Babbitt Watch | Why are central banks indifferent to Bitcoin, but against Libra?

Although Bitcoin has been in existence for ten years, although it has received widespread attention from regulation, no country believes that it will shake the status of its domestic currency and give it the legal status of its “encrypted assets”. In contrast, Libra, the white paper launched only three months, is still in the stage of “paper talk”, which has forced the entire currency and financial world to be extremely tense.

In terms of positioning, both Bitcoin and Libra have great ideals of “world currency”. In 2008, Satoshi Nakamoto defined Bitcoin as a peer-to-peer electronic cash system in the white paper. In 2019, Libra's white paper stated that Libra's mission is to create a simple, borderless currency and financial infrastructure for billions of people.

In terms of market value, Bitcoin currently has a total value of 185.3 billion US dollars, surpassing the national currencies of South Korea, Brazil, Canada, Mexico, and Australia, making it the 11th largest currency in the world. Facebook behind Libra comes with 2.7 billion cross-border users, which means that each user can hold more than $100 in size.

But central banks have very different attitudes toward Bitcoin and Libra.

Take the European Central Bank as an example. In its introduction to Bitcoin, its official website denied that Bitcoin is a currency and defined it as a speculative asset. Because "no one endorses it; it is not a generally accepted payment method; users are unprotected; volatility is too great."

In contrast, for Libra's attitude, Christina Lagarde, who has just been nominated as the ECB's chairman, said: "Everything that uses distributed ledger technology, whether called encryption, assets or currency, is shaking the entire system. "European central bank executive committee member Yves Mersch also said: "Libra may weaken the ECB's control of the euro by affecting the liquidity of banks in the euro zone."

If the currency circle has a scorn chain, it is probably the opposite. It should be Bitcoin > Altcoin > Platform Coin > Stabilizing Coin. Fundamentalist believers generally believe that Bitcoin is a realistic mapping of Hayek's "currency non-state" thinking, a successful test after the unremitting efforts of password punk, and a great innovation in the history of money in the past 100 years. Libra is the least innovative currency in the digital currency. The only bright spot is that its sponsor is social giant Facebook.

Since the two sides hold each other's words, the views are not important, and the perspective behind them is what we need to think about. As a reporter in the blockchain industry, the author hopes to jump out of Mount Lushan and stand on the standpoint of central banks to see what the standards they measure are.

1. Is it a wide payment method?

On May 22, 2010, a hungry programmer, Laszlo Hanyecz, bought two "stick! John" pizzas worth $25 in 10,000 bitcoins in the United States, which led to the first deal in Bitcoin history. In the following years, Bitcoin has been expanding its payment scenarios. According to Coinmap data, as of July this year, the number of platforms accepting Bitcoin worldwide exceeded 15,000. In September this year, even the world's second chain restaurant company, Burger King of Germany, announced that it would accept bitcoin payments. Obviously bitcoin can be used for payment, but today many people are really willing to pay with bitcoin.

At the Libra hearing, Senator Chris Van Hollen expressed his opinion on BTC: “The volatility of BTC has caused it to not be widely used, and Libra may be widely used.” Director of the Central Bank Digital Currency Institute Mu Changchun also bluntly said in the course: "The excessive fluctuation of the currency has always been the main problem facing the crypto assets, limiting their influence to their small circles. Libra's intention is obvious, it hopes to attract more People use it, not just investors with high risk appetite."

Another cliché is the performance. The scalability of the blockchain is relatively poor, and it is not only the computing power but also the bandwidth that determines its performance. The architecture of the distributed ledger makes it limited by the node with the lowest processing power, and brings storage problems. Mu Changchun said: "Libra does not use pure blockchain technology, but a hybrid architecture, so it can not be regarded as a blockchain cryptocurrency in the strict sense. It is precisely because of this that it can become a real Payment tool."

