The Great Race

America is in a race. The opponents in this race are complicated (China, Russia, non-state actors, our own selves) but the consequences of the outcome are critical:

• Economic Prosperity
• Military Advantage
• Global Influence & Proliferation of World View

If we don't win most, if not all of the components of this race, the results will be disastrous not only for the US, but for much of the world. I believe the following are the key legs of this race, in reverse order:

6.) Cyber (Obviously defense, but especially Offensive Cyber)

5.) Crypto-Currency

4.) Drones & Robotics

3.) Quantum Computing

2.) AI (I wanted to say Automation but the two are deeply intertwined)

1.) Energy

6.) CYBER

I've been part of fighting a cyber-war for over 2 decades. Its long been in the shadows but in recent years has started coming to light. Nation States and small motivated groups are hacking each other for advantage, and the conflict is escalating, as the recent Salt Typhoon revelations have shown.

I've spoken at length on this subject, including in my most recent article, but to add a little more color let me just say that everything is rapidly becoming "smart". We are innovating way out ahead of our ability to consider or address the security implications. Microsoft just released patches for 159 vulnerabilities for January. Nuclear and other strategic weapons are mostly in maintenance mode compared to offensive cyber. Nation States are using it extensively for spying, battlefield support, and an arsenal for multiple avenues of disruption from critical infrastructure, to culture, to economics.

We are not where we need to be. Bureaucratic hurdles, rules of engagement written by people who don't understand cyber, turf wars, terrible incentives in the Defense Industrial Base (DIB), and an inability to compete with the tech industry means our offensive cyber capabilities at scale are rapidly falling behind. Two quick examples on the DIB side.

1.) I observed a major contractor take 2 years, 30 people, and 15 million dollars to develop 1 monolithic cyber capability that, by the time it was ready, the window of opportunity had closed.  This is nowhere near fast or cheap enough. This problem can be solved, but the legacy DIB is highly incentivized to not solve it due to current business models. When I've been involved in presenting viable solutions in the past, the DIB moved quickly to try to squash them.

2.) I was given a project which I completed in a week and cost around $20k. When I delivered the working product, the customer was shocked. They told me they had paid a defense contractor 6 million dollars, taken 3 years, and delivered something that only worked on late 90s - early 2000s technology. They didn't expect me to deliver much because that is what they were used to. Its not that I'm that good, its that they are that bad. This is unacceptable.

The problem space is large enough for many to contribute, but those who own it today prefer to be ineffective rather than let others into their playground. This is not the case in other countries who make much better use of their national cyber assets.

5.) CRYPTO CURRENCY

Crypto in some form is the future of money and financial transactions. What that will look like hasn't shaken out fully yet, but whoever is ahead of it will have similar levels of power and influence to what the petrol dollar has provided since the 1970s.

President Trump just signed an Executive Order on crypto which provides support for Digital Assets, promotes Dollar backed stable coins, sets regulatory direction, and prohibits CBDCs in the US. The SEC also rolled back a controversial rule directing banks to mark customers crypto assets on their balance sheets.  The EU's MiCA, UK's FCA, and other organizations are rapidly moving to formalize rules around crypto and legitimizing it from a global financial perspective.

Due to sanctions, countries like Russian and China are turning to digital assets for cross-border transactions, undercutting some of the legacy financial players.  As international-conflict isn't likely to reduce any time soon, this factor is only going to grow. Organizations like JPMorgan and SDX have been implementing blockchain digital transactions as well.  We are also seeing luxury brands like LVMH, Gucci, Balenciaga, etc. experimenting with accepting crypto payments as well as major chains like AMC, Home Depot, Newegg.

All this signals a trajectory towards crypto and away from traditional, legacy ways of doing business. Countries that fall behind in this area will be at a significant disadvantage in terms of speed, cost, and interoperability.

4.) DRONES & ROBOTICS

I covered this as well in my  most recent article,  but the Ukraine war isn't the only area where drones are proving critical. The rapid rise of Anduril shows how strategically critical drone technology is becoming to the US. This will be a key differentiator in conflict going forward. You either drone rapidly, effectively, and at scale, or you lose.

Turkey has become a global defense industry player with its Bayraktar TB2 drones in use in the Nagorno-Karabakh conflict between Azerbaijan and Armenia. In 2023 Saudi Arabia spent $3 Billion on Turkish drones. India and Bangladesh have both invested heavily in TB2 drones in the last 6 months.  Ukrainian drone makers have innovated at an unimaginable pace since the start of the war.

Various factions in Syria have been engaging in drone driven conflict, including drone delivered explosive terrorist attacks.

Mexican drug cartels have been using drone attacks against rival gangs, which is particularly concerning in light of the recent labeling of the cartels as terrorist organizations. Having spoken with some military friends of mine, the key concern, as far as I can understand it, is the following. The cartels have an extensive network in the US and have been operating for years on our side of the border to move and distribute drugs, weapons, and people. They have intelligence, infrastructure, and communications. If we declare war on the cartels without investing significant assets on this side of the border to map out and monitor these networks, the violence could bleed over domestically in a rapid and dramatic fashion. Our investments in this area have been weak. Now, imagine the incorporation of the use of cartel drones against American citizens into this threat assessment.

I grew up in El Paso and Juarez and experienced some of what this can look like and we better get ahead of it fast.

3.) Quantum Computing

Quantum Computing is a subject I am extremely interested it. Until recently it was a subject that was relegated to large organizations who can afford large amounts of expensive Helium-3 and who can reduce their problems to ISING / Discrete Optimization problems.

