The Mark of Libra:

If you haven’t already seen, yesterday Facebook released their whitepaper for their cryptocurrency “Libra”. My two predictions are that it will succeed and that its the worst thing to happen to privacy in a generation.

Governments have always loved the concept of a cashless society, a digital currency because it allows for tracking of every purchase, every monetary interaction is documented, collated and cross-referenced. Citizens of most western nations however still held on to cash, physical bills/coins, and have refused to go fully digital. Cash is one of the few truly private things we have left in modern life, that, however, is about to change.

Most citizens of western democratic nations would bristle at the idea of the government tracking their every purchase, taking tax out of payments the instant they received them or if you frequently need medications for diarrhea or skin rashes. This isn’t something we want an IRS agent to be able to peruse at will.

The workaround for this is, of course, a private company. Facebook has been at odds with the public and some wings of the government for their near panopticon of data they pull in off their platforms on hundreds of millions of people. There has been, happily, a public backlash to the point where the writing is on the wall that privacy is coming back into vogue. Apple has always made its business model about overcharging for their cultist consumers and not about selling data and are leading the charge to ensure the privacy of its customers. Facebook has pivoted as well giving some lip service to wanting to put privacy back in the hands of its customers.

This may have seemed strange as Facebook’s business model is completely driven by their ad services which are highly targeted since they know everything about their users. To reduce the data they collect on you based on what you like, posts you share, products you click, would severely inhibit their business model so why would they do this?

The answer is Libra. They are pivoting to becoming a financial services industry and mimic what WeChat has done in China. They don’t need to track who you follow and what you like if they know everything you buy. Libra knows that on most Fridays you like to have 5-6 drinks with friends then go home. It will know you bought some home workout equipment, diet books, and meal replacement shakes over the past two years as you go back and forth on a diet. It also knows that on Fridays, you often say screw it to the diet and order pizza once you get home. Tonight it hadn’t even entered your mind but as you check your Instagram you see a big cheesy dripping pizza show up in your feed. How did it know? not by you liking dominos but because they can predict your buying preferences based on your past purchases.

Libra will most likely not be as popular in the developed western nations at first as its value proposition will be most attractive to those in the 3rd world. In countries like Nigeria, Argentina, Mexico where local currencies don’t enjoy the status the US Dollar does the second you are paid in the local currency you rush to buy foreign currencies like the dollar or the euro or food items, etc so that you can retain its value. When your currency can lose as much as 10% a day you can’t afford to hold it.

Libra will offer these people a frictionless store of value since there are no transaction costs for users. Libra is “backing” itself with a “basket of currencies” such as the Dollar, Euro, Yuan, etc. as well as sovereign and corporate bonds with the value of 1 libra being an average of the total. This will help to keep its value “stable”, restructuring the basket if a specific currency experiences turmoil.

Don’t get me wrong, I do think in some ways this is actually a VERY good thing for a lot of the developed world as it will begin to put pressure on sovereign nations to no longer devalue their currencies via monetization of debt and running the printing presses. The Libra or Bitcoin would have no use case if governments acted in the interests of their people. The libra is actually a real test case of Frederich Hayek’s concept of the ‘denationalization of money’ through private issuance.

A person in Argentina who is paid in Libra will be better off than if they are paid in local pesos. So it will have a very real positive effect in the third world.

The dark side has already been touched on earlier. The total surveillance of the economy through private means. Governments will not have to go through problematic congressional hearings, law changes or supreme court challenges if they can just subpoena (if Facebook will even require that much effort) a private company for your ENTIRE HISTORY of purchasing.

We see this already in China as WeChat has created a near-total monopoly environment of social media and financial transactions with the very damning implications for personal freedom and privacy.

The days of J. Edgar Hoover and blackmailing of those who were considered “dissident voices” within America was barely a generation ago. Fake stories of being caught on camera with prostitutes were used to try and get Dr. Martin Luther King to commit suicide during the ’60s, Senators and Congressman who were critical of FBI overreach were blackmailed into silence for closeted misdeeds. This is not from Romania, this was America not all that long ago. Imagine if dissident voices objecting to Facebook itself or a government policy were reminded of when they paid for a secret hotel room and dinner for two with a mistress or their bar tab from a business trip when they supposedly live a life of sobriety according to their religious beliefs. Facebook employees have not but a few weeks ago leaked information on the man who created the “Drunk Pelosi” video. He was an African American Trump supporter who is now worried about being targeted since the Daily Beast got a Facebook employee to leak his profile information to them.

The Libra has quite a few hurdles in front of them as they will have to navigate the political and regulatory hurdles as they move forward.

