This is the transcript of Bitcoin Infinity Show #137 featuring General Kenobi! If you'd like to support the show and check out some of our work, visit https://bitcoininfinity.com for all our books, merch, and more! # Introducing General Kenobi **Kenobi:** General Kenobi, welcome to the Bitcoin Infinity Show. Luke, thank you. We are nearly all completely Star Wars themed, actually. Darth something, I guess. to the enemy! **Kenobi:** Well, you're General Kenobi, specific Kenobi, as a very smart man said. **Knut:** But, really, why are you General Kenobi, and who are you, and give us the TLDR on General Kenobi, Obi **Knut:** long do you want the TLDR to be? Well, you don't have to go into the Clone Wars and the midi chlorians and all of that stuff. **Kenobi:** you can just give us the I'm in. Tatooine, me and Anakin. **Knut:** into the cave and when did they promote you as a general and all that? **Kenobi:** The funny story with General Kenobi is when I chose the name, I had no idea it would ever become something. I just thought it was going to be another pseudonym on Twitter that does nothing. I didn't expect me to do anything with it. **Kenobi:** So then when I first received the first email with like, Hey, General Kenobi, cause I wrote like a thing for a Bitcoin magazine. And then they like, there was some emails back and forth. And suddenly I saw something about it. Hey, General Kenobi, could you please? And I was like, that's, that's serious. **Kenobi:** Like what the, what is going on here? Like that's serious. You know, like. Why not my real name or my, my as I like to call it my government name. But, I mean it all started back in, well, of course Covid, I'm kind of young. I'm like from 1999, you know, I like to say best year in the world, you know, like, because it's before 2000, but if I get to live two, the two, if, if I get to live to 101 years, then I have lived in two millennia, three centuries and, you know, **Knut:** Wait a minute, so you grew up with, like, the Disney Star Wars and, like Yes, yeah. Oh, my condolences. With a prequels, okay. **Kenobi:** Yeah. So with J Jar, Darth, Georgia. **Knut:** Oh, yeah, yeah, yeah. And, what's he called? George R. R. Abrahams, who made the Disney, right? Yeah, so the, this is, see if you agree with this list. It's, number one is Empire Strikes Back, which is like a superb movie. **Knut:** Number two is the original Star Wars, which is a very good movie. Number three is the first half of Return of the Jedi, until the fucking teddy bears show up, and then it starts sucking. Like, the Jabba's Palace thing is superb. Then the fucking Ewoks show up and it sucks, and every other Star Wars thing after that is complete bullshit. **Knut:** I agree with that. **Kenobi:** I disagree with the Ewok thing, cause I was like 7, 8, 9, 10 when I saw that, so the Ewoks were the best thing ever, so, you know, you saw those creatures and they're like some, like quirky but also like effective, like you see them like smash the **Kenobi:** Oh, yeah, yeah. with the thing, and it was super fun, I thought that was, I loved it when I was little, but I understand if you had a **Kenobi:** we'll do an interview with you again when you're in your thirties and then it'll be like, yeah, you're right. Looking back at it, it wasn't the best. Like they could have cut it down. Right. But they'll come in the future. For now, I'm still in the phase of like loving it, **Knut:** **Knut:** no. **Kenobi:** love it. 'cause usually I don't talk to Star Wars people just, okay. General Cano, that's it. And they just leave it there. I'm like, there's so much talk there. Anyway, also like the whole like, like against the empire, you know, and the rebels, like we're basically the rebels dispersed, decentralized around us. **Knut:** Bitcoin is the photon torpedoes fired at the Death Star's fucking core. That's what Bitcoin is. chances that Satoshi Nakamoto would fire right he used the force. **Knut:** it **Kenobi:** Exactly, yes, with a bit of the force, and now we're here all, fighting against the second Death Star, so to speak. **Kenobi:** Wait, what's the analogy there? **Knut:** the fact that Satoshi Nakamoto was the first one to throw the first one, like, it destroyed the first death star. So like kind of gave us the first opportunity to keep fighting back. That's the block size **Kenobi:** that's how I see it. **Kenobi:** No, the first one, right. that's when we got the first like victory over, **Kenobi:** Satoshi Nakamoto was the first one to throw the torpedoes. Cause it was so impossible, right. To like hit it exactly, **Kenobi:** make it that perfect. You know, cause I recently read the book by Aaron Van Weerdum. I never know how to say his last name, but I'm sorry, Aaron. **Kenobi:** and first of all, absolutely fantastic. And when you get to the end, I loved it because it was like, like it was a long book. It was, and it was proof of work. And then at the end. You just feel ecstatic when Satoshi Nakamoto like releases it. It's like, yes, finally. So that was **Knut:** We figured it out. **Kenobi:** how I felt like that moment was the, the torpedo. **Kenobi:** That's why I say Satoshi Nakamoto destroyed the first That's how, yeah, yeah, yeah. Alright. but Hey, at the end of the day, it's like art, you know, like, it's in the eye of the **Knut:** It's like poetry at rhymes, **Kenobi:** But we're never going to get there. # Kenobi's Story **Kenobi:** So TLDR, COVID hits. I was studying economics in Barcelona, fiat economics, of course, mainstream economics. **Kenobi:** you weren't studying **Kenobi:** exactly. COVID hit and I had already been thinking funnily enough about like. Retirement. Even though I was only like 20, 19, I was really thinking about retirement because I knew what inflation was. **Kenobi:** I knew what also what compound interest was. And I was thinking about retirement. I also knew enough about investing that I knew that at my age going for bonds and that shit would not cut it. Like if I wanted to like get a pension at some point, because we have, we have also studied in class how the pension system in Spain, we're just going to get a, thank you very much. **Kenobi:** And that's it. My parents are gonna get like, perhaps a coffee paid, but, I'm not getting anything. **Knut:** damn good in Spain though. **Kenobi:** It is, it is, but still, they worked their entire lives, and they deserve a bit more, but anyway. So I was already thinking about myself, and I was like, I need to figure out something that is high risk in the short term. **Kenobi:** High risk, of course, volatility is high risk, but whatever, you know, at that point, that was my fiat thinking, let's say. and of course, as I went down the risk curve, the thing that is the riskiest, but also has the highest reward and long term kind of like, let's say, It has the best Shar P ratio, risk adjusted Shar P ratio, so returns is Bitcoin and cryptos. **Kenobi:** Of course, I got started with the blockchain, not Bitcoin phase. I even fell into some Ponzi scheme in Spain, very famous Ponzi scheme, Nimbus Capital or some shit like that. Yeah. Looking back, like, I'm like, how dumb was I, but, but I guess that's the price to pay, right? I call it my thousand euro master, which back then that was half of my net worth. **Kenobi:** I didn't have much more and I put a thousand euros and then yeah, when it hits up, let's say, yeah. So it cost me half my net worth, but I was also 20 years old. So it was, it was a cheap learning experience, even though expensive for the time, you know, had I bought Bitcoin, I still remember. I bought 0. 1 Bitcoin when Bitcoin was at 10k and I sent it to this Ponzi scheme. **Kenobi:** Later on, I had to fight for six months to get that **Knut:** You were in Cloud City and Lando sold you out to Yes, exactly. To the Darth Vader. No, not our friend land. Not our friend. Lando, of course. No. Lando Roth Bar. That's another Lando shopping. Bit Lambo. **Luke:** Yeah, we should get you and Lando. And are there any other Star Wars Nim out here? **Knut:** I think **Knut:** Obi yes. **Kenobi:** It's Obi Kenobi, right? **Knut:** Well, hey, welcome Obi Kenobi. **Luke:** we, do we know? Do we know A one? Juan. **Kenobi:** Juan, that's a **Kenobi:** Juan Kenobi, we'll have to come with Mexican and mariachi stuff, Obi **Kenobi:** and you started Star Wars Mariachi band, like in Roca, but with a Spanish spin, in next Rocamoto, the Obi Juan Kenobi Knut, **Knut:** great idea. **Luke:** I mean, yeah. **Knut:** yeah, he does, play the, good mariachi guitar Yeah. Or one of those, Mongolo flutes they have in Star Wars like that. **Luke:** yes. **Knut:** Sorry, we keep **Luke:** sidetracking you. **Kenobi:** Anyway, **Luke:** your story.   **Kenobi:** I was at the point of, blockchain, not Bitcoin. I thought I had found, Oh yeah, blockchain is the thing. And around May of 2021, more or less, I actually told my dad, Hey dad, I think I figured it out. I want to get into the crypto space and the, and the, you know, blockchain and, Oh yeah, you know, because it's the future. **Kenobi:** Of course, I still had lots to learn, So has it, life so has it, that at that point, my dad, like two, three days later Talking to a friend of his at work. Apparently his coworker, blah, blah, family member, blah, blah, blah. I was working in a company out of Germany doing, AI, crypto and GPU stuff. **Kenobi:** And when I was little, yeah, like all of the buzzwords combined together, you know, just shake it up, have a nice cocktail and see which investors drink that Kool Aid, right. but he had the contact there and like, my dad was like, Hey, watch out, my son is right now doing this. he sent over the information to me and it kind of like fit perfectly. **Luke:** I studied economics. It was an investor relations position. It was a GPU H high performance computing thing. When I was 15, I built my computer since then. I was like kind of like a computer nerd, you know, I'm a PC master race. Me too. **Kenobi:** You too? PC Master Race. That's the way. **Kenobi:** so, you know, the GPU thing was like, okay, check. And I had also been not just investing in crypto as much as actually like learning about the technology and like, okay, how does blockchain work? What's the, what is SHA256? What is cryptography? Yeah. I mean, in a way, it actually helped me to halfway, I was halfway to Bitcoin, right? **Kenobi:** Cause some of my friends, they just like, Yeah, dude, I'm into crypto and they would just put money in and I was like, but what are you, do you even know what an AMM is? Do you know what a like different blockchains are? Do you know how these things work? And yes, it was a bit very much crypto bullshit, but at least I was like, no understanding, understanding the technology, right? **Kenobi:** And freedom and blockchain, all that stuff. And, and then when they saw my profile, they were like, yeah, why not come in? And during those two months, I actually didn't have too much to do. It was in Germany. I got in and I was expecting a fully Bitcoin company where I was going to learn a lot. **Kenobi:** I was the third person out of 60 in headquarters that knew about Bitcoin and I was like, okay, I guess there's something for me to do. So I decided to do a presentation on what Bitcoin is and how it works because I saw my colleagues over at Legal, at Treasury, at, you know, Finance. Yes, they understood that Bitcoin existed, but they didn't know anything about it. **Kenobi:** Basically, just like, you send it, you receive it, and it's apparently worth dollars, right? That's it. But I was waiting for the day that the treasury guy sends like 20 Bitcoins out into nothingness because he fat fingers an extra C or B at the end of the address. And then he's like, where's the helpline for Bitcoin? **Kenobi:** Can they send the Bitcoin back? So I was like, okay, let's do a presentation on Bitcoin. And while I was doing the presentation, the day, I still remember it, it was like clear as day, the day I understood proof of work, proof of work clicked for me. Also, it's necessary to say I was working in a, it was a Bitcoin miner with also Ethereum mining. **Kenobi:** so yeah, with that information, people should also know. And I'm not going to be able to like triangulate which company I was working for. but I'll let them do their proof of work. Everyone needs to do proof of work, right? # Proof of Work vs Proof of Results **Kenobi:** But the day I understood how proof of work works, which is a bit of a mouthful, but you know, like I still remember it, dude. **Luke:** I leaned back. my brain didn't shut up for three weeks. What was it that did it for you? Cause this is, this is something that, that I think some people don't even still get it. What did it for you? Bitcoin, **Kenobi:** I think it was the fact that. it's actually an understanding that that is bringing money back to reality in the sense that **Knut:** that. **Kenobi:** everything in the world that is worth anything, it has proof of work inherently. You just, the moment I see someone that is fit, proof of work, I know it. **Kenobi:** Even if he took steroids or anything, there's proof of work that he hit the gym. **Knut:** Yeah, I'm going off on a tangent here because we're trying to promote the concept of proof of results in the book because I think proof of work is misunderstood. **Knut:** the big, proof of work is misunderstood in the way that, all the other work, the only work that matters is the correct hash. So it's actually proof of proof of work because, **Knut:** Like, you assume that the work was put in because the odds that it wasn't put in are so high, And the same is true for, everything, like, you get these Bitcoiners that think that just because they do the work, their work is valuable somehow. Like the guy that's writing the word Bitcoin, 40, 000 times in a book or something. **Knut:** like, yeah, but nobody asked you to do that. The market didn't ask for that. so what's true in real life is the results. that's what actually matters. and we use the, example of. bill Murray, for instance, the actor who made a whole career outta not giving a fuck. **Knut:** It's wonderful. Like, I love the guy. but it took work to not work that much. I guess , but it's the result that matters. and that's what we're trying to promote. And even in Bitcoin, like everything in Bitcoin is probabilistic. The only, reason that you think that the work was put in is because the hash starts with that many zeroes. **Knut:** So you see that thing in, oh, this guy probably put in a lot of work. And that's also like, why you own **Kenobi:** That's the difference. **Knut:** Well, almost certain. **Kenobi:** But I agree with you. No, no, no. That's what you're a philosopher. **Knut:** Yeah. And, and, and just, just the, to, to finish the point, the, all the other things are probabilistic in Bitcoin too. So the, the only reason that you think that you own the Bitcoin, because you know the private key is because you know the odds that. Someone else knows them is so low that is you practically own them for all practical purposes And the 21 million limit like you you know that that will not change Because the probability that all the bitcoiners will agree on changing it is so low. **Knut:** So everything is probabilistic. Really. # Quantum Physics **Kenobi:** But then you're getting into quantum, basically, you're getting into the depths of, **Knut:** almost **Kenobi:** everything is probabilistic at the day, right? and I mean, that gets into attention of a question that I had cause before getting into studying economics, I actually wanted to do physics and particle physics and go to CERN. **Kenobi:** That was like my dream. But then my dad told me what it actually meant. And that meant sitting in front of a computer 2000 meters below earth, but like, you know, 400 meters below earth and just repeating the same analysis a thousand times. And I was like, **Knut:** No. And Bitcoin is the, like CERN is the particle accelerator for physics nerds, right? And Bitcoin is the testicle accelerator for, for, for Austrian economics nerds, . And that's much more fun. **Kenobi:** Exactly. At that point, I didn't know that, but one of the questions that I had back then, and that gets back to this thing of is everything probabilities or is anything certain is the fact that if you just take. Normal physics, like, Newtonian or Einsteinian physics, let's say, like relativity, higher levels of magnitude than us, then everything is certain. **Kenobi:** Like if I, it's certain that if I threw a ball, it's going to have this with these initial things, then it's going to end up there. But at that point, if you think this way, Then if we knew all of the initial setup for, before the big bang, so all of the, how every particle was arranged, what their spin was, what the direction was, all of that, then we don't have free range. **Kenobi:** We are just the result of that, right? But then when you look into quantum, you realize that everything is probabilistic. We like electrons. They don't actually spin around the nucleus of the neutrons and the protons. They just are in probabilistic. Clouds, like clouds of probabilities in different high levels of energy. **Kenobi:** And that's also when we get into like chips, that's super interesting because now we're hitting, that, well, people are going to think, well, why are we going to get into chips? Does this guy have anything to do with that? But once we finish my TLDR, which is going to be. Very **Kenobi:** long.   **Kenobi:** I'm a Bitcoin mining analyst. So that's one of the things that I get into. Right. and with this thing of quantum and electrons being just like, waves of probabilities, we are now in this day and age hitting The end of the Moore's law of tic tac of every two years, you multiply times two and then you improve and then you multiply it times two, the amount of transistors, right? **Kenobi:** We're hitting a limit on that because now our gates, our logic gates, as they're known, they're getting so small, so tiny that there is a non zero probability that electrons will just jump over the gate and they will not register. So that's actually a problem, right? so, so that's super interesting. And that's leading to now, instead of having just 2D chips, just flat surface chips, they're starting to, AMD is starting to do stuff like 3D chips where they like stack them up this way in the same die size, you can have more transistors, but you're going vertical, right? **Kenobi:** Anyway, Let's finish the TLDR. What do you want to go into? Like **Knut:** Yeah, no, that's it. **Kenobi:** Yeah, wrap up your, and the proof of work tangent, I mean, the only thing I wanted to get at was, like, sort of, what's the, what was the thing that clicked for you, that, that, got you to understand that, But I think what Knut said basically is that, like, when you see someone that is very muscular, for example, that is proof of results. **Knut:** Stop muddling. **Kenobi:** but that's a very scientific thing, right? **Kenobi:** Science, scientists, they never claim anything is a hundred percent true. They just claim it's 99. 