On today's episode I'm joined by Taras Kulyk, Senior Vice President, Blockchain Business Development at Core Scientific. Taras previously has a ton of experience in scaling massive mining facilities across the world.
Taras explains his backstory and how he got into Bitcoin mining through investment banking, covering traditional mining (gold, silver, iron ore). It was great to get to chat with him and get his unique perspective on Bitcoin mining.
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Whit: What's up, everyone. Welcome to the HASHR8 Podcast. I am the Bitcoin Broski, AKA the floating head here today with a very special guest. This gentlemen and I have had quite a few conversations over the past, I guess it's almost year now. And I'm excited to finally have on the show Taras Kulyk. Taras, welcome to the show, man.
Taras: Yeah, thanks Whit. Really appreciate the invitation.
Whit: Did I pronounce your last name correctly? Yep. Yep. Taras Kulyk. Yep. All right. Well I'm not so good with the pronunciation, so I'm glad I got that right. Okay. So Taras. I definitely want to get into your current role at Core Scientific and in what you're doing there, but kind of the cliche general question. Whenever anyone comes on a crypto podcast, how did you get into mining?
Taras: Well the road to mining was not direct that's for sure. I graduated from grad school in 2015. I did a JD MBA focused on corporate securities law and finance and strategy and MBA. And instead of being a lawyer, I went into investment banking actually spent a year at BMO Capital Markets covering traditional mining. So gold, silver PGM, copper iron ore, and coal, the end of coal really, you know, the team was extremely busy. It's one of the top teams globally for traditional mining deals. But yeah, it was really, it was a lot of hours and candidly, it wasn't an industry that was very passionate about, you know, like take big rocks, crush, distill, process, longterm pricing, build an operating model. But it was a very formative time and, you know, the, the modeling work and the education that I gained at BMO was incredible. But they wouldn't let me leave the mining team to go to tech. So I actually went across the street, literally in Toronto to TD securities Canada's number one or two, depending on who you talk to, capital markets shop. And I covered technology invest the technology sector as well as media on the investment banking side.
Whit: So just, just some questions there when it comes to the, the traditional mining sector I mean, it would seem like there's a clear path between that and what you're doing now. So, so how, I mean, what were some of the experiences that you you had or things that you learned in those first few years with that traditional mining company that have helped your further your career?
Taras: Yeah. And I'll, I'll get into that in a lot more detail as the podcast goes on, as the conversation continues. Traditional mining is very similar to digital mining in that you need a large amount of CapEx. You need a highly skilled engineering team to put together an operating platform. And then it's like a specific time horizon for the asset itself. And the asset itself that you're using up on an amortization or depreciation basis on the traditional mining side is literally rocks in the ground, right? So you're doing a schematic analysis, figuring out where the high concentration of rocks are building on a mining plan to extract those rocks and economically feasible basis, doing environmental assessments, etctera, and then literally pulling rocks the ground, crushing them, distilling them and getting the output on the crypto mining side.
Taras: It's similar. Whereas you're trying to find a low cost, power source, building a mining building around it, or operation around it, or, you know, a containerized solution around it. And then you're figuring out what's the most efficient way to use up your inventory. And that is really crypto mining units, right? Which typically have a amortization lifecycle of anywhere from 48 to 36 months. And so the thinking on an operating model basis is very similar in that huge chunk of CapEx upfront. The actual facility can last for 20 to 30 years, but how efficiently can you process that inventory through it? And then how do you compare different operating sites on an apples for apples basis? And when I first started with mining after leaving investment banking, getting into crypto and then being recruited to build up a private family office is private mining fleet globally.
