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Facebook is backpedaling from the ambitious sight for Libra



  David Marcus, head of the blockchain on Facebook, speaks at a Public Service Services Committee hearing on Wednesday, July 17, 2019.
Expansion / David Marcus, head of blockchain on Facebook, speaks at a Public Service Services Committee hearing on Wednesday, July 17, 2019.

David Marcus, the head of the new payment at the Facebook Calibra division, appeared in front of two rebellious congressional committees this week with simple messages: Facebook knows that Libra's quotes are concerned, and Facebook will not continue the project until they address their concerns.

While he did not say explicitly, Marcus's comments at Tuesday and Wednesday hearings represent a dramatic shift in Facebook perspective on Libra. In the original Facebook vision, Libra will be an open and main decentralized network, similar to Bitcoin. The main network will be more than the regulator's reach. Compliance with regulation is the responsibility of the exchange, wallet, and other services "on ramps and ramps" in the Libra ecosystem.

Facebook now sees that its original view is not a starter to regulators. So this week, Marcus recalls a new vision for Libra-one where the Libra Association will allow a great deal of responsibility for ensuring compliance with money laundering, terrorist financing and other laws financial crime.

The questions I raised in the Libra feature last week. But it also raises new questions Facebook needs to answer in the coming months. Marcus Wednesday said the Libra Association would require regulatory compliance by Libra-based service providers, but he did not explain how to do it. However, it is likely to be a natural tension between improving regulatory compliance and other Facebook goals to build an open network and make it accessible to marginalized people around the world.

Get to know the new Libra-unlike the old Libra

  Mark Zuckerberg in 2017. "src =" https://cdn.arstechnica.net/wp-content/uploads/2018/04/GettyImages-669889778-640x435 .jpg "width =" 640 "height =" 435 "srcset =" https://cdn.arstechnica.net/wp-content/uploads/2018/04/GettyImages-669889778-1280x871.jpg 2x
Enlarge / Mark Zuckerberg in 2017.

Representatives from Facebook and Libra refused to comment for this story. But comparing the Facebook and Libra Association statement in June to Marcus' statements this week explains that their status has changed substantially.

"Libra Blockchain is open to all: any consumer, developer, or business may use the Libra network, build products on it, and add value through their services," wrote Facebook in her white paper in June. "Open access ensures low entry and innovation barriers and encourages healthy competition that provides consumers with the benefit of being foundational in the pursuit of more comprehensive financial options for the world."

White paper defines Libra would not be completely decentralized. The Libra Association will arrange the Libra transaction-transfer process and keep the power to decide who can be a validator (that is equivalent to Libra to a bitcoin miner). The organization also manages the conventional money to return Libra's value.

But last month, Facebook and Libra representatives pointed out that the association had a very limited role-including a role in regulation. Shortly after Libra's exit, the podcaster Laura Shin called on Libra Association deputy Dante Disparte what would happen if the US government asked the group to blacklist the addresses of Libra under US reductions laws. The dispatch was denied, saying "the Association does not have to deal with any jurisdiction." He argued that compliance with penalties was "the subject of individual wallets and providers in this ecosystem."

So is the Libra Association's screen "individual wallets and providers" to make sure they obey the law? In June, Calibra's Kevin Weil told TechCrunch that "there are no plans for the Libra Association to take a role in active vetting".

In short, Facebook's vision for Libra follows decentralized, utilizing a prudent model of conventional cryptocurrency such as Bitcoin. Facebook's own wallet service, Calibra, will follow US regulations on consumer protection, laundering money, penalties, and more. But Facebook does not seem to have plans for the Libra Association, Facebook, or any associated entity on illegal police activity on the Libra network as a whole.

Marcus & # 39; Wednesday's testimony represents a sudden change in Facebook position. Repeated during the hearing before the Senate Banking Committee, senators threw Marcus over the dangers of money laundering and other financial crimes occurring in the Libra network. Marcus has different tone from his colleagues a month earlier.

"As far as the Libra network is concerned, we will have an anti-money-laundering program," says Marcus Tuesday. Eventually, he promised to make sure "the correct steps were taken to prevent this network from being used for other purposes than it was designed for."

On Wednesday, Marcus made a more promising promise, the Libra Association promises "safeguards that require Libra network service providers to combat money laundering, terrorism financing, and other financial crime. "

The new Libra will be more open

Getty Images / Aurich Lawson

Networks like Bitcoin and Ethereum are completely open and unauthorized: anyone can create services and software for on these networks without requiring advance approval from anyone else. Bitcoin and Ethereum may get rid of this because no one owns and controls these networks. No regulators can be fine or imprisonment for non-compliance, so regulators are focusing their efforts on implementing intermediaries on the edge of the network.

But the Libra Association is ultimately controlled by the Libra network-both because it decides who can be a validator and because it can control the hard money backed by every Libra coin. So regulators can force the Libra Association to implement money laundering and other laws across the Libra network.

A key question is how the Libra Association will enforce regulatory requirements. The most obvious way to do this is to require that every Libra transaction be signed by a wallet service that has obtained preliminary approval from the Libra Association. Then the association will be able to irregularize these wallets, prove that they are sufficient to comply with various regulations, and report to the authorities in the United States and around the world. Or, the association may require a wallet that first signs up from regulators in the countries where it operates-and then simply add the wallet service to the official list of approved services.

It represents a dramatic change in the design of Libra. This will increase the access barrier for new Treasury-based financial services. That's important because of lowering the ad-hoc barriers for wallets and for users in parts of the world under the ground-is one of the stated objectives of the Libra project.

Non-custodial

Another side effect of white-listing Wallet providers will effectively prohibit what experts call blockchain non-custodial Libra holdings. Some people use the Bitcoin network by intermediaries like Coinbase. But others do this by creating their own public and private keys and direct submission of Bitcoin network transactions using open source software.

The original white Libra paper describes accounts belonging to "direct end user systems as well as entities, such as custodial wallets, acting for their users. "But this seems to be a difficult square in the repeated claims of the Libra Association that it does not interact directly with consumers. Owners of non-custodial Libra addresses interact directly with the Libra Network. No other intermediary is involved, so the Libra Association will only have the power to require these users to provide the type of identification information required by your customers' regulations.

In short, there is an important major tradeoff between open and effective network enforcement of regulations governing payment networks. If the Libra Association has no way to enforce wallet providers' compliance, criminals are likely to acquire wallet services that do not strictly enforce policies-or download wallet's open source software and use of non-custodial accounts. ] But if the Libra Association has a mechanism for extreme compliance, the marketplace will naturally raise the bar and make the Libra network better like conventional financial networks-with all red tape associated. This can be remarkable for marginalized people in developing countries, as market developers will have the smallest source to jump through regulatory hoops.

So the Facebook challenge in the coming months is to design a new network architecture that prevents a reasonable balance between these competing goals-a network locked enough to satisfy regulators but enough tomorrow to attract a healthy developer ecosystem. Facebook, of course, can choose to add a Libra-based payment system to WhatsApp and Messenger, instantly giving the new network millions of users. But Facebook has a lot of work to do if it wants the wider Libra network to become a global standard.


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