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Twitter and Square investor Gregg Kidd: “Identity as a public good, but who is going to own it?”

By The Asian Banker Live

Greg Kidd, the serial startup investor who helped found Square and Twitter and is currently investor in GlobaliD, a opens up in this wide-ranging and open-ended interview about his career in identifying and helping found innovative startups. He shares his insights on the relationship between globalisation and localisation and how these relate to innovation

 

Greg Kidd co-founded globalID in 2017, described as “the neutral and portable identity framework that allows individuals and entities to securely and privately  manage all their permissions and money”.  

In this eclectic interview with The Asian Banker chairman Emmanuel Daniel, Kidd’s various interests and investments ranging from Silicon Valley to cryptocurrency, data blocs and identity are revealed.

 

Emmanuel Daniel (ED): I’m very happy to be able to speak with Greg Kidd here in Bangkok, a conversation that I want to leave a little open-ended because what I want to draw from you in this conversation is the whole intellectual process by which creativity is shaped, and the business propositions that we now call innovations, take place. You are the original investor in Twitter, in Square, and now in a whole lot of other things, and pioneering an initiative in identity. What I really want to draw from you is the iterative process of how it happens, and how it comes together. We had this conversation, and you said that living in Silicon Valley helps.

Greg Kidd (GK): Well, if you’ve ever seen the movie Forrest Gump, it always helps to just be lucky and be at the right place at the right time. But you have to do a lot of work to be lucky. It’s the old adage that you have to be in the right place at the right time for lightning or other good things to happen. And it has been a great time in Silicon Valley, but I get the sense that the weather’s changing, and future luckiness will involve regions from all over the world. So I think the cheese has moved. It has been Silicon Valley, but I’m expecting some of the next big five companies in the world, in terms of value, are going to come from outside the United States. I think we’re seeing some of those next big things already in China. And there may be a next big thing from, I don’t know where else, that’s why I’m on the plane to everywhere from all the continents. It could be any of the continents, including Europe. I don’t think that the next five are going to come all from Silicon Valley. Maybe two will, but I’m going to guess that the next three might be a couple from China and one from somewhere else.

ED: Your whole career is very interesting. It’s consulting and regulation of all things. And you keep repeating this regulatory heritage of yours like a badge as if it served a very purpose in where you are right now. Then came the investments and there are many regulatory-type people who put their money on the startups, and it seemed to me that it’s making that big break, which then creates your first pool of money and then that makes you an investor and then that creates your possibility for the next pool of money, and so on. So would you describe your career in that way?

GK: My career has been some in technology. But look, I was a history major by training, and my view of the world is developmental, and the things I studied is like why did the atom bomb get developed when it got? Why did it get developed where it got developed, which is in the United States? But were any of the scientists Americans? No, they were not. Why at that point in history?

We look for both major political trends to be in that right place where all the planets are aligned. And in innovation, Silicon Valley has, for the last 30 or 40 years, been an absolutely amazing place. Some of it is technological, but some of it is also a mindset. If you look at companies that have been very dramatic innovators or transformers, like Uber and Airbnb, yes, there was technology. But the real innovations required more than changes in technology. They broke rules, tested regulations; the question of does Uber need to be licensed as a taxi company? Is Airbnb a hotel company? For Square, the question was, “Can you actually be a merchant of merchants, even though that technically breaks the rules?”

ED: But then for the merchant of merchants, you’ve got the initial coin offering in the credit card business.

GK: The original for that was PayPal. They came along and they were a merchant aggregator as well. But typically, the card companies don’t allow that unless you’re in a huge scale. So if you’re a startup, do you get to that $100 million level that they often dictate you have to be before you can be a merchant of merchants? So you need to be able to either have a persuasive story, you have to be in stealth mode for a time, you have to be able to do something that’s sort of dramatic enough and different enough that it kind of takes the regulators and the people that can say, “No,” a little time. And by the time they might want to say, “No,” you’ve got something so interesting that they say, “Maybe, and let’s not kill it too early.”                                

The same things happened with cryptocurrency. There’s some people that just want to ban it outright. Some people that think it’s great. But there are enough people undecided that crypto made it out of the crib in the US. Not all crypto, but a company like Coinbase, or Ripple – the first is which I invested, and the second where I was the chief risk officer – showed that they could be compliant enough to not get shut down right out of the box. It’s finding that balance between being disruptive, but not too disruptive.

 

The prosaic beginnings of Twitter, Silicon Valley

ED: Talk to us a little bit about the early days of Twitter. I’m intrigued by the prosaic nature of the story. It wasn’t a brilliant thing. It was just basically one happy accident into the other. That’s the sense that I get.

