tag:theconversation.com,2011:/uk/topics/libra-72410/articlesLibra – The Conversation2020-01-24T13:39:36Ztag:theconversation.com,2011:article/1288182020-01-24T13:39:36Z2020-01-24T13:39:36ZWhy your zodiac sign is probably wrong<figure><img src="https://images.theconversation.com/files/309355/original/file-20200109-80169-1wreuwe.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C1991%2C1476&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As the Earth orbits the Sun, the Sun appears to move through the ancient constellations of the zodiac.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Ecliptic_path.jpg">Tauʻolunga/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>I was born a Capricorn (please don’t judge me), but the Sun was in the middle of Sagittarius when I was born. </p>
<p>As a <a href="http://stars.astro.illinois.edu/">professor emeritus of astronomy</a>, I am often asked about the difference between astrology and astronomy. The practice of astrology, which predicts one’s fate and fortune based on the positions of the Sun, Moon, stars and planets, dates back to ancient times. It was intermingled with the science of astronomy back then – in fact, many astronomers of old made scientific observations that are valuable even today. But once Copernicus, Kepler and Galileo realized the planets orbit the Sun, rather than the Earth, and Newton discovered the physical laws behind their behavior, astrology and astronomy split, never to be reunited. </p>
<p>The science of astronomy is now at odds with one of the basic organizing principles in astrology – the dates of the zodiac.</p>
<h2>The constellations of the zodiac</h2>
<p>Over the course of a year, the Sun appears to pass through a belt of sky containing 12 ancient constellations, or groupings, of stars. They are collectively called the zodiac and consist almost entirely of animal figures, like the ram (Aries), crab (Cancer) and lion (Leo). It is a disappointment to many that the constellations only rarely look like what they represent. How could they, since they are truly random scatterings of stars? They are meant to represent, not to portray.</p>
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<img alt="" src="https://images.theconversation.com/files/309733/original/file-20200113-103974-7f1x7p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/309733/original/file-20200113-103974-7f1x7p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=509&fit=crop&dpr=1 600w, https://images.theconversation.com/files/309733/original/file-20200113-103974-7f1x7p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=509&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/309733/original/file-20200113-103974-7f1x7p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=509&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/309733/original/file-20200113-103974-7f1x7p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=640&fit=crop&dpr=1 754w, https://images.theconversation.com/files/309733/original/file-20200113-103974-7f1x7p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=640&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/309733/original/file-20200113-103974-7f1x7p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=640&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The word ‘zodiac’ comes from a Greek phrase that means ‘circle of animals’.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/zodiac-constellations-zodiacal-calendar-dates-astrological-1562183209">Tartila/Shutterstock.com</a></span>
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<p>Although the constellations of the zodiac, which date back to Mesopotamia or before, may seem definitive, they are only one example of those produced by the various cultures of the world, all of which had their own, frequently very different, notions of how the sky is constructed. The Incas, for example, made constellations not from stars, but from the <a href="https://www.thoughtco.com/inca-star-worship-and-constellations-2136315">dark patches in the Milky Way</a>. </p>
<p>The number of constellations in the Western zodiac comes from the cycles of the Moon, which orbits the Earth 12.4 times a year. Roughly speaking, the Sun appears against a different constellation every new Moon, the stars forming a distant backdrop to the Sun. Though the stars are not visible during daytime, you can know what constellation the Sun is in by looking at the nighttime sky. There you will see the opposite constellation.</p>
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<a href="https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=346&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=346&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=346&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=435&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=435&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310567/original/file-20200116-181617-c3nx4x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=435&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The Sun is in Leo here, which means at night, you’d see Aquarius.</span>
<span class="attribution"><a class="source" href="https://www.pngguru.com/free-transparent-background-png-clipart-gmeeu">PNGGuru</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
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<p>Astrology suggests that each sign of the zodiac fits neatly into a 30-degree slice of sky – which multiplied by 12 adds up to 360 degrees. In actuality, this is not the case, as the constellations vary a great deal in shape and size. For example, the Sun passes through the constellation Scorpio in just five days, but takes 38 days to pass through Taurus. This is one of the reasons astrological signs do not line up with the constellations of the zodiac.</p>
<h2>Precession of the equinoxes</h2>
<p>The main reason astrological signs fail to line up with the zodiac, though, is a wobble in the Earth’s rotational axis called <a href="https://www.britannica.com/science/precession">precession</a>. As a result of its rotation, the Earth bulges slightly at the equator, not unlike how a skater’s skirt fans out as she spins. The gravity of the Moon and Sun pull on the bulge, which causes the Earth to wobble like a top. The wobble causes the Earth’s axis, which is the center line around which it rotates, to swing in a slow circle over the course of 25,800 years.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/qlVgEoZDjok?wmode=transparent&start=39" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">A wobbling Earth causes the dates of the zodiac to shift from those established in ancient times.</span></figcaption>
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<p>This movement alters the view of the zodiac from Earth, making the constellations appear to slide to the east, roughly a degree per human lifetime. Though slow, precession was discovered with the naked eye by <a href="http://abyss.uoregon.edu/%7Ejs/glossary/hipparchus.html">Hipparchus of Nicaea</a> around 150 B.C.</p>
<p>In ancient times, the vernal equinox – or the first day of spring – was in Aries. Due to precession, it moved into Pisces <a href="http://stars.astro.illinois.edu/books.html#sky">around 100 B.C., where it is now and will remain until A.D. 2700</a>, when it will move into Aquarius and so on. Over the course of 25,800 years, it will eventually return to Aries and the cycle will begin again.</p>
<p><iframe id="x0CHI" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/x0CHI/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>As a game, astrology and its predictions of fate and personality can be fun. However the subject has no basis in science. It is to science what the game “Monopoly” is to the real estate market. </p>
<p>Astrology diverts attention away from the very real influences of the planets, primarily their gravitational effects on one another that cause real changes in the shapes, sizes and tilts of their orbits. On Earth, <a href="https://doi.org/10.1038/nature07867">such changes likely caused past ice ages</a>. Direct collisions between Earth and celestial bodies can cause very rapid changes, such as the impact of an asteroid off the Yucatan Peninsula <a href="https://www.smithsonianmag.com/science-nature/dinosaur-killing-asteroid-impact-chicxulub-crater-timeline-destruction-180973075/">66 million years ago that had global effects</a> including the disappearance of dinosaurs and the rise of mammals.</p>
<p>Astronomical studies will eventually allow the prediction of such events, while astrological predictions will get you absolutely nowhere.</p>
<hr>
<p><em>This story has been updated to correct the animal that Aries represents. The chart has been updated to include Oct. 31 under Virgo, where it falls most years.</em></p><img src="https://counter.theconversation.com/content/128818/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James B. Kaler does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Astronomy and astrology do not agree on the dates of the zodiac constellations.James B. Kaler, Professor Emeritus of Astronomy, University of Illinois at Urbana-ChampaignLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1291012020-01-06T11:41:34Z2020-01-06T11:41:34ZBitcoin’s threat to the global financial system is probably at an end<figure><img src="https://images.theconversation.com/files/308427/original/file-20200103-11909-1gq8toc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">No ifs or bits. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/gold-bitcoin-falling-apart-graph-crashing-1038671149">ImageFlow</a></span></figcaption></figure><p>2020 could well be the year that the cryptocurrency dream dies. This is not to say that cryptocurrencies will die altogether – far from it. But to all the financial romantics who have cheered the rise of bitcoin and other digital currencies over the past decade, there is a reckoning coming. Like it or not, the vision of a world in which these currencies liberate money from the clutches of central banks and other corporate giants is fading rapidly. </p>
<p>It is not that these currencies have no place in the future of money. The encrypted blockchain technology that underpins them is extremely difficult for governments to control, so it is unlikely that they will ever be eliminated. In any case, they have a valid role to play as a geopolitical hedge – witness <a href="https://u.today/bitcoin-price-jumps-five-percent-as-trump-strike-escalates-us-iran-tensions">the surge</a> in bitcoin and cryptocurrencies after the latest escalation in tensions between the US and Iran, for instance. </p>
<p>But 11 years on from bitcoin’s <a href="https://www.theguardian.com/books/2019/jun/26/the-white-paper-satoshi-nakamoto-review">remarkable beginnings</a>, cryptocurrencies are a long way from supplanting the financial system. At the time of writing, the <a href="https://www.coingecko.com/en">total value of</a> all the bitcoin in circulation is US$133 billion (£102 billion); in comparison, the market value of all the world’s gold is <a href="https://news.bitcoin.com/when-bitcoin-overtakes-gold-how-high-can-it-go/">around US$8 trillion</a>, while the total worth of mainstream currencies worldwide is roughly the <a href="https://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/">same again</a>. </p>
<h2>No new hope</h2>
<p>The so-called bitcoin maximalists foresee a day when their currency of choice rises into the top league. They point to the <a href="https://www.ig.com/uk/bitcoin-btc/bitcoin-halving">bitcoin “halvening”</a> expected in May – the moment every four years when the number of new coins being added to the network is halved – as the next event that will drive prices up. </p>
<p>Yet the long-term prospect for bitcoin and other cryptocurrencies is stasis on the peripheries of the financial system. The chances of a new bitcoin look increasingly slim: it’s several years since ethereum rose to become the prime challenger, before falling back to a fraction of the bitcoin price (click on the chart below to make it bigger). </p>
<p><strong>Bitcoin vs altcoins</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/308429/original/file-20200103-11919-1u0a2lu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Share of total market cap of crypto by coin.</span>
<span class="attribution"><a class="source" href="https://coinmarketcap.com/charts/">Coin Market Cap</a></span>
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</figure>
<p>More importantly, a much bigger threat to the current system is afoot – as evidenced by <a href="https://theconversation.com/facebooks-libra-cryptocurrency-can-still-take-off-and-revolutionise-money-125504">Facebook’s attempts</a> to get its libra digital currency off the ground. JP Morgan has <a href="https://www.bbc.co.uk/news/business-47240760">already launched</a> a JPM coin for <a href="https://cointelegraph.com/news/jpmorgan-will-pilot-jpm-coin-stablecoin-by-end-of-2019-report">major institutional clients</a>, while numerous other major banks are <a href="https://www.ft.com/content/9fd8e8ea-83e5-11e9-b592-5fe435b57a3b">set to</a> follow suit. Other tech giants like <a href="https://articles2.marketrealist.com/2019/08/is-amazon-moving-into-cryptocurrency/#aprd">Amazon</a>, <a href="https://cointelegraph.com/news/google-coin-within-2-years-as-fangs-will-go-crypto-say-winklevoss">Google</a> and <a href="https://www.computerworld.com/article/3435851/apple-exec-confirms-cryptocurrency-is-on-company-radar.html">Apple</a> are rumoured to be looking at launching rival currencies as well. </p>
<p>Their model is what are known as stablecoins – a sort of crypto hybrid that lives on blockchains but is pegged to mainstream currencies. But aside from this connection to the status quo, these multinationals would be challenging sovereign money. They want to opt out of the clunky system that they have been forced to operate in, <a href="https://theconversation.com/blockchains-first-revolutionary-product-could-be-online-id-128028">with its</a> transaction fees and international payment delays, to present customers with an alluring alternative instead. </p>
<p>The reason these companies are not throwing their weight behind bitcoin et al is because today’s cryptocurrencies have <a href="https://theconversation.com/blockchains-first-revolutionary-product-could-be-online-id-128028">at least as many</a> drawbacks as the mainstream system. Their prices are too volatile to act as a serious store of value, for instance, while their ability to process financial transactions is not yet particularly impressive. </p>
<p>It has dawned on the corporate giants that as per their products or services, they can make money part of their brand – part of the customer experience. Sell people goods and services, yes, but also offer them a new monetary system to take care of the purchases. It begins to look like almost total control. </p>
<h2>The empire strikes back</h2>
<p>The state has been late to wake up to this challenge, but has now done so in a powerful and surprising way. The traditional global infrastructure has proved strong enough to <a href="https://www.pymnts.com/cryptocurrency/2019/global-bankers-meet-with-fb-jpm-on-stablecoins/">derail</a> the corporates at least temporarily <a href="https://www.cnbc.com/2019/11/21/new-bill-would-make-facebooks-cryptocurrency-a-security-under-the-law.html">with</a> <a href="https://www.euractiv.com/section/economy-jobs/news/commission-wary-of-side-effects-of-libra-regulation/">red tape</a>. Yet make no mistake – the goalposts have completely changed, and it will be difficult to present a united regulatory front around the world. Ironically, it is the same lack of global uniform regulatory approval for the existing cryptocurrencies that has hindered their meaningful adoption. </p>
<p>The other response under examination is to launch state cryptocurrencies. <a href="https://theconversation.com/when-china-and-other-big-countries-launch-cryptocurrencies-it-will-kick-off-a-global-revolution-128678">The likes of</a> China and Russia are in pole position to launch the first within a couple of years. Deutsche Bank <a href="https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000503196/Imagine_2030.pdf">recently</a> published a report <a href="https://cointelegraph.com/news/deutsche-bank-research-crypto-to-replace-fiat-currencies-by-2030">suggesting that</a> cryptocurrencies could overtake national fiat currencies within ten years, envisaging that these state-backed versions will lead the charge. </p>
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<a href="https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=506&fit=crop&dpr=1 754w, https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=506&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/308430/original/file-20200103-11939-10v0hkf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=506&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Yuan 2.0.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/china-map-silhouette-symbols-chinese-yen-1543942793">KachuraOleg</a></span>
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<p>In short, the future of cryptocurrency lies in either corporate or sovereign digital coins – or more likely, an uneasy cohabitation of the two. The system supposedly under threat from bitcoin and the other so-called bank killers is instead assimilating them. The coins that emerge <a href="https://thenextweb.com/hardfork/2019/09/02/european-central-bank-bigwig-outlines-why-facebooks-libra-isnt-real-cryptocurrency/">maybe</a> won’t <a href="https://ftalphaville.ft.com/2019/06/18/1560849057000/Facebook-s-Libra--blockchain--but-without-the-blocks-or-chain/">even use</a> blockchains, acting more akin to Paypal or WeChat Pay than as cryptocurrencies as we know them. </p>
<p>Where the previous half century saw the rise of corporates to a size and influence comparable to nation states, the next half century could produce a new paradigm in which they increasingly behave like nation states. When we reflect on the way these companies already manage our data, the way they exert lobbying influence on our governments, the trend is clearly well underway. Call it the next phase of globalisation. </p>
<p>Money in 2030 will probably therefore be almost unrecognisable compared to what we use today. The dream of universal people-powered monetary substitutes is being crushed by this unanticipated but in hindsight inevitable institutionalisation. It is from within the multinational world that the “next bitcoin” will emerge – wrapped in the liveries of a corporate brand, if not a sovereign flag. As for the great dream of bitcoin liberation, may it rest in peace.</p><img src="https://counter.theconversation.com/content/129101/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Brown is a non-executive director and co-founder of Winterbar Associates Limited, a start-up digital assets fund which has yet to launch. It would not benefit directly from this article but does have an interest in digital asset investments such as bitcoin which leverage blockchain technology.</span></em></p><p class="fine-print"><em><span>Whilst Richard Whittle has received no direct funding for this article, the background research was conducted as part of his ESRC-funded PhD.</span></em></p>Will 2020 be the year that the new threat to fiat currencies reaches maturity?Gavin Brown, Senior Lecturer, Finance, Manchester Metropolitan UniversityRichard Whittle, Research Fellow in Economics, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1286782019-12-12T12:07:54Z2019-12-12T12:07:54ZWhen China and other big countries launch cryptocurrencies, it will kick off a global revolution<figure><img src="https://images.theconversation.com/files/306575/original/file-20191212-85367-1uu5emz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cash of the titans. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/global-network-connection-currency-coin-money-1458477173">Artistdesign29</a></span></figcaption></figure><p>One of the hottest topics in cryptocurrencies is the prospect of major economies launching state-backed digital coins. China’s central bank <a href="https://fortune.com/2019/11/01/china-digital-currency-libra-wakeup-call-us/">recently accelerated</a> plans for what is currently known as the Digital Currency Electronic Payment (DCEP). It could launch within the next 18 months, while the European Central Bank <a href="https://www.reuters.com/article/ecb-cryptocurrency/update-1-ecb-could-speed-up-plans-for-public-digital-currency-if-cash-use-drops-idUSL8N28E583">is looking</a> at something similar. </p>
<p>Meanwhile, Russia has been <a href="https://www.coindesk.com/russias-central-bank-is-considering-launching-a-digital-currency">working on</a> a state-backed cryptoruble for several years, and <a href="https://www.finextra.com/newsarticle/32856/swedens-central-bank-prepares-for-cashless-future-with-e-krona">Sweden has</a> its e-krona project. Indeed, several countries have got there already: <a href="https://cointelegraph.com/news/senegal-introduces-cryptocurrency-based-on-its-national-currency">Senegal</a> and the tiny <a href="https://www.internationalinvestment.net/news/4004628/marshall-islands-launches-national-cryptocurrency">Marshall Islands</a> now have digital coins that sit alongside their existing currencies, while others such as <a href="https://www.bloomberg.com/news/articles/2019-05-10/venezuela-s-failed-cryptocurrency-is-the-future-of-money">Venezuela</a> and <a href="https://cointelegraph.com/news/state-issued-digital-currencies-the-countries-which-adopted-rejected-or-researched-the-concept">Ecuador</a> have tried but failed to gain traction. </p>
<p>Make no mistake, these developments will completely change the international monetary system. Today’s system dates to the <a href="http://news.bbc.co.uk/1/hi/business/7725157.stm">Bretton Woods conference of 1944</a>, in which to create a stable trading environment the Allied nations agreed to peg their currencies to the US dollar and the US agreed to peg the dollar to gold. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Allies gathering at Bretton Woods in 1944.</span>
<span class="attribution"><a class="source" href="https://www.britannica.com/biography/Edward-Morris-Bernstein">Brittanica</a></span>
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<p>The dollar has been at the heart of the monetary system ever since, despite Bretton Woods being gradually replaced by free-floating exchange rates after the dollar/gold commitment was abandoned by the Americans in the 1970s. Today, <a href="https://www.brookings.edu/research/has-the-dollar-lost-ground-as-the-dominant-international-currency/">around 40%</a> of international payments and <a href="https://www.reuters.com/article/us-forex-reserves/us-dollar-share-of-global-currency-reserves-fell-in-the-fourth-quarter-of-2018-idUSKCN1RA1WH">60%</a> of the world’s total foreign exchange reserves are in US dollars. The euro takes a more minor but still considerable proportion: over 30% of international payments and 20% of reserves. All other currencies are trivial by comparison. </p>
<h2>US on top</h2>
