Paraguay's Government Seized Mining Rigs... Then Plugged Them In w/ Kent Halliburton

All right guys, welcome back to another interview.

Hashtag up today.

I'm sitting down with Kent Heleboten of Sez Mining.

Sez Mining is a mining as a service provider.

They have four existing sites in Wisconsin, Ethiopia, Norway and Paraguay.

Now they're releasing their fifth site in North Carolina.

They have about 17.5 megawatts under management

and are a very famous brand when it comes to Bitcoin miner hosting.

Today I want to speak to Kent about his plans to expand in the U.S.

and what mining is like in Paraguay, Norway and Ethiopia as well.

With that being said, I hope you enjoyed the interview.

Let's dive in.

Hashtag up, hardware sales, advisory hosting and site brokerage.

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All right, so as I said in the introduction, I'm here with Kent.

Hi Kent, how are you?

Wonderful man, good to be on here. It's been a while.

Yeah, it's been a while.

I see beautiful trees and Peru waving in the background.

It's awesome.

In my office, we had a think record, heat week,

hitting 100 degrees Fahrenheit or 40 Celsius, which is crazy,

but I'm glad it's cooled out a bit.

But that's besides the point.

I want to talk to you about mining.

You guys just announced your fifth site in South Dakota.

You just told me that was announced today.

It's nearly sold out.

Now you're looking to get another site online.

And I'm wondering, how does that work with the AI pivot?

How easy is it for you to find infrastructure at reasonable prices?

Now that everybody and their grandmother that has access to energy is looking at AI.

That's a great question.

So I kind of contrary and take about AI in general.

I think there's a bit of a data center infrastructure overshoot that is occurring at this particular moment

with the demand for edge computation and AI agents on people's desktops.

However, what I find right now in the US is that we are just strategically lucky to be honest.

I think there is a lot of pressure.

I know there's a lot of pressure for energy.

And we've been in operations now for four years.

This is our fourth year mining.

And we've kind of gotten to the point where we are seen.

And I heard this, you know, this opportunity that we're looking at right now is in Texas.

And I think I'll be able to talk more publicly about the specifics within a week or so here if our recording.

But at this particular moment, the main reason why the data center operator wants to work with us is because of a reputation.

Right. So I don't think that these sort of opportunities are just available to everyone.

And that's not to try to say that we've done anything other than just operate as a healthy business.

But, you know, the Bitcoin mining space has been really full of a lot of Wild West actors.

Right. And the more professional actors are starting to emerge.

And I'd like to think that we're one of those.

And I think comments like we got this morning talking to this operator that we're looking to lock on with in Texas sort of validates that thesis.

So I, yeah, I think we're sort of lucky because of who we are really.

And I think that there is not a dime a dozen to go find rack space right now for.

Because the AI pressure that said I do think that with the hash price pressure that there is a lot of traditional Bitcoin miners that are not pivoting that is creating some softness.

So it's there's kind of two separate tracks right like there's a demand from a lot of AI, but there's also a lot of people that have plowed a very specific word Bitcoin only company and then we only host Bitcoin miners.

And so if they have rack space there it's different rack space that you need for AI right.

Yeah, I mean 100% I'm covering that more on the channel now the difference between tier three tier four data centers.

There should be like a focus episode on that.

And pretty soon as well to make people understand the difference between I don't know tier zero Bitcoin mining basically no requirements and tier four redundancy everywhere 99.9% uptime.

And there's just a big big difference 100% but I think like what you said is really important right I mean if this is not your first pair market.

That you've seen I think it's safe to call it that.

And then yeah the valuable players they they survive the people who accrue value and and are able to manage these sort of market conditions they survive I mean we see even pools pivoting right recently found re announced that they're now doing Z cash mining.

Pool as well because you and I understood okay like these guys make a percentage of the revenue revenue dollar turns us down they have wages to pay they're also they're also struggling.

And but I think this leads to me to sort of my second point I mean you guys have been mining all over the shop you jumped into Paraguay I know you've been there for a long time.

And we should talk about that maybe next and see how mining is in Paraguay today if done Ethiopia as well no way if I'm not mistaken.

