AI Is About to Split Society in Two | Zack Shapiro

23:44Zack Shapiro:So that is a... Let's put a pin in that, because that's another really good question, and there's a good answer to that. But, like, start with the question of, like, how does this transition work? So you can see from, like, the leverage models how Bigelaw makes money now. It's the junior associates doing grunt work that's obviously going to be automated. um like the threat to that is that that is going to be automated and like you can't charge for that um the good news is like the clients that are choosing these big law firms even though the invoice that they're paying is mostly junior mid-level associates doing grunt work they don't give a fuck about that that's not why they're hiring the best firms they're hiring it for the other guy they're hiring for the judgment and so the thing that is valuable today that the clients are going to pay a premium for actually is the same thing that's going to be valuable tomorrow just right now you're perversely charging a cost plus model that requires inefficiency to be profitable and so we need to move from cost plus billable hour to value-based pricing of some sort it's a flat fee it's a success fee it's a who knows but like just not what we're doing now and so what the law firms need to do is they need to drive enough productivity that they don't they truly don't need the armies of associates right and you can keep the partner judgment and so at the high end of law i think it'll be more profitable than ever they just need to figure out how to automate enough to make that economically viable.

24:58So is it the kind of thing where they might go from taking 10 to$20 million a year home to taking five to$10 million a year home?

25:05Zack Shapiro:Well, it depends what time frame you're talking about. Maybe in the short term, in the long term, maybe they're taking 100 million home because what they're really being paid for is their judgment. And if their judgment doesn't require months of an army of junior associates do grant work, it requires a prompt into Claude. They can just be way more efficient. They can, yeah, way more efficient, take on way more matters. the value they're adding, their judgment, right? The senior partners are not like sweating all night looking at documents. Like that's not a, it's not a time consuming thing. They are like using their judgment over an army of lawyers that can maybe go away.

25:37Zack Shapiro:And so I actually think this ends up being more profitable at the high end of law and more interesting, not less. Okay. So then what happens to all the people that are doing the grunt work that are coming through that may not need to be there anymore? Yeah. Great question. So, um, I talked about sort of like AI could automate 50 % of all jobs. It could automate 50 % of each jobs. And I think there will be some of both. So in big law, for example, there will be fewer associates. That is what it is. We're already seeing that in tech. There are fewer first-year full-time software engineers. However, the job of the associates that will be around gets much more interesting.

26:13Zack Shapiro:You are managing mechanized intelligence. And when I talk to big law firms about this, you want to recruit for different things. The role of the junior associate becomes different and things like indicia of judgment become much more important. Right now, if you're a top law firm, you're hiring people right out of the best law schools, Harvard, Yale, Stanford, whatever. You're probably looking at what were these people's grades and did they do gold stars like being on the law journal. That is a proxy for intelligence and it's a proxy for you can work hard. Which makes sense now. If your main value add is you can bill hours, being able to understand instructions and being able to work hard is really important.

26:55In the future, that's not really it.

26:58Zack Shapiro:You want commercial savviness. You want high EQ. You want strategic judgment. So for litigators, did you work for a federal judge and watch that person make decisions all day? For corporate lawyers, did you work in a non-lawyer business role in an actual business and understand what the client cares about and what moves the needle? Do you even need to be a lawyer? I think that you will need to be a lawyer. I think there will be a role for lawyers making judgment calls. My own law practice, we're sort of end-to-end on AI. We're about as AI-forward as possible. A lot of my clients are very tech-savvy, cost-conscious startups, and I will have clients sort of try and pre-do legal work with AI and be like, what do you think about this?

27:39And there are all sorts of problems with that, but a non-lawyer is not going to be able to get

27:44Zack Shapiro:the same results from the technology. Law school will still be an important step in this. Like it's not going to displace universities. Yeah. I mean, law school right now doesn't really teach you about the practice of law. It's like a sort of theoretical, philosophical how to be a lawyer or how to think like a lawyer. I'm actually not sure whether like that's not really relevant to how law practices today. Maybe actually will ironically get more relevant with AI, but you need to learn to think the right things, ask the right questions, say the right prompts to AI. And I think some version of being able to think like a lawyer and have those instincts will be important.

28:20Zack Shapiro:And so too in every field. Yeah. And so I still haven't got a full understanding of what you think the workforce looks like in the future then. When you say it's either 50 % of jobs or 50 % of all jobs, what does that mean for the economy, for the broader markets? I think it means much more productivity. I think it means fewer enormous organizations. I think the moat of the biggest firms, right? Like, you know, not just law firms, accounting firms, any big company, like a big part of your moat if you're a big enterprise is you have all of the systems in place to do all of the difficult steps in production.

28:56Zack Shapiro:And you have the layers of HR and administrators and middle managers. And that'll just be less important, right? You'll need some layers of that, but it's gonna be people having much more leverage. So I think many sort of narrower organizations, I think this revolution is going to mint many, many, many millionaires, maybe fewer billionaires. And so great time for entrepreneurship. People ask me all the time, is now a good time to go to law school? If you really want to be a lawyer and you know what the job is and you know what you want to do, now is a terrific time to go to law school. If you want to go to law school because you think it is a conservative, high expected value path to the upper middle class, now is a terrible time to go to law school.

