
Facebook’s Libra cryptocurrency: Privacy and stability concerns - headalgorithm
https://www.bloomberg.com/opinion/articles/2019-06-17/facebook-libra-crypto-currency-is-another-zuckerberg-threat
======
runeks
The reason for Bitcoin’s design is precisely because a centralized/pegged
alternative was tried and failed:
[https://en.m.wikipedia.org/wiki/Ecash](https://en.m.wikipedia.org/wiki/Ecash)

Facebook’s currency is not a successor of Bitcoin, it’s an inferior
reincarnation of a failed predecessor.

~~~
joeyrideout
Not to mention that pegs always fail in the land of financial markets anyhow
[1]. Interest rate pegs, currency pegs, pegs to commodities e.g. gold tend to
collapse in the long run because they create a "perfect trade". When the value
of two separate things eventually diverge due to external market forces, you
can take advantage of the peg by trading the less valuable item for the more
valuable item at the historical peg.

In the context of Facebook being pegged to a basket of international
currencies, the peg to each will need to be reevaluated frequently as the
currencies fluctuate and arbitrage opportunities increasingly cost the peg-
guarantor money to uphold the peg. These fluctuation can be cancelled by
derivative contracts e.g. currency swaps, but those cost premiums to maintain
and periods of volatility can get very expensive.

[1]
[https://www.google.com/search?q=site%3Aarmstrongeconomics.co...](https://www.google.com/search?q=site%3Aarmstrongeconomics.com+pegs+fail)

~~~
nickles
> Not to mention that pegs always fail in the land of financial markets
> anyhow... In the context of Facebook being pegged to a basket of
> international currencies, the peg to each will need to be reevaluated
> frequently as the currencies fluctuate and arbitrage opportunities
> increasingly cost the peg-guarantor money to uphold the peg.

Assuming that Facebook is the sole issuer and redeemer of the coin, this is a
nonissue. By backing the issued coin 1:1 with reserves according to the
composition of the basket, Facebook can redeem any coins at face value. Hong
Kong, for example, maintains a currency pegged to USD backed entirely with USD
holdings.

As an aside, your source, armstrongeconomics.com, may not have the best
credibility:

"In 1999, Japanese fraud investigators accused Armstrong of collecting money
from Japanese investors, improperly commingling these funds with funds from
other investors, and using the fresh money to cover losses he had incurred
while trading. United States prosecutors called it a three-billion-dollar
Ponzi scheme... Armstrong admitted to deceiving corporate investors and
improperly commingling client funds—actions that according to prosecutors
resulted in commodities losses of more than seven hundred million dollars—and
was sentenced to five years in prison."

[0]
[https://en.wikipedia.org/wiki/Martin_A._Armstrong](https://en.wikipedia.org/wiki/Martin_A._Armstrong)

~~~
joeyrideout
I am aware of his past and still believe that he is the best in the world at
what he does. His historical and financial insight is unmatched.

------
root_axis
I think Facebook's reputation will be enough to relegate this thing to the ash
heap. The only people who are going to be interested in Facebook coins are
some subset of cryptocurrency enthusiast who can find value in moving their
cryptocurrency into a coin that will have more onramps to spendable money. For
everyone else, it's going to be viewed as _yet another_ digital money app you
have to hook up to your bank account and there will be little incentive to do
so since everyone is already comfortable with their
cryptocurrency/venmo/paypal/cashapp of choice. When you mix in Facebook's
horrible reputation, particularly with regard to tracking and privacy abuse I
think we're going to find that people mostly just ignore this offering.

~~~
jrvxo
Facebook's reputation outside HN is not bad. In fact I'd argue that in
undeveloped countries it's pretty, pretty good.

~~~
okmokmz
>Facebook's reputation outside HN is not bad

It depends who you talk to. The only people I know who still use, or don't
hold a negative view of, Facebook are my parents, grandparents, and other old
people who certainly won't be purchasing Facebook's "cryptocurrency". The vast
majority of the young people I talk to, as well as other engineers, have a
negative view of Facebook and don't use their services (aside from maybe
Instagram). The latter is the group that would potentially be interested in
crypto, but they won't be buying it from Facebook. Personally, I hope Facebook
fails spectacularly

------
grey-area
This appears to be:

1\. Pegged to USD 2\. Controlled by a central entity 3\. Tied to a social
media account

So it has very little to do with currencies like bitcoin (it certainly
violates the spirit of them, even if it chooses to reproduce some of the
morphology), but they are IMO associating it with cryptocurrencies for
publicity and more importantly in the hope of avoiding regulation by
confounding regulators for long enough to become established de-facto amongst
consumers.

Banks and payment networks like Visa/Mastercard/Paypal should be most worried
by this, as it will be designed to cut them out of transactions between users,
advertisers, readers of media/news entirely - load up your account with
Facebook coins (have they really called it 'Libra coin'?!?), and merchants
will not have to pay mastercard, but they'll have to pay Facebook fees to
accept your payment.

