What insights does Schmidt's leaked speech provide for blockchain?

Author: Meng Yan

In recent days, everyone has been discussing Eric Schmidt's speech at Stanford regarding leaks. I find the most thought-provoking part of the entire speech to be the comparison of artificial intelligence to electrification at the end.

Schmidt mentioned that after the emergence of electric motors, it took people thirty years to realize the fundamental transformation brought about by this technology. They could create electric motors of various sizes and place them in different locations, thereby decentralizing power.

Since he did not elaborate on this in his speech, I specifically looked up the relevant background. It goes something like this: during the steam engine era, a factory typically had a centralized steam engine power room to provide all the power. To transmit power to various workshops and accommodate different power needs for different processes, factories would usually install a system of overhead shafts for power transmission. The overhead shaft, generally suspended below the factory ceiling, was driven by the centralized steam engine power room and rotated above the machines. The machines below the overhead shaft would then transmit power to the machines through gears and belts, as shown in the diagram below.

Schmidt said that when electric motors first appeared, people merely replaced the original steam engine power center with an electric motor power center, using electric motors to drive the overhead shaft. In other words, they only changed the performance and efficiency of the power transmission system without altering its structure. It was only after thirty years that people gradually realized that electric motors could be made in various sizes and powers, placed close to machines and equipment, allowing electricity to run instead of mechanical power. This was the correct way to utilize electric power. Schmidt believes that the shift of electric power towards distribution triggered significant organizational innovation, changing the relationships between components, which truly changed the world.

At this point, Schmidt seems to have summarized a process law of technological innovation leading to technological and economic transformation. First, there is a simple efficiency innovation, replacing key components without modifying the structure. Then, structural innovation begins, moving from centralized to decentralized. This structural innovation then triggers organizational innovation, leading to a tremendous increase in productivity. We might as well call this process the Schmidt Process.

According to the Schmidt Process, AI is still in its early stages and remains quite centralized. In the latter half of the Schmidt stage, the application of AI will, like electrification, move towards decentralization. AI models will be widely distributed across various computing corners, collecting data, making decisions, and executing tasks locally. Only at this stage, how long will it take to reach this process? It may not take thirty years, but it might take over ten years.

I can't help but think, if Schmidt is right, then investors currently putting money into AI are truly altruistic.

So what about blockchain?

After reading Schmidt's speech, I feel there are four insights for the blockchain industry.

First, according to Schmidt's thinking, blockchain and Web3 should represent the correct direction.

Essentially, blockchain decentralizes and distributes "sovereign computing" and "trustworthy computing." Sovereign computing ensures complete control over one's digital resources, including identity, data, assets, and computational processes. Trustworthy computing guarantees that the results of computations are fair, reliable, and trustworthy, not subject to malicious tampering or erasure. With these two elements, we can decentralize the critical computations involving monetary value that were previously concentrated in centralized institutions like banks, third-party payment platforms, and social networks into individual smart contracts or ZK programs. Abstractly, this process resembles the electrification phase, where power engines were decentralized from a centralized power room to various locations and devices. Thus, blockchain fully aligns with the Schmidt Process; it should represent the correct direction.

Second, even if it represents the correct direction, achieving real success still requires time. If Schmidt is correct, then the explosive application of blockchain and Web3 should occur before that of AI.

Third, blockchain innovation must still start from solving user problems.

Since the Ethereum killer narrative gained capital attention in 2017, the most highly valued and focused innovative projects in blockchain have generally started from solving the problems of blockchain professionals themselves, forming a rather dogmatic set of beliefs that influence the valuations in both primary and secondary markets. Everyone talks about grand infrastructure stories, detached from users, and the more such projects are pursued, the more they are favored in primary and secondary markets, while user-centric projects go unnoticed and unheard. It's like boasting about how amazing an electric motor can be, discussing its potential stock price, etc., without ever talking about what the motor will actually do—whether it will drive a car, drill, or power a hard drive.

The worst consequence is that after a whole decade, a genuine user base has not been cultivated; the vast majority of participants in this industry are speculators, not real users. Without users, there is no motivation or direction for innovation. This is the main reason why blockchain and Web3 are currently stuck in an innovation dilemma. To break free from this predicament, acquiring and nurturing users is of utmost urgency. Everyone should consider: what problems are users willing to pay to solve that existing internet and social networks cannot or do not solve well, which can be addressed through blockchain? I feel that very few people are thinking about such questions now; most projects are just going in circles around some concepts and dogmas.

Fourth, the ultimate outcome is the token economy. Schmidt emphasized that the driving force behind productivity transformation is organizational innovation. The token economy represents organizational innovation, the reconstruction of relationships between people, and new collaboration mechanisms. It should be said that the token economy directly addresses core issues. What will the endgame of Web3 look like? If it creates a more convenient and freer payment and financial network, that would indeed be remarkable, just as Musk said, that blockchain can solve payment issues is already very useful. However, I believe this is just a foundation and not the most powerful aspect of blockchain. Once the payment and financial networks based on blockchain become widespread, the modes of collaboration between people, between people and AI, and between people and machines, as well as the structure of digital economic organizations and even the social structure of the real world, will undergo fundamental changes. This is essentially the token economy, and this is the endgame of blockchain.