Regulating Libra’s a waste of time
Facebook’s recently announced cryptocurrency pilot, Libra, claims it will “transform the global economy.”
The company hopes that anyone would be able to send Libra through platforms like Facebook messenger and WhatsApp to act as an intermediary for transferring traditional currencies. The ultimate goal is to have this currency accepted as a (general) form of payment. And other financial services will be built on top of its blockchain-based network, called the Libra Blockchain, a “proof of authority" permissioned blockchain system.
Libra's proof-of-authority model allows much faster transaction confirmation times, but only if the number of transaction validating “nodes” is limited. Facebook says Libra will be backed by a reserve of real assets called the Libra Reserve, which will be funded by members of the Libra Association. Thus, enhancing (but not insuring) stability.
The Libra blockchain is not a true blockchain since the technical paper for Libra indicates that "there is no concept of a block of transactions in the ledger history" for the Libra blockchain.
This structure will, however, limit the ability to transition to a permissionless, decentralized model because individuals and smaller organizations — without Facebook's cash — will be unable to run the blockchain network nodes or relay points that validate transactions.
While the currency is designed and developed by Facebook, the company will offload control of the currency to the independent Libra Association, whose members include nonprofits, venture capital firms, credit card companies and other tech giants.
To implement custom transaction logic and smart contracts on the Libra blockchain, Facebook created a new open source programming language, called Move.
Consumer and merchant adoption will be critical to Libra's success early on, and allowing anyone to build applications and use cases on Libra is vital. However, this development may be censored, just like the transactions themselves, to prevent use cases that Libra deems unsavory or illegal.
Libra will strictly control the interoperability of its code so that forks of Libra will not enjoy the same network effects that Libra hopes to use to gain adoption.
To hold and store Libra, a digital wallet from a new, Facebook owned and controlled firm named Calibra has been created. Calibra is intended to develop products and services based on Libra, while also handling Libra’s integration into Facebook’s other products, according to the company.
The three widely recognized main functions of money are a medium of exchange, a unit of account and a store of value. But there is a fourth function of money: as a means of social control. Facebook now forces this function into the open.
The functionality of cryptocurrency is superior to that of paper money, as I noted in an October 2006 letter to the Securities and Exchange Commission. Eventually, cryptocurrency is going to dominate. Thus, regulating Libra would be a waste of time.
To understand the path forward, we suggest examining Facebook's history as a second mover. Facebook followed Myspace into the American social networking website sector but quickly took over in the number of unique worldwide visitors.
Had MySpace remained a competitor, it is likely that the privacy and other issues Facebook experienced, like the reported presidential campaign manipulation through Cambridge Analytica, would not have occurred. Or, at least not have occurred with such force.
What Libra needs is a competitor, perhaps Amazon, Google or a government.
Sachin Meier, a student at Georgetown University and intern at Creative Investment Research, contributed to this op-ed.