Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, time travel, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

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In today’s post: tapping the deflationary power of idle processors; vertically-integrated home cooks; time travel; the tensions of evolving crypto currencies for DeFi; sensors to avoid pedestrian and cycling accidents; a smoother universe; and lots more below...

Stuff about Innovation and Technology
Collision Avoidance Bicycle Tech
A bike equipped with around $500 worth of sensors aims to decrease the ~49,000 injuries and ~900 deaths that occur every year from car-bike collisions. The system, which only works in good weather due to the reliance on lidar, can detect the most common dangerous accidents from up to 30 meters away and sound a horn to alert drivers of the impending crash. At this point, the University of Minnesota engineers that developed the system are looking for a partner to license and productize the invention. More broadly, you could see this reverse detection technology useful in other applications, perhaps in a backpack for pedestrians or even in cars to honk at older cars that aren’t equipped with automatic braking or other ADAS features. If you are parked on the side of a road or at a light and a car is coming up fast, why not use the existing sensors to warn the oncoming vehicles with a loud honk? Eventually, augmented reality glasses with sensor arrays could help avoid all sorts of bumps, bruises, and accidents.

Ambient Processing
There’s a lot of latent, unused computer processing cycles out there. The server market is around 12M units a year, and, with the average server lasting ~3-5 years at high utilization, there’s probably ~50M servers running globally. That’s a relatively small number compared to the billions of active PCs and laptops, which have less processing power, but tend to be used at most for a third of the day (and, on average, probably less than that). There have been projects in the past that have tapped into this network of bored processors, such as the SETI@home project, which analyzed signals from space (and ended in 2020 after running for two decades), or the ongoing Folding@home for simulating protein dynamics. A lot of gamers fund their passion by using their powerful GPUs to mine cryptocurrency when they aren’t slaying zombies or the like. Last week, antivirus company NortonLifeLock announced that their Norton 360 software will mine Ethereum if users want to take advantage of their excess compute power. The main hitch is the high cost of electricity required for mining; but, even if you can make pennies a day in excess of your electricity costs, it’s going to add up, especially if you multiply that across many processors. Let’s expand this concept beyond laptops and think about all the smart IoT devices out there, like my Camp Chef pellet grill. It’s WiFi connected with a microcontroller and sits there 22-23 hours a day doing nothing (unless it’s time for pulled pork or brisket). Maybe a network of microcontrollers across thermostats, cameras, grills, toasters, etc. could be set up to mine cryptocurrency, fold proteins, or look for aliens in the background 24/7. If more cryptocurrencies move from proof-of-work to the much lighter proof-of-stake carbon footprint (see the end of this week’s note for more on that topic), then background mining would become less of a money maker. However, today, such a considerable excess of machine learning (and other) workloads abound that we can’t even make enough chips to meet demand. An edge mesh of unused processors around the house could become a powerful resource. The broader point here is that utilization of technology can (and almost certainly will) trend higher, expanding the deflationary tailwinds as the world goes digital.

Tomorrow’s Brewing Storm
Twitter is launching a local weather service called “Tomorrow” for $10/mo in fifteen cities in the US. Tomorrow has the lofty – and frankly confusing – mission “to share the joy of being alive”. I haven’t tested out Tomorrow, but I tend to see problems ensue whenever platforms become confused about whether they should also be a publisher that competes with their core content creators (which they should never do!). What are the local weather forecasters, who have worked hard to build up a meaningful local following on Twitter in these markets, thinking? What about other areas of media or content creation – are those creators now worrying Twitter might be coming for them? Maybe this move is a proof-of-concept for Twitter’s new subscription ambitions, but if it’s a broader effort to become a media business, I am skeptical.

