Is Facebook’s Libra Project Already a Miscarriage?


Dr. John Taskinsoy a

ABSTRACT

Facebook’s claim of Libra blockchain as a decentralized peer-to-peer electronic cash system is a blunt
lie; if Facebook overcomes the massive regulatory hurdle and receives appropriate approvals, Libra
will initially start off as a decentralized permissioned blockchain with a trusted-third party. Unlike
Bitcoin’s purely peer-to-peer decentralized permissionless blockchain without a trusted third party,
all transactions on Libra blockchain will be governed by the Libra Association as a de facto central
authority comprising 28 founding-members most of which are for-profit heavyweight firms from the
United States such as Visa, MasterCard, PayPal, Facebook Calibra, and eBay. Facebook’s Libra coin is
a recent invention, but with apparent signs of a miscarriage. Facebook’s already troubled past for
violation of privacy and exploitation of users’ data (i.e. data disclosure scandals Cambridge Analytica)
has intensified the opposition among authorities and skepticism among industry participants. In the
midst of Facebook’s planned launch date of first half of 2020, Libra is still running impetuous into
increasing opposition from all sides; central banks, regulators, law makers, and tax agencies. As with
any new paradigm-shifting technology (i.e. blockchain), Libra will cause a serious disruption in the
short-term to the existing ecosystem of more than 2,400 digital coins that has taken a decade to form;
however in the long-run, Libra as a stable global crypto-currency promises to revolutionize electronic
payment systems and money transfers by enhancing financial inclusion and global stability as a public
good. To launch Libra cryptocurrency, Facebook should not attempt to satisfy all of the concerns or
issues brought by different branches of governments because this is both impractical and implausible
to accomplish. A decade has passed since Bitcoin’s debut in January 2009, and to this date still many
countries throughout the world do not have any regulation dealing with cryptocurrencies. If Facebook
Libra does not sputter out, it will spur central banks to launch their own cryptocurrency projects.

Keywords: Libra; Facebook; Libra Association; Cryptocurrency; Bitcoin; Blockchain; Digital Coin
JEL classification: G12, G21, G32, E42, E44, E51

 This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
a Corresponding author email address: [email protected]
Faculty of Economics & Business – Universiti Malaysia Sarawak (Unimas), 94300 Kota Samarahan, Sarawak, Malaysia.
1.0 Introduction

Despite existing cryptocurrencies1 (Bitcoin and Ethereum in particular), Facebook’s Libra2 coin3 is a
recent invention, but with apparent signs of a miscarriage. In the midst of Facebook’s planned launch
date of the first half of 2020, Libra is still running impetuous into increasing opposition from all sides;
central banks, regulators, and law makers. Facebook’s already troubled past concerning privacy and
exploitation of users’ data has intensified the level of opposition among authorities and skepticism
among industry participants. At the backdrop of ever more pushback from the G7, various sovereign
states are furious that Libra cryptocurrency will compete with the sovereign currencies of developing
and underdeveloped countries; furthermore, the consortium Libra Association as a central governing
body comprising 28 conglomerates (Figure 1) will make monetary policies (Taskinsoy, 2019c; d).

Source: The Libra Association (White Paper); https://libra.org/en-US/white-paper/

Figure 1: Member-Firms of the Libra Association

1 The U.S. sanctions and the use of dollar as a weapon of mass economic destruction have been at the center of US foreign
policy and caused political tensions between the U.S. and many countries. Developments in technology and financial
sectors have played an important role in the evolution of money. The homegrown Asian crisis of 1997-98 prompted the
introduction of the Financial Sector Assessment Program (FSAP) jointly developed by the IMF and World Bank in 1999
and around the same time stress testing became a mainstay in banking regulation and supervision. Throughout the 1990s,
the savings glut, financial innovation (i.e. mortgage-backed instruments), and the Federal Reserve’s (Fed’s) expansive (i.e.
cheap dollar) policy created a lax credit environment which ushered predatory lending practices. This and more resulted
in the 2006 mortgage debacle and the inevitable GFC of 2008, which in turn marked the birth of Basel III, macro stress
testing, and cryptocurrencies (see Taskinsoy, 2012; 2013a, b; 2018a, b, c, d; 2019a, b, c, d, e, f, g, h, I, j, k, l, m).
2 In May 2019, Facebook registered Libra Networks LLC in Geneva, Switzerland. The term “Libra” was first used as a unit of

weight in Ancient Rome, and Libra is one letter different than the French word libre meaning “free”. Libra’s symbol of
waves indicates a flow of funds without borders with minimal or no restrictions and little or no transaction cost.
3 Also referred to as electronic money, digital money, cryptocurrency, digital cash, virtual money, and digital currency.
Before Facebook can successfully launch Libra4 and Calibra (Facebook’s subsidiary as digital wallet),
Facebook is asked to overcome a wide ranging concerns raised by the US Federal Reserve (the Fed)
Chair Jerome Powell, the U.S. House Committee on Financial Services, the Senate Banking Committee,
European Central Bank (ECB), Bank of Japan (BOJ), Bank of England (BOE), and Monetary Authority
of Singapore (MAS). These along with multilateral organizations such as the International Monetary
Fund (IMF), World Bank, and Bank for International Settlements (BIS) have called for greater scrutiny
of Libra on terrorism financing, money laundering, illegal drugs and human trafficking; and issues on
privacy of data, global financial stability, national security, and consumer protection (see Adrian, &
Mancini-Griffoli, 2019; Cuthell, 2019; Duffie, 2019; Milne, 2018; Sapienza & Zingales, 2012).5

