Fred Thiel on The Blockchain Interviews with Dan Weiskopf | ETF Trends

Intro Vocals [00:00:02] You’re watching The Blockchain Interviews hosted by Dan Weiskopf. Each episode features interviews with leading industry experts so that viewers can have a deeper understanding of today’s quickly evolving blockchain marketplace.

Dan Weiskopf [00:00:21] I’m thrilled today to host Fred Thiel, CEO of Marathon Digital, as my guest speaker for The Blockchain Interview series. We were fortunate to be early investors in Marathon based upon the long term vision of the chairman, Merrick Okamoto. Marathon Digital has an unusual business model with only seven employees. Fred Thiel joined in 2018 as a board member and now has the special role as being CEO and implementing the business strategy. Today, we will discuss three key takeaways why the Bitcoin Ethereum mining industry is so core to the growth of the blockchain, how the industry will grow, be transformed and impact different industries and what is happening in the near term in China. So, Fred, thank you so much for joining me. I really do appreciate it. I’ve learned a lot from you and I appreciate your time.

Fred Thiel [00:01:27] Dan, thank you. Glad to be here.

Dan Weiskopf [00:01:30] You know, people often say timing is everything, but for me, execution is about skills, experience and culture. With seven employees who kind of operate, I think, as a SWAT team, tell the audience a little bit about how you and Merrick met, swapped seats, and your unique background.

