The third piece up in our year end 'Top Ten' features 'Mr Privacy' himself, Mark Zuckerburg, and his latest project, Facebook's attempts to launch a 'cryptocurrency'.......FREEDOM was the cry!!! Great piece from Dr Kapil Amarasinghe
Specifically the 1987 original film where the director Paul Verhoeven lays out his dystopian vision of the future of Detroit. In that future a corporation, Omniconsumer products (OCP) has essentially taken over the city of Detroit. They've bought out the police force and own pretty much all employing businesses in that City.
It's pretty sad and bleak. In their quest for profitability they scrap the pensions of their longstanding police officers and attempt to replace them with automated bots to police Detroit streets instead presuming they are more cost effective. They even go so far as to resurrect and restore the limbs of officer Alex Murphy who had been executed and amputated in a gangland shootout; wiping away the newly resurrected Alex's memories in the belief that a mindless drone is easier to control. They legally justify all this behaviour on the grounds that he had already died and his contract of employment (written by OCP) specifically allowed them to do so.
I want you to remember this because it will tie into everything else that is about to come.
Well we know corporations are privately owned entities. They have share structures; in most 100% of company shares are privately held.
For the most part corporate shares (or at least the majority of) are not held by employees of the corporation but rather by private entities whose primary interest is to see the price of those shares rise over time.
What this means is most corporate boards are geared towards this goal of higher share prices at all costs.0
Corporations will routinely fire or demote executives who fail in this directive. They will buy out and merge with other corporations, they will expand operations and they will look for any means to increase efficiency even if that means engaging in unethical practices like encouraging sweatshop labor, breaking up trade unions, eroding worker rights, low wages, polluting where it is profitable, engaging in accounting fraud, money laundering, tax evasion and other illicit or unethical activities.
I don't blame corporations for acting this way when they do, they are simply incentivised to by their structure.
In contrast, national governments are typically elected or otherwise accepted or tolerated by their people because the goal of government is to ensure a society is stable, that it's citizens enjoy a basic standard of living and safety regardless of those citizens contribution to its funding, oversight and maintenance.
In essence well run governments and trade unions have a lot in common and serve very similar goals and traditional governments up to now whilst increasingly under the influence of corporations have had various checks and balances in place to ensure that influence is limited or at least balanced by a consideration of the public good.
My fear is that Facebook is basically creating its own centralised banking reserve that aims to function independently of governments or government oversight. This could easily become the de facto global reserve currency if left unchecked and my worry is that this would be entirely privately owned or backed by private assets i.e the backing authority would not be a government but private finance firms and corporations.
We've already seen how private companies can malign incentives when it comes to public good via lobbying, union destruction, automation, low wages, exploitative work practices and drives towards share price rises for the sake of share price rises even if that means costing fundamental productivity and human rights/decency in business.
Governments are valued and defined by their currencies. If the global reserve currency becomes Facebook Libra then global geopolitical interests will be dictated by Facebook and members of the Libra Association Council.
This is much like how the USD is already the global reserve currency against which others are valued. Current global interests are US led; rather than shift to a truly geopolitically agnostic entity like Bitcoin or another decentralised cryptocurrency the success of Libra or any currency model like it would instead shift to corporations.
It is understandable the US are concerned.
As for banking 1.7 billion people; to what end? If these people are transacting in Libra rather than their native currency, then their native currency will be used less, there will be less demand by currency traders and these native currencies will fall in value as they stop being used to purchase everyday goods and services and instead become used to pay local taxes only.
Eventually corporate lobbying in regions where Libra use is prolific may successfully push to remove the need for citizens to even pay taxes in their native currency which in turn would force power of banking for these nations away from themselves and towards the corporations and members of the Libra Association Council. Thus smaller nations with weaker currencies may lose complete control over their fiscal and tax policy altogether.
In the most extreme version of this, Governments where Libra use is prolific may be forced to become members of the Libra Association council and in turn may sacrifice their own autonomy especially if their own economic power or weighting (remember 10 million USD = 1 vote currently) isn't significant relative to the other Association members. Say goodbye to local governance and national interests in that scenario.
Well I urge you to read the Libra white paper so you know that the summary of it I'm about to give is on point.
This is what you need to know:
● Facebook realize that 1.7 billion people do not have their own bank account; they use paper cash and struggle to access credit.
● Facebook realize that most people own smartphones or can afford one.
● Facebook wants to create their own digital currency; the 'Libra'.
● The Libra is a digital currency where a record of all transactions is stored on a publicly viewable electronic distributed ledger.
