David Marcus, head of Facebook's new Calibra payment department, appeared in front of two hostile congressional committees this week with a simple message: Facebook knows that decision makers are worried about the scale. and Facebook will not push the project until its concerns are cleared up.
Although Marcus did not say so explicitly, Marcus's remarks at the Tuesday and Wednesday hearings represented a dramatic shift in the conception of the Libra of Facebook. In the initial vision of Facebook, Libra would be an open and largely decentralized network , similar to Bitcoin. The core network would be beyond the reach of the regulatory authorities. Regulatory compliance is the responsibility of stock exchanges, purses, and other services that constitute the Libra ecosystem's up-and-downs.
Facebook now seems to recognize that its original vision was a non-starter among regulators. This week, Marcus devised a new vision for the Libra – one in which the Libran Federation will assume the primary responsibility for complying with the laws on money laundering, terrorist financing and other financial crimes.
The new attitude of Facebook addresses some of the questions I raised in the Libra feature last week. But it also raises new questions that Facebook has to answer in the coming months. Marcus said Wednesday that the Libra Association would demand compliance by service providers based in Libra, but did not explain how to do so. However, there is probably a tension between improving regulatory compliance and Facebook's other goals of building an open network and making it accessible to marginalized people around the world.
Get to know the new Libra – unlike the old
Representatives of Facebook and Libra refused to comment on this story. However, comparing June's statements from Facebook and the Libra Association with Marcus's statements this week makes it clear that their stance has changed significantly.
"Libra Blockchain is open to all: Any consumer, developer or company can leverage Libra's network, build products and add value through their services," Facebook wrote in its June paper. "Open access ensures low barriers to entry and innovation, and promotes healthy competition that benefits consumers, which is the foundation of the goal of creating more inclusive financial options for the world."
The White Paper made it clear that this would not be the balance completely decentralized. The Libra Association would organize the process of settling transactions in Libra and retain the authority to decide who might be an auditor (this is Libra a bitcoin miner). The association will also manage the conventional currency that supports the value of Libra.
However, over the past month, representatives of Facebook and Libra have stressed that the association would play a deliberately limited role – including a hands-off role in regulatory matters. Shortly after the unveiling of Libra, podcaster Laura Shin asked Libra Association representative Dante Disparte what would happen if the US government asked the group to blacklist Libra's addresses under US sanctions laws List. Disparte refused and stated that "the association will not interact with any jurisdiction." He argued that compliance with sanctions laws "would be the subject of individual purses and providers in this ecosystem."
Would the Libra Association review "individual purses and vendors" to make sure they obeyed the law? In June, Kevin Weil of Calibra told TechCrunch that "there are no plans for the Libra Association to play a role in actively reviewing developers."
In short, Facebook's vision for Libra followed the decentralized, user-careful model of traditional cryptocurrencies like Bitcoin. Facebook Wallet Service, Calibra, would follow US consumer protection, money laundering, sanctions, and other regulations. However, Facebook did not seem to have any plans for the Libra Association to have Facebook or a police-related organization that is pursuing illegal activities throughout the Libra network.
Marcus' statement from Wednesday meant a sudden change in Facebook's position. During Tuesday's Senate Banking Senate Senator hearing, Marcus repeatedly harassed about the risk of money laundering and other financial crimes in the Libra network. And Marcus took on a completely different tone than his colleagues a month ago.
"As far as the Libra network is concerned, we will have a money laundering program," Marcus said Tuesday. Later, he promised to make sure that "the right measures are taken to prevent this network from being used for purposes other than intended."
On Wednesday, Marcus made a more specific pledge, promising that the Libra Association "implements security measures that require service providers in the Libra network to combat money laundering, terrorist financing and other financial crimes."
The new Libra will be less open ,
Networks such as Bitcoin and Ethereum are fully open and without permission: anyone can create services and software for these networks without first obtaining permission from someone else. Bitcoin and Ethereum can get away with it because nobody owns and controls these networks. There is no one against whom regulators can impose fines or imprisonment. Regulators have therefore focused their enforcement efforts on intermediaries on the edge of the network.
But the Libra Association will eventually control the Libra network – both because it decides who it can be a validator and because it has control of the hard currency that each scale coin insures. Regulators can press the Libra Association to enforce money laundering and other laws across the Libra network.
A key question is how the Libra Association will enforce regulatory requirements. The most obvious option is to require that every Libra transaction be signed by a wallet service previously approved by the Libra Association. Then the association could periodically check these wallets, make sure they comply with the various regulations, and report to US and world authorities. Conversely, the Association may require that a wallet be first approved by the supervisory authorities in the countries where it operates and only then include the Wallet service in the official list of approved services.
This would mean a dramatic change in the design of Libra. This would increase the market entry barrier for new scale-based financial services. This would be significant in that reducing the barriers to entry, both to wallets and to users in underserved parts of the world, is one of the stated objectives of the Libra project.
Another side effect of listing purse providers would effectively ban what Blockchain experts call non-custodial balance stocks. Some people use the Bitcoin network through agents like Coinbase. Others, however, do so by creating their own public and private keys and sending open source software transactions directly to the Bitcoin network.
The original Libra whitepaper provided that accounts belong to "the system's direct end users and entities." B. wallets that act on behalf of their users. "However, this is difficult to reconcile with the repeated allegations of the Libra Association that it will not interact directly with consumers, as the owners of these non-stored scale addresses interact directly with the Libra network, and no other intermediaries are involved. such that only the Libra Association has the power to require those users to provide the kind of identification information required by the provisions of the Customer's Knowledge, effective enforcement of payment network rules, if the Libra Association can not enforce compliance by wallet providers Criminals are likely to stream into wallet services that do not strictly adhere to the rules, or download open-source wallet software and use un-custody accounts.  However, if the Libra Association has a compliance enforcement mechanism This raises the bar for market entry and makes the Libra network look more like a traditional financial network – with all the bureaucratic effort involved. This could be particularly damaging to marginalized people in developing countries, as the developers in these markets have the least resources to meet regulatory requirements.
The challenge for Facebook in the coming months is therefore to design a new network architecture that will strike a balance between these competing goals – a network that is close enough to satisfy the regulators, but open enough, to attract a healthy developer ecosystem. Of course, Facebook can add WhatsApp and Messenger to a balance-based payment system that provides the new network to millions of users instantly. But Facebook still has a lot to do to make the wider Libra network a global standard.