Welcome to the Fourth Industrial Revolution

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The convergence of the Internet of information, things and value. Photo: Shutterstock/supergenijalac

We’re on the cusp of the next Industrial Revolution, according to the German manufacturing experts.

Back in 2011, a German working group began pushing an initiative known as “Industrie 4.0” or the Fourth Industrial Revolution, which would be driven by the integration of “cyber-physical systems.”

Motherboard explains:

CPS is basically a catch-all term for talking about the integration of smart, internet-connected machines and human labor. Factory managers are not simply reimagining the assembly line, but actively creating a network of machines that not only can produce more with fewer errors, but can autonomously alter their production patterns in accordance with external inputs while still retaining a high degree of efficiency.

In other words, this is the Internet of Things for manufacturing—think smart factories—particularly relevant to Germany, where exports account for 41% of national output. They were soon joined by the German government, which officially endorsed the movement. By 2020, German companies will be investing €40 billion annually with the government investing an additional €500 million in research.

Fourth Industrial Revolution

Chart: Deloitte Industry 4.0 report

Not to be left behind, American industry leaders like Intel, IBM and Cisco soon created their own group, the Industrial Internet Consortium, in 2013. Then in September of this year, the White House announced the Cyber-Physical Systems Program, as part of its $160 million Internet of Things research initiative.

There’s also Asia, especially in Japan and South Korea. But it’s China that promsied to set the pace, announcing early on that it would invest 5 billion yuan ($800 million) in the IoT industry by 2015, according to a 2012 CNN report.

It’s not that surprising why, according to Deloitte’s Industry 4.0 report:

Research has shown that Moore’s law—which states that the capcity of microchips, bandwidth and computers doubles every 18 months, representing exponential growth—also applies to other technological developments. 3D printing, sensor technology, artificial intelligence, robotics, drones and nanotechnology are just a few examples of exponential growing technologies that are radically changing industrial processes, accelerating them and making them more flexible.

exponential-growth

Chart: Deloitte Industry 4.0 report

As the Deloitte report concludes, “exponential growth will fundamentally shape industry 4.0.”

And in fact, we’ve seen this chart before near the end of the 18th century and the beginning of the first Industrial Revolution. During this time, known as the Great Divergence, the per capita income of Western Europe and parts of North America skyrocketed.

great-divergence

Chart: The Economist

The Great Divergence wasn’t sparked by any single innovation. Instead, it was the result of many existing technologies reaching maturity at the same time and it would be that convergence that prompted the liftoff of what economist Eric Jones described as the European Miracle. By the 1800s, we would witness the rise of the factory system accompanied with ever-expanding rail and telegraph networks catalyzing an unprecedented movement in people, goods and ideas.

There are numerous parallels with the arrival of Industry 4.0, which, as the Deloitte report explains, similarly won’t be sparked by brand new innovations but the maturation of existing technologies and ecosystems:

Many of these technologies are not new and were, in fact, ‘invented’ some 20 or 30 years ago. However, the recent massive boost in computing power (Moore’s law) and the reduction in cost, along with miniaturisation, now make them suitable for industrial use.

That’s also why the Industry 4.0 group is most focused on establishing open standards and interoperability—essentially interchangeable parts for the digital and machine age—all of which is to leverage the rapid advance of factory automation underpinned by a bevy of smart networks.

smart-networks

Chart: Deloitte Industry 4.0

Of course, the glaring omission from the above chart is the smart network we champion most often here on Ripple Insights.

Though the Internet of Value admittedly still exists at a nascent stage, it’s only a matter of time before smart payments become a fundamental aspect of Industry 4.0. Every real-time interaction—between consumer and company, automated machine and supplier—will likely be underwritten by a corresponding payment.

As we’ve noted in the past, multinational corporations already make up over 90% of payments volume in the world. It’s understandable that as these companies enter Industry 4.0, they’ll want smart inventory not only of their goods and services but also their capital. After all, two primary benefits included by the Industry 4.0 working group’s 2013 paper are “flexibility” and “resource productivity and efficiency.” Eventually, the expectation will be that payments are able to play by the same rules.

“What we’re seeing is the convergence of the Internet of data, physical things and value,” my colleague Ryan Zagone explained to me. Ryan is Head of Regulatory Relations (former Head of Research) at Ripple and is an elected member of the Federal Reserve’s Faster Payments Task Force steering committee.

“I see the Internet of Value as the underlying incentive structure for the Internet of Things,” Ryan continued. “But to get there, we need to be able to make payments in real-time, to be able to make both large dollar and micropayments economically. Looking to the future, I expect payments to not only become  more integrated into our lives, but also passive as they become automated, interoperable and seamless.”

“New technology and payment infrastructure will enable the next industrial revolution. It will have a tremendous impact on productivity, efficiency and even risk management and oversight capabilities.”