~~~
rafiki6
When it comes to the financial system, the thing that gets most companies is
regulation. As much as these tech companies want to play bank, they just don't
have the right skillset to navigate the complexity of regulations across
multiple regions. Finance's problem isn't tech. People assume the issue with a
banks payment system is the fact that it runs on some mainframe running Cobol.
False. The main problem is that the payment and settlements network is
established and works well enough that there's really little actual value in
investing any further to upgrade it. Many banks did jump on the bandwagon of
blockchain, hoping it might solve some of the challenges of inter-bank
settlements, but it hasn't panned out the way they thought (basically think
back-office employees who do much of the settlement verification being
replaced or automated away). Facebook has less than a percentage point of a
chance of upending current payment networks. Even starting from today it would
take them at least 20 years to effectively build up the competence to navigate
the politics and regulation of our current financial system. Do you remember
the hype surrounding Zucks day infront of congress? Guess what...that happens
almost annually for a bank and it never makes the news. Forget the well
established lobby banks have that FB and other tech companies don't even come
close to achieving.

Visa is doing the smart thing and investing in this as it will probably find
some traction given FB's reach, but poses almost no real threat to Visa in
anyway. Personal and Commercial banks' main business isn't really payments,
but rather loans. They offer payments since they already have a well
established settlements network and serve as gatekeepers to the financial
system.

I'd love to see where this goes, but I have a really hard time believing that
this will grow beyond anything but another FB digital currency. There's a
fundamental aspect of currency where it's tied to a government as well as a
country and it's world dominance. There's a reason the USD is the reserve
currency of the world, and yet another reason the government is the owner of
the USD. Bitcoin at least tried to challenge this dominance. FB isn't even
thinking like that clearly. They have another play in mind, and frankly it's
not entirely clear what it is.

~~~
grey-area
I agree with some of what you say here, but do think payments is ripe for
transformation and the software companies will do so, as they have so many
other industries.

The goal is quite simple, to own global payments (a trillion dollar market
currently owned by a cosy duopoly).

The intended method is to do an end run around regulation as they have done
with privacy regulation (hence the bitcoinish cover).

I disagree it is smart for visa to invest unless they have a majority
interest.

------
rdiddly
I can grasp the idea that Facebook would want to capture more payments like
WeChat does; what I can't figure is how having their own cryptocurrency would
add anything. Whom does it appeal to? I doubt Facebook wants the drug
dealer/money launderer market segment for example. (I also doubt it'll be
secure or anonymous enough to satisfy those people.) And it's no good for
speculators, if it's pegged. Seems like at best it's just a novelty or gimmick
that maybe gets a few more people to try it out for giggles.

Using the term "innovation" might be a bit too generous here. Not that
combining two things that already exist can't be innovative. When the boomers
combined "white music" with "black music" they got rock and roll. But this is
Facebook + crypto, two things that suck. (Apologies.)

~~~
thecupisblue
They're using cryptocurrency because - off the top of my head in no particular
order:

1\. Hype

2\. It gives "credibility" to their currency

3\. they can be regulated as a crypto-currency that way.

4\. It enables faster transactions and reactions to the transaction states
than regular currency.

5\. It locks the users in to their partners because it's more friction to get
money.

6\. Easier to obtain the data on how users spend their money.

7\. Easier to introduce new models based upon transactions/currency.

8\. It can be given away for free easily.

~~~
dralley
>It enables faster transactions and reactions to the transaction states than
regular currency.

This is only true in the US, where the inter-bank financial system runs on
mainframes and 40 year old code.

The British banking system decided a while ago that they were going to update
their bank communication system, and now they can send sums between bank
accounts at different banks within 10 seconds.

~~~
EthanHeilman
10 seconds is still an two orders of magnitude too slow given many use cases
and the technology which is currently available. I should be able to tap my
card on a subway turnstile and have it open immediately such that the subway
faces zero fraud risk.