Since Facebook formally announced its Libra project on 18 June 2019, its reception has been rather
deleterious; in fact, the idea has been hammered so much by central banks and regulators that Libra’s
planned delivery date of 2020 at this point may already be a miscarriage. In support of the latter point,
Ou (2019) made the following remarks “This premature release of the cryptocurrency code must be
a sacrificial lamb offered up to regulators”. The notion of Libra as a simple global payment system
with greater efficiency (little or no transaction cost), flexibility (decentralized), and accessibility by
the unbanked could be metaphorically referred to as “big bang” but there is a big “if” whether Libra
will ever become a reality, or else this may turn into a big blub. For the past few months, central banks
are calling for a review of the Libra coin (Marsh, 2019); the US law makers are asking Facebook to
scrap its Libra cryptocurrency (Wong, 2019); and the Fed Chair Jerome Powell6 has pointed to his
“serious concerns” regarding Libra as he testified before the House Financial Services Committee
(Popper et al., 2019). Facing intensifying scrutiny coupled with the ire of the U.S. regulators, Facebook
has released a statement that “Libra won't launch until regulators satisfied” (Bain & Weinstein, 2019).

After the birth of the first successful cryptocurrency Bitcoin in January 2009, a great number of digital
coins have sprouted. In fact, as of 11 August 2019, 2,440 digital coins7 were trading with a combined
market capitalization of $298 billion where Bitcoin’s market cap alone is $204 billion (68.3% market
share). While the 2008 global financial crisis (GFC) was in full swing, a mysterious creator under the
alias Satoshi Nakamoto registered the domain name bitcoin.org in August 2008 and published a white

4 Terms used to reference cryptocurrency include: digital currency (Argentina, Thailand, and Australia), virtual commodity
(Canada, China, Taiwan), crypto-token (Germany), payment token (Switzerland), virtual asset (Honduras and Mexico),
cyber currency (Italy and Lebanon), electronic currency (Colombia and Lebanon); see LLC (2018).
5 For further readings on money laundering and terrorism financing, see Bristow (2015), Reuter & Truman (2004), Zarate

(2013), EC (2018), and EBA (2018). For privacy of data, see Albright (2018), Cohen (2013), and Coombs (2005). For
consumer protection, see G20 (2016), OECD (2017), World Bank Group (2017), and World Economic Forum (2017).
6 Before the Fed Chair Jerome Powell, a host of central banks (i.e. France, Britain, China, Singapore, and ECB) have raised the

aforementioned concerns; privacy, security, money laundering, consumer protection, and global financial stability.
7 https://coinmarketcap.com/currencies/bitcoin/historical-data/?start=20130428&end=20181113 (August 6, 2019).
paper on October 31 titled Bitcoin: A peer-to-peer Electronic Cash System (Nakamoto, 2008). Unlike
Bitcoin’s decentralized (permissionless) blockchain without a trusted third party, Facebook’s Libra
blockchain starts as permissioned (centralized) relying on the governance of the Libra Association as
a central authority but aims to transition into a permissionless decentralized network (e.g. LA, 2019).
The most notable difference between Bitcoin and Libra is that Bitcoin is unstable and not backed by
any asset with intrinsic value, while Libra promises to be stable - backed by a basket of low-volatile
currencies (dollar, euro, pound, and yen) as well as low-risk central bank reserves (Taskinsoy, 2018a;
2019c, d). A big confusion is that Libra coin runs on blockchain but without block, this is far different
than Bitcoin blockchain where every new bitcoin produced through mining starts with a block, and
then a ledger containing timestamped transactions in a chronological order is distributed to all nodes
(i.e. miners) who check and verify transactions before they are added to the end of each coin in its
block (Nakamoto, 2008; Berentsen & Schär, 2018; DeVries, 2016; Merkle, 1987; Wood, 2016).

