As Mark Zuckerberg testifies in Congress today, October 23, 2019, about Libra, the prevailing question is no longer if digital assets will go mainstream, but how they will do so and who will control them when they do.
In one corner is the U.S. government. Inspired by and fearing China’s progress in launching a digital yuan, the Federal Reserve is reportedly looking at issuing a digital currency of its own. Two former Commodity Futures Trading Commission (CFTC) chiefs have drawn up their own plans for a government-sanctioned digital dollar.
In another corner are the corporate behemoths. Facebook is leading the charge with its Libra project but is hardly without competitors. Retail giant Walmart has applied for its own cryptocurrency patent. Leading banks J.P. Morgan and Wells Fargo are launching their own blockchain-based tokens.
In a third corner are decentralized cryptocurrencies, the most prominent of which is bitcoin, whose value is controlled by supply and demand. This also includes crypto-collateralized stablecoins, which are gaining in popularity among decentralized enthusiasts as stable media of exchange.
In essence, the fight for cryptocurrency’s future has triangulated between those three groups: governments, corporations and decentralized projects. Some pundits claim these tokens can coexist, but it is this author’s opinion that history is on the side of decentralization and innovation that empowers ordinary people — in this case, Bitcoin and other decentralized projects.
Digital Currencies Cannot Fix Legacy Institutions’ Trust Deficit
The sudden popularization of cryptocurrencies is not incidental. Rather, public and private institutions are responding to a “trust deficit” they’ve incurred with the general public as a result of misguided policies, an ineffectual Congress, sky-high inequality and systemic financial unfairness. The powerful see cryptocurrency as a tool for maintaining their power.
For example, the appeal of a digital dollar to the U.S. government is obvious: It would increase the world’s dependence on the Fed, the U.S. dollar and the U.S. financial system. Amid the turmoil of trade wars, ultra low interest rates and a malfunctioning global money market, there are legitimate concerns among Fed officials, lawmakers and regulators about the stability of the dollar as a reserve currency. A cryptocurrency greenback could help alleviate, or at least distract from, such woes. A digital dollar can also further expand the U.S.’s surveillance state.
The same motivations underlie Facebook’s digital currency ambitions. The social media platform is increasingly unpopular and mistrusted by the general public for its role in spreading misinformation, violating user privacy and enabling election interference. Libra could render Facebook and its applications (Messenger, Instagram and WhatsApp) indispensable to the personal finances of its over 2 billion (and counting) users. In effect, libra’s sheer utility could outweigh its users’ worries, thereby increasing everyone’s dependence on Facebook.
People will quickly realize that libra, a digital U.S. dollar or any other centralized digital currency will not improve their finances or well-being.
Fortunately, consumers are more perceptive than those in power give them credit for. People understand that the Fed’s lenient policies are symptomatic of the government’s penchant for maintaining the status quo by pumping money into the financial system, à la the 2008 financial crisis. And people understand that large technology platforms like Facebook are harvesting their personal data for immense profits without compensating them.
People will quickly realize that libra, a digital U.S. dollar or any other centralized digital currency will not improve their finances or well-being. Digital currencies won’t reduce their credit card or student loan debt. Digital currencies won’t improve their online privacy. In fact, it’s possible that centralized digital currencies will not offer anything of material value to ordinary people, much less restore financial fairness, facilitate wealth creation or provide new economic opportunities.
That’s because centralized stablecoins are focused on solving the money transmission problem — but that is not one of our biggest problems. By contrast, bitcoin and other decentralized cryptocurrencies are mostly focused on solving the store of value problem, which touches every person on the planet as inflation and monetary policy eat away at their earnings and savings.
What further differentiates bitcoin is that it’s non-confiscatable and uncensorable. Whereas a central authority like the U.S. central bank or Facebook could recall tokens at a moment’s notice, Bitcoin’s decentralized ledger ensures that every user’s money is theirs. And while a centralized cryptocurrency would enable unprecedented surveillance into how individuals spend their money, bitcoin protects user privacy.
For these reasons, bitcoin is best positioned to capture market share in the nascent field of digital currencies. People are sick and tired of governments and corporations saying one thing (that they’ll act in the best interests of citizens and consumers) while doing another (acting in the best interests of financial incumbents and shareholders).
We can expect the cryptocurrency battles to get bloody. My money’s on (and in) Bitcoin.
This is a guest post by Alex Mashinsky, CEO of Celsius Network. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Alex Mashinsky is the CEO of Celsius Network, a cryptocurrency lending platform that allows depositors to earn interest.