“Direct Connect – a Flight to Simplicity?” – Chris Cook
John Gilmore famously said that;
“The Internet interprets Censorship as Damage and routes around it”
Perhaps one of the key events in the development of the Internet age was the invention by a 19 year old of direct on-line music sharing – Napster – which destroyed for good the existing business model of the global music industry.
This capability of the Internet to route around, or dis-intermediate, middlemen is becoming daily more apparent, to the extent that a reader of the Financial Times recently won £10,000 for identifying “Peer to Peer” finance as the “Next Big Thing” in the financial world.
How such a directly connected financial system could work is a question that has interested me, from a starting point as a former Director of a global energy futures exchange, throughout almost 10 years work in the area where markets and Internet converge
At a conference last week in Teheran addressing the challenges of the current financial crisis, one of my fellow speakers observed that;
“… it is not possible to solve 21st Century problems with 20th Century solutions…”
I agree wholeheartedly, and the partnership-based enterprise model – or legal and financial structure – which I observe emerging has evolved in response to the challenges of this direct Internet connectivity.
Finance consists of credit, which facilitates trade and enables productive assets to be created; and investment, which consists of financial claims over productive assets such as secured debt (eg mortgage loans), and Equity (eg shares in a Corporation).
Both credit and investment may in fact be achieved without the intermediation of Banks. Since Bank capital will be further eroded as the Credit Crunch spreads into the productive economy, I believe that “Peer to Peer” finance offers a solution form an entirely unexpected direction.