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Disruptive business models are often powered by alternative financing. In Part 1 of this series, I discussed how mobile is redefining money and banking and shared some of the dramatic transformations in the global remittance infrastructure.
In this article, we’ll discuss:
AI financial advisors and robo traders
Let’s dive right back in…
Decentralized Lending = Democratized Access to Finances
Peer-to-peer (P2P) lending is an age-old practice, traditionally with high risk and extreme locality. Now, the P2P funding model is being digitized and delocalized, bringing lending online and across borders.
Zopa, the first official crowdlending platform, arrived in the United Kingdom in 2004. Since then, the consumer crowdlending platform has facilitated lending of over 3 billion euros ($3.5 billion USD) of loans.
Person-to-business crowdlending took off, again in the U.K., in 2005 with Funding Circle, now with over 5 billion euros (~5.8 billion USD) of capital loaned to small businesses around the world.
Crowdlending next took off in the US in 2006, with platforms like Prosper and Lending Club. The US crowdlending industry has boomed to $21 billion in loans, across 515,000 loans.
Let’s take a step back… to a time before banks, when lending took place between trusted neighbors in small villages across the globe. Lending started as peer-to-peer transactions.
As villages turned into towns, towns turned into cities, and cities turned into sprawling metropolises, neighborly trust and the ability to communicate across urban landscapes broke down. That’s where banks and other financial institutions came into play—to add trust back into the lending equation.
With crowdlending, we are evidently returning to this pre-centralized-banking model of loans, and moving away from cumbersome intermediaries (e.g. high fees, regulations, and extra complexity).
Fueled by the permeation of the internet, P2P lending took on a new form as ‘crowdlending’ in the early 2000s. Now, as blockchain and artificial intelligence arrive on the digital scene, P2P lending platforms are being overhauled with transparency, accountability, reliability, and immutability.
Artificial Intelligence Micro Lending & Credit Scores
We are beginning to augment our quantitative decision-making with neural networks processing borrowers’ financial data to determine their financial ‘fate’ (or, as some call it, your credit score). Companies like Smart Finance Group (backed by Kai Fu Lee and Sinovation Ventures) are using artificial intelligence to minimize default rates for tens of millions of microloans.
Smart Finance is fueled by users’ personal data, particularly smartphone data and usage behavior. Users are required to give Smart Finance access to their smartphone data, so that Smart Finance’s artificial intelligence engine can generate a credit score from the personal information.
The benefits of this AI-powered lending platform do not stop at increased loan payback rates; there’s a massive speed increase as well. Smart Finance loans are frequently approved in under eight seconds. As we’ve seen with other artificial intelligence disruptions, data is the new gold.
Digitizing access to P2P loans paves the way for billions of people currently without access to banking to leapfrog the centralized banking system, just as Africa bypassed landline phones and went straight to mobile. Leapfrogging centralized banking and the credit system is exactly what Smart Finance has done for hundreds of millions of people in China.
As artificial intelligence accesses even the most mundane mobile browsing data to assign credit scores, blockchain technologies, particularly immutable ledgers and smart contracts, are massive disruptors to the archaic banking system, building additional trust and transparency on top of current P2P lending models.
Immutable ledgers provide the necessary transparency for accurate credit and loan defaulting history. Smart contracts executed on these immutable ledgers bring the critical ability to digitally replace cumbersome, expensive third parties (like banks), allowing individual borrowers or businesses to directly connect with willing lenders.
Two of the leading blockchain platforms for P2P lending are ETHLend and SALT Lending.
ETHLend is an Ethereum-based decentralized application aiming to bring transparency and trust to P2P lending through Ethereum network smart contracts.
Secure Automated Lending Technology (SALT) allows cryptocurrency asset holders to use their digital assets as collateral for cash loans, without the need to liquidate their holdings, giving rise to a digital-asset-backed lending market.
While blockchain poses a threat to many of the large, centralized banking institutions, some are taking advantage of the new technology to optimize their internal lending, credit scoring, and collateral operations.
In March 2018, ING and Credit Suisse successfully exchanged 25 million euros using HQLA-X, a blockchain-based collateral lending platform.
HQLA-X runs on the R3 Corda blockchain, a platform designed specifically to help heritage financial and commerce institutions migrate away from their inefficient legacy financial infrastructure.