Taras: There was no apples to apples comparison. Every single project was viewed in all sorts of cockamamie ways. And so what I did when I first started in the mining scene, after I got recruited into it was really build up, what's called an all-in sustaining cost. And we call it all-in cost per megawatt or cost per kilowatt hour these days. You know, everyone's quoting on a hosting basis what's the US per kilowatt hour all-in, right. And that's really become an industry standard, not to say that I was the only one doing it, but I know that within the operating sphere that I was existing within, at that time, nobody was doing it, but we applied it. And then as I was going to different facilities around the world, really kicking tires and, you know, vetting, hosting partners and ultimately locking in deals. That's the methodology. I was applying, taking the investment banking, metals and mining understanding and applying it to digital mining. And you know, we were pretty successful when I started with the private family office. We had around 9,000 units under our fleet. And by the time I left, we had over 300,000 crypto units globally deployed across like China, Kazakhstan, Canada, US you know, and I traveled around the world in some pretty crazy places to see facilities like this.
Whit: But so with all of those travels, so when you're going to Kazakhstan and China and places around Canada, which I mean is probably not the most exciting for you, but what were you finding as you were traveling? Were there, I mean, from, from a geopolitical standpoint, there's a lot of variances and all of those facilities that you were seeing, but you still placed machines and all of them. So, I mean, is it really, is it really a concern for people to have.
Taras: I would say that, you know, early 2018, 2017 and all the way through to the end of 2018, early 2019, there were still fairly early days from a regulatory and authority review perspective on the digital mining space. A lot of these facilities, nobody knew what the, what was going on within them, the, you know, local police or, you know, politicians would just be like, oh, there's some crazy building, pulling a lot of power, making a lot of noise. We don't know what's actually going on. That's very different these days. I mean, authorities are very well in tune. There's all sorts of incentivization programs in different jurisdictions. And there's a lot more regulatory scrutiny as to what's going on. You know, how is it being taxed where, you know, what's the source of revenue? Is it just a cost center? And so a lot of that's really changed.
Taras: So when I used to tell people, you know, where I'd recommend, it'd be a hundred percent, the lowest cost denominator was where you want to park your units. Nowadays, it's a mix you want, you need, you know, market competitive rates, but you need stable jurisdiction, a long-term horizon, and candidly, a credible team that you can park your assets with. Right? Cause there's been countless stories of facilities, basically just disappearing, meaning the building's still there, but you go there a week later, everything is gone, the switch gear, the units, et cetera. And so when we're talking to, you know, the tens of millions of dollars to set up a proper size of facility, you know, that's a lot of capital. And so you want to be able to find the management team online, the board of directors online, you know, like a lot of the days of sketchy mining on a global scale are really behind us.
Whit: So in your experience while you were managing those machines, did you guys ever have any that got up and walked away?
Taras: Yes. Yes we did. We had some issues that's terrible, but well, it is what it is. I mean, you know, you go for the lowest cost and you go into jurisdictions where, you know, that there's a high level of risk. And if I was putting on my investment banking hat, you'd increase the discount rate to essentially figure out what the NPV on that project would be in again, comparable risk basis. Mining, not necessarily what we did at the time, but yeah, we had facilities basically doors kicked in by local police and then having to resolve that and then manufacturing accidents where clouds of silicone vapor clogged up machines, tens of thousands of units. The wild days of digital mining.
Whit: So you say that you think that times like that are all behind us now. So does that put things back to more of a situation where people can really just go back to price shopping?
Taras: Again, I think it's not just about the initial sticker price. I think that people really need to be cognizant of the value ad that your hosting provider is giving you as a client. Do they have a fleet management software? Are they doing firmware optimization? What's their latency and connectivity. I mean, there's a bunch of stuff aside from just plugging in your unit and making sure it's powered up right. That you really need to be considering in your operational costs. Do you need to have your own technician being sent there, if not, is it theirs. You know, what's the standard uptime across, you know, a quarter, two quarters, three quarters. So operational efficiency ratios are something that folks should be looking at quality of engineering, quality of software development. Then obviously quality of C-suite to ensure that it is a longer term horizon. And when, you know, right announced a 5,000 unit order from Bitmain, that's like 10 million bucks. You know, if you're putting $10 million in a facility, you don't want to be concerned about infighting or creditors, you know, all these different things. Cause it's again, capital-intensive so you want a stable, well-oiled machine that you're parking your units with. Unless you're a cowboy, then, you know, you take those risks.
