The Law of Accelerating Returns is a hypothesis by Ray Kurzweil based on the observations that technologies (or any evolutionary system) tend to progress in an exponential fashion.
The Law of Accelerating Returns is an idea that is akin to compound interest. It says that the rate of growth of any exponentially growing technology is itself accelerating over time, and will eventually reach a point where it will be happening so fast that extrapolating from current trends will become impossible.
The term has been associated with Ray Kurzweil's ideas on the technological singularity, which he describes as "the future period during which the pace of technological change will be so rapid, its impact so deep, that human life will be irreversibly transformed."
The law states that the pace of technological progress moves in steps, or "waves". Each wave is characterized by rapid and exponential growth, followed by periods of slower growth or stagnation, (resembling non-returnable investment bubbles) until a new paradigm shift occurs.
The first wave began with the invention of fire and ended with the creation of cities. The second wave began with the invention of writing and ended with the printing press. The third wave began with the invention of computers and biotechnology and is still growing exponentially today. Kurzweil predicts that this third wave will end around 2045 when humans will merge with machines.
The law of accelerating returns is a corollary to Moore's Law which predicts that computer power will double approximately every two years. It suggests that we are involved in a process of exponential change. This understanding has implications for economic policy, social organization, education, and other areas of human endeavor. In fact, many futurists are convinced we're on the verge of another paradigm shift that will deliver computational power well beyond what we have now.
Kurzweil predicts that the 21st century will see an acceleration in the rate at which technological progress happens, such that by 2045, we will be able to follow a "linear" trend line as far into the future as we are able to project it.
Today, we are seeing this law proving right to a great extent.
The exponential growth curves that we see in technology are a result of a feedback loop between innovation and investment. The more money we invest into technology, the more capable our technology becomes at creating new and more powerful technology. And as each new innovation occurs, it allows us to make further innovations with even greater payoffs. This concept can be explained by examining three different components: empowering technologies, human capital, and investment capital.
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