We have difficulties understanding the power of exponential growth, but it’s happening everywhere around us. We have entered the Exponential Age.
Many people believe we are now living in an exponential age, with many technologies and industries growing ever faster. This exponential growth has been fueled by a boom in software and computing power, but other technologies are also coming to the fore. They will change the ways we work, do business, consume, or have fun in ways that will make them unrecognizable. It’s all happening very fast, at speed we are not used to.
Human beings evolved to think in linear terms, not in exponential ones, so it is difficult for us to grasp the impact of exponential growth intuitively. We can conceive it conceptually and theoretically, but we often fail to see its practical implications and magnifying powers.
A chessboard and a stadium full of water
Two metaphors are widely used in literature to illustrate the power of exponential growth. One relates to a chessboard, the other one to a stadium full of water. Let’s have a quick look at them.
The first story is ancient, as it relates to the times of the invention of chess some centuries ago. The inventor of chess had an audience with a king to explain chess to him, which the king dully loved.
When the king asked the inventor what he wanted as a reward for introducing him to the delights of such a wonderful game, the inventor put a grain of rice in the first square of the chessboard, then two in the next one, and four in the next. Then, he asked the king if he could give him the amount of rice that results from doubling the grains of rice in each square until we get to the final one on the board.
The king looked at the flimsy rice grains on the chessboard and immediately accepted the request, thinking he was paying a low price for a game he liked so much. However, the king would never be able to pay that debt, as this would require him to cough up a quintillion of rice grains, which is more rice than it exists today in all the rice granaries in the world. The king abruptly awoke to the powers of exponential growth.
Like most other kings, the king didn’t like to be taken for a fool, so he ordered the execution of the inventor of chess. So, the legend says, were ended the days of the inventor of this great game called chess that we, and even machines, still play to this day.
The second metaphor is more modern, as it relates to a stadium. It can be a football, baseball, or an Olympic stadium; it doesn’t really matter. You get the idea of the size.
Imagine this is an entirely hermetic stadium, in such a way that no water can escape it, and we start filling it with water. We will begin with a drop of water in the middle of the stadium, and then we will double the amount every minute, so the first minute there is one drop of water, the second minute two drops, the third minute four drops, etc.
You are sitting in the last row, in one of the highest spots inside the stadium. How long will it take for you to get nervous and start thinking of leaving so you don’t get wet? Probably a long time, right? This thing is going very slow after all. It started with one single drop!
The truth is, it can go really fast after a certain moment. After 45 minutes, you will see that the field and the first one or two rows are covered, but that´s all. The stadium is still 93% empty, so there is nothing to worry about. The problem is, it will get fully covered in water (and you will be at risk of drowning) in only three minutes more. One minute earlier, it was half full; then it was full. And in another minute, the water would fill two stadia. That’s what doubling every minute means, after all. That’s the power of exponential growth.
Exponential growth is not new
The concept of exponential growth is not new. It has always existed in nature, and we knew about it for a long time. For example, a virus that has an infection ratio higher than 1, as we all know too well after this wrenching covid pandemic, will grow exponentially. It starts slowly, but then suddenly, it starts multiplying the number of infected cases per day, and before you realise, your country’s healthcare system has collapsed. Its exponential nature took too many countries by surprise.
Apart from nature, exponential growth and exponential technologies have a long history in the world of technology. Most people will be familiar with Moore’s Law, which predicts that the number of transistors in one computer chip (and therefore the computing power) will double every 18 to 24 months. This prediction has been true for decades (although some think it´s reaching its limits), and it has enabled the remarkable growth of software, and IT fueled growth in many industries. The exponential growth of computing has been the fuel for many other exponential fires in many industries.
In his famous book from 2005, The Singularity is Near, Ray Kurzweil argued we were getting close to the Singularity. This event would see human beings merge with fully intelligent machines and generate an explosion of super-intelligence that would improve upon itself.
He reached this conclusion by extrapolating the exponential trends he saw in many technologies such as AI, robotics, nanotechnology, and biotechnology. Kurzweil understood the power of exponential growth better than many others, but was he right?
Many of his critics will argue, rightly, that exponential growth is never infinite but temporary, as everything must have an end after all. All exponentially growing phenomena usually have an S form. First, they start growing slowly, then they go almost vertical to reach a plateau and go almost horizontal again. Kurzweil’s critics argue that many of the technologies he mentions are in the vertical phase, but that phase will not last for long and will reach a plateau soon, if they haven´t already. This criticism may be correct, but the problem with this reasoning is that something growing exponentially can be in the vertical phase for a very long time.
It’s all about technology
Technology is the engine moving the world and changing it exponentially in many areas. The advances we have seen in computing power, Artificial Intelligence, and connectivity via the Internet have impacted many industries and sectors.
This process will continue. As Kevin Kelly of Wired fame explained in The Inevitable, if you want to create a new industry, new business model, or just a new company, just add AI to an existing model, and presto, there you go your next innovation. Follow this through with excellent execution, and you may make tons of money.
If you want to see exponential growth charts from the business world, look no further than the stock price charts of some of the Big Tech companies: Amazon, Apple, Google, Microsoft, and Facebook. Their growth from the 90s has been phenomenal, a textbook example of exponential growth. It probably isn’t over as these companies are reinventing themselves all the time and investing in new technologies, like AI, or Virtual Reality, that will bring them nicely into their next exponential curve.
As the investment expert Raoul Pal explains in this video, we are entering the Exponential Age, where many business models are being disrupted by technology and many others will get so soon. The next significant gains will come from new technologies that will exploit these characteristics and generate exponential growth.
