Libra Coin: Economic Liberty or Power Grab?

On Tuesday, June 5, 2019, Facebook announced that it will launch the Libra coin project sometime in 2020. Libra gets in name from the Latin root, freedom, and liberty. These concepts are central to its stated intent; global, distributed access to financial services and wealth.

Many of you have been participating in the crypto-world for a while. So it will come as no surprise that mainstream news outlets are calling Libra a Bitcoin rival. Facebook has some seriously ambitious goals for its digital currency Libra. Yet, its coin differs from Bitcoin in numerous, significant ways.

Regulators react to Bitcoin

Naturally, regulators around the world are up in arms about this announcement. Despite the egalitarian roots that inspired creator Satoshi Nakamoto, some have used Bitcoin to profit from some seriously nefarious activity. Particularly the unsavory trafficking of drugs, arms, and humans. However, criminals have long found ways around banking regulations and sanctions to use cash for these same purposes.

Despite its many detractors, Bitcoin’s model has been undeniably successful at creating a new era of wealth and individual freedom. There are no doubt many good people worrying about how cryptocurrency will affect our current economy and financial privacy. However, many regulators and banks are just sore that they are missing out on a piece of the pie. Or maybe they are afraid they will lose what was once their pie completely.

Bitcoin vs. Libra Coin

It’s pretty clear that without a digital coin, Facebook is missing out on a major movement in the digital age. But what is not clear is how Zuckerberg plans to embrace the decentralized aspects. This is especially so given that he has committed to begin increasing decentralization on the project within 5 years.

Bitcoin’s decentralized model and cryptographic design have made digital currency a reality. Not only that, but Bitcoin has ushered in an era of decentralized networks. It is important to emphasize that no one entity owns the Bitcoin or Ethereum Networks.

These open, borderless, censorship-resistant protocols operate using millions of decentralized nodes. Not only that but algorithmically the system incentivizes participants to be good actors. Conversely, it massively de-incentivizes harming of the protocol.

From centralized to decentralized?

Although Libra coin is a distributed digital currency, it plans to begin with a centralized network. And while it vows to progress to a decentralized model, it is hard to trust Facebook. Mainly because it’s an entity that has built its business on exploiting personal and private data. So it is hard to imagine that Facebook will want to give up control of its currency at any point. Especially if there is more potential for profit by centrally controlling the Libra coin.

For now, Libra’s idea of decentralization is giving ownership nodes to possibly up to 100 or more Libra Association members, to the tune of $10 million. Conversely, Bitcoin is completely decentralized, meaning there is no foundation, foundational assets, or team behind it. And, most importantly, anyone with internet access can participate.

It is important for those who are clumping the likes of Bitcoin and Ethereum in with Libra coin to remember that the former coins operate on open-source networks. But they share any transactional data. Encryption keeps the individual sending and receiving transactions anonymous. Thus, the only information available publicly is transactional (wallet number, amount, date). Whether there will be an open public ledger remains to be seen.

Will Facebook’s ad revenue connect to Libra?

Presently, over 90% of Facebook’s revenue comes from its ads, which are skillfully aggregated by selling personal data. It seems highly unlikely that Facebook would give up this cash cow for the sake of a decentralized network.

Bitcoin operates using an incentivized model, primarily mining. The nodes running the network and approving transactions receive rewards in the form of coins and transaction fees. However, Libra coin will function as a currency with several fiat and low-risk securities as its reserve. The Libra Association will be made up of 27 partners that each operate a node. Together they’ll make decisions regarding the protocol. This includes partners such as Mastercard, PayPal, eBay, Visa, Lyft, and Uber.

Moreover, Libra coin is set to run on a permissioned blockchain. That means that at least to start, those running the blockchain are a part of the Libra Association. This is not the case for open-source public blockchain like Bitcoin, where any participating node can add to the blockchain, so long as the transactions conform to the consensus protocol.

One of these things is not like the other

What you should take away from Libra coin’s impending launch, is that cryptocurrencies pose a threat to the continued saturation of established wealth. There is no denying that Facebook and centralized servers have served a valuable role in the proliferation of information over the last two decades.

But, at least for now, Libra is not offering a cryptocurrency that aligns with the decentralized ethos of Bitcoin and Ethereum. For now, all it seems to offer is another way for Facebook to make money for a few hundred people, including itself.

Despite its centralized organization, Libra coin is similar to the many valuable cryptocurrencies in that they disrupt current systems of regulation and centralized fiscal power. In fact, Facebook’s head-on approach to regulators is perhaps one of the most commendable moves the project has made.

Somewhat surprisingly, government officials in the EU and the US took the project to task in the media the same day of the Libra announcement. While Libra does not yet have any official backing from national banks, the Geneva-based, non-profit Libra Association appears to be actively working with regulatory bodies.

July Hearing and Open Letter

In light of the news about Libra, the U.S. Senate has called a meeting which will be held on July 16 at 10 a.m. EST. It will be broadcast for the public, along with releasing an open letter to Facebook.

Elizabeth Warren's tweet about Libra coin

The main concerns of the open letter, as well as presidential candidate Elizabeth Warren, stress privacy issues. It is clear that Libra coin may not be a philanthropic project, solely concerned with facilitating global wealth. She, like many others, worries about what the real cost to users will be in terms of data security.

A Crypto World

While Libra coin’s value is unclear, it’s launch signals that financial institutions are broadly accepting the global shift towards cryptocurrency. 2019 is clearly a banner year for when big players began to accept that if they don’t adopt some kind of digital currency, they will not be able to remain competitive, and more importantly relevant.

Still, it’s too early to tell how Libra will roll out and what this means for the crypto industry. Libra is not playing by the rules of Satoshi’s white paper. They have big money and the payments industry backing them. Not to mention a platform with 2.3 billion active users and an army of developers and an established mega platform for marketing.

But with Facebook’s privacy breaches continually making world news, there is certainly cause to remain skeptical of what this currency will look like once it is rolled out in 2020.  

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