Libra

Mmmm, not to me. I suppose that in an abstract way I can appreciate how it might be interesting but overall the weirdness quotient is too high for me.

 

Well, money itself is weird. We think of it as pieces of fancy paper that by agreement we can exchange for goods and services but it's actually a bit more complicated than that. Any currency is an obligation of the issuing government or other issuing authority. That's what I can't get over in the Bitcoin business. There is no issuing authority. There is only the agreement between multiple parties to accept Bitcoin as a medium of exchange.

Now what does it mean to say that a Federal Reserve Note is an obligation of the U.S. Treasury? Well, in the late gold standard era, it meant that the paper note represented a specific amount of gold (or silver) was on deposit in the Treasury and that the note could be presented to the U.S. Government at any time to receive that specific quality of gold (or silver). Banks, however, also issued their own notes backed by the gold or silver in their own vaults. A "run" occurred when depositors started to think that the bank could not redeem all its outstanding notes. Holders would panic and converge on the bank en masse demanding their gold. In the world of fractional banking and no depositor insurance, there was never enough gold to cover the outstanding notes and the bank would fail.

The notes, you see, were an obligation of the bank even as the Federal Reserve Notes are obligations of the Federal Reserve System and backed by the Treasury. But how does one "redeem" a Federal Reserve Note? Basically by using it to pay an obligation to the federal government, i.e., taxes. Even if the holder of the note doesn't need to pay any taxes, he can exchange the note for goods or services with someone who does need to pay taxes. This is part of what I mean when I say that the claim that fiat money has no intrinsic value is not really true.

So who is the "obligor" behind Bitcoin? What issuer debt gives Bitcoin any intrinsic value? The only answer I can see is that Bitcoin derives its value solely from its convertibility into national currencies at some market price. Thus far, Bitcoin DOES seem to be convertible. There is a market to buy and sell it though at wildly varying prices. But suppose there's a "run" on Bitcoin where the some holders become concerned that the price may drop? If enough holders attempt to sell their bitcoins for, say, U.S. dollars, the price will drop, not only in dollars but in every currency convertible to dollars which is to say almost all of them. Panic spreads like it did in 2007 over stocks and CDOs. Heck, panic spreads like it did in 1929 over the investment trusts. No one knows why these panics appear but they do appear in every market everywhere throughout history.

Eventually, what could happen to Bitcoin is what happened to those 1929 investment trusts; their market price fell so far so fast that quickly there were no buyers at all for any price. It's hard to believe that a Bitcoin someone bought for $5,000 can be rendered completely worthless but so far as I can see, it is a very real possibility. Money can be destroyed even as money can be created.

These are not issues of technology. These are standard concerns for any financial vehicle in an unregulated environment that does not represent an ownership interest in real assets. That's where crypto currencies are now as far as I can tell. That is also the issue I think Libra is designed to address. Whether there will be sufficient reserves behind Libra to make it fairly safe, I am not qualified to say. But again, that's not a question of technology. There is no technological solution to a bank run.

 

solve this math problem and you can steal all the bitcoin in the world

https://gizmodo.com/if-you-solve-this-math-problem-you-could-steal-all-the-1836047131

 

Libra seems to be having a little trouble

https://www.wsj.com/articles/visa-mastercard-others-reconsider-involvement-in-facebook-s-libra-network-11569967023

While you're considering whether to sink all your money into Libras, read this story about cryptocurrency

https://www.bbc.com/news/technology-49826161

 

Why do I think its funny that China is going to begin issuing its own cryptocurrency?

https://www.cnbc.com/2019/10/15/china-races-to-launch-a-cryptocurrency-that-could-rival-facebooks.html