11
A Primer on Technological Innovation
Technological innovation drives long‐term economic cycles, and if you can see the opportunity at the beginning of the cycle, you will do well to invest early. This chapter will show how innovation is one of the most impactful ways to invest and to realize capital appreciation, especially when an investor has conviction, and is in the early stages of a technology adoption cycle.
When we talk about “crypto,” it's easy to focus on cryptocurrencies and crypto assets, which is the financial construct that gets bought and sold. For example, when we focus on bitcoin, a lot of the time we focus on the “little b” bitcoin, not the “big B” Bitcoin. We focus on the currency, not the blockchain and technology. But that's where the innovation is. We're all here because of the technological innovation of the blockchain.
I'm involved with a men's group called METal International. The group started in LA, but when COVID hit, it went online. In LA, we'd meet every Saturday at one of those old theaters that are sprinkled through LA in Westwood and Hollywood. You go into these big, old, restored theaters from the golden age of film and you can feel the history from the building.
METal stands for media, entertainment, and technology, so the group is comprised of entrepreneurs and execs from all over those sectors. There are famous actors, entrepreneurs who run venture‐backed startups, and people from all through the media industry. Makes sense for a group founded in LA. It's great because you can meet and interact with like‐minded people. A lot of times, it can get lonely if you're the CEO of your own company and you don't have anyone to talk to who really knows what it's like. It can get lonely at the top.
When the group moved to an online setting, all the meetings were done through Zoom. That part, as almost everyone can relate to, was a little weird at first. However, the group expanded because anyone from around the world could join. Two of the most attended groups are the investors' group and the Crypto Roundtable, both on Thursday nights. I help lead the Crypto Roundtable, although it was started before I joined and was run by three others. But they invited me to join the leadership and it's been great to be able to contribute and make a difference for others in the realm of crypto investment. When we're in a crypto bull market, the group can get up to 80 or 90 people. When we're in a bear market, however, the group can trickle down to 20 or 30. That's how it always is, right? When things are going great, everyone wants to be involved. That's FOMO in action, and the irony is that big money is made when deploying in down markets.
We also have a Telegram group. A lot of the time, the threads and discussions can be focused on what token is going to have a big run, or the latest small‐cap token that's just about to have a token‐generating event (TGE). That's when a token launches for public trading for the first time. When we're in a bull market, everyone wants to talk about these coins and tokens. Most of the conversation can be around these types of discussions. During the Thursday night Zoom call, we also almost always have a section where we talk about technical analysis of price charts and various aspects of trading. These talks are almost identical to the types of discussions an investment group may have about stock investing. The group is focused on talking about the financial capital, the asset, and its investment prospects. No one really cares why a token is succeeding; they just want to know which one is.
As with many crypto enthusiasts, our group needs to increase our focus on the technology and the technological innovation. Often there's a focus on “can I make money?” without any clear understanding of why this technology is relevant. That's what we want to underscore here, and we want everyone to be able to answer the question “What does crypto and blockchain innovation allow us to do that we couldn't do before?” This is critical, because it's that innovation that's driving the early aspects of this new long‐wave economic cycle. It's that innovation that's in its early phase of tech adoption. In March 2021, there was an article that claimed that 17% of Americans have a crypto investing account or a wallet. This was about the same number of people who had email accounts in 1997. As you can surmise, both sets of innovation data were illustrating technology adoption. One was of this new crypto/blockchain cycle, and one was from the Internet, the Age of Information. Both show roughly where the tipping point is with any adoption cycle. The tipping point is when there's no going back – a technological innovation is going to be adopted by the masses. At 17%, that's roughly where the cycle goes from the early adopters to the middle adopters. This is a critical milestone in any technological revolution (see Figure 11.1).
Figure 11.1 The Adoption Curve, the S‐Curve
Source: © Stratechi.
