On Facebook’s new cryptocurrency, the Libra. What will its consequences be for Bitcoin, blockchain and the financial world?

After many years on the sidelines, a consortium of large corporations and social impact organizations led by Facebook will soon enter the blockchain space. In the past week, Facebook has given more details regarding their future cryptocurrency, the Libra. It is supposed to be released by the consortium in the first half of 2020.

This article is my first reaction to the Libra White Paper, which describes Libra as a cryptocurrency with low volatility that will make use of its native Libra blockchain. What follows is a description of Libra as described in the White Paper, and 11 predictions about its consequences for the blockchain and financial world.

Goal of Libra
The goal of the Libra Association is to create a stable currency that makes use of a secure and stable open-source blockchain. Open-source means that the source code is public for anyone to see. In order to keep the currency stable, it will be backed by Libra Reserves – a basket of low-volatility assets, such as bank deposits and short term government securities in currencies from stable and reputable central banks such as the USD, EUR, CNY, and GBP. These assets will be managed by a global network of custodians. The Libra will thus enjoy the benefits of stable traditional government money and the benefits of blockchain-based cryptocurrencies. Users of Libra should theoretically be able to make transactions with Libra coins with low costs, and within immediate speeds to anyone anywhere in the world.

The Libra Association is hopeful that it will give a boost to better and cheaper financial services, therefore, making financial services accessible for everyone.

Considerations for building the Libra blockchain
The Libra blockchain has been developed, while taking the following three requirements into consideration:

  1. It must be scalable to accommodate billions of accounts, meaning that it can process a high transaction throughput with low latency.
  2. Funds and financial data must be secure.
  3. It must be flexible enough to power the ecosystem’s governance and future implementations of innovative financial services and upgrades to the network are possible.

In order to make the above possible, the association has chosen to:

  • Develop a new programming language, called Move. The goal of Move is to make the development of “smart contracts” and transaction logic more secure. Hence, with fewer risks that a software developer writes mistakes into his code that lead to unforeseen bugs and unpredictable behavior of the software.
  • In addition, a Byzantine Fault Tolerance consensus protocol suitable for processing a great number of transactions will be used. This protocol will also be more energy efficient, than for example Bitcoin’s “Proof of Work” consensus protocol, and have less network latency. The protocol is a set of rules determining how consensus about the correct state of the blockchain within a blockchain network can be reached and what the requirements are for approving transactions.
  • Finally, according to the White Paper, the blockchain will be pseudonymous and will offer users the option to create multiple addresses that cannot be linked to their real-world identities.

The Libra Association
The Libra Association will consist of a consortium of around 100 founding members. It has approximately 30 members so far. Among these members are PayPal, Mastercard, Visa, Spotify, Über and Ebay. In order to become a founding member, they had to put in $10 million for the Libra Rerserve. In addition to commercial corporations, there are also social impact organizations such as Women’s World Banking and Kiva. The members of the consortium will receive Libra Investment Token (LIT) with which they can participate in the governance of the Libra Association. It is also possible that they will be rewarded with LIT for maintaining the blockchain and approving the transactions.

Facebook is going into the banking business with ...
The founding members of the Libra Association so far.

The Libra Association will manage the Libra Reserve for the stability and growth of the Libra economy. The interest earned from the reserves will be used to cover their costs. The Libra Association will be the only party that can issue and burn (destroy) Libra tokens. When authorized resellers have bought Libra from the Association with fiat money, new Libra will be issued. Libra will only be burned when authorized resellers sell their Libra to the Libra Association in exchange for their underlying assets. The Libra Reserve thus acts as the “buyer of last resort”. The policy of the Libra Association can only be changed through majority consensus of the members. It’s still unclear how much consensus is needed to change the Association’s policies. It’s also unclear how much consensus is needed to approve a transaction. It’s expected that this will be similar to other Byzantine Fault Tolerance protocols and that 67% consensus is needed.

Another goal of the Libra Association is to develop a standard for open digital identities. Such identities are, according to the Association, a prerequisite for financial inclusion.

Permissioned blockchain
According to the White Paper, the blockchain is permissioned. This means that not everyone is able to run the blockchain on their own computer – only the members of the Association are allowed to do so. They are nonetheless planning to make the transition towards a permissionless environment in which everyone can run his or her blockchain node within 5 years.

