Preston Pysh (00:59): All right. So, hey, everyone. Welcome to the
show. Like I said in the introduction, I’m here with Magdalena. And boy, we’ve been chatting
online back and forth from time to time, and never really had the opportunity to sit down
and have this more in-depth conversation. So I’m really looking forward to going through this. So,
my first question for you is, how did you become a Bitcoiner? How did you get into this space?
Tell us your story, and welcome to the show. Magdalena Gronowska (01:24): So my story is common to, I think,
many people, which is Number Go Up. So picture this, I mean, I’ve heard about Bitcoin,
and I remember even searching for Bitcoin in my emails and coming across it around 2013,
but it was really Number Go Up Technology where I was like, “Whoa, wait a minute.
I need
to buy some because it’s going up.” And so, maybe it’s not as an exciting story, but it was
also quite the learning opportunity because I lost money in Quadriga. So, that’s a trial by fire. You
learn that way. When you first get into the space, everything’s shiny and sexy and interesting,
and you’re like, “Wow, these ICOs, they’re really pumping.” And one of those people that,
despite coming in at 2017, I lost a lot of money because I was not… Yes, I made some mistakes.
But again, trail by fire. And that’s how a lot of Bitcoiners become Bitcoiners, right? And how
a lot of Bitcoiners custody their own Bitcoin, because they do these missteps. And I just think
trail by fire is probably the best way to learn, because people don’t listen. They think, “I’m
going to make a ton of money, a million dollars on this NFT,” when, most cases, people don’t.
So,
the best way to learn is touching that hot stove. Preston Pysh (02:38): So you were a Supreme Court appointed
bankruptcy inspector and you were overseeing the bank trustee for 76,000 victims on the
Quadriga digital currency exchange collapse. At the time, this was a $215 million
exchange collapse. And so I guess my first question for you is, walk us
through this experience. Talk to us about what it was like, and talk to us about the whole
exchange collapse. Give us all the details, and really don’t hold back, because I’m just
curious what this was like to go through. Magdalena Gronowska (03:09): So I think, first of all, it was a huge shock
to see such a loss.
215 million in Canada is, in this kind of time where we’re post Mt. Gox,
it’s the end of 2018… Seeing something of this scale, I don’t think people were expecting it
because we’re transitioning away from this Wild West. And as more details came to light, it’s the
perfect case study of everything that can go wrong in an exchange. And I personally lost money,
that’s how I came to be in this role. You have to be a creditor to be able to represent other
creditors as a bankruptcy trustee. And I also sit on the committee that makes decisions on behalf
of creditors, because it’s like a class-action lawsuit. So, we informed decision-making. And
what was really depressing to everybody was how little assets were recovered.
It was
only about 46 million of the 215 million. Magdalena Gronowska (04:04): And just to put a scale on that, currently
it’s worth about 1.4 billion. So, it was a lot. And the wild part is everything that
happened, that went down. There was an OSC report postmortem, which actually called
Quadriga a Ponzi, and it really went to show… This is pretty much everything that can go wrong.
So the CEO had a criminal past. He was engaged in Ponzi schemes way, way back, when he was 16 years
old, and he was involved with another bad actor. His co-founder was helping him with these schemes.
And that’s how they met, on these forums on how to scam people. Which is interesting, because we just
had a recent resurgence where Michael Patryn, so the co-founder, was managing a billion-dollar Defi
treasury for Wonderland. So it’s just wild that this still continues, even though it’s 2022. But
anyways, so typically in regular markets there are measures in place to prevent something like
a criminal running a financial institution. Magdalena Gronowska (05:05): So what was really crazy there was Quadriga
really misrepresented their custody practices, so the assets were not safeguarded in cold
storage like they said.
What the CEO, Cotton, actually did was he created and then
he traded fake assets against clients using alias. So some of them were like CP
3O, just making little puns. And then he sent client coins to other exchanges, and he was
a bad trader, terrible. So the exchange, him trading, incurred about 143 million trading
shortfall. And so he kept then using client assets to cover the shortfall, which would then escalate
the losses. And then with his death, it really kicked off that collapse of the exchange, because
people started looking into what happened. And it was more than that, and he didn’t just
do this, he also embezzled exchange funds. Magdalena Gronowska (05:57): He bought homes, multiple homes. Cars, a
boat, a plane, luxury vacations, right? And his activities on the exchange were
deliberately not tracked in the system. Everybody else, you could see what happened
and the history, but he blanked it. Quadriga didn’t have a business continuity plan.
So after he died, the directors that took over were unable to regain Quadriga’s wallets or his
accounts.
And he did all his trading and running the exchange on a laptop, so they couldn’t access
any of his devices. They actually thought that, “Hey, maybe we can get some of the assets at some
point if we managed to get into them.” But no, actually, the wallets were empty. They didn’t
have any financial books and records. They failed to file corporate taxes. So that also led to this
tax liability, which is, right now the reason why we’re delayed in a claims distribution is because
equivalent in Canada needs to file their claim. Magdalena Gronowska (06:52): In Canada, Bitcoin, crypto companies have had such
a problem getting banking and access to banking, or banks de-risk. So he was using
third-party payment processors, and at least one of these was commingling personal and
client funds.
