So far, you may have heard of Facebook's new cryptocurrency Libra (Libra). This news has aroused the attention of the international media. Since the official announcement of this news, it has occupied more than two weeks of headlines. But if this is the first time I heard this, welcome to the future, and now Facebook wants to control monetary policy.
People who care about the bitcoin field know that Facebook has been working on cryptocurrencies for a while, but it wasn't until June 18 that people could see exactly what it looked like. For many people in the cryptocurrency industry, it is more or less what they expect; that is, it is not a true cryptocurrency and does not offer the benefits of Bitcoin.
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What is cryptocurrency?
Bitcoin is the world's first cryptocurrency and is well known in popular culture for its dramatic price fluctuations. Bitcoin is called cryptocurrency because it uses encryption to handle transactions and transfer value. This end-to-end encryption makes transactions highly secure (almost indestructible) and irreversible. These transactions are recorded on a so-called blockchain. This technology is the backbone of the Bitcoin network. It is like a digital ledger, keeping a constant record of all account balances on the network, and ensuring that no one is deceiving the system to spend the bitcoins they don't have.
The key features of the Bitcoin network are immutability, security, no authority and decentralization – all transactions are final, the network is virtually impossible to compromise, anyone can use it as freely as the Internet itself, without a center An entity (such as a government or bank) controls it. The network's currency bitcoin is scarce and unreviewed. There are only 21 million bitcoins, and this currency cannot be regulated or banned like the Internet. .
As an endogenous currency of the Internet, Bitcoin is also global. Depending on the transaction fee set by the sender, sending bitcoin from Nashville to Seoul, South Korea may take only a few minutes. In contrast, bank wire transfers can take up to a week.
Why did Libra fail the test?
To understand the meaning of Libra in the wider world of thousands of cryptocurrencies, it is crucial to understand how Bitcoin works and why its users see value in a decentralized, non-state monetary system. of. By emphasizing the way Bitcoin works with Libra, we can clearly see that the two companies have in common the similarities between the Fed's monetary policy and the gold mining industry, or a large company and an employee. The similarities of the company.
For example, unlike Bitcoin, Bitcoin is an open system, and Libra is closed and will be highly checked. Facebook announced that it has partnered with 27 other major companies, companies and non-profit organizations to distribute the currency, including Visa, MasterCard, Spotify, Lyft, Uber and Ebay. These founding members form the Libra Association, which will be responsible for handling network transactions and maintaining its version of the blockchain. By the time of initial launch in 2020, the project is expected to expand to approximately 100 members.
This means that only 100 servers (also known as nodes) will maintain the network. In contrast, Bitcoin has nearly 11,000 nodes worldwide to verify and broadcast transactions to the rest of the network. We refer to these "complete nodes" in the industry as "drill nodes," which provide computing power to sort transactions in the blockchain and protect the network from attacks. They charge transaction fees and new bitcoin from the network as a reward for this service; the process of casting this token is to release the newly mined tokens according to the set inflation schedule (now about 2% per year). The way the network manages monetary policy without a centralized entity. Together, these nodes build a decentralized framework that makes Bitcoin so robust; if you want to remove or damage one of the nodes, the network is still safe because thousands of others are still running code to support the network.
Libra will never be dispersed or designed to provide bitcoin protection. With Bitcoin, anyone can run a complete or digging node, but for Libra, each founding member must commit at least $10 million to have access to the network. In the future, any other entity wishing to join the Libra Association must pay a similar or even higher amount.
Then the running node gives these members rights? In addition to being a sentinel of a new monetary system, they will also receive trading rewards and bonuses from the Libra reserve. The reserve will include a basket of government-backed assets, such as national currencies, bonds and securities, and interest will be paid to members of the association in proportion to their share in the Libra network.
Sounds like a familiar model? If a member federation with currency control does not issue or convert the national currency to the authorized broker, then the Libra reserve agency should take it home: the Libra Association is basically a company operating The central bank is no different from the Fed. Its bank reserve will give the coin a stable value, most likely one dollar per coin, and each coin will be issued/loaned according to this reserve and can be redeemed.
