QuickHit: Decentralized Finance and Crypto
JP Baric, of Aurum Capital Ventures, joins Tony Nash for this week’s QuickHit episode where he discussed crypto currencies and how it plays in decentralized finance or de-fi. Also, what is stranded energy and how is it mined? What is the future of crypto and why is its fiat currency value is very volatile? Was the industry affected by Covid? If so, how?
Aurum Capital Ventures is a company that’s focused on using stranded energy to mine cryptocurrency and other digital currencies and building a yield generation or building a way to generate yield through the mining process for consumers and for institutional investors.
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***This QuickHit episode was recorded on November 4, 2020.
The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
TN: Okay. Very interesting. So I want to go into a couple things about cryptocurrency. But first, I want to ask what is stranded energy?
JB: Sure. So stranded energy is energy that is either not accessible to the grid so it can’t connect to the standard power grid or energy that’s been built up in areas where the federal subsidies for wind and solar farms have basically built these infrastructure that wasn’t needed in one area but it was built there because of those subsidies and in return the power prices are actually going negative during the night because there’s over supply and not enough demand. So that’s where we target when we build out mining sites.
TN: Very interesting. Okay. Thanks, JP. So let me ask you this. Just in terms of some crypto basics, okay. Is cryptocurrency, is it an asset or is it a currency? And so by that, you know gold is an asset, right? You know you can’t really go to 7/11 and spend gold. Dollar’s a currency. You can go to 7-eleven and spend a dollar.
So is cryptocurrency is it an asset? Is it a currency? Is it both? Is it moving from one to another? How do you think of it?
JB: Yeah, the more I look and think about Bitcoin is the more I think it’s actually an asset less than a currency. I’ve used bitcoin to buy laptops that you know 12 bitcoins for a laptop and then you realize that’s worth more than a house eventually. So I think the Bitcoin as an asset is really where how I view it. It’s a way to store value digitally that can easily be separated and transferred anywhere in the world and you also, it’s an asset that we know there’s a finite supply of it. We know how much there’s going to be, how many new bitcoins are going to be every day for the next 100 years and there’s not, that’s something you can’t really get without saying many other assets.
The reason why I don’t think it’s a currency is because we’ve seen other people have built on the Bitcoin blockchain and built on top of it as a way to build stable coins or other ways to transact, which are just more efficient and don’t have the price fluctuations that you do with using Bitcoin as a medium of exchange.
TN: Okay. So one of the things I’m really puzzled about with Bitcoin is, you know, normally with software, it’s the newer versions that are more desirable and more valuable, okay. Bitcoin is kind of the, you know, Windows 3.1 or something like that I mean it’s the OG of cryptocurrencies, right. So why is Bitcoin more desirable and valuable than other coins?
JB: So my opinion really comes down to first the miners. The miners are the ones who are allocating the most amount of capital in the space, who are taking the risk to capture this Bitcoin. You have to put that capital up uh millions of dollars when building out the infrastructure before they even see return. So because the miners are centrally focused around Bitcoin, it’s um you know the top currency for miners. I’ve seen that network effect um has really grown Bitcoin to keep its position and its power.
The amount of computing power protecting the Bitcoin network is ten times if not a hundred times more than any of the other networks out there. That would always say the first thing. The second thing is the on-ramps. To use a digital currency like bitcoin we need um on-ramps that have been put together over the past 10 years and have been focused solely on building on-ramps for this cryptocurrency.
Bitcoin works in the way and it functions as that secure digi secured and digital store of value. Other currencies have tried to do that. But the reason why it’s a store of value goes back to my first point which is the miner spending all that capital and infrastructure to secure the network using that energy on a day-to-day basis and giving Bitcoin that
TN: Okay. So when you say on-ramps, what do you mean? So if I have a new coin, I need to have a way to be able to uh uh mine it and distribute it. Is that what you’re talking about?
JB: I was uh when I was referring to on-ramps, I was actually referring to fiat on-ramp. So basically, how does fiat currency come into the space. So US Dollars, Euros, Japanese Yen, how do they come into the space and then from there how does that get turned into this digital currency?
Those are on-ramps. Then also custody solutions, insurance. All right. Okay. All of that being on ramps.
TN: Okay. Very good. Okay. So um also in terms of crypto, what I’m really interested also also is when I look at the current environment, we’re in the wake of an election in the US. It’s a little bit uncertain. We’ve got, we’re in the wake of Covid. There’s a lot of uncertainty, you know. Is there kind of an optimal, say, environment for cryptocurrencies? Um, uh you know. Do we see say um uh confidence in traditional currencies waning and people moving to cryptocurrencies?
Is it in either or world or you know. Is it both and and what does that environment look like for people to turn their attention to cryptocurrencies?
JB: So I think the the as you mentioned the two different types of pandemic. The Covid pandemic and the election has really pushed crypto to the forefront as another asset class, as a safe haven. I don’t think cryptocurrency necessarily follows uh the same, you know, SP500 or other type of cycles out there when it comes to economics and social cycles. Bitcoin to me really follows the having events, which happen every four years. And so that would, that in my mind is what brings the momentum required to push Bitcoin to a new price. And in those having events is when Bitcoin miners receive half of the amount of Bitcoins they were getting every day just simply because it’s past
the four years and the issue and schedule is set.
So as I mentioned, we’ll know exactly how many coins are coming out. That in my opinion, is what creates these price rises about every four years, which then drives new interest to Bitcoin which then drives more speculation and which then drives the community growing at massive scale. And then shrinking because the people that are just speculators, just coming in to make a quick buck, they make their quick buck or they lose a lot of money. But the people who then now start to understand the technology and understand how much better of a monetary system it is because it empowers the user.