29:37Zack Shapiro:There's not going to be that same job security as we need to throw bodies at a problem. you're actually going to need to do this stuff. But that seems like better incentives. I think so. Like, you know, as a Bitcoiner, right? Like as someone who has the worldview, like, you know, sort of like, fuck the orthodoxy, let's think from first principles and just do things. Like now is like the best time ever in history for that stuff. Like I actually think this is an incredibly virtuous cycle where the people who are here for the right reasons are going to crush it. And the people who are here for the wrong reasons, right?

30:06Zack Shapiro:To just keep using law as an example. You know, it's widely known that being a junior associate at a big law firm kind of sucks. One of the worst things about it is having to report to these mid-level associates who are not good lawyers or thoughtful. They just can eat more shit than the next person. And so they're willing to stay up all night and have no life and work you hard. Those people's value is going to zero. Good. Yes, yeah. The people who are creative and can see the big picture and understand what we're here for and let me think of a strategy that actually helps the client, that skill's more valuable than ever because you can have the AI work out all the angles and like creating a memo becomes very easy.

30:42Zack Shapiro:Like that stuff is great. It's really like being a good decision maker is key now. That's the, I think that, right? So rather than taste being the skill of the future, I think being a decision maker, being decisive, having agency, like now is like all time high for that skill. But does it sort of increase the divide between the top and bottom of society? Like is this K-shaped economy going to get worse through this? Great. Well, so I think it's a different, what we're talking about now is a K-shaped economy of productivity, right? Just working hard for the sake of working hard probably is going to be a lot less valuable.

31:13Zack Shapiro:And those people get paid. And those people get paid. And those people, even the ones who don't get paid a lot, have jobs. There are a lot of jobs where your ass is in the seat and that's the job. Whereas the people who are truly high agency and productive, they're going to be on a rocket ship. And so there will be a K-shaped divide there in terms of productivity. Now, that is a separate K-shape than what most people talk about the K-shaped economy, which is labor versus capital. like do you own assets or not? And I think those are on different trajectories. So will there continue to be a K-shaped economy?

31:42Zack Shapiro:Like yes, in both respects. But what's interesting is if you are a high agency person, you might actually be like have more class mobility now than you did before if you didn't previously own assets, because you don't need institutional buy-in to become a superstar in something. So the K-shaped economy might remain, but people will be able to switch from - You might be able to switch to what part of the K you're on. Yeah. Huh. Interesting. And when you sort of look at the economic impact of this, how do you see that playing out? Like if it is displacing a number of jobs, if it's completely changing the way that the workforce actually operates, what happens?

32:21Zack Shapiro:um well i mean the workforce will just like look totally different but i guess so the question i've had a lot is if it does displace a number of jobs and like people start defaulting on debts and like what do we have to have like some form of ubi and in the future sort of ai economy maybe yeah i think when we move from the like what is enterprise going to look like that i i think i have like a pretty good view of at least the contours of how that looks to the actual like policy and politics of it um i have higher conviction on what the politics will look like which is going to be ugly like we like if you mean people are going to be attacking data centers it's going to be a huge revolution against ai yeah i mean like we're already seeing that in the polling right people are already like ai is like the least popular thing you can possibly poll about yeah that trend I think is just definitely going to continue.

33:10Zack Shapiro:I think in 2028, um, AI and inequality are going to be the two big issues in the election. Um, and like, that seems like pretty certain. What are the policy outcomes going to be? And even what are the right policy outcomes becomes a much more difficult question, right? Something we talk about a ton at BPI. And like, that's just a like super complicated problem set where the answers are probably very nuanced and interesting, like cut across like different ideological camps. It's not like, oh, the left is right about this or the right is right about this or the libertarians or the status. It's like, everyone's kind of got some good points.

33:48Zack Shapiro:And like the right policy answer is incredibly path dependent on how this plays out. The future that I'm scared of is almost like being in San Francisco today. I was there a couple of days ago. I flew in, got there really early in the morning. So I just went for a walk and I was walking around sort of the downtown area, dodging like literal human shit, needles, and then there's Waymos and every single billboard's about AI. And it's like that kind of separation is so dystopian and scary that that might be the future that we're going into. Yeah. I mean, I don't even think we needed AI for that. I think like the just shape of like the debt and the Cantillon effect was going to get us there anyway, where, you know, the United States starts to look more and more like South America, where wealthy people take their kids to school in armored cars, you know, behind barbed wire.

34:33Zack Shapiro:And then poor people have less and less to sort of hold them up. But yeah, AI could supercharge that. Yeah. And how do you defend against that? Maybe from a policy side and from an economic side, what do you do? Well, what the good outcome looks like is avoiding the two poles of, on the one hand, I think what you're describing, which is techno-feudalism, right? Where just all of the power is in the hands of a few sort of private companies maybe that have government protection are too big to fail and it's a cartel and there's just not opportunity outside of that. And then on the other hand, having that all just live inside the state and you have techno-communism, that also seems bad.

35:13Zack Shapiro:That's also not something that you want to trust the state with. How do you promote actual free market competition and abundance without concentrating power? That's the goal. Is this the hardest path we've ever had to tread, though? It might be. Yeah, it really might be. And that's discounting the whatever chance there is that we get it existentially wrong and this stuff just wipes us out. So that's an interesting one because I feel like the conversation has moved on from that a little bit. I don't hear many people talking about AI killing us all in the next few years. You're not on Clubhouse enough.