99%. It's beyond reasonable, right? Like with the jurors, **Knut:** It's **Kenobi:** the best theory we have at the moment. exactly. And in this case with energy though, it's kind of like obvious. If someone hits the gym every day and you see them later on, there will be results. **Kenobi:** Unless they're like a total tool that like what you said, right? Cause you can just go to the gym. All of these girls just. Lifting one kilo weight. There's no results there. You need to lift heavy, for example. But then that's just one thing. But then in anything else, like if you wrote a book, that's proof of work. **Kenobi:** You had to sit down and do it. Even if it was with AI, you had to sit down and at some point, use calories, use energy to do that. Anything that's worth anything. If we're talking, if we're breathing, if we are walking, if we're thinking, that's watts. And if that's worth anything, That's energy. And what is not proof of work? zero, zero, zero, zero, print. That's made up. That doesn't exist. That's, that's Mickey Mouse economics. You know? And that, the moment you realize that that's how our system works so far, and that's what I realized at the moment, right? Like we have been living with a Mickey Mouse, proof of nothing, proof of stake, if you might say, equal proof of nothing, right? **Kenobi:** A system. And we finally, for the first time, we figured out a proper universally, coherent system. proof of work system, like it aligns with the laws of physics of everything that we do. That was the moment. **Knut:** It ties the subjective world to the objective world. Like, it's the bridge between human action and physics. it's beautiful. **Kenobi:** Only **Luke:** though, right? **Knut:** Only probably. It probably does. Yes, exactly. The thing with probabilistic, it's like, it's connected to free will somehow, and I don't know exactly how, but like, if the universe was deterministic, free will couldn't exist. **Knut:** No, so it's, and maybe it doesn't, by the way. **Knut:** oh, you mean the whole matrix thing, Well, we can't know if it exists, but we have to act as if it does because we have no choice but to have free will, right? So it's a paradox in itself, but like, you're going to love the book, by the way, but let's not get into that. **Knut:** Let's finish the TLDR and get on with **Kenobi:** now on it's kind of like very quick because the moment I realized that like I still had a bag of shit coins and over the next two months I just basically sold them all at a loss or at whatever point. I just didn't care. I realized that better to have some sats than have some whatever shit coins, you know, that yeah, perhaps they're going to pump better and whatever. **Kenobi:** I had friends still in crypto when, when 2RO, 3RO's capital collapsed, when FTX went down. They were like, Oh my God, what's happening with my coins? I was sleeping like a baby. Why? Because my coins were on cold storage and only on Bitcoin. **Kenobi:** That's it. But anyway, so I finished the presentation. I became a Bitcoiner. I presented it to the, team and they were quite impressed. So they were like, would you be willing to not go to college for a while and just work with us? And I was like, a hundred percent, let's do that. **Kenobi:** So I just jumped, headfirst into the opportunity. And over the course of the following year, I didn't go to class. I was in Frankfurt, but I was going to Erasmus in Mannheim. so, I basically did not attend class and I just worked for them, dove deeper into Bitcoin, specifically Bitcoin mining, because, # The TLDR Continued **Kenobi:** the position that I ended up crafting for myself was like Bitcoin mining analyst, which encompasses also, Knowing everything else about crypto. **Kenobi:** But the funny thing is I became like an internal crypto consultants for the company. And anytime they would come to me and be like, Hey, what do you think about starting something with this crypto? I will be like, Hmm, okay. Interesting. Two days later, no, actually no. Without doing any work, I would just get back. **Kenobi:** Like, I don't think it's a good idea. Yeah, exactly. Cause it's, it's a shit coin. **Knut:** Yeah. financial advisor is the easiest job in the world for the next hundred years. **Kenobi:** If exactly, if you're a Bitcoin , it's your work is cut out for you. but yeah, for example, at one point they even came to me, I was like. February, March of 2022. So Bitcoin had already touched 69 K, 70 K. And what's going down peoples, I know, right? nice number . **Kenobi:** they came to me with the helium, like, oh, we should start doing the helium Internet of things. Things, whatever, whatever. And I was like, **Knut:** Helium? **Kenobi:** it was a shit coin. And apparently it was like, if you got a node, which they sent you, it would be like super profitable. You buy for 300 and in two months you've already done 300 whatnot. **Kenobi:** Three months later, it was discovered that they had been lying about their partnerships with Volt and well, you know, with those last mile scooters and with Uber, they had been basically lying about it. And therefore the coin just basically, went to zero **Kenobi:** Big **Kenobi:** who would have thought? I mean, Thank God I told them for some weird reason that it was a shitcoin, but anyway, so then I worked for one year with them. in between, I also started getting involved with stuff like European Bitcoiners, you know, at a European level, but also organizing the meetups in Barcelona, which by the way, you're invited any of you two guys to come to Barcelona and we'll try to get a meetup together. **Knut:** I also love Barcelona. **Kenobi:** and also the meetup has a, Like the whole story of Barcelona and the meetup is quite interesting because there used to be one, COVID killed it. And then somehow we found ourselves again in a new generation, the new guard, as we like to say it. And now we're like one of the best meetups in the Hispanic community. **Knut:** Did Covid sort of cleanse out the shitcoiners? **Kenobi:** Yes. Yes. In a way. Yes. Because a few months after creating the meetup, the new meetup in Barcelona, actually one of the old guard noticed us and he was like, Hey, you guys are doing meetups, right? And we were like, oh shit. He's the original guy. And then he came in and now we're super chill. **Kenobi:** He's part of the new guard, so to speak with us, and he's helping us organize every meetup. he's part of the team. and he would tell us stories of the last couple of years, you know, 2017 to 2019 before covid. And, you know, creative destruction is positive. **Knut:** This is so great because there's an actual evolutionary perspective to, the COVID measures doing an evolutionary thing and making, ANCAPs and Bitcoiners survive better, in the long run. **Kenobi:** What is it, Alan Farrington's, Only the Strong Survive, right? the whole, yeah, 100%. Anyway, so that happens, but then, I was already organizing meetups, part of European Bitcoiners, like, you know, but this thing is a bit of a decentralized, pleb driven, volunteer thing, so it's morphed a bit over the years, because volunteers come and volunteers go, right? **Kenobi:** We don't force anyone, it's like Bitcoin, right? When you do this type of stuff, it gives you so much more perspective for how hard it was the first years in Bitcoin, like trying to get anyone involved. And that also brings new appreciation for how important Hal Finney was. Like, like this man, we would not be here today without Hal Finney, at all. **Kenobi:** Like we owe Hal Finney everything, like, or Ross Ulbricht. Yes. Hats off if I had one for him and for Ross Ulbricht as well, and for Marty Malmy and all of these guys, early guys. But anyway, so it brings you new appreciation. But then I had been already working for them for a full year, I still had my studies halfway through, and a combination of Few things like a lot of social pressure from one end, also from the company, they were like, it's still German fiat company in a way. **Kenobi:** And they were like, we don't want to support someone dropping college. and my family also like, are you sure about this? And the price going down. And I was also tired of living by myself in Frankfurt. So I was, you know what, fuck it. I'll go back to, you know, living the fiat life. my mom cooks, I just clean sometimes and, you know, I live at my mom's house. **Kenobi:** No budget balancing, no whatever, you know, I just live life for a minute, right? So I went back to college. I recently finished my studies, economic studies, man, was it tough because the first two years of