Leapfrogging Legacy Banking Bitcoin Standard

Intro

Throughout time, technology has proven to change our lives by leveraging efficiencies in energy. New ways in how we hunt have saved time and energy for innovation and to live more intentionally. Currently, Bitcoin presents an immense opportunity to change the lives of those who are burdened by old forms of manipulated money and preserve their time and energy. It is the first self-sovereign, programmable money that is proving to destroy expectations of every “expert” imaginable. At the intersection of money and technology, Bitcoin’s network effect is spreading like a mind virus to all corners of the globe. This is not a coincidence but the manifestation of a zero to one moment; a radical new technology that will change nearly everything it touches.

This article explores the idea that some regions and nations have a higher susceptibility to adoption in new monetary networks. Specifically, I will outline how the unbanked populations of emerging countries can leapfrog legacy systems, straight into a new monetary standard. But first, let’s lay the groundwork for understanding how this can happen with some concepts.

Democratization Of Technology

To understand leapfrogging, let’s first look into something that naturally happens when humans produce technology: the democratization of technology. As we make technology, the cost reduces, while the ease of production increases. Our tools get better, people’s skills improve, securing the material for production gets easier, logistics improve, and everything is less costly as humans continue increasing the output/yield over time. Simply put, cost goes down, while production goes up.

Figure 1.

A great example is the printing press. Before this innovation, each book had to be typed out or written one by one and distributed almost by osmosis. This means books were more expensive and were only in the hands of the few. After the printing press, people were able to automate a portion of the process by creating blueprints of the books. This cut down labor costs, and there was a huge explosion in printed material. This may have put people out of work; but it also introduced better dissemination of information to a wider group of people and new opportunities to produce more books for less cost and effort.

Another example is photography. Historically, taking photos on film took hours to produce in a dark room. The film had to be brought to a local expert and it would take several days to get back the finished product. Smartphones and photoshop technology made this essentially free. It was then possible to download an app or use the built-in app on smartphones, take pictures, and immediately process them. Democratization of technology has been happening across every single aspect of human society since the beginning of time. Humans create tools to make it easier and cheaper to survive. Each tool becomes better, we then expand and evolve with less energy improving the quality of life.

Fast-forward to the internet age. Emerging countries are just now tapping into the power of the internet. Although there are many factors underlying the reasons for expansion, one thing that is known is that technology builds on itself, making each successive technology easier to produce. Not only is there growth, but there is exponential growth. Certain times throughout history, technology has made such a large leap forward that it allows extremely poor countries to skip the legacy technology and quickly adopt the new one. This is called leapfrogging.

Leapfrogging Explained

Leapfrogging is when the cost to produce one technology is too great for a population, so when a new, drastically cheaper technology is created it’s quickly adopted and the old tech is skipped. This is the coexistence and benefit of separate populations within society. Let’s look at the mobile phone revolution as a way to explain leapfrogging. Some societies did not have the wealth or infrastructure to adopt landlines and phone communication when it was brand new, but when the mobile phone was introduced, this gave mostly everyone around the world the ability to opt-in.

Figure 2. Landlines in the U.S., 1900–2019.

Figure 2 shows the number of landlines in the U.S. population from the 1900s to 2019. Throughout the entirety of the 20th century, the landline was being adopted in the U.S. Consequently it only took a decade to dethrone this old technology. The decline started when the benefit of cell phones outweighed the cost compared to landlines. This is where democratization hit the tipping point and we saw a huge jump from one technology to the next. Now it’s extremely cheap to use technology that is 100 times or even 1,000 times more advanced than the previous. Mobile phones usurped landlines because they were more affordable, easier to use and more mobile. Figure 2 shows how quickly a society can adopt a technology that has significantly more benefits than the previous, even in an advanced society.

A similar thing is happening with television and the internet. Netflix came out and disrupted how people consume media on the television. As more platforms emerged, and people realized they could pay a fraction of the cost for a Netflix subscription rather than $100 for cable and a bunch of commercials, the switch was easy. Legacy systems were bogged down by all of the brick-and-mortar stores and overhead costs. They could not compete and pivot quickly enough, so they lost their seat at the table.

Figure 3. Number of telephone subscriptions in the U.S. versus worldwide.

When comparing fixed telephone subscriptions to other countries, the U.S. was way ahead of most. Many factors were contributing to this. Wealth played a huge part, but much of it was the production and first movers’ advantage. The U.S. was the first country to set up telephone lines from Boston to Somerville Massachusetts and expanded from there. Other countries did not have this opportunity, so they were laggards in the technology simply by default. It also made it easy to have a grid to run on top of, being a technologically advanced country with a power grid. Because it was so resource-heavy to set up this grid, this took over 30 years to build up the infrastructure.

Figure 4. Landline subscriptions compared to GDP per capita, 2019.

One of the main reasons why it was so hard to increase telephone subscriptions in other countries is because of the initial cost. You can’t just tap into a telephone line, there needs to be a large grid, infrastructure and companies/governments willing to build out this grid. Figure 4 shows that there is a rough line at a GDP per capita of $5,000 to get off zero and start communicating via landline. As the GDP per capita grows in a country, it is more likely they adopt fixed landlines. This is a huge barrier to entry as they try and compete to be a part of the 21st century. With telephones, it brings an easier flow of information across long distances quickly. These are important technologies that helped first-world countries advance quicker than their counterparts. This technology could mean the difference between surviving and thriving in the modern era.

