Do you like the beach?
Last week my wife and I went to Outer Cape Cod. It was lovely: bright sun, cool water, seals and gulls and cormorants to entertain us as the tide gradually went out. Most dramatic were the seemingly endless miles of beach. The Outer Cape is actually only about 40 miles long, but the dunes and the waves and and horizon in the distance give the illusion of endlessless. The beach is a dynamic space, constantly shifting in response to currents and storms. The bluffs are simultaneously built up and torn down by the wind and waves. Naturally, the wildlife in and around the beach needs to constantly adjust as well.
Marconi Beach on Cape Cod. Photo: Doug Tengdin
Listening to the surf and watching the waves come in and out put me in mind of the waves of innovation that periodically overwhelm the global economy. I started to say “recently,” but innovative disruption has been part of the economy at least since the industrial revolution. Steam power, canals, rail, factories, electricity, autos, transistors, air transport, vaccines, transistors, computers, internet, mobile phones, crypto … they come in, sweep over the economy, and change everything in their wake.
And while everything seems different, the essential aspects of the economy remain the same: people buy goods and services from institutions and individuals because it’s in both of their interest. The seller earns a margin above their cost; the buyer receives the product or service they want/need. There are always issues of disclosure, competition, information assymetries, and fair business practices. That’s why an adaptive legal and regulatory system are crucial. But the fundamentals still apply.
Illustration: Victoria Bondarchuk. Source: Freesvg.org.
Every innovation follows an adoption curve. There are early adopters, mainstream adopters, and laggards, each following their own logic and inclinations. The new idea relies on communication channels and social connections to spread throughout a society over time. The speed of adoption depends on the easy the innovation’s is to use, the quality, the cost, and the expected benefit. Eventually, an innovation reaches a critical mass, and almost everyone gets on board.
The benefit to some innovations is immediately obvious. Cell phones make contacting one another so convenient that it’s hard to remember what life was to like before we call carried personal pagers in our pockets. But some innovations fizzle and die. Remember pet rocks? Chia pets? Google Glass? Shyp? These were ideas that didn’t provide adequate benefits to justify the cost, or weren’t communicated adequately, or simply didn’t work. In these cases, the innovation curve stalled out and they failed to take off.
Innovation Curve. Source: Wikipedia. Public Domain.
It may be too early to tell whether crypto-assets will be more like a transistor or a pet rock. But we should know soon.