2018.09.23 - Crypto Mining ROI Revealed - Tbilisi - Sean Walsh

ROI Revealed
The Single Best Investment a Miner can Make
Sean M. Walsh - sean@hyperblock.co - @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
World Digital Mining Summit, Tbilisi– September 2018

12,000 Years of
Shell Money?!
Paleolithic era shell hoards found from Red Sea
to Switzerland.
10,000BC
Neolithic era shell money in South Pacific & Asia
5,000BC
Chinese Shang Dynasty, bronze cowrie shell money
1,600BC
used throughout India, Africa, Asia, Europe,
South Pacific
1700s
used as legal tender in West Africa
1850
Replaced by modern currency in remote parts of Africa
1920
Still used in Solomon Islands and Papua New Guinea
2018

Sean M. Walsh
- Crypto Mining + Custodial Storage Vault
- 2018 IPO, Toronto
- $106M acquisition of CPTO (TSXv) Apr. 2018
CEO, Hyperblock.co
Bitcoin/Crypto Investments
Redwood City Ventures
Advisor, Science Inc, Los Angeles
Advisor, GlobalLive Technology Partners, Toronto
$50 Million public blockchain investment fund
$125 Million ICO
Advisor, FUSION Network
$1.5B+ Silicon Valley Private Equity firm
Previously VP at Bertram Capital
15+ Years Online Product Strategy + Customer Acquisition@SeanWalshBTC
Linkedin.com/in/SeanWalsh
sean@hyperblock.co

Notable Projects
Hyperblock, Inc.
• One of largest crypto miners in North
America
• Insured, custodial storage for institutional
investors
• Software R&D lab
Advisor, Science Inc.
• Blockchain Startup Incubator
• ICO Advisor
• Science Inc - $1.4B in exits
@SeanWalshBTC - www.linkedin.com/in/SeanWalsh

20 MW Datacenter Overview
www.youtube.com/watch?v=G3yVO0l7Zd0

CREATE SAFEGUARD MANAGE GROW
LEADING THE DEVELOPMENT OF THE CRYPTO ECOSYSTEM
OUR STRATEGY
Insights
4

HYPERBLOCK HAS A DIVERSE SET OF MACHINES AND THE CAPACITY TO EXPAND
OPERATIONS BREAKDOWN Used Capacity
Available Capacity
13,000
machines
4MW
8,500
machines
4.5MW
1.5MW
2MW
Identified Capacity
28.5MW
44MW
90+MW
BY SERVER TYPE
Bitcoin
(S9)
Ethereum
(GPU)
Dash (D3)
Litecoin
(L3+)
14,000
10,000
8,000
2,000
13,700
4,600
2,100
1,100
11 1. All statistics as of Q2 2018
2. See statement on forward-looking information (FLI)

Pension
Funds | 34%
1. Global Pension Assets Study 2018, Willis Towers Watson, Thinking Ahead Institute, February 2018
Asset owners globally control
US $131 trillion1
2. The Case for Bitcoin for Institutional Investors: Bubble Investing or Fundamentally Sound? Jim Liew, Ph.D.1 and Levar Hewlett, MSF, December 2017
Optimal portfolio allocation
1.3%
2
Total Addressable Market
US $1.7 trillion
INSTITUTIONALIZATION REQUIRES ENTERPRISE GRADE CUSTODY PROGRAMS
HYPERVAULT OPPORTUNITY SIZE
31

Step 1:
Summarize The
Opportunity

Our Golden Opportunity
1. The single best investment we miners can make is to
stimulate Bitcoin adoption and usage.
3. How? Increased Bitcoin adoption drives Bitcoin value up.
4. This makes all Bitcoin mining assets more valuable.
5. Techniques for achieving increased adoption are
surprisingly economical and simple.
2. This investment delivers at least 10x greater ROI than an
investment into mining assets alone.

