I think you are all probably thinking the same thing.
You have a burning question. I felt like… I wouldn’t be able to do the rest of my speaking tour
without addressing this burning question. I was bombarded on Twitter today with the same
question: “Have you tasted haggis?” [Laughter] The answer is, “No, I’m too scared.” I made the mistake of reading about
how it is made before tasting it. I’ve been told that you should do it the other
way around, because then it is a lot less scary. I’m trying to build up the courage. I have been
told that the best way to [eat] this is in a burger. I don’t know if that is actually true. No? Okay.
There is a big disagreement in the room. On the count of three, all those in favor of haggis burger,
[raise your hand]. Nobody? Okay. Haggis for breakfast? [AUDIENCE] Yeah! [ANDREAS] Ah, okay.
Are there other formulations I should try? [AUDIENCE] Haggis on toast!
[ANDREAS] Haggis on toast, very good… [AUDIENCE] Intravenous. [Laughter] [ANDREAS] How about a corporate-sponsored
haggis that is pretending to be an open haggis? [Laughter] And was launched this morning? Okay.
Let’s talk about the elephant in the room: Libra. This morning, you probably heard that
Facebook announced their “cryptocurrency,” Libra. Whenever the price of bitcoin goes down,
I receive calls from friends and family, asking if I am okay. “Are you okay? Is everything okay?”
This time, I actually got a call from a friend’s mother. She asked me if I’m okay and
the price has not even dropped! Just the fact that Facebook launched a cryptocurrency
led to the “Are you okay? Are you holding up?” question. “Do we need to airlift you out of Europe?” I am okay. I talked about this two or three years ago,
that one day we would see this happen. Today is the day, right? It is now happening. But what exactly happened?
What can we talk about today? This morning, Facebook released a white paper.
Not a cryptocurrency. Not a network. Not a project. Not even an application. Just a white paper. Everybody is freaking out because
they wrote a whitepaper. But there is a long road… to go between the white paper and a production
network available to two billion users, wrapped in… a candy-colored Farmville interface. But when they released the white paper, people became
really excited. How many of you read the white paper? Excellent, quite a few. I’ll be honest with you,
I did a brief skim. It has been a busy day. I received a bunch of calls from journalists who
wanted to talk about it. I am not ready to talk about it. This will take a lot more study. I will not
talk too much about the technology today. We don’t really know how this will play out.
I want to talk about what has changed. Everything changed this morning. This is something
we have been predicting for more than three years. It changes everything, whether or not
Facebook is able to get Libra into production. The mere fact that this whitepaper was dropped
has now set the bar. They dropped the gauntlet. Silicon Valley is coming for banking in a big way.
We predicted that this would happen. A lot of people thought it would be Amazon first.
But turns out, it is Facebook – which is much worse… than anyone had imagined possible. [Laughter] All right, about the whitepaper. If you haven’t looked, this
is a collaboration [between about] thirty [companies]. I have a feeling that within Facebook- Some people
are saying this is the result of a year’s effort. I have a feeling that they created this incubator /
sandbox innovation lab, gathered thirty to forty… bright people, locked them in a room, and slid pizzas
under the door until the whitepaper came out. The whitepaper is actually very impressive, in terms of
the technology vision. These people are very serious. [They seem] well-informed about what we are doing
in the cryptocurrency and blockchain space. They cherry-picked some features of the best
cryptocurrencies, the state-of-the-art technology, and then they [plan to] advance it a bit. They synthesized it into something that [sounds]
quite impressive from a technology perspective. It has taken ideas from Ethereum, like a virtual
machine for execution of smart contracts and gas. A Merkle state tree that can be added to Merkle
Mountain Ranges, or the Ethereum state tree. An embedded or intrinsic digital currency.
A proof-of-authority, federated network of validators, similar to Ripple or EOS, things that
are kind of blockchains but not quite. Their consensus algorithm is not exactly new.
It is a Byzantine fault tolerant consensus algorithm, which is not proof of work, but they say
they want to move it to proof-of-stake. Some very interesting stuff there.
