More than a currency, bitcoin is an enabling technology

The O'Reilly Radar Podcast: Balaji Srinivasan on the bigger picture of bitcoin, liquid markets, and the future of regulation.

The promise of bitcoin and blockchain extends well beyond its potential disruption as a currency. In this Radar Podcast episode, Balaji Srinivasan, a general partner at Andreessen Horowitz, explains how bitcoin is an enabling technology and why it’s like the Internet, in that “bitcoin will do for value transfer what the Internet did for communication — make it programmable.” I met up with Srinivasan at our recent O’Reilly Radar Summit: Bitcoin & the Blockchain, where he was speaking — you can see his talk, and all the others from the event, in the complete video compilation now available.

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The bigger picture of bitcoin

More than just a digital currency, bitcoin can serve as an instigator for new markets. Srinivasan explained the potential for everything to become a liquid market:

“Bitcoin is a platform for programmable money, programmable interchange, or anything of value. That’s very general. People have probably heard at this point about how you can use a blockchain to trade — in theory — stocks, or houses, or other kinds of things, but programmable value transfer is even bigger than just trading things which we know already exist.

“One analogy I would give is in 1988, it was not possible to find information on anything instantly. Today, most of the time it is. From your iPhone or your Android phone, you can google pretty much anything. In the same way, I think what bitcoin is going to mean, is markets in everything. That is, everything will have a price on it — everything will be a liquid market. You’ll be able to buy and sell almost anything. Where today the fixed costs of setting up such a market is too high for anything other than things that are fairly valuable, tomorrow it’ll be possible for even images or things you would not even think of normally buying and selling.”

Bitcoin as an enabling technology

In interviews, Marc Andreessen has noted that the group is increasingly viewing bitcoin as an enabling technology, especially in regard to machine-to-machine technologies. Srinivasan explained, likening the coming shift to the transition from telephone numbers to IP addresses:

“One observation I make there is, if you think about the transition from a human telephone number to a machine IP address, that was an important transition because it now meant that machines could communicate with other machines without a human intermediary. You do not need a switchboard operator for your computer to connect to a server, or perhaps more interestingly, for your computer to load a webpage and connect to many servers pulling a lot of assets, right? Those are all basically automated. Humans give the high level direction of, ‘I’d like to go and view,’ but do not have to deal with the low level aspect of hitting 20 different servers and phoning all these numbers and so on. In kind of the same way, what Bitcoin does is it allows us to move from a human bank account to a machine wallet. So, it’s a transition of comparable importance that will, we believe, have an impact on machine value transfer that’s comparable to what the transition from telephone numbers to IP addresses did for machine information transfer.”

Bitcoin is like the Internet

Bitcoin’s potential for disruption could be on par with the Internet, and that’s not a comparison, Srinivasan said, that they make lightly. He explained how bitcoin is Internet-like:

“If you look at previous eras of innovation, you had in 2009, roughly, the mobile era; 2004, social; 1999, search; 1994, Internet. The previous three eras were things where one or a few companies really dominated — Google, Facebook, and then Google and Apple with mobile, and obviously Facebook’s doing fine, but we didn’t think of it as the company in mobile. These were things where there were dotcoms that were running the platforms.

“You go all the way back 20 years to the Internet, and it was not one single company that controlled the Internet. It was decentralized; anybody could build on it. Bitcoin is like that. As an enabling technology, it’s a commons that people can contribute to. They can contribute to it in such a way that they know their contribution will always be available to them and others can build upon it. That’s very exciting; that is Internet like. We think of it as doing for value transfer what the internet did for communication, making it programmable.”

The next, next big thing

Given his role in venture capital, I couldn’t resist asking Srinivasan about his take on the Next Big Thing. He explained why he’s keeping a close eye on the regulation landscape:

“Bitcoin is an important part of an even broader thesis on regulated industries. The idea is that what Silicon Valley has been doing over the last 10 years, prior to Uber and Lyft, is essentially managing massive cloud communities. That is to say, if you think about Google site rankings in search, or ebay reputation, Paypal antifraud, Gmail spam filtering, Amazon reviews, Apple App Store reviews, we’re basically managing massive international communities of tens or hundreds of millions of people applying star ratings and essentially managing these communities — kicking out bad actors, regulating the communities, such that when you enter the Gmail environment, you know that Gmail has created a well-tended garden. When you enter the App Store environment, you know that Apple has given a thumbs up on most of the apps as well as applied star ratings so you can see those things that are above that minimal bar. That is another way of thinking about what regulation is. Regulation means you want some basic quality. You want to be able to enter the zone and then not pay subsequent fixed costs to evaluate each individual party before you transact with them.

“Now, the really interesting thing that is happening is we’re taking all that stuff from the cloud — star ratings and bans of bad actors — and we’re applying it to the physical world. Starting with Uber and Lyft and Airbnb, but then moving into all kinds of other industries. Uber, Lyft, Airbnb, those are at the level of state and local regulations. That is to say, taxis and hotels and such are regulated at the state and local level. What’s coming up are things like bitcoin and federal financial regulators, and genomics, quantified-self, medicine, etc., which are FDA. Drones, which are FAA, and so on and so forth. All these technologies that are emerging are things that encounter federal and sometimes international regulations. That is the major arc of technology over the next 10 or 15 years and the thing I’m most interested in.”

I also talked with Srinivasan about his approach to evaluating investment opportunities and what the growth trajectory looks like for bitcoin. You can listen to our entire conversation in the SoundCloud player above or through TuneIn, SoundCloud, or iTunes.

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