Under pressure from regulators, Facebook is rethinking Libra's design | Hacker News Reader

Under pressure from regulators, Facebook is rethinking Libra's design

arstechnica.com

74 pointsjackalo30 comments

Maybe that's what Facebook wanted. I can see it going like this:

"OK, Zuckerberg wants us to come up with a payment system that can dominate payments the way WeChat/WePay does in China. How do we do that?"

"The banking system and the credit card companies are going to fight us. How do we bypass them?"

"Bitcoin? That bypasses the banking system."

"We wouldn't be in control. Our own crypto coin, maybe?"

"OK, let's brainstorm that a bit."

"So we have our own coin, and we issue it. What happens?"

"Probably it doesn't get used much outside Facebook in-app purchases, like Microsoft's old tokens."

"Apple Pay and Google Pay never really got scale."

"We're not the first mover here. We need something that pulls in some big financial players."

"What if we open it up more, so we head a consortium that issues our tokens".

"Who can we get? Visa would be great."

"Yeah, we need somebody who's already in the payment system."

"The important thing is that you pay through Facebook, and we get a cut."

"Right, that gives us a controlling position, like WeChat has."

"OK, that's the basic concept. How do we make it work?"

"Who stands behind the token? What backs it."

"We set up some organization that holds the value that backs it."

"You mean like E-Gold did?"

"Shut up."

"We don't need to steal the backing. Just keep the profits from investing it."

"That works."

"OK, what about compliance?"

"If we make it too open, anti money laundering won't work."

"If we make it too closed, we won't be able to get the banking people on board."

"Hmm. How about this. We start out claiming it's really open. Then the regulators get upset, because it looks un-regulatable, like Bitcoin. So we change the plan. We tighten up our control, and collect lots more data about users, to make the regulators happy."

"Collecting lots more data about users. I like that part."

"OK, looks like a plan."

> "The important thing is that you pay through Facebook, and we get a cut."

> "Right, that gives us a controlling position, like WeChat has."

I feel like this is where the story gets a little lost from reality. If you believe Facebook's own design documents they would have no more control than any other member of the consortium. What Facebook has is the initial control while it's being developed and the public mineshare that Facebook is leading the project.

I wouldn't necessarily say that members of a payment processing consortium taking a cut to process payments is inherently evil -- if if you think it is at least no more evil than Visa or MasterCard.

"Today we’re sharing plans for Calibra, a newly formed Facebook subsidiary whose goal is to provide financial services that will let people access and participate in the Libra network. The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app — and we expect to launch in 2020."[1]

Facebook controls the consumer-facing side, the "wallet". Other people get to deal with the merchant side.

[1] https://newsroom.fb.com/news/2019/06/coming-in-2020-calibra/

Facebook controls one implementation of a consumer wallet -- you don't think everyone in the consortium is going to want a piece of that pie? That Visa -- the people who would brand air if they could -- wont want their name on a wallet product?

Visa might have a wallet. But it won't be the one that you reach from Facebook posts and ads.

It could be just a cloak.

They are being investigated, they are receiving fines for data misuse.

What's better way to divert attention than do something more outrageous which pulls more investigator there?

So a Libra wallet will be no different than an international 0%-interest checking account, with transaction fees. Seems like FB could have just announced that to avoid being slaughtered by every news outlet and regulator.

They've already shifted their plan by a huge amount from decentralization to centralization and succumbed to the power of governments. No reason to believe it will not continue to happen in the future.

Party's over, goodnight, go home. Maybe Western Union will lose some profits though.

Though I do wonder how rules for international (country A => country B, or country C => country C, where C != the US) transactions will be applied. Since FB is a US company does that mean every single Libra user will be subject to US restrictions - even those which are legal in their country? Will Iranians be able to use Libra? What about Canadians using it to buy marijuana?

They said they will vet the people allowed to mine / process transactions on the network, so it seems like FB could easily be required to shut down a miner if the US government says they're doing money laundering or allowing people in Iran to buy medical supplies or allowing Canadians to buy weed or assisting with other illegal activities.

I'm sure banks have already dealt with this problem extensively. Libra seems like a very non-innovative solution - just another bank, by Facebook this time.

> Since FB is a US company does that mean every single Libra user will be subject to US restrictions - even those which are legal in their country? Will Iranians be able to use Libra? What about Canadians using it to buy marijuana?

There is a long history of non-US banks which have operations in the US getting fined by US regulatory agencies because they violate US law somewhere else in the world with regard to money laundering / sanctions etc. The reach of US prosecutory power with respect to financial institutions is vast.

That's probably inevitable - just as you can't have your cake and eat it too, you can't have a payment network that's freely usable by major companies who do business in USA and also by those under USA sanctions such as Iranians.

If a system is truly permissionless and decentralized so that everyone who's willing can technically participate without restrictions, then all first world companies will be prohibited to do commerce in that system (unless it's for trivial amounts or they do their own KYC/customer analysis to implement the restrictions), and if some system is going to be implemented by first world companies, then they'll be required to ensure that it's not truly permissionless and can keep certain actors out of it.

You are absolutely correct about first world companies. What about non first world? Truly open systems do not seem to pop up anywhere though. I personally think that a critical mass could be achieved beyond which governments would be hard presses to flex its muscles.

It doesn't have nominal interest, but since it's pegged to a variety of financial instruments it will effectively bear interest (positive or negative) with respect to any currency.

