Trends 2022

This is a piece that the team at Davidson Investment Advisors puts together annually and is meant to provide some insight into exciting, disruptive, or otherwise new developments we anticipate being impactful to businesses, consumers and society.

DeTrust

Kenneth Arrow, a Nobel-Prize-winning economist once said, “Virtually every commercial transaction has within itself an element of trust.” Since the pandemic began, many surveys have found that trust was eroded by the shift to remote work, with supervisors trusting employees less and coworkers having the same experience with peers. In fact, as of November 2021, demand for employee monitoring software was 54% higher than it was before the pandemic, according to top10vpn. com. Meanwhile, trust between firms has also eroded as supply chain issues have suppliers questioning their customers’ orders and said customers have unfulfilled demand. Without trust, companies can’t plan or invest for the future, a portion of demand goes unmet, and bosses can’t focus on their most important tasks, leaving productivity - and by extension growth - lower than it otherwise would be. DeFi, or decentralized finance, is an attempt to use blockchain technology (see Blockchain, Trends 2016) to overcome traditional barriers to trust and remove the intermediaries that have brokered it in the past. Potential use cases include loans, insurance, derivatives, betting, stablecoins, decentralized exchanges, and more. Gavin Wood, co-founder of Ethereum, the main platform DeFi applications are built on today, has recently said, “We want less of that [trust], and we want more truth, which what I really mean is a greater reason to believe that our expectations will be met.” When it comes to financial transactions and applications not under real-world constraints DeFi shows real promise. It remains to be seen how it can overcome recent developments in distrust that stem from lockdowns and different actions taken by sovereign nations that have snarled the supply chain and created artificial barriers to business.

Energy Transition

In response to climate risk and mounting social pressure for sustainability, energy production is undergoing a dramatic transition to replace fossil fuels with renewable energy sources such as wind, solar, hydro, and nuclear. Net Zero initiatives are calling on governments, companies, and other organizations to commit to becoming carbon neutral by the year 2050. Wind and solar sources are leading electrification efforts by growing capacity and improving efficiency, fast becoming cheaper than fossil fuel alternatives. The term “electrification” refers to technologies adopting electricity as an energy source as opposed to fossil fuels – for example, electric vehicles. In previous trends, Solid-State Batteries(Trends 2021) and Picogrids (Trends 2018) we’ve highlighted how advancements in technology are shaping the future of energy. Perhaps the pinnacular energy source for the future is nuclear fusion, providing virtually limitless clean power. Unlike fission, fusion is two atoms slamming together to make one heavier atom, resulting in large amounts of energy. Recent breakthroughs in nuclear fusion mark a significant step in being able to replicate the power of stars. In theory, nuclear fusion produces significantly more power than fission without producing radioactive waste, a major drawback to current nuclear energy production. Last December, the National Ignition Facility (NIF) achieved a decades-long goal of “ignition”, the process where a fusion reaction expels more energy than was originally input, resulting in a net energy gain. Since then, the process has been replicated several times with significant improvements to efficiency, able to produce 3.88 megajoules of energy from 2 megajoules of energy input, about as much energy as 1.5 pounds of TNT. However, utilizing nuclear fusion for grid scale energy production is still likely years, if not decades, away.

Great Resignation

In 2021, whether they were fed up with a daily commute to the office, or tired of working hard jobs for little pay, or simply using the labor shortage to find a job that better suits their preferences, Americans quit their jobs at record rates. This phenomenon is not a uniquely American one. In China, young workers and professionals are opting into the “lying flat” movement, rejecting the promise of consumer fulfilment and the accompanying struggle for workplace success. In a trend synonymous with the Financially Independent Retire Early movement (see Playing with FIRE, Trends 2019), workers around the world are showing a desire for an improved work-life balance, more time for themselves and their families, and more autonomy in their daily life, not to mention the savings produced by a lack of a commute. In addition to the desire for greater autonomy in their daily routines, workers are also struggling with childcare dilemmas and taking the opportunity to retire early. According to economist Miguel Faria-e-Castro at the Federal Reserve Bank of St. Louis, more than 3 million people have retired early due to the COVID-19 crisis. All these factors have led to a shortage of labor, often referred to by economists as full employment. The current shortage may have placed workers in a relatively strong bargaining position for the time-being, but it’s noticeable that wage growth still trails inflation and over time, companies grow more likely to respond to higher wages with labor-saving investments.

Metaverse

Over the last year, the Metaverse (see Metaverse, Trends 2021) has gained significant notoriety as Facebook (now Meta) has made it a key strategic priority. Meta is investing $10 billion into its Metaverse vision to build out the critical hardware and software infrastructure, as Mark Zuckerberg believes it to be the next major technology platform. Key debates remain about what the future Metaverse will look like. While the amount of time we are all spending in digital worlds is increasing (from Zoom calls to Roblox games), many of these use cases are what we would consider a Metaverse 1.0 user-interface. The next iteration, Metaverse 2.0, we believe will require more lifelike experiences and interaction. Video game developers and companies such as NVIDIA, Unity Software, and Epic Games continue to push the boundaries of making the digital almost indistinguishable from the physical. Real-time 3D capabilities is one of the biggest trends in the media industry and increasingly media consumption is moving from a static, passive 2-dimensional experience to a 3-dimensional experience where the viewer can interact, change and customize the content. Already many television and movie studios are aggressively integrating these real-time 3D capabilities into their content. More ways of engaging in the Metaverse continue to grow from Augmented Reality glasses to Virtual Reality headsets, allowing the user the ability to choose how they will engage in the Metaverse. Humans are social creatures by nature and the last two years of relative isolation during COVID has taught us that virtual environments remain a highly relevant and necessary platform for social interaction.

Web3

Web3, first coined by Ethereum co-founder Gavin Wood, is an umbrella term for a new iteration of the World Wide Web (WWW) that is based on decentralization and built usingblockchain (see Blockchain, Trends 2016) technologies. The early days of the Internet in the 1990s were Web1.0 and primarily about data transmission protocol (TCP/IP) and access to information. Then came Web2.0 in the mid-2000s, which brought us social media and e-commerce, but facilitated by platforms (dominated by a handful of companies like Google, Amazon, Facebook, and Twitter) that serve as a middleman between producers and consumers. The current Internet, with its clientserver-based data infrastructure and centralized data management, has many unique points of failure and suffers from recurring data breaches. In Web2.0, individuals don’t have much control over their data or how it is stored. Data are typically owned, controlled, and often monetized by the companies in charge of platforms. In contrast, blockchain reinvents the way information is stored and managed.

In Web3, data are stored in multiple copies of a P2P (peer-to-peer) network. To the average Internet user, nothing much will change; Web3 is primarily a backend revolution, whereas Web2.0 was a frontend revolution. Web3 also has implications for how applications are developed or how companies are financed and built. In Web3, dapps (decentralized apps) are built and run on blockchains (decentralized networks of many P2P nodes) and can have associated tokens, which may not only pay for services, but can act like voting shares that govern the applications’ development. Blockchain data are public and open, providing purchasers or investors more transparency. This contrasts with buying equity in private or centralized businesses where many things are not made public. This infrastructure may allow for DAOs (Decentralized Autonomous Organizations) as an alternative way to finance and build what we traditionally thought of as a company.