3rd Global Cryptoasset Benchmarking Study with Apolline Blandin


Apollin Blandin is the Cryptocurrency Research Lead for the University of Cambridge’s Center for Alternative Finance.  She joins us to discuss her team’s comprehensive study on the bitcoin mining industry.  We unpack their methodology, how the global landscape for mining is maturing, and where she feels we may see new industry growth in the coming years.

Read CCAF’s 3rd Global Cryptoasset Benchmarking Study here

Follow Apolline on Twitter.

Episode Transcript

Whit: What’s up everyone. Welcome to the HASHR8 Podcast. Thank you so much for tuning into the show. Today I’m joined by my guest host John Lee Quigley, Director of Research for HASHR8 and also our special and distinguished guest, Apolline Blandin, the Cryptocurrency Research Lead for Cambridge Centre of Alternative Finance, Judge Business School. She and her team have just released a fantastic industry report focused on the mining industry. Also there’s a couple of other industries that they touch on in the report itself, but the meat of it is focused on mining. So we wanted to have Apolline on the show to discuss the recent report. I’ve got that linked in the shows notes for anyone who would like to give it a read. It’s great. They cover a lot. The research is very thorough considering that mining can be somewhat secretive. I think she and her team did a fantastic job of compiling the data over the past couple of years and putting it all into this report, which is very easy to read as well nice and digestible.

Whit: I’d encourage you to check that out if you haven’t already. I hope you guys enjoy this conversation. If you do, please make sure that you leave us a rating and review on your preferred listening platform. It goes a long way to help us spread awareness about the show. Now, before we get into the conversation with Apolline, we do have a word from our sponsors and then we’re onto it. Enjoy.

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Whit: What’s up everyone. Welcome to the HASHR8 Podcast. I am the @BitcoinBroski and we have got a very exciting show today. Normally in these conversations, they’re a little bit of an interview. You know, sometimes we talk about the market. This is going to be, I think probably the meatiest podcast that we have ever done. There is a lot to cover. I’m joined today by my guest host John Lee Quigley and our very special guest Apolline Blandin. The Cryptocurrency Research Lead at Cambridge Centre for Alternative Finance. Apolline, welcome to the show.

Apolline: Thanks for having me Whit.

Whit: It’s a pleasure. Before we get into the report itself and you know, we’re going to go all 71 pages page-by-page – nah I’m just kidding.

Whit: Let’s let’s hear your story. How did you land at Cambridge?

Apolline: First of all I want to say. This is the shortest report which we’ve every written. It used to be over a hundred pages, but that’s an achievement in itself. So I’ve been with the 70 14 finance for about two years and half, before that I was working in France with an industry association for tech startups and investors, and they were quite a large proportion of companies that were working on cryptocurrency among which Ledger, etc. So my role was more kind of at the European parliament about the currency and educating MPs, etc, on that topic among others. But before that I was actually doing a more research type of work and I was in China and in London and I really missed the research aspects. So then I just decided to go back into research and focus on cryptocurrency.

Whit: Interesting. So at Cambridge, what does the day to day look like for you?

Apolline: So it depends on the project we’re working on, but the core of our research is this benchmarking study. So normally we have like one for the crypto space and one for the enterprise blockchain industry, which is much lower. So we don’t have any report on that this year, but it’s also the base. So, you know, it’s like super time consuming because you have to come up with a survey, reach out people, you know, a hundred times to make sure that take your survey and then clean up the data, verify the data and analyze it and then writing up. So that takes about six to eight months to do. And then we have a few, I mean we do a lot of dissemination events as well to present some of the findings. We talk a lot with regulators to kind of educate them on the topic as well. So yeah, I guess that’s a mix between, you know, talking to regulators, the industry and looking at it.

Whit: Sure. How did you get into crypto and blockchain in the first place?

Apolline: So I was covering various tech related topics, but really I think the Bitcoin one was like the most interesting and because it was kind of aligned with the type of research I did before. So in China I was looking at mobile finance and the way WeChat is just massive over there compared to what happens in Europe, for instance. So that was very much in line with my research interests and I really enjoy collaborating with the people from Ledger as well. I learned a lot from them. So yeah, I was definitely keen to, you know, just focus on that topic instead of covering thousands of other topics.

Whit: With this particular report. What was the total count? Do you remember of how many surveys that you guys sent to people across the industry?

Apolline: So because we’ve been doing this since like since 2017, we have our own database of contacts, so we always reach out to them. But I think this year we probably sent 500 to 700 invitations, like individual invitations. But then we also sending a lot of invitations through WeChat and Telegram groups. What was great is this young team, we had people speaking Arabic, Russian, Chinese, Portuguese, Spanish. We really try to maximize the number of Chinese reading. And so, yeah, it was quite funny because from time to time, there was people I knew in the industry who reached out to me and asked, do you know this guy because he reached out to me on telegram saying that he works for Cambridge. So that was quite nice. But yeah, I think this year really improved on the outreach. And I guess, you know, the more our work gets known, the easier it will become in the next year.

