Week 14: AI Progress, Solar Innovation, Axie Crypto Hack

Briefing: OpenAI completed an impressive next step forward for AI with a tool that generates detailed complex images based on text-only prompts. | Stanford researchers were able to create a solar panel that generates power at night via geothermal effects. | Crypto-related financial crimes are easier for law enforcement to track. | The Fed reloading their tool kit can be interpreted as a positive economic sign.

AI Innovation – OpenAI’s DALL-E-2

This week OpenAI released the latest version of their DALL-E-2 image generation tool. The program uses natural language prompts to generate images from scratch, like ”an astronaut playing basketball with cats in space as a children’s book illustration.” The image on this article is one of the outputs from that prompt. The DALL-E-2 model is trained via neural network models: one that focuses on restoring images that have been distorted with random pixels and the other that matches words with images.

In this case, the models use the input words and unscramble random pixels to generate entirely new images that never existed, like: “Sea Otter in the style of Girl With A Pearl Earning by Vermeer.” OpenAI uses these programs to teach machines to perceive the world the way humans do. This type of development will eventually lead to the creation of AGI – artificial general intelligence. I recommend watching their video clip to see the depth and breadth of the tool.

Solar Innovation: Generating Power at Night

Stanford researchers led by PhD candidate Sid Assawaworrarit were able to generate electricity from solar panels at night by harvesting geothermal energy as the panels cool, converting temperature into electricity. By attaching the solar panels to an aluminum plate, they improved the geothermal energy harvest to the point where it can be used to power lights. While the power produced via this method is much lower than solar energy, it’s theoretically possible this will remove the need to use batteries when the sun is not shining.

This is one of those inventions that is only obvious in hindsight. John Osbon pointed out that it’s reminiscent of when electric cars first started generating electricity via generative breaking. The amazing thing about innovation today is that a small number of exceptionally talented people can materially change the world in a short period of time. Batteries are a large part of the solar process, so it’s a big step forward if we can start to remove them from the equation. Removing batteries from the solar process frees them up for other essential uses, like electric cars.

Axie Crypto Hack

$600m was stolen from the Axie Infinity crypto network last week. The hack is now the center of a big money laundering question: Is it even possible to launder $600m in stolen crypto? It’s far easier to launder traditional currencies. We wrote last week that large, all-cash real estate purchases are one of the easiest and most common ways to launder large amounts of money.

While headline hacks are not great for the reputation of crypto, the ability to track minute details on the blockchain makes hacks much harder to pull off. The $600m PolyNetwork hack in August 2020 was returned shortly after. It was presumed that the hacker decided it would be impossible to cash out without compromising their identity. Bug bounty programs exist to pay out millions to would-be hackers to incentive collaborative behavior. Immunefi, for example, has paid $20m in bug bounties and has another $125m in available reserves at this time. It’s becoming more apparent with each crypto felony that digital currencies make financial criminal enforcement easier.

A Note on Markets, Inflation & The Fed

The Fed’s latest release gave us more insight into the Fed’s balance reduction and rate rise plans. While doom and gloom in markets is high, we could raise rates, shrink the balance sheet and not have a recession. With so many experts signaling recession fears, it feels like the unexpected outcome is more likely to happen on the positive side than the negative side. Markets climb a wall of worry and fall on a slope of hope. There is a lot of worry in the air today.

If the economy is as strong as the Fed says it is, then reloading the Fed tool kit will be helpful for when the next crisis inevitably arrives. Amid high economic fear, amazing inventions are appearing daily. These innovations will continue to improve productivity, making us all better, faster and stronger while creating significant economic growth as they are successful.

Weekly Articles by Osbon Capital Management: