Rehashed - #25 Assessing Crypto through Techno-Economic Paradigms
The Adoption Curve of Major New Technologies
As the crypto ecosystem continues to mature, the industry is fixated on how and when we will see the first real wave of economic adoption from the wider public. Frustration with the volatility of the crypto markets has blinded many from considering the wider picture. Taking a step back, we can see that it's very early days for crypto.
This chart depicts the adoption curves of major new technologies.
Blackrock (Yahoo Finance)
As we can see, all major technologies have undertaken an “S-curve” shape of adoption; early uptake is followed by a stagnant period (as hype largely precedes utility), eventually leading to a period of explosive growth as the innovation moves towards full market acceptance, and then tapers off as new disruptive technologies enter the fold. The S-curve is widely used to depict the speed of adoption of an innovation.
Perez and New Techno-Economic Paradigms
Respected scholar, Carlota Perez, has expanded on the idea of the S-curve in her work. Perez studied all of the major technological revolutions since the industrial revolution and how they were impacted by the capital markets. These shifts are referred to as “techno-economic paradigms”, responsible for society’s evolution from a ‘mass-production economy’ based on cheap oil to an ‘information economy’ based on cheap micro-electronics. According to Perez, every technological revolution has followed the same four-phase pattern along the S-curve: irruption, frenzy, synergy and maturity, with a “turning point” linking the installation and deployment phase.
Recreation of chart from Perez’s book, Technological Revolutions and Financial Capital, 2002
Under Perez’s framework, new techno-economic paradigms are approximately 50 years in length, though these cycles are compressing in time due to the nature of technology. Take the information and telecommunications revolution: the original and simplest ‘computer on a chip’ developed by Intel in 1971 can be seen as “the big bang” behind the information age, but it’s not until nearly 50 years later, in 2018, where we see adoption and value of related companies truly prosper (Amazon and Apple each surpassed (USD) $1 trillion in market value earlier this month).
Each techno-economic paradigm has followed a rough pattern of four phases
Where is Crypto in the Cycle?
Although it's incredibly hard to predict exactly where crypto currently sits along the S-curve, I suspect that over the past 18 months, we have entered the “frenzy” period. Based on the recent price retracement, it may seem as if we are on the cusp of the “turning point,” however we may be nowhere near out of the woods yet. A signal that I’ve found to be a helpful reference, is still pointing to overvaluation in the market.
Although it can be easy to get sucked into short term market movements, it's important to recognize the bigger picture. Undoubtedly, bitcoin and its peers encompass a new techno-economic paradigm that will have deep and far reaching effects on society.
“At first the impact is localized and minor, with time it is widespread and all-encompassing.” - Perez
Past techno-economic paradigms show us that innovative new technologies often take us on a rollercoaster ride in the capital markets. Those who are disheartened by the current retracement would do well to remember Amara’s Law: the idea that we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
In the News
Morgan Stanley announced plans to offer trading in bitcoin derivatives, with the choice of going long or short “price return” swaps. The firm does not plan to trade physical Bitcoin; swaps are tied to bitcoin futures contracts with a reference price from a group of exchanges.
U.S. regulators continue crypto crack down, expanding outside of ICOs to sanctioning service providers who have violated the law.
The World Economic Forum suggests that blockchain could bring $1.1 Trillion in new global trade by 2028.
Add two names to the already mammoth list of stablecoins coming to market: Gemini, the cryptoasset exchange founded by brothers Cameron and Tyler Winklevoss, announced a new USD dollar-pegged stablecoin which will be called the Gemini dollar (GUSD). The coin, which has been approved by the New York Department of Financial Services, will be an ERC20 token backed by dollars held by Gemini. Similarly, regulated Trust company Paxos announced the Paxos Standard (PAX) stablecoin, also approved by the NYDFS and collateralized by the US dollar.
Sep 30 - The VanEck SolidX ETF application next deadline for a decision from the SEC
Oct 12 - Blockworks Conference, Auckland
As always, thanks for joining - see you next week for Rehashed.
View previous issue: Rehashed - #24 Token Treasuries: Discounted Networks and Liquidation Hierarchies
View next issue: Rehashed #26“Crypto as Money” Narrative Driving Initial Adoption
About the author:
Capital markets to crypto convert. From Christchurch → Boston → New York, Freddie became intrigued by the potential of the digital asset economy after plucking a book on Bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.
Disclaimer: The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.