The GID Report #3 — “Facebook’s crypto annoys everyone” but will also shape the future of banking
Hey everyone, welcome to The GID Report, a biweekly update that includes globaliD team news, market perspectives, and industry analysis.
First off, if you haven’t caught up on the Self Sovereign Identity Incubator:
Read about the announcement: Introducing The Self-Sovereign Identity Incubator
Greg and Phil Windley’s piece: Strengthening Hyperledger Indy and Self-Sovereign Identity
Another two weeks, another dozen or so days full of Libra buzz — both good and bad.
This week, we’ll be covering:
- Trump hates Libra
- Libra backlash and why it matters
- This week in privacy
- This week in bad behavior
- West Virginia’s blockchain voting experiment
1. Trump hates Libra
As globaliD co-founder and CEO Greg Kidd noted in his recent Bizjournal feature — Early Square investor sees Facebook cryptocurrency Libra as a gamechanger (subscription required: “There’s basically pre-Libra and post-Libra. It’s that significant”
And given the explosion of media and regulatory attention the announcement has caused, it’s hard to argue with that point. One thing Facebook has done is brought an incredible amount of attention to this new possibility of where we’re heading. Naturally, that can be scary for some. Control over money is a huge source of power for sovereign nations. What happens when that control starts to shift towards big companies like Facebook? Mainly, it means that those currently at the reigns of power will be extra cautious of the situation.
For instance, Trump (who, BTW, more than any other president in history has tried to overtly influence Fed policy) apparently hates the idea of Libra — Trump: I’m ‘not a fan’ of cryptocurrencies, and Facebook may need a banking charter for Libra
Trump, via a series of tweets:
I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….
….Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National…
…and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!
Then there’s Fed chief Jerome Powell on the matter:
“I think we agree that Libra raises a lot of serious concerns, and those would include around privacy, money laundering, consumer protection, financial stability,” he said. “Those are going to need to be thoroughly and publicly assessed and evaluated before this proceeds.”
Also Powell (via Axios):
Powell acknowledged the risks associated with Facebook’s Libra cryptocurrency, saying that any problems “would arise to systemically important levels just because of the mere size of the Facebook network.”
Bitcoin has been around for a decade, but Facebook’s plan to delve into cryptocurrency has lawmakers paying attention to the issue like never before. While Wall Street looked to Powell’s testimony for confirmation of an interest rate cut this month, a big chunk of the 4-hour testimony reflected bipartisan skepticism about Big Tech.
Powell said the process of evaluating potential risks posed by Libra — in areas like money laundering, privacy and consumer protection — “should be a patient and careful one … not a sprint.”
“I don’t think the project can go forward without there being broad satisfaction with the way the company has addressed” these concerns, Powell said.
Relevant from the WSJ (via Beth): Washington Has Doubts About Facebook’s Libra Payments Network
A Facebook spokesperson told Axios in an email: “This is why we along with the 27 other Founding Members of the Libra Association made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback.”
Then there is of course China, the veritable control freak of big countries: Facebook’s Libra forcing China to step up plans for its own cryptocurrency, says central bank official
“If [Libra] is widely used for payments, cross-border payments in particular, would it be able to function like money and accordingly have a large influence on monetary policy, financial stability and the international monetary system?” asked Wang Xin, director of the People’s Bank of China (PBOC)’s research bureau during an academic conference hosted by Peking University’s Institute of Digital Finance.
The PBOC are paying “high attention,” according to Wang, after Facebook released a white paper in June outlining plans to create its own long-awaited cryptocurrency and a related blockchain-based financial infrastructure project.
Also India, where Libra simply won’t fly, full stop: Facebook Says It Won’t Launch Crypto in India Due to Regulatory Issues
Overall, it seems quite trendy to have an opinion on Libra these days. Here’s Mark Cuban:
Cuban referred to the Menlo Park-based social networking company’s foray into distributed ledger tech as a “big mistake.” He continued to discuss the danger of introducing a destabilizing force into already unstable economies or political situations around the world. The Dallas Mavericks owner cited specifically:
“Some despot in some African country that gets really upset that they can’t control their currency anymore.”
Cuban suggests he is “not a big fan” of Libra because of the potential, reactionary impacts of extending financial access to the underrepresented. “That’s where the real problems start occurring,” he said.
Plus, big tech in general (more Trump on tech): White House summit spotlights right’s new split on tech
2. Libra backlash and why it matters
This past week also saw a flurry of negative headlines, outlining the backlash (much of it political) against Facebook’s new project. Again, I’m not sure how good of a barometer this is of Facebook’s eventual success w/its crypto/payments initiative. If anything, it highlights the impact the company is already having in the space. One little white paper and its gotten the world’s attention in a big, big way.
Along those lines, the backlash is to be expected. Let’s not forget, this has always been par for the course in Bitcoin land and crypto at large. This is a new thing. It’s a disruptive thing. And it portends a new and uncertain future. People will always be afraid of big changes. Thus the reaction. There’s really not much to outline beyond the headlines, which are more or less self-explanatory.