economics, I was a, I was a # Fiat Economics Education **Kenobi:** I was full in. I was actually one of the best in my class, but then I became like a mid corner. **Kenobi:** I studied a bit of Austrian economics, I understood the main things, and then I came back and I was like. Aw, shit. **Knut:** I'm gonna lie here. **Kenobi:** yes, yes, yes. Oh, I still remember because I managed to get one of my friends. I turned him into a Bitcoin, I orange pilled him and he was with me in class and we had a macroeconomics 2 class and at one point the teacher, we had something about money printing and whatnot. **Kenobi:** They actually recognized that one of the revenue streams for the government was seniorage, which was printing. And I was trying to, you know, like, It's like poke the bear kind of, into like saying that, Hey, it's basically stealing, you know? and inflation is, comes basically from money printing. **Kenobi:** And the teacher was so adamant about like, no, no, no. And anyway, it was also a weird thing cause like you don't want your teacher to hate you because then the classes were small enough that they would know you and how you write and all of that. So if they wanted to, they could just fail your class all the time and then you don't pass. **Kenobi:** Right. So this power imbalance made it so at one point, me and my friend, we had to just like Bitter Tongues and eat the shit and say thank you and then puke it out the lies on the exam. And that was a great exam. You know, we passed by just lying through our teeth. But anyway, so two tough years. I still want to do the analysis of my grades of like first year. **Knut:** What was my average grade second year? I mean, just unpack that for a minute. how horrible is it that in order to get a degree in economics, you need to admit that theft is not only okay, but necessary? Like it's so vile, it's so vulgar. **Kenobi:** And it's worse than that because for example, many of the changes that were made to the course over the years, weren't properly communicated even to the teachers, at the beginning of my course, I was doing economics and English, not just economics. I'm in Spain, so usually classes and universities are in Spanish, but I chose to do economics in English, it was a smaller set and the teachers, have been doing that for the past seven years. **Kenobi:** And at the beginning, there was a course on, history of economic thinking, so it would present you the Austrian school, the Chicago school, you know, all of these other ways of thinking, right? But at some point between the start of the course and me doing it, they scrapped it and they didn't tell any teachers. **Kenobi:** So at one point I went to a teacher and was like, Hey, by the way, like, when are we going to do anything about Austrian economics? And you know, like the Chicago monitors. Cause I also kind of want to like study the enemy to like properly understand them and be able to refute them. And also study our own things, you know, Austrian economics and also behavioral economics. **Kenobi:** That's something I've been getting more or less into. I mean, my thesis was on Bitcoin and behavioral economics, so that's that. and the teacher was like, oh, you haven't had a class yet? And I was like, that was in the third year, right? After going back. And I was like, no, it was like, oh, there used to be one. **Kenobi:** And I'm like, wait, you scrapped it? And you're not even aware of that? Like the college, they just scrapped it and didn't tell you. And then going back to your question. So that's one of the first things, right? This is like, Covert propaganda of like, we're just going to scrap the things we don't like and keep the things that we like, right? **Kenobi:** And then, I mean, it wasn't that horrible because there was no other way. Like, they build it in a way, they build this world where the answers that the teacher gives you, because you haven't seen anything else, right? The Austrian school doesn't exist, the behavioral economics school doesn't exist, the Chicago school doesn't exist, right? **Kenobi:** So, the only thing, the only economics that is valid and real is the ones that the teacher present to you. And whatever they present to you, that's the truth. And if they don't say, they just say seniorage, right? Oh yeah, part of the revenue from the government. You know, it's, it's taxes, it's, I think it was debt also, even though I was like, but isn't that also taxes in the future? **Kenobi:** But anyway, and then seniorage, which I was like, isn't that also taxes? But anyway, but the teacher didn't say that, right? and they have, of course, the authority in the class. Right. They come prepared with their story. They have their story clear, right? And kind of like properly packaged. **Knut:** There's a Rothbard book called a history of economic thought which is really good if you want to study like the differences in way And it goes back to Greek times. great book   # Bitcoin Mining Analysis **Kenobi:** So you finished your studies, but I assume also this whole time you've been active in the Bitcoin community and all this, and now you've been doing a lot of great Bitcoin mining analysis, so where are you now? The thing is, with the Bitcoin mining analysis, it was usually done for my company privately, so I didn't publish it much. I would just sometimes do commentary, like for my pseudonym Twitter account. now I'm trying to just be on Nostr, which I think, you know what, that's the way to go. **Kenobi:** I would just comment on a few things sometimes, like if someone presented something, I would read it from my work, and then publish some potentially like some responses back on Twitter, like, hey guys, you could have done this, or very good on that and whatnot. And also, compilating a lot of, sources and reports and things that people produce and also producing some for my own company, nothing too high level, but enough that they would have a better understanding of what's going on, so to speak, but of course, private, so that's why there's nothing on Twitter about this. **Kenobi:** So then for the past two years while I was studying economics, I was still going to conferences because that was kind of my escape, that and the meetups from all the bullshit. so going to conferences, if I could get a speaking slot perfect and talk a bit about Bitcoin and whatnot, or what we're doing in the meetups or in European Bitcoiners, the community level. **Kenobi:** And, if not, Just attend the conference and be around Bitcoiners and escape the, you understand it, right? When you talk to a Bitcoiner. There's no preamble. You don't need to tell them anything. They already understand. They're there because there's proof of **Knut:** You can skip the formalities. **Knut:** You're on the same level. And even if you disagree, there's still a base fundamental thing that you agree on. they're above a certain number of thresholds already **Kenobi:** exactly. And you know that this person has done at least a certain amount of work because there's nothing worse than someone that has just eaten propaganda that comes to you and says, Oh, but you have no idea because the TV said, and I'm like, That's your only source of information, the TV. **Kenobi:** So, and then you cannot have real conversations about like anything that's happened over the past four years, or let alone 20 years, 15, 50 years, right? Like nothing. so anyway, going to conferences was my, my escape and, yeah, that's, that's also why I'm here now, to escape from that type of, you know, Life, so to speak, but at this point, well, the last semester, they, my company called me back again, like, Hey, Kenobi, would you like to Come back on board, start working for us again. **Kenobi:** And by the time you're done, be full time with us. And I was like, why not? Let's do it. I mean, this way I can get some sats, you know, keep stacking sats. and potentially I could also go to a conference with my company and whatnot. This way, I don't have to pay for out of pocket. I don't have to burn sats myself. **Kenobi:** once I graduated, I decided, you know, I've been long enough with this company. let's see what's new, what's out there. # Decentralizing Mining **Kenobi:** And now I'm working for the past kind of week and a half, cause in Lugano, we actually shook hands on it for demand pool. The first Stratum V2 pool out there. So helping decentralize Bitcoin proliferate nodes. **Knut:** Cause the idea is to have a node on every miner. People don't know this yet, but miners, they don't have nodes. Yeah, let's really dig into this, because honestly, this is a big area of discussion for us generally. We've had a lot of guys from Ocean on, mostly just Mechanic actually. Yeah, but we've had other ocean proponents on **Luke:** Yeah, exactly, and I mean, we're really big into this whole mining decentralization thing and miners being able to select their own block template and all this. **Luke:** And so, can you explain anything and everything about Demand Pool, Stratum V2, I'll leave it up to you to organize it, **Kenobi:** Yeah. So from what I know so far, Stratum V1 was created in 2012 and Stratum V2 was proposed just a few years later in 2014 15, if I'm not wrong. In 2018, Matt Corallo