Review of Libra Shrugged

Andrew M. Bailey

If Bitcoin is the Catholic Church (with Michael Saylor as a newly-installed priest), and if Ethereum is the Church of England, then Facebook’s Libra cryptocurrency is the Church of Scientology. And David Gerard is Christopher Hitchens, crying a skeptical pox on all their houses.

David Gerard's Attack of the 50 Foot Blockchain is one of the best cases against Bitcoin (and cryptocurrency, and smart contracts, and "blockchain technology"). Three years later, he's back for more. This time, his target is Facebook and their proposed Libra.

You can guess the basic story of Libra Shrugged from its subtitle: “How Facebook Tried to Take Over the Money”. Facebook tried, but failed, at extending its power over something rather important -- money itself. And though Libra's story isn't yet over, it appears that Gerard's favored outcome currently has the edge. There's just no obvious path forward for Libra.

Why did it die, though, and what's wrong with the Libra plans in the first place? Gerard has a lot to say on these questions, but I'll identify just five points that I found particularly insightful.

First, Libra was born in sin -- libertarian sin, to be precise. What its creators wanted to do was design a global currency that couldn't be stopped by government regulators. Gerard is clearly no libertarian and finds this prospect alarming. He often -- and correctly -- cites money-laundering as an obvious consequence of a genuinely decentralized and unstoppable payment system. What Facebook wanted to do was integrate Bitcoin into their platform. Magical internet money for the masses, and loads of data about how it’s used for Facebook -- win-win! But Bitcoin can’t handle micropayments for two billion users. So they did what everyone else was doing (in 2017, at any rate): they prepared to launch their own token. That’s a lot of work just to circumvent perfectly reasonable regulations against money laundering and criminal enterprise.

Second, Libra involved wild systemic risks. Libras would be backed by state-issued currency or cash-like instruments. But there's no way to do this at scale -- two billion users, remember -- without turning Facebook into a bank. Who manages the trillion dollar pool to maintain the 1:1 peg of Libras to dollars or whatnot? Vague documentation on this point does not inspire confidence. And the instruments that would show up in that pool might be of just the sort that led to the 2008 financial crisis. What's worse, the developers in charge didn't seem to understand any of this. No wonder regulators panicked when they learned what was afoot.

Third, the use of a blockchain -- this is what could make Libra a “cryptocurrency” and not just another PayPal -- is either wicked or spurious. If the Libra network is genuinely decentralized and unstoppable, then it could conceivably need a blockchain. But in that case, see point one -- and it's unclear whether blockchains could scale anyways. And if the network didn't even aim at being unstoppable, then a simple database would do just fine -- no need for a fancy append-only ledger. In any case, Libra is either Bitcoin all over again or mere blockchain theater.

Fourth, Gerard identifies and critiques a theme that runs throughout much of the public-facing Libra communication: banking the unbanked. It sounds good, doesn't it? Bank accounts are great. Some people can't get them. Let's fix it! The issue here isn't that the unbanked don't face problems, Gerard argues. They clearly do. But the Facebook approach isn't well-suited to solve them. For one, the unbanked in the USA face very different problems than do the unbanked elsewhere. And these aren't problems you can discern by looking out the window of a Menlo Park office. The unbanked tend not to trust banks, as it turns out. And they don't trust Facebook either. So the most interesting and beneficent-sounding pitch in the entire Libra deck turns out to misfire.

Finally, there's the question of motivation -- and thus, profit. What is Facebook getting out of all of this? At one point, they suggested they might burn their own money if that’s what it took to maintain a Libra peg. Why? Gerard cites Facebook's various promises to not use any resulting financial data in ad targeting. Or for any other nefarious purposes. And these assurances can totally be trusted! Hogwash, Gerard argues. Of course Facebook plans to deploy user data in all sorts of ways. Of course it plans to track what you buy and when and from whom. We no longer have to guess; we know that in the Facebook business model, you are the product. What users might get is a little convenience; what they’d lose is any last vestige of privacy.

The good news is that Libra doesn't yet exist, and may never exist. Beyond an entertaining jaunt through recent history -- Gerard is a terrific prose stylist, and the book is compact and readable -- is there anything we can learn from it all?

Gerard, as I mentioned above, is no libertarian. It is worrisome to him that a large private firm should take over money. The whole thing stinks of mismanagement, abuse, and systemic disaster. I share the worry. But I wonder: what is special about one large firm taking over money? What if it were three such firms? Or five? Should we be equally worried if it turned out that just four or five banks dictated the course of an entire monetary system and shaped the experience of all who interacted with the currency in which it was denominated? What if it were one country or a small group of countries? Do the opportunities for mismanagement, abuse, or systemic disaster go away just because elections determine who's in charge?

Here is a hypothesis for consideration: the problem isn’t that Facebook is a profit-seeking corporation. Nor is the problem, contra the libertarians, with governments as such. It lies, instead, with concentrated and mediating monetary authorities of any kind at all. If this hypothesis is correct, the very same skepticism Gerard directs at Facebook should also be aimed at central banks -- and a host of other institutions that would stand between people and their money. Perhaps Satoshi was onto something when, twelve years ago, he identified trust as a problem to be solved; and perhaps Satoshi’s argument is less connected to libertarian ideology than widely believed.

Is that right, though? Is there a coherent critique of both government and corporation-run monetary systems?

These are big questions. They take us far afield from the immediate topics of Gerard's little book and into political theory. But they strike me as natural and necessary. We’ll not get clear about Libra -- or Bitcoin, or cryptocurrency, or the USD for that matter, without addressing them head-on.