AI Data Centers in Space: Stupid or Genius

Explore API-driven IT advisory with CIO Analytics, a single platform to run your IT department that brings together your data, AI-powered analysis, and expert guidance to help you improve IT performance: https://www.infotech.com/cio-analytics?utm_source=youtube&utm_medium=social&utm_campaign=digitaldisruptionnow. Tech moves fast. So does work. Digital Disruption NOW helps you keep up and make sense of what matters. All signal. No static. An Infotech production. Are AI data centers in space a practical solution for the future or just an expensive fantasy? We analyze the technical reality. This week we’re covering the AI market rout, datacenters in space, and the Binance hack. In this episode: 0:00 The AI Rocket Ambition 1:08 Big Tech’s AI Spending Hangover 4:04 The Looming AI Cost Reckoning 5:56 Managing AI Token Costs 9:54 Is Frontier AI Overkill? 11:12 Who Pays for AI Behind the Scenes? 13:12 Will Efficiency Gains Bring AI Costs Down? 15:05 Infotech CIO Analytics 16:18 Project Sun Catcher: Data Centers in Orbit 20:43 Cooling, Repairs, and the Challenges of Space Computing 25:05 What Would Make Space Data Centers Viable? 26:29 Who Owns Your Data in Space? 27:32 The Binance Heist and Crypto Security 31:13 Zero Trust, Permissions, and Security Failures 33:04 Can Crypto Exchanges Be Trusted? 37:29 Lessons from the Crypto Hack 40:03 Wrap-Up and What’s Next Visit our website: https://www.infotech.com/?utm_source=youtube&utm_medium=social&utm_campaign=podcast Follow us on YouTube: https://www.youtube.com/@InfoTechRG Check out other episodes from the Digital Disruption podcast: https://youtube.com/playlist?list=PLIImliNP0zfxRA1X67AhPDJmlYWcFfhDT&feature=shared

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Geoff Nielson?

  When I first started hearing about this, I thought it was like the stupidest thing in the world. The guy who owns a rocket company and owns an AI company. When he's like, hey, what if the AI was like sent up on rockets? I'm like, wow, like what a shock.

• 0:11Speaker 01

  How'd you come up with that idea?

• 0:11Geoff Nielson?

  What a shocker that you would come up with that idea. But I actually think it has more merit than you're giving it credit for.

• 0:22Speaker 01

  Leanna said that The Force Awakens is actually better than the original 1977 Star Wars. She said that one was campy. She didn't get it.

• 0:30Geoff Nielson?

  I'm, okay, that's a lot to process. I mean, I mean, she's right that it is campy. Like, I can, I can see why someone would say that, but like, she's still wrong.

• 0:39Speaker 01

  No, she's not wrong. Think about it like this, Jeff. They had one shot at the story and then they fixed all of the V's in the second iteration.

• 0:47Geoff Nielson?

  Yeah.

• 0:47Speaker 01

  If anything, this is an improvement. This is Star Wars V2. Why wouldn't you like it more?

• 0:51Geoff Nielson?

  Yeah, I mean, I actually do really like Force Awakens probably more than I should. But like, let's not talk about Last Jedi or what's even the third one called?

• 0:59Speaker 01

  Oh, I can't remember.

• 1:01Geoff Nielson?

  Skywalker Rising?

• 1:02Speaker 01

  Rise of Skywalker, that's it, yeah.

• 1:04Geoff Nielson?

  Yeah.

• 1:04Speaker 01

  The Return of the Jedi.

• 1:06Geoff Nielson?

  Yeah, should we, should we jump into it?

• 1:07Speaker 01

  Yes, let's do it.

• 1:08Geoff Nielson?

  So we've got three stories to talk about today. The first one is that the markets have been punishing big tech firms for just like spending basically a crap load of money on AI. The second one that we'll talk about is the first data center in space.

• 1:22Speaker 01

  Here we go.

• 1:23Geoff Nielson?

  Has returned its results. We'll get there, we'll get there. And then third and finally, we're going to talk about the North Koreans that hacked the Binance crypto exchange. So we should jump right into it. What do you want to tell us about the first one?

• 1:36Speaker 01

  Well, yeah, let's talk about this. So of course, there was a massive sell-off last week, big enough to warrant news on Digital Disruption Now. Google and Amazon reported earnings. Apple actually reported earnings yesterday. We're filming this on a Tuesday. And Microsoft reported earnings too. And the big headline, of course, is that they just got absolutely pummeled by the market. Google lost $500 billion in market cap. You know what $500 billion buys you? Buys you a Costco, not like one Costco store, the entire Costco company. Buys you Coca-Cola, buys you Cisco. Just absolutely massive figures we're talking about here. And of course, you know why the market punished Google, don't you, Jeff? It's because they're negative cash flow.

• 2:19Geoff Nielson?

  Right.

• 2:19Speaker 01

  They can't sustain this AI build-out with their operations. And we were talking about this before the show. Do you remember how much they committed to spend?

• 2:27Geoff Nielson?

  What was, what was the number? You, you said, you said close to a trillion.

• 2:30Speaker 01

  I think they committed over a trillion.

• 2:32Geoff Nielson?

  That's crazy.

• 2:32Speaker 01

  Over the next few years, like that, those are anthropic levels of spending. Now, Google is actually profitable.

• 2:37Geoff Nielson?

  Yeah.

• 2:37Speaker 01

  So they can do that, but like, if you're an investor, my goodness, a trillion dollars in forward-looking spend?

• 2:43Geoff Nielson?

  Well, and Anthropic also updated their S1 and they're also committing like close to $900 billion or something. Like, they're just, they're just crazy numbers. And my, my concern about all of this is that we're just kind of reaching this diminishing returns point of AI where to make it incrementally more capable, you just have to invest more and more. And so we've got this like really messy tension where these companies, like they want to quote, win the race. And like, we can talk about if that's nonsensical or rational. And investors being like, holy crap, like, you're going to spend how much? A trillion dollars on this to get ahead to be incrementally better? And it's just like, I don't know, from my perspective, like something's got to give.

