The much-anticipated Libra whitepaper was finally released in June. And since then, the project has received a staggering amount of backlash and criticism; not only from regulators but also from the cryptocurrency community, which has taken issue with the project’s philosophy along with its technology.
A number of members of the cryptosphere have been calling for the entry of institutional players into crypto--but perhaps this wasn’t exactly what they had in mind. While some have said that Libra is great for crypto’s image, others have said that it’s more of a centralized collection of ideas than anything else at this point.
Libra whitepaper is already live: https://t.co/UpsdariYl4…
Disclosing dozens of partnerships with the major industries on Payments , Blockchain , Telecoms...#Bitcoin #Blockchain #CryptoCurrencies #LibraCoin pic.twitter.com/EVaCnZedtN — Libra - Crypto (@LibraCryptoPay) June 18, 2019
Indeed, Libra's technical whitepaper does seem to contain an awful lot of text about the project’s organizational and humanitarian aspirations. Perhaps there’s a strategic cause for this--the project still has to run the regulatory gauntlet before it can be rolled out as a public platform, a process which might require some significant changes to the network’s tech.
And there are certainly some questions that need addressing.
Is Libra trying to replace national currencies?
On the regulatory side of things, the biggest red flag is perhaps the fact that Libra could pose as a serious competitor to the national currencies of countries with unstable economies and a lack of digital financial systems.
“The mission of the Libra protocol is to support a global financial infrastructure,” the whitepaper says.
But while it doesn’t explicitly say that it’s seeking to replace the national currencies of some countries, “when the whitepaper describes providing currency to the 1.9 billion people now relying exclusively on cash, it means replacing the national currencies of countries like Nigeria, Mexico, Indonesia and Pakistan for the large majority of citizens,” wrote analyst Aaron Brown in an article for Bloomberg.
Additionally, while the whitepaper contained explanations of how transactions would be sent and confirmed on the network, it didn’t have much to say about the currency’s stability model, or what the assets in the “basket” will be.
“While the initial design calls for 100% reserves in developed country currencies and government debt, that’s illusory, since its controllers can change the investments at any time," Brown wrote. “Any country that allows inflation or issues dubious debt can find its currency and debt dropped from reserves.”
Could Libra have the potential to unwillingly facilitate fraudulent activity?
Another of these questions is whether or not--and if so, how--Facebook will work to police applications that have been developed for use with Libra.
“Essential to the spirit of Libra . . . 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,” the whitepaper reads. “Open access ensures low barriers to entry and innovation and encourages healthy competition that benefits consumers.”
However, as analyst Josh Constine pointed out in an article for TechCrunch, leaving the development platform completely “open” is the very thing that led to user data theft by “research” firm Cambridge Analytica. And data isn’t the only thing at risk here--stealing user information about birthdays, friends, and interests is bad enough, but stealing money outright may be even worse.
After all, the theft of digital currency is still a major problem in the cryptosphere. In Q1 of this year alone, it was estimated that over $1 billion in digital currency has been stolen by hacking or by fraud. What’s to say that the same thing couldn’t happen on the Libra network?
Let’s say a malicious developer creates an app that siphons off Libra dollars without the user knowing. What then? If governance is distributed throughout 100 nodes, will they each have to vote on removing an app from the Libra platform?
And what about transaction reversal? Some members of the cryptocurrency community are set squarely against using any kind of centralized power on a cryptocurrency network, even if it’s to reverse fraudulent transactions and return money to victimized users. In fact, the very fact that this is possible on some networks has caused the community to claim that they aren’t truly decentralized.
Decentralization seems to be more of a matter of opinion than fact
But perhaps that’s just the thing about Libra. Critics have pointed out that hand-selecting 100 companies to act as the network’s nodes just doesn’t cut it as a true decentralization model.
“They will be no more decentralized than a central bank,” said Peter Ryan of Ryan Research to Finance Magnates. “The value of Libra is directly related to the ability of the managers of Libra to maintain stability with their basket of four currencies. If they fail at this activity, you will see a free-floating Libra that could explode or crash in price.”
“Secondly, their blockchain is validated by large institutions already selected by Facebook. If more are added you can expect them to also be chosen by Facebook and already large incumbents. Thus, they are able to freeze transactions and ban users in their centralized role, which is drastically different from other cryptocurrencies.”
But others have been impressed by Facebook’s attempts to decentralize Libra. “One of the most impressive things, to me, about this project is how thoughtful they’ve been about truly making it distributed,” said Bison Trails CEO Joe Lallouz to CoinDesk. “Bringing on lots of partners to make sure there isn’t any centralization of decision-making or governance.”
But still, the centralization model isn't anything like Bitcoin's, which--although it has its own set of issues--has a much more decentralized model than Libra. It seems that what it really comes down to is simple opinion. For some, Libra's decentralization model is enough; for others, not so much.
And, perhaps, unfortunately, the answer to this question will only come when the network's decentralization model is really tested--for better or for worse.
