Why ASICs May Be Better Than GPUs Even if They Tend Toward Mining Centralization - Ep.67

Transcript

hi everyone welcome to Unchained your no hi free source for all things crypto I'm your host flourishing if you've been enjoying Unchained pop in iTunes to give us a top rating a review that helps other listeners find the show blockchain warehouse is an international blocked and accelerator offering a wide range of tokens sale advisory services to promising blockchain based ventures with the leading adviser networks bzw is up the forefront of building landscape changing blockchain companies and hosting successful token sales with more than 20 million dollars raised so far let's raise the bar together with appreciate launching this summer as a sponsor of Unchained appreciate has recognized amazing people because we believe in the

strength of recognition and relationships in the strength of community who will be recognized today stay tuned my guest today is David vorak CEO of SIA coin and now obelisk welcome David I want to spend the majority of the time talking about mining and your new ventures but let's first get your bio and talk about your first company how did you get into Bitcoin I was introduced to Bitcoin by a friend of mine in college back in 2011 I remember the price being at about a dollar and a half and unfortunately I did not buy nor did I have much much money to my name but I was super fascinated by the concept and just got got sucked into it

and then I sort of fell into the trap where I'm like oh the system looks so bad and looks like so easy to improve so I actually spent much of like my first two or three years trying to come up with ways to do Bitcoin better and sort of eventually like conceding defeat and realizing that it's actually a very well done system and that all the inefficiencies are actually like necessary to how it works and then I went on from there to make cycline which is a decentralized cloud storage platform the idea was that we could take a lot of the same things that Bitcoin had done for money and do it for the cloud so we wanted to make a way to put data onto the cloud

without having to give up control to say like a you know a third party service we wanted we wanted you to be able to store your data on the cloud and also be like fully in control of what's happening to that data and when did you have that idea so that started like late 2013 we incorporated nebulous company behind SIA in 2014 and we basically worked on it feverishly for about a year and we released the first version the sort of alpha release of the tsiyon 2015 and how did you come up with that idea and also

now that we have these competitors like file coin and storage how do you differentiate from those yeah I think that I was just really interested in data and data sharing and file sharing and I had a lot of like files in my own that I wanted to store when I just it felt suboptimal or like uncomfortable to use something like Dropbox or Amazon or Google Drive because you know they can they can see all your data it just didn't seem like the right way to do things and there didn't seem to be a good alternatives I thought like why not you know why not makes the alternative I told myself it doesn't seem that hard in retrospect it it is very difficult but yeah now that we have competition I

think that our key distinguisher has always been our like determination to release things and to again I guess two things the first is that we've been completely uncompromising on the decentralization so we've never had a like hybrid you know partially centralized partially decentralized platform it's always been a fully decentralized platform and that's been super important to us because we didn't want to depend on you know some feature that would be difficult to replace or upgrade later and then the other thing is that we've been really determined always to push to push features out early and start getting user feedback early and then you know improve from

there and so we we were the first decentralized cloud storage platform to launch I think they were the only fully launched fully decentralized cloud storage platform that's been the case for for three years and it's just been a like a journey of continuously improving it adding features that people view as critical and trying to make it no more a more whole platform and you kind of maybe alluded to this earlier but I was looking at the stats on the syuko and website and saw that you don't have quite 800 storage providers yet and there are 175 terabytes of youth storage that didn't seem like a big number to me why hasn't say a coin see more adoption

yet yeah that's a good question so I think the the biggest reason is that we don't support full backups and so while you can put your data in a cloud without losing control today the uploading machine is a single point of failure and so if the machine that uploaded the data fails then you lose all your data and there's no easy way to recover it but that's what we are working on through the summer we've already begun work and we have a like a a ish week roadmap development plan to remove that when that happens we think we'll see more adoption and then sort of right alongside it we're developing a file sharing feature which we also think

will really standing late an adoption last year you announced you would be manufacturing mining equipment for SIA through a new company called obelisk why did you decide to start manufacturing your own mining equipment yes the biggest reason was that we saw bit Maine had cornered the market for Bitcoin cornered the market for litecoin and - and they seem to be known an unstoppable rampage and we didn't want the same thing that happened to Siam we wanted there to be multiple manufacturers that were competitive and most of all we wanted to make sure that nobody in particular had cornered the market so at that point we were super naive to the hardware industry it was our first time doing anything like that and we just

sort of took the leap and went for it we we certainly did an enormous amount of research we talked to many companies who had done it before including like see butterfly labs and spawn Dooley's to help get guidance and understand what you know necessary to put out a hardware product but but the big goal is really to learn more about the mining space and to make sure that bit main wasn't the only player in the SIA basic world and at that point what kind of equipment was being used to mine the SIA point at that point everything was completely GPU mind and so we figured you know if we can be first to market any ASIC is going to be a big deal and it's going to be you know