<p>American financial dominance means that the Federal Reserve almost acts as the central bank of the world, since whatever its monetary policy committee decides to do with dollar interest rates has huge consequences everywhere. Together with the dollar’s dominance of the <a href="https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp">SWIFT international payment system</a>, this was pivotal in maintaining the international monetary order for years by reducing transaction costs and speeding up globalisation. </p>
<p>In recent years, however, the picture has changed. With heightened tensions between the world’s major powers, many commentators <a href="https://www.economist.com/leaders/2015/10/03/dominant-and-dangerous">increasingly accuse</a> the Americans of playing the system to their own economy’s advantage without proper regard for the consequences further afield. There are also serious concerns about the US using international payments as a political tool, for instance by leaning on SWIFT to exclude Iranian banks over the uranium enrichment row – despite objections <a href="https://www.aljazeera.com/news/2018/11/swift-matters-iran-spat-181105172906627.html">even from</a> the EU. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=494&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=494&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=494&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sam’s back yard.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/world-map-made-dollar-bills-isolated-286896983">DmyTo</a></span>
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<p>Arguably, dollar dominance is now <em>hindering</em> the deepening of globalisation. Many countries are making moves that are changing this situation, however. The UK, France and Germany have <a href="https://www.voanews.com/middle-east/voa-news-iran/more-european-nations-join-effort-bypass-us-sanctions-iran">set up INSTEX</a> as an alternative means of trading with Iran, for instance, and six other EU countries have recently joined. </p>
<p>There has been a <a href="https://www.cfr.org/international-finance/central-bank-currency-swaps-since-financial-crisis/p36419#!/">massive rise</a> in the number of bilateral agreements between central banks that allow two countries to swap currencies directly, a large number involving China. Meanwhile, a number of countries, <a href="https://capitalgoldexchange.com/why-are-countries-pulling-their-gold-out-of-america/">including</a> Germany and the Netherlands, have been <a href="http://www.goldtelegraph.com/countries-around-the-world-are-bringing-gold-home/">repatriating their</a> gold reserves from vaults in the US where they had long been stored. </p>
<p>Yet by comparison, major sovereign digital currencies based on blockchain technology would be revolutionary. <a href="https://theconversation.com/five-hurdles-blockchain-faces-to-revolutionise-banking-124536">Blockchains</a> are encrypted ledgers for storing information that are decentralised rather than being under any country’s or company’s control. When applied to international payments, this offers <a href="https://theconversation.com/blockchains-first-revolutionary-product-could-be-online-id-128028">the prospect</a> of much more transparent and cheaper transactions than SWIFT. </p>
<p>It could cut the payments time lag from a couple of days to one second, and the cost from 0.01% to almost nothing. It will have the capacity to handle far higher volumes of payments, partly since they won’t require bank accounts or <a href="https://www.bitrates.com/news/p/offline-transactions-could-be-the-missing-link-between-crypto-and-adoption">even internet access</a>. </p>
<p>Cryptocurrencies like Bitcoin and XRP have been a good experiment <a href="https://medium.com/datadriveninvestor/advantages-of-money-transfer-using-cryptocurrency-9e1f32da4fbe">in using</a> blockchains for international payments. Yet when countries issue equivalents of their own, these will have even more advantages. They will be backed by states, and completely decentralised cryptocurrencies like Bitcoin will not be able to compete with this. </p>
<h2>What the future looks like</h2>
<p>While technological change has been incredibly fast in the information era, the system of international payments has lagged behind. But once sovereign digital currencies start taking off, this will suddenly change. Just like smartphones quickly eliminated most old cell phones, no countries will be able to reject blockchain payments for long. </p>
<p>So while, for example, the US Treasury Secretary Steve Mnuchin <a href="https://www.bloomberg.com/news/articles/2019-12-05/mnuchin-powell-see-no-need-for-fed-to-issue-digital-currency">recently said</a> that his country does not see itself launching a digital dollar in the next five years, there will be a moment when the political centre of gravity will shift and everyone will join the revolution. After the <a href="https://theconversation.com/5g-what-will-it-offer-and-why-does-it-matter-109010">5G network</a> and the <a href="https://www.digiteum.com/internet-of-things-banking-finances">Internet of Things</a> really mushroom in the next couple of years, it will be possible to replace the existing system even faster. </p>
<p>This will be the beginning of a new international monetary era. Instead of passively accepting US dollars as settlement currency in international trade, buyers and sellers will be able to choose freely from a variety of currencies. We are also likely to see a series of new powerful regional currencies, along with opportunities for the currencies of small countries with high credibility and advanced financial industries. Countries and their central banks will be competing freely with one another in this market, knowing that if they implement policies that devalue their currency, international traders will just choose rival currencies instead. </p>
<p>Beyond that, countries will form cryptocurrency unions to regulate currencies and platforms, standardise technology and maintain the stability of the system. New clearing systems will emerge, along with <a href="https://dailyhodl.com/2019/12/10/head-of-digital-banking-at-santander-says-ethereum-powers-full-lifecycle-of-worlds-first-blockchain-bond/">new financial products</a>. In short, it will be a whole new user-centred financial ecosystem. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fast future.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/top-view-woman-watching-video-internet-644188654">GaudiLab</a></span>
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<p>Whenever there are innovations in payment methods, there always follows a surge in demand. China’s Alipay and WeChat Pay <a href="https://www.zdnet.com/article/wechat-pay-follows-alipay-in-allowing-foreign-visitors-to-make-payments-in-china/">are good examples</a>. More recently we are seeing similar explosive demand for the likes of <a href="https://www.businessinsider.com/apple-pay-transaction-volume-and-revenue-doubled-2019-11?r=US&IR=T">Apple Pay</a> and <a href="https://uxdesign.cc/just-walk-out-amazon-go-the-most-convincing-future-of-retail-469b5794d65c?gi=491d10a7b3ba">Amazon Go</a>. </p>
<p>Yet these are primarily domestic stories. Sovereign digital currencies should produce a surge in international trade and cooperation. There will be new economic growth as more small players join the global market and consumers enjoy a wider range of goods and services at lower costs. </p>
<p>This may seem threatening to those who benefit from the existing system, but it will be more than outweighed by capitalising on what comes next. The question for different countries is whether they embrace change or try and defend the status quo. As Facebook’s Mark Zuckerberg <a href="https://www.cnbc.com/2019/10/22/facebook-ceo-mark-zuckerbergs-prepared-remarks-before-congress.html">told</a> American lawmakers in response to China’s DCEP plan, “while we debate these issues, the rest of the world isn’t waiting”. The sooner countries shift, the better placed they are likely to be for what lies ahead.</p><img src="https://counter.theconversation.com/content/128678/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liang Zhao receives a PhD scholarship from Handelsbanken. </span></em></p>Stand by for cryptocurrencies 2.0.Liang Zhao, Doctoral Researcher, Lund UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1274632019-11-21T13:47:23Z2019-11-21T13:47:23ZMore than 1,000 cryptocurrencies have already failed – here’s what will affect successes in future<figure><img src="https://images.theconversation.com/files/302732/original/file-20191120-524-1njq9ry.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gaining currency?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/huge-stack-physical-cryptocurrencies-bitcoin-on-687427129?src=d81a1d12-8cfa-41f2-803f-c39ea41e3b1d-1-38">Wit Olszewski</a></span></figcaption></figure><p>Many cryptocurrencies have been launched in the past few years, often to great fanfare and celebration, only to fade and fail as the public and investors shun them. <a href="https://www.coinopsy.com/dead-coins/">According to</a> Coinopsy, which tracks such failures, there are some 1,085 dead coins at the time of writing. That’s a substantial number, <a href="https://capital.com/types-of-cryptocurrencies">even next to</a> the approximately 3,000 still in existence, and senior industry figures <a href="https://dashnews.org/ripple-ceo-says-99-of-cryptocurrencies-will-fail-and-go-to-zero/">expect</a> many of those to fail, too. </p>
<p>Why do so many of these projects unravel? You expect many initiatives to come and go in a fledgling market, of course – the 1990s <a href="https://time.com/3741681/2000-dotcom-stock-bust/">dotcom bubble</a> is the perfect example. But at the same time, cryptocurrency developers have traditionally spent too little time designing the business-use case for their coins and tokens, then only realising after the launch that their idea is yesterday’s news. </p>
<p>Time and again, we see launches that copy a previously successful coin – “coin x is the new Bitcoin”, for example. Yet the market already has Bitcoin, and it continues to be in demand – as evidenced by the 18 millionth Bitcoin <a href="https://beincrypto.com/bitcoins-18-millionth-coin-took-3935-days-to-mine/">being mined</a> only last month. We tend to overlook this problem with developers, even while we rightly criticise regulators for not being able to keep up with the fast evolution of the crypto market – despite efforts such as <a href="https://www.howeycoins.com/index.html">Howey Coin</a> by US regulator the SEC, which was a fake new coin offering <a href="https://www.theverge.com/tldr/2018/5/16/17361750/sec-cryptocurrency-ico-investors">designed</a> to teach investors about the risks of putting money into crypto.</p>
<p>No doubt these kinds of developer errors will continue. Here are several other themes that we think will have a bearing on future crypto failures:</p>
<h2>1. Big Finance has arrived</h2>
<p>Eleven years ago, the pseudonymous Satoshi Nakamoto quietly revolutionised money with the release of his or her now famous <a href="https://bitcoin.org/bitcoin.pdf">white paper</a> that outlined Bitcoin. In the early years after this vision took off, many of those who launched altcoins and tokens were small teams of developers and leftfield entrepreneurs. They had a clear mission to bring the world of traditional finance and central banks to its knees with decentralised units of exchange that were beyond anyone’s control. </p>
<p>A few years on, these bank killers have largely been assimilated by the big financial institutions they once sought to challenge. Wall Street is <a href="https://www.ft.com/content/eb3fce1c-0a80-11ea-b2d6-9bf4d1957a67">steadily</a> taking <a href="https://beincrypto.com/bakkt-is-wall-streets-attack-on-bitcoin-claims-youtuber/">charge</a> of the crypto action, professionalising trading with the likes of derivatives and futures products. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/302733/original/file-20191120-502-1c8krqu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">‘Did someone say money?’</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/modern-office-building-big-city-1452017165?src=f10b1d37-3cc1-4605-b5a8-b70a4cef5b28-1-14">Gyn9037</a></span>
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<p>We may now be entering a phase where only large institutions will be able to generate profit from cryptocurrency design. It seems increasingly likely that the next revolutionary white paper will be generated by a global multi-billion-dollar firm – an ironic full turn of events, to say the least. </p>
<p>Many other cryptocurrencies from more humble beginnings will fail in future, simply because they don’t have the resources to compete with these huge institutions. They will be driven by sunk costs and the crypto dream to dominate the future of money, but in many cases it won’t be enough. </p>
<h2>2. The future is stable</h2>
<p>For a cryptocurrency to be successful, two things need to happen: there has to be a reason why people want to use it, and they have to trust it. People will generally trust a coin or token thanks to the underpinning <a href="https://theconversation.com/the-big-business-revolution-why-the-future-is-blockchain-78409">blockchain technology</a>, the decentralised cryptographic ledger systems on which this industry is built. </p>
<p>This means that the basis upon which the market judges if a new launch will stand or fall is mainly its use case. There are now altcoins in existence offering everything from new ways to <a href="https://blockgeeks.com/guides/what-is-basic-attention-token/">fund web advertising</a> to units of exchange in the <a href="https://enjin.io/">gaming world</a>. But more generally, in a world in which it is no longer enough to simply claim to have launched a better Bitcoin, the market’s attention has pivoted towards <a href="https://theconversation.com/bitcoins-successor-more-consistent-values-might-make-stablecoins-a-safer-cryptocurrency-option-107372">stablecoins</a>. </p>
<p>Stablecoins are cryptocurrencies that are designed to avoid the wild volatility of cousins like Bitcoin by being pegged or backed by assets like traditional currencies or precious metals. They are designed to encourage people to use cryptocurrency for everyday buying and selling, while also offering a stable store of value for traders on the many crypto exchanges that don’t deal in traditional currencies. </p>
<p>Examples include <a href="https://www.centre.io/usdc">USD Coin</a> and <a href="https://tether.to/">Tether</a>, both of which are equivalent to US$1. The fact that it takes considerable financial resources and infrastructure to make such coins operational is again likely to favour large institutions – witness Facebook’s <a href="https://theconversation.com/facebooks-libra-cryptocurrency-can-still-take-off-and-revolutionise-money-125504">attempt</a> to launch the Libra stablecoin, for instance. </p>
<h2>3. Losses more foul than fair</h2>
<p>Many investors have lost money through scams in the crypto world. One recent notorious example is the alleged <a href="https://www.zdnet.com/article/cryptocurrency-executives-charged-with-running-11-million-ponzi-scheme/">OneCoin ponzi scam</a>, in which investors were promised guaranteed 300% returns for investing Bitcoin or US dollars with a Nevada-based outfit. </p>
<p>The money was supposed to be ploughed into foreign exchange options and altcoins, but was allegedly instead used to pay off other investors in the scheme. Fortune magazine <a href="https://fortune.com/2019/11/06/is-onecoin-the-biggest-financial-fraud-in-history/">recently speculated</a> that OneCoin may have generated losses in excess of the US$19.4 billion (£15 billion) racked up by <a href="https://www.bloomberg.com/graphics/2018-recovering-madoff-money/">Bernie Maddoff’s ponzi victims</a> in 2008. </p>
<p>Somewhat different was <a href="https://cointelegraph.com/news/bitconnect-ponzi-scheme-no-sympathy-from-crypto-community">Bitconnect</a>, an exchange in which investors could swap Bitcoin for Bitconnect coins, which would be lent out with claimed returns of up to 120% per year. After longstanding ponzi accusations, the US authorities stepped in last year and the exchange <a href="https://www.coindesk.com/bitconnect-investors-left-lurch-tokens-price-drops-90">abruptly closed</a>. Bitconnect coins plunged 96% in value, creating huge losses, though they still exist and trade today. </p>
<p>An alternative problem is hackers raiding exchanges. The most infamous example is the <a href="https://www.ledger.com/hack-flasback-the-mt-gox-hack-the-most-iconic-exchange-hack/">Mt Gox attack</a> of 2014, in which over 850,000 bitcoins were stolen and never recovered. More recently the Binance exchange, one of the world’s largest, <a href="https://thenextweb.com/hardfork/2019/07/08/binance-hack-8-million-bitcoin-cryptocurrency-stolen-transfer/">has been</a> hacked several times, costing investors tens of millions of dollars. </p>
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<a href="https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/302735/original/file-20191120-547-114ykd0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Binance: a hacker target.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/kyrenia-cyprus-june-21-2019-binance-1431551333?src=9b68b7b1-f273-4f08-aba6-aecfc02a2543-1-17">grey82</a></span>
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<p>One other <a href="https://markets.businessinsider.com/currencies/news/crypto-ceo-died-with-passwords-to-137-million-but-the-money-is-gone-2019-3-1028009684">alarming case</a> was that of Gerald Cotten, the 30-year-old founder of Canadian cryptocurrency exchange Quadriga, who died a year ago. Because nobody had access to his passwords, the investments of 115,000 customers worth US$137m were unrecoverable. When a court-appointed auditor was eventually able to access his account, it turned out the assets had all been sold months before Cotten died. </p>
<p>We fully expect these sorts of problems to continue – and this shouldn’t be surprising. We are talking about a toxic combination of anonymous technology that is largely unregulated, poorly understood, and cheap and easy to move around the world – and many people willing to kiss frogs in their search for a lucrative prince.</p><img src="https://counter.theconversation.com/content/127463/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Brown is a non-executive director and co-founder of Winterbar Associates Limited, a start-up digital assets fund which has yet to launch. It would not benefit directly from this article but does have an interest in digital asset investments such as Bitcoin which leverage blockchain technology. </span></em></p><p class="fine-print"><em><span>Whilst Richard Whittle has received no direct funding for this article, the background research was conducted as part of his ESRC-funded PhD. </span></em></p>With Wall Street slowly taking charge of crypto, the days of radical outsiders launching successful altcoins may be numbered.Gavin Brown, Senior Lecturer, Finance, Manchester Metropolitan UniversityRichard Whittle, Research Fellow in Economics, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1253752019-10-25T04:26:37Z2019-10-25T04:26:37ZLibra isn’t dead yet – the killer blow will come from governments issuing their own digital currencies<figure><img src="https://images.theconversation.com/files/298451/original/file-20191024-119477-1xasyac.jpg?ixlib=rb-1.1.0&rect=440%2C727%2C5550%2C2703&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Major players in global electronic payments are shying away from Libra, spooked by the scrutiny Facebook's operations are attracting from regulators around the world.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Barely six months after Facebook announced its own digital currency, a plan heralded as the beginning of the end for central banks and government controls over the money supply, the whole thing is looking like a house of cards. </p>
<p>The project, named Libra, was taken seriously in part because it had the support of major players in global electronic payments, including Visa, Mastercard, Paypal and Stripe. But now they are dropping like flies. </p>
<p>Two weeks ago <a href="https://www.theguardian.com/technology/2019/oct/07/paypal-pulls-out-facebook-libra-cryptocurrency">Paypal</a> pulled out, followed by <a href="https://www.cnbc.com/2019/10/11/ebay-drops-out-of-facebook-libra-cryptocurrency-one-week-after-paypal.html">Visa, Mastercard and Stripe</a>, as well as eBay, Mercado Pago (Latin America’s most popular e-commerce platform) and Booking Holdings (owner of travel booking websites including booking.com). </p>
<p>They appear to be spooked by the scrutiny Facebook’s operations are attracting from regulators around the world. </p>
<h2>Backlash</h2>
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<a href="https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=851&fit=crop&dpr=1 600w, https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=851&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=851&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1070&fit=crop&dpr=1 754w, https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1070&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/298685/original/file-20191025-173548-14grgiy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1070&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Facebook CEO Mark Zuckerberg defends the Libre before the US Congress on Thursday.</span>
<span class="attribution"><span class="source">MICHAEL REYNOLDS/EPA</span></span>
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<p>European leaders are threatening to do all they can to thwart the Libra plan.</p>
<p>France’s minister for the economy, Bruno Le Maire, said his government would not allow a private company “<a href="https://www.coindesk.com/zuckerberg-facebook-would-quit-libra-if-association-launched-prematurely">to have the same monetary power as sovereign states</a>” and would join with Italy and Germany “to show clearly that Libra is unwelcome in Europe”.</p>
<p>Does it mean Libra is dead on arrival? </p>
<p>Not necessarily. The companies backing away from it might change tack again. Visa, for example, has said <a href="https://cointelegraph.com/news/visa-ceo-visa-still-interested-in-developing-libra-with-facebook">its door is still open to Libra</a>. </p>
<p>Others have signalled the same.</p>
<p>What it does means is that governments wanting to mitigate the threat from platforms such as Libra are probably going to have to do more. </p>
<p>The stage is set for central banks seeking to pull the rug from under Libra by issuing their own digital currencies.</p>
<h2>What’s got governments worried</h2>
<p>Right now, unless you use a cryptocurrency like Bitcoin, any transaction you make involves a central-bank-issued currency. It doesn’t matter if you never touch cash. Even if you pay for everything electronically, it involves technical transfers of government-backed cash, overseen by banks. </p>
<p>Libra’s plan would have made it possible to buy (and sell) things without ever using a national currency. </p>
<p>Bitcoin and other cryptocurrencies showed this was possible, but they lacked the stability of government-backed currencies – their value fluctuated enormously. </p>
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<em>
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Read more:
