What’s the single best thing happening in technology right now? According to entrepreneur and venture capitalist Marc Andreessen, it’s the ability to live in rural Wisconsin but still earn a Silicon Valley salary. Andreessen also explains to EconTalk host Russ Roberts why software is still eating the world, why he’s an optimist, and why he’s still bullish on Bitcoin and the blockchain.
This is one of the most interesting Econtalks I have listened to. The first part provided a kind of small education in the way the Economy is divided into two sectors, the very productive smaller fast- growing ones and the giants of Health, Education and Housing. What was most interesting was the explanation of how the Government instead of helping solve their problems engages in the restricting of supply and the encouraging of demand which worsens them. As I have no real knowledge of Economic matters this is for me an interesting point, a possible truth and explanation but one I have nothing of my own to say about.
A second topic the one having to do with the immortalization brought about by the Internet and its ability to save ever picture of us ever taken, and every small comment we make, and perhaps even our every everyday motion and action is one I have thought a great deal about. Here I more sympathize with the questioning attitude of Russ Roberts rather than the gung-ho positive feeling of Marc Andreesen. First of all, Marc Andreesen speaks with confidence of the descendants in five -hundred years. He seems absolutely confident our descendants will be ‘like us’ in basic ways. I won’t get into the ‘silicon or carbon’ question or the possible invention of new ‘conscious’ species question. But I will confirm from my own family experience Russ Roberts point made about his relation to his father’s books and his children’s lack of interest in his library. And this leads to the most important general point about the seemingly endless amount of stuff deposited on the Internet. Who is really going to take interest in most of it, and why should they? What it seems to me many of us are doing by depositing our work on the Internet is creating a false self-delusional immortality which we will not in any case take long-run satisfaction from.
This said I will repeat what I said at the outset about this conversation being one of great interest and enjoyment for me. Even the last bit about the history of the office and the great freedom given by the Internet to contact more people and travel to meet interesting ones was informative. Again, I appreciated Russ’ tempering Marc Andreesen’s optimism with a bit of sober appreciation for the homebodies of the world, and for the value of real human face-to-face presence.
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Intro. [Recording date: April 27, 2022.]
Russ Roberts: Today is April 27th, 2022 and my guest is entrepreneur and venture capitalist, Marc Andreessen. He’s the co-author of Mosaic, the first widely-used web browser, co-founder of Netscape, and co-founder and general partner of the Silicon Valley venture capital firm Andreessen Horowitz, also known as a16z. He was here on EconTalk in May of 2014, which was a very, very long time ago, talking about venture capital and the digital future.
Russ Roberts: And, at that point you, a few years earlier, had written a very provocative piece for the Wall Street Journal where you said software is going to eat the world. Has it? Will it? And, explain what you meant by that and to what extent you were right or wrong.
Marc Andreessen: Yeah. So, that piece–that was in 2011. That had a couple of messages in it. There was an explicit message and an implicit message. The implicit message was–if you remember the time, 2011 was still during the very dark days of the economic crash after the global financial crisis in 2008. So, in 2011, there was an almost comprehensive pervasive sense of tech pessimism. And, there was a sense that basically tech was over, and that this was another 2000-style crash, and that these companies were never going to come back, and venture capital was dead. Apple at the time was trading at a P/E [price/earnings ratio] of, like, six. You know, like, I used to say Apple was trading like a steel mill that was in the process going out of business, as were all the other really kind of good tech companies. And so, there was just this pervasive sense of doom and gloom.
And so, one is: I just wanted to put a stake in the ground that actually no, tech is not dead. And, in fact, tech is not going anywhere. And, in fact, there is actually a big tech boom coming, which is what happened.
That follows the explicit thesis of the piece, which is: We have hit critical mass in our era with this sort of very magical technology called software. I call it a magical technology. It’s quite literally like alchemy. I compare it to–you know, Isaac Newton spent 20 years trying to develop the so-called philosopher’s stone to be able to transmute lead into gold and he never succeeded at that.
But, now we have this just incredible technology where you can sit at a keyboard, you can type in letters and numbers on a keyboard, you can press Enter, and then things change in the real world. Right? The real world reorganizes itself according to what some coder has typed into a software.
And, there’s obvious examples of this that happened. It was happening at that time with services like Lyft and Uber. Right? The coders at Lyft and Uber type in incantations into the keyboard; they press enter; and all of a sudden a million cars and riders are going different places. There’s a thousand other examples of this.
And so, software–I sort of point out in the piece–software is sort of a magical technology in economic terms for transmuting labor into capital. It’s a magical technology for transmuting virtual into physical. It’s a magical technology for transmuting human creativity into action in the real world. And, then in fact, a world of basically ubiquitous computers, everybody having a computer in their pocket due to the smartphone, which was hitting critical mass right around that time, meant that basically this magical technology was going to sweep across basically every domain of human activity and be transformative.
And, I would argue that the last decade has confirmed that. And, then I would also add the process is still just getting started.
Russ Roberts: Yeah. The obvious things–I think you talked about many of them in that article. Information, the media, entertainment. And, when I say entertainment, the music revolution that we have that started with the iPod–I almost forgot the name of it. It’s so long ago. And, I think the early one you could have–could you have 1,000 or 400? I can’t remember the number of songs. Can’t remember.
Marc Andreessen: They had two marketing pitches. One marketing pitch was 1,000 songs in your pocket and the other marketing pitch, the ad campaign was called Rip, Mix, and Burn.
Russ Roberts: Oh, yeah.