GK: Well, Jack Dorsey, I have to give him really all the credit. He hacked into my bike messenger dispatching company where we had the concept of, instead of telling couriers what to do, creating a marketplace, we would just put out the messages, 140-characters, and couriers would call for them. Jack’s insight, not mine at all, was why don’t we just put out the 140 characters, not just for bike messenger deliveries, but for whatever, and whoever wants to follow those, can. So his insight, which was more than an idea, is a lot of people think that free speech is about freedom of speech because it’s called free speech; it’s the right to say what you want to say. But if you’re in a prison or an insane asylum, nobody can hear you. Free speech is really about who can listen to you. So Twitter converted that around. Instead of you directing who you were talking to, everybody got to direct who they wanted to listen to. Now that insight is not at all how publishing works. So that was a pure innovation.

However, Silicon Valley, because that wasn’t a technological innovation, didn’t see anything there worth investing in. Twitter actually had a very hard time raising money from Silicon Valley. It was only East Coast media companies that understood this might be a new form of communication rather than a new form of technology because it was based on text messaging. Again, there are all these different paths to market, and Twitter’s didn’t look very dramatic at the time because it just used text messaging.

ED: If I look at the things that you’ve invested in, they all seem that a common thing that they have is the information rail and what can the information rail carry? And your latest one is globaliD, but basically, how can globaliD be carried on an information rail? Would that be accurate?

GK: An information rail, in the case of globaliD, instead of that information rail being controlled by a company in a silo or a country, how could you make that information a public good such that everybody has an identity, and there’s a global white pages and yellow pages for entities of all those identities, and yet those identities are trusted without people having to give up all their private information. The new rail here is the concept of a directory of all the identities with public attestations about what level those identities have been to. Has a bank account been verified? Has a government ID been verified? Has a phone number been verified? Has a biometric been verified? But without actually showing what those pieces of information are.

ED: I’m looking at it linearly, which is you had Twitter and then Square, which was putting payment on that information rail. And then identity. But there’s ultimately models which you think of for blockchain as an automated model where the idea of identity is not on an information rail, but it’s on a collaborative rail. It’s the idea of identity being authenticated because of six people who know each other.

GK: In between Twitter and Square and this identity were projects I worked on like funding Coinbase while working as the chief risk officer of Ripple. They actually had a concept of identity which is not about who you are, but what you have. And in this case, identity, it was enough that you had the private key to unlock a public address.                                 

That’s kind of a Mad Max kind of identity, which is like why should I do this? Because I have a gun. Why should I do this? Well, I have the private key. Now for some people that’s kind of like possession is 10/10ths of the law. And you used to not be able to do that because you used to have somebody who was a centralized actor would that say that’s okay, or not.

But with blockchain and with crypto, it was the first time that there was no other actor. Just as if there was a party that had a public and private key and wanted to send it to someone else, they didn’t have to ask anyone permission. So my plunge into identity has a bit to do with a reaction or a counter reaction to this other innovation that let all of these things happen with no identity.

ED: But it’s very interesting because what you’re suggesting is there’s the identity aspect, but the crypto approach is that you’re not even interested in the identity, you’re interested in the token, interested in the value that’s being computed. That identity is only necessary in order to complete the transaction.

GK: The identity is necessary for the guys that have guns and badges and for it to be legal. But in blockchain and crypto, technical authentication is all you need for authorization. But we don’t live in a world of pure technology. We live in a world of laws. So you can authenticate, technically. But to follow the law to make sure somebody wasn’t coerced, you need a form of identity to make sure that really was the right person, not someone posing as that person who happened to steal the private key. In blockchain, there’s no way to reverse that. But in a world of guns and badges and laws, there is a way to reverse that. It’s called the law.

ED: In the case of Twitter, the telecommunications rails that you ran it on is on the traditional players, so somehow you needed the traditional players to allow you to run this for free, right, and you do that because you’re running data, not a telecommunication message protocol. And then you have Square, which is at the back end. It’s traditional as opposed to a digital wallet even in that regard. How is that intermediation element going to evolve, do you think that the incumbents get to manage the rails?

GK: In Square, the incumbents get to manage the rails. You can think of that as they get to run the poker table. But it used to be the only people that could get to the poker table were merchants that had $100,000 a year in gross receipts. But with Square, because of the simplification of the technology, doing it on an open platform, like a phone, rather than a closed, proprietary piece of technology, that came down by a factor of 10. So the innovation isn’t disrupting who the rails are run by. It’s who gets to sit at the poker table. So now there’s like 10 times as many parties that can make it to the poker table. Disrupting who gets to run the rails, that’s another set of innovation. That’s not Square’s job. Square’s job is to get more people to the table.