<a href="https://theconversation.com/the-lowdown-on-libra-what-consumers-need-to-know-about-facebooks-new-cryptocurrency-119391">The lowdown on Libra: what consumers need to know about Facebook’s new cryptocurrency</a>
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<p>Libra promised to overcome that by being a “stablecoin”. It’d be pretty steady. That’s what made people take notice of it, and made governments concerned. If it caught on, governments could lose control of money. They might lose revenue from consumption taxes. They’d find it harder to fight crime.</p>
<h2>Their best defence is getting in first</h2>
<p>It’s why the two global agencies, the <a href="https://blockpublisher.com/libra-further-in-trouble-as-fatf-raises-money-laundering-concerns/">Financial Action Task Force</a> and the <a href="https://www.coindesk.com/bitcoin-has-failed-but-global-stablecoins-a-threat-say-bis-and-g7">Bank of International Settlements</a>, have called digital currencies like Libra a major threat to anti money laundering efforts and financial stability.</p>
<p>The initial enthusiasm for Libra, both from key players in the electronic transactions and the public, shows there is demand for something that cuts out the middlemen. If Libra fails, that threat won’t vanish. It will simply be postponed.</p>
<p>So governments are now considering developing their own central bank issued digital currencies. In the United States two members of the US House of Representatives (one a Republican, the other a Democrat) have written to Federal Reserve chairman Jerome Powell <a href="https://src.bna.com/LO7">to press the issue</a>:</p>
<blockquote>
<p>We are concerned that the primacy of the US Dollar could be in long-term jeopardy from wide adoption of digital fiat [government created] currencies. Internationally, the Bank for International Settlements conducted a study that found that over 40 countries around the world have currently developed or are looking into developing a digital currency.</p>
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<p>How would a central bank-issued digital currency differ from the electronic money we use now every time we transfer something from one bank to another? </p>
<p>It would be issued directly to the public and would not be linked to paper money at all. Transactions with it would not need to involve a bank. But the supply of it would be in the hands of governments. They’d get in first.</p><img src="https://counter.theconversation.com/content/125375/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elvira Sojli has been affiliated with Australia's Capital Markets Cooperative Research Centre.</span></em></p>The stage is set for central banks seeking to pull the rug from under Libra by issuing their own digital currencies.Elvira Sojli, Associate Professor of Finance, Scientia Fellow, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1255042019-10-18T12:12:15Z2019-10-18T12:12:15ZFacebook’s Libra cryptocurrency can still take off and revolutionise money<figure><img src="https://images.theconversation.com/files/297641/original/file-20191018-56228-848dsw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bangkok-thailand-20-june-2019-libra-1429149551?src=cvqScd5qlPnYCUJF0e2XRA-1-3">Poring Studio / Shutterstock.com</a></span></figcaption></figure><p>Facebook’s Libra cryptocurrency has suffered a few setbacks recently. As well as facing <a href="https://uk.reuters.com/article/uk-imf-worldbank-facebook/facebooks-libra-cryptocurrency-faces-new-hurdle-from-g7-nations-idUKKBN1WW339">pressure from global regulators</a>, seven of its 28 founding members have <a href="https://www.cnbc.com/2019/10/14/facebook-forms-its-cryptocurrency-council-after-key-backers-drop-out.html">left the project</a> – including high profile firms PayPal, Visa, Mastercard, eBay and Stripe. It leaves 21 companies in the Libra Association, the organisation <a href="https://theconversation.com/facebooks-libra-its-not-the-crypto-thats-the-issue-its-the-organisation-behind-it-121223">overseeing the cryptocurrency</a>.</p>
<p>But Facebook is big enough to launch Libra on its own, so why are these members even needed? After all, it is Facebook’s network of 1.59 billion daily active users that form the foundation of its business case to issue a non-sovereign currency. Why share the spoils? </p>
<p>The answer may be twofold. First, by having a council of members this enables Facebook to claim decentralisation status – a key tenet of any cryptocurrency. It’s a far cry from the fully decentralised alternatives of bitcoin et al., but certainly not centralised, so a valid claim.</p>
<p>Second, and perhaps primarily, by having a group of high-profile businesses as Libra members it goes some way towards sugarcoating this disruption in the eyes of the world’s regulators, in readiness for the inevitable pushback.</p>
<p>Many of the departing members – most being payments firms – stood to lose much of their core business if Libra becomes successful. So, in the face of the project facing additional scrutiny, Libra quickly became a net negative prospect for them and a respectful early withdrawal is entirely rational. But their places are likely to soon be taken up by other prospective members waiting in the wings. There are many companies that will want to capitalise on what could be a revolutionary global money system.</p>
<p>Total membership is likely to be expanded as a show of strength. Ben Maurer, Facebook’s blockchain technology lead, <a href="https://www.coindesk.com/libra-white-paper-shows-how-facebook-borrowed-from-bitcoin-and-ethereum">explained in June</a> that, “over time, [Libra] is designed to transition the node membership from these founding members, who have a stake in the creation of the ecosystem, to people who hold Libra and have a stake in the ecosystem as a whole”.</p>
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<strong>
Read more:
<a href="https://theconversation.com/facebooks-libra-its-not-the-crypto-thats-the-issue-its-the-organisation-behind-it-121223">Facebook’s Libra: it’s not the ‘crypto’ that’s the issue, it's the organisation behind it</a>
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<p>Facebook has already announced that some <a href="https://uk.reuters.com/article/us-facebook-cryptocurrency-paypal/paypal-becomes-first-member-to-exit-facebooks-libra-association-idUKKBN1WJ2CY">1,500 entities have expressed interest</a>. So turning up the dial of decentralisation is the intended objective – publicly, at least. This will help assuage the concerns of regulators that Facebook holds too much power over the new cryptocurrency.</p>
<h2>The fight is on</h2>
<p>The fight <a href="https://theconversation.com/facebooks-libra-has-staggering-potential-state-control-of-money-could-end-119434">for the future of money is on</a>. What is at stake is the ability to extract value from the minting of new currency, <a href="https://www.ecb.europa.eu/explainers/tell-me/html/seigniorage.en.html">known as seigniorage</a>. The stakes couldn’t be higher.</p>
<p>The Bank of International Settlements (the bank for central banks) estimates that total global money is approximately US$5 trillion, while the CIA put that figure closer to US$80 trillion in 2017, if <a href="https://www.businessinsider.com/heres-how-much-money-there-is-in-the-world-2017-10?r=US&IR=T">“broad money” (which includes the figures in everyone’s bank accounts) is included</a>. In comparison, the market capitalisation of all cryptocurrencies at the time of writing <a href="https://coinmarketcap.com/">is US$215 billion</a>, some 372 times smaller than this latter estimate of total money.</p>
<p>Facebook has the reach and the technology to make its cryptocurrency mainstream, but nation states have the regulatory power of veto to retain their monopolistic hold over monetary policy. Presently, their strategy is to spook any potential Libra partners to abandon the project. For example, US senators Sherrod Brown and Brian Schatz <a href="https://www.theverge.com/2019/10/9/20906348/libra-association-visa-mastercard-stripe-blockchain-us-lawmakers-schatz-sherrod-brown">sent a letter earlier this month</a> to the CEOs of Visa, Mastercard and Stripe saying any Libra members should expect a higher level of scrutiny not just of this project but also of their core business, too. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebooks-libra-has-staggering-potential-state-control-of-money-could-end-119434">Facebook's libra has staggering potential – state control of money could end</a>
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<p>But this pressure will only work with some companies – particularly more traditional financial firms that will ultimately lose out to Libra. The goals of the Libra project are big. If Facebook wanted to simply make some extra profits, it could have issued a voucher system, akin to a supermarket reward scheme. See Facebook’s previous attempt at issuing Facebook Credits <a href="https://www.investopedia.com/terms/f/facebook-credits.asp">that were terminated in 2012</a>.</p>
<p>This would probably have avoided the regulatory scrutiny it has received with the Libra project and would be well-placed to take off. If Facebook simply charged users for tokens used to play games or purchase content within its applications, then regulators may have been less interested. After all, what is the real difference between purchasing Facebook credit with domestic currency to, say, purchasing credit from Vodafone to top up a prepay phone?</p>
<p>But the Libra project is more than this. Its aim is not to create a voucher system for internal use – it is not even to create a rival to a national currency – it is to create a global currency more similar to the euro than the US dollar, to service the under-banked and unbanked as well as threaten the dominance of existing fiat currencies in established markets. The Libra Association provides this possibility because it gives the project clout and legitimacy in front of regulators.</p>
<p>It may even be that the financial regulators will in time feel a missed opportunity in not supporting the Libra project further. Cryptocurrencies, and corporate cryptocurrencies especially, continue to evolve and innovate. A challenger currency like Libra, with a transparent operating structure, the involvement of traditional financial firms and a recognisable, if currently bespoke monetary mechanism, could soon be seen as the lesser of forthcoming monetary evils in the form of truly decentralised globally relevant cryptocurrencies. If that is the case, expect a renewed clamour for a seat at the Libra Association table.</p><img src="https://counter.theconversation.com/content/125504/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Brown is a Non-Executive Director and Co-founder at Winterbar Associates Limited, a start-up digital assets fund which has yet to launch. It would not benefit directly from this article but does have an interest in digital asset investments such as bitcoin which leverage blockchain technology.</span></em></p><p class="fine-print"><em><span>Richard Whittle's initial research was conducted as part of his ESRC-funded PhD.</span></em></p>Libra has lost seven of its 28 founding members – but don’t expect that to hold it back.Gavin Brown, Senior Lecturer, Finance, Manchester Metropolitan UniversityRichard Whittle, Research Fellow in Economics, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1231542019-09-19T22:13:56Z2019-09-19T22:13:56ZBuyer beware: How Libra differs from Bitcoin<figure><img src="https://images.theconversation.com/files/292702/original/file-20190916-19076-1tlq1vo.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4215%2C2371&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Recent revelations about the lack of privacy protections in place at the companies involved in Facebook's new Libra crytocurrency raise concerns about how much trust users can place in Libra.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Facebook, the largest social network in the world, stunned the world earlier this year with <a href="https://techcrunch.com/2019/06/18/facebook-libra/">the announcement of its own cryptocurrency, Libra</a>. </p>
<p>The launch has raised questions about the difference between Libra and existing cryptocurrencies, as well as the implications of private companies competing with sovereign countries in issuing currencies.</p>
<p>Unlike <a href="https://bitcoin.org/en/">Bitcoin</a>, which has neither an owner nor a controlling body, Libra will be governed by a Swiss foundation comprised of several members that are well-established brands, including Uber, Visa and PayPal.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebooks-libra-its-not-the-crypto-thats-the-issue-its-the-organisation-behind-it-121223">Facebook’s Libra: it’s not the ‘crypto’ that’s the issue, it's the organisation behind it</a>
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<p>Libra operates within a much more controlled environment relative to many other cryptos like Bitcoin <a href="https://www.ethereum.org/">and Ether</a>. It also doesn’t <a href="https://theconversation.com/transparency-and-privacy-empowering-people-through-blockchain-104887">run on a blockchain.</a></p>
<p>Instead, the book-keeping of Libra transactions is bestowed upon a set of trusted computing nodes controlled by the members of the Libra foundation. In contrast, Bitcoin is a free-for-all where anybody can join the group of computers that verify transactions. </p>
<p>This difference in governance structure has wide-ranging implications for the economic gains and possible risks society faces from a possible widespread adoption of new currencies like Libra. </p>
<h2>How to grow?</h2>
<p>A fundamental issue most fintech companies face today is scaleability. The Visa network can authorize up to <a href="https://www.visa.ca/en_CA/about-visa/visanet.html">65,000 transactions per second</a>, while Bitcoin typically processes a few hundred thousand a day. </p>
<p>Technically, it’s possible to expand the Bitcoin network to a commercially viable scale, but due to the lack of a governing body, several attempts to increase capacity have ended up in endless debates, fights within the community and different camps going their own ways. It’s resulted in the creation of offspring currencies such as <a href="https://bitcoingold.org/">BitcoinGold</a> and <a href="https://www.bitcoincash.org/">BitcoinCash</a>.</p>
<p>Libra overcomes these struggles by a well-defined governance structure where necessary technical adaptations can be efficiently decided upon in an organized manner.</p>
<p>But Libra decision-makers may be tempted to put their own best interests ahead of the consumers’ benefit. Recent revelations about the lack of privacy protections in place at the companies on Libra’s foundation raise concerns about how much trust users can place in Libra when they’re deciding whether to open up their financial transactions to the big internet companies on Libra’s board. </p>
<p>Intimate knowledge of people’s purchases, wealth and shopping behaviour has incredible value for advertising and resale to other companies. It will be up to the consortium members to credibly convince the public that they will refrain from monetizing this huge wealth of data that they sit upon.</p>
<h2>Guard against fraud</h2>
<p>In our traditional financial system, laws and regulators watch over privacy as well as access to the financial system. Laws not only provide privacy protections, they also guard against fraud and ensure that citizens can participate on a level playing field.</p>
<p>Rules are created in a democratic process. Banks in western countries cannot easily ban citizens from basic financial services, which are important to join the workforce and get established in society. </p>
<p>But currencies issued by private companies do not face the same scrutiny. What if Facebook decides you cannot have Libra because you posted a critical article on the internet? Your legal options would be limited. </p>
<p>Bitcoin’s chaotic governance structure has an advantage here. Without a governing body, there is nobody who can lock anybody else out of the system. While this approach ensures equal access, however, it also invites criminals to use Bitcoin for illicit purposes. </p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/292705/original/file-20190916-19072-asmlcy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/292705/original/file-20190916-19072-asmlcy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=810&fit=crop&dpr=1 600w, https://images.theconversation.com/files/292705/original/file-20190916-19072-asmlcy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=810&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/292705/original/file-20190916-19072-asmlcy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=810&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/292705/original/file-20190916-19072-asmlcy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1018&fit=crop&dpr=1 754w, https://images.theconversation.com/files/292705/original/file-20190916-19072-asmlcy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1018&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/292705/original/file-20190916-19072-asmlcy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1018&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A portrait of Marco Polo, circa 1600, from the Gallery of Monsignor Badia in Rome.</span>
<span class="attribution"><span class="source">Creative Commons</span></span>
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</figure>
<p>Centuries ago, promissory notes <a href="https://www.thoughtco.com/the-invention-of-paper-money-195167">emerged in China</a> and were brought to Europe by Marco Polo as an early banking service that allowed merchants to travel without large sums of money due to fear they’d be robbed. Banks offered safekeeping for money, allowing the merchant to store the funds and withdraw them whenever and wherever needed. </p>
<p>Today, banks still spend billions of dollars on security to protect their clients’ savings. Many credit-card companies provide protection against fraudulent transactions.</p>
<p>No such protections exist for cryptocurrencies. No recourse is possible should a hacker gain access to your wallet or if your crypto becomes worthless. With cryptocurrencies, users must once again worry about safekeeping.</p>
<h2>Deposit insurance</h2>
<p>Often under-appreciated, but of great importance, is government-provided <a href="https://www.cdic.ca/">deposit insurance</a> that provides a second layer of security, protecting depositors against the default of the bank. </p>
<p>Unlike Bitcoin, where prices fluctuate dramatically within a few days, Libra’s value is tied to a basket of international currencies. As users buy Libra with fiat currency, including Canadian dollars, the Libra foundation will take these dollars and invest them in safe securities. </p>
<p>Because Libra is backed with real and stable financial assets, the value of Libra will then also be stable. While this approach sounds great at a first glance, several problems exist that have plagued banking for centuries. </p>
<p>Temptations will arise to invest some of the money in riskier securities for a higher return. What if people, for some reason or another, doubt that the assets are there or think that the assets lost value? Long lines of depositors wanting to withdraw their funds from a bank that they rightfully or wrongfully believe to be troubled have been observed ever since the inception of banks.</p>
<p>Such bank runs are often self-fulfilling, and Libra is not immune to this problem. When users want to cash out, Libra would have to sell their assets at a large scale, causing the price of these very assets to fall and hence end up with insufficient funds to pay all investors. </p>
<p>As users realize what is happening, more will want to cash out, speeding up the vicious circle. </p>
<h2>Would any government come to the rescue?</h2>
<p>Unlike with banks, it’s unclear how possible losses will be covered and how they might be shared among users. Some U.S. money market funds that are in a similar business — investing client’s money in safe short-term assets — found themselves in similar trouble in the <a href="https://www.nytimes.com/2011/04/03/business/03gret.html">2008 financial crisis</a> and were bailed out by the government. </p>
<p>With Libra, it’s unclear which government would come to the rescue, if any.</p>
<p>All the money that users will put into Libra will be missed in the traditional banking system, where banks can put deposits to good use by providing loans to productive companies that generate value and employment. The economic consequences therefore could be far-reaching.</p>
<p>The foundation for Libra’s model and possible success is the banking sector’s shortcomings and inefficiencies.</p>
<p>While Libra might not offer many advantages to users in Western countries, it will open access to financial services for millions of people around the world without bank accounts. </p>
<p>Cross-border payments are in the current system ridiculously expensive and slow. Traditional banking often seems bureaucratic and technologically outdated. All these issues could be fixed by banks, but it will take outside pressure of new fintech startups to get it done.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/ca/newsletters?utm_source=TCCA&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/123154/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alfred Lehar receives funding from SSHRC and the Canadian Securities Institute Research Foundation.</span></em></p>Recent revelations about the lack of privacy protections in place at the companies on Libra’s foundation raise concerns about how much trust users can place in Facebook’s new cryptocurrency.Alfred Lehar, Associate Professor, University of CalgaryLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1212232019-08-06T13:44:38Z2019-08-06T13:44:38ZFacebook’s Libra: it’s not the ‘crypto’ that’s the issue, it’s the organisation behind it<figure><img src="https://images.theconversation.com/files/286737/original/file-20190802-117871-qda2ij.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The founding partners of the Libra Association.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/stone-staffordshire-united-kingdom-july-4-1442223218?src=cvqScd5qlPnYCUJF0e2XRA-1-2&studio=1">Ascannio / Shutterstock.com</a></span></figcaption></figure><p>In all the hype that has surrounded its Libra currency, Facebook has been able to distract attention away from an important issue. Libra is being hyped as Facebook’s bitcoin but it’s really a proposal for a global payments system. And that system will be controlled by a small and exclusive club of private firms.</p>
<p>Since it was announced in June, politicians and regulators have attacked Libra, citing <a href="https://www.bbc.co.uk/news/technology-49092713">concerns about its being a cryptocurrency</a>. Libra is not a cryptocurrency – at least, not as they have been put into practice so far, where a distributed, decentralised community participates in transaction verification <a href="https://theconversation.com/how-are-bitcoin-cryptowallets-and-blockchain-related-some-jargon-busted-88906">via a competitive process</a>. </p>
<p>Libra is essentially a prepaid digital token, backed one-to-one with a basket of reserve currencies. It is “minted” when people put up state-issued currencies to buy it.</p>