Fred Thiel [00:01:54] Sure, so I’ve known Merrick for 20 years. We were neighbors, members of the same beach club, and our kids kind of grew up together. Our wives are best friends and we’ve touched on each other’s businesses a few times. One traded and managed assets for people, I was running public and private companies, doing venture capital, private equity, and he’d show me some deals. I invested in some deals with them and, you know, usual kind of friendly stuff. And when Merrick first got involved with Marathon back in 2017, he needed somebody on the board who A, was a technologist and B, understood block chain and the potential for blockchain. And so he said, hey, listen, I’d really like to have you on the board. Here’s kind of what I’m thinking of doing with the company. And I got super excited and formally came on board, and he was April of 2018. My background is one of always been a sort of technologist and, I guess, a value creator. My first technology job was actually writing software for a big bank in the city of London when I was in high school in London back in the mid to late 70s, back in the day when you had punch cards as opposed to either tape or disk. And so I kind of learned about the inefficiencies of the financial systems that way. I also had the benefit that both of my parents were in the banking industry. My father was a banker at Chase at the time, and my step mom was also a banker and later went on to be senior economist at the OECD responsible for helping the East Bloc nations come into the OECD and then the EU relative to securities and banking regulation. So I grew up with the dinner table conversation of being, you know, mifid 1, mifid 2 discussions about all of the stuff the bankers talk about and really lived, you know, at one point I was even writing software for bank ATMs and for the swift system and just really lived that financial industry as a problem child, if you would, from a technology perspective. And I’d always thought about, you know, gosh, it would be great if you could automate this and, you know, at the speed of the Internet, if you would, close financial transactions and do things without all of these very cumbersome legacy systems that existed. So. I spent a lot of time in a lot of different aspects of the tech industry, semiconductors, hardware, storage, embedded systems, IOT, a lot of work in the IOT world and became kind of known as a transformationalist, you know, I would get involved in a company and figure out how to take them to the next level and had the good fortune of doing that with a company that took public called Plantronics back in 2000, did it again with a company in the digital media related to the game space called Game Spy, and then did it with some private equity backed companies and really loved that value creation process and went to the dark side at one point and ran actually a private equity fund focused on technology investing and realized that while I love doing what I do, I’m better off being on the operator side than being necessarily on the institutional investor side. And not because I made bad investments, but just because I really prefer getting my fingers dirty and touching the dials, if you would. So what was great about my relationship with Merrick at marathon is you obviously trust built on many years and, you know, just a really good, transparent, straightforward relationship where we could discuss hard topics and we had to make a lot of hard choices over the years. We had to prioritize spending things. We had to look at how do we really execute in a world where you don’t control the sale price of your commodity, there’s no product differentiation in your product. It’s all about operational efficiency and capital efficiency. Merrick is an expert at capital and finance side. I’m the scale guy. So fast forward to this spring, and as we’re talking, it’s you know, Merrick had gotten in the company on a great financial footing, you know, we had raised a bunch of cash. We had closed this big order with Bitmain for all these miners. And timing was kind of perfect. And it was a you know, it could have gone the other way, too. But we just happened to time the market properly relative to buying machines at the right time, at the right prices. And then it was time to implement and scale. And that’s something I’ve done over and over again. So it was kind of an internal discussion. He was shouldering the bulk of the burden over the years. And so it was just a good timing to have a swap of roles. And so we did that in April of this year and it’s been great. You know, we continue to collaborate very heavily on everything. And our team, to your point, operates a bit like a SWAT team. I’m a big believer in Agile. And I think what you’ll find in all of my whether it’s presentations I’ve done at Mining Disrupt, I just did one on. And the one thing I came away from, my experience in the private equity world was return on assets. You know, you can be a technologist and you can be a startup guy and you can go operate a company and lose millions and millions of dollars, and people are telling you you got to lose more money to grow it faster and all that. But at the end of the day, an enterprise is only worth the return that can generate for shareholders. And so I really looked at this business and said, you know, we need to be able to be as agile as an enterprise as we are as a small miner and how do we do that? And that’s where we decided on this strategy of really not being a vertically integrated miner, where we own hosting facilities and we own power and we go down that route because my belief and our board’s belief is that this business is really about being able to take advantage of let’s just call them inefficiencies in the marketplace as they arise. The big order that Merrick placed last year with Bitmain was one of those things. The market there was a lot of uncertainty about the price of Bitcoin. People didn’t feel it was going to go up. There was a lot of availability of machines at very good prices. You know, let’s hypothesize what happens if the market all of a sudden goes back on a tear and goes up like in 2017? And who’s going to benefit? Well, whoever has the state of the art miners, well, let’s make sure we have as much as we can get. And we were able to get quite a large number. And we continue to believe that in the market there’s a time to be mining and there’s a time to consolidate and rest. And right now it’s the time to be mining. And so we’ve been very fortunate in that timing, met with our preparedness to execute. So we’re very excited about what the future holds. But we’re also, you know, you have to look at the there’s a havening happening here in a little under a thousand days. And who knows if it repeats prior cycles, we could be set up to be mining during this kind of next 12 to 18 months, generating huge profits. And then we’re also in a good position that if the price drops and all of a sudden infrastructure is readily available BA low price buyer of more machines for the next growth path, we’re not it all depends kind of what it is. The key, though, is we’re very agile by not owning all this infrastructure. It allows us to deploy capital on purely that what makes us money. Poor English, but essentially and the presentation I did in mining disrupt a few weeks ago was about this was essentially I can choose to deploy CapEx to build out one hundred megawatt facility. That’s going to cost me 30 million dollars. Or I can say, Hey Mister hosting partner, you build it out, charge me for it. Based on a depreciation schedule we both agree on I’ll even finance some of it for you, but let me use my 30 million dollars that would have gone to infrastructure on more miners, and now all of a sudden I have one hundred twenty five thousand dollars per day, more revenue. So our model is very much one of maximizing our mining capacity. And if you kind of look at us versus Riot, who’s kind of our nearest comparable, you know, based on this latest order we placed that we announced today for an additional 30,000 miners will be at somewhere around 13 plus X hash come June of next year. And Riot will be at seven point something at the end of next year based on their current purchases. So we’ve clearly shown that by not investing in infrastructure, but rather putting 100 percent of our investments in miners, we’re still able to cut very attractive hosting deals like the one we did with Compute North and have the ability to be very agile in the marketplace. And so time will tell whether our strategy wins out. But I think that we’re on the right path, certainly.

Dan Weiskopf [00:11:12] OK, so a couple of things here, let’s take a step back first a little bit and talk about why specifically on the Bitcoin side, why the miners are essential to the ecosystem, because I don’t want to make any assumptions that everybody understands that.

