Libra The Beginning Of The End
By Beka Dalakishvili on ALTCOIN MAGAZINE
The times are changing, digitalization has transformed the way we interact with each other and the world. We live in an era where Google can tamper with US election results and shift up to 10 million votes to the desired direction, where user data provided by Facebook can have a decisive influence on US presidential elections and Brexit, where social media giant proves through an experiment that it can manipulate mood of its users and where genocides can be triggered through social media.
The influence of “Big Tech” is growing and recently Facebook announced its plans on the introduction of the new world currency — Libra. There has been a lot of discussion about whether Facebook should be allowed to proceed with the Libra project, what could be the consequences of establishing new world currency, what does it mean for the adoption of the blockchain technology and the prices of Cryptocurrencies.
Whether Facebook is actually allowed to fully develop the Libra project is yet to be seen, however to me one thing is clear, if it does, launch of Libra will be an event of cosmic magnitude, this will be the beginning of a new era, the era where corporations can be given the power of the state and beyond.
In short, Libra is a digital currency, and the grand goal of the project is to grant the “unbanked” access to the global financial system. This goal sounds noble, however, it has always been unclear to me how the hell are the “unbanked” going to be able to acquire digital tokens if they do not have a bank account, are they gonna pay with cash? Apart from the businesses within the ecosystem, who might find it convenient to receive payments in Libra and avoid paying taxes, I cannot imagine a scenario where somebody without a bank account can get inside the new financial system.
There are lots of questions the Libra has yet to answer, be it compliance with regulatory systems around the world, more precise structure of the governance of the ecosystem and specifically the Swiss Libra Association, privacy issues, etc. Basically the only thing we learned from the Libra Whitepaper and Senate testimony of David Markus (the Libra project lead) is that Libra is going to comply with all the regulators, it will preserve the privacy of the users while having sound AML and KYC procedures, Libra will be interoperable within the Facebook ecosystem and all related apps, Facebook will encourage competition for wallet development and Facebook is going to be just one of the hundred members of the Libra association. These are just promises and there seems to be no exact roadmap, or plan of action of implementation of the project, at least it’s not public and it would be naive to think that Facebook is going to live up to those promises.
Mark Zuckerberg has famously said that his mantra is to move fast and break things, let’s have a closer look at what Libra can break if passed through.
The End of (De)centralization?
On one hand, Libra will allow financial operations without the need of banks, effectively omitting financial intermediaries and associated costs on monetary transactions. Instead, the transactions will go through and be validated by the hundred members of the Libra Association. On one hand, this is a step up from the traditional banking system, as there will be no single financial intermediary for money transfers eliminating the risks associated with a single point of failure, the fees will be much lower and international transfers will go through much faster. On the other hand, Libra being a permissioned blockchain means only institutions (Association members) will be able to verify transactions. So, if the majority of these institutions form an alliance they can then temper with all the transactions within the Libra network, which is not (or should not be the case) in traditional permissionless blockchains, where everybody can become a validating node. The assurance that the network participants will act properly derives from cryptoeconomics, a combination of cryptography with the set of incentives (and penalties) established within the network that ensures tampering with the network is unprofitable and damaging for malicious actors. In other words, no network participant has a financial incentive to try attacking the network as it is too expensive and inefficient. What will be the Cryptoeconomics of the Libra network is ambiguous and poses the greatest risks of all. What will be the motivation of the Association Members to comply with the network rules or to break them is yet to be clearly defined and that is what concerns me most.
The End of Banking?
Not likely, what Libra promises to be is not that much of a competition for banks, except for payment systems, as the stated goal is to provide financial inclusion for the unbanked and Libra Association will in no form accept deposits or give out loans, this seems like a compliment to the banking system rather than competition. However, the introduction of Libra will definitely give way to fraud. There will be plenty of room for fraudulent institutions that will offer banking services to the users with Libra only, without being overseen by any national regulators. This arises huge risks in terms of customer protection and if Facebook really does not mess with the privacy of the users of Libra and will let independent wallets to operate on top of the network it will give way to a lot of fraud, which will play in the hands of the banks, as the depleted trust towards them might be boosted.
