- Tim Draper, a venture capitalist, believes bitcoin, blockchain technology, and artificial intelligence will disrupt major industries, including healthcare, finance, and government.
- The transformation of those industries will create huge opportunities for entrepreneurs and investors such as himself, Draper told Business Insider in a recent interview.
- Draper has bet big on bitcoin and has been investing in bitcoin- and blockchain-related startups.
- Though he's had some big investment successes, including Tesla, his track record on forecasting the future of government and innovation is somewhat checkered by his failed effort to split up California and his backing of the healthcare startup Theranos, which has since been shut down amid allegations of fraud.
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In the past two decades, internet and digital technologies have transformed industries from publishing to food delivery.
But Tim Draper, a longtime venture capitalist, thinks a new generation of technologies could have an even bigger effect by shaking up some of the biggest sectors in the world, including healthcare, commerce, finance, insurance, and government. Artificial intelligence, big data, and especially cryptocurrency-related technologies, such as smart contracts, will decentralize power, tie the globe closer together, and yield some big opportunities for investors such as himself, Draper told Business Insider last week in an interview.
"This is going to be a really interesting transformative time," said Draper, whose track record includes backing companies including Tesla and Cruise Automotive, which was acquired by General Motors. "And I'm excited to be a venture capitalist during that time because it's the entrepreneurs and the venture capitalists that benefit the most when the biggest industries get transformed."
It would be fairly easy to set up an insurance company or program using some of the new technologies, Draper said. Smart contracts — agreements built on blockchain technology in which the terms are written into lines of code — can automatically determine eligibility for benefits and pay them out. Artificial intelligence can be used to catch fraud. Add in some good actuaries to determine risks, and you're in business — ostensibly without having to hire a bunch of workers.
"All that can be done right now," Draper said.
Draper thinks government will be transformed by new technologies
But that capability has obvious applications for governments, he said. Much of what governments do involves offering kinds of insurance, including for health, retirement, and disasters, he said.
"What is government, but a bunch of different insurance companies," Draper said. He added: "Government is one of the biggest industries in the world, and that's about to go through a transformation."
But Draper said the new technologies promise even more profound change. Bitcoin, blockchain, and smart contracts are all decentralized systems. Governments and companies have little direct control over them. Smart contracts don't require courts and government to enforce them, for example; they're self-enforcing via software.
They're also global systems. Bitcoin can be exchanged around the world and isn't subject to controls by national governments. Holders of the cryptocurrency in different countries can conduct transactions using the same coins without worrying about exchange rates.
Governments to date have been directly tied to particular geographic areas. But the new technologies will eventually decouple that relationship, Draper said. They will allow governments to serve, compete for, and be accountable to citizens around the world, he said.
"Geographic borders are going to be less and less relevant as more and more governance happens virtually," he said.
Draper's effort to reshape California failed
Draper has a somewhat checkered history when it comes to governments and borders. For years, he pushed an effort to break up California, first into six separate states and then into three via the state's initiative process. The first effort died when it didn't secure enough valid signatures to get on the ballot.
The latter effort failed when opponents challenged its constitutionality. After the state Supreme Court blocked Draper's initiative from appearing on the ballot — but left open his ability to show its constitutionality and get on the ballot at a later date — Draper withdrew the effort. Public polls said that more than 70% of California respondents opposed the breakup.
In follow-up email with Business Insider, Draper said internal polling by his team suggested that initiative's chances were much closer, with more than half of respondents either in favor of his three-state-breakup plan or undecided about it. After the Supreme Court decision, he decided not to continue to fight in favor of the initiative because he felt the fix was in.
"I would face the same California Supreme Court," he said. "It would be a waste of money."
But when it comes to the future transformation of government and other industries, Draper is putting his money where his mouth is — at least when it comes to the cryptocurrency component of that change. He's a big supporter of bitcoin, holding at least 30,000 coins, which are worth about $247 million at current prices. He has also backed a slew of bitcoin-, blockchain-, and smart-contract-related startups, including the digital-currency exchange Coinbase; Ledger, which makes a physical gadget on which people can store their private cryptocurrency keys; Bancor, a cryptocurrency-wallet provider; and Tezos, which is building a new kind of blockchain network.
Draper is on record as predicting that bitcoin will hit $250,000 a coin within the next three years, and he stuck by that forecast in his interview with Business Insider. The currency is growing easier to use and for people to exchange, new services are promising to speed up transaction rates — long one of bitcoin's biggest weaknesses — and people are fed up with the fees banks charge for customers' use of credit and debit cards, he said. Together, all that is going to drive demand for the currency, he said.
"I think it's a virtuous cycle," he said. "I think the adoption grows, and the price grows. Adoption grows more, and the price grows more."
To be sure, the bitcoin price in dollars has fluctuated wildly in recent years, hitting a high of more than $20,000 a coin in 2017 before falling to less than $3,200 a coin about a year later. It's presently trading at about $8,000 a coin after an up-and-down year last year.
Bitcoin enthusiasts have been predicting for years that its inherent benefits will lead to mainstream adoption. But use of the currency tends to fluctuate with its price, indicating that it's still largely seen as a speculative investment rather than one that is a key piece of users' financial transactions.
Draper moderated his defense of Theranos' Elizabeth Holmes
Draper invested early in bitcoin and has seen a windfall from that. But his judgement as an investor is open to question. For years, he has defended Elizabeth Holmes, the founder of the now defunct healthcare startup Theranos, in which he also invested. Holmes, who was childhood friends with Draper's daughter, has been accused of defrauding investors regarding Theranos' technology. It was supposed to allow medical professionals to run multiple blood tests with only small quantities of blood; reporting indicated that its technology didn't work.
Holmes settled civil fraud charges with the Securities and Exchange Commission in 2018, paying a $500,000 fine and agreeing to a 10-year ban on serving as an executive at a public company. She is slated to go on trial for criminal fraud charges this summer.
Despite that, Draper continued to stick up for Holmes in his conversation with Business Insider. Theranos' technology looked promising, he said. Holmes got in trouble because she was challenging powerful drug, health-insurance, and blood-testing companies, he said.
"There were a lot of special interests that did not want her to succeed," Draper said.
But he acknowledged that he may not know the whole story about Holmes.
"I don't know all of the facts," he said. "We'll have to let all of those come out in court."
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