Fred Thiel [00:11:29] Sure. So the way the Bitcoin block chain works and this is the Ethereum and block chain works that way still today, though, they’re in the process of changing it to something called Proof of State, of which I’ll explain in a minute. Proof of Work is essentially a theory that’s the basis of the Satoshi Nakamoto’s White Paper, that if somebody has to invest energy and resources to calculate the blockchain and validate it, the more people that do that, the harder it is for somebody to come in and try and manipulate or change the blockchain. So when you only have a couple of computers doing this transaction processing, essentially validating a– about 2,000 transactions assembled them in a block. Do a cryptographic problem to solve for and then you get an nonce, which is a technical term for essentially a number you’re going to use for guessing another number. And when you guessed that number correctly, you’re potentially awarded a block from um, you’re awarded a block reward, which today is about 6.25 Bitcoin per block. And so there’s a combination of luck and just hard effort to it. But the more people that mine, the more secure the blockchain becomes because it’s a consensus based system so that more than 50.1 Percent of the people who are mining have to agree that a block contains the transactions that they say it does. And when that happens, that block is indelibly written in the blockchain. If somebody were to go back and try and change a block and reverse the transaction, they would have to go back to the block where that transaction was included. They would have to have enough mining horsepower such that they represented over 50 percent of the total blockchains mining horsepower, and then they would have to do the same thing to rewrite every block subsequent to that up to present time. And that’s virtually impossible at this point. There are so many there’s so much equipment mining that the capital expenditure required to be able to do that is outside of almost a nation state capacity. Ether, the Ethereum blockchain today operates the same way. However, they’re moving to something called Proof of State, which is instead of spending all this money on hardware and energy resources, essentially put up a bond that if you say a transaction is the way it is and you’re wrong, you lose that bond. And so essentially your ability to verify a block is dependent really on how much you have at stake. And so people actually stake Ether. There are billions of dollars now. I think about thirty two billion dollars have been staked in Ether. And as they move to this transition, then whoever holds the most Ether has the biggest vote, if you would. In my opinion, this is a movement towards centralization, not decentralization, because whoever holds the most Ether are going to be the exchanges and the banks who are the custodians. So where Bitcoin is all about decentralization, Ethereum is now moving more toward centralization. So it’ll be interesting to see which of the two models works long term. We believe that Bitcoin is the more robust, more secure. And when it comes to a network on which you want to build future applications with the advent of Taproot and Lightning and other things, Bitcoin has in our mind the same capabilities as Ethereum does for building DeFi applications with smart contracts and all of that. So I think we’re going to see a lot more being deployed on the Lightning Network. Certainly, we’re going to see a lot of even
non-financial businesses built on top of the blockchain and side chains such as Microsoft’s Identity Management System, which is being launched on the Bitcoin blockchain, I think sometime next year. So we’re super excited about that.

Dan Weiskopf [00:15:40] And so you kind of gave the the street a little bit of a tease at one point when you change your name right. To Marathon Digital. And it sounds to me, though, you’re not interested, at least at this point in time, in diversifying into other things that you’re going to stay–remain focused on Bitcoin.

Fred Thiel [00:15:59] Our primary focus is Bitcoin mining. One hundred percent. That being said, if you fast forward and you look at when we’ve deployed all these miners, that we’re we’re in the process of deploying now and we’re generating 50, 60 Bitcoin per day, and you start looking at and we’re not a seller of Bitcoin, we all of a sudden become a fairly large investor. Now, granted, we’re investing in our own mined bitcoin, but it’s kind of like Rio Tinto holding its gold and we will have a fairly large amount of Bitcoin on hand. And then now we need to figure out how are we going to maximize the yield on this Bitcoin. We don’t want to sell it. What can we do with this Bitcoin? Are there businesses that we can use this Bitcoin as a type of fuel to drive those businesses? And so we in the future foresee Marathon Digital holdings actually holding a number of crypto related businesses. Again, I don’t think we’re going to go down stack towards hosting and power. I think if anything will go up stack towards layer two protocols, layer two businesses, we could very well become an investor in attractive startups. And we would certainly have more than enough Bitcoin on hand to stake some very interesting businesses potentially.