They mashed [these components] together… and created something that is impressive
from a technology perspective. It is impressive because of who did it,
not based on what was actually done. If I had released that whitepaper with thirty
collaborators, everybody would have [shrugged it off]. “Okay, there’s another blockchain…” But when a company with two billion users does that,
people understand that this could have a big impact. Now we will see whether this [idea] survives its
first contact with Facebook’s corporate [managers]. At the moment, this is an incubated project.
It is idealistic. It is [rather] aggressive in its vision. It is focused on being decentralized,
a bit now and even more in the future. Permissioned now, permissionless in the future.
Proof-of-authority now, proof-of-stake in the future. A very progressive, aggressive vision. But that vision will run straight into a bunch of
MBAs and lawyers at Facebook headquarters. “Whoa there!” [Laughter]
Or maybe not. Let’s see. It will be really interesting to see how much
of this vision survives into deployment. That will determine what happens next. If it survives
into deployment, it could become very successful… and a huge moneymaker. The MBAs will become very excited. Some things in the white paper are quite surprising.
For example, the use of an association to segregate it… from Facebook, and a promise to not use the
profile information on your Facebook account. Do you have a Facebook account? I sure as hell don’t. [Will they] use that in collaboration with the currency?
That would be a no-no, right? At the moment, it says that information
will not be shared and used for surveillance. It will not be used for any of these- Oh, one second.
Sorry. “We are sending you this very important email… to notify you about changes to our Terms & Conditions.
Please reading the following 600 pages of gibberish… to understand how we completely removed
due-process and your privacy. Thank you very much!” “The Facebook Team.” [Laughter] So that email just came to me from the future.
It was written by an MBA. It will change all of those promises
the moment this becomes successful. If you think that I’m kidding,
look at what happened to Whatsapp. The founders of that company started
with the same kind of idealistic vision, and left, forgoing hundreds of millions of
dollars in pay and bonuses. “Use Signal.” “Do not use Whatsapp if you are a dissident,
an activist, or a political operative.” “If your communication’s confidentiality will
make the difference between surviving or not, if you are one of the millions of people who is marching
in Hong Kong this week, don’t use Whatsapp.” Will something similar happen? I’m a bit of a cynic.
I think that large corporations have a tendency to… swallow innovation, rip out the disruptive
[parts], and spit out something neutered. Something that is profit-making while exploiting users,
because that is their obligation to their shareholders. But we will see. Maybe it won’t be so. That is what happened on the
technical front this morning. Now, everybody is trying to solve
what I call the three-body problem. Until now, we were looking at this space as
the interaction between two major forces: on one side, we have nation-state fiat money,
as we derisively call it in the crypto space; on the other side, we have the people’s money, open
and borderless cryptocurrency for everyone to use. These two forces are orbiting and
exerting pressure on each other. Right now, cryptocurrencies are
a [bunch of] tiny little asteroids. Fiat is a big planet full of very successful life forms,
who are looking up at the sky and wondering, “What is that shiny thing? It seems to be getting bigger.”
You know, the experience of the dinosaurs. [Some say], “Don’t worry, it’s pretty.
Look at how nice the sunset looks!” “Oh, it keeps getting bigger…” Solving the two-body problem from a political
perspective, trying to figure out what happens… when nation-states and open cryptocurrencies collide,
is difficult enough. We can’t tell, because nations are
positioning themselves in different ways. Some are freaked out and ban it outright.
China has banned it about 1,726 times so far. All ineffectively. India has banned it, kind of, twice. Ecuador was one of the first to ban it completely.
Yet in many advanced nations, cryptocurrencies… have actually been thriving. In what we call “free societies,” the idea of banning
private currency is constitutionally problematic. Both the United States’ Constitution and
the United Kingdom’s constitution protect freedom- Oh, wait. You don’t have [a constitution].
Anyway… [Laughter] The Magna Carta, let’s say, protects freedom of speech.
Money is a form of political speech. That is something cherished in free societies.
It is not so easy to just ban [cryptocurrencies]. But there was a lot of tension this morning, with a big
discussion on Twitter that I reluctantly got involved in. It was about whether Facebook’s Libra is a
cryptocurrency or not. Let’s take a quick poll. All those who say that it is a cryptocurrency, [raise
your hand]. All those who say it is not, [raise your hand]. All those who haven’t decided yet, [raise your hand].
