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Carbon based business runs on the stupidity tax

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Silicon based business runs on the laws of physics

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Someone said this one line

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The carbon based business model basically runs on the stupidity tax

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The silicon based business model runs purely on hard core capability

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I froze for about three seconds after hearing it

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Then I realized

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Of everything I have heard this year

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this may be the sharpest verdict on the AI economy

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Hello

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everyone

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I am Leo Wang

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Today I want to take that sentence apart

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and rebuild it from first principles

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Let us look at

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why business laws in the carbon world are essentially social science

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while business laws in the silicon world

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are converging on the laws of physics

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Start with carbon based business

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What is carbon based business

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It is every economic activity where humans produce humans consume

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and humans make the decisions

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The human economy has run for thousands of years

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and we invented countless business theories

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From Adam Smith and the invisible hand

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to Porter and the five forces

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to Drucker on management

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to Kotler on marketing

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These theories all share one trait

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Can you guess what it is

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Every one of them can be manipulated by narrative

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Note

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I am not saying they are wrong

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I am saying

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they are social science

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What defines social science

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The subject changes its behavior once it learns the conclusion

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Physics does not care that you know the law of gravity

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the apple still falls

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Economics is different

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Once everyone knows an economic law

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the law itself stops working

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This is called reflexivity

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Soros made a lifetime of money on it

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So what is the underlying logic of carbon based business

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It is information asymmetry

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It is the limits of human cognition

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It is emotion

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It is narrative

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It is public relations

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It is branding

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It is that line from The Art of War

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all warfare is based on deception

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You do not need to actually be stronger than your rival

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you only need the market to believe you are

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I have done angel investing for fifteen years

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and backed more than three hundred projects

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I can tell you very frankly

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in the world of carbon based investing

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whether a project raises money

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the founder storytelling ability carries at least fifty percent of the weight

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Same product

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same numbers

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one founder tells it and investors catch fire

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another tells it and the room falls asleep

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The first gets a ten times valuation

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the second gets no calls back

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This is not the exception

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this is the norm

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Why

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Because the core asset in carbon based investing is people

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and people are creatures that narrative can reprogram

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When an investor judges whether a founder will succeed

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what he is really judging is

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whether this person can keep convincing other people

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Convince customers to pay

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convince employees to work late

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convince the next round of investors to take the handoff

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The fuel under that whole chain is not physical efficiency

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it is human belief

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But

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silicon based business does not work this way at all

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What is silicon based business

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It is economic activity where AI models are the core productive force

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In that world

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the rules of the game change fundamentally

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Let me tell you exactly where

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First hard constraint

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compute

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To train a frontier model

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how many GPUs do you need

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how many floating point operations

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That can be calculated exactly

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No story doubles the compute inside an Nvidia chip

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Second hard constraint

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energy

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How many kilowatt hours does a data center burn each day

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and what does each one cost

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That is a hard cost in the physical world

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The second law of thermodynamics tells us

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erasing information must produce heat

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Landauer principle puts it more precisely

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every bit you erase

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costs at minimum an energy proportional to absolute temperature

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That is the floor set by the universe

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and no PR firm can rewrite it

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Third hard constraint

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information entropy

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How much useful knowledge has a model actually learned

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how much real world causality is encoded in its parameters

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That is not something a launch event can talk into existence

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For a large language model

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intelligence is compression

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how much information can you compress into how few parameters

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without the output quality collapsing

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That is a math problem

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not a marketing problem

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So what does competition in silicon based business become

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It becomes who can use less energy less compute

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less data and still output higher quality intelligence

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This is not about who tells the better story

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it is about who can solve the physics

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Let me give you a real example

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Three years ago

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calling the strongest model available

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cost twenty dollars per million tokens

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Today

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a model of the same capability costs a few cents

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A few hundred times cheaper in three years

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That pace

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leaves Moore law far behind

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Why can it fall that fast

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Three reasons

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First

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algorithmic efficiency is improving fast

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small models now do what only giant models could do three years ago

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Second

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hardware iteration

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each new chip generation doubles performance per watt

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Third

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knowledge distillation

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the ability of a big model can be compressed into a small one

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Notice

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that among those three reasons

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none of them is we held a wildly successful launch event

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none of them is we hired a brilliant PR team

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none of them is our investors have great connections

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That is the deepest difference between the carbon economy and the silicon economy

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In the carbon economy

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your moat can be a brand it can be distribution

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it can be political ties it can be an information monopoly

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All of those are social constructs

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their value depends on people believing they have value

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Once the narrative collapses

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the moat can run dry overnight

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In the silicon economy

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there is only one kind of moat

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being closer to the limit of physical efficiency than anyone else

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Your model spends fewer operations per million tokens

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your data center gets more inferences per kilowatt hour

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your training pipeline wastes ten percent less compute than the next guy

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A rival throwing a dazzling launch event

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does not make those advantages disappear

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So carbon based investing and silicon based investing

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are two completely different games

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Carbon investing is full of PR mysticism and The Art of War

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You have to read people

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You have to predict narrative

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You have to bet on whether the story will land with the market

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The best carbon based investors are superb psychologists and sociologists

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And silicon based investing

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It is converging on first principles and ontology

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What you judge is no longer

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whether this founder can hustle the next round

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but whether the technical path of this team

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is evolving toward the physical limit

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The questions you have to ask are