Marc Andreessen: Right? Which meant you could rip your music: You could pull your music off of the physical compact discussion [CD] and you could transmute it into a mix. You could transmute it into software and reorganize it in bits and then burn it onto, at the time, a writeable CD. Or you could upload it onto your iPod.
Russ Roberts: And that–I think that’s pretty obvious, although I don’t think–I like to say on this program that we under-appreciate how transformative that is. The ability to hear any song–almost any song I’ve ever wanted to hear–at not the highest quality, it’s true, but good enough for me. Good enough for my 67-year-old ears. It’s simply glorious.
But, that’s really just the beginning. Because, the landscape of movies changed like crazy, and still is changing and is bizarre because software firms are now the center of the movie industry or firms that are driven by software. Obviously, newspapers have been transformed. That piece of information. Books have been transformed. That part of the information landscape.
So, all these things have been incredibly revolutionary, to the point where a teenager today–we talk about things that are horse-and-buggy for you and me about what the past was like.
But, there are other things. And, then finally, advertising through Google. And, I would just say conferencing through Zoom because of the pandemic. These are things that, just so transformative in so many ways.
But, there are some things that haven’t gotten eaten yet. And, I want you to think about that. I mean, the two obvious ones are healthcare and education. You wrote about them in the paper, in the essay. What do you think has happened there, and what do you think can still happen, might happen?
Marc Andreessen: Yeah. This is the big critique that I would level against ourselves. The big critique I would level against ourselves–which is, you know, Silicon Valley, the tech industry, venture capital, startup founders–the big critique I would level against ourselves is: All of the sectors of the economy that you correctly mention, the ones that are being transformed by software, they’re all small. Right? If you look at a pie chart of gross domestic product, they’re all small.
And then, in fact, what technology does–technology does something very interesting: Technology drives down prices. Right? So, technology is deflationary in the sectors that it hits.
And so, those sectors, in many cases there’s something of an effect where you drop the price, you increase demand, you increase market size. But by and large, what’s happening is those sectors are shrinking in size. Right?
And, you know, the music industry has been through this severe kind of deflation. In fact, newspapers–you mentioned newspaper revenue has been way down.
So, there’s been this effect where basically revenue in those sectors has shrunk. And so, those sectors are basically small and shrinking.
On the other hand, you have these other sectors. And by the way, just the term I use to try to keep these straight is sort of the fast sectors are the small ones that have technology affecting them very directly and then are shrinking. And, I call them the fast sectors because they are sectors experiencing rapid productivity growth. Right? And so, that’s the first set.
Then you’ve got these other sectors. You mentioned healthcare, education. I would also add housing. I would also add law–law administration bureaucracy. And, then I would also add government.
And so, to me those are the big five that I think about a lot.
I call those the slow sectors. And, the reason those are the slow sectors is–first of all, they’re very big. They are the lion’s share of GDP [Gross Domestic Product] if you look at the pie chart.
And then, to your point: they’re not being affected by technology to the same extent. In fact, arguably, if you go into the details, probably what you would find is at least some of them are actually experiencing negative productivity growth. Right? And, you can see that by just looking at administrative bloat. Right? You see this in higher ed, right? The number of administrators has, like, ballooned out massively in the last 30 years whereas the number of professors actually hasn’t changed very much.
The same thing is happening in healthcare. Right? We’re sort of drowning in administrative costs.
And so, this so-called slow sector, slow productivity growth, slow adoption of new technology, probably negative productivity growth, and then as a consequence of all of that, rising prices. Right? And so, all of those sectors have the characteristic–housing prices keep rising, healthcare prices keep rising. Healthcare, you know well, but healthcare now is a fifth of the American economy–right?–and still growing. And then, of course, education. The price of a four-year private college degree in the United States is going to reach a million dollars. And, it’s going to reach a million dollars in, like, the time horizon of those of us who have young kids.
And so, it is this tale of two cities. There’s a long discussion to be had, of course. And there’s entire fields of study around basically what’s wrong with these slow sectors.
And, there’s lots of aspects of regulatory capture and government entanglement and cartels and monopolies and indirect payment and so forth and so on. But, there’s also just a really big technology factor, which is: those sectors are not absorbing technology very fast.
One of the big opportunities in my world is to go after those sectors. Is to inject new technology into those sectors in the same way that we’ve injected new technology into media, entertainment, retail, and so forth.
Optimistically, what I would say is there’s an opportunity to basically crack the price curve. There’s an opportunity to take these sectors and turn them from slow sectors into fast sectors. If we do that, we should be able to crack the price curve. Right? We should be able to over time–you know, tilt the price curves in the other direction–which I think would be overwhelmingly a positive thing for all of us. But, boy, there’s a lot of work involved to do that.
Russ Roberts: Yeah. Part of the challenge, of course, is that those sectors are all very labor intensive right now. The question is: Could they become less so through the application of technology? Could we have AI [Artificial Intelligence] for diagnostics or medicine? Can we have AI for educational training? And so on? And, there was a lot of enthusiasm in the early days for this. In education, it’s been tempered dramatically. There’s a lot more sober assessment of that potential. Medicine, I think, is somewhere in between. I think there is a potential obviously to add more technology to medicine, but there are these strong pushback from people who are benefiting from the current system. But, I do think there’s so much potential.
I’ll just mention a quick anecdote. Until recently, to fly out of Israel I had to get a PCR [Polymerase Chain Reaction] test. That meant going to a local gas station where a teenager–my joke is that for 80 shekels, about $25 bucks, you could get a test. But, if you wanted to pay a little bit more, you could make sure it would always be negative.
