Libra still needs more baking(voxeu.org)
voxeu.org
Libra still needs more baking
https://voxeu.org/article/libra-still-needs-more-baking
47 comments
Also, the FATF seems utterly incompetent at writing well-designed regulation.
It is for example very hard to make sense of their definitions. Here is their definition of "virtual asset": "A virtual asset is a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets do not include digital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations." [1]
Some nitpicking: Taken literally, Bitcoin falls through this definition, because a Bitcoin is not a "digital representation of value", it is a "digital value". It does not represent anything, it is the value itself. But that's the least problem of all. The FATF commits the sin of providing a negative definition, basically saying every digital representation of value is a virtual asset except for those already covered elsewhere. No biologist would ever define "tree" as every plant not already described elsewhere. It is not something you can meaningfully work with. But let's see what they already covered elsewhere. For example, they cover "funds" elsewhere. Funds is defined as "every kind of asset". But if "virtual assets" are "assets" and therefore also "funds", they are already covered elsewhere and thus no "virtual asset" anymore. One should also note that FATF frequently uses the term "funds or other assets", indicating that they don't really know the meaning of the word "every".
Edit, just to add another point: you would think that the 134-page strong document "INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION" in which the expression "money laundering" is used 284 times would somehow provide a clear definition of what money laundering is? You would be wrong. "Money laundering offense" is tautologically defined as "References (except in Recommendation 3) to a money laundering offence refer not only to the primary offence or offences, but also to ancillary offences." That's all. No further specification about what money laundering actually is.
[1]: https://www.fatf-gafi.org/media/fatf/documents/recommendatio...
It is for example very hard to make sense of their definitions. Here is their definition of "virtual asset": "A virtual asset is a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets do not include digital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations." [1]
Some nitpicking: Taken literally, Bitcoin falls through this definition, because a Bitcoin is not a "digital representation of value", it is a "digital value". It does not represent anything, it is the value itself. But that's the least problem of all. The FATF commits the sin of providing a negative definition, basically saying every digital representation of value is a virtual asset except for those already covered elsewhere. No biologist would ever define "tree" as every plant not already described elsewhere. It is not something you can meaningfully work with. But let's see what they already covered elsewhere. For example, they cover "funds" elsewhere. Funds is defined as "every kind of asset". But if "virtual assets" are "assets" and therefore also "funds", they are already covered elsewhere and thus no "virtual asset" anymore. One should also note that FATF frequently uses the term "funds or other assets", indicating that they don't really know the meaning of the word "every".
Edit, just to add another point: you would think that the 134-page strong document "INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION" in which the expression "money laundering" is used 284 times would somehow provide a clear definition of what money laundering is? You would be wrong. "Money laundering offense" is tautologically defined as "References (except in Recommendation 3) to a money laundering offence refer not only to the primary offence or offences, but also to ancillary offences." That's all. No further specification about what money laundering actually is.
[1]: https://www.fatf-gafi.org/media/fatf/documents/recommendatio...
> you immunize (a-la Bitcoin)
Honest question: do Bitcoin proponents honestly believe it “immunises” them against the law?
Honest question: do Bitcoin proponents honestly believe it “immunises” them against the law?
I understand it and agree with it in the same meaning that BitTorrent bypasses copyright laws: you cannot prevent people from sharing and downloading a torrent, you can only prosecute them after the fact. Enough people do that and you cannot go against millions of people. I think the same concepts apply to Bitcoin and cryptocurrencies.
I'm fairly sure GP meant that Bitcoin itself is designe to be immune to legal interference. Individual users are not, although by employing a very strict security regime, they can in principle stay completely anonymous.
> by employing a very strict security regime, they can in principle stay completely anonymous
Doesn't that necessarily require avoiding legitimate financial institutions at all costs?
Doesn't that necessarily require avoiding legitimate financial institutions at all costs?
Bitcoin isn’t meant to interface with existing financial institutions.
Correct. It's actually in the first line of the Bitcoin whitepaper's abstract:
> A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
> A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
Sure, but effectively 100% of the world's economy takes place via fiat currencies. One could remain anonymous by accumulating a bunch of cash (or gold, or some commodity, etc) and never spending it as well.