Whit: So in that regard, how is Cambridge looking at this aspect, this report, for the CCAF is a gaining importance at the university and therefore getting more resources as time goes on.

Apolline: Well, it’s a bit tricky because definitely the center is getting a lot of visibility with the work we do on cryptocurrency. You know, you just go on social media and the type of report we launch. I mean, this one is definitely the one that gets most retweets or comments, etc. So definitely there is an increased interest in the Judge Business School, which is the department where we work for. They’re also looking into including some topics on cryptocurrency within their courses, etc. But at the same time, we can’t get funding from the industry directly because we need to remain independent. So we also need to find established players or incumbents that are willing to sponsor this type of research. So it’s a bit of a tricky game. It’s like, there’s a lot of visibility because there is a lot of discussion happening, but we can’t, you know, accept money from the DeFi protocols.

Whit: No paid shilling for the CCAF. So for the incumbents, are you able to mention those?

Apolline: So this time it was sponsored by Invesco, which is a long-term sponsor of the Judge Business School in general and previously we had the CME group, but you know, nondiscretionary funding as we call it, meaning that they just provide funding to the center and then we use it for multiple studies. So yeah, that’s the one for this year.

Whit: Okay. So you guys took a little break in 2019. The report in 2018 was very well received. I think that, and correct me if I’m wrong, but it seems like this report, it was much easier or there was much more information that was able to be collected than in 2018. Is that right?

Apolline: That’s absolutely right. And the reason is also because we were slightly less resource constraint this year. We had more people on the team. Intonating, we’re also working on another project at the same time. So we had to split our time. This year we definitely had more people contributing to the dissemination and distribution of surveys. But I mean, we took a similar approach. We also partner with medias. We have industry associations locally that help us distribute the surverys to their members. What helped definitely is that we had the survey translated in many more languages this year compared to 2018. As I said, we can build on the previous reports, I mean, we have some legitimacy now to, you know, reach out to companies and say. Hey, contribute to that because all the other big players have also contributed, you know, in the previous years. So that helps.

Whit: From your point of view, are there any gaps with this study that you would like to fill before creating the next?

Apolline: Oh yeah. So I think the geographic representation is a big issue. I mean, not big issue, but back in 2018, we had difficulty getting a lot of Chinese respondents because the government had passed this bad. The previous year in September, 2017 about converting Chinese Yuan to bitcoins, etc. So a lot of Chinese respondents were reluctant to take the survey in 2018. That’s a problem we solved this year, but we still have a lot of difficulty in getting respondents from middle East or sub-Saharan Africa, as well as that in America sometimes you take the survey. And so that kind of means that the samples are dominated by Asian and European actors, which is fine also because I mean, we assume that a large part of the industry is actually located in these regions, but you know, it would be great if we could have a much better representation of what’s happening in the Middle East and Southern Africa.

John: Interested to hear how you actually reach out to the different people to take the survey, because I also did get a message from Karem. So let’s say I was just a random person in a Telegram group and I got a message from Karem. Would you have like validated me afterwards to make sure I had like some facility operations, etc.

Apolline: Yeah. So we always verify the legitimacy of respondents. So like at the end we have about 280 entities that responded to the survey, I mean, of which a submission we accepted, but we probably had like 350 or something like that. So we have to double check that the companies or the respondents fit the inclusion criteria for our survey and that they are actually active and that they are not just, you know, creating the hype around something they haven’t launched yet. All of that. They have an actual mining activity. So we try our best to verify the information. Obviously there are some data points that we can’t verify and we have to trust this self-reported data, but we try as much as we can.

John: That makes sense. Well that’s the limitations of any research. And also also finding the sample. Is it a mixture of Telegram, WeChat, also you mentioned that you partner with some people to get the survey out.

Apolline: I think honestly what helps most is just having personal contacts and then these people put you in touch with someone else, etc. And I have to say that the miner, events, coverage, in 2019 really helped because meeting these people face to face kind of increased the confidence or, you know, the relationship you have with them. And after that, it’s easier to ask them to also share the word and share the survey with their own contacts. So I think it comes primarily from personal contacts. And then we had a few additions from people we reached out to via WChat groups or Telegram chats.

John: Yeah, for sure. And it makes a big difference when you have a small network in the industry and the contact or points of contact. Yeah.

Whit: So for the study, you guys got into four different market segments, mining, custody, exchanges, and payments. How did you select those four? And what’s the thought behind those four for this study?

