TiB 161: Crypto vs the state; war and semiconductors; talent investing and institution building; and more...

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China, Taiwan and global semiconductor dependency

If you were going to write a geopolitical thriller, a good plot device would be to have world be economically dependent on an industry with half its production capacity on an island whose contested sovereignty is the primary fault line in the tense relationship between two global superpowers. And, of course, as we've discussed several times before (e.g. TiB 115, 134, 158), this is exactly the situation in real life: global semiconductor production is centred in Taiwan, which is the object of escalating aggression from China (see also TiB 136 on Taiwan and tail risk).

Jon Stokes has a superb new piece that "war games" some scenarios for semiconductors and the global economy if China invaded Taiwan. Unsurprisingly, the results are not pretty, for anyone. It's one of the best explanations of the complexity and interconnectedness of the semi conductor industry: on the one hand, the US and its allies would not be able to replace capacity for years; on the other, TSMC's fabs would be unusable without critical inputs from the West (One reason ASML is Europe's most valuable tech company - trading at €220bn today! - despite its low profile)

Stokes' piece is one of the best illustrations of the stark differences between the world of atoms and the world of bits. Media coverage of technology tends to focus on the world of software, where everything can be virtualised and all messiness abstracted. But in reality every layer of the tech industry - and increasingly the economy overall - is deeply reliant on the unavoidably physical, complex and non-fungible operations of the chip industry. I think often of Dan Wang on this topic (see TiB 109 for more). Joe Biden wants to "tame" the semiconductor supply chain; it will be no easy task.

Crypto and the enduring power of politics

Between Coinbase's $100bn public listing and the strange (and short lived?) rise of Dogecoin, crypto's mindshare is probably at an all-time high. Bruno Maçães (an always-interesting thinker whose work we discussed in TiB 135) wrote a short post on "cryptopolitics" this week, which led me to go back and re-read his excellent essay from last year on the "crypto state". In that piece, Maçães considers the possibility that cryptocurrencies could enable a new kind of sovereign organisations - ones that could coexist with, or even replace, nation states.

The idea is that blockchains enable social coordination without central authorities. Crucially, this coordination is invisible to - and so not taxable by - traditional states. This, the argument goes, will gradually bleed states of resources and power. It's an interesting provocation, but I'm skeptical. First, as discussed above, the world remains stubbornly physical. As a result, many types of power remain surprisingly rooted in old-fashioned territorial control. As the Jon Stokes article linked above shows, states have an arsenal of ways to use this power against their enemies.

Second, there's no way for would-be Sovereign Individuals* to opt out of politics. As we discussed in TiB 106, everyone is "dangling at the end of a supply chain" that is subject to real-world politics, however rich or powerful they are. Finally, as Vitalik Buterin argued in this great post (discussed in TiB 158) even blockchains are subject to the constraint of legitimacy - an inherently political concept not easily reduced to mathematics. Some might wish it away, but I suspect the state will prove to be very resilient.

*This book on the politics of technology is popular in some tech circles, but highly overrated in my view. I keep meaning to get round to reviewing it properly...

TiB podcast episode: Alice Bentinck on talent investing

The latest TiB podcast episode is a conversation with my Entrepreneur First (EF) co-founder, Alice Bentinck. We've recorded podcasts before, but this covers lots of topics through a TiB-tinted lens that I don't think we've talked about in public before. Alice is the brain behind a lot of EF's most important elements, so if you want a great macro perspective on what I do in my day job and why we think it's important for the future of innovation and the world, this is a good place to start.

As this week's TiB has (inadvertently) taken on a "physical world vs virtual world" theme, I'd highlight the final segment of the conversation (it starts around 58 mins in), in which we discuss the impact of the pandemic on EF's talent investing process. In normal times, we immerse founders in small, in-person communities to enable them to select a co-founder. We found that going virtual had no negative effect on access to talent - applications were up over 80% year-on-year - but it made team building and relationship testing harder (Alice makes the analogy with online dating - see here for more)

We cover lots of other ground, including:

Whether McKinsey is a good training ground for founders
The role of network density in ecosystem building
The relationship between chaos and growth in startups
What great founders look like before they're founders

I hope you enjoy listening.

Quick links

Groundhog Anthropocene? Could there have been an industrial civilisation on earth, millions of years before humans? Is there any way to know?
Make no small plans. Fascinating MIT course syllabus on "The Great Problems".
What is it like to blame a bat? Great thread on the "internet sleuths" tracking down the origins of COVID-19.
WTF happened in 1970, continued. Nuclear power construction costs soared (see TiB 114 for more).
Everybody hurts. Thinking is so unpleasant that people would rather be (literally) burned than do it, study suggests.

The bit at the end...

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Until next week,

Matt Clifford

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