August 23, 2023
Lyn Alden is one of my favorite investment analysts. I highly recommend her.
In her free August newsletter https://www.lynalden.com/august-2023-newsletter/, she delves into the multifaceted realm of Artificial Intelligence (AI), comprehensively exploring its impact and implications.
Positioned between the polarizing perspectives on AI, Alden approaches the topic with a balanced viewpoint of the kind I see from McKinsey & Co., but not often from Wall Street. In this article, she astutely acknowledges the significant strides made in AI, highlighting its economic significance as it matures and permeates various sectors. However, she aptly emphasizes the inherent challenges in predicting the trajectory of exponential technologies like AI, advocating for a nuanced approach that prioritizes informed inquiry and exploration.
The article discusses several themes, each shedding light on a distinct facet of the AI landscape:
Theme 1: Technology Through Step-Change
Alden discusses the nature of technological development as a series of overlapping step-changes rather than a smooth exponential progression. Breakthroughs lead to technological booms that eventually hit limitations until the next breakthrough emerges. This cyclic pattern explains why science fiction predictions often don’t align with real-world progress. Alden highlights historical examples such as the Industrial Revolution fueled by energy sources like coal and oil, medical advancements, flight technology, and the impact of electricity and semiconductors.
She applies this concept to AI, stating that AI has experienced incremental advances but recently reached a tipping point where it can be broadly applied to various software tasks, significantly impacting work processes. This step-change in AI’s capabilities parallels past breakthroughs in other industries.
In summary, this theme discusses the varying perspectives on AI, the challenges of predicting its future, and the importance of understanding technological development as a series of step-changes. She uses historical examples to illustrate how breakthroughs can reshape industries and suggests that AI’s recent broad commercial relevance represents a similar transformation in the technology’s capabilities.
Theme 2: Theme 2: 10x Accessibility
Alden discusses the concept of making products “10x more accessible” with the help of AI. She uses the example of Adobe Photoshop, a complex program that requires time to master. She highlights how generative AI is incorporated into Photoshop to allow users to make significant changes using simple text-based commands. This form of AI assistance enhances productivity and reduces the learning curve, making creative applications more accessible to a broader range of users. Alden acknowledges the potential pessimistic outcome of job displacement due to AI-enabled creators. Still, she also suggests that lowering barriers to entry could increase the overall demand and usage of creator applications.
Theme 3: Flip the Question Upside Down
Alden emphasizes the importance of considering which industries and sectors AI might disrupt and identifying areas that will benefit from it. She notes that legacy white-collar businesses and repetitive tasks could be particularly vulnerable to disruption by AI-driven automation. She suggests that physical materials and energy industries might experience slower change due to robotics’ inherent limitations and the physical world’s complex nature.
Theme 4: A World Where Nobody Knows What’s Going On
Alden delves into the potential risks associated with AI’s increasing complexity. She explains that while traditional software written by humans is generally understandable, machine learning algorithms can become so intricate that humans no longer fully comprehend their operations. Alden raises the issue of AI-driven hacking, envisioning a scenario where AI-optimized hackers exploit vulnerabilities in software systems. She suggests that AI-based defenders may become necessary to counteract these hacking attempts, leading to a constant battle of AI against AI in cyberspace. She touches on themes such as AI’s role in making products more accessible, the potential disruption of various industries, and the challenges posed by AI complexity in areas like cybersecurity. Her insightful analysis sheds light on the multifaceted implications of AI across different domains of society.
Theme 5: Inflation is a Spectrum
Alden examines how inflation manifests across different sectors due to the interplay of technological advancements and monetary policies. She points out that the combination of offshoring and automation in manufacturing has driven down the cost of goods like electronics, textiles, and plastics. On the other hand, services and energy-intensive assets have experienced more significant price inflation. Alden predicts that AI will contribute to deflationary pressures in service sectors as it enhances productivity and efficiency. However, she notes that the money supply growth will likely persist due to existing debt levels and the financial system’s structure.
Theme 6: The Intersection of AI and Bitcoin
Alden delves into the convergence of AI and Bitcoin, particularly in financial transactions. She discusses the suitability of Bitcoin, specifically through the Lightning Network, for enabling payments in AI-related contexts. She presents a scenario where AI agents use Lightning to conduct micropayments for various tasks and services. She highlights that the Lightning Network’s attributes, such as microtransaction capability, permissionless nature, and programmability, make it conducive for AI agents to engage in seamless, real-time transactions.
Theme 6B): Proof-of-Work as Spam Prevention.
This part of the article demonstrates how AI’s impact on inflation and its intersection with Bitcoin’s technological infrastructure has multifaceted implications for various aspects of the economy and technology landscape.
Alden discusses the challenge posed by AI-generated content, making distinguishing between genuine and fake information, such as images, videos, and texts, increasingly difficult. She addresses concerns about the potential rise of convincing AI-powered bots that flood online platforms, promoting ideas, impersonating individuals, and contributing to spam. Alden explores two contrasting approaches to address this issue:
- Enforcing Identity Checks: Alden acknowledges that social media platforms could require users to verify their identities during sign-up, deterring bots and fake accounts. However, she points out that this approach risks compromising anonymity and freedom of expression, especially in cases where individuals rely on pseudonyms due to their profession or where certain speech is restricted.
- Proof-of-Continuity and Proof-of-Work: Alden proposes utilizing concepts from the Bitcoin blockchain to combat spam and differentiate genuine content from forgeries. She discusses the potential of implementing a system where users pay a small amount of cryptocurrency, like Bitcoin, to post or interact, which would serve as a proof-of-work to prevent spam. Additionally, she suggests a more advanced version where individuals and organizations embed their public keys into the Bitcoin blockchain to establish the authenticity and integrity of digital content.
Alden adeptly dissects the intricate interplay among AI, technology, economics, and society in her article. She provides readers with a thorough grasp of the multifaceted AI landscape through insightful analyses and pragmatic viewpoints. Importantly, she underscores the need for adaptable approaches to navigate the AI-driven future effectively. As the boundaries between reality and deception blur, distinguishing between authenticity and manipulation becomes an imminent challenge.
I consider Lyn Alden, an exceptional investment analyst who understands the big picture while providing her subscribers with sound portfolio recommendations and general advice. We need more Free Market Patriots like Alden.