And so the only reason we recovered $30 million was because the funds were frozen by
CIBC because the bank was looking into this. So that actually saved creditors, because there
was some money recovered beyond the homes. They did not have very good operational kind of
practices. They lost 67,000 ETH, which is a lot right now, due to a coding error. I believe it was
the Parity bug. So I mean, Kraken I know lost some money too. It’s inaccessible right now. And yeah,
at a high level, everything that typically the current financial industry does to prevent against
these things, they did wrong. And they actually- Preston Pysh (07:47): This was huge, especially at that point in time.
For an exchange to have 215 million back in 2018, this was a really big deal. And I would
imagine this was one of the larger exchanges in Canada. I mean,
definitely not the biggest exchange- Magdalena Gronowska (08:01): Yeah, it was the largest. Preston Pysh (08:01): Was it really the largest? Magdalena Gronowska (08:02): It was large, but here’s the interesting
part.
So it got that way through fraud, because he created all these fake accounts.
He was trading with himself and other users. Especially right at the beginning, when it first
started, something like 80 or 90% of trades were his. So he gave this illusion of liquidity. And
when people go to exchanges, right? They’re like, “Hey, there’s a lot of volume being traded here.
It must be a safer exchange.” He also said that he was registered with FINTRAC, which oversees money
service businesses.
And it’s not like you register and they check in, it’s a good practice thing.
It’s not like the government gave a stamp of approval, but people thought it was good. It was
like, “Oh, it’s a sign that they’re on the up and up.” So there was a lot of fraud that happened,
whether it was to create this idea that this was a good exchange or actual fraud, where he was
trading against users and stealing their money.
Preston Pysh (08:59): Wow. So for a person listening to this,
they’re thinking to themselves, “My god, that sounds scary as hell.” And especially for
people that are maybe new to Bitcoin hearing this, they’re saying, “What the heck?” What would
be your takeaway having lived through this horrific experience? Which I don’t think is the
norm for most market participants in this space. What would be your takeaway for a person
who’s hearing this? What do you say? Magdalena Gronowska (09:23): I think it fundamentally comes down to, keep
what you’re comfortable losing on an exchange. Just don’t keep the majority of your funds on an
exchange, because things can happen. Now, some of the larger ones we have seen, if there is some
sort of hack, they cover it with their own cash. But if it’s significant enough vulnerability,
you’re not guaranteed to get anything back. And I know it’s hard, so I want to be realistic.
People trade, engage in trades.
They set up trades for a certain limit price, right? To hit.
It’s a matter of really finding out what you’re comfortable with and figuring out how to de-risk.
So maybe it’s finding two or three exchanges that are more reputable. They’re following
regulations, there’s nothing shady happening, and spreading it out if you want. So if one
goes down, you don’t lose everything if you are a trader. And a lot of people too, they
get comfortable, they put some money on an exchange. Maybe it’s a thousand bucks or $5,000,
but think about when Bitcoin was 4,000 and then it shot up 40, 60,000 within one year. You can
10X easily what you have on there and forget. Preston Pysh (10:29): Well, and I think another key point that I’m
just thinking of is just the guy in charge so much flows from the top down, with the leadership
of any organization.
I don’t care what it is. This past week we saw Jesse Powell out at
Kraken make his statement to the world, of, “Hey, if a government comes to me and
tells me that I’ve got to seize up funds, I have to do these things in order to obey
these laws without being shut down.” So, “Get your coins off the exchange,” was literally
coming from the top CEO of one of the biggest exchanges on the planet. This guy doesn’t sound
like he would ever say something of such ethical transparency, right? Do your
homework on who’s ever in charge of some of these organizations and
the track record of those people- Magdalena Gronowska (11:09): Yeah, and that one is actually interesting. So after what happened in Canada over the last
week, it’s not just losses, exchange losses or a hack that you have to worry about.
It’s, “Are you
going to be financially censored for some reason, maybe even without due process like in Canada, and
your funds cut off or your address is flagged?” So if there is a third-party custodian that’s
subject to certain rules and they want to stay on the good books of the government, that they
want to continue operating in that country, you might get your assets frozen as well. So,
that’s something to consider. Whenever there’s a third party, you’re not the one in control of your
money. And so if you take money off the exchange, you control it but then it’s a different issue
where you are responsible for your own money. Magdalena Gronowska (11:56): So it’s like, if you have a gold bar, where do
you store it? Do you bury it somewhere and then forget, right? There’s other factors that come
into play, and it’s trade offs. But you have to think about that for yourself, “What trade off
is more important to me?” For example, for me, just a personal story.
So I saw asset seizure
through my grandma. So, after the war in Poland, the borders were shifted, and she had this family
farm. Beautiful, she’d call it paradise, right? Beautiful gardens. It was just so bountiful, the
earth, the vegetables. She used to be like, “Oh, yeah, it was like a shield.” It was that size, the
sunflowers. And so when the border shifted, that was no longer hers.
