Author Josh Goodbody is Chief Legal Counsel for Equilibrium, the platform behind the EOSDT stablecoin. In this op-ed, he explains his take on Libra, the polarizing digital currency proposed by Facebook.
If you won’t take it from me, take it from US Congress: there is a clear distinction between everyday cryptocurrencies like Bitcoin and Ether, and Libra, Facebook’s permissioned digital currency.
That’s why the word “Bitcoin” was conspicuously absent from the Senate hearing addressing the social media giant’s planned foray into the crypto space. It’s as though the government is less concerned with the use of blockchain technology and more concerned with who’s going to wield it — in this case, it’s one of the most powerful companies out there. Facebook’s product touches more than two billion lives around the world.
The latest word is that the government has asked Facebook to cease all development efforts on this new currency. It only makes sense that the US political and financial sectors would have significant hesitations here, likely related to the unknown impact that Libra would have on the US dollar banking system. But the scale and tone of their concern — a pretty unambiguous call for a moratorium on the further development of the Libra project — was a surprise.
Such a reaction too easily be interpreted as a brazen overreach of power. Under the guise of market stability and consumer protection, the government made a loud reach to protect the US financial sector’s control over the banking system.
We’ll see if it ends up making a difference. Libra’s legal structure was established in Switzerland, a nation that’s generally welcoming to innovations in financial technology, and Facebook seems bound to continue their development in relative peace if they wish. At the same time, it’s hard to imagine the company so flagrantly going against the wishes of key lawmakers. Facebook’s road ahead is one for treading carefully. (It certainly bears mentioning that the company has said Swiss regulators will oversee key aspects of Libra’s development, but the relevant authorities simply haven’t heard from Facebook yet.)
But let’s not get too far away from the point: Libra lacks many of the fundamental characteristics that Satoshi Nakamoto described in his original vision for this technology. In design and spirit alike, this isn’t a true cryptocurrency. It is a decentralized ledger with corporate governance, as noted several times in the whitepaper and technical documentation — not a true permissionless blockchain.
In technical terms, Libra is backed by a basket of bank deposits and short-term government securities. A predetermined set of entities called the Libra Association can shape the consensus and governance mechanisms that drive the whole system. With “decentralized” being such an elemental descriptor for this technology, Libra feels highly centralized.
There are still uncertainties over transaction fees, and it’s hard to differentiate Libra from a corporate bank that’s implemented decentralized ledger technology in order to slash transaction fees — not for the benefit of its users, but for itself. A big choice has already been made: to favor corporations over consumers. We’ll have to see how the project evolves.
Despite the harsh criticisms I’m lobbing here, it’s not all bad news. Any stablecoin project backed by a consortium of large companies can naturally be very promising. Libra represents a powerful disintermediation between banks and people’s ability to control their own money. It also helps set a trend of further financial inclusion for the vast number of people who remain “unbanked” today.
Although the initiative has raised legitimate concerns about over-centralization, it has also served as a welcome catalyst to jumpstart a public conversation about the future of finance.
But those seeking a genuine cryptocurrency experience need to look elsewhere. This simply isn’t it.