• 3:27Geoff Nielson?

  And I think we're starting to see that happen now.

• 3:29Speaker 01

  Well, the thing about Google is that historically, it actually has always made money. Ever since they went public, they've always been profitable. They've basically always been cash flow positive, except for one recent earnings report. And now it looks like that's going to change. And that's kind of a big deal. And so just some other numbers here. $50 billion is what they spent this previous quarter on capital expenditures. Yikes. $205 billion was the projection for the year and then the trillion that we just talked about. So, I mean, okay, cool. Why does this matter? Why should you, not as an investor, but as somebody who actually like uses AI, engages with the enterprise tech space? Why should you care about this? Isn't this just noise?

• 4:05Geoff Nielson?

  So I think, I mean, if you look at what's going on here, this can go a few different ways, right? To me, the most obvious way is that these companies sort of panic and say that, I mean, we already know this, but they're subsidizing the cost of AI in a pretty big way as a way to gain more adoption. And this is like a classic, like up and coming, like tech play. This is what Uber did, you know, before and around the time of their IPO. They want to like corner the market. Now, I think there's more competition here, but I think we're going to see costs come up. And some of these subsidies go away because it's just completely unsustainable, right? Like investors just don't have the stomach for this. And this is coming at a time where companies and people, users in general of AI,

• 4:50Geoff Nielson?

  are already starting to get this sort of sticker shock of like, holy crap, like we're spending how much on AI? Yeah, like, we talked about token maxing and we high-fived each other and we wanted everybody to be using this technology as much as possible. And it's costing us how much? And so taking a situation where there's already that sort of angst around that and then saying, oh, by the way, it has to be more expensive for these companies to not collapse. I, I think there's going to be a real reckoning. And if we want to make sure that it's not just like this chaotic and, you know, really, really red spending for all these companies and people out there.

• 5:34Geoff Nielson?

  I, I think we just need to literally spin up a function that's like, hey, can we just start like planning and strategizing around these costs? Can we get ahead of them so that we're not like, surprise, we spent another few million dollars on AI this month, right? How do you actually budget it? How do you put, you know, checks and balances in place? And you were doing like a presentation on tokenomics actually a few weeks ago. Did that, did that come up there?

• 5:56Speaker 01

  Oh, 100%. So yeah, the, the tokenomics is basically the economics of managing your token spend.

• 6:00Geoff Nielson?

  I figured that out, yeah.

• 6:01Speaker 01

  Oh, yeah, you, you understood the portmanteau that didn't get past you? Well, you completely threw me off there, Jeff. No, the tokenomics basically is this idea that you want to manage your token spend and there's a bunch of techniques you can use to do it. So some of them are pretty minimal, like, you know, keep your prompts short, you know, make sure that you're, you're being effective. Use the, use the right model for the right task. That's a really big one. But I think this is bigger than that. Like, if you're going to use a frontier model, they're going to be bidding up the price of hardware to power it. Oh, it's going to be absurdly expensive. And so you're probably just going to end up using one of these open weight models that's 90% as good. And that's, I think, part of the reason that Google is feeling that pressure. It's because being at the very leading edge for a massive premium on your capital spend might not be the economic play that we thought it was.

• 6:44Speaker 01

  And there are some signs that their fortress is weakening a little bit. So like search, obviously, running ads against search is their big business. But when you put an AI summary at the top, you're not selling any ads. And that's part of what spooked investors here. So they're going to have to figure out ways to monetize this beyond just advertisement.

• 7:02Geoff Nielson?

  But they're, they're diversified already, right? Like, I saw, I saw a chart that said like, for the first time, search is now less than 50% of their revenue.

• 7:10Speaker 01

  Yeah.

• 7:10Geoff Nielson?

  And it was kind of divided into like search, cloud, and then quote, everything else, which is, you know.

• 7:15Speaker 01

  Yeah, Google Cloud's a big business, but at the same time, if this whole bottom falls out of this AI bubble, their pipeline for their cloud customers disappears too. So it feels like diversification, but it's really just two doors that open into the same room, I think.

• 7:33Geoff Nielson?

  I, I don't know that I follow that. Like, their, their cloud business, I think, is fairly diversified. Like, it's not, this isn't just like an anthropic problem or like an Nvidia problem where you just have like the same four, you know, hyperscalers spending all of it, right? Isn't it coming from a much larger consumer base?

• 7:49Speaker 01

  It is. So like running traditional virtual machines and stuff. But that's not a growth business in the same way that AI is. And the data center build-out, the massive additional gigawatts and megawatts of capacity that all the hyperscalers are, are building out.

• 8:02Geoff Nielson?

  Yeah.

• 8:02Speaker 01

  Is to serve the AI market primarily. So if that falls out, they're going to have their trillion dollars in commit.

• 8:09Geoff Nielson?

  Right.

• 8:09Speaker 01

  They're not going to be able to, to pay for it with cash flows, which is what I think is really scaring investors here. And really what it comes down to from a why does this matter perspective is Google will never pay for that. You, as the customer, are always going to end up paying for that. In much the same way that venture capital has subsidized Uber, which you alluded to earlier, for a really long time. Google is subsidizing the cost of AI.

• 8:31Geoff Nielson?

  But the venture, the venture capital piece is really interesting because we've also seen that like, you know, we, we talked about this last week, I think. But the, when you look at like quote, venture capital-backed firms, they seem to be where all the growth and spending is in AI right now. Cause they're just pouring money into this, saying like, this is the way to do it. And so, yeah, yeah, I worry too that like, if that appetite starts to shift, like it creates like this really systemic risk there.