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can their cost per token keep falling

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does their model architecture

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approach the information theoretic lower bound on efficiency

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is their hardware roadmap moving toward the Landauer limit

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This is like going from astrology to celestial mechanics

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Both predict where the stars will be

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but one runs on narrative and faith

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the other runs on the equations of gravity

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This jump from social science to natural science

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has happened more than once in human history

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The moment alchemy became chemistry

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what actually happened

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People finally admitted

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that matter obeys conservation laws

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You cannot chant lead into gold

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Before that

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what was the core competence of an alchemist

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Mystical narrative

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patron relationships

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and the skill of packaging failure as one step away

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Does that sound like the fundraising pitch of certain startups today

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Navigation went the same way

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Before precise astronomy and a way to measure longitude

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ocean voyages ran on experience on instinct on luck

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Whichever captain told the more convincing story

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raised more money for the expedition

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But once John Harrison built the marine chronometer

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navigation turned from a gamble into an exact science

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The old sailors who lived on my instincts are sharp

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lost their bargaining power overnight

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AI is doing the same thing to the whole business world

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It is taking a domain once full of ambiguity

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one that ran on judgment and connections

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and turning it into a precisely measurable efficiency race

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But let me stress one thing

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I am not saying carbon based business is about to disappear

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Quite the opposite

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During the transition

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the most interesting opportunities sit right where the two worlds meet

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People who understand both carbon narrative logic and silicon physics logic

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will become the translators

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They can take a breakthrough in physical efficiency

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and translate it into a story capital markets understand

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and they can see through the froth of a story to the physics underneath

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It is like the early industrial revolution in the nineteenth century

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The most successful entrepreneurs were not pure physicists

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and not pure financiers

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they were the ones who could take a gain in steam engine efficiency

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and translate it into a railway stock growth story

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They used carbon language to price silicon efficiency

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Let me push this logic one step further

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What is the core assumption of carbon economics

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That people are rational

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And we all know that assumption is wrong

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People are not rational

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which is why we have behavioral economics

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why we have prospect theory

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why we study every kind of cognitive bias

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All of carbon economics

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is a patch job built on a false assumption

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And what constrains silicon economics

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Thermodynamics information theory computational complexity

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Those are not assumptions

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they are the source code of the universe

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You cannot argue with the second law of thermodynamics

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You cannot get around the Shannon limit

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You cannot escape the time complexity of computation

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So when someone says

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silicon economics is fundamentally the laws of physics

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that is not a metaphor

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it is a literal description of fact

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So what does this mean for ordinary people like us

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It means one very important thing

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In the carbon world

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you can make money on information gaps

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make money on relationships

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make money on storytelling

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But in the silicon world

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the value of those skills is falling fast

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What does the new world reward

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Whether you can recognize real technical efficiency

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whether you can tell which companies are bluffing

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and which are truly approaching the physical limit

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My biggest lesson from these years of investing is this

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whenever an industry moves from its social science stage

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into its natural science stage

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a whole layer of middlemen living on information gaps and stories gets wiped out

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What did stock analysts in the carbon era live on

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They lived on I know the management team

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I have inside information

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I read market sentiment better than you do

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But when the asset becomes a pure physical efficiency race

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what are those social skills still worth

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This is not to say connections and communication stop mattering

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It is to say

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that in the heartland of the silicon economy

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the variable that decides who wins

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shifts from whose story is better

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to whose physical efficiency is higher

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Storytelling drops from decisive factor to supporting factor

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Put another way

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in the carbon era

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the most valuable department in a company might be marketing

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in the silicon era

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it is certainly the algorithm engineering team

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Because marketing creates perception

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and the algorithm team creates physical efficiency

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Perception can be buried by a rival with a bigger marketing budget

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but a lead in physical efficiency

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can only be caught by an equally deep technical breakthrough

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That is why you see

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the top companies of the silicon era

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looking more and more like research institutes

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and less and less like traditional businesses

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Finally I want to share a deeper observation

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Why does carbon based business run mostly on the stupidity tax

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Because information in the carbon world spreads imperfectly

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The human brain has limited bandwidth

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attention is a scarce resource

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In that environment

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whoever seizes attention

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harvests the value

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That is a business model built on cognitive defects

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And why does the silicon world run on hard capability

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Because AI is not moved by your ads

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and will not pay one cent more for your brand story

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When an AI agent picks which model to call

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it compares the value per token

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the latency

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the accuracy

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It will not choose you because your company name sounds nice

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As more economic decisions move from human brains to AI systems

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the whole standard of judgment in business

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shifts from perceived value to actual performance

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This is a paradigm shift from social science to natural science

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The shift will not finish overnight

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Carbon business and silicon business will coexist for a long time

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but the direction is clear

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the weight is moving

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Over the next ten years

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business models still living purely on information gaps and storytelling

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will be like duckweed with no roots

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standing in the flood of physical law

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harder and harder to hold in place

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I do not know who said it first

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but I think he named a civilization scale variable unfolding right now

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The rules of the carbon world are The Art of War

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The rules of the silicon world are thermodynamics

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The first can be gamed by a brilliant con artist

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the second only rewards those who truly approach the limit

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Which set of rules do you think is fairer

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Or rather

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is fairness itself

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a carbon world concept or a silicon world concept

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Tell me what you think in the comments

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I am curious how you all see this

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I am Leo Wang

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see you next time