When Jed McCaleb discovered Bitcoin, there didn’t even exist an online marketplace to trade the cryptocurrency yet. The experienced founder who had earlier started file sharing site eDonkey, acted fast and started the first Bitcoin exchange MtGox which he later sold to now-infamous Mark Karpeles. Jed later founded the pioneering Ripple project before leaving to start Stellar.
We discussed his journey through the industry and the ambitious plans Stellar has to create an open financial system that will give access to financial services to a much broader spectrum of humanity.
Topics we discussed in this episode
- Jed’s early involvement in the industry and founding of MtGox and subsequently Ripple
- Why Jed left Ripple and started Stellar
- How Ripple and Stellar differ
- The Stellar Consensus Protocol
- Why the organization behind Stellar is a non-profit foundation
- Stellar’s focus on developing markets and Nigeria in particular
- The role and distribution of Stellar’s currency Lumen
Meher Roy: Today, we have a very special guest, Jed McCaleb. He’s currently the CEO of Stellar, but previously he has been the founder eDonkey, MtGox Bitcoin exchange, Ripple and Stellar itself. So we’ll be to talk about what Stellar is doing, what kinds of market it’s starting, what kind of technical systems it’s building. And before that, let’s have an intro from Jed.
Jed McCaleb: I’ve been involved in distributed systems for years and years and was involved in Bitcoin from fairly early on. And we’re super, super excited about it and wanted a way to buy Bitcoins and so founded MtGox which only ran for a short bit, but yeah.
Meher: And how did you go from MtGox to something like Ripple and then Stellar?
Jed: Well, when I first started about Bitcoin, you know, prior to that, I didn’t think there was a way to even solve this problem, this whole idea that you could have a distributed database, essentially a distributed database that nobody has direct control over, but no one can change arbitrarily, that it’s changed by this fixed set of rules. And once you kind of see that there’s a potential to do that, it’s like super exciting. So I really liked the idea of Bitcoin, but I just started to think of other ways to solve the consensus problem just because, you know, I’ve been a computer programmer for a very long time and that’s kind of what you do. It’s like when you see one solution, you kind of tried to think of other solutions as well.
So yeah, so I started MtGox just as a way to get Bitcoins essentially. And because at that point, there was really no exchange and it was just clear that there needed to be a marketplace for them. But that problem itself is not very interesting to me, which is why I didn’t, basically, I pretty soon sold it to this guy in Japan, Mark, unfortunately. But then after I kind of was done with MtGox, I was still intrigued by this whole problem of consensus and how you can have a distributed database with everybody agreeing on the state of the database but no one controlling it, which can be used in lots of different ways as we’re starting to see now. And so basically, I came up with this idea of how to do it that evolved into being Ripple. So basically, a way of solving consensus problem without the mining, so that’s kind of what led me to Ripple.
Brian: So one of the things that just, you know, us and a lot of people listening, you are so involved in this space with Bitcoin and blockchain and cryptocurrencies, you know. Sometimes it all sort of starts feeling a little bit normal and it’s just, you know, the way this world works, right? But then one of the books, so there’s a book called Digital Gold, we had Nathaniel Popper on as well to talk about that, but that sort of writes about the history of Bitcoin, really. And it’s a fantastic book so I really recommend people check it out. But I’ve thought what it really made me sort of, kind of obvious to me, and brought to light is just what a crazy story this is and like what an insane concept and insane vision. So it does a fantastic job of that and you play a significant role in there. And it really does, I actually just went back before, and then looked briefly at on Amazon when can look for the search for currencies and it talks a little bit about those early days when MtGox started. And before there was basically no way, really, of buying Bitcoin. I mean, you could maybe email some person and then you started MtGox and within no time, it just completely took off.
Jed: Yeah, yeah. It was definitely a very interesting time. I mean, it was totally unclear whether the project would work or not. And I think most people were hopeful but then like thought, you know, realistically this is probably not gonna work, but just because the idea is awesome, but you’re asking to change kind of the fundamental structure of how things are done. And you know, usually, that doesn’t work. So it was always just kind of amazing. I think for everybody involved early on, it was always just amazing anytime it would get further adoption or, you know, you’d read about it in some article or you know, you had some famous person would say something about it. Every time something like that happened, everyone got really excited and just slowly became more and more real over the years.When I talk about it with people I knew from back then, it’s just always like, wow, this is so surreal. When we came into it, it was literally a penny, a Bitcoin and now, it’s his world-wide thing. So yeah, the whole time was super exciting. Especially the whole cast of characters was very like fringe of the Internet, so it’s interesting to see it kind of become more legitimate overtime and just how that whole thing has changed. Yeah, it’s been cool.
Brian: So today, the whole blockchain spaces has really taken on a very different role. Today, there’s a lot of the activities and people investing most heavily in this or banks.
Jed: Right, right.
Brian: It’s probably the last thing people expected back then.
Jed: Yeah, no. And everybody would always talk about, well, as soon as banks understand this or realize what’s happening here, they’re all just going to try to do some conspiracy theory to shut this thing down or everyone is super paranoid of it. But yeah, I mean, the reaction from banks has been the most surprising thing to me because literally, I think every bank on the planet has their blockchain exploration division at this point where they’re all interested in this technology. I think they all see that that the world is shifting this way and it’s a really important technical development, and nobody wants to kind of be left behind in it. So yeah, the reaction has been super positive actually.
Brian: And then yeah, Ripple too is a very exciting project and sort of very early on. I mean, we had Stefan Thomas on before to talk about that. So the original vision for Ripple was to enable Fiat currencies on sort of peer to peer Fiat payments, is that correct?
