The Exponential Age: Changing The Mindset About Economics
We see the word exponential thrown around a lot of late and for good reason. This is an era where technology is getting so powerful, as well as moving so quickly, that things change very rapidly.
For example, research at Stamford University found the the capabilities of AI were doubling every 3.5 months. As a comparison, there was a time many believed that Moore's Law peaked at about every 18 months. It is presently estimated that it doubles on a 24 month basis.
This is something that is incomprehensible to most people. For those who understand computing, it makes perfect sense. It also explains the last 40 years of development.
To better understand this, let us relate it to money.
Say we had $10. Using the 3.5 month exponential (called compounding), this is what it would look like.
3.5 months $20
7 months $40
10.5 months $80
13.5 months $160
17 months $320
20.5 months $640
23.5 months $1,280
As we can see, in under two years we went from $10 to $1,280. How would you like that to happen to your investments?
Let us go a little further.
27 months $2,560
30.5 months $5,120
34 months $10, 240
37.5 months $20,480
From $10 to over $20,000 in a little over 3 years. That is the power of exponential progress. If we carried it out a bit further, we can see how insane it gets.
Now imagine an entire economy replicating that. Perhaps the 3.5 months is a bit excessive. However, even if we take Moore's Law, the numbers can get extreme.
We all know data is money in this era. For much of the last decade it was observed that data creation rate was also doubling about every two years. Doing some simple math, we can see the impact over the course of the next couple decades.
Another key point here is that most of the data created is unanalyzed. It is estimated that only a single percentage of all data is structured and looked at. This is where AI enters the picture. As software programs get more powerful and algorithms more precise, we are going to see the outcome of this data radically change.
Just consider the impact economically when you combine these two factors together considering the rate of growth each are observed to be experiencing.
Where do you think this put us a decade from now?
We can follow a similar pattern taking place in cryptocurrency. For a moment, let us remove all the scams and garbage projects. Mentally, let us establish a baseline of legitimate projects and tokenization.
That is our starting point. Now let us add in a few factors:
- More tokens distributed to the existing supply each day
- New developments that are tokenized, expanding things again
- Investment from the outside of fiat currency
- Network effects from increasing number of users
- Expanding opportunities within individual applications
- Newer categories such as Defi, NFTs, and DAOs.
- Different types of tokens such as access, security, and social
All of this falls under the category of "money printing". As we can see, the money supply is greatly expanding. This is a vital point.
In the digital world, we operate in a near infinite state. There is practically no limit on what can be created. This means the use cases can expand to the end of computational and processing power.
Why is this important? Because it brings out an exponential deflationary environment. This means that more money is required to keep funding newer innovations. Since there is no limit to what can be developed, we can just keep going further out.
What this results in is exponential economic growth. It is why cryptocurrency has the ability to fuel much of the progress we make over the next few decades. Since we realize the value that is evident, due mostly to network effects, this will transfer to all of society.
Altering Our Mindsets
People who can embrace this concept will realize that economic explosion, in certain sectors is going to take place. Of course, this was already the case. If we look at companies such as Google, Amazon, Facebook, and Apple, we can see what this is like.
There is a reason why these are the most valued companies in the world. With both Apple and Microsoft hitting the $2 trillion market cap, many feel this is a sign of market bubble. While it might be high for the moment, this is not going to be the end. We will see a $10 trillion company emerging in the next few years.
Just look at the rate of change and apply that to companies that understand this exponential concept. There are many who are putting it to work.
One thing that must be mentioned if that more of the economy is coming under this domain. Digitization is expanding throughout all sectors of the economy. Automation is being implemented wherever possible. Over the next decade, this is going to expand.
Blockchain and cryptocurrency are going to be vital parts of this process. As the next generation internet develops, we can see how digital money will accelerate things. Since we are not able to capture value through tokenization, most of what was previously lost can be leveraged for other productive purposes. This is a rather novel concept when applied to everyday activities.
In the end, we are going to see the numbers get into the quadrillions. Many feel this is asinine yet the value that these trillion dollar companies provide is unprecedented in history. Facebook, for example, has 2.8 billion users. Name another company that was able to have that many customers.
Blockchains will follow a similar path. Being open, they will allow for massive numbers of users, collectively. With the totality of scaling across the industry, more transactions will take place. This will increase the value of the overall asset base tied to them.
People should not be surprised at the rate of crypto adoption or the massive increase in the value of DeFi. It is all in keeping with the era we are in. This is operating mostly in the digital world where everything moves at a more rapid pace.
This creates outsized results and has enormous impact upon society. We should expect this to continue while looking for those opportunities that are leveraging this. Those will be the successful ventures over the next few years.
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