Jaime Leverton on The Blockchain Interviews with Dan Weiskopf

Intro Vocals [00:00:01] 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 [00:00:19] Jaime Leverton, thank you very much for being with me on the blockchain CEO interview series. Look forward to having a great discussion with you. For those who don’t know, Jaime is with Hut 8. She is the CEO and she started about, well, just under a year ago. And Jaime, thank you very much for being on the show here. And also, thank you for being, for making me one of your first phone calls when you came on and started with the firm.

Jaime Leverton [00:00:53] First of all, thank you for having me. It’s great to be here. And second of all, thank you for your support. The reason you were one of my first phone calls is you’ve been one of Hut’s longest supporters and we really, really appreciate it. So thank you.

Dan Weiskopf [00:01:09] Well, you know, it’s amazing what you’ve done in such a short period of time. You know, it’s been under year. I think the company has been reconstituted in a variety of different ways. For those who don’t know you, give them a little background on, you know, how you came to Hut 8 and what you’ve accomplished.

Jaime Leverton [00:01:37] Oh dear. I came to Hut 8 through a very traditional technology career path. I started my career at IBM in 2000. And I’ve been in tech ever since. I’ve worked for IBM, BlackBerry, National Bank, and then most recently, in the traditional data center space with Cogeco Peer 1, who was sold to Digital Colony and then eStruxture Data Centers, which is Canada’s largest Canadian owned and operated Cloud Okolo data center provider. And then I came over to Hut 8, yeah, last December. So my career path has been very much on the traditional tech side. Most of my time spent in the data center world. And when I, and a lot of it actually doing transformation in high growth mandates, so going into companies or business units that were underperforming and driving a transformation and growth mandate within them, which is really what attracted me to the opportunity here at Hut 8. Hut 8 had been running with an interim CEO for almost a year. And when I met with the board and really got under the hood and looked at the assets, I thought this was just a perfect opportunity to really get in and grow I think this a hidden jewel of a Canadian tech story. And that’s exactly what we focused on. So I started in December and quickly built a really robust leadership team around me. We’ve kind of reimagined everything in the business, really. How we go to market. We’ve got a brand new website, which was one of the first things that drove me crazy when I got here. And we’ve completely kind of reconstituted our investor base in part by moving dual listing on to the Nasdaq in June, which was just a huge strategic move for us. And we’ve completely upgraded our mining fleet. And we were just under an exahash when I got here. We now have just over four exahash contracted and we’ve got one point four operating in the field today. We’ve also started to mine with GPUs through a strategic deal that we did back in the spring with Nvidia and Dell, so we’ve got sixteen hundred giga hash up and hashing mining the Ethereum network. But actually, we’re paid directly in bitcoin out of the pool through a partnership with Luxor Mining and probably our biggest claim to fame. I haven’t sold a bitcoin since early January. And so hodling has always been part of Hut 8’s strategy, but we’ve really tripled down on it, if you will, this year. And we’re very proud to have the largest amount of self mined bitcoin on our balance sheet of any public company in the world, with over 5000 bitcoin now on our balance sheet, all mined directly with the Hut 8 hash power. So yeah, it’s been a really big year. It’s been a ton of fun. I couldn’t be more proud of the team and thankful to the board for letting us drive are really aggressive growth mandate and our investors for supporting us. It’s been an incredible year, that’s for sure.

Dan Weiskopf [00:05:20] So coming from a technology background, how would you explain exactly what a miner does in terms of how it’s, you know, it is so incredibly important to the overall ecosystem. You know, and I don’t think people often get it, but without the miners, you can’t own any bitcoin.

Jaime Leverton [00:05:46] There’s no bitcoin without bitcoin miners. Yeah, absolutely. The miners are such a critical part of the entire ecosystem, not just because we are the vehicle through which new bitcoin comes into circulation, but we process all of the transactions on the network. It’s ultimately miners that process them, that run the compute that ultimately allows a transaction to get added in the blockchain. But the miners also provide the security. So one of the things that’s so spectacular about bitcoin and the bitcoin network is its level of predictability and security. And that all comes from the mine, the miners and the mining community.

Dan Weiskopf [00:06:32] And just so I have a context here, in the last quarter you were producing how many bitcoin a day or what? What’s the latest data point that you’ve shared?

Jaime Leverton [00:06:45] For Q3, we averaged just over 10 a day.