A centralized system should be limited only by RTT and there are ways to
overcome even that via caching layers or cryptographic techniques. You want
something sub 250ms.

~~~
desc
It doesn't need to be centralised, and it doesn't even need to be limited by
RTT.

'Zero fraud risk': you cannot prevent people from finding loopholes. Every
system breaks. Instead, you use the same techniques that have been used for
centuries in finance: keep audit logs, make it possible to fix things later,
and maybe try to catch the majority of possible attacks by adding more rules.

If you're processing tens of millions of transactions a second, you do not
have a single point of truth. You have at least a cluster, ie. a distributed
system. Fortunately finance grew up before automatic computing and telecoms
even existed, so its algorithms and systems run just fine (FSpecificVO) at
less than 1 FLOP/S with communication latencies measured in weeks.

So you might as well just collect transactions locally, then sort them out as
a batch job in the evening, with a percent or two price hike to cover
liabilities due to fraud.

Last time I went anywhere near London, they had the instant payment system
working down there in the Tube.

It's not centralised and none of the important stuff is necessarily low-
latency, but it seems to work fine anyway.

------
DINKDINK
"Can't wait for a cryptocurrency with the ethics of Uber, the censorship
resistance of Paypal, and the centralization of Visa, all tied together under
the proven privacy of Facebook."

[https://twitter.com/SarahJamieLewis/status/11394299139229573...](https://twitter.com/SarahJamieLewis/status/1139429913922957312)

------
gemjam
Bloomberg did a nice video about the real implications; Chinese app style
payments would deprive banks of their cut of transaction processing.[1]

Isn't it strange that the Chinese copied facebook, but now facebook copys
WeChat

"U.S. Banks Are Terrified of Chinese Payment Apps"
[https://www.youtube.com/watch?v=SJh_Uir5EMI](https://www.youtube.com/watch?v=SJh_Uir5EMI)

[https://www.nytimes.com/2019/03/07/technology/facebook-
zucke...](https://www.nytimes.com/2019/03/07/technology/facebook-zuckerberg-
wechat.html)

~~~
dngray
> _Isn 't it strange that the Chinese copied facebook, but now facebook copys
> WeChat_

Not really, Facebook is lacking in originality and sees how much money can be
made (Wechat is doing it).

They also see how they can harvest huge amounts of data on what people buy
with a high degree of preciseness.

------
toomuchequate
If it is pegged to USD, there is no investment potential. It is just as bad as
cash.

The idea behind bitcoin is that you don't need to rely on the US government
for storing value. There are 21,000,000 BTC ever ever, you can't print more.

That article did not address this at all. This is the most compelling reason
to buy bitcoin.

~~~
root_axis
> _There are 21,000,000 BTC ever ever, you can 't print more_

Untrue. More could easily be printed if that is what the leadership/community
wanted.

~~~
jbusma
Let's take a vote!

Who votes to increase the 21M cap, devaluing your own holdings?

Sir, it appears the nays have it..

~~~
pojzon
I dont think anyone with such possibility would put it to vote. They would
just do it because they can.

~~~
jbusma
You would essentially "vote" with which fork you were choosing to acknowledge
with your own node, should you be running one.

Also I'm fairly certain a majority of hashpower, not just users would need to
be on board with the change.

You could argue that as the primary beneficiaries of such a change (increase
cap => increased distribution to miners) they would be for it, but I think
most rational actors see the catch 22 of trying to profit by removing one of
the core attributes that makes bitcoin valuable (it's scarcity)

------
justforyou
This is the thing that will ultimately get facebook as we know it regulated
out of existance -- unless politicians get hooked on social media micro-
donations.

[https://www.banking.senate.gov/imo/media/doc/5.9.19%20Facebo...](https://www.banking.senate.gov/imo/media/doc/5.9.19%20Facebook%20Letter.pdf)

~~~
lowdose
Is this a new narrative pushed by old banks that do not innovate enough to
keep up with Zuckerberg et al?

------
hello_1234
I really wish they succeed. It takes 3 to 5 business days to transfer money
using ACH in the US if you don't want to shell out 25$ for wire transfer.
Transferring money is just about transferring a few bytes of data. Why does it
take 3 business days? Why are customers still forced to shell out 25$ for
instant transfers?

~~~
nutjob2
The US is the US, but in places like the EU and Australia, consumer level
inter-bank transfers are now taking a few hours, minutes or seconds, at a
price between free and less than $1.

It's sort of a constructive proof that you don't need crypto currency, if
that's the justification for its existence.

~~~
buboard
it's really mind boggling to me they take $1 at all. Why? Banks have a myriad
ways to make money instead of taxing consumers (and overwhelmingly the small
fish). It's 2019 and cash has 0 cost to transfer.

