Section 5: Trend by cryptoasset class
As BQ Intel develops, we engage in providing tools to compare crypto assets, thanks to the creation of a database and a suite of tools to exploit it. A significant added value is our classification as a criterion to isolate classes of tokens and study them as such.
As an evolution to fine-tune our classification framework, we are now refining by creating sub-categories for each of the functionalities. As part of this move, the E (Execution) functionality becomes a subcategory of the I (Infrastructure) function.
Just one remark worth mentioning, as far as the classification is concerned, when designing and proposing DLT-based processes within corporations, the question arises within finance departments of how to enter crypto assets in the books. Accounting standards have not yet thoroughly considered and published principles for this so that companies can be guided as to which accounting category to put Ether, Bitcoin, Tokenized gold, etc., not to mention proceeds from mining, receipts proceeding from activities such as speculative acquisition, or whatever. Here again, the mapping of the five categories could prove very interesting for accounting researchers to work with.
A – ANONYMITY CHARACTERISTIC
Anonymity coins are increasingly being scrutinized by regulators, as we were expecting, so, not much to report here.
I INFRASTRUCTURE NATIVE CRYPTO-ASSETS
I(Ē) – Pure accounting infrastructure functionality
Bitcoin is regaining its dominance in the cryptosphere, against every other cryptocurrency. Its dominance had increased by up to 70%, which has not been seen since the spring of 2017, when the ICO explosion started. This is a sign of investors reckoning that BTC is still, as of today, the flagship blockchain, most renowned, most secure, and hence the safest short-term store of value.
In this sense, BTC benefits both from the recognition of blockchain technology throughout the industry, as well as investor doubts and disappointments regarding ICOed tokens and the lengthy development in the execution environments, including Ethereum.
Otherwise, one quote that we liked in an attempt to defend BTC as a protected instrument: “Bitcoin is code, code is speech, and speech is protected”!
A “trendy” kind of pure cryptocurrencies has been flourishing in recent weeks, with a lot of similar projects being born: deflationary-by-design coins. Examples: Mero-currency; Boom; Bomb; Ethplode; Hype-token; Golden-token. Just by the names, you can see these are a bit dodgy.
The principle is always more or less the same: upon transfer of a coin, a fraction of it is burnt, destroyed. This can be typically 0,001%, 0,1%, etc., and is quite a simple smart-contracted feature on the Ethereum platform.
Some projects are openly describing themselves as an experiment – and yes, to an extent, it is interesting to study the evolution of the price of a value transfer and storage medium when the supply decreases as a function of its use. But then, it seems that several developers have decided to ride the wave and describe this mechanism as a revolutionary one with the magic property to make the value of the coin rise just by doing nothing, while other users erode the value of the coin when using it.
Not sure if we want to comment on the scammy nature of such an economic expectation, all the more that monetary erosion is already very present in, say, Bitcoin: but as far as we are concerned, we expect these coins to collapse ultimately. The only good thing is that people obviously will start thinking of how the monetary mass should be managed, and at the end of the day, that means challenging the central banks on that.
(I)E – Execution environments platforms
What comes to mind when invited to comment on these platforms is that improvements appear to be a long way in coming. It has now been two years that Cardano’s researches have been carried extensively, and the network is still not there. This is an endless expectation for PoS and sharding on Ethereum, and everyone is anxiously awaiting the end of this year to see if anything concrete will be delivered. Please refer to the technical section for the relative updates.
F – FINANCING FUNCTIONALITY FAMILY
“Utility tokens” 2017-style ICOs
The increase in the value of cryptocurrencies, and the first rank, Bitcoin, the interest in riskier investment vehicles (ICOs) is resuming as well. The number of ICO projects registered on ICOBench has risen significantly in the first half of 2019 (Figure 14).
