“Software is eating the world” – “Software eats the world” had already been written by Marc Andreessen in 2011, someone who should know. Every area of life is being digitized. Why should this trend end with money?
This article first appeared in Kryptokompass 07/2021.
Marc Andreessen is a tech specialist. Investments in which “a16z”, as Andreessen Horowitz is also known, was involved include Facebook, Groupon, Skype and Twitter. The success speaks for itself: Andreessen has understood how companies can be successful in the 21st century: by digitizing fundamental areas of life. Facebook dematerializes social life, Google Maps the street map and Amazon the retail sector.
Ten years after its publication, “Why Software is eating the world” can be understood as a blueprint for the most successful business model in the 21st century: Found a software company and there are no longer any limits to expansion. It is no coincidence that nine of the ten most valuable companies are technology giants.
The intrinsic value of software
For Marc Andreessen, the case is clear: The intrinsic value of software companies lies in the fact that business models are no longer limited to one place, but can reach a global target group at lightning speed. The only variable of digital distribution is therefore the degree of diffusion of Internet connections and devices that can access them. And it is constantly increasing: According to Statista, 4.66 billion people worldwide had access to the Internet in January of this year, i.e. almost 70 percent.
Local retailers don’t stand a chance against a “Total Addressable Market” that can potentially reach everyone. As a result, Amazon – a software company – is the largest bookseller in the world. And the group has not only dematerialized the physical book business. The book itself is also written digitally and in many cases not even printed. If it lands on the Kindl at the end of the value chain, it remains entirely in the digital space.
Smartphones are particularly important when it comes to digitization. After all, mobile devices have dematerialized several objects at once: cameras, walkmans, road maps, calculators, alarm clocks and the like are now available as an app on the smartphone. And there are good reasons for that.
The fact that software continues to penetrate every area of life is not least due to the massive efficiency advantages that digital applications have over their physical counterparts. Software only needs to be developed once; Copying data is practically free afterwards and can thus be delivered to a global target group. This also reduces the costs for users. Marc Andreessen was right: software eats the world.
Financial sector is lagging behind
But one sector doesn’t really want to get rid of its anachronistic image: we’re talking about the financial world. It is true that the majority of financial transactions in this country are already processed electronically. But if you look outside the box of the global North, for example in the direction of Sub-Saharan Africa or Latin America, things look less rosy. Cash is still the number one means of payment in large parts of the world, but the rate of bank accounts is shockingly low. The World Bank estimates that around 1.7 billion people worldwide belong to the “Unbanked Population”, meaning that they do not have a bank account.
If you don’t have a bank account, you have to receive cash through services like Western Union and Co. This is time-consuming, unsafe and, above all, expensive.
The fact that sending money is not as easy as sending e-mails in the 21st century is an indictment and is not least due to a lack of competition.
Competition with traditional money
But competition is spreading: it is called Bitcoin. The No. 1 cryptocurrency has all the advantages that software has over its physical counterpart: It is faster and more secure than cash services – but above all it is open and decentralized. Everyone can volunteer to participate in the Bitcoin network; the more applications there are and the easier it is to get started, the more Bitcoin will use.
In addition to the efficiency and cost advantages that digital money has over physical banknotes, BTC has a very decisive marketing argument on its side: price growth, also known as “Number go Up Technology” (NgU Technology). Because even if currency is not quite enough, BTC is already ideally suited as a digital store of value.
This is a crucial aspect, especially in countries like Argentina, Venezuela, Turkey and Lebanon. Because while Bitcoin has already grown around 264 percent year-on-year, measured in US dollars, it is 393 percent measured in Argentine pesos.
In its eleven years of existence, there is an average of around 200 percent growth per year. With an overall increase in value of several million percent since its genesis, Bitcoin is the best performing asset in human history.
The dematerialization of gold?
From the perspective of permabullish Bitcoiners like Michael Saylor, the dematerialization of gold is only a matter of time. In the podcast with Stephan Livera, the MicroStrategy CEO says:
“I come to the conclusion that cryptocurrencies are about 10 to 100 times better than gold. […] It just doesn’t make sense to invest in gold. Gold as a store of value will rationally be eaten up by Bitcoin. “
What Michael Saylor outlines here with “better” can be further specified. In this way, the properties that make a good store of value can be broken down into a few key aspects such as scarcity, transferability, divisibility, durability, recognizability. Bitcoin Gold beats gold in almost all aspects. For example, BTC is much more divisible than gold (who wants to pay for a coffee with gold crumbs), it is forgery-proof – anyone with a full node can verify transactions and thus their “authenticity”. It is also much easier to transfer because it is data that can be sent at the speed of light.
Bitcoin transaction more efficient than that of gold
If you want to send physical gold across the Atlantic in large quantities, you have to accept enormous costs. A BTC transaction is carved in the digital stone after just one hour.
Only the history as an established store of value is missing from digital gold; Bitcoin cannot look back on thousands of years of history as a form of money. It is clear, however, that new money cannot establish itself globally within a few years.
Whether and when Bitcoin Gold will be able to completely dethrone cannot be reliably assessed. But if every area of life is mapped in digital space, why not money too?