Facebook’s Libra & Bitcoin Are Chalk & Cheese
By: Patrick Tan
Tags: Finance, Facebook, Blockchain, Cryptocurrency, Bitcoin

Facebook’s Libra & Bitcoin Are Chalk & Cheese

To the uninitiated, Facebook’s push to launch its own cryptocurrency was seen as a boost for other cryptocurrencies — nothing could be further from the truth.

Standard and non-standard disclaimers apply. (Image by Simon Steinberger from Pixabay.)

On a hot summer’s evening, from his humid living room in Mobile, Alabama, Timothy ‘Tim” Jones, sat at the desk of his computer to indulge in a couple of hours of social media surfing.

His 17-year old niece (who had since moved on to Snapchat and Instagram) had told him several years ago about how Facebook was a great way to reconnect with lost friends and stay in touch with loved ones — and once she had shown “Uncle Tim” how to get started, he was immediately hooked — spending a couple of hours each day seeing how his old army buddies were doing and checking in on family scattered all across the country.

But on this particularly tepid evening, Jones was having difficulty logging into his Facebook account. Imagining that he had gotten his password wrong, he re-typed it again, being extra-careful to do so slowly, but was denied access again — when he was locked out of his account completely.

Alarmed, Jones called up his niece who advised that he should email Facebook’s support line to see what had happened.

With limited alternatives, Jones proceeded to fire out an email to Facebook, to query the status of his account.

Several weeks and several emails later, Jones soon discovered that his account had been “compromised” and as a security precaution, was frozen — all because he had shared some pro-Trump posts on his timeline which seemed to mimic the behavior of accounts that were trolling the social media platform.

But Jones assured Facebook’s representatives that he had indeed posted the pro-Trump posts and there was nothing nefarious intended with his postings — he was simply exercising his First Amendment rights.

Yet despite his protestations, Facebook had proceeded to lock him out of his account and then to shut it down entirely — with years’ worth of photos and videos lost in the process.

Jones was devastated.

Up to that point, he had always been suspicious of technology, but when he recognized the convenience of using social media, as well as how it widened his social circle to link him up with like-minded individuals, he had immediately become hooked.

At 67, the mechanic, who had fought in the Vietnam War had not anticipated that with the simple click of a mouse button, his entire online life which he had been building for the past few years, would evaporate.

Imagine what Facebook could do with our economic lives.

Looks the Same, Not the Same

Which is why observers who had noted Bitcoin’s rise of 55% in the nine days after Facebook unveiled its plan for its Libra cryptocurrency on June 18, may have been mistaking correlation for causation.

To be sure, Bitcoin and Facebook’s Libra could not be more different.

Built upon the ethos of access and decentralization, Bitcoin is the embodiment of unadulterated democracy — where any entity, criminal or otherwise, may avail themselves of access to the cryptocurrency and use it accordingly.

Facebook’s Libra on the other hand was always intended to be accessed and utilized within a walled garden — with its pursuit of regulation, simply the veneer of credibility and sanction to legitimize its wider commercial and corporate interests.

Digital Rosetta Stone was captivating. (Image by xresch from Pixabay.)

That Bitcoin and Libra are like chalk and cheese could not be more apparent as the bellwether cryptocurrency fell more than 10% last weekend to a two-week low, shooting below the important US$10,000 psychological floor to US$9,855 early on July 15, only to recover lost ground in as many days to stay above US$10,000 — as traders started to realize that while Libra and Bitcoin may be correlated — the tail does not wag the dog.

And unlike Bitcoin, which even one Democratic senator has conceded may ultimately be ungovernable, politicians and regulators across the world and political divides have unified to call for greater scrutiny of Libra — with concerns ranging from consumer protection and privacy, to potential systemic risks, given the social media giant’s immense global reach.

Governing the Ungovernable

Facebook no doubt, makes for a rather large and attractive target — it’s the “big blue” that IBM once was, vilified as a digital bogeyman and the punching bag for many politicians desperate for a sound byte.