• 8:57Speaker 01

  And that's exactly it. I mean, you see this in basically all the financial media. It's the, the economy is being held up by AI.

• 9:04Geoff Nielson?

  Yeah.

• 9:05Speaker 01

  And it's not just me spending money on tokens. It's all of the ancillary spend around that, the data center build-outs, the cloud compute, you know, the frothiness in the startup ecosystem. And so I think that, I don't think the bubble's popped. I will just say that. But I think directionally, this is very scary if you were concerned about the, the overall health of the economy, as you should be.

• 9:25Geoff Nielson?

  There's something you said earlier though, that I'm still trying to wrap my head around, which is that, you know, you were kind of alluding to the fact that for a lot of companies, maybe like a model that's 90% as good as the frontier is good enough and probably like, you know, dramatically cheaper. Is that going to be the right play for a lot of people? And like, if that is, is, is that sort of like an existential threat to the, the financing and the funding model of the frontier?

• 9:53Speaker 01

  Absolutely. I mean, so, so. Let me put it like this. You don't need a Nobel Prize winner in physics to teach a high school physics class. That's the frontier model for it, right? Most customers aren't actually trying to get a millennium prize with their AI use. They want to solve basic problems. And an open weight model, and I think I saw some stats that suggest they're only a few months behind the frontier models. I mean, they're dramatically cheaper. You can run them yourselves. You can run them locally. You could run them in Google's cloud if you wanted to, right? Like, they changed the economics pretty dramatically. And these companies that are building these open weight models, they aren't valued nearly with the same premium or to the same degree that the Anthropics and the OpenAIs and the Googles are. So like, I think that Google, actually, unlike OpenAI or Anthropic, does have a bit

• 10:38Speaker 01

  of a moat in that they'll still sell you some infrastructure. They've got their search business, you know, they make phones, they do all sorts of things. So I think it's a real challenge, and they're going to spend a lot of time working on regulation to try and keep these out. And they're going to spend a lot of time propounding the benefits of being truly at the frontier and pitching these wild economy-changing predictions, because that's the only way that they can stay feasible. And I think maybe one of the lessons for the people watching is, have you looked into an open weight model that you can run locally? Maybe that's sufficient for your needs.

• 11:12Geoff Nielson?

  Right. So when the message you're kind of getting, you know, literally or subliminally is, there is no competition, there's just, you know, Anthropic and OpenAI, it's probably worth looking farther than that. But there's another element to it that you probably know more about, which is that, you know, one of the like dirty little secrets of all of this is that if you're not using either of those two models directly, you may be using them indirectly, right? Like, you've got Copilot, like Microsoft, sometimes Google, actually pulling from these models to power, you know, the AI interfaces that you're already using. Right now, like, is it just Microsoft eating the cost of that, and this is bad for their business? Or is there an implication in terms of what you're going to see in your Microsoft bill?

• 11:56Speaker 01

  Well, you can bring your own model, right? You can integrate Claude into Office if you want to, and presumably you pay tokens for that. I think a lot of the hyperscalers, what they're doing is they're actually building their own AI solutions. So Microsoft has a model called Maya, for example. They're building their own chips. Microsoft is also building chips in this case. OpenAI is building their own chips. They're trying to sort of vertically integrate to protect their margin a little bit here. Microsoft, incidentally, is one of the few hyperscalers that didn't get rocked in the AI sell-off, precisely because they protected their margins a fair amount. So, I don't know. I'm not sure if they're necessarily eating costs to the same degree that others are.

• 12:39Speaker 01

  I think that they're passing them along, and I think that if you're using just generic Copilot built on, you know, the OpenAI service, they're likely just routing you to a pretty cheap model, because these things have moved pretty significantly in the past couple of years.

• 12:51Geoff Nielson?

  Well, and I guess, I mean, there's two more angles that are probably worth exploring. I mean, we're talking about, you know, open weight models and some of this long tail of other vendors that are going to be substantially cheaper. But I guess if you are an Anthropic or an OpenAI, you can just by default set your customers to a lower model so that, you know, they're not paying as much for this and hopefully happier and more likely to renew. I guess that, you know, that that could hurt your revenue if everybody's paying you less. But the other piece that I expect that they're going to tell you is on the horizon, and, you know, it's not really a guess, because it was literally in the amended S1 Anthropic, you know, shared earlier this week, but they're, oh, the efficiency gains we're getting now are like 4X if you squint just hard enough. Do you buy that?

• 13:36Speaker 01

  Absolutely. I mean, as with all things, over time, the technology is going to be refined and get better. And what seemed like a total frontier discovery three or four years ago is so mundane as to not even be newsworthy today. They're building their own chips, they're working on building their own power plants. Microsoft is restarting one of the reactors at Three Mile Island, not the one that melted down, a different one, to power it, right? So they're gaining this, they're talking about putting data centers in space, which would give them more access to solar energy, but it's got a bunch of other problems, which we'll discuss in a few minutes. So, I mean, yeah, I buy that it'll get more efficient. Sort of Moore's Law. You know, we probably have to update it for somebody other than Gordon Moore, but, you know, it's this idea that it's going to get cheaper over time. Absolutely. I think what happens, though, is when stuff gets cheaper, we don't use less of it and

• 14:20Speaker 01

  pocket the gains, we use more of it and go, wow, this is still really expensive. So I don't think we've solved the cash problem yet.

• 14:27Geoff Nielson?

  No, I don't think so either. Like, I guess I agree with you that it will get cheaper, but I don't, like, I don't see it actually getting cheaper for people, right? Like, I feel like the efficiencies just are nowhere near enough to offset, like, the additional compute costs that are, you know, creeping up here from more advanced models. So, like, I don't know. I see the problem continuing to get worse, not better, frankly.

