What can bitcoiners reaction to Facebook Libra cryptocurrency can teach us about innovation and the blockchain?

In the last post, we discussed Facebook's Libra coin. Since then the US Treasury Secretary Steven Mnuchin, has implicitly given Facebook the go-ahead to issue the stable-coin on the condition that they "implement the same anti-money-laundering and countering financing of terrorism, known as AML/CFT, safeguards as traditional financial institutions". In the WSJ, they were a bit more explicit:

“Many players have attempted to use cryptocurrencies to fund their malign behavior. This is indeed a national security issue,” Treasury Secretary Steven Mnuchin said in remarks at a Monday news briefing. Should Facebook develop its digital coin, called Libra, to “have a payments system correctly with proper [anti-money-laundering safeguards], that’s fine,” Mr. Mnuchin said" [emphasis added]

It's impossible for Facebook to have not  known that this was an issue. The idea that this agreement didn't pass by the general counsels (who would have consulted risk and regulatory experts) at each of the organizations is simply not realistic. In fact, only two of the 28 organizations are getting cold feet. In the world of compliance, that's not so bad.  

The US is pretty committed to fostering all their muster against China and enabling capital flight from their country would be an important tool in the new "Great Game" that is being played by these hegemons. 

What can bitcoiners teach us about innovation and cryptocurrency? 

Although the grand chess match between China and the US is important, the innovation angle is also something worth analyzing.

What did bitcoin enthusiasts have to say about Facebook's Libra?

It turns out their critique, via Mastering Bitcoin's author Andreas M. Antonopoulos, yield some insight into the reality of blockchain innovation. He had the following to say about Libra:

As per the video, he notes that cryptocurrency is "open, public, borderless, neutral, and censorship resistant" (this post lays out what each means, so check that out). More importantly, he points out these characteristics can only emanate from a decentralized approach used by bitcoin and certain other public cryptocurrencies. Conversely, if we have a centralized blockchain - like Libra or Ripple - then it loses these magical qualities. As pointed above, Mnuchin requires a "throat to choke". The only way you can't have a "throat to choke" - is when that throat is decentralized.

What's the innovation? 
In the class, I teach about Audit, Innovation and Technology, I went through my Delta Framework. In this table, we have key characteristics of the old system or technology. The second column looks a bitcoinesque cryptocurrency, while the third looks at Libra.

What the analysis confirmed is how permissioned blockchain, such as Libra, is more of an incremental innovation rather than something radical that would upset the apple cart. Specifically, the ability to use permissioned ledgers will make it really easy for the consortium to fulfill their AML obligations. Why? Because all the record keeping is automated. And that last word is key: automation. Permissioned blockchain is really about "frictionless" transaction propagation between known parties via a decentralized ledger. The Libra consortium is essentially establishing systems that can trace a transaction from crade-to-grave because the underlying blockchain technology is all about automating the accounting. Regulators are actually going to love it.

The public blockchain, on the other hand, is about disrupting the concept of fiat currency itself. If governments can conjure currency out of thin air, why not Satoshi Nakamoto? And there you have bitcoin. Of course, as previously published,  governments are not going to like this and have worked to crush bitcoin by going after people.  But the point is that eliminating the centralized intermediaries of trust was never bitcoin's objective and could be arguably are caught in a "gale of creative destruction". Rather, it was to offer an alternative to the fiat currency order that we live in and the blockchain technology was just the means to do it.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else