Blockchain and tokenization are going through their own fintech and regulation shakeup right now. In a future blog, I’ll discuss the various efforts to more readily assure smart contracts, and the disruptive business model of security tokens and the US Securities and Exchange Commission.
Parallels to the Global Abundance of Capital
The abundance of capital being created by the advent of P2P loans closely relates to the unprecedented global abundance of capital.
Initial coin offerings (ICOs) and crowdfunding are taking a strong stand in disrupting the $164 billion venture capital market. The total amount invested in ICOs has risen from $6.6 billion in 2017 to $7.15 billion USD in the first half of 2018. Crowdfunding helped projects raise more than $34 billion in 2017, with experts projecting that global crowdfunding investments will reach $300 billion by 2025.
In the last year alone, using ICOs, over a dozen projects have raised hundreds of millions of dollars in mere hours. Take Filecoin, for example, which raised $257 million in only 30 days; its first $135 million was raised in the first hour. Similarly, the Dragon Coin project (which itself is revolutionizing remittance in high-stakes casinos around the world) raised $320 million in its 30-day public ICO.
Some Important Takeaways…
Technology-backed fundraising and financial services are disrupting the world’s largest financial institutions. Anyone, anywhere, at anytime will be able to access the capital they need to pursue their idea.
The speed at which we can go from “I’ve got an idea” to “I run a billion-dollar company” is moving faster than ever.
Following Ray Kurzweil’s Law of Accelerating Returns, the rapid decrease in time to access capital is intimately linked (and greatly dependent on) a financial infrastructure (technology, institutions, platforms, and policies) that can adapt and evolve just as rapidly.
This new abundance of capital requires financial decision-making with ever-higher market prediction precision. That’s exactly where artificial intelligence is already playing a massive role.
Artificial Intelligence, Robo Traders, and Financial Advisors
On May 6, 2010, the Dow Jones Industrial Average suddenly collapsed by 998.5 points (equal to 8 percent, or $1 trillion). The crash lasted over 35 minutes and is now known as the ‘Flash Crash’. While no one knows the specific reason for this 2010 stock market anomaly, experts widely agree that the Flash Crash had to do with algorithmic trading.
With the ability to have instant, trillion-dollar market impacts, algorithmic trading and artificial intelligence are undoubtedly ingrained in how financial markets operate.
In 2017, CNBC.com estimated that 90 percent of daily trading volume in stock trading is done by machine algorithms, and only 10 percent is carried out directly by humans.
Artificial intelligence and financial management algorithms are not only available to top Wall Street players.
Robo-advisor financial management apps, like Wealthfront and Betterment, are rapidly permeating the global market. Wealthfront currently has $9.5 billion in assets under management, and Betterment has $10 billion.
Artificial intelligent financial agents are already helping financial institutions protect your money and fight fraud. A prime application for machine learning is in detecting anomalies in your spending and transaction habits, and flagging potentially fraudulent transactions.
As artificial intelligence continues to exponentially increase in power and capabilities, increasingly powerful trading and financial management bots will come online, finding massive new and previously lost streams of wealth.
How else are artificial intelligence and automation transforming finance?
Disruptive Remittance and Seamless Transactions
When was the last time you paid in cash at a toll booth? How about for a taxi ride?
EZ-Pass, the electronic tolling company implemented extensively on the East Coast, has done wonders to reduce traffic congestion and increase traffic flow.
Driving down I-95 on the East Coast of the United States, drivers rarely notice their financial transaction with the state’s tolling agencies. The transactions are seamless.
The Uber app enables me to travel without my wallet. I can forget about payment on my trip, free up my mental bandwidth and time for higher-priority tasks. The entire process is digitized and, by extension, automated and integrated into Uber’s platform (Note: This incredible convenience many times causes me to accidentally walk out of taxi cabs without paying!).
In January 2018, we saw the success of the first cutting-edge, AI-powered Amazon Go store open in Seattle, Washington. The store marked a new era in remittance and transactions. Gone are the days of carrying credit cards and cash, and gone are the cash registers. And now, on the heals of these early ‘beta-tests’, Amazon is considering opening as many as 3,000 of these cashierless stores by 2023.
Amazon Go stores use AI algorithms that watch various video feeds (from advanced cameras) throughout the store to identify who picks up groceries, exactly what products they select, and how much to charge that person when they walk out of the store. It’s a grab and go experience.