Step 2:
Lay The
Foundation

We Must Start By Defining Bitcoin
• The best form of money ever invented
• But, what is money?
1. Unit of Account
2. Means of Exchange
3. Store of Value
• How to compare different monies? SDDRFT
1. Scarcity
2. Durability
3. Divisibility
4. Reconizability
5. Fungability
6. Transportability
sean@redwoodcityventures.com - @SeanWalshBTC - www.linkedin.com/in/SeanWalsh

Bitcoin’s Explosive Convergence
Technological
Trends
Economic
Trends
Social
Trends
1. Technical: Byzantine
Generals problem solved
2. Social: 3 Billion adults using
Internet of Information
3. Economic: truly global
economy, finally ready for
new types of transactions.

The Squabbling Brothers Of Bitcoin
It’s looking increasingly likely that BTC and BCH will co-exist,
however tense their relationship may be on Twitter...
Bitcoin
BTC
Bitcoin Core
+
BCH
Bitcoin Cash

A Metaphor For Money
Consider money to be a storage medium for human
energy (time x ingenuity).
Think of its characteristics like a battery’s…
• Energy per unit volume (density)
• Energy decay over time (price inflation)
• Battery durability (over time, across
environments)
• Charging rates (especially max rate)
• Discharge rates (the variety of different
transactions
that can be supported, and the liquidity of a
money)
• Recharge cycles (another form of durability)

3rd Stage Of Information + Money Technology
20,000 BC-10,000 BC
Information
Money
Counting
&
Numbers
Cowrie
Shells

20,000 BC-10,000 BC 1100 AD – 1600 AD
Information
Money
Counting
&
Numbers
Cowrie
Shells
Printing Press
With
Moveable Type
Double-Entry
Accounting
System

20,000 BC-10,000 BC 1100 AD – 1600 AD 1980 AD – 2025 AD
Information
Money
Counting
&
Numbers
Cowrie
Shells
Printing Press
With
Moveable Type
Double-Entry
Accounting
System
Internet
of
Information
Crypto-Assets
+
Internet of Money

Money Technology - Exponential Growth
20000
BC
15000
BC
10000
BC
5000
BC
0 1400
AD
1450
AD
1500
AD
1550
AD
1600
AD
1650
AD
1700
AD
1750
AD
1800
AD
1850
AD
1900
AD
1950
AD
2000
AD
2050
AD
The so-called Internet Of Money is an
energy transfer network that connects
every human being on the planet.
20,000 BC-10,000 BC
Sophisticationof
Civilization

20000
BC
15000
BC
10000
BC
5000
BC
0 1400
AD
1450
AD
1500
AD
1550
AD
1600
AD
1650
AD
1700
AD
1750
AD
1800
AD
1850
AD
1900
AD
1950
AD
2000
AD
2050
AD
This network’s bandwidth, and flexibility
have been growing at an exponential
rate for millennia.
1100 AD – 1600 AD
Sophisticationof
Civilization

20000
BC
15000
BC
10000
BC
5000
BC
0 1400
AD
1450
AD
1500
AD
1550
AD
1600
AD
1650
AD
1700
AD
1750
AD
1800
AD
1850
AD
1900
AD
1950
AD
2000
AD
2050
AD
However, the early stages of exponential
growth never appear/feel such. It’s not
until the inflection point, that hockey stick
corner, when the exponential growth
becomes widely apparent.
1980 AD – 2025 AD
Sophisticationof
Civilization

1. Scarcity limited, predictable supply
2. Durability won’t decay
3. Divisibility easy to subdivide
4. Recognizability difficult to counterfeit
5. Fungibility units are exchangeable
6. Transportability easy to move
Comparing Different Forms of Money
6 Characteristics
They all boil down to
trustworthiness of
the money (faith).