The next exponential industries
The Internet, advances in AI, and the acceleration of computing power will bring exponential growth to many new industries in the next few years. Some of these trends can be seen already today; others will come from new and unexpected quarters, as these things often happen.
I want to focus here on three of the most evident ones at the moment:
Cryptocurrencies and digital assets
I wrote a couple of articles (here and here) about the rise of Bitcoin and the crypto ecosystem. Since then, the digital asset market has entered a downturn, and prices have plummeted, but this is still a nascent industry with a lot of potential for exponential growth. In the mid and long term, prices will probably keep growing at a breakneck speed.
Blockchain and crypto technologies are not only about creating a new type of money (they are still far from becoming any sort of money, even if Bitcoin has been recently accepted as legal tender in El Salvador, as they are too volatile to become a reliable medium of exchange). They have a growing number of use cases.
Some crypto protocols (most famously Ethereum) allow the creation of “smart contracts” that trigger specific actions when some events happen. This has enabled the growth of DeFi (decentralized finance), which some people believe will end up eating tradfi (traditional finance) alive.
Crypto also enabled the tokenization of objects via NFTs (Non-Fungible Tokens), be it an art object, a company stock, or equity on some real estate. Even if an NFT of a work of art has already sold for 69 million USD, it is still early days for this industry and its applications. The possibilities are endless once you wrap your head around the idea that you can digitally possess all that exists in the physical world.
These are but two of the most prominent current uses of crypto and digital assets, but many others are in the making. Its resistance to censorship makes it ideal to be the center of the pseudonymous economy, and its decentralization and possibilities of tokenization are ushering in Web 3.0.
Renewables and green technology
Climate change is possibly the most significant threat our civilisation is facing. Governments and corporations are finally realising that this is a giant menace that won’t go away on its own. We will need to consume less energy, travel less, eat less meat, and many other small little things. We´ll also have to invest in new technologies that allow us to use greener energy sources, increase renewable energy, and capture the carbon already in the atmosphere. The changes we see in all these industries are also exponential.
The costs of renewable energy have been reduced exponentially and are now cheaper than fossil fuels in many places.
Tesla’s stock value has gone over the roof, and its market capitalization is bigger than the next 5 or 6 biggest car manufacturers combined, even if it only sells a fraction of their cars. That’s because investors consider Tesla to be the best Electric Vehicle company in the market, and they think this market will end up displacing petrol vehicles in the next few years. Therefore Tesla is well-positioned to be the big winner in the race towards more sustainable transportation.
Many countries are making pledges to reduce carbon emissions by certain dates in the future. Many investment funds are only investing in companies that comply with ESG criteria (Environment, Social and Governance). Many corporations realise that their purpose goes beyond profit maximisation, and they need to focus also on sustainable measures. Considering all this, investments in this area will only grow with time.
Will this be enough to avoid climate catastrophe? Only time will tell, but what we are doing so far might be too little too late, so we need to do much more. This space will keep growing rapidly.
The third big area where we’ll be seeing exponential growth is in biotechnology, life sciences, and healthcare.
We understand our genetic makeup better than ever, and we are starting to change and design it at will with technologies such as CRISPR. The limitations we have in this field are more ethical than technical. Should we start playing gods and changing how humans should look or what diseases they should have?
There is something about this that makes us very uncomfortable, so I don’t think we’ll be choosing our babies’ eye colour any time soon. We might probably start by eradicating hereditary illnesses. Then why stop there? I suspect as time goes by, we will be more open as a society to use genetic engineering to have healthier children. We will be using this technology more and more.
Another example of advances in this area comes from the Covid-19 vaccination drive. When the virus DNA was isolated, it took companies like Moderna and Pfizer-Biontech only a couple of days to come up with a vaccine using a new technology that works on the RNA of the cells (it took them then months of testing to prove the efficacy of the vaccines and to ensure they were safe). mRNA vaccines are coming of age and are now starting to be used to fight other diseases. Expect new developments from this front.
Lastly, there is an entirely new industry being built around combating ageing and so-called life extension technologies. Many researchers are looking into this and testing medicines and treatments. If successful, imagine the success of the medicine that prolonged our lives by decades.
Health is one of the most critical areas to achieve happiness and quality of life, as, without it, we can have neither. That’s why a lot of research and development investment is going into it. As a result, we are seeing advances that will be ushering exponential growth in this industry.
Transformation in the exponential age
The arrival of the Exponential Age means that the world is changing at an ever-increasing pace. If you thought things were changing fast, hold tight, the pace of change is accelerating!
As mentioned at the beginning of this post, we are used to thinking in linear terms, not exponential ones, and we always get surprised by the size of the transformation exponential changes bring. It all goes so fast that our companies, industries, and even our societies are transformed beyond recognition before we realize it.
The world in 2030 will be very different, and nobody knows how it will look like exactly. We can produce some forecasts based on the analysis of trends and drivers far into the future, but the margin of error is high. Enter exponential growth into the equation, and the margin of error goes off the charts. Things are changing so fast that the transformation we will be living will be profound, and the result will be an unrecognizable society.
What will the workplace of the Exponential Age look like? I don’t know exactly, but I try to venture into it by writing about it. I know the nature of our jobs will change as more and more jobs are automated and many new ones are created. I also know we will be working in different work environments, in new types of organisations, and that the leader of the future will have to be very different from the leader of the past to be successful.
I still don’t know what this will look like, but it will be fascinating to watch it unfold in front of us as exponential trends shape our world.
Welcome to the Exponential Age!