Implications of Facebook’s Libra
Policy implications of Facebook’s Libra
Libra is a cryptocurrency project headed by Facebook that aims to create a mass adoption stablecoin for transfers of value online.
While Facebook is the originator of the project, there are multiple high profile investors who will serve on the Libra foundation, such as Visa. The Libra foundation acts as a governing body of permissioned nodes, and makes decisions regarding the federation of the currency. In order to become a node for Libra you must invest millions of dollars. The nodes for Libra are set up in a federated system and there is a very high barrier to entry, unlike decentralized crypto projects such as Ethereum or Bitcoin. In other words, Libra is a centralized, permissioned, public blockchain.
As a stablecoin, Libra aims to peg the value of one Libra to the value of a basket of assets. This is a unique and perhaps questionable structure for a stablecoin. By pegging Libra to the “inherent value" of a combination of fiat currencies such as USD, GBP and JPY, it appears that Libra could artificially determine the value of each of those assets in relation to one another, giving them a large say in relative fiat currency manipulation if Libra ever became large scale. Additionally, if Libra is truly pegged to any form of actual value, the Libra against the dollar would rise as inflation occurs. This could threaten the global use of the US Dollar if Libra were to be seen as more stable or to be consistently worth more than USD over time.
Libra is currently facing increasing regulatory scrutiny in the US. The US government will like apply the strictest forms of regulatory guidance due to FB’s history. If Libra were to succeed and become a major fiat onramp for other cryptocurrencies, this would mean decreased privacy in the space--something cherished in the crypto community. However, crypto would likely also become more widespread and accessible for a large portion of the population.
Increased regulatory pressure is likely across the entire crypto space, and especially for exchanges and fiat onramps. It will be interesting to see how much control Libra will maintain over who can do what with Libra. For example, can I buy a Libra, and then go to an exchange and use it to buy Grin?
Facebook’s potential ability to disqualify people from the use of Libra for arbitrary reasons is one negative aspect of the currency. However, what if they restrict the use itself, and what Libra can be used for? With exchange platforms like Local Bitcoins being shut down, will any crypto still bear any resemblance to digital cash, or will KYC permeate the space? Is that a bad thing?
I’m not sure. While KYC is good for stopping the “bad guys" it also places too much trust in the government or corporations to censor or otherwise manipulate the potential uses of decentralized technology. This is a slippery slope for crypto, and could stand to drastically change the landscape. Time will tell what the final product of Libra is like after it adapts to US regulation. Most exchanges and decentralized blockchain companies should expect to have to tighten their belts in the near term as crypto as a whole is placed under the magnifying glass in the name of Libra.
Disclaimer: The views expressed by the author above do not necessarily represent the views of the Ethereum Foundation.
