The writer is David Marcus. David Marcus is the head of the Facebook blockchain and the head of Libra. Instead of Zuckerberg, he attended the hearing of Libra in the US Senate and House of Representatives.
Today, David Marcus issued another article to prove Libra's position and the urgency of launching digital currency.
Original title: "Why building a new protocol for money is the only way to truly change the game for people" (why building a new currency agreement is the only way to truly change the way people play)
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After meeting key stakeholders in the world, it seems to me that the advantages of transmitting digital currency through the blockchain are becoming more and more obvious – notably, in terms of expanding access and reducing the cost of financial services, Others are not as obvious as I thought. I am often asked why we don't adopt a more traditional approach to building a payment system on an existing rails framework than asking us why we should choose this more ambitious approach.
As I've been traveling around the world meeting with key stakeholders, it became clear to me that the advantages of digital currency transmitted over a blockchain — notably when it comes to broadening access and lowering costs of financial services — weren't as evident to I'm often asked why we didn't take a more traditional route of building a payment system on top of existing rails, instead of the more ambitious route we've chosen.
I tried to find a concise article about the advantages of the new core network, but I didn't find it, so I wanted to try it.
I tried to find a good concise write-up about the advantages of a new core network to move money around, and couldn't find one, so I thought it would be a good idea to take a stab at it.
First, let's look at 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…), interbank networks (SWIFT, RT1…), central banks/banking networks, etc. Some of these systems were built in the 1960s and 1970s, and although they have been upgraded since then, they are usually based on legacy, decentralized infrastructure.
First, let's look into the limitations of the current system. The existing "money networks" are closed and are not well interconnected. There are regional payment networks (ACH, European Payments Council,…), inter-bank networks (SWIFT, RT1, …), central banks/bank networks, and many more. Some of these systems were built in the 1960s and 70s, and while they've received upgrades since then, they often live on top of legacy, fragmented infrastructure.
Second, if we look at current payment services and wallets, they also have limitations. Because they depend on the underlying infrastructure.
Second, if we look at current payment services and wallets, they also have limitations because of the underlying infrastructure that they are dependent on.
For example, although you can send and receive money in a wallet, you can't usually send and receive money between wallets in different companies. These are silo systems that in turn limit the coverage of these networks. For a useful analogy, it's a bit like you can't send emails from Gmail to Yahoo. Since there is no open standard that supports interoperability (ie SMTP for email), you can only communicate with people on your own mail system.
For example, while you can send and receive money from within one wallet, you typically cannot send and receive between wallets from different companies. These are siloed systems, which in turn limits the reach of each of these networks. It's a bit like if you couldn't send emails from Gmail to Yahoo! Mail, and were forced to with only people to your own mail system because there was no open standard to support interoperability (aka SMTP for email).
Third, using a specific wallet/bank account to transfer funds from one country to another requires more than just what you see on the surface. Depending on the setup, moving funds from point A to point B requires the participation of many intermediaries, and usually requires a pool of liquidity at point B to allow consumers to withdraw funds in a timely manner. This means delay and increases costs at each step.
Third, moving value from one individual in one country using a specific wallet/bank account, to another requires much more than what meets the eye. modal on the setup, moving money from point A to point B requires a number of intermediaries to be involved And often demands liquidity pools to be readily available at point B for consumers to get their money out in a timely fashion. This means delays, and added cost at every step of the way.
Now, to illustrate the key differences, let's imagine a world where two Libra Association members want to build on an existing rails framework and want to build an interoperability layer between the wallets.
Now for the sake of illustrating key differences, let's imagine a world where two Libra Association members would want to build on the existing rails, and would want to build an interoperability layer between wallets.
Take the transaction flow between the Calibra wallet and the Mercado Pago (Latin American Payments) wallet as an example.
Take a transaction flow between the Calibra wallet and the Mercado Pago wallet.
