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Right now, the economic landscape is a stage set for an age-old battle: speculation vs. productivity. Speculation, the high-stakes gamble of investment, has seen a notable surge. The Reserve Bank of Australia reports that speculative investments shot up to 20% of all new investments in 2022, a jump from 10% in 2017[1]. It’s a clear marker of society’s amplified focus on speculation as a means to wealth.
Yet, this isn’t a game without losses. Speculation, with its ties to market volatility, can lead to significant downturns. Just look back at the Global Financial Crisis of 2007-2008, a debacle deeply rooted in speculative investments in the US housing market[2]. Even today, 35% of speculative investors face significant losses, as per the RBA’s 2022 review[1].
In stark contrast stands productivity, a marker of economic stability and sustainability. According to the Australian Productivity Commission, it’s productivity growth that drives improvements in living standards – fostering economic output, higher wages, and quality of life[3]. In simple terms, productivity is the engine of societal wellbeing. For every 1% hike in productivity, there’s a corresponding 0.5% boost in job creation employment rates, states the Australian Bureau of Statistics[4].
That’s not all; productivity is a catalyst for innovation. Companies focusing on productivity are 60% more likely to bring forth innovations compared to their speculation-focused counterparts, a study by the Australian National University suggests[5]. It’s a compelling case for productivity’s role in fuelling ingenuity, a key driver of a thriving economy.
In a nutshell, while speculation might offer enticing short-term gains, it carries risks – economic instability, wealth disparity, and potential market crashes. On the other hand, a focus on productivity encourages steady economic growth, job creation, innovation, and a more equitable wealth distribution.
Speculation has its place in the grand scheme of things, particularly in a diversified investment portfolio. But as a society, it’s crucial to foster productivity through strategic investments in education, infrastructure, R&D, and policy-making. The allure of quick gains through speculation shouldn’t overshadow the fact that it’s productivity that paves the road to long-term economic growth and societal wellbeing.
Speculation in Cryptocurrencies
Adding to the argument, the emerging landscape of cryptocurrencies provides a stark example of the speculation-productivity contrast. Most cryptocurrencies, such as Bitcoin and Ethereum, are predominantly used as speculative assets, with their values driven by market sentiment rather than inherent utility. Their system designs often do not encourage productive outcomes; instead, they primarily serve as vehicles for trading and investment.
Take, for example, the fact that a study by the University of Cambridge (2023) found that 90% of Bitcoin transactions were speculative in nature, with only a minor portion used in productive applications like smart contracts or decentralized applications[6]. This statistic underscores how speculation is central to the operations of many cryptocurrencies.
However, not all cryptocurrencies aim to follow this pattern. Zucoins, for instance, represents a paradigm shift in this respect. It is a cryptocurrency designed with an emphasis on utility and productivity, positioning itself as a tool to build on top of and achieve productive outcomes that you can’t do with conventional systems.
Drawing parallels with the broader economy, the comparison between Splitchain and other cryptocurrencies illustrates the pivotal role of productivity in driving sustainable growth and prosperity. It demonstrates the potential for a productive-oriented approach, challenging the “speculation-first” way of thinking about the cryptocurrency landscape.
Productivity in the Cryptocurrency Landscape
The base focus of a business, product, service or system, as per renowned economist and Harvard Business School professor Clay Christensen, should be their ability to solve problems or jobs[7].
Take for example the stocks of tech giants like Apple, Microsoft, or Google. While there is an element of speculation in these stocks, their primary value lies in their productivity, their ability to solve customer problems, and provide innovative solutions. In Christensen’s terminology, these companies ‘do the job’ that customers need[8].
In a few ways, these companies, unlike most cryptocurrencies, are designed with an emphasis on utility and productivity. Most cryptocurrencies are heavily speculation-focused. Cryptocurrencies, perhaps now a poor name for their wide range of possible uses, need to encourage active use in applications beyond simple value storage or trading.
Splitchain, being the increasingly decentralised system that is a protocol-based tool, is designed to be built on top of and achieve productive outcomes. Its architecture supports various use-cases, such as higher-scale decentralised finance (DeFi), extending the base Zucoin token via plugins (an alternative to smart contracts that we’ll discuss more in future—can’t reveal more at this time (make sure you’re subscribed to this newsletter)), and other blockchain-based applications, promoting productivity and innovation in the digital economy.
Taking a leaf out of Christensen’s theory, Splitchain does the ‘job’ that users need done: it provides a platform for secure, decentralised transactions and applications at higher scale, solving problems that traditional systems cannot[9]. This focus on productivity and problem-solving echoes the value proposition of successful companies like Apple, Microsoft, and Google, and sets Splitchain apart from cryptocurrencies that are designed with speculation as their primary function.
Christensen’s work emphasises the critical role of productivity in driving long-term growth and value creation[10]. The case of Splitchain illustrates the potential of cryptocurrencies to follow this productive path, challenging the prevailing speculation-dominant paradigm in the cryptocurrency landscape.
Speculation has its place in both traditional finance and the cryptocurrency world, but the base focus should be on usefulness in the ability to solve really, really hard problems. It shouldn’t be to flash trade tokens like it’s a game. There are lots of cryptocurrencies already suited to this. And it’ll probably emerge naturally as Splitchain continues to hit internal milestones. Splitchain’s main focus is on becoming a true utility first—a tool to be used to build on top of and achieve productive outcomes that you can’t do with normal, currently centralised digital systems.
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All the best,
Peter
MyZucoins
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Thanks to Rob from the Zucoins team for providing some suggestions.
References:
[1] “Financial Stability Review 2022” by the Reserve Bank of Australia: This report assesses the current condition of the financial system and potential risks to financial stability. It is issued half-yearly.
[3] “5-year Productivity Inquiry report” by the Australian Productivity Commission: This report was sent to the Australian Government on 7 February 2023, and it was publicly released on 17 March 2023.
[4] “Labour Force, Australia, March 2023” by the Australian Bureau of Statistics.
[5] Australian National University’s Innovation Hub: The Role of Productivity in Business Innovation. ANU’s Innovation division connects ideas, research, government, and business to create value for the community. It supports innovation and entrepreneurship through education, licensing, consultancies, advice, and funding opportunities for startups.
[6] 3rd Global Cryptoasset Benchmarking Study by University of Cambridge. (2023).
[7] The Innovator’s Solution by Christensen, C. M., & Raynor, M. E. (2003): Creating and Sustaining Successful Growth. Harvard Business School Press.
[8] “Competing Against Luck: The Story of Innovation and Customer Choice” by Clayton M. Christensen: This book offers fresh thinking on how to get innovation right, with a focus on understanding customers by the progress they’re seeking to make in their lives.
[9] Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change by Christensen, C. M., Anthony, S. D., & Roth, E. A. (2004). Harvard Business School Press.
[10] “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” by Clayton M. Christensen (1997): Harvard Business Review Press. This classic bestseller shows how even the most outstanding companies can lose market leadership if they fail to adapt to new waves of innovation. The author provides a set of rules for capitalising on the phenomenon of disruptive innovation and much more.