The Convergence of AI, IoT and Robotics
These technologies are powerful in and of themselves, but it's the convergence of these technologies that create the real value. AI itself has provided powerful search capability for a company like Google. Google has gone on a startup buying tear, spending billions each year to gobble up IoT and robotics companies. Why? Because the market is coming down to just a handful of companies that are owning the commerce of the future. They are competing with Apple and Uber in autonomous driving and delivery. Amazon, too. The convergence of AI, IoT, robotics, and now blockchain technology will provide a company with their greatest competitive advantage. As we see this unfold, and as we talked about in our earlier book, The Age of Autonomy®, it's these four technologies and their convergence that will create the most value and the greatest competitive edge in the decades to come.
Artificial Intelligence
Artificial intelligence (AI) is a past specialty of mine. I spent my university days getting a degree in computer science with a focus on AI. This was in the late 1990s. Back then, we were trying to solve significant problems with artificial neural networks (deep learning). These included natural language processing; vision systems/image processing; autonomous motion (autonomous robots); and expert systems (pattern matching), among other areas. We made some progress back then, but we really couldn't address the problem set comprehensively, the main reason being that we needed to wait for the hardware and the processing to greatly improve.
That finally happened around 2010 or so. There were big improvements in central processing units (CPUs), the processing heart of a computer, and we also moved off a lot of graphics processing to separate graphics processing units (GPUs). The hardware had finally caught up to the software, and in the 2010s we really started to see AI take off. We saw expert systems and pattern‐matching win games of Go, beating the best humans. We saw autonomous robotics come into the mainstream along with autonomous driving. There were AI innovations everywhere, and today, AI is the critical component for both corporations and nations alike to take the lead and beat the competition.
In the next technological revolution, it will be the converging of AI and blockchain that creates the competitive advantage. Companies and organizations will build AI systems to process and convert data into knowledge. Then, that knowledge can be integrated with crypto assets via smart contracts and generate economic activity without human intervention.
Blockchains are intersecting with AI in several key areas. Today, many of the trades that happen on crypto and stock exchanges are run by trading algorithms (bots). These are AI software applications that decide when and how to trade stocks, commodities, and digital assets. Soon, trading will become a subroutine inside a bigger process.
Imagine a farm that uses software to autonomously run its operations – from buying seeds to irrigating crops. Blockchains coupled with AI will allow the entire management of operations to become a completely autonomous system. When that happens, it will become common for trading bots to handle the buying and selling. That trend will gain momentum as assets become digital and more of them are managed autonomously. There will even be marketplaces that buy and sell bots, and autonomous systems will buy and upgrade their own bots!
The Internet of Things and Sensors
The Internet of Things (IoT) is generating massive amounts of data that will be the source of training AI systems and feeding data into those expert systems for a broader application. I mentioned in my first book, The Knowledge Doubling Curve, the idea originated with famed inventor Buckminster Fuller, who estimated in 1900 that knowledge doubled every 100 years. By 1945, knowledge would double roughly every 25 years. Then, initially forecasted and later confirmed by IBM, that knowledge would be doubling every 12 hours by 2020. Imagine that! Then imagine a world where competition determines whether a company survives or dies. Can humans, without computer processing and AI, compete with companies with sensor and AI‐based solutions that process massive amounts of data into knowledge? We don't think so. That concept will be extended to the new economy with digital assets and blockchains.
As we discussed in Part One, blockchains can intersect with IoT sensors, which will facilitate a return to owning, controlling, and monetizing (if you want) your personal data. Start with the data you generate at home – the sensors in your fridge, for example. Perhaps your eating habits are worth money to some company. For the right price, maybe you're willing to sell your data if it's properly anonymized.
Or think about that autonomous farm. It will have sensors that measure how much seed was planted, how much water was used, and how much crop yield occurred. The intersection of IoT sensors and blockchain gives that farm operation data they can use internally or sell. The data itself are digital assets – and blockchains provide a secure place to store and deploy these assets – with no intermediary.
Robotics
Robotics and autonomous vehicles have made huge strides in the past decade. How many times have you seen Google self‐driving vehicles around town? Further, they have almost mastered long‐haul trucking with autonomous driving to such a degree that it's estimated that we could see trucks on the road as early as 2024.
