Libra – Why?
You can blame Facebook for a lot of things, but you gotta give them credit, Facebook has a gift for making a stir. Its newest venture, Libra, is a cryptocurrency that has drawn attention from all parts of the world, from the local company watercooler gathering to members of the G7.
To briefly fill you in, Libra is a stablecoin, which is a type of cryptocurrency that is pegged to reduce the price volatility that is characteristic of most cryptocurrencies. It is slated to service Facebook’s network of over 2 billion people, including an enormous number of users who are “unbanked”.
In a press release for Calibra (the wallet used to conduct Libra cryptocurrency transactions), Facebook stated that:
- “almost half of the adults in the world don’t have an active bank account… those numbers are worse in developing countries and even worse for women.”
- “…approximately 70% of small businesses in developing countries lack access to credit..”
- “…$25 billion is lost by migrants every year through remittance fees”
By aiming to remove barriers and increasing access to financial services regardless of who or where you are, Facebook comes across as championing a noble and important cause.
Sounds good so far. Okay, so what’s all the fuss about?
Well, different groups have voiced different objections.
Reuters recently reported that the G7 was against the idea that companies could have the same privileges as actual nations in creating a means of payment, but be free from the controls, obligations, and responsibilities that come along with it. In the same article, European Central Bank board member Benoit Coeure was quoted by Reuters as saying that “…[global stablecoins] give rise to a number of risks related to public policy priorities including anti-money laundering and countering the financing of terrorism, consumer and data protection, cyber resilience, fair competition and tax compliance.”
In a more everyday perspective, many people are voicing concerns about whether or not Facebook can be trusted to have even MORE information on our personal lives. With Facebook still reeling from the PR disaster that was Cambridge Analytica, it’s unclear as to whether or not now is the right time for Facebook to announce something that would demand the surrendering of even more privacy from its users.
But between politicians and John Smith sitting two cubicles over, what about actual players in the crypto industry? What are they saying?
Is Libra a Force for Good? – Our Live Panel Discussion
We recently co-hosted a panel discussion with Remo, a remote working SaaS company with online conferencing hosting capabilities, and invited a panel of players in the Asian cryptocurrency industry to weigh in with their opinions on Libra, and whether it really is a force for good.
Our three panelists were:
- Anson Zeall, CEO of international blockchain-based payment solution firm CoinPip
- David Kim, CEO of the blockchain advisory firm Blue Block Capital
- Charles Yang, Head Trader of the leading Over the Counter (OTC) trading center of digital assets firm Genesis Block HK
57 people around the world turned up to our event to listen to our panelists answer 19 Libra-related questions from the host and audience.
Read on for our questions about Libra, and how our panelists responded:
Question: What’s your high-level take on Libra?
Answer by David:
I think that Facebook is doing this for multiple reasons… there’s a lot of problems with Facebook from a business standpoint, cause they’ve been kind of grilled in the past year or two with regards to data privacy, etc. It makes sense for them to do blockchain-related [ventures]. Again, people can argue that it’s not really blockchain, that it’s just a cryptocurrency but stable backed. I mean, that’s true. But these guys are trying to do whatever it takes to get them out of this hole they’re in right now… They need to look for different sources of revenue.
And if you look beyond just the stable token itself, if these guys are basically acquiring these bonds and treasuries and etc, these guys are earning interest rates, right? So, imagine right now that interest rates are really low… So, if interest rates start to rise, which is likely to happen, then Facebook or Libra or their association, etc, they’re actually going to make a lot of money holding these reserves in their bank accounts. It has multiple values, not just in terms of B2B but also in terms of earning this type of interest, dividends, and all that kind of stuff.
So Facebook is definitely trying to look at other sources of revenue to kind of boost their balance sheet. Because first and foremost, they have a commitment to their shareholders, and their shareholders right now aren’t too happy.
Answer by Charles:
…As David mentioned, for any stable coin, when you custody assets, the returns are massive. They don’t need to charge fees, because they’re just printing money just sitting on just say, billions. In Facebook’s case, it could be trillions of dollars. So…companies that want to be part of an association [like Libra] are very incentivized because it will be one of a kind. If Facebook does it first, it will probably dominate globally. …Someone like Amazon, or maybe WeChat, other countries & companies, can try to compete, but the first-mover advantage is huge. That’s one thing I want to touch on.