Dan Weiskopf [00:06:48] Yeah, yeah. And I bring that up because, you know, everybody’s able to track how big this industry is becoming. Right? You know, right now, I think bitcoin revenues for the month of October were about 1.7, 2 billion dollars for the month. And that’s bitcoin, and then the Ethereum matched that number, right. Now, you do both. So arguably this is like a $40 billion run rate that this industry is, you know, doing right now, assuming obviously so everybody has like the proper disclosures. Bitcoin stays at current prices, difficulty stays at current levels, et cetera.

Jaime Leverton [00:07:35] Neither of which will be true.

Dan Weiskopf [00:07:36] Neither. We don’t know which direction either one will go. Well, you know, difficulty is probably going to go higher.

Jaime Leverton [00:07:44] Well certainly, I don’t think any of us predicted the trajectory the difficulties got this year. Obviously, with the Chinese exodus of bitcoin miners, we saw a dramatic plummet in the global hash rate, which was very, very good for mining economics for the rest of us participating in the network in the third quarter. Certainly wouldn’t have predicted that coming into this year and then now we’re almost at pre exodus levels again with the global hash rate. So it’s something that is just incredibly, incredibly dynamic.

Dan Weiskopf [00:08:18] So what’s your vision for the future in 2022 and beyond? And how big can this industry become, however you want to measure it, by the way, it makes me, you know, good to think about revenues. You might have a different metrics to focus on.

Jaime Leverton [00:08:36] I don’t, I guess I don’t really think about it in those terms. I don’t because we’re not a pure play minor, not a pure play bitcoin miner, I should say. We mine bitcoin, we mine Ethereum. We also have a hosting component to our business. Because we have this large bitcoin stack, a portion of it, we put to work for us to generate a yield based revenue through our relationships with Genesis and Galaxy. We’re now an authorized repair center for micro BT, which is a new line of revenue for us and brings us that much closer strategically to our supply chain. So I spend all of my time thinking about our business and how we’re going to grow with the different kind of a diversified strategy that we’ve built out and how that mix is going to evolve over time. I don’t think about the pure play bitcoin mining world and what it’s going to do outside of the fact that global network hashrate, I believe, is going to go up. There’s so much excitement coming into this space. There’s a lot of capital in this space, and so certainly all of that will inevitably drive up the hashrate and therefore compress the margins in this space. And so that’s what I spend my time thinking about. How do we best balance the business so that we can ensure our long term profitability regardless of bitcoin margin compression?

Dan Weiskopf [00:10:18] You know, that rings a little bit of a bell in my head. I hate people calling it the mining industry. You know, in the ETF marketplace, we made the mistake of calling things smart beta, right? Well, let’s be honest, that’s a stupid label, because who would ever buy dumb beta? That’s always been the running joke for 20 years, right?

Jaime Leverton [00:10:45] But beta is still beta!

Dan Weiskopf [00:10:46] Beta is still beta, right? Let me buy dumb beta right now. No, it’s not going to happen. Is there any way this industry can ever get away from calling itself, you know, a mining because that’s dirty? Right? You know, processor. You know, why can’t we just call it processors? You know, crypto processors?

Jaime Leverton [00:11:05] I know. Look I think it’s too late. I think the ship has sailed, and mining is what it is. It’s the term that we are living with. I don’t think it was the right term, I understand why it was created that way. It’s all analogous to the mining of gold and bitcoin as digital gold and kind of trying to replicate the process that makes it difficult and capital intensive, which I’m all about. But yeah, I don’t think mining is going anywhere. It’s I’m giggling a bit because at the Bitcoin Mining Council, different topics come up when we get together as a group, and this one was one of the early topics raised. Can we change this term because it can be somewhat misleading and confusing, especially to people that are new in this space? And ultimately, I just don’t think it’s possible. We’re just too far down. It’s 12 years old, then it is what it is, but it doesn’t do justice to what’s actually happening in the field. As you can see behind me, these are their data centers. We’re not digging in the ground. It’s all above ground. And ultimately we’re just running giant server farms. That’s what they are.

Dan Weiskopf [00:12:24] Yeah, yeah. By the way, you know, there was something called junk bonds, and now they’re called high yield bonds. It’s the same thing. We somehow made the shift, you know, on Wall Street? But…

Jaime Leverton [00:12:43] That was a rebranding exercise.