Dan Weiskopf [00:17:22] So when I look at the industry today, you know, between and I’m just talking about the mining side, you’ve got Bitcoin and you’ve got a Ethereum. And it looks like, right now, the Ethereum mining is running at a faster pace, right, as an industry than the Bitcoin mining. And that’s fine. But together, they’re roughly what do you want to say, 20 to 30 billion dollars, you know, on a run rate basis. Right. How big do you think this industry can get?

Fred Thiel [00:17:54] Well, so it’s easy to look at it on the Bitcoin side, because the number of rewards are finite. It’s nine hundred Bitcoin made per day, whatever the price of Bitcoin is, that is the maximum size of daily revenue of the industry period. In the world of Ethereum, it works that way today, though, it’s not a finite reward mechanism there. And even when you get to the London fork, which they’re doing now, which, you know isn’t a shoe in, that it’s going to happen flawlessly. There are a lot of miners who say, you know, we maybe just want to stick to mining classic Ethereum. The mining rewards decrease substantially and are hopefully replaced by transaction fees. The challenge is that ether will continue to the supply of ether will continue to grow even in the tests they’ve done on Ropsten and some of the other test networks as they’ve been prototyping the London Fork, they’ve seen that about seventy five percent of the newly issued Ether are burned, if you would. But that still means that there’s a daily twenty five percent kind of uptick. So I think the different dynamics between Ether and Bitcoin from an investment perspective, certainly one is a fee you use monetary values for paying for expenses on the Ethereum blockchain, whereas Bitcoin is more of an actual asset, people would invest in it, I think. But we’ll have to see. I think the this business, you know, is going to be totally driven by the price of Bitcoin and the price of Bitcoin is going to drive how many people are in the business of mining Bitcoin and the success or failure of the industry from a profitability perspective will be a balance of Bitcoin price and total number of miners mining. You’ll eventually get to some point of equilibrium where you have to have a certain scale just to be profitable in this business and those kind of cap, the global hashrate eventually at a level. But that’s why we’re very focused on the more people who come on board, the harder it will be to keep up. And so we believe it’s much better to get out ahead of everybody, deploy while you can, and then as the industry grows around you, you are either hoarding a lot of cash and figuring out what you’re going to do next, or you’re going to have a lot of cash to invest in the next generation of machines that give you the next advantage while everybody is still trying to utilize their prior gen machines.

Dan Weiskopf [00:20:30] You just teed me up on a question because congratulations on your big order. You know, you’re a technologist as well, right? You know, we look out in the future, you know, how do you see technology evolving and how did you decide to put the order in today, as opposed to waiting not to buy used equipment, right, and who is the leader in terms of what equipment is most revolutionary right now?