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Read more:
<a href="https://theconversation.com/facebooks-libra-has-staggering-potential-state-control-of-money-could-end-119434">Facebook's libra has staggering potential – state control of money could end</a>
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<p>What’s important here is not the technological innovation. Facebook is proposing, in Libra, a new form of organisation. We already have payment systems controlled by private companies – Visa, MasterCard, Venmo or PayPal, which provide the infrastructure or “rails” for transferring value – and Libra might turn into another such rail. But its promoters have <a href="https://libra.org/en-US/vision/">greater ambitions for it</a>. </p>
<p>Based on our research on the <a href="https://mitpress.mit.edu/books/paid">history and technology of payment infrastructures</a>, we see similarities between Libra and Visa. But it’s the differences with the Visa network that raise the biggest warning flags.</p>
<h2>Learning from Visa</h2>
<p>Libra will be controlled and maintained by the <a href="https://libra.org/en-US/association-council-principles/#overview">Libra Association</a>, a membership-based group. Libra’s developers have voiced a commitment to letting anyone become a member of the association, including users like you and me. The <a href="https://libra.org/en-US/permissionless-blockchain/#overview">Libra white paper</a> trumpets the importance of decentralisation. But it also admits that, “as of today we do not believe that there is a proven solution that can deliver the scale, stability, and security needed to support billions of people and transactions across the globe” through a truly open, decentralised system.</p>
<p>We believe Libra’s founders got the idea from <a href="https://www.springer.com/gp/book/9781849961387">the work of Visa’s founder, Dee Hock</a>. Hock was heralded as a visionary in his day, like Steve Jobs or Mark Zuckerberg today. He realised that the problem facing payments between banks was not technological, but organisational. </p>
<p>When setting up Visa, it was important for Hock that Visa would not be owned by self-interested shareholders. Instead, it was the users, banks and credit unions, who “owned” Visa as a cooperative membership organisation. Ownership here did not entail the right to sell shares, but an irrevocable right of participation – to jointly decide on the rules of the game and Visa’s future. </p>
<p>The incentive was to create a malleable but durable payment infrastructure from which all members would benefit in the long term. To work, everyone had to give something up – including their own branding on credit cards, subordinating their marks to Visa. This was a really big deal. But Hock convinced the network’s initial members that the payoff would come from the new market in payment services they would create. He was right.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/286738/original/file-20190802-117857-r65akp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/286738/original/file-20190802-117857-r65akp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/286738/original/file-20190802-117857-r65akp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/286738/original/file-20190802-117857-r65akp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/286738/original/file-20190802-117857-r65akp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/286738/original/file-20190802-117857-r65akp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/286738/original/file-20190802-117857-r65akp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Different banks, same Visa network.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/suphanburi-thailand-22-may-2017-pile-649842400?src=hztSEF-SZrccNZY_49xRmw-1-5&studio=1">Tony Stock / Shutterstock.com</a></span>
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<p>For most of its existence, until it went public in 2016, Visa was an anomalous creature: a for-profit, non-stock corporation based on the principle of self-organisation, embodying both chaos and order. Hock even coined a term for it: <a href="https://archive.org/details/birthofchaordica00hock_0">“chaordic”</a>.</p>
<p>Libra envisions a similar collaborative organisation among the founding members of its Libra Association. But it turns Hock’s principles upside down. The Libra Association is all about ownership and control by its members as a club.</p>
<h2>Big barriers to entry</h2>
<p>And the Libra Association is a club with very high barriers to entry. An entity has to invest at least US$10m in Libra or have more than US$1 billion in market value, among other criteria. The initial <a href="https://libra.org/en-US/association/#founding_members">list of founding members</a> tilts toward groups that have shown strong opposition to government interference and oversight. Tellingly, there are no regulated financial entities – like banks and fund managers – in the mix. The membership represents a self-selecting crème de la crème of global tech and <a href="https://www.investopedia.com/terms/v/vulturecapitalist.asp">vulture capitalism</a>.</p>
<p>Association membership guarantees a share of future profits proportionate to a member’s stake in the system. Unlike Visa, members do not compete with one another for market share. Instead, they will passively collect rent from interest made on investing in the Libra reserve basket. Plus, profits are not shared with users, and no interest is paid on the balance held by individuals. </p>
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Read more:
<a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">Libra: four reasons to be extremely cautious about Facebook's new currency</a>
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<p>Being a club member also affords the right to vote – again, a lot like Visa. But, unlike Visa, Libra gives voting right power based on investment level, not participation. This is not democratic; it is a plutocracy, where the wealthiest rule. And, as profits are linked solely to interest on the association’s reserve funds, those managing it may well become riskier and more speculative over time.</p>
<p>Libra’s white paper outlines an organisation that could become a decentralised, participatory system like Hock envisioned Visa would become. But Libra, if it is successful, will likely become an undemocratic behemoth. Alarm bells ring about a global currency’s de facto governance by a private, exclusive club serving the purposes of its investor-owners, not the public good. </p>
<p>Governments have long been suspicious of private currencies for good reasons, and Libra is no exception. We must not be distracted by its proposed technical complexity, and instead, focus on how this technology is organised, put to work, and how its rewards are distributed. The good news is that Facebook’s play for money may at last prompt politicians to regulate tech giants to curb their impact on and influence over society.</p><img src="https://counter.theconversation.com/content/121223/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bill Maurer receives funding from the US National Science Foundation and the Filene Research Institute.</span></em></p><p class="fine-print"><em><span>Daniel Tischer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Alarm bells should ring over a global currency that is run by an exclusive club that serves its investor-owners, not the public good.Bill Maurer, Professor of Anthropology and Law, University of California, IrvineDaniel Tischer, Lecturer in Management, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1195952019-07-08T04:49:16Z2019-07-08T04:49:16ZAll the hype around Libra is a red herring. Facebook’s main game is Calibra<figure><img src="https://images.theconversation.com/files/282823/original/file-20190705-51288-die2xg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Calibra has little to do with the ideals behind blockchain. The digital wallet is more like a traditional bank account.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Amid the hype around Facebook’s plan to launch its own cryptocurrency, Libra, there’s one big question. How is the company going to profit from it?</p>
<p>The project relies on developing blockchain technology. But blockchain’s whole raison d'être is to challenge the way corporate capitalism and businesses like Facebook make money. </p>
<p>Facebook has also established, with several dozen equally capitalistic partners, the <a href="https://libra.org/en-US/association/">Libra Association</a>, a nonprofit organisation based in Switzerland, to spearhead the venture. </p>
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Read more:
<a href="https://theconversation.com/the-lowdown-on-libra-what-consumers-need-to-know-about-facebooks-new-cryptocurrency-119391">The lowdown on Libra: what consumers need to know about Facebook’s new cryptocurrency</a>
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<p>After years of copping criticism for questionable business practices, has Facebook decided to take an altruistic turn?</p>
<p>Probably not. It’s more likely that blockchain, and even Libra, is a means to a end; it’s about Facebook wanting to be not only the world’s biggest social media platform but also the globe’s go-to marketplace, putting Amazon, eBay, Apple and Google in the shade.</p>
<p>To appreciate why this suggestion isn’t also hyperbole, we need to talk not so much about Libra but its companion technology, the “custodial wallet” called Calibra.</p>
<h2>Blockchain, but not blockchain</h2>
<p>First, let’s do a quick recap of some fundamentals. </p>
<p>In 2008, a person or group calling themselves Satoshi Nakamoto proposed a method for transacting over the internet without a trusted third party such as a bank. It uses a distributed ledger known as a blockchain and cryptography to maintain a tamper-proof record of ownership of electronic cash – hence the term cryptocurrency. </p>
<p>Blockchain’s core innovation is to do away with the need for trusted entities like banks. So how do people safely send or receive cryptocurrency? Well, they can use a “cryptocurrency wallet”. A cryptocurrency balance is recorded against a blockchain address. Proving ownership depends on a secret code (or “private key”) known only to the owner. The “wallet” is essentially software that allows people to manage their private keys and authorise transactions.</p>
<p>Facebook has other ideas for its cryptocurrency. The Libra Association says it wants to “<a href="https://libra.org/en-US/">make sending money as easy and cheap as sending a text message</a>”. Tapping addresses and secret codes into a wallet interface every time wouldn’t be that easy. These codes can be long – up to 64 characters, compared to 16 for a credit card.</p>
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<img alt="" src="https://images.theconversation.com/files/282813/original/file-20190705-51297-eymzk9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/282813/original/file-20190705-51297-eymzk9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=257&fit=crop&dpr=1 600w, https://images.theconversation.com/files/282813/original/file-20190705-51297-eymzk9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=257&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/282813/original/file-20190705-51297-eymzk9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=257&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/282813/original/file-20190705-51297-eymzk9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=323&fit=crop&dpr=1 754w, https://images.theconversation.com/files/282813/original/file-20190705-51297-eymzk9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=323&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/282813/original/file-20190705-51297-eymzk9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=323&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Cryptocurrency Keys.</span>
<span class="attribution"><span class="source">https://en.bitcoinwiki.org/index.php?curid=271198</span></span>
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<p>So Facebook will instead provide a “custodial wallet” – Calibra. It will be the custodian of your cryptocurrency, much like a bank is custodian of your money, and thus manage your wallet for you.</p>
<p>Facebook can certainly argue that this makes it much easier to use Libra – and it wants to make Libra easy to use so you can buy items through Facebook and its other platforms, such as Whatsapp and Instagram.</p>
<p>But this aspect has little to do with the original ideals behind blockchain. It makes Calibra more like a bank, with a record of your electronic payments. It will know everything you buy or sell through its wallet; and it <a href="https://scontent.fqls2-1.fna.fbcdn.net/v/t39.2365-6/65083631_355528488499253_8415273665234468864_n.pdf?_nc_cat=106&_nc_oc=AQlUWyB2g-5MOz1Vp5_3AxLF5j-LbAaAaquEwCn6VRTDN6dFHNlWo3SZLimyWmjw4Tk&_nc_ht=scontent.fqls2-1.fna&oh=c9a3869ee9c8f8982a12a7857b3296b1&oe=5D982AC3">will share</a> “Calibra customer data with managed vendors and service providers — including Facebook”.</p>
<h2>How Facebook monetises data</h2>
<p>Why is this important? Because Facebook is in the business of gathering your personal data.</p>
<p>It now uses this information to make <a href="https://s21.q4cdn.com/399680738/files/doc_financials/2019/Q1/Q1-2019-Earnings-Presentation.pdf">about 99% of its income</a> from selling advertising – US$14.9 billion in the first quarter of 2019 alone. </p>
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<img alt="" src="https://images.theconversation.com/files/282794/original/file-20190705-51258-1apao2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/282794/original/file-20190705-51258-1apao2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=325&fit=crop&dpr=1 600w, https://images.theconversation.com/files/282794/original/file-20190705-51258-1apao2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=325&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/282794/original/file-20190705-51258-1apao2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=325&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/282794/original/file-20190705-51258-1apao2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=409&fit=crop&dpr=1 754w, https://images.theconversation.com/files/282794/original/file-20190705-51258-1apao2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=409&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/282794/original/file-20190705-51258-1apao2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=409&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Facebook revenue, in millions.</span>
<span class="attribution"><span class="source">Facebook</span></span>
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<p>Its value as an advertising delivery mechanism comes not just from its sheer number of users (1.56 billion daily users, and 2.37 billion monthly users) but from what it knows about them. </p>
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<img alt="" src="https://images.theconversation.com/files/282792/original/file-20190705-51292-ojletx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/282792/original/file-20190705-51292-ojletx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=284&fit=crop&dpr=1 600w, https://images.theconversation.com/files/282792/original/file-20190705-51292-ojletx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=284&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/282792/original/file-20190705-51292-ojletx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=284&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/282792/original/file-20190705-51292-ojletx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=357&fit=crop&dpr=1 754w, https://images.theconversation.com/files/282792/original/file-20190705-51292-ojletx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=357&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/282792/original/file-20190705-51292-ojletx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=357&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Facebook daily active users, in millions.</span>
<span class="attribution"><span class="source">Facebook</span></span>
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<p>This goes way beyond basic personal details like your birthdate. Almost everything about Facebook is designed to get you to reveal personal information. You do this through what you post and the posts you like or respond to. You do this even when not directly using Facebook. Lots of online stores report back to Facebook when you visit them, for example.</p>
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Read more:
<a href="https://theconversation.com/explainer-what-is-surveillance-capitalism-and-how-does-it-shape-our-economy-119158">Explainer: what is surveillance capitalism and how does it shape our economy?</a>
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<p>Identifying key personality traits can be used to predict purchasing behaviour – or political preference, as demonstrated in the Cambridge Analytica controversy. The British-based political consultancy bragged it effectively swung the US 2016 election to Donald Trump by using Facebook to harvest user data and then directing customised political messages to users’ newsfeeds. </p>
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<strong>
Read more:
<a href="https://theconversation.com/we-need-to-talk-about-the-data-we-give-freely-of-ourselves-online-and-why-its-useful-93734">We need to talk about the data we give freely of ourselves online and why it's useful</a>
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<p>While there is some scepticism about Cambridge Analytica’s electoral impact, it is generally agreed the process of “micro-targeting” can be very effective for marketers. </p>
<p>So the more information Facebook has about you, the more money it can potentially make by influencing you.</p>
<h2>Becoming bigger than Amazon</h2>
<p>There’s more.</p>
<p>Facebook’s value as an advertising powerhouse has made its founder, Mark Zuckerberg, extremely wealthy – worth an estimated US$73 billion. But that’s less than half of Amazon’s founder, Jeff Bezos, who’s worth US$158 billion.</p>
<p>Both companies are in the business of helping merchants sell products. But Amazon’s position as an online marketplace is more lucrative than Facebook’s role as a shop window. Amazon can take a cut from every sale. Its retail business makes up about <a href="https://www.statista.com/statistics/672747/amazons-consolidated-net-revenue-by-segment/">80%</a> of its <a href="https://finance.yahoo.com/quote/AMZN/">US$950 billion</a> value, which is greater than Facebook’s total value of <a href="https://finance.yahoo.com/quote/fb">US$550 billion</a>. </p>
<p>What if Facebook could be both the shop window and the cash register? What if it no longer just introduced users to merchants but also became the digital marketplace supporting those merchants? What if it could collect not just social data but also buyer history data?</p>
<p>This is what Libra, and more critically, Calibra, could mean for Facebook. </p>
<p>Libra’s an important part of this picture. But it’s Calibra that could deliver the data Facebook needs to become possibly the most valuable, and powerful, online company in the world.</p><img src="https://counter.theconversation.com/content/119595/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Priya Dev does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Facebook’s cryptocurrency and digital wallet will give it unprecedented access to personal data, with the power to take on Amazon and eBay.Priya Dev, Blockchain Researcher & Lecturer Data Analysis, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1196062019-07-01T13:24:52Z2019-07-01T13:24:52ZLibra, Iran and the potential end of cryptocurrencies as we know them<figure><img src="https://images.theconversation.com/files/282022/original/file-20190701-105195-fy7bwr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/libra-concept-coin-design-onscreen-laying-1429773065?src=cvqScd5qlPnYCUJF0e2XRA-1-6&studio=1">Wit Olszewski / Shutterstock</a></span></figcaption></figure><p>Facebook’s new cryptocurrency, libra, is being heralded as the moment that cryptocurrencies and blockchain, the technology that supports them, <a href="https://edition.cnn.com/2019/06/18/tech/facebook-libra-cryptocurrency/index.html">become truly mainstream</a>. A notable <a href="https://coinmarketcap.com/">rise in the price of bitcoin and many other cryptocurrencies</a> in the run up to the libra announcement on June 18, and since, suggests a market directly responding to this possibility and bolstered by it.</p>
<p>Of course, the price of bitcoin is known to rise and fall sharply <a href="https://www.investopedia.com/articles/investing/052014/why-bitcoins-value-so-volatile.asp">on a fairly regular basis</a>. Yet there is no doubt that having one of the world’s largest and most influential corporations throwing its weight behind the technology will calm nerves and build confidence.</p>
<p>More importantly, it gives legitimacy to the idea that cryptocurrencies and blockchain are here to stay. And, as I have argued in my research, must be <a href="https://link.springer.com/article/10.1007/s10978-018-9226-y">taken seriously</a>, not least by <a href="https://www.routledge.com/Regulating-Blockchain-Critical-Perspectives-in-Law-and-Technology-1st/Herian/p/book/9781138592766">regulators</a>.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/facebooks-libra-has-staggering-potential-state-control-of-money-could-end-119434">Facebook's libra has staggering potential – state control of money could end</a>
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<p>In the same moment the world is introduced to libra, tensions between the United States and Iran continue to grow, with <a href="https://www.theguardian.com/us-news/video/2019/jun/24/donald-trump-announces-new-sanctions-targeting-iranian-leader-video">President Donald Trump</a> increasing US sanctions against Iran. The two are not directly connected, but libra (or other cryptocurrencies) could offer Iran a route round its sanctions. This, of course, is not something Facebook intends – but Iran’s interest in cryptocurrencies could have a serious influence on libra’s future.</p>
<h2>A troubled past</h2>
<p>In their contemporary forms, bitcoin and blockchain have been around for <a href="https://theconversation.com/bitcoin-turns-ten-heres-how-it-all-started-and-what-the-future-might-hold-105782">roughly ten years</a>. In this time cryptocurrencies have proliferated wildly. According to the cryptocurrency platform, <a href="https://coinmarketcap.com/">CoinMarketCap</a>, there are now at least 2,248 different kinds of tokens. Many of these are actively and enthusiastically exchanged and traded by a growing number of people.</p>
<p>The recent history of cryptocurrencies, and bitcoin specifically, has not been all that positive. Famously, in 2013, the <a href="https://theconversation.com/the-fall-of-silk-road-isnt-the-end-for-anonymous-marketplaces-tor-or-bitcoin-42659">illicit darknet marketplace Silk Road was shut down</a> following an FBI investigation. The site’s founder, Ross Ulbricht, was imprisoned for life. Silk Road users relied heavily on bitcoin to ensure anonymity, and the libertarian ethos underpinning bitcoin appeared to fit well with Silk Road’s rejection and evasion of authority and regulation. </p>
