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Disruption Theory and Cryptocurrencies
Christian Peel !
27 April 2014 !
Silicon Valley Ethereum Meetup
1
What is Disruption?
Outline• Disruption Theory
• The Innovator’s Dilemma • The Job to be done
• Applying the theory to crypto • Bitcoin • Ethereum
• Appendix
High
Performance and
Complexity
Low
Time
pace
of in
nova
tion
Perform
ance
that
is ‘go
od en
ough
’ Here and in following, the lines are representative, not a perfect model.
One model: Business is like walking the wrong way on an Escalator
4
Companies (products) often exceed ‘good enough’
High !!
Performance, Complexity,
Cost !!
Low
Time
Incum
bent
Performance that is
‘good enough’ Entr
ant
5
With disruption model, ‘Good’ Companies can fail
High !!
Performance, Complexity,
Cost !!
Low
Incumbents nearly always win
Entrants nearly always win
Time
Sustai
ning I
nnov
ation
s
Disruptive Innovation
pace
of te
chno
logy
Performance that is ‘good
enough’
6
What is Innovation?
• Novelty: New • Invention: New, has potential value • Innovation: New, has mechanism to realize
potential value Innovation is invention plus a business model
7
The Innovator’s Dilemma
High
Performance and
Complexity
Low
word processing
toy
Time
Mini-co
mputer
PC
60% on $500,000
20% on $2,000
8
Mainframe to iPad
High !!
Performance and Complexity
!!
Low
high performance
word processing
toy
Time
Mainfra
me
Mini-co
mputer
photo editing
PC Table
t, smart
phon
es9
The Job to be Done
From asymco.com
• The iPhone initially had very poor audio quality on phone calls, was very expensive. Steve Ballmer laughed at it
• The iPhone and Android succeed not as expensive phones, but inexpensive portable computers
10
Low-end vs New-Market Disruption
Bring a better product into an established market
Address over-served customers with a lower-cost business model
Time
Low-en
d disr
uptio
n
perfo
rman
ce
Time
Diff
eren
t Mea
sure
of
Per
form
ance
New-marke
t Disru
ptionAddress a new market where there are NO competitors (and no consumption)
11
Which sort of Business Model is Best?
Bring a better product into an established market
Address over-served customers with a lower-cost business model
Time
Low-en
d disr
uptio
n
perfo
rman
ce
Time
Diff
eren
t Mea
sure
of
Per
form
ance
New-marke
t Disru
ptionAddress a new market where there are NO competitors (and no consumption)
12
Disruption Theory applied Bitcoin and Ethereum
13
What is Bitcoin’s Job?• Is it a currency?
• It’s an ok store of value, ok medium of exchange, a bad unit of account
• It does not require any fees other than transaction fees, so w.r.t. currencies, it has a ‘low-end business model’
• Is it a network for electronic funds transfer or remittance? • Yes, this will work even better as the Bitcoin network
grows. May require some changes to support micro-payments or volume like Visa
• The fees are very low; again it would be a low-cost entry • Other: libertarian bling, smart contracts via Bitcoin scripts
14
Bitcoin Tx Volume: Exponential Growth until 2013
Western Union
Discover
Cryptocurrencies are not good for EFT… yet
High !!
Performance and
Complexity !!
Low
Time
Visa, P
aypa
l, Wes
tern U
nion
Good enough
Cryptoc
urren
cies
now16
What is the Dollar’s Job?• The dollar is doing a great job as a currency
• Great store of value, medium of exchange, a unit of account
• What do we pay for this very stable currency? • Quantitative easing, other monetary policy • Sometimes we pay with inflation
• Is the dollar only serving the 1%? I.e. is it over-serving most people? • Maybe so…
17
Bitcoin as a Currency is in a New Market
Low-end currencies are not allowed by law.
TimeLib
erty D
ollar
Low
Infla
tion
via
Fed
Time
Diff
eren
t Mea
sure
of
Per
form
ance
: Inf
latio
n co
ntro
lled
by c
onse
nsus
Bitcoin “Bitcoin is a mirage.
Stay away from it.” Warren Buffett !“Bitcoin is a bubble.” Robert Schiller
US Doll
ar
now 18
Who are low-end currency users? Low-income or those frustrated with Govt?
High !!
Performance and
Complexity !!
Low
Time
US Doll
ar
Good enough
Bitcoin
now19
What is the Job of Products built on Ethereum?
Messaging Secure instant messages, secure email, anything that uses public key crypto
Currencies MemeCoin, Rewards system, exchanges between ether and sub-currencies
Finance Derivatives on Ether/dollar, savings, peer-to-peer lending, assurance contracts
Markets Markets for identities, currencies, financial instruments,
Decentralized Dropbox Pay others to store encrypted data
Voting, DAOs Place voting control of an organization in a contract
More Gambling, accounting for games, legal contracts which involves money or smart property
20
What is the Job of the Ether Currency?
• A crypto currency The identity contract makes the currency easier to use !
• The fuel (gas) for an Ethereum contract You can use it to fuel contract execution ’If Bitcoin is like gold, then Ether is like oil’ !
• Stock in the Ethereum ‘company’ Many will save it because they believe in the Ethereum ecosystem, i.e. that Ether will increase in value
The Job of an Ethereum Contract is to implement a Business Modelbusiness model (noun) a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing.
An Ethereum contract can play a defining role in all features of a business model !
Characteristics of Ethereum Business models • Easy, built-in finance and currency • Open-source (others can easily copy, use lower margins) • Revenue can go to distributed organizations, rather than to
centralized businesses
22
asym
co.c
om: S
eein
g W
hat's
Nex
t
Christian Peel [email protected]
@ChristianPeel Skype:christian.peel
!
Please contact me if you have comments on these slides or if you’d like help on a crypto or signal-
processing project
25
Sources
▪ I’m using examples and ideas from Clayton Christensen. Here is some reading material – “The Innovator's Solution” by Christensen, Raynor – "The Trap of Marginal Thinking" says you’ll pay now or pay later, so why not just
pay now, and get the real product – “Integrating Around the Job to be Done,” talks about how to chose, name, and
market a product – Presentations on the innovator’s dilemma, disruption in health-care, and
disruption in education – His latest work is on “The Capitalist's Dilemma” talks about how an economy
needs regular ‘empowering’ innovations !
▪ Other sources – See Asymco for more on disruption with Apple often used as an example.
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