Yeah leave me leave me maybe through all the sites that you guys operate at and what sort of the premise was to start and versus what it looks like today maybe we can start in Paraguay or no way up to you.

Yeah first just to go back to what you talked about what you want to focus podcast sent my way when you're done because I am no expert in tier three to you tier four data centers but feel like I need to I need to get better up to speed there myself.

That said so let me yeah let me just walk you down memory lane and and and talk you through where we came from and where we are today so our first data center was Wisconsin that was an MVP proof of concept does it doesn't work to build a software solution and user experience and then apply a data center to.

Because that was a new take and doesn't work to do a revenue share model right because as far as I'm aware we're the only.

We distinguish ourselves from traditional hosting providers in that we are tech forward so like a tech company first with operation second and that we only generate Bitcoin revenue for ourselves when our clients generate Bitcoin so we pass through the cost of hardware and electricity to clients.

And then we take a share of the Bitcoin mine 15% is typical in the back end so that those alignment of two things is unique so Wisconsin was our proof of concept validated that this is the depths of the bear market so you're right assuming this is a bear market I think it's fair to call it that at this point then this is our second and we got through Wisconsin single megawatt proof of concept and then we moved on had a great opportunity in Paraguay.

And just started to sell into that and that took us through 20 the beginning of 2024 and the beginning of 2024 we had a data center opportunity in Norway pop up and wonderful opportunity in the Arctic Circle combined heat reuse was just on stage at the heat punk summit and Denver Colorado a couple weeks ago with Mars main guy for their heat recenter and ours.

It was identical in almost every way it was pretty interesting to see we come to very similar conclusions about how to operate so that's a two and a half megawatt data center Paraguay at this point is about nine megawatts total there.

And then that brings us to last year when our Norway data center operator so we contract a rack space we don't own our infrastructure so we're very strategic and selective about who are operators hard but operator Norway presented us with an opportunity Ethiopia so we went check it out and decided yeah let's let's try it out.

The strategy really has been there's no place the simple statement that I believe to be very true is until Bitcoin is seen as the global store of value that there's no safe jurisdiction for mining Bitcoin and as a result the only prudent thing to do is to diversify your revenue streams across multiple jurisdictions so decentralized.

So that's what we've pursued and why we're in the different locations that we are so the US Paraguay Norway and Ethiopia Paraguay and Norway are the the riskier places of course Paraguay I think has largely been de-risked at this point we live through it Ethiopia is de-risking I would argue at this point but not totally there yet but both of those places strategically have long term viable access hydro power which is steady low cost.

And we wanted to have a seat at the table in those jurisdictions because opportunities will present themselves if you're there if you're not in a market you don't get to see those opportunities in your your looking from the outside in.

So that's how we chose those locations Norway we actually went there strategically because little law was strong and great power costs and we hoped to be able to expand more there but regulation came in and more and no way jeopardized with our data center.

And in Norway because of the heat reuse component sort of makes it politically infeasible to attack but it's not a good regulatory climate to do much expansion in at the moment and hope that changes right but it's nice to at least have a foot in the Scandinavian countries so that when things shift and change there we can expand.

A lot of it has been you know kind of playing the game of risk you know the board game where it's like okay we're going to set our pieces where it makes sense in hopes that we can expand and sometimes it's worked and sometimes it hasn't.

Yeah no I think risk is the key word like I I still see I know of course no way is safe but the question is where's the safest according and then you combine power price with that right so

what I mine in Paraguay today at five cents probably not you know what I mine in Ethiopia at five point five cents probably not why because I see the US as much less risky and power price is only marginally more right so the risk adjusted power price in the US is still super attractive and I think your decision to open another two locations in the US.

Ecos or echoes exactly that sentiment wouldn't you agree.

Ah the first part I don't know that I'm totally lined with the second part yes and I think part of it has to do with the business model right so if I were a self minor I think probably what you're saying makes sense but given the type of model that we run we're not always able to access the sort of pricing that you laid out however you know even to put it in

to context like if you look last year like the US was not paid totally risk through place right terrorists actually stopped mining rings from across in the borders for a little while and created some supply chain disruption so even in the US a place that is one of the safest jurisdictions is still not totally safe right so again having a spread out footprint is best and what you described is the ideal right

low power costs high rule of law that's what you want to what you want to find but you know that's what everybody wants and so that's why it's the scaricest.