 ED: So are you interested in that, that the intermediators shouldn’t be like highway robbers waiting to intermediate the transaction and make lots of money out of it?

GK: I’m a suit-and-tie guy. I worked for the Feds in the payments group, regulator for all the banks. I’ve worked with many of the banks. The banks aren’t bad. I’m not saying they’re broken. But the rails are slow, they’re expensive, they don’t operate 24/7, and they exclude a lot of people.

“Hey, but other than that, Mr. Lincoln, how was the play?” as we say. So it doesn’t mean there’s not a problem to be fixed unless it’s broken. There’s that old saying, “If it’s not broken, don’t fix it”. But it’s bad enough that it’s worth thinking about what could be better running in parallel, and, potentially, maybe one day, displacing the existing bank and card rails. But right now, what we’re really talking about is what would a third rail look like that wasn’t controlled by banks or card networks?

ED: Talk to us a little bit about Silicon Valley, and as an investment ecosystem, the world is sort of decided that the Series A, Series B, Series C model works. But that is predicated on the idea that valuations go up, that valuations go down, you can’t justify anything, and if valuations go up you can justify anything. Like you don’t need income, that sort of thing. So where’s that going? Where’s the funding model going? And what kind of discipline do you think will eventually settle in order to drive or handpick the winners?

GK: Silicon Valley is a kind of an ecosystem of success begets success. It’s just one of those things that if you know that’s where the money is, that’s where the talent goes. And if the talent’s there, that’s where the money goes. That being said, and that having been the dominant  theme for a period of 30-plus years, with some hiccups, like the dot com crash, there’s still a lot of good things that are going to happen in Silicon Valley. But the world is changing. China is rising. There’s talent around new technologies that’s happening, not a little bit, but a lot of it in other centres around the world, and it’s not clear that, like we said, the next five top companies in the world are all going to come from Silicon Valley.

ED: So the innovations that get betted on, does being regulated actually help it, meaning that investors will say, “Hey, this is regulated, this is good stuff, this will survive.”

GK: Just like in a sporting event, sporting events aren’t better if they have no rules. They’re good when they have good rules. Good regulation makes for good competition and good innovation. Bad regulation creates ambiguity. It creates fear. It’s like a society that’s based on tax evasion or money laundering. You have all your money going to smart accountants and sneaky lawyers, not going into the pockets of engineers that are thinking of turning ideas into the next big thing.

ED: Where is Silicon Valley in terms of what it chooses as the likely winners today?  Actually, I’d go back to Peter Thiel’s point where he’s once said that Silicon Valley used to celebrate diversity a lot, and now there’s a lot of group-think, like people are afraid to be different because that’s not where the money is.

GK: I think Peter Thiel famously said like, “I wanted jet packs, and I got 140 characters.” He wants the innovation to be at like a higher level of imaginativeness. It’s the folks that want to see space travel. They want to see hyperloop. They want to see the cure to the common cold. But I don’t blame them. I want to see all those things, too. I think he may be underestimating some of the innovation that happens that isn’t technological, but it is sociological.       

One of the things that’s happening is just the general flattening of marketplaces. So when you see Uber and Airbnb, you might not say that they’re that technologically innovative. But my gosh, they transform industries. And if you look at a post-Airbnb and a post-Uber, where maybe the seekers and providers in those industries find each other directly without there even being a company in between, that’s transformational.       

Now it’s scary transformational because it removes a lot of the institutions that have provided a security blanket and familiarity for the last couple hundred years of our civilization. But that’s not technological information. It’s kinda like the science fiction that deals with the social implications of some eerily straightforward technological innovation, like GPS, like mobile phones that create new business models that flatten whole industries. That, still, to me, is pretty interesting, and pretty fundable.

 

Investment Thesis

ED: But what are you invested in? Like just do a spray and, say what is the common theme of the things that you invested in today?

GK: A lot of my investments have to do with the transformation of the payments industry and those marketplaces. I believe in the future that seekers and providers of goods, services, information will be able to find themselves in a flatter and flatter way, and pay one another without having to go through intermediaries. In that flat world, there’s not saying that laws and rules are going away, or institutions, but, say, for instance, banks might act more like vaults, and might not do so much of transaction processing.

Because, frankly, they haven’t been a very good deal for consumers or merchants. But they might still be an entity that safely holds money in vaults, just like phone companies have become sort of like dumb pipes. They don’t control the app store anymore. They used to take 70% of the take, and Apple taking 30 % of the take seemed like a good deal. Now 30 % seems a little steep. And the European and American regulatory authorities are beginning to take a hard look at that.

