Daniel Krawisz: The entrepreneur is the black swan

Bitcoin inventor Dr. Craig Wright has preached about building with Bitcoin for years. Could it be that Bitcoin’s killer app is not something technical, but pure entrepreneurship after all?

We caught up with Daniel Krawisz, the prolific Bitcoin thinker and a Bitcoin entrepreneur, to hear his thoughts on building with Bitcoin.

Krawisz decided to take us into the depth of entrepreneurship in general and specifically concerning Bitcoin. Furthermore, Krawisz’ Boost POW came to life with pow.co and is ready to be used. Please enjoy reading this, dear Bitcoiners, and then get to building in this growing information economy yourself.

Hi, Daniel! We know you are enthusiastic about economics and Bitcoin. However, you are not only theorizing about these as you are a Bitcoin entrepreneur yourself. What is entrepreneurship to you?

Hi. Thank you for talking to me again, Michael.

Entrepreneurship means introducing a new production process into the economy. Entrepreneurs are the ones who recognize that the economy is out of equilibrium and take steps toward equilibrium. A new production process can be repeated over and over for more money, but all actions after the first are not entrepreneurship. Each act of entrepreneurship is unique. New growth always occurs under new conditions because it builds on past development. Economic growth is caused by many acts of entrepreneurship that all contribute to the overall efficiency of the economy.

Entrepreneurs deal with risk and profit, just like speculators. However, speculation has to do with knowledge about change in general, whereas entrepreneurship has specifically to do with the change you create yourself by revealing new sources of income. Thus an entrepreneur is a kind of speculator who is betting on the results of his own actions.

Profit means income earned above the overall interest rate, which an investment would tend to earn in equilibrium. Each opportunity is available until it is taken, and then the profits are gone. As the new production process grows, its marginal utility becomes less until it is equal to other potential uses of the same resources. After that, there is no more profit associated with it.

Risk means a commitment to lose in the event of failure. New actions cannot be known absolutely to be successful beforehand. If they could, then they would already have been done. Risk does not mean there is some definite or knowable probability of failure, like in a casino game. It means going into the unknown.

Accepting the link between profit and risk is crucial for success in all matters, not just business but life in general. Unfortunately, people tend to resist this notion to the point of grievous self-harm. They fail to grow to their true potential out of fear or destroy their society through socialism out of the belief that they can all share in the profits without being entrepreneurs.

The psychological barriers that must be overcome to avoid self-harm are fear of risk and unconsciousness of ignorance. Someone who fears risk will be motivated to avoid profit and will not grow. Someone unaware of his own ignorance cannot imagine a future different from the present and therefore is not motivated by profit.

Although Socrates told people long ago that his secret was to be aware of his own ignorance, people today have not learned what he taught. Lao Tzu said, “the way that can be named is not the true way.” This I interpret as a statement indicating that there is always something to be learned about how to benefit in any situation. Thus, to me, an entrepreneur is like someone who is aware of his own ignorance and who understands that the way that can be named is not the true way.

Hayek described entrepreneurs as “alert.” They are alert to new opportunities and to their special knowledge of time and place. This gives them the ability to create growth. Hayek was criticized by Rothbard for making entrepreneurs into passive people who simply wait for opportunity. There is a need to amass knowledge, or else you will not understand opportunities to arise. Ayn Rand described entrepreneurs as being connected to reality, which was the highest ideal of her philosophy. I think of entrepreneurs as people ready to act fast or wait as the situation calls for and who are always preparing to look at something they do not understand.

Nietzsche, following Hericlitus, said that self-deception is driven by fear of chaos. Chaos is, of course, the reason that the future is unknown. People don’t want to be aware of their own ignorance because that is to be aware of chaos. People tend to act and think like nothing will change even though it is changing all the time, and they are bad at identifying moments when new learning is warranted. They don’t want to recall that their lives may amount to nothing because of some random event that destroys everything they have worked for. In psychology today, this is related to a concept called the normalcy bias, which means that people tend to discount the possibility of rare events. Nassim Taleb has written about this another way with his concept of the black swan. Success, he writes, is based on avoiding failure, which means imagining many possible but rare events and ensuring that the enterprise will not fail in any case.

Thus, fear of risk is the true motivator for lack of awareness of ignorance and not only drives people to avoid growth, but to open themselves to risk. The only way out is to understand that risk cannot truly be avoided. The world is chaos, and the way of the entrepreneur is the only genuine safety from it.

