Should You Invest In Bitcoin Or Facebook: A Financial And Moral Dilemma?
By Justin Hughes on ALTCOIN MAGAZINE
Not many will have attached much significance to (or read!) the small print of Mark Zuckerberg’s 2018 New Year message but his words seem pretty relevant now: ‘encryption and cryptocurrency… I’m interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.’ ‘How best to use them in our services’… no mention of payments, cryptocurrencies, etc. That omission came back to mind when I read Tomer Federman’s recent observation from the Libra whitepaper, pg 9: ‘An additional goal of the [Libra] association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite to financial inclusion and competition.’
Who knows exactly what that might mean in practice but it could be a gamechanger. Anyone who’s read Dave Eggers’ The Circle will be familiar. One company develops the single digital ID which can be used to log in to anything and as a result effectively gains a monopoly on all the world’s data. Its utopian ideals become rather corrupted by human nature along the way, and dystopia is only narrowly averted. When I read this book, it really didn’t seem that far-fetched. It certainly doesn’t now.
Crypto evangelists, and particularly Bitcoin evangelists, have greeted Facebook’s announcements on Libra with a healthy dose of skepticism but also much positivity that cryptocurrency is now on the mainstream agenda. This can only be good, right? First, there is something of a double standard here; there has been much criticism that Facebook’s permissioned model is not really a cryptocurrency at all. However, second, the small print of how one defines Libra will become largely irrelevant if it completely marginalizes existing cryptocurrencies.
It is important to recognize in the technical and philosophical critiques of Libra that the empirical evidence of public resistance to centralization of data, wealth and power indicates low engagement on the issue. All the media and political noise have had little impact. For many users, utility appears to trump ideology, at least at the moment. The privacy intrusion of banks and states is barely on many people’s radars, but convenience is. Satoshi Nakomoto may have been completely content with the trade-offs which decentralization currently requires (see Nic Carter’s overview) — most people won’t be and even if they were, Bitcoin couldn’t currently cope with the scalability required.
And Libra will have utility in a way in which most cryptocurrencies don’t because it will be a monopolist, which will only increase Facebook’s already huge positive network externalities. A less publicized trade-off of the decentralized model (aka Bitcoin) is free market entry and the further potential for forks to further dilute network externalities. However, as Abadi and Brunnermeier point out (p3): ‘when network externalities are strong [like Facebook’s], the market ceases to be contestable, even with free entry.’
Technology has no inherent value as good or bad. It can be used to empower or disempower, to centralize or decentralize. The limitations of a fully decentralized model have led to the consideration of variations of the same technology in centralized models such as Facebook’s, or potentially in central bank digital currencies. Jennifer Zhu Scott conducted an analysis for the World Economic Forum of China’s potential to digitalize the renminbi; she concludes with some thoughts that go well beyond whether it’s Facebook or the state which manages the data:
…excessive digitalization, surveillance, and centralized data ownership are our generation’s greatest and most pervasive threats to personal freedom and modern democracy… If countries start to issue digital currencies and we subsequently surrender our personal transaction data as well, how much more convenience [do] we need before we realize it is too late and… impossible to be free?
I have no crystal ball, but for those getting excited about the US public hearings on Libra and using Facebook’s re-entry into digital payments as a thesis to invest in Bitcoin, I admire, respect and share your commitment to the decentralization of data, wealth and power. However, a neutral investor conducting an analysis of fundamentals and intrinsic value might be well be investing in Facebook over Bitcoin. Whether Facebook can and/or will change course from paralleling the evolution of The Circle, I have no idea, but we should probably all be deeply concerned about where this ends up. Technology scholar, Daniel Hulme, offers 2 excellent visions of technological utopia and dystopia in this context. Right now, the jury’s out…
This is my first public foray into the cryptosphere. Any comments or feedback would be very welcome!