came up with BetterHash, that was the improvement to Stratum V1 or Stratum at this point, because there was no Stratum V2. **Kenobi:** but it had a few missing pieces, so it didn't go anywhere, but it helped set the stage for like, hey. We actually need to start worrying about this. And then around 2020, 2021, the proper stratum V2, initiative was started. **Kenobi:** The SRI stratum reference implementation. And it was a collaborative effort between a few independent, Coders, Brains and Matt Corallo, as far as I'm aware, please don't trust Verify, right? that's the story I know so far. I've only been working for Strataview 2 for the past two weeks, but I've been following on and off for the past two weeks. **Kenobi:** That's why I'm kind of aware of it to this degree. and then for the past three years, they've been working on setting up the basis and also figuring out all the problems with implementing it, like kind of game theory, like wargaming it, like game theory, like how it pans out. **Kenobi:** Because at this point the current setup is basically, Pools have kind of a lot of power because they create the templates and they also manage the payments. and miners, yes, they have power in the sense that they can just switch pools, but at the same time, when half of the pools are just proxies for the two biggest pools and the other half of the pools, they are, let's say the same, but with a different color. **Kenobi:** Right, because at this point, it's FPPS only everywhere, and to be honest, FPPS is dying, and it should die, in my opinion. And the biggest winners will be miners, because they will get paid more, when that's the setup, miners don't really have that much power. Like, Oh yeah, but they can just redirect the hash rate. **Kenobi:** Yes, they can. But first of all, there's two types of miners, publicly traded and let's say bigger miners like enterprise miners and say not smaller, but medium to small miners, you know, more nimble, more agile. These guys, yes, they can do that. But the bigger ones, many of them, they have some sort of, let's say Nash equilibrium where trying to get out of it is a bit. **Kenobi:** It's a bit tough, because from a regulatory perspective, from a tax perspective, they are in this, like a false Nash equilibrium, I don't know if you've seen those things of a hill with a ridge and then the ball falls there and it just stays there and it's like a false equilibrium and you just need to get it over to then properly go to the right place from a game theoretical perspective. **Knut:** That's it, right? And that's where they're at right now. It's like a false equilibrium. Too big to fail problem?   **Knut:** It's more of a very big, therefore regulation. and then they have auditors Too big to change. **Kenobi:** they're also KYC, right? Too big to change. Yeah. That, I think that would be the way to put it because they already KYC. **Kenobi:** They don't care about KYC and the only thing they care about is, Proper reporting, proper auditing, and also modifying their tax status like with shortbread, right? In the UK, it's called shortbread and not just cookies, even though they're cookies, because I don't remember, I think it was in the 1800s or 17th century, there was a fight over What it was, because cookies, they were taxed in the UK at like 12 or 15 percent the exports, but bread was taxed only at 2 percent or something like that. **Kenobi:** So they decided to call it shortbread in order to like have lower tax, on or lower tariffs, right? And therefore sell more than cookies. And the same is happening with miners. Most miners, publicly traded ones from a tax perspective, they are not miners. They're just compute providers and the actual miners are the pools, And by doing that. And they become just a data center, like any normal Amazon data center, and then their tax regime, like their taxes, are lower, because if they were, the miners, they would be selling a finished product to the pool, and then they would have to pay VAT on that, right? So Yeah. That's what they do. **Kenobi:** Yes, technically everyone can do that. But, right? but all of this, **Kenobi:** so they're not miners. Exactly, exactly, exactly. And this is like hash salesmen. that's what we've been trying to push that, that kind of explanation for it. Like in so many, that goes deep because you can't really call yourself a miner unless you know what block you're mining on. yes. In a way, but, of course, this is the world we live in, kind of. # FPPS Is Dying **Luke:** Yeah, and so we were on a panel yesterday that went into a whole bunch of current mining trends and all of this, and you touched on one of the points that FPPS is dying, and I really like this, I think this ties into both of these things, like the Stratenvy 2, the decentralized mining and all this, but why is FPPS not going to work? **Luke:** Yes. **Kenobi:** it would be good to start with how pools appeared. Pools appear because there's 144 blocks. The way I like to explain it is every day we bake a pie and it has 144 slices. And then if there's 144 kids, there's a high probability that everyone will get there and get their own piece of pie, right? **Kenobi:** But at some point, if you have a big family and you're 700, some of the kids will go hungry for various days in a row because they're not the first ones to get there. So then they decide to Band together and be like, okay, when you get a piece of pie, you share it equally with all of us. **Kenobi:** And when I get a piece of pie, we share all equally, right? That's what happened with pools. The first one was a slush, November, of 2010. So one year after the creation of Bitcoin, was it? No, no. Two years after Bitcoin mining started. So January of 2009. **Knut:** yeah.   **Kenobi:** but yeah, so that was the first pool because at that point, GPUs were slowly starting to pick up. That was about eight, seven, eight months from when Laszlo Haniek published his GPU, implementation. And at that point, something that most people don't know is that the first GPU implementations, they were not that more efficient. **Kenobi:** they were more powerful. but from an efficiency standpoint, they were actually potentially even worse. They were using more electricity. **Knut:** okay. **Kenobi:** So that's the thing. But yes, for the same machine, you were getting more hash rates. So that's why, how Laszlo Hanye managed to get a lot of coins. But by that point, they Many people had already figured it out. **Kenobi:** They were actually starting to be more efficient, therefore more economical, but there was more competition. And at that point you can go over the Bitcoin talk forums and people like, we're talking about like getting a block every four years. Nowadays, as a solo miner, it's getting a block every 400. So good old times, right? **Kenobi:** They didn't know how good they had it. but that was the first pool from there they created. I don't remember exactly what the method for the distribution like, Oh, you bring in so much work, you're going to get that much amount. what it was, but basically how modern pools work after that one, they had some trouble. **Kenobi:** Some new pools appeared and they fixed on that was basically. The way Bitcoin mining works is you have to find a number that is lower than the difficulty adjustment. You have to think of it like a limbo, right? You go underneath the thing, right? but what the pool does in order to not get all of the trials, because what your ASIC is doing is just hashing once and once, like, again and again and again, and all of them, They have some, let's say they're a proof that they're doing work, right? **Kenobi:** And you want to check that people are doing work as a pool, right? But you don't want to receive all of the trials. Cause then from a data bandwidth perspective, that would be, you will be **Knut:** So you want the computing power rather than the hashes. **Kenobi:** exactly. So what you want to do is you want to get a fraction of the hashes. **Kenobi:** So what the pools do is, yes, this is the, so this low is the difficulty of Bitcoin. So if you get a hash underneath this, like a number underneath this, We are getting bitcoins, yippee, awesome, good times, but we are 50 people in this pool, or 50 entities with varying levels of hash rates, and I don't want to be receiving 400 quadrillion strings of data every second. **Kenobi:** Right? So I want to just receive let's say one, every second from each of you guys. So what I'm going to do is I'm going to give each of you a different difficulty level. And if you get a number that is below that, so here's the Bitcoin mining difficulty, like the whole network, and this pool is choosing client A, we'll have it here. **Kenobi:** And by knowing your difficulty level and how many shares you provide an hour, I can calculate your hash rate. **Kenobi:** And therefore I can calculate what's your percentage of the work. And then, but then of course, you don't want to give a Bidax the same difficulty as fucking Riot. Because Riot, they're going to give you 400 quadrillion strings either way. So then you get different difficulty levels for different miners in your pool. **Kenobi:** And using that, you're going to get, let's say, I'm making it