Bitcoin's 10-minute confirmation speed is widely criticized. With the development of technology, many public chains claim to achieve tens of thousands of TPS/s performance. In contrast, Mu Changchun revealed that the central bank had run the Libra code and found that its performance was optimally 30,000 TPS/s, although this is still not good enough for the currency used for payment. But this makes Bitcoin not considered a fiat currency contender in the perspective of central bankers, and Libra has the possibility.

2. Can it be better regulated?

123 countries around the world believe that it is legal to hold and trade Bitcoin, and 35 countries consider it illegal. Although central banks around the world regard Libra as a threat, they are legitimate and legitimate. This is the important difference between Libra and Bitcoin at the regulatory level.

France is one of the countries with a clear opposition to Libra, saying it poses a huge threat to monetary sovereignty and urges the European Union (EU) to issue relevant bans. French Finance and Finance Minister Bruno Le Maire said fiercely: "I want to make sure that Facebook's Libra project will not become a sovereign currency that can compete with the national currency. Because I will never accept the company as a private kingdom."

Even so, they still can't say that Libra is illegal, and whether it can be regulated is another problem. Fed Chairman Powell said: "No agency can stand up and supervise this. We don't have the right to apply the privacy rules that apply to banks to Facebook or Libra." He added: "In our current regulatory system, it is clear There is no such thing as we need."

The G7 finance ministers and central bank governors’ meeting concluded by the United States, Britain, Germany, France, Japan, Italy and Canada also mentioned: “G7 finance ministers and central bank governors acknowledge that although innovation in the financial sector can take Substantial benefits, but they may also pose risks. Therefore, they agreed that the stable coins and other new products currently being developed, including projects covering the whole world and systematic Libra, will lead to serious supervision and systems, And broader policy issues that need to be addressed before such projects are implemented."

National regulation has no way to stop Libra, they can't be as simple as qualitatively treating bitcoin. Because Libra is playing the banner of inclusive finance and actively embracing compliance, this forces the regulator to take the legal path. For this reason, central banks can only express their attitudes frequently, and hope that everyone can maintain a consistent and cautious attitude and prevent them from launching.

3. Will it shake the financial system?

Throughout these years, the supervision of bitcoin by various governments has been divided into three dimensions. One is ICO and the exchange, which is mainly to prevent financial risks and protect investors; the other is for illegal transactions such as money laundering, dark net, tax avoidance, etc. Supervision; third, taxation issues for individuals, institutions and mines that hold and trade Bitcoin.

In contrast to Libra, regulatory concerns are both coincident and deriving: First, concerns about sovereign currencies. Bank of England Governor Mark Carney said: "In the long run, we need to change the rules of the game. When the change comes, one currency hegemony should not be used to replace another currency hegemony."

Second, concerns about Libra's possible use in illegal transactions such as money laundering, darknets, and tax avoidance. US Treasury Secretary Steven Mnuchin said at a news conference: "Cryptographic currencies like Bitcoin have been used to support billions of dollars in illegal activities such as cybercrime, tax evasion, extortion, ransomware, drugs and human trafficking. Fed Chairman Powell also said: "Libra may have an impact on privacy, money laundering, consumer protection, financial stability and other issues. These concerns should be thoroughly and publicly resolved. We hope that cryptocurrency innovation can be done in a safe and healthy manner. get on."

The third is about concerns that its business model may disrupt the stability of the financial system. Christine Lagarde, who has just been nominated as the ECB's chairman, said: "Everything that uses distributed ledger technology, whether it's called encryption, assets or money, is shaking the whole system. We Don't want to shake the system, so we will lose the necessary stability.” Bundesbank President Jens Weidmann also warned: “Stabilizing coins may undermine the bank's ability to absorb deposits and its business model, which may disrupt banking transactions and financial markets. intermediary".

It can be seen that the main bidding for Bitcoin is the financial supervision departments of various countries. They regard Bitcoin as a speculative target and prevent it from happening. The voice of Libra is the central banks of all countries, and they regard it as a competitor of sovereign currency. The threat seems to be in front of them.