With so many innovations emerging every day, it is easy to get lost in the noise. Are these innovations merely random and disconnected, or are there some major trends underneath them all?
Imagine you are observing Earth from outer space as a guest from another planet. A year on Earth is a minute of your time, so you can see the changes in fast-forward mode. You’ve been doing it for the last 7 hours which is about four human centuries. What kind of big trends would you notice?
There will be a few, like the shift in energy generation patterns, extended life-spans, and the growing number of satellites orbiting the planet. You might also notice that people live longer and spend more time glued to their screens as the world becomes more connected.
Below we attempt to identify the major trends, the drivers behind them, and what comes next. We try to follow the Occam’s razor principle. It is easy to come up with a hundred trends shaping the future. It is much harder, but more valuable to us to uncover the core few that underpin everything else. It helps us organize our thinking about the future and shape our investment approach.
Some trends are better covered than others, which reflects our current research focus. This is a work in progress that we continue to update over time.
There are several overarching trends shaping the near-term future. So let’s first look at them, before going deeper into specific areas.
Energy and minerals — limited supply and growing costs of extraction
The energy sources that we use have been a major factor in the rapid rise of living standards and population growth over the past 200 years. But we live on borrowed energy.
Starting from the nineteenth century we binged on fossil fuels that powered our exponential growth from left to right.
Our energy consumption grew 30 times driven mostly by coal, oil, and natural gas. The population grew 8 times and the world GDP increased 100 times. Almost 80% of the energy we use today to support our living standards comes from fossil fuels.
Fossil fuels have a finite supply. Nature generated this resource over millions of years, and we are on track to deplete it in a few centuries. While there are ample reserves of fossil fuels, it’s not enough. We need to be able to extract these resources efficiently so that the energy we spend on extraction, processing, and transportation is a small fraction of the energy we produce from them (the eROI is high).
Naturally, as we were tapping into this source of energy we started with the low-hanging fruits. As we progressed we had to drill deeper and in less hospitable environments. For a while technology advancements compensated for this, but it looks like we are past that stage now.
Fossil fuels extraction costs are increasing and we expect them to continue to increase over time.
The situation is similar with many minerals. We tapped the best sources first and now we have to spend more energy per unit of product.
One counterargument here would be that new technologies will emerge in response that will make extraction more efficient. For minerals, one such technology is recycling, which will become more cost-competitive as the extraction costs go up.
As for fossil fuels, the need to curb greenhouse gas emissions will stop us from significant investments in innovation there.
Aging population, flattening growth, declining fertility rate
Over the last 100 years we got used to the fact that the earth’s population is growing rapidly, but it’s not the case anymore. The growth has been slowing down, driven by the plunge in fertility rates going from 5 birth per woman in 1950 to 2.3 (just a bit above the level of 2.1 required to sustain the population).
In fact in countries that are home to 2/3 of the population the fertility rate is already below 2.1 all the way to just 1.5 in some cases. Because of that, despite the growing population, the annual number of birth has been roughly flat since the 1990s. The current UN projections call for the population to reach 10.4b during the 2080s and stay flat afterward.
At the same time, thanks to the advances in healthcare, we now live longer, which leads to a demographic shift toward an aging population. The global median age has increased from 21.5 years in 1970 to over 30 years in 2019. It is estimated by the UN that by 2050 the share of people aged 65+ in Europe and North America will reach 27% from the current 19%.
Earth has been getting increasingly hotter over the last 100 years. As far as we can tell, it hasn’t been that hot for the last 2000 years. While there are several factors responsible for earth heating up before — orbit change, axis position, solar radiation levels, neither of these factors seem to play a role today and there is a broad consensus in the scientific community that the only significant cause we can think of is the growing concentration of the greenhouse gases (GHG) in the atmosphere.
Climate change will lead to significant consequences for the lives of billions of people on the planet. The sea level will increase (by as much as several meters) and claim land, including some of the most fertile parts used for agriculture. More frequent and more severe extreme weather events will make ownership of physical assets more challenging. Water shortages will affect agriculture and water-sensitive infrastructure. Melting Arctic ice will create new opportunities for navigation in that region.
Together with energy technology became the second force to drive our evolution from hunter-gatherer nomads to the modern city-dwellers. Technology and energy created a virtual cycle, where new technology helped us get access to more energy and better communication, while additional energy and improved communications helped accelerate the development of technology. Language and writing enabled us better coordinate and transfer knowledge, which allowed for more efficient hunting-gathering, the introduction of agriculture, usage of rivers and wind to power mills, and so on. The additional supply of energy freed more people time to focus on developing better technologies.