S
Dur.
Div.
R
F
T
Gold = 18
S
Dur.
Div.
R
F
T
USD = 13
S
Dur.
Div.
R
F
T
Arg Peso = 10
S
Dur.
Div.
R
F
T
Frequent Flier Miles = 5
S
Dur.
Div.
R
F
T
Starbucks Cards = 6
S
Dur.
Div.
R
F
T
Cowrie Shells = 15
Scoring ”Moneyness”

0
1
2
3
4
Scarcity
Durability
Divisibility
Recognizability
Fungibility
Transportability
Bitcoin’s Moneyness
Bitcoin
Moneyness Score = 22
(out of 24)

0
5
10
15
20
25
Cowry Shells Gold USD Arg Peso Frequent Flier
Miles
Starbucks
Cards
Bitcoin
Comparing Moneyness
It all boils down to
faith in the money...

But, What Is Bitcoin
Really Backed By?

Bitcoin Is Backed By Neck Tattoos
What is Bitcoin Money backed by?
It’s users’ faith in it’s future…
(AKA, neck tattoos)
Shout out to
Mike Novagratz

But… It Ain’t Just Bitcoin…
Paleolithic ballers
must have been
covered in Cowrie
Shell tattoos…
Roman Imperatorial Coinage from 1st Triumvirate circa 59BC

The Importance of Moneyness
John Exter
(NY Fed President)

Bitcoin Transactions Increasing the Pie
Existing
Financial
Transaction
Types
Bitcoin
Transactions
SWIFT Wires, ACH,
Credit Cards, Loans,
Checks, Cash, Etc.

Look At The Music Business
Mozart began
performing live, one
performance at a
time, no music
storage available.
The sales of a musician are an interesting representation of this
concept…
The phonograph
allowed for some crude
recording. This allowed
for additional transaction
types (beyond sitting on
a king’s payroll, or
selling concert tickets).
Radio allowed for
wide broadcast of
recordings,
introducing even
more transaction
types (licensing
deals, per spin
payments, etc)
Cheaper, more
durable, more
portable media like
vinyl records, tapes
and CDs allowed for
“album sales” to
explode globally.
mp3 files and the
WWW allowed for
the explosion in new
transaction types like
ring tones, $0.99
iTunes purchases,
Sample libraries for
DJs, etc.
Throughout this ENTIRE progression the music consumption per customer and music
transactions per customer INCREASED. The proverbial pie keeps growing.

Moving On To Bitcoin Volatility…

Vauation»
Time »
Stealth Phase Awareness Phase Mania Phase Blow off Phase
Take off
First Sell Off
Bear Trap
Media Attention
Enthusiasm
Greed
Delusion
New Paradigm!!!
Denial
Bull Trap
Return to
Normal
Fear
Capitulation
Dispair
Return
To the
Mean
Source: Dr. Jean-Paul Rodrigue, Dept. of Global Studies & Geography Hofstra Univ.
Bitcoin: Bubble + Anti-Bubble

Time »
Growth% Late
2011 20172013 2013
Early
2000%
1500%
1000%
500%

Bubble % Gain, Pre-Bubble
To Bubble Peak
% Gain, Pullback Level
To Previous Bubble
% Gain, Pullback Level
To Pre-Bubble
2011
$30
11,900% 700% 700%
2013 #1
$230
2,700% 125% 700%
2013 #2
$1,200
1,700% 110% 650%
2017
$20,000 2,500% 450% 800%
2019 1,000% - 1,500%
$70,000
100% - 150%
$40,000
600% - 700%
$45,000
BOTTOM LINE: 2012–2018 CAGR = 225%

Volatility Explained: Price Elasticity of Supply
In General…
If a surge in demand increases
PRICE,
Then, additional SUPPLY enters
market
(think of things like eggs,
bicycles, Vitamin C, tomatoes,
oil, etc)
Price»
Qty »
PES – Unit Elastic
$110
1100
$100
1000
Increase
of 10%
Increase
of 10%

Price Elasticity Of Supply - Bitcoin
New Minted Coins
(100k / month)
+
Coins Sold
by Holders
Bitcoin Supply
As price increases,
supply declines, leading
to acceleration.
Bottom
Line
Supply»
Price »
Current
Equilibrium

