Facebook's David Marcus, co-creator of the data-harvesting site's new stablecoin, Libra, put up a post on Wednesday. In the post, soberly titled “Libra, 2 weeks in”, Marcus responds to some of the questions and “misunderstandings” the Zuckerbuck has elicited from various quarters since its launch half a month ago.
But we couldn't help but take it a little... personally.
As most of you will know, Alphaville is currently running a series on Libra called Breaking the Zuck Buck. It's fair to say that so far, we have found Libra wanting. And it seems Facebook has noticed.
“Is this really a blockchain? It’s not open. It’s not decentralised!”
Under which he provides the following “answer” (emphasis ours):
While the initial mechanism by which organizations can run a node and become a member of the Libra Association, is definitely not as open as, say bitcoin, where anyone can participate in the consensus algorithm, the Libra Blockchain is absolutely designed to be open. What this means is that no one needs to become a member to access the blockchain, and to build services like wallets, or merchant acceptance.
On decentralisation — we totally get the point — fungibility of nodes to ensure they can always be replaced over time is a fundamental principle of blockchains, and that’s why we’re committed to gradually transitioning to a permissionless state in the years to come. But it was important to start with trusted entities that could operate in a regulated environment and with the operational expertise required to ensure the integrity of the network in its foundational stage. I’d argue that one hundred geographically distributed, industry-diverse organizations is quite decentralised. Maybe not enough at equilibrium, but to start. As a comparison, often the concentration of power in the hands of those running software for mining pools on other blockchains is overlooked. But there’s no question that there are more decentralised blockchains available, and that the Libra Association must strive to gradually decentralise it further.
(And if you thought that last bit sounded a bit like something Nick Clegg would have come up with in his “look I'm going to come clean about this” tone, you could be on to something. He does now work at Facebook.)
Marcus asked the question himself but doesn't seem to have really answered it: is this really a blockchain? We've argued the fact that the Libra Blockchain doesn't feature a chain of blocks — which you'd think would be important — but is rather a “single data structure” means it's not a blockchain. But it seems Marcus has a different idea of what blockchain means. If his definition is that it is “open” and “decentralised”, as he in some ways implies in the question, then he does kind of answer it, but as you can see above, the answer would be... no?
Unless, if we really want to give him the benefit of the doubt, Marcus's definition of blockchain is that it is quite decentralised and quite open. (Although even then, the idea that 100 “industry-diverse organisations” running nodes is “quite decentralised” is all very well and good, but there have been only 28 organisations announced so far, including Facebook.) If that's his definition, however, then the world of blockchain suddenly gets a lot bigger. Isn't Uber quite decentralised and quite open? Is Uber a blockchain? Isn't a bank whose API can be plugged into also quite decentralised and its ownership structure also quite decentralised because anyone can buy its stock? Is a bank a blockchain?
And you can't answer the question of “is this a blockchain?” by saying “there are more decentralised blockchains available” but Libra will “gradually decentralise” further over time. To go back to an analogy from our last Libra blockchain post, you don't answer the question of “is this a loaf of bread?” by saying “there are other more baked loaves of bread available but this loaf of bread will strive to gradually become more baked”. The question wasn't “are you as baked as other loaves of bread?” The question was “are you a loaf of bread?”
Moving on. After a small paragraph on why there isn't already a charter in place for the Libra Association, Marcus answers “You talk about financial inclusion a lot, but can Libra really address this critical issue?” (emphasis ours):
I’ve read many opinions about this topic since we announced. One was notably striking. Someone wrote that the key reason people are unbanked is that they don’t have enough money to actually be banked, and claimed Libra wouldn’t solve this. I found that point to embody the misunderstandings around what holds people back. The current system is designed in such a way that if your balance falls below a certain threshold, you’re charged fees you can’t afford. The very people who say they lack the money to open a bank account are actually not saying that they have no use for modern financial services. They’re just saying they can’t afford to access the system, so they remain on the fringes and are forced to use services that charge exorbitant fees and rates....
At this point it is worth giving you a little refresher from an excellent post from Brendan on why Libra will not help the unbanked:
The bad news is that in 2017 — the most recent of the FDIC's biennial surveys — slightly more than half of the unbanked said they didn't have an account because they didn't have enough money to put in a bank.
