It’s been a pretty intense month for the Libra Association, whose stablecoin has come under intense scrutiny from the U.S. Congress and the G7 over fears of destabilizing the global financial system when it launches next year.
Although Facebook is just a member of the much larger consortium, the cheese stands alone with its 2.7 billion population, one that’s larger than all the G7 nations combined. That leaves many wondering, what happens when a third of the planet begins using a currency not backed by a county?
These are the likely fears that drove U.S. Senators Sherrod Brown and Brian Schatz to send their October 8th letter that warned Visa, MasterCard, and Stripe, “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related payment activities but on all payment activities.”
There’s nothing that can shake an institutional investor more to their core than having their entire legitimate business thrown into question thanks to an interest in some experimental technology. Thus the congressional threats worked. By October 14, PayPal, Visa, MasterCard, Stripe, eBay, Mercado, and Booking Holdings had dropped out of the Libra Association, leaving these 21 of the original 28 remaining:
In response to the mass exodus, the Libra Association quickly announced its long-awaited governance structure with staffing by Chief Operating Officer Bertrand Perez, Head of Policy and Communications Dante Disparte, and Head of Business Development Kurt Hemecker, and Board of Directors including David Marcus of Facebook / Calibra and co-creator of Libra, Katie Haun of Andreessen Horowitz, Matthew Davie of Kiva Microfunds, Patrick Ellis of PayU, and Wences Casares of Xapo.
Then on October 23, Facebook CEO Mark Zuckerberg was called before the House Financial Services Committee. Strong words awaited him from Chairwoman Maxine Waters who asked him if he thought he was above the law. She also accused him of aggressively increasing the size of Facebook—perhaps at any cost—and said that such behavior had opened a discussion of whether Facebook should be broken up. You can watch Zuckerberg’s testimony here.
So, why all of the hysteria?
On October 31, I had a chance to talk with Kevin Weil, co-creator of Libra and VP of Product at Facebook’s Calibra, at San Francisco Blockchain Week about regulatory concerns, the move toward universal financial inclusion by 2020, and how Calibra is coming along. What follows is an edited transcript of our onstage fireside chat.
MARTINE PARIS: You began your career as a particle physicist at SLAC (formerly known as Stanford Linear Accelerator Center) and then went on to work at Twitter and Instagram. How did you become interested in blockchain?
KEVIN WEIL: I was at Instagram absolutely loving my time there. It was the best job I’ve ever had. I was fortunate to get to learn from Kevin Systrom who I still think is the single best pure product thinker in the world. Loving the people, the product was doing well. Then I started hearing whispers about this Libra thing from a woman named Morgan Beller who joined from Andreessen and who was working on Andreessen’s crypto fund. We had lunch and I asked what are you working on? She said, I’m working on corporate development but really Facebook needs to do this thing. I was like, that’s the most ambitious idea I’ve ever heard of. Then I heard that David Marcus was thinking similar things and I just found myself waking up every morning thinking about the opportunities with Libra and Calibra, and took that as a sign, so I jumped. But I think if we’re successful with Libra and with Calibra, it will probably be the most impactful and meaningful work that I will ever do.
When was that?
It was 18 months ago, right as we were getting started.
What an amazing 18 months you’ve had. Mark got called before Congress again and Libra now has 21 members. How are things going?
Yeah, it’s going great. I personally like to read a lot of history because I think it puts the situations that we’re all experiencing in context. One of the things you realize is that the transitions that we’re in the middle of today have echoes of transitions that the world has gone through in the past. If you go back to radio and TV when they were first coming out, cars—even bicycles, believe it or not—got a huge amount of pushback from the powers that be as they were being introduced. So to me it’s no surprise that we as a blockchain industry in general and Libra specifically are getting a lot of pushback. And look, it’s really important that we do this in the right way. That we are compliant in the important ways that introduce Libra and Calibra as open ecosystems with low barriers to entry to create good competition. I think it’s going to continue to be two steps forward one step back, two steps forward one step back. But when I compare where we are now to where we were 18 months ago, it was an idea 18 months ago and now we’re having regular and positive dialogue with regulators in central banks across the world. We have 21 members that are Libra Association that’s fully formed. I’m super excited about how it’s going so far.
