VIDEO: Fortress Blockchain CEO Aydin Kilic Discusses Bitcoin Mining

Fortress Blockchain CEO Aydin Kilic on their crypto-mining enterprise at a cheap hydro-electric cost.  They are approximately 2.6 cents USD.  Aydin talks about the utility of cryptocurrency and how it may evolve over time.  Their website allows you to create a hypothetical mining operation which can be found by clicking HERE.




James West:    Hey, welcome back to Midas Letter Live. My guest this segment is Aydin Kilic. He is the CEO, founder and director of Fortress Blockchain Corp. Aydin, thanks for joining us today.

Aydin Kilic:   Thanks for having me.

James West:    Aydin, you’ve been running Fortress Blockchain Corp – you’ve got all these great tools on your website – what exactly is the business model of Fortress Blockchain?

Aydin Kilic:   Yeah, so Fortress Blockchain, we are an industrial-scale bitcoin miner situated in rural Washington State. We’re headquartered in Vancouver, Canada. Our mandate is to operate low-cost regions; currently, all of our power is hydroelectric, and $0.026 cents a kilowatt hour, it’s amongst the cheapest in North America.

James West:    Wow. So you’re paying $0.026 cents in the state of Washington?

Aydin Kilic:   That’s correct.

James West:    So is that $0.026 USD?

Aydin Kilic:   USD, yes.

James West:    Okay, that’s still way better than even what we’re paying Canadian in Quebec, which in Canada, Quebec is sort of where all the cheapest power is. So, what scale of mining do you do?

Aydin Kilic:   So currently our facility is operating at 2 megawatts. We have the ability to scale to 5 megawatts within that current facility, and there’s another facility in the State of Washington under construction right now in the same county, actually, that will be an additional 9 megawatts when complete.

James West:    Okay. Is it a risk to the company and its business model that the increasing demand for hydroelectric power actually causes the price of its hydroelectric costs to go up over time, and does it risk destabilizing the integrity of the business model?

Aydin Kilic:   So in our case, we operate in a county where our pricing is based on a rate group. The rate group is county-wide. Our facility has been a customer of the county for four-plus years, and as such, any changes to the price of the power are applied county-wide, regardless of the use; we’re in a light industrial rate group.

The price increase this past year, which was after the sort of frenzy in the media, if you will, was approved to be 1 percent in the county, so it’s a very negligible amount, even in light of the demand.

Now, the county did put a moratorium on new applicants while they try to figure out handling new clients, but again, our 9-megawatt facility, the construction started last year, and in the county infrastructure has been developed and recently completed. So it sort of progressed even despite the moratorium in the county.

James West:    Very interesting. So, what’s the sort of – sorry, do you focus strictly on blockchain, or do you also do Ethereum and other cryptos?

Aydin Kilic:   So we mine bitcoin because bitcoin is a stored value; we want to mine what’s valuable. Some people call it the new gold – it is a digital asset class. It is the most robust blockchain, and frankly, it’s the most profitable cryptocurrency to mine. Ethereum, Dash, Litecoin, they are on different blockchains, and the hardware we operate hashes the SHA256 cryptographic hash algorithm. So bitcoin cash and bitcoin are on the SHA256 algorithm.

There are some other, smaller, lesser-known coins, but bitcoin is far and wide the most widely adopted as a store of value, and so we want to invest our resources verifying transactions on the bitcoin blockchain.

James West:    So the total number of bitcoins that can be created is 21 million?

Aydin Kilic:   That is correct, yes.

James West:    And the level of hash power required incrementally grows, increasing the level of difficulty and thereby increasing the cost per rewarded coin, correct?

Aydin Kilic:   Correct. So there’s a mathematical equation that defines it; essentially, the number of hashes per block is equal to the difficulty, which is an integer number, which you can go onto and download at any given time; in fact, you can view historical charts. That number, multiplied by two to the power of 32, is the number of hashes per block.

Now, the network self-adjusts every two weeks or, more specifically, every 2,016 blocks, such that the goal is a block is solved every 10 minutes. Now, if 2,016 blocks are solved in quicker than 14 days, i.e. two weeks, the difficulty increases, right, because the network realizes hold on: the blockchain is being hashed through quicker than what we want it to do.

Conversely, if it takes longer than 14 days to mine 2,016 blocks, the network will decrease the difficulty.

Now frankly, we have not seen a decrease in the difficulty recently, but historically, it has gone up and down. Recently, it’s gone up quite a bit.

The other point to make is, the profit you would realize in mining bitcoin can also be determined as a portion of the total block reward, and your contribution towards that. So we can perhaps discuss it further, but we do have an interactive mining simulator tool that users can visit our website,, and it’s an interactive tool, and they can see what the mining profitability would have looked like over the past two and a half years.

