Justin Banon

@justinbanon

The nature of the crypto technological revolution:

what it is and what it means for the future of humanity.

Crypto has the power to solve the innovation problem and unlock our technological future — dyson sphere

Intro

VCs see crypto as another Pérez technological revolution

Carlota Perez’ canonical work on technological revolutions, has become the VC community’s goto framework for describing the regular patterns of technology change and economic growth observed within the economy:

Marc Andreessen: “the single best book to understanding how this [software] industry works.”
Fred Wilson: “based his investment thesis on the concepts in this book.
Chris Dixon: “Technological revolutions happen in two main phases

However, crypto is far more than just the next technological revolution. Crypto has the power to fundamentally solve the innovation problem and unlock our species technological future.

Let’s take a look at Perez’ description of previous technological revolutions, before investigating the nature of crypto.

Pérez Technological revolutions and techno-economic paradigms

Great surges of development

Pérez observes that over the past 250 years, great surges of development have occurred in predictable cycles (also referred to as Kondratievs, long-waves), spanning ~50 years (see figure 1 below).

Figure 1 — three centuries of great surges

An obvious question: is crypto the next technological revolution?

Physical technologies, technological revolutions and techno-economic paradigms

Within Pérez’ framework, each technological revolution is propelled forward by clusters of interrelated, productivity-increasing technologies.

Let’s use complexity economist- Eric Beinhocker’s definition, of:

Physical technologies: “methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals.” Beinhocker

Examples of physical technologies:

  • Tools
  • Spacecrafts
  • Computers

Examples of crypto physical technologies:

  • Cryptographic primitives (one-way hash functions, public key cryptography, digital signatures)
  • Merkle trees
  • Protocols
  • Crypto wallets

Now, Perez defines a technological revolutions as:

an interconnected system of productive technologies, with the ability to transform the wealth-creating potential of the entire economy, “

Perez’ definition of a technological revolution fits well the suite of crypto technologies, from cryptographic and cryptoeconomic primitives through to smart contracts, consensus mechanisms and DAOs.

Further, Perez defines a techno-economic paradigm as:

“a best-practice logic and ideology for the application of these technologies. “

Again, techno-economic paradigm is an apt description of the set crypto ideologies comprising: censor-resistance, privacy, collective ownership, open-source and decentralisation.

So far, crypto fits well within the Perez descriptive framework.

Shaping of Pérez technological revolutions

According to Pérez, the diffusion of [physical] technological revolutions occurs within two periods. During the installation period core industries and infrastructure are put in place, against the resistance of society and institutions still in the grip of the previous techno-economic paradigm. Only once this resistance has been overcome can the deployment period follow, during which the technological revolution spreads across the entire economy.

This interplay between physical technologies and socio-institutional resistance, results in the Pérez Technological Surge Cycle (see figure 2 below).

Figure 2 — Perez Technological Surge Cycle

According to several eminent VCs, crypto is another such technological revolution which is following the Perez Technological Surge Cycle:

“Using the work of Carlota Perez in Technological Revolutions and Financial Capital (2002) as a framework, we believe crypto is transitioning from irruption to frenzy “ Joel Monegro & Chris Burniske Placeholder Thesis Summary
2017 is the year when crypto/blockchain entered the frenzy phase” Fred Wilson

Certainly, Perez‘ work constitutes a major contribution to our understanding the diffusion of physical technological revolutions within the economy. However, crypto is not foremost a physical technological revolution, crypto is primarily a set of a socio-institutional technologies.