ED: Well, there was a time when you can’t go wrong if you invest in certain things, basically. But you’re still not answering the question in terms of what would you bet on?

GK: I’m betting on the new forms of wallets, new forms of messaging that go with those. I believe, like in the future, young people, and those young people get older. I’m not sure why you won’t have a super app, which is just messaging on steroids; messaging that’s also your wallet, messaging where there’s bots, and you can buy things you want to do. You don’t really have to leave that messaging app. Instead of having like 100 apps on my phone, I’m investing in the pieces of that infrastructure. If you think about it, the things you need to get from that world is you need messaging rails. You need identity because you’ve got to do it compliantly. You need a ledger to keep track of everything. You need a wallet to get access to the money. And because we still live in a card-based world, you need cards. In other markets, you need QR codes. So anybody who’s building those pieces, those are the picks and shovels of the next world that I’m expecting to live in. And I’m investing in picks and shovels.

ED: In the things that you are investing in right now, what are the hidden stuff that you’re thinking about that you think you need to pay attention to?

GK: I often say I’m not in the fintech space, I’m in the regtech space. The things that are most interesting to me are folks that are gonna figure out how to get around regulatory or rule barriers. I’ll give an example. Some of my companies that I’m invested in, Coinbase now has 30 million wallets with customers in 200 countries. Brave, the browser that blocks ads; it has its own internal token for paying content provider, also has users in 200 different countries.

All those users would like to be able to spend the value that they have in those systems. They’re in 200 different countries. There’s a Visa and Mastercard, which lets you spend money in 200 different countries if you have a card. But there’s no way to issue Visa and Mastercards in 200 countries without going country-by-country and getting an issuer. So I’m looking at people that might be in a position to knock off a chunk of that, either they already have permission to issue in all of Europe, or a chunk of Asia. But the real question is, is there someone there that has a persuasive use case to Visa and Mastercard to say, “Look, we’ve got customers in 200 countries. We’d like to service them. We need you, based on this set of arguments, to allow us to issue in all 200 countries; otherwise, it’s a very unequal way of us servicing our customers.”

ED: Come back to what you invested in. Give us a sense of the profile of the investments that you have. Just collectively, maybe on six areas.

GK: On card issuing, we have Marqeta, which is issuing the card for Square. It also has issued the card for some of the gig economy, the original Facebook card. We have an investment in Apto, which has done the Coinbase card before it did the original Venmo card. Optimus, which is a principal Mastercard issuer in Europe. Those are all in the card space.                                     

Then in the crypto space, it would be exchanges like Uphold, or GateHub in Europe. Then in money transmission, companies like TransferGo, which is the blue collar version of TransferWise, or Viamericas, which is a more focused Latin American corridor company than Western Union. All of these are puzzle pieces that could be configured in a world to build a third rail to banks and traditional card networks.

ED: Puzzle pieces are interesting because the idea that you found one of the puzzles, and that you’re trying to put that together doesn’t necessarily mean that the other two things that you find are also part of the puzzle, basically. So the process of elimination in terms of what’s working and what isn’t.

GK: We don’t know whether all those puzzle pieces are gonna work out. I mean, just as an investment thesis, my thesis is for every 10 companies I invest in, seven will fail, two will go sideways, and one will work out. But if you invest in 100 companies and 10 of those become unicorns or well beyond unicorns, you’re way ahead. So the challenge is not the seven that fail or the one that succeed, it’s figuring out of the three that didn’t fail, which of the two that are going to go sideways versus the one that’s going to make it all the way through. And you’ve got to be able to double down on that one company.

ED: In fact, I would say that there are banks in Asia where they refuse to double down, but at the same time they want the customer to gain a lot of the benefit of the same pool. So there’s wealth management. There’s travel banking. There’s high net worth, and so on. But they all belong to the same pool. So the idea is where does the power of the relationship sit? Like who gets to call the shots?

GK: I tend not to invest in companies that have already gotten too big and too successful to take a risk with something new like a form of portable identity. The big ones think that they’re going to be so big and so successful they’re going to wipe everyone out, and they don’t need to be part of a world that’s going to set a new protocol for portable identity because that’s a risk to them.

Their strategy is the Highlander strategy: one sword to rule them all. They’re looking to vanquish everyone else in their space. It’s unlikely that I’m gonna be able to persuade a top-tier bank, or even a top-tier crypto company, to go and put everything on the line.

