The Power of Creative Destruction

Every passage, on the record.

1. 00:00Claim

   One of the most underappreciated aspects of Bitcoin is the sheer scale of destruction in the creative arena that it allows for, and Bitcoiners who are early to adopt this new form of money are going to greatly outcompete the world around them in almost every area of the economy.

2. 00:31Claim · condensed

   Bitcoin's ability to enable creative destruction on this level is not by coincidence or accident, it has been specifically set up this way, and it is what will propel Bitcoin to become the global reserve asset that powers the next wave of energy innovation in the human species.

3. 01:05Idea

   Creative destruction is a direct result of the successful efforts of entrepreneurs in transforming previously inaccessible energy into readily accessible stored energy.

4. 01:40Claim · condensed

   In a highly complex, interconnected economy it becomes very hard to identify who is benefiting from someone's effort to transform energy more efficiently, because the entrepreneur doing the transforming is so far removed from the end consumer who decides the exchange is worth it.

5. 02:10Claim · condensed

   As the number of nodes and connections in the economy grows large enough that the end consumer is abstracted away from the entrepreneurs actually doing the transforming, that creates noise in markets, which creates misallocation of energy, which means reserves get left on the table.

6. 02:42Analogy

   An easy analogy to understand this is the hive of a thousand bees can do more work, which again at its most basic level is the transformation of energy, than a hive of a hundred. And the same goes for humans.

7. 03:23Reference

   Michael Saylor often has talked about this in the past. Why do major civilizations appear where they do? Where do ancient major civilizations spring up? Well, number one, they spring up near water.

8. 03:23Claim · condensed

   Major ancient civilizations sprang up near water not primarily for drinking, but because proximity to water lowers transactional costs, and there is no usable energy in water itself for consumption.

9. 03:54Reference

   If you're not familiar with transaction costs, this is an idea that was made famous by Ronald Coase. And it is that transactional costs are the costs that people incur when they exchange goods and services with others.

10. 05:33Analogy · condensed

    If you are near a river, can you find sources for exchange easier using it? Does it bring down delivery costs, make exchange quicker, and require less energy to move goods than moving them over land? Through competition, the civilizations near water that answer yes out-compete the others and grow larger and larger.

11. 06:44Claim · condensed

    More information exchange produces more innovation, because the more traffic and connections an economy has, the more ideas and proven successes get exposed to the entrepreneurs inside it.

12. 07:18Idea

    Life is essentially what we are trying to do is transform as much energy as we possibly can into reserves, okay? Creating order, lowering the entropy in the world around us. And that is really, we are doing it by exploring the unknown.

13. 07:53Idea

    This image fidelity example that we have used in the past is if you had to stick your hand in a black box and you couldn't see inside of it, and you had the choice between using the back of your elbow to feel your way around, or would you rather use your ten fingers to be able to get more information quicker?

14. 09:01Claim · condensed

    The only way we can tell what reality is is by measuring it, and we do that by working in harmony so each node in the network can communicate back what it sees; maximizing energy transformation means getting the best information to the most entities possible.

15. 09:42Claim · condensed

    Economies of scale are really about harnessing specialization, with enough connections in the system that every piece of the puzzle gets taken care of and nothing is wasted.

16. 10:14Claim · condensed

    Ancient civilizations were capped in size by the physical laws of the universe itself: they were limited by building technology and sanitation technology, and as they spread out geographically, transaction costs ran up until further exchange showed diminishing returns.

17. 10:46Reference

    This is something that Lyn Alden has talked about recently: pre-telecommunication era, information was really moving at the same speed as the bearer asset.

18. 10:46Claim · condensed

    Before telecommunications, information moved at the same speed as the bearer asset itself, so it had very little independent impact on what kind of money was needed to facilitate exchange.

19. 11:32Claim · condensed

    Widespread telecommunications let information move faster and faster, throwing out the physical constraints that the laws of the universe used to place on economies, and creating serious creative destruction opportunities.

20. 12:04Claim

    It is a boon for human flourishing when creative destruction is as widespread as possible, and Bitcoin is the greatest tool for creative destruction ever discovered.

21. 12:04Reference

    So really, again, it was popularized in economic circles by Joseph Schumpeter.

22. 12:36Claim · condensed

    In its most basic form, entrepreneurship simultaneously creates something new while destroying something old: as individuals probe untested energy transformation techniques, information about how profitable the new approach is spreads and causes constant mutation across the wider economy.

