Why Open Networks Win— with Christian Catalini

Transcript

If you can be decor chain to rule them all, well, it's a massive opportunity. If you can own the network of global payments, as we know from the card networks, that's a very profitable business. This is likely going to be even larger. That said, I I I really hope it doesn't succeed because otherwise we will have swapped one king with a different one. >> Kristen, thanks for being here. >> My pleasure. All right. So, let's start with this. What misconception do people have about the problem you're trying to solve?

>> I would say the biggest one is that, you know, people think of Bitcoin as digital gold. They think of it as, you know, the special thing that you keep in a in a safe or in cold storage. We put Bitcoin to work. Um, we call ourselves sometimes Bitcoin plumbers, but we're essentially trying to use Bitcoin, the network, not just the asset, as a way for moving value across the globe 24/7 uh at a low cost. Now, when you when you see those things, people typically think about stable coins. But in this phase of infrastructure inversion, where we're still kind of, you know, trying to ride the car on the on the road that's meant for a train for for a horse, people still want fiat. So, if you're sending money, say, to Mexico or anywhere else uh across the globe, people want to get

their pesos, their euros, their naira. And if you're doing that, then you may as well go through the most liquid globally available asset that that there is. Um and and that volatility that people get kind of hang out hang up on doesn't really matter if you can do that, you know, within a split second. So yeah, I I would say the biggest misconception is that Bitcoin is just this this kind of digital gold that you cannot put to work and and we're putting it to work for money movement. >> You mentioned stable coins. Of all of the options available to you, why have you decided to focus on Bitcoin? >> Yeah, so you know, we're now supporting also stable coins, so we're kind of responding to the market. Um coming out of Libra, one of our biggest lessons was >> So you were formerly uh working on

Facebook's Yes. crypto project. >> So David and I and some of the others on on the founding team of Light were kind of the the founding team of Libra. >> David Marcus formerly of PayPal and uh Messenger and Libra. >> Yeah. And through that journey, I mean, one of our biggest realizations across many scars from, you know, interacting with regulators across the globe for for four years, the biggest lesson was truly that if you're trying to reform money, if you're trying to really change how money moves on a global scale, nobody's going to trust your your corp chain, so to speak. That that's kind of what we would call it today. Uh it has to be a network that's truly neutral. Uh one that has a track record of governance and and decentralization. And so as painful as it was at the beginning of

Lightspark almost four years ago, you know, to build on on Bitcoin, it's very hard to build on Bitcoin. It's a bit like, you know, building for space. Everything is like uh very complicated um and harder than it is on more modern modern technology. If you can do that, then you suddenly have have a substrate u an infrastructure that everybody can truly trust. Uh and so that that was kind of our our big insight, which was like look, it's not about the technology. With Libra, we we had probably the most advanced technology of its time. In fact, many teams took that technology and kept building on it. If you look at crypto over, you know, the span of more than a decade, I would say two things have really changed the world to date. One is uh Bitcoin as a censorship resistant, you know, new types of of store of value and and

medium of exchange eventually that people can hold uh in a non-custodial wallet anywhere around the globe. Uh that's truly novel. And the second one of course is is is stable coins where uh I think the success that we're seeing to date is mostly about people that could not hold dollars otherwise that don't have access you know to to a proper banking system a proper financial sector can suddenly hold something that that represent a dollar anywhere on the globe. So those are the two things that I think we've accomplished in more than a decade. So I think there's a lot more to come but that's kind of where it starts. So, you've mentioned this sort of like hybrid potential for Bitcoin as both a a store of value and a medium of exchange, but I'd like to drill down there. Can an asset achieve that? Um,

because when we talk about a store of value, you'd think that's something you want to put your savings into because you'd expect, you know, it to be a good way to keep your value intact. Um whereas a medium of exchange might not have that same property. Something you transact with you uh you know you might expect it to not have that same kind of value preserving uh quality to it. How do you achieve both of those within one regime within one asset? >> Yeah. So look first of all each asset is really on a continuum right? It's not a pure store of value or a pure medium of exchange, right? And people that that are, you know, gold bugs, uh, they they think of gold as as not only that robust store of value, but also something that

in a crisis, in a war, in in an extreme situation, you're going to use uh as a medium of exchange. Of course, it's very impractical, right? Uh, shaving tiny pieces of gold uh to do a transaction. Bitcoin mo historically most things that end up being used as medium of exchange start somewhere as a store of value right so it's like you know think about people depositing their assets with with the early banks and then getting these this paper paper kind of credentials this um IUS uh for claiming back their assets and and redeeming them the paper piece became kind of the medium of exchange the store of value was kind of in the vault um I think inevitably all of this is is evolving And and I think when you zoom out and and think about

