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A monumental battle over Facebook's Cryptocurrency comes



Michael J. Casey is chairman of the CoinDesk Advisory Board and senior blockchain research adviser at MIT's digital currency initiative.

The following article originally appeared in CoinDesk Weekly, a custom newsletter delivered every Sunday exclusively to our subscribers.


Given how slow Washington legislators have taken to design a coherent, informed perception of cryptocurrency, President of the House Financial Services Committee's rapid jump to action last week over Facebook's ambitious Libra project was remarkably fast.

But let's not reflect on the details of Rep. Maxine Waters (D-Calif.) Urgent requests that Facebook cease to work on Libra until after hearings held or on how European lawmakers made similar appeal. 1

9659005] The important pick-up from these legislators' actions is that they can make such claims at all. as this is not the case with truly decentralized projects.

Unlike bitcoin, Congress representative can directly identify and speak with the people in charge of the Libra project. They can appeal them and thus push them. They can start with David Marcus, head of Facebook subsidiary Calibra, but ultimately it is Facebook

CEO Mark Zuckerberg who will give the legislators the greatest leverage.

In this case, buck stops with Zuck.

Now imagine a congressional leader demanding a stop in bitcoin development. Who exactly will they push to complete an open source project involving millions of globally scattered most unidentifiable developers, miners and users?

This distinction – between a project with a single identifiable figure of authority and another whose management is distributed and unmanageable with a founder who has never revealed their identity – goes at the heart of a cryptoscritic criticism that the social media initiative is not censorship-resistant.

When there is a responsible one, an interested party – a policeman, a banker, a regulator, a shareholder – can lean on them to make changes. And when the blockchain consensus model is based on a club-like approved membership, a coordinated effort to change or censor the ledger is always possible. And if the big book or its software can be altered by this pressure, the Libra platform cannot unequivocally promise to support open, unobstructed access for users and an unconditional developer environment.

Let's be clear: Libra & # 39; s designers have thought deeply about how to protect their project from Facebook itself, both in a real sense and in public opinion. In its commitment to decentralization, the team has placed the code under an open source license, handed the network management authority on a separate Swiss basis that brought 27 external partners to work with Facebook as independent, allowed nodes in the network, and verbally committed to transition to a unauthorized model over time. There is a structure and roadmap for Libra to grow and survive regardless of its genesis as a Facebook project.

All that's fine. But we are still in the genesis phase, someone who is and will for some time hang on to the centrality of a particularly strong company.

The Cultural Problem

With the risk of indicating the obvious, Marcus and his team are paid by Facebook. Follow the money as they say. But also, follow the code.

The important source code of the Libra protocol is now open, but it was perceived and gestured inside Facebook. So, if project managers and programmers oppose or not, the culture of this organization will in itself feel in Libra's design priorities.

The elephant in the room is that a drumming of the latest news has shown that Facebook's corporate culture is deeply poisonous. The company's model of surveillance capitalism has turned users into ties in a global game of data manipulation, cultured echo chambers of slenderness, irreparable damage to the worthy cause of journalism, and deeply undermining our democracy.

This legacy is the inevitable reason why people, including lawmakers, are concerned that Facebook may be heading for a new international model of money and payments. Altogether, there is a fox-in-the-henhouse optic here that is inappropriate.

Wharton Professor Kevin Werbach argued in the New York Times this week that Facebook's Libra is a bold effort to win back public confidence by leveraging accountability involved in blockchain technology. But in the project's genesis phase, with no choice but to believe in Facebook's early input, this legacy of past distrust could easily become a major barrier to its progress.

We should support Libra, not Facebook

Regardless of all the above, I actually want Libra to succeed. (Note: I also want Facebook to die. It's not a contradiction, these two results can and must be separate. In fact, it's the nub's name.)

Billions of adults worldwide who do not have bank accounts. It is a noble goal, and they are intelligent – from a truly international cross-border perspective. Bring all these people into the international economy, and the payouts could be huge for them and for the rest of us.

And let's see, bitcoin has mistakenly failed to live up to its lawyers' promise of an economic integration solution. The impact of Bitcoins and other cryptocurrency $ 800 billion global money transfers is inappropriate.

Of course, if off-chain Lightning Network fulfills its promise to enable larger transaction processing, if the stablecoin projects solve the bitcoins volatility problem and if new encryption solutions can improve both security and user experience with crypto records, the recording may increase. But these solutions will take time. We have to act now.

Ultimately, it is not at all clear that global person-to-person payments are a viable use case for bitcoin, perhaps because too many HODLing speculators are massaging all publishers. And of course, no other payment-focused crypto competition has placed a large enough pad on the money transfer market.