James West:    Mm-hmm. I’m curious: what does a bitcoin mining company plan to do once the 21 million coins have been reached? What do you become?

Aydin Kilic:   I suppose if there’s some kind of great advances in medical technology and I’ll live past the year 2140, I’ll consider that then, but –

James West:    Is that when the 21 million will be reached.

Aydin Kilic:   Yeah.

James West:    2140?

Aydin Kilic:   Yeah.

James West:    Oh.

Aydin Kilic:   So how it works is, every four years, there’s a halving event, and currently the block reward on the bitcoin blockchain is 12.5 bitcoins per block; a block, again, is solved approximately every 10 minutes. However, the next halving event in 2020 is going to reduce the reward to 3.25 bitcoin per block, and subsequently, half of that every four years. So it’s sort of a long term decreasing reward amount, and that inherent scarcity, coupled with the difficulty is why fundamentally, outside of any market speculation, there is a price appreciation to bitcoin, because it does get more expensive to produce. But at the same time, the immutability of the blockchain increases, because the amount of computing power required to do a 51 percent attack on the network, which is essentially a fancy way of saying how could one conceivably corrupt the bitcoin blockchain – you’d have to have enough computing power that was greater than 51 percent of the worldwide contribution. That’s why they call it a 51 percent attack.

So it’s basically a way that it gives people more security in the strength of the blockchain. I’m trying to sort of put it in not too technical words.

James West:    Yeah, okay, so that’s interesting. So, 2140. I mean, it’s not really relevant in the way we think in terms of these days, but the question that still persists in my curiosity – what will miners do in 2140?

Aydin Kilic:   Oh, sure, yeah, right. So there’s two components to mining rewards. Fundamentally, there’s the block reward, which most people are familiar with and which is what I’ve just described. However, there are also transaction fees, right? So miners are rewarded with transaction fees. They’ve ranged, over the past few years, from as little as a few percent of the total reward to 25 percent of the total reward. The transaction fees were getting quite high last year, and so that’s sort of corrected a little bit, but once all the bitcoins are mined, miners will be incentivized to verify transactions on the blockchain through transaction fees.

James West:    I guess it’s possible, as a non-miner, to offer FIAT currency to producers of coins through mining and offer them in such a way incrementally so that you could accumulate essentially a proof of stake, so to speak, without actually showing any proof of work, correct?

Aydin Kilic:   I suppose if you’re suggesting, one could retain an ownership stake in produced coins by investing in a mining company, that’s one way to look at it. Is that what you’re asking?

James West:    No, but that’s another sort of tangent equal to the premise I’m trying to put forth, which is essentially, you know, as a currency, 21 million bitcoins is going to be the ultimate; the level of difficulty is increasing, therefore the scarcity is increasing, therefore the value is going up. Let’s say at some point that all of the bitcoin advocates are taken completely seriously and none of the bitcoin naysayers are regarded, and suddenly, everybody with a huge FIAT fortune goes ‘oh my gosh, I need to buy as much of this as I can’. Obviously, the price of bitcoin is going to go soaring at that point, as everybody tries to convert FIAT into crypto.

Aydin Kilic:   Yes. Yes.

James West:    And where does that leave the guy who can’t afford to buy, doesn’t know how to mine, and is stuck with FIAT? I mean, it sounds like if the evolution of the transformation into a crypto society actually were to occur, that a lot of the people who were less sophisticated technically, less able to access financial resources physically, they would be, in fact, the ones to suffer the most. And is that not in conflict with the entire value proposition of the concept of blockchain-based cryptocurrencies?

Aydin Kilic:   I think that as we migrate towards a broader adoption, that binary between FIAT currency and cryptocurrencies will exist much like, you know, the binary between the US dollar and gold has always existed, right? So does everybody get rid of their FIAT currency and buy gold? I mean, historically, that’s where value was ascribed.

I think that going forward, by the way with a nod to the recent past, what you just described occurred in December, right? So the price of bitcoin really eclipsed the intrinsic relationship between the price and difficulty. And a quick aside on that: if you look at the coin mining calculator we have online, you’ll see that historically, outside of sort of circumstantial events, notably in December/January, there was always sort of a baseline daily profit that has subsisted, and when the price sort of eclipses the difficulty, the difficulty is intended to self-adjust. So you know, that’s when you see this huge spike in price.

