Cipher Digital Inc. (CIFR) Earnings Call Transcript & Summary

Good afternoon, everyone. Thanks for dialing in to another session. This might be the last time I'll say happy Friday. So I think it's getting repetitive at this point. We are joined by CEO of Cipher Mining, Tyler Page; and CFO, Ed Farrell. Great to have these guys on. Some of you might have caught them speaking at our September Crypto Conference where we had them on as well. So it's always great to have them back and share their insights and thoughts on the company and in this space more broadly.

Guys, let's get right into it if that works for you. So first off, at a high level, just to reacclimate our audience here, can you give us a quick intro and overview of Cipher Mining. And then I think hearing it from your words, how do you guys differentiate from the number of other public Bitcoin miners that have now come to market?

Yes, absolutely. Thanks, John, and thanks again for having us back. And hello to everyone, and I'll also say happy Friday because I haven't had a chance to do it yet. But Yes. So real quick, an overview on Cipher. So Cipher is a U.S.-focused Bitcoin mining company. We have a long heritage in the mining space. So we are actually a spin-out of a privately held European company called Bitfury that is one of the oldest Bitcoin mining companies on earth for -- just for reference to give them their fair do, they've mined over 600,000 Bitcoin since inception. So they've developed hardware, software, many mines across the earth and learnt lots of lessons. We are the U.S. opportunity set, and we spun out of them at the beginning of this year. We came public and are listed on NASDAQ under the ticker CIFR. We went public via a SPAC. I believe we were actually the first crypto company to successfully de-SPAC. So it was a very exciting 2021. We came public and got listed at the end of August, completing our merger. And our business plan has always been that we would take the transaction proceeds and then proceed to build out this very large U.S.-oriented footprint. And I'd highlight a couple of things. It's been a while in 2021. But when we first came to market at the beginning of the year, our broad thesis was that there was a vast untapped opportunity set in the United States that perhaps was being underappreciated by the rest of the mining world. And you might be able to find a cheap price in certain places, but that there were certain risks that were not being priced into those prices you might find from a power perspective. And so 2021 did indeed -- I don't think we could have predicted exactly how things would go down, but the tide has certainly turned into that forecast, and we see the future of hash rate here in the United States. So we're now public. We are currently under construction at our first 5 data centers. We have 4 in Texas and 1 in Ohio currently being built. We have executed purchase contracts for mining rigs to be delivered in 2022 that power up to 19.5 exahash per second of compute power. So it's a pretty hefty inventory we have, to be delivered this year as we ramp up at those 5 sites, with the first shipments arriving later this -- were scheduled to arrive later this month. So very exciting time in our very high-growth space. And as we distinguish ourselves, it's not only that heritage. I think the real key thing, and I'm sure we'll get into this a little bit deeper today, but building on that 10-year track record in the space, lessons that have been learned over the cycle, we think still apply, even though there's a lot of enthusiasm and a lot of these names have rallied quite a bit. We think price discipline, cost discipline around the key CapEx input and OpEx input, namely the price you pay for terahash per compute and the price you pay for electricity, power are vital. You pay north of 3/4 of your expenses for those 2 key inputs. And 1 thing that I think distinguishes us is we have a tremendous amount of discipline and are at the low end of the cost curve for both of those metrics. And the reason why that's relevant is when the cycle turns or profitability squeezes or more players come into the space or we have a having those resiliencies become very apparent. And so that's really the key distinguishing feature, but also in the way we operate the company, we have a lot of differences, I'm sure we'll explore too.

That's great. Thank you, Tyler, for that overview. I appreciate that. A follow-up question on the facility construction. You mentioned 4 in Texas, 1 in Ohio, is that correct?

Yes.

Great. When we think about the geographic location of some of these, how is the facility construction tied into it? And maybe some of the -- and I have a follow-up question here on proprietary technology you guys use in your mining process. But how has that change depending on the location, right? You would think Texas warmer climates, different solutions you guys would use to cool these mining rigs and devices down. Talk to us a little bit about that and how geographic decisions play into that.