It provides them a steady base that they can build their life on. A steady-based currency that they know is not going to be inflated away and don’t they know it’s going to retain its value over the long period of time.
TN: Okay and so when you talk about having events, what happens around those having events in terms of say processing power, in terms of the the computing requirements. Are there cycles to build up more equipment and less as it ages and and what does that look like?
JB: So right now, they’re the cycle. There’s definitely there are cycles to build up equipment and the in May, when was that that having event occurred, the the amount of machines came down by about 15% 20%. And those machines were turned off because they were just older generation. The newer machines are coming in line. They’re being deployed. But we see it as in, if you want to get into Bitcoin mining, the next two years after the having event are the best time to get in because as I mentioned, that momentum will start to build up the Bitcoin price will continue to rise. You’ll have a great two years of profitability and you’ll be very very profitable and you’ll be a big arbitrage there. But then as Bitcoin price rises to an extreme height, there’s not enough actual bitcoin miners available for everyone to buy and acquire.
We don’t have enough semiconductors and so what happens is the value of those machines will rise rapidly and the people that are just coming into the space that are new are trying to pick them up and grab them and buying these machines for a really top dollar. The problem is, is that bitcoin price will crash. But you still have new machines on order for maybe six or nine months out. Those machines will continue to come online, will continue to run until it squeezes the profitability of all the miners and then you see a crash in difficulty usually in correlation as the bitcoin price is continuing to push down back to a normalized you know area and not in the hundred thousand dollars ranges or really overvalued where we see it uh once it kind of starts that on ramp.
TN: Okay. So when you say there’s a hardware replacement after the having event. So my understanding is this, you’re getting half the amount of Bitcoin for doing the same amount of work. You have old equipment. It’s it’s uh utilizing the same energy it did at double the price. So you have to cycle out that old equipment so you can still be profitable in your Bitcoin mining. Is that?
JB: That’s exactly right. That’s exactly. We either cycle the equipment or we move to lower cost power about half the cost in order to stay competitive. Those machines aren’t necessarily going to immediately become unprofitable after having. But they will become unprofitable very quickly after the having. And now, because Bitcoin price has risen, those machines you actually can turn back on and make a few pennies depending on what your power rates are.
TN: Okay. And so, since it’s so equipment intensive and we have supply chains bottleneck through Covid out of Asia, what has that done to the Bitcoin mining environment? Is it, has it, has Bitcoin risen in price as a result of it? Or are people using less efficient machines and maybe losing money or coming close to losing money on mining?
What’s happening as a result of the supply chain issues that we saw out of Asia earlier this year and also is there still kind of pent-up demand for that equipment?
JB: Yeah. So right now, the you know, with Covid and the supply chain issues that have occurred, the machines got backed up, the factories had to close, and so those orders that were maybe supposed to deliver in December of this year aren’t going to deliver until January or February. So they have been backed up by two months. Also due to 5G and the new phones coming out, the the amount of chip production capacity that is allocated to Bitcoin miners from the fabrication facilities like TSMC that has gone down as well um and they’re not able to get as many chips as they would like.
Right now, if you’re buying miners and you’re doing a project like we’re looking to do one in Oklahoma to buy 50 megawatts worth of miners or 15 000 machines, it’s going to take us about four months to acquire those machines and get them delivered to the United States in multiple batches. So that’s the, you know, the expected timeline to wait for these newer machines. But as they do ship from bitmain and from the manufacturers, we expect that hash rate to continue to grow and as Bitcoin price grows faster, it’s going to create more demand and it’s that vicious cycle.
TN: Interesting. Okay. So as you look out at the next year, are there certain things you’re looking for like are there coins that that you’re interested in? Are there you know, where is your attention going and what do you see over the next say six months in the crypto cryptocurrency environment?
JB: So over the next six months you know I’m I’m really focused on bitcoin particularly. But I do think decentralized finance. So de-fi has a lot of opportunity. There’s a lot of very cool projects. One of them being a token called lend token. L-E-N-D. And that token has something called a flash loan. And what flash loans are is that a concept that liquidity is no longer an issue for anyone that can prove there’s an arbitrage opportunity on in the market. And so, when these Ethereum contracts are written, um they basically have to balance the price points and if the prices start to become a little bit off, someone can go in and balance that contract and take the reward for balancing that contract. Before, you might have to put up the capital yourself to do these balances so that you can make the profits from balancing this contract and getting that arbitrage there. No longer do you need to do that with protocols like LEND, which are really trying to decentralize the credit problem. Decentralize uh what is credit look like on the blockchain. How do we give credit to companies.
How do we ensure that um we can lend to them without necessarily having to verify uh everything and do the, you know, do the verification process we have currently but how do we do that on chain in a contract. So protocols like that are what I’m really focused on. I think decentralized finance is going to blow up. I think it’ll be the next ICO hype as we would say in 2016, 2017. There’ll be good projects and there’ll be projects like we saw with Sushi that, you know, the developer just ran away with the funds because the contracts weren’t audited. That’s another big thing. If you’re investing in a project or investing anything, you want to make sure that it’s backed by you know VC companies in the United States that are these very popular VC companies in China and Europe or that it’s been audited by reputable sources in the community.
TN: Great. Okay JP. Thanks so much for your time today. I know you’ve got a lot going on so uh thanks so much for joining us and talking about this. Really appreciate this. Wish you all the best um over the next six months as all those things come to come to pass. I also want to thank our viewers and remind you please subscribe to our YouTube page. Please subscribe to our newsletter. Both are in the foot of the video. Thanks very much.