But, it doesn’t seem like a great scientific enterprise. The kid does put gloves on. But, it’s pretty casual-looking.
But, anyway, I did the test a couple times when I’ve gone back to the United States since I’ve been here. And you get an email from the provider that your test is negative. And you’re excited: you get to go on the plane.
The other thing you get is an email from your healthcare provider. ‘Oh, we saw you had a COVID test. And, congrats, it’s negative.’ I’m thinking, who gave that guy at the gas station permission–? And, the answer is: Privacy here in Israel–there isn’t any. You give out your social security card literally if you want to pump gas.
Now, that’s very alarming to an American. Israelis are totally used to it. They don’t think twice about it. It allows a lot more efficiency and record exchange than we have in America. So, that’s one small part. But, I think it’s mostly rent-seeking and protecting existing profits.
Marc Andreessen: Yeah. Well, there’s this–I always point out there’s this amazing thing in antitrust law–antitrust cases–where, basically, no matter how a company prices its products, it’s in trouble. Right? High prices are gouging. Low prices are predatory. And, the same prices are collusion. Right? And, all three are illegal.
A very similar thing happens, actually, in these sectors. Like, healthcare, you mentioned, which basically is: If you think about what are people mad about? People are mad about, for example–like, every reporter, every newspaper journalist in the world is really mad about the collapse of pricing and, you know, information. They’re really mad about the rapidly falling–basically the collapse of the pricing of the media industry. They’re very angry at tax–
So, there you have a constituency that really hates falling prices and very much wishes that prices would rise.
On the other side–on the healthcare side, right?–that same person goes to their doctor and experiences spiraling healthcare prices and is really mad that the prices are rising. And, very much wishes that something would happen that would correct those price curves and cause those prices to fall. Of course, the doctor is in the exact opposite situation. He or she loves the rising healthcare prices, or very much would like the information to continue to get cheaper.
So, there is–this is basically the way that I decode a lot of the sort of anti-tech kind of sentiment that you see running around in the last decade, which is: One set of people are really mad at us for the effect that we’re having on the fast sectors and another set of people are really mad at us for the effect that we’re not having on the slow sectors.
Russ Roberts: That’s a great point.
Marc Andreessen: Now, I happen to know where I think the world should go, but it will be the case that as this stuff–this is now major league stuff, right? We’re not talking just, you know, video games or whatever, anymore. We’re talking about the entire economy.
And so, kind of, these effects and people’s perceptions of these things and the different–to your point–the different constituencies, the different pressure groups, the different industry groups, their views, the political capture–like, all that stuff is becoming very primary.
And, by the way, we see that in our companies. We just have more and more companies all the time that are getting embroiled or injecting themselves into regulatory and political affairs that would’ve been inconceivable even 10 years ago.
Russ Roberts: And you know, there’s this line about academic life that it’s so petty because the stakes are so small. Which, is kind of a–I’m not sure that’s true. And, I’m not even sure it’s an insight that’s accurate in any dimension.
But, when you move to healthcare you’re not talking about small anymore. You’re talking about enormous. Of course, the potential gains are enormous. The problem is any one of us doesn’t anticipate those gains for ourselves. So, there’s not really a lobby for those kind of changes.
You know, Uber’s an interesting example. Uber is illegal in Israel, to my disappointment. And, I’m pretty confident it was a lobbying effort by cab drivers. I’m pretty sure that’s why it is that way. But in many other countries that lobbying effort failed because consumers were so eager for the freedom that Uber brings.
It hasn’t happened yet in medicine. I think we have a reverence for doctors and the medical profession that is misplaced. I love doctors. I have many good friends who are doctors. But, as a class they don’t understand probability and uncertainty that well. They have other problems. And so, I don’t see them as deities or even close. But, I think a lot of people do; and it feels good. So that I don’t think they’re comfortable challenging that, emotionally. I don’t know.
Marc Andreessen: I think it’s–you know–I think you’re right. I’d add to that, it’s a fear-driven, comfort-driven thing. There’s a great example, which is, right?–surveys, polling shows all the time people absolutely hate Congress. Right? Congress will have a 10% approval rating and people love their Congressmen. Incumbent reelection is, like, 90%.
My interpretation of healthcare is basically people hate the healthcare system, but they love their doctor. And, that’s an emotional response. Right? It’s an emotional response on both sides–which is: you hate the healthcare system because it feels big and scary and bureaucratic and like it’s a lot of times out to kill you. You love your doctor because he or she is the person who’s trying to save your life. So, there’s that.
The macro–the kind of the macro-observation that I would make is that I think if you chart–and maybe we could put up for your listeners but Mark Perry has this chart he keeps updated that he calls the Chart of the Century which shows the price curves–right?–of these different sectors. And, it sort of famously shows healthcare, education, housing, these spiraling prices basically straight to the moon in red and then these falling prices in the fast sectors in blue. And, if you just, you know, you just chart that out, right, basically what you see is–you know, going to the very basis of this conversation, what you see basically is–the three markers of what at least in the United States we call the American Dream, which is to say, a viable, reasonable, aspirational middle-class lifestyle–the three markers have and always have been: You own a house, you have great medical care, and you have great education for your kids.
And, if you have those three things, you achieve the American dream and you are a successful, you know, provider for your family. You’re able to provide your kids with a better life than you have.
And that’s sort of–you know, that’s the foundational aspect of life in a sort of middle class, kind of bourgeois kind of world. And, other countries have their own articulation of it, but it’s those three things over and over again.
