Everything is moving online. This is evident when we consider how much of the real world is being connected. Through advancements in technology, millions of devices are becoming "smart". The intelligence level of them is, at this point, not material. What is important is they are now part of the digital world, feeding upon and providing data.
When comparing atoms to bits, we see a massive difference. The speed which the latter moves is incredible. Growth rates far exceed that in the world of atoms.
For example, look at the time it takes to manufacture a new GPU. This is constrained by physics. Certainly, manufacturing techniques do improve, helping the total output.
Let us compare the jump in digital output of each new GPU. Not only are they faster, less expensive (as related to earlier generations) but also more energy efficient. Whereas manufacturing might advance a few percent in improvement, digital advancement is much greater.
So far, there was minimal economic impact. That is going to change with cryptocurrency.
Balaji Srinivasan long made news with his view of The Network State. In this article we will dig into it a bit to see how this will affect legacy economies.
Internet Will Swallow Legacy Economies
The Internet is taking over. Countries that are "Internet-first" are finding themselves advancing at a pace ahead of the rest. This is the view of Balaji.
He cites the value placed upon the Magnificent Seven against the rest of the S&P.
This should really wake some people up as to what is happening. These 7 companies captured the majority of the value generated over the last 18 years. We are not talking about a small sample size here.
The "Mag 7" are:
- Microsoft
- Apple
- Amazon
- Meta
- Nvidia
- Tesla
Many of these encompass the title of "Big Tech". We know they have excelled at capturing network effects, a basic "law" of the Internet. Over the last decade, their market share along with value has skyrocketed.
“Since the 2008 financial crisis, every transaction and every communication has moved online. But, we are still at the foot of the mountain. The next step is internet economies, communities, cities, and presidencies. The world is becoming Internet-First.”
The speculation is that we are looking at a shift similar to the move from agriculture to industrial.
Blockchain and Cryptocurrency
We are looking at both blockchain and cryptocurrency at the core of this transformation.
Cryptocurrency provides the Internet with its own money. In other words it is native to the digital realm. It never existed in the physical, providing a host of different monetary possibilities.
This was also a core component of Balaji's network-state philosophy.
These network states will require internet-native money in the form of cryptocurrencies and represent a pivotal shift in the human story, much like the shift from agrarian to manufacturing economies during the Industrial Revolution.
AI is just starting to get its footing. This will be tied to blockchain and cryptocurrency, with AI agents utilizing their own digital wallets.
The push for tokenization is on. Real world assets (RWA) that are tied to these networks is growing by the day. Over the next few years, a massive explosion in this area could take place. Of course, governments tend to lag when it comes to innovation, stifling the progress.
With a global marketplace of ideas (and development), this is less important.
My expectation is we are going to see the same thing as the chart above. AI heavy entities are going to dominate the economic landscape. Value that is generated will flow to those tokens (or stocks). Like the last two decades, the rest will lag, ultimately dying out due to a lack of competitiveness.
The digital world is driving everything.