Jed: Sort of, yeah. So basically, when I came up with the ideas behind Ripple, how you could essentially be just, because architecturally, you could have it, you could store other stuff in it, it was closer to a database than what Bitcoin is. Bitcoin is less of the way a traditional database works than what Ripple is, just because technically the way it’s designed, right? So Bitcoin is essentially this chain of transactions where you have to know all the transactions in the chain to be able to know what the balances of individual accounts, whereas Ripple has an account and it’ll have a balance and then, so basically, you just need the current ledger to know what’s going on. And so it makes it easier to stick other information in there like other assets. And so, the original idea was just to do something similar to Bitcoin where there is just one token, but then we kind of realized, hey, you know, you could send, you could put other assets in here, and then have these trade against each other and make this more of a full featured payments network where it doesn’t matter what currency people are holding, they can all kind of interoperate. So it kind of moved in that direction over the development of it. But yeah, basically, you know, now that is certainly the focus where it’s on the actual other Fiat currencies in it.
Brian: And so what was the story of how you left Ripple and then ended up starting Stellar?
Jed: Yeah. So basically, the person I brought on to be CEO, we ended up having lots of personal argument, just the relationship kind of went sour and the direction the company was going wasn’t really something that I thought would work or really be a part of. So I left and then I took some time off and, you know, I wasn’t really intending to do another thing in the cryptocurrency space, but I just couldn’t get my mind off of it just because it is, I think we are in this transitional time where we’re moving from, you know, the way money works, the digital way money and payments works is kind of, you know, a big mess, right? Nothing really interoperates. And it leaves a lot of people out of the financial system and it’s kind of like the pre-Internet days of the way information was sent around. And then there was this Internet that came along and kind of democratize the whole thing and opened it up to everybody.
And I think we’re going through a similar shift with money and to me it’s going to be even more, it’s even more exciting because not only is it information, it’s economic activity, which I think can be more empowering and, you know, much more exciting. So I didn’t see anyone in the blockchain space kind of solving this particular problem where, what still is really trying to do is connect all these different financial networks together. So, you know, there’s like Swift and SEPA and ACH and mobile money things in Africa and other parts of the developing world and none of these things interoperate with each other seamlessly, right? What the goal of Stellar is to connect all these things. So you should be able to send 50 cents to somebody in Mexico or you know, just in the same way you can send an email to anyone in the world, it doesn’t matter what domain provider they’re using or anything like that, the payments should work the same way. And so basically, we just wanted to solve that problem. So that’s why, you know, that’s what kind of led us to Stellar.
Meher So the original vision for Ripple was something very similar. When Ripple was started, and I use Ripple for the first time. I got the feeling that this is consumer-focused play, right? You wanted a lot of people to come onto the Ripple network, a lot of consumers to come onto the Ripple network, transfer money all around the world and have very low friction doing it. But of late, when I see Ripple, I see that their focus is kind of shifting away from the consumer play and into a buyer’s play, right? They have been focusing a lot on correspondent banking. They actually shut down Ripple Trade, which I really liked and which I used as a consumer and I see that they are kind of focusing more towards banks now on the one side and then they have the interledger protocol which is meant to make financial ledgers of banks interoperate with each other. But would it be correct to say that Stellar is still focusing on the original vision for Ripple, which is a consumer-focused play?
Jed: I mean, yeah. I’m not sure what Ripple’s plans are currently, I haven’t followed it too closely, but as an outsider view, it does seem like they’re pivoting to kind of be like Swift 2.0, which we’re certainly not doing. I don’t know if we’re a consumer-focused play. I mean, basically our thesis and for a lot of reasons, I think where we want to focus our efforts is in the developing world because, you know, payments doesn’t work perfectly in the US and Europe, you know, but you can use like Venmo and PayPal and it is easy to send, maybe it’s not as quick as it should be or as cheap as it should be, but it’s pretty low friction, right? But whereas in places like Nigeria, you know, half the people don’t have bank accounts, you know, there’s several different mobile money operators and none of them connect to each other. So if you’re on one, you can’t send to another. You know, payments are a huge, huge problem there, right?
So for us, we want to solve that problem where the payment is kind of the greatest for a few reasons. I mean, I think, you know, just morally for us, those people are not part of the financial system. And financial access is one of the huge blockers for poverty alleviation. I think that’s why like Gates Foundation and all these other big institutions have kind of made this part of their mandate recently, just because they’ve kind of realized as they’re trying to do programs there that, you know, if people don’t have financial access, then it’s hard to give them education or pay for healthcare, make small savings accounts, things like this. So it’s a huge problem for a large part of the world. And we feel if we can solve that problem, not only is it massively beneficial,but it is the, when we go and talk to people there, they get some system like Stellar instantly because they do understand the need for this kind of thing. Whereas people in the US and Europe, you kind of have to walk them through why this is better than what they have now. So the need is not as apparent. So our goal is basically to get Stellar working really well in one region, specifically in Nigeria right now, and then once we’ve kind of demonstrated that, then other people can copy it in other countries or, you know, it can just be replicated because it is an open system so anybody can kind of plug into it.
Meher: Cool. I mean, yeah, that really seems like a very good vision. You kind of zeroed into Nigeria and completely focusing on that, and kind of your blog also reflects that, right. It has so many articles about financial inclusion. In a sense, it’s very rare in the Bitcoin space. You would go to a conference and a have this guy talk about Bitcoin in Africa, but when you go to the websites of Bitcoin community of Bitcoin companies, there doesn’t seem to be any real action towards that direction. But when you go to the Stellar’s website, I see there are so many blogs and you have programs for enabling women in certain parts of Africa have access to mobile money and things like that, right?
Jed: Yeah. I mean, just the rest of it, in the same way that like Silicon Valley and technology in general is pretty much focused on the developed world just because that’s where people live and that’s what they’re used to. But you know, so it is rare that companies are kind of focusing outside of that, not even in the Bitcoin space and industry, you know, technology in general. But yeah, we’ve just found that this just makes the most sense to us and it is the most compelling use of it right now, I think, I mean, we do hope that eventually the whole world adopts this and in fact, to solve financial inclusion, they have to be connected not only to their local communities but to the wider world because that’s what that means, is that they can transact with people in Europe and US just as easily as we can, right?