Yeah no just in case I misspoke there didn't mean risk free I mean lowest risk like yeah no I don't think you misspoke but yeah yeah yeah yeah yeah yeah yeah yeah this episode is sponsored by hash branch the easiest way to mine Bitcoin and the US sourcing hardware and

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Then you said something about the revenue split I cover that quite a bit on a channel it's often misunderstood can you lay out why your clients find it interesting and why it makes sense especially in bear markets.

Yeah absolutely I think the key there is that last part of the bear markets right so so revenue share and profit a profit share are often confused is what I've discovered in our industry so let me start off by describing

the difference between those two so revenue share means that when the Bitcoin is sent from the mining pool actually it doesn't have to happen at the mining pool but basically splitting the Bitcoin that is generated from mining.

Profit share is saying let's split the Bitcoin after the electricity bills are paid that's the main difference so we do revenue share not profit share.

And the revenue share the alignment of incentives is the primary reason we did it so coming into this industry I identified what I thought was the key Achilles heel for us to be successful was lack of trust the marketplace didn't have a lot of trust with the actors that I could see in the marketplace at that point I think it's gotten better largely since we became operational in the beginning of 2023 however.

When you align incentives there's no better way to maximize the trust right clients give us possession of equipment they own so it is by definition a high trust relationship so as the Bitcoin is mine from the mining rig by splitting the Bitcoin when it's paid out so we're not custodial how we do it never take possession of clients Bitcoin the mining pool pays it out and is split accordingly.

What that means is that if I am not helping my clients generate Bitcoin I'm not getting paid and that alignment of incentives I think is the most important part of the model the second most important part is what you identified or mentioned which is bear market right so when you take a percentage of the revenue it means that you're going to share in the gains and share in the pains and that's especially important in bear market conditions like we are right now because.

Our clients get squeezed but so do we and if you look at it for a dollar per dollar basis you know convert that into kilowatt hour price you'll see that we become quite attractive during a bear market and that helps our clients remain profitable for longer.

And do you see hesitancy with clients looking to deploy new units or are they more interested than in deploying older units where maybe they're more at risk when it comes to break evens.

No I almost exclusively we're getting asked by clients for new equipment we almost never get clients asking us I think we have we're sort of carving out a unique marketplace and you know the.

The way that we frame ourselves in the market is a bit different than the traditional hosting we're not a passive income generation scheme we're not aiming for profitability our focus is on hey this is how Satoshi Nakamoto designed the network to distribute Bitcoin so this is a Bitcoin acquisition vehicle this is quite literally the only way to generate Bitcoin there's no other way out there to make Bitcoin and as a result is sort of confounding.

But it's a zero to one innovation in the same way that the decentralized ledger of Bitcoin is a zero to one innovation meaning that this is a decentralized money printer you put dollars into it through the form of electricity hardware and internet connection and you get Bitcoin out so it's not a dollars in dollar out analysis if you are a Bitcoin or it's a dollars in Bitcoin out analysis and that means that what you should be doing for this investment is comparing it to the price of Bitcoin on an exchange.

Is it better to acquire Bitcoin through mining or is it better to go buy it and if you're doing anything other than that is a Bitcoin or I think you've missed the boat on what this is and that's a function of what you bring as your as your bias and your priors to the conversation because everybody implicitly makes the decision on what their money is is it dollars or is it Bitcoin and if you're a Bitcoin or it's Bitcoin so you're not looking to use Bitcoin as a stepping stone to get more dollars.

You're stepping into that realm of what is and I've mentioned this it's interesting to say that on a previous episode recently where so that you have to these are the times where the dollar is not the dollar anymore right so everybody kind of has to juggle and figure out to to see what they actually want to own and you can feel that I don't know there's something when you talk to people he ends up I forget when I talk to parents at the

school that my son goes to about these things you know everybody's trying to sort of figure out you know okay they don't want to own the brand to they want to own dollars like it's being weaponized whatever and it's it's a very interesting time goal is going to 5,000 an ounce you know and it's doing moves like it's never done before so a lot of people are deciding to go there and but then I say to my clients exact same thing right the opportunity cost is how much Bitcoin could I have bought instead of the mine.

