4-Step Pattern of Innovation Tells about Future of Blockchain

We usually get it wrong. When trying to predict the path of innovations – which ones are hype, which ones are real, which ones will take hold, and which ones will fall out of favor – our record, as humans, is poor. We think this is because, in the study of innovation, people overlook a critical factor.

They focus on underlying technology and neglect the concepts and language around the technology. Correct this and you will begin to more skillfully understand why the internet, email, cloud computing, and mobile phones evolved as they did. You will also be able to more accurately predict when and how innovations like artificial intelligence or Blockchain will take hold.

Concepts over technology

We are bad at predicting innovation because we focus on only half of the equation. We consider the technology itself, overlooking what matters even more: the concepts around the technology. If people cannot make sense of a technology, they will reject it.

Consider Western Union. When offered the right to purchase Alexander Graham Bell’s telephone, Western Union declined the deal, writing “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”

They failed to understand the telephone’s potential because they thought of it as a “telegraph for voice,” which, given the way telegraphs were used at the time, transmitting written messages from post office to post office, offered little advantage.

Later, in 1920, David Sarnoff, an employee at RCA, urged his company to invest in radio. His managers responded, “The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?” They thought of radio as a person-to-person communication tool and couldn’t make the conceptual leap to see it as a mass communication medium.

Salesforce introduced a new way to deliver software when it was founded in 1995, essentially proving that “cloud computing” could work. But it took a decade for their concept to take hold. It was not until it was given a name (“cloud computing”) that enabled people to make sense of what they were doing, that their technology really took off.

Our point is this – big innovations are new concepts or ideas as much as they are new technology. If people can’t “get” what your innovation is, they can’t understand its potential. Investors won’t invest in it, engineers won’t work on it, customers won’t buy it.

This insight explains why Blockchain is taking so much longer to take hold than its proponents expected. People don’t “get” it. But looking at the Blockchain as a concept, rather than a technology, gives us a clue as to when we will see this technology really take hold. To see this, we need to understand how concepts emerge.

4 steps of concept emergence

Luckily, there is a lot known about how concepts emerge. In social sciences, a theory of social movements explains how undertakings such as the American Revolution, the Polish Constitution movement of 1791, the British abolitionist movement of the late 18th century, or the Russian Revolution of 1905 came to be.

In science, Thomas Kuhn wrote a breakthrough paper that broke down how “scientific revolutions” develop (e.g., how did we shift from believing the sun went around the earth to putting the sun at the center of our system?), and result, ultimately, in a paradigm shift. And an entire body of mathematics dedicates itself to “mathematical concept formation” – studying how new functions, terms, and theorems come into being.

All of these approaches to understanding how concepts emerge share remarkable similarities. Here we mash them together to lay out a simple framework of concept emergence. It explains, we think, why Blockchain right now is so hard to comprehend and what it will take for society to embrace the true potential of the Blockchain concept.

Step 1: Perceiving current concepts as inadequate

The process through which a concept emerges begins with the perception that current concepts are inadequate. People may perceive anomalies or failures of the existing concepts, or inadequacies may be revealed by people trying addressing previously unrecognized practices.

Step 2: Naming the new concept

A new word or phrase, which names the new concept, is introduced, and will form the building block of a new theory. These new words, and the concept they name, begin to define the community that will develop and advocate for the new concept.

Step 3: Testing the new concept

The community tests the concept, either formally or informally. If the concept does not adequately address what it’s supposed to address, the necessary adjustments are made.

Step 4: Concept is accepted or rejected

The new concept interacts with existing concepts and is either rejected by, is incorporated into, or replaces the existing concepts.

Emergence of Blockchain

So where are we today in the emergence of Blockchain? We seem to be somewhere between Steps 2 and 3.

