Is Blockchain a Disruptive Technology?
The cycle of creative destruction explained: Taking a critical look at blockchain technology
“Early in life, I had three ambitions. I wanted to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna. Well, I never became the greatest horseman in Austria.” -Joseph Schumpeter
Why does this week’s blog entry start with some dead economist’s cocky quote? Well, Schumpeter also defined the process of creative destruction and the notion of disruptive technology. Today we’re asking ourselves: Is blockchain a disruptive technology?
What is a disruptive technology?
In 1942 the aforementioned Austrian economist Schumpeter defined the notion of disruptive technology as a change that revolutionizes the economic structure by destroying the old system and creating a new, better one. Schumpeter called this process of replacing the old “creative destruction” where the inventor of a disruptive technology is fueled by the promise of wealth, status, and monopoly rents. He also believed that this process is a cycle and that this new, disruptive technology will eventually get replaced. I’ve created a neat little picture for Schumpeter’s Cycle of Creative Destruction:
What does this process look like in practice? Take a look:
Eventually, the cycle of creative construction continued; steamboats were replaced too, and so on.
More examples of creative destruction:
Do you guys remember when Netflix first launched? I don’t, but streaming services are some of the best examples of creative destruction: They turned the disc rental and media industries upside down. Another great example is Uber or Lyft, which are currently giving taxis a hard time.
Why blockchain might not be a disruptive technology and an alternative definition of disruptive technology:
While Schumpeter defined creative destruction, he’s not the only one who popularized the term of disruptive technology. The most recent popularization of it can be credited to Clayton Christensen and his book ‘The innovators dilemma’ from 1997. He had a different definition of creative destruction, about which Audrey Nesbitt wrote a fantastic article. Christensen’s definition can be summed up as follows: The difference between sustaining and disruptive technologies. The former one merely improves the existing system and market, while the latter can be capable enough to create an entirely new industry or to destroy an existing one. While it’s for the individual to decide into which category blockchain falls, I strongly believe that it can be both: A revolutionizing tidal wave in some industries and a complementary technology in others.
Will blockchain technology renew our financial system? And, what’s the future impact of it?
In the cycle of creative destruction, there’s always a brief point when the old and the new technology co-exist — Netflix and Blockbuster are both flourishing, Sail and Steamboats are navigating next to each other and so on. Many blockchain fans would say that we’re precisely at that point in the process of creative destruction, while naysayers would argue that blockchain won’t grow past what it is now.
Conclusion
In the end, Schumpeter’s creative destruction is defined as a positive effect, leading to a new market equilibrium and a higher standard of living. With the growing number of financial instruments are being adapted to the blockchain technology, we’re slowly modernizing the financial system, although this process takes time. More people are slowly starting to understand the technology and the vast opportunities that it offers. And, whether blockchain revolutionizes the market or just adds to it, its impact is certainly positive.