• 14:49Speaker 01

  Well, I think that's a good way to put it. Maybe now is a good time to advise people on how they can make the problem go away in their own organization.

• 14:58Geoff Nielson?

  Oh, is it ad read time already?

• 14:59Speaker 01

  It is ad read time.

• 15:00Geoff Nielson?

  Thank you, thank you for reminding me. Let's do it.

• 15:05Geoff Nielson?

  Well, Jer, everybody knows that running a successful IT shop is extremely hard.

• 15:09Speaker 01

  I do know that.

• 15:09Geoff Nielson?

  And AI has only made it worse. Imager processes, a fragmented data ecosystem, and unlimited demand for IT, it all makes for an impossible job.

• 15:17Speaker 01

  That's true.

• 15:17Geoff Nielson?

  And yet, nobody has invented a unified operating system for IT.

• 15:21Speaker 01

  Nobody?

• 15:21Geoff Nielson?

  We're literally the last function without one.

• 15:23Speaker 01

  Oh.

• 15:24Geoff Nielson?

  Until now.

• 15:24Speaker 01

  Until now.

• 15:25Geoff Nielson?

  That's why Infotech created CIO Analytics, a single platform to run the IT department. We call it API-driven advisory. It's powered by your data, our analyst insight, and it works with your existing tools right out of the box. If you're interested, check out the link in the description to request access and see CIO Analytics in action for yourself. An Infotech team lead can get you started same day. Better context, better insight, better IT performance, only with API-driven advisory, only with Infotech.

• 15:54Speaker 01

  Is there a Webby Award for best ad read? Maybe be an honorary, like.

• 15:58Geoff Nielson?

  Maybe that's something we can work on by the end of the first season of this.

• 16:02Speaker 01

  Yeah, it's figuring out how to win an award for your ad read. No, it's good. You should go to infotech.com, check it out. I actually have it open on my laptop in front of me here.

• 16:08Geoff Nielson?

  Should we move into story number two, AI in space? I feel like you're like chomping at the bit to talk about that one.

• 16:14Speaker 01

  I am, and I, it's champing at the bit, Jeff.

• 16:16Geoff Nielson?

  Champ, it's not, there's no way it's champing at the bit.

• 16:19Speaker 01

  It's champing at the bit.

• 16:20Geoff Nielson?

  I don't believe you, we'll have to.

• 16:21Speaker 01

  The YouTube commenters are going to correct you.

• 16:23Geoff Nielson?

  Yeah, sounds good. So, so, Google received its first response from Project Sun Catcher, love that name. The prototype AI data center in space that it launched earlier in October on a SpaceX Falcon 9 rocket. It wrote a haiku about being in space, and I'd like to read you the haiku, Jer.

• 16:40Speaker 01

  Okay, all right.

• 16:41Geoff Nielson?

  Blue marble below, data streams in silent grace, starlight feeds my core, sparkle emoji.

• 16:49Speaker 01

  Sparkle emoji?

• 16:50Geoff Nielson?

  You know, like the AI emoji? Like, it's just the starlight.

• 16:53Speaker 01

  But if you say sparkle emoji, doesn't that throw off the syllable count?

• 16:55Geoff Nielson?

  Well, I'm saying it because I'm not putting it up on the screen.

• 16:58Speaker 01

  That's true, okay.

• 16:59Geoff Nielson?

  It's not part of the haiku. So what do you make of this story? Is AI in space as stupid as it sounds, or is there actually something here?

• 17:05Speaker 01

  So, first of all, data centers in space is the world's largest.

• 17:10Geoff Nielson?

  Data centers.

• 17:10Speaker 01

  Misnomer. It's four TPUs, Jeff, and they can't even power all of them at once. So it's one at a time. The power production on this thing, it's about the size of a fridge, is 1 kilowatt. That's like small appliance-level powering. Like, you can power a microwave or a hairdryer or something, like, you could do a couple of loads of laundry. This isn't data center-scale operations. It's running a relatively lightweight model with these four TPUs. The main purpose of this, near as I can gather, is to figure out what radiation does to the chips, how vibration from takeoff actually impacts the chips, and, you know, the whole chassis and the housing when they send it up to space.

• 17:53Speaker 01

  And probably just to draw some attention, so like, you've probably seen a few stories about this, right?

• 17:58Geoff Nielson?

  At least, yeah.

• 17:59Speaker 01

  Well, it went up in, I think, September, if I'm not mistaken.

• 18:02Geoff Nielson?

  I thought it was beginning of October, but your point's down.

• 18:04Speaker 01

  Yeah, a few months ago. And people have been talking a ton about it. The story that we pulled this from is TechCrunch, obviously very exciting. And I feel like it just hasn't gotten the right amount of skepticism. So like, let's talk about the obvious. Like, getting to space is really hard and expensive. Just before the show, I looked up how much it costs to launch a Falcon 9. It's $74 million. And obviously, it's got a payload. Google wasn't the only customer there, and Google can afford it. $200 billion in capex, what's 70 million here and there, you know, between friends, pocket change, right? I think we've got it in the chair here. But like, if you wanted to launch an actual full-scale data center that could do real compute equivalent to these multi-acre terrestrial data centers, this would be like the most

• 18:48Speaker 01

  expensive thing humanity has ever done. That seem reasonable to you?

• 18:54Geoff Nielson?

  So I, like, I have to admit, I

• 19:12Speaker 01

  A SI company now, Jeff?

• 19:13Geoff Nielson?

  Don't, don't. When, when he's like, hey, what if the AI was like sent up on rockets? I'm like, wow, like

• 19:20Speaker 01

  How'd you come up with that idea?

• 19:21Geoff Nielson?