On the roadmap to 2020, did you factor in meeting with the regulators along the way?
Oh yeah, for sure. We knew that this is an important project and it will hopefully touch a lot of people’s lives and we got to make sure we do it the right way.
This week is not just SF Blockchain Week, it’s also Financial Inclusion Week. There are 1.7 billion people unbanked in the world and there are a lot of fintech companies working on solutions. Can you tell us why you think blockchain can solve this problem?
The most relevant analogy is actually to the internet. Back 25 years ago, you could send text messages but they probably cost you $0.25 and you could only send them to somebody who was on your same carrier. You couldn’t send across carriers, let alone send across the world. You could call someone around the world but that would probably cost you $3-5 a minute and that situation wasn’t really changing because you had a small number of players, closed market, high barriers to entry, not a lot of competition, and no real desire to change the status quo. Then the internet happens, and suddenly you have a decentralized platform where the basic cost of sending a byte from one place to another place becomes basically free and you have low barriers to entry, anybody can build a business, anybody can build new products, and suddenly you have things like Skype. And the minute you have Skype, you can’t charge $3 to $5 per minute for long distance anymore. And you have things like instant messaging, which means people’s expectations is that they can talk to anybody in the world, instantly and for free. Fast forward to today we can all send live 360 degree video to anybody, anywhere in the world, instantly and basically for free.
Now, look at the current financial system. It looks a lot like the old communications world used to look before the internet. You have a small number of players. You have a very closed system, high barriers to entry, it’s very difficult to compete, and there’s not a lot of desire to change the status quo. As a result, that hasn’t changed in about 50 years. So the question that motivates us is, can we do for money what the internet did for communication? Can you create a decentralized platform where the basic cost of sending a unit of value from one place to another is basically free? Then, can you do that in a way that creates an open ecosystem, interoperable, low barriers to entry, lots of competition? And if you can do that, then can all of us rebuild the financial infrastructure that exists today only on top of this new open platform? If we can, I think the world will be a much better place for all of us and for the 1.7 billion people around the world that don’t have access to a bank account.
The G7 recently came out with a report expressing concern that stablecoins could pose a threat to national monetary sovereignty. What are your thoughts on this?
Well they also said there’s a real opportunity with stablecoins to increase access and lower costs in the financial ecosystem. That said, we have to make sure that this is done in a safe and regulatory compliant way, and because the impact can be large, the bar is also high. There have been separate fears of currencies like Libra, systems like Libra, being somehow competitive to existing fiat currencies and that’s certainly not what Libra was designed to do. Libra was designed to be a payment system that is more inclusive, that increases access to the financial ecosystem, that lowers costs. I don’t see a world where anyone is paying their taxes in Libra at any point, I don’t think people are going to be even paid salaries in Libra. That’s not what it was designed to do. What I hope I see, is anybody who has a phone, having access to a stable store of value. And anybody who has a phone being able to access the overall financial ecosystem, being able to pay anybody they want to, and any merchant who has access, being able to accept payments at a much lower cost today. That’s what we’re looking for and Libra is designed to be a complement to existing currencies, not a replacement.
You’re designing a wallet that will enable people to spend Libra. Tell us about the feature set. How are we going to be able to put money into Libra? How are we going to be able to take money out of Libra?
That’s a great question. So the goal with Calibra is really two very simple things. The first is to enable anybody with a phone to store value, securely and for free. The second is to allow them to send money to any person or business in the world. They’re two super simple things but when you consider that 1.7 billion people, which is one in every three adults, don’t have access to a bank account, they’re storing any excess money that they have in cash in their house. Just be able to do those two very simple things is going to be powerful for a lot of people, especially when the Libra comes inside Messenger and WhatsApp, and products that people are using every day to talk to their families. So the focus for us will be on remittances, cross border payments that people send generally between family members.