minimally 100x better than GPUs we from the beginning design SIA to be an ASIC friendly Network we've always believed that a 6-iron evitable and we wanted to make sure that signs transition to a six was smooth and friendly and like open and easy for many manufacturers to get involved yeah let's for listeners who don't know the difference between a six and GPOs can you explain that and then also explain why you chose Asics and also then why the community gave you some heat for that decision yeah so TPU is a general-purpose computational machine most most people who have GPUs use them for video games at least before

cryptocurrency and so what it means is that you know every cryptocurrency or most cryptocurrencies have different proof-of-work algorithms and so you have a GPU can typically do any of those different algorithms but it's inefficient because that that flexibility to switch between algorithms just means that it you know it has some extra features that it doesn't need an ASIC is highly specific and so all it can do is this one thing and so in the case is a sign at work all it can do is link to B which is our proof-of-work function and so if we even make a tiny tweak to that proof work function the ASIC is completely broken and completely useless while a DB you you just you know you you can tweak the

GPU and the GPU can stay on the network but when you make something that's that incredibly focused on one task is enormous ly more efficient and in the case of Blake to be which is our work function it's between 250 and a thousand times as efficient so you know a thousand dollars of basic hardware can outperform say you know five hundred thousand dollars of GPU hardware on the sign at work and so the reason that we chose so some some algorithms some coin developers and coin communities prefer to choose algorithms that are difficult to make a sixth-floor they want to be GPU friendly and the

reason is because anyone can go to the store and buy a GPU you know every yeah every computer shelf is going to have GPUs that they can sell it's pretty easy for someone to pick one up an ASIC however is made by you know a single manufacturer or a small number of manufacturers they don't you know they don't have shops on every street you have to order it online from a specialty online store and a lot of times these manufacturers are choosy with who they sell to or they put limits on it for the average person but they may go you know and sell 10,000 to their friends and so this creates a centralization pressure and really the world of Asics doesn't match the ideal vision for decentralized cryptocurrency mining but the

unfortunate reality and the reason that we chose a six for SIA is that Asics are inevitable for any algorithm that you pick someone is going to be able to create highly specialized hardware that's dedicated to that algorithm and it's going to be substantially faster than a GPU so we believe that there's no way to escape basic manufacturers and a proof-of-work coin and an ax proof-of-work eco system and so we we wanted to pick an algorithm that's very easy to develop a six for that had a very low barrier to entry that way there's a better chance that we have multiple manufacturers as opposed to just one and even at the GPU level

you know we see there are really only two major GPU developers in the world their GPU companies in the world that's AMD and NVIDIA and that's because GPUs are enormous ly complex and highly specialized and so there are only two companies that are at the scale to be able to do so competitively versus you know like Bitcoin Asics you have you know silicon and ASIC minor and bit main and came in and bitfury and so you have a lot more manufacturers and while there is one who's clearly ahead at least they're like five or six total versus like the GPU market were there only two interesting and so I earlier did mention also that there was kind of a little bit of an uproar about this decision and I

also wanted to note that at the beginning when I asked you about what distinguishes I acquired from your competitors you did say your commitment to decentralization however I believe some of your users objected to this choice of Asics because choosing Asics does lend itself to some mining centralization is that correct why did you make that trade-off yep we thought as a long-term decentralization choice versus a short-term decentralization choice like I said we think that no matter what algorithm we picked and no matter what strategy we pick they're going to be specialized miners and so the the best thing that we can do in the long term is pick an

algorithm that enables as many manufacturers as possible now I think Manero has taken an interesting alternative approach which is that they believe more or less the same thing they see a success inevitable but they are trying to bide time and they think that you know they can use a bunch of temporary means to thwart Asics and try and preserve short-term decentralization before eventually embracing a six in the long run and so we don't like that approach we think it's too heavy-handed of governance however it is it is an example of a coin that believes the same things we do taking a different approach to trying to decentralize their mining some coins also try to make their

hashing algorithms ASIC resistant but you are skeptical of this as a strategy why because having worked closely with hardware developers we've learned that the number of tricks hardware developers have a bell to them is you know far more they're far more rich and far more advanced than anybody in the software world or most people in the cryptocurrency world realized and so most ASIC resistant algorithms have been made by software developers who are trying to I guess kind of pool or stumble hardware developers but the software developers don't know the hardware world very well they don't understand what techniques

hardware developers have and so they don't realize that most of these ASIC resistant algorithms actually have sometimes trivial workarounds or simple hardware implementations that are going to be extremely extremely outperform what a GPU can do and we actually saw this with echo hash so Z cache was originally designed to be a SiC resistant they used equi hash algorithm and while it worked for a while we saw a bit may come out with a minor that I think is 10x more energy efficient than then GPUs and something like if I if I remember correctly something like 50 times as fast and then a no silicon just a month later released a minor that was

even you know 5x more energy efficient than the bit main minor and was even faster than the bit made minor and so what what's happened is this sort of prophesied that you can't truly ever be a stick resistant someone will always get their played out very well in the Z cache case now we we've also seen in the past other attempts to be a stick resistant light coin was originally meant to be a sick resistant they use some tricks that they thought would make it difficult for hardware developers to make Asics but of course that didn't work like coin has a six today and as has had them for a long time - is another example of a coin that was