Fred Thiel [00:21:05] Sure, so machine orders are always a question of its kind of price and timing on deliveries, and when do you think it makes sense to put them to work because of the Chinese shutdown we are in the most profitable time to mine that there’s ever been. And so from our perspective, we had the opportunity to buy used machines. We don’t want to buy used machines because you just don’t know the condition they’re in.You don’t know if they’ve been overclocked. You don’t even know how they’ve been abused. So we prefer new machines that have come with warranties. And we’re a very close partner to Bitmain, you know, the order we placed last year was the single largest order in their history. I think it was a considerable percentage of their overall manufacturing capacity. And, you know, we have obviously been talking to them all along. And, you know, we were kind of looking at things in the marketplace and determined that, OK, you know, it makes sense for us to place another order now because provided we can deploy them in the first half of next year, which is the plan here, so from a timing perspective, it all just the stars aligned on that. We think the S19 Pro is the– from both a cost per terrahash ,energy use per terrahash and robustness. You know, the S19 is such an upgrade to the S17. It’s crazy. Just a much better machine all around. That being said, you know, if you look at any technology industry like this, somebody is going to come out with an ASIC that is twice as power efficient as the current state of the art. Bitmain. I think it might be a bit made. It might be somebody else, but somebody is going to come out with an ASIC sooner or later that uses half the power and they are going to get that cycle of machines, you know, in the marketplace for that particular upgrade cycle. And then it’s you know, it continues to be a race. This is–I experienced this in the semiconductor industry before. I’ve experienced this in the storage industry with hard drives. Every quarter you’re looking for more capacity at lower cost per megabyte here. It’s, you know, how many joules, how many fewer joules per terrahash does your chip consume? And that’s going to be what’s going to be pushing this market and where the market has been very hardware supply constrained. I think we’re going to see a reversal of that. TSMC can build a new chip fab in eleven months. They’re growing capacity by 60 percent this year over last year. So Bitmain and others are going to have increased capacity. So we view that this marketplace now with the Chinese kind of shut down this transition of Chinese miners coming to the US, the lag item is not machines, it’s infrastructure, it’s hosting and it’s power. And so all of a sudden there’s a variable amount of machines in the marketplace. And we just took advantage of that opportunity, if you would. So that being said, as you look forward here, the next power upgrade cycle, if you would, from a perspective of ASICs, is likely going to happen in the next 12, 18, 24 months. Somewhere in that time frame, you’re going to see somebody come out with a very viable machine that operates at 2x the efficiencies of current machines. And that’ll be the new vendor King of the Hill vendor, provided they’re well capitalized enough and supply and quality is good. And then you’ll see this industry effectively produce twice the hashrate at half the power consumption. So it’s going to be very interesting as you look at the dynamics in the marketplace, if you’re still buying the typical machine today is about thirty joules per terrahash is kind of where you’re at from an energy use if you’re still buying and deploying thirty joules per terrahash machines and your competitors are deploying ten joules per terrahash or fifteen joules per terrahash machines, you know, you’re at a huge cost disadvantage. It’s kind of like using S9s versus S19s from the Bitmain architecture perspective. So it’s really, you know, I think we’re going to see a potential technology shift on the miner side, just as we’re seeing a very large expansion in the number of people mining and the as the price of Bitcoin continues to move upwards, you’re going to have more and more people wanting to come into this business. And, you know, the people who come in in the last year before the havening, which is, you know, essentially think of it as kind of early spring of 2023 through spring of 2024, they’re the ones who are going to be at risk. And so we believe that now is the time to strike while the iron is hot. And then, you know, maybe in a year it’ll be time to sit back and just count the sheckles and wait for the.

Dan Weiskopf [00:26:04] Yes, so it typically in an industry like this, in my judgment, there’s room for consolidation, right, because it’s so fragmented. But, you know, in this industry, what do you get when you consolidate? You get used equipment, you get maybe real estate, maybe some technology? What’s your view on this industry consolidating?

Fred Thiel [00:26:33] Well, you know, our model is not to own real estate, certainly. So every dollar we have, we want to put towards mining productivity. And that mining productivity might mean that we invest technology–something like that as a way to get added juice, if you would, out of our miners. But we’re not going to be in the real estate game. So consolidation for us if we were to buy another miner, to your point, we’re buying some old machines and paying goodwill on top of that. That doesn’t make sense. So I don’t think you’ll see us consolidating another miner in that way. I think you people like Riot and others, you know, there, I’m sure are going to be looking at acquiring other hosting providers. But, you know, the interesting thing that most people, the analysts especially, are only now just starting to realize is that if you think about the two primary input costs, excluding machines, it’s power and hosting. So the real controller of input cost is power because hosting is a very small percentage of the overall cost, its powers, your primary input driver. There are a lot of power companies who control ample power supply, who are regulating their power plants up and down to meet demand, who are starting to see Bitcoin as the perfect load balancer. And so, you know, we put a couple thousand miners at a facility. We can run that facility at a constant energy rate, which is much more efficient for the facility. No matter what type of energy you’re producing, it’s much more efficient, whether it’s wind, solar, gas, coal, whatever it might be. If you can run at a constant generation capacity, everything runs smoother. So you can essentially say, OK, the grid is going to have demand that fluctuates as it does, and then we’re going to have Bitcoin miners that suck up the excess electricity whenever it makes sense. And so now all of a sudden, I’m getting calls from people saying, hey, you know, we have 50 megawatts. We have 100 megawatts of power, potentially in excess. We’d like to talk to you about operating miners on our facility. And then we turn around to them and say, OK, fine, you invest in the CapEx and we’ll put miners there and we’ll come up with a deal. And, you know, not that we’re in the midst of any of those direct conversations today necessarily, but that’s clearly what I think is going to happen. And now you have and this has happened internationally. You have major cell phone companies that have power because they have all of these central switch operators that they are and power companies saying, you know, gosh, I’ve got 10 percent excess capacity. I should be in the mining business. And I think what you’re going to see is power companies and other large manufacturing companies that have huge power contracts that aren’t using one hundred percent of that power, who could do some Bitcoin mining with it, are saying, wow, this is a great way to subsidize my power or my manufacturing overhead or whatever my cost structure is. And I’m going to do this and, you know, provided I partner with somebody who can operate it, all I have to do is provide electricity and a facility for them to put their miners and they do the rest. That’s a pretty sweet deal. And so what we’re going to see is a huge expansion, I think, in the number of people coming into the industry and a large expansion of people who potentially can do reasonable scale, especially in North America. And that’s going to be very interesting. And I think you’re going to see countries like, whether it’s El Salvador, Paraguay, Kenya or others who have access to hydro, geothermal, whatever it might be, you know, they’re going to do the math and say, OK, I spend one hundred million dollars to build a power plant. I bring some Bitcoin miners in, and now I’ve got a cash machine that doesn’t depend on anybody consuming electricity other than the bitcoin. And as you know, Bitcoin is the single best way to convert energy into money.