It’s a $700 billion market. There’s $700 billion that changes hands every year across borders between friends and family generally for things like feeding your kids or keeping up with school tuition. The average fees to send a remittance worldwide is 7%, meaning $50 billion a year in fees get assessed to the people who have the least ability to pay. Moreover, because this is between friends and family, people will probably already have conversations going on in Messenger or WhatsApp with their friends. And so for us it was like, why does this have to cost so much? Why does it have to take two or three days to settle it, which can be a big deal if you’re thinking about feeding your kids or paying for school tuition? If you already have a conversation in WhatsApp with your family, why can’t sending the money be as simple as sending them a text message? As cheap and as immediate as sending a text message? So that’s where we’re starting.
To your point about how do you get money in, how do you get money out: Our expectation is that on Day One, there aren’t going to be tons of ways to spend Libra once you get it. So in most cases the transaction is going to go from local currency into Libra across to a family member and then back into their local currency so that they can use it for what matters to them. And so it’s really important for us to make it easy for you to go from local currency to Libra and back, whether you’re banked or not banked. So you can imagine, adding a bank account or debit card if you’re a banked user. And for people who aren’t banked, we want to make sure that we can pop up a list of local locations that will allow you to load Libra onto your phone, or give Libra and get cash back, so that it’s really easy for people to go between Libra and their local currency.
Like at a gas station or a 7-Eleven, is that what you’re thinking?
Exactly, convenience stores, things like that.
When people pick up their prepaid phone at a gas station, can they also charge their Libra wallet?
Is Calibra going to launch at the same time as the Libra blockchain?
Now that the Libra association is fully formed, Facebook is one member out of 21. We have exactly the same power, voting responsibility, decision making responsibility as the other 20 members. So we, as Facebook, as Calibra, don’t determine when Libra blockchain launches—that’s actually a Libra Association decision. And so from the Calibra perspective of building a wallet, it’s urgency for us to make sure that our product is ready, because we don’t actually get the final say as to when the blockchain launches. Now there’s a lot of work to do and we’re lining up everything to be ready later in 2020, but these are actually separate things.
There are going to be other wallets when the Libra blockchain launches. How will someone with a Libra wallet be able to transact with someone that has a different wallet?
One of the most important aspects of this being an open ecosystem is interoperability of wallets. And it’s actually not something that I thought about a ton before I entered this space. But when you stop and think about it, it’s insane that if you choose to use Venmo and maybe I use Square Cash and someone else uses Zelle and someone else uses PayPal, those are completely separate systems. There’s no way to send between them. We have to actually coordinate in order to send money to each other in today’s world. So Libra will be a totally open ecosystem, more like email. If I’m going to send you an email, we don’t have to both agree on which email provider we’re going to use. If I’m going to visit your website, we don’t have to both agree on which browser I’m going to use.
We’re certainly going to do our best to build a great Libra wallet at Calibra, but we’re not going to be the best for everybody. And frankly, I understand there are going to be people who don’t want to use a Facebook Wallet for this and you don’t need to have a Facebook account to use Calibra. That’s actually a really important thing. If we don’t build a great product or if you don’t want to use our product, you could still get 100% of the value out of the Libra ecosystem because you can use any wallet that you want to. I imagine there are a bunch of people in the audience today who are already building Libra wallets. We’ve certainly seen some great ones from the community. The whole point is that consumers should get to use whatever wallet they want to and it should be easy for them to move value around and use whichever product serves their needs best. The ecosystem as a whole gets stronger when that happens. So that’s our entire goal with this.
Let’s talk about privacy of the transactions. Are they on-chain or off-chain?
