Twitter. Facebook. AirBnB. Marc Andreessen, co-founder of the $4.2 billion venture capital firm Andreessen Horowitz, has backed them all — along with dozens of others. His latest project? Upending finance. Bloomberg Markets magazine interviewed Andreessen at the firm’s headquarters in Menlo Park, California.
Read the full story at: http://www.bloomberg.com/news/2014-10-07/andreessen-on-finance-we-can-reinvent-the-entire-thing-.html
Out With the Old
“We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information. You shouldn’t need 100,000 people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment.
‘‘You would not today, starting from scratch, invent any of these financial businesses in the same way. To me, it’s all about unbundling the banks. There are regulatory arbitrage opportunities every step of the way. If the regulators are going to regulate banks, then you’ll have nonbank entities that spring up to do the things that banks can’t do. Bank regulation tends to backfire, and of late that means consumer lending is getting unbundled.”
In With the New
“We’re not going to go backward. When people start doing things a better way, it kind of doesn’t matter what the old way was. You can find people who will say that this is all just an arbitrage on the current trouble in the financial system, and I’m sure the big traditional banks will fight back and try to get things outlawed.
‘‘But think about the scenario of a loan officer talking to a prospective client. To software people, that looks like voodoo. The idea that you can sit across the table from somebody and get a read on their character is just nonsense.
‘‘Lots of industries are changing in a similar way. There’s been a qualitative approach, and now, there’s a quantitative approach. Everybody who grew up in the qualitative approach hates the quantitative approach and considers it a giant threat.”
‘‘The startups chasing disruptive technology aren’t working within the existing system. This is the cryptocurrency phenomenon. If it works, we can re-implement the entire financial system as a distributed system as opposed to a centralized system. We can reinvent the entire thing.
‘‘Bitcoin is clearly in this category. With bitcoin, there are advantages to decentralizing the financial system in order to do commerce. For instance, you can make payments in all but four countries. So, on day one, you can use it all over the world. Forget about all the different currencies and banking systems; it’s a truly universal way to transfer value.
‘‘That also means we have the chance to radically lower fees. Most consumer transactions are weighted with a 3 percent fee; remittances run up to 10 percent, which I think is a moral crime. There’s a big opportunity to take those fees out.’’
Bitcoin’s real killer apps won’t be alternatives to existing systems, they will solve problems thought impossible before its invention.
What might they look like? Here are a few examples:Digital resources – like energy, bandwidth, storage and computation – will be allocated to the connected devices and services that need them through efficient, bitcoin-based marketplaces. Load your smartphone with bitcoin, and it will automatically purchase access to the least expensive Wi-Fi hotspots as you roam Paris. And one day, your phone could pay for itself by selling connectivity back into a mesh network, similar to how solar panels can sell energy back to the power grid today.Immersive virtual worlds accessed through devices like the Oculus Rift will have bitcoin-based economies, meaning there will be no bright dividing lines between where these virtual economies end and the real world economy begins. People will walk virtual pets to earn money for a flesh-and-blood Chihuahua. Teens will become millionaires for projects they launch in virtual worlds (sneak preview: today’s YouTube stars and League of Legends players you’ve never heard of). As the size of these virtual world economies grow, currencies that don’t cross over easily, like Euros, will feel antiquated.Synthetic versions of financial assets will be traded on the block chain, reducing default risk, increasing transparency and providing universal access to financial instruments. Farmers will buy crop futures they couldn’t previously access. Better still, smart farms will automatically buy and sell hedging contracts throughout the season using data about soil, weather, yields and prices.Artistic works will flourish as digital content gets pre-funded through tips from patrons and then purchased in tiny increments when consumed through metered players. Original digital works will be bought and sold by tracking ownership and provenance on the block chain.Bitcoin will allow people to own more income-producing assets and less unproductive stuff. The block chain will reduce the friction of share issuance and ownership, allowing us to be stakeholders in entities, large and small, that we care about and contribute to. And the trend toward shared usage of “things” – cars, computers, living space – will accelerate when the objects themselves become self-sustaining economic units.
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