Dan Weiskopf [00:30:33] Yes, I absolutely agree, but you also have to have renewables, right, you know, you know, and talk a little bit about that area of the market and how that’s been accelerating. And frankly, I think going to accelerate even further.

Fred Thiel [00:30:52] Absolutely. The. The renewable energy sector, the biggest driver of investment today is most probably Bitcoin mining. And the reason why is if you’re building a solar plant, a wind plant and you want to sell electricity, you have to sell to consumers or manufacturers, which means you have to be located within 500 miles of them because that’s the maximum distance. You can push electrons down a wire and over that 500 miles, you will lose five to 10 percent of your power. So there’s a waste. So if you have one hundred megawatts that you’re sending down a wire, you’re going to lose 5 to 10 percent of that electricity. Or you can build a power facility, solar or wind or geothermal. You can put Bitcoin miners on the ground so you can start generating revenue. And if there’s an opportunity to connect to the grid, you can then do that. And the grid operator will see your plant you’re operating. You’re a viable operator. Otherwise it’s a catch-22. Hey, Mr. Grid Operator, I want to build a solar plant to do one gigawatt. Great. We’ll build the distribution once you’ve built the plant. The plant owner says, well, I have no guarantee to be able to sell my electricity unless you build the grid. So Bitcoin has been a huge driver. And if you look at Q4 of last year over Q3, there was a 40 percent increase in renewable energy generation capacity in this country. In Texas earlier this year, 10 percent of all power was priced negatively. What that means is that there was excess power capacity in the grid in the US. Today, we consume and generate about four terawatts of power a day. We lose 200 gigawatts of power a day just due to transmission line issues, all of the North American miners of Bitcoin together do not consume 200 gigawatts of electricity. So, but, what we do do is offer the opportunity for West Texas wind energy, solar energy, nuclear power, as well as potential for geothermal and hydro facilities to get built out, even though they don’t have customers. And you have great hydroelectricity in parts of this country, but you have no customers in proximity who could consume the electricity. So it’s not worth the effort to build a power plant there. But if you put Bitcoin miners there on site, absolutely. So what you’re seeing now is a huge number of projects being accelerated because of the opportunity being given by Bitcoin mining as a way to monetize that energy. And we are already in North America today, well beyond fifty six percent renewable energy and carbon neutral energy use in Bitcoin mining. We’re going to see that grow as time goes on. And then on a global perspective, China shutting down mining was a huge boon to that renewable number because 70 percent of mining in China was done with coal.

Dan Weiskopf [00:34:00] Yeah, and you don’t think that they’re coming back right in China, but some of the capital might be deployed elsewhere, right?