Meher: So one of the other key differences that I noticed with Ripple and I’m framing this in terms of Ripple because that’s what people understand more today, because Stellar is a newer project, so it’s the consensus algorithm itself, right? As far as I’m aware, there was this event in July of 2015 where the Stellar network experienced some difficulties regarding consensus and then you have shifted a lot of your focus into solving those, right? You can just walk us through what this event was and what are the kinds of things you’re doing on that front?
Jed: Sure, yeah. Yes, so Stellar originally when we launched, we forked the Ripple code base, so we started with the Ripple’s open source code, and started writing the network from there. We knew pretty early on that the consensus algorithm wasn’t very well specified and that we would have to do some work there. I started talking to professor David Mazières who runs the Secure Computer group at Stanford about the algorithm and like, hey, how’s your ways we can make this better, what do we need to do to get a formal proof of this? And basically, he kind of looked at it and was, well, I don’t really think that this direction is quite right. Maybe I’ll just start from scratch and he got super excited about the problem and basically came up with this new algorithm which eventually became SCP (Stellar Consensus Protocol) and wrote a long whitepaper about that which is available on our site if you want to dig deeper.
But while this was happening, we were also doing the giveaway of the Lumens, which maybe we can talk about a bit later. So we were growing really quickly and so we got about 2 million, 3 million accounts, the network was having scalability issues and it was causing servers to go really slow and to become really slow and come back and stuff like that. So there was all these kind of timing issues happening because the surface would be, one server would be delayed and send its message is a little bit late, things like this. And eventually what happened is, because the consensus algorithm wasn’t robust in the face of these timing issues, that the network forked. Some of the servers thought, didn’t see some of the transactions that’s some of the other servers thought. So basically, what we had to do is unfortunately, we just reduced it to one server, so one server was running the network, so it couldn’t disagree with anybody. And then because we were already pretty far along in the process of rewriting the network at this point, and so we were like, well, we’ll just run it like this for the next few months until we can switch over to the new consensus algorithm. And so that’s what we did. And then, so probably a few months ago, we actually got the new software in production ready and rolled that out. So, it’s like, wait, it’s really nice to be on the new code essentially. So it’s much safer, it’s much more scalable, it’s much easier to use. It’s a complete rewrite. It doesn’t have any of the code from the previous software. So it’s much safer because it uses this Stellar Consensus Protocol, which is provably safe and correct and has this nice formal proof. So we were sure that it won’t fork again, they won’t fork them.
But what happens is basically, with these distributed systems, you have a choice to make, right? You can either, there is a proof that you can’t have fault tolerance, safety and liveness. So what that means is, you can’t be sure that it won’t fork, that a distributed system both won’t work and that it will keep making progress, right? So you have to choose which of those options you want to forego. And so, the old code was foregoing safety and now we’re going foregoing liveness. So if there’s ever an issue with safety, basically the network will stop making progress and then you’ll manually have to go in and figure out what’s going wrong, right? But you have to make this choice. And for us, if it’s a choice of not confirming new transactions, that’s a better outcome than confirming transactions that later people are disagreeing about, right? So it just would lead to more chaos. So that’s the kind of choice that the new network makes, which we think is a lot better. And then it’s also much, much more scalable, so in the face, we’ve tested it up to half a billion accounts and many thousands of transactions a second and it’s working fine. And it’s much more modular, easier to use. We separated the code into smaller components, so it’s easier to maintain. We pushed a lot of stuff away from the C++ Stellar Core into a more, more traditional web services systems. So, you know, basically, we have this system written in Go that talks to Stellar Core so that these things can be individually maintained and they they have different responsibilities. So an API is nicer and things like this.
Brian: So people know, of course, Bitcoin and proof-of-work, you know, our listeners are familiar of that. And then while we’ve also have Tendermint on, which has some of the same choices there in terms of that there can be no forks, but it can happen that the network halts if there’s disagreement. So can you explain how the Stellar Consensus Protocol differs from Bitcoin’s proof-of-work and from something like Tendermint?
Jed: Sure, yeah. With Tendermint, I think that they’re built on PBFT, if I’m not mistaken, which is a consensus algorithm that existed prior to Bitcoin. And basically, the way it works is, the drawback with PBFT is you have a fixed set of nodes, right? You can’t have arbitrary nodes joining, coming in, leaving the network, right? But under those conditions, I think I’m pretty sure PBT also favors safety over liveness, the network will halt if there’s ever some catastrophic issue. With Bitcoin, Bitcoin is like a pretty interesting and novel solution to this consensus problem. It doesn’t really draw from, you know, Paxos and PBFT and all these traditional distributed systems algorithms, which is why it was so cool because like prior to it, people will kind of hit this wall. They’re like, okay, we can actually solve this problem or maybe they didn’t even think that they should try. So kind of the way it differs from SCP is, I mean, it differs in a few ways. So, know, obviously, there’s this mining process that requires a lot of computational effort, whereas SCP doesn’t have that. It’s just message passing, you know. Because it’s just message passing, the transaction is confirmed much faster in Stellar, it only takes a couple seconds. And just the way we’ve designed it, you don’t need the history, the whole, the complete history. Whereas Bitcoin, you need the complete history of all transactions ever. Whereas with Stellar, you just need the current state of the world and then you can kind of move from there. So there’s some kinds of differences.
Meher: So let’s kind of reframe what you have saved. So there’s two things. One is safety and one is liveness. So they are kind of listeners could imagine that, you know, the Bitcoin network will, imagine a scenario in which for some reason, no messages can be sent to China for a certain period of time, right? The whole rest of the world can communicate with itself, but there has been some disaster that’s a manmade or natural, maybe the Chinese government went and cut all the cables and then you can’t send any messages to China. What would happen in Bitcoin? So the Chinese miners would build a blockchain, Bitcoin blockchain, and they miners outside China would build a fork, right? It would be like two different blockchains. So their network would keep running. That means the network is live, which means if I am a consumer in India trying to send a transaction to the US, the western miners will confirm my transaction. So the system is live. It’s not dead. But then once you have messages coming in between China and the western world, then you have basically two different blockchains and they might be some transactions confirmed in one blockchain and some transactions which are conflicting with the those and the other blockchain. So this is a system which favors liveness over safety, right?
