The Libra Association de-cloaked today. With Facebook amongst the initial backers, this is being seen – fairly or not – as the Facebook cryptocurrency. The reputation of the system, and potentially the take-up, may end up being harmed by that alliance. However, I’m slightly more interested in another question: is it likely to be any good as a digital currency?
Banking the unbanked
I’m personally not a great fan of big western tech companies bringing goodies to the developing world. As looks go, it’s not a great one. But that’s not to say it’s axiomatic that a multinational group including the likes of Facebook is out of touch with those needs: in fact, Facebook are likely better in touch with that constituency than most others.
True, the “Facebook Basics” plan – internet access for all! – didn’t get off to a great start. I believe it’s now going under the moniker “Free Basics” via internet.org. And functionally, there are clear selfish reasons here: if you have potential customers who are not banked, then you’re not going to make very much money from them.
However, some technologies have taken off in these markets in very unexpected ways. WhatsApp growth, amongst others, was propelled by large take-up in these far-off markets. Mobile technology is much more prevalent than wired, and interesting solutions such as SMS-based payment technology is far more common.
Truly digital financial transactions have been a holy grail for some time. Libra is a potentially extremely interesting solution, and I do believe there are a broad range of use cases which this could unlock.
Ok, if we accept the premise of the idea is useful, the next question is about the implementation. I’ve personally been quite negative about a lot of blockchain use-cases: however, this is mainly a concern about proof-of-work. This mathematical trick allows the system to create trust amongst strangers, but it comes at an increasing (literal) cost.
Libra is a permissioned blockchain, which means there is no proof-of-work: the system is semi-centralised. It’s an alliance, which is why I refer to it as semi-centralised, but there is a core of trust within the system amongst friends which makes the scheme work. The great benefit of this scheme is that the currency is trustworthy without the actual costs or performance problems associated with proof-of-work.
Libra Association suggests they can move to proof-of-stake in the future. This makes me uneasy; lots of people have looked at this without actual success yet. In theory it should work – it imposes the actual cost, in much the way someone trying to throw the lottery has to bear the cost of buying a majority of tickets. The practice appears much harder.
Speed of transaction, both execution and overall throughput, are essential for this system to work. That means permissioned blockchain for now. Crucial will be the end-user equipment: secure wallets, the ability to transact via a mobile phone. This side of the system looks excellent, and I have a lot more faith that Libra will do better here than some alternatives.
I’m deeply intrigued by the idea of a genuinely global currency. There are obviously currencies which are broadly accepted across the world, and commodities which function similarly (such as gold). However, Libra promises to be much more broadly applicable – a fiscal Esperanto, if you will.
There are clearly problems with this in some places. I would be extremely surprised if there was significant use of this allowed in China, where there are both strong currency controls and smart network firewalls. Similar problems will arise elsewhere. I don’t think that detracts.
The ability to send money across the world more quickly and simply would be an evolution on what we have right now, but it would be a big step, much like how international telephone calls made the world smaller.
It does seem to me that with the backers it has, Libra almost cannot fail. It will arrive, it will work, the only issue will be whether or not it gets a lot of take-up. My bet is that many traders will be incentivised to offer to accept Libra.
I personally feel that it’s unlikely people will buy large items via Libra. I doubt people are going to get paid in Libra. However, I think it’s extremely likely that small goods – and especially personal services – will be increasingly available in this currency.
If I were a trader with an online business taking small sums of money, I would start investigating this right now. For any business trading over mobile phones, I think this will quickly become essential.