390,290
624,489
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
July, 2015 September, 2017
$277
$3,132
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
July, 2015 September, 2017
Despite Volatility: An Interesting Trend
Avg Monthly
Growth Rate:
1.8%
Avg Monthly
Growth Rate:
9.8%
1+ BTC Wallets BTC Price

30.9%
(avg. monthly growth rate)
1+ BTC Wallets
3.2%
(avg. monthly growth rate)
Interesting Trend #2: Sep 2017 – Jan 2018
BTC Price

Interesting Trend: 4 Market Stages
Note: All Growth Rates are Month-Over-Month
-25%
-15%
-5%
5%
15%
25%
Jul 2015 - Sep 2017 Sep 2017 - Jan 2018 Dec 2017 - Apr 2018 Mar 2018 - Sep 2018
1+ BTC Wallet
Growth Rate
BTC Price Growth
Rate
1.8%
3.2%
0.09% 0.75%

What Fundamentals Drive Bitcoin Value?
1. Transaction Volume / Means of Exchange Use
2. Bitcoin Customer Base Growth
3. Increasing faith in the “moneyness” of Bitcoin
4. Metcalfe’s Law
5. Short-term swings partially driven by miners
Note: P/E Ratio is irrelevant

Value Driver - Robert Metcalfe’s Law (Network Effect)

Value Driver – Metcalfe’s Law
Source: http://forum.bitcoin.com

Supply Fluctuation From Bitcoin Miners
The network is a self-
adjusting system built
to maintain 10-minute
block times.
• Fixed 54k BTC per
month paid to
miners.
• Therefore fiat
revenue varies wildly
All Global
Miners
Operating
Cost

block times.
month paid to
miners.
• Therefore fiat
Core Miners
(Sustainable)
1/3
$0.06
per kWh
Operating
Cost

block times.
month paid to
miners.
• Therefore fiat
Core Miners
(Sustainable)
Swing Miners
(Sometimes Viable)
$0.09
per kWh
1/3
$0.06
per kWh
1/3
Operating
Cost

adjusting system built to
maintain 10-minute block
times.
month paid to miners.
• Therefore fiat revenue
varies wildly
• And required monthly
coin sales varies wildly
Core Miners
(Sustainable)
Swing Miners
(Sometimes Viable)
Miners That
Will Fail
$0.09
per kWh
Operating
Cost
1/3
$0.06
per kWh
1/3
1/3

Evidence of Continued Value Growth?
1. Undeniable Influence Of Metcalfe’s Law
2. Price Elasticity of Supply
3. Steady Customer Base Growth
4. Bitcoin Dilution Trend
5. Institutional Money Flow
6. 99.9% Of Capital Is Sitting On Sidelines
7. TAM Of Over 3 Billion internet-connected adults,
but under 0.8 Million people own 1+ Bitcoins.

Evidence of Continued Value Growth?
1 2 3 4
Undeniable Influence Of
Metcalfe’s Law
Price Elasticity
of Supply
Steady Customer
Base Growth
Bitcoin
Dilution
Trend
5 6 7
Institutional
Money Flow
99.9% Of Capital Is
Sitting On Sidelines
TAM Of Over 3 Billion internet-connected
adults, but under 0.8 Million people own
1+ Bitcoins.

