“History doesn’t repeat itself, but it often rhymes.”
So said Mark Twain, we are told. Anyone who has spent any time thinking about the coming blockchain revolution has wondered how it will play out. Will bitcoin go to $1m; will banks disappear; will we decentralise Facebook? My view is that we can make some good guesses from the patterns that we know from history. This strategic view is what I want to explore. I believe that there are 3 stages in the adoption of technology. These are disturbance – when the technology first appears and gets people thinking; disruption – when things really change as new business models emerge; and disappearance – when we take the technology for granted and it becomes part of the background. We are still mostly in stage 1 when it comes to blockchain, but let’s unpack these stages to see why and what that means.
You have probably heard of innovators and early adopters as groups in the stages of something new becoming accepted. The terms come from the work of Everett Rogers theory on the diffusion of innovation, published in 1962. You have probably also seen a chart that shows how long it took to get to a million radio sets, TVs and web connections, and how these processes are accelerating. Rogers’ work explains why, in that two big factors in the speed of diffusion of innovation are communication channels and the social system. With each new communication technology it just gets faster. The process of adoption and diffusion of a new technology is a known thing – it seems to be faster each time, but we can learn from everything from the car to the internet. That’s the first point.
“If I had asked the people what they wanted, they would have told me faster horses.”
The second point is the quote attributed to Henry Ford, above. When you show people something new, they interpret it in the context of what they already know. That’s why movie pitches follow the format of “Blade Runner meets Love Actually”, and why Ford’s customers would have wanted a faster steed. This is the first step in the stages of technology adoption: disturbance.
When a technology appears, the first response to it is that it’s a version of something else. When we gave businesses the internet, the first thing they did was put their catalogues online instead of mailing them to customers. This is an entirely rational approach to something new: place it in a context that is understood, and see what happens. The downside to this is that it can lead to scepticism, because a new way of doing something old is often very unconvincing. The first cars were not very easy to use, and they were not much faster than horses. In this stage, the ecosystem is designed for the old version and so the new one doesn’t work well, and people don’t know how to deal with it. While the optimists and innovators hype the new idea, the inertia and resistance of the old world holds it back, hence my third quote.
“We tend to overestimate the effect of a technology in the short term, and underestimate the effect in the long term.”
That one comes from Roy Amara, and is known as Amara’s Law. The short term overestimation by excited innovators and early adopters is what drives the hype; the long term underestimation is because of what happens in the second stage of adoption: disruption.
After the new technology has been around for a while, the number of people who understand it has grown. There may even be changes to the environment that make it easier for the new tech to thrive, such as regulations or supporting industries. The innovation we see now is disruptive rather than the sustaining version in stage one. New business models emerge, and the narrative is no longer about the technology, but about what it enables.
The third stage – disappearance – is when the technology is no longer new, it just is. Competition is around user experience and the enabler has become invisible – the way the internet is now.
For blockchain, we are very much in stage one, with a view of what stage two might look like. There are currently two broad groups of people experimenting with blockchain and DLT: innovation units (or whatever they are called) in large companies, and the original innovators building ‘pure blockchain’ businesses. The question then is what gets us from stage one to stage two. I think there are three things.
The first thing is a the enabling ingredients: tools and money. The raw materials that accelerate the adoption of blockchain are abundantly available: the communication and collaboration mechanisms we have built on the web, the things we now know about how startups work, and the money from the ICO and crypto boom.
The second thing is people. When there is a small overlap between the people who deeply understand an industry or a problem space, and the people who understand blockchain, then solutions are unlikely to work in a way that will change things. The domain experts who have been experimenting with blockchain on behalf of large banks and other companies are starting to leave to give themselves the freedom to do new things. Where they need help, these guys are then teaming up with blockchain specialists, and together they will create new and disruptive business models.
The third thing is to try and work out where these business models will appear. It does not make sense to besiege walled cities if it can be avoided, so taking on incumbents at their own game is not recommended. What is recommended is to find the voids. Where is the white space that will enable a new company to establish itself, and that will also enable fast user growth? It is very hard to change user behaviour from something that works, but if you give them something new, then the shift can be very rapid indeed. I think there may be two types of white space for blockchain.
One is the things that are known models, but are impossible with the current paradigm. An example might be equities – it is currently very expensive to list a company, and therefore impossible to buy shares in small companies such as startups. Blockchain can enable smaller companies to list, and therefore open up the opportunity to invest in them, by tokenising the equity and making the listing and transaction process much more efficient. There is a long history of technology making things available to a mass market that previously required privileged access, or wealth to accomplish.
The other type of void I see is completely new ways of doing things. The two obvious, and most advanced, examples of this, are bitcoin and ICOs. Bitcoin is a new way of storing and transferring value that breaks our old assumptions. ICOs are a third way of raising money after debt and equity that are enabling blockchain based businesses to raise vast sums of money very quickly. Now there are things wrong with both of these models, just as there were with the first cars and the early internet, but in their existence, we can see the seeds of possibility.
What is beyond bitcoin and ICOs? Well so far, we have unique digital assets, token curated registries, decentralised exchanges, self sovereign identity, and so on. If you take these ideas and extrapolate from them, or combine them, you can see how many things we know are in for a huge shake up. At this stage, we are only scratching the surface of what is possible, and as the tools improve and we move from disturbance to disruption, the pace of change will accelerate and more models will emerge. We are only at the beginning of this ride, and that’s what is truly exciting.
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This article originally appeared on Paul Mitchell’s LinkedIn profile here, and is used with permission.
Paul Mitchell is Fintech & Blockchain Lead at PwC South Africa. You can connect with him on LinkedIn here.