Step 1: Perceiving current concepts as inadequate

The current approach to keep track of value (currencies, goods, records) – which we have been following for the past 600 years – is based on a double-entry accounting system introduced by a Franciscan friar named Luca Pacioli. The idea is that every player keeps their own “record of the truth,” in the form a ledger, which must be periodically reconciled. There are three big problems with this method:

  1. It is expensive because it requires a duplication of effort with intermediaries adding margin.
  2. It is inefficient because transactions must be duplicated by every network participant, and certain trusted gatekeepers, like banks, can hoard significant wealth by providing trust.
  3. It is vulnerable because if a central system (e.g., a bank) is compromised (e.g., through fraud, cyberattack, or human error) it affects the entire network.

Step 2: Naming the new concept

A new concept is introduced to address the issues of our current accounting system. Blockchain is not new technology; it’s a new concept. The underpinning technologies are already well known: cryptography and distributed networks. We use cryptography regularly to secure messages and data. The internet, now well adopted, is a distributed network. But when we bring these two things together, something magical becomes possible. The problem is, what do we call this thing?

In order for people to “get” what Blockchain is, they need to make sense of it. The way humans make sense of things is by linking the new thing to what they already know. Email made sense because its name combined two things people already understood: electricity and mail. Telephone combines “tele” for distance with “phone” for sounds. The name Blockchain is a metaphor to describe blocks of database tables connected as a chain.

A community has emerged around Blockchain. Initially these were advocates of Bitcoin and other cryptocurrencies. Now there are pockets of technologists building and testing Blockchain solutions in many hotspots around the world … Toronto, Vancouver, New York, London, Berlin, Munich, Vienna.

Blockchain’s challenge is unique because unlike many other technologies, in which the community that tests the new concept can work in relative isolation, Blockchain by its nature requires collaboration with outside communities.

For example, we are involved in getting a Blockchain network going in the trucking industry. The Blockchain community – our developers and those of the underlying technologies we are building on – cannot do this on their own. We need trucking companies, shipping agents, brand owners, and producers to collaborate to create and test the Blockchain network. While the “Blockchain” name, essentially a metaphor of a chain of blocks (or databases), makes sense to its community of developers, it makes less sense to the non-technologists who are being asked to experiment with it.

Making the conceptual leap

Getting past Step 2 (naming) to Step 3 (experimentation) will require non-technologists to “get” what Blockchain is. The “chain of blocks” metaphor fails because it links to metaphors unfamiliar to non-technologies (what do you mean by a “block?” What does it mean that they are “chained” together?). To really understand Blockchain’s potential requires making multiple conceptual leaps:

  • Consensus v. authority: Instead of a trusted authority validating a transaction, a group of participants must together reach consensus. We must shift from a mental model of a central authority to a community of trusted friends.
  • Chain v. statement: Instead of having one ledger that changes over time, Blockchain involves having multiple ledgers, each representing a point in time, all linked together in a chain. Imagine that instead of your bank giving you one statement with a list of transactions, showing the balance changes over time, it sent you 4,000 statements each month, each showing your current account statement at different hours of the month.
  • Immutability v. correctability: Once participants reach consensus on a transaction, no participant can tamper or alter it. There is no one centralized version of the data and it would require unreachable levels of computing power and a simultaneous hacking of each node in the network in order to corrupt the data.
  • Finality v. multiple versions: There is ONE place to determine the ownership of an asset or completion of a transaction, like one ledger in the sky. Think of Google Docs, in which instead of each person collaborating on a document sending the new version to their colleagues, the colleagues are collectively editing one master document in real time.

Any one of these shifts requires a metaphor that links the concept to concepts we already know. Making just one of these leaps is difficult, but making all four at once is exponentially more complicated. And this is why Blockchain’s potential is taking longer than its advocates had hoped to be realized.

Conclusion

We believe that Blockchain could have a profound impact on society in ways that are still difficult to comprehend. The innovation adoption challenge is particularly complicated for Blockchain because it cannot be tested by a Blockchain community on its own; rather, it requires the understanding and participation of outside communities, for whom the Blockchain metaphor does not translate.

But if it can enable non-technologists to make four conceptual leaps, it will make it through Step 2 (naming the concept), then communities will start playing with it in new ways (Step 3) to validate where it need to improves things, and then in many places it will replace our current approaches (Step 4), and be absorbed into current approaches, or rejected where the Blockchain does not offer an advantage.


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