~~~
ForHackernews
In the UK, the Faster Payments Service enables near-instant transfers (usually
a few minutes) that are typically free to the consumer. This network has been
operating for more than a decade.

[0]
[https://en.wikipedia.org/wiki/Faster_Payments_Service](https://en.wikipedia.org/wiki/Faster_Payments_Service)

~~~
buboard
yet it costs me $10 to send $500 to the UK and $39 to send to the US. And even
more to receive.

~~~
ForHackernews
Try [http://transferwise.com/](http://transferwise.com/), that's what I
usually use.

~~~
buboard
not available for the kind of businesss payments i want

------
duxup
I think it remains to be seen how many Facebook users WANT to use Facebook (or
whatever they call it) to buy things.

I'm not sure that's an automatic yes from most users.

------
shiado
Could this whole project be a tax play? Many jurisdictions don't tax
cryptocurrency until sale where capital gains applies, some don't tax at all.
It is very convenient for tax purposes for a corporation to have a currency
that exists on a global network where you don't need to transfer anything
between countries and all that matters is where you cash out.

------
nopinsight
Facebook's Libra coin looks like its version of WeChat Pay or AliPay rather
than a competitor of Bitcoin. It is a stablecoin meant for facilitating
transactions, not an asset to be invested in.

------
jonlucc
I don't really understand the upside to an FB stablecoin, but maybe I'm
missing something. Why would I want FB to be the store of my money instead of
FDIC-backed banks if the value and purchasing power is going to be identical?

~~~
TACIXAT
If they can move your money cheaper than credit and debit card networks. That
is the only part I'm interested in. Given they are partnered with PayPal
though, I'm not hopeful on it being low fee.

~~~
bduerst
Those fees with credit and debit card networks aren't arbitrary - they usually
cover dispute support, insurance, anti-fraud, and other financial services
that consumers have come to expect.

If Facebook has fees that are less than industry standard I would be highly
suspect of that payment method.

~~~
gervase
They're not arbitrary, but they're not razor-thin, either. If we take a quick
look at profit margins (net income over revenue) for 2017 as a proxy for fees
relative to service costs, Visa was something like 36%, which is pretty good
(for context, Google's is ~22%, Apple's is also ~22%, Citigroup is ~25%,
Mastercard ~31%, Paypal ~13%, Facebook is just under 40%).

It would definitely be a big shift from the "support" they offer now,
admittedly, but if they can break the Visa/MC duopoly at scale, I think you
could make a business case for it.

~~~
bduerst
What these financial conglomerate accountants report on their SEC filings are
not the same margins that they have on payment processing. For example, much
of that margin could be on interest for credit debt or Adwords CPC. It's a
massive stretch to compare the two.

Again, I would be highly suspect of Facebook if they charged less than the
industry standard, especially if they don't explain how they cut costs for
risk management.

~~~
TACIXAT
I think risk management could be a lot cheaper. Phones are data rich compared
to mag stripe cards. No card can provide GPS history.

~~~
bduerst
I agree - I think some startups like SoFi have been challenging that space,
but they address that in their value proposition. I don't see anything leading
me to believe that anything Facebook is doing is innovating risk management
overhead, which is why I would be suspect of their fees.

------
catacombs
With the number of data leaks, PR disasters and the federal probes looming
over Facebook, the last thing I want is the company handling any kind of
financial transactions, especially if it's with cryptocurrency.

~~~
duxup
I suspect though this is just crypto currency ... in tech and name, but
generally will just be controlled by facebook in a way that isn't as
susceptible to the usual hacking / non reversible transactions as "real"
crypto currency.

I think this is really just Facebook payments that will be controlled by
Facebook.

~~~
catacombs
Sounds like it. I'm interested to see how this plays out ... from the
sidelines. I haven't had a Facebook account in years. I deleted it a while ago
and haven't looked back.

------
DrJosiah
Here's the best reason not to involve yourself: it gives Facebook more power.
Haven't we seen how Facebook uses that power? Yeah? So maybe we don't get on
board with what Facebook wants.

------
antpls
2 things about a virtual currency :

\- people may finally be able to "sell" their personal data

\- it may help to remunerate artists and content creators on Instagram

------
kerng
Even though this has nothing todo with cryptocurrency, the naming confusion
will benefit Bitcoin and Co I assume.

------
xmly
It is just called cryptocurrency and actually, it is not.

Any stable coins are just payment network without a license.