So she lost that asset, and
that’s something that she really missed. And so I saw that from my family, and so that’s important
to me. It’s like, “I want to have some assets that I know nobody can take from me.” So that’s how
I view the world, and then you yourself have to picture what’s important to. Are you responsible
enough to take that financial sovereignty? Preston Pysh (12:57): All right. So, let’s talk about another thing
that you were a part of here. So you helped with the 3iQ IPO, which was North America’s
first regulated Bitcoin fund on the TSX. Walk us through what this process
was like. You have tons of people here in the US during wondering why in
the world we don’t have spot ETF over- Magdalena Gronowska (13:17): Not for you guys. Preston Pysh (13:19): But walk us through this process, and then just
give us some of your thoughts on what it’s like to get something like this pushed through.
And then
maybe some of your thoughts on the spot ETF stuff. Magdalena Gronowska (13:27): So 3iQ’s Bitcoin fund really paved the way
for all funds, including ETFs, in Canada. And that’s an interesting story too, because 3iQ
took on the regulator, so the Ontario Securities Commission. So just to set the scene, in Canada
we have provincial regulators. We don’t have one securities commission, every province has one. But
the Ontario Securities Commission is the one that other provinces look to just like the world looks
at what the SEC does. And they also throw their weight around too, around the other jurisdictions.
And so they thought that a Bitcoin fund was not in the best interest of retail consumers. And so what
3iQ thought initially would be pretty easy to get ended up being a three-year legal battle to make
it okay.
Sorry, is Grayscale going to court or- Preston Pysh (14:20): It sure looks like they’re ramping up to
do something in the legal domain. Yeah. Magdalena Gronowska (14:24): Okay. So they might actually have a 3iQ
journey where, at the end of it, there were multiple hearings. And the judge, so one of the
commissioners, came out with a 26-page ruling about why there should be a Bitcoin fund in
Canada and how it is in the best interest of retail consumers. And that piece of paper,
that document is the foundation that all other funds went to apply their prospectuses for.
But it was really interesting, because you really had to push back.
So they basically had the OSC
say no so that they could then take them to court, and then fight for a ruling that would permit
that. It’s a different type of approach rather than asking, because then you get a concrete
answer. And I think it’s really interesting, because Canada and the US are very similar
in terms of markets and just a Western type of country. So maybe if some smaller country
like Bermuda launches a Bitcoin fund, it’s not the same kind of implication, but
you have funds and ETFs in Europe, Singapore, in Canada.
And I’m really looking at the US.
The precedent has been set for these types of products, and I really question why the
US does not have one. Especially looking at what’s happening with Grayscale and the discount,
the heavy discount with the futures product, the carrying fees. So it doesn’t
seem in the best interest of retail. Preston Pysh (15:49): At all. It is so administratively burdensome
when you’re looking at the futures, trying to synthetically create a price around these
futures that are constantly being changed. And I mean, it’s very frustrating and it really makes
you think, “Is he doing something in order to allow all of his Wall Street connections to get
in there?” And I hate to sound like a tin foil hat type person, but I can’t figure out any other
reason why somebody would be pushing back this hard. And I mean, the thing that I find
really strange about it is Hester Peirce, who’s the deputy there, has the exact
opposite opinion of him. And I don’t know if it’s a good cop/bad cop routine that they’re
playing, if they just really don’t get along.
Magdalena Gronowska (16:35): You know what’s interesting, too? So
I worked in economic development type of activities on the policy side for government
for a decade. And if it wasn’t a country like the US, I would say you’re shooting yourself in the
foot from an economic perspective. Unfortunately, the US has a significant moat in that everybody
looks at the financial markets in the US, right? They are the biggest. So if you
want to list something, you go there, right? If you’re a Bitcoin miner, you don’t list
on the Canadian exchange.
You want to list on the US exchange because of all the benefits
that accrued with that. But otherwise, I’m thinking just in terms of investment and jobs that
you’re costing, but if it were any other country… Because you want to provide your citizens this
opportunity, you want this industry to thrive and have the economic benefits and innovation
that comes from it. So I really question what is happening there and what they think. Because
typically, government has trade offs. They think, “This outweighs that, so therefore we’re saying
no because these other reasons are making it more important.” They’re saying it’s not in the
interest of retail, a similar type of story. Or there’s market manipulation, et cetera, et
cetera, for all the reasons why they say no. But what is it that they think they
see is the part that I question.
Preston Pysh (17:43): All right. So let’s talk the Citadel256
Bitcoin mining. Explain to folks what it is, help us understand what your role is there
and how long you’ve been a part of it. Magdalena Gronowska (17:55): Citadel256 I launched with the co-founders of Hut
8. So, Marc and Sean, and post-Hut 8. This was unrelated to Hut 8. And we were looking to build
enterprise-scale hosting for Bitcoin miners. And what’s interesting is we actually started
working on that and talking to Asian miners because of the connections that we had before
the China ban.