Sure. So obviously, there's the broad framework I mentioned earlier where you think about capital markets and regulatory regimes, et cetera. And in the U.S., in general, that's pretty uniform. Although I will say it is noticeable that some state regulators are not as keen on Bitcoin mining as places like Texas and Ohio. So we do pay some attention at that level. But more specifically about physical environment, any time we look at an opportunity, we do a pretty in-depth analysis of the environment of the particular physical space. And the obvious components of that are just suitability for a data center, right? So it's things like heat and cold, what are the temperatures and extremes, also the frequency of those extremes. But it's also things like humidity levels, dust, et cetera. There's pages and pages actually of metrics that we look at, at particular sites. And that helps us then arrive at our next stage of thinking when we think about construction, which is how do we get the most bang for our buck and the most value when we build -- make choices on design. And generally, that falls into a couple of different camps. I can oversimplify it into 3, which is do we build a containerized data center? So repurpose shipping containers that are proprietarily built in and are air cooled. Do we think about a larger structure where you're going to build a larger stable structure, but you have to think about things like HVAC and water and things like that, that aren't necessarily issues with the containerized solutions. And then liquid cooling, right, which I know is a big trend with folks today. It does solve some environmental issues and also potentially enables some efficiencies in terms of your rigs. And so the 2 kind of go hand in hand, it's somewhat dynamic. I will say that given that we are using brand-new mining equipment, and we are so focused on driving down the power costs that -- given that we pay an average of about $0.027 per kilowatt hour for power, that means that generally, we don't need to look to more expensive CapEx solutions like liquid cooling. And so at our current data centers, we are actually building all containerized solutions. Again, Bitfury, our parent company has built all 3 of those that I mentioned and has experience in a variety of environments at both ends of the extreme temperature spectrum. The truth is that our sites where we're building, there's plenty of resilience in an air cooled containerized solution. So that's how we're building. The story there is that you can drive down your CapEx costs if you analyze them on a per megawatt basis. And those boxes are pretty battle tested. And so in our case, while I know there's lots of folks focused on liquid cooling, and we look a lot. I mean Bitfury has a separate liquid cooling subsidiary called LiquidStack, and they work with hyperscalers and they're very advanced, and we will tap that when and if we might need it at a particular site. Currently, our construction doesn't have that, it's all containerized.

Got it. And you mentioned the focus being on driving down those power costs [ versus ] investing in liquid cooling at least for right now. Talk to us a little bit about some of those power relationships that you've built out then and give us some of the -- maybe the advantage you guys have in that relative to some competitors.

Absolutely. So truthfully, I think when I think about our leadership team, this is a spot where I'm very proud of our guys. I think it's a competitive strength. I'm not trying to say anything bad about any of our competitors. But we have a lot of folks with the structuring background, Fintech operating environment background. And so what we have been able to do thus far, if you look at our power relationships is structure -- what I think are going to be forward-looking type of structures that you will see more and more in mining. In fact, if I were going to say the biggest thing I see on the horizon for the Bitcoin mining industry is an upstream integration with the U.S. power industry more broadly, right? I mean in a nutshell, if a power company is accessing Bitcoin mining, they can effectively sell their megawatt hours for a vastly increased profit margin. And so obviously, that's very interesting. To get back to your question, John, like, for example, we have a series of sites where we are in a 50-50 JV with the energy provider. And so there was a heavy amount of structuring and negotiation from a deal-making perspective and also an operational framework perspective to enable that relationship and therein lies part of the secret to getting a cheaper power cost. If we can build something where we're delivering value to our power provider and our partner, we're in partnership with them, that allows us to get more favorable terms. So that's structuring is a big key to it. And I think that's going to be a big trend in 2022. I think it's a pretty big competitive strength of ours that we have a JV structure that -- I mean it's out there in the public. So it's known that we have this, but like we believe we'll be able to effectively copy and paste that and repurpose it for other power-providing clients in the first -- in the future.