  What a shocker that you would come up with that idea. But I actually think it has more merit than you're giving it credit for. And like, I don't know, part of me wants to just file this under like a journey of a thousand miles starts with a single step. You know, like, yeah, of course. Is it like a fridge in space right now? Yes, because they're testing it out, but do you have to test it out before you scale it? Yes. And so we can sit here and throw stones or we can be like, oh, this is really cool. And it solves a bunch of like deep seated problems with data centers. I mean, first of all, everybody hates data centers. Like it's like, it's like a hilariously bipartisan issue. Like literally the world is coming together to say like, not in my backyard.

• 20:02Speaker 01

  Yeah.

• 20:02Geoff Nielson?

  So you've got like the backlash against data centers tightly coupled with that. You've got like the power needs of data centers. You've got the water needs of data centers. Like they're, they're just like really, I want to say hilariously unpopular. People might be like, it's not funny. There's nothing funny about how much we hate data centers and, you know, the, the environmental destruction that they're doing, which is like a bit overblown, but that's, that's a different story. But you put them in space and suddenly it solves a bunch of these problems. And I'm not, look, I'm not saying data centers in space 2026. I'm not saying data centers in space 2027. But if you read, you know, the, the Google kind of mission statement about this, they're looking at kind of 2030 and beyond.

• 20:41Speaker 01

  Yes, in the 2030s. Oh, no, no, okay. So Jeff, there, I have a mouse problem in my house, so I burned my house down. I solved the mouse problem, but in the process I created a whole bunch of other problems. So you said we have issues with water use in data centers. What do we use water in data centers for?

• 20:56Geoff Nielson?

  For cooling.

• 20:57Speaker 01

  How do you cool them in space? Space is cold, but it's not a great heat sink. You need these massive radiator booms, like the, the amount of physical stuff you would have to send up to cool a data center of any scale is a problem that I frankly, haven't seen tackled in any of the reports here. So yeah, we solved water use on earth by just not cooling stuff in space. What about actually repairing it when something goes wrong? What are you going to do? Send Bruce Willis up like Armageddon two fixing the data center? Like, no, that would be absurdly expensive and frankly, probably pretty dangerous. Like it doesn't make any sense. So to me, this is like Theranos crypto level of just unfeasibility. Like anybody who's like really expert in the space, which I'm not saying I am, but like anybody who knew anything about blood testing,

• 21:42Speaker 01

  knew that Theranos wouldn't work, right? Anybody who knows anything about the financial system, and this is probably the most controversial thing I'll say, I'll show, is skeptical somewhat of the value of many of these cryptocurrencies that are out there. And I think that anybody who has spent any time working on computing and space travel will tell you that like, there are a lot of challenges that you need to overcome before this becomes feasible. And I agree, journey of a thousand miles begins with a single step, but not every moonshot succeeds. That's why they're moonshots. If every moonshot succeeded, they wouldn't be moonshots.

• 22:10Geoff Nielson?

  So, so I mean, let, let's talk about that. I mean, first of all, this is like maybe the most literal moonshot because it's like actually shooting something into space. But it, in your mind, like, are you saying like, shut her down? This is not a moonshot worth doing. Like, to me, it's so obvious that there's value here and it solves so many problems that, look, I'm not like, this is a solved problem. I'm not saying this is a sure bet, but what I've become increasingly convinced of, you know, over the past few weeks, is this is probably worth investing in. As you said, like pocket change for Google compared to what it's spending in compute. Like, would you just say, shut her down? Go, you know, look at pouring that into a frontier model? Like this to me actually has problem, has promise, right? Are there problems?

• 22:54Geoff Nielson?

  Of course there's problems, right? Like, and, and you know, Elon Musk, like, nobody's gotten rich, yet at least betting against Elon Musk. Like, and, and look, I have no shortage of, of, you know, concerns with the guy, but he has a reputation for fixing things that people said were impossible, right? So, so I'm just, I'm not willing to write it off wholesale.

• 23:16Speaker 01

  There's a reason I'm sitting here on a podcast and he's CEO of a bunch of companies. I fully understand.

• 23:20Geoff Nielson?

  Techno King.

• 23:21Speaker 01

  Yeah, Techno King. That said, that said, if you want to spend money on a crazy place to put a data center, like we have a lot of crazy places at home, you know? You can, you can put it out on a prairie somewhere. You can put it underwater, which Microsoft did with Project Nemo and is actually quite successful. But there was a bunch of issues around like shocker, repairing the thing, you know, keeping it up to date. Nobody's talked about that, by the way, like, oh, a new GPU comes out. What do you do? Send Bruce Willis up again to swap it out? Like, how, how does this work? What's the life cycle like? We talk about pollution. I haven't done the math on this, but I have to imagine that the amount of carbon generated by launching a literal rocket into space to bring four TPUs up is probably greater than the lifetime carbon consumption of the equivalent TPUs on earth.

• 24:05Speaker 01

  Because rockets, it turns out, use a lot of energy to get into low earth orbit. That's just a thing. The satellite's going to break up after a while. What about space junk? It's only going to operate, I think, for one year, but they're going to keep it orbiting the earth for many years. You know, that, that's not free real estate in the same way that I think maybe people think about space. Like the low earth orbit is getting quite crowded. It's kind of a problem. Is there a future for computing in space? Absolutely. As long as we're in space, we're going to need computing up there. This is good. We're going to learn a lot about radiation and bit flipping and all that good stuff. But like, is this a serious alternative? No, this is like the hyperloop, which my conspiracy brain mind says they pitched the hyperloop to avoid jurisdictions building railways. And the reason they did that is because the people who were into hyperloops like Elon Musk sell cars.

• 24:48Speaker 01

  And so if I say, no, don't build a railway, we'll build a hyperloop. And then I don't build the hyperloop, it looks like you've got to buy a car, right? And that's my conspiracy minded thing. So it's not to build data centers in the short term. My question is, what is it for? And maybe I'll leave that for the audience because I don't know. I don't know. I'm just speculating here, being a little conspiracy brain.

