When I first heard about Facebook’s new cryptocurrency, Libra, I literally laughed out loud. I continued laughing as I read this comment on a friend’s post about Libra, which pretty well summed up my reaction: “Can’t wait for a cryptocurrency with the ethics of Uber, the censorship resistance of PayPal, and the centralization of Visa, all tied together under the proven privacy of Facebook.” Notice, however, that I saw this comment on… where else… Facebook. Zuckerberg, as usual, gets the last laugh.
Facebook has some vexing organizational problems and caused considerable chaos on the global stage. Facebook then aggravated that chaos by opting to ignore their own culpability. But, it continues to fulfill its role as a connector of people better than any other service in existence. Many have tried and failed to best Facebook in this regard, yet Facebook still reigns supreme. So, when a juggernaut like Facebook introduces a new global cryptocurrency, I can chuckle all day, but at the end of that day I’m going to read the white paper.
Two years ago I wrote this blog post in which I laid out my issues with cryptocurrency at the time, and made this prediction: “I think that, like the switch from cash to credit cards, a move to virtual currency for day to day transactions makes sense. We are still in the very early, Wild West days of that move. There is opportunity in chaos, and many will opt to prolong the chaos as long as possible to grab as much cash as possible from gullible late-comers. Eventually, however, I think values will stabilize and governments will get behind a handful of virtual currencies.”
Libra seems to me like a move away from the speculative volatility and anti-government paranoia that surrounded early blockchain currencies. I think it’s very telling that they describe it as a “low-volatility cryptocurrency”. Speculative volatility is sexy when it’s making or breaking overnight millionaires, but it’s a terrible way to run any sort of usable currency. You don’t want to discover that the hammer you bought for $10 yesterday is now worth $4,000 today. This is how you wind up becoming one of those crazy people who buy up all the hammers from every hardware store within driving distance, stash them in your garage because you’re sure you’ll cash in on the hammer bubble, and tell everyone that rides in the backseat of your car while you drive for Uber that they should do the same. Don’t be that guy.
Unlike other cryptocurrencies which gain their value from the cost of the electricity it takes to decrypt and create new units of that currency, Libra pegs its value to government-created fiat currencies. “Libra is fully backed by a reserve of real assets. A basket of bank deposits and short-term government securities will be held in the Libra Reserve for every Libra that is created.” I think this makes a whole lot of sense. And, who else but Facebook has both a global audience and pockets deep enough to essentially back a global financial currency with their own assets?
One of the major promises of cryptocurrency is that it would help “the unbanked” be able to finally store their money and join the global financial system. The one billion of us that can afford $3 ATM fees, live in countries where our currencies are reasonably stable, and take it for granted that our politicians don’t randomly confiscate money from our bank accounts, have trouble imagining what it’s like for the other six billion people on earth. For the other six billion people, the arbitrary fees and taxes that come with traditional bank accounts are daunting barriers to entry. I think it’s promising that Kiva and Women’s World Banking are partnering up and part of the Libra Association.
While I’m not convinced that Zuckerberg won’t still manage to mess this up somehow and/or eventually trigger the next global financial calamity, I am pretty certain that Libra represents the logical next step for cryptocurrency. I am cautiously optimistic that Libra will gain traction as a currency, but at the same time, I’m a little sad that the wild west days of crypto are coming to such a boring and corporate end. For today, at least, I’ll enjoy the latest BTC rally, betting irresponsibly on its rise, hoping to cash out before the inevitable crash.