Interested in new innovative ways to empower people and culture?
If Facebook is the place you’re looking, you will likely not find them.
The new cryptocurrency initiative called Libra from Facebook begs the question if you can’t trust them with your social data!
Will you trust them with your money?
The Libra Statement:
Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.
A new decentralised blockchain, a low-volatility cryptocurrency, and a smart contract platform that together aims to create a new opportunity for responsible financial services innovation.
It’s not blockchain technology – it’s a giant Walled Garden.
It’s not truly decentralised. It’s not truly open, as the ledger of transactions will be accessible to Libra Association founding members exclusively.
It’s BigTech supplanting both crypto and banking solutions. It’s centralised and controlled.
It’s AliPay, and WeChat rolled into one, creating an ecosystem similar to the China-controlled that dips into almost every aspect of a person’s life. Just as the Chinese government “controls” AliPay and WeChat, Facebook controls the Libra Association as the creator of the Libra Association.
Never forget that.
It is aiming to be the biggest unregulated shadow digital bank the world has ever seen.
No wonder Wall Street banks wanted no part in this.
Let me continue with some observations directly taken from the Libra White Paper and see if I can summarise it all up in some conclusion directly related to the content industry with particular emphasis on the music industry.
This article is inspired by Jameson Lopp (https://onezero.medium.com/thoughts-on-libra-blockchain-49b8f6c26372) and https://techcrunch.com/2019/06/18/facebook-libra/
Text in Italics are excerpts from the Libra White Paper.
The Libra protocol allows a set of replicas—referred to as validators—from different authorities to jointly maintain a database of programmable resources.
The system will be controlled by a set of authorities in a top-down fashion. However, note that it says the database is for “programmable resources” rather than just digital currency.
These resources are owned by different user accounts authenticated by public key cryptography and adhere to custom rules specified by the developers of these resources.
This opens for far more than just a cryptocurrency.
These core mechanisms enable the creation of a unique governance mechanism that builds on the stability and reputation of existing institutions in the early days but transitions to a fully open system over time.
Does this mean that the Libra Association will be a government within its right that will evolve with the help of pre-existing reputation (however tainted as in the case of almost anybody in the “association” and in particular Facebook’s take on privacy and Spotify’s contempt for songwriters)?
Over time, membership eligibility will shift to become completely open and based only on the member’s holdings of Libra.
This sound a lot like Ethereum in early days – Libra will probably run into the same problems as Ethereum.
The association has published reports outlining … the roadmap for the shift toward a permissionless system.
This would probably be the first time a distributed network transitioned from permissioned to permissionless. For the stablecoin peg/basket to be maintained, a bridge to the traditional financial system will have to be maintained. So basically, a persistent point of centralised control masking as an “association”.
The Libra protocol uses an account-based data model to encode the ledger state.
The account model makes sense because Facebook is unlikely to be concerned with privacy, even though the platform sounds interested in smart contracts.
Every resource has a type declared by a module. Resource types are nominal types that consist of the name of the type and the name and address of the resource’s declaring module.
It seems like you can generate an address, and that address can have an arbitrary number of assets assigned to it. Something that is very much like the CopyrightChains model where the CREATIVES wallet address also contains the CopyrightShares associated with all Copyright Ownership to that wallet address (aka uniquely identifiable – CopyrightID)
However, this is likely to result in a resource cost system similar to Ethereum’s, and we all know how expensive GAS is compared to the Waves platform (of which CopyrightChains is a fork)
There is no concept of a block of transactions in the ledger history.
Does this means that there is no actual blockchain data structure in the Libra protocol—blocks are more of a virtual, logical construct that is used by validators to coordinate confirmed snapshots of the system state. Since Libra runs a permissioned system, it can use a more efficient consensus algorithm that doesn’t need to batch transactions because the transaction history is much less likely to be rewritten.
It seems as though Facebook has not yet solved any of the massive problems that Ethereum has been working on for years.