23. 13:08Claim · condensed

    The quicker you learn about an efficiency modification someone else made, the quicker you can build a system that leverages those efficiency gains, and the more you benefit relative to everyone else still operating the old way.

24. 13:43Claim · condensed

    In an economy with tremendous creative destruction, failing to keep up makes a business irrelevant and shows up first as losses; Schumpeter used the horse and buggy example with the development of the motor vehicle to illustrate it.

25. 14:19Analogy · condensed

    At first there are lots of horses and buggies and very few cars, but as people realize cars are more efficient, horse feed suppliers and carriage manufacturers have to shift what they make, and workers in the horse and carriage business go out of a job quickly if they do not adapt.

26. 16:03Claim · condensed

    This process never stops: every area of the economy constantly faces waves of creative destruction, and larger economies experience it faster because they run more iterations and experiments on efficiency gains, since creative destruction only happens as areas become more efficient.

27. 16:39Analogy · condensed

    Germany in the 1400s had roughly a hundred year head start over its neighbors in sharing information because of the printing press, an advantage that is often significantly underrated and that lines up with the advantage of early Bitcoin adoption today.

28. 17:44Analogy · condensed

    It's like the scientific method: you have an idea, test it, and if it works you write it down and report it so the next person does not have to start from square one, they can build on top of where you left off.

29. 19:00Claim · condensed

    In the digital age information can move at the speed of light and the extended order is no longer limited by the physical laws of the universe, but the problem has been that there was no native money for this new age, so transaction costs stayed too high to fully realize the power of instant sharing and connection.

30. 19:36Claim · condensed

    More exchange happens when two parties can trade through the Bitcoin system than through the legacy system, because the legacy system is slower and carries more built-in transaction costs, which is why the internet age lets the extended order scale regardless of physical distance.

31. 20:06Reference

    This is something that Cathie Wood often talks about, how these S-curves of adoption as technology increases, as it becomes more and more deflationary because of the benefits that technology provides.

32. 20:06Prediction · condensed

    Adoption S-curves are beginning to feed on one another and get quicker and quicker, so what previously took 100 years now takes 10 years, and in 10 years it will take one year, and in one year it will take one month.

33. 20:48Prediction

    It's happening so quickly because the creative destruction is just beginning, and it's just starting right now.

34. 20:48Claim · condensed

    Seemingly tiny, insignificant efficiency gains lead to outrageously large numbers in aggregate, and instant trustless payments is one such huge increase in efficiency.

35. 21:23Claim · condensed

    People who currently do the job of managing trust and custody in payments are doing that job less efficiently than a free, trustless alternative, and it's hard for them to compete once that alternative exists.

36. 21:23Quote

    They are doing a job more unproductively and less efficiently than a free alternative. And unfortunately for them, it's really hard to beat free, especially when it's more efficient.

37. 22:38Claim · condensed

    Bitcoin, as free and open source software, blows up the rent-seeking trap Schumpeter worried about, and its total addressable market is the entire world, and even bigger than the world once narrow AI is included, communicating with the physical world through it.

38. 22:38Quote

    Bitcoin's total addressable market is the entire world.

39. 23:16Claim · condensed

    Transaction costs are not just banking fees; they include the speed of transfer, the speed of final settlement and trust, the size and frequency of a transfer, and the political or geographic restrictions placed on a transfer in the old system.

40. 24:30Claim

    As history has shown, creative destruction actually leads to more jobs, not fewer, which means more energy transformation, not less.

41. 25:33Analogy · condensed

    If politicians decide to tax robots instead of labor because labor is disappearing, that makes robots less attractive, which limits growth, decreases exports, and in the end leads to fewer reserves, exactly the outcome the policy was meant to avoid.

42. 26:05Claim · condensed

    A jurisdiction that tries to locally stifle Bitcoin cannot stop the underlying information from leaking to other areas of the economy, so it only makes itself and its own citizens worse off while other regions embrace Bitcoin and capture the benefit first.

43. 26:05Prediction

    You cannot kill Bitcoin. It's going to live.

44. 26:05Quote

    You cannot kill Bitcoin. It's going to live.

45. 27:17Claim · condensed

    Taxing Bitcoin firms at a higher rate to redistribute early-adopter wealth gains would reduce social mobility, because innovative firms are what fund the skilled labor, better salaries and job training that let workers climb.

