Facebook’s Cryptocurrency: Stop It Before It Starts
lawfareblog.com
lawfareblog.com
Banning cryptocurrencies because they physically allow money laundering is as logically indefensible as banning internet fibers because they physically allow illegal content. The solution is to make the transactions illegal but physically possible. I’ve seen no reasonable people saying that all transactions should be legal, but I’ve seen a lot of people here saying that technology which allows illegal transactions should be banned. This is mind boggling to me and seems like a dangerous precedent.
After all cash physically allows money laundering, should we ban cash? Cryptocurrencies are baby technologies, why would we make innovating on them illegal before we even know what they’re capable of?
Yes, we probably should, now that better alternatives exist. We should have public postal banking, so no one is unbanked. And then we should stop issuing cash.
I understand many of these methods as they exist in the US come with significant fees, although debit cards have improved significantly since Dodd-Frank.
Sweden will stop accepting cash payments in 2023, and already nearly 90% of transactions are completed without it. There's not a one-size solution, but 98% of Swedes have a bank card, and 60% have used mobile payment app Swish over the past year.
I actually disagree that cash is currently near-zero cost, though. The current situation is that credit cards charge large interchange fees, and their agreements with most merchants prohibit them from passing those fees to their customer. The result is that most of the fees are added to prices for all customers.
Unless you're paying with cash at a cash-only business, you're using one of the most expensive payment methods.
The closest you can come to a low-cost payment method is a rewards credit card that provides some of those interchange fees back in the form of cash bonuses, points, or whatever, and then paying off the balance each month.
If I robbed a bank, did a getaway drive but got caught afterwards, I expect to be charged with robbery, not driving.
If you rob a bank and make off with $10m in banknotes the kind of offence would be your lawyer certifying it came from honest sources and letting you buy a mansion with it.
The argument for criminalising it is the lawyer would be assisting in your operation and effectively encouraging you to rob more banks which is not victimless in the way smoking a joint may be.
> You rob a bank and make off with $10 MM in bank notes
> They strike those bank notes' serials from a central database and you are now holding a duffel bag of paper.
Fiat currency is just make belief paper. It's backed by nothing but hopes and dreams at this point, so the actual paper you hold is really just a manifestation of that. It has no inherent value beyond what the government says it's worth.
If we move to centralized ledgers it becomes even easier for them to decide which transactions are legitimate and which are not. Of course this then extends to:
> You tried to give $5 to a government critic's podcast
> The transaction was flagged as illegitimate and cancelled. Your $5 was returned to you.
By the way fiat is backed by more than hopes and dreams, it's usually backed by quite a few institutions and societal expectations. Unlike many of the altcoins which really are hopes and dreams backed.
> So, first, Libra will be a “stablecoin,” in the sense that its value will be pinned to conventional financial assets. Unlike most stablecoins, though, it will be pinned to a basket “of low-volatility assets, including bank deposits and government securities” in different currencies, so it won’t consistently be worth one dollar or one euro or anything else. “As the value of Libra will be effectively linked to a basket of fiat currencies, from the point of view of any specific currency, there will be fluctuations in the value of Libra.”
> This strikes me as very annoying, but it has some obvious advantages for Facebook/Libra. For one thing, they’ll only need to manage one general Libra, rather than having different stablecoins corresponding to different national currencies. For another thing, if Libra gains widespread acceptance, its lack of one-to-one correspondence will give it a tendency to displace national currencies. If you mostly spend dollars, and Libra is always going up and down against the dollar, that will be annoying and you won’t want as many Libras. But if you mostly spend Libras—if Facebook is successful at making this the main currency of the internet—then that dynamic will reverse. If the dollar is always going up and down against the Libra, that will be annoying and you’ll want more Libras. The dollar will start to seem unstable and useless. If you buy most things online, and if everything online is priced in Libras, then you’ll end up living your life denominated in Libras, and only converting your Libras into dollars on your occasional touristic visits to the physical world.[4] The goal is for Libra to be more useful than any national currency, accepted in more places and with fewer complications; pegging it to a single national currency would only hold it back.
.. It is also pretty obvious that the guy wants to become a king of the world or something like that. He couldn't do that with his network. He will do that with money. It's also a diversification strategy, shifting business from problematic facebook (for how long it will last?) to a new potentially long-term venture.
This is so off the mark. Governments require taxes to be paid in their currency. So at minimum 30-50%, depending on the country, of all economic activity is guaranteed to take place in the local currency. Second, if the Libra fluctuates wildly with the local currency little will be priced in it. You don't want to sign a contract that could befome 20% more expensive because of a currency swing.
https://www.coindesk.com/ohio-becomes-first-us-state-to-allo...
So how are Facebook going to get around this? Or are they just going to ignore this problem and leave it to users to either get flagged by the IRS or for the IRS to be forced to change its rules for FBs benefit?
For people who do business and fill tax returns there's a big incentive to use whatever currency you have to fill out the return in to prevent it getting awful complicated.
I'm honestly not even worried that Facebook is going to flout AML laws. I'm more worried that they'll use the fact that they're using newfangled technology and the political and economic weight of their crypto consortium to get favorable legislation passed. And then, because of said crypto features, we'll end up undermining laws that fight money laundering and other financial crimes.
Also, the principals involved in "disrupting" governments and existing financial institutions also face the problem of government reprisal. Liberty Reserve got seized and their principals arrested and charged with various financial crimes.
Say what you will about Bitcoin, it's been remarkably successful on this front and I'm not exactly sure how.
Excuse me, I need a minute to stop laughing... Ahem, alright. In what world are criminals going to prefer using a cryptocurrency overseen by Facebook (however directly or indirectly) to using coins like Monero or Zcash, which have been built with privacy-enhancing feautures? And who are these criminals who couldn't figure out how to use these coins who are suddenly going to be enabled by this new blockchain?
I should have stopped reading there, this guy has no idea what he's talking about.
When the proverbial Nigerian Prince's legal fees are denominated in Monero there's a much higher barrier to entry for the average scammee. One could see this lowering significantly with the adoption of Libras.
Although to me it also seems possible that in the face of government KYC-style opposition, Facebook will use their Libra to advance their Real Name policy, bringing them one step closer to being the true 1:1 online representation of a person, essential for more and more services and tracked in higher and higher fidelity.
A weighted basket of the top 5 currencies by market capitalization should be more stable than the dollar.
The point about taxable income is true, although if I would rather pay tax on income I made from Libra than not had earned the income at all. Unless the dollar crashes hard I wouldn't expect this to be a meaningful amount of income.
The author thinks that the USD is the unmovable absolute and it's everything else that changes in relation to it.
(Conversely, for international remittances, an international basket stablecoin might indeed be a useful thing to have!)
But... Facebook obviously will?
The more interesting objection is about Facebook “disrupting” not the payment processing business, but the international monetary system (national banks etc.). There is ample reason to be concerned about this possibility, most prominently the fundamental idea that this system should be governed democratically, and not by industry, and certainly not by Facebook. Bitcoin was bad enough, with your power correlated with your wealth like a dark age’s feudal system. Restricting control further to a Silicon Valley Oligarchy is just dystopian.
The article may have ignored this line of argumentation because the system as it is currently planned just doesn’t really do anything to that effect: it uses existing currencies as the backend, does not (yet) involve any of the usual mechanisms of monetary policy (policy-based control of currency creation etc.).
Bloomberg’s Matt Levine had a long article on this yesterday, including a discussion how the basket-of-currencies backing might be a play to actually compete with these existing currencies.
Much better pieces have already been written