Dan Weiskopf [00:12:44] Well, you know, anyway, I unfortunately, I do agree with you if you do hard and I think some of the ESG players would come after all of us for trying to dodge the bullet. So as a different question, what’s your favorite analogy for how much energy is used by crypto miners? You know, bitcoin miners, whatever you want to call them, is it, you know, right around Christmas time, right? So maybe it’s the trees, you know, the Christmas tree usage.

Jaime Leverton [00:13:15] The fact that Christmas lights to use more than a small country, which is analogous to the amount of energy used by bitcoin miners? Yeah, I do like that one. I also like the one that says bitcoin mining uses less energy than all of the ghost technology in our houses. So your TV that’s sitting there turned off, that. Those devices that we all have in our homes use more electricity than bitcoin mining. There’s lots of good ones out there. And certainly I think the mining council’s done an incredible job of getting objective data out there and speaking about it from a fact based industry perspective. I think that’s helped a lot.

Dan Weiskopf [00:14:05] Yeah. Along the same lines, you know, ESG is important. We kind of poked fun a little bit ago, but ESG is critical on a lot of different levels. And let’s break it down a little bit. I did an interview just yesterday with somebody who’s very involved with bitcoin, and for him, bitcoin represented freedom, right? You know, and I don’t think that here in the U.S., that’s fully appreciated by many. And that’s a shame. But, and we don’t need to be high and mighty right here, you know, break down the ESG by social and governance, if you would a little bit on how you view it.

Jaime Leverton [00:15:01] I think Bitcoin represents an opportunity for independence, particularly for nations that have experienced periods of hyperinflation time and time again. And I think for all generations, I think about our kids. You have two kids, I have two kids. They’re digitally native. They live in a digital world more than especially in Covid times more than they lived in, you know, the real world, if you, if you call it. And so I think about how they perceive value, how they look to store value and what bitcoin represents for anybody who really wants a store of value that can’t be centrally manipulated, can’t be centrally controlled. There’s nothing else in human history like it. And I think for anybody who really needs that source of long term protection of value, it offers something that has never before existed. And bitcoin, the fact that it lives completely without central control, and it is fully liquid 24 hours a day, seven days a week in every corner of the planet with an internet connection. That’s all you need.

Dan Weiskopf [00:16:45] And Ethereum, different view though, right?

Jaime Leverton [00:16:49] Yeah. Ethereum completely different view. I have gone so far down the rabbit hole this week. The metaverse and NFTs and Web 3.0. I really had to dig myself out because I got a bit lost down there. The amount of talent coming into this space, the excitement, the energy, the like, raw innovation that we’re seeing come into this world. And I again, I’m giggling a bit because bitcoin, you know, I have a passionate love affair with bitcoin, of course. And I think there is no substitute as a store of value long term to bitcoin. But it kind of feels like the brand bar like bitcoin has been around so long now, it’s old news and all of this energy and momentum is really coming into this new world of what is Web 3.0 and what does a world look like, where the individual lives and owns their own data and is the center of it. And we’re not giving ourselves up just to central control. Within a web world, once you start really imagining what this could look like and where it could go, that’s when you realize we are so, so, so early. And I think so much of this is really like bitcoin has built the raw foundation for all of this to get built on top of it. And we’re really just starting to see where it’s going to go. So anyway, I can’t even remember why I went down that rabbit hole, but it’s really, Ethereum, you asked me about Ethereum.

Dan Weiskopf [00:18:33] I sent you there. Yeah.

Jaime Leverton [00:18:33] I went straight to Web 3.0 and the metaverse. Yeah, I was shopping for digital property for myself anyway. So it’s I know we’re going all the way down, Dan. I completely got lost down there.

Dan Weiskopf [00:18:49] OK? Just everybody knows that was a personal adventure was not a Hut 8 adventure.

Jaime Leverton [00:18:57] That was a personal adventure, it absolutely was. But you know, there’s just so much positive energy and momentum here. It’s a real blessing that all of us get to be part of it.

Dan Weiskopf [00:19:10] Yeah. Now, having said all that, you did make that controversial decision, right, to diversify away from just doing bitcoin mining. Right. When I interviewed Saylor, by the way, I asked him if he would consider diversifying and I thought, Michael Saylor, by the way, I should say, I thought I had asked him to commit heresy.

Jaime Leverton [00:19:38] He’s a purist.

