Dream and Hustle

Designing Organic Digital Ecosystems Using the Flywheel Effect

Monday, January 22, 2024

When creating digital ecosystems or information broker such as a search engine or social media, people like to say it is a chicken vs egg dilemma. The chicken vs egg is not relevant; knowing the answer is the difference between startup success and failure in the 21st century digital era.

If you are wondering about the chicken vs egg, the answer is the egg. The answer you really looking for and the truth you seek is the underlying environment that manifested the egg and continuous progression to become a chicken. That is the flywheel effect.

Flywheel Concept

The flywheel is not an accurate symbol of the concept being proposed. A flywheel is a rotating wheel that creates the mechanical driver to run an engine. The engine is powered by the flywheel fast-spinning momentum.

A flywheel is connected to a motor that can generate electricity or movement. If you have windup watch and can see the internal workings, you will see a miniature flywheel spinning fast that drives the clock movement.

The flywheel is more of a symbol used sloppily by whoever created the concept. The real concept is the power that drives the flywheel.

Millstones

Before there were flywheels, there was mills and this need to be understood before moving forward. The flywheel is just a more advanced concept of a millstone. A millstone is a rounded stone that rolls on a flat stone surface and is used to grind grain into powder to make bread as early as ancient Egypt and Biblical era.

There is a passage in the Bible in Jerimiah about God punishing people by sending angels to destroy their millstones.

“The millstones themselves symbolize prosperity and the sound of comfortable living, for which they will pay.”

In the Bible, this verse alone should give you insight that leveraging millstone and the modern flywheel can bring prosperity and comfortable living where you eating good, and sleeping good.

Millstones were first operated by a person who would manually roll a rounded millstone over a pile of grain to turn it into flour for bread. Time moved on to a bigger millstone leveraging a donkey or horse would move around in a circular fashion to do the grinding of the mill, don’t sound sanitary to me. I remember a movie where they had people pushing the millstone around in a circle in ancient Rome.

After animal-based power, humans began to leverage natural forces such as wind and air to create windmills and watermills. Windmills were used mostly on farm to crush grain while watermills are a different story, the beginning of automation and I believe this is the true story of the flywheel effect.

Watermills changed the game because the source of power was the most consistent, this allowed the creation of manufacturing processes where a cog wheel was used. With a cog wheel, you can create your own cog wheel connection to do everything to weave fabric to stamp a printing press. It was water mills that created a level of manufacturing automation.

Then we moved to steam power and this is really where the flywheel was first used. Steam is powerful and create enough force to move a spinning flywheel pretty fast. The flywheel has bars attached to push back the force that it received and here is a video demonstration of how it works.


This is where I believe the flywheel effect concept fails. The flywheel only serves a purpose to push back the piston to be pushed back out again. Before we move on, do you know another concept similar to the flywheel to push and pull back? That is your car combustible engine where the spark plugs create a spark to explode the car fuel to push the pistons back and forth.

With the flywheel able to move fast due to push and pull mechanism of steam power, electricity can be generated from an attached motor. Instead of adding cog wheels from watermills, we can now plug in electric power machinery to drive industries from steam engine, thus the “steam punk” era has begun. Steam powered railroads, steam Stirling engines to drive manufacturing, steam plants to run street lights powering the Industrial Revolution.

Now we are in a new age of nuclear fuel in nuclear power plants to generate electricity but this drives the whole point of the flywheel flawed concept that it is not the flywheel, it is the power that create momentum of the flywheel effect and that is you.  

You are the power.

How the Flywheel Concept Apply

The flywheel concept does not represent human civilization's progression from millstones to nuclear energy. The true value that the flywheel concept is trying to express is the output power. It is the output power that everybody will tap into and grow businesses, the flywheel is just a utility component.

The flywheel concept is best applied to decentralized and centralized ecosystems. If you look at the DePIN flywheel diagram, this is exactly how you should create your flywheel for those ecosystems. DePIN means decentralized physical infrastructure similar to DeFi, where you apply a flywheel concept. Most DeFi failure projects is due to a poor flywheel design.

