Facebook Says Its New Digital Currency Will Be 'Open to Anyone.' That's Not True.

Besides, the regulators are already licking their chops.

Facebook hopes its proposed Libra currency system will bank the world—and keep us on Facebook. Right now, it's just an idea. While the project may change before its projected launch in 2020, the current plan has big problems.

For starters, Libra will be a "permissioned system," meaning that only a few hand-picked parties—through an independent governing body called the Libra Association—will be allowed to run the network. This is different than permissionless systems like bitcoin, where anyone can connect to validate transactions. That closed nature would leave Libra's users vulnerable to outside influence, because permissioned validators can coordinate to block transactions for regulatory or political reasons.

While Facebook's white paper announcing Libra says it will be "open to anyone," the paper also says Libra will innovate "on compliance and regulatory fronts to improve the effectiveness of anti-money laundering." But how can Libra be both fully open to anyone and fully compliant with anti–money laundering regulations? By definition, such laws limit certain transactions.

Facebook says closed access is initially necessary for scale but wants Libra to later transition to a fully permissionless system. That leap seems unlikely. First, it is technically dubious. Introducing major systemic changes after rollout can spark network-debilitating chaos. More fundamentally, permissionless networks seem incompatible with Facebook's stated vision of full compliance.

And then there are the regulators, who are already licking their chops. Rep. Maxine Waters (D–Calif.), the chair of the House Financial Services Committee, demanded Facebook cease work on Libra until congressional concerns are appeased. Europe and India are also wary. Assuming they let Libra exist at all, will governments allow the currency to transition to being truly open to everyone? Or will they insist that the Libra Association always exercise the discretion it is giving itself at the start?

Such targeting is possible because Facebook anointed the Libra Association as privileged validators instead of just releasing permissionless code to the world. Subpoenaing organizational leaders to a few congressional circuses could spook reluctant partners into folding or collaborating with governments. Permissionless networks provide no such targets. It would be virtually impossible to compromise each bitcoin node, for instance.

Libra's goal of financial inclusion is laudable, if self-interested. But the threat of exclusion is baked into the currency's permissioned nature. Libra can be targeted. Might Libra then target you?

Libra may well serve uncontroversial users in stable enough societies. It could end up being better than PayPal. But I expect the world's dissidents and disaster dwellers will prefer true permissionless systems such as bitcoin.

Comments

[SQRLSY One]

“Facebook says closed access is initially necessary for scale but wants Libra to later transition to a fully permissionless system.”

Yes! Just like under Marxism, the State will eventually “wither away”!

“Trust us, it will happen eventually”! Sure it will!

[Caught Wearing Trudeauface]

Fuck off slaver.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

That’s what he said.

[BillBrennan]

facebook is untrustworthy.

[Brett Bellmore]

It’s extremely unlikely to end up better than PayPal, because the people involved in it are actually worse than PayPal in terms of “wokeness”. PayPal at least started out a neutral financial conduit, and then went wrong.

Libria will start out controlling, and get worse from there. It’s basically a digital currency stripped of every feature that actually makes a digital currency worth having, in order to enable oppressive control of users.

Doubtless why FaceBook is interested in it.

[JesseAz]

The most shocking thing of this article is it didnt deride those who notice the controlling aspects of this venture with screams of “private company” like the 23p discussions. The platform discussion is akin to what they would do financially, as many have been warning.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

Biggest flaw is not being universal, which is a natural outcome of having to satisfy so many governments on top of keeping it proprietary to Facebook. Who the heck is going to use a currency which is only valid at some stores? What stores are going to accept a currency which is only valid for some customers, and how do they pay their own suppliers with such a haphazard currency?

[Jerryskids]

Facebook Says Its New Digital Currency Will Be ‘Open to Anyone.’ That’s Not True.

Given that virtually anything Facebook says is a lie, I don’t know how you can start the article with this and wind up with this: Libra’s goal of financial inclusion is laudable, if self-interested. But the threat of exclusion is baked into the currency’s permissioned nature. Libra can be targeted. Might Libra then target you?

It’s Facebook, there’s no “goal of financial inclusion” except in the sense that a black hole is “inclusive”. Of course Libra is going to target you, that’s the goal of a cashless society. When your whole life is a collage of electronic records, the recordkeeper controls your life.