That's great. And when you also think about some of these facility operations, you mentioned the 50-50 JV with power providers. How are you thinking about the facility construction? So would you guys ever look to use third-party providers of the facilities? Or would you look to actually be vertically integrated where you construct, build out your own facilities? Walk us through some of the thoughts there?

Yes. I mean I think the answer is we're very commercially oriented and open to opportunities. And so we'll consider all manner of relationships and arrangements and -- in each of our 3 key power providers. So we have under contract currently up to 910 megawatts with our current providers. And each of those is structured a little bit differently, but the general default case we look to build and own our own facilities. And so we have a Chief Construction Officer that reports to our Chief Operating Officer. He has a lot of experience building data centers. He joined us from Vantage, but with a background at Google building data centers. And so we have a lot of talent on the top end, leading that construction effort. Obviously, building some of these sites, they're vast. And so there's a whole series of subcontractors that work on them for various parts of civil and electrical, et cetera. But -- so a lot of that process is managed and outsourced by us. But from a vertical integration standpoint or as I like to think a bit more a self-mining standpoint, we prefer to own and operate our own facilities as a default. We do have, as one of our sites in the portfolio, is a hosting arrangement where we negotiated what we felt were pretty favorable economics to only provide the rigs and not provide the physical infrastructure at the site. But in general, our default is to build and own our own stuff.

Understood. I appreciate that. Let's turn a little bit to Bitcoin mining more broadly. And also, this is important because when we're thinking about looking at some of these companies, evaluating and modeling them, a big cost input is where individuals think the global hash rate is going, -- or hash power is going as it kind of vary from 240 to 280 exahashes as we've heard from other folks, 300 to 350 exahashes, if you just look at some of the mining devices that are coming online and deliveries. Where are you kind of shaking out? What are your thoughts on that? Maybe not like a formal outlook, but just walk us through how you're thinking about that.

Yes. I'll provide a framework for how we think about it internally. And I'll avoid a specific number of prediction, but I'll try to say some third-party ones, we think, are pretty smart. And there's a reason for that, you'll see to my answer. So if you look historically -- and I can thank Bitfury for a lot of this education, again, they have a lot of hands-on knowledge with a decade in the space. Historically, if you were going to model hash rate, it tends to follow Bitcoin price with about a 6-month time lag. And logically, that makes sense, right, because economically, it becomes more profitable. People try to bring more operations online to capture that excess profit, but you can't just flip a switch. You've got long lead times to find power infrastructure or obtain mining rigs, et cetera. And so logically, that's how it's kind of followed historically speaking. And again, I think as a default, we generally expect that logic to hold true that hash rate will follow Bitcoin price with a time lag. Now that said, we're at this weird inflection point in the industry where a lot of institutional investment has woken up to the opportunity in Bitcoin mining this year. A lot of capital has come into the space, a lot of rigs are on order, et cetera. And so if you look forward from this point in time, it's probably going to have somewhat unique dynamics over the next year or 2 because truthfully with all this capital put to work in rigs ordered, I'm not sure the normal traditional frameworks of profitability for like flipping machines on and off are necessarily going to apply. I mean if you're a brand-new miner that's ordered a bunch of expensive rigs, you may mine unprofitably or like at lower profits, just to prove that you can do it, right? So I do tend to -- when I look at the third-party forecast out there for 2022, I think -- when I think about a framework for hash rate, there are natural governors on how much it can grow. Like there is a total foundry capacity of chips and machines that can possibly come online, and there's long lead times for things like step-down transformers if you're going to build these large-scale sites. So that is going to be the natural governor. The last thing I'd say is that sure, you can start with kind of all the orders that have been put out there for rigs and try to come up with a number that looks like something in the neighborhood of 2x what there is on online today. I do think this is going to be another big theme that a lot of investors are going to want to track carefully that 2022 is really going to be about execution. A lot of companies have come public, even the longtime names in the space that are probably the most well-known and established, really trade on their future story about what they're going to build in 2022. So I would say pretty much every public miner is trading somewhat on a story of what they're going to build over the next 12 months. And I'll just tell you, John, like execution, it's not easy. And the reason why is like you have to line up all these different work streams, like it's not just -- you have to get all the components to get your power infrastructure ready. You then need to get your mining rigs, you've got to hope everything is on time, and we live in a world of COVID and supply chain shocks, et cetera. So just lining up the timing of those work streams is tough. All by way of saying generally, certainly over the long term, we're very bullish on Bitcoin prices. We expect network hash rate to follow that and will go up. And over the next year, I think the framework for thinking about how it grows, if you look at someone like a [ bitUtah ], I think they're predicting something like 327, something like that by year-end. That ballpark logic makes sense to me. That's not our personal prediction, but I think their logic they get there is pretty sound.