Whit: So to me it seems like the more cavalier days are, I mean, are really behind us. There's yes, there's risk in certain places. But I think that the continued expansion in the US as I'm sure you will agree, and North America really, is really it's bringing a level of maturity to the business and it's setting standards that they're part and parcel with US business, right? Like, or North American business and the US and Canada. I mean, we have to act right, if you will, because if you don't, someone will hold you accountable. I mean, you're not going to get away with, you know, exit scamming or doing something like that. If you're a business that's registered in the US or Canada.
Taras: Yeah, exactly. I mean, like I'll keep saying it and you'll see in my, in articles that I post and research I'm a part of, the mining industry is really getting out of the basement and into the boardroom. And again, it's like not a cliche saying, but it really is telling, saying because of the amount of capital, again, like this is infrastructure, this is roads and bridges. And so as North America really becomes a hub for securing blockchains globally, there will be a ton of capital. And when you're looking at securing the global network, you know, that's upwards of hundreds of millions of dollars and the cavalier days, and the days of fly by night and pump and dumps in the mining space in particular, I think are done. You know, you'll probably have some smaller facilities exist because they've got like a sweetheart deal or PPA, but once that's done, you know, people have to think of longevity. And this is this type of scale that we're going to be seeing, you know, hundreds of megawatts within a facility you know, high density, high caliber team, really low OPEX on a per unit basis, a very strong automation from a fleet management perspective, lots of IP, I mean, we've got 43 patents and more down the pipe to protect the innovations that we're putting for our own services and hosting for our clients. So that's exactly the type of thing that I think you'll be seeing.
Whit: Let's talk about the facility behind you. Cause I mean, if people are listening on the podcast, they can't see it, but Taras is basically sitting in front of a one of Core's facilities. Right. And it is a, let's see one, two, three, a shitload of containers. Yeah. And then a chicken coop steeple barn structure. But what's the total megawatts or the capacity behind you.
Taras: The capacity at Marble, I believe is around 175 megawatts. And actually there's two specific facilities here. Marble One is a brownfield meaning it's a former denim factory fabrication facility that we've reconverted into digital mining. And then Marble Two is a containerized solution with a steeple building for passive cooling for obviously ASIC mining. And yeah, I mean, this is also some of the things that mining's bringing to, you know, I guess economically depressed areas. There's a lot of these former heavy manufacturing facilities that exist can be repurposed, but again, to do this kind of facility, it costs tens of millions of dollars. And it's not, you know, a mom pop five megawatt site. This is a proper longterm build-out. So that when you're putting in that much CapEx, you can see 25 years that you can actually use this type of facility. And that's the type of thinking that core scientific really has these days, large scale longterm, stable operations, high efficiency built into that.
Whit: Well, I mean, you know, with, with the pedigree of, of course the C-suite, and we've had Russell on a previous show you know you're going to be hard pressed to find a higher level of experience in operations or management of large scale tech anywhere. I mean, Kevin Turner is former Microsoft. And before that he was with, I mean, what Sam's club and where was it? Walmart. So yeah, I mean, look, there's, it still amazes me though that he's not more outspoken. Like he's, you know, if this was when you think crypto and you think, okay, everyone's, everyone's rushing to announce partnerships with IBM and with Oracle and whatever, you guys actually have someone who, I mean, what was his position at Microsoft? Was he COO? Yeah.
Taras: Number three for like five or eight years, I believe.
Whit: Yes. Of one of the largest companies in the world who is now focusing his time and attention on, I mean, among other things, Bitcoin mining.
Taras: And high performance computing. I mean, candidly. We do have a second line of business that is revenue generating. That is SOC two type one certified, and we've got some seven figure deals coming in with S&P like Fortune 500 companies that will be announced. And I mean, regarding the names that people are partying with, we're just getting started. I mean, Q4 is going to be pretty huge for Core. We've got a couple releases coming out next week. Around some of the largest and most reputable names in the space. So leaks, can we get a leak? Come on Taras.
Taras: They're coming. Yeah. Discretion is key in this space, right?
Whit: Of course. Absolutely. So, I mean, you have a unique perspective when it comes to the mining industry. Obviously you've built massive operations all over the world. Now you are working with and helping to scale one of the largest in North America, if not the largest in North America. So what gets you excited about mining every day?