● The Libra will be a 'stablecoin' i.e. it's value will remain mostly constant relative to other fiat currencies e.g. the USD.
● For example it might be 1 Libra is nearly always equal to 1 USD; Facebook has yet to define the target exchange rate though.
● The underlying value of Libra will be backed by the value of reserve assets supporting it.
● Reserves are funded by companies that join the Libra Association Council which was created by Facebook to enable the growth of the Libra currency.
● You need to commit a minimum of 10 million USD to join the Libra association and this is equivalent to one vote on the Libra Association Council.
● So let's say the combined value of companies backing Libra is 1 trillion USD then technically Facebook could issue 1 trillion Libra with a value of 1 Libra to 1 USD.
● Those companies who are currently backing Libra (and are Association members) include Visa, Mastercard, Stripe, Vodafone Group, eBay, Andreessen Horowitz and ethical juggernauts such as Uber technologies inc and Facebook themselves.
● These companies are incentivised to offer services using the Libra currency and to support other companies to accept Libra in exchange for goods and services or to convert fiat currencies like USD, GBP, Yuan into Libra.
● Every time fiat currency is converted into Libra, this effectively enters the Libra reserve meaning that more Libra can be issued. E.g. if 50 million USD was converted to Libra then the reserve would grow by 50 million USD and 50 million new Libra could be issued (assuming a target rate of 1 Libra to 1 USD).
● The Libra reserve itself is used by the association to invest into 'low risk' companies, bonds and stocks so that it grows in value over time which is then returned to the members; the result being the members of the Libra association are making passive income over time. This along with the growth of the reserve by increased public usage are the incentives by which companies are encouraged to join the Libra association.
● As more companies join the Libra association it's reserves will grow, it's representation of interests will diversify to reflect its members and the number of services it can be used for will grow which in turn will grow the reserve and the power of the Libra association further.
● The electronic ledger that records all transactions of Libra is validated and verified by members of the Libra Association Council. 10 million USD = 1 vote = Right to run 1 node. 2/3rds of nodes must agree on the same copy of the global transaction ledger for it to be valid.
● The ledger of transactions on the Libra Blockchain will be publicly accessible so that it is possible for third parties to do analysis and Facebook actively encourages this.
The electronic ledger of transactions on which Libra is run on is publicly viewable. Sure one person could hold multiple addresses and transact on the Libra network without providing personal information for now but the flow of transaction from address to address can be traced and Facebook have said they will encourage analysis of transaction flow to identify and aid prosecution of users engaging in fraudulent activity.
That's noble and fine but what's unspoken is what worries me. I can see a future in which users can easily wind up linking their Libra wallets to their social media accounts either for social proofing based ID verification.
Here is the truth; Libra as a currency and it's underlying technology offers no actual independent guarantee of transaction privacy whatsoever and any claim of privacy by Facebook or the Libra Assassination Council is built on the trust of those administering it (Facebook and its partners) that neither they nor a third party will build tools to analyze the transaction flows or abuse their position of power.
Well what then? I see a future in which corporations microanalyse all your transactions to find out more about you than they ever could via traditional social media networks.
Blockchains (the underlying technology concept on which Libra is built) are not transparent by design in the sense that the transaction flows look obscure to the casual observer but every wallet has a unique address and the Libra Blockchain is effectively designed to make sure that every transaction flow can be monitored and identified. You will be known.
Libra is an illusion. It is clever marketing hype and uses the name recognition of Facebook to mask the fact that several existing technologies have already made it redundant. Securities that back the Libra themselves are backed by their present and future perceived value; they are subject to volatility on the whims of day traders in stock markets. Libra may reduce the volatility of its currency by directly pegging its 'intrinsic' value to its underlying assets but those assets themselves are fundamentally valued on the perception of the market and fluctuate daily on the whims of stockbrokers.
The dishonesty of Facebook is already evident to me from the get go as the intrinsic value of a currency is decided by it's traders not by corporations as Facebook falsely claims. The fact that Facebook pushes this misrepresentative position on intrinsic value as alleged truth which any currency trader with 5 minutes of Forex experience knows is a lie should already flag you into where its true interests lie.
In truth this is just a really clever way for companies backing Libra to raise capital to further their own goals. I started this article by stating that the primary goal of most corporations is to increase their own profitability and share price and all Libra achieves is a means to increase the value reserves of those companies while depriving governments the utility of their local currencies. Every time the equivalent of a dollar or yen or rupee is spent in Libra, it deprives these currencies of use case and in turn deprives these government of power.