You can interact with legitimate financial institutions in the normal way under your public identity. You've just got to make sure you don't share that identity with your bitcoin counterparties, which will limit your ability to exchange bitcoin for things of value such as fiat currency.
No. It means regulator’s tools are ineffective against the bitcoin network.
The immunity that Bitcoin pursues isn't on the user-level. People still need to expect being responsible for the consequences of their transactions.
The immunity that Bitcoin pursues is on the infrastructure / development level, in that the project contributors take great pains to prevent themselves from being subject to regulatory compulsion.
The immunity that Bitcoin pursues is on the infrastructure / development level, in that the project contributors take great pains to prevent themselves from being subject to regulatory compulsion.
Some might, but it is really a misunderstanding. What it "immunises" against is some of the consequences of monetary policy - like interest rates and (hyper)inflation from adjusting the money supply.
Wouldn't it be simpler for facebook and for its users if they just implemented some sort of "FB Pay" equivalent to WeChat Pay that's tied to their messenger app and be done with it? I'm definitely missing a lot here as I haven't kept up with the latest libra updates but I seriously fail to see why making or calling this a cryptocurrency is the way they chose to go although I'm pretty sure there's a fair amount of greed and powerplay behind this.
Tbh, it is starting to sound a lot like some sort of real world e-coin that is tied to some of the least privacy concerned corporations, banks and governments and with none of the advantages of an actual decentralized cryptocurrency. It looks as it will basically be just an analogous to marked dollar bills but with easier digital traceability? Or am I going too much into conspiracy theory territory?
Tbh, it is starting to sound a lot like some sort of real world e-coin that is tied to some of the least privacy concerned corporations, banks and governments and with none of the advantages of an actual decentralized cryptocurrency. It looks as it will basically be just an analogous to marked dollar bills but with easier digital traceability? Or am I going too much into conspiracy theory territory?
What is Facebook's supposedly compelling justification for for being behind Libra? On its face it makes about as much sense as having Facebook provide health insurance or a grocery store.
Sending money to friends/family around the world is still a lot more difficult than it should be. Facebook is already the central hub for lots of families and communities, so being able to easily send money over Facebook would be nice, and having that tied to a specific traditional currency would be a bit inconvenient.
Hmm. That makes more sense now.
Make FB a platform to exchange money globally.
If successful, FB can reap billions in transaction fees to allow users to transact on their platform, be it for money transfer or for ecommerce.
I would not be surprised if Zuckerberg sees a future where the reserve currency is a digital one instead of the USDollar, where global currencies are valued in relation to Libra, rather than the $
If successful, FB can reap billions in transaction fees to allow users to transact on their platform, be it for money transfer or for ecommerce.
I would not be surprised if Zuckerberg sees a future where the reserve currency is a digital one instead of the USDollar, where global currencies are valued in relation to Libra, rather than the $
WeChat Pay
> Facebook provide health insurance or a grocery store
Amazon does both of those. (some) Modern tech companies want to be everything platforms.
Amazon does both of those. (some) Modern tech companies want to be everything platforms.
Facebooks business is ads. Facebooks largest growing market is the third world. Ads are worthless there because people have no money to spend on sh*t they don't need. Now if FB makes micro transaction possible and cheap and even available for the unbaked, suddenly the poorest of the world are potential customers and thus can be targeted with ads. They may only have fractions of dollars to spend but they are literally billions so it ads up.
TL;DR Banking the unbanked with cheap micro transaction makes them milkable.
TL;DR Banking the unbanked with cheap micro transaction makes them milkable.
Given that it seems like Libra wants to be an actual currency and comply with pretty much the demands of a national currency, which is to say stability, availability of monetary policy, features to clamp down on terrorism finance and compliance with domestic law, wouldn't it be much more sensible to elevate this entire project from Facebook to a national one?
Get more economists on board to design the institutional infrastructure, people to get the legal compliance right, and then make it the e-dollar. (or something more global in cooperation with other states). Isn't this at the end of the day what people want out of this, the digital equivalent of a normal currency?