<p>What was so attractive for many about Silk Road, bitcoin and aspects of blockchain technology in general, was the fact that together they enable people to side step the usual legal constraints and regulations that apply online and offline when it comes to financial transactions. The anonymity bitcoin offers enables people to buy and sell <a href="https://www.complex.com/pop-culture/2013/10/silk-road/atm-hacking-tutorial">just about anything</a> without detection. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-fall-of-silk-road-isnt-the-end-for-anonymous-marketplaces-tor-or-bitcoin-42659">The fall of Silk Road isn't the end for anonymous marketplaces, Tor or bitcoin</a>
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<p>Silk Road offered a form of freedom to its users they were unlikely to have enjoyed previously. But this, of course, put it at loggerheads with laws and regulations in most countries and jurisdictions. While the Silk Road marketplace is now gone, cryptocurrency and blockchain are attracting more interest than ever before. At the same time governmental oversight of the technology <a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">continues to lag behind</a>. Although things may be about to change <a href="https://www.coindesk.com/the-cat-and-mouse-game-of-crypto-regulation-enters-a-new-phase">on that front</a>.</p>
<h2>Crypto-Iran</h2>
<p>Iran has long recognised the benefits of <a href="https://www.nytimes.com/2019/01/29/world/middleeast/bitcoin-iran-sanctions.html">developing capabilities</a> around crypto-assets and blockchain technology to counter US sanctions. This has included attempts to develop its own <a href="https://www.coindesk.com/iran-blockcain-bank-bitcoin-crypto-token">state-backed cryptocurrency</a>. </p>
<p>That Iran might use Facebook’s new cryptocurrency libra to dance around US sanctions, a la Silk Road, is entirely speculative. Given Facebook’s contentious track record on the management of <a href="https://www.bbc.co.uk/news/technology-43649018">user data</a> in recent years, and the fact that it is yet to convince <a href="https://cointelegraph.com/news/us-house-of-representatives-to-hold-hearing-on-facebooks-libra-in-july">US lawmakers and financial regulators</a> of the legitimacy of its project, Iran, let alone billions of Facebook users, may not even get a chance to use libra at all.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/us-iran-tensions-no-route-for-de-escalation-in-sight-119416">US-Iran tensions: no route for de-escalation in sight</a>
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</em>
</p>
<hr>
<p>However, the potential for Iran to use libra raises serious questions about the level of control that should be demanded over cryptocurrency use. Robust state or corporate oversight of the technology (or perhaps a troubling blend of the two, <a href="https://www.theguardian.com/commentisfree/2019/jun/19/facebook-cryptocurrency-libra">as some have argued</a>), could kill, once and for all, the <a href="https://theconversation.com/bitcoins-strength-lies-in-its-libertarian-status-24982">libertarian dream</a> that blockchains and cryptocurrencies have long encapsulated. </p>
<p>Facebook may well find stiff opposition to libra based on the vagaries of financial regulations. But it could well face stiffer opposition both politically, from governments who don’t want their foreign policies undermined – and commercially, from users not getting the empowering financial infrastructure <a href="https://libra.org/en-US/white-paper/">they were promised</a>, but, instead, a heavily controlled one.</p>
<p>Iran’s interest in cryptocurrencies encapsulates how, in today’s world, the empowerment and transparency that many advocates of cryptocurrencies and blockchains like to think is only a piece of code away is little more than a <a href="https://www.researchgate.net/publication/332208849_Blockchain_GDPR_and_Fantasies_of_Data_Sovereignty">fantasy</a>. Something always seems to spoil the party. </p>
<p>Blockchain has been celebrated as a technology to circumvent authority and regulation – the role of bitcoin in Silk Road and its continued <a href="https://thenextweb.com/hardfork/2019/05/03/wall-street-market-silkkietie-valhalla-dark-web-drug-monero-bitcoin-cryptocurrency/">use on the “dark web” since</a> is evidence of this. Put simply, Iran is just another example of wanting to avoid the authorities. </p>
<p>But this could be a step too far for authorities. And this could have a serious effect on all cryptocurrencies – not just Facebook’s libra. If the perception in the US and elsewhere is that Iran intends to use the technology, this could require a significant rethink regarding the future of cryptocurrencies and blockchains. </p>
<p>It won’t mean the end of them, certainly not. But if this is the moment the technology truly became mainstream, then it could equally be the moment it finally yields to control and regulation – and the end of founder “<a href="https://bitcoin.org/bitcoin.pdf">Satoshi’s vision</a>”. Libra could be a solution, but for some it may also look a lot like a problem.</p><img src="https://counter.theconversation.com/content/119606/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Herian does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Iran has long recognised the benefits of using cryptocurrencies to counter US sanctions.Robert Herian, Senior Lecturer in Law, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1195022019-06-28T08:47:55Z2019-06-28T08:47:55ZLibra: Facebook’s cryptocurrency will not help the billions of people currently excluded from banks<figure><img src="https://images.theconversation.com/files/281577/original/file-20190627-76697-1utx3ke.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">'It'll never catch on!'</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/indian-man-field-talking-on-phone-1122510704?src=7Kw3Lm3xf1H_bE_bEN1lcw-1-11&studio=1">NIKS ADS</a></span></figcaption></figure><p>When Facebook unveiled its new digital currency libra, it <a href="https://newsroom.fb.com/news/2019/06/coming-in-2020-calibra/">explicitly said</a> the initiative was intended to address the problems faced by the world’s unbanked: the <a href="https://www.worldbank.org/en/news/press-release/2018/04/19/financial-inclusion-on-the-rise-but-gaps-remain-global-findex-database-shows">1.7 billion people</a> without a bank account. As well as facing inconvenience, these people generally pay over the odds for financial services like bank transfers or overdrafts. </p>
<p>This is a pretty big potential market for Facebook so it’s not surprising that it would target the opportunity. But could libra really transform access to financial services for those who are currently excluded? There are reasons to raise serious doubts. </p>
<p>Across the world, the main reasons people <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter2.pdf">give for</a> not holding a bank account is that they don’t have enough money, don’t see the need for an account, find it too expensive, or another family member already has one. Not having the right documentation is also a barrier, as is distrust in the financial system. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=663&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=663&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=663&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=833&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=833&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281596/original/file-20190627-76722-13yraad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=833&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mo’ money mo’ problems.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/california-united-states-june-18-2019-1428983495?src=uQDowTjMAs4jcqBajlVVCg-1-35&studio=1">Zilverlight</a></span>
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<p>But the specific barriers to financial inclusion vary significantly by region and are usually a combination of social and economic factors. For instance, while cost is a big barrier in Latin America, lack of documentation is the big issue in Zimbabwe and Philippines. </p>
<p>This makes it difficult for any one intervention to be a solution to this huge group of people. Worryingly, the Facebook “<a href="https://libra.org/en-US/white-paper/">white paper</a>” that outlines libra does not really engage with these problems or say how it plans to overcome them. </p>
<h2>Trust and financial literacy</h2>
<p>People’s trust in institutions can be very important in influencing the extent to which they use their services, as I have found from my own work into microfinance, which <a href="https://www.strategicmanagement.net/awards/best-paper-prize">I have presented</a> at conferences but is yet to be published in an academic journal. </p>
<p>I have found that people are more likely to choose something familiar over something novel. Since libra will be a new currency relying on digital wallets and built on blockchain online ledger technology, it is not short of novelties. Inspiring trust is therefore likely to be a major challenge. </p>
<p>And simply signing someone up to an account – be it a bank account or a digital wallet – is only part of the financial inclusion challenge. </p>
<p>In India, 190m people still do not have bank accounts, but the percentage of the population who do have accounts has steadily increased to 80%. In 2017, however, <a href="https://qz.com/india/1260139/india-has-the-highest-number-of-inactive-bank-accounts-in-the-world/">nearly half of all bank accounts</a> in the country had seen no activity over the whole of the previous year. One of the reasons is financial literacy, which remains low both in India and many other developing countries. Many people in India <a href="https://www.aljazeera.com/ajimpact/banking-india-people-don-accounts-190621093947054.html">have said</a> they are simply unaware of the different benefits of a bank account, such as overdraft facilities or credit schemes. </p>
<p>As many as 62% of the world’s unbanked <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter2.pdf">have received</a> only a primary-level education or less, and in poorer countries the proportion is almost certainly going to be higher. Expecting such people to make complex currency conversions into a new virtual currency is asking a lot. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281619/original/file-20190627-76726-122203p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Services rendered.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/barefoot-african-model-working-on-her-246583180?src=b3QjkJ2fijlRslQDGTVeYA-1-16&studio=1">Riccardo Mayer</a></span>
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<p>In the first place, there is a need for financial literacy measures and initiatives aimed at motivating them to use the services available. Without this additional support, there is a strong risk that Facebook will boast large numbers of sign-ups but very low rates of transactions from the people who are most in need. </p>
<h2>Big world</h2>
<p>Only a few days since Facebook’s announcement, libra has faced <a href="https://www.washingtonpost.com/business/technology/facebooks-currency-libra-faces-financial-privacy-pushback/2019/06/19/691b9794-92f4-11e9-956a-88c291ab5c38_story.html?noredirect=on&utm_term=.cb1f4eaabf5b">strong pushback</a> from regulators and policymakers around the world. There is <a href="https://theconversation.com/facebooks-libra-has-staggering-potential-state-control-of-money-could-end-119434">much concern</a> about this proposed shift of power from central banks to a private corporation. </p>
<p>But aside from questions about the ethics of data privacy or the creation of a supranational currency, libra faces an important practical question. On the one hand, it is not clear how a model such as libra, where there will presumably be little or no physical presence in many countries, would interact with and adhere to local regulations. </p>
<p>On the other hand, if it does conform to the local standards of each country, it is unclear how it will overcome challenges like signing people up and strict documentation requirements. Will it really be able to serve the unbanked better than local providers who are used to the challenges in that specific market already? </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">Libra: four reasons to be extremely cautious about Facebook's new currency</a>
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<p>Entrepreneurs and businesses can either start with a problem and think of the best way to solve it; or they can start with a solution and find the biggest and best problem it might solve. I’m not convinced that libra is a good move in either direction. Facebook either has a huge amount of work to do to adapt its solution to fit the problem better, or it needs to redefine the problem that it is trying to fix.</p><img src="https://counter.theconversation.com/content/119502/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kamini Gupta previously received a research grant from Deloitte Institute of Innovation and Entrepreneurship. </span></em></p>You can’t fix financial literacy with digital wallets.Kamini Gupta, Lecturer in International Business and Comparative Management, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1193912019-06-27T05:24:39Z2019-06-27T05:24:39ZThe lowdown on Libra: what consumers need to know about Facebook’s new cryptocurrency<figure><img src="https://images.theconversation.com/files/281344/original/file-20190626-76709-khx1nx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Libra could become more successful than other cryptocurrencies because it has the backing of multiple large international corporations.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/chiang-maithailand-june-192019-libra-facebook-1428033530?src=library&studio=1">Shutterstock</a></span></figcaption></figure><p>Cryptocurrencies have become a global phenomenon in the past few years. Now Facebook is launching it’s own cryptocurrency, in association with Visa, MasterCard, Uber and others. The stated aim of <a href="https://libra.org/en-US/">Libra</a> is to “enable a simple global currency and financial infrastructure that empowers billions of people”.</p>
<p>The announcement has sparked fears that Libra could be <a href="https://theconversation.com/facebooks-libra-plan-talk-of-the-demise-of-central-banks-is-greatly-exaggerated-119165">a threat to traditional banks</a>, warnings to be <a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">cautious</a>, and <a href="https://theconversation.com/facebook-claims-libra-offers-economic-empowerment-to-billions-an-economist-is-skeptical-118982">sceptical commentary</a> of claims that it will help developing countries. </p>
<p>But let’s go back to the basics and look at what Libra is, how it compares to other cryptocurrencies and whether you should be concerned about using it when it eventually arrives.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/with-cryptocurrency-launch-facebook-sets-its-path-toward-becoming-an-independent-nation-118987">With cryptocurrency launch, Facebook sets its path toward becoming an independent nation</a>
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<h2>What is a cryptocurrency?</h2>
<p>Currency is a system of money that is commonly used in exchange for goods and services and, as a result, holds value. Cryptocurrencies are digital currencies that are secured using cryptography. </p>
<p>The more popular recent cryptocurrencies are based on blockchain technology which uses a cryptographic structure that is difficult to change. One of the key properties of this structure is a distributed ledger that keeps account of financial transactions, which anyone can access. </p>
<h2>What is Libra?</h2>
<p>Libra is a new currency that is being proposed by Facebook. It’s considered a cryptocurrency because cryptography will be used to help protect the value of the currency from tampering – such as double spending – and to protect the payment process. </p>
<p>Libra has the potential to become successful because of the backing from the <a href="https://libra.org/en-US/association-council-principles/#overview">Libra Association</a>, which is made up of large international corporations such as Facebook, Uber and Vodafone. MasterCard and Visa have also thrown their hats in the ring, but no traditional banks are on the list. </p>
<h2>What’s different about Libra compared with other cryptocurrencies like Bitcoin?</h2>
<p>Cryptocurrencies like Bitcoin and Ethereum are quite egalitarian in nature. That’s because there is no single authority that verifies transactions between parties, so anyone could potentially do it.</p>
<p>To authorise a Bitcoin transaction you would have to prove that you have done the work, known as a “<a href="https://en.bitcoin.it/wiki/Proof_of_work">proof of work</a>”. For Bitcoin, the proof of work is to solve a mathematical puzzle. People who successfully solve the puzzle (proving they have done some work), can add transactions to the blockchain distributed ledger and are rewarded with Bitcoins. The process is known as mining.</p>
<p>The good thing about this is that it reduces fraud. Since anyone can potentially mine Bitcoins, it’s harder to collude as you wouldn’t know who the next person to mine a coin would be. And it’s simple to verify that the person is authorised because anyone can check that the puzzle has been solved correctly. </p>
<p>Based on the <a href="https://mashable.com/article/facebook-libra-deep-dive/">initial descriptions of the currency</a>, it sounds like the difference with Libra is that it will verify transactions using a consensus system known as “<a href="https://blockgeeks.com/guides/proof-of-work-vs-proof-of-stake/">proof of stake</a>”, or a variation of this method. Under this system, transactions would be authorised by a group of people who have a stake or ownership in the currency. </p>
<p>This makes it easier to predict who the next person to authorise a transaction might be (since there are a relatively small number of authorising group members), and then collude to launder funds without other group members knowing.</p>
<p>It <a href="https://www.theblockcrypto.com/2019/06/18/how-to-become-a-founding-member-of-the-libra-association/">appears</a> the criteria to become a founding member of the Libra Association is to contribute a minimum of US$10 million entrance fee, have a large amount of money in the bank and be able to influence a large number of people.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/is-facebook-todays-compuserve-how-libra-could-hasten-its-demise-119213">Is Facebook today's Compuserve? How Libra could hasten its demise</a>
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<h2>What are banks and regulators worried about?</h2>
<p>Cryptocurrencies affect governments and tax systems since they have little to no transaction costs when money is transferred across borders. So while the low transaction costs would be good for everyday users, the advent of a new cryptocurrency with a potentially very large user base has governments and traditional banks very concerned.</p>
<p>While Libra is open source – meaning the source code is available for all to view, use and modify – it’s the members of the association who will be overseeing the currency. Libra could herald a shift away from traditional government taxes and banking fees to a new international monetary system controlled by corporate entities like Facebook and Uber. That’s a concern because of the lack of oversight from regulatory bodies. </p>
<h2>What should everyday people expect from Libra?</h2>
<p>The backing of software giants means it’s likely that the user interface for Libra coins would be smooth and simple to use. </p>
<p>Low transaction costs would benefit users and the Libra Association promises to control the value of the currency so that it does not fluctuate as much as other cryptocurrencies. It’s unclear how they plan to do this. But value stability would be a great advantage in times of uncertainty.</p>
<h2>What are the risks?</h2>
<p>The everyday consumer probably wouldn’t know the difference between the “proof of work” and the “proof of stake” mechanisms. But since Facebook has a large database of users that are known to use Libra, it may be able to link Libra transactions to individuals. This could be a privacy concern. (Bitcoin transactions are anonymous because account numbers used in Bitcoin transactions are not linked to an individual’s identity.)</p>
<p>Recent cybersecurity <a href="https://www.smh.com.au/business/banking-and-finance/australians-private-details-exposed-in-attack-on-westpac-s-payid-20190603-p51u2u.html">breaches</a> have contributed to a growing awareness of the vulnerabilities of IT systems. As with all software, the Libra implementation and management could be vulnerable to attack, which in turn could mean users could lose their money. But that is a risk that all cryptocurrency users face, whether they are aware of it or not. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">Libra: four reasons to be extremely cautious about Facebook's new currency</a>
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<h2>What steps could consumers take to protect themselves?</h2>
<p>No matter what cryptocurrency you choose to use, your funds are still accessible through the same interfaces: a web page or a mobile app. And the way you control access to your personal funds is by authenticating with a password. </p>
<p>Make sure you keep your password safe by making sure it is complicated and hard to guess. Look for applications that allow you to use two-factor authentication and make sure it’s turned on.</p>
<p>Libra is yet to prove its claims of making financial transactions safe and convenient. Only time will tell if its uptake will become widespread following its expected launch next year.</p><img src="https://counter.theconversation.com/content/119391/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ernest Foo does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We go back to the basics and look at what Libra is, how it compares to other cryptocurrencies and whether you should be concerned about using it when it eventually arrives.Ernest Foo, Associate Professor, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1194342019-06-26T11:14:56Z2019-06-26T11:14:56ZFacebook’s libra has staggering potential – state control of money could end<figure><img src="https://images.theconversation.com/files/281362/original/file-20190626-76697-hc4l8b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The fruit of your coins. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/red-arrow-icon-on-background-money-453461743?src=qyrfDpMl05s9_gK3AT7K9A-2-47&studio=1">1599686sv</a></span></figcaption></figure><p>The UN <a href="https://www.worldatlas.com/articles/how-many-currencies-are-in-the-world.html">recognises</a> 180 currencies worldwide as legal tender, all of them issued by nation states. It does not recognise cryptocurrencies like bitcoin in this way, even if communities of enthusiasts have been treating them as a means of exchange for over a decade now. </p>