America has a few Quantum Computing Hardware companies including DWave and Rigetti but their computers are going for a million dollars or more.  China has SPINQ which, while little more than toys today, are in the consumer price range and rapidly evolving.

In the last six months we have Google's Willow QC, IBM's 1,121 qubit Condor, SandboxAQ's Quantitative AI Models on Google Cloud, significant advancements in Error Correction but while we should be cautious about the reported details, China is where some major advancements have been happening.

In October 2024, the Anhui Quantum Computing Engineering Research Center announced an expansion of its superconducting quantum computer production line. The facility increased its capacity from assembling five quantum computers simultaneously to eight, enhancing its ability to develop advanced systems like the 72-qubit Wukong chip.

China launched one of the world's first quantum-enabled satellites, Micius, in 2016. China has invested over $15 billion in public funding for quantum research and development.

China has been hoovering up encrypted data from its adversaries for decades (as I'm sure other countries have as well). Someone is going to reach 2000 qubits and figure out how to solve more than just ISING/DO problems, and when that happens, encryption is in big trouble, and by proxy, privacy, the economy, and national security.  Whoever wins the QC race will have a disproportionate advantage in many areas. Marry that speed and processing with AI and all bets are off.

2.) AI / Automation

The key to the future is speed. Speed comes from solving hard problems, iterating and innovating, and then automating the process. AI is an integral part of this. The US has several clear leaders in this area: OpenAI, Anthropic, Grok, Gemini, along with a host of small startups innovating all over the space.

Then on January 20, a relatively unknown AI research lab in China released an open source model called DeepSeek.

• DeepSeek-R1:

Input Tokens: $0.55 per million tokens

Output Tokens: $2.19 per million tokens

• OpenAI o1:

Input Tokens: $15 per million tokens

Output Tokens: $60 per million tokens

DeepSeek reportedly spent ~$6 - $12 million to train their R1 model and claims to have done it in 2 months.

ChatGPT-4 cost around $80 million and 5 will cost between 1 and 2 billion.

There are a lot of fuzzy details, but its clear China is somewhat quietly investing a ton of effort and resources to win the AI race. Whoever does will be faster and more innovative than the rest, at least for a period of time.

1.) Energy

What do all the things we have discussed have in common? Energy.

According to Deloitte, data centers are expected to consume approximately 536 terawatt-hours (TWh) of electricity in 2025, accounting for about 2% of global electricity consumption.

Department of Energy anticipates that electricity consumption for AI applications will reach 325 TWh by 2028, equivalent to the current annual consumption of Spain.

The most recent nuclear power plant to become operational in the United States is Plant Vogtle's Unit 4, located in Burke County, Georgia. Unit 4 began commercial operation on April 29, 2024, following Unit 3, which commenced operation on July 31, 2023. Construction of Vogtle Units 3 and 4 began in 2009, but the project faced significant delays and cost overruns, with total expenses exceeding $35 billion, much of this caused by over-regulation. We went 20 years without building any new reactors.

The US last coal fire plant was built in 2013.

As of April 2024, China has 23 nuclear reactors under construction. In August 2024, China approved the construction of 11 new reactors across five sites, with a total estimated cost of $31 billion (less then the cost of our overruns on 1 plant in the US.) In the first half of 2024, China started building over 41 GW of new coal capacity.

If we aren't competitive in energy production we are in danger of losing ALL the races I described above. It doesn't matter if we have the best GPUs, whoever has the most energy can just power 10x the number of inferior GPUs.

0.) CONVERGENCE

A key point to consider is how all of these races are converging.

AI, Quantum, Robotics & Drone Manufacturing, and Tech in general are all accelerating in their need for energy. AI is driving innovation and design in all the areas we have discussed. Robotics are incorporating AI to enhance physical capabilities. The consequence of this is that we not only have to focus on every race at the same time, but we have to try to anticipate how they affect each other.

Here is what I think needs to happen:

• Removal of legacy red tape that is slowing us way down in comparison to other countries. There is an argument to be made that we need some friction to ensure we do things right, and safely, but that mostly applies when you don't have adversaries right on your heels. We have to find a balanced way to do this and traditional methods (like legislation) are WAY too slow for the pace we have to keep.
• An examination and reworking of incentives, especially in the Defense Industrial Base. The focus on maximizing hours and low bids is a failing approach. We need a new model right now, today.
• A proliferation of bets, even risky ones, on startups and wild ideas that contribute to the race.  VCs who want to stick to the legacy formulas, focused on unicorns, afraid to make longer term investments or bet on fringe ideas will fall behind quickly. We need 1000s of people building smart, AI driven, automation things in their garages. We need hackers building tools to scale up our ability to test security to industrial levels.
• A reworking of the philosophies around offensive cyber. The current decision makers are often people who understand missiles, fighter jets, and boots on the ground, but who can barely check their own email. (Or have an assistant print out their emails for them every morning, true story). We need to test out new ideas, make mistakes, and use our national resources much more effectively in this area.
• A revival of energy industry builders working within smart and updated guidelines, to 10x our ability to produce power to meet the needs of the race.  In the short term we will need it all; nuclear, wind and solar, oil and gas, new inventions, hell fusion if we can pull it off. Lowering or stagnating energy production is a losing proposition for the world, because other countries are not going to do that and don't care about the long term consequences. The best thing we can do for the environment is win the energy race which then gives us the ability to guide it to where it can be continually safer and cleaner over the long run.

Thanks for reading,

A.