Abundance & Decentralization

Takeaways from my new mental model for evaluating the world

Over the past twelve months I’ve spent a lot of time thinking about how to find meaning and create value in today’s world. In the process I have developed a new personal philosophy that has begun to shape my worldview: Abundance & Decentralization.

It remains a work in progress, and it remains just one mental model I use to evaluate decisions, opportunities, and challenges, but over the course of the three longer pieces I have published so far the foundations and conclusions are fleshed out enough to offer some practical takeaways that I will try and convey succinctly:

  • There is a mismatch in how people perceive the world we live in (a world of scarcity) vs. the world we actually live in (a world of abundance): In my piece from August 2017, In a world of abundance, to be rich is to be moderate, I made the case that many global problems are the result of a world of scarcity mindset. I posit that in reality, we live in a world of abundance in which the marginal cost of producing an extra chicken, manufacturing a plastic iced coffee cup, or publishing a blog post or piece of content is effectively zero. Those who maintain a world of scarcity mindset tend to think of resource competition as a zero-sum game to be won or lost and if the marginal cost of goods and services is zero they will tend to overconsume. By recognizing that we live in a world of abundance, value can actually be found not through consumption of information and resources but rather restraint, and through being generous with the resources we have in our possession.
  • Intentional inefficiency, redundancy, and decentralization are telltale signs of a sustainable life or business: Last winter, at the height of the crypto-mania, I published a piece called Sustainability design in the age of bitcoin. I argued that intentional redundancy and “inefficiency” can make both individuals and organizations more sustainable. Efficiency has long been prized by academia and business leaders as a way to produce more desired units of output from the same units of input; however, by pushing a system closer to its natural limit, it may become more fragile and risk a black swan event that wipes the entire system out — having some form of margin of safety not only protects this risk but provides multiple positive externalities (such as reduced anxiety). Decentralized organizational design (as with Bitcoin) not only provides in-built redundancies to reduce the chance that a single point of failure can disrupt the organization or system, but also allows for product and process evolution, with experimentation at the local level which can scale if successful.
  • Software and Artificial Intelligence have reduced the costs of building sustainable, decentralized systems both online and in the real world, making them relatively more attractive than centralized systems: As I documented in my most recent piece, The Great Decentralization of Everything, industries throughout the economy are beginning to build decentralized systems that can compete with centralized equivalents. The key to their success is that software is running those systems (ie. creating the value), and software has the attractive characteristic that, once developed, it is infinitely scalable with effectively zero marginal costs and it can be continuously iterated and improved upon with no meaningful costs to upgrade. Whereas previously the costs of building decentralized systems were greater than the potential benefits, encouraging ever greater centralization, today the balance has shifted. The social costs of centralization are greater than ever, while the monetary cost of decentralization has been reduced to being competitive with centralized systems.

This is the beginning, rather than the culmination, of my exploration into abundance and decentralization. But it has formed the basis of a framework I use to evaluate opportunities and decisions. It has impacted my world in multiple, tangible ways. Here are a few examples:

  • I am working to commit to living substantially below my means, so that my lifestyle is robust to changes in circumstances.
  • My investing thesis is governed by a “barbell” philosophy in which I make a series of ~8-10 “high risk” investments representing ~50% of my net worth while maintaining ~30% my net worth in cash, so that in the event of an unprecedented black swan I cannot be totally wiped out.
  • I look to invest in companies who have software and AI expertise that are tackling industries that traditionally prospered through traditional economies of scale and other resource-scarce/efficiency driven moats, and companies or organizations that are decentralized by design. Examples of software expertise include Tesla, Amazon and Netflix. Examples of decentralization include Berkshire Hathaway (from a managerial perspective) and decentralized cryptocurrencies (disclosure — I own all of the above except Netflix).
  • My goal is to build a business predicated on the idea that resources are abundance and value is created through non-zero sum means (building community that can be allowed to take ownership of the business, profit-sharing with employees, “giving away” any brilliant ideas we may have, working collaboratively with many partners and ensuring they receive credit for their involvement).

What do you think of this mental model? How can you apply this framework of thinking to different parts of life that I haven’t even considered yet?