And, what we’ve done, collectively, right? is, you know, by having those be the three sectors that have these just incredibly rapidly spiraling upward prices, what we’ve done and what we’re doing is pricing the American dream and its equivalent in other countries out of the reach of a lot of people.
And, it’s just like basic logic: That’s like, okay, what would happen? If you ran an experiment on politics, and you did that on purpose and you were trying to see what political response you would generate, the response would be populism.
And, by the way, the response would be left-wing populism in the form of people who would want the government to step in and fix this. And, then the response would be right-wing populism by people who would want to overthrow the existing system and have a different approach.
And of course, in our politics, that’s exactly what we see.
And so, with my economic hat on, it’s like: Oh, this is just straight obvious cause and effect. This is societal self-harm. You know: We should not do this.
Russ Roberts: Yeah. Well, I just have to mention because–you can’t say it enough, it turns out. I loved the line you said–and, these things will get really, really expensive and it would create a demand for government to get involved and fix it. Which, of course, is what it’s been doing for about 60 years or so. It’s been trying to fix healthcare, fix education, and fix home prices. I wish we’d get a little more skeptical about that potential. But at a minimum, let’s not pretend–I know you don’t, but, just for listeners–let’s not pretend that those are private market things in toto[?toe? total?]. Those are market factors. They’re private in certain dimensions. But government’s hand is very heavy.
It could be a coincidence that the three sectors we’ve been talking about are three of the most–the sectors where government is most involved. It could be a coincidence. It could be reverse causation: it has to be involved. But, anyway, that’s a longer conversation we’re not going to have.
But, your basic point is that–I like this–the self-harm is not far from the truth, I think.
Marc Andreessen: Yeah. And, in fact, when you look at–I’ll just make one more point on this because our companies live this every day. When you look at how the government tries to help in these three sectors, right, what you see basically is the same pattern in each of the three sectors. And, it has two parts. And, the two parts are restriction of supply and subsidies of demand.
Russ Roberts: Subsidies of demand. Yeah.
Marc Andreessen: Right. And, the restriction of supply–the restriction of supply–takes the form basically of regulatory capture and then monopolies and cartels. Right?
You can just take education as an example. Education is very straightforward on this. K-12 [Kindergarten through 12th grade] in the United States is a government monopoly. And then the university system is a cartel. And, we know the university system in the United States is a cartel because access to federal funding for a college or university is controlled by what’s called accreditation. And, the accreditation agencies are run by the existing universities. Right? And so, it’s a self-governing cartel–
Russ Roberts: And, hospitals–
Marc Andreessen: And, lo and behold–
Russ Roberts: Hospitals–
Marc Andreessen: Hospitals. Same thing.
Russ Roberts: Starting a new hospital in many states requires existing hospitals to say it’s a good idea. Yeah.
Marc Andreessen: Of course, professional associations. New doctors, new nurses. Right.
So, one theory of [inaudible 00:20:45] healthcare is there are nurses, there are also nurse practitioners. Maybe we should have a lot more nurse practitioners. The nursing unions go–so yeah.
So, you see this, basically, this restriction of supply. This, either directly government-directed restriction of supply, or government-enabled and supported. The government makes Federal Student lending available to the accredited colleges and universities and not to the others even though those are not government agencies. And, even though the accreditation bureau, the bureaucracy itself, is not a government agency. It’s sort of a de facto extension of the government.
So, you just see this restriction of supply thing over and over again.
And, then to your point, the subsidization of demand. You have, you know, trillions of dollars of subsidies into residential mortgages and house purchases in the last 60 years. You have trillions of dollars into student loan funding and all kinds of other subsidies for universities. And, you have many trillions of dollars in subsidies into healthcare, through Medicare and all these other government systems.
And so, again, it goes back–it’s like Micro/Econ 101, right?
Russ Roberts: Yeah. Well–
Marc Andreessen: Take a market: You restrict supply, you subsidize demand, you get prices to the moon.
Russ Roberts: And, then you have to, of course, help people pay for them if you’re a decent-hearted person. For not noticing that they’re related.
Marc Andreessen: California, we’re now providing consumer gas subsidies. The California government sent out–it’s actually a great–this is such a great example. So, the California government sent out $400 gas cards because gas is getting expensive. So, they sent out $400 per car that you own. And, so, first of all, it was great for me. Like, I own two cars: I got $800 bucks.
Russ Roberts: And, you need it, Marc, I’m sure.
Marc Andreessen: I really need it.
Russ Roberts: My heart goes out to you.
Marc Andreessen: I’m not the most obvious recipient of government aid. And yet I got it. So, congratulations to me.
And, then, you know, by the way, my neighbors–right?–who own one car or own zero cars, because they’re, you know, environmentally responsible and they bike all the time, they got zero subsidies.
And, then, of course, the twist is, California does everything it can to prevent new drilling of energy–right?–new oil and gas extraction.
And so, once again, it’s a case study: restrict supply, subsidize demand, and be absolutely–every single time–absolutely surprised by the result. Right? We’re like goldfish on this issue. Like, we’re stunned every single time prices rise.
And so, anyway that is what we’re trying to do.
Russ Roberts: And, we look to see what caused it. I love that. ‘What’s the cause, this time?’ And of course, sometimes there is a cause, often. But, it’s usually, ‘Well, they got greedy. They wanted more money.’ Forgetting that some of the cause of the–enabling–we’re always greedy. I always like to make that point. It doesn’t really change the amount of greed. The question is whether it’s more enabled or less enabled by supply restrictions that you’re talking about.
I want to mention Arnold Kling has talked about that phenomenon in previous episodes. We’ll put a link to that episode of Arnold’s in the links to this episode with Marc.
Russ Roberts: Is there anything–let’s shift gears a little bit. Is there anything in the last eight years that has surprised you that hasn’t happened?
I’m going to pick two to let you talk about, and you have your own list. I like to tease myself on the program–I got really excited about driverless cars because they were just–they’re any day now. Any day it’s going to save 35,000 lives in the United States. There’s going to be no more traffic jams. You’re going to be able to read books while you’re on your way to–etc., etc. I don’t know if it’s ever coming. The timing certainly misled me.
And, the second thing would be Bitcoin and the blockchain. Your firm has made very large investments in trying to make that a reality. I would say it is very much an open question. There are people who think it’s god; and then there are people who say it’s a scam and it’s only a matter of time before it all goes to zero. I’m agnostic. I think it could be a game-changer for the world. I’m talking about Bitcoin–cryptocurrency now–not the blockchain. They are different and you’ll talk about both.
But, I’m surprised that it hasn’t happened. Whatever the outcome is going to be, it’s still, to me, up in the air. Could you talk about both those and what ever else you think has surprised you? And let me know if either of those has surprised you.
Marc Andreessen: Sure. Yeah. So, I’ll start by saying: look, I live in the future. So, for me, these have both already happened, and the rollout is just a matter of incremental progress here. [Russ starts laughing uncontrollably in the background–Econlib Ed.] So I’m excited about both of these. Excuse me.
Let’s see. Take a couple. So, driverless cars, we can talk about a lot. Driverless cars, look, it’s a big deal. A lot of the lot of the art of the driverless car is the edge cases. Right? And so: What happens in a rainstorm? in a construction zone when there’s police everywhere? Like, what do you do?
Russ Roberts: Do you call those edge cases? Is that the phrase you used?
Marc Andreessen: Yeah, sorry. Edge cases. Right. Exactly. Human drivers are terrible in many ways. But, one of the things that we’re good at–right?– is when we pull up–the construction site is the classic example. There’s a road and it is there, and it’s on the map and it’s great, but it’s under construction. And now you’ve got people with various states of construction workers paying attention or not paying attention, trying to direct traffic. And so, the car needs to be able to process its way through that. And so, yeah, these are the edge cases. It’s the last whatever–it’s one of those Zeno’s Paradox things. The last 5% takes the longest or something.
But, there’s a lot of work being–happened. A lot of smart people are working on this. The work continues. There are driverless cars on the road right now giving rides. There’s a couple companies, including one of ours, that have this. They’re up and running. I think it’s in Phoenix with a fully autonomous robo-taxi service. There’s a rollout–I think Cruise is–yeah. Cruise, the GM unit, is rolling out in San Francisco right now.
So, they’re making steady progress. And then, there’s also just the progress Tesla is making–which is not one of our companies. But, the Tesla capability keeps getting better and better. They kind of show that statistically through the accident rate continuing to fall. The per mile accident rate of–the way you measure car safety overall is accidents per thousand miles. And, the Tesla driverless system already is quite a bit superior to a human driver, and getting better. So, there’s lots of progress happening on that front and we’re still very long-term confident on that. But, it’s one of the harder problems, and so it is taking time.
Bitcoin cryptocurrency, I think it’s hit critical mass in a much more–it’s not universal yet and it’s not everybody using it, but the numbers, the activity levels are getting to be quite large. And, then I get into the details in that a little bit. Like, the things that are already working: So, the Bitcoin as a store of value is already working. The market cap of Bitcoin today–I haven’t checked lately, but the market cap runs $500 billion to $1 trillion dollars of sort of embedded value.
And so, people are using this. There’s more and more examples of people using this in countries all over the world. Especially when their local currencies get into trouble.
And, then there are three sort of big-use cases of cryptocurrency on top of Bitcoin that are really starting to become real and are starting to see a lot of activity. So, just quite quickly, one of those is so called DeFi, Distributed Finance. And, some of those capabilities are starting to get quite large.
Second is there’s this whole wave of what are called NFTs or Non-Fungible Tokens. Unique digital assets. And, that wave also has gotten quite large and there’s quite a lot going on.
And, then there’s a third category, which is gaming. The entire video game industry looks like it’s going to get upended by this new model. And, then by extension, more and more of the media industry. And, we’re very active in these sectors. A very large percentage of the very smart people working on games–virtual worlds, metaverse, all these new areas of entertainment and experience–they’re using this technology as a foundation.
And so, those are sort of four, I would say, pretty mainstream-use cases that are already getting pretty big. And, then there’s–look, there’s dozens more in the pipeline with a lot of smart people working on this.
Russ Roberts: Could you talk a little bit about–we had a great episode on gaming and how extraordinary it has become. What role does cryptocurrency play in that, and then also in Distributed Finance? The first and third. People have heard of NFT. They have some idea of how it works. But, the first and third, I think are pretty alien to most everyday people who aren’t in VC-land [Venture Capital land]. Can you give an idea of what those are?
Marc Andreessen: Yeah. Start with talking about the importance of gaming. So, gaming always sounds–you know, video games, virtual worlds–it always sounds like it must be one of the more trivial things that’s happening, because video games are–you have this psychological thing for a lot of people where it’s kind of a lark and maybe not that serious.
But, it turns out video games are quite important; and for two reasons. One is: as a consumer, medium video games are bigger than film, bigger than TV, bigger than music, bigger than news. It’s a very large industry. And, of course, if you have kids you see this every day. These experiences are central to people’s lives.
