Speaker 1: Welcome to tech Stuff, a production of I Heart Radios,
Speaker 1: How Stuff Works. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer with
Speaker 1: How Stuff Works and iHeart Radio and I love all
Speaker 1: things tech. And in the middle of June two thousand nineteen,
Speaker 1: Facebook released a white paper describing a planned digital currency
Speaker 1: called Libra, which has been described as a blockchain cryptocurrency,
Speaker 1: though there are a lot of people who object to
Speaker 1: one or both of those terms being used to describe Libra.
Speaker 1: So in this episode, I figured we talked about Libra,
Speaker 1: What is it, who is behind it? How is it
Speaker 1: similar to and different from currencies like bitcoin and and
Speaker 1: then fiat currencies, and and why should we even care
Speaker 1: about it? Well, let's get that last one out of
Speaker 1: the way first. Actually, we should care because Facebook is
Speaker 1: an enormous freaking company with billions of users. Moreover, at
Speaker 1: a company that purchased WhatsApp and runs Facebook Messenger, and
Speaker 1: has an incredible incentive to incorporate a proprietary currency system
Speaker 1: that can be fully integrated into those platforms. So we
Speaker 1: should care because this goes beyond big business. Also, as
Speaker 1: I record this on July three, two th nineteen. Facebook
Speaker 1: and its services like What's Happen Instagram are all having problems,
Speaker 1: particularly with showing photos. So that kind of thing can
Speaker 1: shake a person's confidence in a company. Though, I think
Speaker 1: it's unfair to judge a company on the occasional technological hiccup.
Speaker 1: But it's also fair to say Facebook has had a recent,
Speaker 1: let's say, troubling history. Next, while people are often referring
Speaker 1: to Libra as Facebook's approach to currency, that's not entirely accurate.
Speaker 1: I suppose I'm not being very helpful calling it Facebook Libra.
Speaker 1: Facebook is actually just a co founder of a group
Speaker 1: called the Libra Association, which also has members like Spotify, MasterCard, eBay, Uber,
Speaker 1: and a whole bunch more. It's an quote independent, not
Speaker 1: for profit membership organization headquartered in Geneva, Switzerland end quote Switzerland,
Speaker 1: known for its discretion with banking. That's not snark, It
Speaker 1: really is known for that. To be included in this
Speaker 1: August association, the organization has to meet some pretty steep criteria,
Speaker 1: and they also stand to benefit the most from the
Speaker 1: adoption of Libra. But let's work our way to that point. First,
Speaker 1: let's take a look at what was actually said. The
Speaker 1: first phrase in the white paper is quote Libra's mission
Speaker 1: is to enable a simple global currency and financial infrastructure
Speaker 1: that empowers billions of people end quote. Personal commentary aside,
Speaker 1: I think that's a phrase that should be evaluated critically
Speaker 1: with some skepticism. Does the proposed digital currency actually align
Speaker 1: with this stated mission? Now? I think from my tone
Speaker 1: you can tell it's pretty clear where I stand on this,
Speaker 1: but I am sincerely going to attempt to take an
Speaker 1: objective approach so that people can draw their own conclusions. Also,
Speaker 1: I highly recommend that if this is a very interesting
Speaker 1: topic to you, you seek out multiple sources to get
Speaker 1: a full picture of this. The white paper goes into
Speaker 1: detail with a problem statement. This describes what LIBRA is
Speaker 1: intended to address. Namely, quote, large swaths of the world's
Speaker 1: population are still left behind. One point seven billion adults
Speaker 1: globally remain outside of the financial system with no access
Speaker 1: to a traditional bank, even though one billion have a
Speaker 1: mobile phone and nearly half a billion have Internet access
Speaker 1: end quote. So presumably one of libra's main purposes is
Speaker 1: to empower people who otherwise would have no access to banks.
Speaker 1: That's a noble cause, and one that is really needed.
Speaker 1: In many parts of the world. Financial institutions can provide
Speaker 1: security and protect wealth, and a lot of people have
Speaker 1: little to no access to them, so changing that would
Speaker 1: be a good thing. The problem statement continues and describes
Speaker 1: some of the barriers that unbanked people face when attempting
Speaker 1: to change their financial situation, and it also addresses some
Speaker 1: of the issues of blockchain and cryptocurrency solutions and their limitations. Namely,
Speaker 1: the white paper rightfully points out that these cryptocurrencies and
Speaker 1: blockchain solutions have had some major issues with volatility and scalability.
Speaker 1: In other words, the value of these currencies can change
Speaker 1: dramatically and rapidly, and it's hard to get them scaled
Speaker 1: up to enough adoption that they can become legitimate currencies
Speaker 1: for the general public. If they aren't adopted as and
Speaker 1: if no one is using them, then really they're not currency.
Speaker 1: And now I think we need to talk a little
Speaker 1: bit about the concept of currency in general and how
Speaker 1: it works. Now, for a lot of you, this is
Speaker 1: all gonna be super basic, but you know, I like
Speaker 1: to start from the general and work towards the specific
Speaker 1: so that we can have a full understanding of what's
Speaker 1: going on? So way back when, before the invention of money,
Speaker 1: humans relied on bartering for trade. So essentially, person one
Speaker 1: would have something that person too wanted, and person too
Speaker 1: had something that person one wanted. They'd have to come
Speaker 1: to an agreement over how much of each something would
Speaker 1: be an equitable trade, and this could change from person
Speaker 1: to person based upon need. Supply and demand determined everything.