Facebook can cover this up all it likes by running a non-profit Swiss foundation but the underlying mechanism remains the same; give power and money to the companies that support it, in turn allowing the power and reach of those companies under the Libra banner to prosper at the expense of those that don't.
Libra is the route to monopolies and corpratocracies subverting and taking over national government functions outright and to the death of national currencies; smaller developing nations which are largely the bulk of unbanked that Facebook targets will be hit first, large developed nations will come later. The US is right to be fearful of this giant and it's proposal; they've always been good at seeing the future; after all, it's why they've led the world for so long.
I'm not even saying this as a US nationalist or as someone who believes the USD should remain the de facto dominant reserve currency. I have no interest in such things. In fact I am a globalist and would like to see the merger of currencies and nation states but nevertheless I cannot do so under the banner of supporting a corporatocracy where shareholder interests no longer just dictate the whims, desires and activities of corporations themselves but extend fully into all aspects of national governance concerning housing, infrastructure, schools, basic utilities, environmentalism and human rights without a basic mechanism for independent and powerful oversight.
Until corporations themselves are forced constitutionally by international law to be at least 50% held by their employees the thought of Libra succeeding scares me because if you think the means through which corporations can malign human perception and behaviour now are bad, then trust me the future I see makes our current, very real concerns about global right wing populism and fascism's rise seem like an idyllic redundancy.
So what's the solution?
In my mind ban Libra. Simple; either force corporations to become 50% owned by their employees so that if systems like Libra succeed in gaining dominance then at least they reflect the will of the majority and labor force as opposed to the whims of a minority. This isn't going to happen or it won't happen as easily as banning the concept of a digital currency backed by corporate assets so let's take the path of least resistance for now. Libra is a security; treat it this way.
Another thing is to pay attention to the fact that digital currencies are the future. The Libra announcement confirms that if speculative frenzy over Bitcoin and other cryptocurrencies didn't clue you in already. It would be wise for nations to see and embrace the future and start rapidly digitizing their currencies so that the 1.7 billion unbanked citizens with smartphones can get banked and render the need for Libra irrelevant. Yes finance ministers the onus is now on you to start banking your unbanked so monstrosities like Libra can never see reason to enter the light of day.
The alternative is join the Libra Association Council and take all the risks I've outlined.
Facebook claim they are creating a decentralised permissioned global currency to bank the unbanked but in truth it's really a plan to deploy a centrally owned, permissioned blockchain where the people who've put the largest sums of money into it hold the most power and can potentially analyse, freeze or control the finances of anyone it wants to. We are trusting that Facebook will transition Libra into a truly decentralized and permissionless entity as it claims to in it's whitepaper but unfortunately history has shown Facebook to be a company that promises one thing then delivers something entirely different and the incentive proposals in its structure leads me to believe that it will be corrupted.
Perhaps more worrying is that Facebook gloss over real existing alternatives to stablecoins whose backing assets are not backed to corporate entities but yet extremely resistant to volatility in spite of the fluctuations of their underlying collateral. MakerDAO is one such example which provides a stablecoin called DAI which has held close to 1:1 value with USD (1USD = 1 DAI) despite a 98% fall in the value of its underlying collateral(Ethereum) during 2018 and a 300% rise in that same collateral during 2019. This article would be much longer if we explained how but MakerDAO has achieved this whilst remaining fully decentralized and is an excellent example of how a stable currency can be created from an extremely volatile underlying backing collateral asset. I'd like to point out that Facebook's Libra has no such mechanism outlined for dealing with this degree of volatility nor can it as far as I can see.
Furthermore if you are looking for truly privacy centric eCommerce and banking, emergent networks like Particl allow you to buy and sell goods and services online in a secure manner without the need for any personal information and the flow of transactions can be made fully anonymous; the value of its native currency token analogous to the value of transaction activity on it's network but also favourable towards growth of its ecosystem in a manner that potentially benefits all its users regardless of their personal wealth as opposed to the minority on Libra that need 10 million USD to profit from it.
I cannot stress that Facebook has used it's brand awareness as leverage to distract and mask attention from these sorts of emergent technologies by simply stating in its whitepaper that no other alternative than it's own is better. This is misleading much like Facebook historically is. I strongly advise you to do your own further research as the opinions of this author are his own but this is a complex field and I feel governments are right to exercise caution, regulation and restraint; furthermore I feel people should be encouraged to financially educate themselves to understand the means through which they can be exploited if they are not careful here.