Five reasons Facebook-initiated Libra crypto-currency might just get it right
I’ve spent the last few years immersed in crypto and blockchain innovation, partly because my company has been fortunate to assist several visionaries in the space to communicate, and partly because it’s fascinating.
Much of our work has focused on highlighting the deficiencies in the so-called ‘surveillance-capitalism’ business model deployed by today’s incumbent web firms as a juxtaposition to highlight alternative new approaches. So, when the newly created Libra Association unveiled details of ‘Libra’, its much anticipated blockchain-based currency, I was expecting to be sorely disappointed. But I’m not. In fact, it seems Libra will build on a lot of the innovation coming from the crypto world, casting some of the unsavoury bits to one side. Governance, privacy, business model and messaging all seem to point to a mature and well considered approach. Most importantly of course, Libra has what all consumer-oriented crypto start-ups crave: an enormous user base.
The message: when you’re launching a new global currency that may play the role state-backed currencies have occupied for hundreds of years, whilst disrupting the payments industry, it’s important to get the message right. Libra has focused on ‘financial inclusion’ helping the billions of un or under banked have access to financial services with an internet native service.
It’s not a new position, indeed addressing this enormous problem (and it is enormous — today’s financial systems cost vast amounts to run and around 1.7 Billion remain unbanked) generated much of the early excitement around Bitcoin. Providing a peer-to-peer system that helps people exchange value and participate in the economy, even when their national currency can’t deliver, is a worthy mission by anyone’s standards. Libra could have gone in several alternative directions but boiling it down to this core purpose should support buy-in at scale.
Governance: How you organise the governance of a crypto project is critically important — there was potential for Facebook to get this very wrong. However, it seems they’ve recognised the need for Libra to be governed by a collective representing a wide variety of interests — including the existing crypto community, academia, NGOs and Facebook’s competitors (if they choose to join). No single entity is going to secure the regulatory or market support it needs for a global currency, recognising and codifying this clearly is important. Libra isn’t Facebook coin. It’s going to be fascinating to see which organisations get onboard.
Technology: The underlying blockchain will be a completely new design that prioritises high transaction throughput and also includes a smart contract platform. Although the network will initially be permissioned with only Libra Association members able to run the nodes that validate transactions, the stated intention is to transition the network to become permissionless, so anyone can run a node (although they’ve given themselves five years to do so).
Libra also intends to open source the code and a small initial chunk is already in the wild. In theory, this approach draws on some of the concepts that have prompted rapid innovation in the crypto space and users should benefit. Again, this all sounds promising and the stated objective to pursue decentralisation will have surprised many.
Business model: Libra is a stable-coin, immediately avoiding the speculative challenges that have hampered Bitcoin’s use as a medium of exchange. The Libra Association members will derive a return from their initial $10m investments in the form of interest generated by the Libra Reserve Fund, a basket of stable assets that back Libra. Questions remain about the returns from low yielding assets and it will be important the fund is managed in the most responsible manner — avoiding the temptation to introduce higher yielding, and higher risk, assets. Never-the-less this seems like a preferable model to friction invoking transaction fees or the Association minting additional (non-backed) tokens which are subsequently sold to fund the project (the traditional crypto approach).
Privacy: One of the many thorny issues Libra will have to address is privacy. In theory, combining payments data on a massive scale with the behavioural and other data companies like Facebook already have would be the holy grail for selling ads. The whitepaper makes it clear that Libra data will not be used in this way. There will be solid walls between Calibra, the Facebook entity developing user products for the Libra network, and Facebook proper. The integrity of these walls is one of the main issues that regulators and journalists will no doubt be keenly observing but Libra certainly deserves recognition for laying this out clearly now for the world to see.
Rather than Libra serving as an aggressive revenue generator it seems Facebook has conceived it as a largely protectionist move, delivering significant user benefits in what they promise will be an open and inclusive new financial infrastructure. There were a whole host of ways Libra could have disappointed but for the moment, it’s a tentative ‘like’ from me. Hats off to the wider crypto community too — they do say imitation is the highest form of flattery.
