Libra: It is a Fine Balance
(The article has been co-written by David Lee Kuo Chuen and Dr. Ernie Teo, professors at Singapore University of Social Sciences.)
Since the announcement of the Libra cryptocurrency by Facebook in June 2019, it has garnered much attention. There may be much contention on whether Libra is a true cryptocurrency, but there is no doubt that blockchain adoption by the world’s largest social media company is a significant event for the industry.
With the large prevailing network of users of Facebook and founding members such as Mastercard, eBay and Uber, the network will enjoy immediate critical mass. This is an attribute that many blockchain use cases need and lack. The externalities generated from such a network will ensure stickiness with extended e-commerce functionality, potentially making Libra the de-facto internet currency.Although China e-wallets currently top the number of mobile payment transactions globally, this may quickly change with the adoption of Libra. Wallet apps such as WeChat have found it hard to move globally due to government restrictions, differences in culture and language barriers. For many Internet companies, especially the Chinese, it either join in or be excluded from the Libra project. The fact that Chinese tech giants are put into this dilemmatic situation shows the US advantage in global financial innovation.
Successful internet projects are low-margin, asset-light, scalable, innovative and compliance-easy. Libra adhere to these LASIC principles, in particular, which makes it extremely scalable. With global adoption, the Libra blockchain network would be host to a large amount of data consisting of its users’ internet financial activities. Being a permissioned blockchain (at least in the beginning), Libra’s founding members’ nodes would be privy to such data. This will create opportunities to understand customers beyond their current scope. With many notable cases of data leaks and misuse in recent years, it is important for Libra to consider users’ data privacy. Data privacy should not be an afterthought for Libra and be embedded in its very design. However, the word “privacy” is only mentioned once in the Libra whitepaper.
Regulators needed to track transactions and blockchains designed to provide anonymity is a natural conflict. To address this, there has been much research effort in different methods to enable privacy on a decentralised blockchain environment. Technologies such as zero-knowledge proofs and secure execution environments are being explored by startups and enterprises. These solutions ensure privacy, yet allowing for data to be analysed. The Enigma project from MIT is one such effort to utilise the secure execution environment provided by Intel SGX processors. In Singapore, NTU together with data protection provider Acronis are working on a secure multi-party computation platform to share encrypted data between multiple untrusted parties. JEDTrade, a Singapore blockchain company, is working on deploying such privacy enhancing methods on blockchain applications for their clients with their platform, Jupiter Chain. The beauty of cryptography technology is that it allows analysis without making the raw data transparent. Such considerations are missed out in an otherwise well thought through Libra whitepaper.
Governments globally are increasing regulations for personal data protection like the EU’s GDPR and Singapore’s PDPA. The integration of such technologies with blockchain will make it a truly powerful tool, which will create a democratic and open data platform where all data owners would have control over their data while keeping it private. This is the way forward in enabling data driven technologies in a highly regulated world.
Libra may have the vision to become independent decentralised blockchain to serve the underserved; it may help financial institutions in emerging countries comply with international standards; and it may even have a superior programming language (MOVE). However, the weakest point is its link to fiat that makes it seem stable, but is actually unpredictable and at the mercy of the fund manager. Every additional fiat in the reserve is a regulatory challenge.
Without privacy protection in whatever form, the risk of information (at such a scale) in the hands of profit seeking corporations is a disturbing thought that will not only keep cypherpunks awake at night. The consequences of hacking and privacy invasion must be kept as high as possible if the likes of Libra are allowed to scale globally.