[Longtobefree]

Facebook bad. Stay away.

[Jerryskids]

Also, Google bad. Stay away.

But the number of people who don’t think, don’t know, or don’t care is astounding. You know the surveillance state isn’t strictly a government operation, it’s a public/private initiative and the fewer and bigger the players involved, the easier it is to create a single bureaucratic entity.

It would be interesting to know what percentage of the NSA’s database is simply a matter of amalgamating the databases of private companies – I’d bet it’s not so much that the government is spying on you, it’s more that the government is spying on all the companies that are spying on you. And everybody’s spying on you with your permission, even if the permission isn’t exactly informed consent.

[JesseAz]

Shhhhh or you’ll suffer the wrath of the ignorant “but private company!!!!” Crowd like sqrsly.

[Ken Shultz]

“Libra may well serve uncontroversial users in stable enough societies. It could end up being better than PayPal.”

I think Libra is mostly positioned to take on rivals like Western Union in the remittances market. It’s aimed at solving problems in the developing world.

I’m seeing a stat that says the world market for remittances was over $600 billion in 2015, and surely it’s grown since then. It is especially expensive to send money back to developing countries where the banking infrastructure is basic, fraud is rampant, competition hardly exists, etc.

I just went to the Western Union website to see how much they charge to send $100 from a Western Union location in the U.S. to a Western Union location in India, and it costs $11. Charging 11% on a single transaction like that means there’s a fat profit margin that Facebook could easily exploit with blockchain technology. If you want to send the money from your bank account in the U.S. to a bank account in India, there’s no fee for the transfer–but it takes four to five business days. Bitcoin transactions, on the other hand, take about ten minutes to authenticate completely. Western Union is also making money on exchanging one currency to another. They’re not exchanging dollars for rupees for free!

It isn’t just that Facebook could rule the $600+ billion annual market in remittances. Once all that money comes in, people need somewhere safe to keep it. They could rival local retail banking in the developing world that way, too. If you’re a local banking customer in Nicaragua or Mozambique, you might want to do business with Facebook rather than with the local well connected, rent seeking, well protected by the corrupt government officials, bank. Local retail banks may charge through the nose for simple services like checking.

There’s a cognitive bias that makes us imagine that everything that happens is about us, but that isn’t always the case. Facebook’s cryptocurrency doesn’t need to go after relatively new technologies like PayPal. The prime targets for Facebook’s cryptocurrency are older services, like the 19th century model of, for example, Western Union’s remittances and the ancient level of banking services more than half the world’s population suffers at the hands of banks with insufficient competition.

[jrlevine]

I agree that they think they’re targeting remittances but that just shows how clueless they are. Western Union is expensive partly due to compliance but also largely because of their network of live agents who can accept and pay out cash. If both parties have bank accounts there are much cheaper options like Richard Branson’s Transferwise.
A cryptocurrency will do nothing for the unbanked. They don’t have smartphones (Kenya’s M-Pesa uses by SMS which works on dumb phones), they don’t have enough money to set up a bank account, and Libra would have the exact same problem of WU of getting actual money in and out.

[Ken Shultz]

“Western Union is expensive partly due to compliance but also largely because of their network of live agents who can accept and pay out cash.”

They more than just obviated by blockchain. You no longer need to trust the middleman with blockchain, and that’s a big deal in the developing world.

A cryptocurrency will do nothing for the unbanked. They don’t have smartphones (Kenya’s M-Pesa uses by SMS which works on dumb phones), they don’t have enough money to set up a bank account, and Libra would have the exact same problem of WU of getting actual money in and out.

They may not have enough money to set up traditional checking and savings accounts–with all those fees. However, Facebook is already operating in those countries in a model that doesn’t charge those people anything for using Facebook. I don’t see why blockchain would require more cost than a traditional bank.

There were plenty of people in Central America who didn’t have a checking account, a smartphone, or a computer at home, when I lived there, but they could afford an hour in an internet cafe. I think that’s a vast market in the developing world that Facebook could target with this cryptocurrency–financed with the proceeds of remittances at first, maybe.

