I must admit that I laughed, and then frowned, when I heard that Facebook is planning to offer, operate, and support a cryptocurrency named Libra. I laughed because it seems like Facebook is a couple of years behind the times. Then I frowned, because we’re talking wealth transfer and we’re talking Facebook, which, given Facebook’s record so far, makes me fairly uncomfortable. And then I thought about recent reports on the energy costs, and therefore climatic impact, of current cryptocurrency such as bitcoin, and began to wonder.
The Verge has some information on the latter point:
Libra, Facebook’s new cryptocurrency, is expected to have a smaller environmental footprint compared to some of its more notorious blockchain brethren, including bitcoin, according to experts. Its energy demands are projected to be more like those of existing data centers — which, while still demanding, aren’t quite as energy-hungry as mining bitcoins.
The currency hasn’t launched yet, so it’s hard to know how those claims will stack up against reality. But its design — more centralized than most cryptocurrencies — means that Libra will likely draw less energy. Unlike its more decentralized peers, only a few trusted members of the Libra Association, the centralized hub for the currency, can create Libra.
“This is an order of magnitude more efficient than bitcoin will ever be,” says Ulrich Gallersdörfer, a researcher at Technical University of Munich focused on blockchain research. Gallersdörfer was the co-author on a recent paper in Joulefinding that bitcoin operations emit more climate-warming gas than the country of Jordan. …
… Libra is designed so that an algorithm issues units of the cryptocurrency in proportion to the size of a company’s initial deposit into the system. That’s still a lot to keep track of, but it’s nowhere near as complicated as a mining operation. Instead, it’s more like… normal data centers. Now, data centers draw power, too. In fact, data centers accounted for 2 percent of the total US energy usage in 2014, a 2016 study published by the DOE found. And they’re also responsible for about as many carbon dioxide emissions as the airline industry. But despite those drawbacks, these specially designed warehouses of servers are the rocks on which tech giants like Facebook continue to build and expand their digital empire.
I’m not particularly reassured just because they won’t be emitting as much as bitcoin does. I’m also not convinced that this extra consumption of energy, and its impact on the climate, is in service of some social good; it strikes me more as just another attempt to Make More Money.
Nicholas Weaver on Lawfare is also uneasy. Well, more than uneasy:
[Libra] is not live yet, giving governments the opportunity to kill this project before it actually gets off the ground and gives rise to cybercriminals that couldn’t capitalize on existing cryptocurrencies. In particular, the IRS and FinCEN should take action now. …
What currently limits how criminals can use cryptocurrencies is the cost of currency exchange and the inherent volatility of the currency’s value. Reduce or eliminate these constraints, and there’s likely to be an inundation of new ransomware, extortion and online drug trade. Libra intends to reduce (but doesn’t eliminate) volatility, and the only way Facebook can get widespread adoption is through making easy onramps and offramps. A Libra “success” would represent a huge policy failure. It is better to kill this now than let it even get a chance to succeed.
Much like Al Capone, this may founder on the rocks of the tax agents:
A true cryptocurrency such as Bitcoin or Libra is considered property by the Internal Revenue Service. That means a gain of $1 due to volatility between when the cryptocurrency is acquired and when it is transferred to someone else is a $1 taxable event. And since any integration into Facebook Messenger or WhatsApp is under the control of Facebook, Facebook should probably file income tax documents and keep track of the otherwise difficult cost-basis math on behalf of Facebook’s customers, like other investment brokerages do. The IRS needs to remind both Facebook and the public of these implications and requirements. Of course this would make Libra completely useless in the U.S. by increasing the cost of using it beyond any utility.
A similar problem exists for all validator nodes. Even non-U.S. companies need to respect U.S. KYC/AML restrictions if transactions end up involving U.S. persons. The founders of Liberty Reserve learned this lesson when they pleaded guilty to money laundering and received 20-year sentences. But how can firms do KYC/AML on pseudonymous transactions?
I’ve already decided not to participate, given Facebook’s spotty record. But I may not have to implement it. This project may go nowhere once the dust settles.