That is okay. I don’t think that question makes sense. It doesn’t make sense because Facebook’s
Libra is new. It is a corporate digital currency. We haven’t seen corporate currencies since the
opium wars, medieval feudalism, and the Medici. How fitting that with the dawn of corporate neo-
feudalism, one of the leading corporate states, the supra-nation of Facebook,
is launching its own currency. Things will become very interesting, for a number
of reasons. We now have a three-point stand-off. It is now money of the corporations, money
of the people, and the money of government. All three will exist. None of them are going away soon.
In fact, more will join. The doors have been opened. Facebook is the first of the FANGs;
the rest are baring their fangs and ready to go. “FANGs,” if you don’t know, [stands for]
Facebook-Amazon-Netflix-Google… and the billion-dollar tech companies of Silicon Valley.
There is also Twitter, Uber, and Airbnb. The era of internet currencies just opened. Silicon Valley is coming for the banks,
in a way that has never happened before. The bankers have been very comfortable until now. I went to a conference in Zurich and spoke
to banking executives in 2014. I told them, “Listen. Instead of hiring blockchain consultants to
show you how to square a circle, undo the disruption, and pretend to do blockchain, you should hire
a former executive from the music industry.” “Ask them what it felt like when
the internet came for their industry.” “When did you realize you couldn’t do anything about it?
How did you feel when you started losing to Apple?” Guess what? The banks had [more
than] ten years to figure this shit out, how they would handle digital currencies. The music industry should have made a deal
with Napster; instead, they fought with tooth and nail, and handed the entire industry to Apple. The banks should have made a deal with Bitcoin
when it was the cuddly gecko of cryptocurrencies. Facebook is a Triceratops [of social media] and it is
coming for their industry, to disrupt a lot of things. [It may sound] really weird, but the first
to be affected by this will be retail banks. Not the big bad investment banks who make
shady deals to bail out dictators and stuff like that. The banks that actually serve customers. Most big investment banks stopped taking checking
and savings customers [in consumer markets]… four or five years [ago]. “You people don’t pay enough.
You’re not worthy of banking.” But retail banks, the corner branch
where you know the banker, or at least [you can call them] to
discuss your overdraft ballooning again. Those retail banks actually serve customers,
even the unbanked and underbanked, gradually expanding their reach. They will be hit hard by this new phenomenon,
because Facebook not only has two billion users, but they know all their preferences
and behavior patterns. They can use that to drop the cost of banking
and wrap it in a candy-colored user interface. Every time you make a purchase [with Libra],
the application will tickle your dopamine receptors a bit. It will encourage you to do or not do certain things,
play with you like a mouse in a psychology experiment, where you can’t see [the edges of]
the maze because the walls are too high. This will be very interesting as it plays out. To those of us who have been paying attention to
the rise of techno neo-feudalism, it is terrifying. Facebook will be effective at disrupting regulation
in a way that banks have not been able to. Facebook is now going after central banks. Yes, they have a basket of currencies
to create some kind of stablecoin thing, but that stablecoin will be stable vis-à-vis
your local currency that is hyperinflating. I talked about that this morning. Imagine that
you are the government in India or Argentina, and you want to follow an inflation or devaluation policy,
but 10% of your population has moved on to Libra. They can put their savings in the “hard” currency
of Facebook. Well, not really a hard currency. It doesn’t really have a monetary policy, so they say,
but it is harder than the Argentinian peso. It is harder than the Turkish lira, the Indian rupee, and
more than a hundred currencies around the world. The central banks will lose one of the big
levers of power they have over the economy. What will they do, ban Facebook?
Shut down 10% of their economy? They will try. They have been trying to ban Facebook during protests,
coup d’états of dictatorships, and revolutions. They will fail. They will try to regulate Facebook. Imagine the poor regulators,
paid almost nothing, in their tweed suits. Academics from the economics ministry, facing
an army of Wall Street lawyers in their tiny country, filling the parking lot of the local airport
with Gulfstream [aircraft] in a row, “Let’s talk about what we will do to your economy.” If you didn’t realize it, Facebook is planning
[to launch] consumer and retail level SDRs. Who knows what an SDR is? A few people. The International Monetary Fund is a global institution that is not [officially] controlled by governments. It uses contributions from member states, a basket of currencies, to issue a pseudo-
currency called Special Drawing Rights. [SDRs] are part of the international framework
of free-floating exchange rates. They are the lender of last resort for governments.