But this should not obfuscate the fact that the net amount of funding raised by ICO projects is down an astonishing 97% year-on-year (Q1 2019 vs. Q1 2018, source BitMex). The money raised thanks to ICOs in the first half of 2019 has been in the range of €300M (Figure 13), which is less than one-tenth of the amount raised in the first half of 2018. Furthermore, one characteristic of the 2019 ICO market is that it is dominated by a few projects raising tens of millions, with all the rest being practically failures. All in all, the classical, hype-averse VC approach is taking over again (Figure 15).
So, it is interesting to share some insights gained by our daily monitoring of new crypto assets being listed on CoinMarketCap.com. Typically, there are three or four new entries added every day on the site (except on weekends), and one or two are delisted – which does not prevent some bigger batches from being added or removed from time to time.
Out of, say, an average of 20 new coins that appear over the course of a week:
Almost all are ICOs, that is, they have been issued with a clear financing purpose. There would be no more than one or two native DLT platforms released per week.
Only 20% can be considered as serious projects. That is one every second day; still not too bad, the sign of vibrant activity worldwide – as no geography can be said to be over or under-represented, pretty much following the intensity of activities reported in the geographical round paragraph (see further).
But the problem is that consequently, 80% of new crypto assets listed on CoinMarketCap.com qualify as weak projects, or worse. They display poor material on their websites (we are referring to grammar errors in the headlines), the business case or use case is poorly articulated if at all understandable, casting doubt on whether the teams behind these projects understand in what they are driving.
More worrisome, apart from naïve teams and light-weight websites, some crypto assets among the discarded 80% look like scams. It is difficult to accurately identify which projects were conceived purely to raise capital with no intention to do anything compared to genuinely weak companies. While in both cases token holders will lose all their money, the fact that the 2017-type scams have not been cleaned from the landscape is quite a concern and makes it difficult to defend the ICO model, which otherwise would be very innovative. Either the ecosystem manages to clean some mess on its own, or no doubt official regulators will “propose” to step in, under the guise of protecting investors!
Securities tokens offerings
An excellent question to ask is, will we end up managing tokenized securities or instead security tokens? The difference is interesting.
The former presupposes that the security titles preexist somewhere, typically in the legacy system, and a company takes on the task of being the custodian and issues it in the blockchain world, a token that it declares to be the title of ownership of the security (share, bond, etc.). However, for the latter, this means that the token is the security itself and that a whole new process is needed to support its compliance with the legal requirements of issuing such financial instruments, which is then proposed to investors.
It looks “easier” to some extent to immediately go the tokenized security way, harvesting some of the benefits of asset management automation. But let’s make no mistake, it is the security tokens that constitute the real change for the financial world. Automation of agreed cash flows (coupons, dividends) can be fully leveraged only with tokens standing alone as the financial title, and cutting the link to the legacy systems will significantly ease the operational burden associated with trading and custody of securities.
Initial Exchange Offering (IEO)
Using an exchange-facilitated initial token offering is currently among the most significant phenomena, not to mention among the hottest topics. With the ICO hype still down from its golden days, changing the “C” to an “E” is part of the move. In our view, this phenomenon is legitimate because it revolves around nothing less than transforming securities exchanges and asset management.
What is happening is that crypto exchanges are moving into the field of proposing the tokens of some projects/companies. As one would expect, serious exchanges (e.g., Binance’s Launchpad) carefully assess and then select the projects that they intend to support because their reputation is at stake – but of course, not all platforms are equally conscientious. This “initial listing” is a business of its own; exchanges are making money from it.
For start-ups, an IEO is an efficient substitute for an ICO or STO because much of the hassle is taken care of: in particular, all of the KYC requirements, the smart-contract deployment, and of course,, the power of the exchange’s marketing. Taking charge of customer checks is by no means the least of the advantages for issuers, and is likely to remain a running one…
Following the Binance example, which launched as early as the second half of 2017, other platforms are now quickly making up for their delay: KuCoin, OKEx, Huobi, and Bittrex are putting in much effort, proposing to conduct their IEOs.
The power of these exchanges explains why IEOs are raising more than 10 times the amount raised by ICOs in early 2019.
