Suggested to stop and respond, how will Facebook respond to regulatory difficulties?

Summary: Libra's trade-offs.

From yesterday, the four presidents of the US legislature jointly sent an open letter to several Facebook executives, including Mark Zuckerberg, asking them to suspend all developments on Libra cryptocurrencies and hold hearings. Today, David Marcus, the head of the Libra project who has confirmed his participation in the hearing, also responded.

One party is the trend of the US regulatory conservatives, and the other is the currency tycoon that has long-term countermeasures. And in what way will Facebook respond to regulation, in fact, this has already begun to emerge from Libra's architecture and the response of David Marcus.

Conservative concerns

On June 18, 2019, Facebook announced plans to develop a new cryptocurrency called Libra, and a digital wallet Calibra that stores this cryptocurrency.

At the beginning of the announcement, this has been supported by 28 major international companies including Facebook, MasterCard and Visa. The project, which has a population of more than one quarter of the world's population, has directly caught up with US regulation and is caught off guard.

The fastest response was Maxine Waters, the US House Democrat and Chairman of the Financial Services Committee, who took the lead in setting aside the request shortly after the project was announced.

Not only that, but in the next month, more than 30 American groups have called for Libra to stop.

Finally, yesterday, Maxine Waters joined forces with various regulatory forces, including the House Finance Subcommittee, to jointly attack Facebook.

It is understood that in the open letter to Facebook executives, conservative concerns have the following:

1. Headquartered in Switzerland

The open letter stated that the system is based in Switzerland and is designed to compete with US monetary policy and the US dollar. If development work cannot be stopped, there may be a “new system controlled by Switzerland that will trigger a financial tsunami if it fails.”

2, the influence is too great

For Facebook alone, its users have more than a quarter of the world's users, and conservatives believe that Libra may bring a new global financial system that, if not regulated, will have an immeasurable impact on the country and the world. .

3. Libra white paper reveals insufficient information

Democrats in the House, including Maxine Waters, believe that the lack of information on the intent, role, potential use, and safety of libra and Calibra in the white paper exposes significant risks and lacks clear regulatory protection. These vulnerabilities may also be exploited and covered by the bad guys.

4. Libra may become a money laundering platform

The open letter lists examples of the theft of cryptocurrencies in the past, arguing that users who use Facebook's digital wallet—which may store trillions of dollars without deposit insurance—may also be targeted by hackers. For example, in the first three quarters of 2018, hackers stole nearly $1 billion from cryptocurrency exchanges. Therefore, the libra system may also provide a platform that lacks regulation and facilitates illegal activities such as money laundering.

5, Facebook's own privacy issues

Facebook has always been subject to privacy controversy, and this has become a difficult point for conservatives. According to the open letter, Libra's risk is even more obvious given Facebook's past troubles, because the company can't always guarantee the user's information security. For example, Cambridge Analytica, a political consultancy hired by the Trump campaign in 2016, can access private data from more than 50 million Facebook users to influence voting behavior. Not only that, but in the first quarter of 2019, Facebook deleted more than 2.2 billion fake accounts, including those that promote terrorism campaigns and post hate speech. Recently, Facebook was also sued by the US Department of Housing and Urban Development on the grounds that its advertising platform violated the law on housing equality.

Based on the above points, conservatives believe that Libra's development work should be stopped immediately. During the cessation period, it is intended to hold a public hearing on the risks and advantages of cryptocurrency and to explore legislative solutions. Libra's development work cannot be resumed until legislation is introduced.

Libra's market design logic

The time has returned to May of this year. At that time, when it seems that the issue of Facebook's currency is still "unexpected," the market is not optimistic about Facebook's currency issue.

At the time, it was questioned that Facebook Coin might be a comment on “credit points”, “centralization”, “privacy”, etc., and gradually became “influence”, “regulation” and “technology” with the emergence of Libra white paper. Obviously, with the advent of the Libra white paper, the focus of hot debate has shifted. However, there are still people in the industry who believe that people's concerns may be the key to Facebook's response to regulation.

The point here is how Facebook will trade off between “points” and “stabilized coins”.

How to achieve decentralization while maintaining relative concentration, how to connect with the encryption market while relying on local institutions, and how to weigh the dispute between blockchain and non-blockchain…

In fact, on June 18th, in addition to the release of Libra white papers and technical white papers, an academic paper co-authored by Calibra was also launched. The "long-term equilibrium theory of blockchain-based financial systems" proposed in the paper is the market design logic that Libra practices.

