Thomas Claburn writes:

Facebook – the global ad business pilloried repeatedly over the past 15 years for privacy disasters – on Tuesday announced a scheme to allow account holders to buy credits and spend the digitized funds online through a network of partners, under a “strong commitment to privacy.”

The antisocial network’s blockchain-tracked currency, Libra, will reside in a digital wallet named for the company’s newly formed financial services subsidiary Calibra. This coin-storing code will be available initially in WhatsApp and Messenger and as a standalone app for Android and iOS next year, the Silicon Valley goliath says.

Skepticism of what might be described as “Facebank” is high. “It is frankly baffling to me that a company with a massive data privacy problem launched a non-private global currency,” said Matthew Green, associate professor of computer science at the Johns Hopkins Information Security Institute in the US, via Twitter.

I don’t think it’s possible to express what a catastrophic regression this thing is going to be. Say what you want about Visa and the legacy banks, they don’t broadcast your transaction details to the world.

— Matthew Green (@matthew_d_green) June 18, 2019

Some people may be giving Facebook, which this year suffered a corporation-wide 14-hour outage, too much credit…

privacy issues aside, @micahdaigle has a good take on #libra (screenshot below for people who don't want to click on a Facebook link lol) https://t.co/DLiAYPGNBL pic.twitter.com/I5s7wyE9ha

— yan (@bcrypt) June 18, 2019

The e-IOU notes are backed by actual financial assets, collectively known as the Libra Reserve, which will allow the digital funny money to be converted to local fiat currencies. It’s not pegged to a single currency, however, so its value with regard to other currencies will fluctuate, a fact that will invite ruthless currency arbitrage. [Continue reading…]

Matt Levine writes:

Central banks are mysterious, and banks are widely mistrusted, and there is a popular and not unreasonable sense that the banking system gives special privileges to favored insiders in unfair and inegalitarian and politicized ways. Cryptocurrency disintermediates banks and governments and traditional favored incumbents, and rests the power to create money in a form of direct social consensus. It is, crypto advocates say, the most powerful democratizing force since the internet.

But, you know … look at the internet. In a real, true, important sense, the internet is decentralized and libertarian and empowering; the architecture of the internet is not controlled by any government or corporation, and everyone can access and build on it. But in another, also quite real, sense, the internet has been a powerful tool for the centralizing of power. There are a zillion websites but you find them using Google; anyone can publish on the internet but you get your news from Facebook; anyone can sell anything on the internet but mostly you buy stuff from Amazon; email is a free and open protocol but you use Gmail. The democratizing effect of the internet’s openness and decentralization is counteracted by its vast economies of scale and network effects, which tend to concentrate power in a few big winners.

Basically the point here is that if you replace the traditional social-regulatory technology of money creation with a new sort of computer technology of money creation, odds are that the power of money creation will end up not so much in the hands of free-spirited individual hackers around the world, but in the hands of some giant tech company.

In this case, Facebook Inc.:

Facebook Inc. unveiled plans for a new cryptocurrency that the social-media giant hopes will one day trade on a global scale much like the U.S. dollar.

Called Libra, the new currency will launch as soon as next year and be what’s known as a stablecoin — a digital currency that’s supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions in a way that more volatile crypotcurrencies, like Bitcoin, haven’t been.

Libra is the culmination of a year-long effort to devise an easy way for Facebook users to send and receive money through its messaging services.

Oh yeah. Here’s the white paper describing Libra, and here are some ancillary papers about its blockchain and its programming language and its cash reserve and its compliance policies. Everything is at a pretty high level of generality—you can’t go out and buy a Libra today—but I suppose we have to talk about some specifics anyway.

So, first, Libra will be a “stablecoin,” in the sense that its value will be pinned to conventional financial assets. Unlike most stablecoins, though, it will be pinned to a basket “of low-volatility assets, including bank deposits and government securities” in different currencies, so it won’t consistently be worth one dollar or one euro or anything else. “As the value of Libra will be effectively linked to a basket of fiat currencies, from the point of view of any specific currency, there will be fluctuations in the value of Libra.”

This strikes me as very annoying, but it has some obvious advantages for Facebook/Libra. For one thing, they’ll only need to manage one general Libra, rather than having different stablecoins corresponding to different national currencies. For another thing, if Libra gains widespread acceptance, its lack of one-to-one correspondence will give it a tendency to displace national currencies. If you mostly spend dollars, and Libra is always going up and down against the dollar, that will be annoying and you won’t want as many Libras. But if you mostly spend Libras—if Facebook is successful at making this the main currency of the internet—then that dynamic will reverse. If the dollar is always going up and down against the Libra, that will be annoying and you’ll want more Libras. The dollar will start to seem unstable and useless. If you buy most things online, and if everything online is priced in Libras, then you’ll end up living your life denominated in Libras, and only converting your Libras into dollars on your occasional touristic visits to the physical world. The goal is for Libra to be more useful than any national currency, accepted in more places and with fewer complications; pegging it to a single national currency would only hold it back. [Continue reading…]