The paradox of risk is that the same action can simultaneously take us closer to death or insolvency and to success. Thus, risk is fearsome, but the best things in life cannot be had without it. The resolution of the paradox is to understand that risks are heterogeneous and that only through careful examination can the good be separated from the bad. Great investors like Warran Buffet seem to say they examine about 100 opportunities for every one they buy into. Entrepreneurs have to be like that too. They have to reject many ideas before they are ready to act. Entrepreneurs must be independent thinkers because no one they can hire will do this work for them. Profit is the only payment for it.

Nietzsche wrote of the Dionysian and Apollonian temperaments. The Dionysian is like someone who loves risk and pursues it like an addiction, whereas the Apollonian is like someone who fears risk so much that his greatest desire is to tell himself that it can be avoided completely. The Nietzschean is of neither temperament, but is able to pursue and avoid risk based on the circumstance.

To me, the entrepreneur is someone who embraces chaos and has resolved the paradox of risk. He is not simply prepared for black swans; he is the black swan. He navigates between all dangers toward the true path of growth, with nothing guiding him but his imagination. He avoids self-deception and imagines all sources of failure in order to avoid them instead of telling himself that other paths will not lead only to regret.

Ayn Rand also wrote that entrepreneurs are the subject of envy by those with borrowed lives, which she described as being disconnected from reality and motivated to destroy the entrepreneur and his product rather than compete to do better. The borrower corresponds to the Apollonian temperament. Apollonians are motivated to say that there are no black swans and that unlikely events won’t happen. They are addicted to a story about a perfect world, and the alternative to this story is a meaningless world. They lack the best things in life because of their fear of risk, and they live in fear because they have accepted risks that they have pretended are not real. They cannot learn because they have told themselves that they know everything.

The entrepreneur provokes aggression from borrowers because of cognitive dissonance that originated at the moment they told themselves that they were pursuing the good rather than avoiding the good out of fear. The entrepreneur is someone who has the best things in life and who has willingly accepted risk while paradoxically living in less danger. His existence draws attention to the conflict between the borrower’s desire for the best things and his way of life. The Apollonian cannot accept that this conflict exists without facing his addiction.

Nietzsche also wrote about the overman, the man of the future who does not accept traditional morality unthinkingly and is able to discover morality on his own. Entrepreneurship is something like that because it involves the discovery of the right action that was not known before. This may be different from what people ordinarily mean by morality, but there is a relationship. I think that traditional morality is good for people who want to think long-term. Maybe in the future, more entrepreneurs will have to think about sustainable income over longer time scales. If they do, we may see entrepreneurial acts that bring morality to new levels, like Nietzsche envisioned.

Bitcoin is the best example yet of this style of entrepreneurship. To be sure, Bitcoin is not based on ideas about morality that are new or radically different from what is generally understood, but it exploits the benefit of morality and makes it cheap for everybody.

This is my knowledge of entrepreneurship, most of which I understood from books long before Bitcoin came out. What most surprised me when I became an entrepreneur was how important and how true this knowledge is. The forces of self-deception and envy are more powerful than I could have imagined before, and they drive people to destroy themselves and everything around them.

It was pretty intimidating to try to be the Nietzschian overman and all that, but I saw that Bitcoin made my knowledge of Austrian economics, which before had seemed rather esoteric, into something worth a lot of money. Although I had friends and connections who were steeped in libertarian thought and worshipped the entrepreneur as the real hero of civilization, most of them were not truly alert to opportunity the way Hayek had told them to. They wanted to be more like professors who worshipped entrepreneurs.

I have joined many companies since I got into Bitcoin and they have all been failures but the company I am with now that I have helped found, pow.co, is on the right track. I am working with people I knew from The University of Texas at Austin before I knew about Bitcoin.

How does Bitcoin affect entrepreneurship? Above you said, “Ayn Rand described entrepreneurs as being connected to reality.”

You may be asking about how Bitcoin brings us closer to reality. I would say that human cooperation is an underused resource that Bitcoin makes a lot more accessible. Money is a tool of cooperation. Thus, the reality that the inventor of Bitcoin was closer to than other people was an understanding of the value that people are for each other, which is the value of society itself. For entrepreneurs, this means other people ought to be treated like something more useful as business partners than they were previously and more deserving of care as customers.

Society exists because more wealth can be produced by working together and more risk can be mitigated by having friends you can turn to in bad times. However, there are also costs: other people can be enemies who try to steal from you or otherwise live as parasites. There is a problem with identifying good friends who will reciprocate and be there when you need them, as you are there when they need you from those who will not.

