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The Libra Lie: Why Facebook's "Cryptocurrency" Will Not Become Permissionless

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written for the #librenotlibra initiative


Facebook has been very busy lately, tracking you through photos that you download, denying that it's a social network, and buying approval to violate your privacy. Adding to its unfavourably lively media presence these days is Facebook's latest venture which takes them into the cryptocurrency space: Libra.

In an act of either insincere marketing or sincere delusion, the social network (yes, it is one) blatantly misused the term "cryptocurrency" to label its digital coin, instantly causing global-scale debates that range from privacy concerns over the implication of legal consequences to whether Libra actually is a cryptocurrency to begin with.

It's not.

The fact of the matter is that upon launch, Libra will not be permissionless, and it will not be a cryptocurrencyThe main characteristic and purpose of a cryptocurrency is its censorship-resistance. It achieves this through a decentralized infrastructure that allows it to operate without a central point of control and failure.

Libra is not censorship-resistant. It's a digital currency set to be operated by a group of corporate giants who, through their participation, will gain access to and control over the financial activities and holdings of billions of people around the world.

A centralized digital currency puts every single user at risk of complete surveillance and not only defeats, but completely contradicts the purpose of a cryptocurrency.

Libra's developers themselves seem to be aware of this, stating,

"we believe that for the Libra network to achieve its full potential, it needs to be permissionless."

libra.org

As such, Facebook has voiced its ambitions for Libra to "gradually [transition] to a permissionless state in the years to come", citing an impossibility to operate a permissionless network that is both scalable and secure at the current point in time.

The desire to build a permissionless network might seem commendable, but once you take a look underneath the enthusiastic surface of Facebook's pursuit, you might begin to question how serious this approach really is - and how much of it is a calculating tactic to push PR and avoid further criticism.

Let's take a look at five reasons why Facebook's Libra will likely not become permissionless: 

​Facebook Could Have Started Out Permissionless

According to the Libra white paper, there is no "proven solution that can deliver the scale, stability, and security needed to support billions of people and transactions across the globe through a permissionless network."

Libra will cost Facebook and its partners billions of U.S. Dollars to set up and run. The scale at which these companies are operating easily relegates most cryptocurrencies to play-money and fun experiments. As an example, the $5 billion dollar fine Facebook agreed to pay to buy our privacy is larger than the market cap of five of the top ten cryptocurrencies.

If you're looking for a permissionless payments network and have access to billions of dollars in funds, you could, if you so desired, attempt to create your own coin.

You could also use that money to invest in the development of applications that improve the scalability, stability, and security of a permissionless network that's alive and thriving today: Bitcoin.

Second layer technologies like the Lightning Network tackle some of the exact issues Facebook cites as hurdles on the way to making Libra permissionless. However, they do so on top of an infrastructure that is already permissionless, already secure, and has already stood the test of time, not only surviving numerous political and technological attacks, but coming out stronger from all of them.

Facebook's goals (if they are genuine) seem to align perfectly with those of the developers and users of Bitcoin. In supporting Bitcoin's ecosystem, Facebook would have sided not only with the strongest and most secure cryptocurrency, but also with some of the smartest minds alive today, creating a plethora of opportunities to drive research, development, and adoption.

Facebook did not do that. Facebook instead created its own coin. That alone should deliver enough proof that Facebook is not interested in a decentralized cryptocurrency.

You Can't Earn Much From a Permissionless Libra

A permissioned Libra, however, holds a number of tempting revenue streams for Facebook. Calibra, the subsidiary Facebook set up to seemingly separate its own from Libra's operations and ensure the safety of financial and user data (a statement we have no choice but to trust in), announces it will be "cutting fees". While the official website doesn't include any numbers, we can be sure that Facebook will not want to miss out on transaction fees with its soon-to-be permissionless currency.

Although according to Libra's white paper, developers will be able to build their own wallets on top of Libra, upon launch, the only wallet available will be Calibra, with a gigantic head start over any third-party wallets to be developed post-launch. By ensuring that all Libra users have to turn to Calibra at least for a certain amount of time, Facebook anticipates an additional spike in revenue from ad placements and will further be able to play out its advantage by being not only the first to provide a wallet, but also the first to implement additional financial services across its apps.

A Permissioned Libra Means a Powerful Facebook

A permissioned Libra lets Facebook set a (long) list of criteria and charge a minimum of $10 million dollars to operate a validator node. For their investment, Facebook's group of initial validators or "founding members" received Libra Investment Tokens on which they will be earning interest depending on the amount they contributed.

The investment further grants each founding member a seat at the council of the Libra Association, a non-profit organisation based in Geneva. The Libra Association Council forms the association's governing body and has ultimate control over the direction of Libra's development, according to Facebook:

"The council delegates many of its executive powers to the association's management but retains authority to override delegated decisions and keep key decisions to itself, with the most important ones requiring a greater than two-thirds supermajority"

What's not clear are the amounts each founding member invested. Facebook's stake is especially interesting here: as the main corporation behind Libra, it wouldn't be surprising to see Facebook investing a substantial sum into the project - a highly centralizing factor.

