Even if Stefan Schindler is a medical graduate, he decided on the crypto-economy when Bitcoin was first introduced. So he hung up his doctor’s coat in 2013 and then became one of the experts in the mining business as CTO of Genesis Mining. Today, as CEO of Munich Blockchain Capital, he passes on his knowledge by advising investors and crypto start-ups on investment solutions. What it’s like to live in a mining facility, what possibilities there are to make mining greener and what to think of the China restrictions against mining, he told us in an interview.
BTC-ECHO: As the former CTO of Genesis Mining, you built mining facilities and even slept in them. What is it like to live in a mining facility?
Stefan Schindler: So it was like this: I came to a farm in Bosnia with the task of optimizing the miners. And I was just so excited that I took a sleeping mat with me – I just know myself too well.
Then I lived less in a rhythm like day and night than more according to aspects like hunger and tiredness. When I took a break, I slept there, but I don’t recommend it – these are pretty impossible conditions. It is extremely loud and above all it is a very uncomfortably dry air in these Bitcoin mines. But that didn’t bother me at all at the time, because I was just so enthusiastic about my job.
Another anecdote comes from 2016, when we set up a Bitcoin mine in Iceland. In order to show our customers that we are actually building hardware, we installed cameras in the system. On the way back from the mine I got caught in a heavy snowstorm with my car and got stuck after just 500 meters. So I ran back to the mine – and arrived completely drenched. There I first unplugged all the cameras and checked three times to see if they were really all off, in order to then dry my clothes over the mining rigs. After 30 minutes they were dry again.
BTC-ECHO: Right now there is a big debate about the power consumption of Bitcoin. What is your position on this subject?
Stefan Schindler: I can absolutely understand the arguments. I also believe that we have to be careful with our planet and should generally avoid unnecessary energy consumption. But it is still important to me that the right things are compared in the debate.
One thing that is often misrepresented: With Bitcoin, it is not the case that energy consumption increases with the number of transactions. Rather, it increases with the profitability of mining. In other words: the more value is stored in the network, the more incentive there is for miners to further secure the system with their computing power. Approximately 7.5 gigawatts of energy are used for around USD 600 billion in assets. That is 0.0125 watts per USD, which can be mathematically proven to be forgery-proof, irreversible in a global system that is based on open source and that does not depend on central players. I claim that there is no competition.
The gigantic effort that would be required for a single player to forge just a single Bitcoin transaction creates trust among investors and offers a real alternative to investing in the classic financial system – the energy consumption of which is also not zero.
I think the key question is what mix is this energy made of? The competition in Bitcoin mining for cheap electricity that is available in large quantities is very tough and can ultimately decide on the success or failure of an operation on its own.
Large amounts of cheap electricity can usually be found exactly where the electricity is generated and cannot be sold evenly on the market due to fluctuations in production. For example, in the vicinity of PV, wind and hydro power plants. In fact, mining farms can now help promote renewable energy sources.
BTC-ECHO: What options do you see for making mining greener or more sustainable?
Stefan Schindler: If you measure the energy costs per transaction as a basis, then it helps to increase the performance of the network. When Bitcoin started over 10 years ago, the performance was only 7 transactions per second (TPS). The soft fork called Segwit, which was activated in July 2017, has already enabled a doubling to 14 TPS. Again building on this, second-layer technologies such as Lightning can now scale this number off-chain and are no longer tied to hardware limits. The yardstick by which the industry must measure itself is Visa, which states that it is currently processing 1700 TPS. And, if you think outside the box, you will find what you are looking for in more recent projects such as Avalanche. Here, on-chain 4500+ TPS are already promised.
If one takes the pure function of storing values as a basis, one can only make the energy mix from renewable sources more attractive. This is also an opportunity for states to intervene positively.
I think it is a very useful project https://netpositive.money – an offsetting project in which you can use a computer to calculate the CO₂ pollution of your own coins held and donate projects with a CO₂ offsetting effect.
BTC-ECHO: What other mechanisms, besides PoW and PoS, do you find promising?
Stefan Schindler: I have to say that I am not a specialist in game theory and do not trust myself to fully assess whether Proof of Stake is able to replace Proof of Work.