Similar strides have been made in robotics. Most warehouses are equipped with autonomous robots that do most of the work. Robots are used throughout manufacturing and other sectors. Robots may or may not integrate directly with blockchains, but it will be AI systems and economic activity that is managed and processed by blockchains that will drive decision‐making and other aspects that will affect what work robots do, and those decisions will be made in real time in the field.
Vision, Image Processing, and Autonomous Motion
Over the past 30 years, we've made serious progress into what's possible with vision systems, image processing, and the ability of vehicles and robots to move without human intervention. That comes in the form of facial recognition systems being able to classify and process images for AI systems to “know” what's in an image and then be able to act. It comes in the form of 18‐wheelers to begin a trip in California and make it to the East Coast autonomously.
We've experienced that the few companies who've mastered artificial intelligence are able to capitalize and monetize all of commerce. Amazon started out as a book‐selling company, but since 2000, they are now basically the sole company to sell products over the Internet (or at least they own the top spot in the sector). They used AI, IoT, and robotics to outcompete, and they won. Google started out as a search engine, but now they're in everything, including autonomous vehicles. They will compete with Uber on many aspects of autonomous delivery once autonomous vehicles are commonplace. They've bought more AI startups than anyone. Apple has a similar story, as do Microsoft, Uber, Hulu, and Netflix. These few tech companies are near monopolies and own or control their market. It's these companies that were able to master image processing, vision systems, and autonomous motion – it was the application of AI, along with robotics and IoT, that gave them a moat, a competitive advantage that's now near unstoppable. Each has a blockchain strategy that will take them through the Age of Autonomy.® It will be interesting to watch whether some power can be taken back by the individual as Web 3.0 and other technologies mature and come to market.
From Automation to Autonomy
AI is taking automation even further. Businesses use AI to improve systems ranging from health care records to navigation. Robots perform rote physical tasks. IoT sensors are embedded in everything from refrigerators to warehouse pallets.
Automation is mind boggling on its own. But there's another leap to make: from automation to autonomy. By linking AI, IoT, and robotics to blockchain technology, you can create fully autonomous systems. That's right: systems that can govern, manage, and run themselves year‐round, all day every day. Blockchains make it possible to process, store, and transfer economic value without human intervention. We call this technological revolution the Age of Autonomy®.
We predict that in the not‐too‐distant future, every industry, community, and government will use autonomous systems to produce work and to generate, transfer, and store value. These systems will combine AI and IoT sensors with blockchains.
Robots can perform tasks autonomously. IoT sensors measure, generate, and communicate massive amounts of data. AI provides judgment, expertise, and evaluation to transform that data into knowledge.
The Crucial Connector
This all comes together when considering digital assets. Digital assets managed on blockchains will allow organizations to govern and enforce the transfer and storage of value from the work produced, with the ability to turn that knowledge into economic action, autonomously. More specifically, when we talk about the convergence of blockchain with other key technologies and innovations, we're talking about the implementation of smart contracts on smart contract blockchains. Layer 1 blockchains like Ethereum ($ETH), Solana ($SOL), and Algorand ($ALGO) are smart contract platforms that allow users to build and implement smart contracts, and it is these very smart contracts that provide the mechanism to build robust functionality. Importantly, these contracts allow these convergent systems to conduct capital transactions in a peer‐to‐peer manner without any human intervention. In the new decentralized, digital economy, IoT produces data, AI systems will turn that data into actionable “knowledge,” robotics can express that knowledge in the physical world, and blockchain provides the missing piece, via smart contracts that will then drive economic transactions and activity.
Putting It All Together
A cluster of innovations are converging to deliver possibilities that were previously not possible. It's not just the innovations themselves that are valuable. They combine in novel ways that bring on a new technological revolution.
As I discussed in my first book, technological revolutions drive the long‐wave economic cycle. Investing early in adoption brings about the outsized performance gains we're looking for as investors. It's hard to be a part of a small group of early adopters against the screaming mob of nonbelievers. Conviction requires taking and maintaining that position in the minority. And it's that conviction in these innovations that will bring you, the innovative investor, to move, move early, and stay for the ride – even in the face of volatility, risk, and adversity.