Instead of creating a business model, trying to make business pitches to investors, and then hiring and hoping they develop a project, the flywheel effect focuses on organic growth. Here are the steps to a flywheel design to create a flywheel effect:

Founders create the cycle. This is no different from God creating the universe and time. You create the circle first, and that is the entire process that boards customers, boards businesses, processes transactions, research and development, and continuous improvement.

Establish the ICO. We recommend utility tokens if you want to turn them into a security later; that is the best approach to establishing the market. Most DePIN failures occurred because the founder was greedy and wanted to cash the ICO instead of having a solid utility that was then transferred to a security. The utility token is used to process transactions within the ecosystem, and the founder group collects the service fees for transactions. Then, the founder can split the tokens into fractional units to get rich fast from their growing ecosystem.

Parties join the cycle. The investors who see the flywheel going round and round, the customers who see the flywheel spinning fast, and the businesses who see the flywheel outputting energy and power they can tap into will start buying in a solid flywheel delivering constant output. Think of creating a power plant – housing will be constructed, businesses will be constructed, jobs created, recreational sports and schools and hospitals created, all tapping into the power output.

These parties will tap into the power source on their own accord.

Start Designing with the Flywheel Effect Model

This article shows how the 21st business is shaping up. This is the juncture where you should understand my business model for the Toshikiso ecosystem. We are running a system that multiple parties can tap into. This is no different than cloud service providers that are flywheel-based models. For example, you have integrators, businesses, and customers buying into and joining their cloud services, growing the business exponentially on Amazon Web Services.

Your idea is to create a flywheel-driven system for multiple parties to tap into and use an underlying transaction instrument. Bitcoin has no underlying ecosystem and will soon be nothing more than a commodity. True digital assets with an underlying ecosystem are how this crypto model will thrive.

Here are examples of a flywheel-driven business.

Hair Stylist DePIN. This ecosystem allows hair stylists to use a common booking system for customers, programmers create interfaces and transaction software for the ecosystem, hair station and clipper suppliers join the ecosystem. All use the utility token internally and then transition to a security asset and use fractional to get rich as founders of this ecosystem.

Rental DePIN. Landlords can list their units for rent, apartment cleaning and repair services join to schedule business-to-business services, customers pay their rent and the funds are handled digitally with an underlying ICO, even agencies that collect rent or recruit qualified renters get a commission. This is more of a fee-based revenue model than a security asset.

These are marketplace ecosystems that can be created in a DePIN, but there are problems with DePIN. The first was the crypto winter after the fallout with FTX. Many DePIN lost most of their market capitalization and crashed like a Great Depression event. The interesting part is, by nature, fractional should never crash as the crypto's biggest benefit is the ability to prevent deflation.

Overall, the flywheel effect model is the way forward for next-generation empires. Don’t look at “getting the bag”; look at creating an ecosystem for people to come together and manifest a big-picture goal. One last point – look into the non-profit bond market for social benefits similar to carbon credits or carbon offsets.

For example, a non-profit DePIN can be created to increase the quality of life in urban or rural communities. Instead of buying ICOs for profits, people buy ICOs for tax offsets. The funds from the ICO are a charity contribution to perform projects such as creating an urban park, walking space, solar farm, library, and more, with the ICO operating as bonds. Any revenue from the non-profit is then passed into the ICO like a dividend to increase the tax-offset amount.  The credits can be sold to other people to offset their taxes, which is how the carbon offset market works.

The flywheel effect is how you should start designing your 21st-century business models. Do not do chicken vs eggs or think there are steps of progression to completion. If you look back, everything happened because multiple things came together around a certain nexus in your life. That is how you should be designing your business the same way the millstone to nuclear energy has evolved. 

Contributor

Ed Dunn

From Chicago West Side to Worldwide