originally ASIC resistant but now has it's now in a sick mind coin because hardware developers figured out how to make specialized hardware for the - mining algorithm and so this is a trend that if you talk to hardware developers they basically confirm you know or what you do there's always some way some trade off we can make that when we make specific hard work for an algorithm it will be substantially faster and so the hard word of said that I've talked to and that I've worked with have said they don't believe that ASIC resistance is possible just based on the nature of the work they don't see how you could ever make an algorithm that is equally

you know equally performant on a general-purpose hardware like a GPU or CPU as it is on an ASIC you did right however that eath hash which I guess is the etherium hashing algorithm was the most ASIC resistant algorithm you've seen how did they do that yeah so the tricky thing about a hash from a hardware development perspective is that it's basically a bunch of random reads to memory and as it were memory is actually already pretty optimized around doing low latency random reads so the echo hash algorithm ended up being pretty close to what specialized

hardware in this case you know DRAM is already doing and DRAM is is widely available and so that made it more difficult to break away and make specialized hardware but as we've seen from the bit main miner you can do it you can make specialized minor specialized hardware for a patch and it will outperform GPUs there's another algorithm that got released recently called prog pal it's still under development but they basically took a new approach to making an ASIC resistant algorithm so that these were Hardware people who took a GPU and they basically disassembled all the parts of it and they made an algorithm that requires you to use as many parts of the GPU as

possible and so these hardware does still openly admit that there are improvements that an ASIC could make over a GPU on this out room they said we you know we can't do it perfectly but this is going to be at the absolute best attempt that you can get and we think it's going to be close enough that it's not going to matter you know within like a fact - or a factor of five as opposed to being within a factor of a thousand I want to go back to the blog post that you wrote announcing obelisk you mentioned that you discovered that mining centralization in etherium was even worse than it was in Bitcoin what is you uncover in there and do you know if that situation persist today so I don't know if that's the exact wording

but mining centralization in GPU will basically just just like with Asics you have these large GPU farms that set up they have access to hardware manufacturers they can buy GPUs at rates much cheaper than a consumer can afford and from what we can tell the vast majority of gp of etherium mining is done on these giant farms not not at users homes right and so it's it's still not decentralized and so even if you get to go with general-purpose Hardware instead of Asics you can't defeat the economies of scale that just governed the you know the mining industry people

who run bigger farms and run bigger operations and have better connections to the hardware world are going to get lower prices and are going to have you know more efficient mining and they're going to be able to push the difficulty up to a point that it doesn't make sense for consumers or home users to mine these algorithms and so we I don't know I don't know if I could say that it's worse than Bitcoin but I can definitely say that it's you know it's the same progression that we saw in Bitcoin and then even beyond that I we don't I don't know if we've seen it yet but if someone like Nvidia or AMD or to take their own hardware and start mining on aetherium they would be able to do so at cost and the margins on GPUs are very high

especially compared to like the Bitcoin ASIC industry where most ASIC manufacturers are selling the miners that as far as hardware is concerned relatively low margins you know an NVIDIA GPU or an AMD GPU is held at high margins if in-video were to decide to mind they could get those GPUs for much cheaper than anyone else and they would have a substantial advantage over the entire rest of the ecosystem in mining and so you would see heavy centralization around the manufacturer the there's way we already have the thing is I don't think at this point GPU mind cryptocurrencies are at the point where they've really gotten invidious attention it's still a relatively small part of invidious revenue and so they you know they aren't

making moves that bold but I think that if it were to continue to grow and proved to be a stable source of revenue we would see an Andy or an Intel and NVIDIA move in and have a substantial advantage over everyone else that seems so counterintuitive to me that the margins are higher on the GPUs then on the specialized hardware why is that that's because it is very difficult to make a competitive or a highly efficient GPU you're talking like you know billions of dollars of development effort in research because it's so difficult to make a competitive GPU it's basically you know nvidia and AMD and a price war we're dueling each other and

so that you know they can distinguish on features instead of on price and so there are ways that they can continue to sell chips without undercutting each other on price heavily now in something like Bitcoin mining with a six it takes a lot less starting effort you know we estimate on the order of if you're going with TSMC on the order of 25 to 30 million dollars to start an ASIC company and while you're not going to be at the efficiencies bit name you're gonna be much closer you're you're shot to 56 ASIC who's gonna be much closer to what that name can do than what a GPU startup is going to be to what Nvidia can do it so because that gap is narrower

if bit main prices there Hardware too high startups like Ovilus can come in make hardware and sort of and sort of you know - with their margins and and so the because the barrier to entry to the industry is a lot lower we see that the margins are also like just necessarily a lot more interesting it I also want to ask you about what happened this past winter when bit Maine announced the ant miner a3 which was a syukur minor and that caused some consternation in your community and talk of a fork that would render the n3s unable to mine site corn efficiently you ultimately decided against that kind of fork and you even wrote this blog post