• 25:05Geoff Nielson?

  Well, so like, let, let's just follow that a little bit farther down the road. Like, where does this go from here? Like, you've kind of conceded that this is probably worth investing in on some scale. There's some value here.

• 25:18Speaker 01

  Computers in space are as old as space travel itself, basically. You know, Sputnik was beeping. I don't know if it had a computer in it in the technical sense, but yeah, we've been taking computers up for a long time.

• 25:28Geoff Nielson?

  So, so at what point do you get like a Jeremy was right moment here? Like, because we're going to keep shooting these into orbit. We're maybe not going to scale them to the degree where it's actually like, you know, this is the next big thing. What do you need to see happen in the next five years to be like, aha, like I told you so?

• 25:47Speaker 01

  Oh, I think if they close the project sun catcher and say, yeah, we're not going to pursue further development on the actual data center in space concept, I would consider it a air quotes failure, although failure isn't always a bad thing. Just like with Microsoft and Project Nemo, the underwater data centers, they did the project, they experimented, they came back and they said, for reasons, we're not going to do this. So if the equivalent happens with Project Suncatcher, because at a certain point you pull the plug on this stuff, then I'll claim victory. That said, I can't say what's going to happen in the indefinite far future. And if we spend way more time out in space, you know, maybe we'll be having this conversation. People say data centers on the moon are ridiculous. It's 350,000 miles away, at least low earth orbit, it's easy to get to, you know? Maybe I'll be on that side of the argument then. But yeah, that's, that's my answer.

• 26:29Geoff Nielson?

  That's, that's, that's reasonable. And I'm, I'm curious to see, you know, how it goes from here. I also just like, when I, when I was doing a bit of research on this, I made a note to myself that just said, data residency? Question mark?

• 26:41Speaker 01

  Yes, who owns it in space? That's a good point.

• 26:43Geoff Nielson?

  And I mean, I don't know if that's a good thing or a bad thing, but like, yeah, what happens to your data when it's suddenly underwater or in space? And I don't know, is that a good thing or a bad thing? And is this worth contending with? Like, I don't know, is, is this on your roadmap of concerns? If you're, you know, thinking about your data or is this like a ha, like, you know, I'll cross that road when we get there?

• 27:05Speaker 01

  It's like somebody pitching like a formal dinner on the moon and me being like, oh no, my biggest problem is what do I wear?

• 27:12Speaker 01

  I suppose I'll have to cross that bridge when I get to it, Jeff, but I don't think I'm going to have to cross it anytime soon. Speaking of unreasonable things, our third story, I think,

• 27:23Speaker 01

  anybody who's followed me, which is honestly probably not a lot of people here. I'm an analyst at an IT firm and, and I've covered in the past crypto, knows probably what my opinion on this is. So I'm going to ask for yours. Binance was hacked for $6.3 billion worth of a variety of different cryptocurrencies. I think there's some Bitcoin in there, some USDT. They were actually able to freeze about $3 billion of that, which calls into question the premise of crypto a little bit, doesn't it? Isn't it all about decentralization and not being able to do that? But anyway, the FBI says it was a group called Trader Trader. Like, get it? Like, that's a kind of a pun. They're, they're homophones. They sound the same. Working out of North Korea.

• 28:05Geoff Nielson?

  Right.

• 28:05Speaker 01

  And North Korea has done this. They actually, I read that they hacked the Bangladeshi central bank at one point. They, they got access to their SWIFT credentials and started transferring money, like hard dollars. And one of their transactions failed because they spelled the word foundation wrong. So that's just a little bit of lore there. So this isn't the first time they've done it, but that was only in the tens of millions. This is 3.3 billion outstanding. Binance has said they're covering all losses.

• 28:31Geoff Nielson?

  90% I thought.

• 28:32Speaker 01

  Well, 90% so far.

• 28:33Geoff Nielson?

  Right.

• 28:33Speaker 01

  I think they said they're covering all and they're at 90% now. And they said that the funds were Safu, which is Safu, which is crypto slang for money is safe. Just like Hodl, you know, they love a good typo over in crypto world.

• 28:47Speaker 01

  I don't know, Jeff. I read this story and I thought, okay, so some DevOps engineer's laptop was compromised. Now they're saying it's a deeper infrastructural issue. We're not a hundred percent sure what happened. We're recording this on Tuesday, the third, so we don't know specifically what the cause was. But I'm sure there's a lesson to take away here. What's your lesson from the Binance hack?

• 29:07Geoff Nielson?

  So, so there's like, there's tiers of lessons here. This whole thing is just like so stupid to me.

• 29:11Speaker 01

  Oh, I have tears, Jeff.

• 29:14Geoff Nielson?

  So, so, I mean, first of all, if you listen to Binance, they're like, guys, everything is fine.

• 29:19Speaker 01

  Your funds are safe?

• 29:20Geoff Nielson?

  Yeah, but like, I have a problem with this. Problem number one, you just gave North Korea like an extra $3 billion. And by the way, like their apparent like GDP last year was only $30 billion. And that's GDP and like, I get it, we're not doing one to one here, but like $3 billion for North Korea is like just a shit ton of money. Like, why do we have the system where suddenly North Korea is able to steal $3 billion? I like, I am a very big crypto skeptic. Like, let me just put a fine point on it. I think there is no legitimate purpose for crypto, period. I think if you're a criminal, it's useful. I think the whole thing is a pyramid scheme.

• 30:03Geoff Nielson?

  And like, if you're still investing in this, shame on you, you should not be in crypto. You know, you got talked into it by a crypto bro.

• 30:10Speaker 01

  Not financial advice.

• 30:13Geoff Nielson?

