This talk will be called, “A Tsunami of Innovation” [or “Exponential Innovation”].

What I want to talk about today is innovation in open systems. You’ve probably heard me talk about this before. One of the defining characteristics of the Bitcoin blockchain, and also of other open blockchain systems, is something we call “permissionless innovation.” Permissionless innovation [occurs in systems] which [are] decentralized, where people can connect to the system, create their own applications, launch these applications and use the platform without asking for permission. Something magical happens [when this is possible]. The best example, of course, is the internet. On the internet, you don’t need permission to create a new application. You can assign it some port numbers, write an application protocol, distribute a binary or source code, and anybody can run it. If they run it, they will become your market for that application.

What is the minimum market size you need to run an application on the Internet? Two nodes, two people, two systems. As long as two [nodes] want to use a protocol to communicate with each other, that is an application. That is an application market, the basis for running a new application. You don’t need anybody’s permission to innovate on this system. Why is this important? In closed and permissioned systems, innovation is determined by the least common denominator. If you want to run an application on the phone company’s network, you [must] find a way to persuade them that this application will be broadly used by millions of people. You [must] to ask for permission. Only if your application has a very large market share will it ever run.

The essence of permissionless innovation is [this]: You create the possibility of micro-innovation, innovation for a market of two, a special-purpose application that nobody in the world cares about except for [a few] people or systems. [You] can do micro-innovation in a tiny environment, create exciting new applications for which the only people who are excited are the [few] participating in that application. That is enough. It is hyper-local, micro-innovation. At the same time, it [can] also [be] a platform for global, macro-innovation. And the same application that [initially] appeals to two people can [attract] two thousand, twenty thousand, two-hundred thousand, two million, two billion people. You will probably need to optimise the code a bit. [Laughter] But [that is] a possibility, of simultaneously appealing to an audience as small as two, all the way up to a completely global audience. All without asking for anyone’s permission. This critical function is offered by Bitcoin and other open blockchains, by the virtue of their open access [to] a neutral platform that is not controlled by a central entity and being able to use that platform to develop your own applications. People often underestimate [the possibilities] of that. We have seen how big markets [and industry] underestimated the innovation of the open internet.

There is a reason why.

You can easily underestimate [innovation on such small scales] if you are a big bank or corporation [which is] paying a thousand very expensive, highly-trained professional developers. You have “the cream of the crop,” “the best of the best” innovating for you in a focused and directed manner. How could anyone compete with that budget, marketing, infrastructure, and support? It is almost ridiculous to think you could micro-innovate [a decentralized system] that works on a large scale. “Maybe you could do it for things that are not important.” “You can play with your little internet toys. We have important work to do here in our large corporation.” Then one day, some bored student at the University of [Helsinki], who can’t afford to buy Microsoft Windows, comes up with the most ridiculous idea: ‘I will write a scalable, multi-processing operating system that competes with UNIX.’ The only response to that, by any sane individual, is ‘that is ridiculous, there is no way it will ever work.’ Twenty years later, Linux has completely taken over data centers and [many] computer operating systems. Most of the people in this room are running it underneath their Android operating system, which is really just Linux built up. This audacity to out-innovate the largest players on the planet, can combine with really important [elements]. Passionate, interest, and deep knowledge of your community of users is most powerful when the developers are the community, or come straight out of the community of users. When you have people developing an application for their own interest, that they have emotional attachment to, and feel passion for, they will commit an enormous amount of effort into building that [application] and treat it with great care.

Why? At the end of [the day], software is art. Just like [with] artists, if you lack creativity, if you lack that spark, you can have a corporation hiring as many in-house artists as you want, but you will never create great art. It will be soulless, it will be empty. That is what happens when innovation is brought into large companies; it goes there to die. When they send their employees to four-hour workshops and seminars on a Wednesday afternoon to teach them how to think creatively, innovation and creativity go there to die. By some miracle, if an inspired creator arises from within the corporation and creates something truly unique, disruptive, expressive, the entire mechanism of bureaucracy will stomp down on that idea and kill it very quickly. “Tommy, we love your idea and creativity. This is a fantastic invention you’ve brought to us.” “We have conducted a focus group and assembled a committee.” “We don’t want to interfere with your creative process, but we have a few minor suggestions to help it become more broadly appealing among our customers, more in line with our strategic goals.” That is the corporate sound of stomp on creativity. By the time that idea comes out of committee, it is a pale image, a skeleton, of what it was. Everything that was good, creative, and wonderful about it has been sucked out; what is left is a soulless, corporate piece of shit.