that announced your decision and it ended by saying that you welcomed if it means customers so why did you go that route yes so I think that initially we saw the a3 as basically an attack on the network we had big community effort to produce a6 for the network and sort of protect the network as a community and and so many a large fraction of the most involved people in this hiya ecosystem were heavily financially invested into obelisk and so to basically when bit Maine came to market and threatened that it basically soured and disrupted and

turned off a large portion of this hiya ecosystem and we did lose a lot of users to the bit Maine a spent a lot of people have been very unhappy ever since and so I think if we had premeditated if we had planned ahead a little bit more and said you know what happens if bit Maine shows up in January we would have you know as a community been coherently focused around the idea of forking to get rid of bit Maine and to protect hablas since so much of the community was so invested in table whisk unfortunately we didn't have this planning and foresight and so when it when bit Maine came to market there was this big confusion about whether you know what should we do what's the right

thing to do is it greedy to fork and protect obelisk is it you know if we do fork and put obelisk you know give obelisk a software-based moat or a fork based you know exclusivity does that mean that SIA is centralized under nebulous and I think there were plenty of reasons to argue that it was absolutely the right recent the right thing to do and I think you know that's if we had been to together as a community in making that decision I think it was the right decision to make but we had several prominent community members come forward and say if you fork you know we will leave and we lose faith and sigh and we'll never come back

when that's folk you know volumes to us and we we realized that we were stuck with this you know if you don't fork you're gonna lose a lot of community members who are angry and upset that they lost money if you do fork sort of the like ethical polish that SIA has always had is threatened and people may think that SIA really is just a centralized coin and that the decentralization motto and everything is just you know just for show and it's just marketing it's not how hire really is and so we we decided in the moment that because the community was split and because you know there was it was difficult to fight this argument of

greed and difficult to you know dissuade accusations or you know disprove the accusations that we were acting purely out of greed for ourselves we decided not to go through it there we decided we would rather deal with bit main and have a threes on the market and just just sort of embrace the situation we're gonna discuss more about obelisk and also its new surface launchpad but first I'd like to take a quick break to tell you about our fabulous sponsors blockchain warehouse is an international blockchain accelerator offering a wide range of token sail advisory services to promising blockchain based ventures with access to heavyweight technology leaders the accelerator is heavily involved in crafting the blockchain technology token

sale and regulatory landscape blockchain warehouse will launch the first ever crypto shark tank in June this week's episode features block 66 an innovative blockchain mortgage platform that streamlines and organizes the facilitation of residential and commercial financing block 66 reduces the amount of time persons involved and money that it takes to complete a full mortgage cycle previously real estate transactions on the blockchain required 100% funding upfront but that's a thing of the past with block 66 find out more at you block 66 dot oh now it's time to recognize someone sponsored by appreciate if you've been wondering when a truly new consumer app would be

launched on a blockchain based protocol at scale your wait is over pre-shave is building the future you deserve a trustworthy and transparent one by design powered by the goodwill composite protocol today appreciate recognizes men well stay gars the acclaimed documentary filmmaker in his award-winning short film the blockchain in us man well bra understanding of the impacts of blockchain by showcasing the enthusiasm of crypto pioneers way to lead the charge men well go to appreciate or to learn more about the community and recognize someone let's raise the bar together with appreciate launching this summer I'm speaking with David vorak of SIA coin and obelisk it sounds like this controversy that happened in the winter

when bit Maine announced it's a three miners might have informed your new service Launchpad and the way it's designed and I'm gonna describe it briefly but you can feel free to correct me or explain it further it seems like you guys designed both the custom proof-of-work algorithm as well as the ASIC hardware that works in that algorithm is that correction and was it influenced by what happened with the a threes yes so you're correct on all accounts what happened with the eight threes was that you know you had this community feel this decentralized coin this this thing that people were very proud of the bit Maine just kind of came in and sounded everything but being you know the dominant manufacturer we've

seen this notice happened to - to have with light coin we even seen it repeated you know you know silicon's done it to Z cash and to D cred and so you know we we think that there's a today you're basically proof-of-work coins are basically stuck with a situation where if whether or not you embrace a six at some point a six are gonna be on your network and then basically whoever gets there first and whoever is first to market with an ASIC gets to call the shots for a while and guess you know gets to control the hash rate gets all the coin issuance if they want and can perform certain types of attacks and so the transition as most coins have seen has

been very brutal to go from gpus to a6 and so with Launchpad if we are developing a algorithm behind the scenes and ASIC Hardware concurrently we have a strong guarantee because of the secrecy that obelisk is going to be first to market and then of course beyond just you know Ovilus the forex market we have legal agreements with developers and and sort of agreements and contracts with the community of what we're going to do with this first to market power especially because it's been you know granted to us sort of exclusively we can make sure that when the transition from GPUs to a6 happens or when the coin launches we can just launch the coin

