Libra: The False, The Bad And The Worst
Out of the frying pan of social media, into the fire of mass surveillance
TL;DR: Libra won’t bank the unbanked, adds an unreliable counterparty distancing you from your money yet again and could be a larger step to an Orwellian State.
Much has been said about Facebook's new project Libra through the Internet. Sadly, as with any "new" technology, Libra's implications won't be fully understood until years from now — if it ever launches. Nevertheless, as it stands to reason that the sun is rising tomorrow, shouldn't Libra's announcement raise some red flags?
Preface: Libra Is Not A Cryptocurrency
Libra is centrally controlled through an oligarchy formed by 30 companies, its code was created entirely by engineers on Facebook's payroll and its development will probably be similar. Libra's ledger is permissioned — only authorized members can add transactions, as opposed to permissionless. More fundamentally, its value's relies entirely on trust the Consortium's ability to fulfill their financial and regulatory obligations.
Libra is simply a more ambitious Paypal.
The False: Libra for Everyone We Like
One big obstacle for banking people in third world countries is the costs of regulatory compliance for banks to keep up with local and international laws. The cornerstone of compliance is generally KYC procedures: many people don't have the necessary documents to prove by local laws their properties and sometimes even identity, and Facebook can't change that. Fintechs have been helping by pushing lower tariffs and bureaucracy, but standards are hard to change — and if you think banks are hard to deal with, try their bigger brothers: Central Banks.
Libra's Consortium participants are companies with headquarters in almost every country in the world. And that's a huge attack surface. Due to its size, Libra needs to comply with all major regulatory and law enforcement agencies from every region in the world. This means complying with a huge number of (conflicting) actors: federal judges, intelligence agencies, central banks, securities commissions for every country.
An example of the burden it carries is complying and upholding every sanction that it might appear. The companies are going to be forced to blacklist political parties and seizure citizens life-savings. Or do you think they are going to risk their shareholders?
The Bad: Supposedly Backed By Supposedly The Best Money Supposedly Controlled With Citizen’s Interests
Fiat currencies are controlled by politicians supposedly with the citizen's interests at heart, but that often succumb to their own greedy. As a wise uncle once said: "With great power comes great responsibility". Politicians everywhere seem to have a lot of the former with none of the latter. The constant expansion of monetary base which is practically essential for current governments has a simple yet mortal effect: the not-so-slow lost of the value of the money.
By pushing for a cashless society within the control of Central Banks, Libra is setting up the perfect scenario for negative interest rates across the world. Wishful thinking, this policy is a last-ditch attempt to generate spending, investment and modest inflation (spoiler: it doesn't). More truthfully, when national governments are in severe debt, low-interest rates make it easier for them to afford interest payments. As always, the poorer suffer the consequences of bad policies, and these rates are going to effective be stealing their savings due to a fewer range of investment options, mostly due to other policies by the same government.
Governments spend money they don't have, while banks lend money they don't own. How will Libra add fuel to the fire? They say you can't judge a by its cover, but you can take a guess by its section. Libra's Consortium will have both the incentive and the means to inflate their own supply for funding their own projects or even lends to its users.
The Worst: Big Brothers On Your Pocket
Very few things should you scare more than Libra's privacy concerns — fewer of them outside Area 51’s. It's almost 2020 and Facebook is very clear about its business model: sell your data to all bidders.
As one might expect, Libra is perfectly not only aligned with Facebook's interest but a huge improvement. They are moving from with what things you spend your time on, to things you spend your money on as well.
The current 30 members of the Libra's Consortium will have access to all your personal transactions. Some of them are going to see the opportunity to sell that data to further companies so it stands to reason that all participant's financial records tied with their identity are going to probably be leaked at some point.
Even if that doesn't happen, those companies are notorious for exploiting and being unable to protect their user's data. Google, for instance, is one who abused its powers several times, even breaching their own Android User’s Privacy Policy. Furthermore, it's commonly known that customers of tech companies have somewhat easy access to user's personal data. Those people may sell your data to a competitor, investigators or they might even be your obsessive ex. Imagine trying to escape an abusive situation where your partner could potentially remove your from society within a few clicks?
More worrisome than all that is what governments may be able to do. With the current trend of going cashless, all our payments and financial interactions are going to digital and stored somewhere. At best, they are a subpoena away from the government's hands. At worst, a backdoor or call away. China could extend its Muslim holocaust, already bigger than the Jewish one. Maduro could block all his political dissidents from buying food, medicines or donating to the Democratic Movement against his regime. United States along with NSA would probably have been able to arrest Edward Snowden before he could leak documents that show the Government's outreach to its citizen's private lives.
Glimmer Of Hope: Libra Probably Won’t Launch, And If It Does We May Be Able To Kill It.
Happily, this isn't wild goose chase. The fact is that Libra didn't choose its battle wisely and it's simply trying to confront many things at the same time. It's facing hard resistance in multiple significant jurisdictions with many more to come. Its launch is unlikely at this point.
However, if it ever comes to that, society will find itself in a three-way standoff, commonly call a Truel, between Central Banks, Big Tech (represented by Libra) and Bitcoin. The latter represents an escape hatch out of the financial and political system to a free society.
Game Theory suggests that when facing a truel, the perceived weakest of the group is more likely to be the one standing at the end. Because both strongest players have incentives to fire at each other, the third one is able to finish the remaining opponent and exit the game victorious.
In spite of that scenario, Bitcoin still has work to do on its privacy in order to protect us from surveillance. Luckily there are hundreds of supporters around the world working on that, and I encourage the reader to read more about one of those efforts: Lightning Network.
