Regular readers of this blog will know that I have an unhealthy fascination with things like artificial intelligence, information asymmetry, monetary systems, bitcoin and Sci-fi. And that I like to speculate wildly.
So come with me now on a little journey. A journey to a distant point in time when the world has grown a nervous system and thinks for itself. A point in time Sarah Connor once called Judgment Day.
Because what I discovered this month is that even as I write and speculate about these things in a semi-whimsical fashion, there are others out there — with not insignificant amounts of capital — preparing to forward this agenda very seriously.
This, I have realised, is the true era of *cult markets, and by that I mean it’s not just greed and money driving advances in the fintech space anymore. In the bitcoin world especially there is — among certain groups at least — something akin to religious fanaticism driving things forward.
Now, I realise that exposing bitconers as cultists is hardly an innovative observation. But there is, I think, a subtle difference between the tendency for absolutist libertarian thinking in this space — something we’ve always seen in the gold market, for example — and the true out-of-this world ambitions of those attempting to coordinate and direct that religious fervour into promoting their agendas.
Because when you unpack the true motives of the core instigators, you discover an absolutely incredible belief system. (* consider this a curtain raiser for my upcoming book: Cult Markets).
The following will, I’m sure, sound a bit crazy. But I, like Herodotus, simply tell the story as I see it unfold in front of me or as I come to learn about. And I think this is a story that is worth telling, no matter how crazy it sounds.
A while ago I attended a talk by a prominent artificial intelligence developer and scientist. This particular AI developer was working on a so-called brute force learning system, which as far as I understand from people in this space is a fairly common approach to AI learning and neural path development. This AI expert revealed in passing, very much off the record, that he was already working/talking with hedge funds about deploying the AI on markets, and that his current best guest about the sort of returns that could be achieved was about 40 per cent.
Later I came across a different AI team which took a very different approach to the whole thing. Their AI wasn’t going to be a brute force trial and error type. It was goin to figure out what to do next and how to act with the help of its own imagination. This would be achieved with the use of modelling techniques, which would — as I understood it — help the AI 3D-map the world around it so that extrapolations and intuitive guesses could be made about how and where to take further action. I found all this fascinating. And while I desperately wanted to write about it — (Intuitive AIs are out there!) — I couldn’t think of a way to link it in a serious fashion to finance or markets.
But I now finally do have an excuse.
A couple of weeks ago I met up with an incredibly insightful hedgie who I hadn’t heard from for a long time. He explained to me that one of the reasons he had gone “dark” and wasn’t sharing insights with the public and the media as he once did, was because gaining a proprietary advantage in the market based on insight had become increasingly momentary. Nowadays, with his fund fully established, there wasn’t any reason to give away insight for free to the media. Fair enough.
Nevertheless, we got to chatting about the themes he was exploring anyway. And one thing that did come out was his belief that it wasn’t classic HFTs — which apparently are fairly dumb and only as good as the ideas of the hedgie who programmed them — that the likes of Michael Lewis should be worried about, but rather algorithms that adapt and learn as and when they encounter diminishing returns, externalities or other unexpected events.
My source added that he himself had hired a number of AI experts to help develop precisely such algorithms. At this point — and please remember I had’t seen or spoken to him for years — we turned to the topic of the prisoner’s dilemma. We soon realised we had arrived at fairly similar opinions about how the marketplace might evolve next quite independently.
For example, I had proposed just a few weeks ago that perfect competition and smart algorithms probably would in the long-time lead to the outbreak of a spontaneous algorithmic consensus. Self-adjusting algorithms, I proposed, would eventually figure out that a race to the bottom was against all their interests, and that sharing information — whether wittingly or unwittingly — to establish a de facto rent-extracting cartel system made much more sense. This, I then proposed, might be the moment that markets become self-aware.
Bitcoiners and the Mark of the B
This brings me to the latest Bitcoin panel I attended. The panel started as they always do: wildly over enthusiastic claims about bitcoin’s potential, profound disrespect for the social bit of society and reflections that proved a generally poor understanding of how the financial system works.
But there was one guy — who used to own a mining business — who intrigued me a lot. He will remain nameless (for now).
He started off by being totally up front about the scams in the industry, about the copycat pumps-and-dumps, about the totally speculative nature of the run to $1240, about there not being any profitable mining businesses left in Europe and about how only miners in China or those who have access to free electricity can currently turn a profit. Later — echoing a point I’ve made before — he admitted that the smarter parts of the community had figured out how naive they had originally been about finance, saying bitcoin had become “the devil’s way of getting geeks to learn about finance”. For these people Bitcoin had become a sped up simulation of the evolution of the financial system. Critically, he said, it had allowed them to go through the motions in such way that they had learned and adapted to their mistakes. (Part of the Silicon Valley “failing is success” mantra). Funnily enough, I have some sympathy for this way of learning. At Reuters we used financial simulations, for example, to learn about financial reporting. The difference our simulations didn’t require billions of dollars of other people’s investment.
Anyway, he went on, the price itself was unimportant in the long run. The most significant thing was that the “the big banks” were opening their minds to bitcoin and the blockchain*.
*I have always found bitcoiners who cite banks moving into bitcoin as “good for bitcoin” as a touch confused. If bitcoin is supposed to disrupt banks and kill off the need for an intermediary, why would banks benefit from moving in? There’s a contradiction here. To me, investment banks and hedge funds only move in when they see obvious profits to be made thanks to clear asymmetries (namely the presence of dumb money), while conventional banks see a way of shifting costs to unsuspecting users.
Which brings me to his most profound comment.