Taras: Well, again, what's exciting to me is we are building roads and bridges for technology 2.0, with the march of integration that I keep posting on my LinkedIn and keep mentioning to people like digital assets are really being integrated into the existing financial ecosystem globally. Right. And to me that's important. I mean, we're really part of, you know, what the internet did to commerce, right. To trade, to travel. I mean, what digital assets and the blockchain infrastructure will do for back office functions for most industries will be game changing. You know, there's going to be a lot of people that will see their jobs get a lot more efficient because blockchain technology will be completely pervasive and, you know, mining, proof of work, proof of stake. It's a critical aspect of that. So to me to be excited about it is because we really are building this backbone that the future economy will be relying on. And to me that's exciting also, you know, the people that we deal with in the space, you know, we're working with the increasing number of institutional investors, large enterprises. I mean, it's exciting to me. We're still a startup because, you know, we're only three years in, in the real world, but in crypto land for Core three years in mining and scaling at the speed we are you know, we're, we're basically well healed veterans at this point, with lots of war.
Whit: Yeah. Well, I mean, to survive three years in crypto, it comes with those. That's part of the the hazing process.
Taras: Yeah. And I mean, the other part of it is that I'm getting exciting about is that I really do see the digital mining scene really get integrated within capital markets. I mean, you have DCG Foundry coming out. You've got Fidelity building up their own fund, focused on crypto, a ton of folks looking at digital mining. So again, you know, the amount of capital that's going to be applied to the space will be really adding fuel to the rocket. And what I think is going to happen is that there will be a bifurcation or a separation of operating models where you're going to have folks like Riot, where instead of building up these massive sites on CapEx, they take the CapEx that they raised in the market and apply it strictly on inventory, which is the units. And then partner with, you know, large well-heeled high efficiency, operations, hopefully to like Core to host their units for them. So essentially they provide a very clean exposure vehicle for investors. Whereas, you know, investors want, you know, the roads and bridges type ROI and stable cashflows, they'll park capital with an organization like Core, right. And so I think that we'll have two different operating models emerge in the very near term. And I think we're actually seeing that in the market where it's hosting and underlying volatility through the machines themselves. Right?
Whit: Yeah. Well, and you make a good point with regards to the more money flowing from capital markets into digital asset mining. I mean, it's clear that there, I mean, every thousand dollars that Bitcoin increases price, there's more and more attention given to Bitcoin mining. I mean, you can set your clock to it. If Bitcoin drops below $9,000, it's a fire sale on all equipment. And the minute it crosses 10 K you have people that are, you know, incrementally increasing the price of these these machines, because they know that the demand is growing and you see it across all the industries that are involved in mining, all parts of the market that are serving the mining community. So it only makes sense for the, you know, for the money to follow in those instances. Now, when, when you talk about Riot or other companies, right. Getting involved in hosting, which I know you guys are doing as well, is the institutional offices, the funds that are getting involved as one thing. How about how about demand outside of that? Like smaller demand? Are you guys seeing demand on a smaller scale for people that want to set up hosting or get involved in Bitcoin mining?
Taras: Absolutely. I mean I can talk quite a bit about demand, cause I mean, that's really bread and butter for me. My key role right now is BizDev so bringing on new partners, working with existing and new partnerships but on the new client side, we're seeing a lot of activity from folks who are putting together limited partnerships, pooling capital from folks that want exposure into one entity. And then we manage that entities operations, where you know, that operating team. And we have an announcement coming out in the next few days around this exact type of structure they'll deal with their investors, their limited partners, unit holders deal with all the accounting, finance legal, and then we basically provide them a turnkey solution and not only for hosting, but actually for unit procurement as well, where it's literally they're cutting checks.
Taras: And for them, they're just doing paperwork where we do all the heavy lifting. So we're seeing a lot of that. On the retail side, we work with several different value added resellers who, you know, will take clients one, two, three, 10 you know, Kenley Core will work directly with folks from 50 or a hundred units and above, or really like a commercial service provider. So that's really how we focus on our clients. And if we get an inbound for one to two units, which we do all the time, then we basically referred to our value added partners.
