Most people missed Mark Zuckerberg's first hint that Facebook was preparing his boldest bet in years.
Buried in the penultimate paragraph of his 2018 New Year missive, Zuckerberg said he intended to “go deeper and study” encryption and cryptocurrency.
Inside Facebook, Zuckerberg had already begun quietly marshalling his troops to investigate what a new global currency might look like. Just 18 months later the social network was ready to reveal the answer: Libra, a digital coin backed by hard assets and supported by 27 other partners, including Visa, Mastercard, PayPal, Uber and Spotify.
The person who played a central role was David Marcus, a former PayPal president who pulled in engineers for the project from all over the Silicon Valley company.
Even as Facebook’s crises intensified early last year with the Cambridge Analytica scandal, the crypto team moved quickly, trying to stay below the radar as it quietly tapped external blockchain experts to help shape its ideas.
Cryptocurrency and fintech specialists such as Anchorage, a start-up backed by Andreessen Horowitz, and Ribbit Capital, an investor in digital wallets Coinbase and Xapo, say they were talking to Facebook even before Marcus was officially appointed to lead its blockchain team in May 2018.
All those firms are now signed up as "founding partners" of the Libra Association, the Swiss-based non-profit that will launch the currency early next year.
Those early partners say while Facebook’s project has gone through some iterations, the development of a new cryptocurrency was the clear goal from the beginning.
As Facebook searched for blockchain technology in the first half of last year, it approached start-ups including Algorand about potential acquisitions, according to two people familiar with the discussions. But the takeover talks fell through, in part because of disagreements about how much control Facebook would exert and how decentralised Libra would be.
Within Facebook – where engineers and product managers are more familiar with optimising advertising algorithms or simplifying photo-sharing– creating a new currency was seen as a daunting challenge.
"I've been doing this for more than a year, like 20 hours a day, and I'm still wrapping my head around it," said Kevin Weil, who moved from Instagram to become Facebook's head of blockchain product in June 2018.
Libra was “unlike anything I’ve ever worked on before”, he added in an interview last week at the San Francisco Mint.
“The technology is basically brand new, and is evolving really quickly. No one has any experience with a global currency before. Any direction you look, it’s new – and that’s exciting.”
Before too long Facebook’s nascent efforts began to cause ripples outside the social network. Marcus quit the board of Coinbase, one of the best-known cryptocurrency wallets, in August last year after just nine months as a director. It would prove to be an early test for the coalition of 100 partners that Facebook ultimately hopes to build around Libra – of whom Coinbase is among the first.
"I'm hoping it's not going to be too messy," said Jim Migdal, Coinbase's head of business development and a former Facebook employee. "I'm confident things will get sorted out, but I don't have some panacea that it's all going to be puppies and roses."
Despite its initial momentum, morale among the Facebook blockchain team had sagged by the start of this year. Many were unsure whether their work would materialise into something concrete, according to one person familiar with the project.
Yet Libra received the “green light” around the time that Zuckerberg outlined a new-found commitment to privacy in late January, including his plan to integrate the messaging services of its trio of apps into one encrypted system, the person said.
That was when Facebook began pitching other potential partners in earnest – demanding total confidentiality from the people it was meeting.
"The entire thing was shrouded in secrecy," said Joshua Gans, chief economist at Creative Destruction Lab, a non-profit start-up that is Libra's only academic partner so far.
Facebook nevertheless made a key concession: promising to relinquish control of Libra once it got off the ground.
“The amazing thing is that we’re going to get the same vote that everybody else does,” said Gans. “For us that’s a gift.”
Requirements for Libra Association founding membership include a $10 million (€8.9m) minimum investment in Libra Investment Tokens, and certain measures of scale, such as $1 billion market value or a customer reach of at least 20 million people.
In return, getting in at the start offers an opportunity to shape the governance of the association, which has not yet finalised its charter, as well as various incentives to help lure consumers and merchants.
Facebook has promised the association will evolve to become less dependent over time, not only on itself but eventually on the other founder members. Still, documentation published this week by Libra shows that Facebook “is expected to maintain a leadership role through 2019”, in effect remaining in control until the network launches next year.
Payments companies Visa and Mastercard were among the earliest partners to be approached, while others, including retailer Farfetch and PayPal, only became involved as recently as two months ago.
"It has moved fast...These projects require a number of people to jump at the same time, which is no mean feat," said Stephanie Phair, Farfetch's chief strategy officer. "[Facebook] have been extremely thoughtful about who they brought in and how they devised this platform."
Trying to sprint
Some observers, though, worry that Facebook is moving too quickly.
“All this stuff is a bit of a marathon, and Facebook are trying to sprint,” said one senior innovation executive at a large global bank.
Others who were not included among Facebook's first Libra partners accuse the social network of cherry-picking companies with whom it has existing commercial or personal relationships. The list includes no banks and omits Facebook's biggest Silicon Valley rivals, including Google and Apple.
However, Marcus defended Facebook’s selection. “It’s basically who can bring the most value in the early stages of starting a network like this one. And it’s not for everyone...Those are the companies that felt the most passionate energy around joining us on the bumpy journey ahead to make this a reality.”
Even some early Libra signatories say privately that they are ready to walk away if the next few months do not bring the developments that they hope for.
"It's going to take an incredible amount of campaigning, security and knowledge for this to get to where it needs to go," said Tom Jones, chief operating officer at Women's World Banking, a non-profit.
"It will not work if certain players pull more weight than others," said Jorn Lambert, Mastercard's executive vice-president for digital solutions. "Trust is extremely important." – Copyright The Financial Times Limited 2019