Former Veteran Employees on Facebook's Libra: its opportunity and challenge in digital and real world
Former Veteran Employees on Facebook's Libra was held in 8KM COFFEE, Wangjing business center, Beijing on June 19. The activity is sponsored by Cobo and co-sponsored by Jinse Finance. Honored guests discuss the reasons for Facebook to issue Libra and the impact of Libra on existing digital currency and financial system.
Cobo co-founder Changhao Jiang(Former Facebook senior research analyst)
Xianxing Capital founder Huai Wang(Former Facebook engineer)
Sophon Tech founder Chao Qin(Former Facebook star employee)
Changhao Jiang explains Libra’s white paper. His opinions are as follows.
Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.
There are many problems with existing financial infrastructure.1.7 billion adults globally remain outside of the financial system with no access to a traditional bank. There is a 2-3 day delay in cross-border remittance, and the cost is very high. 85% of global trade is settled in cash. America's retail industry loses $40 billion a year due to cash theft.
The aim of Libra is to reduce the cost of financial infrastructure, maintain stable value with asset reserve as guarantee, and realize Libra transactions easily and quickly.
Libra is made up of three key parts. Firstly, it is built on blockchain technology. Three decisions regarding the Libra Blockchain: 1) designing and using the Move programming language, 2) using a Byzantine Fault Tolerant (BFT) consensus approach, 3) adopting and iterating on widely adopted blockchain data structures. Secondly, it is backed by a reserve of assets designed to give it intrinsic value. Thirdly, it is governed by the independent Libra Association tasked with evolving the ecosystem.
According to the white paper, Facebook has open-sourced the code for the Libra Blockchain and launched Libra’s initial testnet. The official wallet of Libra, Calibra, is predicted to launch in the first half of 2020.
In panel discussion, the three guests discuss the reasons and challenges of Facebook's cryptocurrency issuance, as well as its impact on the digital money market and Internet enterprises.
Host: Given that all of you here are former Facebook employees, why does Facebook launch Libra? What are the biggest challenges?
Changhao Jiang: There are two reasons for Facebook to launch Libra. The first and foremost reason is that many developing countries have poor financial infrastructure and many people do not have access to basic financial services. Secondly, Facebook has a strong incentive to realize financial payments and value transfers on social networks. WeChat in China combines social network with financial network. This kind of application scenario has been a great inspiration for Facebook.
Facebook operates in many countries, with 2.7 billion users worldwide. Financial infrastructure and regulation vary from country to country, making it difficult to implement the basic function of transferring money globally.
Huai Wang: Firstly, the exchange of value needs a vehicle. Facebook tried to make payment apps a decade ago. The credit card system in the United States is working very well. The creation of the blockchain allows Facebook to experiment with new technology. Secondly, the core is Zuckerberg's philosophy. His goal is to achieve Fintech. Finally, it’s Zuckerberg's charisma that will make people who approve of Facebook to use Libra. Facebook works with multiple large institutions, so Libra chain reduces the cost of trust and makes its payment method more reliable.
With Libra’s large adoption, other issues such as regulation may become secondary. The power of business applications may fight against regulation from the bottom up. Facebook will use business applications to drive Libra.
Chao Qin: From a small perspective, Zuckerberg's friend David Marcus got to know about blockchain technology in 2017 through Coinbase and started to communicate with Zuckerberg to enter this industry.
Host: According to today's price, the market capitalization of bitcoin is $160 billion, while Facebook is a giant with 2.7 billion users and a market value of more than 500 billion. What influence do you think Libra has on existing digital currencies?
Changhao Jiang: The launch of Libra will have a positive effect. Worldwide, only 1-2% of Facebook users know and use bitcoin. After the launch of Libra, more people will be exposed to blockchain industry and its products, and the government and other media will have a correct understanding of the industry. When Facebook launches its own public chain, it may overlap with other public chains. But with different application scenarios in the future, there will be various trends of application.
Libra's biggest challenge comes from compliance and regulation. Different countries view digital currencies differently. Facebook needs to communicate with many governments, so its development may not be smooth.
With the increasing influence of blockchain industry, there will be diversified demands within the industry. Libra is one part of the whole ecology of Facebook. Libra's official wallet is a model in the ecology, which tells developers a standard way of developing wallets.
Huai Wang: Traditional currency has developed for a long time from shells to gold, to notes based on gold. The development of digital currency has gone through a similar process. At first, coins were issued by companies. Then come bitcoin and stablecoin. Now it is Facebook's stablecoin, Libra. Many large institutions endorse it, which greatly enhances its credibility. In my opinion, Libra will become the mainstream. Its main feature is utility. However, bitcoin will never die out. It would have collectible value, gradually having the same function as gold today.
Host: What is the imaginary space for future global payment and settlement changes? How will different countries be affected? What are the regulatory challenges?