Money is a relationship like that, except it is between each individual and society as a whole rather than between pairs of individuals. Money ensures that everyone must give before they can take it and prevents anyone from taking too much. It works without people having to know each other closely. It ensures that peace prevails in large groups because it preoccupies everyone with gaining more of it rather than dominating one another. Money allows for much bigger societies because with it the problem becomes one of valuing goods rather than assessing character. I have written about this at length in Reciprocal Altruism in the Theory of Money.

Not all money is the same. Not every concept of efficiency is equally good for serving human ends. Better money would make psychopaths want to benefit everybody, whereas worse money would fail to prevent normal people from turning on each other in a war of all against all. Bitcoin reduces the risks of society and brings the benefits much closer than previous forms of money. The transition to a Bitcoin economy will be like the transition from whale oil to petroleum.

Above, I talked about entrepreneurship as a journey through the dark with imagination as my only guide. But in Bitcoin, that journey is so much easier because the other entrepreneurs are also there, taking obstacles out of my way. I call them the invisible leaders. I don’t know who they are, but at the same time, they are my best friends. That is how things have changed as far as I’m concerned, and that is why I never want to leave and go back to the normal world. There is a goodness that surrounds me that cannot be found to the same degree elsewhere.

What properties of Bitcoin, in particular, make the difference?

The most important properties of Bitcoin are triple-entry accounting, micropayments, and fixed supply. Triple-entry accounting means that each transaction includes a signed receipt so that no one can later deny the meaning of a transaction. I don’t have much to say on it that hasn’t already been told by Craig Wright, and it is the reason that he calls Bitcoin a truth machine. How do you catch a criminal? Take everybody’s story and look for someone who tells a story inconsistent with everyone else’s. Triple-entry accounting means that everyone is always telling their story. This is a very big idea that I missed out early on because I didn’t understand it well enough, but we will certainly be relying on it in my business insofar as it promotes the overall advantage that Bitcoiners gain of being more valuable to each other through their independent action.

As to the fixed supply of Bitcoin, this is something I have already discussed enough elsewhere. Suffice to say that a fixed supply of money is more worth pursuing. If the money is better, then people will work harder to get it, offer lower prices, and create better products. Because the value of a fixed supply coin would be expected to change with the growth of the economy, pursuing it forces people to think about the real opportunity cost of their actions, which an inflationary coin does not.

I have not commented on micropayments very much in the past because I believed late that everybody was already on board with this idea since that was the stated purpose of Bitcoin. Once I learned too late that they were not, I was more interested in trying to find other people who weren’t insane rather than try to talk about economics. However, there is something essential about micropayments from an economic standpoint.

For Mises, the economic function of money is a shared idea of efficiency. Profit means more efficiency and loss means less efficiency. Without a money economy, people will have ideas about what is good for them individually, but will have trouble agreeing on what is good for society as a whole. Money gives us a shared interest which aligns our pursuit of it with the good of everyone else. It is this shared idea of efficiency that brings large groups together in love. They all become a part of each other’s efficiency.

Without a shared idea of efficiency, independent actors do not know what to do that will benefit the rest of the market as a whole. The problem of socialism according to Mises, therefore, is that central planning is the only alternative to capital markets and profit-seeking, insofar as two planners will just interfere with one another. Crucially, Mises identified the problem of socialism as resulting from the lack of capital markets, not from anything else about socialist ideas or tactics. Thus, the problem of socialism will also arise in any domain in which capital markets are prevented, regardless of why this has happened.

This is what has happened with the rise of the internet. We have seen the need for capital markets arise without the monetary technology to serve those needs. Hence what has resulted is the only alternative to capital markets: central planning. In our modern internet, users are not customers. Instead, they are the product. The only way for value to be derived from the actions of these users is to centralize all information so that a central brain can put it all together into a coherent picture. As Mises foresaw, this picture will have nothing to do with what is actually good for the users or what they want. Only when their actions are backed by money is the full picture good for them; in that case, there is no need for a central planner.

Thus, using micropayments brings capitalism to where it could not go before. Although the internet is not a socialist regime, it still suffers from the problem of socialism because the information being produced on the internet is of too low a value to be tradable in currency units that have existed before. This explains why information companies have evolved to become giants that trade in advertisement and bulk data rather than serving users as customers. It is a dystopia that is like socialism, except the problem with the growth of the market is technical rather than legal.

