Yesterday, David Marcus, the CEO of Facebook’s blockchain subsidiary Calibra, published a post responding to commentary on the firm’s proposed cryptocurrency. Libra was announced two weeks ago and has since seen intense discussion, both positive and negative.
While the Bank of England seemed to be open-minded about the social media giant’s proposal for a new currency, the Governor of the Bank of France was more skeptical. This week a director at the U.K. Financial Conduct Authority warned that Libra must be taken seriously, as its impact could be significant. Meanwhile, A former policy advisor to the U.S. Senate Budget Committee, Matt Stoller, said that it is “an absurd idea“.
Nothing, however, compares to Tuesday’s scathing letter from the U.S. House of Representatives Committee on Financial Services, requesting a complete halt of Libra activity.
Marcus does not state whether he is responding to any particular commentary, rather “a lot of great dialogue from many different viewpoints.” Since no collection of firms with the capital and customer base of the Libra Association has proposed a new currency before, many questions have been asked. Yesterday’s post answers some of them.
Is this really a blockchain?
A common criticism of Libra, largely from those who are pro-decentralization, is that the underlying blockchain, run by Switzerland based Libra Networks, is not really a blockchain at all. This is because it is private in that only members of the Libra Association operate consensus nodes.
Currently, these members are mostly large firms or conglomerates such as eBay, Uber, Mastercard, and Visa. For instance, there are five venture capital firms, each planning to operate a node, compared to three non-profits. Skeptics say that the Association holds centralized control.
Marcus responds: “the Libra Blockchain is absolutely designed to be open […] no one needs to become a member to access the blockchain, and to build services like wallets, or merchant acceptance.”
As to decentralization, he states that Libra is only just starting out; “it was important to start with trusted entities that could operate in a regulated environment and with the operational expertise required to ensure the integrity of the network in its foundational stage.”
“I’d argue that one hundred geographically distributed, industry-diverse organizations is quite decentralized,” the former PayPal boss claims.
Indeed, members include music streaming services, blockchain technology providers, telecoms firms, and non-profits. Though Marcus does not address concerns, made by Stoller and Maxine Waters among others, that these node operators form a financially gargantuan organization “too big to fail“.
Can Libra really help people?
As mentioned in the Association’s whitepaper and on their website, the key aim of Libra is to provide those without access to financial services with a way of transferring funds. The site quotes the World Bank figure that 1.7 billion adults don’t have an active bank account. The theory is that many of those adults do have a Facebook account.
By integrating wallet capabilities into Facebook’s existing messaging services, the firm hopes to make financial services more inclusive. The digital wallet is slated for release next year for use in WhatsApp and Messenger.
However, some have been critical about whether Libra really can solve this problem. A user would need a smartphone to access Libra, which not everyone can afford. One reason people don’t have bank accounts is that they don’t have enough money, to begin with.
Marcus disagrees that this means Libra can’t help them: “The very people who say they lack the money to open a bank account are actually not saying that they have no use for modern financial services. They’re just saying they can’t afford to access the system.”
He claims that the low costs and security offered by Libra address the issue of people left out of banking due to fees.
How is the firm going to engage with lawmakers?
This has been a pretty big point in the discussion of Libra, especially from lawmaking institutions themselves. Many are suspicious since, as banks and government associations claim, Facebook hasn’t explained how the currency will be regulated.
Marcus understands the apprehension; “if this is not done right, it could definitely present systemic risks no one wants.”
“This is why we believe in and are committed to a collaborative process with regulators, central banks, and lawmakers to ensure that Libra helps with the kinds of issues that the existing financial system has been fighting, notably around money laundering, terrorism financing, and more,” he explains.
Money laundering, in particular, has been brought up by the U.S. legislators and French regulators. Marcus makes clear that “Libra should improve [police] detection and enforcement, not set these back.”
Why is Facebook releasing a cryptocurrency? Can it be trusted?
In Tuesday’s letter from the House’s financial committee, written by five Representatives, their reservations about Facebook is plain to see. It claims concerns for data privacy, the security of funds, and a lack of federal deposit insurance.
Marcus states that: “You won’t have to trust Facebook to get the benefit of Libra.”
He explains that the structure of the companies running the cryptocurrency means that Facebook will not see financial data from Calibra. The subsidiary Calibra, of which Marcus is CEO, will operate the digital wallet “on top” of the Libra Network. This Network will run the blockchain from Geneva, where “Facebook won’t have any special responsibility”.
Marcus also insists that users don’t have to use the Calibra wallet. They could use “a range of custodial and non-custodial wallets that will have full interoperability”.
Calibra’s CEO emphasizes that the core aim of Libra is to empower people: “We want to help do the same thing for digital money and financial services, with one key difference: This time around we will relinquish control over the very network and currency we’ve helped create.”
Marcus concludes by teasing the possibility of expanding Libra’s capabilities: “we earn people’s trust with the Calibra wallet over time, we will also be in a position to start offering more financial services, and generate other revenue streams for the company.”