Exponential Growth is the reason why you aren’t going to get rich off of Bitcoin, but it’s also the reason why you may very well get rich from another Cryptocurrency. Please read the explanation of what exactly Exponential Growth is, then we’ll talk about it’s application to Cryptos.
Exponential growth is when something grows (or shrinks) not based on a fixed amount but in proportion to what you already have.
A good example for exponential growth is compound interest.
If you put $1000 in the bank with 5% annual interest, you will get $50 in interest the first year. The next year you will not get $50 again but $52.50. You get 5% on the original $1000 but also on the $50 you got the year before.
The amount you get increases every year.
This is good if you have money in the bank. It is less good if you owe money to the bank.
One thing to keep in mind about exponential growth is that in the long run no matter how small or slow it starts out it will always get bigger than other types of growth like linear growth or quadratic growth etc.
Exponential growth is something that can grow terrifyingly fast at time.
One classic example of this is the tale of the rice-corns on the chessboard. In the story some guy (sometimes the inventor of chess sometimes just a good player) gets a reward from a king for some reason (like for inventing chess for example).
Because he is clever he says he wants the following.
1 rice corn on the first field on the chess board. 2 rice corns on the second field. 4 rice corns on the third field. And double the numbers of rice corns again for each following field.
A chess board is 8×8 fields and has thus 64 fields.
The total number of rice corns the man gets is 18,446,744,073,709,551,615 or 18 quintillion rice corns and more than you could fit on a chess board.
In school where the story is often used to tell this tale pupils are often made to calculate how big a mountain of rice that would be (Everest sized) or how long a train would be if each train car could hold x tons of rice or how many annual global rice harvests it would take to get this much rice.
The 5% interest rate i mentioned above may seem much less than the doubling from the chess problem, but if you invest something with 5% interest you are doubling it every 15 years. You have a tenfold increase ever 50 years, which means a million fold increase in less than 300 years.
Wait 560 years frozen and you can turn $1 into $1 trillion.
Before you plan to make one of your descendants in the 25th century happy keep in mind that banks know about this too and have created rules against this sort of thing, but many sci-fi stories have been written based on that idea.
If you keep any exponential growth series up for long enough you very quickly go from a large number of units to literally astronomical numbers. Before long you will have to compare whatever you are trying to measure with things like the total number of atoms in the universe.
Which brings us to an important point. Exponential growth is never long term sustainable.
When you are charting some phenomenon that looks like it has the characteristics of exponential growth, you are always looking at something that sooner or later is going to end in some sort of catastrophe.
One example of things that grow exponentially are feedbackloops and chain reactions.
A nuclear chain reaction resulting in an explosion is an example of exponential growth that very quickly got out of hand.
In nature you have the population of living things growing exponentially. Bacteria literally reproduce like the rice corns in the above example by doubling every time, but other more complex being that don’t reproduce by cell division still have expectational population growth rates.
This includes humans. A guy called Malthus figured out that human populations will grow exponentially if left alone, but resources like food production can only increase linearly at best. Looking at the math it is very easy to see where this sort of thing will lead to catastrophe.
Luckily for us we have avoided that catastrophe so far by killing our fellow humans in large numbers and consciously reigning in our population growth in many cases, but the math stays the same.
For most people however the importance of exponential growth is visible in their mortgages and loan payments. If more people understood just how quickly even small interest rates can get out of hand fewer people would take up loans that will quickly eclipse their ability to pay it back.
Boom. So let’s say you invested into Bitcoin back in 2013, for a very minimal investment, you would have been able to acquire dozens of Bitcoins. When the price shot up, instead of having 1 single Bitcoin go up in price, you would’ve had dozens increase in price at once. Nowadays if you buy into bitcoin, unless you are able to invest millions of dollars, you won’t be able to take advantage of the exponential growth.
This is actually great news for newcomers. There are so many viable and widely supported Cryptos that cost under 10 cents. With a minimal investment into one of these, you would be able to get a few hundred thousand units, and if you have a few hundred thousand of something, and it goes up in price 1 or 2 cents, well you can imagine what a dollar or two increase would do for your bottom line.