Expert interviews

Expert interviews

Hedera co-founder and entrepreneur Tom Trowbridge: Preventing forks gives enterprises security.

by Blocks99

10 months ago

Tech and finance investor and entrepreneur Tom Trowbridge talks about Hedera, Bitcoin and the formidable financial and economic power the Libra Association could potentially wield.

Entrepreneur Tom Trowbridge went to Yale University and after graduation spent six years advising and investing in technology companies before going to business school. His first job after college was in technology and telecom investment banking. The US had just passed the telecommunications deregulation act, and the industry was booming. After two years, Tom joined to a private equity firm and spent almost four years investing in technology, telecom and media companies. He next went to business school at Columbia, after which he spent nearly four years at Goldman Sachs for before building businesses with a succession of investment management companies. Tom kindly shared his thoughts with Blocks99 in early November 2019.

Blocks99

You are a co-founder and former president of Hedera. Please tell us the founding story of Hedera Hashgraph. When and why did you come up with the idea?

Tom

Ever since college, I wanted to be an entrepreneur and was thrilled to have the opportunity to found and build the business from the ground up at Hedera. Since 1998, I had been investing in technology companies, first as part of a venture capital/private equity firm, and then personally since about 2004. I had been looking at the distributed ledger space since 2013, and in 2017 I invested in Swirlds, which was founded by Dr. Leemon Baird and Mance Harmon and is the company that holds the patents for the Hashgraph Consensus algorithm. Leemon had been working on the Hashraph consensus algorithm since 2012, and after years of trial and error figured out the solution in 2015 and published the white paper in 2016. Leemon and Mance are both ex air force academics, based in Dallas, and they asked me to build the company that would deploy the Hashgraph consensus algorithm in a public ledger.

In late 2017, we founded Hedera, and I started building the council of Fortune 100 companies, raising capital, and crafting our regulatory engagement. When I joined, Leemon and Mance had only been able to raise $US 3m, for Swirlds, mainly from an Angel List syndicate. At Hedera, I was able to raise $US 124m, structure and build a council that included Deutsche Telekom, Nomura, DLA Piper, Tata, IBM, Boeing and other world-class companies, and we took the business from a white paper to a launched network with over 500 companies building on the network and a team of 70 in over eight countries.

Blocks99

You recently left your position at Hedera Hashgraph as a president. Why did you leave the company?

Tom

I think the consensus technology that Leemon created is really compelling and, when combined with the governance of Fortune 100 companies, totally unique. But ultimately Leemon and Mance are academics, and we had several strategic differences. The most important difference was my view on the necessity of educating the market, the community and investors about Hedera in the months prior to token release, and we also differed on the importance of in-person focus on the developer community and finally on the benefits of signing up the best companies for the governing council regardless of their current use of Hedera. The token is now trading, and I think it’s really undervalued due to the lack of broad education about the platform. I remain a very large holder, so I have every incentive for the project to be a huge success and continue to be supportive of the company any way I can.

Blocks99

You just gave a talk on Libra/Calibra at the AIBC Summit in Malta, which sparked a lot of conversations. Can you summarize the main points for our readers who did not manage to attend the talk?

Tom

Certainly. I could discuss this for hours! Here is a link to my short 10-minute talk. I think Libra isn’t at all about providing access to the unbanked. First, 50% of the unbanked live in countries that don’t allow cryptocurrencies. Additionally, every element of the architecture – from the fact that Messenger and WhatsApp will exclusively feature Facebook’s Calibra wallet to the fact that the Calibra wallet will not allow any other currencies – demonstrates that the goal is not about wide usage for the unbanked. Instead, Libra is about providing financial services to Facebook’s three billion users via the Calibra wallet. Facebook is copying Ant Financial / Ali Pay, which has 1 billion users and is worth $US 150bn. If successful, Facebook will be worth over $US 1tn and likely be the most valuable company in the world.

And Libra is important to achieving that goal, because when users buy Libra coins, the assets – dollars, euros etc. – go into the Libra Reserve, which could become the largest pool of discretionary assets in the world. If every Messenger and WhatsApp user put in $450, the Libra Reserve would be $US 1.5tn and would be as large as JP Morgan’s deposit base. David Marcus has said that the Libra Reserve will buy dollars, euros, yen, pounds and Swiss francs, but that could change at any time. Facebook’s largest market is India, which currently doesn’t allow cryptocurrencies, and there is nothing to prevent the Libra Reserve from saying to India, “We would like to add the rupee to the basket of currencies and so will be happy to purchase $US 10, 20, 30bn of your debt.” If that happened, do you think India might allow Libra? And would they then not allow any competing coins?