Meher: And what you’re saying is Stellar is the opposite.
Jed: That’s right. Yeah. I mean, Bitcoin has an interesting take on it because though it does favor liveness over safety, that’s why you wait for more than one confirmation, right? Because there’s becomes less and less of a chance of a reorg, of picking a different chain, the further down your transaction is, right? You know, so if you wait for one confirmation, yes, it’s totally possible that somebody mines two blocks and then yours is not included in the ultimate chain. But if there’s 20 or 100 confirmations, then it’s really, really, really unlikely that it’ll switch. Somebody would have to do a lot of mining to make your transaction go away. But yes, it is technically possible, right? So in that sense, it favors liveness over safety.
Meher: And the other thing that we talked about which is PBFT (Practical Byzantine Fault Tolerance). So in Bitcoin, what’s happening is the people that are coming to consensus, which might be the miners and the full nodes. They can change, right? I can become a miner right now and drop off an hour later or something like that, right? But in PBFT, what tends to happen is you have a fixed set of validators or node. So if you want to imagine PBFT, imagine what would five banks do if they wanted to build on the payment system together. If five banks know each other and they know that only they should be able to run this system. So they use PBFT because they know each other. And now, Stellar is something very interesting, where in theory, you know the other participants in the network, but it also has some Bitcoin-like characteristics, right? So describe what these tradeoffs are.
Jed: Right, So, I mean, kind of the big innovation that David came up with is that what you want, you do want the system that is like Bitcoin where nodes can come and go, right? So the innovation is that basically, you can have this set of nodes out there in the world that are about any transactions, but you don’t have to know all of them, right? So you only have to pick a certain subset that you’re listening to. So say there’s like 100 validators in the world and you pick 20, that you’re saying, you know, two thirds of these guys think that this next ledger is valid, that I’m willing to say, okay, this next ledger is valid. And the interesting thing is, everybody doesn’t have to pick the same set of people. What you can, as long as there’s a certain overlap between the people that are picked, in the same way, you can kind of think of like in Facebook, people are different friends with different groups, but there is some chain of connection where people are all, you know, maybe I’m not friends with you but I’m friends with someone else who’s friends with someone else who’s friends with you, right? And it’s the same way with Stellar. You know, you have your 20 guys, somebody else on the other side of the network has their 20 guys and then maybe there’s some in the middle that has some of both guys, then you can show that if the network is connected in particular ways that there is this confluence of quorum essentially where with a certain amount of inner connectedness then everyone will agree upon the same value, if you follow the SCP algorithm. So either the whole network will agree on this one value or they won’t. So that’s kind of the neat trick is that you don’t actually have to know everybody in the network and you can have people coming off your list of people that you’re listening to and it doesn’t really affect the safety of the network as a whole.
Brian: So in Bitcoin, one of the things that proof-of-work was meant to solve was to protect from civil attacks, right? And with something like PBFT, well, you don’t have civil attacks because not anybody can validate. So are you saying that with Stellar, the way you can protect from something like civil attack is because it’s civil attack or basically because of the network, looking at the topography of the network and basically saying, well, you know, if somebody creates a million new accounts, they aren’t connected to other accounts in those critical ways?
Jed: So yeah. So I mean, this is kind of one of the tradeoffs is it requires a little more active participation on the part of the person running the validator. You’re not picking your nodes that you’re listening to randomly, you shouldn’t do that. You need to know who they are, right? So maybe you’ll pick these three banks and this non-profit, these two developers that you know, and that will be your quorum set, right? But the thing that you need to be careful about is the civil attack thing, right? You don’t want to pick a 100 people and they’re really all owned by the same, controlled by the same person, right? So you need to make sure that the people that you put on your list are actually unique and that that burden is on the operator of the validator, which is different than the way it is in Bitcoin. In Bitcoin, you shift that burden onto the hope that not one person can control all the mining power.
Brian: But presumably, right? So let’s say now I want it to participate into the Stellar process and I download the software, how would I initially choose nodes, does it come with a predefined set of default validators?
Jed: No, it doesn’t, but you can listen to the network and then basically you can see who other people are trusting. And then also we hope people will publish their validation key, right? So if you’re a Stellar business and you were running Stellar Core, you should say, hey, this is my validator. And so people can add them, you know, so they could have different exchanges or different whatever. But you kind of have to go discover them, right? So we do publish a list of here’s other people out there in the world that are running validators and you can kind of look through it and say, okay, I trust this one, this one, this one. But you can see what other people have trusted. So you can see the graph of the network, you can see all the nodes that exist in the network and who they’re trusting, but you shouldn’t just add people blindly. You should know who they are.
Brian: Yes. So I guess that will be one of the challenges, especially if the network scales, because most people will take the default path, right? So they may not want to go to the effort of consciously choosing validators.
Jed: Yeah. I don’t think just end users are going to run Stellar Core. I think people that have businesses that depend on Stellar will run Stellar Core, you know, maybe people at universities will run it or developers that are super interested, but I don’t think it’ll just be an end user running Stellar Core. With the way kind of Stellar is designed that it’s less necessary than with Bitcoins. Because you’re usually dealing with Fiat, so you’re usually trusting a particular entity anyway. If your anchor is, you know, if you have dollars from your anchor, some bank, basically, if that bank decides to cheat you, then they’re going to cheat you whether you have running Stellar Core or not. So you might as well just let them run the Stellar Core.
Brian: You also have a concept of, well, first of all, light nodes and then how do you see that playing out? Do you think there’s gonna be tons of people running validators like in Bitcoin, thousands or is it more going to be a few hundred? I guess with Ethereum, I think now with Casper, the expectation might be that there was only going to be maybe a few hundred validators.
Jed: Yeah, I mean, it’s super early so it’s hard to say. I mean, I would imagine maybe a few hundred. I mean, that makes sense. I think the main people that will run them will be the Stellar businesses. So to the extent that they adopted, I mean, you know, maybe if thousands of banks adopted then thousands of people will be running them. So we’ll see. [Laughs]
Meher: So what’s the incentive to run a Stellar node? If I was Stellar business, what would drive me towards running a node?
