Interview with David Marcus: Bitcoin's failure in payment has spawned Libra

On the evening of June 18th, David Marcus and his team at Facebook all night long to prepare for the next day's heavy news.

In the past year, they have worked day and night, developing the digital currency Libra, which can be remitted around the world, just as easy and cheap as sending an email. This commitment is huge: Facebook has built Libra into a way to unlock financial services, targeting 1.7 billion people worldwide who cannot use traditional banks. Not only that, but the opportunities to build products and businesses on the Libra network are endless.

Libra

(David Marcus, image source: CNN )

This is an important moment for both the company and Marcus. In recent years, Facebook's business breakthroughs have come mainly from the acquisition of companies such as Whatsapp and Instagram. Libra can be said to be the biggest innovation within the company in recent years. For Marcus, who is in charge of the project, Libra has only been preparing for more than a year – and his entire career has improved digital payments.

Marcus told CNN:

“Everyone feels both anxious and excited. It’s an unforgettable night. After so much effort, after so long, finally… can enter a very open phase of the project.”

The next day, Facebook announced the Libra and Lbira Association, an organization that manages the digital currency, and Calibra, a new subsidiary, led by Marcus, to develop products and services around Libra.

But after the announcement, it was not long before the world began to attack Libra.

Critics of politicians, regulators, and financial experts have followed. Many people worry that Libra will subvert the global financial system and threaten the government's power to support the currency, such as the central bank or the US dollar. They are also worried that this will give the social media giant more power and threaten the privacy of users. At the same time, the lack of a direct cryptocurrency regulatory structure in the United States has made Libra's regulatory body unclear.

Legislators asked Marcus and Facebook CEO Mark Zuckerberg to testify in Congress and torture them at a public hearing. Some legislators even proposed legislation to stop Libra.

In any case, this is a challenging battle. But Facebook is already in dire straits in other areas – facing antitrust investigations, blocked political advertising policies, worrying about user data usage, and the role that may be played in election intervention. Even Zuckerberg admitted in his testimony that Facebook may not be Libra's "ideal messenger" at the moment.

RA Farrokhnia, Executive Director of Advanced Science and Applied Research in Financial Technology at Columbia Business School, said:

“Despite these problems, it is certainly risky to decide to take such a major initiative. You must do a risk-reward analysis, not only for business strategy, but also for reputation.”

If Libra succeeds, it could revolutionize the way people use money—although people are still wondering if it really can take advantage of Facebook.

Libra also allows Facebook to get more user information. Although the company says it plans to separate users' financial and social data, it may grasp people's social life, buying habits and financial transactions.

Marcus said:

"We have a responsibility to prove that we really deserve people's trust. We must make a strong commitment to privacy issues."

If Libra can't succeed, it will not only be a big failure for Facebook, but also a big failure for Marcus. His career has been on improving digital payments, and Facebook's partners include major US technology companies and venture capital firms. . This may mean that Facebook will lose to other companies considering launching similar products, such as JP Morgan and Walmart. Even its failure can't change the fact that during the company's difficult times, Libra incured more antitrust review and negative concerns.

Despite this, Marcus is still "very confident" about Libra's success.

“It's really hard, and it will always be difficult. It may even become harder before everything is easier. This is what I said to my team so that we can be prepared for the challenges of the future. But this is The changes that are taking place, I believe we have brought real solutions to the problems faced by billions of people every day."

What is Libra?

If everything goes according to plan, Libra will be a project that cryptocurrency supporters have been looking forward to for years – but no one has yet to achieve it. Existing cryptocurrencies are difficult to cope with large price fluctuations, or the usage rate is too low to really play a role in daily transactions.

Libra is a digital currency that can be easily used from a mobile phone or computer. It is versatile and can be used by people all over the world. It does not need to pay for foreign exchange transactions, nor does it require centralized control by the government or the central bank. In a transaction such as sending money to a friend or shopping online, Libra can come in handy because it is a “stable currency” that avoids the violent fluctuations experienced by other digital currencies such as Bitcoin. And it can complete the transaction in a short time, almost no cost.