Whit: Awesome. Yeah, we've been obviously seeing a lot of demand from the small scale miners as well. It's good to know that that it's across the board and that it's not just us that's seeing it. I'm excited to see the further decentralization of hashrate. You know what, one of the questions that I would pose to you though, is as a facility like Core, or let's say there's five or six very large facilities in the United States that are all North America that are all taking in hosting clients, does this just create further centralization? How, I mean, how are you guys looking at that internally?
Taras: No, I mean, I don't think it creates further centralization because I think that there's already so much concentration in different jurisdictions and even our facilities within North America, which are, you know, substantial, if you compare it to some of the fleets in China that are controlled by like single individuals. There's a case to be made that we're a long way to claiming that we're centralizing anything. And you have folks in like Russia and Kazakhstan that are doing similar things. They're building large scale facilities because they've got, you know, low price land, access to low cost power, and decent technical staff and skills. So that, you know, regardless of what we do here in the US unless it really, really magnifies in scale over the next few years, I don't have any concern around centralization. In fact, I think there's a better case to be made that we're decentralizing that work truly by having operations here, where, you know a state actor won't necessarily be able to squeeze us to do any type of, you know, paranoid conspiracy, 51% attack on BTC which I've read a bunch of articles.
Taras: And I think that's obviously farfetched for someone to be able to command that type of of attack, but there's other folks who we think it's to live within the realm of possibilities that it could happen.
Whit: I just don't see the incentive behind it, I guess, you know, from a game theory perspective, why would you 51% attack Bitcoin? You know, there are, there are far more, I mean, because, you know, 51% attacks, they're supposed to be a profitable venture if you're going to take that on. And in that case, there's a lot easier ways to make money if you want a 51% attack coins that are out there. I mean, ETCs has been a prime target for the past, you know, past few months.
Taras: Was it five times?
Whit: Yeah. I mean, I'm starting to think that 51% attacks are Ethereum Classic's only use case. I can't think of anything else, but you know, I digress. So how about the hardware bottlenecks? I know you guys have also made the news over some very large hardware purchases. What are your guys' experience with everything that's going on in China with, with regards to hardware?
Taras: Yeah, I mean, we've got a really strong relationship with Bitmain but as they really do have a large command of the industry you know, supply chain concerns are top of mind for us. It's something that we really do have to be careful with. And so, you know, we're actively working with all the major manufacturers and working with Bitmain to make sure that our orders come in on time and on schedule. But you know, there's a systemic issue with supply chain when it comes to units because of access to silicone foundry capacity, fab capacity. So one thing I'm really excited about is the onshoring of the TSMC facility in Arizona. That's deemed to be open at the end of 2021, 2022. I think that'll be a global shakeup within the space. But candidly, the more capital that comes in, the more incentivization existing, you know, fab houses, AMD, NVIDIA, et cetera, we'll have to take a look at the digital mining space and say, this is actually an industry ripe for disruption, where we have these, you know, engineering teams ,and just teams of software developers who can essentially build up what they need on the operating system side, the firmware side, and, you know, deploy a couple hundred million dollars to take on the ASIC challenge, build the new most trap SHA256.
Taras So I think that as the industry advances, we're not going to, I've tried, I've been in that game once. I'm not going to get back into the ASIC development game. But I mean, NVIDIA's recent acquisition of arm is a great platform, right? They, they could potentially dedicate a few teams to that problem and, you know, they've got some of the best engineers on the planet. They might be able to take on the space, not to say that they will, or I have any inside information whatsoever. I don't, I mean, this is merely me blasting.
Whit: No, I mean, that would be quite a step for them. And I think, I think that the market cap is still too low right now for for Nvidia to, to take that leap. But I mean, who knows, right? There's always the possibility. There are others that are, you know, going to throw their hat in the ring here very soon. Some that have recently launched SHA256 ASICs. I mean, when you see these come on, like you have the StrongU's that just launched. I don't even think they're they're ready yet. And there's others that are in North America that are currently testing. Have you come across any ASICs that, you know, have you done any of the test runs of some of these new ASICs that are getting ready to come out?
