Since its launch two weeks ago, Facebook’s cryptocurrency and blockchain has generated a maelstrom of reactions from regulators, commentators, and developers. Yesterday David Marcus, president of the initiative at Facebook, took to the social media platform to address criticism aimed at it.
Of Decentralization and Financial Inclusion
Chief among them is that Libra is not a decentralized system. Decentralization is often touted for cryptocurrencies because it enables lay persons to print money (in this case, coins) by running a node for use in transactions. But Libra’s nodes are run by its association members, who number 28 currently and are expected to increase to 100 in the near future. The nodes will essentially control the economics of creation and distribution of its cryptocurrency.
In response, Marcus pointed to the blockchain of existing cryptocurrency networks, such as Bitcoin and Ethereum. Both are estimated to be heavily centralized. In fact, a study last year found that the top four in Bitcoin and the top three miners in Ethereum control more than 50% of all nodes in their respective networks. In his post, Marcus wrote that Libra “must strive” to become more decentralized in the future.
He also addressed the issue of financial inclusion. Since its announcement, Libra has portrayed itself as a “mission-aligned” initiative with intentions to bring banking services to the unbanked. While that task encompasses several regions and areas of finance and regulation, Marcus restricted himself to addressing the argument that the poor often don’t have enough for banking services; as such, Facebook’s mission to bring them into the fold is doomed from the start.
In his post, Marcus stated that money was not the problem; fees were. “With Libra, anyone with a $40 smartphone and connectivity will have the ability to securely safeguard their assets, access the world economy, transact at a much lower cost, and over time access a whole range of financial services,” he wrote.
Related to this point, Marcus wrote that the Libra association will engage with regulators to improve detection and enforcement of laws. His admission is important as most cryptocurrency services currently fall outside regulatory regimes and are not subject to the stringent disclosure and KYC laws for other financial services institutions.
One of the more interesting aspects of Marcus’s posts is that he is upfront about Facebook’s e-commerce ambitions with Libra. “If Libra is successful, Facebook will first benefit from it by enabling more commerce across its family of apps. More commerce means ads will be more effective, and advertisers will buy more of them to grow their businesses,” he wrote.
Do We Know More About Libra Now?
The post does not really add much substance to the discussion around Libra. Marcus has mostly reiterated past claims about the blockchain and made vague promises about the future. For example, striving to become decentralized is different from actually committing to it within a defined timeframe. In earlier conversations, members of the Libra Association have committed to “introducing” technology for a permission less blockchain system within five years. This means that it will take years, if not decades, for the system to fulfill blockchain’s promise of a permissionless system.
The post also does not provide a roadmap or process for the association’s stated aim to introduce banking services for the unbanked. But Facebook’s reductive mission statement cloaks a task of staggering complexity, one that spans an array of legal systems and economies of various countries. Libra’s technology is under development and there is a big question mark over its status in developing countries, places expected to benefit the most from Libra. As Facebook’s failed phone experiment in India, the social media behemoth cannot expect its target regions to acquiesce to the experiment without necessary safeguards and detail.
Finally, there is not much update or detail about the association itself in the post. Previous news reports claim that none of the association’s members have handed over the $10 million required for membership to the association or signed a letter of intent (LOI) committing to the entity. In effect, their favored stance is to hold cards close to their chest as Facebook navigates regulation across various jurisdictions. Providing clarity regarding those reports should have been a priority for Marcus, especially since it answers the all-important survival question for the association.