In order to manage demand for compute capacity, the Libra protocol charges transaction fees, denominated in Libra coins.
Again, surprisingly like the CREATIVES ecosystem, the Libra coins are actually the native unit of the protocol, much like ETH is the native unit of Ethereum. This leads to another question about the pseudonymous nature of Libra: Can you acquire coins without AML/KYC? If not, then it seems like you wouldn’t be able to use any of the system’s functionality anonymously. From reading about the Calibra wallet, it will require AML/KYC. So, will there eventually be on-ramps into the system that aren’t tightly controlled by the “association.”
The system is designed to have low fees during normal operation when sufficient capacity is available.
This is really vague and smells of a “first shot is free” offer!
“The Libra Blockchain” is not a blockchain. The protocol seems to be very well designed, and they keep calling it a blockchain when the data structure of the ledger history is a set of signed ledger states. However, there are no backlinked lists of data that form a chain—much less a chain of blocks.
We anticipate that as the system is used, eventually storage growth associated with accounts may become a problem. Just as gas encourages responsible use of computation resources, we expect that a similar rent-based mechanism may be needed for storage. We are assessing a wide range of approaches for a rent-based mechanism that best suits the ecosystem.
Danger ahead – Can’t wait for “The rent is too damn high!” memes.
We anticipate the initial launch of Libra protocol to support 1,000 payment transactions per second with a 10-second finality time between a transaction being submitted and committed.
Since there will only be 100 or so validators, and they’re all directly connected, 10-second block times sound doable.
Minimum node requirements (rather costly)
- 40 Mbps Internet connection
- One commodity CPU
- 16 TB SSD
There were some references earlier to maintaining the ability for a validator to perform initial sync from scratch, rather than trusting signed states from other validators. I expect that if Libra gets much use at all, it will quickly become highly impractical to perform such sync, and as such, the node security model will be highly reliant upon trusting the validators.
The [Libra coin] reserve is the key mechanism for achieving value preservation. Through the reserve, each coin is fully backed with a set of stable and liquid assets. The Libra coin contract allows the association to mint new coins when demand increases and destroy them when the demand contracts. The association does not set monetary policy. It can only mint and burn coins in response to demand from authorised resellers. Users do not need to worry about the association introducing inflation into the system or debasing the currency: For new coins to be minted, there must be a commensurate fiat deposit in the reserve.
This looks like a rewrite of the CREATIVES white paper and the bylaws of the Internet Media Copyright Association (IMCA) that governs CopyrighCoins.
They are talking about events that are external to the network. The modifiers “can” and “must” in the above snippet are surely referring to Libra Association policies or contractual obligations of which the network is unaware. However, the governance of IMCA owner and “controlled” by all CREATIVES owners with a majority of Copyright Owners, i.e. creators and their representatives.
How does the Libra governance work?
The Libra Association is a council of members, and a 2/3 supermajority is required to make changes. They are the only ones allowed to mint or destroy Libra coins, but they can presumably make any change they want if there is sufficient agreement. The real difference between the CCIM and Libra is that The Libra Association pretty much can do what they want as long as they pay dollars into escrow (if even that) and IMCA cannot release more CCIM until it an audited royalties flow to back it up (I do rest my case).
Another point is about AML/KYC, as the Calibra wallet states that all users will be verified via government-issued ID. We have already seen strong reactions from governmental regulators, especially in Europe, so I am looking forward to seeing specifications on this.
Apparently, the plan is to move toward a permissionless network:
The Libra Blockchain will be open to everyone—any consumer, developer, or business can use the Libra network, build products on top of it, and add value through their services. Open access ensures low barriers to entry and innovation and encourages healthy competition that benefits consumers.
I don’t believe that developers will be able to run any technically valid app on this platform. On the contrary, history has shown us that this system will probably be open to censorship as it’s an enormous Walled Garden.
When monopolies became illegal in the United States, the next generation of clever companies began focusing on another concept that aligned with their idea of market dominance.
