Facebook's crypto chief on the long, messy journey to reinvent money

David Marcus talks Diem, Novi, bitcoin, NFTs and why you shouldn't write off Facebook just because it's Facebook.

Three Novi screens on an iPhone.

Novi is Facebook's digital wallet, designed to make payments as easy as possible.

Image: Facebook

In 2017, David Marcus wrote Mark Zuckerberg an email saying he thought Facebook should get involved in cryptocurrency. (He was on vacation at the time.) After a stint running PayPal and another as the head of Facebook Messenger, he thought that fixing payment infrastructure was the next big project he wanted to work on.

Zuckerberg liked the idea, which eventually became Libra, a cryptocurrency that Facebook announced in 2019 alongside a group of partners that would help it develop and govern Libra. Marcus and his new team, a group called Facebook Financial (F2 for short), was also set to work on a wallet called Calibra. The announcement went over like a lead balloon: Congressman Brad Sherman compared "Zuck Bucks" to 9/11, a number of members of the Libra Association quickly bailed on the project and it seemed doomed before it even launched. But Marcus and his team kept working.

Now, Libra is Diem and Calibra is Novi, and Marcus said both are nearly ready for public consumption. He joined the Source Code podcast to talk about how he has approached the cryptocurrency space, what it'll take to get users to trust Facebook with their money, the merits of bitcoin and stablecoins, why NFTs are the start of something big and much more.

You can hear our full conversation on the latest episode of the Source Code podcast, or by clicking on the player above. Below are excerpts from our conversation, edited for length and clarity.

I asked a bunch of people what I should ask you, and the overwhelming question was some version of, "What's Facebook's plan here?" A lot has changed in the last couple of years since you announced Libra in 2019. The strategy shifted a little bit, the names have changed, but my sense is the big-picture goal is kind of the same. So: Biggest possible picture, highest possible level, what is the job of this project?

First of all, you're right, the mission and the vision hasn't changed. The job is basically, on the side of what is now Diem, to build a protocol for money on the internet, so that you can actually have an open, interoperable, cheap network or infrastructure for money to move around. It's really reinventing the infrastructure that moves money around the world, the way it should be if it was invented in the last five years, rather than in the last 50 years, which is where our current payments infrastructure is.

On the Novi side, it's basically to create the best possible digital wallet that will enable anyone, no matter where you are, to have access to the financial system and move money around for free. When I say that, people are like, "OK, it can't be free. Why are you doing this? You've got to have other plans." And our plans to monetize are basically quite straightforward. We are a challenger in the payments industry, and we will provide merchant services to merchants and basically have really low rates for merchants to accept payments. In the U.S., we have some of the highest rates for merchants to accept payments. And so if we're a challenger, we can offer discounted rates, so to speak, and have a healthy margin despite the fact that it's going to be cheaper. And that's our plan.

So we get a lot of consumers to actually onboard the Novi wallet, and then we have on the other side of that a healthy merchant services business, and that enables us to keep P2P — person to person transactions — free for people, whether they're domestic payments or cross-border payments.

And why do that at Facebook? You could have started a company to do this, you could have called your old friends at PayPal. What made sense to you about doing this at Facebook?

So many things to say here. So it's kind of a balance sheet thing for me, right? Doing it inside of Facebook has a cost, because obviously, we need to do a lot more to have the benefit of the doubt — to deserve the benefit of the doubt. And we need to do a lot more over a long period of time to earn people's trust. And so that's a cost, a tax so to speak, on the project.

We need to do a lot more to have the benefit of the doubt — to deserve the benefit of the doubt.

On the other side of it, we have a longstanding experience of building products that reach a lot of people and solving problems for them. The analogy that I use is communications: We used to pay $1 a minute for an international call, or 25 to 15 cents a text message. And then the internet happened, and over-the-top apps were created — messaging apps like Messenger and WhatsApp — and that enabled billions of people to communicate in an unlimited way with a $25 Android smartphone, no matter where you are. It unlocked the ability for people to continuously communicate.

We believe we can do that for money, and it feels like doing it from Facebook was the right thing to do because we could actually leverage our distribution to provide the benefits of free money movement and solve real problems for people, at scale, much faster than if I did that in a separate company outside of Facebook.

Does looking back at the last four years of the crypto space bear that out? Everything about the crypto world is different from when you first sent that email in 2017. It's bigger, it's more chaotic, there's more money involved. If you were starting now from scratch, would that reasoning still feel right to you?

Yes. I think that the difference, though, is that at that time we felt like it was actually required to build all of these things, and create the core technology for what is now Diem, and basically ensure that Diem can truly be an independent entity. Because we always felt like no company or no one entity should control payment rails that can become the protocol of money.

I think now we would have probably taken a different view, given that a lot of new technologies and other networks and other assets are out there. And so I think that the market has moved quite a bit. I still believe that the approach that we've taken with Diem is actually the right one, because a purpose-built payments blockchain with all of the compliance features that are required for such a thing to scale in a regulated market doesn't exist today. But in terms of core technology, there are a number of core technologies out there that didn't exist two years ago that we could have leveraged. But you know, it was two years ago.