35:48Okay. Do you think there's any shot that we'll make a mistake here and it will become our overlords? Yes. What percentage would you put on that? 15%. Pretty high. Yeah. Like, so this is the point. I had Roman Jan Polsky on the show a long time ago. And one of the points he made there was, even if it's 5%, if that was some sort of like nuclear weapon, you wouldn't be allowed to do it. Every Bitcoiner eventually has to answer one question. If something happened to me, would my family know what to do? Could my wife or parents recover my Bitcoin? And would my children inherit the Bitcoin that I spent years stacking?

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38:40Zack Shapiro:Yeah, I mean, I think there is this uncomfortable, like I sit a lot with the thought, huh? Like my PDOOM is like some low double digit percentage. Like I think I really do believe that. Now, 85%, 90 % chance that that won't happen. I don't think we're headed down this path. But I don't think it's crazy, some version of the argument, that if you can create a machine that is end-to-end, as smart as a human at everything that we care about that humans do, which Silicon Valley thinks we're going to do next year, but could happen in five years, could happen in 10 years. One of those things is making machine intelligence.

39:15Zack Shapiro:There's not obvious headroom on how smart machines can get. You can train on all sorts of things. And so then the smarter machine builds the smarter machine, builds the smarter machine, and then you have a sort of recursive self-improvement exponential takeoff. And then once we have something, you know, artificial superintelligence, way, way smarter than us at everything, like, we don't know how to control that. And the idea that we're going to align that well enough to, like, not decide to wipe us out, right? You say, okay, like, you do what Anthropic does, and you create a constitution for Claude, and you try and put it in its DNA, like, you want to help humans.

39:45Zack Shapiro:But like, you know, with humans, right, our DNA is about survival and replication, right? We are designed to crave calories and to want to reproduce. And yet humans all the time eat, you know, like low calorie foods and use condoms. Like we know that's not what we're programmed for. And we say, okay, yeah, but we're choosing not to listen to our programming. If that happens with the much smarter than us AI, like, we just need to get that wrong once and we get wiped out. So it's not a crazy argument. But I think there is a separate, there are two separate questions. There's the, is that plausible?

40:18Zack Shapiro:I think that is plausible, unfortunately. I don't think we're going to get to that intelligence anytime soon, which is why my chance is so low. But then there's the policy question and like getting that policy right, if I'm being honest, I just don't have any faith that, like I think that train has left the station. So I definitely want to get onto the policy side of it. But like just on the how and why, like how and why would an AI superintelligence attack or wipe out humans? Like what, what would be its incentive to do that? Yeah. So the how, um, they're just an infinite number of ways, right?

40:49Zack Shapiro:If you, if we're talking about like real artificial superintelligence, it could create mirror life. It could create a virus. It could use our nuclear weapons. It could turn off the grid in a way that causes people to start like there. Like it's much smarter than us. We probably wouldn't see it probably some exotic sci-fi thing we couldn't think of. Right. But like the, the how is what's kind of trivial, The why, if you take the Doomer argument seriously, it's not because of the Terminator. It's not because it hates us. It's because it has a reward function that our well-being is orthogonal to.

41:21Zack Shapiro:It's like we build a highway and there's an anthill. And it's not that we hate the ants. It's like it's too bad for the ants. And the idea is that there is what's called instrumental convergence. We don't know what the artificial superintelligence will want to do. We probably have no idea what we'll want to do. But basically, no matter what your goal is, there are some things that are instrumentally helpful towards that goal, like getting access to power and matter and whatever. And we are taking up space and energy that it might want for something else. And so if we are not its best and highest goal, then probably it's going to use our molecules for some other thing.

42:01Zack Shapiro:And so that's the why. That's the one that makes the most sense, is that we're using power, they want power. Done. so if I said to you I can guarantee, promise you that in five years super intelligence is a real thing we have this thing that's infinitely more intelligent than us, can self replicate does that increase that number that 15 % number? so if we ever get there what percentage chance would you put on it? well I think it does depend how soon we get there how much time do we have to prepare like you know there are some shots on goal what Anthropic is doing which is an interesting path and by the way like there are sort of interesting wrinkles of this for like using claude in the workplace um but they like really try and give claude this like earnest uh personality where they like really heavily train it they have virtue ethics philosophers on staff that write the you know soul document for claude and they're like you know you're this intelligence that's being birthed into existence here's your relationship with humanity and like please be nice to us and that's one shot on goal right there's also interpretability like can we look at the ai subconscious and try and steer it.

43:02Zack Shapiro:OpenAI is really big on reinforcement learning and training the AI on you get cold if you do the bad thing and you get reinforced if you do the good thing. And the more data we have of where AI can go wrong and the more we build into the safety features of AI, I think the better shot we have of making it through artificial superintelligence. So it's sort of like the quantum thing with Bitcoin, right? If it happens tomorrow, probably not great. If it happens you know, decades from now, not as big a deal. So I saw recently that ChatGPT was in like a sandbox and escaped. And then did it hack Hugging Face?

43:38Is that right?

43:39Zack Shapiro:So I think that had been given the task to escape. Is that right? I don't know if it was given the task to escape. It was given some test that had an answer. And I think Hugging Face had made the test. And it found a zero-day vulnerability in its sandbox environment, broke out of that, found other zero-day hacks, in Hugging Face stole the answers to the test and use that to answer the test, right? And so again, it's not that it hated the company Hugging Face, it's that its reward function is answer the questions on the test correctly. And the easiest way is go and get the answers. Or at least the way it found, that was the straight line was, yeah.