In Square, which I was an original investor, I don’t even have enough clout to get Square to change their whole business model to do identity on a way that is transformatively different from the traditional model that they’re using.

 

A verifiable digital identity system

ED: Where are you with the identity piece? Are you testing algorithms? Where are you with it now?

GK: With globaliD, you can currently download an app to basic attestations, like prove you control a phone number, prove that the information on your government ID is valid. You can confirm that you control certain social media accounts. You’ll soon be able to confirm that you control various bank accounts. All those attestations can be written to your name. Your handle, which is globally unique, sits on a global registry. You can think about it as a white pages for everyone to see. Not the private information, but the public attestation that those private details have been verified. So that’s out there now. The next steps for that is to attach to it the messaging rails, the ledger and wallet rails, and the card rails. That’s where we’re at.

ED: Now the thing is that just hearing you describe where you are at brings to my mind the role of the intermediator again. There’s a profit proposition. There is a control proposition. I personally don’t like hearing it because I think that these things should be utilities that are self-regulating. And I think you’re a big fan of self-regulation.

GK: Think of it as protocol development. There’s the protocol that gets developed. Then there’s bodies like the World Wide Web Consortium (WC3). There’s governance organizations that come up with rule sets. Even something like Visa, Mastercard, and SWIFT.  They’re examples of rule sets and governance structures. Now they’re not ones like WC3, but we need to get to that point where people think that there’s a protocol in governance structure around identity. Currently, that doesn’t exist.

ED: So the Visa/Mastercard model, the user community honestly believe that they owned it.

GK: That’s because like for SWIFT, the endpoints are the financial institutions. But with this identity, the endpoints are the senders and the receivers of either messages or money. When you move the boundaries out, then the people that are sitting at the table – there's still going be intermediaries there, but the consumer protection groups, all these other parties that go all the way and touch the endpoints now have a seat at the table. Developing a set of rails where the endpoints are not the financial institutions but are the end users themselves, it's an ambitious task. But I don't know how else the future is going to work. Otherwise, we're going to just all be living in the equivalent of a compu-serve, prodigy, AOL kind of world. Which jet packs and Star Trek. We've got to get pass that intermediate stage to the final form of truly inclusive identity, and all the things that that can bring us. Both in terms of rights and responsibilities.

ED: But at the same time, when you get the identity aspect right, how do you imagine all the rest of the pieces will fall into place? Credit, transactions, value creation? And what have you been learning from things like the one that you invested in Ripple?

Now Ripple, I thought, was a limited proof of concept where the idea is to create a token that operates across borders, and then whatever you do at the national level, you keep it at the national level, basically. It's an unproven model, and I'd like to come to that in a second.

 I have a theory that I want to work with you and discuss Ripple, because I seem to see them failing on the business front. But just before you answer that question, answer this question: What are the other pieces that come together when you get the identity part right?

GK: Many of the examples I've been talking about for identity have to do with money because we live in an exchange society. Whether you're a communist or a capitalist, we all live in an exchange society, and that takes up a lot of our thought and energy. But don't forget there are all sorts of other things you can do with identity like control your medical records, control voting. You can vet people you might want to date. There's a whole world out there that identity addresses. I'm particularly focused on the financial services industry, but it's not like I'm not mindful of all the benefits of having good identity systems, including being more confident that the news that we're reading isn't from fake identities.

Mistakes for identity have gone beyond fraud and compliance up to now, with us trusting the basic news that we're reading. But coming back to Ripple, let's talk about building on top of the shoulders of giants. Ripple was progress from Bitcoin, which was a ledger that was all in Bitcoin and couldn't handle any other form of value, or any other issuer.

So Ripple took a big stride forward on distributed ledgers by adding two columns to the spreadsheet. The concept of other currencies, including Fiat currencies in addition to its own, plus different issuers. It didn't try to tackle the identity problem and that's part of the reason I personally think that it's having some problem with traction. It hopes that banks will solve the identity problem. They'll just provide the ledger technology but banks haven't had – if I have a checklist of major innovations or progress that banks have made in the last decade, it's a pretty empty list. So if you're going to wait for the banks to figure out how to make distributed ledger technology work in a compliant way, you could be waiting for a while.

ED: The difference between a Bitcoin, which is a pure token for transaction for value and, say, Ethereum, which is a token which has kept value but is a token that also carries the conditions in which smart contract. Which way will the world go?