the future of money, I look the dollar is the undisputed global reserve currency at the moment. Um and I don't think that that role is going to change. I think stable coins reinforce it. They become kind of a distribution channel for the dollar. Uh that's dynamic, it's modern, allows you to do all sort of self-driving programmable uh cool new things. But where Bitcoin is is kind of interesting um on the asset front I would say is the first time in history that we can write and read from a ledger as a collective you know global global population um without anyone in the middle. So that that innovation is a big one and the fact that we can really record okay society owes something to someone or is owed something in in in a novel fashion. I think that that's going

to be a major breakthrough and we'll we'll realize it I think over the next few few years but when you look only at the ledger you forget that bitcoin is also a network. Uh bitcoin is also a way for transferring that value seamlessly without relying on intermediaries at least in the same way that we used to do in the past. And coming out of Libra, that was our biggest realization, which was like, look, no matter how much effort we put in decentralizing the Libra Association, which was, you know, uh, independent organization in Geneva, we hired a CEO and executive team that was completely independent from us. Every member uh, over two dozen had one single vote. And I saw those votes.

There were real votes. There was a democratic process in deciding the rules of the protocol. But nobody believed us. Uh, everybody thought, okay, Facebook walks, this whole thing falls apart. And so they saw it as a corp chain. Um, and even if we were trying to bring multiple design partners and you're seeing the same happening today, right, with some of these new corp chains. >> Yeah, let's talk about that. I' I'd love to ask about that as since you were involved in building uh, you know, Facebook's project which um, eventually kind of got shafted by regulators. What do you make of this this resurgence of interest by corporations in creating chains of their own? You know, Stripe has Tempo, Circle has Arc. There are a number of these. there will probably be more. What do you make of this trend as somebody who was you know basically

there doing it years ago? >> One answer could be you guys were early and the regulatory climate has completely changed and so where you have failed somebody else could succeed. Uh but I would say that's not the lesson of Libra. That's the lesson of Libra if you just look at the media headlines. Uh but as you often know, the media headlines don't really reflect always the reality behind the scenes. By the time the project, you know, eventually uh shut down and and got sold um at least the IP and all of that. Um we had cleared all the regulatory concerns. Uh we had state-of-the-art provisions, many of which ended up being part of Genius, which is sort of, you know, a piece of Libra lives in Genius. Uh which is great. But the regulatory position was not, I would say, the main failure

point. I I think if we were allowed to go live eventually we would have run into the same issue of like truly decentralizing the project. Um now we had a document in the early days about how do we make this permissionless. We had all sort of really clever market design. great work with Scott Communers who of course you know colleague yeah he's a colleague and so we had all the the best engineering both from an economics perspective and the technical perspective to open the network but it's it's so hard and and so when you look back over more than a decade of crypto I think there's a handful of networks that can say we were able to make that transition two maybe three right and and so that special genesis and and Bitcoin probably has the cleanest one of them

all right the creator disappears and and and the whole thing is kind of permissionless and mining in and of itself is like this other weird economic beast. Um, recreating that as a corporate entity or a corporate affiliate entity extremely hard. And what's eerie, at least for me, is that you see these corp chains and they're going through every misstep that we did exactly the same ones. And part of it is probably arrogance, part of it is like, you know, just thinking that it it it all is about the regulatory climate. I think the ecosystem is smarter than that. And people that got into crypto, I I'm definitely one of those because we believe that this is a technology that can truly transform the financial services sector that can democratize access to payments, you know, lending,

credit borrowing broker brokerage accounts, right? So, we talk about the unbanked, but there's also the unbrokered. How many people don't have access to a vibrant financial market like the one we have? For all of those people, I think these corp chains, you know, they can see through them. And I think it's going to be so hard to show neutrality, right? If you're a large PSP, how do you convince the second largest PSP to join your network? Um, if you're a stable coin issuer, how do you how do you convince your partners to believe that, you know, you're not just going to move downstream and keep gobbling up like, you know, like the web two platforms have done the most profitable part of the business? And so once you realize all of that is is part of the problem, then you do need to build on truly permissionless networks.