Speaker 1: So if you had a whole bunch of stuff that
Speaker 1: was plentiful in general in your region, chances are it
Speaker 1: wouldn't do you much good because as everyone had enough
Speaker 1: of it at their fingertips. But if you traveled to
Speaker 1: a place that didn't have access to that same stuff,
Speaker 1: you'd be in a good position to come back with
Speaker 1: a bunch of things you needed. That's basic bartering. One
Speaker 1: oh one. Now, sometime around six hundred b c E.
Speaker 1: A king of a region called Lydia which now is
Speaker 1: in modern day Turkey created a currency, the first recorded
Speaker 1: instance we have of an official currency. It was a
Speaker 1: form of coins, and the coins were made from electrum,
Speaker 1: which is an alloy of gold and silver. Uh The
Speaker 1: king's son Creases, would issue the first gold coins, and
Speaker 1: in fact he would amass an enormous amount of wealth,
Speaker 1: and today you can still hear people say rich as creases.
Speaker 1: This is the creases to whom they are referring. These
Speaker 1: kings of Lydia would later be connected with the the
Speaker 1: myth of King Midas and the Golden Touch. Now, the
Speaker 1: important concept here was one of standardization. The coins represented
Speaker 1: distinct units of wealth and value, so rather than bartering
Speaker 1: with physical goods, you can buy and sell with coins.
Speaker 1: Now you can still haggle to come to an agreement
Speaker 1: on the value of any particular good or service, but
Speaker 1: now payment could be exchanged with coins rather than with
Speaker 1: other physical things. So if you had a bunch of sheep,
Speaker 1: then you needed some grain, but the guy who had
Speaker 1: the grain didn't have any need for wool or for sheep.
Speaker 1: You could sell some of your stuff for coins at
Speaker 1: a market. Then you can use those coins to buy
Speaker 1: the stuff you needed. So far, so good. Right now,
Speaker 1: for currency to work, that standardized approach was really necessary.
Speaker 1: Everyone has to agree upon the actual value of the
Speaker 1: currency itself, and in the old days, this was partly
Speaker 1: determined by what the coins were made out of. Making
Speaker 1: coins from precious metals seemed to make total sense, but
Speaker 1: you know not sense if you catch my drift. The
Speaker 1: value was intrinsic in the coins themselves because of the
Speaker 1: material they were made out of, was already seen as
Speaker 1: being valuable gold and silver, for example, as for paper
Speaker 1: money that dates back to around eight hundred CE. In
Speaker 1: China during the Tang dynasty, the Tang government issued certificates
Speaker 1: that represented a certain number of metal coins. The certificates
Speaker 1: could be redeemed for those metal coins at the Chinese capital,
Speaker 1: and the government would issue these certificates when it needed
Speaker 1: to purchase goods that were from the further reaches of
Speaker 1: the empire. Because transporting large amounts of metal currency was
Speaker 1: difficult and dangerous, the certificates were much easier to carry
Speaker 1: and they were transferable, meaning you could trade a certificate
Speaker 1: to someone else and that person could then redeem that
Speaker 1: certificate for its value in coins if they were to
Speaker 1: travel to the Chinese opital. And so people on the
Speaker 1: outer regions of China would use these certificates as currency
Speaker 1: itself when making trades, never bothering to actually cash them
Speaker 1: in for any metal coins. The certificates and that cells
Speaker 1: were good enough. When Marco Polo traveled to China he
Speaker 1: learned of the paper currency. They brought that knowledge back
Speaker 1: to Europe. That was in the late thirteenth century, but
Speaker 1: it wouldn't be until the mid seventeenth century then the
Speaker 1: first bank notes would be issued in Europe, specifically in Sweden.
Speaker 1: For a long time, currencies were either made of precious
Speaker 1: materials or stood in representation of a fixed amount of
Speaker 1: those precious materials, so a silver standard or a gold standard.
Speaker 1: So in a country that used the gold standard, you
Speaker 1: could theoretically take your paper currency to a bank and
Speaker 1: exchange it for an amount of gold that was equal
Speaker 1: to the value of that currency. Now, in theory, this
Speaker 1: would mean that a country on the gold standard would
Speaker 1: automatically have some checks and balance is in place. Because
Speaker 1: of that limitation, the issuing government couldn't circulate more currency
Speaker 1: than what it's gold reserves contained. At least ethically, they
Speaker 1: couldn't do that. You could only issue as many bank
Speaker 1: notes as would reflect the total amount of gold you
Speaker 1: had on hand, since in theory, everyone holding those notes
Speaker 1: could demand their gold at any time, and based on
Speaker 1: the system, you should be able to hand it over,
Speaker 1: So you shouldn't have more notes available than you have gold.
Speaker 1: In your supply, but the United States and much of
Speaker 1: the rest of the world abandoned that standard in the
Speaker 1: twentieth century. During the Great Depression, President Franklin Delano Roosevelt
Speaker 1: chose to sever the US paper currencies relationship with gold.
