Ethereum founder warns Facebook's libra will undo blockchain gains - TechCentral

Ethereum founder warns Facebook’s libra will undo blockchain gains

Facebook’s foray into digital currencies risks reversing gains in privacy and user sovereignty won by computer networking pioneers, according to one of the co-founders of ethereum, the blockchain of choice for most business and finance projects.

Facebook has received pushback from politicians including US President Donald Trump and regulators since announcing its plans to develop libra, a digital asset backed by cash and short-term securities, that could be sent between the company’s more than two billion customers with the help of blockchain. David Marcus, the Facebook executive leading libra, will appear next week before the US congress. The company has already drawn lawmakers’ ire for a series of stumbles including major data breaches and allowing Russians to hijack its platform during the 2016 election to push Trump’s candidacy.

Now the criticism is coming from a leader in the computer science world that’s fiercely protective of the structural independence created by bitcoin in 2009 and ethereum in 2015. A key aspect of distributed computing systems that make up a blockchain is the inability of any one party to censor transactions or control who can and can’t be a part of the network. No person or corporation owns the underlying systems, similar to how the Internet is free for anyone to use. Facebook threatens these blockchain tenets with libra, said Mihai Alisie, a co-founder of Ethereum.

“This has implications on so many areas, from the economic to the political to the technological to surveillance and data privacy,” he said in an interview. Facebook has prioritised growth over user privacy, as was seen in the Russian election meddling, he said. “It’s a very well-oiled machine of surveillance,” Alisie said. “It is actively manipulating the behavior of people on a global scale.”

Alisie, 32, is among a group of programmers, entrepreneurs and designers who created ethereum in 2014 and 2015. Invented by Vitalik Buterin, ethereum — or variants of it — has become the blockchain used by companies ranging from JPMorgan Chase & Co to Toyota as they seek to streamline day-to-day operations.

Alisie recruited Buterin to help him create Bitcoin Magazine after reading the teenage programmer’s writing in an online publication. A native of Romania, Alisie struck up a friendship with Buterin and travelled with him through Spain in 2013 as Buterin was formulating his idea for ethereum. Alisie has more recently founded the Akasha Project, an ethereum-powered social-network based in Zug, Switzerland.

Risk

So far, Facebook has partnered with Visa, Mastercard and PayPal along with more than 20 other companies. Marcus said by the time libra is available 100 companies will be in its network. The risk Alisie sees here is that libra users will anger one of these huge corporations and have their transactions reversed or blocked, something that’s impossible on the bitcoin or ethereum network. “Should they be in a position to control what you post from your device?” he said.

The phase where libra is supported by 100 or so companies is a necessary stepping stone to a future where many more users and organisations are running the nodes that form the backbone of the network so it can be trusted and scale in ways bitcoin and ethereum have failed to, Dante Disparte, head of policy and communications at the Libra Association, said in an interview. With bitcoin, he said, “the adoption curve hasn’t hit billions of people”. In five years, libra will be “totally permissionless and totally decentralised,” he said.

Earlier this week, Facebook stated that libra’s purpose is to create a secure and low-cost way for consumers to move money around the world. In a letter released by the US senate panel on Tuesday, Marcus said Facebook has reached out to regulators across the globe, and will ensure that consumers are protected and that the role of central banks and governments with libra is “appropriate”. He also said that Facebook’s libra subsidiary, Calibra, has applied for state money transmitter licences and is registered with the US treasury department’s Financial Crimes Enforcement Network, which tries to detect money laundering and other financial crimes.

Facebook, which is ostensibly just one member of a larger Libra Association, has taken the lead on reaching out to regulators and stakeholders to lobby for the digital currency. But Marcus said in the letter that the group will continue Facebook’s outreach role as the association grows.

“We understand that big ideas take time, that policy makers and others are raising questions, and that we can’t do this alone,” Marcus wrote in the 8 July letter. “We want, and need, governments, central banks, regulators, non-profits and other stakeholders at the table and value all of the feedback we have received.”

A day later, Federal Reserve chairman Jerome Powell raised major questions about libra that he said must be addressed before the plan moves forward. “Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” Powell told lawmakers at a house financial services committee hearing in Washington.

Calibra will build and maintain the company’s digital wallets and work on the libra cryptocurrency. Marcus has said Calibra will store this financial data on separate servers, and won’t share it with Facebook. But Alisie is concerned the information flow will go in the other direction.

“Will Facebook share personal data with Calibra? Based on what I’ve read, I think that will be the case,” he said.

Mass adoption

Being a Facebook user isn’t the only way to access libra, Disparte said. “If you don’t trust Facebook, opt out and don’t use the Calibra wallet,” he said. Still, he added that Facebook’s global nature and platform for raising awareness of cryptocurrency will greatly increase its acceptance. “This project will help drive mass adoption of cryptocurrency more so than anything to date,” he said.

That’s what Alisie fears. He said Facebook is asking regulators to pass judgment on it not in its current state, but in five years when it promises to be decentralised. That’s intended “to mislead the regulators who have learnt in the last few years that blockchain is not something that can easily be regulated,” he said. “It should be treated as an entity trying to create a centralised currency.”

Ethereum was built to allow anyone to design applications that work on top of the network with no one being able to affect the protocol. The debate now with libra is similar to net neutrality, Obama-era rules that banned Internet service providers like Verizon Communications and Comcast from blocking or slowing traffic on their networks. The Trump administration has reversed those rules.

“People should be aware this is a danger very similar to net neutrality,” Alisie said. “Is it smart to have this infrastructure layer owned by a company?” The innovation blockchain brought about is that it gives power to individual users because they no longer need to rely on third-parties like Facebook or Verizon, he said.

“This is not an upgrade, this is a downgrade for what blockchain means,” Alisie said.  — Reported by Matthew Leising, with assistance from Austin Weinstein, Jesse Hamilton and Kurt Wagner, (c) 2019 Bloomberg LP

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