The journalist published the paper in " How does Libra practice blockchain + market design new ideas, POS creates new shortcuts for global contracts? "

The paper analyzes that “the relationship contracts under POS depend only on local institutions – but combining them with cryptography can create a formal platform global contract.”

It said that the traditional financial system maintains trust through relevant contracts supported by law enforcement agencies, and in POS design, as long as the control of financial infrastructure and its governance is assigned to trusted intermediaries, not only traditional finance can be solved. Centralization, high costs, and barriers to trading can also reduce the flexibility of the financial system for bankruptcy and third-party interference.

And Libra's existing 28 partner companies (finally aiming for hundreds of partner companies) are a trade-off between concentration and decentralization, which is similar to the nodes in many POS projects today, but Libra's node representatives are “strong” Strong local institutions, and these local institutions may also become a trade-off for regulation.

Wharton professor and technology policy expert Kevin Werbach commented that the paper puts forward an argument as to why the incentives created by PoS are compatible with an emerging legal/institutional enforceable system, and the relationship contract does not Must exist.

“Recognizing the legal/institutional environment does not mean that the blockchain is “just a centralized database.” “It makes scalability and governance much easier. But it created its own set of trade-offs. "Kevin Werbach's comment is a perfect reflection of Libra's attempt.

See the specific response from David Marcus's response

On July 3, local time, Facebook Libra project leader David Marcus published a long article "Libra, 2 weeks in" on his personal Facebook, explaining some of the questions and misunderstandings that Libra had encountered in the past two weeks.

From the response of David Marcus, you can see Libra's initial response:

1. Facebook does not control Libra

David Marcus said Facebook will not control the Libra network, currency or its support reserves. Facebook will be just one of the more than 100 members of the Libra Association. There will be no privilege. As a result, privacy issues about Facebook itself will not be involved in Libra.

It is worth mentioning that “although Facebook owns and controls Calibra, it will not see Calibra’s financial data. More importantly, people will have many ways to use Libra and enter the network. You will be able to use a series of hosting Wallets and unmanaged wallets, these walls will be fully interoperable, meaning you will be able to pay and receive payments through different company wallets, even using your own running software wallet. The bottom line is that you don't have to trust Facebook You can benefit from Libra. Facebook does not take any special responsibility for the Libra network. But we hope that people will have a good impression on the Calibra wallet. We are already aware of our financial data separation method, we will fulfill our commitment and strive to achieve Real utility."

2, Libra is not open, nor decentralized

David Marcus said that while node replacement is a fundamental principle of blockchain, this is why Libra is committed to a gradual transition to a license-free state in the coming years. At the same time, however, it is also important to start a project with a trusted entity that can operate in a regulated environment with the expertise needed to ensure the integrity of the underlying network.

It believes that 100 geographically dispersed, industry-diversified organizations are quite central. It may not be enough in a balanced state, but it is true in the startup phase. In contrast, the concentration of power of miners in other blockchains is often overlooked. But there is no doubt that there are more decentralized blockchains.

It can be seen that Libra's initiative based on centralized disguised decentralization may have a higher "decentralized" attribute compared to the current blockchain market's public chain project, and at the same time, because of the right and wrong. Centralized, so Libra is easier to meet regulatory requirements.

3. Why is the charter of the Libra Association still undetermined?

Libra's charter should be completed by the initial members, in which case the Libra network will become a public product, which is the main reason why Libra's information is not clear.

4. Rescuing money laundering with KYC inspection

For Libra, the Libra may become a money laundering platform, David Marcus said that Libra will conduct an appropriate KYC test when funds come in and out. In addition, law enforcement and regulatory agencies can conduct independent analysis of chain activities. The Libra Association will continue to engage actively and openly with all relevant stakeholders on these key issues. Therefore, Libra should improve monitoring and execution rather than being blocked.

It can be seen that there are questions about regulation, and Facebook is also ready. Of course, with regard to the current regulatory difficulties and Facebook response, the contradiction between the two sides is obviously not limited to this, and whether Facebook still has a backhand, can only look forward to the progress of the next hearing.

Original: Sharing Finance Neo