Apolline: So that’s how we started into 2017 because these were the main market segments. And because the center is, you know, the Center for Alternative Finance, who we have to look at segments that are related to some sort of like financial services. So that’s why, for instance, we don’t serve any consulting or like more infrastructure building type of service providers. Although they’re participating in the cryptocurrency ecosystem, but that’s why retainted focus on these four segments. And for continuity reason, we keep these four segments, but we’ve been thinking o,introducing other segments, which we might do in the future,

Whit: But I’m pleased that the bulk of it was covering mining and mining related content. That was fantastic. I mean, this study put like in balance the perfect amount of research content and laid it out in a way that was very easy to digest. So I can appreciate that. And obviously that makes it more accessible for a larger number of people. So I think you guys did a great job there. It seems that from the study itself, but from the respondents to the survey or the surveys, the majority were miners that were participating in pools.

Apolline: Absolutely. Yeah. Just about your previous point, we have regrets, you know, different audiences. So like, you know, industry participants, we have to address regulators and the general public. So we have to make it as adjustable as we can and try to, explain some of the most basic concept that, you know, most market participants know about, but we still have to go through them. And yeah. So then for the remaining activities, so I think it was 44% of respondents to the mining service that participates or mines as part of a pool. We had a significantly high share of respondents who indicated that they were engaging in sort of mining, but this is probably because these are like not Bitcoin miners. Cause we cover like all proof of work coins. Although we, we tend to, I mean, as we, as we would probably discuss, but the majority of respondents mined Bitcoin, so a lot of the findings that actually applied more to Bitcoin mining rather than any otherproof-of-work coins.

Whit: That makes total sense. I mean, majority of the industry is focused there. So it would only make sense to me. Mining is a for profit business, right from the respondents where we’re the majority located?

Apolline: For the mining survey. So I think it was 38% Asia Pacific, 24% Europe. And then I think the US about 12%, something like that, I can double check that. So yeah, majority. And when it comes to country level, it was primarily China, US, Kazakhstan and Canada. So yeah North America, is 24% of the main sample.

John: Once the data is collected. What is the discussion like around the how to display the data? So like the types of graphs you choose to go with, because let’s say for example, there’s one specific graph that shows different regions and held miner’s cost structure gets split up into regions. Well, yeah, it gets better percentage wise to say 30% gets split up between CapEx and hardware equipment and another percentage to electricity or that, that might be misleading in some ways, because let’s say one miner had like particularly low cost for hardware and I’m like, look, you’re paying huge amounts for your costs, but it might just be like around the same figure as other miners.

Apolline: That’s a very valid point. And that’s an issue we have for the other survey as well for service providers. So we used to ask a lot of like absolute figures that we could actually weight some of the percentage they provided, the problem being that that’s the type of questions the respondents never answer. Cause when we designed the survey, you have this trade off between trying to collect as much accurate data as you can, but not maybe making the survey too long cause otherwise respondents won’t take it. And so we had to remove some of these questions where we sort of, the response rate was very low and due to your previous point as well. We also have to ensure that we’re not pinpointing to this single individual or like a single response. So we also have to make sure that we have enough observation specific question for that questions to be represented in the report.

Apolline: So again, the, I mean this temple, this year, it’s bigger than in 2018, but it’s still too small to be able to provide, you know, much more granular insights. In particular, we have to focus at the region level because we can’t dive into country level data because otherwise we will be completely disclosing information about one specific miners or like a group of miners, which we can’t do for, for privacy reasons. But the hope is really, you know, I have colleagues we do surveys on the crowd funding landscape for instance, and they get thousands of responses to this survey. So, you know, they, the transporters to get to that point that, yeah, at some point in the future,

Whit: Talk about that, right? The lack of transparency in mining, it’s a protective measure, right? It’s not that miners are being secretive because they want to withhold the information from a study like this. It’s more to protect their interests. What do you think it’s going to take to get to a place where there is more openness among the mining community?

Apolline: I think first of all, the fact that we are a research center affiliated with a university also means that we’re considered as fairly neutral. I think it would be much more difficult if we were, you know, research for the private sector. So I think that helps us quite a bit. I think it’s important for the actors to see the value of that research. And I think it’s very easy to convince, you know, a European and North American actors. I have to say that we had to lobby a bit harder on the Chinese side, etc. But once they see the value, they definitely are willing to contribute. And if we have a few large actors supporting our research, it’s also easier to get smaller actors to, to participate. So I guess we will always have to balance between these, you know, these two between the privacy they want to preserve and how much they are ready to disclose with us. And I think we’re getting to that balance at some point.

John: I think miners agreed to participate in these kind of research studies because they know and are confident it’s anonymized. Yeah, because it’s only going to be a disadvantage for a miner to give up their costs like a private miner. If they showed that they have extremely low cost inputs, then they’re advertising the other miners or potential miners to move into their space and potentially push up the cost.

