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Long Waves: The History of Innovation Cycles

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Innovation Cycles

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Long Waves: How Innovation Cycles Influence Growth

Creative destruction plays a key role in entrepreneurship and economic development.

Coined by economist Joseph Schumpeter in 1942, the theory of “creative destruction” suggests that business cycles operate under long waves of innovation. Specifically, as markets are disrupted, key clusters of industries have outsized effects on the economy.

Take the railway industry, for example. At the turn of the 19th century, railways completely reshaped urban demographics and trade. Similarly, the internet disrupted entire industries—from media to retail.

The above infographic shows how innovation cycles have impacted economies since 1785, and what’s next for the future.

Innovation Cycles: The Six Waves

From the first wave of textiles and water power in the industrial revolution, to the internet in the 1990s, here are the six waves of innovation and their key breakthroughs.

First WaveSecond WaveThird WaveFourth WaveFifth WaveSixth Wave
Water Power
Textiles
Iron
Steam
Rail
Steel
Electricity
Chemicals
Internal-Combustion Engine
Petrochemicals
Electronics
Aviation
Digital Network
Software
New Media
Digitization (AI, IoT, AV,
Robots & Drones)
Clean Tech
60 years55 years50 years40 years30 years25 years

Source: Edelsen Institute, Detlef Reis

During the first wave of the Industrial Revolution, water power was instrumental in manufacturing paper, textiles, and iron goods. Unlike the mills of the past, full-sized dams fed turbines through complex belt systems. Advances in textiles brought the first factory, and cities expanded around them.

With the second wave, between about 1845 and 1900, came significant rail, steam, and steel advancements. The rail industry alone affected countless industries, from iron and oil to steel and copper. In turn, great railway monopolies were formed.

The emergence of electricity powering light and telephone communication through the third wave dominated the first half of the 1900s. Henry Ford introduced the Model T, and the assembly line transformed the auto industry. Automobiles became closely linked with the expansion of the American metropolis. Later, in the fourth wave, aviation revolutionized travel.

After the internet emerged by the early 1990s, barriers to information were upended. New media changed political discourse, news cycles, and communication in the fifth wave. The internet ushered in a new frontier of globalization, a borderless landscape of digital information flows.

Market Power

To the economist Schumpeter, technological innovations boosted economic growth and improved living standards.

However, these disruptors can also have a tendency to lead to monopolies. Especially during a cycle’s upswing, the strongest players realize wide margins, establish moats, and fend off rivals. Typically, these cycles begin when the innovations become of general use.

Of course, this can be seen today—never has the world been so closely connected. Information is more centralized than it has ever been, with Big Tech dominating global search traffic, social networks, and advertising.

Like the Big Tech behemoths of today, the rail industry had the power to control prices and push out competitors during the 19th century. At the peak, listed shares of rail companies on the New York Stock Exchange made up 60% of total stock market capitalization.

Waves of Change

As cycle longevity continues to shorten, the fifth wave may have a few years left under its belt.

The sixth wave, marked by artificial intelligence and digitization across information of things (IoT), robotics, and drones, will likely paint an entirely new picture. Namely, the automation of systems, predictive analytics, and data processing could make an impact. In turn, physical goods and services will likely be digitized. The time to complete tasks could shift from hours to even seconds.

At the same time, clean tech could come to the forefront. At the heart of each technological innovation is solving complex problems, and climate concerns are becoming increasingly pressing. Lower costs in solar PV and wind are also predicating efficiency advantages.

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Money

How Central Banks Think About Digital Currency

Central bank digital currencies are on the horizon. What do 65 central banks representing 91% of global GDP think about them?

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How Central Banks Think About Digital Currency

In the late 1600s, the introduction of bank notes changed the financial system forever. Fast forward to today, and another monumental change is expected to occur through central bank digital currencies (CBDC).

A CBDC adopts certain characteristics of everyday paper or coin currencies and cryptocurrency. It is expected to provide central banks and the monetary systems they govern a step towards modernizing.

But what exactly are CBDCs and how do they differ from money we use today?

The ABCs of CBDCs

To better understand a CBDC, it helps to first understand the taxonomy of money and its overlapping properties.

