Created to support a new global financial payments system, Facebook’s Libra has been driving mainstream attention to cryptocurrencies for quite some time. According to Facebook, Libra is a solution for those who remain ‘unbanked’ for not having sufficient funds to deal with complicated requirements from traditional banks, and their high and unpredictable fees. At first sight, Libra is Satoshi Nakamoto’s dream come true, but let’s delve deeper into how Facebook’s Libra affects the main players in this game: central banks, corporate Silicon Valley, the government, and of course, the rest of us.
Is Bitcoin getting the wrong mainstream attention?
Once Silicon Valley’s Facebook announced its plans, it attracted a quick response from the government. During Facebook’s Libra hearing, Congressman Patrick McHenry said, “The world that Satoshi Nakamoto, author of the Bitcoin whitepaper envisioned, and others are building, is an unstoppable force.” Finally, the Government of the United States of America was recognizing Bitcoin’s existence! For PR folks, marketers, and those who continuously speculate about the price of Bitcoin, this type of attention was huge. However, Congress couldn’t agree on Libra’s value. Then Trump gave his opinion on Twitter: “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.”
Why the government doesn’t understand crypto
Let’s travel back in time a little bit. First of all, virtual currencies existed long before Satoshi Nakamoto’s Bitcoin. When Satoshi created Bitcoin back in 2009, he did so as a direct response to the centralization problem within the traditional banking system, prompting the financial crisis of 2008. Satoshi was frustrated with a banking system that was becoming outdated, punishing the general user and damaging the economy while only rewarding the few that were in control. Bitcoin was envisioned to undermine the centralized control of banks and give financial control – and freedom – to the public.
Satoshi’s Blockchain is a solution to having to go through a financial institution to move money around. A public blockchain is an immutable and distributed database. Public blockchain immutability ensures users can add information to the ledger without being able to edit or remove it. This guarantees an unalterable history of transactions. Additionally, public blockchains are hosted on thousands of computers. This way it can exist without being maintained or administered by a central authority. It removes the need to trust in a bank to perform and allow transactions.
Yet, according to Trump, “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.” It’s clear that as far as Trump is concerned, blockchain and cryptocurrencies are acting illegally when they try to behave as a bank. Libra is Facebook’s way to take the lead as the head of this new type of bank economy. However, can Facebook create a truly decentralized financial tool?
Silicon Valley coming after Crypto
In the crypto world, you’ll encounter two types of people: the ones speculating about price fluctuation, and, on the other side of the spectrum, those who truly believe in blockchain as a tool to create a new financial system that removes both central authorities and their power to manipulate our data and have control over our money. With Libra, blockchain and the goal of ‘decentralization’ gets confusing, since Libra’s founding members, ranging from executives from Uber to Spotify, will be responsible for validating transactions and adding new blocks. As a result, Libra decentralizes transactions somewhat, but not the currency itself. However, Facebook has a good reason to do so: pegging Libra to stable asset reserves.
Silicon Valley VS. the Government
As Techcrunch explained, cryptocurrencies came as a threat for Facebook, “dangerously close to Facebook’s ad business that influences what is bought and sold,” while harnessing blockchain’s ability to transform how we transact with each other. From a consumer point of view, Libra will let us buy things or send money with nearly zero fees. Additionally, Libra is not directly competing with other decentralized blockchains per se, such as Bitcoin and Ethereum, but rather with companies such as Ripple, a blockchain-based platform enabling banks; payment providers, digital asset exchanges, and corporates to send money globally, or China’s eMoney, another virtual currency. In this sense, Libra is not specifically acting as a cryptocurrency, rather as a virtual currency that’s not completely decentralized but still presents a big threat for the government as a direct competitor.
This is the main reason why governments are reacting negatively. A recent report by the G7, a group of nations including senior officials from central banks, the International Monetary Fund (IMF) and the Financial Stability Board, which coordinates rules for the G20 economies, stated that global stablecoins’ pose a threat to financial stability. According to BBC, Libra is not the only virtual currency that faces scrutiny. JP Morgan’s coin, which is backed by US dollars, is another stablecoin that is also likely to be examined.
The report also circles back to the main issue that decentralized cryptocurrencies are trying to solve, “there are currently 1.7 billion unbanked and underserved consumers who could benefit from wider access to financial services.” The G7 report also recognizes that cryptocurrencies could potentially provide a faster and cheaper way to move money and make payments, and admits that the current system is often “slow, expensive and opaque.”
Recently, Silicon Valley’s Tim Draper said that “bitcoin is good for humanity and federal regulators should give it room to flourish.” While Apple’s chief executive Tim Cook said that currencies should only be handled by governments and their respective central banks. Silicon Valley VS. the Government is probably just another classic fight for power, but neither Silicon Valley nor the Government can deny that our current financial system has major flaws. No matter on which side of the spectrum we position ourselves, Facebook’s Libra and cryptocurrencies drive attention because the world desperately needs to see a new player taking over the financial banking industry.
Author: Pedro Anderson