Facebook’s Scorched Earth Cryptocurrency Benefits Bitcoin
Could a scorched earth approach towards Facebook’s Libra pave the way for the rise of Bitcoin and other decentralized cryptocurrencies?
In late winter of 1944 and through to the early months of 1945, as most of Europe lay a smoldering wreck and as Hitler’s Third Reich withdrew from all its formerly occupied territories to make a last stand in Berlin, Hitler ordered a “scorched earth” withdrawal — the people of Germany were deemed no longer worthy of the benefits of infrastructure and industrialization and everything was to be destroyed in the wake of the Third Reich’s retreat.
Even Albert Speer, an architect of the murderous Nazi regime deemed this a step too far. But the loyal sycophants and brainwashed remnants of what was once dubbed the “thousand-year Reich,” carried out their Fuhrer’s orders right to the bitter end — destroying anything of value that could be left for the invading Allied forces encircling German cities and overrunning industrial heartlands.
As the Third Reich withdrew from ever-increasing expanses of German land, it destroyed railroads, blew up factories and bridges and basically left the Allied forces with a barren, burning wasteland, in what can only be described of as an act of sheer desperation, malice, and evil.
Yet as Facebook’s plan to pioneer its own cryptocurrency Libra, faces unparalleled opposition in Washington, onlooking technology companies, some of whom may also be secretly contemplating their own push into proprietary cryptocurrencies may be watching the proceedings on Capitol Hill as a portent of the success or failure of such initiatives.
Sauce For The Goose Is Sauce For The Gander
On Tuesday, U.S. Democratic and Republican lawmakers, in a rare demonstration of bipartisanship amidst increasingly divisive political rhetoric, grilled Facebook’s representative on the social media giant’s less than stellar track record with personal data, arguing that the firm’s poor handling of digital data, put it in a poor position to handle its own digital currency.
One senator even described Facebook’s plan as “delusional” and “crazy.”
Democratic senator Sherrod Brown, the ranking member of the powerful Senate Banking Committee said in his opening remarks,
“Facebook has demonstrated through scandal after scandal that it doesn’t deserve our trust.”
“We’d be crazy to give them a chance to let them experiment with people’s bank accounts.”
Facing the wrath of the U.S. Senate, David Marcus, Facebook’s top executive overseeing the Libra project, testified on issues ranging from how Facebook’s cryptocurrency could affect global monetary policy, to how customer data would be handled.
Marcus, who was president of PayPal, one of the world’s first digital payment providers, from 2012 to 2014, tried to assuage concerns from a frosty and at times hostile, senate hearing, promising that Facebook would not begin offering Libra until regulatory issues were addressed, but stopped short of saying the company would be abandoning the plan altogether, should regulatory approvals not be obtained.
But what could turn out to be a roadblock for Facebook’s cryptocurrency ambitions, may end up providing Bitcoin and other cryptocurrencies an unexpected, but a welcome boost.
The Enemy of My Enemy
For one, if Facebook’s cryptocurrency ambitions are thwarted, other large technology companies may either put their digital currency ambitions on the back burner or instead, abandon a push into the sector altogether.
Unlike initial coin offerings (ICOs), which pledged to build out an ecosystem with demand for digital tokens being driven by the value of their soon-to-be-built platforms, there are many tech companies which already have an existing platform, for which a proprietary digital currency would make absolute sense.
One need only look to retail giant Amazon for the most obvious digital currency use case.
From powering digital content consumption to buying every conceivable product on the planet — an Amazon digital currency would have an Amazonian impact, not just on financial markets, but on how we view the concept of currency altogether.
And as technology companies become increasingly dominant and our lives become increasingly digital, it’s only natural that tech companies expand their product and service offerings to other areas that form the fabric of modern living — the most obvious of which is our interaction with currency.
But as Facebook has demonstrated, that path to dominance in other more regulated spaces — particularly in the issuance of currency — is not a clear or a smooth one.
