Facebook recently announced this new thing called Libra: it’s Facebook money, basically—company scrip—set to debut in the first half of 2020. It will have some of the features of a stablecoin, pegged to a bunch of different currencies at fixed rates. A new international digital currency, more or less.
Media reports almost invariably described Libra as “cryptocurrency,” which no it is absolutely not, not even remotely a cryptocurrency in the sense developed in 2008 by the inventor of modern cryptocurrency, Satoshi Nakamoto.
Nakamoto invented Bitcoin because he (or she, or they) wanted to establish a trustless, transparent system to enable individuals to conduct financial transactions among themselves, without a middleman. The whole point was to take the Man out of the equation:
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted… but the history of fiat currencies is full of breaches of that trust. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts… With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.
Bitcoin launched in January of 2009, and is trading at $10,915 at the time of writing. Making the system “secure” and transactions “effortless”… well, that part hasn’t quite gone as planned. It’s been a very bumpy road. There are still mega problems, especially on the regulatory side and with respect to security at the exchanges; it’s still a little dicey getting ordinary money in and out of crypto.
Even so, Satoshi’s original intentions have in many ways come to pass. You can indeed trade Bitcoin almost frictionlessly, and without a middleman. There are bulletproof, unfalsifiable records of every single Bitcoin transaction maintained by a public network of more than ten thousand independent computers spread across the globe, accessible to anyone. It’s really a remarkable thing.
In the case of Libra, though, you’re most definitely going to have to trust a middleman, and the middleman is… Facebook. Ahaha!
Anyhow, the biggest difference between Libra and real crypto, like Bitcoin, is who controls it. The control of Bitcoin is decentralized. You or I or anybody can buy a mining rig and mine Bitcoin. But unless you are a huge corporation, and unless you are prepared to pony up $10 million for your seat at the Libra table, you can’t be a full participant in Libra, the way you can in thousands of other true cryptocurrencies.
Still worse, not only will you not be able to participate in Libra as a miner; you will not be able to download or view its transaction history. You or I or anybody can see and download the entire transaction ledger of Bitcoin (or of Ethereum, or any other real blockchain). But the Libra ledger is private. Nor is it fully decentralized: the Libra white paper specifies that the system will run on 100 private, invitation-only nodes, while Bitcoin currently runs on the aforementioned decentralized network of around 10,500 nodes and Ethereum, around 7,000. And not only that; Libra’s transaction ledger isn’t verified through a hack-proof peer-to-peer system like Satoshi’s.. Instead, it relies on the (lolll) integrity of Facebook (LOLOLOLlolol *dies laughing*) plus its partners in the “Libra Association,” which is eventually supposed to have 99 other members, to keep the books. And maintain the code, and so on. Fewer than thirty have signed up so far, including Mastercard, eBay, Coinbase, Visa, Uber, Lyft, Andreessen Horowitz, Kiva, and Vodafone.
“A blockchain must be open, public, neutral, censorship-resistant, and borderless,” says veteran crypto expert Andreas Antonopoulos. Libra fails all five tests.
So: Libra offers no peer-to-peer verification, no archive, no public participation, no unfalsifiable public recordkeeping. There’s no true decentralization, no thousands of independent network nodes maintaining a fully permissionless system. In fact there are zero independent nodes, but a closed network of just 100 megacorps instead. These companies control a lot of our payments and transaction systems already!
Proponents of Libra are all yabbering on about “serving the world’s unbanked,” as if it were 15 or 20 years ago. For more than a decade, Kenya has already had M-Pesa, a thriving micropayments system based on trading cell minutes!! M-Pesa predates Bitcoin, and has expanded from Kenya through East and Central Africa, and on beyond to the Middle East and India, covering millions of people who most emphatically do not need Mark Zuckerberg sticking his grubby mitts in their wallets.
Bitcoin was meant as a curb on the man, perhaps even as a strike against the Man; Libra is the Man.
For those with hopes that blockchain technology would bring competition to financial services, and thus more freedom for individual people around the world, it’s a terrible thing to see Facebook go straight to Visa and Mastercard as private guarantors of its “cryptocurrency” payments system. In a comment on Libra to Wired, the Cornell prof and widely respected crypto guru Emin Gün Sirer (@el33th4xor) said, “It’s sad to see a crypto effort so overtly target incumbents with deep pockets.”
Cheeringly, though, it is going to be very damn difficult for the Facebook gang to clear the batrillion regulatory hurdles that Libra will face; there’s a huge chance it will never launch at all. People don’t trust Facebook the way they did five years ago, when Libra’s development began. In a statement last week, Chairwoman of the House Financial Services Committee Maxine Waters said that Facebook should put Libra on ice until Congress and regulators can sign off on it, given the company’s “troubled past.”
“We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight,” said Senator Sherrod Brown, minority leader of the Senate Banking Committee. (It’s not a cryptocurrency, Senator!!)
The G7 has announced it will conduct its own investigations; and then there are the immense regulatory difficulties in India, China, and the U.S.; and then there are distinct rumblings among the pashas of the central banks, who have all been talking about issuing their own digital currencies. In short, there’s a huge global tug-of-war underway to control all the technologies around digital currency and payments. Too much regulation, and business will be strangled at home, and/or lost to countries with looser controls (as is happening in the U.S. right now). Not enough, and thieves will proliferate—or, heaven forfend! the corpocracy might lose its monopoly on the banking system, as Satoshi intended.
There are immense practical difficulties in implementing Libra too, all aside from the grabfest. For example, how will Libra store the reserves they plan to collect in order to back their company scrip? (In Switzerland, where the company is domiciled, long story, here’s a good piece about Switzerland’s special role in cryptolandia.) As the Financial Times’ Gillian Tett wrote Friday, if Facebook plans to peg Libra to a basket of currencies, “central banks do not usually store multicurrency ‘reserves’ for private sector players.” There would need to be new treaties put together, or a new platform organized by a third party like the IMF, which Tett described as “fiendishly difficult.” It’s very hard to see how all that happens in one short year. Maybe they’re already done with that part, and we just don’t know anything about it. And we won’t, until Facebook is good and ready to talk about it (p.s., they are the biggest liars going).
Then there’s the privacy aspect of Libra, the largest of the stampeding herd of elephants in the room. You’ve already seen what Facebook does with your phone records, the way it follows you around on the Internet when you’re not logged in, its patents on learning whom you are taking a walk with, etc. What happens when it also knows everything you’ve bought online? What happens when Facebook adds one more proprietary black box to their labyrinthine network of black boxes, and stuffs all the records in the dark for their own delectation and profit, where nobody can ever inspect them?
Maybe they just put Black Mirror on TV so people would think it was only a story, instead of a plan.
But Facebook says they are not going to mix up your Libra payments history with all the other info they’ve got on you and whizz it all together into the most profitable and complete profile the earth has ever seen, and they’re not going to get in cahoots with any government agencies or anything either. Pinky swear.