If Libra cryptocurrency has garnered greater scrutiny since June 2019 from central banks, regulators,
lawmakers and consumer protection groups, this is in most part due to Facebook’s troubled past with
data disclosure scandals (i.e. Cambridge Analytica). People would agree that government authorities
must protect consumers from companies with tarnished reputation of privacy abuse and exploitation
of users’ data, however regulators running headlong into backlash to Libra (to punish Facebook) not
only could adversely affect innovation (i.e. discouraging the development of better cryptocurrencies)
but further harm consumers in the future (Reitman, 2019). The purely peer-to-peer cryptocurrency
Bitcoin is now more than ten years old, but still not accepted as a legal tender in any country; contrary,
banned in many countries. Even Bitcoin’s increased legitimacy in the U.S. (traded in the derivatives
markets), the US Treasury does not define Bitcoin as a currency and the US Internal Revenue Service
(IRS) for taxation purposes categorizes Bitcoin as a property.8 Based on Bitcoin’s decade-long battle
with regulators, Libra may never lift off if Facebook (the Libra Association) postpones Libra’s launch
date of 2020 in order to work with regulators to gain acceptance on all of the raised concerns.

To launch Libra, Facebook should not try to satisfy all concerns or demands brought by central banks,
regulators, law makers, and tax authorities worldwide because this is not only very irrational but an
implausible task to accomplish. After a decade has passed since Bitcoin has made its debut in January
2009, and to this date, many countries still strongly oppose the notion of cryptocurrencies (Table 1

8 Cryptocurrencies are regulated as: Israel, taxed as asset; Bulgaria, taxed as financial asset; Switzerland, taxed as foreign
currency; Argentina & Spain, subject to income tax; Denmark, subject to income tax and losses are deductible; United
Kingdom, corporations pay corporate tax, unincorporated businesses pay income tax, and individuals pay capital gains tax.
Due to a 2015 decision of the European Court of Justice (ECJ), gains in cryptocurrency investments are not subject to value
added tax in the European Union Member States. For further details, see LLC (2018), http://www.law.gov
and 2). What Facebook must do, instead of trying to satisfy all sides and halt its Libra project until it
does, it should ensure the relevant parties that its Libra blockchain technology will protect consumers
and satisfactorily address issues on terrorism financing, money laundering, and national security.

Table 1: Legal Status of Cryptocurrencies

Implicit Ban Absolute Ban National Crypto-Projects

ISO Code Country Name ISO Code Country Name ISO Code Country Name
BH Bahrain DZ Algeria AI * Anguilla
BD Bangladesh BO Bolivia CN China
CN China EG Egypt DM * Dominica
CO Colombia IQ Iraq GD * Grenada
DO Dominican Republic MA Morocco IE Ireland
ID Indonesia NP Nepal LT Lithuania
IR Iran PK Pakistan MH Marshall Is.
KW Kuwait AE UAE MS * Montserrat
LS Lesotho VN Vietnam LC * Saint Lucia
LT Lithuania VE Venezuela
MO Macau KN * Saint Kitts
OM Oman and Nevis
QA Qatar AG * Antigua
SA Saudi Arabia and Barbuda
TW Taiwan
Source: The Law Library of Congress; http://www.law.gov
ISO: International Standard Organization; * Eastern Caribbean Currency Union

Table 2: Regulatory Framework for Cryptocurrencies

Application of Tax Laws AML & ATF Laws Both Laws

ISO Code Country Name ISO Code Country Name ISO Code Country Name
AR Argentina KY Cayman Islands AU Australia
AT Austria CR Costa Rica CA Canada
BG Bulgaria CZ Czech Republic DK Denmark
FI Finland EE Estonia JP Japan
IS Iceland GI Gibraltar CH Switzerland
IL Israel HK Hong Kong
IT Italy IM Isle of Man
NO Norway JE Jersey
PL Poland LV Latvia
RO Romania LI Liechtenstein
RU Russia LU Luxembourg
SK Slovakia SG Singapore
ZA South Africa KR South Korea
ES Spain
SE Sweden
GB United Kingdom
Source: The Law Library of Congress; http://www.law.gov
AML: Anti-Money Laundering; ATF: Anti-Terrorism Financing Laws
2.0 Literature Review

The farfetched implications of the GFC gave birth to the first successful Bitcoin cryptocurrency in
January 2009 (e.g. Nakamoto, 2008). The sale of a good involving bitcoins occurred at the end of 2009,
where a customer swapped 10,000 BTC for an order of two pizzas from Papa Jones in the U.S.9. With
the establishment of a Japanese-based Bitcoin exchange Mt. Gox in July 2010, 20 bitcoins at a price of
$0.05 cents each changed hands on the first day of trading (Kristoufek, 2015; Phillips & Gorse, 2017).
A decade has passed since Bitcoin’s historic debut and during this time 2,440 cryptocurrencies10 have
sprouted; as of 11 August 2019, the combined market capitalization was $298 billion, 68.3% of which
is dominated by Bitcoin (i.e. $204 billion market value). In the face of its arduous journey to stardom,
Bitcoin has managed to become a household name (Wallace, 2011), but some traditional economists
still find it difficult to get a grasp on the Bitcoin phenomenon (Franco, 2014; Sovbetov, 2018).