And Facebook… not having control is something they’re referring to in the long term. Who are they kidding, right? They founded the Libra coin, they wrote all the code. It’s a separate entity based in Switzerland, but at the end of the day for the first year or two, all protocol and direction of the coin will be driven by Facebook. The good thing about that is the government will have a very easy time controlling it because they just say, “Hey, we’re gonna have you here, come to court. We’re gonna grow you. We’re gonna tell you what’s gonna be allowed and not allowed”.
So, from the government’s perspective, I think that there’s a lot of hurdles. I personally don’t think it’s going to be launched any time soon. In terms of licenses and all that, there’s too much to go through. There’s [also] a lot of different countries that have [been mistaken about] this. Any central bank, any ally to the US, will be pissed off… if [the US] allows it. I think that Facebook definitely does have quite a bit of control right now, and the government will be watching extremely closely.
Question: …Anson, what do you think about Congress’ [recent hearing]? Do you agree with what Charles is saying, that it’s pretty much stopped in its tracks, not much movement from here on out? What’s your take on that?
Answer by Anson:
I was listening to some parts of it. I actually learned quite a lot as well, how some are so dumb in Congress, and how some are so smart. The diversity within Congress understanding this is quite amazing. Yes, I think it will take a while, because when you touch on securities, that means you’re touching on existing laws, and trying to match existing laws with this new tech is definitely not easy. But one of the main things that I find to be very strange and weird, maybe because [for the] US and EU West, they only know their own laws, is that the Financial Action Task Force at G20 agreed, that if you’re are a service provider for cryptocurrencies, you need to share the sender and receiver information.
Which means that… let’s say [there are] 2 exchanges. When [people] are sending from Binance and then to Bitfinex, as an example, Bitfinex will need to know the information from Binance. Binance needs to share that. So, when they are talking about privacy… there’s nothing private now. If you are wanting to be a service provider, you will need to share the information.
So, yes it will take a while, I think because of the security aspect when you are having something backed and as of this scale, I think even a year later, you might be hearing something else – another company leveraging on the congressional hearings to do something that’s maybe smaller in scale but easier to launch.
So Facebook did a good thing for the crypto ecosystem – they allowed everyone to know more about cryptos. But… they might be just a punching bag for at least the next year.
Answer by David:
I agree with Anson. I guess to just to further add to that, again, Facebook is… it’s like being a punching bag in terms of being the first mover. But, at the same time, someone’s going to do it, whether it’s Facebook or Alibaba, etc, someone’s going to do it, and for them, it makes sense that they try to do it. They may not be the guy who does it at the end of the day, but to not take that chance, someone else is going to definitely do it, right?
And when it comes down to regulatory, I kinda know about this space, because I did a lot of regulatory consulting. When it comes down to financial services, etc, the best way to get government support is to be very transparent and share it from the very beginning… If…from the very beginning…, you share all the information, your intentions, etc, it’s a lot easier to get [the government] to come over… after a year or two. But, again, if let’s say Facebook built everything, and they’re like ready to go live, and [then] they told the government, the government would be pretty pissed, right?
They’re doing the right thing in terms of how to work with the government. Of course, right now, Senate, etc, is kinda grilling them back and forth, but again that was kinda expected, right? So, from here, it can only improve… everybody knows about the laws, etc, it can only improve from now going on.
But at the end of the day, whether it’s Facebook or another entity or another collaboration group, we don’t know – but I still think it’s moving in the right path. I mean, we’re eventually going to have some sort of one-rule digital currency. It’s inevitable because a lot of U.S. corporations are all global. Let’s say like Apple, how much of their revenue comes out of the US? It’s eventual, right?
So you already have, in terms of one-rule currency, the closest thing right now is the SDR basket (IMF)… Someone’s trying to create a digital world currency. Whether it happens, we don’t know. But they’re doing the right thing in terms of being the first-mover advantage, working with the government, etc.
Question: The Libra project, what do you think about its impact on blockchain and generally speaking? What happens if it doesn’t succeed at this moment too?
Answer by Anson:
I don’t think that the US will say no. They’ll just keep it going for a… long time. Because this is also too big of an opportunity to ignore. I don’t see any failure. It’s just that the longer it goes, the more grilling it [gets], everyone will know more about what cryptocurrency is about, right? And so, that is great to me, because once the public starts understanding what cryptos are supposed to be about: decentralization, privacy, and all that, it will get into the people, right? So it actually, to me, benefits the longer it pulls on and the longer it goes [on].