Taras: We have a sandbox and we're actively testing units that are sent over to us. We work with obviously newer manufacturers who are looking at the space. You know, I've been in contact with some teams that are looking at like Siacoin, ZEC, so yeah, we're, we're actively with a few other design teams, but nothing that is a commercial readiness at this point.
Whit: How are you guys seeing, is there an uptick in interest from people wanting to mine ETH? I know you guys have GPU operations there, but how about the ETH ASICs or people just interested in ETH in general?
Taras: Absolutely. I mean the DeFi craze is the phrase I'll use has certainly massively driven up demand for ETH as well GPU computational power. So yeah, I mean, that's something we're actively figuring out our strategy on over the next little while. That being said, you know, the operators that we have that are mining with GPU power they're doing exceptionally well, increasing their fleets. So yeah, there's a ton of growth on that side. Hopefully it sticks and doesn't just pop like it did in 2017, but I digress.
Whit: Yeah. I mean, it's, it remains to be seen, you know, I think there'll be DeFi projects that actually, you know, prove out and, and, you know, kind of bring benefits to ETH longterm. I think before we see a pop, we could see a solid shift from the way that things are now to ETH 2.0, I know it's gonna phase in over time. It's not going to be immediate, but that rollout starts I believe in November. So that could impact your miners as well. But I mean, I hope not. Like ETH right now is the only thing that's really keeping some of the whole miners in the game. You know, if it wasn't for ETH, there's not a whole lot to point your hash at. And I know that people will say that they spec mine and there's flips that they can make.
Whit: But look, I mean, focusing on ETH has been the play for anyone that's not operating a Bitcoin ASIC really over the last handful of months. So hopefully that does continue. Okay. Well, Taras, as we get to wrapping things up here I know that Core, you guys have a lot going on, you guys are continuing to scale and grow. You've expressed your excitement over, what's coming for Bitcoin. What's one thing that you're seeing in the space right now that you feel that most people aren't paying enough attention to?
Taras: One thing that people aren't paying enough attention to. That's a good question. Probably consolidation. I don't think people are realizing how quickly the space will scale up and, you know, the folks who are operating with smaller facilities, you know, two to five megawatts you know, they're, they're going to have a really tough time. I still get calls people saying, yeah, you know, we're building up our own site. I'm like, really why? Oh, because we've got this great power rate. I'm like for how long? Five years. I'm like, and how much is it gonna cost you to build that up? What's the CapEx and okay, how long, how are we going to amortize that once that rate flips? So I still think that there's a lot of, you know, great entrepreneurs who are playing fast and loose with their own capital.
Taras: And so it's, you know, it's something that I think people should definitely be paying attention to more. And like, luckily I've actually had a couple of really good calls over the past few weeks where somebody called us, we had a great conversation, one guy with a containerized solution called us back a week later, he's like, you know what, we're going to work with you guys. We're going to buy inventory. We're going to do pure hosting. You know, thank you. And to me, that's a win, not just for the client to bring a new client onto Core, but to make sure somebody that is putting together a pool, you know, a million bucks, 2 million bucks, and I'm putting it into a facility that isn't going to return the ROI that they mistakenly thought it would. Right. And so you know the last thing that I want to see is people getting into the space and then going into insolvency cause they didn't model it out properly or didn't, you know, think of the longer term strategy as well as structural shifts in the space. And so, you know, not to give anyone financial advice, but really dig into your models to figure out what the longterm play is. And you know, if you come out the other side of that, where you still have capital, you want to deploy, you know, work with a larger player and you know, Core's obviously willing to work with new folks. So that's my last little pitch out. There you go. Little final show.
Whit: Well, Taras, thank you for coming on the show today, man. I appreciate it.
Taras: Thank you for invitation. Appreciate it as well.
Whit: Yeah. We'll have to do it again sometime soon. And for all of the viewers and listeners of the HASHR8 Podcast, thank you guys for tuning into the show. I appreciate you very much and I will talk to you all again very soon.
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