Bitcoin as an unstable cryptocurrency has been criticized immensely for its extreme volatility (Hayes,
2017; Kasper, 2017; Kristoufek, 2015), and its status whether a currency or an asset has been a hotly
debated topic (see Baek & Elbeck, 2015; David, 2014; Blundell-Wignall, 2014). Despite its enormous
success, Bitcoin fell short of wishful folks’ expectations of replacing dollar as the world’s main reserve
currency (Cermak, 2017; Ciaian et al., 2016; Kelly, 2014; Kirshner, 2008). After the news or rumors
had leaked, Facebook formally announced its Libra project in June 2019, this was metaphorically
referred to as “big bang” that generated more hype than Bitcoin did a decade ago. Unlike Bitcoin, Libra
as a stable cryptocurrency promises not only to revolutionize the future of digital money but polarize
cryptocurrency enthusiasts and investors (Fung et al., 2014; Gandal & Halaburda, 2014). However,
Central banks and regulators warn that Libra may disrupt the existing ecosystem of cryptocurrencies
while paving the road for a maximum long-term gain (Ingves & Donaldson, 2018; Robleh et al., 2014).

Financial deregulation in the 1980s, capital market liberalization, internationalization of finance, and
fast-paced globalization in the 1990s had led to gradual integration of both developing countries and
emerging market economies into major financial markets and trade hubs. With the advent of internet,
the progress was on superhighway resulting in ever more digitization of money as well as increased
interconnectedness among internationally active banks. But the downside was, in the long-run this
progress has created an elongated addiction to the U.S. dollar and made the new peripheries become
prone to repeated financial crises11; nonetheless, a constant flow of capital (FDIs and FPIs)12 is viewed

9 Available online: http://www.bitcoin2040.com/bitcoin-price-history (accessed 10 July 2019).

10 https://coinmarketcap.com/currencies/bitcoin/historical-data/?start=20130428&end=20181113 (August 6, 2019).
11 This so called progress contributed to two high-magnitude financial crises in systemic nature. For longer discussion on

the homegrown Asian crisis, see Burnside et al (1998); Calvo (1998); Calvo & Reinhart (2002); Cheetham (1998); Fisher
(1998); Nanto (1998). For further reading on the GFC of 2008, see Disyatat (2008); Gorton (2008); Schwartz (2009).
12 FDIs: Foreign direct investments; FPIs: Foreign portfolio investments.
by these countries as an essential gateway to service their foreign debt plus sustain economic activity
to leap into a higher level of GDP growth to catch up to the Group-seven (G7) nations (Frankel & Rose,
1996; Calvo, 1998; Demirgüç-Kunt et al., 2017; McKinnon & Pill, 1998; Mendoza & Terrones, 2012).

As we have stated above positive and negative aspects of progress since the 1980s, similarly the Libra
Association has elaborated on this progress, “The spread of the internet and resulting digitization of
products and services have increased efficiency, lowered barriers to entry, and reduced costs across
most industries. This connectivity has driven economic empowerment by enabling more people to
access the financial ecosystem. Despite this progress, access to financial services is still limited for
those who need it most — impacted by cost, reliability, and the ability to seamlessly send money” (LA,
2019). Studies and figures from various reports show that online shopping has benefited wholesalers,
retailers, and consumers in terms of more efficient delivery time, reduced costs, and flexible payment
options (see Abernathy et al., 2000; Brynjolfsson & Hitt, 1998; Bensaou, 1997; Nemoto, 2014; Ward,
1999). Therefore, products and services offered on the internet through B2B, B2C, C2B, and C2C have
two basic appeals; increased sales and reduced costs (e.g. Zimmerman & Blythe, 2013).13

Source: Adapted from the Law Library of Congress; http://www.law.gov

Figure 2: Regulatory Framework and Legal Status of Cryptocurrencies

13 B2B: business-to-business; B2C: business-to-consumer; C2B: consumer-to-business; C2C: consumer-to-consumer.

As of 2018 (Figure 2), 24 nations have a ban on digital coins (15 implicit and 9 absolute), 34 countries
have passed anti-money laundering and anti-terrorism financing laws applicable to cryptocurrencies
(still a great number of countries have no regulation dealing with cryptocurrencies); additionally, at
least 8 member-states of the Eastern Caribbean Currency Union participate in the Eastern Caribbean
Central Bank (ECCB) pilot which will study and test the use of cryptocurrencies alongside national
currencies (LLC, 2018). Facebook’s (and Libra’s) mission is to tap on the potential approximately 1.7
billion unbanked adults worldwide as of 2017 (Demirgüç-Kunt et al., 2018). With a massive user base
of nearly 3 billion (i.e. Messenger, WhatsApp, Instagram, and Facebook), we believe Facebook’s claim
of empowering billions of people (public good) is a devious objective, the real tempting goal for the
Libra Association’s 28 founding for-profit heavyweight firms is the future prospects of huge revenue
if Libra overcomes the escalating regulatory hurdle and is used as a global digital currency for online
shopping, cross-border payments and money transfers. Since the arrival of Bitcoin, both regulators’
and lawmakers’ views on cryptocurrencies have changed barely despite a decade has passed.

