The announcement of the development of the cryptocurrency Libra in June 2019 has created a real earthquake within the crypto sphere, causing many controversies on the subject. Scheduled to be launched in 2020, this cryptocurrency, developed by Facebook and the Libra Association with over 27 major partners and associates (such as Uber, Paypal, Visa and other major economic powers), aims to address issues of the current financial system by providing a significant digital solution for the entire world.
The economic issues of Libra
Internet and new technologies have become widely democratized in recent decades. Today, billions of people around the world now have easy access to financial services directly from their smartphones, tablets or other digital equipment with ever-lower costs. Nevertheless, in 2019, more than 1.5 billion people in the world still do not have access to the financial system or banking solutions for various factors such as geographical location or economic means. Most of these people who do not have access to the banking system are often stranded because of insufficient funds or the lack of a banking solution nearby. The lack of information on the issue and the fees associated with the various banking operations are a brake on trust and the integration of new customers. In addition, even the poorest that have access to banks see their capital largely reduced by bank charges such as transfer fees or withdrawal costs. Furthermore, even in the richest countries, some people cannot access banking services, lacking of identities document or for not being able to fulfill the KYC and AML standards to be identified as a customer ( Anti-Fraud and Money laundering solutions).
The answer proposed by Libra is simple:
Offer a low-cost, always connected, fully transparent and secure global financial system that can provide a long-term financial solution for people who are not in the current banking sector, as well as those who want a new and economical solution. The starting assumption is that Libra will not be a speculative currency like many of the currencies present on the blockchain, but rather a currency with a stable rate based on the rates of at least several common fiduciary currencies such as the dollar, the euro and the yen (the Libra reserve) via government assets or securities from stable “local” banks.
One can then ask the question of the legitimacy of this system and the possibilities that will be offered to the customers of this system. The blockchain, by definition, is an information storage and transmission technology, transparent, secure, and operating without a central control organ. A blockchain then constitutes a gigantic database containing the entire history of all the exchanges made between its users since its establishment. This database is secure, distributed and shared by its different users, without intermediaries, allowing everyone to check the integrity of the entire chain.
But the blockchain comes in many forms with distinct functions. The notion of sharing between users is related to the type of blockchain used and the associated accessibility. This principle is also applicable to groups of investors. Some public groups are open to all types of users while private groups are limited by the network and by invitation integration. This is why one can ask the question of the legitimacy of a private blockchain :
How a network closed and controlled by an individual or a group of individuals or companies can be assimilated to the notion of decentralization?
Will Libra, in its entirety, not jeopardize security and financial freedom for users around the world?
To introduce the default functioning of the Libra system, it is important to understand the difference between so-called public blockchains (Permissionless) and those called private (Permissioned).
Libra Permissioned Blockchains vs Permissionless Blockchains
A permissionless blockchain is often defined as public and comes closest to the original definition brought with the arrival of the blockchain for the general public. No permission is required to join the network and actively contribute to it. In theory, any person or entity can take part in this public network without compensation.
As anyone can join a permissionless blockchain, they tend to be far more decentralized than a permissioned system. The only drawback is that public blockchains are often much slower than private blockchain because of the amount of actors present on it. With no third-parties to regulate the network, the system relies on a public consensus to ensure the long-term sustainability of this solution.
Permissioned (or private) blockchains such as Libra, on the other hand, are at the opposite of the principle of distributed registry technology because they require permission to participate. The owner of a permissioned blockchain has the ability to determine and choose who can or cannot become part of its network. This control can mean the blockchain owner can: dictate the network’s structure, issue software updates, and control everything that takes place on their blockchain. With this type of chain, it is impossible to speak of decentralization in the sense that each of the decisions relating to the chain is controlled and administered by a centralized entity or group. The information on a permissioned blockchains is validated only by approved members of that blockchain. The owner can also choose to offer the possibility to consult or not the information on the chain.
Since Libra currency is based on a permissionned system, it brings with it many economic and personal dangers related to the intrinsic definition of the blockchain. Blockchain systems are supposed to improve everyday’s life, offering quick and easy services while ensuring financial stability with a public ledger. Libra’s vision arrives with a lot of questioning related to general security.
How Permissioned Libra System can endanger the financial freedom or confidentiality ?
Libra represents a threat to the central banks as well as the companies that make up the organization in charge of regulating it. The image of Facebook has deteriorated sharply, especially since the Cambridge Analytica case, a political profiling company that had captured in June 2014 the data of 50 million members of the social network without their consent. This case had made a lot of noise around Facebook and its creator, Mark Zuckerberg, about the ability of the digital giant to maintain the integrity of the personal data of its users. How could users trust Libra, associated with Facebook, to become a serious financial entity when the same entity has already failed several times to ensure the security of its users?
The underlying notion of the private blockchain implies that Libra will be able, in its own way, to fully control the actors present on its network and to choose who can join it. Facebook is a major economic power that has already used its scale to exploit user data without protecting their privacy. The creation of a crypto currency linked to Facebook, even only usable on the services of the platform, would be a significant danger for the financial stability of all users. If Libra can be recognized as a full-fledged currency, it will escape any state or democratic control and be entirely above national or international laws.
This evolution of the digital to the financial world would not it be a major problem for the users. If security is not enough from a digital point of view on Facebook, how could it be to secure funds and help millions or even billions of people as a financial organization? Would not we have an upsurge of cases of fraud or money laundering on a platform that is beyond any operational control? or even cases of selling bank data for lack of security?
Even if at first, Libra will only be available in the Facebook messenger app and WhatsApp , how can users have the guarantee that their financial datas won’t be sold to others companies ? They can’t.By using a private blockchain, individuals will not have the opportunity to obtain interests related to the detention of Libra. The different interests perceived by the entity will serve several general purposes such as system cost coverage, transaction cost reduction and Libra’s development financing for the general interest.
On the other hand, the principle of dividends paid to investors of the Libra association is a major danger for users. The centralization of this system poses a major problem as to the real purpose of this solution.
Is Libra developed to serve the general interests of the general public and the world or only the private interests of shareholders and stakeholders of the Swiss-based Libra Association?
Despite the obvious interest of bringing the blockchain to other horizons such as large corporations, it is necessary to keep at all costs the original idea of this innovation, namely decentralization. In short, Libra has an interesting vision of its principles to bring a durable solution to people who do not have access to banking systems but remains an imminent danger to global financial stability and the notion of decentralization Satoshi Nakamoto tried to introduce in his white paper on Bitcoin. General adoption is an important goal of crypto currencies and blockchain, but this should not be done to the detriment of the financial freedom of users and their private lives.