Do you feel like you still have to think and innovate at every level of the stack? This is a question anybody getting into crypto has to think about right now: What chain do I bet on? What programming language do I bet on? It feels messy, and everybody's making lots of calculated bets. But I feel like what you did early on was say, "We're just going to invest in all of it. And we're going to build the whole thing in a way that we think makes sense." Is that still the M.O.?

Yes, because we think we can contribute. All of this is open source, by the way, but we think we can contribute to crypto in general in a big way. One of the biggest assets that Facebook has is engineering talent; we have some of the best engineers out there. And they became really passionate about improving the state of things. I think that we'll be able to demonstrate the added value that we bring to the whole industry, by being in it and by investing heavily in it. So we'll continue doing that.

Tell me about Novi in particular. One of the things that I've had trouble figuring out is why crypto wallets have been so hard to do in a consumer-friendly way. What is your sense of why this is such a hard problem to solve?

So I think we need to break this down into two different categories of wallets. You have custodial wallets, where you have a relationship with an entity that is going to offer you all kinds of consumer protection, which means if something goes bad with your account, they will make you whole. That's definitely Novi, and the way that we intend to serve and protect our customers.

Then you have un-hosted wallets or noncustodial wallets —

We really need better terms for all these things, by the way.

We do, we do. But so noncustodial wallets or un-hosted wallets are basically wallets where you personally manage your keys. It has the advantage of, there's no intermediary you need to trust, it has the disadvantage of, if you lose your key, your money is gone.

In the latter world, and especially when you talk about DeFi and all kinds of different applications, it's really cumbersome, because these projects have not necessarily been built all the way to the consumer experience. It's a lot of infrastructure projects. But we're really focused on making the most consumer-friendly wallet on the Novi side, because we're a custodial wallet. And the way we're thinking about this is, basically, that we need to make it as simple as possible for people to send money domestically and also across borders.

The way we're thinking about this is, basically, that we need to make it as simple as possible for people to send money domestically and also across borders.

It is so expensive still — 6.5% on average — to move money cross-border, and a lot more for certain corridors. And the experience is horrible. A lot of these customers are unbanked, so they actually go to a payday lending location and pay 10% to cash a check. They take that cash, they go to another location, they give the cash, they take a little receipt, they take a photo of that receipt, often send that receipt via WhatsApp or Messenger to the other side of the world, and then three days later you have someone on the other side of the world who can go to another cash location, sometimes has to walk for hours, wait in line for hours in high crime areas and then take cash.

And we could simplify all of this because the receipt was sent on WhatsApp or Messenger. What if you actually can just send the money instantly, for free to the other side of the world? And that would serve the people who need it the most.

That set of people you're talking about, who I think most of us would agree are the folks who could be most benefited by digital money, have not been the people who are in the crypto space so far. Right now it's very much a tech enthusiast thing. People buy cryptocurrencies as speculation, and it's an investment strategy more than it is a way to send money to my family. How do we flip that?

I love that question, because it's so true. Today, a lot of the interest in crypto comes from a place of speculation and profit-making. It's like, you know, what's the latest hottest token I can buy that will appreciate really quickly? And there are lots of really amazing things that are happening in the creative space. So for instance, what's happening with NFTs is exciting, because it gives creators a number of novel ways to monetize their art and all kinds of different things. But it's also speculative on the other side.

And when you think of leveraging crypto and new rails for payments, it hasn't happened. People are often telling me, look, why don't you use bitcoin? And for the record, I'm a bitcoin fan. I believe that it's something unique that won't be recreated ever, and that it's a good investment asset in a world that trends towards more inflation. But it's a terrible currency because it's highly volatile.

And so if we go back to the same person we're talking about, who would send money cross-border, if your asset depreciates 10% in one day, it's more than the fees you're paying. And again, it's unpredictable. So for a currency to be a very good medium of exchange, you need very, very high stability and low volatility. That's number one. Number two is you need rails that are actually designed for payments. And what that means is scalability, so transactions per second, finality time, high availability, security, and also all kinds of compliance features that are typically not available in blockchains that were designed for other purposes.

This goes back to the point of having to do this digitally, right? I can send money through Cash App, or Venmo, or PayPal, it's not that hard to get money from me to you. But it does feel like the rest of what gets unlocked only gets unlocked if every piece of the process is digital, including the money itself.

It's absolutely true that in the U.S., there's actually no fixing really needed for P2P payments, because people have tons of options. But when you look at the way that different payment apps interoperate, even now, you cannot send money between Venmo and PayPal, and they're part of the same company. Even less from the Cash App to PayPal or PayPal to Google Pay. You can't do these things. And the reason for that is because you have all of these different islands that are wallets. But there are no bridges between these islands. And there's no interoperability because there's no protocol for money.

It's kind of interesting and misunderstood, because to your earlier points, we could have built Novi with fiat, regular money on existing rails, and really delivered a lot of value for a lot of consumers by integrating this within our apps. And we could have done domestic payments, cross-border payments, and it would have been a whole lot easier. And certainly I would have had two easier years. But we felt that at this point in time, it was actually important to try to really upgrade our infrastructure, because I think wonderful things will happen if we succeed.