Jed: So bear in mind that it’s way less expensive to run a Stellar node than a Bitcoin miner, right? There’s not this like CPU overhead, you just have a server there that’s kind of exchanging transactions with other people, so it’s not that much of a burden. And you would run one because you want direct access to the network. If you’re having to submit lots of transactions to the network, you want to do it to your own Stellar Core rather than to somebody else’s. And you know, for the same token, it’s receiving lots of stuff, you want to have the messages come immediately and, you know, depending on seller, so you want to participate, you want to make sure that everyone is abiding the rules correctly and validate that this money that you’re getting in is actually money you’re supposed to be getting in. So just for safety reasons and for performance reasons, really.
Brian: And what are performance characteristics here? So will there be something like sharding as well or is Stellar actually able to scale to, you know, handle global volumes of transaction and commerce?
Jed: Stellar can scale pretty far right now. I mean, the transaction, the global scale of commerce is quite high so eventually we would have to do some sort of sharding or something. I mean, one of the things that we’re looking in pretty heavily right now and I think is our next big project is implementing the Lightning Network on Stellar as well and making it interoperable with the Bitcoin too, which I think will be pretty exciting. You know, for all the same reasons why people are interested in Bitcoin. I mean, it’s a really cool idea is that basically, you can send, you know, essentially millions of transactions that it’s all off-ledger and doesn’t have any kind of scaling burden on the rest of the network. And what we’re finding is between two big institutions, say bank A wants to integrate in bank B wants to integrate and they are sending lots of stuff back and forth, they might as well just have this channel that keeps it all private between them and it doesn’t burden the larger network, and the same idea Lightning Network. If there’s ever a disagreement, then you can go back to the ledger to settle the dispute or just settle there, occasionally and periodically or something like that. So I think that’s the route that we think is most promising right now that there’ll be kind of this global seller network that’s handling large-scale transactions. But you can get far beyond that through this kind of off-chain transactions.
Meher: So in terms of raw numbers, how much can this network handle and does it depend on the number of nodes or something like that?
Jed: It really depends on the hardware you’re running Stellar Core on. So it’s hard to give solid numbers. I mean, we’ve gotten it up to 4,000 transactions a second and that wasn’t on really that crazy of hardware. It’s basically just a machine with an SSD card or SSD drive. But yeah, I mean, I think you could take it much further on the hardware. We also haven’t put in a ton of effort into optimizing too much. I mean, you know, the network is still very small, so it seems silly to get it to much, much faster than it can do right now. So yeah, but we’re pretty confident there’s a lot of areas where you can optimize still.
Meher: And it also inherits the create transaction latency properties of Ripple, right? In a few seconds your transaction gets confirmed.
Jed: Yeah, that’s right. Yeah. I mean, the confirmation times are pretty comparable. Yeah.
Brian: Today’s magic word is galactic. That’s g-a-l-a-c-t-i-c. Head over to letstalkbitcoin.com to sign in, enter the magic word and claim your part of the listener board.
Meher: And in terms like in Ripple, what you could do is, I would say holding, let’s say, Norwegian krone a issued by Justcoin that was like one of the gateways on Ripple. Then I could basically, let’s say, Jed, I wanted to make a payment to Jed and he wants US dollars, then I just have to issue my transaction and the Ripple network will just convert my Norwegian krone into dollars and have those dollars in Jed’s account. So in terms of these properties, is Stellar the same, right? Or have you innovated in that direction as well?
Jed: Yeah, I mean, basically, at a high-level, it’s similar. I mean, the technical details are a bit different, but yeah, you can still hold any kind of asset and trade any of these assets between each other. They’re still an orderbook where you can put up offers to buy and sell these different assets against each other. And one of the big things that I hope people do with it is it becomes this decentralized exchange for Bitcoin, where you don’t have to depend on one particular exchange and I think this be really beneficial because it would be this, it would kind of pool all the liquidity. Because right now, it’s split between all these exchanges, right? So you can either trade on Coinbase or Bitstamp or Kraken or whatever, but you’re not getting the full pool of liquidity. Whereas if there was this distributed exchange where everyone can kind of participate in one global orderbook, then it would be much better story for the spreads will be lower and things like that. And you can move higher volumes, and I think it would just be a lot better. But that’s a little bit way off. We have to start convincing people to do the trading there. But it’s a direction I hope that it would go.
Brian: So how would that work? Because I mean, presumably, if I’m going to trade Bitcoins with, you know, somewhat else or let’s say US dollar, I mean, one of the lessons I think we have learned, knowing the history of Bitcoin, is that a US dollar in a Bitcoin exchange, you know.
Jed: They’re at different rates.
Brian: They’re not all the same. [Laughs] So how can you have a global orderbook there?
Jed: I mean, the dollars are still tied. When you put an asset into Stellar, it’s still tied to a particular institution so that it would be like Kraken dollars or Coinbase dollars, things like that. So yeah, they would still be tied in those things and can actually trade against each other. If one of them, their website sites responding, then maybe they can get a discount.
Brian: I wanted to circle back a little bit to something you said before, which was the idea that Stellar is focused on making all these systems interoperable. How does that work and how does it differ with Interledger and that approach?
Jed: I feel like, well, what I mean by that is basically, for instance, there’s a mobile money operator in Nigeria that we’re integrating with right now. So what happen is, all their customers, they will essentially, basically, this mobile money operator will integrate with Stellar. So what that means is all their customers can now send and receive through Stellar to anybody else on Stellar, right? So this mobile money operator integrates, some other mobile money operator integrates in Nigeria as well, and then now any customer of theirs can send anyone on Stellar, which is just these guys. So now they can interoperate. So say some bank in the US integrates, so now this bank’s customers can now send and receive from anyone on Stellar. So then now they can send and receive to these mobile money people, right? And then further, this bank is connected to ACH in the US, because all banks are connected to the ACH in US, essentially. So they could route a payment from this Nigerian guy that’s sending it over their mobile phone to somebody on the ACH system and inside the US. So now it’s connected essentially ACH to this whole mobile money system, right? And so we hope that this process kind of continues through, you know, all these networks and maybe there’s a bank in Europe that’s on Sepa, things like that. And so, it just kind of spreads to where it becomes this kind of universal system where you can easily send around to anybody. That’s what we mean by connecting all the different financial networks. Interledger is a way to connect different cryptocurrencies together.