~~~
cdiddy2
Not Dai

------
nvk
Apples and Oranges. One is just a fiat pegged shitcoin the other an
independent monetary system.

------
buboard
Will it be in any crypto exchanges, e.g. coinbase, binance?

(nobody from facebook here?)

------
GrumpyNl
I bet you, to get some, you have to buy them with dollars.

------
cribbles
I think it's not a coincidence that one of Facebook's flagship partners is
MercadoLibre, the Argentine ecommerce giant. Argentina's YOY inflation rate
will "slow" to 34 percent this year - if all goes well.[1] The Argentines I
know making monthly salaries are used to saving money in foreign currencies
anyway. (HN Argentines, feel free to correct me on that point.)

Many of us live in places where we can rely on our regional currencies to
remain stable. Maybe the pound will flounder under Brexit, the Euro under the
debt crisis or the dollar under whatever the trade war is supposed to be
doing, but there's little or no public will to divest from national
currencies, and the main reason anyone would dip into cryptocurrencies is
speculation. Also we're hackers and distrust Facebook. Fine - we're not the
target demographic.

I think the general population of Argentina, India, Venezuela, etc etc, _are_
the target demographic. The idea would be to make savings, payments, and
digital purchases for people in developing or unstable economies reliable,
inflation resistant, and low-fee - particularly vs forex. As a bonus for us
hackers, I'm sure every Orwellian data scraping fever dream you can imagine is
rolled in too - but most people aren't hackers, so whether this is a
showstopper remains to be seen.

I'm not just spitballing here - Facebook claim this to be so.[2] Thiel and
Altman's Reserve Currency works basically the same way, with the same
ambitions[3]. The implications are _much_ bigger than Johnny-come-latelies
from Menlo Park stumbling into the blockchain hype - which seems to be the
prevailing take here. What we're seeing is tech giants betting big on having
total ownership over banking and purchases in much of the world's population.

[1] [https://www.reuters.com/article/us-argentina-economy-
oecd/ar...](https://www.reuters.com/article/us-argentina-economy-
oecd/argentina-inflation-rate-will-slow-to-about-34-percent-this-year-oecd-
idUSKCN1R82IS)

[2] [https://www.theverge.com/2019/6/6/18655366/facebook-
cryptocu...](https://www.theverge.com/2019/6/6/18655366/facebook-
cryptocurrency-libra-token-zuckerberg)

[3] [https://reserve.org/about](https://reserve.org/about). Pedantic technical
note: Reserve is moving in a three phase sequence from USD collateralization
(like Tether / Coinbase's token) to algorithmic stabilization against a basket
of goods (not currencies), whereas Facebook is skipping to phase three and
using a basket of currencies as the peg. (It's an open question how this will
be accomplished, since Libra's whitepaper won't be released until tomorrow.)

------
dngray
douche marks (one of the names people were calling them)
[https://news.ycombinator.com/item?id=20181639](https://news.ycombinator.com/item?id=20181639)

Yeah now it's called Libra. I can totally see my daughter wanting to think
about her girl products every time she uses this coin.

They better consider how their marketing will look if they want to enter the
Australian market. Especially with this day and age of memes. Usually what the
teens find "cool" is what the older generations adopt.

~~~
pdpi
> Yeah now it's called Libra. I can totally see my daughter wanting to think
> about her girl products every time she uses this coin.

The iPad didn't really suffer much from the same naming "problem".

Libra is pretty much just the latin name for "Pound". It's a pretty damn good
name for the currency.

~~~
dngray
> _The iPad didn 't really suffer much from the same naming "problem"._

It's not really the same thing. Pad can often refer to things like "pads of
paper", or be a slang name for an apartment.

> _Libra is pretty much just the latin name for "Pound". It's a pretty damn
> good name for the currency._

A lot of teenagers probably aren't going to know that.

Whereas there is literally a brand called "Libra" that makes tampons, pads and
those sorts of products. That is what people think of here when they hear
that, either that or the star sign.

~~~
supakeen
The Libra name is only used in Australia and New Zealand [0], it's unlikely
that two things carrying the same name will influence the brand of Facebook's
currency a whole lot.

[https://en.wikipedia.org/wiki/Libresse#International_brandin...](https://en.wikipedia.org/wiki/Libresse#International_branding)

~~~
stcredzero
The first thing I thought about was Libranet Linux.

~~~
dngray
> _The first thing I thought about was Libranet Linux._

Yes and you're on HN like me. This site caters for a certain audience.

