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Home / Business / A monumental battle for Facebook's crypto currency is coming

A monumental battle for Facebook's crypto currency is coming

Michael J. Casey chairs the CoinDesk Advisory Board and Senior Advisor on Blockchain Research at MIT's Digital Currency Initiative.

The following article was originally published in CoinDesk Weekly, a newsletter created especially for our customers, which is delivered exclusively to subscribers every Sunday.

Given the slow evolution of lawmakers in Washington toward a coherent, informed view of the cryptocurrency, the House Financial Services Committee chairman's quick action jump over the past week has been remarkably quick compared to Facebook's ambitious Libra project.

But let us not think about the details of the urgent request of Rep. Maxine Waters (D-Calif.), Facebook may stop work on the Libra until after the hearings or about European legislators have made similar calls. [1

9659005] The important insight from the actions of these legislators is that they are even able to make such demands. as this is not the case for truly decentralized projects.

In contrast to Bitcoin, a representative of the Congress can directly identify and speak with people responsible for the Libra project. You can preload them and put pressure on them. You could start with David Marcus, head of Facebook subsidiary Calibra, but ultimately it's Facebook CEO Mark Zuckerberg who gives lawmakers the most influence.

In this case, the money stops at Zuck.

Now imagine a Leader of Congress calling for a halt to bitcoin development. Who will put pressure to end an open source project involving millions of unidentifiable developers, miners and users worldwide?

This distinction – between a project with a single identifiable authority figure and another whose governance is distributed and leaderless with a founder who has never revealed his identity – becomes the core of a crypto-community criticism that the initiative of the Social media giant is not censorship resistant.

If someone is responsible, an interested party – a politician, a banker, a regulator, a shareholder – can rely on them to make changes. And if the blockchain consensus model is based on club-like approved membership, a coordinated attempt to change or censor the ledger is always possible. And if the ledger or its software can be changed by this pressure, the Libra platform may not necessarily promise to support open, unrestricted access for users and a license-free innovation environment for developers.

Let's be clear: The designers of Libra have been thinking deeply about how to protect their project from Facebook itself, both in the true sense and in the public perception. As part of its commitment to decentralization, the team has placed the code under an open source license, transferring the governance authority of the network to a separate Swiss-based foundation and bringing together 27 external partners as independent, authorized nodes in the network with Facebook , and verbally pledged to transition to a permissive model over time. There is a structure and a roadmap for the growth and survival of Libra, regardless of its origins as a Facebook project.

All this is fine. But we are still in the Genesis phase, a phase that for some time depends on the centrality of a particularly powerful corporation.

The culture problem

Marcus and his team run the risk of expressing the obvious pay of Facebook. Follow the money as they say. But also follow the code.

The main source code of the Libra Protocol is now open source code, but has been designed and developed within Facebook. Regardless of whether the project managers and programmers resist or not, the culture of that organization will inherently feed into the design priorities of Libra. The company's surveillance capitalism model has turned users into farmers in a global game of data manipulation, cultivated echo chambers of narrow-mindedness, irreparably harmed the good cause of journalism, and profoundly undermined our democracy.

This inheritance is the unavoidable reason why people, including lawmakers, are alarmed that Facebook is about to create a new international model for money and payments. Rightly or wrongly, there is a Fox-in-the-Henhouse look that does not help.

Wharton Professor Kevin Werbach argued this week in the New York Times that Facebook's Libra is a bold effort to regain the public's trust by leveraging the accountability that is anchored in blockchain technology. However, in the early stages of the project, this legacy of earlier mistrust could easily become a major obstacle to the progress of the project.

We should support Libra, not Facebook.

I want the Libra to succeed. (Note: I also want Facebook to die, which is not a contradiction, these two results can and should be separate.) In fact, it is at the heart of the problem.)

The Libra team's goal is to provide financial inclusion for to reach the 2 billion adults worldwide who have no bank accounts. It's a noble goal, and it's an intelligent approach – from a truly international, cross-border, cross-currency perspective. Bringing all these people into the international economy and the profits could be huge for them and for the rest of us.

And let's be honest, Bitcoin, unfortunately, has not kept the promises of its proponents of a financial inclusion solution. The impact of Bitcoin and other cryptocurrencies on the $ 800 billion global transfer market is low. Sure, acceptance could increase if the off-chain Lightning network delivers on its promise to enable larger-scale transaction processing when stable coin projects solve the Bitcoin problems. Volatility issue and new encryption solutions both security and user experience with Crypto Wallets. However, these solutions will take some time. We have to act now.

Ultimately, it is by no means clear that personal-to-person global payments are a viable use case for Bitcoin, perhaps because too many HODLing speculators crowd out all spending. And, of course, no other payment-oriented cryptocurrency has hit the remittance market hard enough.