They do so in a very predatory manner. They impose extreme austerity on the governments
which fall into their clutches, asset-strip their industries, their water plants, railroads, and
telecommunications companies. Well, guess what? Facebook wil do that now. If you think about what Libra is, it is a special drawing
rights pseudo-currency, based on a basket of currencies, that is funded by consumer activity, in the same
countries where the government will ask them… for a loan or try to curtail their activity. This is very serious stuff.
We just went post-national. The power to control money used to be
the exclusive prerogative of states. That has been kicked in the nuts by Bitcoin and
[threatened with] decapitation by Libra this morning. Central bank control over monetary policy
ended this morning. Technology companies… currently worth a trillion dollars [total] are
taking the ability to mint their own money. They will radically transform their business models,
generating more money than you can ever imagine. Very soon, they will dwarf the GDP of at least
one third of the nations on this planet. When the IMF comes calling,
most governments cower in fear. But they have no idea how much worse it will be
when Facebook, Google, or Apple comes calling. Maybe even Twitter can take down a few governments.
It is big enough. Why not? Soon, Uber will be dictating… not just to taxi drivers, but to the local council
and maybe even the cabinet of ministers. We [are approaching] a new world in which three
forces will be competing: money of the people, money of the state, and money of the corporations. That is a crossroads. We need to make some very
careful choices. I am hopeful for a number of reasons. They will actually make a contribution to
the technology, whether they want to or not. They will introduce one billion people
to the wrong kind of cryptocurrency, just like AOL introduced people to the wrong kind of
internet. [Applause] Here is where it becomes tricky. At this point, we need to decide how
to differentiate [based on] our principles. I have talked about the fundamental
principles I care about in blockchains. Sometimes I call them the five pillars of open
blockchains, or the eight criteria. I lose count. It is somewhere between five and eight, but you should
always [scrutinize] a system that is trying to take over… the foundational technology of money in your world. Is it open? What does “open” mean? Is it open for
anyone to access and participate without vetting? Can anyone send a transaction
without providing identification? Is it? We don’t know yet. We will see.
The white paper [claims] it is [open]. We [will need to wait and see for]
what the currency actually does. Is it borderless? I can tell you right now,
it will not be borderless. There is only one borderless, global cryptocurrency
of any value and meaning today. That is bitcoin. It is maybe as good as the U.S. dollar at being
borderless. But Facebook will not be in China. I can guarantee you that Libra will not launch in China.
They will have their own, launched by WeChat. Or a subsidiary wholly owned by the People’s
Republic of China, the central politburo. Like Facebook is a subsidiary of the NSA… [Laughter] It will not launch in Russia either. Are they going to give up their monetary
sovereignty to a dude from Silicon Valley? It will not launch in a bunch of other places
with unbanked people who actually need this. It will not be borderless. In fact, quite the opposite. We have entered the era of
Cold War-esque currency wars. An Iron Curtain for currencies will drop,
like we have never seen before. We will see a split between East and West
in the evolution of state-based and corporate currencies. Of the three, only open cryptocurrencies
will go everywhere [around the world]. [Libra] will probably not be neutral. Neutrality requires that the protocol allow transactions
from anyone to anyone, [anywhere], for any purpose. A lot of open cryptocurrencies do that.
I very much doubt that Libra will do that. The moment they [allow] that,
the subpoenas will start flying. The most important [detail for] a subpoena is
knowing where to serve it, right? That will be easy. They have an office which accepts service of process,
so that is where [governments] will send the subpoenas. Where do you send the Bitcoin subpoenas? Aha!
Can you send them to 127.0.0.1 (localhost IP address)? [Laughter] [Applause]
We will process them immediately. So it will not be neutral.