Is the Libra blockchain really a blockchain?
Although the Libra Association asserts that Libra is blockchain-based, one could argue that it’s actually not. Blockchains normally make use of data blocks that are chained to each other. Libra, on the other hand, is a single database and does not make use of such blocks. It acts more like a payment scheme.

For more details regarding this topic, see the following article of Simon Lelieveldt.

If Libra does not make use of a blockchain, is it a cryptocurrency?
Some may believe that Libra is not a real cryptocurrency if it does not make use of blockchain. However, in order to be consistent, they should then also maintain that B-money – a precursor to Bitcoin with many similar properties as Bitcoin, but without the use of blockchain – is not a cryptocurrency.

I will not get deeper into the discussion whether Libra is a blockchain or a cryptocurrency.

Calibra wallet
Libra will be implemented into the ecosystem of Facebook and will also be available in other applications owned by Facebook, such as Messenger, Whatsapp, and Instagram. The wallet in which Libra will be stored is called the Calibra wallet.

What will be Libra’s consequences for the blockchain and financial world?
It’s difficult to make correct predictions about Libra, especially since many details about Libra are still missing. Nonetheless, there some predictions I already dare to make.

  1. The Libra blockchain will not be entirely neutral and borderless. The Libra Association will conform to governmental rules and regulations. It will hence be unlikely that transactions to sanctioned countries, such as Iran, will be approved.
  2. The Libra blockchain will compete with banks and fintech companies. It will introduce innovative financial products that will directly compete with financial products offered by banks and fintech companies. Also, Libra transactions will not require payment service providers and intermediary banks and schemes to facilitate the transactions. People could, for example, be able to send money abroad with low transaction costs, and pay with Libra for Über rides and Spotify without traditional payment facilitating intermediaries.
  3. Libra will compete with central banks. Libra could undermine the demand for national currencies – something that central banks and national governments will not accept. Shortly after the announcement of Libra, French and Russian politicians have already expressed their worries that Libra will undermine their national financial system. In addition, it will also be more difficult for central banks to prevent capital flight. Recently, voices have been raised in the United States to (temporarily) stop the development of Libra in order to make sure it will not compete with the USD. Thus, it’s still unsure whether the Association will be able to release Libra in the first half of 2020.
  4. Libra will lead to tension with rules and regulations, and show that current financial rules and regulations are outdated. The call for clearer regulations with respect to cryptocurrencies will grow.
  5. Libra will show that those who say “cryptocurrencies are not interesting, it’s all about blockchain” are dead wrong. Cryptocurrencies will be a tremendous force for mainstream adoption of blockchain, just like e-mail was for the internet.
  6. Libra will compete with stablecoins. Stablecoins are cryptocurrencies that are pegged to assets with stable value. Think for example about the USD, the EUR and precious metals. Stablecoins that already exist are Tether (USDT), Gemini Dollar (GUSD), bit.USD, and Coinbase Dollar (USDC).
  7. It’s unclear how the Libra Association will handle their users’ privacy. I expect that users will be required to provide private information if they would like to make use of the Calibra wallet. The White Paper mentions that having a digital identity is a prerequisite to make use of Libra. However, it also mentions that users will be able to create wallets that cannot be linked to their real-world identities. In addition, it’s also unclear how the Association will deal with users’ transaction data. The Association members will be able to view all transaction data as they are allowed to run a Libra node on the network.
  8. The people that will benefit most from Libra are those who are still facing big barriers to participate in the financial world. If Libra is able to lower the barriers of entree, it will greatly improve the financial opportunities of the unbanked.
  9. Libra will lead to more intensified discussions about what money is. People will become more skeptical about national currencies, and more will become convinced of the benefits of privately issued currencies like cryptocurrencies.
  10. Libra will make people more familiar with cryptocurrencies and better educated about the benefits of blockchain.
  11. In the long run, people will look for alternative currencies that cannot be controlled by governments and central banks. They will hence make more use of cryptocurrencies that are open, public, borderless, neutral and censorship resistant like Bitcoin. These currencies will eventually benefit from Libra.