Apolline: Precisely. And that’s also why always have to take these data with a pinch of salt because it’s self-reported data. So they always want to present this slight more rosy picture than what it is. But we know, we’re still hoping that the data can be trusted enough to provide reliable insights.

Whit: From everything that you took in. What did you find to be the most interesting or the bit of data that caught you most by surprise?

Apolline: In the mining sample. I think I was quite interested to see that figure about governmental support because that’s something that got discussed, but we talked a lot about it in Sichuan for instance. And for instance, when you saw the local government making public statements about incentivizing miners to set up their mining farms. There recently was Kazakhstan putting out this new legal framework, etc. But it was interesting to see that actually 28% of miners reported that they received governmental support and for the service providers. I think insurance was also quite interesting cause we know that’s a big deal for the industry, but you see that like almost one in two service provider is not insured at all. We can see the risk. I mean, that’s big deal.

Whit: So speaking to the government assistance part, I think that there’s potential for growth there, especially this year with the pandemic. And I mean the additional power that’s now available all over the world because businesses aren’t, you know, no one showing up to work really. Right. So there’s, there’s a lot of excess power. So it’d be interesting to see how subsidies can come in and potentially levy Bitcoin mining to use some of that power and provide the cashflow to those businesses that are, I mean, a lot of them are probably going to go under if there’s nobody coming in to consume that power. The insurance question, we’re talking to North American miners and miners all over the world. And as we’re doing this, I’ve only found one that provides insurance on the hardware that’s in their facility. So it’s definitely very, very rare. And kind of crazy.

Apolline: Exactly. It’s crazy. And especially when you think about these exchanges who are like, you know holding customer’s funds. So that’s why you have a lot of like, you know, the Gemini or Coinbase who announced that they have a subsidiary to provide insurance. But yeah, it’s definitely a kind of an elephant in the room for the industry.

Whit: Do you think that there’s going to be demand for that to improve? Do you see that the service providers are going to step their game up in that arena? Or do you think it’s just going to take a major blow up for an industry?

Apolline: Yeah. I mean, it sometimes just takes a regulation to happen. So I don’t know if you guys know, so there is this new draft book as it regulation in the European union and they do have a section about insurance and how a service provider would need to have an insurance policy covering a set of risks, etc. So if regulations specific to crypto as it service providers, it takes place, then the service providers will have to find a way to be insured. So yeah, I guess that’s ahead.

Whit: Sure. Going back to the electricity price, that was something that, like you said, everyone tries to present a rosier picture than it actually is. And power price is obviously the biggest point of contention. I think when it comes to mining, it seemed like from the information that you gathered, that there, there was the most consistency among the Asian respondents.

Apolline: Correct? Yeah, exactly. So if you have this graph, which is what we call a box plot, it actually can actually use the spread of the distribution. And so it seems to be based consistent for Asian Pacific and much more distributed for North America or Latin America. Yeah. To a certain extent.

Whit: Are you trying to say that North Americans over exaggerate and don’t paint an honest picture of their operations?

Apolline: No, no, no, no. I’m just saying that.

Whit: But no, it’s, I think that this, this, this data seems to be fairly accurate from what we seeing as well. And I think the prices are higher than others.

John: I was pretty shocked to see it. Latin America’s distribution with the law and ended arrangement zero. I wonder how many of them are in the last?

Apolline: Definitely a surprising one. And something we couldn’t publish because we didn’t have enough observation was also the price in the Middle East. So I’m really hoping that we can get that region next year. Cause it seemed that some of them have access to very cheap electricity as well.

John: How many responses from Latin America and the Caribbean?

Apolline: Latin American, the Caribbean was about 12% of the sample.

John: Well, an actually in the sample. So there’s 270 entities took the survey. What was it? Only miners?

Apolline: 280 for the whole sample. But for miners, it’s just 105?

John: 105. So 12% maybe like 15 miners or so, in Latin America.

Whit: Yeah. Which is actually a pretty good sample, to be honest, it sounds small. Right. But 12 is actually a pretty big number to be able to get people to respond in mining. So I think, I think this is a good gauge. And like I said, the prices are consistent. I know we talked about this a little bit on Monday. It’s super cheap in South America right now. And there’s a lot of handshake deals to where zero is a real possibility, depending on who you know, and which country you’re in. I mean, we had a deal come through today. That’s 1.80 cents per kilowatt hour and that’s not in Venezuela. So it means people are getting access to really, really cheap power.

Apolline: Yeah. That’s crazy. And then you were saying that you recently spoke to, I think it is your last podcast where you might have been in Venezuela that has good access to free electricity.

John: Yeah. And Venezuela is actually zero for everybody.

Whit: There has to be some get back though. Right? Like that’s, that’s my only thing. Like nothing’s free. Rule number one. So I’m always wondering like where does that clawback come?