So what it really was, was this testament to the onshoring of the mining
industry back to North America. So it’s bringing manufacturing back because of
the opportunities that North America has, whether that’s competitive energy system or
opportunities for low-cost prices. For example, we were looking at a site where it was co-located
with a wind farm, so we would get reduced pricing for the time that the wind was blowing. So about
80% of 100 megawatt site coming from renewables, and then the rest from the Texas grid.
Having
worked for a decade with heavy industry around competitiveness issues, I’m very familiar with
heavy investment decisions that a heavy industrial undertakes, especially one that is
energy-intense and trade-exposed. And there’s no other industry that is as
energy-intense and trade-exposed as miners. Magdalena Gronowska (19:14): And what I mean by trade-exposed is if policies
change, for example, China banning Bitcoin, will the industry just get up and go? And mining
is pretty unique because you can move the miners. They’re the biggest cost in terms of
infrastructure. So you can ship them and rebuild, unlike something like a steel plant where
you have a coke oven that’s maybe 30 million, $40 million and has a lifetime of 30-ish years.
So it’s a unique industry because you can move to energy sources that are cheap, that are even
low, no-cost, or negative cost, as in you’re getting paid to take that feed stock.
And what I
mean by get paid to take in is waste. People pay tipping fees to remove waste. So as a miner, if
you have an operation, you can lower your costs that way or you can co-locate next to a heat load.
So you can sell the heat offtake, as in miners generate a lot of heat, that can then be piped
over to a heat load. So that can be something like space heating for a city, which is happening
in Vancouver right now in a pilot, or a greenhouse or a farm, warm up your hogs in the winter.
So I think mining is pretty interesting, and how it manages to infiltrate all these
different types or parts of the economy.
Preston Pysh (20:34): Yeah. It’s fascinating to think that you could
have… A $10,000 miner is not really all that big for removing and sending it to some
other jurisdiction that happens to be much more favorable to the policies of
doing it. So if you take 100 of these things, that’s a million dollars worth of infrastructure.
And it’s really not taking up a whole lot of space. In fact, that’s why I think you see a lot
of them putting them just straight into containers so that you can just modularize the container
and send it somewhere else if the policies start to become more disadvantageous
to the people conducting the mining. Magdalena Gronowska (21:10): Yeah. And just on that thought, that’s
why it’s easy in some ways to attract miners. Because if you create the right
economic incentive in your jurisdiction, the miners can very easily pick up and go.
Because, again, the most expensive part is- Preston Pysh (21:24): The rig. Magdalena Gronowska (21:24): … the capital part is the miner. And if the
energy economics are much more competitive, they’ll move over there, right? And look at
what’s happening in Texas.
It’s becoming a mecca, and there’s jobs that are being
created. And what’s really fascinating, the coolest part of Bitcoin mining is it
straddles the digital and physical world. So it has a physical footprint, just
like any traditional industry, but it creates a product that’s fully digital
and it’s a commodity. And so typically, commodities, they have super low margins, but
the margins on mining have been reaching 80, 90%. Preston Pysh (22:00): Really high. Yeah. Magdalena Gronowska (22:02): It’s wild. And if the price goes up, you can’t
produce more Bitcoin. There is a mathematical equation that says how many Bitcoin are always
produced. So it’s not like gold where, if gold were to 5X, suddenly you’d have a ton more mines
increasing production. So, I think it’s such a unique industry. And because of that,
there’s unique features that come with it. And then also from that economic development
perspective, why it’s attractive for countries or states, or even cities, to attract it
is because you’re creating these knowledge economy jobs that come with mining.
So it’s all
the financialization of Bitcoin mining, right? There’s the energy side and energy experts, plus
the actual builders. Those who set up the mine, who build the infrastructure and manage it. And
now we’re integrating with other industries, whether that’s district heating or waste
management. So it’s just fascinating seeing this diversification and opportunity
in so many sectors of the economy. Preston Pysh (23:06): So what do you think most people miss about the
whole mining process? The typical person that knows quite a bit about Bitcoin, what is
it that they miss when it comes to mining? Magdalena Gronowska (23:18): I think it comes down to this misconception that
Bitcoin mining is bad for the environment because it’s using power. There’s a number of different
ways where they’re wrong. One is they think that one Bitcoin transaction is the equivalent to
a block reward, which you’re probably familiar with. Another one is that there’s all this energy
that could be used for better things. Maybe it’s hospitals or something, but they don’t understand
how much energy, either misallocated or wasted. If we just look at some of the coal business
models that these miners are finding, flare gas in the oil and gas industry.