Libra is an interesting development that will benefit the blockchain space, as well as the financial world. The members of the Libra Association already have a combined reach of more than 2.5 billion people, so they can accelerate mainstream adoption of blockchain. Users will be able to perform transactions against lower costs and with immediate speed. Those that will benefit most from Libra will be mainly people from developing countries.

Eventually, though, Libra will lead to greater adoption of cryptocurrencies that are truly open, public, borderless, neutral and censorship resistant like Bitcoin.

We have seen the algorithm and it is us.

The core assumption of economics is that people tend to do the thing that makes sense from their own perspective. Whatever utility function people are maximizing, it’s reasonable to assume (absent compelling arguments to the contrary) that a) they’re trying to get what they want, and b) they’re trying their best given what they know.

Which is to say: what people do is a function of their preferences and priors.

Politicians (and other marketers) know this; the political battle for hearts and minds is older than history. Where it gets timely is the role algorithms play in the Facebookification of politics.

The engineering decisions made by Facebook, Google, et al. shape the digital bubbles we form for ourselves. We’ve got access to infinite content online and it has to be sorted somehow. What we’ve been learning is that these decisions aren’t neutral because they implicitly decide how our priors will be updated.

This is a problem, but it’s not the root problem. Even worse, there’s no solution.

Consider one option: put you and me in charge of regulating social media algorithms. What will be the result? First we’ll have to find a way to avoid being corrupted by this power. Then we’ll have to figure out just what it is we’re doing. Then we’ll have to stay on top of all the people trying to game the system.

If we could perfectly regulate these algorithms we might do some genuine good. But we still won’t have eliminated the fundamental issue: free will.

Let’s think of this through an evolutionary lens. The algorithms that survive are those that are most consistent with users’ preferences (out of acceptable alternatives). Clickbait will (by definition) always have an edge. Confirmation bias isn’t going away any time soon. Thinking is hard and people don’t like it.

People will continue to chose news options they find compelling and trustworthy. Their preferences and priors are not the same as ours and they never will be. Highly educated people have been trying to make everyone else highly educated for generations and they haven’t succeeded yet.

A better approach is to quit this “Rock the Vote” nonsense and encourage more people to opt for benign neglect. Our problem isn’t that the algorithms make people into political hooligans, it’s that we keep trying to get them involved under the faulty assumption that people are unnaturally Vulcan-like. Yes, regular people ought to be sensible and civically engaged, but ought does not imply can.

Pornography, virtual reality and censorship [I]: presidents and feminism

Oculus Rift, recently purchased by Facebook and partnered with Samsung, and HTC Vive, manufactured by HTC with Valve technology, have lead the 2010 wave in developing virtual reality headsets. These technologies, innovative by today’s standards but primitive by science fiction’s, mark the beginning of a differently structured society. They also mark a starting point for a new debate about privacy, the social affects of videogames, and especially censorship in media.

Virtual reality (in its not-too-distant actuality) offers an opportunity to behave outside of social norms in an environment that is phenomenologically the real world. The only comparable experience for humankind thus far is lucid dreaming, for which the rewards are less intense and the journey less traversible than the quick promises of virtual reality machines. One inevitable development for these machines is violent, sexually explicit experiences, available for cheap and accessible 24/7. To see how VR might be received, the closest industries to analyze are the videogame and pornography industries.

Interestingly, pornography has a very liberal history, in comparison to other “societal ills,” like drugs. Erotica dates back to ancient cultures — notably, the Kama Sutra, hardcore by today’s standards, is still a staple of contemporary sexual experimentation — and today’s perversions were common themes: bestiality, pedophilia, etc., although pornography with an emphasis on violence might be a more modern trend. This isn’t to ignore, however, the roles typically played by women in ancient Western folklore and mythology, which are degrading by today’s feminist standards.

The case could be made that today’s censorial views on pornography come from a far more malevolent or oppressive stance toward women than two millennia ago. The free expression that pornographic media once enjoyed was severely deflated over the 20th century. Only two years ago, a plethora of activities were banned from pornography in the United Kingdom. Reacting to the legislation, commentators were quick to criticize what was seen as policy that was specifically anti-female pleasure. Female ejaculation, fisting, face-sitting, and many forms of spanking or role-play were among the restrictions. There are puritanical, “moral outrage” elements to the restriction, but many noticed the absurdity of banning face-sitting: said one producer, “Why ban face-sitting? What’s so dangerous about it? … Its power is symbolic: woman on top, unattainable.” (There has been well-intended censorship as well. Los Angeles county passed Measure B in 2012 to require condom use during any pornographic scene with anal or vaginal contact, to combat the spread of venereal disease.)