John: Call back in Venezuela as an easy answer for inflation?

Whit: I guess what I mean is I do think that the $0 power is going to attract infrastructure from people who are more risk on. And then we’re going to see that socialized mining pool come into effect and then regulation follow right behind it to where anyone who’s not on that pool is liable to have their assets seized and, you know, potentially turn Venezuela into one of the largest mining operators in the world, which, I mean, they stated yesterday, they were looking to skirt sanctions with Bitcoin mining. So let me not say skirt sanctions that Bitcoin would help solve their geopolitical issues, I think is how it was phrased.

John: On a bit of a related note, one shocking graph to me in the research was the miner’s contribution to pool hash rate and how it evolved over the past two years. So the top 1% of miners connected to pools now accounting for 65% of the pool’s hashrate based on the data just shows like such an acceleration in Bitcoin mining becoming and industry over the past two years. I just wonder over the next two to three years, will we see become like even more nonlinear where, where eventually it just gets to a point where only a handful of players are in the industry and then the risk of mergers that regulation or some sort of government body can, can try put in some, some regulations to do some, I don’t know, try to manipulate the network in some ways.

Apolline: Yeah. And that was something we were already pretty interested to see in 2018, this kind of like, so a party to rule out follow distribution where only a handful of miners contribute to, you know, the majority of pool hash rate, because it means that any changes in that composition of the top, you know, miners just, you know, greatly affects the total hash rate. So yeah, I’m very curious to see also how that data evolves over time.

John: We’re going to go to the 80 20 rule. It’s the one 65 rule in Bitcoin mining, right.

Whit: I mean, can you step back from this report and just say that everything is happening right now and cryptocurrency is, I mean, basically mimicking what’s going on in business or economics in general.

Apolline: Yeah. Presently. I mean, this part is something you find in economics, business management, etc. So a lot of like human made phenomenon have this this type of distribution as well. So we are very much aware of what you’re saying.

Whit: What I’m curious about is, I wonder how pool structures with, FPPS, PPLNS, PPS, how that’s all going to shape out over the next handful of years. And right now there’s clearly a shift towards the full-pay-per-share. When I look at like a Slush Pool versus let’s just say, F2, I think it’s just going to continue to get harder for Slush to take any market share from the people who are paying out in full, just based on the amount of hash committed.

Apolline: I remember, I don’t know if I can say that on record, but I remember when I was once doing one of our reports, I was asking why Slush Pool us using the score-based method. I never really got an answer to that, but yeah.

John: Though it’s like not solely about the peer model, like how the mining pool industry is evolving. They’re trying to have to venture into other areas because the margins are already so thin. So I remember chatting with Chris, the CEO of Poolin about this time last year. And he mentioned like how he would negotiate host deals and stuff like that. And then obviously Braiins would say would almost consider itself more of a tech company than a mining pool company, even though the biggest product is the pool.

Apolline: Actually. Yeah. Slush Pool was already discussing that last year where they have, I mean, you necessarily have to expand in other segments if you want to, to sustain your business. So yeah, absolutely.

Whit: I think it, it can’t be said enough that no one miner is the biggest controller of hashrate. It’s the pools, right. The pools control the hash, really. So if you want to talk about centralization, it’s eight pools that control all of Bitcoin. Right. So, and really not even eight because like three or four of the eight are all under one umbrella. So it’s hyper centralized

John: In China. Yeah.

Whit: Yeah. And we should see a change in that. There should be more North American mining pools that spring up and it will see.

Apolline: So what do you make of like you know, the, the implementation of Stratum V2? Cause that’s a question we added for this year specifically and one of the feedback, cause we published that figure as well, where I think we say like, you know it’s about 27% of surveyed pull-up responders and miners that said that it will switch to off yes. To Stratum V2 but then the feedback we received is that this is a lot of PR and kind of, you know there’s no incentive for them to actually keep things, sorry,

John: But Stratum V2 is not ready. So people can’t. Yeah.

Apolline: Yeah. I mean the future, if it gets I’m ready for you,

Whit: My thought is that okay, so if I’m a competing pool to Slush, why would I ever adopt anything that they’re putting out? Because all I’m doing is strengthening my competition. If what I have now is a model that works, why would I deviate from the working model to put potentially more attention? Even if it’s not, even if it’s a free service, why would I put more attention on my competitor’s business? Because maybe someone enjoys Stratum V2. They’re getting it for free. And they’re like, oh, well, Hey, let me see what else Braiins offers. So I think that it’s just such a competitive industry that it’s so hard for these guys to work together.

Apolline: But so ultimately each pool will come up with their own you know, own version of Stratum V2.