up, but I think it's, usually it's like, 10 shares per second, but I don't know, right? And also every pool can choose a different metric, right? But let's say one share per second. If you have not too much hash rate, they will give you a higher difficulty. **Kenobi:** And then if you have a lot of hash rate, they will give you a lower difficulty. So now we have created the concept of shares. Because shares are hashes that are low enough that you have to submit them. Or not have to, but you're willing to submit them because they're worth something, but not low enough that they give you Bitcoin, right? **Kenobi:** Because they're not giving you a block in the network. So then, every pool created a system like that, and then we get into the first, systems using shares. If I remember correctly, the first one was PPLNS. So per the last, so they're going to look at the last, quadrillion shares provided from all the miners and they're going to see the distribution of them. **Kenobi:** So, okay. You provided this amount of shares with this hash rate. That means that you will get this. When we find a block, we will look back into all of the shares that were submitted in the past four hours. And then we will give you that percentage, right? And if you provided more shares at a higher difficulty, then you're getting more of that block, right? **Kenobi:** But of course, what's the problem with that? You only get paid when a block is found. Because the moment a block is found, they look backwards and they say, How much were you guys working on? then from this block you get this percentage, this percentage, this percentage. **Kenobi:** That's when we get into the thing of variance. There's only 144 blocks a day, and if you're less than 1 percent of the network, so if you're 0. 7 percent of the network, then you are supposed to get one block a day, on average, because there's 144 blocks, so If you do the math, it's around 65 percent. But what happens? **Kenobi:** It's probabilistic. Some days, it can happen, you don't get a block. And it could also happen that the next day, you don't get a block. And the next day as well. What are the probabilities of doing that? You know, then you have to poison distributions and all of that. It gets very mathematical. **Kenobi:** But anyway, I do understand it, but like, how the math works behind it is a bit still like, Okay, it works, but like, I don't understand why, but it still can happen. So if you're not too big, it could happen that for a few days, you don't get blogs, you don't get paid out. So then it feels like, and then there were also ways to play it where if a blog was just being found on another pool, you would jump to that one because of some, anyway, there were some attacks that you could do where you could Scoop off, profitability of pools and therefore start stealing from them, so to speak. **Kenobi:** so then pools and, and, and miners, they started looking for new alternatives. And the one that they came up with and that has been prevalent for the past three to five years has been FPPS. So we went from let's look at the shares that you gave us over the last X hours, once the block is found and then we will calculate it to we will give pay you regardless. **Kenobi:** Why? Because the expected value of any hash is the same. Like any hash could be the hash that gets you a block. It's like with I like to compare it like the metaphor uses the digital marketing, like with advertisements, you know, people, they pay for, they pay a hundred dollars for a million clicks in Facebook. **Kenobi:** They don't know which click will give them revenue, but they know that every million clicks they can expect at least more than a hundred dollars of revenue. Otherwise they wouldn't buy it. so in a way what you're saying is like the expected value of your hash rate, so from a probabilistic point of view. **Kenobi:** is this amount. **Knut:** so FPPS is pay per click, **Kenobi:** kind of, **Knut:** That's the equivalent in the advertising world, rather than a referral, like whenever you get a sale, you, yeah. **Knut:** Yeah. No, that's just how I heard it. Yes.Cause I hadn't thought those steps extra, but yes, it's that, that will be the way to think about it. And it's a very simple calculation. You just get all of the Bitcoin mined per day at this point, 450. **Kenobi:** Plus, transaction fees divided by the total network hash rate. And that's it. You're getting, if you have one extra hash, you should be getting this amount. **Knut:** The problem is that you're getting paid regardless of if the block is found or not. **Knut:** So that were like the, the pools could still have bad, sets of luck, which then means they have to like, it's almost like you're withdrawing from the bank, even though there's no money there. fractional reserve. **Kenobi:** it's worse than fractional reserve. I was, I think it was Alan. **Knut:** It's exactly fractional reserve. **Kenobi:** I would say it's worse. **Knut:** the gold rather Cause they're, they're working on the promise that they will find gold because meanwhile **Kenobi:** With fractional reserve, at least. The gold was there beforehand. Theoretically, theoretically, lots of air quotes. Right. but with this one is like, Oh no, we are sure we're going to get gold. **Kenobi:** Right. Don't worry. just get paid. You're welcome. so it requires a lot of financing. You need to have big bags in order to do all of this, which leads to the centralization, but also from a historical perspective, how it evolved is at the beginning when FPP has arrived, the formulas that we're using were very simple. **Kenobi:** Basically, for example, let's look over the last 144 blocks, aka one day. what was the payout to the average of that? And then that's what your terahash or petahash or exahash. What's worth for the last day, and we'll pay you that amount. That's the expected value of your TeraHash for the past day. **Kenobi:** and they would also be very fair, let's say. They would be very close to the actual expected value. Let's call it 100%. And then on top of that, or below that, they would skim between 2 and 4%. That's the pool fees. Perfect. Makes sense. But as the time went on, they realized that The financing needs were so big on their end and the risk was so big on the pool's end that they needed more revenue to justify it, right? **Kenobi:** Because otherwise they were basically, I would say like picking pennies in front of a steamroller, right? so as time went on, they started modifying the formulas and then suddenly it was not just, Hey, the last 144 blocks, transactions included. So Coinbase plus transaction. And that's it. **Kenobi:** We're going to actually like subtract the last, the least profitable 10 and, but also the most profitable 10 or, or, or they're good and they start playing with that. Right. And then suddenly they, everyone calls it FPPS, but FPPS from this pool and that pool and the other pool, they use slightly tweaked formulas. **Kenobi:** And then also, to a certain degree, you have to trust them that they're doing the formula right. And over time, what started happening is, you know what happens with exchanges, right? Like, like you go there and they tell you, Oh, 0 percent fee, there's no fee. But then there's a spread, you know, that's also a fee, right? **Knut:** so let me get this, see if I got it right. so the longer the time horizon, the more financing you need, but also the more assured you can be that it's, you're actually going to find the blocks, right? Like, because the probability that you will, it just goes up with, with more time. **Kenobi:** Yeah. But also the longer the time horizon, the higher the probabilities that you will have a bad week or a bad month. And what a bad month means is that You got less blocks and then you're dipping deeper into your reserves or into your financing. **Knut:** That's hence the more financing you need, **Kenobi:** so that's where they realized like we need to get more money. **Kenobi:** Like we need to get more revenue because this way the payouts are lower. So there's, we have to pay less out, but also we're creating a bigger cushion in the good times, so to speak, almost like, you know, Keynesian, like, Balancing of the thing, of the, of the government revenues and taxes, right? **Knut:** Keynesian. which is great in theory, but communism is also great in theory. **Knut:** No, it's not great in theory, but let's not go there. **Kenobi:** In theory, communism is awesome. What? Everyone gets everything and they're happy? Now do it. Good. Luck. **Knut:** but it's not great in theory also the theory has big holes like the, Labor theory of value. Yeah. **Kenobi:** Proof of work. Exactly, So, as a Mickey Mouse experiment, communism is wonderful. But, and FPPs as well. FPPs as well. that's the thing. FPPs could be seen as like the communism of Bitcoin mining and pool payout **Knut:** So what's the solution? **Kenobi:** so, the solution is basically, we're Going to see, like with communism, the system fails by itself, right? **Kenobi:** Because what's, what's been happening over the past few years is that as time went on, the spread, like with, with the exchanges, right? They tell you, Oh, 0 percent fee or lower fee than the