Nowadays, there are plenty of porn directors that have learned to focus on both male and female pleasure, and reintroduced artistic merit to their directions. With the equalizing force gaining momentum in porn, it’s curious what the vehement, persistent condemnation springs from, when not focused exclusively on abusive sex scenes. In addition, the negative effects of pornography’s presence in society are still being debated. Just the other day, a study which led to headlines like “Porn doubles the risk of divorce” and “porn signifies a death knell for marriage” was criticized by Reason magazine for failing to address important underlying factors that more plausibly contribute to both pornography consumption and an unhappy marriage leading to divorce. There seems to be an obsession on behalf of the great majority of the public in assigning pornography to some sort of social harm.

Research on photographic pornography’s effect on society began early and aggressively. The Meese Report (1986), commissioned by Reagan and still frequently cited by anti-pornography advocates, determined pornography to be detrimental to society and family relations, and especially for women and children. Arguments built on similar reports attempt to connect sexually explicit material with rapes and domestic violence, alleging that the desensitization to rough sex carries over from the depictional world into the real one. Henry E. Hudson, the Chairman of the Meese Commission, alleged that pornography “appears to impact adversely on the family concept and its value to society.” The Meese Report, however, has been challenged extensively for bias, and is not taken seriously as a body of research any longer. One criticism by writer Pat Califia, concluding a traditionalist narrative embedded in the research, states that the report “holds out the hope that by using draconian measures against pornography we can turn America into a rerun of Leave It to Beaver.

The United States’ Commission on Obscenity and Pornography, preceding the Meese Report and commissioned by Lyndon B. Johnson and Nixon, was unable to find evidence of any direct harm caused by pornography. (Although Nixon, despite the evidence under his administration, believed porn corrupted civilization.) It is curious that a new federal study was requested only sixteen years after the first extensive one, but maybe not too unusual given the growth of porn with technology (from adult stores and newsstands to unlimited free online access; the internet just celebrated its quarter-centennial birthday); also not too unusual given the absurd and expensive studies already undertaken by the federal government. It is also worth pointing out that pornography, though often connected to feminism, is a divisive issue within 20th century and contemporary feminism: some thinkers, like Andrea Dworkin, condemned it as intrinsically anti-women; others feminists like Ellen Willis argued for pornography as liberating and its suppression as moral authoritarianism. The debate along lines of sexuality, online or otherwise, culminated in the feminist “sex wars,” with groups like Feminists Against Censorship and Women Against Pornography popping up. Thus, the debate is open across every ideological camp, and support of pornography is neither necessarily liberal nor necessarily feminist.

[In the next post, I discuss violent pornography’s cross-media transformation into videogames, more sociological research and the general point, and insecurity, of prohibitory measures.]

Was I too Rash on Juries and Nullification?

I made a certain statement (a status update, not a comment) on Facebook, and in retrospect maybe it would have been better to have made it more intelligible (okay, and less harsh as well). Now instead I must go through the statement line by line and clarify and defend it. I don’t know if it is good blogging etiquette or not to drag Facebook into it, but this started out as a clarification for the Facebook crowd and transformed into something to big to post there. We’ll see, I guess. Here is the statement I made:

Idiots (to speak kindly) who call others cowards for trying to get out of jury duty, thereby eliminating the less than 0.00001% chance that that person might have to actually “help their fellow man” are perhaps no less dull and collectivist-minded than the feverish nationalist buffoons who make similar statements about “serving” overseas. The purpose of today’s “defense” system is to murder innocents abroad. The purpose of today’s “justice” system is to incarcerate innocents at home. Any person who wants no part in this is not only not a coward, that person is a hero. Anyone who says otherwise should put their money where their big, loud mouths are. How brave and principled are you really, huh tough guy? Quit yer bitchin’ and show me! Get the hell off of Facebook and the comments sections of blogs and put your own life and livelihood on the line.

