Hash Rate - Ep 121 - James Altucher TAOx

This episode draws a direct line from the early internet and Bitcoin to today's decentralized AI landscape, arguing that Bittensor (TAO) represents a similar, once-in-a-generation inflection point for investors and developers.

Introduction: The Harbinger Thesis

• Host Mark Jeffrey introduces James Altucher, who is now involved with TAO Synergies (TAOX), a company holding TAO in its treasury, similar to MicroStrategy's Bitcoin strategy.
• Altucher's company recently announced a $10 million purchase of TAO. He is quoted comparing decentralized AI and TAO to the internet in 1996 or Bitcoin in 2013, suggesting a massive, early-stage opportunity.
• Mark Jeffrey frames Altucher as a "harbinger," someone whose presence in a space often signals a significant technological or financial shift, based on his history of being early to major trends.

A History of Being Early: From the 90s Web to Crypto

• James Altucher details his background, which combines a deep history in computer science with a career as a writer of "narrative non-fiction." This unique blend of technical and storytelling skills informs his perspective.
• He was one of the first web developers in New York City in the early 1990s, building websites for major corporations like American Express and HBO when very few people understood the technology.
• Altucher emphasizes that the web's commercial potential was not obvious at the time. "I really wanted it and liked it as an artistic medium... nobody knew it was going to be this commercial thing." This experience of seeing a non-commercial, academic technology transform into a global commercial force is a core theme he applies to today's AI landscape.

The Dot-Com Bubble: A Cycle of Boom, Bust, and Lessons Learned

• Altucher recounts his personal story of building and selling his web development company, making $15 million, and then losing it all during the dot-com bust.
• He candidly describes this period as a "sickness" and a "brain disorder," now commonly known as being a "Degen." This experience taught him the three critical skills of money: making it, keeping it, and growing it.
• The period from 2000-2005 was marked by deep pessimism, where the internet's future felt uncertain. This historical context is crucial for understanding the sentiment cycles that new technologies face.

The Tipping Point: Reaching a Billion Users

• Altucher identifies 2005 as the internet's tipping point, the year it reached one billion global users, making online commerce and social media viable at scale.
• He draws a direct parallel to the crypto market, noting its growth from 200-300 million users two years ago to approximately 500 million today.
• Strategic Implication: This user growth trajectory suggests crypto is approaching its own "tipping point," where network effects accelerate dramatically, similar to the internet in the mid-2000s.

First Encounter with Bitcoin and the Power of Decentralization

• Altucher initially dismissed Bitcoin as a Ponzi scheme, comparing it to Flooz, a failed centralized digital currency from the 1990s. His perspective shifted after a deep-dive conversation with Naval Ravikant in 2013.
• This conversation revealed the critical difference: decentralization. Understanding this concept turned him into a Bitcoin evangelist.
• He famously promoted his book Choose Yourself by creating a Bitcoin-only store, selling 60 copies for one-tenth of a Bitcoin each—a price that would be over $6,000 today.

The "Crypto Genius" and Main Street Adoption

• Altucher discusses the controversial "Crypto Genius" ads from 2017-2018, which, despite his personal dislike for them, were a strategic effort to explain crypto to a mainstream audience.
• He argues that for crypto to achieve widespread adoption, its concepts must be simplified. "You can't go around talking about smart contracts and blockchain. No one knows what that means. It doesn't make any sense to people."
• This experience highlights a persistent challenge in the crypto space: bridging the gap between technical complexity and mainstream understanding, a challenge Bittensor also faces.

Bittensor (TAO): The Next Evolutionary Step

• After focusing on Bitcoin and Ethereum, Altucher identified Bittensor in 2023, recommending TAO to his subscribers at around $49.
• He was drawn to its whitepaper, which outlined a brilliant incentive mechanism for creating and improving AI models.
• Bittensor (TAO) is a decentralized network that incentivizes participants to contribute to the development and operation of artificial intelligence models. It functions as a marketplace for AI, where value is distributed via its native token, TAO.