And that's the baseline that you have to beat otherwise it wasn't a good investment and it has to be the returns on top of it have to be worth the risk right so and then recently I've all I've gone all hydro because I said okay now to to make sure in a hosted environment that you reach that target you need to make sure that you have a very reliable machine physically

and you need to be able to keep it profitable for a long long time and that's where the revenue profit split comes in revenue split or profit split to be clear and yeah then the question becomes sort of what what our eyes are you are you seeing when clients buy new machines today and you assume I don't know what what would be a fair assumption of average hash price in your opinion when it comes to these calculations do you make them at all if I don't know if it's even fair.

No actually we look completely at what's the price so we reframing the conversation in terms of Bitcoin acquisition so what you're doing is you're paying an electric bill every month and you're getting a certain number of sets so what is the price of those sets what we do division between those two and you get an energy cost average price of your Bitcoin and so looking at that like for instance in Ethiopia right now that's about $50,000 so 20% discount to the price.

Now that doesn't include the hardware the hardware is a more tricky thing to analyze and that's just because the hardware price fluctuates a lot more than your energy cost average price of the energy production cost of Bitcoin.

So as a result what we've seen historically is that with new hardware clients have been our wine on that in under two years I don't know if that's the case right now you know we're kind of in an unprecedented moment to hear with hash price being as low as it is I'm quite curious to see and I think although I would I would say yes we're in a fair market right now I don't know that it's that we haven't entered a new type of cycle right I think we're right on the cusp is where we're going to be.

According this of finding out if this is a traditional bear market or if this is a shorter one and in elongated cycle is actually going to play out and that's that's currently my my base case is that it's the latter not the former and I say that because we never really had a euphoria phase of the last bull market you know which peak in October so it's if the whole dynamics are very odd now institutional money is clearly here it's hard to make sense of it you know we're going to be able to do that.

We're not in Kansas anymore total and got it figured out but I think that right now if I can give some market indication from our client base we're seeing little retail demand but a lot of enterprise demand so it's suggestive to me that smart money is buying the blood in the street right now and is suggestive that there's bullish price action for Bitcoin ahead.

Yeah look I mean minus or so the cheap right and and I want to get to to a point that you remind me of just now and but you can also look at minor prices in Bitcoin right and minor prices when Bitcoin was back at 100k were similar in Bitcoin terms and they are today right because as soon as Bitcoin goes down.

Cash prices goes down Bitcoin mining prices or Bitcoin asick prices they also fall right so they all sort of move in tandem with each other and I've never liked to the to to the point you made earlier I've never really liked communicating that number oh it's you know it's 55,000 to mine a Bitcoin why would you ever buy it because that's often like I see that marketing a lot.

I always include the minor price and I always write it off over a reasonable time period you know four five six years or whatever even three and you will arrive at about 100k right and that the the conversation or the sales conversation always goes like this yes it's 100,000 to mine Bitcoin right but if I then ask you what do you think the average price of Bitcoin will be the average price of Bitcoin.

It will be over the next three to four years you know and if your answer is lower than 100k it's probably better to just buy the buy the coin directly but if your answer is hey it's probably going to be higher than my cost of production even including the machine then you know it makes more sense to to buy the machine and start mining so that's how I always framed it going forward.

Yeah I think that I think we're all just still wrestling with how to frame Bitcoin because it is a zero to one innovation I personally yeah I've taken a different track I'm trying to be very clear that this is the Bitcoin energy cost right or and this is an energy cost average that way it's different than the hardware cost or calculator on the website it makes that very clear and looks at those two separate things for people to analyze and the reason the main reason why I did that is because I found

over and over again it took me a little while to realize this that people didn't realize that if you just take the capex and set it on the side and just look at how many sats you get from how many dollars it takes to get that for on an energy basis that is quite a valuable proposition.

