Applications high in novelty and complexity take decades to evolve but can transform the economy. TCP/IP technology, introduced on ARPAnet in 1972, has already reached the transformation phase, but blockchain applications (in red) are in their early days.

In our analysis, history suggests that two dimensions affect how a foundational technology and its business use cases evolve. The first is novelty—the degree to which an application is new to the world. The more novel it is, the more effort will be required to ensure that users understand what problems it solves. The second dimension is complexity, represented by the level of ecosystem coordination involved—the number and diversity of parties that need to work together to produce value with the technology.


Even in its early days, bitcoin offered immediate value to the few people who used it simply as an alternative payment method. (You can think of it as a complex e-mail that transfers not just information but also actual value.) At the end of 2016 the value of bitcoin transactions was expected to hit $92 billion. That’s still a rounding error compared with the $411 trillion in total global payments, but bitcoin is growing fast and increasingly important in contexts such as instant payments and foreign currency and asset trading, where the present financial system has limitations.

Localization.

The second quadrant comprises innovations that are relatively high in novelty but need only a limited number of users to create immediate value, so it’s still relatively easy to promote their adoption.

Epic says them open to blockchain

Amazon offered more books for sale than any bookshop. Priceline and Expedia made it easier to buy airline tickets and brought unprecedented transparency to the process.
The ability of these newcomers to get extensive reach at relatively low cost put significant pressure on traditional businesses like newspapers and brick-and-mortar retailers.

Relying on broad internet connectivity, the next wave of companies created novel, transformative applications that fundamentally changed the way businesses created and captured value. These companies were built on a new peer-to-peer architecture and generated value by coordinating distributed networks of users.

Financial services companies, for example, are finding that the private blockchain networks they’ve set up with a limited number of trusted counterparties can significantly reduce transaction costs.

Organizations can also tackle specific problems in transactions across boundaries with localized applications. Companies are already using blockchain to track items through complex supply chains, for instance.
This is happening in the diamond industry, where gems are being traced from mines to consumers. The technology for such experiments is now available off-the-shelf.

Developing substitute applications requires careful planning, since existing solutions may be difficult to dislodge. One way to go may be to focus on replacements that won’t require end users to change their behavior much but present alternatives to expensive or unattractive solutions.

Bank of America, JPMorgan, the New York Stock Exchange, Fidelity Investments, and Standard Chartered are testing blockchain technology as a replacement for paper-based and manual transaction processing in such areas as trade finance, foreign exchange, cross-border settlement, and securities settlement. The Bank of Canada is testing a digital currency called CAD-coin for interbank transfers.
We anticipate a proliferation of private blockchains that serve specific purposes for various industries.

Substitution.

The third quadrant contains applications that are relatively low in novelty because they build on existing single-use and localized applications, but are high in coordination needs because they involve broader and increasingly public uses. These innovations aim to replace entire ways of doing business.

Augmented reality glasses where you have overlays on the real world will also be popular, and they may get rid of big screens altogether.

In the future, he said, “For like the price of a smartphone today, you’ll be able to get augmented reality hardware in the future that is better than the physical experience with the 60-inch television, which is going to be a lot more expensive. Because the manufacturing costs and materials used are so much less and more efficient.

They’re one thread of this idea that we’re living more of our lives online.”

I also asked about blockchain technology’s importance to the metaverse. He agreed that if we buy something, then the basic principles would require that the user owns that item exclusively for good. And that item shouldn’t be locked down to one platform.

Currently, Epic’s self-publishing program is in closed beta, and Epic’s FAQ says it chooses who can join on a “case-by-case basis.” Epic, however, has shown itself to be a fairly permissive platform owner — something that became a point of contention in its trial with Apple when lawyers brought up the “offensive and sexualized” games that were available on Itch.io, a game store accessible on Epic’s game store.

Allowing games that Steam bans is another way that Epic could compete with Valve. Epic has already shown that it’s willing to make big bets trying to make its store a major player in the PC gaming space, and this could be another play to get some gamers or developers on its side.

Some NFT fans immediately looked to Epic after the news about Steam broke.

Epic’s CEO Tim Sweeney has said that the company isn’t interested in touching NFTs, but that statement now appears to only apply to its own games. Epic tells The Verge that it will clarify the rules as it works with developers to understand how they plan to use blockchain tech in their games.

Sweeney also tweeted some additional thoughts after we published this story: he says Epic welcomes “innovation in the areas of technology and finance,” and suggests that blockchain isn’t inherently good or bad. As a technology, the blockchain is just a distributed transactional database with a decentralized business model that incentivize investment in hardware to expand the database’s capacity.

This has utility whether or not a particular use of it succeeds or fails. None of this means that developers spurned by Steam can rush out and throw their game up on the Epic Game Store.

The process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum. That insight and its strategic implications are what we’ll explore in this article.

Patterns of Technology Adoption

Before jumping into blockchain strategy and investment, let’s reflect on what we know about technology adoption and, in particular, the transformation process typical of other foundational technologies.

One of the most relevant examples is distributed computer networking technology, seen in the adoption of TCP/IP (transmission control protocol/internet protocol), which laid the groundwork for the development of the internet.

Introduced in 1972, TCP/IP first gained traction in a single-use case: as the basis for e-mail among the researchers on ARPAnet, the U.S. Department of Defense precursor to the commercial internet.

A team of volunteers around the world maintains the core software. And just like e-mail, bitcoin first caught on with an enthusiastic but relatively small community.

TCP/IP unlocked new economic value by dramatically lowering the cost of connections.

Similarly, blockchain could dramatically reduce the cost of transactions. It has the potential to become the system of record for all transactions.

If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge.

Consider how business works now. Keeping ongoing records of transactions is a core function of any business.

Those records track past actions and performance and guide planning for the future. They provide a view not only of how the organization works internally but also of the organization’s outside relationships.

Enjin, a company that helps developers integrate NFTs into their products (including SpacePirate, who tweeted about their game being taken off of Steam) retweeted our Steam article, and tagged Epic CEO Tim Sweeney, asking to talk. It seems now they have at least one question answered. Disappointed to see short-sighted decisions that are directly impacting our adopters like @[email protected]@EpicGames let’s chat? https://t.co/oQ8Y9OScS8Update October 15th, 9:10PM ET:Added tweet from Tim Sweeney. Subscribe to get the best Verge-approved tech deals of the week.

Fortnite has a cross-platform economy, which means that if you buy an item on one platform then you can use it in the same game on another platform.

Users should also be able to make money from the items that they create in the digital world. The blockchain is “an indisputably neutral, distributed way of expressing individual ownership,” Sweeney said.

It has a lot of attractions, but it also operates too slow right now.

It can take minutes for blockchain networks to resolve transactions, as they take pains to make sure that everything transaction is backed up and not fraudulent. But games have to operate in simulations that update 60 times a second, Sweeney said.

Above: How blockchain works

“We’re far from any sort of blockchain technology that would achieve that,” he said.

“Right now, you have a lot of have serial single-threaded blockchain implementations.

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