Proof of Stake is an interesting concept because it enables anyone to participate in the consensus mechanism without consuming additional resources. The fundamental consideration that everyone who is invested in a coin … and who participates in staking there can also be selected to confirm transactions does not sound wrong at first. The problem I see here is the compound effect. The token that you get through staking allows you to gain more influence in the network. It’s just like rewarding the miners not with Bitcoin, but with more mining hardware. In addition, the generation of electricity and the build-up of computing power represent a physical limit, while the printing of fiat money as an entry into proof-of-stake systems is in fact not limited and thus represents a possible gateway for attack.
I’m curious myself and just watch the development. It’s nice that there is such a wide variety of possible solutions, and I am of the opinion that the projects are not in competition with one another, but rather enrich the entire biotope. I have confidence that the best technology can prevail in the end.
BTC-ECHO: Which form of “digging” or which protocol could be worthwhile for local private individuals – electricity and hardware prices included?
Stefan Schindler: What really fascinates me at the moment is the model from Chia (XCH). Behind it is Bram Cohen, the inventor of Bittorrent, among others. The consensus mechanism is called Proof of Space and Time. The idea is that you take a limited resource that is not very power hungry itself. Here the choice fell on hard disk storage. Ideally, storage space that is already available at home is used. You prove your trustworthiness to the network by using this limited resource and saving files like lottery tickets. The compensation for the transactions or confirmations is then just as random as with Bitcoin mining. It remains to be seen whether this works or is really more sustainable. A new mining community is developing at breakneck speed, the dynamics of which remind me very much of the GPU mining times of 2013. Chia mining (or farming) is absolutely addicting and the photos of the mining operations set up on hobby farms are great entertainment.
BTC-ECHO: How do you rate the Chinese government’s current strict approach to mining operators?
Stefan Schindler: The fact is that up to now around 60 exahash / s of computing power have disappeared from the Bitcoin network. Converted to the hardware installed there, that’s between two and six gigawatts of installation!
Apparently, relatively large operations were caught off guard here. There are several conceivable reasons why China could suddenly crack down on mining (and open crypto currencies in general):
Contrary to the perception from a western perspective, China is very interested in a neutral CO₂ balance. Most of the mining farms in the south of China are located on hydraulic dams, but in the dry season they compete with industry in the rest of the country. After some provinces have not achieved their CO₂ targets for three years in a row, someone here probably broke the collar.
In addition, there are efforts by China to leave GDP in the country. It is incredibly difficult to get the renminbi out of the country. China wants to export goods, but keep monetary values in the country. If whole countries like El Salvador now officially accept Bitcoin and if this increases the acceptance of BTC worldwide, then that would also mean that the values that have been developed could be more easily transported out of the country, because Bitcoin can be subject to this control.
Furthermore, China is also developing its own central cryptocurrency and a decentralized system such as Bitcoin faces certain competition here. If the thumbscrews are tightened even further, this could lead to sales and further falling prices – and ultimately offer investors a great opportunity to get into crypto currencies even cheaper.
The bottom line is that it is really difficult for us Europeans outside of us to judge how tough and consistent action is now being taken. Waves of bad news actually come from China on a regular basis. Often, not much has happened then.
BTC-ECHO: What would you estimate: How will the mining capacities be distributed globally in the next five years? For example, will China have to surrender its mining dominance to the US?
Stefan Schindler: I can well imagine that. But you have to be aware that Bitcoin mining companies are private companies. If, for example, the Bitcoin miners in China no longer feel comfortable, then there are plenty of other countries that also offer good conditions. Miners look forward to settling there.
The usual suspects are Kazakhstan and Northern Europe, Sweden and Iceland for example. A rethinking is currently taking place in the USA as well. States like Texas, which used to make a living from oil production, are now increasingly relying on wind and solar systems. These are cheap energy sources where electricity is available in abundance.
By the way, a falling mining capacity does not mean that prices will collapse. It just means that others are happy.
BTC-ECHO: Finally, a look into the crystal ball: Where do you see the Bitcoin rate at the end of 2021?
Stefan Schindler: I think we will be between $ 70,000 and $ 80,000. I’ll get down to business and say we’ll end the year at $ 75,000. In my opinion, the Bull Run is not over yet. If you look at the course of the Bull Runs, you can see that they take longer and become flatter. Crypto analyst Kierin Mulholland recently made a great analysis on the topic on his YouTube channel: The last bull run lasted 600 days and we are just 340 days. So toi, toi, toi.
This article has been reviewed and updated and was first published in the July issue of our monthly magazine Kryptokompass. For information about a subscription, click here.