Brian: Okay. That makes sense. And there’s another thing I wanted to ask about which is also sort of a question that I keep going back to because I think it’s a really important question, although people generally don’t like to answer it, which is, what is the governance in the longer-term going to be off of the Stellar protocol? How are these decisions going be made? I mean, we have all seen the issues with Bitcoin where it’s a complete mess at the moment and it doesn’t seem to any way of getting better. How would you anticipate preventing that? Do you think that the foundation is going continue to play a critical role there?
Jed: Yeah. I mean, that’s one of the reasons. I mean, that’s one of the main reasons we wanted the Stellar to be a non-profit. It’s because we do want this kind of this open governance and we wanted to kind of modeled it as close as possible on the Linux Foundation where basically, you know, Linux has these same issues where there’s lots of different people that have wanted things to go certain ways. And you know, they basically all have to get together and kind of, there’s a large board for the Linux Foundation where they all talk about it. There’s a technical board where they all discuss, and we hope to kind of go the same direction, you know, I mean, right now it’s pretty much all solid foundation but we hope that as we grow, and other people are invested in the system, that more voices are kind of added to these decisions.
Meher: So the role of the foundation is to basically spearhead the development of the protocol and in the future also have the governance piece in place, right?
Jed: Right. Yeah. Well, it’s got two purposes, really. It has that where it’s making sure that the code keeps progressing. And the other big thing it does is because there is no mining, because SCP doesn’t have mining, all of the digital currency kind of exists in the first place, and so we have to figure out how to get that into the world. And what we’ve done is we’ve reserved 95 percent of it that’s held by the foundation as reserved to give away. So, you know, we’re giving to—essentially, when we started, we were giving to anybody would come to our site. We’re doing it a little bit different way. We’re going to start that in a couple of months, that giveaway. We’re gonna start again. Basically, we weren’t doing it for a long time because we were rebuilding the network and now that we’ve kind of got it to where we’re comfortable that it’ll work in a solid, we’re going to start to give away again. So that’s pretty exciting. A big chunk of that is actually reserved for Bitcoin holders. So 20 percent of these, so 20 million Lumens is reserved for Bitcoin holders. Essentially, they’ll be able to come to us and verify that they control a certain Bitcoin account and then we’ll give them their pro rata share of these Lumens. So the idea being that we want to kind of spread this digital currency as widely as possible because I think it’s really important if you want these things to take off, that there’s as many participants and you don’t want to keep anyone out of the system.
Meher: So basically, instead of network has its own native currency, the Bitcoin network has its own native currency with bitcoin, the small b, the Stellar network has its own native currency, which is Lumens, right? And 100 billion of them, of which a 5 billion have already been given away. And now you’re planning to give 20 a billion of them to all of the Bitcoin holders, right?
Jed: Yeah, that’s right. Yeah, yeah. So we’re going to do that actually in a series of rounds just because we want to make sure it goes smoothly and there’s not some huge checkups. So I think the first 3 billion are going or we’re going to give away in July. I think July 5th is when people can come to us and like prove that they have a Bitcoin account and then we’ll give them their fair share of Lumens and you know, based on that, and then we’ll start doing them periodically over the next probably couple of years or something.
Meher: And do you plan to do more giveaways for other cryptocurrency holders? This is just 25 billion, right? The 75 billion is still with the foundation. Do you plan to reward Ether holders, XRP holders, et cetera?
Jed: Well, when we started Stellar, the main one by far was Bitcoin. Ethereum wasn’t launched yet. So we just had reserved them for Bitcoin holders. One percent is actually withheld for XRP holders as well. And we’ll give those at a later time, probably one of the successor of Bitcoin rounds. But yeah, so right now, it’s just Bitcoin and XRP, 19 billion for Bitcoin holders and one percent for XRP. The other pools of coins, 50 percent is just generally to the world. So we’ll do something where people can come and there’ll be some way to get, you know, a small amount of Lumens and that’ll be for 50 billion of them. 25 percent is reserved for other non-profits and businesses doing stuff in developing world because it’s pretty easy for us to reach anyone on the Internet but getting kind of this last mile is difficult for us and it’s not our wheelhouse. So the idea is that, you know, I mean, there’s institutions, for instance, give directly that gets small amounts to people in Kenya, actually like cash transfers. Maybe they would be able to also give small amounts of Lumens directly to people. But this is kind of reserved for a little bit on down the line when these people have more connectivity and things like that.
Meher: So there’s been this idea floating around in the cryptocurrency ecosystem of guarantees that are distributed fairly widely. If you started with one of the most famous experiments was OROCoin, which was trying to give all the citizens of Iceland a particular currency. I’ve heard people say, what if you could have a cryptocurrency that we could give to every person in the world? Wouldn’t that be awesome as a bootstrapping mechanism?
Meher: And it just seems like a very hard problem because not all of these people have public keys, right? In a sense that everyone did, then it would be easy. So I like to ask you about kind of your previous adventures in this space, like your Facebook giveaway program because that was quite interesting and just have some broad ideas of how you are going to distribute this 50 percent, will just matter.
Jed: Sure, sure.
Meher: So we can start over with the Facebook giveaway program. So just for the benefit of viewers, what happened was there was a phase when Stellar began, I think it was May or June of 2015 where you could log into your Facebook account, post something about Stellar network on your wall and then claim a certain amount of Lumens, right? And like there was a time when I was getting a lot of updates on my Facebook feed regarding the Stellar network, so it was a good way to bootstrap and get some publicity as well. But then I came to hear of reports that people could game the system using Amazon Mechanical Turk. So what happened there?