And ironically, the banks are realizing this. So they they spent you know more than a decade trying to build their own consorcia coming together. None of those consorcia worked right we've seen them from 2017 which is like hey it's now Bitcoin is the blockchain and now the the banks ironically are on the other side. So the banks are building on you know Ethereum and uh other other chains and meanwhile we have insiders from the industry whether they're issuers or you know fintex that I I think they just feel like it's a land grab and and I I can't blame them for that. I mean, it's a massive opportunity. If you can own the network of global payments, as we know from the card networks, that's a very profitable business. This is likely going to be even larger. Uh, and so if

you can be the corp chain to rule them all, well, you know, that that's a that's a really good business to be in. That said, I I I really hope it doesn't succeed because, you know, otherwise we will have swapped, you know, one one one king with a different one. >> Do you think that it will succeed? Um I asked this you know thinking back to past waves of technology where you know Visa started as this sort of open consortium uh and it has kind of consolidated into a you know private company. You could also look at the web which began with all these visions and dreams of openness and everlasting neutrality uh and I think people will look at the web today and say that it has consolidated as well. So what could we expect to happen from crypto? I mean, will it preserve its openness and

neutrality or are we going to see the same sort of pattern repeat that we see uh throughout history? >> Look, I struggle with that question a lot and to some extent I think it's it's a matter of what the timeline is. If you look through history and and you already mentioned some really great examples, but there's there's many more, right? So think about when IBM did the fateful decision of like you know gobbling parts from OEMs to put together the first PC and you know licensed the beating heart to you know little known software manufacturer from New Mexico Microsoft like we forget that standards like Winel and all of these open protocols that that go all the way back to the Silk Roads, right? The Silk Roads were essentially open protocol for physical

commerce. >> When you say the Silk Road, are you referring to like the historic train? I just want to make sure. Yeah. Yeah. Of course. When you know, Emperor Wu of China sent sent Jeang west. >> Got it. >> Those networks like the internet. Um but even if you think about simple things like the shipping container, right? An open standard for for commerce. All of these if you look through them, they tend to win in very unexpected ways. Probably the best example is Linux. When Linux came out, you know, people looked at it and thought it was a total toy. Um you know, not enterprise grade for sure, right? And the cloud today is run on Linux. Microsoft who called Linux a cancer well you know in the cloud supports you know Linux instances and so I do think crypto will end up in the

same way which is like there's going to be some really unexpected wins and I think we're barely scratching the surface because everybody's excited about stable coins but payments is still like doing something that we're already doing today cheaper faster more efficiently. I do think that between programmability, between everything that's being built, we're gonna hit some nuclear app eventually, probably soon now that we have regulatory clarity and a lot more that that the traditional systems can compete on and and that's where you know you'll see that arc bending towards openness in payments like corp chains might be compelling at the start but people can see through it right so the visa story is still very fresh if we want to build a system where everyone can truly transact where every

asset is kind of same class citizen. Uh it's going to be very difficult to write that into into you know a document of a corp chain and I I don't know of course if they execute really well I think there's a chance that we'll have another period of closed and then we'll rebel again and we'll have open but if you ask me 10 years from now money will move definitely on an open network. Mhm. So you're holding out hope and uh Linux would be your example that you'd point to as a tech trend that has remained decentralized and open. Correct. In the face of >> and winning in in in odd ways, right? So I don't think when people saw Linux as a challenger to the desktop that that was kind of the red herring, right? Head tohead. Yeah. Didn't displace Windows.

It couldn't. Uh but when you think about, you know, most of what we do today, I think, you know, 90% of the cloud runs on Linux. All the world top top 500 supercomputers run on Linux. Yeah. So that that that's the unexpected win and I think in crypto is going to be something like that. >> Okay. Um you got time for a rapid fire round? >> Yeah. >> Okay. What's your biggest productivity hack? >> Huh. It's it's actually very simple. It's like triaging uh inbox and email and having a very rigorous task list where there's all sort of layers and tears where things fall in. And I actually use emoji sometimes to remind me, okay, this is like a red red alert, act now, and this is kind of a pause button. And Siren emoji.

>> Yeah. Yeah. Siren emoji is often on a lot of different things, but yeah, it's it's kind of er type triage of anything that comes in. >> What book would you recommend people read? >> H that's a really good question. Um one that I really enjoyed recently is um if uh if you know if if anyone builds it, everyone dies, which is uh kind of on the doomsday side of AI, but it's a really t thought useful thought experiment for thinking through the race that we're witnessing now in AI and kind of how it could go wrong. >> Should we build it? I mean I I don't think we have any alternative but uh so people will build it. Uh so I think people won't die though.

>> Yeah. >> Yes. We we have to work on that part. >> What advice should founders ignore? >> I would say things are really rapidly moving in a number of domains and you know often the advice of the incumbent layer I think it's it's often good to ignore. >> And finally um what is the smallest hill that you would die on? Hm. Smallest >> smallest hill >> uh probably that you know the impact of AI going to be massive even if we freeze the models where they are today. Even if progress were to stop today, I think the impact on the economy is going to be transformational.

>> All right. [snorts] Well, Kristen, thank you so [music] much. >> Thank you. It's a pleasure. Heat. Heat.