Tech Brew Ride Home - (Bonus) David Marcus And Lightspark

Episode Date: April 8, 2024

David Marcus comes on the pod to discuss what he's been working on since leaving Meta. Specificially: Lightspark, and efforts to expand the Lighting Network and bitcoin. Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to another tech meme ride home bonus episode. I'm Brian McCullough, as always. And I'm Chris Messina.

Today we are talking to David Marcus, the CEO and founder of Lightspark. But you're going to hear this clip into the Daily Show because, David, you've got some news for us happening right now today. So, David, welcome to the show. And let's get right to the news. Thanks for having me. Our news today is that Coinbase is going to implement Lightning using LightSpark Stack, and that will mean faster, cheaper transactions on the Bitcoin network for all Coinbase users very soon. So let's assume that half of the audience maybe isn't very deep into crypto.

Can you explain what the Lightning Network is for those that might be unfamiliar? Sure. So Lightning is actually a layer two payments protocol on top of Bitcoin that enables Bitcoin to move in real-time at a fraction of the cost of layer one. So as you probably know, layer one Bitcoin is actually pretty slow. It's very secure, but slow. One new block every 10 minutes, which means that your transaction will take about 10 minutes to clear on layer one. Lightning makes it instantaneous, real-time, low-cost. And so when you want to deposit or withdraw Bitcoin from Coinbase, now you'll be able to do it in real-time.

real time at a much lower cost from any other wallet or any other exchange or any other institution that supports Lightning, which is almost everyone now. Okay, so explain that in greater detail, and we can come back to Lightning and Light Sparking the technology. If I'm a Coinbase user, what am I going to see? What is the immediate benefit of this to me? So if you're a Coinbase user and you want to move the Bitcoin that you just purchased on Coinbase to another wallet. We've all had this experience, or many of us have had this experience, where you have to copy and paste an address, a layer one address, and send a transaction,

and then for about 10 minutes, you wait patiently with a lot of angst for your Bitcoin to arrive to the other side, never really knowing whether it's actually going to happen or not, and despite the fact that you know it will likely happen, it's always a stress generating. And now you'll be able to do the same, but just with a lightning address. And when you do that, you paste a lightning invoice, that's the term, into your interface, then your Bitcoin will appear on your other wallet or other exchange or other institution, basically less than a second after you click the send button. So this is basically the mission of LightSpark.

I don't want to put words in your mouth, but correct me if I'm to bring this sort of layer to this lightning network, this faster, you know, instantaneous payment stuff to life. Like you were formerly at PayPal. Is this a continuation of the mission that you've been on for the better part of a decade now? So our mission is really to make money flow and grow global opportunity for people all around the world. And the way that this manifests itself is that we believe that Bitcoin is the best and only true neutral digital settlement asset in the world. And we're building infrastructure that will actually enable us to move any type of asset, whether it's like fiat currencies, stable coins, or Bitcoin itself, of course,

on top of the most efficient and open interconnected network in the world. And so the combination of the capabilities that we bring together include Lightning, but it's not only Lightning focused and Bitcoin focused. We like to think about it as an open, always on money grid. that's cheap, open to build on, enables developers to actually move money in real time, and connecting the biggest institutions in the world that offers the most reach for on-and-off ramps onto the network is really mission-critical for us. So we're really excited to work with Coinbase on this, which is a big milestone for us as a company.

One more thing that I'm not sure that people are familiar or familiar enough with that y'all are doing is UMA, the money address, which I believe you've open source. Can you just tell me a bit about that real quick? Yeah, for sure. So UMA or UMA for Universal Money Address is an open source standard that we launched in late October of last year. And basically what it is is it's like an email address, but for money. It's actually, so let's imagine that you know, you're at wallet A and I'm at wallet B. I would have an address that would be dollar sign David at wallet B, and you'll be able to type that from your wallet to send me any currency at any given point in time. Let's imagine that I'm in Mexico and you're here in the U.S.

You're sending dollars. I'm receiving Mexican Pesso on the other side. And basically what happens behind the scenes is that, you know, you're, converting the dollars into small fragments of Bitcoin, pushing them on Lightning in real-time 24-7 cash final to Mexico. In Mexico, a receiving institution converts that into Mexican peso. As senders and receivers, you wouldn't even know that Bitcoin and Lightning were involved, but what you know is you can now send dollars that arrives as peso on the other side,

real-time 24-7 at a fraction of the cost of the current alternatives. And that's the future we want to build, the future where money moves natively on the internet, the way that it should at a fraction of the cost, and it has an open network that enables developers to build all kinds of new experiences involving value exchange natively on the internet. David, it's going to see you again. The last time I think we saw each other was during the bot-frey fame. Yes. The bot period back in 2016, 2017. And so you've done a lot of work on messaging platforms, which of course, Messenger was one of the first messaging apps

that provided payments or payment rails within the product. So I guess I have a couple questions. One is what I guess has made it hard, perhaps up until now, for you to integrate with Coinbase. In other words, help the audience understand why this is a big deal and why it couldn't have happened up until now. So Lightning is really an amazing protocol. that was co-invented by two people and one of them is Stadjdria who works at Light Spark now.