  Fine. So, so yeah, I'm, I'm just like, and by the way, it's not even performing well. It's down 30% this year. In the past five years, it's lagged the S and P. Like, everything you've read about crypto is by just like multi-level marketers being like, you gotta get in on crypto, bro. So, so like, all of that is thing one. Thing two is, you know, to your point, like, there's just such an obvious cybersecurity lesson here, which is, as you said, like, they got into this on like a single laptop.

• 30:47Speaker 01

  They're, they're walking that back a little bit. That was their initial pronouncement and they've come out and said, oh, it wasn't one person's permissions. I don't know how true that is. I feel like if it was one person's permissions, that would be like a disastrous thing to announce. So.

• 31:01Geoff Nielson?

  Well, so I want, I want your take on it, because you, I mean, I, I like dabble in cyber, but you, you go a bit deeper in it.

• 31:09Speaker 01

  Yeah, as an infrastructure analyst for a while.

• 31:10Geoff Nielson?

  What's your take as someone with an infrastructure background?

• 31:13Speaker 01

  I mean, so I don't know specifically what happened here, so I'm just speculating entirely, but I will say that most hacks are not super sophisticated exploits.

• 31:21Geoff Nielson?

  Yeah.

• 31:22Speaker 01

  Usually it's they compromise someone's credentials and things aren't configured properly internally. And then the hacker is able to get access to a whole bunch of systems that they shouldn't. In this case, I think they were able to make some transactions. They had permission to make unauthorized transactions essentially on the Binance platform. And so this strikes me as a big issue with how they manage internal permissions. Like, obviously, a financial institution like Binance does have to have the ability to make those transactions. Or maybe somebody who's more expert in crypto can chime in and explain specifically how this works. But it strikes me as a failure of zero trust. It strikes me as a failure of like general risk mitigation. How can that much money be moved that quickly without alarm bells going off?

• 32:07Speaker 01

  And I guess maybe the alarm bells did go off after 20 minutes, but it was all done. Maybe some of the things that make crypto so appealing, like its irreversibility, you know, the anonymity, the relative anonymity, anyway. Although Binance does have a know your customer policy, as far as I understand it. Maybe those things made this much more appealing. So I will say that, you know, my, my takeaway here is, without the full picture, my bet is that somebody clicked a bad link or followed the wrong file path or authorized something that they shouldn't have or believed something was true when it wasn't. And so that was a failure point. And then how did we get to a point where once somebody had that access, they could?

• 32:49Speaker 01

  I think this is the largest heist in history. I don't think there have been any bigger ones. Like, every other one would also be a crypto.

• 32:56Geoff Nielson?

  Right.

• 32:57Speaker 01

  Issue. There's the, the whole Razzle con.

• 32:59Geoff Nielson?

  But, but it's just like, like, this is like, oh, it's the safest thing. Like, it's got like.

• 33:04Speaker 01

  The funds are safe?

• 33:04Geoff Nielson?

  Yeah, it's just like, it's so much better than regular money. It's like, okay, then like, how come it keeps getting stolen? And how come it can get frozen? And how come people are like forgetting their key? Like, there's just, there's so many things that can go wrong here. But the, I mean, the other thing that's on my mind is like, what does this mean for Binance as a trusted platform? And like, where I'm, yeah, heavy quotation marks, like where I'm coming from is, I, I was actually talking to the chief security officer at Visa last week in an interview. It hasn't aired yet. But, you know, Visa is Visa. Like, they're investing literally billions of dollars in cybersecurity and they're doing these like, you know, pretty impressive things.

• 33:44Geoff Nielson?

  And they're actually sharing it with the like, financial insurance community because, you know, you're only as strong as your weakest link and they want to strengthen the chain. But like, you're not reading stories about Visa getting hacked.

• 33:58Speaker 01

  No.

• 33:58Geoff Nielson?

  Because they, they, they like, their whole business is being like, kind of hack-proof, right? Being secure, to use a very simple word. And like, isn't that Binance's whole thing? Like, this just seems like, like, calling it a 101 error is probably not correct. But like the, to go back to the start of our conversation, I, I'm picturing like the Death Star trench run and that one stupid, you know, exhaust.

• 34:26Speaker 01

  Why did you put the exhaust port in there? That makes no sense.

• 34:28Geoff Nielson?

  Yeah.

• 34:28Speaker 01

  Just literally cover that up.

• 34:29Geoff Nielson?

  Yeah.

• 34:30Speaker 01

  I'm like, why did they have all the guns there? They clearly knew that it was a problem.

• 34:33Geoff Nielson?

  Right.

• 34:34Speaker 01

  And they didn't fix that one little problem. I guess you need to have exhaust because it's important to radiate heat in space.

• 34:40Geoff Nielson?

  Oh, okay. Now we're like, now, now it's all coming.

• 34:42Speaker 01

  In comedy, we call that a callback.

• 34:43Geoff Nielson?

  Yeah.

• 34:45Speaker 01

  In the third movie, the sphere wasn't full yet. It was still under construction.

• 34:48Geoff Nielson?

  But it was.

• 34:49Speaker 01

  They built the weapon.

• 34:49Geoff Nielson?

  But that thing's operational, so.

• 34:53Speaker 01

  Should talk about Starkiller Base too, while we're at it. Look, Binance, the head of Binance, he's not actually formerly the CEO. There are two CEOs, neither of them are the guy that everybody associates with Binance. Name is Chang Peng Zhao. He actually served a short prison term for violating money laundering rules.

• 35:08Geoff Nielson?

  That's what I like to hear from the person running the exchange that my money is in.

• 35:13Speaker 01

  Binance isn't allowed to operate in the United States, as far as I know. At least they weren't until fairly recently, if that's changed. They.

• 35:19Geoff Nielson?

  Full space it is then.