For example, the properties of cash are that it’s accessible, physical and digital, central bank issued, and token-based. Here’s how the taxonomy of money breaks down:

  • Accessibility: The accessibility of money is a big factor in determining its place within the taxonomy of money. For instance, cash and general purpose CBDCs are considered widely accessible.
  • Form: Is the money physical or digital? The form of money determines distribution and the potential for dilution, and future CBDCs issued will be completely digital.
  • Issuer: Where does the money come from? CBDCs are to be issued by the central bank and backed by their respective governments, which differs from cryptocurrencies which mostly have no government affiliations.
  • Technology: How does the currency work? CBDCs break down into token-based and account-based approaches. A token-based CBDC operates like banknotes today, where your information is not known nor needed by a cashier when accepting your payment. An account-based system, however, requires authorization to partake on the network, akin to paying with a digital wallet or card.

Digital Currency vs Digital Coins

In essence, digital currency is the electronic form of banknotes that exists today. Therefore, it’s viewed by some as a modern and efficient version of the cash you hold in your wallet or purse.

On the other hand, cryptocurrencies like Bitcoin are a store of value like gold that is secured by encryption. Cryptocurrencies are privately owned and fueled by blockchain technology, compared to digital currencies which do not use decentralized ledgers or blockchain technology.

Digital Currency: Regulatory Authority and Stability

Digital currencies are issued by a central bank, and therefore, are backed by the full power of a government. According to the Bank for International Settlements, over 20% of central banks surveyed say they have legal authority in issuing a CBDC. Almost 10% more said laws are currently being changed to allow for it.

As more central banks issue digital currencies, there’s likely to be favorability between them. This is similar to how a few currencies like the U.S. dollar and Euro dominate the currency landscape.

The Benefits of Issuing a CBDC

There are several positives regarding the issuance of a CBDC over other currencies.

First, the cost of retail payments in the U.S. is estimated to be between 0.5% and 0.9% of the country’s $20 trillion in GDP. Digital currencies can flow much more effectively between parties, helping reduce these transaction fees.

Second, large chunks of the global population are still considered unbanked. In this case, a CBDC opens avenues for people to access the global financial system without a bank. Even today, 6% of Americans do not have a single bank account.

Other motivations for a CBDC include:

  • Financial stability
  • Monetary policy implementation
  • Increased safety, efficiency, and robustness
  • Limit on illicit activity

An example of payments efficiency can be seen during the onset of the COVID-19 pandemic, when some Americans failed to receive their stimulus check. Altogether, some $2 billion in funds have gone unclaimed. A functioning rollout of a CBDC and a more direct relationship with citizens would minimize such a problem.

Status of CBDCs

Although widespread adoption of CBDCs is still far away, research and experiments are making notable strides forward:

  • 81 countries representing 90% of global GDP are exploring CBDCs.
  • The share of central banks actively engaging in CBDC work grew to 86% in the last 4 years.
  • 60% of central banks are conducting experiments on CBDCs (up from 42% in 2019) and 14% are moving forward to development and pilot arrangement.
  • The Bahamas is one of five countries currently working with a CBDC – the Bahamian Sand Dollar.
  • Sweden and Uruguay have shown interest in a digital currency. Sweden began testing an “e-krona” in 2020, and Uruguay announced tests to issue digital Uruguayan pesos as far back as 2017.
  • The People’s Bank of China has been running CBDC tests since April 2020. In all, tens of thousands of citizens have participated, spending 2 billion yuan, and the country is poised to be the first to fully launch a CBDC.

The U.K. central bank is less optimistic about a rolling out a CBDC in the near future. The proposed digital currency—dubbed “Britcoin”—is unlikely to arrive until at least 2025.

Disrupting The World of Money

Wherever you look, technology is disrupting finance and upending the status quo.

This can be seen through the rising market value of fintech firms, which in some cases are trumping traditional financial institutions in value. It is also evident in the rapid rise of Bitcoin to a $1 trillion market cap, making it the fastest asset to do so.

With the rollout of central bank digital currencies on the horizon, the next disruption of financial systems is already beginning.

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From Amazon to Zoom: What Happens in an Internet Minute In 2021?