So yes. Someone did indeed write that a key reason for people to be unbanked is that they feel they don't have enough money to make it worthwhile for them to be banked. But that someone wasn't just writing an “opinion”. That someone was citing a survey from a federal US agency, in which the unbanked themselves said the main reason they didn't have banking was because of not having enough money.
And that someone also pointed out that the “unbanked” is too vague a term to be useful, as the unbanked in the US and the unbanked in the developing world are likely to be unbanked for completely different reasons. In rural Rwanda, you might be unbanked because you live nowhere near a bank and nobody around you uses anything other than cash. In inner-city America, you might be unbanked because you don't want the system to know about you — you might work in the grey or black market and don't want to have to start paying taxes or be tracked. Or, as Brendan pointed out, because you don't feel you have enough money to make having a bank account feel worthwhile.
(Also: have you ever been forced to pay an “exorbitant fee” just to transfer money to someone in a different country? It's worth remembering here that Marcus was formerly the president of PayPal.)
Marcus continues with his answer:
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. We firmly believe that if Libra is successful, it can be a non-linear step change for billions of people who need it the most.
Again, we've spoken about this idea that Libra can lower costs before. It is extremely unlikely to do so. As we've already seen, Marcus tells us that literally anyone can “build services like wallets, or merchant acceptance”. Why would those third parties suddenly start providing services for free — what would the motivation for them providing services if they are not charging for it? That whole paragraph carries a whole load of assumptions that suggest that Libra cannot “address this critical issue”.
Please continue to engage with us. Thank you!
Marcus's final paragraph attempts to answer: “What’s in it for Facebook? Why are you doing this now?":
First, and foremost, because this is mission-aligned. Bringing the world closer together involves giving people tools to connect and communicate, but right now, while people can send each other text, videos, photos, and more, in many cases they can’t easily move value between one another. Economic empowerment is one of our core values...
Please continue to engage with us as we make progress. At the end of the day, this is all about people, and making financial services work better for them. Thank you!
Hitler, Stalin and Mao, of course, were also mission-aligned around the concept of economic empowerment.
And while, David, we hope you will continue to engage with us — and we're glad you have been reading our stories — we have to disagree with your assessment. In fact we wonder, David, if you have considered that free market forces impose frictions in the transfer of value between jurisdictions for a reason? Notably because the varying standards and values of nation states — especially in terms of law, regulation and trading rules and standards — organically impose such frictions.
As the original white paper by Pierre Werner that brought us the euro noted as far back as 1970:
The group has not sought to construct an ideal system in the abstract [unlike Facebook]. It has set out rather to determine the elements that are indispensable to the existence of a complete economic and monetary union. The union as it is described here represents the minimum that must be done, and is a stage in a dynamic evolution which the pressure of events and political will can model in a different way.
Which is to say, even the architects of the euro — for all the flaws that have since been recognised in the euro system — understood at the point of planning that a frictionless (and thus cheap) monetary system could not manifest itself in a system of heterogeneous nation states with differing policy approaches to law, trade and immigration. They, unlike Facebook, understood that the harmonisation of states and standards had to come first if the transfer of value between regions was to become easier (even if they under-appreciated how difficult that would be due to the reluctance of some peoples to subsidise even in a largely harmonised system).
Which is why we still think this seems to be mostly all about Facebook, and making financial services work better for.... Facebook. Thank you!
LGC-Coin fights back against the Financial Times — FT Alphaville
Nick Clegg: “I'm not just providing a PR gloss” — FT Alphaville
Facebook’s Libra: blockchain, but without the blocks or chain — FT Alphaville
Libra myth-busting (video) — FT Alphaville
- Libra is imperialism by stealth
- France says it won’t allow Libra in Europe
- ECB board member slams “cartel-like” Libra
- Libra myth-busting (video)
- Nick Clegg: “I'm not just providing a PR gloss”
- A pound of flesh for your Libra inclusion
- Why closed-loop systems like Libra won't change the world
- Facebook's Libra will not help the unbanked
- Facebook’s Libra: blockchain, but without the blocks or chain
- What exactly is Facebook's Libra Reserve?
- Alphaville's Libra cheat sheet
- Zuckerberg: The man who would be monetary king