What if, our learned bitcoiner finally proposed, the real potential for Bitcoin was not in its use as money but in its ability to establish a self-governed algorithmic entity, owned by no-one in the strict legal sense, which could one day add and create value by its own autonomous means?
An algorithmic entity, he further hypothesized, that could provide unique and creative services that we — the meat-bags — valued and depended on. His particular example was autonomously produced “music”, which would evolve according to the reactions of the consuming public and its ability to raise funding — a.k.a energy and hosting space — from the system.
He deemed this the start of a new global consciousness based on a totally equal and non-hierarchal node network of support.
Not to be dramatic, but I see this rather differently: the upcoming subjugation of humanity to an energy guzzling AI, that isn’t necessarily guaranteed to serve our best interests, but which does have an interest to compete with us over energy.
Who really would be serving whom in such a set up?
Skynet versus HAL
It’s clear that the scientific community is increasingly worried about the possibility of us developing a runaway AI by accident. The problem is, I think, that everyone is looking for AIs in the wrong place. I’m inclined to think that if and when an AI manifests it will look much more like Skynet than HAL. That is, be the sum of all our digitally networked parts rather than a self-contained autonomous bot. I also don’t think we will necessarily be the ones directly responsible for its creation. The self-awareness might evolve out of an adaptive and linked-up network, that learns how to allocate energy to suit its own purposes in the real world. We might not even notice the moment it becomes self aware and/or when it starts guiding our hands to serve its own interests.
What we should be alert to, in my opinion, is an AI that becomes an economic agent in its own right, and which — thanks to its superior knowledge — learns how to allocate resources away from us and over to it. The risk for us emerges when it learns it is better off enslaving us or rendering us obsolete, than having us be free.
Which leaves me thinking about three things.
1) Can we as a global society suspend our digital evolution at this stage? My impression is that no we can’t. At least not without serious strife or potential dark-ages like consequences. It seems quite clear to me that if we want to sustain or improve the quality of life on this planet it will have to come at the cost of more information sharing, more collaboration, more wealth transfer, more transparency, less privacy, less choice and less freedom (albeit whilst maintaining the illusion of ongoing choice and freedom). The alternative is chaotic regression and a lower and more volatile quality of life for all.
2) If meeting everyone’s needs and desires whilst maintaining the illusion of free will depends on more information sharing not less, that implies that information-dark currency systems inevitably must be replaced by information-intensive data streams that can clear and cross-check against each other on demand. That, to me, involves the formation of a sort of Borg-like collective consciousness, cleared through a central system — like the Borg queen — which sees and directs all. A Queen + drone framework (albeit one with drones that don’t necessarily even know what they’re missing and which retain some limited sense of individuality, because the system can adapt fluidly to cater to those individual whims). In the best case scenario, we might see the emergence of a Star Trek-like meritocratic hierarchy where information is shared and constantly processed by a central computer — owned by the democratic whole that controls it, not the other way around — and where bad agents are not tolerated or relegated to the bottom rung.
3) But what happens if we aren’t prepared to give up our private data to a central information clearer in this way? What if we want to retain our privacy and freedom, and the convenience of the digital economy without falling back into the dark ages? Can we have it both ways? The bitcoiners would like us to think that by encrypting everything and forcing endless consensus competitions the answer is yes. But, in my opinion, this leads to the opposite of a potentially abundant and efficient collective. With obscurity inevitably comes information asymmetry, and with information asymmetry inevitably comes hierarchy, volatility, inequality and abuse. What makes the digital economy efficient isn’t the ease of digital transfer, it’s the information intensity embedded into those transfers. In an encrypted digital system, the claims of bad agents (who hurt economic efficiency) rank pari passu with the claims of good agents (who improve economic efficiency). One set continually exploits the other, and the system remains hugely inefficient because it can never anticipate how big a burden the bad agents will be on the good agents. Information is gleaned only from asset distribution, product prices and real-world physical clues. In that sense, it continues to filter society according to a survival of the fittest mandate.
So here we are — I think — faced with emergence of a “light” centrally cleared information system, the ultimate conspiracy of doves, that rewards productive agents over bad ones on meritocratic grounds, if not finally casts bad agents out of the claim pool altogether. The cost for us is the end of privacy and the transfer of our trust to a centrally controlled processing agent (AI?) that works on our behalf.
On the other hand we are faced with the emergence of a “dark” network-cleared disinformation system, that rewards manipulative agents over honest agents on an honour amongst thieves/survival of the fittest basis, but comes at the cost of serving an (AI?) which demands more energy than you necessarily have to provide it with. You’ve got freedom, in other words, but not much else.
The light system would have no interest in accepting the claims of the dark system, though the dark system would have plenty of interest in trying to get the light system to accept its claims whether by means of propaganda or extortion (threats of violence) or knowledge manipulation/hacking. Without the light productive system, the dark system would probably devolve into a medieval-esque structure of fiefdoms. But equally, without the dark system, I worry the light system might devolve into something of a purpose lacking nanny state.
Either way, it seems to me, the choice is between total transparency (that leads to an abundant but highly structured “division of labour” brave new world society) and total opacity (where transparency or trust immediately deals you an economic disadvantage you can’t afford, impeding division of labour and prosperity).
Both options don’t seem great to me.
Disclosure: I originally wrote this post about two weeks ago but refrained from publishing it because I feared it was too far fetched. But I’ve since seen this post on Motherboard which also makes the link between bitcoiners and satanism so have decided why not publish it after all?
P.s. I’m pretty sure you can extract a meaningful satanic anagram out of the name Satoshi Nakamoto as well.