Speaker 1: This allowed the government to issue more currency, which obviously
Speaker 1: they couldn't if they had to rely on just how
Speaker 1: much gold was in the reserves. But this allowed them
Speaker 1: to lower the interest rates and thus stimulate the economy.
Speaker 1: People could take out loans with lower interest, and interest
Speaker 1: is really how more wealth is generated. Because let's say
Speaker 1: you take a loan for a certain amount, Let's say
Speaker 1: it's a hundred dollars, and then there's interest on top
Speaker 1: of that loan. So you've taken out a hundred dollar loan.
Speaker 1: But when you're finished paying it off, you've paid out
Speaker 1: a hundred and twenty dollars For that hundred dollar loan.
Speaker 1: You've generated twenty more dollars of wealth there. But now
Speaker 1: the currency wasn't rooted on a specific commodity. This is
Speaker 1: what we would call a fiat currency, which depends upon
Speaker 1: supply and demand of the currency itself as well as
Speaker 1: the stability of the financial institution. Or government that issues
Speaker 1: the currency in the first place. This is also what
Speaker 1: makes it not a big deal when governments change the
Speaker 1: materials they use to mint coins. There have been times
Speaker 1: when shortages and precious metals have forced governments to change
Speaker 1: to less rare and therefore less valuable materials to make
Speaker 1: their coins, But fiat currency gets around that. The government
Speaker 1: ultimately determines how much of the currency should enter circulation.
Speaker 1: If a government was to create too much currency, it
Speaker 1: would risk triggering hyperinflation, in which the value of the
Speaker 1: currency decreases dramatically. Fiat essentially means let it be done,
Speaker 1: so that kind of tells you how it's meant to
Speaker 1: stand on its own. As long as people have confidence
Speaker 1: in the issuing body and there's not a sudden flood
Speaker 1: of currency, the value remains pretty stable day to day.
Speaker 1: I could do a whole episode about how currency gets
Speaker 1: into circulation, mostly through loans and banks and stuff, but
Speaker 1: that's kind of outside the realm of tech stuff. I
Speaker 1: explain fiat currency mostly because Librick sort of straddles a
Speaker 1: category and it dips its toe in fiat currency. It's
Speaker 1: not being issued by a government, however, but it is
Speaker 1: being issued by a centralized group. More on that in
Speaker 1: a bit Now, the literature around the Labor Association calls
Speaker 1: it decentralized, but I think that really just depends on
Speaker 1: your point of view. To quote Obi Wan Kenobi, because
Speaker 1: it's really a group of very large companies that are
Speaker 1: in charge of this. So to me, it is centralized.
Speaker 1: It's just centralized and distributed amongst a relatively small number
Speaker 1: of companies. Cryptocurrency then would refer to a group of
Speaker 1: digital currencies that are meant to be decentralized and global.
Speaker 1: With a cryptocurrency, there is no authority that ultimately issues
Speaker 1: more currency. Rather, you typically have an algorithm that dictates
Speaker 1: the supply of currency going into circulation. Cryptocurrency is like
Speaker 1: the famous bitcoin have a limited supply. There's only so
Speaker 1: many bitcoins that will ever exist. They will only enter
Speaker 1: the circulation once, and then once all the bitcoins are
Speaker 1: in circulation, that is it. Once all bitcoins are my
Speaker 1: that's all there ever will be. There will remain in circulation,
Speaker 1: but you won't generate new bitcoins. Now, in this sense,
Speaker 1: they are closer to one of the currencies that are
Speaker 1: based on a commodity, like gold, because there is a
Speaker 1: finite amount of gold on earth, So if everyone still
Speaker 1: had currencies that were tied to gold, eventually we would
Speaker 1: have to stop issuing currency because we would have covered
Speaker 1: all the gold available. But how do you assign actual
Speaker 1: value to something that is purely digital? A bitcoin or
Speaker 1: any other cryptocurrency is just some code. Well, here's the trick.
Speaker 1: It has value if people treat it as having value.
Speaker 1: If someone has something and you want it, then that's
Speaker 1: something they have has a value to you. How much
Speaker 1: value is up for discussion, obviously, so a bitcoin's value
Speaker 1: is dependent upon how much people want it and how
Speaker 1: much they'd be willing to pay for it, or how
Speaker 1: much they would be willing to accept for it. If
Speaker 1: they happen to own some Libra is a slightly different beast.
Speaker 1: I'll explain more in a second, but first let's take
Speaker 1: a quick break. Now, one other thing I should mention
Speaker 1: about bitcoin is that it is truly decentralized. There is
Speaker 1: no financial institution in charge of overseeing or regulating the currency. Now,
Speaker 1: on the one hand, that means that a government can't
Speaker 1: influence the value of the currency or interfere with fiat
Speaker 1: currencies or sovereign currencies. The whole concept behind them points
Speaker 1: back to how a government can exert influence over the
Speaker 1: financial system through supply and demand of currency, not necessarily
Speaker 1: in a malevolent way, but certainly in a way that
Speaker 1: is beyond the control of the people relying on that currency. Now,
Speaker 1: a downside of this, with bitcoin being so decentral is
Speaker 1: that it's value is incredibly volatile, so it changes rapidly
Speaker 1: and dramatically. In fact, it can change so quickly they
Speaker 1: can cause people to be averse to spending bitcoin once
Speaker 1: they get some. So think of it this way. Let's
Speaker 1: say you have a dollar bell and you go to
Speaker 1: the store, and based on the value of that dollar
Speaker 1: at that time, you're able to buy a loaf of bread.
