On Facebook’s Libra, part 2

A month ago I’ve publi­shed some quick remarks abo­ut just-anno­un­ced Face­bo­ok cryp­to­cur­ren­cy, Libra. Sin­ce then many experts took a clo­ser look at vario­us aspects of Libra­’s pro­ject, and we’ve just had the oppor­tu­ni­ty to listen to the con­gres­sio­nal testi­mo­nies of Face­bo­ok’s David Mar­cus. It is a good moment to take ano­ther, more infor­med look at what Libra could become.

Łukasz Jonak, Ana­li­tyk DELab UW

• Gover­nan­ce and (de)centralization

Face­bo­ok keeps asser­ting that Libra will not be its pro­prie­ta­ry, cen­tra­li­ze cur­ren­cy, that it will be mana­ged by diver­se mem­bers of Libra Asso­cia­tion, via demo­cra­tic voting pro­cess. Cali­bra Wal­let (deve­lo­ped by Face­bo­ok’s sub­si­dia­ry, Cali­bra) is sup­po­sed to be only one of expec­ted many com­pe­ting solu­tions that will allow users to mana­ge the­ir Libra assets. Howe­ver it looks cle­ar for eve­ry­one that it is Face­bo­ok that is spe­ar­he­ading the ini­tia­ti­ve. It leads the deve­lop­ment of the infra­struc­tu­re and con­trols a leve­ra­ge of over 2 bil­lion of exi­sting users, poten­tial Libra Asso­cia­tio­n’s clients.

I don’t think that tho­se mem­bers of Libra Asso­cia­tion who are servi­ce pro­vi­ders (Uber, Spo­ti­fy, etc. ) would be even inte­re­sted in deve­lo­ping the­ir own wal­lets. The­ir inte­rest lies in acces­sing new users and stre­am­li­ning the pay­ment pro­cess, and they would be pro­ba­bly ok with both tho­se goals being reali­zed via Cali­bra Wal­let. It is not enti­re­ly cle­ar to me what is Libra­’s the value pro­po­si­tion for tra­di­tio­nal pay­ment pro­ces­sing com­pa­nies (Visa, Pay­pal, etc.) other than them try­ing to con­trol as much as possi­ble the indu­stry­’s trans­i­tion to the new finan­cial para­digm – pro­ba­bly they will try to push the­ir own ver­sions of Libra Wal­lets and other tools.

In Ethe­reum com­mu­ni­ty some inte­re­sting ide­as emer­ged, for­mu­la­ted only half-jokin­gly: how abo­ut cre­ating a decen­tra­li­zed auto­no­mo­us orga­ni­za­tion (DAOs are main use cases of Ethe­reum block­cha­in), that would rise the amo­unt of capi­tal needed to beco­me part of Libra Asso­cia­tion, and con­se­qu­en­tly be able to repre­sent the inte­re­sts of DAO’s and wider block­cha­in com­mu­ni­ty withing the Asso­cia­tion. Some­how I don’t thing this type of appli­ca­tion would pass Libra Asso­cia­tio­n’s vet­ting process.

Open­so­ur­cing of Libra­’s code base is sup­po­sed to be a testi­mo­ny to its decen­tra­li­zed cha­rac­ter. Howe­ver, the pro­ject doesn’t look any­thing like other open­so­ur­ce (block­cha­in) pro­jects. So far the­re are no com­pe­ting deve­lop­ment teams, and cer­ta­in­ly no way of for­king away a ver­sion of Libra if a part of its com­mu­ni­ty deci­des it has a radi­cal­ly dif­fe­rent vision of its future.

• (Cryp­to) currency

During the inte­rview abo­ut Face­bo­ok’s block­cha­in in TOK.fm radio I hesi­ta­ted when asked abo­ut Libra­’s finan­cial model . I had just read fre­sh­ly rele­ased whi­te­pa­per and was not sure if I under­sto­od cor­rec­tly that the Libra cryp­to­cur­ren­cy would have lit­tle or nothing to do with the func­tio­ning of the block­cha­in itself. But this is actu­al­ly the cor­rect inter­pre­ta­tion. In most block­cha­ins, cryp­to­cur­ren­cy (Bit­co­in, Ether) is an inte­gral, cen­tral part of sys­te­m’s eco­no­mic model assu­ring its inte­gri­ty and secu­ri­ty. It is used pri­ma­ri­ly to incen­ti­vi­ze indi­vi­du­als (miners or vali­da­tors, depen­ding on the con­sen­sus model) to work towards keeping the sys­tem secu­red. Its value is tied to the inte­gri­ty of block­cha­in – if sys­tem fails, the value of cryp­to­cur­ren­cy goes to zero.

