22/06/2019/15:00CET
Facebook and Libra.
What is it and what is it not. There is still a lot of fog around this project but what do we know so far.
Facebook and their part in it.
- According to the white paper, Ca -libra is the Facebook entity that will be part of a consortium of companies that will jointly administer the blockchain
- Calibra will hold 1% of voting rights when all 100, 1% voting shares are allocated
- A company has to put up 10mill to be part of the consortium. There seem to be some other criteria but this is not so clear yet. The White paper seems to hint at an attempt to have a balance of companies involved. Who controls and has veto rights in this selection mechanism?
- Facebook go out of their way to give the impression that they are only going to be a 1% max of the consortium, but the rules of entry into the consortium are unclear. Also there seems to be a possibility that members can have varying stakes in the consortium
- This Consortium is the group of validators that will be the PoS (proof of stake) players on chain.
- Calibra will build a wallet and integrate it into Facebook products like messanger, whatsapp, instagram, etc... (I guess)
- Even though not spelled out in the white papers, I guess Facebook will make a revenue by a: charging fees to use the wallets for merchants on instagram, etc... (much like credit card companies do today) and, b: take fees for validating transactions (PoS, but Facebook is touting that transactions will be virtually zero. Hmmmm)
- Facebook seems to be at great pains to firewall their tainted reputation at privacy and personal data handling away from this new project. It is true that Facebook, without something new is a declining behemoth. But a behemoth still, none the less. They need a new angle and, even thought they are hiding behind the altruistic remittances market as their narrative, I am sure they are eyeing to rent seek on top of the transaction throughput of all western users shopping over its platforms.
Openness
- Eventhough they tack on blockchain and open as much as they can, it is still a closed validation circle that only requires ~35% of validators to reach consensus. And these validators are all large companies that are beholden to national and supranational regulators.
- The blockchain they tout is not really a blockchain in the pure sense of the term. There are no blocks! Instead there is some kind of block style aggregation of the transaction history. A bit technical and a bit vague as well.
- It is not opensource,... yet. Facebook claims to make the code behind the blockchain opensource, but not yet. Maybe this will be a promise never kept in the end. If Facebook is building this in the dark, and even the validators cannot see the inner workings of the system, I wonder how this will play out. Imagine the shite they can stuff in there that would aggregate tonnes of data on anyone touching this thing. Facebook has made me a cynic. Sorry.
- It is claimed that the second layer, where the wallets reside, will be open, meaning anyone can build a wallet. I wonder if some 3rd party wallet appears that will enable a virtual seemless link to whatsapp would be allowed by facebook to exist?
- Querying the ledger will be done through validators though the white paper hints that users can directly interrogate the ledger as well. Again a little vague.
Backing
- Facebook claims that the Libra will be backed by a basket of currencies. Not much is talked about what balance or proportion.
- To buy Libra, one will have to deposit Fiat with Facebook. Hmmm, so Facebook will be holding all these funds that back Libra. There seems to be little on audits and verification of backing.
- Will the proportion of various fiat backing be determined by the proportion of which currency is used to buy Libra? Again not much detail on this.
Regulation
- There has been a chorus of regulators from around the world that have pissed on Facebook's parade. Many call for a moritorium on further development of this service till regulators catch up.
- In the 27 current memebers of the Libra consortium, there are already some big hitting names:
Mastercard, Visa, paypal, Ebay, Uber, Vodafone, Mercado pago, et.... - They claim that Libra will not be available to anyone from a jurisdiction that bans Bitcoin as well. Hmmmm. This is quite a moving target. How will they handle this as countries go from pro, to anti back to pro crypto?
- Being a payments processor service by rights, Libra is in direct competition with the likes of Visa and Mastercard. They may have thought that for a paltry 10mil, they hedge their bets.
- US ruling class and regulators will be the largest headache for this project. They are so paranoid and protective about the power of the USD, and its weaponized ability to coerce its geopolitical rivals. How will they be able to let go if this, or maybe they have a master plan to weaponize Libra in a similar fashion. In any case, as it is laid out in the white paper, I do not see a smooth road from regulators, and if there was to be, then I would be concerned about what they are getting in return for the erosion of their beloved USD.
- There will have to be some pretty pervasive spying on transactions and the ability for some super node to reverse and shut down transactions. Again this has been the most potent way the US has imposed its imperial dictates onto the world. They will not give this power up lightly.
- The White paper talks about no KYC at the protocol level. A euphemism for a permissionless blockchain. Anyone can interact with it. Hmmm. If it is possible for any third party to build a wallet and interact with the chain, then KYC is virtually impossible to enforce, unless....., there will in fact be some kind of permissioning in the background. This is one of the huge stumbling blocks I see for Libra if they really want to stick to the spirit of their white paper.
- Off course the nodes can decide to turn away a transaction or reverse one, but they have to reach consensus to do this. How cozy will this consortium be when it comes to this kind of censorship.
And for Crypto?
- Those who say this is a crypto killer, or bitcoin killer are maybe not great chess players. Those that stand the most to lose in the immediate sense are remittance companies like Western Union (whose shares opens 3% down the day after the release of the white paper)
- The compression of fees that Libra will force into the payments business will hurt the banks the most. They have had a fat life on the thick fees we have all been paying to simply use out own money in this labyrinth system they constructed together with their friendly regulators. With days to wire money internationally, intrusive questioning, and hefty fees to boot, this money transmissions business is about to get a kick in the balls from crypto.
- Libra will be programmable, in the way Ethereum is programmable (and a lot of other platform plays in the alt space). Some simple facts are that the programming language they plan to develop for this, called "Move" will be more restrictive than Solidity on Ethereum. This is probably a good thing to start with in order to prevent problems with badly written or hastily tested smart contracts that blow up,.... sometimes, very publicly!
- With this in mind, the platform alts, including Ethereum may have some competitive pressure on them. Less so Ethereum, but more so the others, (Waves, Tron, Stellar, etc...)
- All this may be ameliorated by the fact that Libra will introduce the technical advantages of cryptocurrencies to the masses. All of a sudden there will be a huge spike of the population that will know how easy and fast and cheap to use cryptos can be.
- It may well become a "gateway drug" you may say to the true decentralised cryptos like bitcoin.
- In fact I think shortly BTCLibra trading pairs will be proliferate and be the most brisk markets in the crypto world, (unless regulators freak out at the exodus into crypto through Libra)
I am quite positively surprised at the White papers from Facebook.
They are planning on building the Trojan horse for crypto to decimate the traditional banking world. Their plans will only accelerate the adoption of crypto.
Libra itself will be a contrived crypto with extreme centralisation, and bend into anything but what we think of as open free blockchains. But it will be a crypto none the less in its deeper architecture. It will on the surface offer what our beloved cryptos can do. Very cheap, fast and easy transactions. The knowledge that they are still going through a trusted 3rd party will not negate the tangible usability advantage. When people wake up to the fact that our open and free blockchains are just as cheap and fast, but also purely peer to peer, with no intermediaries, then the race will be over.
The banking world, all the way to the central banks of the world have a lot to consider now. Their fate hangs in the balance.
As always guys, leave comments, have fun and trade safe.
Disclaimer: This post is not financial advice. Before investing any funds do your own research and make your own decisions. Cryptocurrencies are highly speculative.
And finally: Do not invest money you are not comfortable losing.
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