Amara’s Law and the Blockchain
Due to bitcoin’s four year halvings, a lot of price analysis and speculation that you find in the cryptosphere has up to now tended to focus on bitcoin’s cyclical nature.
Just to clarify what exactly the halvings are, what bitcoin miners actually do is use computational power to validate transactions, a process which adds blocks to the blockchain. Every time they add a block, a set amount of new bitcoin is created, and they receive that bitcoin as a reward.
A halving event is when the reward amount is halved, and it occurs every 210,000 blocks, which corresponds to roughly every four years. This happened in 2012, 2016, and 2020, and mining rewards have gone from 50 BTC per block to 25, 12.5 and now 6.25.
Up to now, these halvings have indeed corresponded with an intense boom and bust type cycle, initiating tremendous explosions in price, blow-off tops and severe extended corrections. Although having said that, zoom out the chart and all the peaks and troughs, exhilarating though they are, form part of a continuous upward march.
These patterns make sense, but should we expect that the link between halvings and spectacular price fluctuations will last forever (or until 2140, when bitcoin will be fully mined)?
At the beginning of bitcoin’s life, it had maximum volatility, and so the first halving acted like a detonation charge, and the same could be said of the second such event, in 2016. The third halving certainly preceded major price rises but hasn’t played out as many were predicting with no euphoric blow-off top at the end of 2021 to mirror events at the end of 2017.
Of course, we must take into account the unprecedented covid-19 response that has bound and hindered the world with neurotic quasi-communism for the last two years, but even then, it’s likely that future halvings will not play out the same way as those in bitcoin’s ebullient first decade.
At this phase in blockchain technology’s development and adoption, it might be worth turning to an old gem of wisdom called Amara’s Law.
Last new year’s eve, Zhu Su, the Co-Founder of the cryptocurrency hedge fund, Three Arrows Capital and an influential figure in the crypto world, tweeted this:
“Your mental framework should be Amara’s law, not hypercyclicality
Emerging technologies are overestimated in short run and underestimated in long run
2017-2019 period of overestimation
2020-2030 period of underestimation”
He also called 2022, “the year of mass adoption”.
Let’s just zoom in and clear up the key quote there, in Roy Amara’s original attributed words:
“We tend to overestimate the effect of technology in the short run, and underestimate the effect in the long run.”
Roy Amara was a computer scientist at the Stanford Research Institute, and for some time was head of the Institute for the Future, a Californian think tank connected to the RAND Corporation.
His quotation is said to have been made some time in the 1960s or 70s and has subsequently come to be known as Amara’s Law, although it’s really an observation. It has been referenced when thinking about many kinds of new technologies, including nanotech and AI, and seems applicable to what’s happening around cryptocurrencies and blockchain use.
Essentially, what it says is that in the giddy nascent phases when a new technology emerges, there will be boldly utopian estimations of what that tech will do, that are unhooked from its, at that moment, actual level of sophistication and mainstream interest.
This corresponds precisely with bitcoin, when its early proponents had astonishing, almost evangelical conviction about bitcoin’s revolutionary capacity, and were dedicated not only to mining but also to spreading the word in serious technical detail, even if that sometimes meant speaking to almost empty rooms.
Even as this was going on, in the mainstream not much happened. Bitcoin remained on the fringes of awareness and was dismissed by the majority, if it was even acknowledged at all, as either a scam, or of use only to criminals, or, at best, as an irrelevant hobby.
What then follows this stage in relevant cases, according to Amara, is a period of long-term under-estimation, even as the technology matures to a point where it becomes viable.
This means that just before real transformation, there will be a misreading of the situation: that the technology has slumped and is without purpose, when in fact the tech is just at that moment reaching the point at which it can be adopted and initiate disruption.
At this phase, use cases are being built out and picked up on, but it’s not yet widely recognized that the changes occurring are going to replace previously established norms in areas that have society-wide relevance.
Does this look like bitcoin, or crypto and blockchain technology more widely, at the moment? We should pay close attention, because this may be the inflection point at which, through alternative blockchains at the structural core of web3 development, and bitcoin itself as a decoupling from central banks, meaningful transition occurs.