Speaker 1: So you buy your loaf of bread and your feeling package.
Speaker 1: You go home and you make yourself a sandwich, and
Speaker 1: you're enjoying your sandwich. And then there's a sudden shift
Speaker 1: in the value of a dollar, and suddenly a dollar's
Speaker 1: value is much higher. Now you could buy let's say,
Speaker 1: ten loaves of bread with that single dollar. The value
Speaker 1: of the dollar dollar has increased, the value of the
Speaker 1: loaf of bread has remained the same. Fiat currency rarely
Speaker 1: experiences that sort of rapid change in value, but it
Speaker 1: can and does happen with some decentralized digital currencies like bitcoin.
Speaker 1: So that's a problem. You might be afraid to spend
Speaker 1: something because you have no idea how much it's going
Speaker 1: to be worth from moment to moment. In fact, you
Speaker 1: don't know if the value of your bitcoin is going
Speaker 1: to change in mid transaction. To avoid that problem, the
Speaker 1: Libra Association has anchored or pegged the Libra currency. This
Speaker 1: is a way of tying the value of a currency
Speaker 1: to the value of something else, in this case low
Speaker 1: volatile commodities, including several different currencies including the US dollar,
Speaker 1: the Euro, etcetera. So even as one currency might change,
Speaker 1: the fact that Libra's value is spread across numerous commodities
Speaker 1: means that its value won't change much unless we're talking
Speaker 1: about like a global financial crisis or something, in which
Speaker 1: case Libra's value would also change. The Libra Association effectively
Speaker 1: has a reserve like the old gold reserves during the
Speaker 1: Gold Standard, except this reserve is not filled with precious metals.
Speaker 1: It's filled with low volatility investments and currencies. So Libra
Speaker 1: is sort of like a commodity based currency, but since
Speaker 1: those commodities themselves are largely fiat currencies, it's kind of
Speaker 1: like a fiat currency once removed. The Libra Association refers
Speaker 1: to this as a stable coin approach. That's not just
Speaker 1: their term. It is a term for a digital coin
Speaker 1: that is tied to something that's more stable. It's a
Speaker 1: digital currency anchored in real world assets to provide that
Speaker 1: stability and encourage liquidity, in other words, to encourage people
Speaker 1: to actually spend it instead of just sitting on it. Okay, So,
Speaker 1: a cryptocurrency is a digital currency that uses cryptography for security,
Speaker 1: both to protect the people who possess the digital currency
Speaker 1: and to protect the actual transaction process made with that currency.
Speaker 1: Bitcoin fits that description. Bitcoin is also a blockchain cryptocurrency,
Speaker 1: and there are a lot of articles talking about Libra blockchain.
Speaker 1: But personally, I think that that term is misleading or
Speaker 1: in the words of in Ingo Montoya, you'll keep using
Speaker 1: that word. I do not think it means what you
Speaker 1: think it means. So, a block chain, simply put, is
Speaker 1: a chain of data grouped together in blocks of data.
Speaker 1: You can think of it as a chronological record of transactions,
Speaker 1: a chain of blocks future calculations all depend upon the
Speaker 1: previous ones made in the chain, and a community of
Speaker 1: users work to verify transactions and those verified transactions are
Speaker 1: codified into blocks, and then they join the chain with bitcoin.