46. 27:17Quote

    Bitcoin at the moment is the internet in 1995. That's the way that I like to shape the opportunities that are happening in Bitcoin is the internet in 1995.

47. 27:17Analogy · condensed

    Bitcoin right now is like the internet in 1995: you did not need a great idea back then, only the enthusiasm to get involved, because the connections and skills you built up eventually became valuable enough that the good ideas found themselves.

48. 27:49Prediction

    We don't know where this is going to go. But the connections that you can make in the space will outpace anything else you could be doing otherwise.

49. 27:49Quote

    We don't know where this is going to go. But the connections that you can make in the space will outpace anything else you could be doing otherwise.

50. 27:49Reference

    You go through iterations of things that don't work, you go through your pets.com, and eventually you start to develop the ideas and the combinations that are actually going to make an impact on that energy transformation at a global scale.

51. 28:27Analogy · condensed

    If you have eight apples and a hundred people, someone eating an apple leaves only seven for the other ninety-nine, that is a rivalrous good; a non-rival good is one where individuals can use it while the supply left for others stays unchanged.

52. 30:06Claim · condensed

    Satoshi solved the non-rival data problem in reverse: bits of information used to be non-rivalrous, like an MP3 you could copy and still keep, but Bitcoin makes that information rivalrous by preventing duplication, so sending it means you no longer have it.

53. 30:06Quote

    He transformed something non-rivalous, bits of information, and made it rivalous by not being able to duplicate it.

54. 30:06Reference

    And what's amusing here is that Satoshi actually, what Bitcoin did, what Satoshi did, was actually solved this in reverse.

55. 30:37Reference

    Then think of something like Tesla. There is no doubt that the more data a self-driving car algorithm can process or has access to, the better it's going to be.

56. 31:13Claim · condensed

    The last decade has shown that in the biggest companies in the world, data is everything, and the profit and the creative destruction both begin in the data, which is why data has been the most bought and sold commodity of the last ten years.

57. 31:45Claim · condensed

    Bitcoin's data is non-rival and non-excludable at the same time, so every potential innovator has access to the maximum data set instead of a single company hoarding it, which supercharges the extended order by giving all innovators an open invitation to work with the same signal.

58. 32:19Claim · condensed

    Because the timechain is open and transparent, no single company can hoard exclusive knowledge of where energy and information are flowing inside the economy and arbitrage that advantage against everyone else.

59. 32:50Open question · condensed

    What can we do with this data? What models will be built? What insight can be made by looking at how energy moves inside the economy, at the speed it moves, when it moves, and for what reason, and how that ties to reactions outside the Bitcoin market?

60. 33:25Claim · condensed

    You want to live in an economy with people who are the best allocators of energy, because if they allocate poorly no one is better off, and if they allocate well everyone is better off, so we want to funnel energy to whoever proves they return more reserves than they spend.

61. 33:57Prediction

    Once global adoption takes place and Bitcoin is the global reserve asset of the world, we will have a ledger that records every transaction and every movement on it.

62. 34:27Claim · condensed

    There will be layers on top of the base layer, but layer one will essentially represent the flows of energy around the world, and once that is tracked and modeled we will have insights that were never possible before.

63. 34:59Idea

    That's just the most obvious, easiest answer. Bitcoin and anything, because Bitcoin didn't exist before, what the entrepreneur is doing is they're combining things and seeing if they are more efficient. So if we combine Bitcoin with anything, it's going to be more efficient.

64. 34:59Quote

    So if we combine Bitcoin with anything, it's going to be more efficient.

65. 35:37Claim · condensed

    Individuals who recognized early that Bitcoin was the way forward deserve an outsized advantage over later adopters, because they have already proven they have the skill to allocate energy intelligently.

66. 36:07Claim · condensed

    Bitcoin's creative destruction is not confined to banking and finance, it is everywhere in the economy, and that should be encouraged as much as possible.

67. 36:07Claim · condensed

    Any sign that creative destruction in the Bitcoin world is being stamped down or impeded should be read as a warning that something is wrong, and the correct response is to open things up further by removing barriers to entry and keeping the data publicly available, non-excludable and non-rival.

68. 36:07Quote

    It's the removing barriers to entry that matters. It's making the data publicly available to any and all, to make it non-excludable, to make it non-rival.