There’s been a lot of debate lately about Bitcoin and its political role, with some people seeing it as some sort of currency for Libertarians.
Alex Payne, a former Twitter engineer, stirred the pot by writing a post on his personal blog that blasted Bitcoin fans and dressed down the
$25 million investment led by Andreessen Horowitz into Coinbase, one of the largest Bitcoin “wallet” services in the world.
On Tuesday, Andreessen Horowitz’s Chris Dixon shot back. On his personal blog he explained:
Some people assume that all Bitcoin advocates are motivated by a libertarian political agenda. That is certainly not my agenda. I’m a lifelong Democrat …
If not for political reasons, why am I interested in Bitcoin? Like a lot of people, I was disturbed by the aftermath of the 2008 financial crisis. I thought the government did what it had to do at the peak of the crisis but missed an important opportunity afterwards to reform the financial system.
… if the technology industry wants to change the financial services industry, it can’t just build new services on top of existing financial services companies.
… you need to create services that completely bypass incumbent financial companies.
Enter Bitcoin. The business case for it comes down to a few things, he writes.
1) Banks charge too much. The payments industry is a $US500 billion industry where financial services take a 2.5% cut for “a service that mostly involves moving bits around the Internet.”
When he announced the investment in Coinbase earlier this month, he explained on his blog, “These services are both expensive (roughly a 2.5% tax on all transactions) and prone to failure (Internet payment fraud is rampant).”
2) Startups can’t afford the banks. Young companies with razor-thin operating margins struggle to pay the 2.5%. And dealing with payments in international currencies is even worse.
“If you are wondering why your favourite technology service isn’t available in your country, the answer is often payments,” he writes.
3) If money becomes a software program, there’s amazing new things that can be done with it. Dixon calls it “programmable currency” and explains it like this:
“The most exciting aspect of Bitcoin (and this is admittedly more speculative) are all the interesting new business and technology models that “programmable money” could enable. For example, I am very bullish on micropayments … The world recently ran its first large-scale micropayments experiment — so called in-app payments on iOS and Android — and despite some serious design flaws (centralized control, 30% fees), it was a smashing success. I think Bitcoin could enable a micropayment system for the open web, and thereby provide a business model beyond banner ads for many important services such as journalism.”
That said, he knows that Bitcoin’s long-term success is not a sure thing.
“Bitcoin is a serious proposal for dramatically improving the payments industry. There are plenty of open questions but I think it’s an experiment worth running.”
In the meantime, he’s investing.