Speaker 1: The blockchain is the ledger of all blockchain transactions, all
Speaker 1: of them. So if you want to spend or transfer
Speaker 1: a bitcoin, it goes through this process. This blockchain process,
Speaker 1: the community of bitcoin users verify the transactions in a
Speaker 1: process called mining. This is a computation sational problem of
Speaker 1: arbitrary difficulty. The overall bitcoin system sets that difficulty for
Speaker 1: the computational problem, and the more people, or rather the
Speaker 1: more computational power that is trying to solve the problems,
Speaker 1: the harder the problems become. This way, they meter out
Speaker 1: the release of new bitcoins, because solving the problem verifies
Speaker 1: the transactions for a block, which then goes to the
Speaker 1: rest of the community to essentially check the work and
Speaker 1: make certain that it's valid, and then the computer system
Speaker 1: that made that correct transaction verification first gets rewarded with
Speaker 1: a certain number of bitcoins or portions of bitcoin. That
Speaker 1: number changes over time. The number of bitcoins rewarded decreases
Speaker 1: in a steady predictable pattern, and it will do so
Speaker 1: until all bitcoins are in circulation, which will happen sometime
Speaker 1: in the middle of the twenty second century. I think
Speaker 1: think it's when it will all be in circulation. Now
Speaker 1: everyone can see the blockchain, and everyone can see this
Speaker 1: chain of transactions. This shared ledger means that no one
Speaker 1: can spend the same bitcoin twice. There's no double spending
Speaker 1: of bitcoin, as the first transaction will already be a
Speaker 1: matter of record and any secondary attempt will fail during
Speaker 1: this verification process. Now, one down downside to all of
Speaker 1: this is that transactions take longer to verify than traditional
Speaker 1: payment transactions, and that can be an issue when you're
Speaker 1: trying to buy something unless you're not in a hurry. So,
Speaker 1: to give you a sense for this, like how slow
Speaker 1: am I talking about? Bitcoin transactions happen at a rate
Speaker 1: of around seven transactions per second, which sounds pretty fast,
Speaker 1: except then you learned that a more traditional payment transaction
Speaker 1: service like Visa can process closer to three thousand transactions
Speaker 1: per second. So that's a big disparity. It shows a
Speaker 1: huge gap. Now, Facebook, Libra will not follow bitcoins methodology. Instead,
Speaker 1: there will be a somewhat centralized though not localized database
Speaker 1: of transactions cryptographically protected database. So you have a database,
Speaker 1: not a blockchain. Uh. It is not fully decentralized. In
Speaker 1: other words, you've got a group of companies that are
Speaker 1: in charge of the governance and verification of transactions. It's
Speaker 1: not open to a whole community. UH. The community using
Speaker 1: the currency are not the ones providing the computational work
Speaker 1: to verify those transactions. Instead, members of the Libra Association
Speaker 1: more on them in a bit. UH. Specifically, members that
Speaker 1: have coughed up ten million dollars for this privilege will
Speaker 1: act as validation nodes to validate those transactions. If at
Speaker 1: least two thirds of the validation nodes verified transaction, it
Speaker 1: is considered to be verified and it goes through. Because
Speaker 1: Libra will use a limited number of validation nodes by
Speaker 1: an elite few members of the Libra Association, it's what
Speaker 1: we would call a permissioned system. You have to be
Speaker 1: granted authority to validate transactions. That's in contrast with systems
Speaker 1: like Bitcoin, which are permission less, meaning you simply have
Speaker 1: to download the software and be part of the network
Speaker 1: and you're part of the community. Facebook has said the
Speaker 1: reason I went with the permissioned approach was that the
Speaker 1: alternative just doesn't scale, as illustrated by Bitcoin's painfully slow
Speaker 1: transaction verification process. According to Facebook, the Libra approach will
Speaker 1: allow for as many as one thousand transaction verifications per second,
Speaker 1: still not as fast as more traditional financial institutions like Visa,
Speaker 1: but loads faster than the permission less cryptocurrencies. The long
Speaker 1: term goal, Facebook says is to transition to a permission
Speaker 1: less system somehow. At some point, the Libra association will
Speaker 1: oversee the governance of the currency and verify the transactions,
Speaker 1: and in addition, they will profit from the use of Libra.
Speaker 1: So Libre transactions will include a small transaction fee. So
Speaker 1: when you buy something with Libra, there'll be a small
Speaker 1: percentage of that h purchase that will end up being
Speaker 1: a transaction fee, sometimes called a gas fee. It's meant
Speaker 1: to pay for the cost of doing business in general. Now,
Speaker 1: on individual transactions, it will look really small, like minuscule
Speaker 1: you maybe you won't even notice it, but at scale
Speaker 1: with a service that could potentially reach billions of people,
Speaker 1: you're talking some serious freaking money there. You know. If
Speaker 1: you're doing numerous purchases, a day, Even if they are
Speaker 1: small amounts, if billions of people are doing that, that
Speaker 1: racks up pretty fast. In addition, remember when I said
Speaker 1: that the value of Libra will be pegged or anchored
Speaker 1: to a collection of low volatility commodities such as fee
Speaker 1: out currencies. Well, the expectation is that those will slowly
Speaker 1: pay off. Those will earn money themselves, and in a bank,
Speaker 1: as a customer of a bank, if you have add
Speaker 1: money in their their accounts, then you would earn interest
Speaker 1: off that money, depending upon the type of account you have,
Speaker 1: and that's not gonna happen with Libra. You will not
Speaker 1: earn interest in Libra. Instead, all that money that comes
Speaker 1: from these investments and through these transaction fees are going
Speaker 1: to go to the members of the Libra Association, not
Speaker 1: the people using Libra, So it's going to go to
Speaker 1: these big companies. The ledger of transactions for Libra is public,
Speaker 1: just like with bitcoin. Uh. That could also raise a
Speaker 1: lot of tough questions about privacy and security. I mean,
Speaker 1: after all, Facebook has access to an incredible amount of
Speaker 1: personal information. Even if you have an account but you
Speaker 1: aren't very active, or even if you don't have an
Speaker 1: account at all, people who do have accounts and who
Speaker 1: know you may have already shared information about you, so
Speaker 1: it's already out there. But the more you use Facebook,
Speaker 1: the more data the company has about you, what you like,
Speaker 1: what sort of browsing habits you have. So clearly there's
Speaker 1: concern about a currency system tied to a company that
Speaker 1: already knows a ton about us. To address that concern,
Speaker 1: Facebook assures us that Libra users will be issued pseudonyms,
Speaker 1: so it's a pseudonymous system and their true identities will
Speaker 1: not be publicly tied to transactions. That's good bitcoins the
Speaker 1: same way. Moreover, the company promises to keep the user
Speaker 1: data from things like Facebook and its various services separate
Speaker 1: from Libra and its digital wallet. Also, the company promises
Speaker 1: that activity using Libra would never be used for data
Speaker 1: for targeted advertising. Whether or not you believe this claim
Speaker 1: is up to you. Facebook has had a very public,
Speaker 1: very messy series of pr disasters and controversies surrounding user
Speaker 1: privacy and security. Zuckerberg himself has had to appear in
Speaker 1: front of the the United States government to talk about some
Speaker 1: pretty serious problems. So there are many people out there
Speaker 1: who remains skeptical at best. About Facebook's pledge to keep
Speaker 1: these things truly separate. The pseudonym approach is another way
Speaker 1: Libra is trying to have the best of both worlds
Speaker 1: and cryptocurrency and the more traditional currencies overseen by a
Speaker 1: centralized authority. In a cryptocurrency like Bitcoin, the transactions are public,
Speaker 1: but the identities of the parties involved are protected. That
Speaker 1: manages to protect the individuals, but it also raises the
Speaker 1: possibility that the cryptocurrency could be used for shady or
Speaker 1: outright illegal activities like money laundering or purchasing illegal goods.
