Facebook's Libra - devolve to revolve!
facebook has its own internet, and now wants its own currency.
I know that Jerome Powell yet again swayed markets last night with his defiant stand on the Federal Reserve’s independence. Great, let’s see if the concept catches……
But today I wanted to share a few thoughts on global disruption and Central Banks.
Recently, Facebook released its white paper on its global digital payments token, Libra.
You could be forgiven for thinking that this is just another white paper for a crypto without value and subject to becoming the next digital tulip bulb. Don’t get me wrong, I don’t know how this will all spin out, but it is what Libra represents that is of interest.
Libra, I think, is seeking to become the global digital payment ‘reserve’ platform that in time will become a permissionless gateway into the digital asset world.
Trust is at the core.
I say in time because there are many gates to pass through; but mainly because Libra’s first step it to devolve to a centralised ‘permission’ based platform - not a permissionless platform like bitcoin and the cryptos we have come to know.
In its first iteration, the gateway would be controlled by facebook and a consortium (currently a few dozen players pictured at the top of this blog, but which is hoped will grow to about 100) before it is ready to leave the pram and stand on its own two feet. Standing on its own means a ‘permissionless’ system - such as bitcoin, Ethereum and the decentralised/permissionless block-chained cryptos.
Peer to peer payments are proposed to be free for the consumer - watch out banks - but it is likely that consortium members and those companies benefiting from being in the consortium will end up paying a commission to someone or something within the proposed ecosystem - my guess is that will be facebook - hence the share price pop.
So, in its first iteration this Libra token appears to me to be more like PayPal (than bitcoin) where you need to trust a centralised aggregator/actor like PayPal or similar. Incidentally, PayPal and master card are consortium members - and should be able to contribute systems and knowledge on the basis that if this is going to be globally disruptive you might as well cannibalise your left foot to stay in the game.
It’s bold and quite confronting in the face of facebook’s recent disclosure and privacy disasters. That is, a user of Libra, assuming it gets up, will have to trust facebook and the consortium to support the system and not rig it.
However, the reason this has a real chance to challenge Central Banks is that facebook has something no one else can get anywhere near - approximately 2.7 billion followers, still loyal despite Cambridge Analytica and several other breaches of privacy and trust.
No Central Bank has got anywhere near this (and probably little trust given many are owned by banks/privateers, not Governments) and if you think about the US dollar being a reserve or gateway currency as a result of its dominant use in most international trade contracts for critical soft and hard bulk commodities, you might also think about Libra as a reserve gateway into the digital world.
Why? Like I said:
2.7 billion customers already using the facebook platform
Open banking rules in place
Costless to the user
Once you are in the ecosystem (if it gets up) you will be able to apply Libra to payments for other digital assets, creating a digital gateway
Most likely going to be a seamless app where you won’t actually see the technology (have you tried buying bitcoin??)
Great platform for other developers to build out their own fintech companies (a little like those who have built blockchain powered businesses off the Ethereum platform, as one example)
Devolve to revolve or stand aside.
But, it requires many things from the consortium, and only one thing from the consumer - a devolution of ‘trust’ to a centralised paymaster (er….isn’t that like a bank?) followed by a period of stabilisation before the aspirational back-to-the-future slingshot move into a trustless/permissionless system.
Cheeky - devolve to revolve!
facebook stock has gained around $30 per share since this disruptive announcement - but most of all, facebook is yet again steamrolling over the top of borders, boundaries, central banks, privacy and overall trust to its 2.7 billion faithful - and the sheer size of that army dwarfs all Central Banks.
This is why central bankers (which incidentally can’t seem to raise interest rates due to money having lost its value) should be worried.
Bring it!
Mike.
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