The Ultimate Decentralized Start Over
The Key Promise of Facebook’s Libra is to Revolutionize Personal Identities
Governments have traditionally both issued currency and provisioned personal identities. Bitcoin is breaking the first of these strongholds and Libra promises to break the second. Calling the possible consequences merely revolutionary feels like an understatement.
Most commentators on Facebook’s upcoming cryptocurrency Libra have focused on it being a cryptocurrency, albeit a rather centralized and non-permissionless in contrast to Bitcoin.
Some have even argued that Libra brings nothing new to the table. For example, Aleksi Grym, the notoriously cryptodenying economist at The Bank of Finland — which is the fourth oldest central bank in the world — is fierce in his opposition to Libra:
In Finnish newspaper interviews, portrayed by media as an expert on digital money, Mr. Grym has reiterated several times that in addition to not being anything new, in his opinion Libra doesn’t even fit Facebook’s strategy. He expects Facebook to walk away from Libra as soon as possible, dismissing it as just an experiment by some of the internal teams of Facebook.
He couldn’t be more wrong about this.
The Open Identity
The topic far more interesting than a stablecoin backed by one of the world’s largest corporations is passed by merely as an aside in the Libra white paper, and I think Jerry Brito was one of the first people to notice:
In other words, Facebook thinks that the global society will benefit from a decentralized and portable digital identity. And unlike what detractors such as Mr. Grym think, this is exactly what Facebook already does, just taken up a level or quite a few actually.
This is not an easily dismissed offshoot, but precisely the future of Facebook’s core business. Today Facebook helps you have an online identity and makes advertisers to pay for it. Tomorrow Facebook helps you have a digital identity that is also very much relevant in the physical world and makes seigniorage revenue from the cryptocurrency to pay for it.
The Identity Revolution
While the Calibra application initially needed to access Libra will require Know Your Customer (KYC) and will be subject to serious public scrutiny, the Libra protocol itself will be free from KYC. This means that eventually it will be possible for any single person to hold several digital identities, simultaneously or in sequence, if one so desires.
For most people this will not be desirable, if and when your property, your career, your reputation, your credit score and other valuable things are tied to your digital identity.
Also, having several identities is an unfamiliar concept to most people, as governments have made it very hard to get a new one.
While governments do provide identities as kind of a service, and the government provisioned identities are valuable to most people and the society as a whole, the reason for governments to identify people is a lot more selfish — it’s to tax people and to punish people. Therefore it doesn’t make much sense for governments to make it easy to have new identities.
There’s one well-known historical precedent to the opposite, and it’s even a case which perfectly illustrates why Libra’s open identities will change the world.
Naturally I’m talking about the possibility to leave and start over in the United States of America. If you messed up your life badly enough, it has been long possible for US citizens to just walk away and move to another state to start over with almost a blank slate, with already familiar language and culture. This is also one of the factors contributing to why the US economy has been so strong.
This is important for a couple of reasons.
First, it allows you to take bigger risks, both economically and socially. Some of the risks do realize, but other endeavors succeed and bring tremendous value for both the entrepreneur and the society.
But it’s important to know that if things do go south, there’s an exit. An expensive one, but an exit nevertheless. And by taking that exit, you might try again and even succeed the next time.
Second, if your life sucks, be it from taking too many or too large risks and failing, or from just a huge case of bad luck, it shouldn’t have to be that way forever.
If you don’t have an exit, you might very well lose all hope and begin hurting yourself or even others. In most cases you might just lay back and get used to collecting social security.
In any case it will be a huge loss for you and three times so to the society — taxpayers will cover your minimal food and expenses, the bureaucrats and the politicians will leech off their share, and we will lose whatever good you could still have brought to the world, if you only had the chance to do so.
A New Beginning
Starting over in the next state has been the American way to allow people to thrive even after serious misfortune or businesses gone awry.
The Open Identity promised by Libra could be the modern way to do the same — and you don’t even have to move to another state or country to start over. You can keep your language, your culture and probably even your friends and relatives. You can even keep your name, if you like it.
Of course, starting over with a new (digital) identity is costly. Your credit score is nonexistent, so you have to build it up. At first you don’t get mortgages or credit cards, or you have to pay a hefty premium. And so on… But no one said it should be easy, just that it should be possible!
Bitcoin vs. Libra
By itself, an open digital identity is not a new idea. Several attempts have been made before, and some of them were quite interesting. For example, the Identi.fi project by Martti Malmi, the third person to work on Bitcoin after Satoshi Nakamoto and Hal Finney, was a promising service to provide a kind of web of trust, a key feature of any modern digital identity service.
It would definitely be possible to build an identity layer on top of Bitcoin as well. You can sign stuff with your private key anyway, and always get a new one if you feel like it. An open identity system based on Bitcoin would not be far-fetched, and if Facebook’s Libra succeeds even partially, an completely open source solution will be certainly be built.
However, this is exactly why it is important that Libra makes the attempt first. While Bitcoin enabled us to trust in the protocol, it’s harder to make a protocol that enables us to trust in people. It is more than just a technological feat, requiring marketing, regulatory approvals, connections and partnerships — and money to fund all that.
Libra won’t compete with Bitcoin. Instead it paves the way for even wider adoption of various crypto technologies, which is ultimately good for Bitcoin and us too. It makes it easier to achieve Full Reserve Bitcoin, among other things.
However, Libra will compete with governments and central banks, just like Bitcoin does. Libra is going to be a direct threat both to fiat currencies and the governments’ monopoly on personal identities. It’s no wonder politicians and regulators are getting aggressive. Unlike Bitcoin, Libra and Calibra are something that they can at least try to regulate and control.