Let’s extrapolate the notion of seamless, integrated payment systems from Amazon Go and Uber’s removal of post-ride payment to the rest of our day-to-day experience.
Imagine this near future:
As you near the front door of your home, your AI assistant summons a self-driving Uber that takes you to the Hyperloop station (after all, you work in L.A. but live in San Francisco).
At the station, you board your pod, without noticing that your ticket purchase was settled via a wireless payment checkpoint.
After work, you stop at the Amazon Go and pick up dinner. Your virtual AI assistant passes your Amazon account information to the store’s payment checkpoint, as the store’s cameras and sensors track you, your cart and charge you auto-magically.
At home, unbeknownst to you, your AI has already restocked your fridge and pantry with whatever items you failed to pick up at the Amazon Go.
Once we remove the actively transacting aspect of finance, what else becomes possible?
Extraordinary transformations are happening in the finance world. We’ve only scratched the surface of the fintech revolution. All of these transformative financial technologies require high-fidelity assurance, robust insurance, and a mechanism for storing value.
I’ll dive into each of these other facets of financial services in future articles.
For now, thanks to coming global communication networks being deployed on 5G, Alphabet’s LUNE, SpaceX’s Starlink and OneWeb, by 2024, nearly all 8 billion people on Earth will be online.
Once connected, these new minds, entrepreneurs, and customers need access to money and financial services to meaningfully participate in the world economy.
By connecting lenders and borrowers around the globe, decentralized lending drives down global interest rates, increases global financial market participation, and enables economic opportunity to the billions of people who are about to come online.
We’re living in the most abundant time in human history, and fintech is just getting started.
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Once upon a time, a powerful Sumerian king named Gilgamesh went on a quest, as such characters often do in these stories of myth and legend. Gilgamesh had witnessed the death of his best friend, Enkidu, and, fearing a similar fate, went in search of immortality. The great king failed to find the secret of eternal life but took solace that his deeds would live well beyond his mortal years.
Fast-forward four thousand years, give or take a century, and Gilgamesh (as famous as any B-list celebrity today, despite the passage of time) would probably be heartened to learn that many others have taken up his search for longevity. Today, though, instead of battling epic monsters and the machinations of fickle gods, those seeking to enhance and extend life are cutting-edge scientists and visionary entrepreneurs who are helping unlock the secrets of human biology.
Chief among them is Aubrey de Grey, a biomedical gerontologist who founded the SENS Research Foundation, a Silicon Valley-based research organization that seeks to advance the application of regenerative medicine to age-related diseases. SENS stands for Strategies for Engineered Negligible Senescence, a term coined by de Grey to describe a broad array (seven, to be precise) of medical interventions that attempt to repair or prevent different types of molecular and cellular damage that eventually lead to age-related diseases like cancer and Alzheimer’s.
Many of the strategies focus on senescent cells, which accumulate in tissues and organs as people age. Not quite dead, senescent cells stop dividing but are still metabolically active, spewing out all sorts of proteins and other molecules that can cause inflammation and other problems. In a young body, that’s usually not a problem (and probably part of general biological maintenance), as a healthy immune system can go to work to put out most fires.
However, as we age, senescent cells continue to accumulate, and at some point the immune system retires from fire watch. Welcome to old age.
Of Mice and Men
Researchers like de Grey believe that treating the cellular underpinnings of aging could not only prevent disease but significantly extend human lifespans. How long? Well, if you’re talking to de Grey, Biblical proportions—on the order of centuries.
De Grey says that science has made great strides toward that end in the last 15 years, such as the ability to copy mitochondrial DNA to the nucleus. Mitochondria serve as the power plant of the cell but are highly susceptible to mutations that lead to cellular degeneration. Copying the mitochondrial DNA into the nucleus would help protect it from damage.
Another achievement occurred about six years ago when scientists first figured out how to kill senescent cells. That discovery led to a spate of new experiments in mice indicating that removing these ticking-time-bomb cells prevented disease and even extended their lifespans. Now the anti-aging therapy is about to be tested in humans.
“As for the next few years, I think the stream of advances is likely to become a flood—once the first steps are made, things get progressively easier and faster,” de Grey tells Singularity Hub. “I think there’s a good chance that we will achieve really dramatic rejuvenation of mice within only six to eight years: maybe taking middle-aged mice and doubling their remaining lifespan, which is an order of magnitude more than can be done today.”