Anyways, the point is that, even if the price of bitcoin were to go to $100,000, or $1,000,000, it’s divisible, right? So you can buy one bitcoin, 0.1 bitcoin, 0.0001 bitcoins if you want. And so frankly, there’s a term called a satoshi, which is 1 millionth of a bitcoin. So you know, people may, in 10 or 20 years, talk about trading satoshis, and a bitcoin, much like a stock of Berkshire Hathaway, you know, it might seem very expensive to buy one, but –

James West:    Sure. I had a 45-minute conversation with Andreas Antonopoulos in Panama last weekend, and I asked him this question, and I wasn’t quite happy with his answer, because I didn’t felt like I got the answer. So I’m going to pose the same question to you, because it’s intriguing to me as a sort of hobby monetarist and economist that what the value proposition of the blockchain is very similar to the value proposition, or at least the compelling logic, inherent in the argument of the gold bugs of the last 50 years; in that, you know, immutability arguably exists in that all of the mined gold to date more or less exists in some form or other, except that which sloughs off in the industrial processes. And I’ve heard that the entire Bay of Tokyo would probably assay out at about a gram per tonne gold due to electronics ablation from the recycling process.

But you know, so, there’s – and he had arrived at the event with a security detail, and I said, “Why would you come to Panama of all places, which has a heavy military protection implied by the fact that the Panama Canal is there, and, you know, like what is it that you need protection from?” And he explained to me that his phone was his bank, and his bank contained, you know, a sum of bitcoin that was probably very attractive to bad actors, as they like to be called in the crypto world.

And I said, “Well, what’s to stop somebody from, you know, neutralizing your security detail and then compromising you physically and then torturing you, or torturing a loved one until you reveal all of your details so that I could transfer your bitcoin to me?” And you know, because that’s the value proposition, is that the security is unparalleled, and the ability to protect your wealth by storing things in this electronic format, due to the fact that the record of ownership is distributed to multiple master nodes throughout the blockchain and therefore, beyond any tampering; whereas, you know, and in some respects I’ve just answered my own argument, I’ve realized. Whereas with gold, you can actually, you know, the point being that with gold, if I want to take $5 billion of gold off an individuals, I have quite a logistics planning exercise, whereas if I wanted to take $5 billion in blockchain, I could compel somebody through coercion, physical or otherwise, to execute a transaction giving me ownership of their bitcoin and then execute them.

And I mean, this is obviously the most worst-case, dire circumstances that could ever befall any individual, but that’s where I’m curious as to what’s so much better than gold about bitcoin, if they’ve both got these limitations, which sort of may seem to be similar – both the limitations and the value propositions.

Aydin Kilic:   Yeah, so I think the idea is that if you had all your wealth stored in physical gold, and somebody wanted to steal it, they’d have to displace the physical gold and that would be physically arduous. Similarly, if you had your wealth stored in bitcoin or cryptocurrency and you had cold storage, and you secured your cold storage physically, which is what we do at our company, namely what you could do is, popular brands, Trezor for example, you take your Trezor device and put it in a bank vault and, you know, you could put a gun to my head – please don’t, but I wouldn’t be able to tell you – like, you wouldn’t be able to send or receive bitcoin without that Trezor. And if it was secured in a bank vault and you kind of led me at gunpoint to the bank vault, I’d probably say “hey, guys, you know, something fishy’s going on here.”

James West:    Right.

Aydin Kilic:   So the point is, I wouldn’t recommend having an appreciable amount of cryptocurrency available on a hot wallet, something that could be sent and received from your phone, because then this sort of catastrophic scenario you’ve proscribed could be a reality. So I think it’s management of your assets is important, and there are other insured custodial services, for example, GoldMoney; my chairman, Roy Sebag, his firm has a product called BlockVaults where they offer insured crypto currency storage.

So there are many options for safe and secure storage of cryptocurrency to alleviate the aforementioned scenario.

James West:    Sure. Well, I’ve got to say that I do believe we’ve exhausted the attention span of the average and even the un-average viewer of our stuff, Aydin, so I’m going to leave it there for now. I’m going to invite you back anytime you’re in the city – I’d love to have this conversation again.

Aydin Kilic:   Sure.

James West:    I’m learning so much about this space. Clearly you’re somebody who’s immersed in it, and now that I’ve seen your bitcoin calculator online, I’m going to use that to further enhance my understanding. So, thank you very much for your time.

Aydin Kilic:   Yeah, thanks for having me, and the website, of course, is and there will be a link that’ll bring you to the calculator, and you can input the electrical costs based on national averages, or our cost, which is $0.026, and then we have different hardwares that you can select in case people aren’t familiar with what a hash is and how many hash a certain type of miner has. And I would very much look forward to our next meeting. Thank you so much for having me.

James West:    Sounds great. Thank you.

Aydin Kilic:   Thanks.

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