This is another major change in Bitcoin, which has no asset support other than itself. Some believe that this means that Bitcoin has no intrinsic value, and the Libra project clearly states in its white paper that Libra currency is backed by government-issued assets to inject “real” value. But any Bitcoin supporter will tell you that Bitcoin, as a currency network that is out of national interest, is the essence of its value; unlike the currency issued by the government, the government-issued currency may be subject to reckless distribution/inflation and Centralized control, while Bitcoin, like gold, is limited and destroyed in a decentralized manner.
Because bitcoin is decentralized, there is no central authority to control monetary policy or to regulate user activity. No one on the web can stop your participation, no one can stop you from trading, no one can freeze your money. You are the owner of your wallet and the owner of your coin.
However, a centralized network like Libra loses all the features associated with cryptocurrencies. The association will be able to blacklist users they don't want to serve, like a bank, and they will be fully capable of accessing all of your financial information: when do you pay, why, and how much. Considering Facebook's reputation for poor user data management and its rash attitude toward privacy, the community and even legislators' concerns can be understood: "Can we entrust money and related data to Facebook?"
A group of members of the US House Financial Services Committee wrote to Facebook on Tuesday that they hope Facebook will immediately stop the development of Libra until the regulator has time to review the plan and "take action."
The chairman of the Democratic Party of California, Maxine Waters, first stood up on the day of the announcement of the Libra project and proposed to suspend development. The new letter indicates that Facebook's digital currency program is under pressure to escalate, and the program has also received close attention from regulators around the world.
Other interest groups also joined the opposition team: more than 30 organizations sent similar requests to Facebook on Tuesday, saying that the US and foreign regulatory systems are not ready to deal with issues arising from projects such as “national sovereignty, corporate power, consumer protection”. .
Lawmakers said they hope to hold a public hearing on "risk and benefits of cryptocurrency-based activities" and explore legislative solutions.
They added: "Before we can do this, if we don't stop development, it may lead to a new Swiss-based financial system that is too big to develop." While developing Libra on Facebook The currency will be managed by an independent coalition of other Geneva-based companies and non-profit organizations.
Be aware that Facebook's size and influence are enough to attract the attention of regulators. Facebook has 2.4 billion users worldwide. This is a huge audience, and there is a gust of wind on social media that may soon accept a largely unregulated currency with terrible consequences.
Drawing on encryption narrative
If Libra is not banned by regulators before it is released, the market will decide where to put its trust and whether it will put convenience on privacy and financial autonomy. Libra is poetic about building an inclusive monetary system that transcends national borders. This system will serve both people without a bank account and economically privileged people in the world. Facebook occupies a page in Bitcoin's script, because this is what Bitcoin's anonymous creator Satoshi Nakamoto predicted when it was launched in 2009: a parallel currency system that exists outside the traditional framework, that is, no boundaries, any People are free to join, and government censorship is extremely difficult. With Bitcoin, you are your own bank.
Libra borrowed from this narrative, but did not provide any of the features on which this narrative was based. It is highly centralized and can prohibit people from using it as a means of exchange and will make it very easy for the government to track transactions and deprive users of the rights they do not want to use on the web. With Libra, you are not your own bank; but it is. It is a beautification of the US dollar and other national currencies masquerading as cryptocurrencies, and its "blockchain" may be more similar to a cloud database than a real thing.
Therefore, the irony is that its main competitor is the banking industry. With Libra, Facebook and his friends have opened up new currency fronts. Since the speculative banking business in the 19th century, Austria has for the first time realized the possibility of currency competition for private issuance. With the arrival of Libra, in addition to the state's monopoly on currency issuance, people now have an additional option.
If you are using Libra, the new boss is the same as the old boss; they only work in the company office in Silicon Valley, not the member bank of the Federal Reserve.