This all started when a Facebook friend (a very well-known person in certain circles, but I guess I won’t bring up his name) mentioned he had been “conscripted” for jury duty. This interested me at the time because it was just days after I had sent in my own paperwork for jury duty (this would be the second time, click here for my thoughts on the first). As is usually the case with this particular person’s statuses, the comments section was on fire. But the debate was at least a little more civil than the one that took place in the comments section of a blog post that someone linked to in this Facebook thread. It was an article by the estimable Douglas French of  Laissez-Faire Books and the Mises Institute recounting how he had gotten out of jury duty by telling the lawyers in the voir dire process, and later the judge, that, if made a juror, even if he thought the defendant guilty, he would not convict. That even if he was the only such person, he would hang the jury and nullify a bad law.

To my surprise he was accused in several comments of being a hypocrite and a coward because he chose not to perjure himself in order to get on the jury so that he might actually nullify, rather than do as he had done by merely telling off the judge and the attorneys. Sure, some of these commenters concocted clever ways whereby Mr. French could have (hindsight is 20/20) spoken ambiguously in order to get on the jury and then nullify without technically committing perjury but doing this would have required not only premeditation, but also that the person (in this case a humble economist) perfectly answer any objection brought up by the two (three, if you count the judge) cross-examining lawyers in the voir dire process. This would be like expecting the Oakland Raiders to beat the New York Yankees. In Yankee Stadium. Playing baseball. That’s nothing if not an “undue hardship.” Despite having this explained to them (on both the blog and on Facebook) there were those that persisted in their stupidity and their rudeness. Their argument at the end of it all amounted to, “so what, you’re still a coward.”

Now let me explain what I meant by my original statement, line by line:

Idiots (to speak kindly) who call others cowards for trying to get out of jury duty…

These specific people really are idiots in my estimation. Not because they think jury duty might be a good way to help your fellow man, but because they readily abuse others who don’t think it is all it’s cracked up to be, and because, even after the latter view point has been soundly defended, still won’t make room for the fact that other people might have more important obligations (or even trivial druthers) than being at some magistrate’s beck and call all week, pressured into agreeing with 11 other people on something that might be worth disagreeing on.

…thereby eliminating the less than 0.00001% chance that that person might have to actually “help their fellow man”…

I am referring here not to pronouncing a “not guilty” verdict on falsely or mistakenly accused innocents (which is why juries ever came about in the first place, I believe, and is a very admirable thing to do), but specifically to hanging a jury thereby nullifying bad law. In order to even get on a jury to do this you basically have to lie in voir dire, which is perjury. The 0.00001% may or may not be exaggerated, but you don’t exactly hear about jury nullification every day so I bet it’s not too far from the mark. If I had been talking about mere “not guilty” verdicts this would be way off. That number is probably more like 50%.

…are perhaps no less dull and collectivist-minded than the feverish nationalist buffoons…

These jury-shamers I am talking about appear to be primarily libertarians, a group of people who seem to pride themselves on being bright and individualist-minded, so comparing them to those they despise the most (basically various shades of Neoconservatism, but in a pinch, Democrats who think Obama deserved his Nobel Peace Prize will do nicely) is the ultimate dig.

…who make similar statements about “serving” overseas.

The kinds of statements I am referring to in my comparison of jury-shamers to Neocons/Obama-Peacers are analogous to jury nullification, not analogous to “not guilty” verdicts. So maybe I’m talking about a person who admits in some cases that innocent people die even in the United States’ wars, but for the most part it’s just the bad guys. And then maybe, as if that didn’t make them look foolish enough, they make some statement to the effect of, “You can disobey immoral/unethical orders without being accused of insubordination, then court-martialed and punished.”

Note that these immoral/unjust orders might still somehow be lawful, or that even if they are unlawful, there is still pressure from command and your peers to carry them out. But let’s not be coy: just because something is done by the book does not mean it is right or correct or even excusable. Having rules of engagement may be better than having no rules, but they are no substitute for not invading and occupying in the first place.

The purpose of today’s “defense” system is to murder innocents abroad.