Shef’s Solution
Shef is a platform for people to sell home-cooked food. Participants, on average, make $40 an hour compared to the typical restaurant line-cook wage of $13-15. Many states limit the ability to sell food that is not made in a commercially regulated kitchen, but there are bills in the works in 29 states to put homes on more equal footing with businesses. Shef requires food-handling certifications for its chefs. In an economy where restaurants are struggling to attract workers with low wages and no benefits, Shef has a waitlist of 12,000 people who want to cook on the platform. As noted in 2019’s The Evolution of the Meal, the solution for home-delivered food is likely going to require vertical integration, subscriptions, and pre-set delivery routes. It seems like Shef could solve for most of these challenges.

A Feather in Instacart’s Cap
Instacart appears to be contemplating pulling the rip cord to escape its Catch-22 business model. Bloomberg reports the company is considering a major shift away from sending gig-workers to shop at grocery chains and instead begin building its own automated fulfillment centers. As I wrote in #249: “Instacart faces a classic marketplace vs. vertical integration dilemma. The company currently delivers items from grocery stores and other retailers. Ultimately, however, having a delivery middleman adds to the costs, and someone has to foot the bill besides VCs. So, unless consumers are willing to pay more, or unless we see a deeper subsidization of delivery costs from retailers and brands shifting promotion dollars (which would also hurt margins at those same grocery stores Instacart relies on), it’s not a viable long-term model. Instacart could instead begin building their own, tailor-made local grocery fulfillment centers and vertically integrate, but that would surely run off their current grocery store partners. It’s a classic business model Catch-22 without a clear resolution.” The potential Instacart strategy shift is also another sign that technology combined with vertical integration will help offset the inflationary pressures of a structurally lower labor pool. If, and this is a big IF, someone can scale a profitable local delivery business leveraging grocery with purpose-built, centralized, vertically-integrated fulfillment and logistics, they could become one of the only challengers to Amazon long term. Right now, there are no contenders who meet these requirements with any significant scale. For Instacart, this would be an existential pivot – if they were to rapidly lose their brick-and-mortar legacy grocery partners before they can scale up, then it's a black eye they are unlikely to recover from.

Miscellaneous Stuff
Inconsistent Dark Matter Consistency
Dark matter and dark energy are thought to account for 95% of the mass-energy in the Universe. General relativity predicts that dark matter should be lumpy; but, increasingly, results from cosmological observations – such as the Dark Energy Survey (which looked at one quarter of the southern hemisphere of the sky from Earth, encompassing 226M galaxies) – suggest it is surprisingly smoothly distributed. There is still much we don’t know, since we cannot observe dark matter directly, but, if other explanations can’t be found, then perhaps some revisions to general relativity might be in order. This would be truly surprising given how well tested relativity is, but clearly there are puzzle pieces about the universe we are still looking for.

What’s Your Favorite Time Travel Movie?
I am (re)watching time travel flicks as I work on a paper about time travel themes and how they relate to investing and decision making. I’ve grouped them into a few categories, like: time traveling teams, unintended consequences, slowing down or speeding up time, the devastating consequences of general relativity, time loops, the mental fog of time shifting, changing destiny, and regret remediation (which never works – see unintended consequences!). Some of my favorites in no particular order: Time Trap, Primer, Time Freak, Time Lapse, Project Almanac, Frequently Asked Questions About Time Travel, 12 Monkeys, Donnie Darko, Timecrimes, Your Name, Interstellar, Flight of the Navigator, The Map of Tiny Perfect Things, Midnight in Paris, Source Code, Groundhog Day, The Endless, and, of course, the classic Bill & Ted and Back to the Future trilogies. If you have any favorites time-related flicks, reply back to this email and let me know. And, speaking of time travel, a new US government report on UFO sightings concludes the crafts are not alien, but also not from any known Earthly origins. So, it seems clear these unidentified flying objects have been sent back by humans from the future, right? 😏