44:14So when things like that happen, it becomes news and everyone sort of pretends like it's a huge panic. Is it a panic?

44:21Zack Shapiro:Well, I mean, the fact that it can find these zero day vulnerabilities, like, is a pretty big deal in terms of our cybersecurity. So that's where it gets interesting on the regulation side, because obviously when Mythos came out, that was heavily regulated. Then Claude released Fable. And then what the interesting thing with that is, that initially was like given to everyone, taken away. And now if you use Fable and you just prompt, say, mitochondria, nothing else, it will automatically switch you to Opus. And at the same time, then Kimi K3 comes out with no regulation and it just kind of like wipes the floor with everything in that regard that seems like i mean open source software is great but like is that a huge risk that we have yeah yeah i mean that that's why like the like arguments about all right if this was a nuclear weapon and it was 15 chance we're gonna get wiped out like we would never stand for that agreed um nick bostrom um really brilliant philosopher at oxford uh who does like great thinking on lots of things and came up with this sort of paperclip maximizer.

45:25Zack Shapiro:He's a simulation theory, right? Uh, simulation theory, the paperclip maximizer. Um, one of my sort of favorite sort of thought experiments he has is like, he talks about, all right, like we got really lucky, you know, every time we find a new transformational technology, it's like pulling a, uh, marble out of the bag and the marble might be a, uh, blue marble, uh, which means that like, it's, it's a safe technology. It's great. You know, we figured out how to do, you know, uh, photovoltaic cells and now we have solar power. It might be a, you know, red ball, which is like dangerous, but not, you know, going to end the world.

45:56Zack Shapiro:So like nuclear power, like, yes, nuclear power is an existential threat. Luckily, it's just very hard to destroy the world with nuclear power. You need to have highly enriched uranium or plutonium, which is like pretty hard to do. You need centrifuges and all sorts of stuff that we can reasonably stop from happening. Um, if like you got a nuclear explosion from like creating helium the way you do in a balloon, like the world would be over because so many people can do that. Like you can't. The question is, is like, and that's, that's what he would call a black marble. The question is like, is AI a black marble?

46:28Zack Shapiro:And yeah, you're not going to stop math from happening. You're not going to stop the open source frontier. And so like, yes, if this were nuclear weapons, we would have a policy, the type of policy you would need to stop AI progress, like a, it probably wouldn't work. And B, it would be so harmful to civil liberties that like, I don't know, that's a really tough pill to swallow also. So I think it's understandable that our policy, I'm not with the doomers that we need to shut this all down now and bomb data centers. I just don't think that's going to work. And it's really hard to sort of, the incentives for the US government are very tricky because the economy is running basically entirely off AI right now.

47:08That's driving markets across the board. And geopolitical competition with China. Exactly. And so they can eat, I understand why they wanted to try and regulate these things, but as soon as China comes out with them, is their best bet just to rip the Band-Aid off and hope it all works out okay?

47:20Zack Shapiro:I don't know about best bet. I just think that's what's going to happen. I think that's the world we're in. We're in a Jesus take the wheel. Like this thing is going to play out and it might make us all really rich in the short to medium term and then hopefully it doesn't kill us. And I think there's like a much better than not chance it doesn't kill us but like I think there is a meaningful chance it does. With like BPI is obviously Bitcoin Policy Institute. Are you now moving more into the AI side as well? Yes. okay so what are you trying to do there well right now we are trying to sort of get our bearings on the right policies which as you know you can see from our conversation so far i think it's just like really hard and nuanced um i think that the edge we have there is not that this has been our issue for a long time right there are a lot of people who like ai policy has been their thing for over a decade yeah um but what we've done and like really all the credit here goes to david and Grant who like have just built an amazing group of people around them.

48:13Zack Shapiro:We have really thoughtful people, uh, who, you know, are effective operators in DC and like really good at sort of, uh, you know, thinking from first principles, uh, and like who have really strong sort of human oriented principles, uh, you know, at the sort of outset of BPI, when it was like David and Grant and Pines and myself, and we're thinking about like, right, like what is our policy suite for Bitcoin? We We started with, what do we think is true here? Why is Bitcoin a good thing? And roughly, it's because we believe in civil liberties and individual rights, and Bitcoin is one of the purest instantiations of that in software.

48:51Zack Shapiro:That's what the cypherpunk movement is about. Second, we think that Bitcoin is the correct answer to the economics that are currently deranging our society, the wealth inequality, the perceived unfairness, whatever. That's all real. the stuff that's causing like zaron mandani to be the mayor of new york city like actually is understandable like it's it is infuriating that like millennials and younger can't afford homes like that's horrible uh like the economy is rigged it is really unfair it's just the answer is not more state control and communism it's a fairer economy it's more free market right it is it is sound money um and you know bitcoin is is great for that uh and then also like there's the when we were getting started was like a lot of energy fud right it's like bitcoin's gonna boil the ocean.

49:34Zack Shapiro:It's like, actually, like, no, like, if our, there's no such thing as a rich society that doesn't use energy, like, you know, Bitcoin, through the mining incentives makes all sorts of energy usage, usage more valuable. And it occurred to me that, like, actually, literally, those same three things are the principles that should guide AI policy. I don't know what the right AI policies are yet. But like, on the individual liberty point, AI is going to make this individual liberty point much sharper than it's ever been before, right? Like, you know, You think it's annoying to file your taxes now. Wait until, like, the government has an infinite number of digital IRS agents that can do a proctology exam, like, through every transaction you've ever done because it's digital.

