A currency designer’s look at Libra
You’ve probably heard the phrase: “Software is eating the world”, referring to Silicon Valley’s tech companies disrupting industry after industry by digitizing it (finding ways to deliver formerly physical products electronically, through software). We’ve seen this happen in advertising, newspapers, music, and video, and now Facebook is looking to do it to money with Libra. Or are they?
The white paper and technical white paper published this past week have been reviewed and pulled apart at length. I am not looking to cover the same ground here, and argue whether or not the ambitions of migrating to an open permissionless system are realistic, but the TL;DR is that Facebook subsidiary libra and a consortium of large companies (see the logos in the header image) will run a permissioned system (Libra) with a native cryptocurrency, Libra, backed by a basket of currencies and short term bonds. A new smart contract language called MOVE will allow companies to develop currencies and derivatives on top of the libra protocol. MOVE is more restrictive than Ethereum language Solidity, as it will be designed to make coding ‘safe’ products easy. To prevent bugs, MOVE prevents coders from creating or destroying coins, only implementing functions to move them from one account to another.
And that is really what confirms that it’s not Software that’s eating the world, but Finance. Our entire economy is based on agrarian-age accounting practices which have become so ubiquitous as to be invisible to us. Agrarian-age economics meant the ability to produce surpluses and facilitate trade over long distances. This required accounts to be kept for the storage of grain, and to facilitate trade with less trusted counterparties. What started as the need for a thin intermediary accounting layer keeping track of IOUs between counterparties, became the primary tool of nation-states. In fact, a large portion of the history of nation-states is the fight to control domestic (and international) trade and wealth by issuing, taxing, and controlling the currency in their country. Finance (especially fiat issued by private companies as interest-bearing debt) has written the rules of our economic system so as to grow exponentially and eat the world.
Now one of the world’s biggest software companies is looking to enter the world of finance by playing along with the same rules. The rules hardcoded into the MOVE language itself match the requirements of trade in commodities, as the majority of today’s currencies are designed to do. Unfortunately, money that can only be in one place at a time and is traded for value forces win-lose in every transaction. It is a very inefficient way to trade digital goods and services. The reason it looks like software is eating the world is that it has near zero marginal costs. Thanks to our agrarian-age, Win-Lose currencies though, half the effort in software development is devoted to security and Digital Rights Management (DRM). We spend as much effort making sure people cannot use our best software (or ideas, or movies or songs), as we do making them. You cannot grasp this fact and believe that today’s capitalist market system and fiat currency is the most efficient way to allocate resources in society.
Then, with the invention of Bitcoin, software figured out how to hamstring itself to conform to the limitations of agrarian-age accounting. Stable-coins then tried to tackle the challenge that “value” is an abstract concept and a potential social agreement, rather than an objective fact. Most stable-coins then ironically proceed to depend on the currency issued by the banks they are supposedly replacing to provide the value of their coins.
Libra’s goal is for a consortium of the biggest tech companies to be swallowed by Finance so that they, too, may swallow the world. Hyperbolic extrapolations of Libra becoming the global superpower in control of the world’s reserve currency, rewriting legislation to suit it’s interests across the globe as governments come begging for the information they need to tax their citizenry — only confirm that finance has swallowed the world, and we are living inside of her like a fish in a bowl, not understanding water.
Finally, given the value of this new currency is created by bank-issued fiat and government bonds, and the Libra “Blockchain” is a centralised system that isn’t a blockchain, which may or may not ever be permissionless or open, one might wonder about this as an approach to payments integration. Would it not have been simpler, safer, and easier to integrate a centralised solution like Paypal or Alipay into Facebook, and transition to a Cryptocurrency later, if at all? Launching the equivalent of WeChat’s payment integration into Facebook would likely ruffle fewer feathers in the process of gaining adoption through great integration and user experience. On the other hand, the legal opposition would be far better prepared to combat a single entity like Facebook becoming an unorthodox global bank, instead of a consortium of large corporates based in multiple tax havens, running a potentially unstoppable piece of software. In addition, the current approach sets the stage of Libra to become more than just a single corporate currency among many, it opens up the possibility of Libra serving as a new global reserve currency, and we haven’t seen a new one of those since OPEC decided to trade Oil for USD. This means that by avoiding the obvious path, Facebook has set Libra up to be at once both more powerful, and harder to stop than just another Paypal.
Do you think Libra has a chance to change how money works?