But the implementation of the protocol is quite complex because it's a channel-based payment system. And so it requires all kinds of logic to actually have- channel-based payment method means. So let's assume that you have two people wanting to pay each other on a regular basis with Bitcoin. One is Alice, the other one is Bob. And so you open a channel, channel, a payment channel, which is basically a channel that you open on layer one for the purpose of having payments between Alice and Bob. And once the channel is open, think about it as an abacus where you have beads moving from one side of the channel to the other side of the channel. And now multiply this as a mesh network of channels.

All the different people who are all trying to pay. Exactly. Except that, like, you know, more and more people are more like institutions. So they serve as hubs in the network. And so what we've built is technology that enables enterprise regulated entities to really use lightning in a reliable, dependable way without having to worry about who to open a channel with, how much liquidity to assign to what channel, what routes should I take for every payment? Should I do a single payment with this transaction to arrive to the other side or should I do a multi-part payment which basically splits the transaction in small little fragments of money? and then reassembles it on the other side. So we've basically built the logic with Lightspark Connect and LightSpark predict to automate all of that

and to make it really seamless to use Lightning the same way that you would use a traditional pavement network and abstracting all of the complexity behind the scenes and really good software. So that's what we've done. And when did you found LightSpark again? So we started in May of 2022. So it's going to be about... Okay, so that's why. So you're building basically up until now. So if I've already take a wild kind of like...

Let's see, in order for one, I think the listeners to understand what this is and why it's important, I think it's relevant to sort of provide a bit of a metaphor. And I know that like SMTP is often used in this case where essentially, you know, maybe I compose an email, I send it through the SMT network, it ends up in your inbox. However, the difference when we're talking about payments is that, like you said, there has to be sort of like a settling substrate where the currency moves from one place to another. Now, if I take a dollar out of my wallet and I put it in Brian's hands, the physical aspect of that means that that dollar no longer exists in my wallet and now it exists in Brian's wallet. But in the digital space, you have to kind of invent artificial scarcity in order to track the fact that some asset moved from whatever my crypto wallet is into his. So you're using a mechanism that's like SMTP to indicate that that transaction has happened,

but then you've built the underlying substrate through the Lightning network in order to indicate that that transaction has happened. And then through, I think your platform, like Predict and the Connect SDK, you're essentially gradually eventually settling that to say, yes, this actually occurred. Is that kind of like the background for why this took a year and a half or so? Yeah, so the hardest part actually was to make Lightning be enterprise grade-ready and reliable. So when we started working on it, Lightning was working pretty well for very small transactions, like, you know, sub-10, $20. But the minute you went like higher value, you had all kinds of complexities. And like it was actually pretty inefficient because you would have to as an institution using the Lightning Network

have a lot of resources like liquidity trapped into channels that was not necessarily in the right place in the network for you to optimize the transaction volume that you were to enable. And so we created a logic. It's a prediction problem, essentially. And so because it's a prediction problem, it lands itself really well to machine learning and all kinds of different methods to try to have a topography of the network, understand where the reliable nodes are, where the liquidity needs. needs to be deployed, how to deploy liquidity in real time on the path of the transaction to ensure that the transaction will arrive on the other side in a reliable fashion, and get lightning to actually be reliable. So that was a lot of work and a lot of work on the part of just the pure lightning piece,

but also predict on the machine learning and AI that we're using de facto to learn a ton about the network and put those learnings into play. to facilitate these transactions on behalf of our clients. Also, to build the infrastructure that enables us to serve very large institutional clients who want to sign every transaction and have the keys fully on their side versus take any custodian risk, which we don't want to take either. And so that took a lot, a long time.

And then to your point, like the UMA standard, really the universal money address standard, is something that we've built after to enable better user experience and also this ability to not only have human readable addresses that can be used just like email, but for money, but also to do FX spots between sending and receiving institutions. So the example I gave earlier between a sender in the US, sending dollars and a receiver being in Mexico receiving Mexican pesos.

