Facebook Libra founding member: “We’re not sure what this is going to be.”
Even the founders don't know where Libra is going, but they do know they want to come along for the ride.
- Creative Destruction Lab views Libra Foundation membership as a way of investing in future applications.
- Some of the revenue models to be found in Libra may encounter regulatory obstacles.
- There's a lot of flexibility in the early Libra Foundation model.
Libra, Facebook's cryptocurrency, has generated a lot of strong opinions, and people have formed various camps around what it can and can't and should and shouldn't be.
For some, it's a new front in Facebook's war on privacy; for others, it's a bold attempt at using blockchain to regain public trust. And in the crypto-sphere, it's either unwanted competition or a welcome gateway to bring the general public into cryptocurrency.
But at least one of the founding members of the Libra Association – the group of 28 entities who were revealed as original Libra backers – is a little more philosophical about the whole thing.
Finder spoke to Richard Titus, blockchain stream associate at Creative Destruction Lab, to see what Libra is to him.
Is Libra a net force for good?
For his part, Titus is feeling pretty keen about the whole thing.
"I believe the blockchain is one of the most important innovations of the 21st century. I think it's up there with DNA sequencing, AI, 5G...," he said. "This is one of the first things I've seen that really brings blockchain to consumers."
So, Libra plays into blockchain, and blockchain plays into Creative Destruction Lab's modest goal of facilitating technological advances for the betterment of humanity as a whole.
This is because one of the highest impact things you can do for improving the world is to give subsequent generations the right building tools, Titus explained.
"We need to think of all technologies as an enabler of the next wave of entrepreneurialism," Titus emphasised. The idea is "to help build the framework for the next generation."
This is because so many developments on the current cutting edge of technology will be non-starters or dead ends, and even the best-informed experts aren't 100% sure how everything will shake out.
In a space like blockchain, and in payments or financial technology as a whole, one of the best ways to invest in the future of the technology, no matter what it looks like, is to invest in the next generation of builders. You give them the education and tools today, then they can build the right things at the right time tomorrow.
Ten years ago I thought I'd have a flying car with an amber screen, but now I have an electric car with full colour video."
"If history has taught me anything, [it's that] we often think we can see the future but we're often wrong," Titus explained. "Ten years ago, I thought I'd have a flying car with an amber screen, but now I have an electric car with full colour video. You look at the Internet in 98, you would have thought that Flash was the most important part – now it's almost gone. It's hard to pick winners this early in the process.
"What you want to do is help back people that are going to do the hard work, and then try to use your investment thesis to enable entrepreneurs who want to build the world with you.
"Entrepreneurialism is for sure the best tool for the advancement of society. You can spend tons of dollars on aid and military, but if you invest in and grow a generation of entrepreneurs...."
That's one of the reasons why a blockchain gateway such as Libra is so important. As an open-source project, it stands to be an incredible educator for the current and next generation, and even if the Libra coin itself proves to be a non-starter for whatever reason, you still have its Move programming language and a mountain of important lessons learned. Most importantly, you also have a lot more people building on a blockchain – any blockchain – and grappling with the pros and cons of different variations.
"I'm blockchain agnostic, right?" Titus said. "I love Libra; I'm very passionate about it. [But] it coexists with other blockchains ... you can use different protocols for different things. Watch, there's some entrepreneur who's going to build a company no one's ever thought of."
In this context, the Libra coin itself is just the tip of the iceberg, and anyone who looks at Libra solely as a vehicle for stablecoin payments (although that's also important) is probably missing the long-term forest for the short-term trees.
Titus points at Libra's design as a good match for this philosophy.
There are a lot of potential regulatory and other issues waiting in the wings, such as a lack of term limits or clear governance structures for the Libra Association members, but it's still early days, Titus said. There's also the fact that even if Facebook is still going to be playing a key role, the coin really does appear to be under the control of a foundation rather than Facebook alone.
Plus, grey areas don't necessarily indicate an oversight. In many cases, they're deliberate wiggle room for adapting as situations change. For example, the contentious permissioned initial state of the Libra ledger might look like a fatal flaw from one angle or a valuable way of accommodating regulatory uncertainty from another.
Similar to how you invest in future tools and builders rather than today's products, on account of it being too soon to pick winners and losers, you don't want to put too many barriers on the nascent Libra network.
"It's not a Facebook coin," Titus points out. "They built something; they architected it; they handed it to the foundation. I think that with Libra, they've been cautious about putting too much structure, but are sort of being indicative of how they want to see it evolve and the mechanisms for doing it today.
"They've been clear that their expectation is over time it will move from permissioned to permissionless – it's the anticipated, not prescripted, curve.
"I always say, no one ever thought you'd use HTML to build Hulu or Netflix. If you told me the business model of Hulu in 1996, I'd have laughed at you."
Of course, the Libra association could still have trouble shedding its "Facebucks" connotations, and you have to ask whether people are really ready to trust Facebook.
According to almost all surveys (of Western audiences at least), the answer is a very hard no.
I'm not convinced those are as malicious as people think."
But you still have to maintain perspective. Crypto is even less trusted than Facebook, and surveys show that Facebook's involvement makes Libra more trustworthy, not less.
Facebook's data hungry business model raises uncomfortable issues, but a general public awareness of the value and importance of personal data is a much more recent phenomenon. In an appropriate twist, it took big ticket incidents like the Facebook-Cambridge Analytica data scandal to highlight the issue to the extent that people actually start acting on it.
"I'm not convinced those [incidents] are as malicious as people think," Titus suggested. "Like any business, they always have to get up in the morning and make hard choices. You're looking at a set of facts and you believe something. And sometimes you underestimate the power of an action. I think it's irrefutable that really dastardly things have happened, but it's really dangerous to ascribe things to one individual."