In case of Libra the cur­ren­cy and con­sen­sus mecha­ni­sms are deco­upled. Libra is essen­tial­ly a pri­va­te, per­mis­sio­ned distri­bu­ted led­ger (at least in its first years), deri­ving tru­stwor­thi­ness from the trust users vest in Libra Asso­cia­tion mem­bers that run the sys­tems, which very like­ly boils down to Face­bo­ok. The sta­bi­li­ty the Libra cur­ren­cy on the other hand comes from it being bac­ked by a basket of tra­di­tio­nal cur­ren­cies, your dol­lars, euros, yens and pounds. 

• Pri­va­cy

Cle­ar­ly, har­dly any­bo­dy tru­sts Face­bo­ok to respect the pri­va­cy of Libra use­r’s finan­cial data. It is not a mat­ter of tech­no­lo­gy or gover­nan­ce model, but sim­ply the ter­ri­ble track record of abu­sing users» pri­va­cy rights. It is not going to mat­ter much tho­ugh, at least on the indi­vi­du­al level. If Libra will offer any kind of usa­bi­li­ty, it will be used, no mat­ter the pri­va­cy argu­ment; we are just not wired for per­ce­iving pri­va­cy vio­la­tion as a serio­us threat.

• Poli­tics and power

Con­gres­sio­nal Libra hearings give an inte­re­sting insi­ght into how new Face­bo­ok ini­tia­ti­ve fits into the glo­bal game of influ­en­ce and power. I star­ted my first post on Libra by sug­ge­sting that FB is on track of doing to cryp­to­cur­ren­cies and block­cha­in tech­no­lo­gies what it did to Web 2.0 in the past: to com­ple­te­ly domi­na­te and remo­del the para­digm to its bene­fit. During one of the hearings sena­tor War­ner cal­led this method ’embra­ce, extend, extin­gu­ish», using the name of an old Micro­soft stra­te­gy. Only in this case it seems that US sena­tors are con­cer­ned not pri­ma­ri­ly by the pro­spects of Face­bo­ok cap­tu­ring the field of cryp­to inno­va­tion, but under­mi­ning the ban­king sys­tem and the power of dol­lar itself. Appa­ren­tly, the poten­tial 2 bil­lion user base makes this pro­spect quite tan­gi­ble. And if Ame­ri­can admi­ni­stra­tion is con­cer­ned, the offi­cials in other coun­tries sho­uld be con­cer­ned even more, espe­cial­ly in tho­se pla­ces whe­re infla­tion would make sup­po­se­dly sta­ble Libra cur­ren­cy instan­tly more attrac­ti­ve to citizens.

On the other hand quite a num­ber of questions pro­bed whe­ther Libra infra­struc­tu­re and cur­ren­cy could be still uti­li­zed by US to impo­se sanc­tions on «rogue sta­tes», Face­bo­ok being Ame­ri­can com­pa­ny. It will be inte­re­sting to see how this aspect will deve­lop, given the sup­po­sed Libra­’s decen­tra­li­zed gover­nan­ce model. Cer­ta­in­ly, wepo­ni­za­tion of glo­bal cor­po­ra­te infra­struc­tu­res in tra­de and tech­no­lo­gi­cal con­flict is a possi­bi­li­ty, as shown by Google­’s with­dra­wal of Andro­id sup­port for Huawei devi­ces. Face­bo­ok’s Libra will be poten­tial­ly inte­gra­ted in the eco­no­mies and the lives of citi­zens even more clo­se­ly and so the poten­tial for using it for exer­ting influ­en­ce will be much bigger.

One of the results of the last month of «Libra cam­pa­ign is the incre­ase awa­re­ness of the poten­tial and tan­gi­bi­li­ty of block­cha­in and cryp­to tech­no­lo­gies. The race to defi­ne the sha­pe of the new eco­no­mic and social para­digm con­ti­nu­es and with the invo­lve­ment of vario­us actors, espe­cial­ly regu­la­to­ry bodies, it is not yet deci­ded that Face­bo­ok and its Libra (who can­not afford to act «under the radar») is winning.

Autor pro­jek­tu: Łukasz Jonak

Pro­jekt finan­so­wa­ny ze środ­ków pro­gra­mu „Dia­log” MNiSW