<p>Yet the latest addition to this group, <a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">Facebook’s libra</a>, threatens to do something that no other cryptocurrencies have come close to achieving: the state monopoly over the control and issuance of money is now under serious threat. </p>
<p>Facebook <a href="https://dustinstout.com">boasts</a> over half the world population as active monthly users: 2.2 billion on Facebook, 0.8 billion on Instagram and 0.7 billion on WhatsApp. Combined with the <a href="http://documents.worldbank.org/curated/en/332881525873182837/The-Global-Findex-Database-2017-Measuring-Financial-Inclusion-and-the-Fintech-Revolution">fact that</a> 1.7 billion adults worldwide have no bank accounts, a project like this is the perfect petri dish in which to create a truly global currency. </p>
<h2>The Libra Council</h2>
<p>The independent Libra Council that Facebook <a href="https://libra.org/en-US/white-paper/">proposes</a> to oversee this new currency from Geneva will become nothing short of a quasi central bank. Consisting of 27 giant corporates plus Facebook, it will vet aspiring applicants who wish to join their ranks for a fee of US$10m (£7.9m); as well as manage the reserve of state currencies and short-term government bonds that will back the libra. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=479&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=479&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=479&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=602&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=602&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281366/original/file-20190626-76743-10mjwz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=602&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Founding members of the Libra Council.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/kiev-ukraine-june-19-2019-libra-1429703210?src=uQDowTjMAs4jcqBajlVVCg-1-42&studio=1">rvisoft</a></span>
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<p>This model is very different to the likes of bitcoin, whose exchange rate is driven purely by the supply and demand. In contrast, the Libra Council would be competing in global currency wars against other nation states. </p>
<p>Imagine ten years from now if, say, 40% of all US dollars are held on deposit by Facebook/the council to back the issued libra coins, which have by now become widely used across the world. We can hypothesise that US dollars might constitute a 30% weight of libra’s asset-backing basket – to have a steady exchange rate for libra, the idea is to underpin it with a selection of stable and widely traded financial assets. </p>
<p>In the likely event that the US experiences a moderate, or even severe economic crisis, Facebook/the council would need to rebalance the basket of assets to defend the value of libra. Let’s say they decided to revise down the US dollar weighting in their reserve to 25% of the basket. This would involve selling huge sums of US dollars and replacing them with, say, euros, and would significantly drive down the value of the dollar. </p>
<p>This would be a very negative market signal, encouraging other holders of dollars to dump them as well, thereby exacerbating the fall. And even before this happened, Facebook could potentially use the mere threat as leverage in negotiating with nation states on matters of regulation, taxation and so on. <a href="https://www.businessinsider.com/25-giant-companies-that-earn-more-than-entire-countries-2018-7?r=US&IR=T#iberdrolas-takings-surpassed-the-gdp-of-the-ivory-coast-18">Based on</a> Facebook’s current revenues, it would already be 90th in the world by GDP if it was a nation state, so its power to face off in negotiations with states and trading blocs is formidable even without libra.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">Libra: four reasons to be extremely cautious about Facebook's new currency</a>
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<p>How do nation states control a global company with unprecedented access to their citizens’ data, its own currency, and perhaps the ability to affect their domestic politics and the strength of their currency on the global markets? It sounds tricky to put it mildly. </p>
<p>And by the way, it’s not only Facebook that is entering this space. JP Morgan has just launched a cryptocurrency for institutional customers, <a href="https://www.ft.com/content/9fd8e8ea-83e5-11e9-b592-5fe435b57a3b">while</a> 13 other global investment banks are planning to follow suit with currencies in 2020. Samsung <a href="https://thenextweb.com/hardfork/2019/04/25/samsung-supposedly-looking-to-launch-its-own-ethereum-based-blockchain-and-token/">is rumoured</a> to be looking at launching a currency for ordinary customers, while it would not be surprising if other online giants like Amazon and Google were tempted, too. </p>
<h2>The greater threat</h2>
<p>Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board, <a href="https://www.coindesk.com/financial-stability-board-downplays-crypto-impact-on-global-finance">told the G20</a> in 2018 that cryptocurrencies didn’t pose a systemic risk to the global financial system. His assessment might have been based on their current footprint rather than their potential. </p>
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<a href="https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=654&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=654&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=654&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=822&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=822&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281373/original/file-20190626-76717-q77mnk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=822&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Snout funny.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/devaluation-inflation-broken-money-box-line-1108462649?src=4C_R8rgs2CEnE_4OSE8tMw-1-84&studio=1">Elchin Jafarli</a></span>
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<p>In fact, the blockchain technology that underpins new currencies like libra has astonishing potential. The ability to significantly move exchange rates is only part of it: if people buy and sell with these currencies, save with them, trade with them, demand for state currencies and bonds could plunge. </p>
<p>This would undermine the ability of central banks and governments to buy and sell these assets to set national interest rates. It would emasculate this vital means of managing our economies, leaving only fiscal levers like taxing and spending at the disposal of states. What then?</p>
<p>Of course, such a seismic shift in our control of the use of money would first require these new currencies to be widely adopted. Yet the genie has been out of the bottle since the arrival of cryptocurrencies – it will be very difficult to stop it now. </p>
<p>If this space comes to be dominated by big listed companies like Facebook and JP Morgan, it is at least arguably preferable to alternatives like bitcoin which are almost unfettered in having no geographic or tax domicile and being pseudo-anonymous in nature. A currency like libra also has the potential to reduce consumer transaction speeds, improve transparency and allow users to store their wealth digitally using a “trusted” consortium of founding institutions. </p>
<p>And when it comes to future geopolitical shocks like Brexit, consumers will be able to shield themselves more easily by reducing their exposure to, say, the British pound by holding their wealth in libra or whatever instead. Arguably we are talking about a superior type of money that is better aligned to a younger generation that is comfortable with such new forms of money. </p>
<p>Notwithstanding, we need to come to terms with the size of this potential change and its ramifications: Facebook’s impact on our societies has been profound over the previous two decades, and libra may well eclipse that accomplishment. Facebook’s <a href="https://mastersofscale.com/mark-zuckerberg-imperfect-is-perfect/">founding mantra</a> of “move fast and break things” seems entirely consistent with the strategy for this currency. </p>
<p>The American futurist <a href="https://www.ted.com/speakers/stewart_brand">Stewart Brand</a> famously <a href="https://monoskop.org/images/4/47/Brand_Stewart_The_Media_Lab.pdf">said that</a> “once a technology rolls over you, if you’re not part of the steamroller, you’re part of the road”. Well, nation states appear not to have been invited to get on board this particular steamroller. That leaves a lot of vulnerable road – watch closely to see what they try and do about it in the months ahead.</p><img src="https://counter.theconversation.com/content/119434/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Brown is a Non-Executive Director and Co-founder at Blockchain Capital Limited, a start-up digital assets fund which has yet to launch. It would not benefit directly from this article but does have an interest in digital asset investments such as bitcoin which leverage blockchain technology. </span></em></p>Why the coming generation of cryptocurrencies could force us to rethink the entire monetary system.Gavin Brown, Senior Lecturer, Finance, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192062019-06-25T12:48:19Z2019-06-25T12:48:19ZFacebook’s Libra may be quite attractive in developing countries<figure><img src="https://images.theconversation.com/files/280994/original/file-20190624-97789-1j5u80e.jpg?ixlib=rb-1.1.0&rect=55%2C20%2C4545%2C3428&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A customer and vendor exchange electronic money through a mobile phone in Uganda.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Mobile_money_outlet.jpg">Ndiwulira/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p><a href="https://libra.org/en-US/white-paper/#introducing-libra">Facebook’s Libra cryptocurrency</a> has taken a lot of criticism from <a href="https://www.wired.com/story/lawmakers-express-privacy-concerns-facebooks-libra/">Western government officials</a> and <a href="https://www.bloomberg.com/opinion/articles/2019-06-17/facebook-libra-crypto-currency-is-another-zuckerberg-threat">media commentators</a> – but it’s not meant for them. A major target market for the Libra is <a href="https://libra.org/en-US/white-paper/#introducing-libra">users in developing countries</a>.</p>
<p>From researching <a href="https://www.youtube.com/watch?v=WDo_Jlov9R4&t=943s">cryptocurrency</a>, <a href="https://theconversation.com/can-blockchain-technology-help-poor-people-around-the-world-76059">blockchain</a> and <a href="https://www.taylorfrancis.com/books/9781315537924">other technologies</a> in the context of <a href="https://theconversation.com/blockchain-based-property-registries-may-help-lift-poor-people-out-of-poverty-98796">developing countries</a>, I can see that digital payment systems are already attractive. Libra may <a href="https://theconversation.com/facebook-claims-libra-offers-economic-empowerment-to-billions-an-economist-is-skeptical-118982">potentially be even more so</a>, because Facebook has the money and technological advances that could make Libra easier than many existing methods.</p>
<h2>A huge market opportunity</h2>
<p>Most of Facebook’s <a href="https://www.theverge.com/2019/6/14/18678785/facebook-libra-cryptocurrency-visa-mastercard-uber-paypal-stripe-association-consortium">2.4 billion users</a>, and the <a href="https://metro.co.uk/2019/06/20/whatsapps-biggest-fan-calls-worst-bugs-updates-features-10018063/">1.5 billion users</a> of Facebook-owned WhatsApp, live <a href="https://www.statista.com/statistics/268136/top-15-countries-based-on-number-of-facebook-users/">in developing countries</a>.</p>
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<p>India is WhatsApp’s biggest market, with <a href="https://tech.economictimes.indiatimes.com/news/startups/whatsapp-pay-may-end-paytms-hegemony-in-india/69193368">more than 300 million users</a>. There are <a href="https://www.digitalinformationworld.com/2019/02/whatsapp-facts-stats.html">120 million</a> WhatsApp users in Brazil. In those two countries, <a href="https://www.ft.com/content/e045cdd2-0503-11e9-99df-6183d3002ee1">80% of small businesses use WhatsApp as part of their business activities</a>, such as exchanging bills and receipts with customers and suppliers.</p>
<h2>Cheaper transactions</h2>
<p>WhatsApp has been <a href="https://economictimes.indiatimes.com/magazines/panache/heres-your-easy-guide-to-making-payments-using-whatsapp-pay/articleshow/62934145.cms">testing a new feature called WhatsApp Pay</a>, which lets users send money directly to each other’s bank accounts. It’s only available in India, where there are <a href="https://www.pymnts.com/facebook/2019/libra-wallet-markets/">1 million users</a> – and it’s not the only peer-to-peer funds transfer service in the country. In addition to sending each other money, people also use WhatsApp Pay for <a href="https://www.ft.com/content/e045cdd2-0503-11e9-99df-6183d3002ee1">buying goods and services</a> from vendors.</p>
<p>However, WhatsApp Pay depends on the <a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/unified-payments-interface-clocks-674-million-transactions-in-february-continues-growth-momentum/articleshow/68221867.cms">Indian government’s Unified Payments Interface</a> to handle the transactions. That means <a href="https://www.ft.com/content/e045cdd2-0503-11e9-99df-6183d3002ee1">banks have to pay a fee</a> to let their customers use the service. </p>
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<figcaption><span class="caption">A demonstration of how WhatsApp Pay works.</span></figcaption>
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<p>Libra could be cheaper to use, and could expand WhatsApp Pay’s reach far beyond India. Expanding the service across many countries could prove a huge opportunity for families with members working overseas. Many people who emigrate from developing countries to more developed nations send money back home to help their families get by. In 2018, people sent <a href="https://www.worldbank.org/en/news/press-release/2019/04/08/record-high-remittances-sent-globally-in-2018">US$689 billion to family members in other countries</a> – and $529 billion of that money went to people in low- and middle-income nations. </p>
<p>The fees for those services are enormous – <a href="https://www.financemagnates.com/cryptocurrency/news/facebook-targets-remittances-worlds-unbanked-with-libra/">$25 billion a year</a>, or 3.5% of the total amount sent. Facebook knows that <a href="https://www.cnbcafrica.com/news/financial/2019/06/18/facebook-leads-consortium-creating-libra-digital-currency-launches-calibra-digital-wallet/">saving money on these transfers</a>, which the financial industry calls “remittances,” would be a huge draw, letting emigrants <a href="https://www.ft.com/content/5c0dbb2c-91eb-11e9-b7ea-60e35ef678d2">send home most or all of the fee savings</a>, rather than paying it to middlemen.</p>
<p>In addition, Facebook’s Libra is designed to be a place to hold users’ funds, as well as allow people to exchange money. That could reduce, or even eliminate, fees for other transactions too. People who use <a href="http://fortune.com/2019/06/18/facebook-project-libra-crypto-coin-cryptocurrency-how-it-works/">other online financial services</a> like PayPal and Coinbase, could also connect to their Libra wallets, further expanding how useful a digital wallet could be.</p>
<h2>Easier to use</h2>
<p>There are other companies developing similar services. Humaniq, for instance, is a blockchain startup that offers its <a href="https://venturebeat.com/2018/10/16/the-next-wechat-humaniq-app-as-a-service-hub-for-africas-entrepreneurs/">500,000 users</a> in <a href="https://www.the-blockchain.com/2018/09/20/humanitarian-blockchain-project-humaniq-doubles-number-of-nations-where-it-brings-better-options-for-unbanked/">46 developing nations</a> a <a href="https://bitcoinafrica.io/2018/03/20/humaniq-launches-version-2-0-of-its-app-based-on-the-first-working-hybrid-blockchain/">digital wallet coupled with an online chat</a> service. Its customers can exchange money and messages through its app.</p>
<p>But Humaniq is a young company with more limited resources and a short track record of success and security. Facebook is much better positioned to dominate. In addition to its enormous user base, Facebook has the programming expertise to design user-friendly interfaces. For instance, WhatsApp already provides messaging in <a href="https://www.ft.com/content/e045cdd2-0503-11e9-99df-6183d3002ee1">13 Indian languages</a>.</p>
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<figcaption><span class="caption">A World Bank expert explains the importance of mobile payment systems.</span></figcaption>
</figure>
<p>Libra is intended to <a href="https://www.ccn.com/crypto/facebooks-crypto-wallet-calibra-whatsapp-2020/2019/06/18/">integrate with Facebook Messenger and WhatsApp</a> so its users can also send money back and forth just as easily as they send text messages. Libra’s other partners include <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">financial and technology giants</a> like Visa, PayPal, Spotify and Uber, who are equally experienced at providing users with easy experiences.</p>
<h2>Providing stability, efficiency and security</h2>
<p>Cryptocurrencies, including the Libra, <a href="https://www.theguardian.com/technology/2019/jun/16/facebook-cryptocurrency-get-ready-to-spend-money">can prove attractive</a> to consumers and businesses in economies suffering from high inflation, high interest rates and unstable currency exchange rates. For instance, the Argentinian e-commerce company <a href="https://www.tiendeo.com.ar/ofertas-promociones/avalancha">Avalancha</a> <a href="https://bitcoinmagazine.com/articles/bitpagos-to-bring-credit-to-the-unbanked-via-bitcoin-1463160040/">offers a 10% discount for payments in bitcoin</a>. That makes sense because the Argentinian peso <a href="https://www.latimes.com/world/la-fg-argentina-peso-20180901-story.html">lost half its value</a> in the first eight months of 2018. If a customer pays with a credit card, Avalancha <a href="https://bitcoinmagazine.com/articles/bitpagos-to-bring-credit-to-the-unbanked-via-bitcoin-1463160040/">may not get its money for a month</a> – and that money may not be worth what it once was.</p>
<p>Libra also has the potential to transform the extremely inefficient microlending industry. For instance, the person-to-person microlending site Kiva has, over the past 15 years, let 1.6 million people <a href="http://go.kiva.org/billion/">provide small-amount loans totaling more than $1 billion</a> to more than 2 million needy entrepreneurs in developing countries. But Kiva doesn’t lend the money directly to these budding businesspeople. Instead, it works with local microfinance institutions, most of which charge <a href="https://www.nytimes.com/2010/04/14/world/14microfinance.html">exorbitantly high interest rates</a>, averaging <a href="http://www.femalefounderstories.com/julia-kurnia.html">around 40%</a>.</p>
<p><a href="https://www.kiva.org/blog/kiva-becomes-a-founding-partner-of-libra-association-to-support-financial-inclusion-for-all">Kiva is another backer of Libra</a>, no doubt hoping to make its lending even more effective by directly transferring money from donors and investors to its entrepreneurs.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/vTkSk_NoeV0?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Microlending may seem like a good idea, but in practice it’s not always so great.</span></figcaption>
</figure>
<p>Cryptocurrency systems are attractive to people in developing countries because they have the <a href="https://doi.org/10.1016/j.telpol.2017.09.003">potential for greater security</a>. Digital payment systems in developing countries, <a href="https://link.springer.com/chapter/10.1057/9781137021946_8">such as the M-Pesa</a>, are <a href="https://doi.org/10.1057/9781137021946">increasingly popular targets for hackers and cyber-thieves</a>. <a href="https://www.businesstoday.in/magazine/money-today/banking/the-cyberfrauds/story/254115.html">Many users of India’s UPI</a> system have also been <a href="https://www.financialexpress.com/money/beware-upi-app-user-loses-rs-6-8-lakh-from-his-sbi-account-was-it-fraud-why-it-happened/1426603/">victims of financial cybercrime</a>.</p>
<h2>Concerns remain</h2>
<p>Libra has the potential to bring many benefits, but only if it can address a wide range of national and international concerns, from financial regulators and consumers alike. Facebook must <a href="https://www.ft.com/content/5c0dbb2c-91eb-11e9-b7ea-60e35ef678d2">prove that the Libra system can combat money laundering and fraud</a> both at the sending end of a transaction and the receiving end.</p>
<p>At the same time, Facebook will have to convince its customers that it can keep their financial information private. <a href="https://go.forrester.com/blogs/facebooks-libra-needs-to-answer-three-questions/">Libra’s integration with WhatsApp and Facebook, and potentially Instagram</a>, suggests financial accounts will be linked to social media identities. <a href="https://www.nytimes.com/2018/03/19/technology/facebook-cambridge-analytica-explained.html">Facebook has alarmed regulators and customers</a> alike with its violations, <a href="https://theconversation.com/facebooks-business-is-helping-other-businesses-109764">and exploitations</a>, of users’ privacy.</p>
<p>On an even wider scale, some governments – in both <a href="https://www.ibtimes.co.in/why-facebook-going-back-plans-launch-crypto-libra-india-799944">developing nations</a> and <a href="https://www.cnbc.com/2019/06/20/facebook-libra-cryptocurrency-faced-with-central-bank-warnings.html">developed ones</a> – are worried Facebook might become a “<a href="https://www.cnet.com/news/everything-you-need-to-know-about-facebooks-libra-cryptocurrency/">shadow bank</a>,” a place to store money that’s not subject to regulations regular banks are. Others have expressed concern about the sovereignty implications of a <a href="https://theconversation.com/with-cryptocurrency-launch-facebook-sets-its-path-toward-becoming-an-independent-nation-118987">private company issuing its own currency</a>.</p>
<p>Facebook has a lot of work to do before Libra can live up to its potential – and there’s no guarantee that will happen. But it is clear that consumers and businesses in developing countries want technological help engaging in transactions and storing money.</p><img src="https://counter.theconversation.com/content/119206/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nir Kshetri does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Plenty of Western officials and media outlets have criticized Libra – but it’s not meant for them.Nir Kshetri, Professor of Management, University of North Carolina – GreensboroLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192132019-06-24T21:51:56Z2019-06-24T21:51:56ZIs Facebook today’s Compuserve? How Libra could hasten its demise<figure><img src="https://images.theconversation.com/files/280870/original/file-20190624-61781-1sipfhe.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4800%2C2493&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will Libra be Facebook's downfall?</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>When Mark Zuckerberg was five years old in 1989, two dominant players in telecommunications made a big announcement. </p>
