What insights can be gained for the cryptocurrency industry from former Google CEO Schmidt's leaked speech?

Author: Meng Yan, Co-founder of Solv Protocol

Editor's Note: Eric Schmidt served as CEO of Google from 2001 to 2011. Recently, he was invited to a conference at Stanford University's Computer Science Department, where he delivered a speech titled "The Age of AI." Unbeknownst to him, the conference was live-streamed, allowing his remarks to be described as "freewheeling," revealing many insider truths about the AI industry. The video of the speech has since been removed, but a full backup can still be found on GitHub. Meng Yan, co-founder of Solv Protocol, provides an interpretation and analysis of Eric Schmidt's speech from the perspective of blockchain development on X.

Recently, everyone has been discussing Eric Schmidt's leaked speech at Stanford. 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 advent of the electric motor, it took people thirty years to realize the fundamental transformation brought about by this technology, which allowed for the creation of electric motors of various sizes that could be placed in different locations, thus 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. The overhead shaft, which is generally suspended from the ceiling of the factory, is driven by the centralized steam engine power room and rotates above the machines. The machines below the overhead shaft then transmit power to the machines through gears and belts, as shown in the diagram below.

Schmidt said that when the electric motor first appeared, people simply replaced the original steam engine power center with an electric motor power center, using the electric motor 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, according to Schmidt, was the correct way to utilize electric power. He believes that the shift towards distributed electric power led to significant organizational innovation, changing the relationships between components, which truly changed the world.

At this point, Schmidt seems to have summarized a process rule for 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, resulting in 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 become decentralized, similar to electrification. AI models will be widely distributed across various computing corners, collecting data, making decisions, and executing tasks nearby. Only when we reach this stage—how long will it take to get there? Perhaps it won't take thirty years, but it may 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 believe 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 users that the results of computations are fair, reliable, and trustworthy, and cannot be maliciously altered or erased. 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 centralized power rooms to various locations and devices. Thus, blockchain fully aligns with the Schmidt Process and 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 explosion of blockchain and Web3 applications should occur before that of AI.

Third, blockchain innovation must start from solving user problems.

Since the Ethereum killer narrative gained capital attention in 2017, the most valued and focused innovative projects in blockchain have primarily started from solving the problems of blockchain professionals themselves, forming a rather dogmatic set of beliefs that influence valuations in both primary and secondary markets. Many projects discuss grand infrastructure stories detached from users, and the more such projects are pursued in primary and secondary markets, the less attention is given to those that start from the user's perspective. It's akin to boasting about creating an incredible electric motor without ever discussing whether that motor will drive a car, drill, or power a hard drive.

The worst consequence is that after a full decade, a genuine user base has not been cultivated, and the vast majority of participants in this industry are speculators rather than true users. Without users, there is no motivation or direction for innovation. This is the main reason why blockchain and Web3 are currently trapped in an innovation dilemma. To break free from this predicament, acquiring and nurturing users must be a top priority. Everyone should consider: what problems are users willing to pay to solve that existing internet and social networks cannot or do not solve well, and that need to be addressed through blockchain? I feel that very few people are currently contemplating such questions; most projects are merely going in circles around certain concepts and dogmas.

Fourth, the ultimate goal is the token economy. Schmidt emphasized that ultimately, it is organizational innovation that drives productivity transformation. The token economy represents organizational innovation, the reconstruction of relationships between people, and new collaboration mechanisms. It can be said that the token economy directly addresses core issues. What does the endgame of Web3 look like? If it creates a more convenient and freer payment and financial network, that would indeed be remarkable. As Musk said, if blockchain can solve payment issues, that is already very useful. However, I believe this is just a foundation and not the most powerful aspect of blockchain. Once 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 structures of digital economic organizations and even the social structures of the real world, will undergo fundamental changes. This is essentially the token economy, and this is the ultimate goal of blockchain.