Yet the social media and communication services that Facebook has carefully curated within its ecosystem mean that as much as lawmakers may lambaste the social media giant in the wood-paneled hearing rooms of Congress, they are helpless to refuse its services — which is perhaps what scares them the most.

For how many lawmakers may have (with their limited understanding of technology) unwittingly sent compromising Whatsapp messages to a midsummer tryst? Or compromised their public persona with digital dalliances?

Encroaching on Sovereign Territory

And that Congress and the U.S. government sees Facebook as encroaching on its most powerful weapon of all — to literally create money out of thin air (well cotton-paper at the very least) — it should come as no surprise that politicians on both sides of the table would reach across the divide to preserve the use of that weapon.

Nowhere is this more obvious then U.S. President Donald Trump’s criticism of Libra — demanding that firms (like Facebook) seek a banking charter and subject themselves to U.S. and global regulations if they want to “become a bank.”

But does Facebook even seek to become a bank?

That part is less certain.

What Is It?

Say you were running a hair salon and offered your customers a discount if they pre-purchased credit with your salon, say 20% more credit than the amount purchased and that such credit should take the form of tokens — is the hair salon a bank?

Because in many ways, that is precisely what Facebook is attempting to do.

Given the inherent value of the social media giant’s ecosystem — if holders (I shall refrain from using the term “hodlers”) of Libra gain value by using the cryptocurrency within Facebook’s vast ecosystem — users can pay for goods and services and advertisers can then use Libra to pay for advertising — strictly speaking, outside of external application, is Facebook’s Libra a currency in the traditional sense?

Does holding on to Libra make one a depositor with Facebook?

And while some observers have suggested that Federal Reserve chairman Jerome Powell’s call for halting Facebook’s Libra, until concerns ranging from privacy to money-laundering are addressed may have ultimately led to the fall in Bitcoin — such an observation defies the basic principle that Bitcoin’s offering as a cryptocurrency has not changed.

Washington was not pleased with attempts to undermine his ubiquity in paper form. (Image by Free-Photos from Pixabay.)

Bitcoin is still pseudonymous — it’s anonymous to a point, but with increasingly sophisticated blockchain analytic tools, some transactions can be traced.

Bitcoin is still capable of facilitating money laundering and capital flight from countries (such as China) with strict capital controls.

Bitcoin is still capable of being used to purchase any and all manner of illegal product or service, from firearms to narcotics.

Like it or not, Bitcoin’s value offering has not changed.

And Bitcoin is still able to allow virtually free transfer of value. It can still act as a hedge against inflationary fiat currencies such as the dollar and it can still act as a digital store of value, like gold.

As a hedge against inflation, easy to store as well as transport and with its ease of transfer, Bitcoin, as a conduit, has few rivals.

In terms of awareness and acceptance, Bitcoin has only grown, not diminished.

To attribute Bitcoin’s recent correction to Powell’s comment is to mistake correlation for causation.

Bitcoin (thus far) hasn’t pulled out any new tricks — Facebook’s Libra push is just hitting the skids — what the two have to do with each other is hard to fathom.

And as regulators circle around Libra — Japan (one of the world’s most pro-cryptocurrency countries) recently announced that it was setting up a working group to look at Libra’s possible impact on monetary policy and financial regulation, the European Central Bank policymaker Benoit Coeure is due to deliver a preliminary report on Libra at a meeting of G7 finance ministers in Chantilly, a town north of Paris — if nothing else, Bitcoin’s relative “ungovernability” ought to put it in good stead, versus Libra.

If nothing else, the entire Libra episode clearly demonstrates the value proposition of Bitcoin and other decentralized cryptocurrencies.

That Facebook’s Libra can be stopped before even getting off the blocks should be testament to the fragility of a centrally issued and administered cryptocurrency — all of the blockchain, none of the benefits.

That governments and regulators across the world have been quick to target Libra can in part be attributed to the fact that it can be stopped — quite unlike Bitcoin.

To suggest that Libra should usher in a new wave of interest in cryptocurrencies is to confuse the similar technology which Bitcoin and Libra are built on to being the same tenets upon which both cryptocurrencies were founded — they could not be more opposite than chalk and cheese.