The "Front Door" Problem: Bittensor's Usability Gap

• Altucher and Jeffrey agree that while Bittensor's technology is powerful, it lacks user-friendly "front doors" or interfaces, making it inaccessible to non-technical users like a dentist who might want to create a custom AI persona.
• Subnets, which are specialized networks within Bittensor that focus on specific AI tasks (e.g., image generation, data labeling), often require technical knowledge to use.
• Actionable Insight: This usability gap presents a major opportunity for entrepreneurs. Building consumer-friendly or corporate-facing front ends for valuable subnets could be a "Red Hat for Bittensor" moment, creating highly successful businesses that bridge the technical divide.

The Incentive Challenge and The "Bitter Lesson"

• Altucher raises a critical point about incentives: Bittensor subnets must compete with the massive compensation packages offered by Big Tech. He argues that simply having a token is not enough; subnets need to design compelling, business-savvy incentive structures.
• Jeffrey counters with "the bitter lesson," a concept suggesting that raw compute power (GPU) is often more important than clever engineering. Bittensor is already motivating 10% of the GPU capacity of Elon Musk's first major data center, despite being in its infancy.
• Strategic Implication: If the "bitter lesson" holds true, Bittensor's ability to aggregate a decentralized global network of GPUs could give it a decisive, long-term advantage over centralized competitors, much like Bitcoin's hash rate dominates centralized systems.

Subnet Tokenomics: The Critical Question

• The discussion dives into the complex valuation of subnet tokens. These tokens are not equity, and their value proposition is still evolving.
• A key challenge is the high emission rate (dilution) of new subnet tokens versus the current revenue generated by the subnets. For example, a subnet might have $10,000 in monthly revenue but $500,000 in monthly token emissions.
• Strategic Consideration for Researchers: The long-term success of the Bittensor ecosystem hinges on subnets developing sustainable token models. Investors must perform VC-style due diligence to identify which subnets are creating real utility and value accrual for their tokens, such as through revenue-based buybacks.

The Trillion-Dollar Potential of Composable AI

• A powerful use case is explored: a group of doctors could use one subnet (like ReadyAI) to structure a million handwritten patient records and another subnet to train a diagnostic AI model on that data.
• This process on Bittensor could be 1/100th to 1/200th the cost of using centralized services like Scale AI and OpenAI, without requiring massive upfront investment.
• "If I can develop an AI company based on using these subnets of Bittensor... I think Bittensor has a trillion-dollar value. I mean, it flips Bitcoin even," states Altucher.

The TAO Halving and Supply Shock

• The upcoming TAO halving on December 10, 2024, is identified as a major catalyst. This event will cut the daily supply of new TAO tokens in half.
• With 80-90% of TAO already staked and a built-in demand from subnets (which need TAO to operate), the reduction in supply is expected to have a significant upward effect on price.
• Unlike Bitcoin miners who often must sell to cover electricity costs, Bittensor miners have fewer immediate pressures to sell, potentially constricting the available supply even further.

Bittensor's Moat: Why a Competitor is Unlikely

• Altucher argues that Bittensor has a powerful moat built on network effects, making it difficult for a VC-backed competitor to replicate.
• Unlike a Layer-1 blockchain like Solana, Bittensor is a "network of networks." A competitor would need to replicate not just the core technology but also the entire ecosystem of 128+ subnets and their respective users and developers.
• This is protected by Reed's Law, an exponential version of Metcalfe's Law, which states that the value of a network that supports group formation (like Bittensor's subnets) scales exponentially with the number of users.

Conclusion

This episode frames Bittensor as a paradigm shift akin to the early internet, not just another crypto asset. For investors, the key takeaway is the powerful combination of a network-effect moat and a looming supply shock. Researchers should focus on the evolving subnet incentive models and the critical usability gaps.