<p>Compuserve (the first major commercial online service provider) and MCI Mail (one of the first commercial e-mail service providers) <a href="https://www.computerhistory.org/internethistory/1980s/">introduced commercial e-mail relays to the public internet</a>. These relays connected their centralized networks to the public, outside of their direct control. </p>
<p>Facebook’s <a href="https://www.theguardian.com/technology/2019/jun/18/libra-facebook-cryptocurrency-new-digital-money-transactions">announcement</a> of entering the distributed trust era with Libra, a new cryptocurrency, is the modern-day equivalent. </p>
<p>And it’s likely to have the same result. </p>
<h2>Private precursor to public internet</h2>
<p>Launched in 1969, Compuserve was an innovator in shared computing. In 1979, it launched Micronet, the <a href="https://www.wired.com/2009/09/0924compuserve-launches/">first consumer e-mail system</a>. This was quickly followed in 1980 with CB Simulator, the <a href="https://www.compuserve.com/home/about.jsp">first real-time online chat service</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=459&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=459&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=459&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=576&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=576&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280776/original/file-20190621-61733-1l10ue7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=576&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Novation CAT Acoustic Coupler, used in the late 70s and early 80s to connect computers via telephone lines.</span>
<span class="attribution"><span class="source">Wikimedia Commons</span></span>
</figcaption>
</figure>
<p>Compuserve quickly added a wide range of consumer information services such as weather, stock quotes and discussion forums. It tied people together globally through its its centrally owned worldwide network.</p>
<p>By 1991, Compuserve had more than <a href="https://www.networkworld.com/article/2259339/compuserve-closes-after-30-years.html">500,000 simultaneous</a> online users. In 1995, it was the largest online service with <a href="https://www.networkworld.com/article/2259339/compuserve-closes-after-30-years.html">over three million users</a>.</p>
<p>It has since been called the “<a href="https://www.zdnet.com/article/before-the-web-online-services/">Google of the ‘80s.</a>” </p>
<p>But the big difference is that its network was private and centrally controlled. It was not an open network like the public internet.</p>
<h2>Publicizing the commercial internet</h2>
<p>Early coverage of Compuserve and MCI’s gateways described the relatively unknown internet as a worldwide research network of government agencies, universities and commercial firms.</p>
<p>This started to legitimize commercial uses of the internet for the general public, but was not without its <a href="https://www.nsf.gov/pubs/stis1993/oig9301/oig9301.txt">controversies at the time</a>. </p>
<p>Overall, the relays announcement helped give legitimacy and publicity to the emerging public commercial internet. It started the path to weakening the centralized power of Compuserve and MCI.</p>
<p>At first, the cutting-edge announcement by Compuserve and MCI gave them an advantage. It also gave them the opportunity to shape some of the initial public conceptions of the public internet. </p>
<p><a href="https://www.sfgate.com/business/article/Alaska-Airlines-Sells-Tickets-on-the-Web-Other-3017994.php">Traditional industries started coming online</a>, giving further legitimacy to internet commerce. </p>
<p>But these organizations were designed in a time of centralized control. Their model of charging consumers was based on usage. Compuserve stuck with that old model and as late as 1994 they still <a href="https://www.nytimes.com/1994/11/29/science/personal-computers-the-compuserve-edge-delicate-data-balance.html">charged 15 cents per Internet e-mail received — including for spam</a>. </p>
<h2>Power shifts</h2>
<p>The shift to more <a href="https://doi.org/10.1525%2Fcmr.2014.56.4.124">distributed production models</a>, where content was produced by people outside of the organization, was a new world. Many, including Compuserve and MCI, eventually lost power to be replaced by new organizations designed for this new content production model. In 1994, a <em>New York Times</em> piece suggested “<a href="https://www.nytimes.com/1994/11/29/science/personal-computers-the-compuserve-edge-delicate-data-balance.html">…it makes more economic sense to forget Compuserve and get an Internet account, where mail is free</a>.”</p>
<p>This eventually led to the growth of many modern-day platform companies such as Facebook (created in 2003) and Uber (founded in 2009). Such organizations became dominant powerful companies very quickly, disrupting every major industry.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=420&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=420&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=420&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=528&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=528&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280757/original/file-20190621-61737-1tvq70f.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=528&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Historical Internet users by world region since 1990.</span>
<span class="attribution"><span class="source">Max Roser</span></span>
</figcaption>
</figure>
<h2>Silicon Valley model</h2>
<p>The transition to the Information Age created new distributed business models.</p>
<p>Modern platform organizations operate with a business model focused on <a href="https://doi.org/10.1002/smj.2596">dominating a central, powerful matchmaking role</a>. The Facebook platform matches advertisers with eyeballs, for example. The Uber model matches riders with drivers. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/eu-case-against-google-shows-need-for-new-publishing-models-in-the-information-age-31996">EU case against Google shows need for new publishing models in the information age</a>
</strong>
</em>
</p>
<hr>
<p>The power of critical mass and the legitimacy of enabling trusted transactions are two keys to the success of platforms. And so the venture capital funding model focuses on building rapid, sustainable growth of these trusted middlemen. </p>
<p>Much of the modern Silicon Valley success story is built around this simple logic.</p>
<p>This evolutionary process parallels the recent <a href="https://www.weforum.org/agenda/2017/10/bitcoin-is-making-banks-nervous-heres-why">emergence of what are known as <em>distributed trust</em> technologies such as blockchain</a>. </p>
<p>The public internet shifted from central control to a shared infrastructure with <em>distributed production</em>. </p>
<p>Now centralized trust is shifting to a shared infrastructure with distributed trust. Distributed trust technologies displace middlemen in transactions, and make us <a href="https://doi.org/10.1177%2F1056492617734942">question the role of centralized organizations</a>. Instead of trusting central organizations, people place their trust in the technology itself.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/beyond-bitcoin-the-power-struggle-over-trust-based-technology-84367">Beyond Bitcoin: The power struggle over trust-based technology</a>
</strong>
</em>
</p>
<hr>
<p>The previous disruptors are being disrupted themselves.</p>
<p>Facebook’s Libra partners (including Uber, Ebay, Paypal, Spotify, Visa, and Mastercard) read like a Who’s Who of middlemen organizations that are being threatened with disruption by distributed trust.</p>
<h2>Old dogs</h2>
<p>Organizational theory shows that when market conditions change drastically, <a href="https://doi.org/10.1002/smj.4250171009">organizational inertia can give an advantage to new companies or institutions</a>. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280835/original/file-20190622-61743-1b68d8x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">It’s hard to teach an old dog new tricks, including in the tech sector.</span>
<span class="attribution"><span class="source">Pixabay</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Old dogs have a hard time learning new tricks.</p>
<p>So it’s no surprise that Libra is entering the space with a <a href="https://www.wired.com/story/ambitious-plan-behind-facebooks-cryptocurrency-libra/">“permissioned” model of trust</a>. Such models centralize decision power with a select few — the initial Libra partners. </p>
<p>They are not truly distributed trust models. They are closer to the distributed production models so familiar to major dominant platforms of the last technological wave. On top of that, Facebook will separately offer a <a href="http://fortune.com/2019/06/17/facebook-cryptocurrency-libra-privacy/">proprietary centrally controlled wallet</a>, Calibra, to facilitate Libra transactions.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebook-claims-libra-offers-economic-empowerment-to-billions-an-economist-is-skeptical-118982">Facebook claims Libra offers economic empowerment to billions – an economist is skeptical</a>
</strong>
</em>
</p>
<hr>
<p>The <a href="https://libra.org/en-US/white-paper/">Libra white paper</a> promises an eventual relaxing of that centralized control to a “permissionless” model. But it offers <a href="https://www.bloomberg.com/opinion/articles/2019-06-20/facebook-s-libra-cryptocurrency-isn-t-actually-supposed-to-work">no realistic path</a> or requirement to do so. </p>
<p>It asks participants to “trust us” that a truly distributed trust model will come in the future. </p>
<h2>Legitimization</h2>
<p>History suggests Facebook’s introduction of Libra will ultimately help legitimize distributed trust technologies. Major players endorsing Libra adds legitimacy to distributed trust technologies. </p>
<p>The initial actions of Compuserve and MCI Mail led to <a href="https://www.congress.gov/bill/102nd-congress/senate-bill/272">government legislation</a>. The increased focus on distributed trust generated by Libra will too. </p>
<p>Part of this is due to <a href="https://theconversation.com/with-cryptocurrency-launch-facebook-sets-its-path-toward-becoming-an-independent-nation-118987">past breaches of trust by Facebook</a>. In fact, there are already <a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">calls for regulation</a> in the <a href="https://www.cnet.com/news/us-lawmaker-wants-facebook-to-halt-its-libra-cryptocurrency-project/">United States</a>, <a href="https://www.bloomberg.com/news/articles/2019-06-18/france-calls-for-central-bank-review-of-facebook-cryptocurrency">Europe</a> and <a href="https://www.bloomberg.com/news/articles/2019-06-20/rba-s-lowe-isn-t-friending-facebook-s-cryptocurrency-just-yet">Australia</a>. Regulations and public discourse will help to bring further legitimacy to distributed trust models. </p>
<p>Regulators should be cautious about biasing legislation to favour incumbents, however, and ensure an open evolution of the true capabilities of distributed trust. </p>
<h2>Evolution</h2>
<p>Such legitimacy reduces the major barriers to new business models built on a shared, distributed trust infrastructure. This creates a major opportunity for <a href="http://doi.org/10.1108/S0733-558X(2011)0000033005">new forms of organizing</a> designed without the burdens of past organizational inertia. </p>
<p>There is a good chance that Libra’s partners will gain short-term power with this move. Technology diffusion processes can <a href="https://doi.org/10.1002/smj.2232">reward first movers</a>. </p>
<p>But those companies were not initially designed to survive in such distributed trust models, and are plagued by organizational inertia.</p>
<p>So the creation of Libra, and the legitimacy it will give to the underlying technologies, paradoxically will ultimately speed the demise of the very same organizations. Bitcoin’s price, for example, <a href="https://thenextweb.com/hardfork/2019/06/24/bitcoin-price-rises-past-11000-following-facebooks-libra-announcement/">has soared since the Libra announcement,</a> even though Bitcoin itself is likely to be eventually disrupted by others.</p>
<p>The stars of the modern, platform-based internet are likely to eventually join the ranks of Compuserve and MCI Mail. They will be replaced with the next generation of organizing designed for these new models of distributed trust — and not burdened by the inertia of the centrally controlled past. </p>
<p>Perhaps Facebook is the Compuserve of 2019.</p><img src="https://counter.theconversation.com/content/119213/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc-David L. Seidel receives funding from the Social Sciences and Humanities Research Council of Canada and Mitacs. He is Director of the W. Maurice Young Centre for Entrepreneurship and Venture Capital Research at the University of British Columbia. He is Past Division Chair of the Organization and Management Theory Division of the Academy of Management, an Associate Editor of Administrative Science Quarterly and serves on the Management Board of "Blockchain at UBC."</span></em></p>Tech giants like Facebook are at risk of joining the ranks of Compuserve and MCI Mail to be replaced with the next generation of organizing designed for new models of distributed trust.Marc-David L. Seidel, RBC Financial Group Professor of Entrepreneurship & Associate Professor, OBHR Division, University of British ColumbiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1191652019-06-24T20:10:34Z2019-06-24T20:10:34ZFacebook’s Libra plan: talk of the demise of central banks is greatly exaggerated<figure><img src="https://images.theconversation.com/files/280926/original/file-20190624-97766-1ntkb2r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Facebook co-founder Chris Hughes fears the Libra currency would insert a 'powerful new corporate layer of monetary control between central banks and individuals'.</span> <span class="attribution"><span class="source">Gerd Altmann/Pixabay</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Facebook’s proposed new digital currency, if even modestly successful, will hand over much of the control of monetary policy from central banks to Facebook and a group of partner companies including Uber and eBay. </p>
<p>So says Chris Hughes, a Facebook co-founder. He calls the plan frightening. “This currency would insert a powerful new corporate layer of monetary control between central banks and individuals,” he writes in <a href="https://www.ft.com/content/aa97ad20-91a0-11e9-8ff4-699df1c62544">the Financial Times</a>.</p>
<p>But fear not, central banks are more resilient than this. </p>
<h2>What is Libra, and who is behind it?</h2>
<p>At this point there’s no guarantee Facebook will succeed in establishing its own currency (called the Libra) that you can use to make payments with a digital wallet integrated into Facebook’s Messenger and WhatsApp applications.</p>
<p>But let’s assume it does. </p>
<p>Key to the success of any currency is ubiquity. Facebook has that (in most parts of the world). Along with its enormous customer base, and wealth, it also has the backing of 27 other corporations. These include key global players in electronic payments – Mastercard, Visa and Paypal. </p>
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<a href="https://theconversation.com/facebooks-cryptocurrency-a-financial-expert-breaks-it-down-113313">Facebook's cryptocurrency: a financial expert breaks it down</a>
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<p>Joined together in a Swiss-based not-for-profit entity called the <a href="https://libra.org/en-US/">Libra Association</a>, these companies are particularly interested in the prospect of billions of people <a href="https://libra.org/en-US/white-paper/">making payments</a> using a mobile phone without ever needing a bank account. There are, tellingly, no banks in the group. </p>
<p>The Libra’s utility as a payment system is underlined by its design differences to a cryptocurrency like Bitcoin. The value of Bitcoin fluctuates wildly. The Libra’s value will instead be stabilised. This will be done using a private sector version of a mechanism known as a “<a href="https://www.academia.edu/16965530/A_history_of_economic_thought_concerning_currency_boards">currency board</a>”.</p>
<h2>The threat to monetary policy</h2>
<p>A goal of the Libra Association is to “move toward increasing decentralisation”. </p>
<p>As Hughes notes, central banks were established to deal with the problems that came with a decentralised financial system. “After many mistakes, we have learnt that we want a central bank to act to increase or decrease the monetary supply in moments of contraction or expansion.”</p>
<p>To understand why decentralisation might pose a threat to the role of central banks, let’s recap how they exercise monetary policy.</p>
<p>The power of a central bank comes from setting interest rates. </p>
<p>The Reserve Bank of Australia, for example, does this through operating what is called the <a href="https://www.rba.gov.au/publications/rdp/2018/2018-01/the-interbank-overnight-cash-market.html">Interbank Overnight Money Market</a>. Banks must deposit enough currency with the RBA to cover obligations to other banks. The RBA effectively <a href="https://www.rba.gov.au/education/resources/teacher-updates/bridging-the-textbook-gaps-on-how-the-rba-implements-monetary-policy/index.html">sets the floor and ceiling in the market</a> by offering to take deposits or lend in the market at rates 25 basis points below and above its target interest rate. It also transacts in the market by buying and selling bonds and derivatives. </p>
<p>Doing this keeps the interest rate in the market very close to the RBA’s target. Changes in the rate are generally reflected in interest rates on bank loans. These in turn affect economic activity and inflation. </p>
<p>The concern is that a substantial move towards using <a href="https://www.bis.org/publ/bppdf/bispap07k.pdf">electronic money for payments </a> could reduce banks’ importance as money lenders, and therefore the role of the interbank markets. If the central bank’s balance sheet is smaller, its ability to influence the interest rates offered by financial institutions is theoretically weakened.</p>
<p>But the vast bulk of loans made by banks are to consumers to buy homes and cars, and to companies to buy capital equipment. These do not seem the types of goods likely to be paid for in Libras. </p>
<p>The central bank could also expand its balance sheet by issuing its own central bank bills or bonds. </p>
<p>And so long as a government requires taxes to be paid in its national currency, the demand for the interbank market will never totally dry up.</p>
<p>So at this point, even if successful, I think it’s an exaggeration to suggest the Libra poses a threat to the important role of central banks in keeping economies stable through monetary policy. </p>
<h2>Will the Libra project even succeed?</h2>
<p>Other concerns, though, such as the use of cryptocurrencies <a href="https://theconversation.com/libra-four-reasons-to-be-extremely-cautious-about-facebooks-new-currency-119123">for money laundering</a>, should be taken seriously.</p>
<p>But let’s also take a reality check. There is no certainty the <a href="https://www.theguardian.com/technology/2019/jun/18/what-is-libra-facebook-new-cryptocurrency">Libra project</a> will succeed. </p>
<p>In the 1990s <a href="https://www.theguardian.com/money/2006/apr/15/moneysupplement1">Mondex</a> and <a href="https://www.forbes.com/forbes/1999/1101/6411390a.html#1f90ee30715f">Digicash</a> were promoted by some major banks as the payments systems that would replace cash. They never achieved critical mass. </p>
<p><a href="https://www.theguardian.com/technology/2019/jan/04/bitcoin-after-10-wild-years-what-next-for-cryptocurrencies">Bitcoin</a> has been much hyped for more than a decade but still only accounts for a miniscule proportion of transactions (which is a good thing given the process of creating bitcoins is so energy-intensive). </p>
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Read more:
<a href="https://theconversation.com/how-low-will-bitcoin-now-go-the-history-of-price-bubbles-provides-some-clues-107596">How low will Bitcoin now go? The history of price bubbles provides some clues</a>
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<p>Many other similar cryptocurrencies have come and gone. </p>
<p>A decade ago Facebook had ambitions to establish a “safe and secure way” to make online payments with its <a href="https://www.bbc.com/news/technology-18519921">Facebook Credits system</a>. It abandoned the project after three years. </p>
<p>So it is unsurprising that Reserve Bank of Australia economists “<a href="https://www.rba.gov.au/publications/bulletin/2019/jun/cryptocurrency-ten-years-on.html">see little likelihood</a> of a material take-up of cryptocurrencies for retail payments in Australia in the foreseeable future”.</p><img src="https://counter.theconversation.com/content/119165/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A former senior economist with the Reserve Bank of Australia doubts Facebook’s cryptocurrency will take control of monetary policy away from central banks.John Hawkins, Assistant professor, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1191232019-06-20T12:25:02Z2019-06-20T12:25:02ZLibra: four reasons to be extremely cautious about Facebook’s new currency<figure><img src="https://images.theconversation.com/files/280265/original/file-20190619-171271-1ddj1b4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">OK computer. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/stone-staffordshire-united-kingdom-june-18-1427815046?src=uQDowTjMAs4jcqBajlVVCg-1-8&studio=1">Ascannio</a></span></figcaption></figure><p>Facebook <a href="https://libra.org/en-US/white-paper/">has unveiled</a> libra, a cryptocurrency that will enable users to make international payments over Messenger and other group platforms like WhatsApp – perhaps from as soon as 2020. </p>
<p>Here’s how it looks likely to work: a user would buy libra and keep a balance of the currency in Facebook’s digital wallet, called Calibra. The user could either transfer currency to another user – say a family member in another country – or purchase items or services from a participating online retailer. Apart from Calibra, users could buy and sell libra through third party wallets or local resellers, such as grocery stores, in the same way as mobile phone owners already top up their data. </p>
<p>A key rationale for libra, <a href="https://newsroom.fb.com/news/2019/06/coming-in-2020-calibra/">according to</a> Facebook, is to facilitate financial inclusion. It would enable millions of users without bank accounts in far-flung parts of the world to transact in ways that formal financial systems have denied them. Because they could send and receive libra on a peer-to-peer basis, without the need for a bank, the transactions would be cheaper and faster, too. </p>