The only question is the legitimacy of the exchanges to choose the projects that they are going to support. Today, stock exchanges operate, in a way, as companies that have benefited from privatization by offering securities exchange services. Tomorrow, we picture a situation where private companies, potentially even decentralized, will judge, using their private criteria, which start-up companies are good enough to propose for fundraising, and which are not. That raises other questions, we shall see.
O – OWNERSHIP REPRESENTATION
The €100M bond issue by the Société Générale on Ethereum is quite remarkable, not so much because of the outreach, but because it has been done on a public blockchain. This is an exciting decision from a financial institution, as they have always claimed, one louder than the other, that non-permissioned blockchains were unsuitable for their usage! Here, it seems that the bank wants to explore what happens when managing tokenized assets that have precisely the same legal rights embedded in them, on a public blockchain. It looks very much like an attempt to see what additional advantages are to be gained by making these otherwise very regulated assets available “in the wild”, as opposed to controlling them in a permissioned environment. It is, in effect, the recognition that the real power of blockchain is to allow for far more comprehensive outreach. The question of how they are resolving the beloved KYC requirement, in this context, remains to be seen, though.
Please also refer to the “STO” section.
There is no shortage of articles and development related to the tokenization of real estate, including the financing of mortgage rehabilitation, rent smartcontracting, etc. So, not much is new regarding the tokenization principle we highlighted previously (and it is conceptually pretty simple); quite a lot of ‘proptech’ is being launched in this field.
Otherwise, there is an interesting view regarding the impact of the tokenization of real estate on poverty. That is, if assets owned in currently failed or fragile economies can be tracked more effectively, then these could be used as collateral to obtain loans. Thereby, it can unlock the so-called "dead capital" in these areas. Interestingly enough, that would mean that the tokenization of assets has far more potential for societal change in unfavored areas than it will have in affluent places.
Commodities, including precious metals
Not much is going on here, which is surprising to us. Price of gold, and other precious metals, is going up, so this should be favorable, but we have not seen any traction, no take-off of companies that are proposing to tokenize, then redeem precious metals (Figure 16, 17 and 18). The Digix Gold Token exchange volume, for instance, is very low, and there has not even been an increase in the amount of tokenized gold. Disappointing.
Otherwise, an impressive influence of blockchain on the commodities markets is that things that were considered previously as fungible material are starting to be traced, depending on their origin; not necessarily for the quality, purity or physical characteristics (although marginally, this as well), but rather for the control of ethics across the supply chain. Hence commodities end up not being just metal but also metals that were produced acceptably, therefore they become non-fungible.
Going further, oil has always been non-fungible due to its chemical properties, but now electrical energy can also be traced, and its price might depend not only on the delivery time but also on its origin (solar, wind, hydro, coal, nuclear).
Loyalty program points
Here, the frontier between privately issued money and coupons is becoming quite blurred. As Walmart is studying the opportunity to introduce its cryptocurrency, we see how the continuum in the qualification of crypto assets managed on the blockchain is making it challenging to separate functionalities.
Collectibles (art, luxury or historical objects, etc.)
Similar to real estate, the concept has not changed much, but the tokenization of collectible art is making its way in the minds of the market actors.
P – PAYMENT FUNCTIONALITY
Acceptance in retail
A significant challenge remains: For cryptocurrencies to get serious traction, the public needs to know which retailers and in which circumstances they can reliably use cryptos as direct payment for a service or product.
Indicators show that the rhythm of merchants taking the step to accept cryptocurrencies is increasing (almost tenfold year on year for Bitcoin Cash, according to a source). The reason quoted by merchants is the near-zero fee involved, contrary to the fees charged by Visa and Mastercard (that the customer does not see). The real obstacle to broader and faster acceptance is volatility. Also, retailers have a fundamental incentive to participate: if consumers want to pay in cryptocurrencies, retailers want to find a way to accept the value offered.
Let us gather some significant examples of Bitcoin and other cryptocurrency acceptance:
In Japan, it is not uncommon to see shops displaying a sign, “Bitcoin accepted here”, and often next to another sign stating acceptance of Ether.