Finally, as to fixed supply, I have written about that a great deal already, so I will summarize what I have said before. Each medium of exchange is a cooperative system based on a shared concept of efficiency. A fixed supply medium is much better than one that purports to have a fixed value (which is impossible) because it gives everyone an easy way to invest in the overall growth of the economy that is much better than an index fund or the S&P 500 or something like that. Since the value of money is just the other people, it enables people to become invested in each other to the degree that has not been possible before. That means people who use it will want each other to succeed much more and want to hurt each other a lot less. All entrepreneurship must be weighed against overall economic growth, which makes it a lot more efficient and makes bad ideas a lot more likely to be given up before even being attempted.

You are an entrepreneur yourself. Recently, you have been explaining and demonstrating your product Boost POW on the CoinGeek Weekly Livestream. For me it seems like you have to educate people first in order for them to acknowledge the value of your product—not as in marketing it, but as in real education. What does that mean for entrepreneurs who are introducing new paradigms?

Boost POW is nothing more than proof-of-work as an upvote system. In other words, we rank content by the number of expected hash operations associated with it. If Reddit could be thought of as loosely resembling a democracy, Boost POW is more like a war of all against all. We have an implementation at pow.co, where all boosted content can be viewed. You can create posts and boost any txid or URL. Twitches and club relay posts will be rendered. We are all open to new information from anyone interested in our information.

To me, this is something we desperately need. A more brutal contest of ideas will benefit us by avoiding entrepreneurial failure, resulting in better allocation of labor and capital down the line. Bad ideas are exponentially more costly the later they are identified, therefore there is no better way of reducing costs than by eliminating bad ideas before acting upon them and nothing could be more beneficial to the Bitcoin economy than Boost POW other than Bitcoin itself.

Boost POW works because of economics, which is something that no human power or design can escape from no matter how much they desire it. Economics is about contests and who will win them. Right now the contest that we use to gain attention from the rest of the world is better for manipulators than for people who genuinely love humanity and want to talk about true common interests. Think of the benefit that would accrue could this state of affairs be reversed!

Information that is easy to find today is likely to be bad because manipulators have more to gain from becoming prominent in relation to the costs of doing so than kind-hearted people do. Therefore, manipulators work harder to gain more connections and produce much of the information that is easy to find. This information is likely to be designed to promote your failure, perhaps by giving money or life to something that isn’t actually any good, or maybe just to make the competition easier for someone else. Designs to trick you into serving someone else while you believe you are serving yourself are commonplace. Seeing through them is difficult because good information can be effectively hidden simply by keeping it off major platforms. Gad Saad has written about this problem in his book “The Parasitic Mind.” He does not know the solution, but it is Boost POW.

Our weakness is due to being trapped in a mesh network. The network as a whole is not well-connected enough to be able to route around well-connected nodes easily. Ideas have a difficult time competing directly in a single mind because relatively few people pursue a variety of information on their own, and of those who do, relatively few seek the ability to broadcast widely. Instead, people consume the ideas of well-connected curators of information, who have a relatively easy time promoting an agenda.

What we need is to be able to talk about how to maximize growth without succumbing to cognitive bias or manipulation, which we cannot do by duplicating earlier methods of broadcasting important information. Boost POW enables us to do so by changing how we broadcast information to favor kind-hearted people over manipulators.

Boost POW is not like being in a mesh network. It is like a big bonfire that everyone circles around. It is not a place that gives anyone a central position with the ability to curate information. It is like a grinder that all ideas get thrown into for direct competition in users’ minds. There is no longer a reliance on well-connected nodes because anyone can broadcast with them. The only thing stopping them is not their number of connections, but the number of expected hash operations they want to buy. Everyone will see a selection of ideas that were not curated. This selection will be known to all minds because everyone reads from the top boosted content down the list. Everyone is connected to one another through the top content. People seeking truth do not need to develop an audience to pass it on.

The reason that I expect Boost POW to work as advertised has to do with arguments from Amotz Zahavi and Richard Dawkins. Richard Dawkins, of course, proposed that ideas are alive, or more accurately, that evolutionary theory also applies to ideas that compete in people’s minds as to genes that compete in the gene pool. This is what I have done with Zahavi’s theory. I have taken an idea from biology and applied it to ideas in society.

Zahavi proposed the Handicap Principle, which says that the only honest signal of fitness is a provable waste. Zahavi used this idea to explain many costly signals in nature, such as the peacock’s tail. He proposed that a male might compete effectively with another male if he could efficiently prove his fitness to a female. A message with an evident cost associated with it would be just the thing because the female, knowing nothing else about the male, would be able to infer, at the very least, that he was strong enough to be able to produce the message.

