The Future of Money
Transcript from my speech at Crypto Valley Conference | 6/26/2019
There’s something very interesting about everyone sitting in this room. We’ve all lived through one of the most impactful technology innovations of modern times. An innovation that has changed our behaviors, our perceptions of ourselves and the world around us, and impacted our daily efficiency.
I’m talking about GPS.
I mean, just think about it; before GPS and its integration into platforms like Google Maps, you had to know your directions before you started your journey. Way before actually, because there were limited platforms that could give you access to directions. Either you used a map, which you had to buy from a store, or you already had. Or in the later years, you went to a website, looked up the directions and printed them out to take in the car with you. Remember these days? In our new world, you can get directions to anywhere, and I mean literally anywhere in the world, any time you have access to the internet. Coupled with the rise of cell phones and mobile data, for many of us, this is a tool that’s accessible 24/7.
Even more impressive, you can access these directions real-time; and they’re responsive to changes in traffic patterns like congestion or an accident.
It’s powerful stuff. Of course, there are still big improvements to make in ensuring universal access to networks and data. And this also ignores the privacy and data ownership questions, which we’ll surely be discussing for many years ahead. But ultimately, this ubiquitous mapping of our roads and transport systems and then delivery of that information through an open platform that is universally accessible and near free to access — has created radical impact for society.
And what it means is that, on average, we get places faster.
And what I think it also means is that I’m willing to go to more places, even places I haven’t been before, because it’s easier to get there.
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What GPS and the technical revolution surrounding satellite navigation did for physical mobility, Stellar will do for economic mobility. In the same way that GPS makes it possible for us to discover and connect with any new place in the world, instantly and at no real cost; Stellar is going to change the way we can send and receive money from anywhere or to anyone. The result will be instant and near-free payments as a standard. The dream is greater economic inclusion, financial empowerment and more efficient movement of money. With Stellar, we will map and connect the world’s financial networks and change the way people and businesses can access and use that infrastructure.
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So, what is Stellar?
Well, to start, it’s a multi-currency payment backend that tens of thousands of people and businesses use every day. It’s decentralized, open-source, and developer-friendly — so anyone can build on it, to do things like issue assets, settle payments, and trade. Stellar uses blockchain, but it works more like cash. It’s much faster and cheaper than bitcoin, for example. And it uses far less electricity. Ultimately, Stellar is a global decentralized ledger; an open financial network for executing transactions peer-to-peer, all of which is recorded on the ledger as credits, debits, orders and trades.
Importantly, as mentioned above, Stellar is a multi-currency and multi-asset ledger, so any currency or financial asset, really any form of value that is important to a community, can be issued and traded on Stellar. My company the Stellar Development Foundation, a US-based non-profit, launched Stellar as an open-source project in 2014. Since then the number of accounts on the ledger has grown from roughly 9,000 in 2016 to 250,000 in 2018 to 3.2 million accounts today. There are 135 nodes on the network with 28 full validating nodes, including several here in Europe, in Germany, the Netherlands and France. And I learned last night, a single node now here in Switzerland, launched two days ago by a company in Zurich.
Right now, the volume on Stellar is around 375,000 daily payments, which is modest compared to networks like Swift, Visa or Mastercard, but we’re growing. And what’s pretty amazing is that all those payments cost about $1.50. Across everyone. $1.50 total. Even better is that all those payments are executed across a network that no one entity owns, and consistently in 5 seconds, no matter how far the distance between the two end points. Stellar makes payments anywhere, between anyone instant and near free. It can connect any two points and allow for trades between any currencies or forms of value. It’s an incredibly novel technology and solution approach. And truthfully, it needs to be, because the problem Stellar is trying to solve is massive.
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You see, the payments industry, which underpins our economic mobility, is an incredibly fractured industry. There are 1000's of companies, most of whom serve some regional market. And this is because connecting into any regional payment network requires customization. You’re dealing with bespoke banking technology, local regulations and also, a need to be attentive to local banking customs and culture. The way people interact with their money is personal, and this makes it difficult to standardize products across geographic markets.
But that’s OK. In fact, I like the idea of banking local. But the problem with banking local is that these local networks don’t talk to each other. Or at least well, or in any type of open, seamless way. Because there’s no single way to communicate between these different networks, it’s still a challenge to move money around the world. There’s a lot of friction which results in time delays and high costs.
And historically, the only real solution has been some level of centralization, either through the correspondent banking network where, eventually, all cross-border transactions are routed through one of four banks. Or, its removed by one layer, and routed through a network processor like Western Union.
So why is this?
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Well, it comes down to two things, two missing ingredients that we must add to get away from the high-cost and inefficiency of centralization, towards a more connected and frictionless global payments landscape: Trust and Access.
Let’s start with trust.
