bobsguide spoke to Sean Clark, tech entrepreneur and founder of Hut 8, a crypto mining service who’ve recently partnered with Bitfury. Sean has seen firsthand the parabolic success of cryptocurrencies and offers unique and candid insight from the frontline.
When did you get into crypto?
I worked in e-commerce since 2012 and I’d become disenfranchised with selling people things. In February 2017, I discovered crypto and it changed my life. I set up Hut 8, so named after Alan Turing’s Engima hut.
I believe that blockchain is the next inflection point in the digital age and the banks should really be paying attention. Disintermediation is coming and it will happen through the blockchain.
Banks will have to re-evaluate their business models or they’ll be left in the dust. It’s why JP Morgan and Jamie Dimon are so vehemently opposed to blockchain. It’s because he’s not stupid - he knows that blockchain spells the end.
In the same way that cellphones leapfrogged the need for landlines, crypto and blockchain will allow the three billion unbanked to access banking.
How would you define cryptocurrency?
It’s similar to the World Wide Web, which transacted information over Internet Protocol (IP), which was great to disseminate information, but cryptocurrency transacts value over Internet Protocol. In many ways the term cryptocurrency is a misnomer, but what you have to focus on is the idea of transacting value over IP peer-to-peer on an immutable blockchain ledger.
Is it possible to explain the meteoric rise of bitcoin's value as hype?
Firstly, take a moment to re-associate bitcoin to blockchain. This year in particular, the way it’s been reported, it makes it seem like bitcoin and blockchain are separate entities - they’re not, they’re codependent; blockchain is the engine, bitcoin is the fuel.
From what we’ve heard within the fintech community, the pioneers are suggesting that blockchain is the sustainable technology.
Blockchain is simply a distributed ledger, that’s all it is. Banks are in store for a rude awakening when they realise they’ve been investing in essentially a glorified Oracle database.
The magic of a decentralised economy, specifically a bitcoin blockchain economy, is that there won’t be a central authority that determines anything. Even IBM LedgerX, with one central authority, is a honeypot waiting to be attacked at one point of failure; it’s a glorified Oracle database.
Blockchain technology has been around for 40 years, what is new is that the Satoshi white papers brought in mathematical algorithms to determine the difficulty level of the hash rate required to actually secure a block and win a bitcoin.
There’s a correlation of 88.8% between the difficulty level (i.e. the production cost) and the price of bitcoin; the difficulty level and the price go up in tandem at 88.8%. With institutional money coming to spend hundreds of Megawatts to secure the ledger, the bitcoin protocol becomes the security protocol; it’s the most secure ledger.
In effect, the price of bitcoin is based on how much it costs to power the immutability of the decentralised ledger.
I can’t state this enough and this is what is important to understand. The decentralised nature of not having any authority determine what to do and instead having mathematics and algorithms judge what happens, that’s the innovation. This is the true point at which everything will change.
It sounds like there might be some political ramifications at that point.
Of course, the political ramifications would be that if you were a farmer who’d owned land for three generations and a coup changed governments and tried to strike your name from the land titles, the immutable open ledger would protect that legal title.
For us guys in North America and Western Europe, the blockchain ledger will help us the least. We’re talking about the very possible access of three billion people to home address, documentation and credit facilities; the political ramifications are huge. The time of rent-seekers is done, we won’t need middlemen mediating transactions.
Why do you think that the countries that are so opposed to blockchain are also coincidentally considered the most corrupt? It’s because there would be an immutable ledger distributed for all to see.
There’s a redistribution of wealth happening, and it’s not through arms but mathematics and cryptography.
How would you respond to the cases of money laundering through bitcoin?
It’s fake news and a misnomer. Bitcoin would be the worst place to launder drug money as it’s totally open and there’s an immutable and traceable ledger for all to see. If you want to launder drug money, tell your friends to use Zcash - totally anonymous.
What does the partnership between Bitfury and Hut 8 mean?
Hut 8 is a proxy for Bitfury in North America. Hut 8 is access to capital markets and institutional money for Bitfury without Bitfury having to do a full blown prospectus or IPO. We do this using the reverse takeover mechanism to become instantly trading and accessible; it’s essentially the backdoor into the London stock exchange. There are a number of reasons why we’ve done this. Firstly, if Bitfury had done a full blown prospectus their rulebook would be on the street and, with an incredibly competitive market, it would have been a disadvantage.
This way we can gain access to institutional money quickly; this is essentially a scale utility play.
Do you think bitcoin will crash?
I welcome anyone to try and short bitcoin and would remind them that it trades 24 hours a day, so they’ll get their faces ripped off and lose all their money. The price of bitcoin rises proportionally with the difficulty level of production. Eventually, data miners will be using hundreds of Megawatts to win blocks so they’ll be charging prices to offset that effort whilst the process of incremental blockchain makes it even more secure.
There’s no crash coming. There’ll be volatility and price fluctuation, but the true value of a bitcoin is the cost of securing the ledger at that moment in time.
If it crashes, I know people that will buy - I’ll buy! There are only 21 million bitcoins that can be produced so if a crash happens, I will buy a tonne. A fixed supply is a dynamic that no one understands properly.
You might want to ask another question, is it a waste of energy to produce an asset for distribution? It’s not green at all. In 2017, the bitcoin blockchain consumed 8.3 Terrawatts of energy last year, but mining raw gold took 132 Terrawatts in the same period. Distributing the value of gold is also difficult and outdated; why wouldn’t you prefer an immutable digital ledger that is available for all to see?
It’s the same with paper money cutting up trees, cryptocurrency is a far more cost efficient and green form of value.
So you’re convinced bitcoin will bounce back?
Absolutely, we live in a digital age and we’re progressing to state where all physical assets will soon have digital representations and titles.
You need somewhere to store these assets securely without someone like IBM gating the ledger to dictate the value. Ideally, you would need an immutable, decentralised ledger that is available for all to see in 11,000 locations across the globe and refreshed every ten minutes.
Furthermore, what if you could transact that value over the internet protocol and trade directly? This ledger will most likely be the bitcoin blockchain as it has the most immutability.
How far are we away from seeing a legitimate bitcoin blockchain economy?
We’re really not far away from that future. If you wanted to buy a house with bitcoin, sure, you’d have to sell to an established currency but you’d be missing the point of the bitcoin blockchain. The value lies in then being able to place your house deeds on the immutable ledger and, as the transactor of value on this ledger, that is when bitcoin will gain its full currency status. In effect, one bitcoin is a 100 million empty certificates, much like a very sophisticated Excel file. Each file and bitcoin can be immutably assigned an asset whether it’s your Iphone or the Empire State building.
If everything has an immutable and decentralised digital representation, what good is JP Morgan as a rentseeker, or Facebook for that matter? We’re not quite at that stage yet, but the blockchain inflection and revolution will be bigger than the internet; just think about 1995 in San Francisco - the internet only affected developed economies with good infrastructure initially. The majority of the world now has that infrastructure in place, so blockchain will be able to take off.
There’ll be five major protocols including bitcoin as the security protocol, Ethereum as a smart contract protocol etc. moving trillions of dollars through a digital economy.