First there was bitcoin. Then came Facebook’s proposed Libra stablecoin. Which in turn catalyzed dozens of central banks to seriously consider launching digital versions of their fiat currencies – with the People’s Bank of China first out of the gates with a pilot.
Might the future of money be decided another way, via small community-led tech projects?
One such contender is Celo, a proposed cryptocurrency that operates exclusively on mobile phones. The project is about a year old and one of its lead developers, a company called cLabs, expects to launch its mainnet this summer.
Several cLabs partners, speaking this week at the online Consensus conference, outlined what makes Celo worth keeping an eye on. It’s more than just a Libra-lite, although it has some commonalities.
Same dream, different route
Tim Moreton, an engineer at cLabs, says of the similarities: “We share a mission around improving financial inclusion through technology, specifically blockchain. When you both arrive at a version of the same problem, that’s a validation of the work.”
He argues there is room for multiple projects to address financial inclusion, given there remain around 1.7 billion people outside of the banking system. “That’s a phenomenal number that no one organization can tackle,” he said.
Work on Celo began about a year ago with the vision of enable fast and secure digital payments with just a mobile phone number. The Celo blockchain is a fork of Ethereum, with tweaks such as embracing proof-of-stake consensus (Ethereum remains stuck with proof-of-work protocols, a problem its developers have struggled with for years).
By optimizing this for mobile devices, the Celo blockchain is faster than Ethereum, and Moreton hopes to reach 1,000 transactions per second in the near future – speeds akin to what a Visa or Mastercard operate at. The teams then built stablecoins, to gold and to the U.S. dollar, to provide simple payment tools on the Celo wallet.
This approach makes it different to Libra in a few important ways. First, Libra is seeking to work with regulators so it has ditched its original plans for a decentralized, permissionless platform. Celo, perhaps benefitting from operating below the radar, is sticking with a decentralized approach that will depend on its developer community and early users than rely on a consortium of giant companies such as Facebook.
That also means Celo in theory is customizeable, so that its cryptocurrencies and payment tools could be tweaked for a given country or need, whereas Libra, if it launches, will likely be a monolith meant to drive payments across Facebook apps.
That also puts Celo in the de-fi camp (decentralized finance), meaning users must self-custody – an advantage as far as its developers believe, although this means Celo could run into regulatory issues down the road.
The other notable difference from the way Libra is architected is Celo’s links to Ethereum. Celo is based on Ethereum base code so it is open to work among the global Ethereum developer community, the blockchain world’s largest. Its smart contracts will be compatible with Ethereum projects. In the world of crypto, this gives Celo more optionality.
To be sure, Celo is small beer compared to Libra or central-bank digital currencies. For example, last year cLabs ran a pilot in Kenya to give people a way to make money on their phones that connected to Celo’s wallet.
In this case, cLabs translated online tasks to train machine-learning models from desktops to mobiles. These are no-skill tasks such as telling a machine how to categorize things like food and clothes, or transcribe paper receipts. Companies will pay people small amounts to do these jobs. By moving the work to phones made it possible for people who lack desktops to participate, and then they got paid via Celo dollars. Users could take these in turn to participating agents in Nairobi and convert them to M-Pesa tokens or cash them out. (M-Pesa is Kenya’s pioneering mobile money wallet, now owned by a local telco.)
Will Le, a partner at cLabs, says Celo’s cost of remitting US$5 from the U.S. to Kenya was far lower than existing services. TransferWise would charge a $3.33 fee, and PayPal $1.44. Western Union’s fee would be greater than the $5. Celo charged ten cents, and it took ten seconds, instead of days.
These figures might not hold up in the real world at scale, but the point is that cross-border payments for small amounts cost a lot – this is the problem that both Celo and Libra are meant to solve, and Le says so far the Celo network is far more efficient.
Of course, TransferWise, World Remit, PayPal and many other remittance platforms have already reduced frictions. Is Celo compelling enough to matter? There are also fintechs in Africa, for example, that use bitcoin as a payments mechanism to enable people to move money internationally at almost zero fees, in seconds.
Celo’s differentiator is its use of stablecoins. Vanessa Slavich, another cLabs partner, says stablecoins can increase the velocity of money, an important feature of fractional-reserve banking that has been losing its power as central banks expand the money supply in the face of financial crises. Stablecoins are programmable, so they can offer consumers cashbacks or other rewards for spending money – or penalties such as fee for holding it too long. “There are new use cases on top of the original idea behind stablecoins,” she said.
Of course, central banks can also design their own digital fiat with such features. But it could still be years before governments deploy CBDCs. Libra moved fast because it saw central banks weren’t doing anything; because of Facebook’s size and problematic reputation, it triggered a backlash. Now Libra is trying to advance in partnership with monetary authorities. Celo sees a similar gap. It is a tiny project in comparison but perhaps it will find small is beautiful, at least when it comes to enabling actual small-value remittances among the unbanked.