with a six out of the gate we can make sure that those Asics are owned by the community and those Asics are decentralized as opposed to being centralized under a single manufacturer and then other things that we can do is we can make these basics there the algorithm ASIC friendly we can make it easy for other manufacturers to get started and we can even open-source the chip designs so that all really another manufacturer has to do is take the trips designs and and do another tape out so we actually just want to back up because you just said that you can help ensure that that the coin is not centralized under a single manufacturer but it sounds like that's exactly what will

happen yes so the the key difference there between what's a Ovilus is going to do and what's a in our silicon orbit name might do is that obelisk is under a legal contract to distribute the hardware a certain way and we'll be very transparent about how the hardware is being owned and how it's being distributed and then as a second step obelisk will also make sure that when other manufacturers want to get started they have you know a lot of guides to lower the barriers and make it easy for other manufacturers to come and compete with outlets so yes that it is still a centralized launch but it is a much smoother and more community community

oriented launch and this is a launch that is geared around getting other ASIC manufacturers ramped up in the future as opposed to being a launch centered around owning the market and making sure there's only one basic manufacturer ever on that coin is it a risk to have one company do create both a proof-of-work algorithm as well as the ASIC Hardware like could a rogue employee game that in some fashion and in general what are the risks that people would run an interesting one company to do both things yeah so I would argue that the risks are at the very worst they're equal to not using

the launch pad service because if you don't have if you don't have the launch pad service you basically have this whoever gets first to market whoever you know makes the best chip whoever plays most aggressively is the person who owns the coin until you have this completely like entirely rogue element so either you you go in a situation where you're going to get a first to market and have no control at all or you have this trusted situation where you are trusting manufacturer at the worst case they could go rogue which is which is what you have without it and in the best case this entity with a reputation can help you get off to a smooth start help you get off to a coach start and also with the obelisk you're focusing on

proof-of-work coins what do you think of other non proof of work consensus algorithms like proof of stake or hybrid proof of work proof of stake models or even something newer like thresholds relay and affinity yeah so we both in SIA and a Tablas believe pretty strongly that proof of work is really the only really strong method of achieving decentralization and achieving decentralized consensus specifically and so hybrid models like say the D cred model we're in support of but that's because the you know the hybrid model works because it has this like fundamental tether using proof of work that gets it off the ground so other

models like proof of stake and I'm actually not not familiar with the Definity method you brought up with but generally speaking when getting scrutinized or when going under peer review these these non proof and fork models have been shown to have a lot of issues I would be interested to know what you think of it when you when you learn more about it because they use a random number generator apparently to decide who will add the next block and it's guaranteed to be truly random not like so because I said to the founder if it's like wait that seems like something we've had for forever and he was like oh no no no no for you know like anything where you

think you're getting random numbers like a lottery or whatever there's an algorithm it's not truly random so in the end with threshold relay what you end up with is something similar to proof of work in that the amount of mining equipment that you have on the network or the percentage you have I guess you would say of the total network that you know over time you would end up with a similar proportional amount of coins but you know it's not it's not as electricity intensive there are so many coins that are moving away from proof-of-work to things like proof of steak so do you worry about a broader industry shift in how that might affect the business

prospects for obelisk having been on the forefront of consensus research for a while especially starting 2013 I feel fairly confident that it's not a big risk but I feel confident that proof of work is going to be around for a long time I think aetherium for example has experienced a lot more trouble getting proof of stake off the ground than they were expecting initially they had the you know setback there there pal time bomb or whatever and I think that these alternate methods that have come through and in 2013 sort of a Bitcoin core community got any like core

understanding of the things that really don't work in these different models and nothing that we've seen in the past four years or five years challenged or has has made it look like there's something different than these core issues and so I don't think that there's anything on the near horizon and probably not even the distant horizon which would supplant proof of work or offers similar security properties to prove work I think all alternative systems make different assumptions assumptions that I would challenge is being less secure or weaker than what proof of work can do let's talk about

bit main this is I guess the largest manufacturer of cryptocurrency mining equipment in the world and it runs some of the biggest mining pools and last year it had 2.5 billion dollars in revenue I believe how do you compete against bit Maine yes so that's a a great question and I think that it's something that's not easy as I pointed out in my blog post there's these economies of scale where if you're throwing you know a billion dollars at a hardware problem versus somewhere first is someone throwing - even a hundred million dollars at a hardware problem the billion dollars is going to have a lot more room for optimization a lot more room for economies of scale and

they're going to be able to produce substantially more than ten times the hardware for ten times the price and that's just how the hardware industry works and that's just how you know hardware efficiencies work so I think that you're certainly right to call out Pitt Maine is a very challenging opponent and I think one of the key advantages that we may have is right now the industry the silicon industry is supply shocked because the seven nanometers have been late and so companies like Apple and Nvidia and AMD are buying up all the seven nanometer supply it's--but names big but they're not they're not as big as Apple and so bit Maine and Apple get into a bidding war Apple wins and so at least in the