A report by the Law Library of Congress (LLC, 2018) titled “Regulation of Cryptocurrency Around the
World” (Prepared by the Staff of Global Legal Research Directorate) provides insightful information
regarding regulation progress of cryptocurrencies worldwide. The recent survey’s coverage is more
comprehensive than one in 2014; nearly doubled from about 68 countries (2014) to 130 countries in
2018, but the subject matter has remained unchanged. With the fast growth of cryptocurrencies in a
decade, the survey has revealed that a wide spectrum of terms are used to describe digital coins based
on decentralized blockchain with cryptographic proof. The report has also drawn attention to the fact
that central banks in virtually all of the surveyed jurisdictions have issued warnings and explained
that individuals using cryptocurrencies where deemed illegal (or banned) may be subject to monetary
fines and prosecution if their acts are in violation of money laundering and counter-terrorist financing
laws (Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam have banned cryptocurrencies).

Despite negative sentiments towards cryptocurrencies (Bitcoin in particular) and perceived threats,
countries like Spain, Belarus, the Cayman Islands, and Luxemburg are cryptocurrency-friendly which
support the development of more enhanced future technologies; nonetheless, even in these countries,
cryptocurrencies are not recognized legal tender since they are not issued by central banks. A number
of countries (usually those that have been subject to repeated shocks resulting from the U.S. abuse of
sanction power and the use of dollar as a weapon of economic mass destruction) has issued or in the
process of issuing their own cryptocurrency systems (i.e. the Marshall Islands, Venezuela, the Eastern
Caribbean Central Bank - ECCB). On the other hand, some countries (Belgium, South Africa, and the
UK) due to their limited exposure to any adverse effects of digital coins have not considered issuing a
ban even though they had previously issued warnings about a potential harm. Since cryptocurrencies
are not accepted as legal tender, for taxation purposes many countries treat them as an asset; Israel,
Bulgaria, Switzerland (foreign currency), Argentina, Spain, Demark, and UK (see LLC, 2018).

Facebook aims to advance financial inclusion by making Libra coin as a simpler global digital currency
accessible by billions of people worldwide (LA, 2019). The Global Findex Database 2017 provides vast
data on how adults in 140 economies use financial services (open bank account, transfer money, and
pay bills). As illustrated in Figure 3, key results of the report show that financial inclusion in surveyed
countries are varied and disparate due to country-specific differences (Demirgüç-Kunt et al., 2017,
2018). Notwithstanding numerous adopted policies to advance financial inclusion, even to this date,
approximately 1.7 billion adults around the world have no access to financial intermediation; in other
words as of 2017, 31% of all adults are outside of the financial system (Demirgüç-Kunt et al., 2018).

Source: Source: Global Findex Database (2017).

Figure 3: Adults with an Account (%)

In terms of account ownership, the The Global Findex report points to a huge gap between advanced
econimies and developing countries; 94% compared to 63%. Similarly, a gender gap exists in account
ownership globally, 72% of male adults compared with 65% of female adults; the gap between male
adults and female adults is only 1% higher than the global figure, 67% and 59% respectively. This
proves that Facebook is going to cause a dislocatio in seven developing countries’ financial systems
and their volatile national currencies which is the home for nearly 50% of the 1.7 billion unbanked
adults (980 million are women, or 57%); China (13%), India (11%), Indonesia (6%), Pakistan (6%),
Nigeria (4%), Mexico (3%), and Bangladesh (3%). For longer and detailed discussion, see Demirgüç-
Kunt et al., 2017, 2018). According to the 2017 FDIC National Survey of Unbanked and Underbanked
Households, 6.5% of U.S. households were unbanked in 2017 which translates to 14.1 million adults
and 6.4 million children. As shown in Figure 4, the number of unbanked U.S. households has improved
over one full percentage point, from 7.6% in 2009 to 6.5% in 2017 (FDIC, 2018).

Source: Demirgüç-Kunt et al (2018); FDIC (2018)

Figure 4: Financial Inclusion Globally and in the U.S. (2017)

Interestingly, the 2017 FDIC National Survey of Unbanked and Underbanked Households shows that
52.7% of unbanked households in the U.S. cited “do not have enough money to keep in an account”
as a reason for not having a bank account (FDIC, 2018). Other reasons include; “don’t trust banks”
(30.2%), “avoiding banks give more privacy” (28.2%), “account fees too high” (24.7%), “account fees
unpredictable” (20.2%), “bank account problems” (14%), “other reason” (14.9%).
3.0 Discussion & Concluding Remarks

Facebook’s Libra is a new kid on the cryptocurrency block but not the same block-chain concept used
by Bitcoin. Under Bitcoin blockchain, every new bitcoin produced through mining starts with a block,
and then a ledger containing timestamped transactions in a chronological order is distributed to all
nodes (i.e. miners) who check and verify transactions before they are added to the end of each coin
in its block (see Berentsen & Schär, 2018; DeVries, 2016; Merkle, 1987; Wood, 2016). The mysterious
Bitcoin creator under the alias Satoshi Nakamoto (2008) had knowledge of earlier efforts to develop
digital money in the 1990s, during which two attempts at creating a decentralized digital currency
emerged; “b-money” by Wei Dai (1998) and “Bitgold” by blockchain pioneer and cryptographer Nick
Szabo who recently spoke at the Israel Bitcoin Summit14 at Tel Aviv University on 8 January 2019;