Libra's mode of operation is expected to be this: users use Libra through their digital wallets on their phones. Facebook says they will trade Libra through bank accounts or local merchants for hard currency, or get Libra through digital transfers. Libra's value will be supported by a basket of government-backed assets 1:1 – these assets may include the US dollar, the euro, the yen, and stable debt instruments – ultimately managed by the Libra Association.

One of the main differences between Libra and many other cryptocurrencies is that the network they build will only be run by members of the Libra Association, unlike the "unlicensed" blockchain network, which anyone can join. This means that Libra is not a completely decentralized currency; it is controlled by the association, not the government. However, this model will make the network expand faster and process and settle transactions faster.

For such a product to be successful – such as a transaction between users or shopping online – it needs to be easy to use and widely adopted. That's the advantage of Facebook's size compared to existing cryptocurrencies: even if one-third of Facebook's 2.4 billion monthly users use Libra, its number of users will be more than twice that of the US population.

Marcus said that because of this, Facebook is obligated to create Libra.

"I believe we can add so much value because we have this configuration and we have two of the world's largest instant messaging applications (WhatsApp and Messenger). Therefore, due to this configuration, due to our engineering talent, I I think the combination of the two can…provide a service that we think can solve many problems."

Facebook wants to serve people who don't have bank accounts or don't have enough banking services around the world. They live far from the bank, or can't afford the account threshold or transfer or remittance fees. The company said that many of these people have mobile phones and are using Facebook services, and they will benefit from lower-cost digital financial services.

According to data from the World Bank, global remittance costs average close to 7%. Marcus says Libra will make remittances cheaper and faster for those who need to send money across borders to family members around the world.

Marcus doesn't want Libra, a global public product, to be run entirely by Facebook. He created the independent Libra Association as a buffer between Facebook and Libra. The Geneva-based organization, which consists of 21 “founding member” companies and non-profit organizations including Facebook, will manage Libra, oversee its launch, and work with regulators.

These members include well-known companies in Silicon Valley such as Lyft, Spotify and Andreessen Horowitz. Marcus was selected as one of the five board members of the organization. He said the association plans to increase its membership to more than 100 by 2020.

Users can access Libra through a digital wallet, send and store currency, similar to existing products such as Venmo. Calibra will build Libra's first wallet, but any company can develop wallets or other products and services on the Libra network.

Libra hopes to drive more transactions between businesses and users in the Facebook ecosystem. In turn, Facebook wants companies to spend more on advertising on the platform, thereby increasing their profits. Although e-wallet will be the first product launched by Calibra, this subsidiary may eventually provide other financial services, such as loans, to create new revenue streams for the company.

Nicholas Pappageorge, senior intelligence analyst at CB Insights, said:

“This is part of Facebook’s efforts to become a financial center. They want to be more integrated into the lives of their users, not just to send photos and communicate with friends. One way to achieve this is to become a payment center. Maybe eventually closer to the bank."

Does Libra's existence mean that Facebook will become a bank in the future? Marcus said it was unlikely. Instead, Facebook plans to work with existing banks to provide such services.

Libra faces many obstacles

Despite Facebook's best efforts to promote the product, saying it has the potential to make the world a better place, many regulators and politicians are not as enthusiastic as the company.

Although many experts believe that the existing financial system has problems such as inefficiency, cost, and long waiting time for processing transactions, not everyone believes that using Facebook-developed products to crowd out traditional institutions is the solution to these problems.

Mehrsa Baradaran, a financial expert and law professor at the University of California, Irvine, said:

“People have a belief that technology can solve all problems. We can bring Mark Zuckerberg to Congress and publicly humiliate him, but we can't vote for him to step down. At the Fed, we have some public responsibilities. Facebook has not shown to be public. Manager's wishes or abilities. So why do we trust Facebook more than our own public institutions?"

Legislators and regulators around the world are also paying attention to this issue.

Their concerns about Libra fall into three main categories. There are some practical issues, such as how to ensure the privacy of users. There are also issues that are more about life and death, such as what a new universal digital currency means for the global financial system or the power of the dollar. Next is Facebook's own question: After years of scandals, why should you believe that Facebook will make such an important effort? Can Libra further strengthen the company's power?

Rep. Sylvia Garcia, a Democrat from Texas, said in an interview last month:

“(Libra) may not only affect our economy, but also the global economy, so we need to tell Mr. Zuckerberg clearly that he is not a country.”

