©^FA
CEBOOKTHE LIBRA
ASSOCIATION
Facebook will not run Libra directly, but through its
subsidiary Calibra, it will be a partner in the body that does:
the Libra Association. This is a non-profit, independent
organization dedicated to running, controlling, and promoting
Libra, as well as managing the reserve fund. Facebook hasn’t
gone alone for a number of reasons, trust being one of them.
As the project leader David Marcus admitted, “If we were
controlling it, very few people would want to jump on and
make it theirs.” The association has 28 founding members,
and among them are such big names as PayPal, MasterCard,
Visa, eBay, Uber, and Spotify. There are also some names
you won’t know, unless you are familiar with blockchain
development and venture capital. This is just the initial
lineup—it is expected to grow to over a hundred members
by the time Libra goes live.
Each founding member paid in at least $10 million to get a
seat at the table. Decisions on the running of Libra are made
by voting, with no single member getting more than one vote
or 1 percent of the total votes (whichever is the greater). The
idea is that Libra cannot be dominated by a few of the larger
members (in theory, anyway). Each founding member is
responsible for running a validator node, which maintains the
integrity of the blockchain. Members will also earn interest
on cash held in the system—Libra coins, or tokens, created,
but as yet unspent—which could become a useful amount if
the system grows as hoped. It is also used to pay for running
the blockchain: server time costs.
The Libra Association is based in Switzerland. Why?
Because Switzerland is a major hub for international money
transfers, and Swiss banking laws are unlike any other,
and notorious for their secrecy. Swiss banks were also
notorious for money laundering, particularly after World
War II. Thankfully, the country has cleaned up considerably
since, but is still seen as one of the safest places in the world
to store money. It is estimated that a quarter of all global
cross-border assets are held there. Libra is expected to be
regulated by the Swiss financial regulator, although it is still
in preliminary talks, and has yet to reply to the Swiss privacy
regulator when asked to provide details on its operations.and rather vague ones so
far. Although regulated by
the Swiss government, it
says it will comply with all
US tax, money-laundering,
and fraud regulations. These
include registering with
FinCEN (Financial Crimes
Enforcement Network),
which aims to stop terrorist
funding and money laundering
by analyzing data collected
during financial transactions.
It will also comply with the
international anti-money-
laundering regulations (AML).
These include confirming
people’s real identities,
and sending the identity of
wallet-holders to the relevant
government agencies.
Facebook has also applied
for an export license, and
jumped through a number of
other legal hoops. This hasn’t
stopped calls for the project to
be stopped until every concern
has been addressed, though.FACEBOOK CL AIMS that
outdated financial regulations
have restricted commerce—
for example, the banning
of the majority of banks to
trade in cryptocurrencies.
It says that Libra offers real
innovation, freeing capital
quickly and easily anywhere
it is needed, rather than being
stuck in the banking system,
which can take days to make
a simple transfer. Exactly how
Libra will be regulated has
yet to be resolved. Whether or
not it is treated as a bank or
as an exchange-traded fund
will make a big difference.
Facebook says Libra willcomplement existing financial
systems, and it isn’t a bank,
because it does not interact
directly with its users. A moot
point, which will probably
require lawyers to unravel.
We can expect some
more toing and froing, but
it will take more than a few
Representatives publishing
open letters calling for
Facebook to halt the project to
stop this train. However, this is
the biggest ever company to
get involved in cryptocurrency,
and on such a large scale. We
can expect an unprecedented
level of scrutiny before launch,
which will have ramifications
right across the world, and on
any future such project.
Cryptocurrencies are often
subject to scams and hacks,
which have cost coin
exchanges millions. Libra
will not be immune; it uses
open-source software and
allows for third-party wallet
applications, which can
cause problems. Already,
there are reports of dozens of
fraudulent pages on Facebook
and Instagram offering to
sell Libra, often at a tempting
discount. Facebook is taking
them down, but it is a game it
cannot ever really win.
It’s difficult not to see the
irony here—Libra involves
real money, where trust is
paramount, and the world
of Facebook is awash with
fakers of various hues. The
very platform that Facebook
uses to promote Libra is not
trustworthy itself. About
5 percent of all active Facebook
accounts are fake. Earlier thisThe Libra wallet app, Calibra, in action. You can send money as
easily as a tex t (almost, any way).Facebook’s new money
48 MAXIMUMPC OCT 2019 maximumpc.com