And, then there’s this just enormous amount of very exciting work now going into development of the so-called metaverse. We can talk about that. And so, that’s sort of the video game environment writ large with potentially very big consequences.
So, it actually turns out to be quite an important industry. It’s, by the way, a major U.S. export industry, and so it’s on the very vanguard of U.S. economic, global success.
And then, the other thing that’s always important about the video game industry is it’s on the technological leading edge. And so, it’s the place where a lot of new computer technologies get rolled out to consumers for the first time. Right? And so, most people experience video games in an arcade or in a home video game unit before they bought a personal computer. And, then there’s just many examples of this where you–LaserDiscs [LDs] were first used in video games. Video games were a very early-use case of the Internet.
And so, you have all–the iPhone: a huge amount of the adoption of the smartphone early on was for gaming in your pocket.
And so, it’s sort of this vanguard field that tends to pull a lot of technologies behind it. And, then as these new technologies are proven in gaming, they’re then adapted into other fields.
And, basically, I mean, it’s sort of actually a short story, which is basically: video games have always been basically something that you either pay to play–right? You buy the game: you feed the quarter into the machine or you buy the game for $50 and take it home. Or: you get advertising. You play it and you get ads, which is a lot of what’s happening now with mobile gaming.
There’s a completely new model–right?–which basically is a video game as its own economy. Right? And so, a video game in which economic activity in the game is actually real and that actually items and artifacts of different kinds in the game are actually real–
Russ Roberts: Weapons–
Marc Andreessen: Yeah. You discover the magic sword or you’ve got the magic cloak or you build the castle or you build the house or whatever it is. And, it actually has tangible value.
And, not only does it have tangible value, maybe those things also become portable across games.
And so, today you put a huge investment into playing one game and then basically you’re done playing that game and your investment basically is worth nothing. In the future, one of the presumptions is basically all of that embedded worth and value will then be yours to own and transfer into other games.
And so, this is sort of a wave of innovation that is going to transform how the gaming industry works, but it’s also going to transform the experience of the gamer and basically bring a lot more real-world economics into play.
Russ Roberts: So, we had Josh Williams on the program talking about this. We’ll put a link up to that episode. It’s a phenomenal episode. But, why does it have to be cryptocurrency? Can’t it just be regular money inside that game for building those assets?
Marc Andreessen: Yeah. Well, so, first of all, regular money–so, whose regular money?
So, if you’re in the United States then it’s like, okay, U.S. dollar, U.S. banking system–
Russ Roberts: Because that is regular money. Just like English is the only real language. Yeah. We’re a little–
Marc Andreessen: Yeah. This is the thing.
Russ Roberts: We’re a little ethnocentric–is it national-centric? Whatever the word is. Yeah.
Marc Andreessen: Yeah. And, then this also goes back to these other use cases like stored value and the Distributed Finance and so forth. Which is, what we always point out to critics is, like: Look, displacing the U.S. dollar sounds hard. Right? Displacing the U.S. Federal Reserve, displacing the U.S. banking system, displace the U.S. credit card system. Like, these are systems–they’ve got their issues. They did generate the 2008 Financial Crisis. Like, they’ve got their issues, but, like, they work pretty well. Right? And, those of us who live in the United States are blessed to be in a system where the–
Russ Roberts: Yeah, well, they don’t want to be displaced, either. We want to keep that in mind, also. They make the medical profession look easygoing.
Marc Andreessen: However, they do work pretty well. Like, they do work pretty well. The Euro has its issues. It works pretty well. The Yen works pretty–it has its issues. Japan has its financial issues. It works pretty well. The Swiss Franc works pretty well.
You know, we’re still, as you know, we’re only talking about 10% or something of the world population when we talk about these systems that work well. Like, most of the people in the world–it’s actually fairly amazing when you think about it. Like, paper money was invented 350 years ago. Right? We’re 350 years later; and the number of people in the world who can rely on what we would consider to be sort of a modern stable currency is still, you know, 10%, 20%? Most of the world still doesn’t have a stable, rational, reasonable, well-governed currency.
Most of the world still doesn’t exist in a well-run banking system. Most of the world does not have the equivalent of the U.S. Treasury Department. They don’t have a government bureaucracy in charge of the financial system that works well. As you know, many places in the world have capital controls–these very sharp and arbitrary restrictions of what people can do with their money. And, then they do all kinds of arbitrary things to their citizens all the time. You see this. Like, every year there’s some major panic meltdown. One year it’s Venezuela, the next year it’s Argentina, the next year it’s Greece, the next year it’s–whatever–Turkey. Globally, we cycle from sort of financial catastrophe to financial catastrophe.
So, this is a big part of my life. And, you can say you should temper your optimism here because this stuff is obviously hard to get right.
But, the other way to look at it is, like, the status quo assumptions have had three and a half centuries. Right? Adam Smith was a long time ago. And, the U.S. Federal Reserve is 100 years old. And, again, love it or hate it, at least we know how that system works, and we now have 100 years of experience, and there’s many other countries that ought to be able to have a federal-reserve-caliber central bank after the 100 years of experience in the United States and yet they don’t. And so, at some point we ought to be open to alternatives.
And, then citizens, ordinary people respond to this very quickly and very enthusiastically because of course they live with the downside of all these things and that’s where a lot of this stuff is happening.