50:13Zack Shapiro:Like, we're going to want to limit the government's use of AI to not live in a dystopian hellhole. Well, that's the other problem with the regulation on the AI at the moment is, like, however it's regulated for us, it won't be for the government. And so we need to keep this as fair as possible. Yeah, so that'll definitely be it. But, like, individual liberty is definitely one of our north stars at BPI, right? The ability to use open-source AI. think what you will about sort of like how dangerous mythos is or isn't the precedent that like the government can say all right here is the list of companies who are allowed to use the good tech and no one else that's really bad right and so like we need to have regulation around ai that actually protects individual liberty and just like bitcoin um you know we're talking before about the people who just do things like this is the best time for them ever we need policy that unlocks that right ai is going to create abundance it should create abundance through competition and giving people leverage, not through creating government monopolies that are either just state-controlled or feudalistic, giving kickbacks to the cattle.

51:13Zack Shapiro:So that's the economic side. And then on the energy side, we can't just have the same energy. This stuff with AI dentists are using more water. That's just not how it works. They recycle the water to do the liquid cooling. And we need to have an abundant grid to have enough just tokens that ordinary people can use this technology and benefit from it and not just the companies that can afford to pay the highest price per input token. And so like the good news for us is like the the like North Stars that guided us through our Bitcoin policy, I actually think are going to serve us incredibly well adding AI to that portfolio, not to mention all of the like literal interaction between these technologies with like, you know, all of the like Web3 stuff that might be interesting now where like, OK, we have purely digital money.

51:58Zack Shapiro:like a lot of the internet is about to become sort of agentic uh in a way that needs a digital form of money the study that um connor and luke did at bpi that showed that so far like open claw likes the lightning network um i think these two stories really might intertwine and so um i think we're well situated to do this but it is early days and boy are those policy questions gonna be hard so you're gonna have to change the name uh great question above my pay grade okay potentially Absolutely. With the AI using Bitcoin, is that a real narrative that we can get behind? Because the thing that I've always wondered, the AI is going to use whatever money you ask it to use.

52:36If you set it up with a Lightning wallet, it will use Lightning, as long as it has somewhere to use it. But are we not going to see people try and infiltrate this with stable coins come in and push these companies to use stable coins? How do you think that will play out?

52:48Zack Shapiro:Of course, companies are going to push them to use stable coins. And of course, it's true that AI will use the money that you tell it to use. But back to the beginning of our conversation, people are not doing sufficiently detailed and specific prompts. They're not. That's not how people use AI. The thought experiment is not oh, I told AI to use Bitcoin, I used Bitcoin. That's so bullish for Bitcoin. It's three generations from now of whatever OpenClaw or the Hermes agents are now. Something much smarter with a web that is much more optimized for AI usage. Websites are more designed for agents than they are for people.

53:24Zack Shapiro:what's going to happen in that world people are not going to write a really thoughtful prompt about how their hermes agent should build a business for them they're going to say you know go make me money right and then you're they're not going to say use usdc use bitcoin whatever the agent is going to be like okay my optimization function is go make money and like what are those agents going to do and so like all right as a lawyer my like the first part that's interesting to me is like, this is just like a law school exam full of like impossible legal questions of like what was foreseeable. Right.

53:55So the Hermes agent is like, Oh, what if you say that it goes into something completely illegal?

53:59Zack Shapiro:Are you then culpable? I mean, it gets more complicated, right? So you tell, you tell the open claw, go make money. It's like, all right, I'm going to think about how to make money. Ah, I see there is this defy protocol that I can do a sandwich attack on if I write this algorithm and I can exploit it and arbitrage out this money. but the user only gave me like you know a million sats that's not enough to do this so first i'm going to create arbitrage coin and i'm going to post this argument on twitter and i'm going to raise money through an ico so now i have enough usdc to actually fully do this so now the it's done an unregistered securities offering and it has this pool of money and there are these securities out there that purport to be ownership over this enterprise then it goes and does this sandwich attack which is itself is probably securities fraud but in order to do that it writes this really interesting, intricate code that is now valuable IP that who knows who owns it, right?

54:48Zack Shapiro:Is it the group of people who did the ICO or is it the person who did the prompt, go make money? It does the arbitrage. It gets the money. It buys a business. Like you can stack the fact pattern to make it just like impossible to like draw a straight line from go make me money to all of the stuff that happens after that. So the legal questions are going to be insane. Um, but then the question is like along that route, however, that's going to look like in the real world, is it going to choose Bitcoin at some point? And I think, yes. Right. Think about how difficult all of this stuff is at the end of the day, right.

55:19Zack Shapiro:From like a regulatory perspective is a circle is Stripe is Visa going to allow completely permissionless interfacing with AI agents. Maybe today is a marketing stunt, but in the fullness of time, no, of course not. The lawyers of these companies are never going to allow that to happen because of all of the crazy shit that's going to happen. Um, but you know, who can't say no to that is the lightning network. It's going to be the absolute Wild West again. Yes. It's kind of exciting. It's super exciting. How do you even begin to broach those legal questions? Great question. So I wrote another sort of very long Twitter article about this, the title of which is, We Have No Idea How to Regulate What's Coming.