It’s up to you as a consumer. If you use a non-custodial wallet, then Libra has basically the privacy properties of, like, a Bitcoin and Ethereum as pseudonymous transactions. So if you’re using a non-custodial wallet on Libra, then your transactions are all on-chain. If you’re using a custodial wallet, then those transactions are generally not on-chain unless you’re sending between wallets or interacting with someone who is on-chain. So, Calibra will be a custodial wallet, in large part because we believe that having the basic ability to do things like password management and password recovery is what most people will want relative to the risk of losing your private key and not having access to your money. The important thing is that anybody can choose. If you don’t want that trade off, then you can use any other wallet.
For people that do use Calibra though, we’ve committed up front that your financial data in Calibra stays separate from your social data that exists across Facebook and Instagram and so on. So, your financial data is not used for ad targeting; it’s not used for anything at Facebook. We’re actually going through an immense amount of work behind the scenes right now to make sure that this policy is true, not just in words. but in code. And, look, I understand not everyone’s going to trust that. That’s okay. We’re going to have to earn that trust over the years. And importantly, if you don’t trust that, that’s why there’s a whole other plethora of other Libra wallets, all of which are interoperable, and every consumer will choose whatever works best for them.
So ads will not be served up against my transactions?
They will not.
Calibra is a subsidiary of Facebook. Will there be a wall between the teams?
Yes, it’s a wholly owned subsidiary and that’s for two reasons. One, because Calibra will be a regulated entity, and two because it helps us enforce this data separation. But we’re also building Calibra into WhatsApp and Messenger so the data is separate but the products aren’t totally separate
When cash-based, unbanked customers buy a prepaid phone, they’re anonymous. When they charge up their Calibra wallet on their phone, are they going to need to show ID in countries that have AML/KYC laws?
The way that all crypto networks work today is that the endpoints tend to be regulated entities. So, whether it’s an exchange or a cash-in cash-out provider, custodial wallet, those kinds of things, they are regulated entities in the jurisdictions in which they operate and they have to abide by the local rules. So usually that means some form of AML/KYC in whatever is relevant in the jurisdiction in which they’re operating.
So, with regards to scalability and volatility, we’ve had a problem with adoption with Bitcoin and Ethereum. How is the Libra blockchain going to be different?
Let me say I’m a huge Bitcoin fan. I think the goals of Bitcoin are very different than the goals of Libra. Bitcoin, for many people, is a speculative asset. It’s a decorrelated, long-term store of value and it’s great at those things.
Libra is not going to be amazing at those things. Libra is going to be great as a payment platform that is more inclusive, that brings the 1.7 billion people that don’t have access to bank accounts into the financial ecosystem, and hopefully lowers costs across the board. That means that it has to be high performance and the asset that backs Libra has to be stable. It has to be something you can rely on to hold its value from one day to the next to the next to the next, which is why Libra is essentially a stablecoin, backed by a basket of stable currencies: dollars, euro, yen, pounds, things like that. And it’s why we made a commitment to always ensure that the basket is one to one.
What will enable the Libra blockchain to scale?
One of the things that’s helping Libra is it’s a permission blockchain. So, rather than needing a proof of work consensus—or proof of stake which is still earlier on and is less tested at massive scale—we can use well tested, well understood, BFT algorithms, or at least modern variations thereof, that have been around since the 1970s, and that’s one of the ways that we get performance.
We’ve also been able to bring a lot of the techniques that we’ve learned in building a big scalable service like Facebook to the blockchain.
Libra is totally open source at github.com/libra. We’ve actually seen a bunch of developer contributions already and welcome more. It would be amazing to hear your feedback. Tell us what we got right and what we got wrong because we can make it better before we launch in 2020.
What’s next for Calibra?
We’re having a lot of very good positive discussions with regulators and central banks around the world and I expect that will continue. But most importantly, we are heads down, building, so that we’re ready to launch a great product in 2020.