The social network’s new cryptocurrency would be a competitor to retail and even central banks. Now, Congress has told it to wait for its blessing before continuing.
Facebook has been making waves of various kinds with its new cryptocurrency project, titled Libra. The social network published extensive details about the project yesterday, including a white paper and technical paper. It has received a huge amount of attention – not surprisingly, given that this is a platform with 2 billion monthly active users, and a global corporation that is known for over-reaching itself and compromising the privacy of its users.
On hold?
Since the announcement, Maxine Waters, the head of the U.S. House of Representatives Financial Services Committee, has asked Facebook to hold off on its plans until hearings can be held to – in the words of Republican Patrick McHenry – ‘assess this project and its potential unprecedented impact on the global financial system.’ Waters and others are worried about Facebook’s ‘unchecked expansion’, and the lack of clear regulatory framework and protections for cryptocurrency investors and users.
There are reasons for governments, banks, regulators and financial institutions to be worried. As Andreas Antonopoulos puts it, ‘While Facebook’s Libra doesn’t compete against any open, public, permissionless, borderless, neutral, censorship-resistant blockchains, it *will* compete against both retail banks and central banks. This is going to be fun to watch.’
There’s a war brewing between big tech and big government. Is either likely to back down? It’s popcorn time.
So what’s Libra all about?
There’s a huge amount of information on the Libra website, and it has already been analysed and critiqued extensively by some of the best minds in the crypto community (see Jameson Lopp’s take here). For all that, there are lots of details that aren’t clear yet. We’ll give a few edited highlights and reactions.
The unit of currency for the network is called the ‘Libra’, and it will essentially be an upgraded version of Tether. It’s a backed token, underpinned not just by USD in the form of bank deposits, but by a basket of currencies and short-term government securities. Libra will be 100% backed.
Facebook has built its ‘blockchain’ – which is actually not a blockchain in the conventional sense – on three main requirements:
- Able to scale to billions of accounts, which requires high transaction throughput, low latency, and an efficient, high-capacity storage system.
- Highly secure, to ensure safety of funds and financial data.
- Flexible, so it can power the Libra ecosystem’s governance as well as future innovation in financial services.
The target launch date is in the first half of 2020, though depending on how the fight with Congress goes, that could be put back.
KYC and permission
There has been lots of chatter about privacy – this is Facebook, after all. Libra has to fit in with international regulation for AML/KYC. While the ‘blockchain’ is permissioned to begin with, run by a handful of approved node operators (and at a vast buy-in cost), Facebook claim they will transition to a permissionless chain eventually.
KYC appears to be at the wallet level, not the protocol level. The Calibra wallet will be the default, and initially only wallet on offer. ‘When Calibra is available, you will need a government-issued ID to sign up for an account. Identity verification is important to comply with laws and prevent fraud, so you know people are who they say they are.’ However, it will be possible to create multiple and pseudonymous accounts on the Libra blockchain. This appears much like the standard crypto model of permissionless transfers, but KYC at the interface with the fiat system.
Facebank
Facebook therefore will have the ability to issue a borderless currency, backed by reserves, even if it doesn’t actually mint the cash backing Libras itself (like the Fed). That immediately pits it against a series of competitors, including Ripple, the major money transfer services, PayPal, retail banks, and potentially even central banks one day (imagine if Facebook added gold to its basket).
One of Facebook’s stated aims is to bank the world’s 1.7 billion unbanked, who will need nothing more than an entry-level smartphone to access financial services through their platform. But the opposition is going to come from every side. Government. Banks. Regulators. Financial services.
Love it or hate it, Facebook is bringing a war. And for once, it’s one that will target all those organisations that hate crypto. As Antonopoulos says, this is going to be fun.
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