near term I think that that provides one gap but another gap that really helps is that the sha-256 algorithm of the Bitcoin algorithm specifically is so simple that all the optimizations that that main figures out a lot of the end up being you know easy to replicate from a lower scale and so so I think that it will be an uphill battle first for sure but I also think that there are there you know I think it's a battle that can be won that we can see multiple players in the space you know seven eight even you know ten plus players in the space who make hardware that is approaching what that main is capable of

and is able to remain competitive you've written a few times that you think bit Maine is a bad actor describe what happened when you try to manufacture your equipment in China yep so this I want to be very clear is something we don't have any proof on and so there could be any number of reasons that this happened and so this is not a accusation a bit made however we were warned before we started manufacturing not to do anything in China because bit main would mess with our supply chain this is a warning that I received from multiple different advisors telling us to stay out of China and a lot of our manufacturers are a lot of our engineers

who helped us pull you know bring the chip together bring the bring the unit together and the mining rig together thought this seemed kind of silly and so opted to go to China anyway so originally we were using two services in China one was SM I see there's a Chinese foundry so we're going to use the Chinese foundry to make our chips the other was called data IDI was a actually an American manufacturer that had its that did the bulk of its manufacturing in Shenzhen in China and both of these supply chain components actually fell through and they fell through late so when SM IC told us that they couldn't work with us we lost probably two months

of development time because we you know the chip was already almost complete when we got this news so we had to shift to a new foundry that costs us a lot of development money and it costs us a lot of development time then same thing when data add told us that they were unwilling to work with us anymore we had to basically scramble at the last minute to find new manufacturers and since we lost out on the China pricing this also costs us several million dollars we ended up having to pay the price of American manufacturing which is substantially higher we didn't have time to work with say Singapore or Mexico just because they you know they dropped us without giving

us enough lead time to find a replacement except for people you know that we could go drive to every week to get things moving quickly and so though you know this is just an anecdote there's never any any sort of trail to indicate the bit Maine was involved in anyway but we do have two places where Chinese manufacturers dropped us just like we were warned would happen and to think of any reason why they were dropping you so we don't have a good reason from either of them admittedly I was not directly involved in the conversation with SM I see our chip tubs were handling that so I don't know the full reason that this happened with our

manufacturers I was more directly involved and our engineers described their excuse as like unprofessional and it like it didn't it didn't make sense and it wasn't reasonable and it's not what you would expect from a manufacturer but other than that we don't we don't have a very strong reason some people think that bit Maine was secretly mining coins and he referenced this a little bit that they were doing that with new equipment before selling the equipment to customers however Zucco had this conversation with Jehan and then he and Jihan woo is the CEO of bit mean and he published a recap of the conversation apparently he asked

Jihan whether or not that mine had been you know doing this secretly mining the coins before selling the equipment and he said no so have you looked into that at all and did you read their conversation and what were your thoughts on what they said I did create the conversation it doesn't match what I know the things that Jehan claimed don't match the things that I've heard from other people associated with Pitman and wait what specific things did he clean that don't match what you know yeah so one of the things that he claimed was that the secret monera miners were not bit made and that he didn't know anything about it he hadn't had time to look into it I can confirm

that we believe that the secret Montero miners were not Pittman or someone else however we also believe that bit Maine was heavily involved and that Jihan absolutely knew what was going on and could have named the people who were doing the secret Monera mining so this is one you know one thing where again we're not a hundred percent sure but we're very confident that the Pittman as a company if that Jihan himself was involved in some way with the secret Monera miners the other thing is that and do you have any sense of how they were involved I don't think I'm able to share okay so keep going the other thing the other thing that we were told from people close to bit main and again this

isn't you know this is not confirmed but we were told that bit Maine had been mining cycling since November and of course they didn't announce their miner to Messiah public until or to get to the public until January middle of January however as soon as they announced the machines were shipping you know within like ten days it was clear that they had been making them at least for several months and we we were informed again by people close to bit Maine that Ben had been mining since November and this is apparently at least as far as rumors go something that's very common within bit Maine were bit Maine will mined for several months the rumor goes three to

four months usually before releasing hardware a complicating factor is that we know the bit name far and away is not the only person involved with secret mining and we know that there are several efforts in several groups that participate in secret mining and so though we can we can fine it certain trends and say we're pretty confident there's secret mining happening here it's difficult to figure out which group and in many of the cases it's not that mean it's it's someone else who's doing the secret mining and are those groups also mining their own manufacturing their own equipment or how can they be secret mining we believe that some of them are manufacturing their own

equipment or using help from groups like G you see we believe that some of them may be contracting like say either bit name or by call we believe in no silicon does a lot of their own mining although again we don't have any definitive proof I mean it is very difficult like secretive space to navigate but we think that most secret mining is most secret mining rigs are manufactured by known names even if the groups funding miseq remaining and the manufacturing process are not the known manufacturers interesting you did right earlier that mining manufacturers sell mining