It will not be censorship resistant. Large corporations like that, bound by jurisdictional
regulations, are obliged to censor transactions. [As an American], you cannot send a transaction
to an Iranian, a Venezuelan, or a North Korean. You cannot receive [money] from a Russian or Chinese
citizen without properly vetting who they are, who their parents are, when they were born,
where they live, and which companies they own. This happens every time you try to send a wire transfer. [Libra] will not be immutable. They say in
the white paper that [it will be] immutable, but the moment you make a transaction funding
some abhorrent and inexcusable activity, subpoenas will start flying and the “immutable”
network will be muted pretty damn fast. That is pretty easy to do when you have a consortium
of validators and no cost for modifying the history. Proof-of-work makes it [practically] impossible, even
if 100% of the miners collude and try to change history, without expending the same amount of energy. This means with every day that passes, the energy cost
increases. Within a day or two, it is an undue burden. It is almost impossible, even if you could find and coerce
all of the miners. They wouldn’t be able to do it. It is not “won’t,” it is “can’t.”
Can’t is much better than won’t. [But Libra] will not be immutable. It might be
auditable and transparent. We don’t know yet. If it is audible and transparent, it will not be private. We are probably only a few years from a giant freaking
leak, where all of your financial data ‘are belong to us.’ Again. [Laughter] If it is stored in the blockchain in a transparent
manner and you don’t have any privacy controls — you know, the kind that “criminals” use,
but at least they are smart about privacy — all of that information will be leaked. All of your purchases will now
be visible to friends and family. [Each of us] probably has a very good friend
we’ve made a pact with: “If I get hit by a bus, I need you to take my laptop, erase my browsing history,
and shred all of my bank statements… [Laughter] before my mom gets to the house.
[Do we understand each other]?” Financial privacy is a human right.
Society doesn’t work as a panopticon. We have secrets because we’re social animals. That
gives us the freedom to express our freaky nature. We all differ a bit from the expectations and
conformity of society. At least, I hope we do. Because if we don’t, what kind of society is that?
[Must we] absolutely conform to the expectations… of your stuck-up neighbors? Individuality, expression, freedom is privacy. We don’t want our financial records blasted
to the world. But that will happen next [with Libra]. It may be auditable and transparent, but not very
private. This is not a blockchain I’m interested in. More importantly, as I have said many times
before, we are standing at a fork in the road. On the one hand, we have surveillance money. On the
other, we have free, open, and private people’s money. Guess what will happen with this new currency?
The timetable to cashless societies has accelerated. Cashless societies are nothing to celebrate.
They [will be] without freedom or democracy. They are fragile, without the possibility of an exit plan
or release valve. Where one election could be the last. You only need to get it wrong once. Just stay
at home and say, “I don’t care about politics.” All of the kooky old people go out and vote for
an orange man, Brexit, or some shit like that. You ask, “What the hell happened?” In a world where you don’t have cash,
it is much worse than that. The government, a corporation, or payment processor
can decide that you have done something “bad,” and turn off your financial future. They could make sure that you can’t even
buy food, let alone pay for rent or [utilities]. If you think this isn’t happening,
it is happening right now in Hong Kong. It is happening in China with
the Sesame credit score system. If you think that is not coming to a country like yours,
study up on European history, [like] 1918 through 1945. Fascinating shit. We thought
the U.K. had learned that lesson. From what I have been seeing lately, [nope].
They are trying to repeat all of [that]. Great. Sometimes you need to teach the lesson twice.
What will we do in the crypto space? We will start differentiating. Over the next couple of years, expect a lot of
crypto projects to focus on what their principles are. Now, there is a lot of confusion. We are dealing with
an 18-dimensional, partial differential equation… of a three-body problem. Everything is pulling on everything else.
Six degrees of freedom. It is very complicated. Who knows will happen next?
Look, Facebook went to India. Uh, India wants to devalue [the rupee]. Indian people are
going into cryptocurrency; others are being blocked. What happens next? Nobody knows! If you are a crypto
project, you must decide what your principles are. I have been expressing the same consistent
principles for the last seven years. [Applause] The reason is really simple: it takes too much
bloody homework to [shift between different ones], and remember how to be consistent with what I said
before, if I’m not following what I actually believe in. Some people in our industry noticed that recently.