The End of Cryptos?
To answer this question, we have to go several different ways, from my point of view, Libra is no threat to Bitcoin as the latter has established itself as the gold standard in the crypto world, it is a volatile asset class and has long gone sideways from the vision of its creator, Bitcoin really is not an “electronic cash system” but rather a great diversification tool against traditional investment instruments and markets.
For Ethereum, Libra poses a much higher risk, as one of the key key directions of the Libra project is creation of the platform for smart contracts and while Ethereum has been struggling with scalability issues for years, and how Ethereum 2.0 will improve on the existing system is yet to be seen, Libra definitely has the potential to bypass existing smart contract platforms due to its centralized nature, the development talent within Facebook and the almost unlimited resources the social media giant possesses.
For altcoins, it is yet to be seen whether Libra is a savior or the Trojan horse, as there is very little clarity regarding what Facebook aims to do with Libra. I personally have no doubt that it will be scalable, have a friendly user interface, will be fast, cheap and most importantly stable, probably more stable than any currency in the world, as it will be decently diversified and backed with leading currencies and treasury notes. Undoubtedly, if Libra will be widely traded on exchanges it will bring an end to the stable coins, but on the other hand, it will bring more people into the blockchain ecosystem. It might not be perceived as a threat for utility coins, but I still think that it will be the end for the majority of altcoins, maybe except private currencies such as Monero, which will be one of the very few that will ensure authentic privacy to its users.
The End of Privacy?
I guess so… Facebook has a track record of abusing the privacy of its users. The corporation knows everything about its active users, what their interests are, how they feel, what they love, where they travel etc. the list can go on and on, however, until now Facebook never had the precise data regarding their spending behavior and if they do, be prepared for the scenario portrayed in George Orwell’s prophetic masterpiece 1984. There will be nothing hidden from the Big Brother anymore. Representatives of Facebook swear not to abuse user privacy, but it is naive to believe they will not. Small fact, Facebook has purchased WattsApp for 21.8 billion USD, and the latter does not have a business model, in other words WattsApp does not contribute a dime to the revenues of Facebook, the question is why would the social media giant pay 55$ per user if not for the user data, despite their claims that there is no security backdoor for the application, there is no way I am ever going to believe they are not digging into our private messages or are not planning to do it prior to encryption. As David Markus, the lead of the Libra project, testified, on the one hand, Facebook promises to keep all user data private, and on the other it promises to have strong AML and KYC procedures in place on the Calibra wallet, and ironically Markus states that there will be no way to link the pseudonymous wallet addresses to the real-world identities. So basically, the Calibra wallet will store all the private data about real-world identities of the users, effectively link blockchain addresses to them and Libra Association will have no way to get access to that information. Really?
So I do believe that if Libra passes through and complies with regulators around the world, it will be a full termination of privacy of its billions of users, and step by step, we will start to live the dreadful sci-fi story where a human being has no privacy and therefore no freedom from the system. In this case, the name of the system is Big Tech.
The End of Facebook?
If Libra passes through, Facebook will have full control over its users, will possess all the data of their behavior, mood, mindset, interests, and spending. It is no coincidence that Visa, MasterCard, PayPal, Stripe, are all partners of the Libra association. Facebook is again shifting away from its core competence which is managing the world’s largest social media platform, it has long shifted to being abuser of the user data, mining and selling it, but with the Libra project Facebook aims to become the Central Bank of the world, issue its own currency that has the potential of ripping the USD from the status of world currency. This is way out of the competence of the Tech Giant. With huge regulatory, legal and technological challenges on the way, Libra has all the potential to be the Frankenstein’s Monster of Facebook.
Final Thoughts
Overall, Libra is against the very nature of blockchain, instead of a trustless, open, free system it aims to create an alternative financial system with corporations in charge instead of the governments, which at least mostly are elected by the people and can be changed over time. So I believe Libra would be going from bad to worse and if it manages to live up to its full potential, I see crypto as the biggest waste of potential freedom of ordinary people like you and me.