Whit: Yeah. And it’s just mutually assured destruction, right? Like if, if everyone creates a new Stratum V2 then we’re just going to stay with the current Stratum protocol because there won’t be enough adoption for, for it to make a difference. And that seems to be, I mean, it seems with the pools, especially that they’re all trying to diversify out of the pool game. They want to get as much hashrate as they can under management. But ultimately they want to find new ways to monetize that hashrate. Because I mean, they’re just not making enough money as it is. HASHR8 and CCAF, we’re kind of in unique positions because we’re not picking sides, right. It’s just like market observations and seeing where things are trending and obviously having lots of conversations, different people. We’ll see. I think that ultimately the beautiful thing is that it’s going to benefit the miner. Whatever happens. All of this competition at the service provider level is going to benefit us. It’s like when Apple and Samsung go to bat for creating a smartphone, the consumer wins, it’s gonna be the same thing for the miners. So the hashers, I like that you guys call them that.

Apolline: Yeah, we had to. So that’s kind of an idea. We introduced in 2018. And so we had to stick with the terminology. We like, but it’s just to explain to people that, you know miners usually contribute to a poolsor like offer other services. Cause otherwise, you know, they all conceive miners as just a single type of entity.

Whit: Yeah. Or the machine itself. Right. That’s the other, I mean, in the industry, it’s, you know, big M little M is the only way that you can differentiate between one and the other. Sometimes aside from the mining pools, you guys dug into a ton of information. The renewable energy part was something that most people will find interesting because there’s only 39% that are using renewables exclusively, but 76% are touching renewable energy. Let’s say, how do you see that trending as time moves on?

Apolline: And I should specify that this is not a weighted average. So that’s you know, the average reported by serveral miners of their energy consumption. But then we have we actually weighted that for Bitcoin mining using the data we got from the mining map. And then the estimate is that 29% of Bitcoin mining comes from permeables. And I think, I mean, obviously miners have come as a surprise to some people because they were used to see other estimates more around 60 or 70%, which I think were biased because of, of the distribution, the geographic distribution of hashpower, where they were relying on. And it’s true that the fact that we got the pool data really helped us to have a more accurate picture of this geographic distribution of hashpower. And yeah, so I think obviously renewables take still a significant part of, of mining and the miners taking advantage of stuff.

Apolline: Just have electricity produced by a hydro power plant in Sichuan is definitely one thing, but it’s, it is for the exact same reason that it will take advantage of electricity produced by cool coal mines in Inner Mongolia or Xinjiang. And there wasn’t an interesting thing. So recently there was an event in Xiamen in the Fujian province in China. And I think that a session about Bitcoin mining and one of our colleagues attended it. And so where they were saying is that with the new generation of machine, apparently it’s no longer profitable for miners to migrate from Inner Mongolia or Xinjiang to Sichuan. So they will probably see this migration factoring, you know, disappearing a little bit, which means that it will stay in regions that are much more cold. And so maybe that will have also an impact on the, the share of renewables being used as part of mining.

Whit: I wish there was a, like a question on the survey that just said, do you really care?

Apolline: We didn’t publish it this year, but we do have a it’s just because there’s, there was so much, and yeah. I mean, I can’t remember what the exact figure is for this year, but the majority of people don’t, I mean, miners don’t care because they think. I mean, you’re free to disagree, but for them it’s a valuable thing to do. I mean, you’re contributing to the security of Bitcoin, etc. So it’s just converting energy into, into security. So we do actually have that data point. That’s fine.

Whit: That’s awesome. When I look at the chart that you guys have, and this is, you know, for anyone who’s reading along with the report, the report it’s page 27, the distribution in North America, as opposed to, you know, Asia, it blows my mind. The first line, I don’t, I don’t know that there’s that much wind energy being used for mining. I think that was the first thing that jumped out to me is wind seems very high.

Apolline: Yeah. Just again, it’s the share of hashrate. So it’s not the share of total energy production. Yeah.

Whit: For North America, there were what, 20, 25, 26 respondents to the survey. Yeah, 24. Okay, cool. So that could work if there’s one or two that are contributing significant hash rates. I mean, Asia seems spot on with all of the conversations that we’ve had. And I’m curious to see where nuclear goes as we move into 2020 and 2021, you know, looking at this, especially with Iran, greenlighting the ability for nuclear power to be used for Bitcoin mining and for some of the plants around the United States that are now looking to put that nuclear power off to other places, potentially. I think that that could be the boon that most people are not yet not yet looking at

Apolline: And on your point over by North America. So one possible explanation was that a lot of North American miners are connecting to the grid. So it’s necessarily a mix of a mix of energy sources. True. But yeah. Yeah. We agree with your point on the Middle East, in Iran, in particular that’s that’s data that will be amazing to to capture and analyze as well.