Perhaps the recipe for a global expansion of payments in a cross-border, low-volatility international stablecoin is a basket of leading fiat currencies, developed with the massive programming and marketing resources of 28 technology and financial giants. If you combine the number of users of Facebook, Instagram and WhatsApp, the number of potential wallets is 4 billion. Global network effects. Immediately.

If all other things are the same – that is, if we ignore the Genesis problem of Google's inheritance of the toxic roots of Facebook for the time being – one could also argue that an approved corporate network is the best approach to scale blockchain in is the site of a completely open, forbidden chain like Bitcoin or Ethereum. Due to the high cost of an early global presence-software development, marketing, and public relations-significant corporate resources need to be targeted and coordinated, which is difficult to achieve for open-source blockchain communities. Centralization offers efficiency advantages.

Over time, Libra hopes to expand the consortium as the project grows. This could undermine coordination efficiency, but with a classic compromise between centralization and decentralization, the addition of new members – more NGOs, some banks, possibly a union and some public pension funds – will result in greater diversity and collusion. It's far from perfect, but the time transition brings things closer to censorship at a time when it matters – when they get there.

What this means for Bitcoin and Krypto.

By the way, me too I think the success of Libra would be positive for Bitcoin – and last week's price movement suggests the market sees the same.

Here's why: Bitcoin's value proposition is that it will be more digitally liquid A more up-to-date risk-hedge vehicle than gold when it comes to preserving the value of items that are protected from political and institutional risk. This argument could be strengthened if Libra succeeds in turning billions of people into digital payment portfolios, as it further defines the power of blockchain-based digital money as a way of the future. At the same time the scale will not shake the perception because of its emergence as an approved system initiated by Facebook, for political risks – d. H. Censorship risks – to be vulnerable. For many, Bitcoin, also known as digital gold, will be the obvious alternative.

The Currency Basket Waag Token, however, is a genuine competitor to other reserved crypto tokens, such as the USDC of The CENTER Coalition, originally formed by Circle and Coinbase, GUSD, Gemini's Stablecoin and PAX of Paxos ,

However, we can imagine events that work in his favor. Developing countries such as India could oppose new currency circulation that is offsetting demand from their local currencies, but they would rather accept a digital dollar as the greenback is already circulating its economies. Users may also be happier if they hold tokens tied to individual state currencies than in a hard-to-measure basket. And if concerns about centralized control undermine confidence in scale or limit innovation, the fact that these tokens are based on truly forbidden blockchains can make them more attractive (though you still need to trust the reserve owner to maintain price stability). ,

Whatever happens, the world of cash flows is staggeringly large. Forex transactions alone account for $ 6 trillion per day. This leaves a lot of room for different models, different tastes and different trust systems for the coordination of the exchange of digital values.

Clarification of Our Priorities

The greater risk is not that the scale makes Mark Zuckerberg even more successful and enriched, but that no scale is yet one of his crypto-competitors ever succeeds in reducing the barriers to economic participation. Financial exclusion leads to poverty, which in turn generates terrorism and war.

And if we assume that the technology will finally arrive there when it's not finished, the biggest threat is a political mistake. [19659004] Both Waters 'statements and European legislators' statements state that this private exchange system must not replace national currencies. That is not the intention of Libra, but the assumption that it undermines the sovereignty of the nation states over money could stir up fears and lead to a ban on Libra. And when that happens, it's an ugly precedent for or any other competing ideas, be it USDC, GUSD, PAX or DAI, or something else.

The ability of projects to promote financial inclusion could also be affected by the Financial Action Task Force or FATF, adopting a new rule for the exchange of cryptocurrency. If ratified by enough countries that could limit the free flow of cryptocurrency between addresses that have not yet undergone a bank-like process of getting to know your client. In other words, it could be a real obstacle to the Libra and everyone else's dream of financial inclusion for the "unbanked".

Conclusion: The Libra team has cut out their work and we all have a lot to do with it. The project's representatives have to face the reality that, at least for now, the money will remain at Zuck and that the regulators will use it against them.

We should wish them all success in trying to convince policy makers that an open system is important for global financial transactions. (It is encouraging that the Bank of England takes an open-minded stance and suggests that tech companies like Libra have direct access to central bank funds .)

For the same reason we have it I have to be vigilant against the power of companies that could easily turn this important project into something darker. Facebook's own story recalls the risks we are exposed to.

I wish it was another company that is currently running this ball. However, as this is not the case, we all need to be directly interested in this project.

We need to demand from our representatives clear, well-founded oversight that will hold companies like this accountable and restrict their monopolization powers. But we should also expect smart, open-minded regulation that encourages companies to compete and innovate in an open system that creates opportunities for all on this planet.

Image Credit: David Tran Photo / Shutterstock.com

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