Speaker 1: For Libra to get widespread acceptance, it needs to be
Speaker 1: seen as legitimate and lawful. Most financial institutions follow up
Speaker 1: policy generally called No Your Customer or k y C.
Speaker 1: This is all about verifying a customer's identity and being
Speaker 1: reasonably certain that the customer or potential customer doesn't pose
Speaker 1: a risk. In other words, making sure the customer is
Speaker 1: on the up and up and not trying to do
Speaker 1: something like money laundering. Libra intends to follow that general approach,
Speaker 1: so the system would allow people to make purchases using
Speaker 1: pseudonyms uh automatically by the system, they wouldn't have to
Speaker 1: choose them or anything, ideally protecting their personal identities from
Speaker 1: the general public. But at the same time, the LIBRA
Speaker 1: Association would be able to verify identities. So we're starting
Speaker 1: to see how from a conceptual level, this is getting
Speaker 1: pretty complicated and it does pose a big security concern.
Speaker 1: It's not that it's impossible to do, but it does
Speaker 1: mean that you have to be super careful with all
Speaker 1: that privacy and security. When we come back, i'll talk
Speaker 1: about a few other complications as well as some trivia
Speaker 1: about LIBRA, but first let's take another quick break. One
Speaker 1: other big complication with LIBRA is that the organizations that
Speaker 1: make up the Libra Association so far are a mix
Speaker 1: of financial institutions like banks and commerce companies, you know,
Speaker 1: companies that sell goods and services. And that's a huge
Speaker 1: warning flag for certain countries, specifically the United States of America,
Speaker 1: which has traditionally sought to keep banking and commerce as
Speaker 1: separate entities. This has been the case since the mid
Speaker 1: nineteenth century in the United States. It turns out that
Speaker 1: US citizens aren't crazy about the idea of banks owning
Speaker 1: non banking businesses because it could potentially mean that a
Speaker 1: bank might operate a business that runs in direct competition
Speaker 1: with the business of one of that bank's customers, and
Speaker 1: banks get a lot of insight into the financial transactions
Speaker 1: of their customers. They see everything. So let's say you
Speaker 1: own a small business. Chances are you do not want
Speaker 1: the entity that can see all of your financial transactions
Speaker 1: to be operating a competing business against you. If nothing else,
Speaker 1: you would be handing over leads to that bank because
Speaker 1: the bank could see who your most loyal customers are
Speaker 1: based on your various financial transactions, And to the bank
Speaker 1: that's operating a competing business, they could say, huh, you
Speaker 1: know what this is. It's a lead sheet for me
Speaker 1: to give to the sales team. Will target all of
Speaker 1: this person's customers because we see how loyal they are,
Speaker 1: and if we can win them over to our service,
Speaker 1: will win. So in other words, banks have an incredibly
Speaker 1: unfair advantage when they enter into the commerce world. So
Speaker 1: that could potentially be a really big barrier for Libra
Speaker 1: in the near future in the United States, as the
Speaker 1: Open Marks Institute spokesman Matt Staller wrote, imagine Facebook's subsidiary
Speaker 1: Calibra knowing your account balance and you're spending and offering
Speaker 1: to sell a retailer an algorithm that will maximize the
Speaker 1: price for what you can afford to pay for a product.
Speaker 1: Imagine this cartel having this kind of financial visibility into
Speaker 1: not only many consumers, but into businesses across the economy.
Speaker 1: Such conflicts of interest are why payments and banking are
Speaker 1: separated from the rest of the economy in the United
Speaker 1: States end quote. So in other words, if you can
Speaker 1: see what all the transactions are, then you can get
Speaker 1: a good idea of how much money a person has.
Speaker 1: And if you have an idea of how much money
Speaker 1: they have, you can adjust your prices so that they
Speaker 1: are more expensive for people who have more money. People
Speaker 1: who have less money, it will be less expensive because
Speaker 1: the alternative is you don't make a sale at all.
