re coming to the end here, but any last advice or warnings that you have? Because I know this episode has been all about that? Now what do you have to say to the audience?
Chad Lauterbach: I think look in it’s, it’s a summarization of what I’ve already said. But now if you’re interested in mining, now’s actually a great time to get in the game, in my opinion.
Ethan Zurka: I agree.
Chad Lauterbach: 18 months or 24 months from now is probably a terrible time. So if you’re listening to this podcast and we have a new all time high and that’s what’s gotten you interested in Bitcoin, in two years from now,
Ethan Zurka: You’re too late.
Chad Lauterbach: This is not a good situation. Right? You’re in the situation I was in, learn from me. Don’t buy overpriced equipment, don’t put it in overpriced facilities. Don’t lose your shorts. Right? Wait, there probably will be another opportunity. There’s going to be the S19 or whatever the hell it is and there’s going to be another bear market and you’ll have an opportunity to pick up some of that vacant hosting and hosting space at such low cost and be patient. But if you’re looking to get in the game now, I think now actually is a good time. Look for good values on the best equipment out there.
Chad Lauterbach: I wouldn’t buy anything under an S17. I’d buy S17 or S17E, or S17 plus in my personal opinion or S17 pro. I’d put it in the best possible price facility you can afford and I’d make sure to have probably in addition to the amount you’re going to spend on miners, probably six months of your electrical costs in reserve so that you can manage when you have to sell your Bitcoins so your hand isn’t forced to sell when you don’t want to.
Scott Offord: And don’t sign a five year contract. Right.
Chad Lauterbach: Signing a 12 month contract is already a pretty big commitment. I think you’re probably pretty safe. If you signed a 12 month contract and you have six months in reserve. [crosstalk 00:36:54] I would say you’re probably safe enough. But it is a risky and volatile game and you should have reserves available to be able to manage that risk in volatility. And that was a big error I made because I wanted to buy the most hardware I could because it all looked really cashflow positive. And even today, like I said, it’s cashflow positive right now. So I’d say if you want to get in the game great, look at your budget and figure out what that balance is between having three, six, nine months of reserve cash plus your equipment.
Chad Lauterbach: That’s a really good spot to be in. I think to be able to mine effectively and potentially make money. You don’t know for sure if you’re going to make money because we don’t know what Bitcoin’s price is going to be. But I think that’s a good position to be in. My word of warning is if and when, and I hope that there’s a bull run and I do think there will be one the price of hardware is going to go up. Hosting space is going to evaporate. Hosting prices are going to go through the roof. And I think even if you have a ton of money, you don’t want to lose it. That is not the time to start mining.
Chad Lauterbach: Wait and there’s opportunity in waiting, there was an opportunity to pick up $600 DragonMint T1s in 2018 and you would have made money, right? You would have done well. And so there was opportunity to pick up stuff at a third, the price of its new cost, just 12 months prior. And so there may be an opportunity to buy used S17s in a couple of years and getting squeezed the last bit of life out of them in cheap facilities even though the S [inaudible 00:00:38:31].
Scott Offord: [inaudible 00:38:33] happened.
Chad Lauterbach: Yeah, exactly.
Scott Offord: Well Chad thank you for your time and where can we find you online?
Chad Lauterbach: Well I’m @ChadL2 at pretty much everywhere Facebook, Twitter, LinkedIn, all that kind of stuff. The handle is so silly, but I literally, it was… still going all full circle all the way back to the beginning of the podcast, I’ve been in it so long, I had an AOL account. Right. So probably you guys did too. And so my AOL handle was ChadL2 because I couldn’t get ChadL and I just kept using it over and over and over. So it literally dates all the way back to an AOL CD ROM.
Scott Offord: Nice. Okay. Well thanks for coming on the podcast and we’ll see you online.
Ethan Zurka: Yeah, thanks Chad. Take care. [Inaudible 00:39:19].
Scott Offord: Good bye. This episode was sponsored by NovaBlock Mining Pool, and you can try their pool out. You can sign up on the top right of their website, sign up, and you can apply the coupon code. The invitation code OFFORD18 for a permanent reduction in your mining fees down to 1.8% so give that a shot right now and reach out to Vincent. novablock.com