#6 Facebook’s Libra: Who Is Moving Whose Cheese?
By Xini on ALTCOIN MAGAZINE
In the past week, Facebook’s Libra and its cryptocurrency ambition has been one of the most extensively discussed topics all over the world. Even the non-tech media are hijacking the headline and dragging people’s attention to crypto (together with the mysteriously skyrocketing Bitcoin price).
In a pinky world depicted by the whitepaper, those users of Facebook products all over the world can buy, sell and transfer fund to each other, with no delay and low transaction fees. The annoyance of fluctuating currency rate cross-border transactions, together with the slow and expensive clearance process, can all be dismissed, as the value of Libra will be linked to a basket of fiat currency and remains relatively stable.
It sounds really great, right? But…wait a second.
Question 1: Does Libra Defend Decentralization As Blockchain Fundamental?
You might argue that Facebook’s Libra gathering some of the best talents in the blockchain and cryptocurrency field must stay aligned with blockchain 101 — decentralization. It is a permissioned blockchain — Facebook and its affiliates in Libra Association. The representative of the network’s validator node makes up of the Libra Association Committee, which is responsible for decisions for operation. Oh, by the way, the threshold of being part of the game is to make an initial minimum investment of $10 million worth of Libra Investment Tokens. Among the current 27 members, the majority don’t have a longer history than 20 years. Even Facebook is able to grow into 100 members until 2020 per its plan, it can hardly be called decentralization — My friend Martin sees little difference to the “fully transparent” elections conducted by governments. In a centralized system, governments validate the votes with or without the help of technology. In a so-called centralized system, big token owners validate the data on the Libra Blockchain. (I guess hope for decentralization is dimming for now.)
Question 2: Why Does Facebook Choose Blockchain As The Cornerstone Of Its Ambitions?
Take a step back. What does digital payment have to do with blockchain? Having achieved an extremely high adoption rate on mobile payment, Wechat Pay and Alipay reshape the payment, that Facebook dreams of through Libra, on a much smaller scale and earlier stage, i.e. limited to China, without the help of blockchain. China has transferred from a cash-only society into a cashless one within just a few years time (even my mum and grandma leave their little purse at home and scan the QR code with their smartphone to pay for vendors in local markets).
Mobile payments didn’t get integrated into the Chinese economy without blood and tears. Wechat Pay and Alipay once had conflicts with regulators. The Chinese government quickly realized that they can utilize these private companies as its extended arm in technology, thanks to the strong political influence over the private sector. The giant flagship companies like Tencent and Alibaba have to embrace the deep involvement of the government.
However, strong governmental interference pays the price, when these mobile payments try to expand its foundation outside China. The cross-border business strictly abides by local laws and regulations. No overseas central banks authorize the integration with Chinese payment gateways (to avoid Chinese government accessing its users' financial data??). Nepal refused the license and banned Chinese gateways earlier this year. Only Chinese citizens or residents are able to have Wechat/Alipay payment access, which is linked to your bank account with a real identity.
Blockchain technology and its decentralization act as adhesive, gluing various stakeholders together in a “democratic” way. Governmental interference is avoided and replaced by the community consensus.
Question 3: What May The Mass Adoption Of Libra Look Like?
The crucial condition for mass adoption is that customers — both end users and merchants — can easily and freely change into and exit with fiat currency in that country, to complete the loop of the value chain.
Scenario A: End users pay merchants with crypto. Merchants go to exchange or bank, change crypto into fiat, and then pay their employees, vendors, domestic stakeholders and tax with fiat — if tax still exists in another form, as no real identity is linked to crypto transaction.
Here, the regulator is the single doorkeeper of exchanging fiat in and out from crypto. Banks are on the side of the regulator.
Presumably, if the mass adoption of Libra is thorough enough and regulator no longer plays a key role in cryptocurrency, i.e. fiat is fully replaceable by crypto in all occasions and fiat loses its function.
Scenario B: End users pay merchants with crypto. Merchants pay his employees, vendors, and stakeholders with crypto, too. The demand for fiat and its power dwindle.
Here, the regulator is ousted by crypto.
It seems to come to a dead end (to me). In scenario A, though Libra Blockchain allows users to hold one or more addresses that are not linked to their real-world identity, the fiat gatekeeper connecting crypto and fiat requires KYC for the anti-money laundry or anti-fraud purpose. It is the opposite of anonymity. In scenario B, any little possibility of losing power would be killed by the regulator before the seed starts to sprout.
Question 4: What Are The Real Risks And Concerns Behind Facebook’s Blockchain Move?
Firstly, the real risks, concerns, and fears of Facebook’s cryptocurrency ambition are over absolute control over international monetary systems. The central authority has been the single decision maker in the monetary policy — issue, supply and control the fiat currency, domestically and internationally. Now, Libra Association intends to overtake some responsibilities of creating money, and shift the power from central governments to private companies.
When big changes are rolled out, new beneficiaries will encroach what belonged to the traditional elites, while the later will try its best to prevent the power shift from happening — trade tariff, sanctions, and fines are common practices in traditional geopolitics. The central authority can kill the dynamics of blockchain development by a strict regulatory framework, or getting more members from their country into Libra Associations and stay in their shadow.
Besides, Facebook and its affiliate have access to the permissioned blockchain, and therefore, form a new type of oligopoly. GDPR voices the European Union’s concerns against data oligopoly from the U.S. tech giants. It would only be more sensitive in crypto’s case, regarding the trace of global transactions, than data privacy. The Libra Blockchain is a single data structure that records the history of transactions and states over time. Essentially, Facebook and other permissioned stakeholders (which can of course be American government — the lesson I learned from Huawei’s ban from the U.S. is that these policy backdoors enables the government to require data from U.S. companies to go against a case happening out of its geographical territory and scope.) have the possibility to read any data from any point in time.