So that simple idea which is the simplest idea that I could discover to communicate Bitcoin mining's economic proposition in like a meme of a way is where I wanted to build the narrative around that way people could see it but you write it's I think I've seen a lot of people say hey mine a Bitcoin for only this and that's not that's not the approach that we take it's hey this is the energy cost average so you still need to talk about the Bitcoin

and the hardware and what it's going to cost for you to do but I think it's a function of just an early stage market I'll give you one analogy so I work for a decade and rooftop solar and when I worked in that industry for the first five years it was mainly technicians that were selling the product and then there's an interesting moment where marketing and sales professional stepped in and they changed the language set and the value proposition

and suddenly a lot of capital started to flow and it's been my belief for quite some time that we are going through a similar dynamic you know like the term Bitcoin mining as a service right like that that term didn't exist before we entered the market we liked it because we were a software as a service play applied to mining and so this is kind of cheeky to apply and now most of the true yeah most of the traditional hosting providers now call themselves mining as a service which is great you know I don't mind

people copy things that we do but it's the only downside is it's come to mean something slightly different than we did too but that's the way that things go you know I don't have a control over words that people use

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yeah it takes takes shape and 100% no I mean look just just to go back to that it becomes infinitely more difficult

right now you can say okay you can also sell the machines after four years now you got to put a price on that

but you have to have a market you know exporting out of Paraguay difficult you know so there's all these vectors and variables

but what if what has always treated me well is to be as conservative as reasonably possible and if the model still works good you know do it

and so yeah but I want to talk to you can't about Paraguay a bit more because I know I think it's probably been the most volatile market when it comes to Bitcoin mining from a regulatory perspective

and what is it like mining there today I mean you've the last headlines that I saw was that the miner the government now wanted to start mining itself

after confiscating all the hardware give me a bit of feedback as you're also present in the region like what is it actually like mining in Paraguay today

well I mean it's a developing nation right and I see similar trends playing out in Ethiopia where it's it's a Bitcoin mining was a complete unknown

Paraguay you know I don't know exactly how many years ago six seven years ago and the you hear all these people showed up because you know the framing is there's all this excess electricity

and there is right they've been selling it at a loss to Brazil so miners can come in and solve it up mine and now there's an exportable product Bitcoin that can take advantage of all this excess electricity

was all well and good the government didn't understand what Bitcoin mining is so they're just selling tons of power and making it in the dough

now they suddenly realize oh wait maybe we can make even more money let's start jacking up the rates

and then the miners say well maybe we don't want to be here anymore and wave miners leaves and then they try to jack up the rates again

and the remaining miners say okay now we're going to leave and then they say okay maybe we won't jack up the rates again

and then they come to us a standoff right so it's kind of like there's a process in similar that's playing out in Ethiopia

there's a process that I think governments go through to get educated by Bitcoin mining and that process goes like holy cow we found a bowl of goose

like let's let's milk this thing for everything we possibly can and then oh shoot we're almost ready to kill this thing we better back off

and that's only because Bitcoin miners can unplug and physically move their mining rigs into Brazil in Paraguay for instance

that caused the standstill otherwise the Paraguay government would have continued to extract more and more

but I think it's a wonderful thing that they're looking to mine on these illegal mining rigs

and that part of the story is worth talking about because most people outside of Paraguay mistook that

and thought that the government was stealing mining rigs and no if they weren't they were actually cracking down on criminal enterprises

so in Latin America where I live it is fairly common for people not to have meters and to basically put jumper cables on power lines

to get power for their homes right so this was happening at scale in Paraguay the idea in the west of having stolen electricity

is kind of hard to get your head wrapped around if you've never been in like a developing nation

but it's very common because nothing restricts it right you put a tie into the electric lines and you have power

right and if it's not metered well it's guerrilla power and it's yours and you can run stuff with it

so that's what was happening at scale in Paraguay and the government said this is an uncontrollable load

we have to crack down in a criminal way so they came down and started to put people in jail and take the mining rigs

and now they've got all these mining rigs and like wait you mean these can print money maybe I should plug these in

and I love that because that suddenly means if they start mining as a government you know they're going to have free power

they're not going to it's a state run utility there right so they're not going to have electric bills

we as miners will be subsidizing their electric bills but at least they will get more educated on mining

and understand the concerns that we bring up and realize how they can work with us better

so I think we'll pass the phase of they fight you and run to the phase of okay let's grow this thing together

they want to learn from you and okay so you're saying it's only the legal miners and I mean what do you

pay for power in Paraguay these days is it worth while looking at Paraguay again?