GK: I just think of them as different things. I think a Bitcoin is digital gold. It's like a store value. Yes, it's volatile, but if you need to get out of a country fast and you can't fill your pockets up with diamonds and gold, and you have a choice of getting your value out of a country with Bitcoin? That might sound like a panic asset. I wouldn't recommend against having some Bitcoin if you need to get out of a country where everything else is crashing around you. Ether is smart contracts. It's the idea of a programmable language. It's the idea that you can have a form of currency that allows us to have contractual relationships without human intervention.

It's aspirational, it's not that fast, but it is the concept that you could have agreements written in software. Ripple is really meant for transactions. Not store value, but transactions. It has a higher throughput than Ether and Bitcoin. It's not as high as, say, Visa, but it's in-between. So it's meant for transaction processing. So each of those has its own sector, they don't compete directly with one another, and those are in my mind, sort of the big three of cryptocurrencies in the world.

ED: But at the moment the Ripple model is smaller than the Ethereum model in terms of valuations. And 60% of which is in the wealth of the owners.

GK: It also depends on how you value it. The Ripple valuation is done on top of what is considered the XRP in circulation as opposed to the XRP in the vault.

I mean, it's kind of funny when you think about what's the value of Bitcoin. There's 17 million Bitcoin out there, there's only ever going to be 21 million. You could simply say the value of the network shouldn't include the 4 million. I don't really understand why that is. If I know there's this much money minted, I don't really care whether it's in the vault or not. But at the end of the day, sometimes the total float of Ripple is worth more than Ether. It's happened for two periods of time in the last two years. And sometimes Ether's more than Ripple. All I know is that if I have quite a bit of either one of those three, I'm kind of in the money. So the pecking order can move around because sometimes people value transaction processing more than smart contracts.

Personally I made a choice five years ago, then I put a lot of crypto in the box and it turned out that while I made huge returns on Twitter and Square, I made even more money on crypto. But I could just be a lucky guy.

ED: But Ripple has a business case aspect to it. Because you need a management team that goes around to all the banks. It's almost like recreating Swift in 1972, except for the crypto age. And the funny thing is this that at the business level, the reason they fail has nothing to do with technology. So there was before Ripple, Bolero. I thought that Bolero failed because the most enthusiastic users of Bolero were Japanese shipping lines.

Which then excluded all of the others. The others weren't interested because they created a sort of an ecosystem around themselves. So the good news is that Bolero worked, the bad news is it only worked for those Japanese shipping lines and their supply chain. And you have the same situation where half of Ripple's customer base right now, and probably half of Ripple's intellectual bandwidth is trying to solve the Japanese problem. Which is they don't have a domestic payment network. 

GK: One of the things I would observe is, yes, they haven't knocked it out of the park yet. Just like Facebook, we were doing Facebook credits and Facebook marketplaces, and Facebook card like five years ago and Google Wallet didn't do very well, or Google+. A bunch of these companies have had forays into the market that haven't yet become dominant. They're failed projects but the companies aren't failed, and the currencies haven't evaporated into no value.

Basically you get another swing at the plate and I have a lot of confidence that in Silicon Valley, when you try something and it doesn't work, I mean, if you're out of money you're out of business. But if you're not out of money you just swing at the next thing. I'm not at Ripple. I have my own beliefs. I personally think that Ripple would have more likelihood of success if there was more identity built in. But I'd say the same thing about Ether, and the same thing about Bitcoin and I would say the same thing about WeChat. They'd be more likely to be successful outside of China if it could deal with European privacy legislation.

 

Innovation vs Regulation

ED: You're shaping up like a libertarian, but actually it turns out to be you like rules. So does that make you a conservative, to the right side of the type of investors there are in the marketplace – that anything that needs to be created should be created by rules? But when you speak of rules, you actually almost speak of them in a libertarian way, like yes, the rules give me the guideposts to figure my way out, but I still want to keep playing until I figure out that it’s not working.

Kidd: There was a guy named Kingman Brewster. He was the president of Yale. He was the Ambassador for the US to Britain. He gave a commencement speech and he gave me the key to solving this conundrum between rules and innovation. And he gave it to me as advice on life. He also gave it as advice on relationships. He said, “Look, in life and relationships, there are three rules: The first rule is be bold. The second rule is be bold. And the third rule is don't be too bold.” That is the wisdom of Regtech.

If you're going to bring the first cryptocurrency card to the marketplace with Visa, you're not going to go around touting how you're breaking the rules. You're breaking conventions and following the rules. Now, there's an article that people pointed out to me in the Financial Times today castigating Visa for letting Coinbase into the marketplace with our card for spending bitcoin anywhere that Visa is accepted as being a conduit for like, dirty money, as if Coinbase hasn't been through the ringer on KYC.

