Two years ago, cryptocurrency was a thrill ride. Then the bubble popped, and it became a passing fad that had had its time. To most people, anyway. True believers kept believing, developers kept toiling, and the technology quietly kept growing. Then, last July, Libra showed up.
Well, at least a vision for Libra, the name Facebook has given to its “global” digital currency project.
Libra has triggered strong reactions, largely critical ones, from central bankers across the globe. It even seems to have inspired China to speed up the development of its own digital currency. Now, as we head into 2020, it appears that crypto is poised to reenter the scene in a big way.
This time, however, it won’t be so thrilling. In fact, there’s a good chance it will make you at least a bit uncomfortable. Depending on your perspective, it might even piss you off.
If you think you’ve gotten away with ignoring the extremely weird and disorienting cryptocurrency scene, Mark Zuckerberg would like a word. Because Libra, the cryptocurrency Facebook wants to create, is going to make the world a better place, he says. The currency, which will rely on technology inspired by systems like Bitcoin, is about promoting “financial inclusion” and helping people “lift themselves out of poverty,” Zuckerberg told the US House of Representatives in October.
He went on to suggest that if the US doesn’t let Libra launch, its global influence could be undermined. China is “moving quickly to launch similar ideas in the coming months,” he said. “Libra will be backed mostly by dollars, and I believe it will extend America’s financial leadership as well as our democratic values and oversight around the world.”
There is a lot to unpack here. But let’s start with how Facebook, behind its army of PR specialists and lobbyists, apparently plans to sell the plan. Not only is Libra humanitarian, but it’s patriotic! How could you possibly think it’s a bad thing?
There’s obviously a big problem with this. Many people don’t trust Facebook with their private data, see it as a threat to democracy, or both. Now the company wants to launch its own currency? Is it just trolling us?
At this point the company might emphasize that it won’t be in charge of the Libra Association, the nonprofit it created to manage the currency. The group, made up of 20 other firms in addition to Facebook, will manage a “reserve” of government-issued money that is supposed to back each digital unit and keep the currency stable. Half of that reserve will be US dollars, and the other half will be made up of British pounds, Japanese yen, euros, and Singapore dollars.
Fine, but the design itself has worried US policymakers, who say they can’t even tell what Libra is, much less how to deal with it. Whatever it is, it will probably be hard to ignore in 2020.
If you are insulted that I even called Libra a “cryptocurrency,” and find yourself triggered by what you view as the misuse of this word, I’ve got some bad news: it’s going to get worse. You can thank Libra for that. Also, the People’s Bank of China.
Recall Zuckerberg’s warning to Congress about how China had “similar ideas” to Libra. Indeed, China appears poised to launch a digital version of its sovereign currency in 2020, and officials from the People’s Bank of China have said the digital renminbi will bear similarities to Facebook’s plan.
Many cryptocurrency enthusiasts argue that true cryptocurrency is the product of a decentralized, “permissionless” network like Bitcoin. Bitcoin is designed to provide freedom from corporate and government censorship, and its network is controlled by a global public network made up of thousands of computers.
Libra, meanwhile, was dreamed up by a huge corporation, and its network will be controlled by a small number of vetted private entities. China’s digital renminbi will apparently be similar, but controlled by a central bank. Nonetheless, expect headlines and news reports in 2020 to keep calling them cryptocurrencies, with no regard for your feelings on the matter. Introducing new terms would be likely to make the situation more disorienting than it already is for non-enthusiasts, most of whom probably won’t even grasp the distinction between “digital currency” and “cryptocurrency.” Sorry.
If you are the US government, in the coming year crypto will probably trigger you too.
In 2019, we saw small-time illustrations of how digital currency could be used to chip away at America’s influence over the global financial system. That phenomenon is likely to continue–and even expand—in 2020.
Since the dollar is by far the world’s most popular reserve currency, the US has disproportionate control over how money flows around the world. But China aims to promote its own currency, the renminbi, as an alternative, and some foreign-policy analysts think it might do so by encouraging international adoption of the digital version. That may be part of why its central bank seemed to spring into action after the Libra announcement.
In addition to China, Iran and Russia also appear interested in using digital currency as the basis for a parallel financial system that the US can’t control. The governments of Venezuela and North Korea have apparently already turned to cryptocurrency to evade sanctions.
We got a hint of how the US might react to this kind of thing in November, when the Department of Justice announced charges against Virgil Griffith, an employee for the Ethereum Foundation, a nonprofit that supports the development of the world’s second-most-valuable cryptocurrency network, for allegedly providing “services” to North Koreans in a way that violated US sanctions. Now he faces 20 years in prison.
Is that excessive? Should the US have so much power to block other nations from the financial system? How important is that power to its national security? Could China use its digital currency to expand its global influence? And what might be the geopolitical impact of hundreds of millions of people using something like Libra?
Have a headache yet? You were warned.