Thoughts on Libra: An Oligarchy Project for Privatised Money

On June 18th Facebook announced its ambitious project to construct a ‘global currency and financial infrastructure that empowers billions of people’, a currency which utilises blockchain technology and aims to foster financial inclusion for those with limited or no access to banks.[1] Understandably, the notion of a global payments system run by the world’s most comprehensive surveillance merchants has been met with criticism that focuses on the implications for people’s rights to privacy.[2] While these are valid concerns, for anyone familiar with blockchain technology the idea that anyone would use it to extend their surveillance capabilities is puzzling to say the least. Put briefly, blockchain technology is immensely wasteful, inefficient, and unreliable and these flaws are acceptable only to those who value its privacy-enhancing capacities so much that this becomes a worthy tradeoff. So why is Facebook using blockchain technology?

Enhancing privacy was a principal aim driving the initial development of blockchain technology, in its first manifestation as the cryptocurrency Bitcoin. The purpose of Bitcoin was to provide a ‘new electronic cash system’ that was ‘completely decentralized with no server or central authority’.[3] Such central authorities could and should not be trusted to manage the data of people making transactions online. This posed a particular design problem: if no central authority would record and validate transactions, who would? The answer lay in Bitcoin’s breakthrough innovation, the blockchain. Rather than data being sent to one server where it could be processed by one authority, it would be encrypted and broadcast to the entire network, after which a multitude of independent actors would compete with one another to become the first to process that ‘block’ of data and embed it in the immutable ‘chain’ of all events to have taken place on the network so far. For doing so, the successful block validator receives a reward in units of the currency, released by the core algorithm. This process is tremendously wasteful and intentionally so, as it generates intense competition among users – known as ‘miners’ – across the world to successfully complete a task that can only be achieved via ‘brute computational force’. To put it simply, whoever generates the most energy is the most likely to win the Bitcoins.

The annual energy demand of the Bitcoin network has been increasing exponentially and this year eclipsed that of Switzerland.[4] As one commentator puts it, Bitcoin is a network ‘secured by waste’.[5] Moreover, in the decade since Bitcoin’s emergence not one blockchain-based technology has proven more secure, reliable or efficient than other means of making electronic transactions. Why does anyone use it at all? Well, mostly because its circumvention of ‘central authorities’ makes it particularly good for buying drugs and other illegal commodities.[6] Practically no one uses it to buy anything else, with only 1.3% of transactions on the network involving recognised merchants.[7] Most Bitcoin users simply hoard their electronic coins, awaiting a big pay out when they can sell them for real money. This is what accounts for Bitcoin’s wild volatility, as users flock between Bitcoin and real currencies, both chasing and causing spikes and crashes in its market price. Putting this irrational tail-chasing aside, the remaining functionality offered by blockchain technology is its capacity to serve as a network for transactions without central authorities, at the cost of massively reduced efficiency, security, and sustainability. If what Facebook wanted was to extend their surveillance capacities via a payments network, there are far better ways of doing so. Indeed, neither WeChat nor Apple Pay uses blockchain. So why is Facebook planning to?

Libra’s official justification for using blockchain technology is to build a global financial infrastructure that is built and initially run by an oligarchy of transnational corporations that meet the following criteria: (1) more than $1billion in market value or greater than $500million in customer balances; (2) reach greater than 20 million people a year multi-nationally; and (3) have a brand recognised as a top-100 industry leader by a third-party sector-specific association or media company, like the FTSE Eurotop 300.[8] While four non-profits also serve as founding members, the majority – 24 – are corporations assessed on these criteria, including Uber, Paypal, and Visa, alongside Facebook and others. These corporations will each independently run validator nodes that process data on the network, like the aggressively competing ‘miners’ do in the Bitcoin network. Libra is thus largely a collaborative effort to establish a currency run by an oligarchy of transnational corporations, with no direct involvement by central banks or governments. You may be thinking, correctly, that this is a huge blow for economic democracy. But don’t worry, this has been accounted for. ‘As the network grows and becomes more self-sustaining’, Libra states, ‘the Libra Association will work to gradually transition to a permissionless mode of operation’. In blockchain terminology, this means the oligarchy that currently have permission to operate the network will gradually yield that power to anyone with the means and wherewithal to operate a validating node themselves. Even if we accept this voluntary withering away of oligarchic power at face value, what we will be left with is a privatised currency that responds to the interests of its operators, who are effectively private shareholders, rather than the interests of a population represented by public institutions. This is not a new idea.