Typically,
oil and gas flares. So they emit methane from the oil and gas process, because methane is 25
times more potent than CO2, or 80 times over a longer lifetime. And so because you’re converting
methane into CO2, it’s an environmental benefit. Magdalena Gronowska (24:17): But it’s still energy that’s being wasted. So
the awesome part is miners come in, they’re a more efficient process, they’re taking this
wasted energy and they’re putting it to good use to support the Bitcoin network. Recently,
we’re hearing a lot about miners destroying the planet. Not just because they’re
boiling the ocean and wasting energy, but there’s a lot of e-waste out there. They’re
generating waste, filling landfills. And I think this is an opportunity to flip the narrative,
because there are miners that are taking advantage of waste resources, whether that is municipal
solid waste or the billions of waste tires generated annually across the globe. And so
that is a resource that could be mined for energy that’s just sitting in a landfill, and it’s
a negative cost energy.
And so we’re seeing miners fill that niche and figure out better uses.
The waste heat that is created from a miner is a resource as well, right? Whether you’re heating
buildings or heating greenhouses, and this is both things that are happening right now, or another
kind of low-grade heat process in manufacturing. Magdalena Gronowska (25:23): There’s opportunities to reuse that waste
resource. And so I think there’s an elegance to Bitcoin where it moves based on economic
incentives, right? And it’s simple, right? It’s just a simple set of economic incentives. And so
for the first time we have this way where we can fund public policy issues that typically have had
underinvestments.
Whether that’s the transition to a low-carbon economy where trillions of dollars
are needed to get us there, or this transition to a more modern, clean, resilient energy
system. Because a lot of our infrastructure in North America has been underinvested, and we
get brownouts. Transmission, distribution lines, generation, some of these plants are over
100 years old. And so there is investment that’s needed, and I think traditionally it’s
been the government. So either it’s the users, so the rate payers, or it’s the taxpayers, or
it’s the private sector that steps in because of some capitalistic opportunity. But we now have
this new bucket that can fund these public policy issues that could generate some sort of positive
environmental outcome or societal outcome.
Magdalena Gronowska (26:37): So, whether it’s waste reduction, whether
it’s resource optimization, or optimization of the grid as is happening in Texas. And so,
having worked for a decade in the low-carbon economic transition, I keep seeing the
goal posts get moved. And it’s typical, because governments want to get reelected
so they don’t want to come down too hard with the stick, right? And this is a different
way out, and it’s purely being done based on economic incentives.
These miners are saying,
“Hey, here’s a resource that I can lower my cost with, or I can sell this heat offtake and
it’s a additional revenue stream for me.” And that is creating this environmental benefit.
So I think that is a piece that people aren’t yet capturing, and these synergies that we’re seeing
between miners and the renewable energy industry that hasn’t yet come to light because everyone’s
so focused about boiling the oceans. And so I think it’s one of those things… The Satoshi
quote, “If you don’t believe it or don’t get it, I don’t have the time to convince you, I’m
sorry.” This is already happening, right? Preston Pysh (27:44): Yeah. Magdalena Gronowska (27:45): They’re combining with legacy industry,
integrating and finding these synergies. And at some point, people are going to
realize, “Hey, this actually happened,” right? So people will believe because they’ll eventually
see it. It’ll be so commonplace. Think about in people’s homes. People are sticking miners
in, they’re reducing their home heating bills, which are traditionally carbon sources because
it’s natural gas and they’re heating their home on grid power.
And depending on where you
live, you might actually be 98% renewable, like in BC where it’s all hydro. So it’s
fascinating how this industry is just so pervasive in terms of the economic sectors that it
can positively impact. And people tend to focus a lot on the negatives, right?
So there’s the financial services, there’s all these societal benefits that can
accrue from access, but then people tend to focus on the negatives. So they focus on the
criminals and the money laundering, right? There’s the energy system where people tend to
focus on this, “They’re wasting very good energy.” Magdalena Gronowska (28:45): Well, it’s not the case, right? We’re creating
a better, more resilient, more optimized grid system.
Manufacturing, creating additional revenue
streams, and maybe actually helping struggling legacy industries. If you look at the
pulp and paper sector, they’ve been dying. We’re all going digital, right? And
they require heat. Well, heat recoveries is a cross-cutting technology, so I am seeing miners
partner with pulp and paper sector. So if you can provide a little bit of an extra revenue stream,
or even miners co-locating at a legacy business and providing that revenue stream. In the oil and
gas sector, there’s a lot of opportunities there. So a country that cuts off Bitcoin, whether
it’s Bitcoin mining or just Bitcoin, is shooting itself in the foot, because this
is an industry that lives in both the digital and the physical world. It’s not just about
mining, even think about custodial wallets. It’s industry, it’s a different type of
industry.
And we’re still manufacturing things, they’re just things that straddle
this digital and physical world. Magdalena Gronowska (29:41): So I think that’s why it’s fascinating, but policy
people are still missing the forest for the trees. And we’re seeing a lot. There’s the left and the
right, or the conservatives versus the liberals, and the conservatives are very much… It’s all
about the capitalist system, which is, mining fundamentally comes down to the economics, right?
There’s nothing more capitalistic about that. But then there’s all these positive benefits
that can accrue societally, including something simple as food security. If you look at Alaska
or Northern Canada, there are places where they don’t have access to fresh fruits and veggies.