Russ Roberts: But, here’s what I don’t understand. So, I really don’t use cash for anything. I like it–the paper money system you’re talking about. I like it for giving to people on the street who are hungry. I like to give them a dollar. Other than that–and now they have Venmo. The street musician who I also like to give a dollar–sometimes more–they have their Venmo account there. It’s actually easier to pay with my phone here in Israel than the United States, but it’s pretty easy in the United States. In Israel, everything–I can pay with virtual, everything with my phone. Aren’t we there already? What do we need this Bitcoin complicated mining–what do we need all that for? Don’t we have all this fabulous electronic money already?
Marc Andreessen: You are, of course, cherry picking where you live. To live in two of the most sophisticated cultures and systems on the planet, between the United States and Israel.
Look, if the entire world ran the way United States and Israel did, maybe. Fair enough. But, it’s like I said, the rest of the world had–the status quo has had a long time to get things right. And so, when the status quo has had hundreds or in some cases thousands of years to get things right and yet they have chosen collectively to not get things right, at some point there should be alternatives. And so, that’s where a lot of my enthusiasm comes from.
Let me broaden out the theory as to why this whole sector is just interesting in general. Which is that this whole sector is interesting in general because–this is something I really believe, that I’ve written about–basically is that this is the other half of the internet. This is the other half of the internet that we basically didn’t do upfront. That we didn’t do 30 years ago. Maybe we should have, but I would argue I was there at the time and we didn’t have some of these new technologies so we didn’t quite know how to do it.
And, the way I describe that is: Look, the internet was a gigantic advance in networking of data. And, again, going back to our example here: the internet was not the first network of data. There were many networks of data that existed before the internet, and you could go buy a network of data from IBM [International Business Machines] or you could go buy one from Apple or you could go–France had a consumer online service in the 1970s predating the internet called Minitel that the older French people still remember, and it actually worked really well. And, a lot of people in France, when the internet came along they were like, ‘I don’t know why we need this thing. Minitel works fine.’
And, even in the United States we had these services like America Online and Prodigy and CompuServe that worked quite well, that people were quite happy with. ‘This internet thing seems weird and different. I have to set up my computer differently. Why would I do this?’
What the internet did was the internet–it was a different kind of network. It was a different kind of capability. It was not a centralized controlled system. Famously it was not that and still is not that. What it was is it was decentralized and permissionless.
And so, decentralized, meaning it did not rely on any single government to provide. Like the French government provided Minitel. The internet was not provided by any single government. And then, any company could go into the internet in business. And, any company could go into business that connected people online. So, that’s the decentralized part.
And then, the permissionless part is really important, which is: the internet had what’s now famously called permissionless innovation. And, this was a huge breakthrough at the time. People forget this. This was a huge breakthrough at the time, which is: Anybody can build a website. And, by the way, this is still true today. Anybody can build a website. Anybody can build a website. You and I can build a website this afternoon, have it up and running. Everybody in the world could get access to it. Nobody can stop us. That is not how any of the previous networks worked. Go ahead.
Russ Roberts: No, no. Would you say it’s underappreciated? I don’t think about it enough. It makes me sad. If you want to build a house, if you want to start a business, if you want to do anything else, you’ve got all these barriers, all these permissions, all these permits. You could start a website yesterday. Yeah. It’s great.
Marc Andreessen: That’s right. And, if you think about it even today, if I want to do a mobile app, I need Apple’s permission. I need Apple’s permission. I need Google’s position to get it in the app store. But, if I do a mobile website on mobile Safari–on Apple Safari–or Google Chrome, people can just access my website.
So, this permissionless capability is still there. It’s still incredibly important and powerful. It’s still a big contrast versus the status quo. And then–it’s the thing that caused the internet to win. It’s the reason the internet won and the reason nobody remembers all the prior networks anymore–other than me–is because the internet won, because the creativity that got unleashed by permissionless innovation meant that you had a million times the intellectual candle-power going into creating all of the use cases and all the great things for people to do. Those included all of the big internet businesses that we know today and all the things we like to do online.
So, what we had is: we had a decentralized, permissionless network of data but without trust. And, this is sort of, again, the internet’s famous for this. There’s no trust. Like there’s no–it’s the famous thing: On the internet nobody knows you’re a dog, right? The famous cartoon. Which is there’s no sense of trusted identity on the internet.
There is no internet-native money. Right? To this day, if you want to access money on the internet, you’re still plugging in your credit card number and dealing with all that stuff. There’s no internet native money the way that there’s internet native data.
By the way, core internet services like email really ought to have a built-in method[?] of money. There’s still no built-in concept of money so there’s these huge incentive problems.
So, for example, spam. The reason spam is a perpetual problem with email is because of the economics of spam. It’s free to send a billion emails. If you only have a 0.0001% conversion rate on the people that you’re trying to trick, it’s still cost effective to run a spam campaign. If we had had micropayments on the internet from the beginning–if we had had internet-native money from the beginning, we would’ve had a system where sending an email would’ve cost, let’s say, a thousandth of a cent. So, from a consumer’s standpoint, nobody ever would’ve noticed or cared if you spent a penny a day or whatever to send all your emails. But, it would’ve killed the spam industry, like, right out of the gate. We never would’ve had the spam problem.
And, then rolling into social networking, the same thing would’ve happened. We never would’ve had a lot of the downside things you see on social networking.
So, we didn’t have internet-native money. We couldn’t build economics into the system. And, then we couldn’t build any other applications based on trust, right? So, we couldn’t have internet-native transfer of money. We couldn’t have internet-native stored money. We couldn’t have internet-native contracts. Internet-native lending. Internet-native insurance. Internet-native title. Right? All of these concepts of trusted relationships and economic activity that we take for granted in the real world, in all of their various imperfect forms.