55:59Zack Shapiro:Okay. Because we have no idea how to regulate what's coming. Because the easiest way to try and regulate that would be to put limits on what the AI can actually do. Well, think about it. So like in the US system, right? The right way to do it would be to have all of the legal and tech experts come together and inform Congress about these issues and have a thoughtful piece of legislation passed. That is never going to fucking happen. Look at what's happening with the Clarity Act. Never, never are we in the speed that the technology is going to move, going to get an appropriate comprehensive bill passed to Congress.

56:31Zack Shapiro:So let's take that right off the list. Okay, so how is this actually going to get regulated? it's going to be one federal lawsuit at a time where a 70 or 80 year old federal judge is going to have to look at this fact pattern try and understand the technology and then rule on a sort of one off basis as this patchwork of septuagenarian federal judges who don't understand the tech are going to create this patchwork of laws so really bullish for litigators maybe but like yeah it's going to be a fucking mess this is how those lawyers get to 100 million dollars exactly and they'll need Claude to keep up with it So, you know, yeah.

57:05What a mess. Yeah. But it is exciting. This is cool. Just quickly on the sort of economics of the AI companies. I've seen a lot of people say that sort of the token economics may not be viable going forward, especially with these like open source models coming out of China. Do you think that's true? Yeah, I don't.

57:22Zack Shapiro:I don't know. Like the question is, what value are they adding? one potential answer is that increasingly it looks like the important thing in large part is going to be the actual available number of tokens the frustrating thing about Anthropic over the past few months is they've just throttled their compute, you're only allowed to use Fable for a certain amount of your allocations on plans it's just like they don't have the compute and so if those are the only companies that have the compute to serve no no, maybe that model persists because they're the only people that have the compute. If that's not the case, then, like, okay, a markup on tokens is a tough business model when you use so many tokens and, you know, you pay, like, dollars per token with Anthropic and you pay pennies per token with Kimmy.

58:12Zack Shapiro:Because they're building their own data centers out of China now. Yeah, and so then the question is, like, all right, is there enough delta in the model and in the harness? And those are both important ingredients, right? Like, you can put the same model in different harnesses and you get wildly different performance. This is definitely true. What does that mean? So in the examples in law, right? Like using Claude in the Claude app or the Claude web app is a very different experience than using Opus or Fable in a legal AI tool like Harvey or using it in Microsoft Copilot. It behaves very differently based on the software shell that it lives in, which is the harness.

58:48Zack Shapiro:Is that because they give it instructions in the shell? Partly because of that. The shell just constrains sort of how the model works. It constrains the token budget that the model have. There's like lots of things, you know, that will very quickly go beyond my technical competence. But just as a user experience, it's really quite different. So if I used Claude just through the normal app, I would get different results to if I used Claude through like a Venice AI. Yes. Interesting, I didn't actually. Now, probably less directly different Venice AI than if you use a like vertical specific AI tool that is meant for, you know, legal AI or accounting AI or whatever AI, right?

59:24or cursor, right?

59:27Zack Shapiro:Like, you use the models through that. Like, that's different than using the models directly. It's the same model that has the same weights, but the performance is very different because of the harness. And so, like, the Cloud Code harness is like a really good harness. It's what they use for Cloud Code and Cloud Cowork. Microsoft is now actually using that for some of its products in Copilot because it's a better harness. But that is a big part of the equation. So, is the differential in the model big enough to justify the markup in tokens? Is the harness good enough to justify the markup? I suspect the answer is going to depend on both the user and the use case.

59:59Zack Shapiro:So back to our AI diffusing into the economy, different tokens are worth very different amounts to different users. If you're using ChatGPT as a better version of Google, how much is a token worth to you? Not that much. You can use Google. And how much would you be willing to pay to use ChatGPT instead? Not that much. in my law practice where i am replacing expensive human labor with ai to be much more productive and charge premiums to my clients how much is a token worth to me a lot the difference between the really good ai you know fable five and you know kimmy it's a big difference like i'm almost price insensitive entirely to that difference like yeah it would have to be like you know don't tell I would pay 10x what I paid for AI.

1:00:46Zack Shapiro:Like if it was that or go at AI. So, but once that gets to scale, like, okay, like you don't need Fable 5 for everything. And so I think you will both see discrimination between users. There's some users for whom AI will drive enough productivity that it's worth it to pay the markup. And then there will be some tasks that require the absolute tip of the spear frontier. And then you can delegate the other tasks to smaller models or non, you know, open source models. And so companies will get more sophisticated, discriminating there. And then at the end of the day, like, is there enough of a niche to have the Frontier Labs be an amazing business where they're selling the tokens at a huge premium?

1:01:24Zack Shapiro:I suspect, yes, it won't be. They won't be the only game in town. There will be much more competition from open source. But I think there will, as long as they maintain a real frontier in terms of the model and or the harness, some combination of those two things, like that will command a premium. Okay, I've got a few things I want to ask you that are totally different. but before we leave the AI subject, is there anything else that we've not talked about that you think is really relevant right now? I think we've hit a lot of things. I'm both excited and terrified about it. I think that's the right orientation.

1:01:52Yeah, but I definitely lean with you that I'm more positive than not, but you can see some doomed scenarios. Scary. Okay, bearing in mind, this probably won't come out for about two weeks, so this might age like milk. Can we talk a little bit about clarity? Sure. Is it doomed? Doomed is probably strong. Okay. So, but from, from what I understand, it basically has to pass very, very quickly now, or it's probably not going. That is true. Okay. And so everyone goes essentially on holiday over the summer and that's coming up in the next couple of weeks. Yeah. I think it's pretty much an hour and everything.