Got it. And that was a good segue. You did mention some potential supply issues in shocks there. Are we seeing any supply chain issues? I mean you certainly hear about a lot. It's been somewhat of a theme here at NGC as all these different companies talking about supply chain issues. What about some of the devices? So MicroBT, Bitmain, big manufacturers and mining rigs. Any supply chain issues we've been hearing from those guys?

So nothing on our side yet, but let me give some context. I mean I, probably like you and anyone else listening to this, may have seen that I know there were stories about some issues. I think a few months ago with some of those big manufacturers. We are scheduled to receive our first device shipments from those guys, again, starting this month and they scale up over the course of 2022. So we have certainly been in regular contact with them to make sure we're ahead of any issues. And thus far, nothing is reported on the rig side, so I don't expect them, other than I know we could go to bed tonight and wake up and hear something tomorrow just because of the world we live in. I think Ed and I talk about this a lot. We try to manage our risks. And the way at least we try to think about supply chain proactively, is we look at our key suppliers on a variety of different fronts. Rigs are the most obvious one, but there's key parts throughout our construction supply chain. And we try to have redundancy wherever there are key pieces. We try to onshore as much as possible. That's tough with mining rigs, but also we try to have redundancy. And so if you look at the 3 contracts we have for mining rigs, they're from different countries, different [ FABS ]. And the hope is, with that redundancy, anything that might happen in the future, we have some protection against. So that's how we think about it. As far as anything on the supply chain that we've had so far, nothing material, I'm happy to say. I'll hit some wood. We've had some small issues here or there were like a key part that goes in our containers is -- has the potential to get stuck in a port and we have to pay to expedite the shipping to get it air shipped and things like that. Luckily thus far, nothing has caused us to fall off track on our work stream schedule. But Again, it's a busy world with COVID and everything out there. So we try to be on top of it very much. And Ed, I don't know if you'd add anything to that.

No, I think you're spot on, Tyler. We constantly -- like you just mentioned, we're getting our first delivery of rigs at the end of this month. We have -- staying in contact with the supplier. And as Tyler said, we haven't heard anything bad. So -- but anything could change and turnaround in a moment's notice, but we're very optimistic.

Great. That all sounds good. As a follow-up, when you do think about some of those manufacturer relationships, so is it a scenario where a lot of the public Bitcoin miners we talk to say, oh, we have a great relationships with these manufacturers, we can source devices at great prices. Is there a differentiation between public miners or is everyone sort of at scale where they can all get pretty good contracts with these manufacturers? Anything you guys have that differentiates? Or how should we just be thinking about that?