Inconsistencies can happen very quickly. Some crypto projects recently
faced that kind of fork in the road. They decided to focus on different principles and
tried to change the trajectory of projects we care about. Lately, one of them is all about cheap payments,
at the expense of decentralisation and privacy. Apparently, to the people [involved in it], privacy
is only useful for illegals and money launderers… who are [engaging in] wash trading and bucket shops. Ooh, scary! [Laughter] If that is the road you want to
go down, the light you see is not the end of the tunnel… but an oncoming Facebook train that already has
the principle-less, privacy-less market staked out. They already have two billion users, lots of money
and technology people who will run right over you. If you haven’t differentiated based on your principles
— or worse, you don’t have any principles — and decided with your recently hired MBA that you are
really interested in shareholder return on investment, and the best way to do that means shedding
a few of these “silly,” “idealistic” principles, then guess what? Once you start shedding principles,
now you’re [competing against] Facebook. What is Facebook, if not the world’s most
[powerful] principle shedding machine? [Laughter] It started with few [principles to begin with], and has
since developed a mechanism for shedding them… faster than you can imagine, with billions of dollars
in marketing tickling your dopamine receptors. “Don’t worry! The future is candy colored
and bright… as long as we are still profitable.” They can shed principles faster than you,
with more money, better user interfaces, and a bigger user base than you. So if your game is shedding principles to
make profit, that is a game you will not win. Facebook will win that game.
They will win it over PayPal and JPMorgan Chase. They will sure as hell gonna win it over a little ragtag
crypto project that says, “We don’t need privacy.” “We just want to be a fast payment network… that collaborates with law enforcement
and [enables] surveillance [capitalism].” Figure out what your principles are. Everybody will need to stop, take a breath, and figure out
how to differentiate. It is actually pretty easy. If you get into a fight with someone who doesn’t
hold principles, a corporation, that is not immoral, because that requires having negative morality. [They are] amoral, which means no moral guidance
whatsoever. The absence of any moral compass. Morality doesn’t even enter their ROI equation.
Morality is not on the spreadsheet. If you are going to pick a fight with them,
differentiate on the thing they can’t compete with: align yourself with the one project that is truly open,
borderless, neutral, censorship resistant, transparent, auditable, private, and immutable. There are a few of those, I think.
Privacy currencies will get quite a run [for their money]. There is a [growing need] to really focus
on privacy, because Facebook won’t. Things just got really interesting.
As a technologist, I am so excited. I have been jumping up and down all day.
I can’t wait to see how this plays out. That has been my lifelong fascination: watching
technological systems interact with society… and change the world. As these developments roll out, I will see if I can pick up
a few clues as to where these things are going. To have that vision has been my life’s goal.
As a technologist, I have been jumping up and down. As a human being, I am horrified that we are opening
the door to a future that is truly terrifying and dystopian. We are giving power to some of the most ruthless,
unaccountable corporations out there. Not to fight against governments,
but in many cases to join them hand-in-hand. They will ensure that while we’re exploited
by ruthless politicians on one side, we are also exploited by ruthless business people on
the other, in an alliance between corporation and state. That is called fascism,
only this isn’t your grandpa’s fascism. This is a whole neo-feudal environment
that we have never seen before. A lot of people will make the mistake [of assuming]
that if it doesn’t come in a leather uniform designed… by Hugo Boss, with clashing colors, caricature parades,
and screaming into megaphones, it is not fascism. But fascism today can come in a slick user interface with
beautiful colors, accessible 24/7, through your browser… and the most convenient location
whether your phone is on or off. It is part of your life. It allows you to share
photos with Grandpa, the same one who fought Nazis. It is the ultimate irony. We need to be very careful about what
we do next. This is deadly serious stuff. Society is not ready for this
because we’ve never been here before. While I am fascinated to watch,
at the same time, I am deeply troubled. I am not afraid because I think Bitcoin can’t compete.
I am afraid because I believe a lot of people don’t care. A lot of people will go for the easy, convenient,
mindless, repetitive, seductive, hypnotizing rhythm… of a Facebook feed, through which they will lose
their freedom and their future. Thank you. [Applause]