Since April 2019, the Grand Dolder, a 5-star hotel close to Zürich, has been accepting Bitcoin – a high-end luxury establishment making a move to attract crypto-rich people. We believe this is pretty interesting to witness, as it shows that there is a dedicated segmentation being put in place to serve this segment of customers! This is by no means insignificant, in our view, and is in line with real estate development in Dubaï aimed at Bitcoin holders, which we reported some time ago.
A pizza deliverer in Rio, a hairdresser in the UK, a bar in Québec, a telco in the US, a pub in KL, a restaurant in NY, a laundry in Romania, etc. are random examples of commerce embracing cryptocurrencies – probably as a differentiator, but often also as militant declaration, one would bet.
Now is finally the time to dive into this specific case. The publication of the Libra whitepaper is arguably the single most crucial piece of news of this quarter. It is an essential event in many senses, so let us discuss each in detail.
Media coverage and impact
First, one can observe that since its disclosure, the Libra project has attracted much attention from the crypto sphere, as well as from the mainstream media. Many facts indicate that observers in the cryptosphere are all acknowledging the importance of the move:
The truth is that the price of Bitcoin surged tremendously right after the Libra whitepaper was released. So much is happening with Bitcoin that it is sometimes hard to find reasons for the price movements, but here, the correlation looks pretty evident.
During June’s Crypto Valley Conference, no single speech could finish without a person in the audience asking a question about the impact of Libra on the topic.
The number of articles published in Libra far exceeds any other blockchain topic. The space that we are allocating to Libra in this Quarterly serves to demonstrate further the conceptual outreach of their whitepaper. This buzz, in itself, indicates that something special is going on.
Politics stepped in very fast, and Zuckerberg got a letter from the US Congress asking him to put the project on hold until it could be properly debated in the public arena.
So, is all this buzz justified? In our view, yes. As we will see in the following paragraphs, Libra is an initiative that has no precedent, which implies potentially significant changes to the world’s financial system, in terms of macroeconomics, the role of central banks, and even states. In short, it theoretically extends well beyond just Facebook to many other fields.
Nature of the Libra
So, let’s get to it. Fundamentally, what is the Libra token intended to be? Let’s review this by characteristics, which will be a helpful test of our classification framework.
1. Ownership representation function - the intended nature of Libra is a stabilized representation of value, suitable for payment and a store of wealth. In this sense, it is trying to address a need that neither native blockchain units of account (especially BTC) nor proposed tokenized fiat has been suitable for, up to now.
The way to achieve this is to proclaim that each unit of Libra will be backed by an elementary unit of a basket of widely recognized and utilized exchange and value storage media, namely a subset of central bank fiat. We can expect that this basket will be designed to include weighted proportions of USD (mainly), EUR, JPY, etc.
So, a holder of a Libra will be entitled to approach the Libra Association and ask for the redemption of some fiat money in exchange for the token. The Libra Association is hence, a “buyer of last resort” [as opposed to a central bank is a “lender of last resort”].
As a result, Libra will be fully collateralized; so, obtaining, spending and handling Libra will be homogeneous to receiving, spending, managing a type of note that is a mix of major central bankissued fiat. Its value will evolve linearly with the combined relative value of the underlying fiat assets – and one interesting point to make immediately is that this mixing is likely to make the Libra more stable than any of the individual fiat currencies it is backed by.
How the basket of backing assets will evolve in the future is unknown at this stage, but it is highly likely that, at some point in time, other valuables could be included, such as precious metals, commodities, stocks, real estate, Bitcoin, etc., in an effort to diversify or even distinguish the currency completely from central bank fiat.
2. Infrastructure function - one year ahead of the forecast Libra launch date (projected to be in the first half of 2020), it is unclear, technically, how the Libra is going to be minted and burnt by the Association. But, as this is going to be a permissioned DLT (and by all means, not a typical blockchain), apparently, the computation effort is going to be supported by a limited number of nodes, with an operational cost that should be (at least in the beginning) negligible, compared to the financial gains on the management of the collateral. Therefore, we may (at least functionally) consider the Libra as the native, if not a primary, unit of account within their DLT ecosystem.