A lot can happen in an internet minute. This stat-heavy graphic looks at the epic numbers behind the online services billions use every day.

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data never sleeps internet minute 2021

From Amazon to Zoom: An Internet Minute In 2021

In our everyday lives, not much may happen in a minute. But when gauging the depth of internet activity occurring all at once, it can be extraordinary. Today, around five billion internet users exist across the globe.

This annual infographic from Domo captures just how much activity is going on in any given minute, and the amount of data being generated by users. To put it mildly, there’s a lot.

The Internet Minute

At the heart of the world’s digital activity are the everyday services and applications that have become staples in our lives. Collectively, these produce unimaginable quantities of user activity and associated data.

Here are just some of the key figures of what happens in a minute:

  • Amazon customers spend $283,000
  • 12 million people send an iMessage
  • 6 million people shop online
  • Instacart users spend $67,000
  • Slack users send 148,000 messages
  • Microsoft Teams connects 100,000 users
  • YouTube users stream 694,000 videos
  • Facebook Live receives 44 million views
  • Instagram users share 65,000 photos
  • Tiktok users watch 167 million videos

As these facts show, Big Tech companies have quite the influence over our lives. That influence is becoming difficult to ignore, and draws increasing media and political attention. And some see this attention as a plausible explanation for why Facebook changed their name—to dissociate from their old one in the process.

One tangible measure of this influence is the massive amount of revenue Big Tech companies bring in. To get a better sense of this, we can look at Big Tech’s revenue generating capabilities on a per-minute basis as well:

CompanyRevenue Per MinuteMarket Cap ($B)
Amazon$955,517$1,840
Apple$848,090$2,460
Alphabet (Google)$433,014$1,840
Microsoft$327,823$2,310
Facebook$213,628$926
Tesla$81,766$1,010
Netflix$50,566$298

Much of the revenue that these elite trillion-dollar stocks generate can be traced back to all the activity on their various networks and platforms.

In other words, the 5.7 million Google searches that occur every minute is the key to their $433,014 in per minute sales.

The Internet Minute Over The Years

With the amount of data and information in the digital universe effectively doubling every two years, it’s fair to say the internet minute has gone through some changes over the years. Here are just some areas that have experienced impressive growth:

  • In 2016, Snapchat users 527k photos per minute, compared to 2 million in 2021
  • In 2017, Twitter saw 452k Tweets per minute, compared to 575k in 2021
  • In 2018, $862,823 was spent online shopping, while 2 million people were shopping per minute in 2021
  • In 2019, 4.5 million videos on YouTube were being viewed every minute, while in 2021 users were streaming 694k hours
  • In 2020, Netflix users streamed 404k hours per minute, growing to 452k hours in 2021

Here’s a look at the services that have been featured in the various iterations of this graphic over the years:

data never sleeps wheel over time 2021

Twitter, Instagram, and Youtube are the only three brands to be featured every single year.

Internet Growth Perspectives

The Internet Minute wheel also helps to put the internet’s rapid rate of adoption into perspective. For instance, in 1993, there were only 14 million internet users across the globe. But today, there are over 14 million just in Chile.

That said, the total addressable market still has some room left. By some measures, the complete number of internet users grew by 500 million in 2021, a roughly 11% jump from 4.5 billion users in 2020. This comes out to an astonishing 950 new users on a per minute basis.

What’s more, in the long term, with the appropriate infrastructure in place, certain areas within emerging markets can experience buoyant growth in the number of connected citizens. Here’s where the next billion internet users may come from, based on the largest disconnected populations.

RankCountry / TerritoryUnconnected People% of Population
1India685,591,07150%
2China582,063,73341%
3Pakistan142,347,73565%
4Nigeria118,059,92558%
5Bangladesh97,427,35259%
6Indonesia96,709,22636%
7Ethiopia92,385,72881%
8Democratic Republic of Congo71,823,31981%
9Brazil61,423,29529%
10Egypt46,626,17046%

With this growth trajectory in mind, we can expect future figures to become even more astonishing. But the human mind is known to be bad at interpreting large numbers, so in future editions, the internet minute figures may need to be stripped down to the internet second.

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