Yet, when presented with decentralized innovation and shown the potential of everyone on the planet [having a space to] independently innovate, to create content and beautiful works of art, to contribute to [the body of] human knowledge. When presented with an open blockchain that allows anyone in the world to create applications, they underestimate it. They cannot fathom how an unruly mess of untrained, untutored, and unpaid volunteers can ever compete with their finely-geared machine. Every time, they miss the point. This happens again and again throughout history. You would think by now, after twenty years of observing the internet at work, this lesson would come through. Instead, what you see are corporate organizations and governments having “innovation workshops,” speaking about “disrupting from within” and all of this empty talk. When I was at the hackathon a couple of days ago, I found out that one of the key contributors to an amazing piece of software [was] a fourteen-year-old kid from London, with no formal training in programming, who is out-classing many of the professional programmers in this space with a passion. That is the most dangerous form of competition a company can face. That is unstoppable. Here is why it is easy to underestimate the potential for innovation. Place two systems side-by-side. One of them has a two-hundred-year tradition of slow, careful, and methodical development, institutionalized knowledge, and a solid foundation of ‘trust’: the banking system. [The other is] this rag-tag group of weirdo anarchists — I’m looking at you. [Laughter] People with funny haircuts, too many piercings, and weird t-shirts, who can’t wear a suit. They say, “We will re-invent banking.” What can you do but laugh, right? The first version of what they present to the world is woefully inadequate. It is kludgy, difficult to use, and hasn’t been tested by a focus group. The design sucks completely. You compare the two: this is what they have done vs. this is what took us two hundred years to do. You laugh, because it seems there is no chance a little rag-tag group of misfits will ever possibly compete with the millions or billions of dollars in your budget. What you are missing is the most important part of the equation. When everyone is able to innovate without permission, when the outcome of their innovation is open-source, available for everybody else to copy, incorporate, integrate, mash-up, and build upon, [this enables] an exponential curve. Every tiny idea is fed by a thousand other tiny ideas, in turn spawning a new forest of tiny ideas, that together create another generation of tiny ideas. Gradually, all of these [ideas] start building up. People who are free to follow their passion create applications you couldn’t even imagine [before]. They build on other people’s work, give [their own] ideas to other people, who then build on top of them. The momentum increases. It takes a long time for that momentum to build up; it is very gradual at first. The key characteristic of an exponential curve, for the majority of its [early] life cycle, is a slowly climbing horizontal line. [Maybe it will take] a very long time to catch up with that plateau of two hundred years of innovation. Then, surprise! Exponential curves have an elbow.

The elbow is an inflection point where the horizontal becomes vertical. All the cumulative momentum which was building and building suddenly reaches that critical point. It starts accelerating faster and faster. It will take a very long time for these applications to reach parity, to appear to do the same things that the established industry does. But in an exponential curve, one month after reaching parity, it is exceeding that by an order of magnitude. In one year, it has exceeded that by two or more orders of magnitude. While the traditional institution continued its slow horizontal [pace], the exponential curve suddenly turned vertical. We have seen this happen on the internet, throughout many technologies in our lifetime. Ray Kurzweil, an esteemed author, has written a fantastic work called “The Singularity Is Near.”

