What Facebook's Libra just reminded us about cryptocurrencies
About a week ago, PayPal announced that they are leaving the Libra Association with the following statement,
"PayPal has made the decision to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities as we strive to democratize access to financial services for underserved populations,"
Source
The departure is particularly significant as PayPal and the Libra project shares a strong bond given that David Marcus, the Facebook executive leading the initiative, used to be president of PayPal. In addition, Facebook’s blockchain team also has many former PayPal employees. On top of that, PayPal, the pioneer of internet payment, is the perfect mascot for the Libra project. Considering all these, PayPal is in my opinion the "anchor tenant" of the Libra project and naturally it is a huge blow for Facebook/Libra Association to see them leave. Below is a somewhat sour statement from Libra on this event,
“Building a modern, low-friction, high-security payment network that can empower billions of financially underserved people is a journey, not a destination. This journey to building a generational payment network like the Libra project is not an easy path...
We recognize that change is hard and that each organization that started this journey will have to make its assessment of risks and rewards of being committed to seeing through the change that Libra promises.”
Source
Just when you thought Libra has suffered enough this week, yesterday came the news of another 5 members announcing their departure from the Libra Association. In this announcement, Mastercard Inc., Visa Inc., EBay Inc., Stripe Inc. and Mercado Pago all expressed their intent to leave the Libra Association.
Mastercard Inc., Visa Inc., Stripe Inc. and Mercado Pago, in addition to PayPal, are all payment related companies. Their membership in the Libra Association is clearly an implicit "non-compete" agreement to ensure that these payment companies do not attempt to create their own alternatives to Libra. With them leaving, PayU, a lesser known payment company will be the only company representing the payment industry on the "Founding Members" list of Libra Association.
Compare it to what we had earlier, it is a stark contrast...
What this reminds us about cryptocurrencies?
When Libra was first announced in June this year, I made a post on it. In the post, I compared Libra with Bitcoin in a table and here it is:
| Bitcoin | Libra | |
|---|---|---|
| Decentralization (governance) | Yes | Quite centralized even if there are 100 members in the association as planned |
| Decentralization (infrastructure) | Arguably Yes | Centralized at start but promised to be decentralized later |
| Open and Permissionless | Yes | Open-sourced and will eventually be permissionless |
| Anonymity | Pseudo-anonymous | Pseudo-anonymous (but might be challenged considering Facebook own so much personal data) |
| Security | Proof of work is probably the most secure | Reasonably secure as I see it |
| Immutability | Yes | Largely immutable |
| Speed | Slow but improving with layer-2 solutions | Promised to be fast |
| Value preservation | Of its 10 years of history, Bitcoin has proven to be an appreciating asset | Promised to be able to preserve value well |
| Censorship Resistance | Largely yes | Unlikely. Since Libra aims to be compliant with regulations, it is likely that it can be censored |
| Adoption | Small but growing | Likely to be able to gain mass adoption considering the companies involved in the project |
Remember that a cryptocurrency is an alternative to the current fiat system and it is a challenge to governments' control on money. Hence, it must be the opposite of what the fiat system represent in order to succeed. A government controlled currency is permissioned, non-censorship-resistant and centralized. Think about it this way, governments' control over money is an important source of power for them. The rise of cryptocurrencies will eventually threaten this power they have. At that point, the governments will do whatever it takes to stop cryptocurrencies. If cryptocurrencies do not have the following traits, they can be stopped very easily:
- Permissionless: No one should be able to dictate if one is allowed to participate in the cryptocurrency infrastructure or not. It should be open and permissionless. Bitcoin is permissionless as you don't need permission from any central entity to run a Bitcoin full node. That is not the case for Libra.
- Censorship-resistant: The use of the cryptocurrency should be censorship-resistant. No one should be able to prevent you from spending and owning a cryptocurrency. The morality aspect of whether a currency should be censorship-resistant is still widely debated. However, we can't deny that it is something that is not even possible under a central fiat system. Bitcoin is censorship-resistant while Libra is not.
- Decentralized: There are a few ways to measure the level of decentralization, the governance, the infrastructure and the ownership just to name a few. A fiat system is clearly centralized and controlled by governments. Bitcoin, in comparison, is much more decentralized. I will not say that Libra is completely centralized but it is certainly more centralized than Bitcoin.
