Bitcoin vs Facebook: Guess which is the Good Guy?
In case you hadn't noticed, there's been a lot of fresh attention from central banks and politicians on the crypto space over the past couple of weeks.
For Example, Trump tweeted....
He might not like cryptocurrencies but the fact that the president of the United States is putting them in the spotlight raises awareness in an "all publicity is good publicity" kind of way. Here's what the CEO of Coinbase had to say in response.
The Main Event
Trump was just a sideshow however as the main event was a lengthy Senate hearing on Facebook's planned coin known as Libra (as mentioned in Trump's tweet). The Financial Services Committee have now grilled the head of the project due to serious concerns over what will be a competitor to the US Dollar.
I wrote a post about Libra when it was announced. But a couple of key points....
Libra will be a "stable coin" in that its value will backed by a basket of currencies and bonds. Its value will be tied to the value of those securities. This is different to Bitcoin, who's value moves freely on supply & demand economics and who's value is based on scarcity.
Libra will therefore have a "central reserve" handling these currencies / bonds. You could argue that this might look at a little like a central bank.
Congress (like Trump) clearly don't like the idea of Facebook creating their own coin and having a "central bank" overseeing it. The fact that they have 2.6 billion active users gives a frightening scale. The result, in a nutshell, is they won't be making the idea easy for them to execute. Facebook will need a LOT of regulatory approvals in place before they launch, which will likely take years. You can watch the full hearing here.
However, the most interesting takeaway from the whole event was that Congress are surprisingly receptive to Bitcoin. They had a very good understanding of its mechanics and value proposition, to the point where they could well have been holders of the asset. Views were obviously mixed but here's a snippet from the opening remarks...
"The world that Satoshi Nakamoto..envisioned, and others are building, is an unstoppable force. We should not attempt to deter this innovation, and governments cannot stop this innovation, and those that have tried already failed."
Bitcoin is the Good Guy. Libra is the Bad Guy.
Think about it this way. Facebook want their own currency. Of course they do. I'm pretty sure that Google and Apple want their own currency too. Maybe they could join forces, maybe not. Facebook is testing the waters however, and its turns out the waters are pretty rough.
Politicians pick their battles. Facebook is an easy target. Dragging a billionaire through the courts can only be good for votes and campaigns, especially one attached to a long list of scandals over consumer privacy. The reality is that governments don't want to give any more power to big tech. They have enough power already. Chances are that when / if Google or Apple announce plans for their coins, the reception will be the same.
Congress could try the same with Bitcoin. The problem is, as they have noted, there's nobody to bring into court. Who you gonna call? It's basically a giant elephant in the room that nobody can get out. As such it's been accepted.
A Few Other Recent Mentions
Jay Powell (chair of the Federal Reserve), called Bitcoin a "speculative store of value" whilst having "serious concerns" over Libra.
Mark Carney (governor of the Bank of England) says he's "open minded" about Libra but will be scrutinizing Facebook's plans very closely and regulating at a high level.
G20 leaders stated their position that cryptocurrencies "do not constitute a threat to monetary stability" and that "technological innovation can deliver significant benefit to the economy".
The Unlikely Hero
So in an unexpected turn of events, it turns out that Bitcoin is coming through as the unlikely hero. Economic leaders of the world might not like it but they accept it and are receptive to the innovation that it brings.
Bitcoin has the magic ingredient that Facebook's Libra and other coins lack. The can of spinach that gives it power like Popeye. That Spinach is total decentralization, i.e. there's no central authority.Trying to regulate it away wouldn't work. The network would continue to exist, miners will continue to mine, users will continue to transact and a new block will be added to the blockchain every 10 minutes, just like it always has.
Due to its decentralized nature, Bitcoin is not subject to being stopped.
You can't put the Bitcoin genie back in the bottle. For Facebook however, the Libra genie is not yet out of the bottle and it's not going to be an easy task to release it.