Software-Based Economies: The Real Reason They Can't Compete

The world is changing rapidly. We are seeing advancement across many parts of society. The next 20 years will see a host of innovation that will completely change how we do things.

One of the major changes is blockchain and cryptocurrency.

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With all the hoopla about regulation and controlling cryptocurrency it is best to step back to look at what is taking place.

Simply put, technology eats whatever gets in its way. There are very powerful industries that are being transformed before our eyes. This is not being done, for the most part, by the same companies that dominated for so long. Instead, it is ones that are entering from the outside that create the disruption.

The same holds true for completely new technology. Much in the same way there was no blending of streaming with video cassette rental, we will not see the marriage of decentralized finance (DeFi) and the traditional system.

Software Based Companies

Take a look at this list:

  • Apple
  • Amazon
  • Facebook
  • Google
  • Microsoft

These are some of the largest companies in the world by market cap. In fact, they occupy 5 of the top 6 spots. If we look at the linked list, we see that technology companies hold 8 of the first 10 spots.

Another thing that stands out is these companies are all based around software. Even the #7 company on the list, Tesla, is investing heavily in software development. It seems Andreeson was correct.

Ultimately, we are watching code take over more of our economy. In the United States, this has grown in the last half decade and held steady.

n 2020, the United States tech sector contributed around 1.99 trillion U.S. dollars to the country's overall gross domestic product (GDP), making up approximately 10.5 percent of total GDP. Since 2018, the tech sector's yearly percentage of total GDP has remained relatively consistent.

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A fair portion of this, more than half, comes from the information technology sector. This is where software and information processing equipment are located. It is also a sector that is seeing acceleration.

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Can anything seriously believe it can stand up to that?

From Atoms To Bits

This entire process of converting to software, i.e. code, means we have an economy that transitions away from atoms to bits. It is why we see so many improvements in efficiency. Here is where things also get cheaper and move quicker.

For example, think of video and music. Also consider information as well as communication. All of these areas once physical in nature. Today, that is no longer the case. It is why all those areas got less expensive along with increases in speed.

Cryptocurrency does the same thing. Coupled with blockchain, this is laying the foundation for more aspect of our everyday lives to suddenly "disappear". Part of the transition is from the visible to invisible.

Ponder what a digital wallet does in relation to banks. For the majority of the population, people use a bank to send, receive, and store money. That is the bulk of their interaction. A digital wallet does exactly the same thing. Thus, we see the ability to replace tens of thousands of bank branches around the world.

Now let us expand this a bit further. Consider what decentralized finance (DeFi) can do. It essentially will codify most of our financial services. This moves us from an atom-based system to one driven by software. There is no need for local offices, corporate headquarters, or anything else associated with the behemoths that dominate the industry. In the world of bits, it simply operates based upon what is programmed in the code.

Of course, speed is the true difference maker. Software upgrades can occur in a matter of few weeks or months. Entire platforms can be redesigned in that time. Try to do that with a traditional company. It takes years because of the physical, as well as real, layers. Software does not suffer from corporate bureaucracy, out of touch managers, or political power brokers who seek to maintain their position. It simply runs when it goes live.

Decentralized Autonomous Organizations (DAOs)

Eventually, many traditional companies are going to get eaten by DAOs. The reality is they simply cannot compete.

Let us take a look at the Decentralized Hive Fund (DHF). Here we have a DAO that provides funding for development and other tasks associated with the Hive blockchain.

It is an entity that runs 24/7. There are no meetings, directors, or offices. Each individual can place a vote (or remove one) at anytime. All results are instantly updated based upon the stake that is behind the vote. The payouts occur daily without human intervention. Occasionally there are updates done when the community decides more features are required. Outside of that, the DAO just keeps running.

Now let us compare that to Venture Capital firms. These organizations are centralized in nature, with a few people making the decisions. Meetings are held and people are constantly pitching their ideas to them. We see updates, reports, and further evidence of activity from those who do receive the funding.

In short, these firms cannot compete with a DAO in speed and efficiency. The decision-making process is slow along with being cumbersome.

Take this concept and extrapolate it across many different industries. Focus upon the financial industry as an example. While they did well to embrace technology, consider how much more efficient (and less costly) things are in the Defi world. This is the major appeal.

Email crushed "snail" mail because it was less costly and much quicker. It really was that simple. Decentralized finance offers the same advantages. Historically, most advancements that provided these benefits ended up succeeding.

All the different aspects of cryptocurrency is in alignment with a much larger trend. There is no doubt that want Andreeson forecast more than a decade ago is occurring. We are not going to see too many industries which will not be affected.

Blockchain and cryptocurrency are becoming part of the foundation that will mark this transformation. Some call it Web 3.0 while others use Industrial Revolution 4.0. Whatever the term, it is all feeding into the idea of the long-term push towards the Metaverse.

Essentially, the capabilities of the Internet are expanding. We now have 25 years of evidence what happens to an industry when the Internet shows up at its door.

The results tend not to be good for those who are standing in the way.


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