I spoke recently at the Singularity University, which is an organization founded by Ray Kurzweil. We discussed these issues of exponential growth. These exponential curves can be seen in many places in our post-industrial society: the acceleration of density of computer chips; computer memory and processing speed; the amount of data you can send; the number of documents on the web, on Wikipedia; the number of people connected to the Internet; the number of Internet-Of-Things systems connected to each other; the number of people working on Bitcoin and contributions to Bitcoin Core; the number of alternative blockchains. All of these lines have one thing in common: they exhibit an exponential curve. When you look at [these curves] as a human being, we tend to massively underestimate their impact. We cannot fathom exponential growth. It is [somewhat] alien to nature. It only happens in very limited circumstances and it is always surprising. We extrapolate linearly. We see the past and think that it will continue at the same pace in the future. What we miss is the elbow in the curve, when [the momentum of change becomes] vertical. The amount of data you could fit on a storage device in the ’60s was pitiful. You can see photos online of [four] IBM [employees] unloading a 5 megabyte hard drive from a truck. It took a very long time to [advance] from five to ten to one hundred megabytes, but before long you stop counting in megabytes and start counting in gigabytes, then terabytes, and the curve is vertical. We see this with data, with participation on the internet, and we are beginning to see it with Bitcoin.

I use the phrase “tsunami of innovation.” One characteristic of a tsunami – a wave in the ocean [caused] by a massive disturbance – is that the wave propagation happens at depth. If you are a fisherman five hundred miles out from the coast, a tsunami [could] pass and you [might not] even distinguish it from the other waves, a little slosh that passes you by. But there is two hundred feet of “slosh” underneath that you can’t see because it is held at depth. Then the wave reaches the edge of the continental shelf, and it climbs. By the time it hits the beach, it is two hundred feet high. If you were looking out in the ocean, [at first it appears as] a little wave, then a medium of wave.

“Oh, it’s a big wave! Oh shit, run for the hills!” This [will] be the experience of institutionalized banking, of institutional regulators, of governments, [when the waves of] decentralized innovation, applications of trust, and blockchain-powered Internet-of-Things [arrive]. Every organization observing [these waves] will say, “Oh, it is an interesting concept.” “Oh, it is [catching a lot of attention].” “Oh, it is [being adopted in the mainstream now].” “Oh shit, run for the hills!” In fact, the first indication you have [of a tsunami] is that the water recedes. That is the wrong time to go sunbathing on the beach.

Right now, it is very easy to underestimate the innovative potential of Bitcoin. Right now, you see the early-stage prototype. You see the beginnings of a system with some promise, but its biggest promise is in what is to come. The promise lies in what is to come because of the power of innovation without [seeking] permission, by individuals who have a [passion], an interest that will never be served by the current system. Let’s look at just one example. Let’s say you are a person with a disability. You have a problem with your hearing or sight. Or a cognitive problem, difficulty with numbers (dysnumeria) or with words (dyslexia). Can you ask your bank to make your life easier? Can you ask them to modify the online banking application, to make it more suitable to you? Can you ask them to modify their ATMs, to make them more [accessible] to you? With great resistance, they might try to serve you. In fact, it will be easier [to serve you] on the Web than on their ATM network or physical locations.

Imagine what happens if you are a software engineer. [Maybe you], your best friend, or your cousin, has a disability. You look at Bitcoin and think, ‘My friend doesn’t have a good way of remembering PINs.’ He / she would be much better served [if the security mechanisms used] pictures of animals. ‘My friend doesn’t have a good way of [reading] small information.’ She would be better served with [an ability to magnify] information being [shown]. ‘My friend doesn’t have a good understanding of social engineering and cognitive threats.’ He/she would be better served [through] a community-managed multi-sig [scheme]. How many people do you need to persuade to write that application [for Bitcoin]? No one. If you write [that code], you improve the world in a tiny way, for one person, and others will find it. They will say, “This is an application I have always been looking for!” “I have been empowered by the innovation of a complete stranger. I can use [bitcoin]!” The momentum of the tsunami builds with every single developer operating in this space. We [may not] solve big, universal problems, [but we will solve] small, local problems that matter to us. When we control where we invest our creative energy and our passion, there is nothing in the world which can stop that once it gains momentum. It is an absolute tsunami of innovation and it is coming. Thank you.

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Also read: The future of Bitcoin smart contracts (Simplicity of Liquid)

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