Facebook wants to do two things:

1 Bank the unbanked or underbanked in developing countries. This is key because anybody in these countries with a smartphone will have a good banking service and be able to pay for things like they do with WePay in China. The user experience and network effect will probably be better than anything the local banks could offer. Also the currency will be more stable and remittances will be almost frictionless.

2 Have these newly banked use Libra for their day to day transactions. The more money they put on the platform the more interest FB collects. Even if they don't do it now, FB will eventually integrate Libra with their other services like ads (both from a payments and data-gathering perspective) and FB marketplace.

By making their bank account a "cryptocurrency" FB can try to circumvent the hundreds of differing banking standards and regulations around the world. But ultimately this is going to cause a death by a thousand cuts. It's actually a legitimate national security issue for many countries to have large portions of their internal economy being controlled by mostly American corporations in a foreign currency.

Libra is owned by a Swiss organization, not Facebook.

This is just a legal maneuver crypto projects do I believe.

Maneuver or not this corporation would answer to all members of the consortium participating in it. It would be difficult for Facebook to maintain control while other financial behemoths also want influence.

Did we watch the same hearing? David Marcus was pretty explicit about wallets and exchanges (i.e. on/off-ramps) being regulated but never mentioned (rather successfully dodged questions about) the Association facilitating on-chain AML and instead pointed out that law enforcement could do their own on-chain analysis.

To be honest, the whole money laundering point is so overblown anyway. For comparison, Bitcoin's transaction history is totally transparent and fairly simple to run basic clustering and taint analysis algorithms for deanonymization. People trying to avoid AML need perfect OPSEC and extreme discipline not to recombine change outputs. In Libra the privacy is even worse, since it uses an account-based model. I greatly suspect that it is easier to avoid AML in our existing system than it would be in a Libra world.

FWIW, if you're trying to avoid AML today, then you should use ZCash or Monero. Both have cryptographic privacy that hides both the amount and sender+receiver.

What I don't get about this is why this entire blockchain and foundation thing was part of Libra to begin with. They could have gone with a plain database and copied WePay or somehting and they wouldn't have the headache of fighting with regulators over illicit use of the network and rogue wallets.

Maybe they were afraid of the climate in Washington and thought this was a better idea somehow? As a techie it honestly seemed more appealing to have the foundation etc. Instead of “FB money”

They want to pretend that it's not a banking service

I mean it certainly doesn't look like a banking service any more than my matress stuffed with cash looks like one.

There could certainly be banks that hold your Libra but I don't think it's fair to say that the Libra network itself is a bank.

It's more of a long term play than a money grab. Facebook knows that it's really hard to launch a payment service and reach ubiquitous adoption (see apple pay, etc). It only worked out for WePay in China because the government can name winners.

On the other hand, I don't think Facebook cares if their Calibra wallet wins, or if it's Visas wallet, or anyone elses. Facebook just wants some ubiquitous payment service that integrates billions of people into online payments (particularly the unbanked without credit cards).

Because any Libra account, through Facebook or otherwise, would be interoperable that means a better chance of reaching critical mass of user share

We get a spectacular view of what would have happened had Satoshi tried to create Bitcoin through official channels.

I mean GNU Tailer experimented with some ideas to bring crypto above-board but they didn't really have the mindshare to attract any significant attention.

This is so different to bitcoin. It's a centralized service. There's no reason for them to not just use an SQL database instead of a completely neutered blockchain. The whole point of bitcoin was to avoid that centralization.

I know you probably know that, but we need to nip in the bud any suggestion of anonymity because cryptocoin.

"At the core, we believe that a network that helps move more cash transactions — where a lot of illicit activities happen — to a digital network that features regulated on and off ramps with proper know-your-customer (KYC) practices, combined with the ability for law enforcement and regulators to conduct their own analysis of on-chain activity, will be a big opportunity to increase the efficacy of financial crimes monitoring and enforcement"

It was never actually going to be decentralized. You could tell because there was no way their design could actually handle that without a total rewrite. It never was an actual cryptocurrency from a technical standpoint.

What it's going to be is a payment system in WhatsApp that pretends to be a cryptocurrency but is really just an attempt to limit the popularity of Bitcoin, Ethereum and other real cryptocurrencies.

I mean, there are plenty of people who believe the government should be able to track and intervene in all transactions at all times. I am not one of those people and that's why I support the existence of real cash and real digital cash (cryptocurrency).

I completely disagree.

Nothing in the design prevented the system from shifting to a staking mechanism, or some other form of decentralized governance.

Edit: to be clear, I have other issues with the proposed design, and I am also skeptical about FB's intention.

>I mean, there are plenty of people who believe the government should be able to track and intervene in all transactions at all times. I am not one of those people and that's why I support the existence of real cash and real digital cash (cryptocurrency).

That's just tax evasion. You don't get privacy from a global ledger.

Here's my litmus test: If you want to see how free Libra is, try donating to Wikileaks using it.

Or maybe this shift was planned from the beginning.

They couldn't possibly expect any other reaction from regulators.

I think they're planning a long game.

Bottom line: they are more powerful than many governments and probably think a currency is their right.

This sounds like good news.

While there is always the argument that innovation is stifled by regulation, sometimes you do actually need regulators and experts to step in and point out where issues may lie. With a system like Libra, this seems like one of those times.

Dipshits.

They should have moved fast with a sensible crypto and dealt with a divided Congress and regulators later. They’ve blown their chance to be the bank of the internet.

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