Whit: With regards to capturing the data in the middle East, that it’s from the conversation that we’ve had, it seems like much more of the mining is going on, quote, unquote, underground there. So it’s a little bit harder to report. And obviously if that information leaks, there’s probably stiffer consequences than other places in the world.

Apolline: Yeah. And I know you’re right. I mean, so this team member who speak Arabic into, we were asking him to try to, you know, find any WhatsApp group or telegram groups where this is happening. And he was like, I can’t find anything for weeks until one day he was like, okay. I found a guy who seems to, you know have a lot of like miners operating in that part of Middle-East. And so that was always some sort of a breakthrough if you’d like, but I think, yeah, you just need to find the right contact. And then, you know, if they feel confident enough to you to contribute, play it up, you know, that the point is if we want to capture that data, I feel like we’ll need to have a hundred percent of our resources in time just dedicated to that, which is not yet the case.

Whit: Sure. Well, I mean the, the hashrate growing in that region, it’s a substantial amount of hash rate and potentially could be one of the fastest growing regions in 2021, especially with countries getting involved now, Venezuela for all of the negative that we can paint. I think that there is a lot to be said for the example they’re setting for others who might want to find creative solutions for their geopolitical situations.

Apolline: Yeah. That’s, that’s completely right. And we’re actually working on, you know, getting a second version of that mining map and hopefully having more pools to contribute as well. So yeah, it will also be interesting to see if, you know, as we add more representation of Bitcoin hash by where we have a growing share of mining coming out from Iran than I think orientates about like 45% of become hash power, but yeah, that’s definitely interesting data point.

Whit: I want to talk about the mining hardware manufacturing section. There’s a chart there that I wanted you to explain a little bit, then I’ll dive in on the 16% going to GPU. I think if somebody had addressed that question on Twitter. Yeah. Well that was the first thing that jumped out at me cause I’m like, ah, so let’s, let’s talk about this. So explain that chart please.

Apolline: So that data is collected. So we provide you know, the respondents with the question, which is what type of hardware do you use? And so this is a multiple choice question and they take them and then we just break it down. So that figure just breaking down by the number of respondents the reason being is we don’t have either, you know, hash power or power capacity of all those different respondents. And so that, that’s why we can’t wait it. And so yeah, if we want to have a significant number of innovation, we had to provide it as a share of respondents rather than a shelf of hash power or power capacity. But we, we put data together to and I mean, a number of observation was down to 26, but we couldn’t really publish that. But like for instance, I think GPU was down to 2% when you weighted. So, I mean, I understand how this can be misleading, but I think it’s still interesting data when you know how to read the chart. Yes. And, but probably we should emphasize, you know, a bit more what’s the, what’s the share I would show actually showing

Whit: I thought it was a great chart. And with the weighted average, it makes sense when it comes to the question itself, were you asking what kind of hardware or are you running or was it, you know, what kind of hardware do you have dedicated to SHA256.

Apolline: So the question was actually filtered to the question was presented only to people who selected Bitcoin or Bitcoin Cash. Gotcha. And then they selected yeah. That type of hardware.

Whit: That’s really interesting. Then even for 2%, that’s a very interesting stat for, for 2% of the people that responded to mining Bitcoin or SHA256 with GPU.

Apolline: Yeah. That’s good. They still like their pre hiring data as well. I’m really curious to see what happens after that and yeah. With everything that has happened in currently, that’s going to change for sure.

John: Is this data in an effective of March to May, right?

Apolline: Yeah. 18th of March to 18th of May.

Whit: Yeah. Okay. That’s really interesting. Maybe we’ll see it. Maybe we don’t. I don’t know. I mean, the shipments from Bitmain seem like they’re still going out.

John: So, you know, Jihan once again is the legal rep, so maybe he can see.

Whit: We’re going to have to get John a team Jihan t-shirt. Okay, the hardware section of this leads right into the financialization of mining, which, I mean, I could talk about forever and intentionally. I saved this towards the, towards the end of the show. So I wouldn’t talk about it forever. How are you guys as a research team digging into this and what was the time distribution like to cover financialization versus everything else?

Apolline: I think, yeah. I was really keen to delve into that topic because obviously there’s been a lot more discussion about that in the previous months and years. And interestingly, this question about their hedging strategies stayed up. That’s something we didn’t have for miners before that year, but that’s a question we asked. So providers, and so, yeah, it was kind of a last minute addition to try to provide some data, but the discussion that was going on by the use of hashrate derivatives and other financial products and yeah, I think that’s kind of reflective of what people were expecting. I mean, you know, the fact that their use of derivatives is primarily happening in North America compared to, you know, Latin America or Asia Pacific actors.

Whit: Derivatives are definitely growing, but still, I’d say a few years out from adoption. I think that the industry is figuring itself out and getting its bearings right now, the lending products though, those seem to be a viable alternative, especially in Asia and kind of what led to the Black Thursday event in March.