But if you put in a mining operation, and I know there’s some First Nations that are looking
into this, you put in a mining operation and you’re essentially subsidizing food
production, fresh food production, instead of having it shipped in.
So there’s
these little policy levers that aren’t a mandate, like a government mandate, “Thou shall do this,”
or, “Thou shall not pollute,” that type of thing, where it’s actually positively incentivized. And
that’s why I think it’s a fascinating place to be. Preston Pysh (30:46): Yeah, for sure. And when I’m listening to what
you’re talking about, you really are hitting at economic incentives. I think so many elected
officials, they look at policy as their tool or their way of displaying, “Hey, I came up with
this policy, which then attracted whatever to come into this jurisdiction, which was a win for me
being in charge in this domain.” And I think that with this in particular, less is more.
Not putting
something in place is allowing these economic incentives to naturally express themselves and to
attract all of these things to happening, like you were talking about, the gas flaring and just…
I mean, you name it. Everyone wants to try to optimize this heat energy that’s naturally
being kicked off from the act of mining. And they’re naturally trying to find the cheapest
kind of energy or creating some type of business to go upstream.
And you and I talked before
we started recording about Jason Williams with the tires, right? Here’s a guy who’s
getting paid to take the tires. Getting paid to take the tires, and then converting that
into energy, to then run mining rigs. It’s- Magdalena Gronowska (31:56): But then also creating value-added products.
Because there’s black carbon, that’s generated, there’s oil, there’s the synthetic gas, right? There’s steel that can
be recycled. So it’s not just thermal deconstruction of the product, you’re not
just burning the tire. You’re creating resources that typically, to produce oil or to produce the
black carbon, you would have your own industrial process with its own environmental impact. So
you’re replacing that. So I think these types of stories need to be told more to the policy-makers.
And just from my experience working with industry, the squeaky wheel gets the grease. So we haven’t
been squeaking enough as an industry, I think, but it really is changing. We’re at a point
where the industry’s so financialized. Magdalena Gronowska (32:41): They’ve got capital because there are so many
publicly listed companies, whether that’s miners, but then also you have exchanges that have
tremendous amount of capital that can start to throw their weight around like traditional
industry has.
And we are seeing that, and I think it’s something that’s going to
grow. And it’s been interesting, because I’m not surprised to see mining as an industry
create its own group. And that’s what happens in legacy industry. You have Canadian manufacturers
and exporters, but then you have the steel association, the cement association, where
everybody has their own special, unique- Preston Pysh (33:15): Lobbying of- Magdalena Gronowska (33:16): … issues that they bring forward. And they
build those relationships with policy-makers, and they tell the story of, “We employ X amount
of people. We generate, we bring this much to the economy.” And that why it’s important. But
I think it’s more difficult to understand, because steel is something simple in the sense
that, “This is an industry and we create steel.” Preston Pysh (33:36): Amen. Magdalena Gronowska (33:37): But then Bitcoin, because… So I’m going
to bring in the Darwin finches. So just taking a look at mining on its own, there’s
this Cambrian explosion of ecological niches where miners sit in across various sectors of the
economy, like waste management, agriculture, energy, just all these places.
And then that’s
just mining alone, and then you get into wallets and exchanges. It’s become so complex that just
the energy story is this big black box typically, for people, but now you pile in like, “What do
you mean you’re replacing our money?” People can’t grasp all these concepts. So it’s really hard for
them to build policy. Because for the big picture, you want to the whole Bitcoin ecosystem because
then you’re you’re creating economies of scale. You’re creating this economic, global
hub. And then you’re strengthening this attraction of talent and money
in this kind of virtuous cycle. Magdalena Gronowska (34:33): So I think fundamentally, I think, where we really
need to go is of strategic importance to develop a domestic Bitcoin strategy, but it’s so complex in
how it plays out. But the policy-makers need this big view, because there’s just so many levers that
you can apply to then support a domestic Bitcoin strategy. And I think if you’re just looking at
mining and energy alone, you might be missing some of the other policy impacts like that recent
bill that had been put forward.
The one where which would affect miners and nodes, make them
essentially money service transmitters. That was something that had unintended consequences. It was
part of the Infrastructure Act, which, ironically, was going to kill the new digital infrastructure
and the way that it was being built. Magdalena Gronowska (35:17): So the whole part is, you have to have
this… It’s a domestic Bitcoin strategy where the best types of strategies, if you’re
looking at it as an industry or a sector, are those that are very broad.
So, they look
at different policy levers. And not all levers are fiscal. Yes, so maybe they’re fiscal, like
funding and creating loans and infrastructure spending. But instead of building roads,
we’re building Bitcoin infrastructure, payment rails. But it’s things like government
as a first customer, because this company is new. It’s a startup and it’s never had a first
customer, but typically how that works is, “Before I become a customer, I want to know who
your customer was.” “Oh, it’s the government. It’s the US government.” “Of course we’ll take you
on, because they must have vetted you,” right? Magdalena Gronowska (36:01): And it’s not necessarily directly spending,
where it’s like, “We provide you with funding for research,” for example. It’s, “You can
do things like tax credits or rebates.” But then the big part, and I think that a lot of
governments are maybe not doing it so well on, is policy framework and policy certainty.