Not Horsing Around
Richard G.A. Faragher, a professor of biogerontology at the University of Brighton in the United Kingdom, recently made discoveries in the lab regarding the rejuvenation of senescent cells with chemical compounds found in foods like chocolate and red wine. He hopes to apply his findings to an animal model in the future—in this case,horses.
“We have been very fortunate in receiving some funding from an animal welfare charity to look at potential treatments for older horses,” he explains to Singularity Hub in an email. “I think this is a great idea. Many aspects of the physiology we are studying are common between horses and humans.”
What Faragher and his colleagues demonstrated in a paper published in BMC Cell Biology last year was that resveralogues, chemicals based on resveratrol, were able to reactivate a protein called a splicing factor that is involved in gene regulation. Within hours, the chemicals caused the cells to rejuvenate and start dividing like younger cells.
“If treatments work in our old pony systems, then I am sure they could be translated into clinical trials in humans,” Faragher says. “How long is purely a matter of money. Given suitable funding, I would hope to see a trial within five years.”
Show Them the Money
Faragher argues that the recent breakthroughs aren’t because a result of emerging technologies like artificial intelligence or the gene-editing tool CRISPR, but a paradigm shift in how scientists understand the underpinnings of cellular aging. Solving the “aging problem” isn’t a question of technology but of money, he says.
“Frankly, when AI and CRISPR have removed cystic fibrosis, Duchenne muscular dystrophy or Gaucher syndrome, I’ll be much more willing to hear tales of amazing progress. Go fix a single, highly penetrant genetic disease in the population using this flashy stuff and then we’ll talk,” he says. “My faith resides in the most potent technological development of all: money.”
De Grey is less flippant about the role that technology will play in the quest to defeat aging. AI, CRISPR, protein engineering, advances in stem cell therapies, and immune system engineering—all will have a part.
“There is not really anything distinctive about the ways in which these technologies will contribute,” he says. “What’s distinctive is that we will need all of these technologies, because there are so many different types of damage to repair and they each require different tricks.”
It’s in the Blood
A startup in the San Francisco Bay Area believes machines can play a big role in discovering the right combination of factors that lead to longer and healthier lives—and then develop drugs that exploit those findings.
BioAge Labs raised nearly $11 million last year for its machine learning platform that crunches big data sets to find blood factors, such as proteins or metabolites, that are tied to a person’s underlying biological age. The startup claims that these factors can predict how long a person will live.
“Our interest in this comes out of research into parabiosis, where joining the circulatory systems of old and young mice—so that they share the same blood—has been demonstrated to make old mice healthier and more robust,” Dr. Eric Morgen, chief medical officer at BioAge, tells Singularity Hub.
Based on that idea, he explains, it should be possible to alter those good or bad factors to produce a rejuvenating effect.
“Our main focus at BioAge is to identify these types of factors in our human cohort data, characterize the important molecular pathways they are involved in, and then drug those pathways,” he says. “This is a really hard problem, and we use machine learning to mine these complex datasets to determine which individual factors and molecular pathways best reflect biological age.”
Saving for the Future
Of course, there’s no telling when any of these anti-aging therapies will come to market. That’s why Forever Labs, a biotechnology startup out of Ann Arbor, Michigan, wants your stem cells now. The company offers a service to cryogenically freeze stem cells taken from bone marrow.
The theory behind the procedure, according to Forever Labs CEO Steven Clausnitzer, is based on research showing that stem cells may be a key component for repairing cellular damage. That’s because stem cells can develop into many different cell types and can divide endlessly to replenish other cells. Clausnitzer notes that there are upwards of a thousand clinical studies looking at using stem cells to treat age-related conditions such as cardiovascular disease.
However, stem cells come with their own expiration date, which usually coincides with the age that most people start experiencing serious health problems. Stem cells harvested from bone marrow at a younger age can potentially provide a therapeutic resource in the future.
“We believe strongly that by having access to your own best possible selves, you’re going to be well positioned to lead healthier, longer lives,” he tells Singularity Hub.
“There’s a compelling argument to be made that if you started to maintain the bone marrow population, the amount of nuclear cells in your bone marrow, and to re-up them so that they aren’t declining with age, it stands to reason that you could absolutely mitigate things like cardiovascular disease and stroke and Alzheimer’s,” he adds.