“The use of censorship-resistant cryptocurrencies will rise in countries sanctioned from trade and
economies suffering from failed monetary planning. Szabo also argued that the world’s central banks
might turn to cryptocurrency reserves in the future in order to supplement national gold reserves”.
He also asserted that “even central banks may attempt to hoard Bitcoin reserves over gold”. For a
longer discussion, see Andolfatto (2018); Chiu and Wong (2014); Duffie (2019); Fung et al (2014);
Kahn and Roberds (2009); Kocherlakota (1998). Satoshi Nakamoto appreciated the seminal works of
Adam Back's Hashcash (Back, 2002) and cryptographic proof (Chaum et al., 1998) where a timestamp
server timestamps a hash of a block of items and widely publishes the hash via distributed ledger
which proves that the data and the relevant transaction existed (Bayer et al., 1993; Haber & Stornetta,
1991, 1997; Massias et al., 1999). In this regard, Libra is far different from Bitcoin.

Facebook’s ambitous plan to roll out Libra in the second half of 2020 has not changed despite the ire
of central banks, regulators, and law makers (Bain & Weinstein, 2019). It is a marketing scam that
Libra’s blockchain is decentralized (maybe in the future but not by the launch date of 2020), as a start,
Libra will run on a decentralized but permissioned blockchain with a group of trusted parties, this is
a far cry from Bitcoin’s purely peer-to-peer permissionless blockchain without a trusted third party
(see Catalini & Gans,2016; Catalini et al., 2019). One similar feature between Bitcoin and Libra is, both
digital coins use cryptographic proof, but in functionality they again differ; Bitcoin blockchain uses an
electronic payment system without trust in the absence of a central authority, in this type of network
all nodes (miners) or any two parties (i.e. peer-to-peer) transact directly with each other without the
need of a trueted-third party (Nakamoto, 2008; Auer, 2019; Bayer et al., 1993; Badev & Chen, 2014;

14 Redman (2019), https://news.bitcoin.com/nick-szabo-central-banks-may-turn-to-cryptocurrency-reserves-over-gold/

(January 9, 2019), Economics (Accessed August 14, 2019).
Blundell-Wignall, 2014; Chaum et al., 1998). Conversely, Libra blockchain uses an electronic payment
system with trust relying on the governance of the Libra Association as a de facto central authority
comprising 28 founding-members that are for-profit heavyweight firms; when the member count
reaches 100, each governing firm including Facebook will have an equal voting right of one percent
(see Bentov et al., 2016; Gudgeon et al., 2019; Kate & Goldberg, 2009; Lamport et al., 1982).

Table 3: Top 10 Cryptocurrencies by Market Capitalization (August 6, 2019)

Rank Cryptocurrency Symbol Price ($) Market Cap ($) Market Share (%)
1 Bitcoin BTC 11,802.25 210,787,663,777 68.30
2 Ethereum ETH 233.56 25,037,379,095 8.07
3 XRP XRP 0.324940 13,931,047,244 4.49
4 Bitcoin Cash BCH 347.93 6,238,932,197 2.01
5 Litecoin LTC 98.06 6,175,663,429 1.99
6 Binance Coin BNB 27.91 4,341,501,330 1.40
7 EOS EOS 4.52 4,186,025,579 1.35
8 Tether USDT 1.01 4,075,942,095 1.31
9 Bitcoin SV BSV 154.38 2,756,391,635 0.89
10 Stellar XLM 0.082883 1,625,976,610 0.52
Total market cap & market share 279,156,522,991 90.36
Source: CoinMarketCap; https://coinmarketcap.com/
Notes: The market cap of 2,426 is $311 billion; $279.2 billion belongs to the top ten digital coins.

Bitcoin is a highly unstable cryptocurrency (i.e. Ethereum, Litecoin, XRP, Bitcoin Cash, and others),
but this has not stopped investors worldwide from pouring billions into cryptocurrencies (Table 3).
When the price of bitcoin passed $10,000, the frenzy turned into Bitcoin mania; and when bitcoin
price hit the unprecedented $20,000 mark (intraday high of $20,089 in December 2017), even
ordinary folks had become avid buyers. Each bitcoin is minted through a process called mining and
the maximum supply is capped at 21 million, currently 17,877,762 BTC are in circulation. The value
of Bitcoin comes from belief and trust since it is not backed by any asset with intrinsic value (see Baek
& Elbeck, 2015; Bartos, 2015; Chu et al., 2017; Kasper, 2017; Katsiampa, 2017). Libra with no preset
maximum supply promises to be highly stable, provided that if it overcomes the regulatory hurdle
and receives appropriate approvals; Libra will be backed by a basket of stable currencies (dollar, euro,
pound, and yen) and low-risk reserve assets (Adrian, 2019; Adrian & Mancini-Griffoli, 2019).

