It certainly looks like some significant institutional players have realized that the best way to deal with the revolution is to join it and shape it to their requirements.
Revolutions are a funny business: initial uprisings against the
self-serving structures of old orders often become
post-revolutionary regimes forming new self-serving structures
betraying the ideals that fueled the original revolution. 'Twas
ever thus. Are we living to see a digital version of this familiar
cycle of history?
Much has been made of Facebook's announcement of Project Libra
– its intention to launch a new global peer-to-peer payment
network in 2020. Some see Libra as the ultimate affirmation of the
rumbling financial revolution which began around 2008 with the
near-collapse of the global banking sector and the emergence of
Bitcoin as the answer to the colossal breakdown in trust. Others
see it as more evidence that the revolution has been co-opted by
the failed financial establishment it was supposed to have
superseded. So who is right?
To listen to its executives, Facebook is being true to its mission
statement. Zuckerberg's company is the ultimate vehicle for
"connecting people," and Libra will serve the needs of
the multitudes who until now have been unable or unwilling to open
bank accounts. For instance, migrant workers around the world send
billions of US dollars each year to their families using such
services as Western Union, which often charge anywhere from 7%-10%
of the amount sent (which includes $27 billion sent to Mexico from
the US in 2106). If migrant users of Libra are able to
instantaneously transmit their digital currencies through their
Facebook or WhatsApp accounts for a fraction of the current cost,
who can say that's a bad thing? Sure, Facebook and its backers
will generate revenues for themselves, but are not all good
revolutions about liberating the disenfranchised?
According to the Facebook announcement, Libra will be managed by
the Libra Association, an independent Swiss foundation, in the same
way Ethereum is managed. And while Facebook will initially have a
majority stake, the aim is for its voting power to be rapidly
reduced to 1%. Additionally, while the Libra "nodes" (the
entities which are needed to verify transactions using the
currency) will initially be controlled by the founding members of
the association, the aim is to transition to a decentralized
permission-less system with thousands of unaffiliated nodes
worldwide.
Additionally, Facebook promises that all financial data will be
held on a pseudonymous blockchain and kept separate from a
user's Facebook profile data, so fears of cross-platform
unauthorized data transfers are unfounded.
THE REVOLUTION marches on. Well, not necessarily. First, while
Facebook intends the Libra Association to be run democratically by
the votes of its members, with Facebook holding only 1% of the
voting rights, the other members are hardly disinterested parties.
They include such minor institutions as Visa, Mastercard, PayPal,
Uber and eBay, and in time other players that will agree to commit
a minimum of $10 million to the project. Facebook has also been at
pains to ensure all the correct signaling to national
authorities.
The company stated this week that it has no intention of bypassing
the regulators. In April, it even met with the governor of the Bank
of England, who said after the announcement that while Libra needed
to be examined closely, he was retaining an open mind. Facebook
also noted that it will be using the same AML and CFT (anti-money
laundering and anti-terrorist financing) processes currently used
by the banks.< br/>
It certainly looks like some significant institutional players have
realized that the best way to deal with the revolution is to join
it and shape it to their requirements.
Additionally, Facebook has lost a great deal of its moral capital
when it comes to what it does with our data. Regaining the
public's trust that personal data will be kept separate from
financial data and will not affect any decisions regarding
treatment of a person's Libra account will be no simple task.
The reactions of the regulators in the US and Europe to the
proposed launch provide ample evidence of this.
Interestingly, while Facebook is receiving the greatest coverage,
it is only another link in a continuing trend among institutional
actors. JP Morgan recently set up its Interbank Information Network
(IIN) with, among others, the Royal Bank of Canada. The network
will be using the Ethereum protocol for processing payments. A
real-time settlement verification process is due to be rolled out
by the IIN by the end of the year. The cryptocurrency firm Bakkt,
which was founded by the Intercontinental Exchange (the entity that
founded by New York Stock Exchange) has recently completed
discussions with the US Commodities and Futures Trading Commission
for the creation of the first bitcoin futures exchange. Even
Binance, the world's largest cryptocurrency exchange, has just
announced restrictions on its services to US residents as it eyes
setting up the first fully-regulated fiat-to-crypto exchange for
the US market.
While the purists may recoil at the notion, the increasing interest
from large institutional players is fueling the current buoyancy in
the cryptocurrency networks. However, it is hard to see how it
could ever have been any different. The institutions always had the
muscle, influence and knowledge to join the financial revolution.
It appears that now they also have the will. So perhaps the
revolution is on the verge of an evolution. And it looks like
Facebook is leading the charge.
This article is originally published by The Jerusalem Post.
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