Technology advances seem to oscillate between high/low-energy intensity following the situation with the energy supply. Switching to agriculture enabled massive growth in energy supply, leading to technologies for building relatively large cities, bridges, individual buildings (like pyramids), and so on. A switch to fossil fuels produced another surge in energy, leading to technologies for trains, cars, trucks, rockets, skyscrapers, and more. These all are high-energy intensity technologies. But as energy supply growth decelerates, technology innovations shift to the low energy field. We get PCs and smartphones, internet, video calls instead of travel, etc. A smartphone delivers significantly more value than a personal car but consumes a tiny amount of energy.
We are currently in the low-energy period. Energy extraction used to get cheaper as we developed technologies to extract fossil fuels more efficiently. But not anymore. This is the reason why (as asked by Peter Thiel) we’ve got 140 symbols, instead of flying cars.
It’s impossible to predict when the low-energy era will switch back to the high-energy one, as it is completely controlled by our ability to grow energy supply. When it happens, we should be able to revisit flying cars, flying homes, space tourism for everyone, and more. There is nothing we can’t do if we have a supply of very cheap energy, like the one promised by nuclear fusion.
Until then, we have our hands full developing low-energy technologies, like artificial intelligence, virtual reality, biotech (the ultimate low-energy tech*), new materials, and everything about increasing the efficiency of how we do things.
We discuss some of these technologies below.
* Take the COVID-19 vaccine, which requires a minute amount of energy to produce/deliver, while the human body does all the work training to fight the virus. Or the miracle drug, fixing a terminal condition with just one dose. Don’t let the price tag fool you. The energy profile of the drug is as low as any while the value is unmatched.
Below we dive deeper into several specific themes.
Fossil fuels have a finite supply. Where do we go from here?
Reducing our energy consumption to the levels of the 18th century is not an option as it will return humanity to the living standards of that time.
Replacing the source providing 80% of the energy is hard. In fact, it never happened before. It is even harder when the global energy demand continues to rise as societies around the world improve their living standards. The global annual energy consumption per capita is 20 MWh. The US consumes 80 MWh. India 7 MWh. Getting the world average to 40MWh per capita and accounting for global population growth to 10 billion people means more than doubling our energy needs. And this number is not even close to the levels of consumption of the countries like the US, Australia, or South Korea.
The good news is that we have the sun (directly as light and indirectly as wind, hydro, and biomass), earth core, and nuclear fission/fusion to provide us with an abundant supply of energy. We just need to learn to tap into these sources efficiently.
Multiple industries will transform. There are obvious ones, such as transportation and electricity generation, storage, and transfer. However, we cannot stop there. Manufacturing, agriculture, and residential/commercial heating also rely on fossil fuels. In fact, there is hardly an industry not being powered directly or indirectly by it. That’s what happens when you take on the source of energy responsible for 80% of all energy consumption. We have a lot of work to do.
The opportunity however is enormous. Our estimates put it at at least tenths of trillions of US dollars in new annual revenue globally by 2040.
As we transition from fossil fuels we will have to take better care of our greenhouse gas emissions with advances in technologies like direct carbon capture. Otherwise, we might be forced to deal with geoengineering as the last resort in an attempt to keep the earth from heating.
Earth is humanity’s single point of failure.
Since the beginning of time humans have been exploring and settling the earth’s surface, eventually reaching the depth of oceans, the orbit, and the Moon.
Despite reaching outer space 60 years ago we are at the very early stages of exploring the possibilities it opens to us. While space tourism may be catching a lot of attention, the opportunities created by the rapidly declining price of launching satellites into the low earth orbit (100x decline since the 1960s — from ~$200,000/kg to ~$2,000/kg) are an order of magnitude larger. Earth observation and broadband internet are the two most obvious applications, and additional ones will open up as we advance. Military/defense is another growing area.
We expect the space economy to create new opportunities for businesses worth hundreds of billions of US dollars by 2040.
How about the colonization of other planets? If it sounds far-fetched imagine how the idea of eight billion people spread around the globe would have sounded to our ancestors as they were just starting to venture outside of Africa.
