Creative destruction is the process of entrepreneurs out-innovating incumbents, rendering them obsolete, under a free market.
I know, I know, we can hardly call a system where central planners determine the price of money a free market. But stay with me.
The past few decades have seen a very obvious pattern play out, one that has catapulted us deep into the Information Age. And it has had everything to do with the dematerialization of goods and services.
"Half of the world's economy will dematerialize into software." —Michael Saylor (The Mobile Wave, 2012)
Many of the dominant giants of today were once new entrants that successfully turned a physical good or service into code.
Software really has been eating the world.
Bitcoin represents the next chapter in this story—the dematerialization of money.
Once absolute digital scarcity was achieved, the days of all other physical monetary goods became numbered. For the first time in history, bitcoin enables pure information to accrue value.
When money is reduced to a 256-bit number, it benefits from all the same advantages of technological innovation in encoding and transporting digital information. Destined to become more globally-accessible, more reliable, and offer greater fidelity and precision.
Software will eat money and monetary goods.
But with digital successors comes new use cases and greater market penetration. Bitcoin won't simply drain the monetary premium that store of value assets (i.e. real estate, gold, bonds, stocks, etc.) have attracted due to the predictable debasement of fiat currency, it will also take a bite out of other markets due to its unique properties.
This results in bitcoin, like all other dominant digital networks, having a far greater upside than analog money.
In short, there are two important lessons that creative destruction teaches us: [from The Price of Tomorrow by Jeff Booth]
- “Creative destruction doesn’t happen at a steady rate over time. At certain points in history, there is more opportunity for entrepreneurs to create disruption."
- “New technologies often change what is valuable in a way that is misunderstood by incumbents who have spent years perfecting their own playbook to win markets.”