Dan Weiskopf [00:19:39] He’s a purist. Yeah, and he was right, by the way, I’d say that he was right. He goes, Dan, your mandate is diversification. My mandate is bitcoin, you know? You know, so Jaime’s mandate as CEO of Hut 8 is what right? Because you’ve diversified the company, which frankly, I was thrilled about because it makes your company more interesting. And from our vantage point, I wouldn’t say less risky, but well, to some degree, less risky. Right, just because bitcoin may not always go up. Right? And you know, Ethereum might outpace bitcoin, and then I’m going to throw the other curveball is, are there any other ways to diversify?

Jaime Leverton [00:20:32] Well, I mean, so first of all, I just think we have softer edges.

Dan Weiskopf [00:20:38] I like that.

Jaime Leverton [00:20:39] Secondly, we’re already diversified in that we, as an authorized repair center, we have repair revenue, as a hosting provider we have hosting revenue, with our stack we earn yield. So we have those kind of three other sources of revenue in addition to our self mining. And just like to put a very fine point on it, we mine the Ethereum blockchain, but we get paid directly in bitcoin and it’s bitcoin we put on our balance sheet. And really, that strategy is more about making sure that we have some diversification and protection from bitcoin mining economics, because as those mining economics get compressed, they get compressed at a rate that’s different from what’s happening on the Ethereum blockchain or any other blockchains that we might choose to mine one day using those that GPU compute. But again, because of our partnership with Luxor’s Mining Pool, it really it’s almost agnostic as far as where we apply that hash rate in that pool. Ultimately, we’re doing it to get paid in bitcoin, and that compute uses an exponentially smaller power profile than our ASICs do. So that 1600 giga hash, we’re running with less than three megawatts of power. So our operating expenses to produce a bitcoin today by mining the Ethereum network, we’re looking at less than three thousand bucks purely from a power cost perspective to do it through that side door, if you will. So again, it’s about protecting long term shareholder value and thinking about where things are going to be six months from now and 12 months from now and making sure that we’ve got some softer edges for the challenging markets. And of course, we know the challenging markets we lived through the bear market we were born end of 2017 started trading on the venture exchange in eighteen. We only moved up to the big board in 2020 and then again to Nasdaq this year. But the bear market was incredibly challenging. Not a lot of miners survived the bear market, as you know. One of the fortunate things for us was we had a stack of bitcoin, which we were able to leverage to raise capital to get us through those tough times at the end, right after that having. And a lot of people that survived did so because they had diversification as part of their strategy. Most of the true pure play miners didn’t make it through the last bear market. So I think we’ve got the scars to prove that cycles can really hurt, and we’ve got a keen eye to thinking about how we we build a company that can weather all of the cycles.

Dan Weiskopf [00:23:36] The hosting is an example of what you’re talking about. So when you look out a couple of years from now, how do you plan for your capital allocation between hodling, you know, raising capital, using your shares, borrowing, because you’ve been very robust on that effort as well. And the hosting, I mean, you’re going to make less, potentially less margin hosting, right? But it’s less risky. You know, by the way, do you have more capacity on the hosting because like I got a customer for you.

Jaime Leverton [00:24:15] No, unfortunately not. I’m short on power, although our third sites under construction, as you know. And so look, it is more art and science right now. I like having the ability to to be fluid and to kind of shift up and down as the market dynamics shift in the margin dynamics shift. I think that’s one of the things that’s really important in a business like ours. We have optionality and we can pivot in a market that’s incredibly dynamic and we do not control a lot of the major input. So being able to to be fluid, I think, is an advantage that has served us well and will continue to serve us well. And that’s another reason why I love that we operate our own infrastructure, it’s all Hut 8 employees that run all of our sites, all of our compute. We do all our own onsite repair and maintenance for our own equipment. So we very, very much are in control of our destiny, which again, I think it feels right.

Dan Weiskopf [00:25:26] Feels right, so here’s a question for you. Maybe a little bit of an impolite question. So forgive me, OK. You know, governance is really important, you know, these days and you guys, you know, have changed and evolved. You’ve pushed forward a great culture at Hut 8. Here’s the awkward question. You as a woman, are you-

Jaime Leverton [00:25:57] You noticed?

Dan Weiskopf [00:25:58] Yeah, yeah. Make fun of me, that’s fine. Are leading an important company in an industry that is really just beginning. You know, how do you keep the momentum going for women who might be inclined towards this industry?