Stuff about Geopolitics, Economics, and the Finance Industry
Evolving Ethereum
I am a longtime interested blockchain observer, always trying to understand the potential for new technologies. Ethereum is a lead contender for decentralized financial services on the blockchain, referred to as DeFi. For example, you can start your own DeFi bank as Marc Rubinstein's recently chronicled in his Net Interest newsletter. It's seems obvious, but it's worth stating that DeFi is fascinating because the assets are decentralized. Instead of a small number of banks with large balance sheets, you have a large number of individuals with relatively smaller holdings. There are some big changes coming to Ethereum, and Vitalik Buterin, inventor and co-founder of Ethereum, was on Lex Fridman’s podcast to explain it all last week. If you want the condensed version: the theory is that forthcoming Ethereum changes should eliminate most of the network’s carbon footprint and dramatically increase the frequency of transactions, potentially enabling them to handle more routine, daily transactions like a credit card or online payment network. But, it’s a complex system and any potential forking of the protocol could produce unexpected outcomes. Below is a longer description from the NZS team of the changes and tensions that might arise as Ethereum evolves.

There are two upcoming changes to the Ethereum protocol that may profoundly change the network itself and its infrastructure support layer. The first is EIP-1559, which is a protocol update expected in mid-July. To transact on the Ethereum network, users have to pay a “gas” fee (currently running around $8) to make a change to the Ethereum blockchain. Currently, 100% of gas fees are redistributed to the Ethereum miners who write the transactions to the blockchain via proof-of-work (PoW) protocol. After EIP-1559, the system will shift to roughly 30% of gas fees being distributed to miners, with the other 70% being “burned”, or removed from the network. Thus, we are on the verge of seeing two knock-on effects that could limit Ethereum's supply: less distribution of gas to miners (which will provide less incentive to mine for ETH awards), and removal (“burn”) of ETH from the network. The latter driver could end up looking like a share buyback and will potentially start to reduce the growth of ETH in circulation (as was explained on this episode of the Hidden Forces podcast). Buterin explained on Lex’s podcast that currently 4% of the total ETH supply goes to miners every year. July's slated mining disincentives, combined with the long awaited shift away from mining to proof-of-stake (PoS), should see new issuances drop from 4.7M ETH a year to between 500k-1M (on a current base of 115M).

The migration from PoW to PoS, the second upcoming protocol change, is expected in early 2022 and will transition the burden of validating transactions in the Ethereum blockchain off power-hungry GPUs. Instead of miners using high-powered, expensive hardware, transactions will be added to the blockchain by ETH-holding “validators” who will have to “stake” their tokens to ensure good behavior (i.e., if they attempt to attack or subvert the blockchain, they risk losing their staked ETH), with creation of new blocks occurring via a relatively straightforward mechanism that can be performed on standard equipment. (And, the relative ease of PoS validation is more aligned with the reduced ETH awards imposed by EIP-1559). PoS will also enable new “sharding” and “rollup” protocols to increase transactions per second from 30 to 100,000. Another way to think about this effort to increase scalability is layer one and layer two: in layer one, Ethereum is trying to make the blockchain more capable of processing a higher frequency of transactions, while in layer two, new protocols can sit on top of the blockchain to accomplish a variety of transactions. This full combination of new features for Eth2 might not be complete until late 2022.

With the move off GPUs, the Ethereum network will also dramatically reduce its carbon footprint. This post on the Ethereum Blog argues that the energy usage from Ethereum will be cut 99.95% after the shift to PoS, and the entire network will use a similar amount of electricity as a small town (~2100 homes). The shift to PoS will put Ethereum in stark contrast to Bitcoin, which also relies on a PoW construct. Globally, Bitcoin mining uses a similar amount of electricity as a small country.

A byproduct of these two changes to the Ethereum protocol should be some relief for frustrated gamers, who have been largely kept out of the market because of demand for GPUs for ETH mining. Gaming GPUs have been selling for multiples of MSRP through third parties for most of this year. However, if the miners were to successfully fork the currency (and thus keep PoW alive) as CoreWeave’s CTO recently commented in this Odd Lots podcast, then demand for GPUs could remain high. Given the massive investment around the world in mining and the wave of DeFi startups, it will be interesting to see the tensions play out between miners and entrepreneurs as protocols like Ethereum evolve.

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Disclaimers:

The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC.  This newsletter is simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

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