Issue 42

Everyone hates Libra

Delivered on 23 July 2019 by Justin Pyvis. About a 5 min read.

After two days of Congressional hearings last week it is clear that, Libra - Facebook's forthcoming cryptocurrency - is intensely disliked by the establishment. Take the following headlines:

As a result, Facebook is "backpedaling from its ambitious vision for Libra", moving away from the lofty goals set out in its white paper towards something more closely resembling a conventional financial network. It certainly didn't help that Facebook failed to do even a modicum of homework such as, oh I don't know, actually getting in touch with the Swiss agency that will supposedly be governing the crypto.

It's a shame, really, because most of the claims used to attack Libra are completely unfounded yet Facebook is folding like a cheap suit. In a three-part series on Libra, Diego Zuluaga of the Alt-M blog delves into how the critics' line of thinking is fundamentally flawed (do read the whole series). Some excerpts:

On systemic risk

"...a massive redemption caused by factors unique to Libra would not seem enough to cause a wider systemic crisis. Things might turn out differently if the Libra Association went back on its commitment to purchase stable assets on a one-for-one basis for every unit of Libra it issued. However, the prospect of a rapid loss of confidence in Libra as a result of such a turnabout, and the potential for customer lawsuits, provide strong disincentives against the Libra Association’s reneging on its promise of full backing. Still, given the commitments that the Libra Association has made so far, the grounds for expecting Libra to present a new systemic risk are lacking."

On monopolisation

"Networks are fragile things. A miscalculated governance change, such as a fee increase or a decrease in processing speed, can rapidly cause users to leave the network in favor of alternatives. This potential for rapid unraveling acts as a spur for networks to remain competitive and refrain from abusing customers. In Libra’s case, many potential rivals are members of the network and would see business flow to them directly if Libra reneged on its promise of cheap payments and transparency. Some of these latent competitors are billion-dollar businesses processing trillions of dollars’ worth of transactions every year, so one should not dismiss out of hand their ability to compete with Libra.

Even if Facebook did manage to gain control over the governance of Libra, Mastercard, Paypal, and Visa will still run their own payments applications. Furthermore, Libra will face different competitors in different markets. For domestic payments, the card networks, Venmo, Paypal, and Zelle (the banks’ Venmo) come to mind. In international payments, Transferwise has quickly become a successful cost-cutter by matching foreign-exchange transactions, whereas Ripple promises to use cryptocurrency technology to cut the cost of cross-border money transfers. To these one must add the incumbent remittance providers, such as Western Union and Ria."

On facilitating crime

"...the anecdotal evidence overstates the degree to which cryptocurrencies facilitate crime. While the pseudonymous nature of cryptocurrency transactions disguises the identity of the people involved, most cryptocurrencies are a poor instrument for nefarious activities. This is because the transaction ledger, the blockchain, is publicly accessible and includes information about the origin and destination of cryptocurrency payments. Firms like Chainalysis (whose co-founder the Times article cited) and Elliptic have in fact made it their business to pore through blockchains on behalf of clients, including the U.S. government, to combat fraud and aid the pursuit of crime.

Both resellers and validators will act as intermediaries and be subject to prudential and consumer protection rules. Furthermore, digital wallet providers – who will support the applications people use to make and receive Libra payments – will collect personal information from Libra users to comply with regulations against money-laundering and financial crime in the jurisdictions where the user lives. For example, Calibra, Facebook’s own digital wallet subsidiary, has registered as a money services business with the Financial Crimes Enforcement Network (FinCEN) at the U.S. Treasury. Calibra also holds eight state money transmitter licenses as of July 16. From Marcus’ testimony, it seems Calibra would like to have licenses in all U.S. jurisdictions – states and territories – before Libra launches in 2020. Marcus also stated the Libra Association will register with FinCEN, despite being a Swiss-based foundation."

I wanted Libra to succeed but Facebook is doing its darnedest to mess the whole thing up. The accusations being thrown at the yet-to-be-released stablecoin have very little weight to them, yet Facebook is ceding valuable ground to every single one. Perhaps that 5-billion dollar fine really did shake things up and Facebook has lost what disruptive touch it once had, with Libra all but destined for the cryptocurrency scrapheap.

Slacking off on security

The biggest waste of time that for some reason - unbeknownst to me - people still use, does not have the best security track record. When the CEO of Keybase had his account compromised and contacted support, Slack "did not inform me of the directly related 2015 Security Incident but instead implied that I was messy with my security practices and was to blame".

Learn more:

Please, read the terms and conditions

Did you install FaceApp to age yourself or your friends? Well, in this case if you're not paying for the product... your face is. There's a good chance all of your photos (yep, everything on your phone) will be used to train some Russian facial recognition algorithm.

But I'm sure it'll be fine; when have the Russians ever violated anyone's privacy/liberties?

Learn more:

The Huawei fallout continues

At least the trade war is bringing in lots of tariff revenue, right? 🤔

Learn more:

Other bits of interest

Image of the week

A high house price-to-rent or price-to-income ratio doesn't necessarily mean a country is due for a housing crash (e.g. zoning laws might be restricting supply). But it's certainly worth watching.

According to these data, New Zealand has the highest house price-to-rent ratio of the 22 countries analysed, closely followed by Canada. New Zealand is also #1 on the price-to-income scale (not shown here), although both are pipped by Portugal to the top spot in terms of real house prices.

The view source link will take you to the creators of this graphic, but you'll have to visit Bloomberg for the original data table.

This week's data breaches

A lot of poor security practices exposed this week, and the most important lesson for the average user is to be careful about which browser extensions you install (and don't use any Microsoft browser).

The breaches:

Issue 42: Everyone hates Libra was compiled by Justin Pyvis and delivered on 23 July 2019.