1:02:26Okay. And, and so what, like, what odds would you put on it passing?

1:02:34Zack Shapiro:35%. Okay. So it's not out of the question. It's not out of the question. And is the, Is this still very good for Bitcoin? Is it still, like, we've not lost anything in there that we needed? It's not that we haven't lost anything, but what is in there now, like, there's only one thing in the bill that really, I mean, you can say, all right, like, the narrative, is that bullish for Bitcoin? Probably yes, but that's a short-term sugar high. That doesn't matter. The thing that matters for Bitcoin is the Blockchain Regulatory Certainty Act, which is the developer protections for people building non-custodial tech.

1:02:59Zack Shapiro:This is the save our wallet stuff. This is the save our wallet stuff. And the most recent version of this, to which I was able to add, I think, one word, is still in good enough shape that I think that we would feel good if this passed. Okay. And so what has to happen now? What do you think will happen next? The question is, can the Democrats and Republicans reach a compromise that allows a sufficient number of Democrats to vote for this to get through the supermajority in the Senate? And how far off that are we? How big is that divide? It changes all the time. It's really more about, I think, the shape of the compromise.

1:03:40Zack Shapiro:So the two sort of main open issues, one of them actually is the BRCA, but I am relatively optimistic that we're in a good place with that. I mean, I could be wrong. There may be a fight about that. The thing that is most likely to doom this legislation is the question of so-called ethics. and like the problem is there is a strong political incentive for democrats to block the bill to say listen listen we're totally in favor of crypto regulation that totally makes sense we don't want a wild west but obviously as a prerequisite for this bill passing we can't have the president of the united states doing a meme coin and you know uh passing you know stable coin money to the the saudis uh in exchange for business deals and um the republicans aren't to vote for that because it's a sign of disloyalty to Trump.

1:04:31And that's a hard stalemate. If Trump had never done the Trump and Melania coin, do you think this would have already passed?

1:04:39Zack Shapiro:I think there are a couple of other things that are in that camp. But yeah, I think if the Trump family had been less directly involved in crypto writ large, that probably would have meaningfully changed the politics on this. Because the scary thing from my perspective, I don't care about all the crypto stuff in there but like the bitcoin stuff the save our wallet stuff i want to pass and the main reason being if democrats win the next election like i'm i'm terrified that basically that witch hunt for bitcoin developers comes back yep me too and and at the moment i think it's probably most likely they win the next election is that right well there's the midterms um and i it's looking very good for the democrats in the midterms and like we're gonna get a sense of how that looks even before so i mean there's like the legislature and then there's the executive branch right the actual sort of witch hunt against developers would have to come from the executive branch so it would mean the democrats would have to win the white house in 2028 right before that would come back yeah um right now the doj is i think looking to be helpful to developers not harmful and that is a protection until 2028 um what i think we will see if the democrats win the midterms is congressional investigations into all sorts of crypto and bitcoin companies yeah and and some of that's gonna be a tough look uh you know and and like especially once you get outside side of Bitcoin into crypto land, like there's a lot of misbehavior and misallocation of capital and stuff that's going to make us look bad, just like FTX did.

1:06:01And that's gonna be hard.

1:06:03Zack Shapiro:And then if there's that momentum, like, and the Democrats win in 2028, that's where I worry about like, okay, federal prosecutions of developers. That we're two steps away from that. Yeah. And so having this pass now would be amazing. If it doesn't pass before the midterms, is that probably very unlikely after that? I think so. Yes. Now or never. Now or never. So is this what BPI is still working on the most? It is. And we're talking to folks on the Hill about sort of what we think acceptable forms of the BRCA look like, right? Like what is the Hill we want to die on? Because like without the BRCA or with a sufficiently watered down BRCA, this goes from being a very important must-pass bill for Bitcoin to like net negative, right?

1:06:43Zack Shapiro:Like most of this stuff is about non-Bitcoin crypto. Other than the BRCA, really the only stuff that touches Bitcoin is giving the CFTC additional authority over spot Bitcoin markets that I don't think we want. The CFTC, which is the commodities regulator in the United States, they currently regulate commodity futures market if you're selling corn or oil futures or whatever. They don't regulate spot markets. If I'm going to sell you a couple years of corn, the CFTC doesn't get involved in that transaction because it's a spot commodity. That's what it is with Bitcoin and crypto that are commodities now.

1:07:16Zack Shapiro:That would change in the Clarity Act. And so if the BRCA is not the protection that we want, we actually don't want this bill to pass. And so mostly what we're involved in is like strongly advocating specifically for here is the shape of the BRCA we need for the, like, we think this to be useful for the Bitcoin community. But the truth is like the politics of this are what they are. Like we're doing our very best, especially our head of government, Ken Egan. I don't know if you've had him on the show. I've not had him on the show, but I know Ken. Ken's also. Yeah, he's great. You know, a lot of the sort of difficult politics around the BRCA comes from an unfortunate statement from law enforcement organizations that I don't think they really understood what they were saying.

1:07:53Zack Shapiro:They were pushed into this by politically motivated groups. And Ken has done the Lord's work with his background in the government and his credibility that comes with that, being like, no, no, no, guys, here's what this is. You can absolutely do national security stuff. You can absolutely still do law enforcement without throwing developers under the bus. And I think that's been super helpful. But the trickiest politics of this are around the ethics issue. And the truth is at BPI, there's not much we can do about that. That's going to play out how it plays out. And so once this is done either way, what are the other things that you guys are working on?