• 35:21Speaker 01

  There you go. Put, put them up on the data centers, beam your money back down at you. Ironically, I think that a lot of other financial institutions, if they were executing this type of a transaction, there would be multiple parties involved. I think Binance, despite being the largest player in this DeFi space, actually had the centralized ability to move stuff around. Based on my limited understanding, which is kind of an ironic issue. So, yeah, I mean, should people trust Binance? I mean, look, my full disclosure is I own no crypto. I never have. I've been pretty skeptical of it. This to me is an indication of immaturity in the space. And I would argue, in agreement with you, that the space doesn't really need to exist. Like, we do enterprise IT advisory and four or five years ago, crypto got really big. People were really excited about it.

• 36:04Speaker 01

  I kept hearing about business NFTs.

• 36:07Geoff Nielson?

  Well, blockchain in general.

• 36:08Speaker 01

  Blockchain in general, that's exactly right. Oh, the distributed ledger is going to change insurance. The Australian Stock Exchange is going to switch its settlement system to something that was blockchain based. And that was all BS.

• 36:17Geoff Nielson?

  Yeah.

• 36:17Speaker 01

  And you could tell while you were sitting there, you're like, this is a digital receipt for a JPEG. Why would anyone pay real money for this? And then, of course, the bottom fell out. The Australian Stock Exchange was never going to move to a blockchain-based solution because it didn't solve a problem that they actually had. There wasn't like a trust issue on the Australian Stock Exchange. And so they ended up moving away from it and writing down the cost of their attempt to make that transition. So currency is really the last remit of crypto. And I think if you lost money in the Binance hack and then they paused your ability to withdraw, you would think, wait a minute. I thought the whole point of this was to remove institutional power over my currency.

• 37:00Speaker 01

  But it turns out that that institutional power remains and also I'm not insured by like a deposit insurance corporation.

• 37:08Speaker 01

  Getting a real insurance company to pay for my Doge coins or whatever strikes me as quite problematic. You know, I'm trading USDT, why don't I just hold dollars?

• 37:17Geoff Nielson?

  Right.

• 37:17Speaker 01

  You know, like, the whole thing, it's lagging the S and P 500 and it tracks the regular markets more broadly. Like, I don't know, I'm, I'm very skeptical of it.

• 37:26Geoff Nielson?

  So, so just like, trying to land on like a, what did we learn from all this? I mean, one of the things we haven't talked about yet is, to me, like, at this point in general, as a company, like, cyber insurance has just become a no-brainer. Like, it's just, you are almost certainly going to get hacked. It's going to do damage. Having some sort of insurance just feels like it's something you must do. And, and you talk briefly about zero trust, right? Like, the idea that one, you know, whether or not this is true, like, if one laptop or one employee gets hacked. We've, we've talked for so long about employees being your weakest link. And it just seems like, like, just untold dollars spent trying to do cybersecurity training.

• 38:11Geoff Nielson?

  And, and people just like, being like, oh, this doesn't look like phishing to me. And like clicking the wrong thing or writing their password at their desk or whatever, like,

• 38:21Geoff Nielson?

  you, you just need to secure the environment enough that even if an endpoint is compromised, only so much damage can get done. Is there any more kind of color you'd add there or anything else to kind of tag on to that thought?

• 38:34Speaker 01

  I think the broader parable is, I think a lot of crypto people looked at the existing financial system and said, wow, it takes days for this to settle. What a disaster. Not realizing that it's not a technical limitation of the financial institutions that makes it so that these, you know, different payments or whatever take time to settle their transfers. It's regulatory, it's process-based, there's multiple actors involved. It's risk mitigation. And so they take that out of the system and then this happens. And they're sort of learning the lessons that I think banks, I guess, spent centuries learning, right? Over time.

• 39:13Speaker 01

  And I think that there is a lesson in that for anybody building anything, which is, if somebody does something a particular way, instead of saying, that's stupid and just building your own thing, you should probably understand why they do it that way. Why the global economy is based on fiat currency. You know, why we de-pegged from gold or whatever. And this is not a 1970s Nixon shocks comment, or podcast, I should say. That's not the purpose of this show. But like, I think that's the fatal mistake of crypto as a, as an industry is, they're attempting to innovate and they're doing things differently. And sometimes the things they do differently probably shouldn't be done differently based on lessons that we learned, but they haven't.

• 39:57Geoff Nielson?

  Right. If you're going to move fast and break things, you can't get upset when things break.

• 40:01Speaker 01

  Yeah. I think that's a good way to put it.

• 40:03Geoff Nielson?

  Yeah. Well, is that enough for one week?

• 40:06Speaker 01

  I think so. And so for those of you watching, Digital Disruption Now is our weekly news show, comes out every Wednesday. Make sure you subscribe to Digital Disruption for all the latest and Jeff's great interviews, including with the Google engineer, who is actually at least partially responsible for data centers in space. So you can check that out. What was his name, Blaze?

• 40:24Geoff Nielson?

  Blaze Aguera Iarcus, yeah.

• 40:26Speaker 01

  Oh, there you go. So check that out. You can, you can see Blaze's opinion on stuff and maybe understand how he arrived at data centers in space being a good idea. Now, Digital Disruption Now is a production of Infotech, which is an IT research and advisory firm. You can check us out at infotech.com. Jeff and I are both analysts at Infotech. That is our day job. The show is hosted by Jeff Nielsen, a senior vice president, and me, Jeremy Roberts, a senior director. Tim Lai is our technical director and our editor. Thank you, Tim. Kula Beloukos is our producer. Maria Knight also produces the show. Brian Mogich, Tim Champion and James Groom are our camera operators and general studio techs. Thank you so much, guys, for getting a really good shot of me right now. Special thanks to Holly Kalman, who is holding down the fort while we present this.

• 41:11Speaker 01

  So, join us next week for more news in tech and work.

• 41:16Geoff Nielson?

  Thanks, Jer. We'll do it again next week.

• 41:17Speaker 01

  Looking forward to it.