Jed: Yeah. So I totally agree. Then the ideal world, we’d be able to give a small amount of Lumens to everybody on the planet. But the challenge there is that not only does everyone not have connectivity, but everyone doesn’t have a public key. And then also, it’s really hard to identify everyone. So people, if I’ve given it to you once, how do I know I’m not giving it to you 100 times, right? So I don’t know, fortunately or unfortunately, Facebook is kind of the closest proxy for that. I mean, I think they have like 1.5 billion accounts, so it has pretty wide coverage. It’s the largest collection of users in the world. So we were kind of using that as a way to kind of distribute it as widely as possible. So it works really well in the beginning. The issue is that there are people out there that have lots of stolen Facebook accounts or lots of fakely created Facebook accounts, so the fraud started really actually pretty low and then it’s just kind of grew over time. And well, I mean, one of the takeaways is that you really just have to stay on top of the giveaway because, you know, anytime you’re giving away something free on the Internet, someone’s going to try to defraud you, try to cheat and something. Just that’s the way it goes. So it is sort of this arms race where, you know, we have to dislike be changing stuff and making the claim method a little bit different than people are trying to, you know, get around it and exploit it. So long-term, you can’t actually, you know, you’ll never be able to solve this problem of this arms race. People always eventually find a way to cheat you, but we only have to kind of stay ahead of them for 50 billion Lumens. If we can just stay ahead until we give away the 50 billion, then we’re good.
So going forward, we have a couple, we have a lot of better ideas for this next round that when we’re going to start it up again, that I think will help things a lot, and we’ll just spend more effort in making sure that we kind of stay ahead of the people trying to game the system. But overall, I think extremely good. The first giveaway, it went extremely well. You know, it did get Lumens in the hands of lots of people, let people know about the network. For most people, it’s the first time they ever had digital currency before, which I think is super exciting. Expose people to this whole new world. You know, a lot of people went on to get Bitcoin and other things because of that, just because once they kind of get their feet wet and understand what this stuff is, they get excited about it, I think. So I think it’s just good for the whole ecosystem and the whole, you know, cryptocurrency space in general when you can kind of introduce this whole wide swath of population to it. So we’re pretty excited about starting it up again. So I think the next way we’re going to do it, it can be a lot better, I think.
Meher: So in terms of the current state of the network, what are the current usage statistics in Stellar and who are the first users?
Jed: So, basically, we just kind of put it back into production, you know, a few months ago. So, the usage is fairly low. We’re kind of, we’ve haven’t been talking that much or focusing that much on existing cryptocurrency community. So usage is actually fairly low there, but the people that are most interested solving these problems that we’ve been talking about in Nigeria. So integrating to these mobile money things, and these banks there and these other payment networks in Nigeria to make domestic payments work much better than they do now. And so we kind of, I think I anticipated different usage pattern than what other cryptocurrencies are seeing because it’s going to come from a country that hasn’t really used this stuff before. But like I said, it’s very new so we’ll see. But yeah, right now, the usage is low just because these people haven’t gone through their integration yet, but we hope in the next couple of months, things are gonna start being announced and should get kind of exciting.
Meher: So why did you pick Nigeria? So I can understand. I can understand the logic that like you said before, that the reason to adopt it in the developing world is that the pain points in moving money are harder in the developing world, then like the United States or Europe. So it’s easier to give consumers, customers a great user experience compared to the other things they have. But I would say like the candidates for something like this, basically, a lot of countries in Eastern Europe, Asia, Africa, South America perhaps. Why did you zoom into Nigeria?
Jed: Well, I mean, a few reasons. Yeah, I mean, I think there are many countries in the world we could have picked that would be equally as good. I mean, some of the reasons are that Nigeria is super isolated from even more so than a lot of the developing world from the rest of the world just because of, I mean, I’m sure everyone, when you say Nigeria, one of the first things people think about is that Nigerian scams and they’re like, oh, Nigerian Prince, this kind of thing. And it’s actually has a huge, that whole reputation has a huge impact on the country. It’s really hard for money to be sent into the country. Most of US banks won’t deal with them directly because they think that if you’re trying to send money to Nigeria, you’re probably being scammed in some way. And so this is really unfortunate. And it actually is a huge detriment to the Nigerian people on their economy. When we went there, one of the developers was telling us this story where he was developer, someone had set up a hosting, you know, like a web host in Europe, somewhere for him. So there’s this first way to have a website on the Internet. So he had this web host, it was in the other guy’s name. And then eventually the guy changed it to his name and then within 24 hours, they shut it down because he had put his Nigerian address in there and they’re like, no way, if you’re in Nigeria, we’re not going to do business with you. So they’re really isolated from the rest of the world. And it’s kind of tragic.
So, you know, this was pretty compelling. It’s the largest economy in Africa, which is really compelling. It’s growing super-fast, it’s just kind of beginning to take off. So I think it’s just a really exciting country in general. You know, there’s some practical stuff. They speak English there, so like that, you know, our whole team speaks English, so it’s much easier for to do deal with them. And you know, the people there are super driven and they really like to get things done. That’s exciting. There actually is a pretty okay development or development community. You know, there’s just lots of factors but you kind of just have to pick one at some point. But yeah, our experience there has been really positive so far. So that’s why. Yeah.
Brian: So what’s the approach there? How are you trying to get people to use it? Are you specifically focused on remittances?
Jed: So I think our approach first is actually in country payments and domestically because right now in Nigeria, if you want to send money from say Lagos to the countryside, it literally involved a 16-hour bus ride, you put money on a bus and it goes. And so this is super broken. I mean, we were talking to other people there, someone who’s running a small shop and anytime she wanted to go send a payment, she would have to leave her shop and go on a bus and she went to close her shop because she’s the only one that worked there and close it and go on a bus and go to the nearest ATM, which was miles away, pay for the bus ride, and then send this transfer. So basically, it cost her a huge amount of money, like a day’s wage is gone and the bus fare and all this stuff. So it’s just really inefficient. So just solving the domestic problem, I think, is the first place to start. And then once that is kind of solved, then it’s a pretty clear case for people to send money back to Nigeria using Stellar because if people are on a domestically, it’s a very easy story. So that’s kind of the idea. And then once their using it for their remittances, then it’s easy to use it between other countries in Africa and things like this. And then Europe, and things like that.