Blocks99

Is Hedera Hashgraph trying to be an ecosystem similar to what Facebook aims to do with the Libra Association?

Tom

Hedera was the first to create a council of companies to govern the network. I met with the Facebook team in 2018 to try to get them to join our council and about a year later they announced the Libra Association, which copied many elements of the Hedera Council. But there are several critical differences: Hedera council members do not pay anything to join, they receive no dividends and their participation is capped at two three-year terms after which they must leave the council. The Libra Association is designed to attract members for financial reward, and they have been successful as 25% of the current members are venture firms. The Hedera Council takes the opposite approach by working hard to have representation from as many sectors as possible and from all regions of the world.  Additionally, because Libra members are not term-limited, the Libra Association could develop into a cartel whose interests diverge from the interest of the users or the network. Hedera also is operating at 10,000 TPS with a path to get to 100,000 which we think provides the scale for enterprise adoption.  Libra just offers 1,000 TPS which they said will likely degrade as the network grows.  Additionally, Hedera has the highest level of security, ABFT which we think enterprises will demand while Libra is far less secure. Hedera hopes that the companies on the governing council will use Hedera and will lead other companies in their sectors and ecosystems to adopt Hedera as well. I think Libra doesn’t expect enterprise adoption besides merchants accepting Libra for payments.

Blocks99

Hedera Hashgraph has been getting a lot of criticism from the crypto community that the project is turning into an enterprise blockchain player instead of an open-source project. Can you shed some light on this?

Tom

Yes, Hedera has been criticized, but when we explain that at version one all the code will be open for review, and it will not be closed, that reduces a lot of the objections to the patents. The reason for the patents is not to hide the code, but to prevent forking, which is also a different approach from most of the community. But Hedera’s view is that to attract enterprise customers who will spend millions building applications, the last thing they want is for the layer on which they are building to fork. Imagine a land registry on a ledger that forked. Post fork there would be two states – i.e. two land registries, one on the original ledger and one on the forked ledger.  Which would then be updated going forward?  Which would be “true” registry? The lack of real enterprise adoption is well known, and Hedera’s view is that preventing forks will help give enterprises the security to invest in building significant applications. And of course this approach also benefits anyone who wants to build on the network. Hedera is currently doing about 450,000 transactions a day which is about 70% of the volume of Ethereum, and none of that comes from large enterprises, so the model clearly appeals to a wide audience of users.

Blocks99

You come from a finance background. What advice you would give people in the finance industry about Bitcoin?

Tom

Buy it. There are few large, liquid assets that have the return potential of Bitcoin.  Of course there are scenarios where it goes to zero, but that is true for pretty much any investment and few have the upside of 10–20x in the foreseeable future. When you realize that there are fewer than five million crypto investors worldwide and that, as a comparison, Fidelity alone has over 30 million retirement accounts in the US, the scale of the potential asset flow starts to be clear. And there are several potential upcoming catalysts, including the halving in June of next year and at some point the approval of an ETF in the US. But Bitcoin will be volatile for a long time, so my suggestion is to figure out the amount you feel comfortable owning, divide that by six and buy sixth each month until you reach your target ownership.

Blocks99

DeFi has been a hot topic in the blockchain space recently. As someone with a deep finance background, what’s your take on DeFi and its potential? Can DeFi (or finance 3.0) replace traditional finance or even FinTech at some point in the future?

Tom

DeFi is really exciting, but I don’t think it will replace FinTech or traditional finance. We have already seen the rise of companies that crowdsource borrowers and lenders, and what has happened is that traditional lenders haven’t gone away, but rather have become large participants in the networks. DeFi can be enormously successful without replacing traditional finance and the mass adoption required to replace traditional finance, I think, is unrealistic for the foreseeable future.

But I do see the lines blurring as both FinTech and traditional finance make use of distributed ledgers. DeFi is well suited for a certain user base and certain services, but companies that adopt distributed ledgers to cut costs and marry that with large existing customer bases have the broadest and nearest-term opportunity. We are already seeing legacy companies adopt distributed ledgers in trade finance and supply chain among other areas, and there is a real question as to whether value will accrue to those companies instead of the underlying blockchain technology companies. But of course, for the existing companies that do not adopt the technology, I think they stand little chance.

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