To be sure, even if it wasn’t Facebook petitioning lawmakers to allow it to issue its own digital currency, politicians would not likely take kindly to other tech companies considering such a push either.
Whether it was Google or Amazon, Apple or Microsoft, companies with the global ecosystem and user bases of such companies hold significant influence, particularly if they were to issue their own currency.
One of the biggest revenue streams of any government is seigniorage and one of the greatest privileges is the issuance of its own coinage — a power that no government would be eager to see undermined.
Even more so when Facebook’s Libra cryptocurrency has the potential to supplant other currencies, thanks to its global reach and influence.
But the effect of lawmakers push to stop tech companies from encroaching upon their exclusive powers of currency issuance — a “scorched earth” approach that has the potential to dampen the digital currency ambitions of other tech companies — may provide an unexpected opportunity for cryptocurrencies instead.
Given the decentralized nature of most cryptocurrencies, particularly Bitcoin, it is far more challenging for central governments to find a single node of weakness to put an end to the existence of such a currency — there are no “Bitcoin staffers” to subpoena to Capitol Hill or to grill before the Senate and the House.
There are no central servers and shutting down the mining rigs which secure the Bitcoin network in one jurisdiction, merely means that another jurisdiction’s servers fill in the gaps.
And even U.S. representative Patrick McHenry conceded as much when speaking to CNBC’s Squawk Box,
“I think there’s no capacity to kill Bitcoin. Even the Chinese, with their firewall and their extreme intervention in their society could not kill Bitcoin.”
The concession is significant, especially when you consider that the Chinese were able to control and effectively censor the internet within their own borders, yet have thus far been relatively constrained in their ability to weed out Bitcoin.
That comment alone, according to some analysts, was enough to send Bitcoin back above US$10,000, after plunging below the psychologically-important barrier just weeks earlier.
And it may not just be central governments’ inability to stamp out Bitcoin that causes Bitcoin and its brethren to proliferate.
As governments become distracted by tech companies like Facebook, making a push into issuing their own cryptocurrencies, decentralized cryptocurrencies such as Bitcoin have the opportunity to grow relatively unabated and unscathed and perhaps fueling the very thing which lawmakers are most wary of when it comes to cryptocurrencies — the facilitation of money laundering and criminal activities.
While profit-driven technology companies cannot be reasonably expected to police themselves, the focus on low-hanging fruit by regulators — targeting companies that can be targeted, will leave them flatfooted, if and when cryptocurrencies supersede centrally-issued digital currencies.
Against that backdrop, instead of trying to stop Facebook’s cryptocurrency ambitions, it may actually make more sense for fiscal and monetary stability for lawmakers to more actively pursue the means and tools to more effectively police decentralized cryptocurrencies, to prevent their use in financial crimes.
To be sure, it’s not even necessarily clear if Washington can effectively stop Facebook’s digital currency ambitions.
Headquartered in Switzerland, Washington may be able to ban U.S. users from accessing and using Facebook’s digital currency, but trying to stop other country’s users from doing so may be far more challenging.
To be sure, Washington could use the substantial threat of sanctions, or denial of access to New York’s banking facilities, to put pressure on other governments to stop Facebook from using its Libra digital currency in their jurisdictions — but such moves are not without consequence.
Other governments may resent Washington’s political overreach and the realization that global over-reliance on the dollar as the world’s reserve currency, may cause them to consider the embrace of a currency which no one effectively controls — something like Bitcoin.
For all intents and purposes, Hitler’s “scorched earth” policy in the dying days of the Third Reich did little more than add to the misery of an already-suffering German people.
Instead, it made the Soviet Union even more resolute in exacting revenge on the German people and brutal in its occupation of what eventually became East Germany.
Halting Facebook’s push towards issuing its own digital currency may have the same “scorched earth” effect on similar ambitions by other tech giants — leaving the landscape open for other contenders such as Bitcoin to fill that vacuum.