equipment instead of keeping it for themselves only if they think they can get more money for it by selling it than by basically printing their own money with a machine themselves is that what you meant when you said that no that's actually not what I meant I was more pointing at the public mining and say like Bitcoin for example why would why would a company like bit may never sell a money-printing machine for less money than it's fine to print and I think that the clean answer is that they wouldn't and that they don't the only they will only ever price a mining rig that they are selling at a price that is above what they believe they could make by mining it themselves oh right okay so but then to draw that conclusion do you

what do you think this means for whether or not and the average person can make money off of mining like can't can they or you know what does this mean for retail buyers yeah so I think that it means that retail buyers cannot make money off of mining and I think that that's a luxury which is going to disappear now it may make sense for bit Maine to sell hardware to a professional mining farm if that mining farm has access to say once any electricity and the best-fit mains able to do at scale is say three or four cents because really cheap electricity is difficult to do at scale then there may be some some reason there where that specialized mining facility can make more money than

bit Maine can but that you're not going to see that in a retail environment you don't see retail people with one side electricity typically it's closer to ten or fifteen cents which fit Maine can do way better than that but better then and in GPUs I think in the long run any GPU mining is going to go the same way because eventually you're going to catch the attention of Nvidia if the ecosystem grows enough Nvidia is gonna start mining themselves and of course it's the same thing why would Nvidia sell a GPU for you know eight hundred dollars if they knew they could make a thousand dollars by keeping it and they want they do it today because cryptocurrency isn't on their radar or at least they aren't

willing to take a risk on holding that type of inventory in mining themselves but if if the industry is stable improves to the know long term like stable investment I think you will see companies like Nvidia getting involved in mining personally and again that means that retail retail miners aren't going to be able to make a profit to go back to this conversation with Zucco after Jihan and zuko spoke that mean wrote a blog post and also some tweets saying that it would now try to conduct his business in a more transparent manner and so they tweeted out updates on the shipment of the of the Z cache miners what did you think of of this

move so at this time I think we should view it as purely a PR stunt I actually haven't seen the tweets they put out so I'm not sure I think that the information is useless unless they also disclose the exact number that they have queued for manufacturing I don't know if they disclose that number or not but I think that if they didn't you can point point to that as being non transparent and as being you know an illegitimate attempt to transparency even if they did provide that information I would question whether that's a long-term commitment that they're making or it's something that they're doing to clean up

their image in the short term especially if they're dying say like an IPO they want to have a good reputation going into the IPOs that's something you can trust in the long term because bit names DNA really has seemed to be about short-term profit and about not caring about you know screwing up the rest of the ecosystem or really like digging into the rest of the ecosystem if that's if that's what makes the money that's what they're going to do it's I wouldn't I wouldn't trust that they changed that DNA without seeing substantial like more long-term and like heavy-handed commitments to transparency so maybe they have changed but I would I would definitely wait longer to believe it

have you ever spoken with Jihan or met him in person I have not okay so you didn't reach out to ask any questions about anything we did reach out when they announced the saya Minor and we got put in touch with a lower-level marketing person and basically they more or less stonewalled us trying to get basically all of our customer information they wanted to know the name and address every single one of our customers they claimed so that they could give our customers coupons but I don't think under American law it's even legal for us to do that so we at least had one interaction that felt you know half-hearted or just abusive even beyond

that we haven't made too many attempts since January to reach out to pick me hi guys Laura cutting in here with some notes recorded separately for my interview with David as I mentioned I asked Jihan wit with a CEO of the Maine about the various allegations David made on the show about whether or not Pittman was involved in obelisks foundry and manufacturer SMI C and data ed halting their work with obelisk late in the process Jihan said they didn't influence their manufacturers to work or not work with obelisk that the manufacturing business in Shenzhen is very competitive with numerous manufacturers and so how can bit main control of them he also said obelisk was blaming bit mein for obelisks supply-chain

management failures and that this was irresponsible about the allegation that bit main was involved in secret menorah whining Jahan said no that bit main was not quote David accuses bit main without any evidence about manufacturing SIA coal miners shihan says that it was bit main who approached David through a consultant and that they had actually delayed the release to have a face-to-face discussion with him Jihan said after a confirm that David had a hostile intention to change the proof of work algorithm Oh SIA coin Jehan said bit Mei decided to release the a3 miner about asking for the names and addresses of the Ovilus customers Jehan responded quote oh this is so manipulative we provided several options

when we said that we can help we thought we should take responsibility to help their pre-order customers we gave them several options here I'll paraphrase the options one bit main issues coupons to obelisks customers two-bit main ships it's a three miners to obelisk customers with those customers consent three bit main ships all the miners to obelisk and Ovilus can reach up the miners so their customers information can be protected and then she Han said quote however they just refused they refused to work with us in any way about whether bit main was mining SIA coin before announcing the miners they III miners he said that they

