US House of Representatives criticizes Facebook: Issuing currency is not "you must"

(U.S. House of Representatives Representative Alexandria Ocasio-Cortez asked at the hearing, “Who controls Libra?”)

The answer may be that the official announcement of Libra may not be based on recognition of cryptocurrency, but more like a self-rescue action by Facebook.

Last year, Facebook suffered the biggest reputational blow in its history. It was suspected of "stealing" the privacy of tens of millions of people to influence the US election, and was involved in fake news, advertising and Russiagate, and encountered a public relations crisis on average every 12 days.

As users continue to leave, Facebook realizes that the profit model based on advertising revenue is difficult to sustain. But this time, it did not choose technical services such as BAAS, which are easier to comply with regulations, but chose to use blockchain to enter the payment market.

The era of fighting for "digital supremacy"

Without exaggerating or criticizing, what exactly is Libra, a collection of contradictions? How much is its value? What was the point of criticism at the hearings of the two houses of Congress?

Pay attention: to sum it up, three new things, four haves, and five don’ts.

Three new things: new cryptocurrency, new Move language, and new organization Libra Association

Four things: global influence, cross-border payment capabilities, giant partners, and plans to subvert the central bank

Five no’s: not “pegged” to a single currency, not speculative, not anonymous, not fully decentralized, and not guaranteeing privacy and security

We have to admit this: the most important player in the cryptocurrency world has entered the market.

(Picture from the Internet, copyright belongs to the original author)

Libra has a huge symbolic significance for the blockchain industry. It started with a strong statement that it would "build a simple, borderless currency and financial infrastructure that serves billions of people." It also brought VISA, eBay, and Coinbase, 29 giants mostly based in Silicon Valley, to join the cryptocurrency circle to "do something." Not only did it issue a "new cryptocurrency," it also came up with a Move language and a Byzantine Fault Tolerant (BFT) consensus mechanism.

Judging from the white paper, it basically continues the model of traditional cryptocurrency. However, according to Andreas Antonopoulos, the author of "Mastering Bitcoin", the five major elements of cryptocurrency, namely open, public, neutral, borderless, and censorship resistance, Libra, as a legally regulated target, is unable to achieve most of these.

Therefore, Libra is not a cryptocurrency in the strict sense.

But the added value that is overlooked is that Libra has value drivers such as network effect, brand effect, scarcity, computing power, decentralization, etc. that all current cryptocurrencies do not have. Once Libra becomes another new currency different from the traditional one, it can almost be regarded as an exodus of the concept of "digital currency", and the era of global competition for "digital hegemony" is about to come .

On the other hand, Libra supports listing on exchanges, which makes many people mistakenly believe that they see room for cryptocurrency speculation.

The fact is that Libra is a stablecoin and has no investment space. The Libra Association is an entity responsible for managing the Libra reserve and controlling the stability and growth of the Libra economy. Libra will use a series of low-volatility assets for collateral.

To put it simply: the price of Libra is anchored to the US dollar. When you exchange 1 US dollar for Libra, 1 Libra will be produced. When you exchange it back to legal currency, these Libras will be destroyed immediately.

Those who are waiting to speculate on Libra can now disperse and go to bed early.

Libra wants to cover the whole world

Opponents characterize it as "irrational blind licking", while supporters believe in "strategic value".

At present, the most direct value of Libra is that it has explosively increased the popularity of digital currency to an alarming level for the first time.

Why do I say that? According to data from Statista, as of last quarter, the total number of users of all Facebook products, including WhatsApp, Instagram, and Messenger, reached an astonishing 2.7 billion! This is more than the combined population of China and the United States. With such a large number of users, the popularization of digital currency alone has already made a huge leap.

The second value is that it provides a model of "world currency". Nearly half of the world's population still lives under the shadow of the modern financial system. Imagine that Libra relies on the 2.7 billion users in the Facebook ecosystem. If it succeeds, it will be the first currency to break free from national restrictions, and the people in these places can reduce the insecurity brought by sovereign currencies.

Its goal is to "strongly replace the sovereign currencies of those fragile countries", or to put it more nicely, "help fragile countries build a better payment system". If more and more countries use Libra to make payments in the future, the new financial world will be like a wild horse running wild, and a world that has never existed before may emerge.

However, amid the overwhelming cheers of “Wow, this is awesome, it’s going to change the world”, Libra also has a value paradox.

In the report cited by Facebook, half of adults without bank accounts are concentrated in seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan.

However... Libra has difficulty landing in 4 of these countries.

Furthermore, Facebook itself is a centralized company, which is controlled by a foundation composed of some large nodes. The goal of decentralization is difficult to achieve. After all, the resources and credit of a single company can hardly support the growth and liquidity required by the currency. For people who do not use Facebook services, it is even less effective. It is also not easy for other industries and institutions to recognize and accept it for competitive considerations.

But at the same time, another question is raised: does blockchain have to be decentralized? Are projects that cannot be purely decentralized inherently flawed?

First, the Calibra wallet requires KYC verification (customer due diligence) for each user; second, Facebook itself has countless negative materials. Not only does it arbitrarily allow websites, smartphones and other device manufacturers to obtain users' social data, it also privately stores users' deleted videos, scans users' photos on the chat client Messager, and Zuckerberg uses his "super authority" to delete his conversation records with others.

Therefore, even if you trust Libra and blockchain technology, it does not mean you trust Facebook.

The regulatory environment facing Facebook is not optimistic. Looking around the world, countries have different policies and protection regulations on finance. Welcoming Facebook's social ecosystem to take root and develop in their own country does not mean that they will also open their arms to the Libra payment system .

Libra vs WeChat Pay

David Marcus acknowledged at the hearing that he would compete with Alipay and WeChat Pay, fearing that China would overtake him and even threaten national security.

It seems like it will never be wrong to criticize China at the same time.

Also in the social networking field, WeChat, the most powerful international competitor, is thriving in the payment field.

But Libra's huge potential to solve cross-border payments has already surpassed WeChat by several blocks.

If we only look at the payment issue, it is nothing new in a country like China where mobile payment has exploded. WeChat is a successful example of "social + payment". However, WeChat is just a self-entertainment for Chinese people, and its global users are pitifully small. So in the final analysis, it is "payment only, not cross-border". However, global social networking is Facebook's most important advantage scenario.

Although it lacks international influence and has less than half of Facebook’s total number of users (in the first quarter of this year, WeChat and WeChat combined had 1.112 billion monthly active accounts), WeChat’s ability to penetrate every aspect of Chinese users’ lives is far superior to Facebook’s. However, all payments on WeChat still rely on traditional finance and directly use legal currency. The banking system is responsible for the two major businesses of KYC and transfer settlement for WeChat payments.

Therefore, no matter how powerful WeChat’s social networking function is, it cannot shake the traditional financial model, while Libra poses a direct threat to banks.

If the rise of Tencent and Alibaba represents the transformation from "traditional industries to Internet models", then Facebook is trying to find a way out of "traditional Internet" to blockchain. If you can't revolutionize yourself, you will be revolutionized by others.

But before that, Libra must first handle its relationship with the United States before it can consider going global, which will cost endless time, manpower, and even money. Although Marcus suffered a setback, the wave of digital currency is approaching.

It is very likely that in the future, even if it is not Libra dancing in shackles that completes the subversion, there will be some other "Gemini", "Virgo", "Aquarius"... to complete the Jedi counterattack on its behalf.

By Susan Wu

Source: Silicon Valley Insider