Trust is at the core of money, and so by extension, critical to the networks we use to transfer money. And that’s because money is fundamentally a shared record of economic history. We all trust that money, and its upholding by our banking and payment networks, is a truthful and accurate summation of all past economic transactions. Or else the system would completely collapse. And ultimately that trust is upheld by things like laws, regulations and courts which ensure the citizen that these records are and will be responsibly managed.
But when our economic transactions begin to cross governance borders, as they do for cross-border payments, these systems operate less smoothly, because the trust is more complex. This in turn creates friction, manifest as additional time and cost.
More specifically, and we’ve already touched on this a bit, the role of managing trust across these governance borders is held by a select few institutions, that can and do extract large economic rents for performing this function. Whether it’s keystone participants of the correspondent network or large global corporations, the institutions that “own” these network bridges extract a toll, and ultimately, the household, the business and the state all pay.
The punchline here is that the integration of these disparate financial networks over the last 100 years, within this larger trust vacuum, has resulted in a distorted global transaction infrastructure. It’s inefficient and frankly inequitable. And the status quo for many participants is fear and uncertainty — about maintaining access, getting a transaction processed or innovating in what at times can feel like an oligarchical market.
It’s a mess.
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The solution is something new.
A completely new foundation for connecting and interoperating across our financial borders. Like turning a triangle right-side up again, the solution we want and need is peer-to-peer, open and auditable; enabling trust not through restricted participation, but through distributed participation and consensus.
Blockchain as a technology gave birth to this new possibility. And Stellar is an implementation optimized for payments, delivering scale, speed and low transaction costs across an open and owner-less network. Stellar also provides a practical way we can migrate our payments industry to this new model for transacting across borders.
That’s because Stellar acts as an on-ramp for digitizing our existing global currencies and payment rails, so as to connect rather than reinvent our money and financial systems.
And this brings me to the second key ingredient, Access.
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In our current model, access is restricted. The ability to directly integrate and participate in the global payment infrastructure is at best difficult, and for many a fool’s errand.
For example, very few banks can interact directly with the correspondent network, so a transaction has to pass from bank to bank until it finds a way to its final destination. In some places, these stepwise transfers still take place by hand. In all cases, it’s slow and expensive. And this is unfortunate because the closed system design makes the economy less efficient. And even worse, it ultimately makes it harder for millions to compete, and violates what I believe is one of our fundamental human rights.
To use a Richard Stallman reference — our ability to access and participate in the global economy should be free, “free as in free speech, not free beer.” Gating the entry points, ultimately, leaves millions behind, adding to the growing epidemic of income inequality.
But access is also practically important, given the pace of innovation in financial services. 10 years ago mobile wallets were a cute idea. Now, their growth is unrelenting. India has over 80 million mobile wallet users, China has over 500 million and in the US, one company, Venmo, has over 40 million users.
Our global payments infrastructure needs to make room for these new entrants to directly engage and compete in things like cross-border payments. Particularly since many of these companies are better able to reach underserved communities. At the same time, and this is an important point, a solution that’s more accessible, but proposes a totally new global currency, a new digital mega currency to replace the money people use right now, also misses the point.
The future of money I want to see isn’t monochromatic. It’s diverse and representative, empowering and connects all of the world’s money, while also giving people more choice in how they hold value and store their wealth.
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Stellar solves this by being open-source and a public, ownerless distributed network custom built to connect our financial world. Any individual can have an account and any institution can issue an asset, creating a bridge between their community and their money and the larger global economy.
And it does all this without selling it as a service, instead providing a global public utility, maintained by the people, for the people.
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So, in conclusion, what is Stellar?
Stellar is a network of peers. It lets any user transact with any other user. So, for example, banks can work directly with one another, rather than corresponding through middlemen. Stellar is a global, rather than a national, payment system. So users can transcend their local economy and interact directly with the world market. On Stellar, a person’s economic limits aren’t defined by geographic borders.
Stellar is ownerless and belongs to everyone. No one organization controls the network, so no one can shut it off, monopolize its functionality, or horde its data.
Stellar also handles any asset. Unlike many distributed systems, Stellar is currency agnostic. In fact, Stellar’s most important feature is that tethering a token to a traditional asset like a dollar is easy. So Stellar can support all the currencies that the world cares about, not just crypto.
And finally Stellar is fast and cheap. Providing cash-like transaction speeds at almost no cost regardless of the geographic distance between to the endpoints.
It is of course a long road ahead in building out this new global financial infrastructure. It’s still early days and its going to take many new entrants to mature the technology and drive adoption. But the principles we, as thought leaders and as an industry, define as important now — as a guiding light on this journey — will have huge impacts down the road.
And for that reason, what I’d like for you to take away today, is the principles that Stellar stands for:
- Openness, diversity, equitability, transparency
- And from there, I challenge you to test Stellar out.
- Create an asset, send a payment, execute a trade, review our code.
We really tried to make it easy for you.
Thank you.
