Disruption Theory and

Cryptocurrencies
Christian Peel

27 April 2014

Silicon Valley Ethereum Meetup
1
What is Disruption?
Outline

Disruption Theory

The Innovators Dilemma

The Job to be done

Applying the theory to crypto

Bitcoin

Ethereum

Appendix
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Performance
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Here and in following, the lines are representative, not a perfect model.
One model: Business is like walking
the wrong way on an Escalator
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Companies (products) often
exceed good enough
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Performance,
Complexity,
Cost


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With disruption model,
Good Companies can fail
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Complexity,
Cost


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Incumbents nearly always win
Entrants nearly always
win
Time
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Disruptive Innovation
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What is Innovation?

Novelty: New

Invention: New, has potential value

Innovation: New, has mechanism to realize

potential value
Innovation is invention plus a business model
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The Innovators Dilemma
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60% on $500,000
20% on $2,000
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Mainframe to iPad
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The Job to be Done
From asymco.com

The iPhone initially had very poor audio quality on phone

calls, was very expensive. Steve Ballmer laughed at it

The iPhone and Android succeed not as expensive

phones, but inexpensive portable computers
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Low-end vs New-Market
Disruption
Bring a better product into an
established market
Address over-served
customers with a lower-cost
business model
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Address a new market where
there are NO competitors
(and no consumption)
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Which sort of Business
Model is Best?
Bring a better product into an
established market
Address over-served
customers with a lower-cost
business model
Time
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D
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Address a new market where
there are NO competitors (and
no consumption)
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Disruption Theory applied
Bitcoin and Ethereum
13
What is Bitcoins Job?

Is it a currency?

Its an ok store of value, ok medium of exchange, a bad

unit of account

It does not require any fees other than transaction fees,

so w.r.t. currencies, it has a low-end business model

Is it a network for electronic funds transfer or remittance?

Yes, this will work even better as the Bitcoin network

grows. May require some changes to support micro-
payments or volume like Visa

The fees are very low; again it would be a low-cost entry

Other: libertarian bling, smart contracts via Bitcoin scripts

14
Bitcoin Tx Volume:
Exponential Growth until 2013
Western Union
Discover
Cryptocurrencies are not
good for EFT yet
High


Performance
and
Complexity


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What is the Dollars Job?

The dollar is doing a great job as a currency

Great store of value, medium of exchange, a unit of

account

What do we pay for this very stable currency?

Quantitative easing, other monetary policy

Sometimes we pay with ination

Is the dollar only serving the 1%? I.e. is it over-serving

most people?

Maybe so
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Bitcoin as a Currency
is in a New Market
Low-end currencies
are not allowed by
law.
Time
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Bitcoin is a mirage.
Stay away from it.
Warren Buffett

Bitcoin is a bubble.
Robert Schiller
U
S

D
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now
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Who are low-end currency users? Low-
income or those frustrated with Govt?
High


Performance
and
Complexity


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What is the Job of
Products built on Ethereum?
Messaging
Secure instant messages, secure email, anything
that uses public key crypto
Currencies
MemeCoin, Rewards system, exchanges
between ether and sub-currencies
Finance
Derivatives on Ether/dollar, savings, peer-to-peer
lending, assurance contracts
Markets
Markets for identities, currencies, nancial
instruments,
Decentralized
Dropbox
Pay others to store encrypted data
Voting, DAOs
Place voting control of an organization in a
contract
More
Gambling, accounting for games, legal contracts
which involves money or smart property
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What is the Job of the
Ether Currency?

A crypto currency
The identity contract makes the currency easier to use

The fuel (gas) for an Ethereum contract

You can use it to fuel contract execution
If Bitcoin is like gold, then Ether is like oil

Stock in the Ethereum company

Many will save it because they believe in the Ethereum
ecosystem, i.e. that Ether will increase in value
The Job of an Ethereum Contract
is to implement a Business Model
business model
(noun) a design for the successful operation of a business, identifying revenue sources,
customer base, products, and details of nancing.
An Ethereum contract can play a dening role in all
features of a business model

Characteristics of Ethereum Business models

Easy, built-in nance and currency

Open-source (others can easily copy, use lower margins)

Revenue can go to distributed organizations, rather than to

centralized businesses
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a
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:

S
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Christian Peel
chris.peel@ieee.org
@ChristianPeel
Skype:christian.peel

Please contact me if you have comments on these
slides or if youd like help on a crypto or signal-
processing project
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Sources
!
Im using examples and ideas from Clayton Christensen. Here is some
reading material
The Innovator's Solution by Christensen, Raynor
"The Trap of Marginal Thinking" says youll pay now or pay later, so why not just
pay now, and get the real product
Integrating Around the Job to be Done, talks about how to chose, name, and
market a product
Presentations on the innovators dilemma, disruption in health-care, and
disruption in education
His latest work is on The Capitalist's Dilemma talks about how an economy
needs regular empowering innovations

!
Other sources
See Asymco for more on disruption with Apple often used as an example.
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