Apolline: Yeah, absolutely. And also that was data we collected before the huge explosion of like DeFi. So that’s also where we expecting that that could change. And it was interesting because I was talking to a few miners in Quebec and yeah, they’re working off looking for opportunities to raise additional funding and yet for them, the loan approach was probably the best as well. So yeah, it’s definitely, definitely a thing interesting to monitor, I guess.

Whit: It will be interesting to see this evolve into a longer section for the next report. So what was your takeaway of this? I mean, there’s, there’s a lot of talk in the industry about the financialization of mining and how that could potentially bring legitimacy to the industry itself. I think it was JP Baric who had tweeted something yesterday about how the oil industry is using hedging instruments versus, you know, how mining is. So how, how are you viewing this?

Apolline: I think so one of the conclusions was like, okay, there’s a lot of talk around this, but when you look get the data, it’s actually, you know, not a widely adopted and the reason being, you know, regulatory clarity the availability of these products as well, which we know for a fact, not widely available and potentially the lack of financial literacy of some of these miners. Cause that was particularly the case I think. And I think it was hung off from putting on, on one public event who was actually pointing to this, the fact that some Chinese miners might not be completely familiar with some of these financial products. So that’s why we don’t seem to mean a wider adoption.

Whit: That would make sense. So off the mining section, just a bit, just for a minute, one of the things that I found super bullish was the stat that there were 35 million unique crypto asset users in 2018 and then 101 million in 2019, which is a 189% increase.

Apolline: Okay. So now two, I mean two main explanatory factors, but for that growth. So that’s actually the 35 million is already a figure we published back in 2018. And so the way we get that data is we asked the respondents to provide us with number of ID verified users and the number of accounts they have registered. And then we calculate the ratio and then we collect a lot of public data about, you know, calling back Kraken, announcing that they registered 25 millions of users. We always consider these public figures to be accounts rather than users. And then we apply the ratio that we got from the survey data to that aggregate number of accounts. And that’s how we go out there. And so the reason why you have such aggressive surely the number of accounts grew steadily. But also you have many more service providers who perform KYC checks. So who were they able to link one individual identity to an accounts. So that’s probably also means that our estimate by in 2018 was very low.

Whit: Okay. Fair enough. I think that one of the, one of the stats in the section that was that kind of played into that narrative was the distribution of the customer base as well. It seems like in every region retail dominates the customer base for these different service providers.

Apolline: I think what’s interesting is if you have more like user base survey, which is not something we do, but like you had some, I think it was the bank of Canada. And more recently it was the UK financial regulators who actually investigate what is the level of, of knowledge that users have when it comes to crypto assets and, so we do have a figure about, you know, the breakdown of the customer based by user types. So whether it’s retail or institutional and business clients. And so obviously the share of institutional and business clients is much higher for North American and European firms because that’s where a lot of institutional money is. But yeah, I mean, the user section a lot more data is needed a lot more granularity needed. The problem being is some of these service provider don’t necessarily capture that data. And so what other research team at the CCA have experienced is actually by asking the questions in the survey and you incentivize companies to start collecting that data as well, to be able to answer in the next years.

Whit: You know, Apoline, and as we wrap things up here first and foremost, thank you for coming on the show.

Apolline: Thank you for having me. It’s really nice to be able to discuss and get feedback on some of these findings.

Whit: Yeah, I would love to have you on again, any time, open invitation.

John: Thanks for coming on Apolline. It was a great report.

Apolline: I’m glad we’re having a second podcast together.

Whit: So Apolline let all the listeners know where they can find you. So I’m not going to give you the URL of our website, cause it’s just extremely long. But if you go onto my Twitter profile you have all the links there. So it’s @ApollineBlandin, otherwise you have @CambridgeAltFin which is the Twitter handle for our center. And then you have all the links and all the reports that are listed there.

Whit: Awesome. And we will link everything in the shows notes as well. So any of the listeners, if you want to get access to the report, you just check the notes, you’ll be able to link right through God. This is a good one. There’s so much information that you shared Apolline and the report itself is great. The industry needs more of this. So thank you and your team for spending the time to put this all together

Apolline: And thanks both.

Whit: Anytime. All right. And to the listeners of the show. Thank you guys for tuning in. We appreciate you very much from here at HASHR8, we’ll talk to you guys all again very soon. Thanks for listening to the HASHR8 Podcast, a HASHR8 Media production. If you enjoy great mining content, head over to hashr8.com today and register for Difficulty Adjustment, our free weekly newsletter providing the most actionable information on Bitcoin and mining. That’s H A S H R 8 dot com. Also remember to head over today and give HASHR8 to follow on Twitter. That’s @ H 4 S H R 8. Thank you again for tuning into the show. We’ll talk to you all again, very soon.


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