Fred Thiel [00:34:07] Yeah, yeah. So you’ve already seen about 20 to 30 percent of the Chinese miners have relocated to Kazakhstan. Kazakhstan is a coal based energy generation, but the rest of them are in a little bit of limbo. They are busily chasing I mean, I get calls every day from people who say hey, you know, could you host the miners for us that are Chinese miners? But the other issue is, you know, they’re coming here and they’re saying, oh, wow, different cost structure. Electricity is much more expensive here. It takes six to nine months to build out the facility in the capacity. And, oh, by the way, you’ve got to pay for that CapEx. And oh, by the way, you’ve got to buy the miners and pay for them up front. And it’s the type of math that for some of these miners just doesn’t make sense. So I don’t necessarily foresee 100 percent of the China miners coming back online. That being said, I see a lot of expansion from existing other miners and new miners, yet to be yet to have come to the market to drive the expansion of the total global cash rate.

Dan Weiskopf [00:35:09] It seems like it’s created a great opportunity for the North American miners. So I agree with what you’re saying. So we’ve got almost, I think, 45 minutes. And I want to throw some wild card questions at you.

Fred Thiel [00:35:23] Sure.

Dan Weiskopf [00:35:23] If that’s OK. You’ve done a great job answering all the other questions, but now the tough ones come.

Fred Thiel [00:35:28] OK.

Dan Weiskopf [00:35:28] So looking backwards two years from now, what do you think that one of the things that investors in the blockchain should have paid more attention to?What did they miss? You follow the question?

Fred Thiel [00:35:42] Yep. So. I think most investors in the blockchain have, other than a small handful, look at it as a hype cycle, meaning, oh, gosh, this is a great thing, we’re all going to invest and there’s a, having been on the dark side and having run a private equity firm, and I am a GP and a venture firmist also, so I can admit to being on the dark side. You know, there’s a lemming effect. It’s like, oh wow, so-and-so invested, we have to go chase that. We get everybody chasing it. And then you hit the peak of the hype cycle and it’s like, well, but nobody’s really deploying anything then. Nobody’s building anything on blockchain. OK, so we’re going to forget about it. And then anybody who tries to say, hey, I just did this really cool thing with blockchain, they’re going to say, yeah, yeah, yeah, yeah, yeah. You know, call me when you’ve got a million users or something. Well guess what, PayPal keeps growing every quarter, the reserves they’re holding in Bitcoin, because of the amount of transactions they’re doing. Square, same thing with the Lightning Network and what Strike has been able to do in El Salvador and what they’re going to do in other countries. Ant Group bought MoneyGram, you know, you’re seeing this adoption that is being done at a foundational level and we’re going to wake up, you know, these institutional investors are going to wake up and say this blockchain everywhere. Everybody’s using cryptocurrencies, you know, why didn’t we see this?

Dan Weiskopf [00:37:09] Sure.

Fred Thiel [00:37:09] And it’s you know, this is I was actually speaking to an analyst earlier today. And we use the analogy of the iPhone. When the iPhone launched in two thousand seven, it didn’t do email and you couldn’t use third party apps. It was an iPod that you could talk on. Not very compelling. Right? And you had the head of Nokia poo-pooing at the head of BlackBerry poo-pooing it, and this is just a toy, right? Well, guess what? They open it up to third party apps and all of a sudden it just starts growing because a more–there’s more relevance to it. And I think that’s what’s happening now with Bitcoin in the Bitcoin blockchain. You’re seeing applications being deployed on Lightning. You’re starting to see between NYDIG and FIS, you know, three hundred million US bank accounts being empowered to hold, buy and sell Bitcoin. Alloy and NYDIG did a deal for payment capture. Every day you’re reading about somebody adding Bitcoin and blockchain to their business model. And so either all of these people are stupid and are going to lose a lot of money, I don’t particularly think that I think they’re smart and I think they’re out there laying the pathworks, laying the highways, if you would, that we’re going to see that are going to be used by all of these cryptocurrency businesses that have yet to appear. And I think the next five years are going to be the most dynamic and exciting times in this industry.

Dan Weiskopf [00:38:37] So second question, wild card question, which industry will be most affected by blockchain?