Sure. I will say that Bitmain and MicroBT do own a tremendous amount of market share in this space. And public miners have to file material contracts, right? So you can look -- and we do, we check on our friends at other shops just to see where those contracts are going and how they change. They generally stay very consistent. A lot of pricing power is held by MicroBT and Bitmain because of the -- I mean there are other manufacturers, but they own the large amount of the market share. So what I'd say is, here's how we think about it. Yes, if you're at scale obviously, you can demand much better pricing because of the amount that you're purchasing. I think the other thing that we try to manage -- and it is part of the challenge around execution and forecasting timing is that there's a time of delivery dynamic to those prices as well. And so if you're willing to think about future deliveries and how you want to stage them and be very proactive, you can try to manage those future deliveries to get better prices further into the future. I say that because, for example, we have sites coming online that exceed the number of rigs we will have delivered over the next few months where we could accommodate more. And so one of the things Ed and I have often debated and we always continue to debate is we constantly get offers in the secondary markets for machines or nearer-term delivery offers where there's a tremendous premium to get machines like tomorrow, right? If you get them for next month, if you're an institutional miner, you're still probably paying $90 plus per terahash at this point. The truth is, what you have to balance is, it's really important for us to maintain that cost discipline and think about returns on investment when we build one of these sites. And if we can get effectively the same rigs a few months later, for a much lower cost than we would incrementally generate and operating them for that handful of months, it's worth us to wait and time the delivery appropriately. So I think that dynamic plays an important role. The other thing that is truly differentiated with us versus every other miner, and no one has this is, that through our affiliation with Bitfury, we do have a purchase arrangement with Bitfury. Bitfury has taped out its 8th Generation ASIC chip. It's a 5-nanometer chip. That chip will be going into rig production later this year. We have an arrangement with Bitfury here where we have a right of first refusal on their machines. So any machines they make, they have to offer to us first before they would sell to anyone else. And we have a most favored nation pricing arrangement, which is to say prices can float somewhat, but we're going to be paying the minimum anyone pays for rigs, at least from Bitfury. Now they're part of our blended fleet. We have huge orders from Bitmain and MicroBT as well. That speaks to the importance of redundancy, newer machines versus well-known models et cetera. We think about balance and intend to be a big client for all these manufacturers, but we do have that one advantage that I can say with confidence no other competitor has.

Understood. Thank you for clarifying that and giving a little bit more context and color around that. Let's shift a little bit to -- once again Bitcoin a little bit more broadly. There's obviously been a lot of political challenges with Bitcoin environmental concerns over the last year or so. I think some of those concerns have subsided. But do you guys view -- where do you view the political landscape around Bitcoin miners in 2022? And then I have a follow-up question on that as well.

I think it'll continue to be an area of focus. Broadly speaking, what I'd say is this, the environmental concern around Bitcoin, in my mind, is really just the latest attack vector for people that don't like Bitcoin for some reason. And so it used to be only for drug dealers and money launderers and then that was disproven with data, and now people don't really raise that anymore, right? And so it's kind of going away. And so the next thing is this uses a lot of power. And if it keeps growing at the same rate, it's going to use more power than the rest of the whole earth and, oh my gosh. And so truthfully, I think both the industry overall, certainly our company has a very good story to tell from a power usage perspective. So to answer your question, I think there will continue to be a debate. I know Congress has an upcoming hearing on environmental impacts of Bitcoin mining, specifically, in the very near future. So I think this will continue to be debated. I think what we take great comfort in and certainly our advisers are telling us is that if you look at sort of the pace of legislative discussions at the national level, there seems to be an acknowledgment of the importance of Bitcoin as a part of our ecosystem, and it doesn't seem like the big risks are still on the table. Like people try to outlaw Bitcoin or something like that. I think there'll still be a healthy debate about carbon emissions and carbon intensity. I think ultimately, that folds into part of a broader discussion. And I can tell you, at least in the case of Cipher, we feel pretty far out in front of that. So like really, what we do is we operate data centers. And in that sense, we look at our carbon emissions and evaluating our carbon footprint is similar to other data centers or technology companies. And in our case, if you look at the carbon footprint of our initial portfolio on a per megawatt basis, we generate about half the carbon of a typical user of electricity in America. We don't work with coal-fired power plants. Some of our competitors, I know, do. Some offset that, whatever. But the point is we just don't -- we think that's a chance that there's a chance that broader environmental legislation goes in that direction, we're out in front of that. Beyond that, we do have nuclear and renewables in our own portfolio as well as a grid mix and nat gas in other places. We do have on our road map to be carbon neutral by 2023. We'll pursue an offset strategy. I think we're just trying to be very transparent and honest about it. Candidly, we're getting educated. We've had discussions with several sustainability groups at some of our investors, frankly, to understand what they really care about in a company from a sustainability standpoint. So we've been developing our program, and our goal is to be very transparent, report what our footprint looks like. We can highlight all the ways that, frankly, Bitcoin mining is a path to probably a greener footprint overall for the world. It is an industry. It has a lot of good things to say. It's ultimately -- to finally answer your question. I think it will continue to be in the news, but I think ultimately, it won't have much of an impact, is our belief.