And we haven’t seen that certainty.
Canada is ping-ponging along. The industry right now is not
sure whether they’re going to start shutting down or banks are going to de-risk them because they’re
just involved in the crypto industry, right? Certainty is fundamental, because if
I don’t know if I’m operating in this jurisdiction and they’re going to shut me down
tomorrow, why would I even go there, right? That’s huge. And for a while, Canada was
a leader in that, and not so much now. Magdalena Gronowska (36:46): And the US, we leapfrog each other occasionally,
and you guys are currently really winning on the attraction of miners. But the ETF, we
got you there. But it’s other things, too. It’s creating R&D kind of supports, and there’s been a
lot of complaints about intellectual property laws and patents. So there’s just so many things that
a government can do. And then most importantly, workers. We need knowledge-based economy workers.
This is something that takes a while to develop, as in school curriculum, right? For now industry
is scaling up that, but it’d be great if this could be taught at a younger age and be put into
the curriculum.
And for the last thing, I think to really, truly support a domestic Bitcoin strategy,
I think you’re looking at a treasury allocation, right? What better way to support that? I used
to laugh and say, “Maybe it’s possible for Canada to have one. We don’t have gold anymore, but
we do have a strategic maple syrup reserve.” Can you believe we have more maple
syrup than we have gold or Bitcoin? Preston Pysh (37:48): I love that. Magdalena Gronowska (37:49): But I digress. Preston Pysh (37:52): If I was going to summarize it for a person who’s
maybe in politics or looking to create policy in any jurisdiction, I think your message is really
loud and clear, of, A, get out of the way.
B, let people know that you’re going to stay out of
the way in some type of form that lets people be able to make capital allocation decisions. For
the cost of infrastructure in hiring people and whatnot, that probably don’t want to leave
whatever jurisdiction they’re in, you’ve got to provide a stable and calm environment that
gives them assurances that they can come here and they can stay here, and they can act in a
manner that they’re not going to be disrupted or toyed with while they’re there. That’s really the
impetus of it. And then Bitcoin will naturally create economic incentives just by the sheer
nature of what it’s doing. For everything to take place on its own. I think that’s really
what you’re getting at with what you’re saying. Magdalena Gronowska (38:50): 100%. And it’s funny because- Preston Pysh (38:53): It’s fascinating. Magdalena Gronowska (38:53): Yeah, no. What’s really ironic is I used to
actually have my heavy industry stakeholders, that is exactly what the CEOs
used to say, “Get out of our way.” Preston Pysh (39:02): Way.
Yeah. Magdalena Gronowska (39:04): For example, cap and trade, it wasn’t so
much that government was putting in a cap and trade system. It was that it was taking
forever to decide on the rules, and the rules would be set up to 2020, but not 2030. They
just wanted certainty, because once there is- Preston Pysh (39:18): That’s right. Magdalena Gronowska (39:18): … certainty, they can factor it in. They can
conduct all the calculations, depreciations, and financial impact. And even, you can buy
offsets ahead of time for future vintages. So it’s just a matter of, create the framework and
let us operate and we will optimize our resources. And if it makes more sense to just shut down our
plant and go to another jurisdiction, at least I have a certainty because I’m making a decision on
something that’s not flipping and flopping, right? Preston Pysh (39:46): Yeah.
Get out of the way. Magdalena Gronowska (39:48): Get out of the way. Preston Pysh (39:49): And give me assurances that
you’ll stay out of the way. Magdalena Gronowska (39:53): And the US has traditionally
been a lot better about that. Preston Pysh (39:56): All right. So over in Europe right now, they’re
having… And I think this really has come home with the whole Russia situation and the
expectation that their energy costs are going to start going through the roof. I think that
now you’re seeing this opportunity for people, that have very different opinions than the
ones we’re talking about tonight, standing up and saying, “We have got to ban anything that
relates to proof of work. We have got to stop this gross use of energy going into these proof
of work protocols.” And who knows how this is going to be received over there in the EU but,
I mean, the article hit today. So I’m curious, we got plenty of listeners over in
Europe that listen to this show, what is your recommendation for them or
where do you see this going and playing out, based on this situation? Which I think is a
real big concern for people living in Europe. These energy costs are going to go up.