Creating a walled garden.
Companies like Facebook, Apple, and Amazon have run with this concept (very successfully) for the past decade or so.
Before that the big Tele companies like O2, Vodaphone, Orange and others created walled gardens. I this interview by Financial Times during Midem 2006 I think I pretty much summed up the concept:
The 335 different legal music download services, and the hundreds of content aggregators serving them, would have to consolidate or agree on common standards, if they were not to alienate consumers, said Thor-Arne Pettersen, chairman of the24, which provides content to mobile devices. “If you move from Vodafone to Orange, all your music is lost, and you have to buy it again. That annoys kids and encourages piracy,” he said. Establishing clashing proprietary systems “is like peeing your pants to keep warm. It’s very short-sighted, and you stink afterwards.” (https://www.ft.com/content/702b9074-8d00-11da-9daf-0000779e2340)
It was true 13 years ago, even more so today…
Facebook wants to get into cryptocurrency because it dramatically increases the size of their walled garden.
It’s all about two things: data and money.
What exactly is a walled garden?
“A walled garden is an environment that controls the user’s access to Web content and services. In effect, the walled garden directs the user’s navigation within particular areas, to allow access to a selection of material, or prevent access to other material.”
A company is creating a walled garden when all of its apps, products, and services are interconnected with each other, and often reliant on each other.
I’ll assume that Facebook wanted everything you do to be within the Facebook walled garden. However, that requires them to add a lot of services to their service offerings.
Q: What’s the best way to start all of those service offerings without launching a product?
A: Create a network of companies that offer all of those services connected by their own (crypto) currency and use it to pay for everything offered in that network.
Seriously, do we want a walled garden that operates on a Don Corleone principle (making them an offer they can’t refuse) and does not respect the Copyright ownership?
Facebook has announced that the following companies will be investing $10 million into the Libra Reserve and joining the Libra Association.
- Payments: Mastercard, PayPal, PayU (Napsters’ fintech arm), Stripe, Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, MercadoPago, Spotify AB, Uber Technologies, Inc.
- Telecommunications: Iliad, Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Nonprofit and multilateral organisations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
Once they have the payment method, this walled garden will be a country of its own.
Facebook already has all your social data.
If they also have your financial data (how and where you use your money). Consequently, they will know more about you that you do yourself. They will probably know when to buy a new toothbrush and tell you!
That is why the U.S. government has already asked Facebook to cease development on their cryptocurrency (Libra) a day after the white paper was published.
French Finance Minister Bruno Le Maire said the digital currency known as Libra shouldn’t be seen as a replacement for traditional currencies. So, to say that Europe is wary of Facebook’s “Libra Association” that’s taking up a cryptocurrency challenge, and its banner would be an understatement. The Libra Association companies are a coalition of U.S. payment and tech companies.
I couldn’t find many and none that could outweigh the potential of Facebook becoming a virtual country (minus the military). Even bitnation can’t possible outcompete Facebook (sorry Susanne).
Maybe the only positive in all of this is that a lot of attention will be on Facebook and their market dominance as well as their total lack of respect for their user’s privacy.
After the Cambridge Analytica scandal, combined with Facebook’s inability to secure its platform properly, even absence of basic security practices, governments around the world are extremely hesitant to believe anything that is coming out of Facebook.
Combined with well-founded concerns about the company’s monopoly in social media between Messenger, WhatsApp, and Instagram, this new currency will give regulators new reason to target Facebook (not that they ever stopped). It could be the piece of evidence the perfect antitrust case was missing.
Facebook failed to understand how poorly timed the launch appears to those outside the company.
Libra is a perfect example of a company leveraging an anticompetitive advantage to guarantee the success of a new product by simply adding it to its existing apps — and trying to hide the fact that it’s doing so.
Libra is an attempt to try and make people less scared about a company that has shown an inability to be trusted with social data. The same company are now asking to be trusted with financial data.