Collateral damage is murder, so even if these wars are motivated by good intentions, that’s what’s going on. However, I don’t think we should give the same exact Powers That Be that we accuse of being malevolent at home the benefit of the doubt by assuming that they are somehow benevolent abroad.

The purpose of today’s “justice” system is to incarcerate innocents at home.

This is somewhat different than saying that the “defense” system’s purpose is to murder innocents abroad. While there may be collateral damage of sorts, that is not what I am talking about. Here, I am talking about bad law. You may be “guilty” of breaking the law, so in that sense the purpose of the “justice” system is to incarcerate the “guilty”, and not as I said, the innocent. But this assumes that the laws in question are all good.

That is quite an assumption to make about the government of the supposed freest nation on earth that happens to have the highest incarceration rates in the world. The elephant in the room here is the Drug War. Most of us can agree that drugs are generally bad news, and that the violence associated with drugs is even worse news, but far too few seem to realize that this is just the natural result of prohibition. Surprise! It didn’t work with alcohol, which, according to some metrics, is FAR MORE DANGEROUS than certain hard drugs, but somehow these people thought it was going to work with pot and heroin? In a post-1960s world?! What were they smoking?

Any person who wants no part in this is not only not a coward, that person is a hero.

Freedom of conscience. That’s all this is. Would we want to live in a world where people are led to believe that exercising this right somehow makes them spineless (again, we can all agree on something, that just having your conscience tell you something doesn’t make that something right)? Well then, just open your eyes. Look out the window. Turn on the TV (the only channel immune to this might be the Weather Channel). People with an actual conscience or actual principles are laughing stocks. They are the ultimate fools in the eyes of the world. And for that, yes, even the ones I disagree with, they have my respect.

Anyone who says otherwise should put their money where their big, loud mouths are.

Here I’m only applying the same standards to the accusers that the accusers are applying to the accused. Judge not, that ye be not judgedThou hypocrite, first cast out the beam out of thine own eye; and then shalt thou see clearly to cast out the mote out of thy brother’s eyeTherefore, all things whatsoever ye would that men should do to you, do ye even so to themPhysician, heal thyselfHe that is without sin among you, let him first cast a stone.

How brave and principled are you really, huh tough guy? Quit yer bitchin’ and show me! Get the hell off of Facebook and the comments sections of blogs…

Well, it sounded good at the time. But as a wise guy once told me, “vulgarity is no substitute for wit.”

…and put your own life and livelihood on the line.

In the case of “defense” and the military, especially in time of war, your life is on the line. No one disputes that. In the case of jury duty, especially when you perjure yourself in order to nullify bad law, it could very well be your livelihood that is threatened. But even where there is no perjury or nullification going on, there is still a case to be made that your livelihood is in danger.

I understand it is the situation in probably most states that your employer cannot fire you (and may even be made to remunerate you in some way) for taking time off for jury duty. Were it not for this law (which places burdens on employers that arguably shouldn’t be there), there’s at least the possibility that you would not be retained/paid for this “time off”, especially if your employer was not particularly fond of the unjust and immoral incursions of the government into everyday life. And why shouldn’t your employer be able to look out for his own best interests, even if it means firing your sorry behind? Does he “owe” you your job, indefinitely, no matter what? If it wasn’t for our crummy system and you were to be fired or lose pay because of jury duty, would your instinct really be to blame your employer? Not the people who conscripted you for jury duty in the first place? Or not the people who made life so miserable for some so-called criminal that you felt it was your duty to aid that person by nullifying the bad law he was being tried for breaking?

Additionally, since jury duty, unlike the military (these days at least) is something the state compels people to do (ultimately backing up their threats with actual guns, prisons, and larceny), telling these loud mouth accusers to put their livelihood on the line needn’t mean they have to serve on a jury (something they cannot do unless called upon). It could very well mean instead that they go out and agitate through means of civil disobedience: resisting arrest, harassing magistrates and LEOs, and so forth. Don’t act so surprised by these seemingly bizarre suggestions; we are talking about libertarians here, after all. And civil disobedience, though not quite so much as actual violent acts (only justified in self-defense, need I remind you?), can very well land you in the slammer and/or ruin your reputation as a good cog in the machine. If that doesn’t threaten your livelihood, I don’t know what does.