Analysis: The Moxie Sessions: I don’t want your money, honey, I want your block chain database
The Moxie Sessions turns its all-seeing eye towards money in the Internet age: what are the opportunities and risks, and how can New Zealand position itself for success in this fast-changing sector?
The only thing harder than explaining how a cryptocurrency such as Bitcoin works, they reckon, is explaining actual money.
Fran Strajnar’s company Brave New Coin operates one of the world’s foremost authorities on cryptocurrency market information from right here in New Zealand. He’s made a business of explaining Bitcoin and its cryptic siblings; selling market intelligence, exchange rates and more to a global market hungry for information on what could well be the future of money. (It’s also attracting international attention as a finalist at next month’s World Cup Tech Challenge)
It’s not just money that’s changed. Here in New Zealand the way we move it around has had a shakeup too, thanks to 2013’s Financial Markets Conduct Act. Created in collaboration with the sector, the Act has opened the door to some of the world’s most innovative finance businesses.
One of them (you might know it for its reads-both-ways logo) is Harmoney. Harmoney describes itself as a peer-to-peer lending service, connecting people with money to lend to others wanting to borrow it (although a proportion of the site’s book is funded by institutional lenders.) Lenders invest their money in $25 units and can spread their investment across different risk and return categories although, unlike some other microfinance sites, they don’t have visibility of individual borrowers.
While the technologies behind peer-to-peer lending are, according to Harmoney chair Rob Campbell, quite basic, it’s the regulatory environment that provided the essential framework. Even post FMCA, though, Rob sees New Zealand’s financial system as tilted in favour of the big banks, with entry to the lending market requiring millions in compliance and establishment costs. (Some might argue, in these post finance-company failure days, that less competition is the price you pay for consumer protection. Other would argue that the protections are overdone and not really helping anyway.)
As Harmoney and its doubtless future competitors are taking on the banks and finance companies in the lending and retail investment businesses, crowd equity platform Snowball Effect is giving private investors direct access to unlisted equity investments in New Zealand companies.
It’s only hosted a handful of raises so far, but that’s been deliberate, according to Snowball’s Josh Daniell. Snowball Effect vets potential offers then works closely with each company to give it the best chance of getting across the line. Offers include detailed financial information (although not as detailed as a regulated public offer would require) so investors can assess the risk for themselves, plus a video to give them a chance to get to know the founders. Like conventional crowdfunding, companies seeking crowd equity set an investment target, and the offer is only live once that target is reached. Companies can set an upper limit too, which New Zealand law limits to $2 million.
So far, it’s working. Of the six companies that have completed their offers so far, all have exceeded their funding targets with one (TGF client Invivo Wines) hitting the $2 million regulatory limit.
Ironically, while lenders and crowdfunders have built their businesses on a liberalisation of financial regulations, the cryptocurrency community would like more laws, rather than fewer – specifically around giving official status to what are currently unofficial currencies.
Brave New Coin’s Fran Strajnar cites reports (quite possibly his own) putting cryptocurrency trading at around USD37.5bn a year. While that’s a drop in the bucket compared to global currency markets it certainly suggests that Bitcoin and its many contemporaries are not the fringe currencies they were. Market upsets such as last year’s Mt Gox collapse certainly called into question the trustworthiness of alternative monetary systems, but you could argue that the GFC did the same to mainstream currency. In the second case, tighter regulation was at least part of the response and Strajnar argues that this approach could be just what cryptocurrencies need.
And Bitcoin has uses beyond booking spaceflights on Virgin Galactic, buying a Tesla or arranging a mail order poop via shitexpress.com (all companies currently accepting the currency as payment). Strajnar also sees opportunities for using the platform to “bank the unbanked” – describing the opportunity it presents for anyone with a mobile phone to operate a Bitcoin wallet. Bitcoin is also reinventing the remittance industry, with families in the Philippines now receiving money from overseas workers at a fraction of the cost of previous methods.
The trick then is to minimize friction while retaining the protections people expect from their banking system and investment market – or at the very least, mandating that participants are very clear about any risks involved.
New Zealand is leading the way (well, fast-following at least) in the crowd equity and peer-to-peer spaces; maybe the time is right for innovation at a government level around cryptocurrencies too.
Every month, The Moxie Sessions brings together a small group of business thinkers to discuss ways New Zealand can take advantage of the Internet to boost its national competitiveness. For more, see http://themoxiesessions.co.nz. This month, we returned to technology and innovation precinct Grid AKL to discuss the future of finance and money in an online world.
Thanks to Alcatel Lucent and its ng Connect programme for their generous sponsorship that helps to make The Moxie Sessions possible.
Vaughn Davis is principal at social media and advertising agency The Goat Farm.
*Block chain databases form the basis of distributed ledgers used in cryptocurrencies such as Bitcoin. Invivo Wines is a client of The Goat Farm Limited, of which Vaughn Davis is the owner and creative director.