Annual Bitcoin Expansion
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2014 2015 2016 2017 2018 2019 2020 2021
Expansion, Ex-Dead BTC Total Expansion

Continued Growth – Institutional Money Flow

Max $10 Billion of Fiat Into Exchanges
99.9% Of Capital Is Still On The Sidelines
http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/
$70 Trillion – 7,000x $80.9 Trillion –8,090x
Bitcoin

Step 3:
Describe The
Miner’s Opportunity

Bitcoin Mining: The Great War Of Attrition
If,
$1/day
here
Then,
$0.005/day
here
BTC Mining Revenue – 1 TH/S
$0
$200
$400
$600
$800
$1,000
$1,200
Mining Difficulty BTC Price Profit/Day
99.5%
Reduction

Bitcoin Mining Investment Trend
$0
$1
$2
$3
$4
$5
$6
$7
Billions
Bitcoin Mining
Gross Profit Vs. Capital Investment
Cumulative Gross Profit Cumulative Capital Investment
$1.2 Billion
Deficit
CONCLUSION: $1.2 Billion over investment may take two years to repay.

CONCLUSION: $1.2 Billion over investment may take 2 years to recover.
($1.5)
($1.0)
($0.5)
$0.0
$0.5
$1.0
Billions
Bitcoin Mining
Net Cash Position
Net Cash Position
Bitcoin Mining Investment Trend
$1.2 Billion
Deficit

What is the Best Investment for a Miner?
Purchase Mining Servers.
Increase the
value of Bitcoin.
Cannibalize value of
pre-existing servers.
Increase value of
pre-existing assets.
(Virtuous Cycle)

Mining: Not Only Way To Obtain BTC
Many seem to forget that when
mining profitability drops below a
certain threshold,
It is more attractive to buy Bitcoins,
instead.

Step 4:
How To Capture Opportunity?
Affiliate Marketing Campaign

What Is Affiliate Marketing?

Affiliate Marketing For Bitcoin...
Sam wants to learn
about Bitcoin
Sam clicks on the affiliate link
and buys Bitcoin from Coinbase
You get paid a commission from Miner Alliance!
BitcoinInfo.com

Affiliate Marketing Program Built Amazon.com
Concept: Affiliates refer their Website visitors, and are paid sales
commissions on resulting orders.
Amazon History: Launched their Affiliate Marketing Program in 1996.
Amazon Success: Amazon is the Internet’s largest and most successful
company. $1 Trillion market capitalization, and $180 Billion in revenue.
Affiliate Contribution: Affiliate Program is cited as one of the most
important contributors Amazon’s incredible growth.
20-Years Of Growth: There are now over 300k affiliate websites driving
customers to Amazon every day, still driving 25% of total Amazon.com
traffic.

$0.5M
$12M
$38M
$271M
$50M
$100M
$150M
$200M
$250M
$300M
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Acquisition Campaign Return Profile
Total Expense Total Investment Value
TVPI %: 813%
Initial Capital ROI %: 731%
Expenditure ROI %: 1982%
Note: Even if customer acquisition cost is 2x budget, ROI still exceeds 700%.

Customer Acquisition Model – Input Variables
Starting Asset Value $33 Million
Customer Acquisition Campaign Duration 24-Months
Monthly Campaign Expense $0.5 Million
Monthly Expense % Of Starting Asset Value 1.5%
Bitcoin Wallet Growth Expectation Under 2%
Bitcoin Price Monthly Growth Expectations 5%
(very conservative)
Cost Per New Bitcoin Customer $50
New Customers Per Month 10,000
New Bitcoin Supply Absorbed Approx 20%
1. This opportunity exists for any size miner, small or large.
2. 1.5% of Asset Value per month is all that’s required.

$33M $33M
$79M
$233M
$874M
$200M
$400M
$600M
$800M
$1000M
0.5% 2% 5% 10%
MOM Growth, Bitcoin Price
Investment Return: Four Scenarios
Starting Investment Value Investment Value in 24 Months
TVPI: 2x
Expenditure
ROI = 7,000%
TVPI:
9x
TVPI:
28.2x

$500,000
$12,000,000
$33,867,619
$55,487,686
$50M
$100M
$150M
$200M
$250M
$300M
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Mining Expansion Return Profile
Total Server Expense Total Investment Value
TVPI %: 166%
Initial Capital ROI %: 66%
Expenditure ROI %: 185%

Compare Investments: $1 Million Starting Point
Investment Period – 24 Months Mining Expansion Affiliate Marketing
Starting Asset Value $1.0 Million $1.0 Million
Monthly Affiliate Marketing Expense $15,000 $15,000
TVPI% 166% 813%
Ending Asset Value $1.7 Million $8.1 Million
Total Profit $0.7 Million $7.1 Million
CONCLUSION: Affiliate Marketing investment yields 10x
more profit, or $7.1 Million additional per every $1 Million.