Like in this case, you have both institutions actually quoting each other for the conversion rate to and from Bitcoin. that enables the whole substrate to use or term to be completely invisible to consumers and they can just use the product the way that they have come to expect to use a payment product. Got it. So some of the reasons why I'm asking you about this is one, I think it's important that the audience understands how this is enabling potentially new forms of currency movement. The other thing that's interesting, especially with Uma, given that it's in the form of an email address. So you have like, you know, sort of username at some domain, is that we're following a similar pattern,

in fact, an identical pattern with the decentralization of the social web. Now, we don't have to get too deep into that world, but one of the conversations that we've been having about activity pub and threads, of course, from your former employer coming on to the Fediverse, is the ability for people to monetize on that platform. And so I remember that Twitter originally implemented, I believe, SATs and microtipping through lightning payments. And so I guess my question is, if you were to play this out a little bit, right, with Coinbase coming online and enabling the Lightning Network to be available to many more people, do you see new types of economic opportunities for startups or founders to build for this new platform? 100%. Definitely. And I think that for the creator economy, the gig economy workers all around the world, we should be able to stream money to people as they earn their wages or, you know,

their revenue from different platforms. And I think if you look at the long tail of YouTube creators internationally, they typically get paid through third parties. If you're really on the long tail, then you get paid every X number of months instead of at the end of every video view like it should be. And also all of these companies that pay out or that are intermediaries to pay out, they have to keep liquidity with FX exposure in foreign banks to be able to pay out faster. They could repatriate all of that money here and use a month.

payment network to move money to endpoints that would receive it in their home currency in real time at the time they needed. And that's the way the world should already be, frankly. Fascinating. I mean, what did it take to get Coinbase to come on board to support your SDK? Well, it's a long and arduous process. They're operating a very, very tight ship, and they run a very, very solid diligence process for third parties. Typically, they tend to do these implementations in-house. And I think, you know, that whole process definitely made us better as a company. And, you know, we're thrilled that we're able to serve one of the most iconic companies in our industry

for something that a lot of consumers have been asking for for a while. and it's just really a great moment for us, and we're excited to bring lightning to so many users around the world on the Coinbase platform. Amazing. I wanted to end by asking you probably a question you get asked a lot, which is essentially, with this new startup that is only a couple of years old, what you learned from the whole meta, Libra,

sort of project. And to what degree does that inform how you're developing products going forward? How much time do we have? Go as long as you want. No, more seriously, to the maximum extent, that whole experience, I don't regret it at all, but certainly this was the steepest learning curve of my entire life. And I think, you know, the one learning is if you want to try to introduce a new network that enables people to move money in a seamless way, the way that it should, etc., you shouldn't, like, build it in a super, in a somewhat centralized way. Now, with the hope of decentralizing and evolving power over a period of time, it has to be built on top of an asset and a network that's fully neutral and not controlled by.

anyone. And when you look at this, uh, from that lens, the only asset that is neutral enough to be the neutral settlement asset for the world and create as an, basically act as an interoperability layer between domestic real time payment systems around the world, between wallets and apps and neo banks and exchanges is Bitcoin. Anything else, uh, is, is not as neutral, not as decentralized, uh, doesn't have the pool of liquidity and the depth of liquidity against fiat currencies and other assets in the world to actually be the best instruments to interoperate all of the payment systems in the world. And that's the key learning. Build on an open system, building the open, try to build on top of something that's maximally decentralized and neutral.

And that's what we're doing at Light Spark. Sorry, I got one more. And I know I'm more on the social website of things, but I know you've been there before and given again your history with meta slash Facebook, I have to ask, like, you must see what's going on with the AT protocol out of blue sky. And then to your point about, you know, building on sort of maximally decentralized protocols, activity pub is not. And so Threads has gone in the direction of activity pub, but blue sky is much more in the kind of, you know, kind of cryptic maximalist kind of direction.

I'm curious if you have just thoughts on kind of where that's going to go. Again, if, you know, Light Spark and the Lightning Network are going to be enablers of payments on that platform or either of those platforms. Well, I think also the one you didn't mention, which I think is getting more traction and NOSTA. It's Farcaster, actually. Yeah. So, yeah, you have Noster. You have Farcaster. I think, you know, Dan Romero and the team there at Farcaster is really, you know, building at a rapid clip here.

True. And, you know, an interesting analogy here is like they've built this frames concept that enables developers. to actually build frames within the decentralized social network. And one of the things that is actually really useful is the ability for people to create frames that involve value exchange and payments. And I think that those types of use cases are going to be really driving adoption from the creator side, who will then maybe bring their audience to these platforms because they can monetize better and more easily. And so I think there's a lot to be inspired by what's happening right now.

And we'll see. It takes time. Network effects are really hard, as you know, to actually build. And people are really attached to their audience and the reach and distribution that they get from more centralized platforms. So the jury is out. But I think there's definitely more development in that world than we've seen in the past 10 years right now. And so it's going to be exciting to see. Yeah.

Okay. Great. Thank you. That's it for me. David, LightSpark, Coinbase. Congratulations. But David specifically, thanks for coming on the show. My pleasure. Thanks for having me.