So perhaps the recipe for a global expansion of payments lies on an international, low volatility of international stabilcoin, backed by a basket of leading fiat currencies and developed with formidable programming and marketing resources by 28 tech and financial giants. When you combine Facebook's, Instagram's and WhatsApp's user counts, the number of potential wallets runs to 4 billion. Global networking effects. Immediately.

Anything else – that is, if we ignore, for now, the object issue with Libra, which acquires Facebook's poisonous roots – can also be argued that an authorized business network is the best approach to Libra blockchain in place for a completely open, unacceptable chain like bitcoins or ethereums. The powerful boost needed for early global traction – software development, marketing efforts, and public policy behavior – requires significant business resources to be exploited in a targeted and coordinated manner, which is difficult for open source blocking groups to achieve. There are efficiencies in centralization.

As the project grows, Libra hopes to expand the consortium. This can undermine the coordination efficiency, but in a classic centralization versus decentralization trade, the addition of new members – more NGOs, some banks, a union and some public pension funds – will achieve greater diversity and lower collaborative capacity. It's far from perfect, but the time-limited transition brings things closer to the censorship resistance at some point in the future, when it comes to meaning – if they get there.

What that means for bitcoin and crypto

As a page, Libra & # 39; s success would be positive for bitcoin – and the last week's price measure suggests that the market looks the same.

Here's why: Currently, one bitcoin good value project is becoming more fluid, digitally up-to-date, risk-driving vehicle than gold when people need to maintain value in something that's immune from political and institutional risk. This argument could be improved if Libra succeeded in converting billions of people into digital payment cards because it would more broadly establish the power of block-based digital money as the way of the future. At the same time, because of its genesis as a Facebook-initiated, authorized system, Libra will not shake the notion of being exposed to political – ie. censorship – risks. For many, Bitcoin, aka digital gold, will be the obvious alternative.

However, the currency basket-backed Libra token is a real competitor to other reserve-backed crypto tokens, such as the USDC, issued by the CENTER coalition, originally formed by Circle and Coinbase, GUSD, Gemini's stablecoin and PAX, from Paxos.

But we can imagine that the events work in the favor of the latter. Developing countries such as India, for example may become hostile to a new currency coming into circulation that sucks demand away from their local currencies, but they would more accept a digital dollar as the dollar is already circulating in their economies. Users can also be happier keeping tokens attached to single sovereign currencies rather than in a hard-to-measure basket. And if concerns about centralized control undermine confidence in Libra or limit innovation, the fact that these tokens are built on genuine permissible blocks can make them more appealing (even if you still trust the reserve holder to guarantee price stability.)

Whatever Whatever happens, the cash flow world is huge. There are only $ 6 trillion a day alone in currency transactions. It provides space for different models, different tastes and different trust systems for coordinating digital value exchange.

Getting our priorities straight

The greater risk is not that Libra succeeds and enriches Mark Zuckerberg even more, but neither Libra nor one of its crypto competitors always succeeds in breaking down the barriers to economic participation. Financial exclusion spreads poverty, which in turn raises terrorism and war.

And if we assume that the technology, if it is not yet ready, will eventually get there, then the biggest threat from this is a political mistake. 19659004] The subtitle of both Waters' statements and European lawmakers was that this private exchange system cannot be allowed to replace national currencies. It is not what Libra intends, but the belief that it undermines the sovereignty of the nation states over money could create fear and lead to a ban on Libra. And if that happens, it sets a nasty precedent or all other competing ideas, whether it's the USDC, GUSD, PAX or DAI or anything else.

The project's capacity to promote economic integration can also be damaged by the Financial Action Task Force, or FATF, embracing a new rule for the exchange of cryptocurrency. If ratified by enough countries that could limit the free flow of crypto competition among addresses that have not been through a bank-like "know your customer" process. In other words, it can be a real obstacle for Libras and everyone else's dream of economic integration for "unbanked".

Bottom line: The Libra team has its work cut out and we all have a lot of riding on it. The project representatives must face the reality that at least at least the money still stops with Zuck and regulators will use it against them.

We should all wish them success in trying to convince politicians that an open system of global financial transactions is important. (It is encouraging that the Bank of England takes an open view which suggests that tech companies like Libra get access to funds directly from the central banks .)

But in the same way, we must pay attention to the power of businesses that can easily transform this important project into something more creepy. Facebook's own story is a reminder of the risks we face.

I want it to be another company running this ball right now. But as it is not, the need for all of us to be directly interested in this project is even greater.

We must demand that our representatives provide clear and informed supervision that keeps companies such as this accountable and limits their monopoly powers. But we should also expect a smart, open-minded regulation that encourages companies to compete and innovate in an open system that creates opportunities for everyone on this planet.

Image Credit: David Tran Photo / Shutterstock.com


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