That's what it looks like on existing rails: A wants to send $100 from her Calibra account to B's Mercado Pago wallet. A lives in the United States and B lives in Argentina.
This is what it would look like on existing rails. Alice wants to send $100 from her Calibra account to Bob on his Mercado Pago wallet. Alice lives in the US, Bob lives in Argentina.
If A has a balance in the Calibra wallet, she will start paying. Calibra will have to use a custodian bank (or multiple banks) to secure customer funds. It is now starting to transfer this $100 from a US bank account to a bank used by Mercado Pago for its Argentine customers. This may require a proxy bank transfer or intermediary.
Provided Alice has a balance in her Calibra wallet, she initiates the payment. Calibra would have to use a custodian bank (or multiple banks) to secure customer funds. Now begins the journey of moving that $100 from a US bank account to the bank that Mercado Pago uses for its Argentine customers. This might require correspondent bank transfers or intermediaries.
Even if both banks are using SWIFT, the cost of completing the transaction can be between $45 and $50. Because of these costs and complexity, the correct way to achieve this goal is to reach a netting agreement between Calibra and Mercado Pago, at the end of a certain period, an entity will settle the net balance to another entity. But this will mean that a number of bilateral agreements, liquidity management and other expensive operational constraints and requirements, as well as high levels of trust between the parties, will be reached between entities wishing to participate in the program to avoid entities at the end of the above period. The balance has not been settled.
Even in the case both banks are using SWIFT, it could cost about $45-$50 to complete that transaction. Because of these costs and complications, the right way to implement this would be to enter a net settlement deal between Calibra and Mercado Pago, At the end of a given period, the entity of the other than the cost of the scheme, the liquidity issues to manage among the other costly operational constraints and requirements, And a high level of trust between the parties to avoid an entity not settling their balance at the end of said period.
In short, building on existing rails and on a closed payment network will not reduce costs. Even opening up more innovations to existing markets will not reduce barriers to accessing modern financial services. We need to build a new infrastructure that is backed by a very stable, high-quality global exchange medium.
Long story short, building on top of existing rails and across disconnected payment networks won't reduce cost, open up the market to more innovation, nor lower the barrier of access to modern financial services as much as building a new infrastructure with a very stable High quality global medium of exchange supporting it.
Compared to Libra's design, Libra will enable wallets, merchants and services from around the world to transfer value at incredibly low cost. This will be a near-real-time settlement, even without the need to consider the liquidity pools of various currencies that banks around the world are ready to.
Compare this to the design of the Libra project, that will enable wallets, merchants and services from all over the world to move value around at an incredibly low cost. There would be near real-time settlement, and no need to even think about liquidity Pools of various currencies at the ready across banks around the world.
Just as SMTP allows any email provider to interoperate with other email providers, Libra can be a “protocol” that enables money to be quickly, cheaply and steadily between service providers, institutions and people around the world. flow. This will greatly reduce costs by eliminating the need for so many intermediaries, as well as operational complexity and overhead, thereby increasing innovation and access. When people want to send and receive money, they are more likely to benefit, and the barriers to accessing modern digital currencies and financial services will be greatly reduced – enabling billions of people to access these basic services and the world economy.
Just like SMTP allowed any email provider to interoperate with other email providers, Libra can be the "protocol" that will enable fast, cheap, and stable money movement across service providers, institutions, and people all around the world. This would in turn massively Reduce costs by eliminating the need for so many intermediaries, and operational complexity and overhead, thus increasing innovation and access. People would benefit from more ease when they want to send and receive money, and the barrier of access to modern digital money and financial services Would be greatly lowered — enabling billions to have access to these essential services and to the world's economy.
That's why we decided to take a more ambitious path, and why we are so determined to stick to it. Because people all over the world deserve better, it's time to make a change.
This is why we've decided to take the more ambitious route, and why we're so committed to seeing it through. Because people all around the world deserve better, and it's about time for a change.
Compile: Sharing Finance Neo
Source: Sharing Finance