So, if it does succeed, two things: it’s launching and sustaining… we congratulate them for launching if it does come out. But now, we need to see how sustainable it is. As I said, once it comes out, people will start learning about, for example, what Satoshi’s main philosophy is about. Once they know more about how Libra being so centralized and they’re not going towards decentralization, it will move up. It will move to other cryptos because that’s the whole point. Because once you launch, it’s easy to transfer between different cryptos.
Answer by David:
…I agree with Anson. The thing is, just adding to my previous discussion was, all the governments want us to go cashless. We’re going to eventually be cashless because you just can’t track cash. So, [the] government does want some sort of digital currency where they can trace everything. So I think right now, probably the Libra project is headed in the right direction… I think that it’s a net positive at the end of the day.
Answer by Charles:
So, one thing, another thing we need to point out is, Libra in its current design, it’s permissioned only from the sense of being a validator. So, if you guys know anything about Bitcoin, hopefully, you’ll know what full nodes are, or I guess, people that have the right to mine. Libra, same thing, they call it validators. They only provide access – you need to be approved by the association to be a verified validator of the network.
But it doesn’t mean the chain is completely permissioned. It’s actually a pseudonymous chain, which is like Bitcoin. There will be a public explorer, where you can see all transactions, like a stock market. You can’t recognize whose address is whose, cause it’s all in hashes, but you can see the amount moving around. And when someone sends you coins, you can publicly check yourself whether this is on-chain or not. In this form, there’s no way that any government will allow this to happen. It’s pretty much telling all the banks: “Yo, open all the data on transactions, publicly”.
So this is one of the key elements of Libra that needs to change, and Libra trying to become… in their White Paper, they talk about 5-10 years down the line, they want to make it completely permission-less, proof of stake. So anyone who holds Libra can stake it and be part of the network. Like, decentralization, it makes no sense for the government. They’re going against what they stand for: control and power, influence, giving that all up when it comes to financials is obviously not in their best interest. Especially for, as I mentioned before, smaller countries.
…Any nation that has a relatively shaky economy, high inflation, everyone’s just gonna ignore the monetary policy. As a resident of that country, all I need to do is to shift my assets to Libra, and now your currency is worthless. The nation’s native currency is no longer valid. Trying to make (an) economic change with policy doesn’t work anymore.
I think what we’re going to see is, in Hong Kong, there’s an app called PayMe. You can any bank card in Hong Kong, link your credit card, instant payments, it’s great. And you need to do some KYC, but what’s the key difference, there’s a limit on everything. They could launch Libra, and they can say “everyone’s limit is 5000 USD per month”, right? This is something that I think could happen, but then the downside is the impact is very limited because you’re limiting all the wires.
Question: Will Libra be profit-driven, and what does this mean for its promise to “Do Good”?
Answer by David:
From how it’s structured, it is non-profit, but then you also have Calibra, which is owned by Facebook. So, I mean, yeah it is non-profit, but at the end of the day you want to see from the high-level view, and I do think Facebook will profit from Libra… but Libra is non-profit.
In terms of “promise to do good”, I hope so… Facebook is now in a position where they must do good to win back the trust of their userbase and customers, so it’s a little bit different. So I think they will try to do good, but let’s see what happens, cause money makes people greedy.
Answer by Charles:
I don’t know. Do people really care? This kind of question is so subjective… it’s just a guessing game, right? And their motives can change, easily, by the time this launches. So I don’t think there’s a correct answer here.
Answer by Anson:
…Well, one thing’s for sure. Initial validators, they are all super huge intercoins with big VCs behind, some are listed. So all of them do have a for-profit motive behind. So I guess one thing to note is when they are being based inside Switzerland, especially when you run a non-profit, doing good or not doing good is not the main question. It should be the constitution of the Libra Foundation, the governance has to be done well. Once the governance rules are set in properly inside the foundation, making sure the conflicts of interest are very minimized, then it doesn’t matter if they do good or not, then it’ll keep everything in check, as long as the libra foundation constitution is done properly.
Question: What do you think in terms of actions and improvements, that Libra needs to do in order to be more accepted? I mean, you guys talked about transparency, but do you guys think that there is anything else they need to do in order to win it back or is it just more education?