Meher: Okay. So one of the interesting things that came up during our conversation was Lightning Network is using Stellar, but like Lightning Networks is using Stellar fundamentally has used some kind of smart contract capability on Stellar in the first place.
Jed: Yeah, that’s right.
Meher: So what are the moves you’re making in that area? Are you going to the Ethereum way or are you going the Bitcoin way, which is like let’s skip it for the day, what’s your plan?
Jed: Yeah, so I mean, it’s still not completely a given yet. I mean, so far, we’ve tried to keep the operations and the transactions very expressive where you can do various things. Obviously, you can build Lightning on Stellar now and you can build other things on Stellar, you know, bonds, you know, credit default swaps, things like this. You can build pretty complicated things. It’s not Turing complete inside the network, but kind of our hope is that, most of the computation can be done outside of the network. So basically, the computation is done outside the network, but the transactions in the way accounts are structured or can only be manipulated in certain ways that you can set that up beforehand.
For example, one of the examples that we use is setting up a Kickstarter type thing where everyone pays into this account and when the account reaches a certain threshold, then it will pay out to the recipient, otherwise, it’ll go back to the people. And you can do this by setting up the account in a certain way beforehand where there’s only any kind of pre-signed transactions and publish these and they only work under certain conditions and these conditions are satisfied outside the system and the logic of whether you submit one transaction or the other is done outside the system. And it kind of the benefit of that is that you don’t, you should be able to be more scalable because the computation doesn’t have to be done by the network itself. It can be done by people using just this part, people that are just interested in this Kickstarter-like thing or just interested in this one lightning channel. They don’t have to put the computation into the network to be done by all these nodes, right? So that’s kind of the route we’re going down now. I mean, if it turns out there’s some fundamental things that we can’t express, then maybe it’ll tend towards getting more Turing complete. But at this point, it seems like I haven’t found anything that’s compelling enough to want us to go the full Ethereum route yet, although I think Ethereum’s super exciting. So that’s kind of our thought right now.
Meher: So what I got from that is the way you’re approaching it is you have special account types, right? What you’re doing is you’re creating special account types on Stellar [overlapping] that will have some program logic.
Jed: Sorry. Yeah, no, they’re not really special account types. Basically, we try to keep, we try to make the special cases as few as possible and make it where there’s just like, for instance, an account can have any number of signers, and the signers can have various weights, and this is a general thing, right? You can have three signers on the account and maybe one of them can sign on, or it takes all three or things like this. And so this is a general thing, but based with these kind of building blocks, you can compose them in different ways to make interesting things. The transactions themselves can have multiple operations so you can have a transaction that sends to account A and sends to account B and it sends it from two different accounts and these two different accounts have to sign the transaction as well. So, you know, you can start to do interesting things just by the way the building blocks are set up in the first place.
Meher: Okay. So, would it be like to say that you have things multi-signature and time blocks and maybe something is using these building blocks, people can combine them together to make interesting things.
Jed: Right. Exactly. Yeah.
Brian: Has there been any interest or activities in terms of kind of taking Stellar and then taking some of the technology you’ve developed and then using it, for example, in the financial context for any of the many permission ledger projects that are ongoing on?
Jed: Yeah. I think a few people are working on this actually. The Stellar Development Foundation is not working on it directly, but you know, we would be excited for anyone else to do products based on this. I mean, it’s very easy to set up your private Stellar network. You just change one line that config file and then you basically have started a new network. So it’s easy for people to make these permission networks if they want to or you know, because obviously, it’s all open source so you can fork it and do things that you want. I think there’s a couple projects that have forked it in or doing a more permission to thing tailored specifically for banks and other financial institutions. But yeah. So we can definitely use it for this.
Meher: And are there other use cases people are pursuing? When I was reading the paper or Stellar Consensus Protocol, one of the things that the author, David Mazières, seemed really interested in is having a Stellar-like network to manage all the certificates that we use for websites or whenever there’s a website, it has an SSL certificate. What if you had a giant registry of SSL certificates maintain on network like Stellar? What do you think of that idea and are you pursuing other directions using this consensus protocol like that?
Jed: Yeah, I mean, I think that’s a good idea and there are a ton of things that you could do with Stellar. Since I mean, one of the things that kills small companies is that lack of focus. So us, we just have to focus. We’re just focusing on the payments use case, but I think there are tons of stuff that can be built on Stellar and I really hope other people do. Because to me, it’s pretty exciting. And just this idea of SCP can be even just using that, and you can build other stuff on top, maybe not the Stellar itself, but you know, you could build some other more generic database or other things that are using this consensus algorithm I think would be pretty exciting or things like the certificate authority thing. Yeah. So we hope that other people do but we can’t focus on it just yet. I mean, hopefully in a few years, but yeah.
Brian: Cool. Well, Jed, thanks so much for coming on. It was great talking to you and I think one of the things I find particularly exciting here is that if, you know, if you used to go to Bitcoin conferences or being in this space, it’s always that people would talk about well, how great it would be for developing countries. But of course being completely dissociated in terms that hardly any projects actually focused on that area and hardly any people talking about it actually had any clue of those worlds. So it’s exciting that there is now, you know, that you guys are pursuing that and sort of sticking with it. I think at the time, when I’m not sure who else is doing that, a few, maybe a few Bitcoin startups are doing something like that and at least in my view, doesn’t look like Bitcoin is going to be the one winning that game. So I think that’s extremely exciting and I’m certainly looking forward to seeing how Stellar is going to develop and how those further kind of rollouts and distributions of Lumens are going to go as well.
Jed: Yeah, yeah. Thanks so much. Yeah, it’s a really great talking to you, guys. Yeah, we’re really excited about what’s going to happen in Nigeria and other places. I think it can be really beneficial for people and make a lot of lives better, so we’re definitely excited.