Speaker 1: Seems a little shady. Then again, all of this might
Speaker 1: be moot. As I record this, the Libre platform isn't
Speaker 1: fully fleshed out. Facebook has introduced a digital wallet that
Speaker 1: exists as a subsidiary company. That would be the Libra
Speaker 1: that I mentioned just a moment ago, and this is
Speaker 1: the interface through which users can interact with Libra in
Speaker 1: order to make transactions or send money or purchase Libra.
Speaker 1: That's the actual name of the currency itself. The idea
Speaker 1: is that third parties will be allowed to create their
Speaker 1: own digital wallet solutions. But for now, Calbra is it,
Speaker 1: and that's Facebook's contribution, and it's only it in a
Speaker 1: largely hypothetical sense as of the recording of this podcast,
Speaker 1: because at the moment there's very little functionality available in
Speaker 1: the wallet. You can put fake Libra coins in there,
Speaker 1: and that's about it. According to an article in Bloomberg,
Speaker 1: there's not a lot to show for Libra just yet,
Speaker 1: and the piece also criticizes the white paper for being
Speaker 1: vague in spots. In fact, the article titled I tried
Speaker 1: using Facebook's Libra blockchain. It didn't work goes on to
Speaker 1: guess that the purpose of the white paper and the
Speaker 1: announcement isn't so to prepare the way for the emergence
Speaker 1: of a fully fleshed out digital currency. Rather, it's to
Speaker 1: prompt a reaction from regulatory agencies to sort of test
Speaker 1: the waters. So, in other words, it's not a sincere
Speaker 1: effort to get a digital currency off the ground. It's
Speaker 1: to check and see what sort of obstacles are going
Speaker 1: to be in the way when they finally get their
Speaker 1: act together, and indeed the regulatory bodies have responded. In
Speaker 1: the United States, the House of Representatives Committee on Financial
Speaker 1: Services has urged Facebook to hold off on any more
Speaker 1: developments with Libra and Calibra. The committee states, quote, it
Speaker 1: appears that these products may lend themselves to an entirely
Speaker 1: new global financial system that is based out of Switzerland
Speaker 1: and intended to rival US monetary policy and the dollar.
Speaker 1: This raises serious privacy, trading, national security, and monetary policy
Speaker 1: concerns for not only Facebook's over two billion users, but
Speaker 1: also for investors, consume mers, and the broader general economy
Speaker 1: end quote. Yikes. The committee goes on to express concern
Speaker 1: about oversight and regulations, how a sovereign currency without these
Speaker 1: faculties in place could cause financial instability around the world,
Speaker 1: and they are also quick to point out that Facebook
Speaker 1: doesn't exactly have a stellar track record in the eyes
Speaker 1: of the US government. Just now, and just to show
Speaker 1: that the Americans aren't the only ones concerned, let's hop
Speaker 1: across the pond. In the UK, Christopher Woollard, the Financial
Speaker 1: Conduct Authorities Executive director of Strategy Competition, stated quote, Historically
Speaker 1: this may have been a sector that has lived by
Speaker 1: the mantra of move fast and break things, but the
Speaker 1: issues raised here require deep thought and detail end quote. Meanwhile,
Speaker 1: in France, the Bank of France as governor has stated
Speaker 1: that the Libra currency will have to comply with anti
Speaker 1: money laundering regulations and also attain a banking license if
Speaker 1: it offers any banking services. And the concern is understandable
Speaker 1: because if Libra doesn't work properly, it could cause frustration
Speaker 1: and economic hardships for many people around the world. But
Speaker 1: if it works really well, it might mean hard times
Speaker 1: for entrenched traditional financial institutions. And while I'm not gonna
Speaker 1: lose sleep about how the CEOs of massive banks are
Speaker 1: going to be able to afford their next private plane,
Speaker 1: I'm not exactly looking to a company like Facebook to
Speaker 1: act like robin Hood, because they're just as huge as
Speaker 1: some of these financial institutions. One thing Libra is trying
Speaker 1: to do is make cross border transactions easier. The idea
Speaker 1: is attractive. Rather than converting money from one sovereign currency
Speaker 1: to another and going through the process of doing a
Speaker 1: wire transfer, you could use a digital currency like Libra
Speaker 1: and do it all much more quickly without as much fuss,
Speaker 1: maybe with even lower transaction fees. But some critics have
Speaker 1: said there are already many alternatives to the more traditional
Speaker 1: routes in place, and they are either ready to go
Speaker 1: right now, or they're further along in development than Libra
Speaker 1: seems to be. The Financial Times also called into question
Speaker 1: whether Libra would actually benefit the unbanked as its mission
Speaker 1: sets out to do, asking how could someone actually enter
Speaker 1: into that world if they don't already have a bank account,
Speaker 1: which is a decent question to ask. On top of
Speaker 1: all that, Libra wouldn't magically become a ubiquitous currency overnight.