Is STEEM unstoppable?
This alone can be one full article, but I will just give a brief overview. The short answer is "somewhat yes". STEEM is permissionless. No centralized entity needs to approve your witness node or full node, you can just run it as you please. Of course witnesses need to be voted if they want to be profitable. But the idea is that even if the top witnesses are taken down by the government, somebody else can fill their spots quickly and that is the importance of being permissionless.
STEEM is censorship-resistant. You do not need to do a KYC in order to own and spend STEEM. You own your account as long as you have the keys to your account. You can spend, vote and power-up/down as you please as long as you have your keys.
Now here is the problem. STEEM is only somewhat decentralized. While we have a relative abundance of witness nodes, we actually do not have many RPC full nodes. Based on the recent post from @fullnodeupdate, we can see that there are only 7 working RPC full nodes. For such a network to be surviving on 7 API nodes, it is actually heavily centralized on the infrastructure level. We can certainly do better in this aspect.
Conclusion
Facebook's Libra reminded us that cryptocurrencies must be unstoppable. To be unstoppable, they must be permissionless, censorship-resistant and decentralized. There is no other way around it. Because Libra is permissioned, government can stop participants from joining the infrastructure. Earlier this week, two U.S. senators cautioned Visa, Mastercard and Stripe to reconsider their involvement in the project. Senators Sherrod Brown of Ohio and Brian Schatz of Hawaii said that Libra poses a risk to not only the financial system, but the payments companies’ broader business. And that is probably why these companies back away from Libra.
With all these being said, Libra is actually an interesting idea with tremendous potential. That is why the US government immediately felt the threat. Incidentally, the OpenLibra project was announced during Devcon. It is a fork of the Libra project with emphasis on open governance and economic decentralization. We cannot predict how the the Libra saga will unfold, but I am sure it is going to be quite a ride.
Side note
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Hello dear @culgin, great job.
As you said before, it is not possible to know how this saga will end, but the information you bring is very interesting, I really did not know it.
When the Libra project was announced, it generated a lot of expectation, this based on the number of companies that joined the alliance of this project, with this news we do not know what to expect, it will be very interesting to follow closely as all this evolves.
Thanks for sharing friend.
@fucho80
You are welcome and thanks for reading!
@culgin, In my opinion this will not going to be for too long because in my opinion in future they can come into collaboration once again. In my opinion currently Libra Blockchain is facing many blockages. Stay blessed.
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Wow! Thanks for the post.
It is very informative and the comparison table to do summarizes very well the features of both cryptocurrencies.
I read somewhere that Paypal, to separate from the LIBRA aliaza said working on a draft own blockchain, I wonder if they will suffer the same pressures and obstacles to the LIBRA far has had to face.
If they intend to build something like Libra, then I think they will face the same level of scrutiny from the government as well
Your world inspired the idea that crypto is the manifestation of the dead small business economic system that produced the American middle class.
good thoughts. i never was a fan of libra, as it is not a crypto, it is a digital currency that is centralized.
Wonderful news. Sorry for my joy on the downfall of others, but I do believe that, in this case, their success means our failure. And when I say "our", I mean the whole community of crypto projects that build alternatives to the traditional (and oppressive) system.
However I am somehow certain that the masters of the world will succeed on a crypto centralized (in their hands) project, sooner or later. They know it's the future, and they won't accept the future to be out of their hands. It's just a matter of time.
Really powerful people know the importance of adaptation.
You are right to say that. Big and powerful corporations will hop on whenever there is an opportunity. Eventually, there might still be a centralized blockchain based solution which will get mainstream adoption. Hopefully by then there will be enough people who understand the value of decentralization for the alternatives to survive
very informative post, but I wonder how libra and Facebook work together? If they're working together so the token of Facebook will be libra? In that case how the Facebook user will earn lf libra?
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Much of Libra's underlying technology is developed by Facebook. Libra is governed by an independent association known as the Libra Association. The association has a number of member companies from different industries.
As far as what was disclosed in the whitepaper, Libra is a stablecoin backed by real-world assets (e.g. bonds and money market funds) with 1:1 ratio. While the distribution method is not known yet, it is unlikely that Facebook users can earn Libra just like that.
ah okay, thank you for answering my doubts. Actually I really have no idea about this libra but after you said. It's clear to me.
thanks again, have a nice day
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