David Marcus: Libra can be a "protocol"

On Wednesday, David Marcus, head of the blockchain of social media giant Facebook, wrote a paper explaining his understanding of the monetary value system and the role of Libra.

In his article, he said that when he met with key stakeholders around the world, he knew that the advantages of transferring digital currency through the blockchain were not obvious, especially in terms of expanding access and reducing financial services costs.

Marcus said that people often ask why they don't adopt a more traditional approach to building payment systems on an existing basis. And this article is the answer to this question, telling you where a new core currency network will have an advantage. Marcus first analyzed the limitations of the current system, he wrote.

“First, let's examine the limitations of the current system. The existing 'money network' is closed and there is no good interconnection. There are regional payment networks (ACH, European Payments Commission, etc.), interbank networks (SWIFT, RT1, etc.) and the network between the central bank and the bank, etc. Some of these systems were built in the 1960s and 1970s, and although they have been upgraded since then, they are often based on decentralized infrastructure."

“Secondly, if we look at current payment services and wallets, they also have limitations because of the infrastructure they depend on. For example, although it is possible to collect money in a wallet, it is usually not possible to ship between different companies’ wallets. They are isolated systems that limit the coverage of each network. For example, it's a bit like not being able to send emails from Gmail to Yahoo mailboxes, and because there are no open standards that support interoperability (similar to electronics SMTP in the mail system, people are forced to communicate only with people in their mail system."

“Third, the intermediate link needed to transfer value from a particular wallet or bank account used by someone in a country to another country far exceeds expectations. Depending on the setup, the money is transferred from point A. There are many intermediaries involved at point B, and there is often a need for a pool of liquidity that is readily available at point B for consumers to withdraw cash in time. This means delays and increases costs every step of the way." Later, to illustrate the key differences, Marcus imagined a scenario in the article about how two Libra Association members who want to use existing infrastructure to establish interoperability between wallets can implement transfers.

“This is the case with the transaction process between the Calibra wallet and the Mercado Pago wallet. Alice wants to transfer $100 from her Calibra account to Bob's account in the Mercado Pago wallet. Alice lives in the US and Bob lives in Argentina. If Alice has a balance in her Calibra wallet, she can start paying. Calibra must use a escrow bank (or multiple banks) to protect client funds. Transfer this $100 from a US bank account to Mercado Pago's bank for its Argentine customers. The account may require a proxy bank transfer or intermediary.

Even if both banks use SWIFT, the cost of completing the transaction may be about $45 to $50. Due to cost and complexity, the correct way to do this is through a net settlement agreement between Calibra and Mercado Pago, so that both parties settle the balance at the end of a given period. But this means that there is a large amount of bilateral transactions between each entity in the plan, as well as liquidity issues and other costly operational constraints and requirements, as well as trust between the parties. So he concludes that building a payment system between existing infrastructure and a non-interconnected payment network will not reduce costs and create more than a new, stable, high-quality network that supports global transactions. More innovation into the market will not reduce the barriers for users to embrace financial services.

He said that Libra will enable wallets, merchants and services from around the world to transfer value at a very low cost. It can be settled almost in real time, even without considering the pool of money liquidity of banks around the world. Just as SMTP allows interoperability between any email provider, Libra can be a “protocol” that allows people to move quickly, cheaply, and reliably across service providers, across organizations, and across borders. Conversely, by eliminating the need for numerous intermediaries and the complexity and overhead of operations, costs can be significantly reduced, thereby increasing innovation and opportunities. People benefit from easy transfers and can significantly reduce barriers to the use of digital currency and financial services, enabling billions of people to use these basic services and integrate into the world economy.

At the end of the article, he reiterated his determination and Libra’s determination in this direction.

"That's why we decided to take this more ambitious path, which is why we are so determined to stick to it. Because people all over the world should live better, now is the time to change."