Speaker 1: Merchants would still have to accept it as payment for
Speaker 1: goods and services. First, see, a currency is no good
Speaker 1: if no one accepts it. It doesn't matter how big
Speaker 1: the issuing entity may or may not be. So if
Speaker 1: I go out on the street then I hand out
Speaker 1: pieces of paper with my face on it and I
Speaker 1: call it strict bucks, that doesn't mean you're ever going
Speaker 1: to be able to spend that cash. A merchant would
Speaker 1: have to accept it for and it would be crazy
Speaker 1: to do so. The Libra Association is proposing possible incentives
Speaker 1: to get merchants on board and be part of this,
Speaker 1: But to me, it seems like a pretty big endeavor,
Speaker 1: and it feels a little like a catch twenty two
Speaker 1: because there's no reason to sign on if there aren't
Speaker 1: enough merchants to support the currency and turn it into
Speaker 1: something useful. But then without signing on, then the currency
Speaker 1: will just remain a curiosity and not be an incentive
Speaker 1: for anybody to join. So if a yo yo manufacturer
Speaker 1: is the only company to accept Libra's payment, it won't
Speaker 1: do much, though I guess technically the business would still
Speaker 1: have its ups and downs. There are a couple of
Speaker 1: other things I'd like to touch on before I sign off.
Speaker 1: One of them is the name Libra in the first place. Now,
Speaker 1: in Latin libra was a term for a unit of
Speaker 1: weight and ancient rome, and most of the stuff I've
Speaker 1: read about in the digital currency realm has reference to this.
Speaker 1: That's talking about scales or weights in Roman times. However,
Speaker 1: it's also the name of an astrological sign. Now, I
Speaker 1: don't put any stock in astrology, unlike my beloved producer Tari,
Speaker 1: who tells me that's just like a cancer. But I
Speaker 1: think of astrology as magical thinking. However, I do think
Speaker 1: it is important and relevant to point out how Libra
Speaker 1: is an astrological sign. Why, well, it all has to
Speaker 1: do with a pair of twins who are once a
Speaker 1: big part of Facebook, the Winklevoss Twins. These twins who
Speaker 1: had an infamous falling out with Mark Zuckerberg. The foundation
Speaker 1: for that falling out was that the twins alleged that
Speaker 1: Zuckerberg had essentially ripped off the idea for Facebook from them.
Speaker 1: They went on to found a company in two thousand fourteen.
Speaker 1: They called it the Gemini Trust Company. It's a digital
Speaker 1: currency exchange company. And that means that a customer of
Speaker 1: that company, you could establish a digital wallet, you could
Speaker 1: buy or sell digital assets, that kind of thing. And
Speaker 1: Jim and I, I'm sure many of you know, is
Speaker 1: also the name of an astrological sign. It's for the twins.
Speaker 1: So could it be that when it came time to
Speaker 1: name this new digital currency that Zuckerberg wanted something that
Speaker 1: would stick in the craw of the Winklevoss brothers and
Speaker 1: call it Libra and say I stole your idea again,
Speaker 1: I have no idea. It could just be coincidence. And honestly,
Speaker 1: we're ultimately talking about several extremely rich dudes who are
Speaker 1: enjoying a life of privilege beyond my imagining. So really,
Speaker 1: I don't care who is having a fit with who.
Speaker 1: It doesn't matter to me anyway. That's the low down
Speaker 1: on Libra. Now. It is possible that the Libra Association
Speaker 1: will get this currency up and running they want to
Speaker 1: launch in twenty twenty. I would argue that right now,
Speaker 1: at least Facebook's involvement is a pretty big albatross around
Speaker 1: the neck of the project. I think it might actually
Speaker 1: have been a better idea to go without Facebook's name
Speaker 1: on it at all, particularly since that's what everyone is
Speaker 1: focusing on right now. I do want to see more
Speaker 1: support for the unbanked, both in developing and developed countries.
Speaker 1: I want to see those folks get access to financial stability.
Speaker 1: I want there to be more financial security for people
Speaker 1: in general. I wanted to be easy to make payments
Speaker 1: without exorbitant transaction fees, and maybe it could well be
Speaker 1: that the Libra Association will fulfill those goals as they
Speaker 1: have stated they want to. I'm obviously really skeptical about that,
Speaker 1: but I'll also admit these may just be my biases
Speaker 1: coming into play. I would love to be proven wrong,
Speaker 1: because if I'm proven wrong, it could possibly be a
Speaker 1: huge benefit for a lot of people. I'm just not
Speaker 1: convinced yet that this is the group to pull that off,
Speaker 1: But I'm curious what you guys think. If you want
Speaker 1: to share your thoughts with me, you can send me
Speaker 1: email the addresses tech stuff at how stuff works dot com,
Speaker 1: or drop me a line on Twitter or Facebook. The
Speaker 1: handle for both of those is text stuff hs W.
Speaker 1: Remember you can visit our website that's tech stuff podcast
Speaker 1: dot com. You're gonna find the archive of all of
Speaker 1: our past episodes there. You will also find links to
Speaker 1: our online store, where every purchase you make goes to
Speaker 1: help the show and we appreciate it very much, and
Speaker 1: I will talk to you again really soon. Tex Stuff
Speaker 1: is a production of I Heart Radio's How Stuff Works.
Speaker 1: For more podcasts from I Heart Radio, visit the I
Speaker 1: heart Radio app, Apple Podcasts, or wherever you listen to
Speaker 1: your favorite shows.