Outside of the thrill of exploration inhabiting other planets is the only sure way to get rid of the human extinction risk — due to the global nuclear war, some deadly epidemic, or a collision with another large object in space — which is the biggest risk faced by the humanity.
The energy question is defining here, though, as space travel requires massive amounts of energy.
It is much easier to move bits than atoms.
The digital world is enabled by our ability to build technology to collect, store, process, and transfer information.
Information technology helps us communicate better to get stuff done and fulfill our needs more efficiently. No surprise that it is being applied to every area of our life from commerce and finance to industry and transportation.
The growing efficiency of information technology will allow for even higher optimization of our activities over time. There is a limit though where the gains in efficiency won’t justify the additional costs.
Are we there yet? Unlikely. In the business world, North American organizations spend on average 9.1% on IT, while the global share is 6%. Getting to 9% would grow the overall market size by $2T enabling the creation of $20T of new market capitalization. Meanwhile, the NA level is not a ceiling either. The most advanced segments, like financial services, spend up to 11% of their revenues on IT. Robotization will drive that ratio up for the historically less heavy spenders, like transportation, storage, manufacturing. We estimate that robotization is at least a $2T opportunity globally.
In the consumer space, our estimates also show a lot of growth ahead and the creation of at least $10T of new market capitalization over the next 20 years.
Science and IT.
Research is another area where information technology is quite helpful. While it is hard or even impossible to calculate the gains/cost ratio there, it is clear that it is overwhelmingly favorable. Likely, applying IT (including AI) to do science will prove to be the most impactful thing we ever did.
Think about how much human suffering would have been saved if the mighty pharaoh Khufu (also known as Cheops) decided to build his great pyramid in Minecraft instead of the physical world.
We, human beings, have very limited physical needs — food, shelter, healthy body. The rest is non-physical — connection, entertainment, self-realization, recognition. We are also able to accept virtual things, like laws, money, awards, etc., for the real ones (as is well articulated in the book Sapience by Yuval Harari) and derive pain or pleasure from them.
Combine it with the fact that the digital world is much more efficient, as we are moving bits, not atoms, and it becomes clear why we spend an ever-growing amount of time in it. It simply enables more efficient fulfillment of our non-physical needs.
We are already quite deep in virtual reality. We entertain ourselves with online video, compete and win in online games, connect with people we care about via social networks and video calls, and study in online universities. In the workplace, many of us stare at the screen almost every minute.
The future growth of virtual reality is defined by three factors.
The first one is the physical jobs automation level. The higher it is, the fewer people will be needed there and the more time humanity will spend in the virtual world. It is estimated that we spend about 26 billion hours online every day, or about 3.2 hours a day per person. Our calculations show that this number may at least double.
The second is the broadband network coverage. The digital world is only possible if you have a real-time communication network connecting people around the globe. Currently, 60% of the world’s population has access to the internet, eventually, this number will reach 100%. The bandwidth will also increase.
The third factor is the level of comfort and versatility of our virtual world immersion technology. PC was the first breakthrough, but it was clumsy and stationary. Smartphones added mobility. VR goggles are on a path to improve immersiveness. On the other end, gigantic data centers will power the back-end side. With each step, as the level of immersiveness grows, we will gradually replace activities that we would otherwise do offline for the digital substitute. It will be a more efficient approach.
Are we going to transition to virtual reality completely? Maybe eventually, however for the time being we will live in a mix of the real and virtual worlds.
Until recently we had to tell the machine how to do things, giving precise step-by-step instruction while carefully covering every exception. Now we can tell the machine what to do, and let it figure out how. The complexity of the task we can request primarily depends on the total computing power available to the machine. (The underlying algorithms are also important, but it turns out we come up with more powerful algorithms as soon as we get access to more processing power.) As available computing power grows machines will be able to do more and more sophisticated things.
Public blockchain — is a protocol to store and process information leveraging infrastructure powered by a large group of independent profit-seeking actors. The results of processing are publicly accessible and practically immutable.
The processing is defined entirely by the fully public and transparent algorithms. It eliminates the need for trust in any entity. Instead, you have to have confidence in the algorithms (by exhaustively studying them or relying on experts). Therefore anyone can offer a financial service on top of a public blockchain and capture market share as long as the algorithms are solid and offer new or better value to the market.
These qualities potentially enable the creation of a new, more nimble, and efficient financial system — operating with money and all sorts of assets. This system also allows for the introduction of new types of assets, like digital collectibles, that were impractical to set up in a traditional financial system.
