Archive for the ‘currency’ tag
We are in the middle of one of the largest and fastest macro shifts in world economic history — the development of a social capital infrastructure analogous to the financial infrastructure built over the past five hundred years. Led by the growth of social networks, the value we are building in our personal relationships is becoming more and more comparable to “true” currency. In fact, social capital is coming closer to fully adopting the three core characteristics of money:
Medium of Exchange: It is far easier to reach all of my friends today than it was ten or even five years ago. More importantly, this communication has clear, quantifiable value that I can exchange for other goods. This has never been the case without insane transaction cost in the past.
Store of Value: I can now much more efficiently build, store and display my social capital. Twitter followers do not deteriorate as quickly in value without maintenance as real-life friends.
Unit of Account: The units of social capital have become far more standardized and concrete. Ten years ago it was meaningless to say you have “300 friends”. Today, the Friend (or the LinkedIn connection or the Twitter follower) is a far more meaningful unit of account.
I had the pleasure of joining Emily Hickey and Michael Yavonditte of Hashable for a demo of their product last week. In brief, Hashable turns the transactions of the social capital economy — introductions, breakfasts, lunches, coffees, beers, et cetera — into a game. I get points when I make an introduction or log a meeting in their system, for instance.
Given its check-in and gaming features, It’s tempting to refer to Hashable as “Foursquare for people”. But I think that’s missing the bigger opportunity — a Mint.com for social capital. Social capital isn’t a game any more than my bank account is a game. Sure, it has some game-like elements — it goes up and down in accordance with how well I “play” the game of life — but ultimately it has its most significant meaning outside of the context of any game framework we put around it. And that is where the real world-changing products will be made.
The next generation of successful social products will acknowledge that our social capital is a currency. They will provide tools to enhance our social capital’s functionality as a store of value, a medium of exchange and a unit of account. They will replicate the deep feature set at our hands to deal with money — banking, tracking, exchanging, investing, et cetera — for our connections and relationships. Over the past five years, social networks and the decreasing cost of bandwidth and storage have lowered the transaction costs of social capital exchanges by orders of magnitude. Now, the race is on to provide the best tools and infrastructure around this new currency.
Putting everything in the context of a game is a good way to get quick user traction among a competitive tech community. But social capital isn’t a game, and the biggest companies in the space five years from now will have grown by providing fundamentally useful functionality that helps everyone earn, save, exchange and optimize social capital.
Special thanks to Sam Lessin for helping shape my thoughts on this stuff. If you don’t subscribe to his letter.ly, you are missing some of the most thought-provoking writing in tech today.
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The creation of an extra-national currency has long been a libertarian dream. Fiat currency, after all, ties our assets to the wills and whims of a central government. At times — and many people argue that now is such a time — poor government decisions can dramatically debase the value of our income and savings. Thus, the need for a widely-accepted currency uncoupled from the politicized decisions of a national government.
While we haven’t lacked for attempts to create a new currency, pretty much all have fallen by the wayside. The biggest selling proposition of these currencies — freedom from backing by government fiat — is way too obscure for most people, and the logistics of backing issued currency with precious metals is daunting and expensive.
Could Facebook coins be the first successful extra-national currency? There are several factors going for it:
– Facebook’s huge audience and deep presence across the web
– The audience’s clear need for a standardized and trusted currency
– The ability for people to (often inadvertently) “socially endorse” the new currency to their friends
– A pool of merchants — e.g., Zynga — poised to accept Facebook currency
– Simple and seamless integration and exchange with mainstream currencies via the web and mobile makes switching between currencies less of a hassle
To be clear, there have been other virtual extra-national currencies. WoW gold and Linden Dollars are two examples. But these haven’t even touched the mainstream, even in online purchases — try paying for a book on Amazon in WoW gold. These currencies’ value is dependent on an ability to exchange them for dollars — not terribly different from the “regional currencies” that pervaded America in the early 19th century. If you were traveling in South Carolina with paper dollars backed by a bank in Massachusetts, you had to find someone who would exchange them (likely at a steep discount) for a local currency.
But Facebook coins seem fundamentally different. The audience is huge and hundreds of millions of Americans have experience using virtual currencies on Facebook. Right now we’re buying virtual cows and guns, but is it much of a leap to use virtual currency to buy online goods with real-world impact, such as subscriptions to digital content? And once we’re there, it’s a natural step to move that digital subscription into the real world — and even expand into necessities like gas and groceries. They already sell virtual currency cards in grocery stores. The relationships are there. Soon we’ll be using those cards to buy groceries.
So what could this all mean? First, it’s important to draw a distinction between the libertarian fantasy and the reality of Facebook’s extra-national currency. Most libertarians desire a value-backed currency — as in, gold- or silver-denominated – rather than fiat currency. Facebook coins are still a fiat currency. It’s just a corporate fiat rather than a federal one. Facebook coins are only valuable if it can convince buyers of the coins’ utility as a medium of exchange and (possibly) a store of value. But I don’t see any issues with Facebook making this happen: at least initially, there will be a large and defined pool of merchants ready to accept coins via Facebook apps, and exchange with mainstream currencies will be simple.
Of course, this is assuming that Facebook doesn’t throw up barriers to prevent this from happening — namely, if they forbid any part of the buying, selling and transferring ecosystem that makes a currency market successful. The market won’t work if they (for instance) prevent an app developer from exchanging Facebook coins directly with the user or p2p transactions using coins. This doesn’t mean that they have to float the Facebook coin against the dollar — although that would certainly be a fascinating turn of events for economists and currency traders alike.
If Facebook can create a true extra-national currency, it will make more money than any other company in modern American history. Entrepreneurs and VCs often talk about successful companies “printing money”. But Facebook has the opportunity to literally print money within the next five years.