Few people can really grasp and explain digitization — and it is possible that there is no universally valid explanation. The success stories of Facebook, Amazon and the like — as prime examples of digital companies — are based exclusively on business models that have come about through network effects. Tomorrow’s new technologies will make it possible for society to be more connected than ever before, and network effects will define all growth and displace linear issues — thus ushering in a radical change in society.
The Corona Crisis of 2020 changed many things, accelerating and also decelerating them. A major element of the daily media coverage was the incidence and danger of exponential growth. We learned a lot about the virus and were also reminded again of dark times from mathematics lessons by the growth topic. Yet imaginative difficulties with such a growth rate are only human. Our brain is programmed to think linearly. In the case of the pandemic, it was possible to draw attention to the danger with a sufficiently large threatening gesture — in the case of the economic and social changes that will take place in the next few years, the whole thing is more difficult. Digitization is a buzzword and hardly anyone can really describe it or grasp it-let alone politicians. Yet digitization and the accompanying changes have a lot to do with exponential growth — through decentralization. But what is decentralization and where is the connection to growth and digitization?
A short mathematical excursion: The greater the number of participants in a network (e.g., viruses and their hosts), the more exponentially the number of all connections in the network (connections between viruses, connections between people) behaves — Mr. Metcalf’s law.
Where is the connection to our society? In a world of central organizations, companies, states and institutions, there are already many connections among each other — but on the economic level rather from institution to institution, from company to company, state to state. The individual persons (actual actors) within the entities, play an important but subordinate role. Centralization has its advantages and is incredibly efficient. It bundles individuals into interest groups and has thus performed a valuable task over centuries. However, if you look historically at the history of mankind, only a fraction of it was organized the way it is today. For most of the time, people traded with each other in small groups or alone and were responsible for their actions in this small cohort. In the course of time, the cohorts became larger and larger until at some point whole interest groups emerged in which the responsibility of an individual was incorporated into the mass of the whole. The resulting consequences are familiar to us today: fixed work schedules and unions, civil service, movements for the meaning of life, Happy-Fridays & Manic-Mondays and so on. It is by no means all bad and living conditions have improved in many areas over decades — but perhaps it is against human nature?
Could a return to a decentralized model of society become the new modus operandi with the help of digitization? What would happen if the actors could be connected directly? What would happen if, furthermore, there were new (previously non-existent) actors? What would happen if everyone could be connected to each other “securely and trustworthily” — globally? The number of possible connections would be gigantic!
Facebook has impressively demonstrated how exponential and digital growth works — outbidding all other linear competitors (like StudiVZ). Growth on an exponential scale is the guarantor of success and, in the case of Facebook, satisfies its shareholders with billions through a gigantic platform for commerce. However, the benefits of the network (connection between friends) and the economy (advertising revenue) are separate.
Same principle — different example: Uber. The company is essentially just a software tool (platform) and does not own any cars. Nevertheless, the company is the largest cab company in the world — due to the number of drivers and people interested in driving, which represent the largest mobility network in the world. Again, it is a company that through new technologies (Internet, SmartPhone, mobile networks) has created a platform whose value becomes a “de facto” standard with the number of participants. The local cab center has been replaced here by a global and central cab center, which creates dependencies, allows censorship and, in the case of Uber, creates very one-sided profiteers: Shareholders. On the one hand, the platform promotes decentralization by bringing together individual providers and customers without major hurdles, but on the other hand it reflects the biggest problem of current digitization: companies become entire markets and a few shareholders profit disproportionately from exponential growth. The point at which ordinary people can also become shareholders via shares is usually the phase AFTER the exponential initial phase. So are large venture capital firms and other private institutions with pre-emptive rights. Exponential growth is important and creates incentives for business concepts to grow according to Metcalfe’s Law.
Just an idea, but what if these network effects and their monetary participation were identical? What if not only large investors could be shareholders at an earlier point in time, but anyone and at any time? What if there were technologies that could really enable decentralization and allow the most diverse participants to interact in a trusting manner? What if the barely tangible word digitization is simply a description for this megatrend?
Lets look at tomorrows world
Welcome to the exponential age in which technologies and structures are emerging that enable decentralization and more equitable participation in projects. Decentralization is the key to inclusion here and is expressed in the following megatrends, among others:
- Secure value exchange — Blockchain is one of the biggest technologies of the last decades and is decentralization by definition.
- Global WLAN — Starlink & Co. (near earth satellites) bring the internet in principle to every latitude/longitude of the globe (away from central metropolises) and enable inclusion for everyone — everywhere
- Superfast man & machine connectivity — 5G cellular standard connects everything locally & ultra-fast with each other
- Glocal production — 3D printers enable local production (machines, products, food) of global products.
On our society, waves of exponential advances will pile on top of each other, catapulting society into an exponential age, the effects of which the Great Masses will little understand — as described by how our brains work on exponential issues.To make the topic a bit more concrete, let’s take a closer look at Ethereum — a network from the blockchain (crypto) space. In general, Ethereum could be described as a kind of world computer on which programs can be executed and run, for example, a stock exchange app to exchange values with each other. As a unit of measurement and operation, the network uses Ether — a digital good with a market price based on supply and demand. These Ethers can be used to program apps on the world computer and make them available to others … or simply as an object of speculation (buy cheap, sell expensive). The usefulness of Ethereum increases — as with any network — with the number of active participants. In this regard, the number can be easily identified by the construction of this open blockchain network — as the number of addresses (or accounts). Simple summary: addresses and price run in perfect unison — see Glassnode Report.
Wendet man nun die normale Sichtweise auf Preise im Zeitverlauf an (wie bei Aktien üblich) so sieht es aus, als ob Ether ziemlich sprunghaft und volatil ist — ein echtes Spekulationsobjekt eben in den Augen der weiten Bevölkerung.
On the other hand, if one applies a logarythmic (log) view (made for exponential issues), the picture is put into perspective and it looks normal and familiar. In the exponential era and with prices following a network effect, logarithmic charts provide a much more useful method of appraisal.
And what does that have to do with decentralization now? Ethereum is a 100% decentralized platform. Any developer can build, share, or use the platform to create new applications that are clear and transparent for all to see. Every active participant has a strong vested interest in the positive development of the technology and the spread of that very technology. Each participant is not only a participant, but can also actively contribute and participates as the owner of the necessary ether (token) to a direct degree. To compare with Uber and the cab example:
Owners of Ether Tokens can be drivers, passengers or uninvolved, can co-develop the platform (open source) and have a direct share in the success by being able to sell the property (tokens) at the appropriate time.
Ethereum is representative of a number of promising projects — but the principle and the success factor remain the same. Bitcoin can therefore be explained analogously and is overtaking the growth of the Internet at the speed of light. One final thought on this: the Internet has connected people with people. A true success story and yet, to this day, all 8 billion people are still not connected and connected. Blockchains connect people to people, but also people to machines and machines to machines. The growth and number of active participants (actors) in such networks is thus almost limitless.
We heard more and more about exponential growth in the context of the COVID pandemic and perhaps became a bit more familiar with it — could perhaps begin to imagine how the health care system would spiral out of control. As we know, this virological dystopia did not occur and is unlikely to, but according to the same laws, a positive eutopia can take hold of our social system and radically revolutionize many areas. A black exponential hole, which will unfold its full power from a certain tipping point and will put everything known so far in the shade. Irritating media reports, skepticism and fear are still slowing down the spread, but it seems to be only a matter of time until we reach a point where even this can no longer be stopped. In contrast to the Corona pandemic, this point brings many good changes for society and can be a liberal liberation from the yoke of a centralized world order. At this point, you better have some tokens.