others, but they're increasing their spread, right? And so you, you put a thousand euros in, but you get, you know, Ninety years ago you actually got 990 euros worth of bitcoin. **Kenobi:** And then two years later, you actually get 980 euros worth of Bitcoin. So, even though they say 0 percent fee, they just paid you 20 euros less. 10 euros less before, 20 euros less now. And that's what's happening now. The FPPS formula is getting more and more successful. Weirder and stranger and more complicated and harder to understand and harder to verify. **Kenobi:** That's something that at the Manpool we're trying to like, change. we have created a system of auditability where the miners, they can actually challenge us and they can check if we're doing our work right and in a public manner, right? if demand pool became 100%, like there was only demand pool, we would be the last suckers because we would have no power. **Kenobi:** Like if Anpool becomes the biggest or Foundry becomes the biggest, ooh, they're KYC, fully controlled, regulated by the government. But if we become the biggest pool, we have 100 percent of the hash rate. It doesn't matter because we don't control the blocks and we can also not steal from miners because at any point they can audit us in a very transparent manner, in a very public manner. **Kenobi:** If we're actually doing something wrong, they'll catch us as quick as, as it gets. # Pools Decentralizing **Luke:** so, do you think other pools are going to start adopting alternatives to FPPS? Because I think this was the interesting point when you said FPPS is, yes, yes and no. Cause there's so much path dependence on the pool side of things. Especially if you're already part of Anpool, like there's pools that they're basically, they started as an Anpool proxy. That's it. That's been their whole business model. They don't know anything else, right? does that work, by the way? Anpool gives them the template, or what does that mean? **Kenobi:** It's an API, basically, to a certain degree. Anpool just says, hey, here's your API, just send it to your, guys. They don't need to care about any of the infrastructure or the coding or maintaining software or maintaining anything, right? as a pure proxy pool. **Kenobi:** Then of course there's also examples of pools that were, PPLNS or other forms of payouts that then move to Ant Pool and I don't know how that works **Knut:** But Proxy is also about the ownership structure of the pool, right? So that the Bitmain owns the pool, but very indirect **Kenobi:** in a debt trap type of way. Because if you don't have our platform, So if you're looking for finance or deep pockets, then you're going to go bankrupt real quick. Yeah. I didn't finish the point about how, FPPS dies. every time they've been getting a bigger, like they've been increasing the spread while saying that the fees are the lowest, right? **Kenobi:** And miners, because it's hard to check on that because the formulas are getting bigger. Harder and harder. They went from making a hundred percent of their expected value, minus 2%. That's a fee to suddenly was 2% spread, which they don't say right, and two, two to two to 4% a fee. So at that point, the minor is getting between 96 and 94% of the value of their hash rate 88 and 94 percent of what their hash rate is actually worth, because the spread has kept increasing. So, the pools are getting a bigger share of the pie, even though they've been giving the same service as the beginning, right? That's why they're justifying it with, Oh, but we're going to give you cheaper financing or we're going to provide you the machines or ride the whole foundry and, and, and pool thing, right? **Kenobi:** Where, Oh, it's the. It's the ancillary services that we provide, right? It's like the support and the after sales support and all of that. so just by its weight, it's already dying because it's taking so much from, it takes so much stealing basically to, to keep up that when miners join pools, like in this case, oceans, and in the future, our pool, they realize, wait a second, I'm getting more money. **Kenobi:** How does that work? Like, aren't they supposed to be filtering high value transactions and therefore we should get less money? No, because these guys, because when you're a PPLNS, PayPair Last N Shares Pool, you don't have any financing needs, because you, you're like a full reserve bank. The moment that a block is found, it goes into your, into your reserves, and a hundred blocks later, because that's also something people don't know, you cannot spend a Coinbase for the next a hundred blocks. **Kenobi:** whenever the miner wants to check out, we already received upfront. You're just getting out what you already worked for, right? There's no, Oh, we're going to pay you in front and we're going to trust that we're going to get blocks later, you know? **Knut:** so let me see if I get this right. Hearkening back to the ad paper click analogy. Yes. So, what we say FPPS is, is paper click. No, it's, it's, it's paper click, **Kenobi:** Yes. **Kenobi:** I sell you a million clicks. **Knut:** Yeah, but you have no way of knowing, like they also take the revenue part, they take your sales profits and you don't know how many sales you got, **Knut:** Yes. they could just be lying about that theoretically. But with a, PLL, you get the, you get the actual, you get the transparency, there are no guaranteed sales, but you see every sale and you see exactly how much you get. **Knut:** Alright, so in a way, it's not FPPS, it's not pay per click, but it's more akin to, okay, you can buy an ad in my magazine for 10, 000 bucks, and you have absolutely no way of knowing how many people saw it, or if it's **Luke:** I can tell, I can give you an average of how many people buy my paper. Right. But I cannot assure you anything and you will not know unless someone tells you how many shoes that you're selling or, No, no, so that they're basically selling your product and saying that this is the profit, but you never see the sales numbers. Yeah. In a way that's a good way to put it. So to kind of pull this all together then, your thesis somewhat is that miners are going to choose to move to pools that are open, transparent, using payout methods that are actually fair, or at least getting closer to the total expected value. And so, I mean, the pools that already exist, how do you think they're going to adapt to this? **Luke:** What do you think they're going to do when the hashrate starts dropping? **Kenobi:** well, something they can do is they can reach out to us at the demand pool and we can help them set up a Stratum V2 pool You know, so they can basically do that with their pool and their miners. And suddenly, hey guys, you're, you're in, now in a stratum V2 pool. And, and we don't have these financing risk and we're not going to go bankrupt tomorrow. And suddenly you don't get your payouts that you work for, for the past three, four, five days. **Kenobi:** Right? so I think that's something that if they want to, that can happen. But if they just want to stick it out and stay at the FPPS, While miners slowly realize the truth that, hey, they're stealing from us. Okay. # Mining In The Future **Luke:** you dropped one more bomb in the panel we had, and I think this might be a good last topic to hit on here. Was that mining is going to stop 10 years. **Kenobi:** Yes. **Luke:** But there was a nuance to that, so can you **Kenobi:** Yes. So I do believe that Bitcoin mining pure Bitcoin mining only will not make nominally financial sense in 10 to 15 years. Nominal financial sense means from a pure balance sheet perspective or PNL perspective of like, I made 10 in and I have costs of 5. **Kenobi:** That's where we live now. In the future, you're going to make 10, but your costs will be 12, 15, right? So from a nominally, like from a pure economic perspective, it's not going to make sense if you only take into account, rational market participants. But of course, if you're a solo miner or a home miner with like just two or five tera hash, and you just want to get some KYC free sats. **Kenobi:** You don't care if you pay 15 and you get 10 out of it, because those 10, they may be worth much more, right, than 15 now. If you do your yearly PNL in 15 years and you're a solo miner only doing Bitcoin mining, it will not make sense. I don't believe it's going to be profitable in the mainstream, in the classical way of the word. **Knut:** Not fiat profitable. **Kenobi:** Not feel profitable. **Luke:** what went into this? What, brought you to **Kenobi:** basically the fact that in the past two, three years, All, everyone has started talking about secondary sources of revenue, either be it by, doing ancillary services for the grid. So helping balance the grid or by selling the heat in one way or another, or doing secondary types of things. **Kenobi:** You know, some people are distilling water in Spain, actually a guy, super smart guy. They're distilling water with Bitcoin mining. So in a way they're subsidizing the electricity costs and then getting something that actually what every kilowatt hour that they put in is subsidized by Bitcoin mining at this point. **Kenobi:** And it's already in profit, but then per kilowatt hour, the