Once engaged in such a contest, the males would distinguish themselves by the cost of the signal. More fit males would optimize at a higher signal cost. Less-fit males would risk too much by sending a too-costly signal and would benefit less from a bigger signal because the females who gave them a chance would be more likely to reject them. Just think about how much you would be willing to spend on a date if it took you 100 dates to get a girlfriend versus 10. A less-fit male may get fewer dates with a less costly signal, but the dates he does get are more likely to get him a girlfriend. Of course, there are big problems with dates because a woman could go on a date just to get a free dinner without actually being interested in the man. This is why pure waste is a better costly signal than payment.

Insofar as provable waste is evidently costly, and, therefore, an honest signal, females may as well assume that it is being used honestly. Thus, once the fittest males grew a costly signal and entered a provable waste contest for females, the less fit males would have to follow suit because the females would maximize their own benefit by ignoring males with no handicap.

According to Zahavi’s theory, handicaps would be stable in nature because females find the best males more easily. Males who are better at using handicaps would be better at competing with other males. His theory was really more general than the example I have given, but the peacock’s tail theory is the best way to get started with the idea, and it is the best analogy for Boost POW.

I propose that the problem I have described with broadcasting good ideas can be understood by applying Zahavi’s theory, as Dawkins has suggested. Our problem is comparable to that of females who cannot rely on an honest signal of fitness from males: too much time wasted on less-fit males! Ideas are males, brains are females, and once we start ignoring males that have no handicap, then we will be like peahens who rapidly converge on the fittest peacocks.

What does it mean for an idea to be fit? The answer comes from how it extracts resources from the environment, which it does convincing people that it is relevant to the future of the economy. Since all ideas are in direct competition when they put themselves on the same objective scale, fit ideas cannot be manipulative ideas or ideas that are easy to argue against. A manipulative idea will not be able to sustain the extraction of resources from the environment if everyone knows what’s wrong with it. Thus, fit ideas are simply those that maximize the benefit of the users, insofar as those users can discover by contributing the best of their intelligence and knowledge. Ideas that lead to failure are unfit as long as at least one person can explain why.

Boost POW is simply one big argument about everything where only the fittest ideas survive. Fit ideas on a Boost POW platform are not the best ideas we have now. They are the next stage of evolution. They will have to adapt to a much more hostile environment than before. They will be like great ideas except understood more comprehensively in finer detail because more disparate knowledge will have contributed to them. They will also be ideas that can only be guessed today, such as the state of some global consciousness.

Think of how much more valuable our satoshis would be if optimal strategies for growth were so well-understood by our economic actors that no one would be able to lie to one another or themselves about it! Right now, most famous people terrify me. With Boost POW, we could achieve a state where good ideas are more famous than people, and the most famous people are people that I love. These are the kinds of things that I feel like I am lacking and desperately need whenever people I’m talking to can’t understand the benefit of what I’m doing.

However, finally, I no longer have to be content to argue about it. You can try it now and test the claims that I have made about it for yourself. Please help us all learn the way to success.

We would like to hear about your personal experiences with entrepreneurship.

I have been trying to get involved with Bitcoin startups since I got into Bitcoin, but I have yet to achieve success. I was always trying to do something that would move Bitcoin forward, but none of these projects really panned out. Most of the businesses that have made lots of money were not interesting to me, but I wish I had been involved in one of those, like at an exchange or something. I might have been able to make a huge amount of money that I could be using now. Right now, I still need to find partners to work with instead of just hiring 100 people to do whatever I want.

Entrepreneurship is challenging, and it’s a lot like romance and starting a family. Finding good partners is very hard, and I have worked with people who turned out they just didn’t really want to do something good, or who didn’t understand enough to be able to. I want to do things that are about economics but it’s hard to find people who believe economics is real. I have found a good team now that I enjoy working with and I am very glad about that. We have been quite productive and hopefully will be able to create something great.

Anything else to add, Daniel?

Inventing Bitcoin was the biggest act of entrepreneurship we’ve seen in a long time, possibly ever, but that just creates an economy with nothing. We need more entrepreneurship to grow the economy. Not everyone is ready to be an entrepreneur, but we need it to be everyone’s aspiration.

Watch: CoinGeek Weekly Livestream with Kurt Wuckert Jr. with Daniel Krawisz of Powco