Importantly, Libra plans to provide an execution environment, that is, allow for programmable money in the sense of Ethereum. While this potentially raises a technical issue in terms of throughput rate, if the system reaches mainstream adoption, this choice makes much sense from a business perspective. Hence, Libra is being developed to have a significant potential to impact business models immediately and is positioned to be in direct competition with Ethereum, with its philosophy. The language to be used to code Libra automated transfer will be “Move”, supposedly easier than Solidity.
3. Payment function - the clear intent of the Libra initiative is to provide a stable international digital currency to billions of global citizens. The peg to fiat currencies qualifies it immediately as a medium of exchange and a mid-term store of value for individuals – as well as companies.
In the whitepaper, the authors focus heavily on the quite humanitarian goal to “bank the unbanked” – and indeed, as soon as you enable especially poor individuals to own and handle their assets directly through their mobile wallet, you are then allowing them to participate in this new financial system. So objectively, why not? And if one does not agree with this approach, then we can ask, why have governments not yet solved this problem? Well, not so fast. The main reason why some people are excluded from the financial system (in addition to being poor, and not profitable enough to serve) is that they are not in a situation to comply with a lot of checks and controls, that have to do, mostly, with identity management and trustworthiness.
We will touch on that a bit later when we look at the regulatory perspective. But irrespective, that does not change the fact that the use case for payment and value storage is evident, especially within the Facebook social networks and all the various part-takers in many industries (Uber, Spotify, Iliad, Napster, etc.).
To conclude on the nature of Libra: in our analysis framework, Libra is [Infrastructure – Execution environment] [Ownership] [Payment] [non Anonymous] [non Financing].
Of course, this is different from Bitcoin, which is mostly non-ownership. Being a property title is certainly neither good nor bad, in itself, for a cryptocurrency: they are just a different class of tokens, each with their use case, reasons for being, and enthusiasts. They shall exist along with ones from the others.
Long story short, with the Libra, we are dealing with a new kind of animal, one that fills a category that was, until now, empty in our Mendeleïev-like
approach to tokens zoology classification. [For recall, the classification of the chemical elements of Dmitri Mendeleïev had empty slots that eventually got discovered later on.]
In other words, such a tokenized mixed-fiat tool is unlikely to be the “Bitcoin killer”, despite what has been written in some articles, because of the significant differences in their nature: a US dollar will always be a US dollar. When packaged with other currencies in Libra, there will be an additional uncertainty of this foundation intermediary, but that is all, whereas Bitcoin, for instance, remains not backed and specific in its positioning, or a TenX token is homogeneous to a part of profit sharing.
Governance and decentralization
Facebook is very much THE entity that originated the Libra initiative, but they have been intelligent enough, this time, to realize it would have been a bad idea to be the only protagonist. So they decided to partner with other large companies to make it happen. As a consequence, Libra is de facto, objectively, separate from Facebook, which is going to be just one among many entities involved in its management.
In principle, this is not bad; in practice, we shall see, but in principle, the claimed intent is to make Libra a distributed structure.
But these governance aspects raise quite a few concerns, which are especially sensitive because the payment data in Libra is going to be valuable information available to the operators of the network, and we can safely estimate it will have tremendous value. Facebook and the other participants claim that they are going to prohibit themselves from matching Libra’s blockchain with their databases. Whether or not they will resist this in the medium term, especially given Facebook’s track record in exploiting users’ data, is left to the reader’s assessment. But this is pretty much the reason why Facebook decided not to try to do it all on their own – and some criticize the seriousness of the other Association members, whose involvement, they believe, is intended purely to make Facebook look less predominant.
Formally, the non-profit association, based in Geneva, Switzerland, is going to be managing the system.