Clausnitzer notes that the stored stem cells can be used today in developing therapies to treat chronic conditions such as osteoarthritis. However, the more exciting prospect—and the reason he put his own 38-year-old stem cells on ice—is that he believes future stem cell therapies can help stave off the ravages of age-related disease.
“I can start reintroducing them not to treat age-related disease but to treat the decline in the stem-cell niche itself, so that I don’t ever get an age-related disease,” he says. “I don’t think that it equates to immortality, but it certainly is a step in that direction.”
Indecisive on Immortality
The societal implications of a longer-living human species are a guessing game at this point. We do know that by mid-century, the global population of those aged 65 and older will reach 1.6 billion, while those older than 80 will hit nearly 450 million, according to the National Academies of Science. If many of those people could enjoy healthy lives in their twilight years, an enormous medical cost could be avoided.
Faragher is certainly working toward a future where human health is ubiquitous. Human immortality is another question entirely.
“The longer lifespans become, the more heavily we may need to control birth rates and thus we may have fewer new minds. This could have a heavy ‘opportunity cost’ in terms of progress,” he says.
And does anyone truly want to live forever?
“There have been happy moments in my life but I have also suffered some traumatic disappointments. No [drug] will wash those experiences out of me,” Faragher says. “I no longer view my future with unqualified enthusiasm, and I do not think I am the only middle-aged man to feel that way. I don’t think it is an accident that so many ‘immortalists’ are young.
“They should be careful what they wish for.”
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Pedro Domingos on the Arms Race in Artificial Intelligence
Christoph Scheuermann and Bernhard Zand | Spiegel Online
“AI lowers the cost of knowledge by orders of magnitude. One good, effective machine learning system can do the work of a million people, whether it’s for commercial purposes or for cyberespionage. Imagine a country that produces a thousand times more knowledge than another. This is the challenge we are facing.”
Gene Therapy Could Free Some People From a Lifetime of Blood Transfusions
Emily Mullin | MIT Technology Review
“A one-time, experimental treatment for an inherited blood disorder has shown dramatic results in a small study. …[Lead author Alexis Thompson] says the effect on patients has been remarkable. ‘They have been tied to this ongoing medical therapy that is burdensome and expensive for their whole lives,’ she says. ‘Gene therapy has allowed people to have aspirations and really pursue them.’ ”
The Revolutionary Giant Ocean Cleanup Machine Is About to Set Sail
Adele Peters | Fast Company
“By the end of 2018, the nonprofit says it will bring back its first harvest of ocean plastic from the North Pacific Gyre, along with concrete proof that the design works. The organization expects to bring 5,000 kilograms of plastic ashore per month with its first system. With a full fleet of systems deployed, it believes that it can collect half of the plastic trash in the Great Pacific Garbage Patch—around 40,000 metric tons—within five years.”
Autonomous Boats Will Be on the Market Sooner Than Self-Driving Cars
Tracey Lindeman | Motherboard
“Some unmanned watercraft…may be at sea commercially before 2020. That’s partly because automating all ships could generate a ridiculous amount of revenue. According to the United Nations, 90 percent of the world’s trade is carried by sea and 10.3 billion tons of products were shipped in 2016.”
Style Is an Algorithm
Kyle Chayka | Racked
“Confronting the Echo Look’s opaque statements on my fashion sense, I realize that all of these algorithmic experiences are matters of taste: the question of what we like and why we like it, and what it means that taste is increasingly dictated by black-box robots like the camera on my shelf.”
How Apple Will Use AR to Reinvent the Human-Computer Interface
Tim Bajarin | Fast Company
“It’s in Apple’s DNA to continually deliver the ‘next’ major advancement to the personal computing experience. Its innovation in man-machine interfaces started with the Mac and then extended to the iPod, the iPhone, the iPad, and most recently, the Apple Watch. Now, get ready for the next chapter, as Apple tackles augmented reality, in a way that could fundamentally transform the human-computer interface.”
Advanced Microscope Shows Cells at Work in Incredible Detail
Steve Dent | Engadget
“For the first time, scientists have peered into living cells and created videos showing how they function with unprecedented 3D detail. Using a special microscope and new lighting techniques, a team from Harvard and the Howard Hughes Medical Institute captured zebrafish immune cell interactions with unheard-of 3D detail and resolution.”
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