Right now, Libra depends on Facebook. Facebook is developing it, Facebook is funding it, Facebook is controlling it, and even after the official launch, this will, if at all, change only gradually. The Libra Association, which is yet to formally come together and elect its founding members and managing director, formed after Facebook had conceptualised and started architecting Libra. Rather than involving its stakeholders for feedback and second opinions, Facebook went solo with the initial development and only onboarded Libra's first association members at a later point in time, inevitably positioning them at less significance to the project than Facebook holds itself.

If combined with a major stake in the Libra Reserve, this gives Facebook an immense amount of power over the decisions made and enables it to pressure other council members into voting for decisions that are beneficial to Facebook. If Facebook quits, Libra fails, and every council member loses their investment.

Facebook's importance to Libra is the reason why U.S. regulators are focussing their investigations on Facebook rather than the other founding members; this essentially renders the association whose purpose is the formation of an independent governing body for Libra useless. It all comes down to Facebook, and the U.S. government knows that.

A Permissionless Libra Would Break Rules

If it was achieved, a permissionless setup would mean the removal of any central entity and point of failure behind Libra and enable the network to run and govern itself. It would elevate Libra from a centralized to a decentralized currency and lift it out of the reach of authorities seeking to regulate and control it.

Power and control aren't easily surrendered. No regulator likes to see a digital currency that is outside of their control. And if Libra isn't breaking any rules just yet, the simple step is to create a rule that it will break:

Regulators can't stop Bitcoin. Bitcoin is too strong, too decentralized, and impossible to crack down on. Governments around the world have missed their chance to kill the biggest threat to their power.

They won't make that mistake again.

Libra is a centralized currency that Facebook is trying to decentralize. Interrupting this process will be harder for regulators once Libra is on the market; that's why these days, we're seeing lively movement on the authorities' side. While Facebook has said it would seek cooperation with lawmakers, ultimately, this would drive Libra away from the permissionlessness it seeks to achieve. But unless Facebook finds a legal loophole, it won't have much of a choice other than to comply with the law that, as a centralized entity, it is subject to.

You cannot just create a permissionless network, especially not under public scrutiny. There is a reason why not a single cryptocurrency has managed to become the "next Bitcoin".

Facebook Doesn't Know How to Make Libra Permissionless

In Libra's white paper, Facebook lists a number of issues that complicate the operation of a permissionless network. These issues are well known and have been widely discussed in the cryptocurrency space. Topics Facebook mentions include on-chain governance, scalability, and a decentralized reserve function.

And that's really all Facebook does. It acknowledges the existence of these issues and the need to fix them. It also acknowledges that Libra doesn't provide any solutions as of today.

Mentioning the need to address certain problems and adding the occasional line that through internal research and community support, the team is convinced they will achieve their goal, is nothing but nice-sounding empty words. Libra's roadmap is vague, and especially with a track record like Facebook's, trust isn't earned through merely voicing intent.

We don't know how Facebook plans to make Libra permissionless, and neither does Facebook. Will they figure it out? Maybe. Is that enough to make you trust them?

Facebook's Five-Year Fairytale

According to Facebook, the off-chain governance system is needed to ensure stability, scalability, and security in the early days of Libra. The association pledges to initiate its transition to a permissionless network within five years' time.

Until then, Libra will be operated by a network of tech giants in full control of their users' finances. And as long as the transitioning process is initiated within that timeframe, it will align with Libra's roadmap. How long the transition will take, how permissionless Libra will eventually become, and how much power Facebook will retain stays unclear, and perhaps that's intended.

Five years is a long time. Enough time to 'get to know' your users and their spending behaviours. Enough time to bind them to you through comprehensive financial service infrastructures. Enough time to tweak the promises you made pre-launch. Enough time to establish an extremely powerful alliance of corporations that cover the largest part of your users' everyday lives.

Five years is a long time to build an empire.

And maybe Facebook does seek permissionlessness. This pursuit, however, is not only highly ambitious, but might just turn out to be impossible for a centralized technology heavyweight with a questionable track record in regards to consumer trust.

Whether or not Libra actually launches the way it is planned remains to be seen. Either way, Facebook is asking its users to trust that this time, it will be different, and that this time, all intentions are good.

But Facebook is one of the last companies on this planet that deserve your trust.


This article was inspired by the initiative librenotlibra.info which seeks to inform about the misrepresentation of and potential dangers associated with the launch of Libra.

Thank you for reading! I hope you enjoyed this article. If you'd like to say hi, you can find me on Twitter.

And if you like using the Lightning Network, feel free :)

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Tuesday, 12 November 2019
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