Also, to be precise, the Libra ecosystem is not just the Libra; it is a dual coin ecosystem – something quite typical of any stable coin. The other “token” is about sharing the decision-making power among the network’s participating companies and sharing the benefits derived from the immobilized financial assets that form Libra’s collateral. And this is a critical point that has not received much exposure in the various articles on the topic: if Libra gets traction, then the amount of fiat money, which is the assets side of the balance sheet of the Association, may become quite significant. In turn, the corporate participants that have paid cash to participate in Libra are likely to expect a return for their financial participation in creating this adventure. Instead of placing dollars, euros, and yen in a vault, the money is expected to be deposited in a classic bank account and be remunerated for that. It is unclear if the initial participants will benefit from the compounding effect, but most probably, they intend to. So, Facebook and its counterparts are likely planning to make substantial profits from this scheme, which is somewhat distant from the claimed philanthropic goal to bank the unbanked… They are taking care of their interests and those of their shareholders, but if we blame them for that, then there are a lot of similar things to blame in this capitalist world!
Technically speaking, the consensus mode is Proof of Stake among the consortium participants. The whitepaper claims that the ultimate goal is to pass from distributed to decentralized. However, no concrete path is elucidated to achieve this. No doubt, the move will not be smooth, if at all ultimately desirable for its creators, if Libra gains momentum.
Impact on the financial sector (banks)
In recent decades, the banking business has increasingly evolved into a job of managing books – databases of assets and liabilities. Therefore, financial institutions have been under constant fear that GAFA, especially Google, might diversify into the banking sector.
With reason. Libra is expected to be a system that will compete with current payment facilities, which until now has been facilitated pretty much exclusively by banks. Importantly, the custody of assets will be managed by customers themselves, which has advantages and drawbacks. Among the benefits are the removal of intermediaries and associated fees, while among the drawbacks is the question of the security of assets, i.e., the management of private keys.
Anyway, with Libra, clearly, the management of payments will be facilitated by a blockchain. The banking ecosystem, which has not been able to transition to a fast and easy payment system, meanwhile is going to be under tremendous stress; and by the way, if it was not Libra, we could bet that another DLT-based initiative would have taken on the job!
Importantly, neither Facebook nor the Libra Association – nor anyone else in the Libra system – is willing (yet) to play the role of a bank, in the sense of creating money on accounting books each time a debt is recorded.
Another concern is that it is unclear what impact Libra will have on the dynamics of money circulation; at least in the short term, there will not be any lending, in Libra terms, which could lead to suggestions that the collateral fiat money immobilized by the Libra Association, will not be used to repay debts, and hence would be more like central bank money, leading central banks to take it into account when elaborating their policies…
LLibra is going to raise concerns around KYC/ AML/CFT. The platform will have to be completely compliant with imposed regulations. In turn, this means that what will be going on, mainly regarding the origin of funds, will be controlled and scrutinized by systems constructed by the Libra Association, then passed on to official bodies upon request.
And here immediately, we bump into a muchcriticized three-line paragraph in the whitepaper. It mentions that the Libra Association plans to engineer a form of digital identity management on the DLT to comply, if not with all regulations in all jurisdictions, at least to be able to argue that KYC/AML/CFT are well taken care of. As large corporations manage it, as opposed to a completely decentralized no-head network like pure cryptocurrencies, for Libra, there is just no question that they will have to accommodate the relevant laws to avoid being banned.
So, how will access to the Libra ecosystem be given to an unbanked individual with no (or dodgy) ID and no (or no registered) home, even if they have a smartphone? This remains to be seen, despite maybe the best intentions in the world.
This also means, of course, that Libra is taking the opposite position to Satoshi Nakamoto’s vision of providing a means for populations to escape the control of governments and large corporations. This is also the crux of most of the criticism that has been directed at Libra from crypto communities. Let’s be factual: Libra is not Bitcoin; they are not in the same class, and there is appetite out there for both kinds of approaches. People are free to reject Libra if they wish, only effective adoption or not will tell in one sense or another.
