Tuesday, June 18, 2019
LIBRA & CALIBRA -- FACEBOOK WANTS TO HANDLE YOUR MONEY
FACEBOOK, in collaboration with about two dozen other big companies, has announced a new financial currency system, LIBRA, to be launched in 2020, which will upend the global financial system if it succeeds.
FACEBOOK has proven that it understands how to provide inexpensive (or free), convenient, and useful services to consumers and businesses, and how to make a lot of money doing that. In building a social media service, they succeeded where many others (for example, My Space and before that Six Degrees, and numerous others) seemed, at first, to be getting traction, then stumbled before they reached major global scale.
Conversely, FACEBOOK has gotten into trouble for not managing seriously-harmful content that is damaging to individuals, groups, and democracy. (And it is currently facing greater and greater scrutiny from regulators -- but not, so far, much actual regulation in the US.) Much, but not necessarily all the harm is related to the gathering, use, and mis-handling of customer data (the "surveillance economy"), algorithms which promote harmful content, and a financial model that tends to reward, not discourage, many dangerous practices.
It is not easy for a company – especially one controlled by a single, American individual -- to handle dangerous content created by billions of users around the world, in a variety of languages. Has FACEBOOK "gotten ahead of their skis"?
FACEBOOK, as recently as 2018, was stressing its mission as connecting people. (In 2019 it started promoting its efforts to "fix" the platform, including efforts to protect user privacy.) They have previously embarked on projects designed to expand worldwide access to broadband and connect more people to the Internet (and thus, perhaps, to FACEBOOK) all over the world.
As proposed and described in a white paper, the new system would use a new cryptocurrency for transactions, a blockchain recording/ledger system, a consortium of 100 or more companies to control it, a pool of at least $1 Billion dollars to stabilize the currency, "wallets" (with the general simplicity of a simple smartphone app) to facilitate transactions; and regulatory oversight. Many companies will be able to build wallets on top of LIBRA. FACEBOOK’s wallet – which could handle all kinds of financial transactions based on LIBRA, including, for example, saving and lending money, and making purchases – is called CALIBRA.
Some of the benefits of this new system could be
>> Convenient international financial transactions;
>> Cheaper international transactions;
>> New and improved access to a financial system for many people: poor, remotely located, or otherwise now isolated from the existing financial system, including many women in many countries;
>> A more stable currency than exists in some countries with financial problems (problems such as hyperinflation).
The process of developing an understanding of the economic, mathematical, computer science, political, and environmental issues of a system like this is currently in its infancy.
(History note: Wikipedia: “On 18 August 2008, the domain name bitcoin.org was registered. Later that year, on 31 October, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list.
“Satoshi Nakamoto is the name used by the unknown person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin's original reference implementation. As part of the implementation, they also devised the first blockchain database.")
Among the issues that have been reported as arising in experiments with cryptocurrencies and blockchain ledgers in the past few years, since the paper of "Satoshi Nakamoto" in 2008 are:
>> Some extreme fluctuations in the value of the currency;
>> The lack of privacy in the blockchain, making holders of large amounts of value vulnerable to crime or threats of crime;
>> The privacy of the blockchain facilitating undesirable transactions, such as money laundering, tax evasion, and anonymous payments for criminal and terrorist activities;
>> (Of course, the simultaneous, and contradictory, existence of anonymity and privacy violations -- and "applications thereof" -- has made blockchains a superstar in fiction.)
>> Environmental issues -- because the processing necessary for a blockchain, as the chain of blocks becomes large, requires serious computing power and therefore enormous electrical power to support the computers.
At various times, cities and other entities issued their own coins, as (more or less) legal tender. That system was replaced; so that currently, in the US and most everywhere else, Central Banks manage national currencies. Commercial institutions, at least in the US, can create different kinds of financial instruments (like stocks and bonds) which are regulated (and are not currencies).
There is currently little, if any, regulation of cryptocurrency in the US. For that matter, there is little, if any, regulation at all, currently, of FACEBOOK’s or other large tech companies’ business practices in the US. A private-company-managed, world-wide currency, implemented by a cryptocurrency, with no history of regulation would be “challenging”.
Because FACEBOOK, together with the other companies in the consortium (as of now, most or all based in the US), is bigger than many countries, there will be international financial and political ramifications to creating this project, building it, and then running it. With FACEBOOK in competition with GOOGLE/ALPHABET, APPLE, and even with MICROSOFT, AMAZON, and IBM, as well as major Chinese companies, and the divergent interests of Europe, Russia, China, India, and other countries and regions, it remains to be seen if this will spur global, cross-company cooperation, competition, or conflict.
Here are some articles discussing the announcement of the project, along with some of the foundational white papers.
LIBRA WHITE PAPER
FACEBOOK - PRESS RELEASE
FORTUNE - STORY
THE LIBRA ASSOCIATION
THE ORIGINAL ARTICLE ON BITCOIN
Labels: bitcoin, CALIBRA, cryptocurrency, currency, FACEBOOK, financial instruments, financial transactions, LIBRA, regulation