Well it depends the best rate tariff is what comes off the high tension lines

and so you basically need to develop your own substation or going with somebody else building a substation with you

so if you're going to do that you can get power as low as like 4.9 cents per kilowatt hour

but that's the the best rate tariff yes it's not cheap right no no it's not so largely who's there is who's there

I don't see a lot of expansion but the fact that we saw several publicly traded mining companies go in there and mine

suggests to me that it's largely deep risked you know you can't as a highly regulated entity go into a highly risky situation

it just doesn't work for your investors

and then you mentioned Ethiopia has the power price increase happened the audience already knows about the announcement from the government

and has it been yeah is it an effect or no?

It has not come to pass no and there is an election coming up so our operators there on the ground

and their take is that this was largely a job owning exercise for the electorate more than it was then actually intending to raise rates

now let's see if this is not a certain situation right now but if I look at the alignment of incentives

this looks to me to be the point at which similar to Paraguay toward the government backs off and says

we've hit a good stalemate here we need your dollars we're going to be okay with where we are

particularly with Ethiopia as you know my company is all about increasing hair shade on the African continent

I get really furious about this because if you do the math right right if they have I think 46 gigawatts of financially feasible projects

that they could develop and if they if only they understood the economic power they have right of permissionlessly turning all of that electricity that they have into revenue

the the effects of that would be insane they could to put it into specifics they could if they did it right and sold it at I don't know

three four cents two minus and a strong PPA for 10 years or whatever they could theoretically replace all of the development aid that they receive

they receive like I think four five billion in development aid in 2022 at least and they could replace that entire amount just by selling the electricity that they have

two Bitcoin minus or a small portion of like that's and it it replaces not only does it replace development aid but it replaces bad money with good right

it replaces money that comes with strings attached with money that is just from electricity sales that you can freely use

so it's especially frustrating to me when I see oh no no cool all these Bitcoin minus here let's raise prices because we have shortages in certain areas

because we were not smart enough to limit access to high power consumption Bitcoin mining to areas where there's no population

we needed every all these Bitcoin minus that said hey we're half an hour away from the airport I was like that's not a good thing I don't know why you so loud about that

I don't understand why that makes sense but yeah maybe there's a lot of catching up to do and I really hope that Ethiopia turns that ship around

and understands the amount of opportunity that they have in again selling their power permissionlessly

without asking the West if it's okay you know two Bitcoin minus and make a ton of money

yeah you know it's you see situations like that Jesse and you just wonder is it ignorance or malfeasance

and I go back and forth it depends on if I want and neither is good you know no neither good you hope he hears the good news about ignorance though ignorance could be cured

I'm not sure the malfeasance can be so hopefully people in Ethiopia watching this podcast and realizing what you said and call you up and say hey man come run for president here

so we can monetize this and I'll be better better off for it

then we're at the end of the episode I want to end it on a good note and tell people where they can find more about you

where they can learn about the Texas offering do you already know can you share specifics around the economics of that site or anything

no I can't I can't we're gonna go to South Dakota yeah so we have South Dakota for the for the time being oh good they're both South

even though what is the completely different sites of the country I didn't know what it was South but anyway no

can be reached on Twitter is probably the best place to find me actually I should start calling it X at K Halliburton

go to our website if you want to talk to one of our Bitcoin strategy advisors so that'd be sasmining.com

and then you can find me on LinkedIn as well if you're a fan of that Kent Halliburton we'd love to talk to you

and Jesse been wonderful to be on here thanks for the opportunity and good catching up with you

yeah 100% anytime cool guys there was Kent this was Kent from says mining go to his website learn more about it

find everything in the show notes see you later bye