And he's got a point. The roadmap for data giants like Facebook is the one created through trial and error.
Was Facebook negligent or malicious to let advertisers leverage user data in the same way they already were? Legally maybe, kind of – it's complicated – but the ethical ramifications are even more convoluted.
The world wouldn't care if the Cambridge-Analytica scandal was all about using data mining and half-truths to push one brand of toilet paper over another. But because it was about politics, it ended up serving as a wake-up call.
It was a wake-up call for Facebook as much as anyone else. It caused the company serious brand damage, gave other companies an example of the risks of (ab)using user data and arguably helped pave the way for the creation of the Libra Association in its current form.
It's not hard to believe that the companies in the Libra Association genuinely want to figure out a workable model for user data protection.
"I don't have enough data to really give you a clear answer there, except I think the Foundation are going to have to work hand in hand with all partners to figure out privacy and data protection," Titus said. "I think this is how we build the future, thinking of balancing the risk and benefit."
It's also not impossible to believe that the companies involved in Libra are pursuing bigger game than scraping purchasing information out of users.
"Pursuing profits is probably unlikely given the structure of the organisation," Titus noted. "This isn't a for-profit thing."
It's worth noting that even if Libra develops in the most transparent, decentralised and idealistic way possible, as laid out by the Libra Association, it could still be extremely valuable for Facebook and others.
According to one theory, the immediate benefit Facebook could get from Libra would be better returns on its cash holdings. It's sitting on $40 billion of cash reserves and can't earn too much interest on it without straying into banking licence territory. As the theory goes, Facebook might be able to profit from higher returns on its cash reserves by using those reserves to collateralise the Libra stablecoin. This is regulatory challenging, and if done improperly, it's potentially not great for Libra holders, but it's also a solid reason for the Libra Association's members to not jeopardise network health.
A healthier and more trusted network would be much more profitable than a flop. And in this case, even if Facebook and other companies have a list of applications they want to try out on this new network, that shouldn't necessarily tarnish the Libra network itself.
Plus, if all risks have been appropriately managed, consumers are protected and so on, then at what point do you concede that existing regulations are inhibiting innovation to the extent that they are no longer in the public's best interest? Blockchain is extremely good at cutting out middlemen, but without some regulatory catch up, we're going to have a situation where there are a lot of obsolete middlemen hanging around for no reason other than because the law says they should.
These issues are not unique to Facebook. Despite all the advances of recent years, it's still a common point of friction in cryptocurrency. But needless to say, the Libra Association has a lot more lobbying weight to throw around than most crypto companies.
Software doesn't really recognise the same arbitrary lines along which we’ve built much of our economy."
There are going to be plenty of learning opportunities to go around in the near future, Titus notes.
"The things we're working on now with technology ... many of the rules were written in a different time where money moved in a certain way. We probably need to rethink some of the rules and frameworks."
He frames the change as a breakdown of clear lines between different party's interests. It used to be clear what exactly someone was purchasing, why they were purchasing it and whether they were paying a fair price for the intrinsic value of that thing.
But today someone can, in a single transaction, simultaneously be making an investment, exchanging currency and buying consumable fuel, none of which have a clear intrinsic value, at constantly fluctuating prices.
"In the old days, it was very clear if you and I were putting money into a venture to make money," Titus notes. "It was very clear if something was an asset or the asset had intrinsic value ... from a regulatory standpoint, it's very easy. Today, you can have something that's both a piece of code or a piece of fuel, but can also serve as an airline mile or a unit of payment. Software doesn't really recognise the same arbitrary lines along which we’ve built much of our economy.
"We either need to adapt those frameworks, or adapt how we think about them, or adapt the laws. We should always do this with a focus on the future."
What does a business actually do?
In the case of Libra, as a cryptocurrency focused on remittances and protecting monetary value for its holders, money transmission services are in the crosshairs. The question businesses should be asking themselves, Titus suggests, is what line of work are they actually in.
"The newspapers voted against the Internet up until it killed [them]. The newsmen believed they were in the business of the news, but really they were in the display advertising business. They failed to understand what business they were in ... news was sort of an accidental side business.
"Similar to the business of transmission companies ... I think in many ways, many of the intermediaries in the financial services world haven't really been delivering the value to consumers, or customers, for the piece of the pie they're taking. Some are, some aren't."
So, in an era when money can instantly go peer to peer anywhere in the world, what business are money transmission services really in?
They might be in the business of providing gateways to let consumers move that money (hello, Calibra), or they might be in the business of ensuring that the money being sent retains its value on both sides of the transmission (hello, low-fee stablecoin). And maybe you could even have some kind of association in charge of maintaining custody of the value on both sides of the transaction and investing it on behalf of users.
Sometimes it really is about saying we’re not sure what this is going to be."
There's definitely a long road ahead of Libra, but as good a starting point as any is just getting a high-powered cross-industry team together to throw vagaries at the wall and see what sticks.
Libra's goals here are also well in keeping with Creative Destruction Lab's strategy of incubating paradigm shifts rather than incremental improvements. Facebook obviously doesn't need an incubator, but Libra itself is open source and it could well be ground zero for a new generation of blockchain applications in the near future. There's definitely plenty of room for paradigm shifts in blockchain-land.
"There are some parts of the old world we probably won't bother keeping," Titus shrugs. "In 10 years, the idea that we had paper securities... will all seem really quaint and silly.
"We keep experimenting and iterating until we get it right. If you look at the partners, there's a wide array of partners. Sometimes it really is about saying 'we're not sure what this is going to be.' I, for one, am super excited to be one of those partners."
Disclosure: The author holds BNB and BTC at the time of writing.