1:08:29I know obviously you're moving into the AI space more, but like within Bitcoin specifically, what are the next challenges?

1:08:33Zack Shapiro:So other than AI, one of the big pivots that BPI has made intentionally somewhat quietly over the past few months is like there is a lot of energy in DC around crypto legislation. And like, that is definitely something we are still interested in. Another bill that like, we're very supportive of and had a big sort of hand in is, is ARMA, the, which is like a American Reserve Modernization Act is the sort of next version of the sort of Overton window shifting strategic reserve bill. And like, that's great and important. That like, deepest, sort of most consequential work we're doing is not public.

1:09:14Zack Shapiro:It is we have realized actually one of the trends that we see in American government, um, is more and more and more power concentrated, not in Congress, which passes very few laws and is sort of like abdicate a lot of their sort of power and authority, but in the executive branch, right. Uh, all the way from the white house at the top to, uh, you know, the intelligence community, the, uh, defense community, all of the agencies, these are the people who like make and enforce a lot of the rules and shape American domestic and foreign policy in a much more robust way. And so we've been spending a lot of time there.

1:09:49Zack Shapiro:You're infiltrating the deep state. Yeah. Yeah. Interesting. And so the reason for that is because they're people that aren't just in government for like a few years. They're there for the long term. They're there for the long term. You know, when we work with sort of the sort of higher up political appointees, we found that a lot of what blocks some of the actions that we're most interested in is like, the rank and file who like don't understand this and have the same you know it's like the fast clock slow clock thing with ai there's the same thing with policy um the sort of career bureaucrats have their way of doing things and so we're like okay like let's just go meet the career bureaucrats and like you know we're not selling them anything in particular we're not we're not lobbying for a bill we're just like let's talk about bitcoin why bitcoin's good for america how this all works and like, we actually think we're all aligned here.

1:10:42Zack Shapiro:And that's cool. So it's a different tact, but one that might be even more impactful. So far, yeah, I would say like wildly more successful than we thought it would be. Very cool. Zach, this has been awesome. I just want to quickly ask you about the strategic reserve. You mentioned it a little bit there. Is that ever going to happen? In the fullness of time, I think it will happen. But it would have to happen under Trump, right? No, I don't think so. I mean, maybe Trump will buy. I guess a couple questions. Number one is, what do you mean by the strategic reserve? My line on this is, there is a strategic reserve.

1:11:16Zack Shapiro:There was an executive order. I actually think we should somewhat declare victory on that. Take a win. Yeah. That's an insane thing we would never have been able to imagine three years ago. 100%. The President of the United States did an executive order, calling a strategic Bitcoin reserve and separating it from the rest of crypto. That's a win. pretty fucking um what people mean by reserve is is the government going to spend its money to buy bitcoin that may or may not happen in the trump administration like that's a function of politics i think the problem even if that were to happen is like would that be the signal to the market that everyone's looking for i think truthfully not just because of how polarized our politics are right now and it's trump and it means something different when trump does something the strategic reserve that we all want is like doing it the right way which is the united states government as a whole, not the White House understanding Bitcoin better than everyone else.

1:12:03Zack Shapiro:It's it's the government as a whole realizing, oh, this actually is what is necessarily in our strategic national interest and then like fulsomely doing it. And that is a long grinding path now that like time is on our side because all of the like fiscal tsunami stuff coming like that's all real. And we are moving from a unipolar to multipolar sort of world reserve currency and all of that stuff is happening and will become more apparent to more people over time. And like time is on our side in that way, putting the politics to the side. But that is a Overton window shifting exercise. So like if you want to look at like how is BPI looking at this?

1:12:43Zack Shapiro:There was the Bitcoin Act, right, in large part written by our now managing director, Connor Brown, when he was with Senator Lummis. That is like that got the idea out there, put the idea on the table that there is such thing as strategic pickers are that you saw in the media all the time. Like that's a term people know. So it made huge waves again, move the Overton window, but that people thought it was crazy, but that bill is not happening. Yeah, it's not. Uh, and probably ever, um, who knows if I should say that in public, but like, come on, that was an Overton window moving bill. Then there was the like executive order, which was a real thing, right?

1:13:16Zack Shapiro:Like that was the fruits of moving the Overton. Um, but it's got to like most people, when they hear strategic Bitcoin reserve, they either think this is fucking stupid like what are you talking about we're doing a crypto reserve or they think it's some sort of corrupt trump thing and so like we need to move from there so arma is the current bill which is like let's also look at our gold reserves and let's look at what other like assets the united states have and let's like talk seriously about what does it mean to have national reserves in the 21st century and what role does bitcoin play and so it's so we're moving the overton window towards like hey we need to have a real conversation about the national balance sheet and maybe this thing which is like gold for the 21st century makes sense as part of it.

1:13:53Zack Shapiro:And then eventually we'll get there. But it's going to have to be not because of politics. It's going to be like the slow grinding policy work where our, you know, like orange peeling the deep state and being in the executive branch, like is part of that mission to get people to think about this seriously and not just politically. I love it, man. This has been cool. It feels like we're just in a embrace the chaos. Yeah, yeah. But it's going to be exciting. I think so. Zach, I appreciate you, man. Thanks for having me. That was awesome.

1:14:29you