Answer #1 by David:
They just need to win the support of more governments. Cause I think from a tech side [and] userbase, they could just take over instantly right. I think it’s just getting government support to okay it, in my opinion. And it’s the biggest hurdle. Tech side I think it’s pretty much there
Answer by Charles:
There’s an issue with competition – fair competition is one of the key issues right now. Obviously, the US government is very concerned about a tech giant having access to all this data, and acting as a financial institution. It’s a lot of power, as it is it’s already a very powerful platform, having all these users. Facebook really needs to step away, that’s what they need to do, and make sure that there are no ties to this. Being part of the association is probably a no-no as well. They might have to give that up completely. And that would be them doing good, for the good banking the unbanked. They would have to make that sacrifice, I think.
Answer by Anson:
So, I still find the model too ambitious, unless all the nodes, all the validators within the initial network all have some sort of banking or financial license. I don’t know how they are going to convert the Libra back to cash. If you are [in] Indonesia, or Cambodia, or [whichever] country, you still need to pay your taxes in the normal currency, unless the governments will accept Libra. So you still need to work with banks.
And not only that, at least in Singapore’s case, when a particular bitcoin merchant accepts payment and there were payments done to the bank account, the banks have the right to shut down the accounts as well. So if the merchants get their accounts shut down and they get [too] scared to use this, how are you going to work on Libra properly?
So if they don’t work with the banks, unless they have another strategy right now to get every single node to have some sort of banking license, I also don’t know how this is going to take off. By thinking that everything will stay inside Libra also does not benefit the governments, as what we were saying just now.
Answer #2 by David:
In the hearing with the government, so they were talking about what Libra is… is it a bank, etc. Even Trump was saying: That’s fine. They just apply for a banking license.
Again, they’re basically trying to avoid regulatory by not applying for the banking license, but I think they pretty much need to now.
I mean, from a technical perspective, it is kind of another Paypal. Which is Facebook’s argument, that they’re just like a Paypal with another stable token that can be transferred; they’re just a facilitator. But the thing is, even if you may not think that it’s a typical bank, just the amount of reserves they have can cause systematic risk, right? And that’s what the regulators and the governments are worried about, is like let’s say Libra holds… trillions and trillions of dollars. At the end of the day, it’s risk…. So I do think they’ll probably have a better chance of getting government support if they just apply for the banking license. But again, if they do that, I don’t think that they may be able to kind of achieve what they want out of Libra, because of the regulations that would go and follow if they were a bank.
Question: Given that Libra can track transactions, do you not fear that it will result in a world controlled by big social media companies?
Answer by Charles:
I mean, this is very speculative and very forward-looking. As far as we know, they might already be tracking everything, right? All this paranoia… [using] a physical webcam cover… I think as a regular citizen of the world, this is above our pay scale.
We have no idea, to be honest.
Answer by David:
Yeah again, we don’t know what the future brings. I feel like if you take a look at how history or the course of years… Is the government being a little more [active in] tracking everything? Would you agree that the government knows more about you? Yes, right? So definitely it’s trending towards there.
I think in order for the government to be able to track everything without citizens creating problems, there needs to be some sort of black swan event. And then the government usually comes in and saves the day and says “Hello, we’ll protect you. Let’s all go online”. But unless we have a black swan event like that, I think it’s very hard to win the citizen’s support. So I think it’s just wait[ing] and see. But again I think that if they really wanted to track everything, they create a black swan event.
Answer by Anson:
All the bank transfers you do today, cross borders, it’s already being tracked. And not only that, if the wrong bank transfer happens, SWIFT, although being centralized, can actually revert back [the transaction]. But for Bitcoin, for example, if you send to a wrong address, that’s it. And what the FATF has said [is that] they will be checking every single transaction through service providers anyway. And now, because [of] Bitcoins and all these cryptos that we can’t track, we have separate groups right now – working groups working with both the government and the large crypto providers including Tether themselves to come up with a solution, like a messaging system.
In my view, unless you don’t want to be tracked, you don’t use any crypto exchange at all. You just mine your coins and you don’t touch outside the system, you do cash. You didn’t hear this from me, but this is the truth anyway. Then it’s fine. But if you’re going through exchanges, you’re going to use normal commercial entities to do your transfers. The trend is you are going to be tracked and there’s nothing we can do about it.
What do you think?
What did you think of our panelist’s answers? Let us know in your comments below!
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