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Bartosz Paszcza  4 września 2019

Facebook cryptocurrency, or the first modern private Central Bank

Bartosz Paszcza  4 września 2019
przeczytanie zajmie 5 min

Decentralization of trust. Deflationary money. Currency independent of the hated central banks. The beautiful slogans behind the development of cryptocurrencies led Facebook (and around two other large companies) to establish what effectively is a private central bank and a private currency. Hand-in-hand with corporations, techno-anarchists get around to attempt to bring down one of the key elements of the social contract and state sovereignty. Our currency may be decided in a few years by several people sitting in their offices in Silicon Valley.

The techno-anarchic bitcoin, a currency that aimed to guarantee one’s independence from trusting central banks, seemed an extremely liberal and promising idea. The creator of the most popular cryptocurrency, Satoshi Nakamoto (it’s only a pseudonym; we do not know his real name), wrote openly that the main drawback of the financial system is the huge amount of trust required for it to operate.

That’s why, for several years now, developers, techno-enthusiasts, futurists, investors, and those tempted by the vision of a quick profit have been creating an alternative value-sharing system that would, in theory, eliminate the need to trust the abusive (in their opinion) government agencies. Such as central banks, printing more money and taking care to maintain inflation. Opposite the „corrupt” system there is a decentralized, deflationary currency co-managed by a large community.

What a wonderful time to be alive!

The last few months have shown just how harmful this liberal-anarchist cryptocurrency utopia is. Blockchain and cryptocurrencies do not abolish the need for trust – they are merely able to move its object. This means that instead of having to trust the paper-pushers at the national bank, we must trust technology (trading platforms, currency wallets, apps for writing smart contracts), but also developers. To learn more on the illusion of the „rule of code”, see the text by Krystian Łukasik.

Ethereum or bitcoin are just as centralised currencies as traditional ones. The community is not giving „the power to the people” at all: it is merely a facade, behind which is a very narrow group of around a dozen entities. The decision-making circle of individuals and institutions is… narrower than in the case of the traditional financial system, deprived of civil control and the institutional „check and balances” system.

When those caring for the Ethereum blockchain currency were to make one of the really important decisions („undoing” the transactions record up to a certain point due to an error, the so-called hard fork), they used a system where the weight of one’s vote was proportional to the size of one’s wallet. It turned out that 25% of the votes came… from just one address. Over 50% of the bitcoin mining power is controlled by only five entities, and over 70% of bitcoin wallets are located on one of two online platforms (the so-called online wallets) – cryptowallets with virtual money are in fact located on these companies’ servers.

Anarchists replace the state with corporations

The original idea of decentralizing currency led us to a result that was unexpected for crypto-enthusiasts, but perfectly predictable. In practice, the decentralisation of trust in the government means  privatisation of trust.

Hence, the Libra Association, the first private Central Bank of the twenty-first century, was established. It is completely private both in terms of ownership and shareholder control. It is to be created by such corporate giants as Facebook, Visa and Mastercard, but also by a chain of other investment companies (Andressen Horowitz, Ribbit Capital), online businesses (Spotify, eBay), or payment systems (PayPal, PayU). It is an organization controlling the Libra currency, based on blockchain.

Facebook has announced that Libra wallets will be part of Facebook Messenger and WhatsApp, owned by the same company. So we’re taking the next step towards „closing” the system – for the sake of convenience, few users will want to store their currencies in private physical wallets, since even bitcoin techno-enthusiasts store their cryptocurrencies in a cloud, entrusting them to external websites.

Thus, Facebook (and a few related companies) will not only be responsible for our communication with friends, but also for storing our funds and enabling transactions.

And one more tiny detail: unlike e.g. bitcoin, only companies associated in the Libra Association can mine the new cryptocurrency. Although the Association promises that it will depart from this model in five years and allow mining the currency by outsiders as well, but… so far no cryptocurrency has gone that far. In four years, should Libra succeed, it may become difficult to convince the companies forming the Association that it is worth limiting their shares in favour of decentralizing ownership.

Establishing Libra is just a cherry on the cake of the „enterprise blockchain” trend. That is solutions using blockchains, which are by no means based on a grass-roots community, but on very well-known companies: Samsung, IBM, Oracle or Amazon. The technology that was to restore the citizens’ subjectivity/security/privacy* (*- cross out as appropriate) has become another product of large companies.

Is it bad that a corporation is ousting the state?

Ironically, Facebook, which for the past one and a half years could be the dictionary antonym of „trust”, creates an equivalent of a central bank that requires this deficit sentiment. A few days ago, the Wall Street Journal reported that, as part of the Federal Trade Commission’s investigation, Facebook found e-mails revealing that Zuckerberg had known about the unsafe handling of user data for a long time – and decided not to give the issue priority, to put it mildly.

It is difficult to create a less-trustworthy organizational culture of a company behind the creation of a central bank for (for now) poor countries, and it is precisely them that Libra is supposed to focus on.

Focusing on these countries with unstable financial systems and underdeveloped institutions clearly shows where Libra’s development is headed. The corporate currency will replace the state-issued means of payment, and the easiest place to start that is where the state is the weakest. The new cryptocurrency will not be an addition to the system, but a rival for central banks and traditional currencies. Its goal will, therefore, be to oust the state.

The Republican dystopia

The rise of Libra is an attempt to tear the social contract apart. Cryptoanarchism has taken a bite off the social contract, prompting the narrative of the need to decentralize trust, while the solution proposed by the blockchain community under the guise of decentralization really focuses trust in the hands of people with no democratic control or transparency.

The world’s big companies could not miss such an opportunity. Using the narrative of the need to trust someone else than the state and technology being developed with such fervor, they are creating an institution that displaces the state in one of its primary roles.

The debate on introducing the euro in Poland has been going on for years. In the meantime, without any political decision, we may soon have a parallel means of payment in Poland, created by a body without no need for transparency and without any democratic control over it.

Polish version is available here.

Publication (excluding figures and illustrations) is available under Creative Commons Attribution 4.0 InternationalAny use of the work is allowed, provided that the licensing information, about rights holders and about the contest "Public Diplomacy 2019" (below) is mentioned.

The publication co-financed by the Ministry of Foreign Affairs of the Republic of Poland as part of the public project "Public Diplomacy 2019" („Dyplomacja Publiczna 2019”). This publication reflects the views of the author and is not an official stance of the Ministry of Foreign Affairs of the Republic of Poland.