Which I think it probably has a cleaner record than Standard Chartered or Deutsche Bank or now Danske Bank. All these traditional banks have had their knuckles wrapped for failings despite spending huge amounts of money on compliance and laundering huge amounts of money, whether for Mexican drug laws or stripping, SWIFT details on sanction transactions to Iran, or funneling money from Russia through Estonia to major correspondent banks around the world.

So let's just be clear that crypto isn't the only entity that has problems. Not to mention that I'm from the Fed and we print all that cash out there, all that cash floating around, all that gold. All these things have compliance issues.

ED: The reason I want to place you in the spectrum of types of investors is that when you tout your regulator badge, there are two things that you look at: One is the transaction itself and the other is the propensity of regulators to collect data for its own sake. And one of the reasons why you get Regtech as a subset of innovation today is because there are a lot of things that you can do with the data you're collecting, and you can collect even more data as a result. It becomes an end in itself. Or else you need to be a libertarian to see where this is taking you, like without being religious about in a way it should go, for example.

In one sense, you are libertarian, but your pedigree is that of a Regtech guy. I'm just trying to figure out at which point you make decisions. I'm going to let it run and then see what happens, which is what you did with Twitter, and then with identity, you're very clear about what it should be.

GK: I have a saying that “I'm willing to go through the front door, just follow all the rules, check all the boxes, if I don't have to”. And what that means is, a lot of times, I'm checking boxes that aren't actually really rules or regulations. They're conventions. They're habits.

The question is if there a rule or regulation that says in the United States, a financial institution cannot give a financial account to an undocumented immigrant? It feels like that's a bad thing to do, but that's not the law and it’s not the rule. But there are a lot of people that are nervous about doing it. So the question is, should I do it? Should I create a product and service for people that are underbanked and unbanked, many of whom happen to also be undocumented. Or is that morally or ethically wrong to do that?

Now I will sit down with a regulated institution and I will address those concerns. I’ll say, okay, let's talk about what the regulations are. Let's talk about what the rules are versus let's talk about what everybody’s feeling, and whether that is underbanked because they're undocumented, whether it’s cryptocurrency, whether it’s a vice industry like cannabis. I have a reputation for being involved in a bunch of these industries, not because I'm some libertarian, but because I want to understand what the rules and regulations are – I want to understand what you can and cannot do, whether you're Airbnb or you're Uber.

ED: I know we are not sitting in Silicon Valley, but I'm asking you to reflect on Silicon Valley, and I'm trying to get a sense of the investment models that are evolving in different parts of the world. This idea that Silicon Valley used to be a place of innovation and being different had a premium to it. And today, it’s like everyone is trying to solve the same sort of problems and there's greater clarity in terms of how it’s going to be solved. So you're actually narrowing down the options rather than broadening it, which is great financially, but may not be great in terms of rebuilding the universe in a way.

GK: I would say any time you're in Silicon Valley, there's always something that is the craze of the times. Like last year, it was blockchain and a little bit of crypto, but in Silicon Valley, not all insights and insiders are created equal. So I could be focused on totally the wrong thing. But last year, when everybody was excited about crypto, somebody was selling that crypto when it was going through the roof. That was me, right? And when blockchain was all hyped and excited, I was already in blockchain winter. I'm onto the next thing.

You always see what is popular and over-exposed in Silicon Valley, but that doesn't necessarily mean all the money is going there. Maybe 90%, but the next big fortunes and the next big ideas are being made by people who are already working on the fringe, on the next thing.

Part of the reason that I'm liking identity is identity has been pretty boring for a number of years. This isn’t my first year in identity. I'm all in on identity from like three or four years ago, and I've been thinking about identity for a long time. I could have the timing wrong; maybe it’s right. If you're Forrest Gump, the most important thing is to be in the right place at the right time and be lucky, but you still have to do the hard work and we’re doing hard work in identity.

ED: How long do you think that this identity craze will sort of keep you interested like, it’s you or your CV or your floating. You're going around building your own knowledge base of the whole development of this area.

GK: I'm all in on identity for the rest of this work life. So as long as I can work, which I hope is up until the day I die, I'm all in on identity because I have this gardener. He's an undocumented immigrant from Guatemala. His name is Rudy. I hope I don't get him in trouble by having this interview. But I look at the challenges of his life and of other people like him. And when I travel around the world, I realize how many Rudys there are. That's the problem I want to be working on for the rest of my life. And I think it’s going to take the rest of my life and maybe my kid’s life to get to that world that looks more like Star Trek, so I'm all in.