There would be regulatory hurdles, too. Those local, protected banks aren’t about to lay down and let Facebook eat their lunch. On the other hand, if Bolivia or Nigeria decide they won’t let Facebook facilitate blockchain in their country, then who’s going to stop Facebook from operating in their country anyway? Those countries don’t have mature regulatory or enforcement mechanisms like the U.S. I’m not sure Nigeria could stop Facebook from facilitating blockchain transactions in their country even if they wanted to do so.

[Agammamon]

That closed nature would leave Libra’s users vulnerable to outside influence, because permissioned validators can coordinate to block transactions for regulatory or political reasons.

This being the case, I have to wonder what Facebook is planning on doing that differentiates themselves from the existing ‘permissioned’ system of electronic transfers.

Look at it this way. If I want to bypass regulation, there are multiple ‘permissionless’ systems I can use – cash of varies countries, bitcoin, specie, barter – and they all work pretty seamlessly *around the world*.

If I want to use the ‘permissioned’ system, well, it provides a level of convenience the ‘permissionless’ systems doesn’t so that is its advantage, and its, again, seamlessly available around the world.

And I can move easily between these systems. From electronic transfer to cash to trade goods and back on up to cash and electronic transfers. Around the world.

Facebook is offering something that’s even more easily regulated by governments, doesn’t offer the convenience of the existing money transfer system, is limited in who you can use it with, and doesn’t allow the anonymity the ‘permissionless’ systems use.

I don’t get what their advantage is.

Did anyone on that team ever stop to ask that question? What are we doing differently from everyone else that would make it worthwhile for someone to use our product? Even if its just ‘we do this one thing slightly better’ or ‘there’s this one little gap that the other options don’t cater too’.

[Ken Shultz]

Please see my comment above.

Sending remittances from the developed world through blockchain to the developing world would be far faster and less costly than it is today. Facebook can make a bundle on that alone.

Meanwhile, some 1.7 billion adults don’t have any access to any bank account.

https://www.forbes.com/sites/niallmccarthy/2018/06/08/1-7-billion-adults-worldwide-do-not-have-access-to-a-bank-account-infographic/#719999764b01

Whatever else you think about Facebook, regulators shouldn’t get in the way of this.

[Agammamon]

They can only make a bundle for a tiny little slice of time before WU and Moneygram step in.

And they still have to, somehow, get this stuff converted to actual cash – or else get stores in third world countries to accept non CC payments.

And, in the end, they’re not any faster than WU or Moneygram – maybe more secure – and their only advantage to the customer is the percentage they charge. Which WU and Moneygram can change on a dime.

[Uncle Jay]

“Facebook Says Its New Digital Currency Will Be ‘Open to Anyone.’ That’s Not True.”

What?
FascistBook lying?
Gee, who would’ve thought that?

[Barry Gold]

Here is what I recently wrote on Facebook about Cryptocurrencies:
Libertarians are fond of cryptocurrencies. Imagine: something that spends as easily and anonymously as cash (dollar bills, $5s, …$500s and $1,000s if they still printed them) but doesn’t require physical proximity to spend.

Attempts by the government to keep people from turning the proceeds from drug sales, illegal gambling, etc. into nice, easily spendable form are futile.

Of course, it turns out that attempts to stop real crimes like blackmail are also futile. Some months ago I wrote about somebody’s attempt to blackmail me (using an outdated password as “proof” that they knew something about me). Just another form of spam/scam. Not everybody is as security-wise as I am, so I’m sure the author of this spam collected at least a few payments.

Back in the 80s when the main purpose of money-laundering was disguising profits from drugs, I didn’t much like anti-money-laundering laws. Nowadays, people also “launder” money to disguise payments to and from terrorist groups, and I see some good reasons for wanting to trace large transactions…

I’m also a subscriber to the comp.risks forum, where people discuss all the ways in which computers can go wrong, go wrong, go wrong… And it turns out that there are also significant (and apparently insoluble) problems with cryptocurrencies. Article by Peter Neumann, the moderator of comp.risks:
http://www.csl.sri.com/users/neumann/cacm244.pdf

[Joey Jay]

What about people that are banned from Facebook, like people convicted of urinating on the street during Mardis Gras in New Orleans (sex offenders)?