Libra is facing an increasing string of troubles related to Facebook’s trust, privacy and compliance.
Today, Coindesk.com published an article titled “UK Lawmakers May Probe Facebook Libra Over Privacy, Fraud”. There it is said that a UK parliamentary committee will probe Libra’s project over concerns about too much power. Damian Collins, Chair of the House of Common’s Digital Culture, Media and Sport Committee, declared in an interview to Financial News that they don’t trust Libra to adequately protecting billions of potential user’s data. Damian Collins, who was the head of the UK investigation into Cambridge Analytica affair, said about Libra that Facebook seems to “almost trying to turn itself into its own country.”
Last week, Facebook’s Calibra head, David Marcus, had a two-day hearing regarding Libra over trust, security, privacy and the potential fraudulent use of the digital currency by criminals and terrorists. The biggest problem Libra will be facing is reconciling privacy with law enforcement rules. That is point out in a tweet by Marco Santori (Blockchain president) in a tweet:
At these hearings, Libra is in an impossible position:
It must be centralized enough to prevent illicit activity by freezing funds, but decentralized enough not to discriminate against participants based on the use of the funds. 🤔
— Marco Santori (@msantoriESQ) July 17, 2019
Coindesk’s Michael J. Casey developed an article pointing out the incongruencies of the position Libra wants to maintain.
Not only criminals need privacy. Uncovering secrets or private affairs can be very damaging to an individual or organisation. A company can lose a sure business if a secret is revealed to a rival company. People do not show how much money holds in a bank even if it’s legit.
Returning to cash-like monetary transactions was one of the intents of the bitcoin creators. That’s why they titled their paper Bitcoin: A Peer-to-Peer Electronic Cash System. The basic premise of the bitcoin is that to transact using it; there is no need to prove the identity of any of the parties involved in the transaction.
Mr Casey explains that one of the problems a high percentage of these 2 billion unbanked people Supposedly Libra wants to serve
[…]lack of education, poor credit records, and untrustworthy state-issued ID papers means these people can’t qualify for accounts at local banks (primarily because those local banks are themselves compelled to comply with strict international “know your customer” procedures lest they are cut off by their foreign banking counterparts.)
For a very large number of the world’s adults, identity is a very real barrier to commerce.
The value of privacy
The author also mentions an essential feature of cash: fungibility. That property tells that one sample of an object is perfectly interchangeable by another identical object. For instance, one dollar bill can be interchanged by another dollar bill without loss of value. But if the dollar you receive can be questioned or legally sized because of a previous transaction, then its value will diminish. That may happen in your bank account when sized or frozen by the law. The utility of all that money is lost. The fact that bitcoin is not private also diminished its value against cash. The public character of the bitcoin ledger combined with the KYC procedures makes it traceable.
it’s quite noteworthy that at the same time that regulators are expanding their purview over cryptocurrencies – see the Financial Action Task Force’s new disclosure rules – and demanding increasingly more user-identifying information, cryptocurrency developers are driving in the opposite direction: toward more privacy, more self-custody, more trustless exchange solutions, more user autonomy. They’re striving for the goal of electronic cash.
The centralisation problem
The author contends that if Libra does not run in a fully decentralised network, the user’s privacy cannot be guaranteed. That is so because if the node identities are known, authorities could demand the identity of the users or they’ll censor or reverse their transactions.
David Marcus needed to assert that the Libra Organisation would comply with KYC requirements and cooperate with anti-money laundering. To make sure they would get the go for their Libra project Marcus has to tell the “we are centralised and you’ll know where to find me”. But when faced with the scepticism about Facebook’s track record of lack of privacy he implicitly says the opposite “don’t worry, we are decentralised”. That is a clear contradiction. Usually, a wire breaks at its weakest part. In this case the weak part is the public and their need for privacy.