The nature of the crypto technological revolution

Crypto is primarily a social technological revolution

Whilst the crypto set of technologies includes physical technologies, crypto’s most impactful technologies are social, organisational and institutional technologies:

for ‘building economic and social institutions’, and “executing the types of rule-systems (i.e. smart contracts, DAOs) that enable bespoke socio-economic coordination”, Economics of Blockchain
“I think they’re a fundamentally new way of organizing humans.”, Naval Ravikant

Crypto is primarily a social technology, which we define as:

“methods and designs for organizing people in pursuit of a goal or goals.” Beinhocker

Examples of social technologies:

  • Institutions
  • Laws
  • Ledgers
  • Language
  • Money

Examples of social technologies within Crypto:

  • Cryptoeconomic primitives (TCRs, stable coins)
  • Cryptocurrency & tokens
  • Blockchain ledgers
  • Consensus mechanisms
  • Smart contracts
  • Governance mechanisms (Futarchy, DAO Democracy)
  • Decentralised organisations (DAOs, DACs)

As a social technological revolution, the nature of crypto is fundamentally different to the succession of physical technological revolutions that have occurred over the past 250 years.

The nature of the crypto social technological revolution

The crypto social technological revolution has multiple impacts on society, institutions and the economy:

  1. Smart contracts not only automate transactions, they also reduce opportunism and uncertainty, enabling more efficient execution of transactions versus traditional institutions.
  2. Crypto supports new types of organizations (including DAOs and DACs), that compete with and shrink the boundaries of traditional firms.
  3. Crypto will make viable new types of transactions, currently deemed too complex or costly to administer (e.g. micro-payments, complex, multi-party contracts, direct democracy).
  4. The tokenization of business models enables more precisely aligned, more powerful incentives, which:represents a new, trustless mode of social and economic coordination and governance” that “lets you easily instantiate a new human-computer organization out of the box.” (Jacob Horne)
  5. Cryptoeconomics fuses capital and technology within token models and provides direct access to investors- increasing the bandwidth of venture financing.
“Three years ago, a 20 year old man’s fledgling non-profit raised $20 million, on the basis of a whitepaper and a software prototype. A year later, the public net launched. Two years (now), it’s a $30 billion ecosystem and investors made 1000x. This is Ethereum; and it’s quite remarkable. It’s changing the world.” Trent McConaghy

So whilst physical technological revolutions are resisted, until society and institutions adapt and organise around the new paradigm, the crypto social technological revolution is upgrading this adaptive and organising capability itself.

Novelty and complexity through recombining building blocks

As complexity scientist W. Brian Arthur observes, technology is made-up of building blocks which recombine in novel ways to form increasingly complex hierarchies of technologies. Crypto’s open source paradigm enables the selection and replication of technology and business model building blocks that fosters accelerated 3-way co-evolution between physical technologies (e.g. solutions to scalability), social technologies (e.g. cryptographic primitives such as TCRs) and business models (such as decentralising ownership and rewarding early users). (See Beinhocker for more detail on this model.)

“If you wanted to go off the deep end, you could go as far to say that they are quantifiable building blocks of the internet hive mind. “ Jacob Horne

However, crypto will not only accelerate the rates of evolution of technology and economic growth, it has upgraded the evolutionary mechanism itself.

Crypto has upgraded the heredity mechanism of human-computer organisations

Complex systems including organisms and economies, typically pass through a number of metasystem transitions as they scale.

“A metasystem transition is the emergence, through evolution, of a higher level of organization or control.”

For example, within nature, the mechanism of heredity- the genome, has itself evolved from proteins, to RNA, to the more stable and accurately replicating DNA molecule. The evolution of DNA, as an evolutionary substrate, supported more complex life forms and constituted a metasystem transition for the complex adaptive system of Earth’s ecology.

Schematic timeline of information and replicators in the biosphere: major evolutionary transitions in information processing

Likewise, the most profound difference between the crypto and capitalist economies is also the mechanism of heredity. Within the crypo-economy, designs for physical technologies, social technologies and business models are encoded within the more stable and programmable evolutionary substrate of blockchains.

The parallels between DNA and Crypto metasystem transitions are profound:

“language which has evolved through DNA, speech, writing and now software at each stage this symbolic code has carried the evolution of order “ Pierre Levy.

This evolution of the mechanism of heredity within crypto will likewise support more complex human-computer organisms.