amount of, industrial output of a set of hash rate, but also if the distilled water is 10 times more expensive. So they sell it for 10 times more. so at some point, Bitcoin mining, they don't care if Bitcoin mining only covers 20 percent of the electricity costs or whatever, they don't care because they're making 10 times more **Kenobi:** on the is, this is the whole energy companies will be miners in the future and vice versa thesis, In my thesis is that in 10, 15 years, every grid, national grid operator will have a Bitcoin mining team, which will be nominally at loss, meaning we're all, we're always, They're always pumping money into them and they're never giving back, but on the other end, they're fixing or they're balancing the grid so that they don't have these like outages and therefore they're saving on maintenance on destroyed capital and all of that, right? **Knut:** So yes, they're losing money on paper, but they're saving us a hundred. So we're pumping 20 million over here, but they're saving us a hundred million over there. So, you know, that, that's what I mean, and anyone who's not doing that in the future, They're throwing away money. **Kenobi:** they're not, it's not going to be profitable. **Kenobi:** Like, we still have like five to eight years where it's going to most likely make sense still to do pure Bitcoin mining, but, unless you have free electricity or near free electricity, I don't see a future in 10 to 15 years for pure Bitcoin miners. **Luke:** and does this have anything to do with the block reward is decreasing and all this, or is this even, divorced from that? **Kenobi:** I mean, no, it also has to do, but the problem with that is yes, the blocked, like the Coinbase reward decreases, but also the price multiplies **Knut:** yeah, yeah, yeah, **Kenobi:** every cycle, right? And electricity bills are still paid on dollars or euros. So, right. It kind of balances out to that. but what we're seeing is that Inevitably, the hash price per kilowatt hour is going down. **Kenobi:** It's slowly, you know, like perfect market, perfect **Kenobi:** market competition. Yeah. And like price equals marginal cost and the marginal cost of, of Bitcoin mining. The global marginal cost is not what the publicly traded miners have. It's what Gridless has with some places where they have free electricity. **Kenobi:** It's what the Venezuelan miners have with free electricity that the government gives them. Yes, there's nothing free. Someone's paying for it, I know. But for them, from their P& L perspective, it makes sense or it's, for example, many miners like Riot recently, I think they had, I think it was in August or July, they had a cost per Bitcoin mine for that month of negative 7, 000 or something like that. **Knut:** Why? Because they participated in demand response programs and they are so much more lucrative than Bitcoin mining that they got so many credits that at the end they were getting paid for the electricity that they consumed at the end of the month. So the beauty of this is like, doesn't this mess with miner incentives? But the only way it does that is in the right direction. Because it makes people sats minded rather than fiat minded. And it makes the miners, it forces them to be sats minded. Yes. And it forces them to think in Bitcoin terms because that is the problem with mining today. **Knut:** These are fiat companies. They have fiat incentives. that's why we have the centralization issues and it's, it's, but the game theory still works out. And this why Bitcoin is beautiful. # Mining in Finland and the Nordics **Kenobi:** And in a way, it also helps decentralize it because, for example, if you live in Norway, Finland, Sweden, and it's winter, you can either pay 25 cents per kilowatt hour, which is the price currently, miners, they're looking for 3. 5 cents, so it's almost like 10 times more expensive, right? **Kenobi:** You can pay 20 cents per kilowatt hour. to just, get heat, or you can connect an ASIC miner, get part of that electricity subsidized, and still get the same amount of heat out of it. So, like, what are you gonna do? Like, are you just gonna, like, not pick up the money from the floor? Like it's waiting there for you to pick it up. **Knut:** just bend and take it, you know? it's gonna incentivize many more people to just start doing small mining operations. Just two machines in your house, in your attic, which provides heat in the winter. And in the summer you turn off or you don't, who knows? Well, and Finland also has this, and other countries too, but Finland has this district heating thing, and so basically the municipalities are just paying bitcoin miners to connect to their system and provide the heat, and they need it year round because they need hot water year round, 15 years, it's not going to make sense because there's three main categories of things that provide secondary revenue. Those are the ancillary services to the grid, so grid balancing. Then there's the, acid unshackling, so, flared gas, Oh, yeah, yeah. It's suspension mechanism in a way. **Kenobi:** In a way, yeah, it's a way to like, hey, you're, Just letting millions of dollars flow out of there and you're not getting them. Just install this and you're going to get them. You know, it's that simple **Luke:** Plus, save the thing from being flared, **Kenobi:** plus save the fees and the fines from the government and all of that. It makes a lot of sense. And there was a third category, which I think, I know it's the heat, heat, reuse. **Kenobi:** So, grid balancing, asset, I hate it. Flared gas, which could also be a methane right out of landfills. So, and then also, heat reuse, heat resell. **Knut:** kicker is that none of this is internet bandwidth dependent. Because Bitcoin miners, like I was talking to the guys at gridless and like, The bandwidth that you use in a month for like one container with 300, 400 is the amount, like, It's nothing. It's, it's less than a gigabyte. could send out, I found the correct hash with a fucking Morse code. **Kenobi:** with Morse code if you want, **Knut:** It's tiny. # Stratum V2 **Kenobi:** that's, that's something that Stratum V2 improves upon, and I'm not sure if Ocean also does it, but I know we do it, and it's the fact that right now, and that's also one of the advantages of Stratum V2, going back to that question, the communications between the pool and the, and the miner, Unencrypted. **Kenobi:** So it's plain text. So you can actually like intercept the traffic and read it, right? That's 2002 internet levels, like before HTTPS, right? so what does that mean? When the pool is sending the work out, it doesn't matter because it's just, Hey, do the work for me. Right? But when the miner is sending the responses back, the shares that we spoke about before, right? **Kenobi:** there could be a man in the middle attack, meaning someone gets 2 percent of your hash rate. Usually people, like when we talk about this attack, we talk about 2, between 1 and 5 percent because it's low enough that someone would just chuck it up to something else and not think, Oh, we're being hacked, right? **Kenobi:** So imagine you have 10x a hash. 0. 6 Bitcoin per exahash, that's what you're getting. So you're getting about 40, 000, 50, 000 per exahash a day, right? You have 10 of them, so you're getting half a million dollars a day. So imagine now someone knows a man in the middle attack. **Kenobi:** Where they're taking 1 2 percent of your hashrate and they're redirecting it to another pool. So every 100 shares that you provide, they stop one or two of them and they send them to a different pool under their account. They have effectively now stolen, what is that? **Kenobi:** 5, 000 a month, more, no, half a million, 1%. Yeah, 5, 000 to 20, 000 a month and you don't really know because again with FPPS, the formulas are so weird that you just basically have to don't verify, trust the **Kenobi:** pool. So that's why FPPS is dying and it's going to **Kenobi:** for the win. I've seen the whole time people passing and doing like caricatures or what not. # Wrapping Up **Kenobi:** General Kenobi. in my experience, there is no such thing as luck as General Kenobi himself said, like in the, from the first Star Wars movie, right? When Luke refers to Well, Luke, we got Luke with the Star Wars. about the most obvious one. **Knut:** Anyway, that's a weird transition. **Knut:** Anywhere you want to send our listeners before, because I think this has been a great conversation. it needs, people need to hear this. **Kenobi:** 100%, 100%. I hope I've done a good job at simplifying it for everyone. I hope so. I will hear it from the people. I don't have a Twitter account, because it got suspended and, I don't care to go back there. So, they can go to, I'm on Nostr, so you can find me by just Kenobi, I believe. **Luke:** Yeah, we'll put it in the, **Kenobi:** Yeah. And then otherwise, demand pool. We do have a Twitter, but we also have a Nostr. So find us there. also support decentralizing Bitcoin mining and, stay humble and stack sats. There you go. **Luke:** Kenobi, this has been fantastic. Thanks so much for joining us. This has been the Bitcoin Infinity Show. Thank you for listening. **Knut:** Goodbye. **Kenobi:** See ya.