Understood, and I'm pretty much of a similar viewpoint. Great. So now in -- let's switch gears a little bit here and talk a little bit about your balance sheet. One of the big things with Bitcoin miners is adding Bitcoin to the balance sheet. One thing I think we've discussed this in the past, so maybe it would be good just to refresh everyone, what are some levers you're looking to explore that could monetize some of the Bitcoin on your balance sheet, anything additional there and how we should be thinking about that.

Sure. Let me -- and I'm going to expand in the answer a little bit on this because I think it's a key part of our longer-term strategy in viewpoint, and also I'll pass it to Ed in a minute because as the master of coin, he may have something additional to add as well. But I think of it this way. So our general disposition is to try to hold Bitcoin on the balance sheet. I think we do that, though, for a different reason than a lot of our competitors. So we are certainly bullish on Bitcoin over the long term. I think a lot of Bitcoin miners out there right now kind of lean into this market opportunity where there's no spot Bitcoin ETF. And the equities kind of become day trading vehicles for retail, I mean, candidly, like they swing around more violently than the Bitcoin price. And that's fine, but I guess that's not so much what's interesting to us about Bitcoin and holding it longer term. I think what's interesting to us longer term is -- in the same way I talked about, I think the story in 2022 to a large extent, is going to be this upstream integration with the U.S. power industry. We believe over time, there's going to be also a downstream integration into the rest of the crypto industry and financial services industry. And what I mean by that is, as one of the largest producers and ultimately holders of Bitcoin on earth, we think there's going to be ample opportunities for us to find JVs, partnerships, opportunities across that spectrum that are enabled by holding more Bitcoin. So it's sort of a broader answer to your question that -- I think a lot of folks asked like, what's the long-term story here? Like you just keep buying computers and plugging them in. And we certainly will do that as we expand and have more and more power sites. But I think what's interesting in a lot of ways is thinking about like what if you are a company that affects [indiscernible] owns the [indiscernible] production and also has a tremendous amount of downstream capabilities into the rest of that ecosystem. And I think we're already seeing it. I mean we are -- we certainly have conversations from time to time with all kinds of players out there that are getting interested in mining. I mean there's headlines about tech companies getting interested in it, certainly, other crypto companies. You've seen some lines of credit and things like that. So with that, I think over the long term, that's how we think about it. Now specifically, to answer your question, flash forward, here's how I view it, and then I'll pass it to Ed. But as we are mining a tremendous amount of Bitcoin, at any point in time as we continue to expand and need to spend capital, Ed and his team are going to have to manage several levers that they could pull. And think about what's the most efficient way to manage this balance sheet. And this is a big theme overall because traditionally, miners only funded through equity sales. And I think that's going to completely change in the near future, where it's going to be. Okay, do we sell our Bitcoin for dollars? Do we get a credit line against our Bitcoin where we still own them, but we get some capital that we can deploy, et cetera? Do we actively manage them in some way we're like well, maybe we don't like being a seller at this price, but the future's price is pretty elevated or there's an option overwriting strategy where we'd be happy to be a seller at a premium and in the meantime, capture an enhanced yield or something like that. Absolutely all the options. More than that, too, just moving down the toolbox, equipment finance deals, I think that's a space that's broadening very rapidly right now. Other kind of corporate structures, whether that's debt or equity or anything else. And the point is, at any point in time, we're going to want to understand what's going on in all of those options for how to choose our best strategy. So that's my big picture on wanting to hold Bitcoin overall as a default and then the different ways to think about it. Ed, I don't know if you want to add anything about kind of near term or immediately how you think about enhancing that return in any way?