In 1976 Friedrich von Hayek wrote The Denationalisation of Money, in which he envisioned a private currency with a fixed monetary supply as the central technique of a political strategy to transform the capacities and responsibilities of governments around the world. As he had argued emphatically in The Road to Serfdom (1944), in taking on the management of economies all world governments were preparing the way for totalitarianism. The only way centrally planned market sectors could function, he posited, would be to increasingly deprive people of choice. As more and more aspects of peoples’ lives were dependent on the economic activities of others, this removal of choice would inevitably penetrate every sphere of action. It was therefore possible for Hayek to state, in concluding The Denationalisation of Money, that the development of competing denationalised currencies represents ‘the one way in which we may still hope to stop the continuous progress of all governments towards totalitarianism’.[9]

Hayek was explicit in his intentions. Arguing that his fellow neoliberal Milton Friedman was not radical enough in their pursuit to limit the capacities of nation states to the role of protecting and promoting free markets, Hayek wrote ‘the present political necessity ought to be no concern of the economic scientist. His task ought to be, as I will not cease repeating, to make politically possible what today may be politically impossible.’[10] Vehemently opposed to any state action in areas of social provision, or in ameliorating the negative externalities of capitalism, Hayek argued for the ‘liberation’ of money from the inevitably totalitarian institutions of the nation state. All forms of governance must transition from such central planners, to decentralised actors in the market. Writing in an era in which state-led strategies of Keynesian policies were successfully delivering low unemployment, low inflation, and rapidly growing living standards in most Western countries, Hayek’s proposals were indeed politically impossible to implement. Today however, after almost 40 years of neoliberalisation conditions are far more favourable. Indeed, as Libra states in its white paper, ‘we believe that people will increasingly trust decentralized forms of governance’. This does not mean governance by local assemblies; it means a transition from public to private power. With other ‘big tech’ firms such as Amazon and Google also rumoured to be looking into launching global digital currencies,[11] we must consider the consequences of these projects within the broader socioeconomic context of unrelenting neoliberalisation. Alongside issues of privacy, we must also be questioning the impact of these projects on social power. However imperfect our public institutions, they are necessary mechanisms for democracies that must be reformed to uphold the public interests, rather than circumvented to further liberate the power of capital.


[1] https://libra.org/en-US/white-paper/#introduction

[2] https://www.theguardian.com/commentisfree/2019/jun/23/libra-digital-currency-wont-set-us-free-it-will-further-enslave-us-to-facebook

[3] https://bitcoin.org/bitcoin.pdf

[4] https://digiconomist.net/bitcoin-energy-consumption

[5] Gerard, D. (2017) Attack of the 50 Foot Blockchain

[6] ‘Around $72 billion of illegal activity per year involves bitcoin, which is close to the scale of the US and European markets for illegal drugs.’ Foley et al, (2019) Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies?. The Review of Financial Studies32(5), pp.1798-1853.

[7] https://www.bloomberg.com/news/articles/2019-05-31/bitcoin-s-rally-masks-uncomfortable-fact-almost-nobody-uses-it

[8] https://libra.org/en-US/becoming-founding-member/#member_evaluation_criteria

[9] Hayek, F. (1976) The Denationalisation of Money (p134)

[10] Hayek, F. (1976) The Denationalisation of Money (p84)

[11] https://bigthink.com/technology-innovation/google-amazon-others-entering-blockchain?rebelltitem=4#rebelltitem4

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s