Silicon Valley loves innovation. But when it comes to new tech businesses in the finance sector, it's been stymied at multiple turns: by the power of Wall Street, by the difficulty of competing with capital-flush banks and hedge funds, and by an intimidating regulatory environment.
That's what a leading venture capitalist believes ... and that's why he sees bitcoin as the missing piece of the internet commerce jigsaw. The bitcoin market, he says, is finding a strong appetite for investment for a reason.
One thing that's exciting about digital currencies, he said during the recent Disrupt NY 2013 gathering, is that they could enable anonymous payments much as the internet enables anonymous interactions.
"The internet is an anonymous network ... with a payment system on top of it, the credit card system, that requires verifying identity," Dixon said. "Which is why you have so much fraud and other kinds of friction that are added to the system ... and the exciting thing about these new kind of currency schemes is ... that you have sort of a fully anonymous payment system grafted onto an anonymous network."
With the first wave of interest in bitcoin now passed, a second wave of businesspeople is now taking notice, Dixon said.
"(N)ow what you're seeing ... if you just talk to the smartest people in Silicon Valley now, some of the best entrepreneurs are thinking about getting heavily into it," he said. "So I think you're going to see another wave."
Among the possibilities to explore: merchant services, PayPal-type services, exchanges, bank models and more. The prospect of digital currencies, Dixon said, resonates with the tech community.
"I think for a lot of people in tech, finance has been this very frustrating area," he said, "because it's such a massive market ... We see what happens on Wall Street, it's very corrupt ... and, number three, is it's so highly regulated that when you do try to go and create a financial tech startup you often run into regulatory issues."
Dixon cites the example of "a whole wave of peer-to-peer lending" that emerged on the scene around seven years ago or so, but never developed as its initial champions envisioned.
"(T)hey're still around but (in) a completely different form than they were intended to be," he said. "Basically, the supply side now is all hedge funds ... it turned out the regulatory issues were too much for these companies to actually let individuals make loans."
Dixon continued, "The thing is, these things always get shut down by regulatory issues or by the fact that the hedge funds and the banks have a much lower cost of capital because they get bailed out by the governments and all sorts of other things ... So I think a lot of the reason people in California are so excited about bitcoin is it's sort of a release valve for all this pent-up frustration ... It's like, OK, finally something interesting is happening in financial tech stuff. It's been sort of years in the desert there."
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