Figure 5. Mobile phone subscriptions versus GDP per capita, 2019.

Things get much different when you start looking at mobile phones in Figure 5. To have a mobile phone is drastically cheaper than having a landline, all costs considered. Before, you needed the infrastructure and everything that came with installing a landline phone. But with mobile phones, even at a GDP per capita of less than $1,000, you get ~50% penetration of adoption within the population. All of the countries that were left out of communication with landlines, now have leapfrogged the old technology, right into a new standard of mobile phones.

People benefit, businesses benefit and countries benefit immensely from these technologies. With mobile communication, people have higher leverage over their energy output. Businesses and life in general are more efficient, in turn creating a higher GDP for the country. It is a feedback loop that is good for all of humanity. When one group of people creates new technology, everyone benefits at one point or another.

From Landlines To Mobile Phones To Internet-Connected Smartphones

Not only are poorer countries leapfrogging into mobile phone communication, but they are, in turn, jumping right into the internet age. On top of that, (Android) smartphone costs are dropping significantly every year, with the average cost down by 50% from 2008 to 2016. With the growing ability to connect with the rest of the world comes more opportunities to learn and grow with the rest of the world. An incredible amount of information is available on the internet, and the benefit of being on the network is immeasurable.

Figure 6. Mobile versus landline subscriptions, worldwide, 1960–2019.

When comparing the numbers of mobile phone users to the numbers of landlines, you get a huge disparity in the pace at which they were adopted. Fixed landlines were around for almost 50 years before they started to see some real competition. Thinking back to our Figure 5, this makes sense, because the cost to build infrastructure is drastically higher than that of mobile phones. The opportunity a landline brought to civilization was immense, but the cost-effective mobility of cell phones transcends previous communication technology by a longshot.

As of September 2021, the world’s population was ~7.89 billion people. Of that, there are 10.5 billion cell phones with network connections. That is 2.52 billion more activated phones than there are people. This becomes thought-provoking when adoption data starts to reveal where mobile phones are headed next.

As people adopt mobile phones, smartphones are becoming cheaper and more abundant. The cost of production for smartphones is less and less each year, and soon there will be little reason to have a cell phone without internet connection because the cost difference will be so minuscule. Smartphone abundance is allowing people around the world to tap into the internet and it is estimated that “by 2025, 72% of all internet users will solely use smartphones to access the web.”

Figure 7. Share of the population using the internet, 1990–2019.

Currently, the world is in a transitionary period of communication. Not all of the world has access to the internet, only 65%, with an increasingly rapid pace of adoption. Because it is so inexpensive to get a mobile phone, and the benefits are immense, the world is being onboarded at an incredible rate.

To answer the question “What is Leapfrogging?” we can look directly at mobile phones. But it’s not just one leapfrog, it’s more of a continuous onboarding to the digital revolution for the entire human population. Things are getting cheaper, and technology is moving exponentially forward, toward a more connected future. Soon, everyone will have access to the internet and will bring about new and exciting opportunities for the world to grow. With the high rate of adoption in communication technology, mobile phones swept across low-GDP countries allowing information to spread. Smartphones are a small hop away from mobile phones. With smartphones comes all sorts of opportunities not to mention the connection to the world’s internet. In developing countries, the internet is starting to hit its hockey stick moment. Adoption continues to grow and as smartphones get cheaper, more people in the world have access to the internet, connecting them to their local and global economies and new innovations will come about in unforeseen ways.

This begs the question, what monetary network will they use to transact in the digital age? It’s taken years to get the legacy banking system up to speed. We’ve bootstrapped and “Frankensteined” many different ways to connect the internet to a centuries-old banking infrastructure, but these newly onboarded countries have the opportunity to skip that altogether. With no legacy banking infrastructure rooted within the nation, this leaves the door wide open for a new legacy.

Leapfrogging Onto A Bitcoin Standard

It seems the stage is set for a paradigm shift. A perfect storm is brewing in populations that lack bank accounts and access to store their wealth. Coupling this with connection to the internet, and 21st-century e-commerce and monetary system, it is impossible for countries not to adopt it. Because bitcoin is a global asset with no intermediaries, its infrastructure is inherently global. Any improvements to the network, the entire world will benefit automatically without having to update the old tech. Unlike landlines, there is no infrastructure to build, and the barrier to entry is almost zero. You just opt in with a bit of hardware and an internet connection.

As of 2017, according to the World Bank, there are 1.7 billion adults in the world without a basic transacting account. Most of these countries with higher rates of unbanked are poor, have high rates of inflation and lower currency stability, not to mention a disconnected state government ripe with problems. This is extremely common when looking at currencies in other low-GDP countries. So, what are some of the biggest factors in which people would want or need to adopt Bitcoin? If we can answer this question, then maybe we can quantify and pinpoint which countries have the biggest opportunity and most to gain from adopting a Bitcoin standard.

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