But we put ourselves in a place where we're enabling more competition to happen, right? Because if anyone can actually send to exactly the same number of people that we can, because it's an open, interoperable environment, we're going to create a lot more competition for ourselves. But on the other side, there's benefits. I don't think we should be arrogant and think that we can build the best wallet for everyone, anywhere in the world. There are going to be places where a local startup or a local company will be able to build a better wallet.

And so suddenly, you just maximize the reach of the underlying infrastructure. And when you do that, you can really deliver more value to more people more quickly. And you also unleash innovation, because suddenly, you can do all kinds of things with programmable money. You can collateralize assets on-chain to have broader access to capital, you can do so many different things that you can't really do with the current system.

So was it worth the pain? Ask me in a few years, we'll find out. But we still have the same beliefs and the same passion to to really create something that's going to be transformational for people.

I think what you just described is what most people want. The system has to be open and interoperable. But then I was watching back to when you were talking to Congress, and they're calling it "Zuck Bucks." Has it been tricky to sit across the table from people and say, OK, historically, this is not how Facebook rolls — Facebook has built places that live amongst themselves — but we're trying to do something very different?

It definitely is. It's a complicated problem, because it is different. But I think we're headed to a world that is going to be different. When you listen to Mark talk about the metaverse, there's an absolute clear-eyed realization that we can't build it all. That we have to make it interoperable, that we have to make it open for third parties to build on it and co-build this thing. And so I feel that this is actually a seminal trend of the internet, that it is moving to a more decentralized place. And critical infrastructure that powers critical functions will have to be more and more decentralized for it to be trusted.

This is actually a seminal trend of the internet, that it is moving to a more decentralized place.

That's why we wanted to build this this way. Because especially on the Diem side, we really believe that no one should own critical infrastructure, like the protocol for money on the internet. So when you sit in this chair, you have to deal with internal dynamics of convincing a whole lot of people internally that you're doing something that is worth all of this pain and time. You have to manage the complex governance structure that exists with a consortium that is built of 26 companies, where our vote is equal to everyone else's vote. And then you have to manage that complex engagement with regulators and lawmakers, where we have to actually demonstrate that we should be given the benefit of the doubt, and that the problems are so important that we can actually provide a decent solution.

Over the course of this project, you've always talked about it long term. "All we can do is prove over a long period of time that we're serious." And that's all well and good. But have you identified short-term wins in that respect, where you can prove from day one or day 60 that "we are actually on this road that we claim to be on"?

I think that there are a number of things that we've done over the years in payments that have been discounted, because people forget that we've been in the payments business for a while. The way that we have made progress is by continuously improving our payments experiences and progress and demonstrating value.

This one is more sensitive, because we are not only building a wallet, we've started a project, that now we don't control anymore, that is designed at becoming a new infrastructure for payments. And there's lots of entrenched interests that actually don't want that to happen, regardless of who is the one building it. The analogy with the pre-internet telecom era and post-internet telecom era I think is a very valid one, because I don't think anyone would argue that the internet didn't provide a tremendous amount of benefits to people. It did that for everything except for money. And I think it's time.

The regulatory environment around this seems incredibly fragmented and messy right now. Even in the U.S., where you would think we'd be ahead on a lot of this stuff, we're just now having substantive conversations about how crypto is supposed to work and be regulated. Where do you feel like we are on that? Are we arriving at some right answers about crypto?

I think we're behind. I feel like we ought to create the appropriate regulatory framework for this innovation to happen in a way that is going to protect consumers. And I think we're not there. But to your point, I feel that we're having all the right conversations. So I'm hopeful that we land in a good place soon, and that we can stay in a leadership position in what is undoubtedly going to be one of the greatest areas of innovation in the next decade. If the U.S. misses the boat on innovation, and talent and companies flee to other jurisdictions that have more innovation-friendly environments, and with clearer regulation, we have a lot to lose.

Does the volatility and chaos of all of that make your life harder? You're sort of preaching a thing that is very understandable and repeatable and simple and useful in your day-to-day life, and then you flip to the other side and it's like, "I just sold a JPEG of a rock for $16 million." Does it make your life harder to be like, we're crypto, but we're not the crazy kind of crypto?

Yeah, it's complicated, because sometimes we're assimilated with all kinds of different things that have nothing to do with what we're working on. And for regulators, it's also really complicated, because if you look at stablecoin regulations, you have a ton of different stablecoins that are doing very different things. The vast majority of stablecoins are currently used not for payments, but for trading. It makes things a lot more complicated.

So you've said Novi is ready. What are you waiting for? You could have launched two years ago!

No, we weren't ready. If we went the fiat route, we could have. But now we're ready to go. We've received all the required licenses for us to operate in the U.S. and in a number of other places. And we're basically now waiting for Diem to go live. And hopefully, we can launch with Diem soon.

I mean, we're basically now in a state where we're working on polishing a few features, because we have the luxury, which is unusual. And when it comes to money, you need to make sure you get it right. You can't really ship a half-baked product or ship a product that doesn't have the right setup for customer service and all these things. But we're ready. We'll launch this half no matter what.


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