Macroeconomics and regulations
This Libra initiative could have a significant potential impact on nothing less than the world’s monetary system. Depending on the traction it gets, it could become de facto the single most important thing since the Bretton Woods agreement.
If Libra succeeds, even with just a modest mass adoption, which is a likelihood given the amazingly broad user base of cutting-edge web companies taking part in the Association, then what are the impacts? Well, you could have a single non-profit organization managed by for-profit companies that would be in charge of running a great, if not the greatest, payment and remittance system on the planet. The money used in that system would not depend on any single stateissued currency – slightly, it would rely partially on all of them, simultaneously. It would be entitled to decide which “national currencies” (whatever the meaning becomes) are good enough to be included in the basket, and in which proportion. This looks like an exciting challenge for everything that we are familiar with, for all that we know, in terms of the monetary system. Does it not?
Dear reader, make no mistake: when officials in the US, Singapore, France, etc. are formulating questions for Libra’s consortium members, or even expressing explicitly that no such system should be allowed to compete with national currencies, this means that governments already see this as a severe problem. What is at stake here is nothing less than the sovereignty of countries. This is especially true for the USD, the dominant sovereign currency on the planet, but it is not much less of a concern for other states.
If citizens have the convenience of holding their earnings or savings in Libras, Argentinian pesos, or Venezuelan bolivars, then their choice won’t be currencies issued by failed states.
Let’s consider a medium-size country, say Malaysia, Chile, or the Czech Republic. Today, such a country routinely decides and enforces its own monetary and domestic tax policies. However, it does not have sufficient power to impose its views globally. If Libra is adopted in even a small number of countries, then maybe an increasing number of citizens within these countries will start relying on it. And then a not-so-minor proportion of merchants may start accepting it, in competition with a de facto, less stable and secure national currency. How would the governments of these countries react? Will they impose a ban on the Libra (and then logically, other cryptocurrencies)? How would they enforce the bad when there is no practical way to control it, in what will then be a black market? Will they abort their national currency and just let it decline, thereby abdicating their monetary policy to a handful of major nations?
Then, even more bizarre: in reality, some competition would exist among the currencies of major nations to gain more influence, as their portion of the Libra basket… Without a doubt, nations that currently issue the dominant currencies are unlikely to relinquish the power they have to repay their debt with money they can devaluate as they please. Is it desirable that the distorted behavior of these powerful states comes to an end? Then, as the Libra will be based on a basket of fiat currencies, to some degree, it will be subject to the decisions of central bankers. Would this cause central bankers to adopt globally coordinated monetary policies? And/or, ultimately, would Libra diversify its collateral to gold, stocks, real estate, etc., as the credibility and actual value of fiat become undermined? One day, even Bitcoin may become part of the basket!
OK, let’s not even attempt to answer all of that. But the crucial point is that today all these questions are on the desks of ministers of the 200 plus states on earth. If you think about it, that is the actual impact of the Libra. Even Bitcoin has not shaken the system in such a profound way. The least we can say is that the near future is going to be extremely interesting.
Irrespective of our opinion of Facebook, we have to recognize that this is a critical innovation, a move that cannot be ignored by central bankers or, indeed, any corporation that has been considering including cryptocurrency payment in its business model.
Interestingly, it looks like only a large corporation could come up with a Libra-like proposal. Only the sheer size of the conjunction of participants is conferring to Libra its outreach. No decentralized initiative is even close to triggering so many questions and trouble for central bankers today. So, Libra is Libra precisely because it is Facebook and companies that are behind and engaging in it.
There is not so much technical innovation in the Libra, but the business and potential macroeconomic impacts are dominant, and no doubt they will have central bankers and governments thinking a lot in the next few months. Meanwhile, the greatest beneficiary will be Bitcoin! Introducing many users to cryptocurrency via a mainstream application like Libra will immediately benefit existing cryptocurrencies thanks to enhanced public exposure and apparent endorsement of blockchain by major corporations (“People may not like Zuckerberg, but no one thinks he’s dumb” as Pompliano puts it.).