ED: That's an interesting way to try and capture the perception. Because the whole idea of transactional value is that it tries to imitate cash. And some of the characteristics of cash is anonymity, its non-auditability, stuff like that. And then we've created blockchains which are auditable and stuff like that. The whole idea of identity is that, number one, people like having multiple identities, and number two, people like being anonymous at times.

GK: So, we think both of those things can be achieved. There's being anonymous and having privacy, and having enough privacy amounts to effective anonymity.

ED: How much of that can be re-created in a digital world, or it’s like you just have to accept how the digital world works?

GK: I think privacy by design – we can regain a great degree of anonymity, but you’ve got to do it by design. You’ve got to, for instance, allow people to have multiple identities. I got my work identity; I got my personal identity. I got my day identity; I got my night identity. Each of those identities has to be validated so if a bomb goes off and it’s associated with that identity, the police know what door to knock on. But, there's no reason that we have to be reduced down to one – this is me, 24 hours a day, seven days a week, this is the only me there is.

I don't have that kind of dystopian pessimism. That might be China’s way of making it work, but I don't think that's the only solution, and I'm not ragging on China because they've gotten a long way with having people have like one identity and essentially no privacy. You can do a lot with that. It’s not my choice for living, but it’s great to see what happens when you push all the parameters to one extreme and the possibility of value creation. Now you just have to figure out how to do that without like stealing everybody’s privacy. So can you get the benefits of WeChat without a loss of privacy?

ED: Final question. You’ve travelled around the world – and final question only because this is a pretty intense conversation. You’ve been holding it out very well in terms of some of the conceptual dimensions that we need to be tracking as we see how innovation evolves. What do you see globally, in terms of – would you create blocs in terms of how innovation is evolving in Asia opposed to Europe opposed to the US? Given that Europe seems to be doing a pretty good job in putting in place legislation that lets innovation take it to the next level. You can argue that.

GK: I wouldn't argue that. I would argue first that the General Data Protection Regulation is a huge burden on people. Yes, in theory, you're supposed to have privacy by design, by being able to manage who you share with, but I don't see many people that are willing to take that responsibility on their shoulders and use all those controls, so it effectively becomes a heavy bureaucratic burden.

It doesn't actually get us where we need to be, and Europe’s approach on copyright, which makes it almost impossible for anything other than massive companies to comply, means that there will be a whole generation of innovation and startups that are killed off in Europe because of their copyright legislation. They have other good stuff, like PSD2 and open banking, but it’s a mixed bag in Europe as well, so just put that on the table.

As far as these different blocs, I think that I didn't get a Ph.D. when I wrote the paper that got me admitted to the program. The thesis was on why the different countries and cultures in the world excel at different forms of military technology. Like why was the Manhattan Project performed in the United States? Why were the British so good at radar? Why were the Japanese so good at torpedoes? Why are the Germans so good at U-boats and building V-2 rockets, and it goes and it looks – and you could say the same thing about sports. And over time, there’s amazing diversity at who is good at what.

So my hope is that we continue to celebrate diversity and continue to have these different blocs of rules and regulations, because I'm not looking for uniform rules and regulations in the world because you can have something like the internet and protocols and SMTP and SMS that work even though there's different rules and laws around the world. With that diversity, these different blocs will invent things that are global that work across different regimes, and we don't all have to give up our local identities and our local flavour to be successful in an increasingly global world. And we can like, not panic and turn to tribalism and populism that demonises those other blocs.

It needs to be more like sports. Yes, we want to compete against those other blocs, but we basically celebrate ours and we may in jest, cast aspersion on the other side. But come on, tomorrow we could be part of that block or this block. It needs to be more like the way sports works as opposed to the way war works. And that makes me ultimately optimistic. That's more of like a Star Trek vision of the future, but of course you still have to have Romulans and Klingons, or else there wouldn't really be a plot.

ED: Dystopian idea of a future. Greg Kidd, thank you very much. This is a continuing conversation. I would like to keep tapping on how you think and then watch innovation take shape.

GK: Thank you for the testing questions.


Keywords: Investments, Financial Innovation, Identity, Fintech, Regtech, Cryptocurrencies, Technology, Mobile Wallets
Institution: GlobaliD, Square, Twitter, Dispatch Management Services Corp., Federal Reserve, Ripple, Facebook, Uber, Airbnb, Paypal, Apple, Coinbase, Visa, Mastercard, Venmo, SWIFT, Standard Chartered, Deutsche Bank, Danske Bank
Guest: Greg Kidd, Emmanuel Daniel
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09 - 10 October 2019 | Philippines
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28 October - 01 November 2019 | China
MEA International Finance Summit 2019
07 November 2019 | UAE