Weekend Roundup: Corralling Cryptocurrency
The U.N. should own a share of Facebook’s Libra cryptocurrency, says Davide Casaleggio. (Getty/WorldPost Illustration)
Over recent years, the digital revolution has marched steadily and ever more deeply into all aspects of our lives. We are now connected — and surveilled by both market and state — through our smart devices. The memes, tweets and bots of social media have taken over the democratic discourse. The Internet of Things has entered the home, turning off or on this or that switch, by sensing our every move and mood. Intelligent machines are learning how to do our jobs.
The inevitable next step is digitizing a currency that courses through all these circuits of connectivity and enables the commercial exchange of value among them. It is no surprise that Facebook, which, digitally speaking, has a greater population than a gigantic state like China, has proposed its own money — the Libra — to facilitate transactions in its vast privately controlled domain.
Having already transgressed the sovereign boundaries of personal privacy, digital capitalism is now well on its way to usurping one of the last bastions of state sovereignty: issuing and regulating the coin of the realm.
In The WorldPost this week, Davide Casaleggio traces how, historically, technology has transformed the store of value known as money from huge round stones in Micronesia and shells in traditional Native American culture to the use of bitcoin and other cryptocurrencies today. To corral the inexorable influence of a global Facebook currency, he argues the United Nations must play a significant role in governing the private consortiums that will manage the Libra.
Though he certainly has his critics, it is worth listening to Casaleggio, who speaks with authority as a powerful political figure in Italy who manages the Rousseau platform, a direct democracy tool of the Internet-based Five Star Movement. In the stead of earlier industrialist visionaries like Adriano Olivetti in the 1950s, Casaleggio is a visionary innovator for the new era. He has not only thought long and hard about how digital connectivity is changing the way businesses operate while transforming the future of work and the role of political parties, but also how to meet these challenges practically.
Here is the full text of his essay below:
MILAN — Paper money is usually considered immutable but in reality, it is a relatively recent invention. Over centuries, technological and social innovations have changed the way we use money and what humans consider valuable legal tender. For about a thousand years, for example, people on the Micronesian island of Yap used large round stones known as rai as a currency. In 1643, Europeans who had arrived in Massachusetts adopted a local Native American tradition of using shells as legal tender. In Europe, two centuries later, banks began to be able to communicate with each other quickly, thanks to the invention of the telegraph and the wide use of trains and banknotes.
It is clear today that cryptocurrency technology is an important innovation in the history of money. And while no state or central bank has yet embraced the innovation, Facebook has an ambitious plan to do just that. Libra, the company’s forthcoming cryptocurrency, could be a dominant currency in a few years, or it could be but a memory surpassed by something else, a Napster for the crypto age.
Despite the uncertainty, issuing a new currency is a smart move for Facebook. Most of the company’s potential growth in terms of users is outside of North America. However, non-Western new members do not generate much revenue for the company. Ninety-eight percent of Facebook’s revenue is generated by advertising, but this model only seems to work in North America and Europe so far. Facebook earned almost $30 per user in North America but less than $3 per user in Southeast Asia. The average cost for Facebook to serve a single user is estimated to be around $3.43. So if Facebook doesn’t find a new business model for its expansion in Asia and Africa, it risks not being able to support further growth of users in the developing world, where the number of people connected to and active on the Internet is growing rapidly.
All cryptocurrencies currently in use lack something. Bitcoin has the great advantages of being widespread and of being separate from a central governance system. However, its volatility has thus far prevented it from being a currency of exchange. Also, the fact that bitcoin consumes more energy than Switzerland makes it unsustainable from an environmental point of view. There are also some 2,300 other cryptocurrencies, but they have neither the necessary widespread adoption nor backing by a sufficiently robust organization to establish them as exchange currencies.
Libra could be the most promising option yet. Given Facebook’s current user base, over two billion people will have access to the digital currency on day one. Through its network of partners, which includes Vodafone, Visa, Booking.com, Spotify, PayPal and eBay, the impact could be much greater, making it the new Esperanto of currency. However, there are basic questions that communities and countries must ask, especially when managing money becomes the domain of private individuals or a group of private companies.
What will happen to people banned from Facebook, for example? Will they still be able to access their Libra wallets? And if they had signed up for a smart contract, will it still be valid? Will Facebook and the Libra Association, the non-profit organization that will govern the Libra, be able to re-use reserves? Will the rules for Libra be changed by a group of private companies? Will Facebook discount its or its partners’ services if Libra is used to buy them, to the detriment of competitors who offer similar services but without the control of the currency?
It is said that Libra will be a “stablecoin” — based on a stable collateral. But will this change in the future? The blockchain technology on which cryptocurrency rests will have pseudonymized data, so will authorities be able to trace fraudulent uses upon request? Which authorities? What role will private and central banks play?
To answer these questions democratically and transparently, Facebook must hand over significant control of its currency to the United Nations. At a minimum, at least half the votes in the Libra Association should go to the U.N. For anti-money laundering, it will probably be necessary to activate an identity verification system, perhaps a digital passport, for potentially billions of people. This should be handled by the U.N., which will have to define the standards for how people control their data — and money — online. This should be informed in part by the handling of international passports, which a U.N. specialized agency set standards for in 1980.
The U.N. already proposed a global currency ten years ago, but the costliness of replacing a worldwide cash system probably prevented the idea from going forward. Today, cryptotechnology removes this barrier, and the U.N. itself has touted the fact that “innovations in digital finance have made financial services accessible to millions in developing countries.” Some U.N. agencies already use cryptocurrency in their work, but talk of uniting the organization on its own cryptocurrency has not come to fruition. If the Libra Association takes care of establishing and running the system, under the watch of the U.N., we may see faster progress.
A global cryptocurrency system should not be in the hands of a single company alone. We need to address this right now, when there are still no impacts on people. Once Libra reaches millions of users and has created new habits, it will be too late.