Originally published by Blockchain Business Magazine, July 2019, page 28.
10 Observations Facebook's Libra Coin - The New World Bank for a Digital Age.
In June, Facebook released its much-anticipated whitepaper for its cryptocurrency Libra Coin. What follows is my first impressions of what this means and why Facebook’s move is so interesting. I will admit I was betting on Amazon releasing a token before anyone else. Alas, they did not and instead Amazon has gone full on into the money transfer business in a tiny market called India. That though is a story for another time. Here are some of my initial thoughts regarding Facebook’s Libra Coin:
- Hedge Fund? Upon my initial reading of the Libra Coin white paper, I had a distinct feeling that the Libra Reserve was just a hedge fund. I felt this way because of the language of how the reserve works and the assets it would manage on behalf of the Libra Coin. Too, because the “nodes” of the network had to contribute $10M to be a validator or part of the network. To me that sounded like 70 entities and counting that each invested $10M into a fund. What does this fund do? Hedges risk associated with currency exchange? No, but yes, maybe? More importantly, who gets the interest/profit of the hedging? Note - it's not the users. So is Libra Coin a hedge fund? Well, it's only been a couple of hours and I need more time to think about that. I could be completely wrong, so feel free to chime in with your opinion.
- Libra is a fund...just not a hedge fund. For instance, if you removed Facebook from the document, it would read along the lines of “...this fund is issuing IOUs with the promise to redeem the IOUs in fiat. Those IOUs are backed by currency and sovereign debt. Backed up and to the point that there is a crisis in the market and the underlying asset drops in value. In which case it's backed by thoughts and prayers.” So maybe the Libra coin isn’t a fund. Maybe it's something simpler that we’ve all seen before. What's that? An initial coin offering. Let me tell you about this asset-backed ICO…
- Derivative defined. If the value of the coin will be linked to a basket of currencies, isn’t that the textbook definition of a derivative?
- Shariah-compliant? Spending time as I do in Dubai, Riyadh and throughout MENA (the Middle East North Africa) I had to ask myself if the Libra Coin was Shariah-compliant. I understand Facebook is looking to address 2.7 billion unbanked. How many of those unbanked are practicing Muslims? Is Libra Coin Shariah-compliant? I dunno. Goes back to that thing about interest and how that is handled with the coin. I’m no expert or in any way authorized to speak on the matter of financial instruments and Shariah compliance. Based on my very limited knowledge of shariah compliance my gut tells me, “No, no it is not shariah compliant”. Will this matter? Let's see what the markets have to say.
- What is money? Here is a simple fact that the folks at Facebook just get all wrong. Money isn’t value but a record of debt that can be trusted. Having an “asset-backed” currency entirely misses the point of money. Money is the ledger/record of who owes what to whom. Not “this piece of paper is worth $10 because it's backed by $10 of cheese/gold”. Humans have never trusted the assets that underlay currencies (before you get your underwear in a bunch, what assets support the USD, Euro, Peso, etc? Tada! Moving along…). What humans “trust” is their and the community’s belief and faith in the currency. Bitcoin isn’t worth x because of scarcity. Bitcoin is worth x because the community believes it is. And that's the crazy thing about money. It's not about intrinsic value. It's about faith in the ledger/record, not the assets. That said, the move by Facebook will help spur the conversation around what is money.
- Ethereum is doomed. Not just ethereum but 99% of other cryptocurrencies are doomed. Facebook has the market size and ecosystem to really drive adoption on the Libra Blockchain and other projects that will ultimately be built off of it. From an end to end perspective the cryptocurrency market just got tighter. However, the blockchain market just grew at an exponential rate. Globally there has always been room for a dozen or so cryptocurrencies. With the ecosystem that Facebook has built for the Libra Coin expect that number to drop to less than six. What protocols will survive the Libra / Move? Stay tuned. I’m placing my bets on customer service.
- Move Programming Language. Facebook just introduced its own proprietary, “open source”, coding language. I suspect that every human on the planet who knows how to code in MOVE works for or has 3-5 year non-compete with Facebook. So it’ll be interesting to see how open source this movement is.
- Equity Crowdfunding is on the agenda. “We believe that many more people should have access to financial services and to cheap capital.” That sounds like Facebook is about to revolutionize equity crowdfunding as no platform has ever done. This is probably bigger than the Libra Coin itself. We’ll discuss why in future articles.
- The “Digital” USD. Ultimately the “special sauce” of Libra Coin is Facebook’s network. Without the well-established network of a few billion users, the Libra Coin would be just like any other asset-backed, attempt at a cryptocurrency. What sets the Libra Coin apart is the ecosystem and the network who already “trust” Facebook. The crazy part is that a few billion people “trust” Facebook. It's literally mind-boggling. That aside, what prevents the USD from being digitized to compete with the Libra Coin? The USD is already the USD. How could the USD be made more accessible? Ultimately the future of “money” will come down to customer service. So while Uncle Sam may suck at customer services, Facebook will have its opportunity to go out and fail exponentially at this grand experiment in nationless currency. After all, they’re just one election or data breach away from being regulated by real governments. Til then, I’ll keep an eye on Amazon. Amazon has the tech, the goods, services, and products, along with the customer service to actually make a currency work. So, what are they really up to in India in the money transfer game? #CustomerAcquisitionStrategy
- Universal Basic Income (UBI) The funny thing about automating the world is that it will and is creating a whole class of useless humans. These humans are useless because they literally have no role/responsibility or means of maintaining a semblance of human dignity by being “productive members of society”. Zuckerburg has spoken about and is a supporter of Universal Basic Income. So, when you’re hell bent on shaping the future of civilization into your vision, having a means of compensating the #uselessclass of humans would be great. Creating your own currency is probably step #2 in your “How to take over the world field manual”.
Last but not least we address the obvious. Is Facebook a bank? Could it become the global bank of choice for the emerging markets? Ultimately competing with The World Bank, the International Monetary Fund (IMF) and Bank of China for providing banking and capital to the emerging markets of the world? Facebook is many things. But stupid ain’t one of them. So as we look at the direction that Facebook, the Libra Coin, and technology is taking us don’t scoff too hard at what may seem outlandish and preposterous outcomes. Because sometimes the simplest explanation is just that. The simplest reality.