Bitcoin had a rollercoaster ride for several years (2012-19) due to extreme volatility and the resultant
repeated corrections (Table 4). After Bitcoin’s price plummeted 56% in 2018 (dropping from $7,361
on 5 September 2018 to $3,236 on 16 December 2018), the price has seen a huge rally ever since the
Libra news had leaked at the onset of 2019. Bitcoin’s price skyrocketed, moved from $3,443.90 on 30
January 2019 to $7,692.28 on 10 June 2019 (just one week prior to the Libra announcement), to this
point the price had already more than doubled. When Facebook formally announced its Libra project
on 18 June 2019, Bitcoin and virtually all cryptocurrencies had a widespread celebration; the price of
Bitcoin saw unprecedented gains, in little over two weeks, the price shot up to $13,017.12 on 27 June
2019 (a price increase of circa 70%). At the time of writing this paper, market volatility was pointing
to another price correction, Bitcoin has given back some of its recent gains (the price so far has decline
23%), currently trading at $10,114.81 on 15 August 2019. After cryptocurrencies’ cumulative market
cap peaked at $830 billion in December 2017 (Bitcoin’s market cap alone was over $300 billion), $700
billion (circa 80%) of that evaporated in a matter of few months; as of 15 August 2019, the combined
market cap of 2,449 cryptocurrencies is $265 billion (Bitcoin’s market cap is $181.5 billion).

Table 4: Historical Corrections of Bitcoin (BTCUSD)

Correction Correction # Days in Bitcoin high Bitcoin Decline Decline

start date end date correction price $ low price $ % $
12 Jan 2012 27 Jan 2012 16 7.38 3.80 -49% 3.58
17 Aug 2012 19 Aug 2012 3 16.41 7.10 -57% 9.31
6 Mar 2013 7 Mar 2013 2 49.17 33.00 -33% 16.17
21 Mar 2013 23 Mar 2013 3 76.91 50.09 -35% 26.82
10 Apr 2013 12 Apr 2013 3 259.34 45.00 -83% 214.34
19 Nov 2013 19 Nov 2013 1 755.00 378.00 -50% 377.00
30 Nov 2013 14 Jan 2015 411 1,163.00 152.40 -87% 1,010.60
10 Mar 2017 25 Mar 2017 16 1,350.00 891.33 -34% 458.67
25 May 2017 27 May 2017 3 2,760.10 1,850.00 -33% 910.10
12 Jun 2017 16 Jul 2017 35 2,980.00 1,830.00 -39% 1,150.00
2 Sep 2017 15 Sep 2017 14 4,979.90 2,972.01 -40% 2,007.89
8 Nov 2017 12 Nov 2017 5 7,888.00 5,555.55 -30% 2,332.45
17 Dec 2017 2 Feb 2018 48 19,666.00 8,094.80 -59% 11,571.20
5 Sep 2018 16 Dec 2018 100 7,361.46 3,236.27 -56% 4,125.19
Source of data: https://www.ccn.com/bitcoin-crash-the-history-of-bubble-bursts

On technical grounds, Bitcoin and Libra are distinctly different. For Bitcoin, the proof-of-work is based
on cryptography where nodes (miners) solve the double-spending problem, and a timestamp server
timestamps a hash of a block of items (i.e. solutions to the puzzle and transactions) and publishes the
hash to all nodes in the network via the distributed ledger which proves that the data and the relevant
transaction existed (see Bayer et al., 1993; Haber & Stornetta, 1991, 1997; Massias et al., 1999). Libra,
on the other hand, uses a new programming language specifically developed for Libra (Blackshear et
al., 2019) called “Move” to execute transactions that are made visible to validators and clients by the
Logical Data Model based on Merkle trees (Merkle, 1980; 1987). For safety and liveness, Libra uses
HotStuff as the basis for Libra’s Byzantine Fault Tolerant – LibraBFT (LA, 2019; Bernstein et al., 1987;
Castro & Liskov, 1999; Pfitzmann & Köhntopp, 2001; Reed, 1978; Wood, 2016; Yin et al., 2018).
The advent of internet has revolutionized commerce (B2B, B2C, C2B, and C2C) and relevant electronic
payment systems in the absence of trusted-third parties allowing individuals, companies, and even
sovereign states execute transaction online. An exponential growth in online sales continues has been
a major force in the evolution and transformation of fiat money into digital coins. Cryptocurrencies
have been considered seriously as an alternative currency (or a speculative investment vehicle) for
cryptocurrency enthusiasts and investors to shield against potential banking blockades and financial
crises. Since the far-fetched implications of GFC which jolted societies from their roots, dislocated
banking systems worldwide, displaced millions of people, and as a consequence, forced between circa
1.0% of the world population to slip into poverty; the refuge to censorship-resistant cryptocurrencies
will rise in the upcoming years in countries like China, Russia, Turkey, Venezuela, Iran, North Korea,
India, and a long list of other developing countries that have been subject to the U.S. abuse of sanction
power and its repeated use of its currency dollar as a weapon of mass economic destruction.