But I feel like MIT Technology Review’s take is the most pragmatic. It’s not about whether or not Libra is good or bad. Or whether or not it will succeed or fail. It’s about the fact that it’s setting the narrative and the conversation. Which ultimately means that it will shape regulations and also how society/government deals w/this new, new thing — The fight over Facebook’s digital currency could change the face of banking:
What seemed to matter more to Congress, however, was not whether the project meets the technical definition of a bank, but the significance of Facebook’s massive scale and potential to drive adoption of its currency. If billions of people start using it, Libra could have a profound effect on the global financial system, which makes government oversight imperative, said Representative Maxine Waters of California, who chairs the Financial Services Committee. “Ultimately, if Facebook’s plans come to fruition, the company and its partners will wield immense economic power that could destabilize currencies and governments,” said Waters, who has also called for a moratorium on the project so that Congress can study it.
But this isn’t just about Facebook. Big Tech is coming for financial services. We already see it in China, where WeChat and Alibaba’s digital payment services are ubiquitous. The Bank of International Settlements, which is known as the central bank for central banks, has warned that these firms and others, including Google and Amazon, could become “dominant” in the area thanks to network effects. In the face of this seemingly inevitable wave of change, policymakers will have to strike the right balance between fostering innovation and protecting consumers. Facebook has just given them a place to start: “What is a Libra?”
And here’s Matt Levine’s hot take — Facebook’s Crypto Annoys Everyone:
Arguably that shows Facebook’s modesty — it is humbly asking for advice rather than just barging ahead on its own — but I don’t know. The other way to think of it is that JPMorgan is trying to build a JPM Coin for JPMorgan, while Facebook is trying to build a stablecoin for the world. JPMorgan sees itself as an actor in a system, and is trying to accomplish its goals within the rules of that system. Facebook sees itself as the system; it has decided that the world needs a new currency, and so it sets up its own new worldwide governance body to solicit input from others about how to build that currency. Of course the other governance bodies — like Congress — will be annoyed.
And via Greg’s Twitter — “pretty good analysis of libra” — In Zuck We Trust? Glenbrook’s conclusion:
On first analysis, we see Libra as a thoughtful design that has learned important lessons from the blockchain initiatives that came before it. It will spring to life with important technical assets and influential backing. But it also comes at a controversial time for many of its founding members, especially Facebook. In contrast to the way many other technology-based services have been built, we think Libra must demonstrate a healthy respect for compliance and security, and it must do so across a wide range of jurisdictions, since the most attractive use cases involve cross-border funds transfers.
Libra’s founders will need to be incredibly vigilant about the potential for their system to facilitate money laundering, terrorist financing, illicit drug trade, and other criminal activities. Such compliance is difficult in such a highly decentralized ecosystem. Given the sharp global reaction to Libra’s goals, the consortium will have to be as innovative in its compliance activities as it is in its commercial endeavors.
Anyway, now for the flurry of headlines:
Also — and maybe this is an unfair indictment of actual Facebook, but remember, they’re trying to emulate WeChat. And WeChat continues to be… pretty scary: How WeChat censors private conversations, automatically in real time
And back in the “real world” of money and stuff — the ECB just replaced Mario Draghi with… not an economist but a lawyer. Which is not to say much about Christine Lagarde, she seems like a fine person with a fine track record at the helm of the IMF. But it also just sort of goes to show that — whether it’s crypto or Facebook or the Fed (something something quantitative easing) and even… the European Union, we’re all sort of just winging it?
-Christine Lagarde Faces a New Challenge in Europe — ”She’s run the I.M.F. She’s a lawyer. She’s not an economist. Does that matter as she prepares to lead the European Central Bank?”
3. This week in privacy:
-Here’s Larry Sanger’s Declaration of Digital Independence
4. This week in bad behavior:
Largest GDPR related fine: the Information Commissioner’s Office announced its intention to fine British Airways $229 million for poor security practices that led to the breach of customers’ private data. This is the largest fine ever issued by the IOC.
5. West Virginia’s blockchain voting experiment
Vadim shared a great piece about the West Virginia blockchain voting experiment (which also happens to be quite relevant to the SSI incubator — as Greg touched upon voting a couple times during our interview).
Here’s the excerpt Vadim highlighted (bold is also his):
West Virginians overseas didn’t have to be in the military to take advantage of the process. All citizens had to do was register, download the app, go through a few verification steps such as uploading a photo ID and taking a video selfie, and make and submit their ballot selections on the screen.
..numerous election technology experts sounded the alarm over what they said was the enormous potential for glitches and security risks on people’s mobile devices, the networks that hosted them, and the servers that held their information.
..voter’s vote is sent to the county clerk staff as a PDF, and the county clerk staff prints it out and puts it into the scanning tabulator. ….
Finding a technical solution that will allow voting systems to show that what’s being recorded, counted, and stored in the blockchain reflects the voter’s intent without compromising the voter’s secrecy isn’t easy. That’s why many experts think that blockchain isn’t an appropriate tool for voting, at least not yet.
Greg Kidd—Co-Founder and CEO
Mitja Simcic—Co-Founder and CTO
Rebecca Schwartz—Product Manager
Vadim Slavin—Director of Attestations