Yes. I actually believe that in the next year or so, the capital markets will even open up more for our space. It will -- and clearly, the cost of capital, I think, will come down. So we are bullish on Bitcoin, and we want to hold it. That being said, as we have opportunities, and we have a Bitcoin in inventory, and we need to react quickly. We will make those calls in terms of whether or not we need to liquidate our Bitcoin. But I do -- as Tyler touched on, there's a lot of other opportunities in terms of equipment financing. I think there'll be some more corporate-type financing that will be available to us as we've been talking to a lot of the big money center banks, and they are definitely jumping into this. And I think they're going to move quicker than they would typically move in other growth industries in the past. So I'm very optimistic that we'll have lots of opportunity to raise capital. And in the event that we don't do that on -- from a third party, we'll have Bitcoin we can fall back on.

That's great. Thank you for that perspective from both of you guys. Two more questions for me, then we'll open it up to the audience Q&A. This one, I think is important. It's a little bit of a unique question, but having come from the crypto industry have been in a bit, I remember 2018, 2019, a lot of miners went bankrupt. You saw devices float around. There's a lot of images on the Internet at [ Vale's ] miners liquidating these different devices. We've heard a lot about [ wage ] where we're able to optimize some of your costs. What are some of the cost concerns that you think miners might have issues with some of those areas -- if we do go into a bear market, right now, obviously, a lot of miners EBITDA margins are great. But if we do go into a bear market, what are some of the areas from a cost perspective that some miners could get in trouble? And what should we be looking out for?

That's a great question, John. And I actually think that's going to be the question for investors in 2022 as they get more educated on this space. I know it's now drawing a lot of attention. you've been paying attention to it for a long time. Lots of other research shops are now swimming in your wake trying to catch up. But I think the thing that is underappreciated is so much enthusiasm is coming to the space because there's been 90% profit margins for companies, right? And so there's a lot of excitement. I, too, survived the last crypto winter and remember it, and I still have the scars to show it -- show from it. What I'd say is this gets back at our entire business model, which is what I said around cost discipline around the 2 key inputs. So that's -- what do you pay for compute, so dollars per terahash second is how we think about that. And what are you paying for power. On both of those metrics, I think we compare extraordinarily favorably versus our competitors. And the reason why that's so important is that's what everyone's going to be looking at when there is a bear market or here's the thing, it doesn't even have to be a bear market, just the next having, which is about 2 -- not even 2.25 years away at this point. That's going to be here before you know it. And so what I'd say is there are several miners that -- what I would say is they -- and candidly, I think, they overpay for hash rate, they pay a lot. Doesn't mean it won't work out. Look, if Bitcoin happens to rip to $100,000, everyone's going to look like a genius no matter what they paid for hosting and what they paid for machines, et cetera. But it's really -- because the thing that's -- it's so important to stress to investors that I'm not sure everyone fully grasps is that this has some similarities with commodities production in that you want to be the low-cost producer. So like Saudi Arabia can dig up oil for $2 a barrel. And so if oil goes to $10, while they're not making as much, they can still pump it profitably. That's very similar in Bitcoin and similar to someone with our cost structure. But there's an added piece to Bitcoin that makes it even more important, which is, as you go through those pain points, if the profit margins go down and even go negative, the miners with a higher cost, particularly on those 2 key inputs I mentioned, are going to find it not profitable to mines, they're going to have to shut off. Not only would someone like us gets to keep operating, but when they shut off, that changes the nature of the network cash rate. So we actually mine more Bitcoins. It's not just that we get to keep operating. It's -- we actually have increased production from the same amount of operation. And so that's what investors are going to have to understand because even if it's not a bear market, just the profitability and the cyclicality of mining is not going away, and you know it, it's enforced with discipline because there's a having coming.