What comes next?
More and more people will spend an increasing amount of time in virtual reality. Just take a look at the kids in the developed countries. The advances in virtual reality immersion technologies will speed this process up. The growing share of the economy will follow into the virtual world too. Digital crime, digital security, digital law enforcement, and digital defense will grow in importance.
The great news is that the digital world is a much more equal place. There are no distances in it. There are no borders. There is no skin color, age, or gender. It opens opportunities for remote work, online learning, and global reach for entrepreneurs and activists. All you need is the right equipment and internet connection. It is critical to provide access to these things to people around the world.
Human body and mind
The human body is a miracle but it isn’t perfect. Sometimes it breaks because of outside influence. In other cases, it is the result of the internal imperfections in our code.
We want to live longer and healthier. The good news is we are getting better at mitigating our fragility. In fact, the average life expectancy in the developed countries has more than doubled since 1800.
Today we can do even more to cure and/or supplement our body by leveraging new approaches to gene therapy, advanced prosthetic devices, precision surgery, and more.
We can better monitor our body condition with the advances in sensors, including the ones used remotely, and get expert guidance without leaving our homes.
We also want to have kids and for those kids to be healthy. New technologies in reproductive health, like in vitro fertilization and preimplantation genetic testing.
Our brain has its imperfections too, which sometimes lead to it getting stuck. These situations are addressed or even prevented with developments in neurotechnology and increasing access to therapy.
Global catch up
Innovations have always been spreading around the world driven sometimes by trade and sometimes by war (colonization and empire-building). However, never before had the world been so connected. People around the planet can now learn much faster from each other and implement innovations in their societies. Capital has also become much more agile, making it as easy as ever to marshal necessary resources.
As an example, it took the US 25 years to get to nearly full cellular phone coverage (100 subscriptions per 100 people). It took Russia only 7. In Germany 120 years were needed to raise formal education level from 2 years of shooling to 10. The United Arab Emirates got there is 45.
Although this is great news for humanity, we still have a lot of work to do to make all the innovations people take for granted in developed countries available to those in developing parts of the world. From basics, like access to electricity, clean water, and vaccines to the internet, digital banking, world-class education, and health care.
This transfer of innovations is a two-way street and developed countries also benefit from the ideas that emerged first in the developing parts of the world.
Another great news is that as the economy becomes more digital (see the virtual world) the borders matter less. People in developing countries have a growing number of options to join the world’s most innovative companies as remote workers or achieve global reach as entrepreneurs.
Innovations in the digital realm are transferred faster than the ones in the physical world. Short-sighted political regimes may slow down the process. There can be temporary setbacks driven by geopolitics or natural causes, like pandemics. However, overall it is accelerating.
The less obvious consequence of improving living standards is a rapidly declining fertility rate. To maintain the population, this rate should be around 2.1. In most developed countries, it is already lower. The rest of the world is following suit. We may soon have to worry about population decline rather than growth.
The global catch-up will not be equal. There will always be better-off and worse-off places in the world, just as there are better-off and worse-off places in every country or city. Talented people will tend to move from the latter to the former, further exacerbating the gap. The brain drain will lead to the inability to compete on a global scale and may push the worse-off states to specialize in the trades their reach counterparts are suppressing at home, like global organized crime. However, unlike a single country where the government can mitigate this dynamic by redistributing resources from the better-off places to the worse-off ones, there is no such force on a global scale. We will have to come up with better global governance institutes to deal with this issue.
Continuous optimization/automation of the physical world
While the virtual world is eating the physical one, the latter is not going anywhere. We still need to fulfill our physical needs. We need to improve how we grow food, how we manufacture things, how we move, how we build homes, commercial buildings, and other physical infrastructure.
Several factors are slowing down this process. The advance of the virtual world poses a significant headwind for some segments. Thanks to the internet, we travel less, which means less pressure to improve transportation. Since atoms are harder to move, the brightest minds tend to focus on the digital world, where they can have a greater impact more quickly.
The other headwind for innovation has been globalization, fueled by the incredibly low price of energy provided by fossil fuels. It’s been more efficient to arbitrage workers’ wages between developed and developing countries than to invest in productivity at home. As living standards improve globally and energy is less abundant this headwind will subside.
No surprise physical world’s progress was moving slower. The good news is it seems to gain momentum driven by advances in AI and robotics, material science, and other technologies.