Get more economists on board to design the institutional infrastructure, people to get the legal compliance right, and then make it the e-dollar. (or something more global in cooperation with other states). Isn't this at the end of the day what people want out of this, the digital equivalent of a normal currency?
> and then make it the e-dollar
Correct me if I'm wrong here, but isn't most of our money already digital? What do we gain, other than exchange fees if we want paper dollars and cheques?
Correct me if I'm wrong here, but isn't most of our money already digital? What do we gain, other than exchange fees if we want paper dollars and cheques?
Ideally, no transfer fees I suppose and universal access for every citizen which was supposed to be one of the distinguishing points compared to say credit cards.
It would have the potential to cut a lot of the middlemen out. I always found it curious that with cash we basically take it for granted that there's a ubiquitous, legally guaranteed payment infrastructure but with digital currencies it's more like a splintered set of services that take a quite considerable cut.
Also a very practical, relevant case. In a situation like this corona crisis, there'd be a trivial way to send everyone their 1200 bucks.
It would have the potential to cut a lot of the middlemen out. I always found it curious that with cash we basically take it for granted that there's a ubiquitous, legally guaranteed payment infrastructure but with digital currencies it's more like a splintered set of services that take a quite considerable cut.
Also a very practical, relevant case. In a situation like this corona crisis, there'd be a trivial way to send everyone their 1200 bucks.
A lot of that is more a failing of the US financial system than financial systems in general, of course.
In my country (Australia), our Government could deposit money into the bank account that paid their last tax return with in less than a day... We have no transfer fees and real-time transfers (you can link a phone number to your account too). For international, things like TransferWise are pretty compelling and have crazy low fees...
In my country (Australia), our Government could deposit money into the bank account that paid their last tax return with in less than a day... We have no transfer fees and real-time transfers (you can link a phone number to your account too). For international, things like TransferWise are pretty compelling and have crazy low fees...
There are people who don't have and cannot open bank accounts, especially in third-world countries. Cryptocurrencies (I'm talking about Bitcoin and friends) give them a way to receive money from anywhere in the world and store it safely.
A digital currency needs an infrastructure to run on, so there will be always fees of some sort. Credit cards have fees, Bitcoin has fees.
Those middlemen run the federal reserve. Good luck trying to remove banks from power without migrating to a different currency altogether.
What do you mean digital? Every number in yhe digital realm is currently backed by an asset or a reserve currency like the USD.
Sure, transactions are digital, but the underlying nature is still physical.
Sure, transactions are digital, but the underlying nature is still physical.
There are dollars that only exist as digital entries in the Fed's books and don't correspond to any physical printed bills. There is no fundamental "physical" backing for USD anymore.
USD is already a digital currency.
USD is already a digital currency.
It’s certainly not. The money multiplier is a very basic macroeconomic concept. Almost very little of all the “money” is actually grounded in a tangible form. For all intents and purposes, almost all money is indeed digital.
It’s not digital as a cryptocurrency, but more as rows in database tables.
As a simple example, if everyone wanted to withdraw their money, all at once, very few people would actually be able to.
It’s not digital as a cryptocurrency, but more as rows in database tables.
As a simple example, if everyone wanted to withdraw their money, all at once, very few people would actually be able to.
> Given that it seems like Libra wants to be an actual currency and comply with pretty much the demands of a national currency, which is to say stability, availability of monetary policy, features to clamp down on terrorism finance and compliance with domestic law, wouldn't it be much more sensible to elevate this entire project from Facebook to a national one?
Having it tied to the US dollar would be a huge pain. Many of us live elsewhere and use other currencies; also using dollars brings in a huge regulatory regime that people may not want to be involve with (e.g. if buying/selling Libra means I have to file a US tax return then it's a non-starter for me).
> Get more economists on board to design the institutional infrastructure, people to get the legal compliance right, and then make it the e-dollar. (or something more global in cooperation with other states). Isn't this at the end of the day what people want out of this, the digital equivalent of a normal currency?
What are those people going to bring to the table that Facebook et al aren't already doing? They have a bunch of major payment networks involved, they've got the institutional connections and huge legal compliance departments already. Being tied to a particular national government would likely be more of a handicap than a help, as the project would then be exposed to much bigger political considerations.