Central banks, regulators, and law makers may find it difficult to get a grasp on the cryptocurrency
phenomenon, but this is a natural and inevitable phase in the evolution of money whether they like it
or not. As with any new paradigm-shifting technology (i.e. blockchain), it is also a fact that Libra will
cause a serious disruption in the short-term to the existing ecosystem of more than 2,400 digital coins
that has taken a decade to form; however in the long-run, Libra as a stable global crypto-currency
promises to revolutionize electronic payment systems and money transfers by enhancing financial
inclusion and global stability as a public good. In this rather challenging task, Libra’s vast scale (a user
base of close to three billion) sets it apart from even the most dominant Bitcoin that enjoys 68% of
the market share (i.e. its closest competitor Ethereum has a mere market share of 8%).

Since the GFC of 2008, China and Russia along with Turkey have been calling for a new international
reserve currency other than the US dollar (Calomiris, 1999). Because gold correlates negatively with
dollar and is regarded as safe haven against the dollar shock, these three countries have accumulated
so much more gold than usual in the aftermath of GFC of 2008 (see Bordo & Rockoff, 1996; Cohen,
2010). Based on 2017 gold mine production, China alone makes up little over 13% of the world’s total
gold production, especially when combined with Russia’s 271 tons, two countries produce enough
gold (21.47%) to buy lots of U.S. assets (see Table 5). Amid gold’s intrinsic value and its attractivness
as central bank reserves, it poses risks in the event of an invasion during a war; as a result, a growing
number of central banks attempts to hoard cryptocurrency (Bitcoin in particular) reserves over gold.
Economists along with experts and advocates of cryptocurrencies assert that national gold reserves
in the near future will be supplemented by cryptocurrencis even if central banks, regulators, and law
makers run headlong into backlash to Libra in order to punish Facebook to protect consumers.
 Table 5: World Gold Mine Production Survey 2018
Gold Mine Gold Mine Total Gold as a
Gold Reserves
Production Production Reserves share of
(tons)
2016 (tons) 2017 (tons) (US$ bn) Reserves %
United States 222.0 230.0 8,134 452.8 75.2
Germany ----- ----- 3,374 200.6 70.4
IMF ----- ----- 2,814 ----- -----
Italy ----- ----- 2,452 151.6 67.7
France ----- ----- 2,436 156.8 65.1
Russian Federation 253.6 270.7 1,910 433.1 17.8
China Mainland 453.5 426.1 1,843 3,236.0 2.4
Switzerland ----- ----- 1,040 811.2 5.4
Japan 6.5 6.1 765 1,264.3 2.5
Turkey 26.0 26.1 565 107.8 21.9
Source: GFMS, Thomson Reuters

Table 6: Gold Holdings & Foreign Reserves (2011 and 2018)

GDP Gold Reserves Total Reserves Gold Share of
Country (USD billion) (metric tons) (USD billion) Reserves %
2011 2018 2011 2018 2011 2018 2011 2018
United States 14,527 20,494 8,134 8,134 530 453 74.2 75.2
Germany 3,286 4,000 3,401 3,374 231 201 71.4 70.4
IMF ----- ----- ----- 2,814 ----- ----- ----- -----
Italy 2,055 2,072 2,452 2,452 167 152 71.2 67.7
France 2,563 2,774 2,436 2,436 178 157 66.2 65.1
China Mainland 5,878 14,500 1,054 1,843 3,271 3,236 1.6 2.4
Russian Federation 1,480 1,578 837 1,839 525 433 7.7 17.8
Switzerland 528 679 1,040 1,040 290 811 17.3 5.4
Japan 5,459 4,972 765 765 1,138 1,264 3.3 2.5
Turkey 735 714 116 565 99 108 5.7 21.9
Source: 2018 data from GFMS, Thomson Reuters; IMF
2011 data from Astrow (2012) - Chatham House Gold Taskforce

Facebook should not even consider halting Libra’s development or postpone its planned launch date
of 2020. To launch Libra coin, Facebook should not attempt to satisfy all of the concerns or demands
brought by central banks, regulators, law makers, and tax authorities worldwide because this is both
impractible and implausible task to accomplish. A decade has passed since Bitcoin’s debut in January
2009, and still many countries worldwide do not have any regulation dealing with cryptocurrencies.
Facebook’s already troubled past regarding privacy and exploitation of users’ data has intensified the
level of opposition among authorities and skepticism among industry participants. In response to a
host of privacy concerns, Facebook assures the branches of government that Libra will be governed
by the non-profit Libra Association as a central authority (not controlled by Facebook) and operated
by Facebook’s subsidiary Calibra (digital wallet); furthermore, Libra will be available as a standalone
application and Facebook’s outlets but the sensitive financial data plus the Libra account holders’ any
part of financial history will not be shared with Facebook unless authorized by account owners.
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