Another major concern is that Libra may be abused like many other cryptocurrencies by providing users with some anonymity. For example, Bitcoin is used by terrorist organizations to circumvent economic sanctions from Western governments.

To solve this problem, all companies that offer digital wallets on the Libra network, including Calibra, will comply with US AML and KYC laws, just like banks, Marcus said. Marcus also said that since all transactions on the blockchain network are permanently recorded, even if the trader's name is hidden, it is easier to execute than to use cash.

But because Libra's network runs open source code, anyone can write software for their digital wallet, which complicates execution.

Brad Sherman, a Democratic representative from California, said:

"We have done everything we can to make it difficult for drug dealers, tax evaders and terrorists to use the dollar."

But he believes that Libra "is very useful for these people."

Some US lawmakers are currently considering legislation to ban Facebook and other large technology companies from running cryptocurrencies. At the same time, leaders from several countries across the Atlantic are preventing Libra from doing business in Europe.

Thanks at least to some extent for this political review, the seven early partners of the project chose to quit before the Libra Association officially launched. Many of them are large payment companies, including Mastercard, Visa and PayPal, which have led some experts to worry that the organization may lose their management expertise.

After the withdrawal of these credit card companies, Marcus thanked them on Twitter for "holding to the last moment."

“The pressure has always been very large (not enough to express), and I respect their decisions until there is a clear regulatory policy.”

"what are you waiting for?"

Marcus said that waiting for Libra to go online is a price to pay.

“Look at those who are currently underserved or not at all. They live on the edge of our financial system because they cannot afford the cost of our current financial system. What are we waiting for? I know the company. And all of us choose to do this at a price, but if we look at the people we want to serve, we won’t get any services, and the price will only get bigger and bigger… If you think so, there is no better The time is right. You have to act."

Facebook also believes that if the United States does not take the lead in cryptocurrency innovation, other countries will follow. For example, China has been developing plans to implement digital national currencies. This view has been successfully supported by some legislators.

Republican representative Andy Barr from Kentucky said:

"Facebook is competing with China, which is good for US national security."

Supporters of Facebook and Libra have repeatedly stated that they will not issue this digital currency without regulatory approval. During Congress' testimony, Zuckerberg also said that if Libra's governing body decides to proceed without the approval of US lawmakers, Facebook may give up participating, which means that the company may lose its investment development projects. benefit.

But Marcus said that Facebook is unlikely to leave the organization, and that the dialogue with global financial regulators is better than that seen from the outside.

"The current plan is to solve these problems. Of course, there is no sign that we have nowhere to go. Now, our interaction with regulators is not only in the United States, but also in the world, and in fact it is very constructive."

Focus on digital payment career

For Marcus, Libra's success is personal success.

Improving digital payments has always been the main line of his career. In 2011, he founded Zong, a mobile payment provider, and sold it to PayPal, then owned by eBay. Later, Marcus became the president of PayPal. In 2014, he left there and joined Facebook, where he integrated the payment function into the Messenger app. Now, he has invited two former Zong executives to join the leadership of the Libra Association.

Since his first interest in Bitcoin in 2012, he has been brewing Libra.

“The idea at the time was that Bitcoin prices would eventually stabilize and become a very good trading medium. For me, it’s even clearer now that Bitcoin’s purpose is to become digital gold, not a good deal. Media. Therefore, we feel that it is time to start thinking about how to solve the problem of blockchain and cryptocurrency. We have a real solution."

As for whether Libra is the most adventurous thing he has ever done, Marcus said that this is definitely the "most emotional thing" he has ever done.

In fact, many people in the cryptocurrency field, as well as some of the early non-profit partners of Facebook on the project, believe that Libra can bring real benefits to people who don't get enough services, and can also be a boon for the emerging encryption industry. But opposition from parliamentarians may hinder their development or threaten the participation of more partners.

If Libra succeeds, it is probably the biggest achievement of Marcus's career. But at the moment, everything is still inconclusive.

"I think we have had a heated discussion about digital currency now, which is good in itself, because it has promoted things, but we have not achieved anything. We must serve people, and that is what we do. ""