Yes. I think that was a great answer. Let's take a few questions from the audience because we only got a few more minutes here. This question asks, how will capacity build-out phase during the year? What exahash should we assume end of Q1, for example?

Yes. It's pretty small at Q1. So the way we have generally reported this, and here's why we want to be extraordinarily transparent. So we have published, and you can find it on our website, our scheduled delivery schedule for miners to arrive. When we have a site ready, there's sort of 3 phases. They're getting the power infrastructure ready, what I'll call the physical infrastructure. So everything to bring like the mid-voltage down to the actual outlet to the mining rig itself. So that's containers and transformers and switch gears, et cetera. And then the last piece is having the rigs on site to plug in. So what we're reporting is just the scheduled delivery schedule for our miners because, again, in a world of supply chains, if something slips a month, that stuff happens in mining. That said, our first couple of months this year, I think we're scheduled to get 3,000 rigs delivered in the first quarter, and half of those go to our JV partners. So it ramps very slowly. I think by mid-year we will have been delivered machines between 1 and 2 exahash depending a little bit on final timing. So that's where it ramps. But the real inflection point begins, as currently scheduled, starting in July because we have a lot of machines arriving, and we are scheduled to be ready to get machines in, in the third quarter at our 205-megawatt facility at Odessa. And so we really are a back half of the year ramping story. But we are excited about initial milestones. I'm sure you'll be hearing from us plugging in first machines. That cost discipline comes with a price. And unfortunately, that price is waiting just a few more months before that production ramps with extraordinary speed.

Great. Thank you for answering that. Let's do one more question, and then we will wrap up because we're actually, I think, just a touch over. I have a similar question. Just -- we're getting notifications, but real quickly, let's just get this one out there. Square, which is now called Block, recently started getting more into Bitcoin mining. They did, [ as suggested by ] some recent announcements. What are the thoughts on these big tech incumbents potentially coming into the space and trying to compete at maybe what they're seeing as somewhat fat margins or just because they want to get more active in the Bitcoin space and mining is one of the ways to do that? Any thoughts on that competitive landscape developing?

It depends a little bit on exactly what they plan to do. So we're big fans of Jack Dorsey. He's a huge benefit to the Bitcoin community. We have spoken in the past to people at Square because they have been sort of looking at this space a long time. And so candidly, we don't know exactly what they're going to do. I follow his tweets as closely as everyone else. In -- as much as they talked about building new ASIC machines and if there was a way to bring that onshore and introduce a new provider, that would be fantastic news for us because, in my mind, that enables us to flex our competitive strength on the power and structuring side to an even greater degree. So it would be awesome, frankly, if that happened. As far as other ways they get into mining, I'm not as worried about them becoming a competitor to us as a miner because a lot of that's going to be tying up power. And I feel like I'm not sure that just having their breadth and scale necessarily gives them advantages over what we would have. I think it would probably be pretty positive for us. Just bringing that kind of gravitas to mining overall would bring more eyeballs to the space and more folks could get to hear our story.

That's great. That's awesome. Well, thank you so much, Tyler, Ed. I always appreciate you guys coming on, sharing your thoughts, walking us through Cipher Mining in a little bit more detail and taking the time to answer our questions.

Thanks so much for having us, John.

Thank you, John. Yes. Thanks, John.

Thanks, everyone.