<p>Libra appears designed to overcome a common criticism of existing cryptocurrencies like bitcoin and ethereum – <a href="https://research.stlouisfed.org/publications/page1-econ/2018/03/01/bitcoin-money-or-financial-investment">that they</a> don’t satisfy three essential characteristics of money: a medium of exchange; a store of value and a unit of account. The argument goes that since they are not widely exchangeable, and since their widely fluctuating exchange values make them unattractive for storing wealth or pricing goods and services, they are not really viable as money. </p>
<p>Where the exchange rate of other cryptocurrencies is purely driven by supply and demand, libra will be priced according to a basket of bank deposits and short-term government bonds in reputable currencies such as the dollar, pound and euro. It will therefore be a “stable coin”; less likely to see the same fluctuations as other digital currencies. Having said that, the new currency raises a number of issues that need to be seriously considered before it launches:</p>
<h2>1. Facebook and data</h2>
<p>Facebook has tried to reassure the world by <a href="https://libra.org/en-US/white-paper/">outsourcing</a> the management of libra to an independent foundation known as the Libra Association Council. Based in Geneva, this group will include representatives from mainstream financial institutions like PayPal, Mastercard and Visa, who have invested significantly in this project, as well as the likes of Uber, Spotify and Vodafone. This grouping is clearly designed to maximise participation in the new currency. </p>
<p>Yet Facebook’s recent <a href="https://theconversation.com/cambridge-analyticas-closure-is-a-pyrrhic-victory-for-data-privacy-96034">chequered history</a> of data mishandling is still a cause for concern. Although Facebook assures that it would keep its users’ social and financial data strictly separate, the question still remains: if it has mishandled social data in the recent past, can it be trusted with people’s financial data?</p>
<h2>2. Money laundering</h2>
<p>Libra has huge implications for the <a href="https://www.forbes.com/sites/forbestechcouncil/2018/10/11/kyc-and-aml-what-all-banks-need-to-know/#2edc125f70fc">rules around</a> anti-money laundering. Just like any financial intermediary taking on a new customer, Facebook will have to obtain various verification details through an online form for any users wanting to set up a Calibra wallet, including government-issued photo identification. </p>
<p>But since users will be all over the world, how would Facebook authenticate the information provided? It was the same issue faced by <a href="https://www.bbc.co.uk/news/technology-36247289">Liberty Reserve</a>, a digital currency that operated out of Costa Rica and was used by money launderers to transfer billions of dollars worth of criminal proceeds until it was <a href="https://www.telegraph.co.uk/finance/10085600/Liberty-Reserve-shut-down-in-6bn-money-laundering-case.html">closed down</a> in 2013. Prosecutors later described it as possibly the biggest money-laundering case in US history. </p>
<p>Liberty Reserve operated in a similar way to PayPal, except with its own digital currency. It allowed users to register and transfer money to other users with only a name, email address, and birth date. No efforts were made to verify users’ identities, and it attracted much illegal activity. </p>
<p>Users would wire money from a traditional bank to a third party exchanger, which was usually unlicensed and not properly regulated. This exchanger would convert money to digital currency, which was untraceable from its original source, and was then deposited into a Liberty Reserve account. No limits were placed on transaction sizes. Liberty charged a 1% service fee on each transfer and offered shopping cart functionality. All transactions were 100% irrevocable. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280267/original/file-20190619-171245-jhurfo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Fresh as a daisy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/money-laundering-us-dollars-hung-out-1110484031?src=GqJAdgx-QFkfRJkt1_vKjg-1-0&studio=1">Anrii Spy_k</a></span>
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<p>The investigation that led to Liberty’s closure was also very problematic as prosecutors required the cooperation of numerous jurisdictions with lax rules around anti-money laundering or investigating financial crime. Although libra will be backed by a host of blue chip companies, it looks potentially open to exactly the same kinds of problems. </p>
<h2>3. User security</h2>
<p>Facebook <a href="https://libra.org/en-US/white-paper/">says</a> it would bear the cost of losses arising from hacks to the Calibra wallet, scams and loss of access to accounts. But how feasible is this even for a big tech company in the face of colossal losses? Facebook or the Libra Association Council would need to accept the same requirements as any other bank to hold a certain level of capital to cover the cost of such eventualities. </p>
<h2>4. Systemic risk</h2>
<p>The sheer scale of this project is jaw-dropping. Facebook <a href="https://www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide/">has</a> 2.4 billion monthly users, while WhatsApp <a href="http://www.businessofapps.com/data/whatsapp-statistics/">has</a> 1.5 billion. Especially if Facebook leverages its relationship with <a href="https://www.statista.com/statistics/778191/active-facebook-advertisers/">7m advertisers</a> and over <a href="https://www.facebook.com/business/news/giving-small-businesses-the-tools-to-succeed-on-facebook">90m small businesses</a>, libra is likely to be global in a very short space of time. This has serious implications for global financial stability and systemic risk.</p>
<p>Libra will clearly need proper global regulation, but this doesn’t really exist and is highly unlikely to emerge in the next year. Would it fall to one of the bodies that coordinate international banking – the Basel Committee on Banking Regulation, the Financial Actions Task Force or the Financial Stability Board – or to an association of global central banks? </p>
<p>Even <a href="https://theconversation.com/cryptocurrencies-are-finally-going-mainstream-the-battle-is-on-to-bring-them-under-global-control-117112">before</a> this announcement, the lack of global regulation of cryptocurrencies was already a hot topic: discussions between countries and the main institutions involved in international finance are taking place to address this, but no institution <a href="https://www.fsb.org/wp-content/uploads/P310519.pdf">has been</a> designated to provide global oversight. </p>
<p>If these issues can be addressed, libra would be poised to dominate the crypto space – and could very well become “the” global currency. In the absence of a single global regulatory regime, however, libra will require a strong degree of regulatory coordination around the world. That is a monumental challenge. At the very least, we could be seeing the start of a major shift.</p><img src="https://counter.theconversation.com/content/119123/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iwa Salami does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Get it right and libra could be the world’s first truly global currency. Get it wrong, on the other hand …Iwa Salami, Senior Lecturer in Financial Law and Regulation, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1189872019-06-18T20:53:28Z2019-06-18T20:53:28ZWith cryptocurrency launch, Facebook sets its path toward becoming an independent nation<figure><img src="https://images.theconversation.com/files/280095/original/file-20190618-118530-1j9hjdk.jpg?ixlib=rb-1.1.0&rect=94%2C12%2C756%2C465&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The world's newest country?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/video/clip-24607922-facebook-company-flag-waving-slow-motion-against">railway fx/Shutterstock.com</a></span></figcaption></figure><p>Facebook has announced a plan to launch <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">a new cryptocurrency named the Libra</a>, adding another layer to its efforts to dominate global communications and business. <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">Backed by huge finance and technology companies</a> including Visa, Spotify, eBay, PayPal and Uber – plus a ready-made <a href="https://newsroom.fb.com/company-info/">user base of 2 billion people</a> around the world – Facebook is positioned to pressure countries and central banks to cooperate with its <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">reinvention of the global financial system</a>.</p>
<p>In my view as a <a href="https://newhouse.syr.edu/faculty-staff/jennifer-grygiel">social media researcher and educator</a>, Facebook CEO Mark Zuckerberg is clearly seeking to give his company even more <a href="https://www.jstor.org/stable/41375924">political power on a global scale</a>, despite the potential dangers to society at large. In a sense, he is declaring that he wants Facebook to become a virtual nation, populated by users, powered by a self-contained economy, and headed by a CEO – Zuckerberg himself – who is <a href="https://www.vox.com/recode/2019/5/30/18644755/facebook-stock-shareholder-meeting-mark-zuckerberg-vote">not even accountable to his shareholders</a>.</p>
<p>Facebook <a href="https://theconversation.com/technology-giants-didnt-deserve-public-trust-in-the-first-place-106989">hasn’t behaved responsibly</a> in the past, and is still wrestling with significant public concerns – and investigations – about its <a href="https://www.cnbc.com/2019/06/13/facebook-investigations-by-eu-ireland-regulator-nearing-conclusions.html">privacy practices</a>, <a href="https://www.wsj.com/articles/in-facebooks-effort-to-fight-fake-news-human-fact-checkers-play-a-supporting-role-1539856800">information accuracy</a> and <a href="https://www.theguardian.com/technology/2019/apr/17/eu-tells-facebooks-nick-clegg-to-rethink-ad-funding-rules">targeted advertising</a>. Therefore, it’s important to see through the hype. People must <a href="https://www.jstor.org/stable/586053?seq=1">consider who is reshaping the world</a>, and whether they are doing it in the best interests of humankind – or whether they are just seeking to benefit the new class of elite technology executives. </p>
<p>Humanity needs ethical leadership, and time to think through the potential repercussions of rapid technological change. That’s why, in my view, Facebook’s cryptocurrency <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">should be blocked</a> by financial regulators until its design has been proved to be safe for all of global society.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=410&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=410&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=410&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=515&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=515&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280098/original/file-20190618-118526-1jvkige.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=515&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">You might not want to trust this man.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Mark_Zuckerberg_F8_2018_Keynote_(41118893354).jpg">Anthony Quintano/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<h2>Understanding Libra</h2>
<p>Technology companies are interested in a <a href="https://qz.com/1642172/jack-dorsey-on-bitcoin-facebooks-crypto-and-the-end-of-cash/">global currency that is native to the internet</a>. That could allow companies like Facebook and Twitter to bring in more users to their platforms, and <a href="https://www.coindesk.com/nouriel-roubini-says-facebooks-globalcoin-has-nothing-to-do-with-crypto">collect money</a> from <a href="https://techcrunch.com/2019/06/18/facebook-libra/">businesses who want to join</a> the new system. They also want to <a href="https://www.barrons.com/articles/what-facebooks-cryptocurrency-push-means-51560539185">siphon off business from the existing financial services industry</a>. That sector is worth <a href="https://www.investopedia.com/ask/answers/030515/what-percentage-global-economy-comprised-financial-services-sector.asp">trillions of dollars</a>, is enormously profitable, and yet has <a href="http://fortune.com/2018/06/07/blockchain-firm-r3-is-running-out-of-money-sources-say/">struggled to implement its own digital currency</a>.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1140750182373568514"}"></div></p>
<p>The technical details of Facebook’s plans are still emerging, but it seems that the company is not seeking to compete with <a href="https://www.capmktsreg.org/wp-content/uploads/2019/04/CCMR_statement_Blockchain_Securities_Settlement-Final.pdf">Bitcoin</a> or other <a href="https://www.nytimes.com/2019/02/28/technology/cryptocurrency-facebook-telegram.html">cryptocurrencies</a>. Rather, Facebook is looking to replace the existing <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">global financial system</a> with an all-new setup, with Libra at its center.</p>
<p>The company may be counting on increased public interest in <a href="https://www.forbes.com/sites/geraldfenech/2019/01/17/what-is-plaguing-the-cryptocurrency-market/#7e7a0abd4edf">cryptocurrencies and financial technologies</a>, and its market strength, to overcome objections. However, I don’t believe Facebook should be allowed to <a href="https://www.barrons.com/articles/what-facebooks-cryptocurrency-push-means-51560539185">wreck the global financial system</a> like it has, as many see it, <a href="https://theconversation.com/how-facebook-went-from-friend-to-frenemy-110130">wrecked global communications</a>.</p>
<h2>Speeding global exchange</h2>
<p>There is definitely a need for <a href="https://techcrunch.com/2019/06/18/facebook-libra/">smoother, faster and cheaper</a> ways to <a href="https://www.worldbank.org/en/news/press-release/2019/04/08/record-high-remittances-sent-globally-in-2018">send money around the world</a>, and to provide access to financial services to the many <a href="https://www.theguardian.com/technology/2019/jun/18/facebook-libra-launch-cryptocurrency">people who do not have formal bank accounts</a>. There is real potential to Libra, but there are likely to be ways to improve even more, developing a payment system that better serves the world as a whole.</p>
<p>At least at the moment, the Libra is being designed as a form of <a href="https://www.coindesk.com/icelandic-regulators-approve-startups-plan-for-fiat-payments-on-ethereum">electronic money</a> <a href="https://www.ft.com/content/d4c1e00c-8dd6-11e9-a24d-b42f641eca37">linked to many national currencies</a>. That has <a href="https://www.bloomberg.com/news/articles/2019-06-18/france-calls-for-central-bank-review-of-facebook-cryptocurrency">raised fears</a> that Libra might someday be recognized as a sovereign currency, with Facebook acting as a “<a href="https://www.businessinsider.com/libra-pushback-against-facebook-cryptocurrency-begins-2019-6">shadow bank</a>” that could compete with the central banks of countries around the world.</p>
<p>It doesn’t help that Facebook is already positioning itself to evade <a href="https://www.coindesk.com/facebooks-new-crypto-faces-scrutiny-from-european-authorities">regulatory scrutiny</a> by <a href="https://www.theverge.com/2019/6/18/18682838/facebook-digital-wallet-calibra-libra-cryptocurrency-kevin-weil-david-marcus-interview">creating a corporate subsidiary</a> that will join an <a href="https://www.swissinfo.ch/eng/calibra_swiss-role-in-facebook-cryptocurrency-project-revealed/45038626">ostensibly independent governing body</a> for the Libra.</p>
<p>To protect consumers, regulators should look carefully at whether the new system supporting the Libra is sound. It may be that an entirely new set of financial rules and regulations is needed to shield the existing financial system from harm if the Libra becomes more popular than national currencies. At the very least, governments need to proceed slowly and carefully when new products may introduce systemic risks into our environment. Even the <a href="https://www.cnn.com/videos/business/2019/06/14/google-ceo-sundar-pichai-poppy-harlow-zw-orig.cnn">CEO of Google</a> has acknowledged that. In my opinion, Libra’s planned launch in 2020 does not allow enough time to fully vet this technology and its risks.</p>
<h2>Protecting the global financial system</h2>
<p>Financial regulations have developed over time to encourage <a href="https://corpgov.law.harvard.edu/2016/02/07/fincen-know-your-customer-requirements/">trust between unknown parties</a>, and to protect regular customers from fraudsters and corporate greed. There are also rules that help governments prevent and detect <a href="https://www.finra.org/industry/anti-money-laundering">transactions that support crime and terrorism</a>.</p>
<p>This is not to say that all payments and purchases should be tied to a <a href="https://corpgov.law.harvard.edu/2016/02/07/fincen-know-your-customer-requirements/">known entity online or in real life</a>. <a href="https://www.nber.org/papers/w20126">Cash and anonymity is also a civil right</a> and is key to privacy and personal freedoms. </p>
<p>As new digital financial services, methods of electronic payment and currencies develop and become popular, they should not be allowed to undermine longstanding <a href="https://www.jstor.org/stable/24357502">financial safety systems</a>, even in the name of smoother, cheaper transactions. </p>
<p>My concern is not just about large-volume transactions. Facebook has shown how even small amounts of money can buy <a href="https://www.newyorker.com/magazine/2018/09/17/can-mark-zuckerberg-fix-facebook-before-it-breaks-democracy">microtargeted ads</a> with the power to influence public opinion and election outcomes in the U.S. and around the world.</p>
<h2>Product design and risk assessment</h2>
<p>Facebook has a long history of <a href="https://www.cnbc.com/2019/06/13/facebook-investigations-by-eu-ireland-regulator-nearing-conclusions.html">questionable business models and privacy practices</a>. The public, and their representatives in government – including elected officials, financial regulators and <a href="https://www.theverge.com/2019/6/14/18678785/facebook-libra-cryptocurrency-visa-mastercard-uber-paypal-stripe-association-consortium">central bank authorities</a> – should carefully scrutinize all aspects of Facebook’s cryptocurrency plans. </p>
<p>This concern is especially urgent because Facebook also has a long history of launching products and services, like political ads and <a href="https://theconversation.com/livestreamed-massacre-means-its-time-to-shut-down-facebook-live-113830">live-streaming video</a>, without fully considering their potential to damage democracy and the global society at large.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/EgI_KAkSyCw?wmode=transparent&start=56" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Mark Zuckerberg didn’t think enough about how people could use Facebook for ill.</span></figcaption>
</figure>
<p>The company has demonstrated its inability to serve society beneficially – and it <a href="https://doi.org/10.1016/j.telpol.2018.12.003">may not even be interested in trying</a>. All the signals suggest that customers and regulators alike should carefully examine whether Facebook’s Libra is <a href="http://www.people.hbs.edu/rmerton/Financial%20System%20and%20Economic%20Peformance.pdf">truly innovative</a> or just a way to avoid restrictions on a potentially hazardous financial product.</p>
<h2>Defending democracy</h2>
<p>Facebook’s entrance into the financial industry is a threat to democracies and their citizens around the world, on the same scale as disinformation and information warfare, which also depend on social media for their effectiveness.</p>
<p>It may be hard for world leaders to understand that this is an emergency, as they cannot see the virtual powers aligning against them. But they must huddle quickly to <a href="https://www.jstor.org/stable/24357502?seq=1">ensure they have</a> – and keep – the <a href="https://doi.org/10.1016/j.telpol.2018.12.003">power to protect their people</a> from technology companies’ greed.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1140941085885308929"}"></div></p>
<p>It will be key to understand if Facebook’s future cryptocurrency will ultimately function more like anonymous cash, or more like a traceable credit card transaction. Facebook has the blockchain and encryption technology to create an anonymous digital cash-like system, or a private digital currency, <a href="https://techcrunch.com/2019/03/03/regarding-facebooks-cryptocurrency/">which has not been created yet</a>. Anonymity would heighten the risks of abuse such as money laundering, so it’s worth watching out for a cash-like Facebook cryptocurrency that mirrors the central banks’ cash system.</p>
<p>In addition, I cannot help but reflect on the name that Facebook chose for this, the Libra, which is a <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">reference to the Roman measurement for a pound</a>, once used to mint coins. In many ways the company that Mark Zuckerberg is building is beginning to look more like a Roman Empire, now with its own central bank and currency, than a corporation. The only problem is that this new nation-like platform is a controlled company and is run more like a <a href="https://www.cnbc.com/2018/05/10/mark-zuckerbergs-control-of-facebook-is-like-a-dictatorship-calstrs.html">dictatorship</a> than a sovereign country with democratically elected leaders. Even now, the company may have <a href="https://www.vox.com/the-big-idea/2018/4/9/17214752/zuckerberg-facebook-power-regulation-data-privacy-control-political-theory-data-breach-king">as much power</a> as some countries – and <a href="https://foreignpolicy.com/2016/03/15/these-25-companies-are-more-powerful-than-many-countries-multinational-corporate-wealth-power/">more than others</a>.</p>
<p>In the wake of the not too distant <a href="https://www.economist.com/schools-brief/2013/09/07/crash-course">global financial crisis</a>, and the “fake news” and disinformation culture that is developing, people must slow down and fully evaluate disruptive technology of this magnitude. Society cannot withstand a launch of a cryptocurrency in Facebook’s infamous “<a href="https://hbr.org/2019/01/the-era-of-move-fast-and-break-things-is-over">move fast and break things</a>” style.</p><img src="https://counter.theconversation.com/content/118987/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennifer Grygiel owns a small number of shares in the following social media companies: Facebook, Google, Twitter, Alibaba, LinkedIn, YY and Snap. Grygiel also owns nominal amounts of the following cryptocurrencies: Bitcoin, Litecoin and Ethereum.</span></em></p>With the launch of the Libra cryptocurrency, Mark Zuckerberg reveals his dreams of building a new virtual country, perhaps inspired by the Roman Empire.Jennifer Grygiel, Assistant Professor of Communications (Social Media) & Magazine, News and Digital Journalism, Syracuse UniversityLicensed as Creative Commons – attribution, no derivatives.