“Blockchains are digital organisms. As organisms evolve through changes in their DNA, blockchain protocols evolve through changes in their code. And like biological organisms, the most adaptive blockchains will be the ones that survive and thrive.” Fred Wilson
“Bitcoin is the first example of a new form of life. It lives and breathes on the internet. It lives because it can pay people to keep it alive.” Ralph Merkle

Crypto is set to induce a Cambrian explosion of more complex computer and human-computer organisms within this new generative system of “technology as biology.

In order to predict the potential impact of Crypto, we need to review the impact of previous social technology meta-innovations.

What the Crypto Technological Revolution means to humanity

Crypto is an ST meta-innovation on the scale of writing, the scientific method and markets

We find that each of the following social technology meta-innovations has triggered a metasystem transition in human social and economic orders:

  • Language- enabled the first sophisticated social systems ~30,000BC
  • Agricultural revolution — domestication of plants and animals enabled the move from hunter-gatherers to villages and eventually civilization~12,500 BC
  • Writing- led to the first civilizations, and the basis of human knowledge ~5,000BC
  • The scientific method- created an explosion in human knowledge and rate of technological progress ~1750
  • Joint stock companies and financial markets- drove exponential growth in economic complexity and wealth, and formation of capitalism (see diagram below)~1850
  • Digital economy /computing and the internet- 1990
  • Crypto — transition to a generative system of ‘technology as biology’ 2009…?

Taking one example: the scientific method created an explosion in human knowledge and accelerated the clock speed of technological progress. In combination with joint stock companies and financial markets, science-fuelled technology spurred the formation of the modern, capitalist economic order and drove exponential growth in economic complexity and wealth (see figure 3). And all this through accelerating the process of innovation: the commercialisation of invention.

Figure 3 — Exponential growth in Economic Wealth from 1750 (Beinhocker)

So what impact could crypto have?

What is crypto’s potential impact on humanity?

To recap, the crypto meta-innovation has the potential to:

  • upgrade society and the economy’s adaptive and organising capability
  • accelerate the rates of technological evolution and economic growth
  • upgrade the evolutionary mechanism of heredity to support a Cambrian explosion of more complex computer and human-computer organisms

Crypto has the potential not just to increase innovation, but to accelerate the rates of technological evolution and economic growth to such a degree that we fundamentally solve the innovation problem. This would trigger a metasystem transition to a post-scarcity, post-capitalist cryptoeconomy of abundance, whilst solving for our species-threatening negative externalities (see Rhys Lindmark’s excellent post on evolving the phase shift to cryptocapitalism, and the visionary work of Michael Haupt).

But this would just be the beginning. With these capabilities, humanity’s purpose could switch from sustenance to literally reaching for the stars, and advancing along the Kardeshev scale (see Trent McConaghy’s map for getting there):

  • Type 0 civilisation controls less than the energy incident on home planet
  • Type I civilisation controls entire energy incident on home planet
  • Type II civilisation controls entire energy emitted from on home star
  • Type III civilisation controls entire energy emitted from home galaxy
  • Type IV civilisation controls entire energy emitted from home universe
  • Type V civilisation controls entire energy emitted from multiple universes

This may all seem very farfetched, but when you look back at life’s journey and the evolution of order from inorganic matter, through organic molecules, proteins, RNA, DNA, computers and now blockchains you can see that we have actually come farther than we have left to go…

About the author

As an academic in the field of innovation and business model strategy, who has built and led billion dollar digital platform businesses; Justin now researches, consults and advises businesses on how to disrupt and transform industries using decentralised business models.

Justin’s current research project is developing a playbook for decentralised business models leveraging the emerging cryptoeconomic primitives in combination with platform strategy, gamification and loyalty rewards business models. If you have an interesting crypto project and would like advice, or to share and publish your use case - please get in touch via: https://www.linkedin.com/in/justinbanon/

https://twitter.com/JBanon

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