Fred Thiel [00:38:46] There are three industries, obviously, financial services as a key one because you have all of these inefficiencies, but because it’s such a regulated industry, it takes time for this penetration of technology to really affect it. So we’ll see. That will eventually be stock clearing will be at T=0. You send money anywhere in the world, it’ll arrive there within minutes automatically, there won’t be this, oh, Fedwire closed type of things. Healthcare is another huge user of the blockchain. And then lastly, identity, and identity is going to be by far the single largest user, and here’s why. Today, all of your data, whether it’s your personal data or your corporate data, is held ransom by some provider, whether it’s Facebook, whether it’s Google, whether it’s SAP, whether it’s Salesforce, it’s held in somebody’s cloud. Imagine if that data were on the blockchain instead, and you, the consumer, you, the owner of the data, you, the company that generates the data controls who can see it, when and how. And you officially–you essentially just issue a token to your medical provider when you want to share your medical data, gives them access to read your data, but the minute the token expires, they can’t read it anymore. They’re never getting a copy of that data. Now, imagine I’m a corporation and I have a marketing team, I have a sales team, I have customer service, and I have all this customer data, today t’s all in Salesforce and everybody has to use Salesforce. But imagine if it’s on the blockchain. Some people could use HubSpot, they could use Salesforce, they could use whatever tools they want to access that information, provided I give them access to it. And I think this is the single biggest change that we’re going to see is the essentially taking data back from the providers who hold it hostage today, putting it in the consumer and companies control such that you control who gets to read it, how it’s read, and that data is one hundred percent trustworthy because it’s kept on a blockchain. So whether that is asset and ownership data, which is ideally suited to be on the Bitcoin blockchain, so the title of homes, cars, artwork, all that sort of stuff, or an application on which you network in which you build applications like Ethereum is ideally suited for building applications. You’re going to have all these things kind of developing. And there are going to be many more base level protocols than just Bitcoin and Ethereum, and I think we’re going to see many more that are specialized in nature. If the Fed goes down to the central bank digital currency route, they’ll have their own blockchain. You have Paxos doing this blockchains with banks. So, you know, blockchain is going to be as generic a term as the word Internet is today. And I think, you know, we’re in 1995 in Internet terms. You know, in 1995 you had Netscape, this browser, you had a few websites that actually had some cool stuff, and it may cost you tens of millions of dollars to build a website. You had to buy all this proprietary hardware, all this software. You know, fast forward to 2003 and that disappeared. Fast forward another 10 years and you’re at a place today where you want to start an ecommerce business, you go to Shopify, you’re in business in ten minutes. If you believe in S-curves, which is this concept of technology innovation, it takes 10 years to get to kind of 10 percent of the number that you’re going to get to. And the following 10 years, you have you penetrate the next 90 percent. And I think we are just at that cusp where Bitcoin is now 10 years old, little over 10 years old in general terms. Not since the white paper was written, obviously, because that was 2008. But in application terms, it’s about 10 years old. And we’re now starting to see all these rumblings of all these applications and all this stuff that’s coming to light about use cases for Bitcoin and blockchain and blockchains and general DeFi, all these things. And, you know, the regulatory environment is going to catch up to make sure that this is a safe place for consumers, which is their job. And then I think this thing’s just going to take off. So I am super bullish about the next 10 years. I think we’re going to see this penetrate every industry, but primarily financial services, healthcare and identity, I think, are the top three right now that are the most in need of this and where there’s the most monetary value to be extracted.

Dan Weiskopf [00:43:25] Yeah, I see the insurance company industry being impacted. Absolutely.

Fred Thiel [00:43:30] Absolutely.

Dan Weiskopf [00:43:30] So, Fred, thank you very much for spending the time with me. I look forward to seeing your company grow. It’s going to be very exciting. Keep up the good work block and tackling. We definitely appreciate it and have a good day. Thank you.

Fred Thiel [00:43:45] Thank you. And appreciate your support as always as an investor. And look forward to a great future for all of us.

Dan Weiskopf [00:43:52] Bye bye, thank you.

Fred Thiel [00:43:53] Bye, thanks.

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