One of the biggest questions will be whether or not they are going to offer interest on their accounts. As Caitlin Long in a recent interview on the “What Bitcoin Did” Podcast stated that if they offer interest they will be in violation of the Howie Test and security and if not they will likely face populist upheaval if they pocket the estimated 16 Billion a year that would have gone to those holding Libra. Another issue will be that the Libra holders will be exposed to the same headaches Bitcoin users are. Every time you buy something whether it’s a car or coffee you will need to figure out the cost basis of that transaction (the cost of Libra when you first got them) and the profit or loss you incurred in the transaction.

For example, if I bought 1 Libra when it cost $1.56 USD and now bought a $2 USD coffee 6 months later when the Libras value had jumped up to $2 I would have to declare a $0.44 USD profit from that transaction.

What I hope is that Facebook’s army of lawyers & Lobbyists is able to expose and overturn many of these antiquated laws. Securities laws date back to the time when you would physically hold the paper certificate of the stocks you own. This would be beneficial to Bitcoiners as well.

So the question a lot of people are asking is “Is this going to kill Bitcoin?”

The answer is a resounding NO

Libra is a competitor to the U.S. Dollar, the Euro, Western Union and many other crypto projects such as Ripple or Dash that aim to create cheap payments, remittances or interbank transfers. Western Union should be very afraid, why would I pay $15 to send money back home to Mexico when I can pay $0 with Libra?

I suspect this is why Moneygram finally jumped into bed with Ripple (A protocol appealing mainly to large financial players for cheap settlements and remittances) since they are both in the crosshairs as competitors to Libra.

The differences are vast and fundamental to why Bitcoin is so unique.

Censorship Resistance: Bitcoin transactions cannot be blocked. Facebook deplatforms and bans individuals based on political preferences or subjectively determined offenses. Will they also stop you from making a car payment because you drunkenly posted a joke someone later reported? No one in the world can stop YOU from sending Bitcoin to ANYONE YOU WISH. No matter how bad China doesn’t want you to donate to a dissident movement in their country they can’t stop you from doing so with Bitcoin. They can, however, do this with Libra or on WeChat.

Immutability: The History of Bitcoin from Block 0 is set in stone, well beyond stone, it’s mathematically locked forever. If Facebook wants to go into their ledger (btw libra ISNT a blockchain) and say that the $500 you were paid last week for a job is no longer yours because of X, Y or Z they can. If Putin asks Libra to seize the funds of a political rival and send it to the Russian Federations Libra wallet they can do so at the stroke of a key. No one can ever go back in time to steal your Bitcoin or reverse a transaction once it’s sent.

Decentralized: There is no head of Bitcoin, there are those that influence its development those that lead conversations, but in the end, everyone in Bitcoin running a node has to agree to any change in the protocol. If there isn’t consensus it doesn’t happen. With Libra, there are only 100 node operators (each having to pay 10 million for the privilege) and they don’t even have a say in the protocol, which begs the question as to why they would pay to run a node, the answer is your financial data. As a side note, it will costs you some time and probably a used $75 laptop from a garage sale to run our own Bitcoin node.

Privacy: To be totally fair, Bitcoin is “private” in terms of what people would call “anonymous” its actually a pseudonymous privacy in that your wallet isn’t “john smiths wallet” on the network its a unique string of characters. If you, however, used that wallet to buy a couch on overstock and shipped to you, or sent bitcoin to coinbase to your account associated with your name, then that address is no longer pseudonymous but forever linked to Y O U. There are future plans to increase anonymity on Bitcoin but for the time being the best thing you can do is to try and buy Bitcoin face to face and if not then use CoinJoin like services that mix up to 100 users coins multiples of times to completely obfuscate who owns what. Libra will have ZERO expectation of Privacy and I would personally consider your Libra purchasing history to be as private as what you post on facebook. There’s no option to opt-out of tracking and be anonymous in Libra. At least with U.S. dollars, you have the option of using anonymous cash.

In conclusion, I think that Libra will be a mixed blessing for Bitcoin. As we head into the next recession/depression that’s quickly coming on the horizon Libra won’t be immune as its basket of currencies will all experience the same pain of decades of inflation and monetization of debt while Bitcoins fundamentals will set it apart (that being said Bitcoin won’t be immune in the short term to a major global downturn as speculators will be dumping EVERY asset they own) in the long run as people watch Fiat currency values decreasing over time as Bitcoin’s value continues to increase.

Bitcoin’s fundamentals set it apart from every other asset or currency in the world and the fact that major players are having to try and launch competitors to it (while failing to understand what gives it value) only gives me more hope and confidence in Bitcoin’s future.