Campaign Details, 1 of 4
1. Tokyo
2. California
3. Florida
4. New York
5. Seoul
6. Switzerland
7. Texas
8. UK
Who:
1. 2 Million Existing 0.1-1.0 Bitcoin
Owners
2. Investor ($40k+)
3. Online Brokerage
4. Specific Locations
5. Age < 50
Note – the target is 1,250 customers per region per month
Where:

Campaign Details, 2 of 4 – What’s The Pitch?
1. Most unique Store of Value ever created. Inconceivably scarce.
2. Non correlated asset (portfolio diversification, target 1%-4%)
3. Most asymmetric return profile in history
4. Mainstream adoption due to SDDRFT – best money ever
5. Value is up over 5,000% in 4 years – 1% allocation 4 years ago
would have doubled entire portfolio
6. Strong evidence to suggest strong continued price appreciation
Note: There are also over 300 Million people around the world who own Gold as a Store of Value.

What’s the Outreach Strategy?
1. Affiliate Marketing Campaign in each target market.
2. Affiliate Success = New Customer purchases 1+ Bitcoin on a
participating local exchange.
3. We pay affiliate $50 per new customer.
4. Recruit 500 Affiliates in each market (in partnership with Exchanges).
5. Affiliates will inspire their respective follower-bases to become customers
(offline activity, online events, etc.)
6. New Customers = 600,000 (avg. 60 per affiliate)

What’s the Budget? Schedule?
1. Affiliate Commission = $50 per new Customer (paid in BTC)
2. Budget = $500k per month
3. New Customers Per Day Per Market = 80
4. % of New Bitcoin Supply Absorbed = Over 20%
5. Initial Campaign Duration = 24 months
This triggers the
Virtuous Cycle…

Added Benefit Of Increased Bitcoin Usage
1. More transactions means an increase in the velocity of Bitcoin circulation.
2. The higher the velocity of Bitcoin circulation becomes, the larger the
average Bitcoin balance required by users.
3. This simple demand will overwhelm Supply and drive value up
enormously, while calming volatility due to highly distributed demand
profile.
4. To wit, about 2 million people own at least 0.1 Bitcoin. If even 5% of them
re-activate monthly and buy an additional $1,700 of Bitcoin, that absorbs
HALF of new Bitcoin production.
Important: These 2 million existing customers are our best upsell targets.

Increased Usage – Current Headroom
Note: Legacy network is hitting limit of 3 tps.
Bitcoin Cash upgrade increased throughput by 8x
Source: www.bitinfocharts.com
BTC Network: Very little to 0.4 Million transactions/day
BCH Network: 300x growth to 13 Million transactions/day
BTC, 400k tx/day cap here

Step 5:
Explain
Conclusion

Conclusion
1. Bitcoin is wildly attractive to over 800 Million adults.
2. Yet… under 800,000 people own one.
3. Bitcoin’s essential characteristics guarantee that increased adoption
will result in explosive price appreciation.
4. The conditions are set for an incredible mining ROI over next 2 yrs.
5. Action: Spend 1.5% of mining asset value monthly on Bitcoin
customer acquisition.
6. Result: 1,900% 2-year ROI.
7. Online customer acquisition campaign has been proven repeatedly
over past 20 years by the most successful Internet companies.
8. To join our miner alliance, email sean@hyperblock.co

Money Transportability & Scarcity…

2018.09.23 - Crypto Mining ROI Revealed - Tbilisi - Sean Walsh

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