didn't do large-scale industrial mining on SIA coin only testing he also said stealth mining wouldn't work at a large company like pit main because it would require more than 100 employees whereas a smaller operation like obelisks could more easily do it finally about david singh he didn't believe transparency from bit main would be useful unless bit main release the number of units and @q to manufacture Jihan responded that they wouldn't release such numbers unless every competitor release the same number overall jihun said quote we felt he was in a seriously manipulated mindset against us and we decided to release miners without discussion with him anymore he needs to verify the information he gets

make educated decisions now back to the rest of my interview with David speaking of minors we have been talking a lot about fit Maine because they're the big fish but you also wrote a blog post that talked about another minor and I don't know how to pronounce this how long I think is the name and they created a D cred minor that they sold out of but then later you apparently discovered that 50% of the mining rewards indie cred were going to an address associated with how long so how do you think that happened and what do you think it says about how we can potentially curb the power that mining manufacturers have yeah so I following the blog post Heyman

reached out to me and they insisted stubbornly that that wasn't their address and that they weren't entity mining 60% of the decried hash rate which after further investigation I now believe that it was actually in Oh silicon who owned the hash rate we did see 60 percent of the hash rate going to a single address at this time we believe that address is a no silicon however we're not 100% certain so I may have made that claim to boldly on my blog post and I've been meaning to go back and edit it however it's it's nonetheless the case that it whether is hailing or in a silicon or it's a third party someone seemingly had 60% of the

hash rate and that this is this is an issue and and it's one of the big like reasons that we wanted to create Launchpad was because it's like if you if you don't have a controlled break out with Asics you end up in a situation where you are vulnerable to whoever getting their first assigned to own 60% of hash rate if they start to enforce say like a soft fork that only allows their mining hardware to be effective on the network that could permanently block all of their hash rate from the network unless unless the network does hard fork and so launchpad is the best that we know how to do in solving the like first

to market problem but we've seen consistently that whoever gets first to market for mining hardware for a cryptocurrency the cryptocurrency community tends to be incredibly unhappy about that situation and there tends to be a lot of negative side effects and so Launchpad is our best attempt at remedying that though as you pointed out it does have its own like trust issues and it is it is sort of a centralized beginning and so it's an incomplete solution but it's the best we know how to do and so far it's going to be SIA coin and D credit that you are creating mining equipment for what else is on the

roadmap yeah so we have two projects that have been commissioned that we can't talk about but almost is working on two additional projects and then beyond that we are currently fundraising for to make a Bitcoin miner the amount of money that we need is fairly large so it's it's currently looking like we're not going to get there but we do have our sights set on if not in 2019 and then maybe in 2020 making a Bitcoin miner and will you be continuing to manufacture all your mining equipment in the u.s. at least for the time being it looks like we will be staying in the US for manufacturing or maybe going to other parts of North North America such

as Mexico how low would the Bitcoin price have to go for us to see a significant shutdown of facilities based on our recent research I think that if the Bitcoin price stayed below five thousand dollars for a substantial amount of time you would start to see you would see the hash rate stop growing until you'd stop seeing new mining hardware being purchased if it went below thirty five hundred dollars I think you would start to see you know big shutdowns of mining equipment interesting so we've spent the majority of the episode talking about mining but I also wanted to ask you about something that you mentioned recently which is

that you're working on a scaling solution called micro chains can you give us a brief to description of what this is and how it works it's more or less a generalization of just what we already have with altcoins and the Lightning Network so what I've observed is that you know Bitcoin stuck it's a three transactions per second like coin stock it may be five or eight and you know each each individual blockchain has a pretty like limited throughput for what they can achieve but with the Lightning Network you can allow people you know people on the litecoin blockchain can transact trust lessly with people on the Bitcoin blockchain over lightning and neither user needs to

have the other chain and so when you expand this to a very broad ecosystem you can get an ecosystem of say a hundred or why not blow it up even more make it a hundred thousand or 100 million block teams where a user only needs to be on this one tiny chain thus you know very easy to run a full node on but through things like the Lightning Network they're able to transact trustless Li with any other user on the network and so when you do when you take that approach and you take the approach you're making a ton of really tiny chains as opposed to a small number of really big chains a lot of interesting game theory happens and so micro chains when I release the blog posts that I've been working on will explore a lot of

the game theory that happens but it's something that I think currently think might be a viable way to bring heavy scalability to the ecosystem and also bring about more mining decentralization I think there are some mining advantages to an ecosystem like this huh well I look forward to reading it when it comes out where can people learn more about you seiyya coin and obelisk I think the best place is probably blog dassai Adaptec and then obelisk has a parallel blog at blog great well thanks for coming on Unchained thanks for having me thanks so much for joining us today so learn more about David check out the show notes inside to your podcast so new episodes of Unchained come out

every Tuesday if you haven't already rate review and subscribe on Apple podcasts if you liked this episode share it with your friends on Facebook Twitter or LinkedIn Unchained is produced by me origin with help from Elaine Selby fractal recording Jenny Josephson Rahul singer Eddie and Daniel knows thanks for listening [Music]