Libra is in the news since its announcement in June 2019. In a recent blog post on Medium, David Marcus, the head of the Facebook-led libra project, talks about the drawbacks and limitations of traditional payments protocol and explains why building a new protocol for money is the only way to truly change the game for people. And also, how Libra is there as a solution to these limitations.
As expected there are many questions about Libra as he writes:
“I’m often asked why we didn’t take a more traditional route of building a payment system on top of existing rails, instead of the more ambitious route we’ve chosen.”
Talking about the limitations of the current traditional payment system, he said that the existing “money networks” are closed and are not well interconnected. These systems are very old; built in the 1960 and 1970’s era “and while they’ve received upgrades since then, they often live on top of legacy, fragmented infrastructure”, he wrote.
The second limitation is because of the underlying infrastructure that they are dependent on. The traditional payment systems are isolated from each other and thus limiting their reach. He said:
“While you can send and receive money from within one wallet, you typically cannot send and receive between wallets from different companies. These are siloed systems, which in turn limits the reach of each of these networks.”
The third limitation is that in traditional payments protocols, the transaction process takes long delays because of third-party involvement this increasing costs as he wrote:
“Depending on the setup, moving money from point A to point B requires a number of intermediaries to be involved, and often demands liquidity pools to be readily available at point B for consumers to get their money out in a timely fashion. This means delays, and added cost at every step of the way.”
These limitations open up a scenario where people need a more stable, fast, cost-effective, and a well-connected protocol to send values.
According to David Marcus, the Libra project could be a solution to the issues associated with traditional protocols. The project will allow real-time settlements without the involvement of intermediaries. He wrote:
“Libra can be the “protocol” that will enable fast, cheap, and stable money movement across service providers, institutions, and people all around the world. This would in turn massively reduce costs by eliminating the need for so many intermediaries, and operational complexity and overhead, thus increasing innovation and access.”
David Marcus, concluding the discussion, wrote:
“This is why we’ve decided to take the more ambitious route, and why we’re so committed to seeing it through. Because people all around the world deserve better, and it’s about time for a change.”