Changhao Jiang: Libra does not act as a central bank because it’s not issued out of nothing. All virtual currencies are backed by equivalent fiat currencies as collateral. Libra’s market capitalization is small now and will amount to $1 billion in 2020, which will have little impact on any country's fiat currency.
With the extension and development of Libra’s application scenarios, fiat currencies will be impacted in the future. Relatively speaking, the biggest impact is in countries and regions with poor financial infrastructure, such as Zimbabwe. In China, the United States and other countries with strong economies and developed financial infrastructure, the motivation of regulation is mainly financial crimes, such as money laundering and counter-terrorism.
Huai Wang: This is a game process. Mintage is a power of a country. The real shock of Libra on this has yet to start, and this shock is generated by commercial value, or in other words, it lies in whether a commercial application is valuable to users. People tend to underestimate the influence technologies can bring to life. U.S. and many countries in Europe are willing to exchange opinions on new things, so I'm optimistic on the regulation situation Libra is now facing.
Chao Qin: There are three effects of Libra's launching. Firstly, it will enhance the fiat it’s pegged to. Secondly, it will strengthen the U.S. dollar on the world stage. Thirdly, there will be a shock on banks, especially to those at places where the financial infrastructures are in desperate need to be improved, such as Southeast Asia where people mostly deal with dollar instead of local currency.
Host: Which application scenarios would be opened by Libra first?
Changhao Jiang: The first would be cross-border remittance. It's a large market with transaction volume over thousands of billions of dollars annually. The second would be payment based on Libra, such as online digital business services (online music listening and reward) and offline shopping, etc.
Huai Wang: Payment, store of value, and investment. As for investment, if there were to be suitable financial institutions, there is a fair chance for investments to anchor on Libra.
Host: May I ask our guests to make a summary of the blockchain field or digital currency industry, with all the giants coming into the game?
Changhao Jiang: Facebook's launching Libra will stimulate and push all the other giants in the internet industry into the game. Blockchain is not a technique out of reach. The real challenge for 2C lies within regulation, and for 2B it's the corresponding reform of corporations. The challenge of the blockchain industry is how to design a system, or how to build a model to let more people into the game.
Huai Wang: People's attitude toward Facebook's launching has been swifting from being neutral on the first day, to being optimistic on the second, and finally being pessimistic on the third. My attitude remains optimistic. What's important is that Chinese government and corporations should get crucial takeaways from this, and learn how to deal with similar questions.
Chao Qin: Some people have been questioning Facebook's ability and willingness to protect user data, which led them to have doubts on its launching Libra now. David Marcus responded that this is the perfect timing, because Facebook is not leading the operation of Libra, but merely 1% of that mission. Libra is a decentralized system where it requires all the founding members to maintain together.
The three guests gave their answers in the Q&A session.
Question 1( from Yang Tong, patner of Jinse Finance): The U.S. Senate required Facebook to attend a hearing on halting the development of Libra on July 16, 2019. How would this influence Libra and its development? Meanwhile, some people with public chain experience has claimed that with one line of code they can launch a token just like Libra, how plausible is this claim from the technical prospective?
Changhao Jiang: It's hard to predict the short term effect, but on the long term, it would definitely boost the economic integration and improve the welfare of people from all over the world. Facebook might be facing a long term negotiation with the government, and it might even be forced to take a few steps back. But from the government's perspective, things are still not clear yet.
Libra's main chain is yet to be launched, only the testnet is available now. Launching a token with one line of code can be realized on other chains. However, Libra's goal is to intake other financial application onto its chain by applying smart-contract.
Huai Wang: I don't think it would have a huge influence in the long run. The U.S. government will support its launching eventually. As for the technique, it accounts for only 20% of the whole project, and the commercial application is more important.
Chao Qin: It's common to get a subpoena for these things. Facebook's compliance team is experienced in dealing with regulation issues both in California and abroad, and they are ready to deal with issues from any country in the world.
Question 2: Facebook has been involved in user data leaking scandal. How would Facebook eliminate people's doubt on its ability and willingness on privacy protection, AML and KYC?
Chao Qin: As for privacy protection, Zuckerberg said that there are two layers in Libra network. The lower layer is Libra's own protocol, and the upper layer is used to connect to user by wallet and to receive and send tokens. Zuckerberg has made statement that Libra will not use Facebook's data. The data of Libra and Facebook are managed separately.
Question 3: Facebook's Libra might turn into a permissionless public chain, what are the takeaways in this?
Changhao Jiang: Libra's final goal is being permissionless. It's wise to put limits on nodes at the early stage when institutions with strong background are needed to solve possible problems. With it getting mature, Libra would be able to open up to allow free access to nodes.
Author： Jennifer Snookoin
Executive editor： Fangrui Guo