Having it tied to the US dollar would be a huge pain. Many of us live elsewhere and use other currencies; also using dollars brings in a huge regulatory regime that people may not want to be involve with (e.g. if buying/selling Libra means I have to file a US tax return then it's a non-starter for me).
> Get more economists on board to design the institutional infrastructure, people to get the legal compliance right, and then make it the e-dollar. (or something more global in cooperation with other states). Isn't this at the end of the day what people want out of this, the digital equivalent of a normal currency?
What are those people going to bring to the table that Facebook et al aren't already doing? They have a bunch of major payment networks involved, they've got the institutional connections and huge legal compliance departments already. Being tied to a particular national government would likely be more of a handicap than a help, as the project would then be exposed to much bigger political considerations.
Really, really worried about the above-law-and-regulatory-measures governance that Facebook is exercising nowadays
That's the opposite of what's happening here. Libra has been changed to make it 100% compliant with various regulations.
Do you believe the regulations are sufficient for protecting people from FB? Do you believe that FB is operating in good faith and not finding alternative means by which to gather and exercise the soft power that comes with hosting a private, global currency?
I tend to lean against regulation but this is one of those cases where I wouldn't mind seeing FB somehow banned from anything related to currency.
I tend to lean against regulation but this is one of those cases where I wouldn't mind seeing FB somehow banned from anything related to currency.
we're in an age when big corporations are starting to wield more power than governments. And nobody elected them.
They'll have their own armed forces, soon enough
They'll have their own armed forces, soon enough
No, we're in an age in which innovative projects are suffocated by shady politics before they even onboarded their first user.
Remember the letter sent to Libra consortium members by US senators? [1]
They threatened Visa, Mastercard and Stripe with extreme regulatory scrutiny of all their payment business (not only Libra-related) in case they would stay on the project. The threat worked and the threatened companies left the consortium soon after.
This is right out of the playbook of despotic governance: create laws so complex that everyone is probably violating some of them all the time and then selectively enforce the law against those you don't like.
[1]: https://www.brown.senate.gov/newsroom/press/release/brown-sc...
Remember the letter sent to Libra consortium members by US senators? [1]
They threatened Visa, Mastercard and Stripe with extreme regulatory scrutiny of all their payment business (not only Libra-related) in case they would stay on the project. The threat worked and the threatened companies left the consortium soon after.
This is right out of the playbook of despotic governance: create laws so complex that everyone is probably violating some of them all the time and then selectively enforce the law against those you don't like.
[1]: https://www.brown.senate.gov/newsroom/press/release/brown-sc...
Samsung and few others already do.
Good, let Libra die for good.
I would never use Libra, and I'm not sure there are many who would. But good luck to Zuckerberg, I'm holding 190c 5/1s, so hope they make some smashing announcement come earnings!
Remains to be seen what Libra actually would be. It is mostly at drawing board for now. I could use it if it had some compelling use cases. There isnt much privacy with financial transactions anyway.
Not especially simple to buy contraband using dollars electronically, over the internet. If we assume those contraints, there are existing solutions that actually work without as much immediate interference.
A dollar replacement with zero additional benefits (like those mentioned above) seems like the exact "solution without a problem" that existing "blockchain" tech was pretending to not be. TL;DR - this won't work!
A dollar replacement with zero additional benefits (like those mentioned above) seems like the exact "solution without a problem" that existing "blockchain" tech was pretending to not be. TL;DR - this won't work!
I would also think so mainly on privacy ground and on the fact that Facebook is one of the companies that I trust the least.
But I'm not keeping my hopes high when I see how people buy Facebook Portal for example (their tentative clone of Amazon Echo).
Has anyone bought a Facebook Portal? I've had the impression that it has all the market penetration of the Fire Phone.
I wouldn't use one if it was given to me for free.
There is nothing moral about agencies such as the FATF. They are products of geopolitics, not user interests. Expect compliance requirements to get more and more byzantine with no end in sight.
You can either comply (a losing battle) or you immunize (a-la Bitcoin).