Jaime Leverton [00:26:18] Oh gosh, I highly encourage. I’m very active, it’s no secret. I speak a lot about the need for more women in STEM fields, STEAM fields now, more women in leadership, young girls getting comfortable and curious around tech as early as possible in their education journey. I’ve been using this analogy now for at least five years. Starbucks considers themselves a tech company. If Starbucks is a tech company, every company is a tech company and this industry is really just the next wave of innovation in tech. But tech is everything. And I think it’s just so critically important that we create the space and energy for everybody to be an active participant in this world and to see themselves here. And it’s been really incredible. I think certainly when the board hired me, they had a very open mind as to who they were bringing in. I don’t think they had any intention of specifically hiring a woman. But one of the things that I’ve seen happen over and over again is women go into a leadership position and the composition of the rest of the company slowly starts to change as well. So half of my senior leadership team are women, and they’re both my head of regulatory, Tanya Woods, and Sue Ennis, my head of investor relations have been in this space for a long time. So I consider it a real blessing that I was able to bring women onto my team who are also experts in this field already. And so we don’t we don’t worry about how we keep the energy going. We worry about how we can sneak in some more naps because it’s such an exciting time and place and there’s so much positive stuff happening around the business and around the industry. It’s all just like we’re trying to make sure we take a few moments to breathe along the way as well. And then our board, we’ve got 40 percent diversity on our board as well now, which is fantastic. But it happened very organically and even at the site we have two women working on site, which it’s difficult to find women to work in these site roles. And yet here they are. It’s incredible.

Dan Weiskopf [00:28:51] Well, it looks like you’re in the middle of the desert. It would be difficult to find anybody there now.

Jaime Leverton [00:28:57] It’s Aberta, we love it. It is flat, dry, cold and absolutely perfect for mining.

Dan Weiskopf [00:29:06] So my wild card questions that I always like to ask at the end of these meetings is, you know, looking out 20, 25, 20, 30, what do you think people are going to look back and say, God, you know, it was so obvious, why didn’t I do this? You know, at the time.

Jaime Leverton [00:29:30] That’s such a hard one, because it’s not obvious when you’re in, when you’re living in the present moment. I certainly think, well, look, you’ve got me on a on a weird week because I’m so far in-.

Dan Weiskopf [00:29:47] Down the rabbit hole.

Jaime Leverton [00:29:50] So far. So far down. Yeah, it’s probably going to be something crazy about NFTs, like why, I already feel like I haven’t done enough to like secure positions on the NFT side of things. So maybe that would be what it is because I’ve been so focused on bitcoin and the business, I think I did kind of look away from what else was happening in this space and where this momentum was building and why it was building there. So, yeah.

Dan Weiskopf [00:30:26] OK, I’ll go with that, that’s fine. And then what industries are going to be most affected by, you know, blockchain? Putting aside financials, because that’s only too obvious.

Jaime Leverton [00:30:40] Yeah, well, certainly Web, anything, anything to do with web, social media, I think is going to fundamentally change, I think. Probably art, culture. I think we’re going to see a bit of a renaissance period coming as this again, as 3.0 gives new economic realities and ability for like true legacy transfer to the arts. I think it’s going to just drive this, this proliferation of creativity, excitement and output in the arts that we’re probably long overdue for. So I’m super excited to see what happens in that space. Obviously, the financial industry is an easy one and how charitable giving too. I think we’ll probably see some really fun innovation in that. I clearly I’m a giant optimist, right?Everything is just like positive upside. Look, it’s not going to be pretty. I think the volatility is certainly here to stay as we kind of evolve into a new normal. But It’s going to be really fun.

Dan Weiskopf [00:32:03] So enjoy your Thanksgiving, are you, do you?

Jaime Leverton [00:32:08] I’m Canadian, Dan, you missed my Thanksgiving!

Dan Weiskopf [00:32:12] Oh, sorry. I knew you were Canadian. But I just figured you’d hang out with the family anyway.

Jaime Leverton [00:32:17] I will, I’ll hang out with my family for sure. But we’re like full into Christmas mode already up here.

Dan Weiskopf [00:32:24] Thanks for doing the show. Like I always say we do appreciate all the blocking and tackling you do as a CEO in building shareholder value.

Jaime Leverton [00:32:36] Thank you so much. Thanks for having me.

Dan Weiskopf [00:32:39] Bye.

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