The pain
is there, right? And so that’s where they’re coming from without really understanding
what it is that they’re trying to turn off. Magdalena Gronowska (40:58): I come back to, I really feel they are
shooting themselves in the foot with this type of policy. Because fundamentally, they’ve got
an infrastructure problem, and they need to spend a lot of money on infrastructure. And there was
a time where a number of European countries shut down their nuclear plants, and nuclear is
a baseload. And as a single-point source, it generates a lot of power compared to
something like a natural gas peaker plant, or even a coal plant. And so, some are going
back and actually going to consider building some more. But the fundamental point is,
is there’s a lot of money that needs to be spent on infrastructure, and where is that
money going to come from? So I come back to, partner with an industry that’s basically printing
money, but real money, right? That can subsidize not the tax payers, not the right payers, not the
private sector, but here’s an industry that can create a new type of subsidy if they partner
by creating either a predictable load… Magdalena Gronowska (41:58): So what’s really interesting is, I’m
seeing this with nuclear plants and Oklo in the US, where they’re creating small
nuclear reactors.
They’re piloting this, building out a smaller reactor. Maybe, again, it’s
a little larger in terms of capacity than the city they’re going to be placed in, but that extra load
comes in from Bitcoin miners. So again, creating that predictable revenue stream to take that off
the infrastructure cost and the operating cost. And the same thing with renewables, a similar
situation can be made because any investment decision comes down to, “What are the costs?”
right? And, “What are the profits?” And so Bitcoin mining is creating that profit center.
And the other interesting part about Europe is, they’ve been a lot more comfortable with the
fourth R, so energy reuse. There was a time, for example, in Canada, where people
were really against energy from waste. Magdalena Gronowska (42:58): So people would actually picket with signs
saying, “We’re not lab rats. Don’t burn garbage.” Because they were concerned about
air emissions and other toxins.
Whereas Europe, because they have less land for
landfills, it’s more densely packed, it’s more common that you have energy
from waste facilities. And so, similar to what I was talking about of there’s already
situations where you are taking in a landfill, whether it’s tires or whatnot, it’s another
way to subsidize that energy facility. And so there’s a lot of policy issues that can be solved
from a positive front, but they’re stuck on this idea still that, “We lack energy. It’s causing
energy prices, and miners are going to steal that energy so we have to shut them down.”
And they’re not seeing it as this symbiotic opportunity. And that is something that, I think,
that can only be navigated through telling these stories and showing these examples of this
already happening somewhere else in the world.
Preston Pysh (44:06): All right. So this next one’s off topic,
but there was a lot of people online that were telling me that I need to ask
you about being a volunteer fireman. Magdalena Gronowska (44:15): Yeah. No, I’m a volunteer firefighter. I am a
first responder as well. So if you are in a car accident, your car is on fire, I’ll put that fire
out. I will jaws of life and get you out of there, and administer to any first aid needs. Yes,
we also rescue cats, I guess. I haven’t had the opportunity to do that.
But honestly, I love it. It’s interesting, because most people don’t
know 70 to 80% of fire departments in North America are actually volunteer, as in they’re not
career departments.
It’s volunteers coming in. So I’m on call 24/7 if… Obviously, family and
the job comes first, but especially if there’s something like a fire in the community. Once
the pager goes off, I’m in firefighter mode. Preston Pysh (45:00): I love this. Magdalena Gronowska (45:00): Yeah. So it’s interesting, a lot of Bitcoiners
are actually moving to these rural towns where you’re not going to
have a career fire department. I think, first of all, it’s an awesome
skillset if you’re picking up first response. It’s just like, you have a first responder in your
house. But secondly, you’re building really good, strong relationships with your community.
It’s really rewarding. It’s challenging, too. Obviously there’s that element, but I
love it. It’s become part of my identity. Preston Pysh (45:28): I love it. That is just so cool. Magdalena Gronowska (45:29): And you know what’s- Preston Pysh (45:30): Good for you. Magdalena Gronowska (45:31): Oh, thanks. It’s really funny, because we talk
about what is Bitcoin.
It’s fire insurance, right? We know as firefighters the importance
of having fire insurance. And Bitcoin, it’s like buying fire insurance,
but it’s also building another house in another town, and it’s in
another total local economy. Preston Pysh (45:53): I absolutely love it. Mags, I don’t
have anything else. If you’d like, can you give a handoff to folks
where they can find you? I know you’re active on Twitter and then also at
ColdCard as well, which, we were talking with NVK last week.
So, feel free to give
some handoffs to anything you’d like. Magdalena Gronowska (46:08): Yep. I’m Crypto_Mags on Twitter.
And yeah, so I’m vice president of business development at Coinkite. We make
awesome products like this calculator, the Opendime, which is basically
like I’m handing you gold. And we’ve got really cool products coming,
like the TAPSIGNER and the SATSCARD, but those you can find out from last week’s
podcast with Rodolfo. It’s funny, because Bitcoin is so digital that I keep finding these jobs where
I’m straddling this physical and digital world. Preston Pysh (46:40): Wonderful. Magdalena Gronowska (46:41): But it’s exciting. Preston Pysh (46:42): It’s very exciting. Magdalena Gronowska (46:42): It’s the base level, right? Preston Pysh (46:44): Yes. Very exciting. Well, we can’t thank
you enough for making time and coming on the show. It’s just a absolute pleasure to
talk with you and to hear your point of view.
Magdalena Gronowska (46:54): Thank you..