Like, there should be internet-native versions of all of those things. And, that’s basically what this sort of Crypto Web3 revolution is now, in my view, is it’s sweeping back in 30 years later and basically saying: Okay, now we finally have the technologies to be able to basically drop a trusted environment, a trusted architecture, in place on top of the un-trusted aspect of the internet; and all of a sudden have a trust environment in which everybody globally can do business and can transact in a way that is trusted and clear and straightforward. And, then again, globally ubiquitous. Just like the internet, globally ubiquitous. Anybody on planet earth can participate in this. And, that’s why we get excited about this.
Russ Roberts: You’re going to get me excited, Marc. That’s pretty good. I’ve been excited at various times.
Marc Andreessen: There we go.
Russ Roberts: Are we going to stick with this architecture of the web that we have now? And, we’ll get to this later probably, but in case we don’t, I want to just mention it. I have followers on Twitter. I’ve got all my tweets. I don’t have access to them. I can’t port them to a Twitter competitor. Is that going to stay the way it is over the next 10, 20, 30 years? That the ownership of information on the internet is going to be driven by the providers of the services rather than some independent way I can port around various stuff? Or are people find ways to get around this?
Marc Andreessen: Yeah. So, this is one of the really big questions that then flows from this. Right? Which is, as you know, basically what we have–what happened, funny story: Because anybody could build a website, people build a lot of websites. Some of those websites got really, really big. Including Twitter. Twitter is an example of a website and an app that got really large. And then at that point, it took the form of a company. It’s a Delaware C Corporation. It has equity. It has a CEO [Chief Executive Officer]. It was public. It is public, it turns out. There’s a guy who is in the process buying it. But, he’s doing an acquisition of a C Corporation. And, as part of that acquisition of that C Corporation, he will own all of the data. He’ll be able to set policies. He’ll be able to do all the things that an owner of a company does.
And then, obviously, there’s this giant fight happening around that on what regulations should services like that be subjected to. And, different governments have all kinds of programs and things they’re trying to do. The EU [European Union] has this–in their EU-fashion, they have this kind of mystery legislation they’re working on right now that’s going to be this new set of rules for services like Twitter. And so, these things have become just these gigantic political–politicized–topics.
This new architecture, what we call Web3, which is this new architecture of crypto, blockchain kind of adapted to building these new kinds of decentralized permissionless applications: There is a new generation of entrepreneur–and, there’s a whole bunch of these now–that is basically trying to build decentralized permissionless non-company structured alternatives to all of these systems. To all of these centralized corporate systems.
And so, there are a whole bunch of entrepreneurs trying to build, for example, decentralized social networks on the blockchain. And, in the new model, it would not necessarily be a company. It wouldn’t necessarily be a Delaware C Corporation. It wouldn’t necessarily have equity. It wouldn’t necessarily have a CEO. It wouldn’t necessarily have a headquarters. But, it might be–in the image of Bitcoin and Ethereum, what might it be? It might be a network. Right? And, it might be a decentralized network. It might be a decentralized permissionless network that basically exists to coordinate people sending messages back and forth and publishing online.
It might be a network that is run essentially by a community of its users who get to vote on policies. It might be a network in which there’s real economic value in the form of digital tokens attached to the activity. It might be a network in which, you have the ability to fork: If you don’t like the policies one day you can fork it into a new version and you can set different policies.
It might be a network that interoperates with other networks. And so, you might have multiple of these that actually exchange messages with each other. And, this might happen in this new internet-native way of structuring economic activity. It’s sort of much more, let’s just say, authentic to the basic fundamental assumptions of the internet.
And, again, the important thing here is we didn’t have the technology to let people do this between 1985 and 2009 when the internet first got built. We didn’t have blockchain. We didn’t have this concept of distributed consensus, these ideas. But, now we do.
And so, now at least in theory, there are new ways to build these things. And, God willing, there’s now going to be a big competition. There’s going to be a big competition between the centralized providers who are trying to adapt and react in different ways to all the pressures they’re under, and then there’s going to be a lot of new efforts that are decentralized. And, hopefully, aspirationally the market will decide the outcome.
Russ Roberts: So, one of the things I talk about on here sometimes, in my ignorance–and you probably actually understand this, so this would be really good to ask you. I really like Evernote. I like Medium. I have my own flaky set of favorite strange things that fill my day in certain ways. And, I worry that they’re going to go out of business. I have a lot of really useful things I’ve stored on Evernote. But, they’re just a corporation. They could go bankrupt. They could quit. They could shut down. And, I’ve thought, for many of these, couldn’t they stay somewhat as they are–not improving constantly, which is what shareholders push for, of course? But, merely staying as a useful technology. Now, it’s got to interface with whatever new version of the browser comes along. So, there would be a community of people who care about it, who would be entrusted with keeping it compatible with the latest iPhone.
But, it could be that’s just too darn hard. And, some companies might find ways to offer me an opportunity to port my old Evernote data into their new app, or maybe I’m just stuck.
What do you think’s going to happen there? Is that a viable possibility? A sort of public–I mean, I think about Wikipedia. Most economists would’ve said Wikipedia’s not possible. It’s run by volunteers. It’s going to be awful. But, it’s not awful. People care about it. It’s flawed, but everything’s flawed. And, similarly Evernote without a profit incentive or a search engine without a profit incentive or with a different kind of profit incentive than the ones that are out there, are they going to continue to innovate or will they just be kind of static? Will this Web 3.0 thing allow this permissionless innovation if there’s not a corporation? If it’s, quote, “merely a network of users”? Tell me what’s going to happen. [More to come, 48:58]
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