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Could the new regulation fit into Facebook's new cryptocurrency balance?

Facebook's new cryptocurrency, Libra, has attracted the attention of legislators and consumer groups since it's been announced last month. And no wonder: with its history of revealing data disclosure scandals, the Facebook brand has become synonymous with the inability to protect privacy. They bring this tarnished reputation to cryptocurrency, an area that has already attracted more than its fair share of bad actors that all too often obscure blockchain innovators working to protect user rights. As Congress prepares to investigate this issue, we are frankly worried. In addition to our many concerns about the implications of Libra, it is highly likely that reactive legislation may further harm consumers.

Today's poorly designed laws could hold back innovation tomorrow.

We have been criticizing Facebook for years and we share the concerns of regulators who want to protect the privacy and rights of people against Facebook abuse. But make no mistake: a disproportionate regulatory response to Libra could have disastrous consequences for Internet users. Legislation that attempts to ban open source software, impose heavy licensing requirements on creators who develop code, or attempt to regulate non-conservative blockchain services as if they were banks would deter innovation in space. The end result would be that the only companies capable of navigating the complex regulatory landscape are those with significant financial and legal resources. In other words, The backlash of regulation today could serve to establish Facebook's role in space instead of overthrowing it.

Libra is a cryptocurrency that is to be launched in 2020 and which, according to his white paperseeks to "create a simple global monetary and financial infrastructure that empowers billions of people". Like other blockchain-based projects, Libra uses cryptographic hashes to create a decentralized registry that is extremely difficult to modify, meaning that its transaction history is immutable. most circumstances. This is one of the fundamental innovations of blockchain technology: since this technology was designed to make it extremely difficult to delete or modify a previous transaction, users can rest assured that once they have received a digital token, it's really theirs. transferred to someone else without their permission. Unlike the decentralized but computationally demanding Bitcoin mining system, Libra uses a set of trusted validators to verify and certify transactions made on Libra (the rejection of transactions that would fraudulently attempt to double expenses already made elsewhere, for example). Libra is also unusual in that it is a so-called stable piece and is designed to reduce value fluctuations as the Libra Association intends to be "fully supporting each piece with a set of stable and liquid assets."

Facebook too ad Calibra, a new digital portfolio for Libra. This portfolio, which Facebook intends to make available in its other products such as Messenger and WhatsApp, will allow users to send Libra through apps, as well as potentially to merchants.

There is a lot of writing on Libra and its Calibra wallet. For users concerned about their digital rights, it is important to focus on a few points:

  • New innovations around transactional confidentiality are not part of Libra's design. While the first Bitcoin white paper proposed a registry that would be pseudonymous but publicly available, new innovations in applied cryptography found ways to verify transactions and maintain a distributed ledger without disclosing the sending account, the recipient account and the amount sent. However, Facebook has not chosen to incorporate these privacy features into the Libra protocol.
  • The key features of decentralization that characterize Bitcoin and many other blockchain technologies have not been incorporated into Libra's design. Many people have criticized Bitcoin for consuming a lot of energy to verify transactions. Alternatives to an open and unauthorized blockchain give up a certain level of decentralization in order to be more efficient in terms of energy consumption, transaction speed and scalability. Likewise, the design choice of Libra creates a set of intermediary organizations who communicate to reach a consensus on valid transactions. These auditors could, in theory, hear or be legally compelled to block or delay transactions in a manner that users might not expect. They could also collectively decide to restore the transaction history that they considered to be an inappropriate activity.
  • Calibra, the Facebook wallet of Libra, is a guardian wallet. The user does not control the security of the wallet. the Calibra service. This means that Calibra can see and interfere in transactions, prevent accounts from receiving funds, withdraw funds from the user's wallet, disclose their activities to law enforcement authorities and governments, and freeze or cancel accounts. Calibra has published an initial statement (PDF accessible from this URL July 10, sent here for archiving purposes) on their commitments to consumers, outlining the efforts it will make to monitor accounts. users and report on these activities to governments. Unfortunately, this document does not promise much transparency or accountability for the data that will be transmitted. at Governments.
  • In addition, while Calibra cites the millions of unbanked people around the world in his press release, it notes that it intends to take steps to identify customers by requiring identity verification and using "the latest technologies and technologies, such as machine learning," to strengthen its efforts in identifying clients and reporting their activities to governments.

A scalable and easy-to-use cryptocurrency, integrated with popular global applications, could extend the reach of cryptocurrencies. But Libra and Calibra are not currently aligned with the ideas that make crypto-currencies interesting from the point of view of digital rights. Instead, we are promised a system that will be little more respectful of privacy than Venmo (which trumpets sexual encounters and drug purchases of users) and will have the same censorship tools as PayPal – which has a long l & # 39; history of gel accounts with little explanation or possibility of appeal.

With Calibra's launch of Libra in smartphones from Internet users around the world, Libra itself could soon become a sort of default currency for the Internet. Even if another portfolio could compete with Calibra's features and ease of user interface, how many users will download a new app when Instagram, Whatsapp and Facebook Messenger are already on their phone?

Like Matt Levine of Bloomberg points out"If you replace the traditional technology of social regulation of money creation with a new type of money-creating computer technology, it is likely that the power of money creation will eventually fall into the hands of individual pirates free of charge." spirit around the world. world, but in the hands of a giant technology company. "

The advent of Libra has also increased regulatory oversight of this topic, and it is not surprising that legislators already know how to blame Facebook for its repeated violations of privacy rights. However, short-sighted regulatory responses could be twice as bad for consumers, who will not only live in a world where privacy-invasive Libra is becoming increasingly used, but where expensive and technology-specific make it less likely that there are better cryptocurrency alternatives.

The first regulatory struggles in this space provided insight into what a regulatory response might look like. Recently, the UK Treasury has requested information about the update of its anti-money laundering regulations. Requests for comments included questions about if open source publishing needs to be regulated as a way of suppressing bad actors by using cryptocurrency. The United Kingdom is not alone; a few months earlier we saw similar disturbing language to punish people for simply writing and posting code in SEC statements relating to their settlement with a decentralized exchange.

Regulation could still harm consumers even if it did not go so far as to prohibit the publication of open source software. In May, a member of Congress called for a bill forbid purchases of cryptocurrency by Americans, a decision that would hinder future innovation. We have seen disturbing proposals such as Original BitLicense from New York, which aimed to require innovators to go through a long and expensive licensing process and implications for users as well as for innovators. Poorly designed legislation could impose invasive privacy regulations in the name of the fight against money laundering, which could undermine new cryptocurrency technologies such as ZCash and Monero, which are striving to provide users with better privacy. digital currency part of the same financial confidentiality as the one that uses money.

Some regulators have acknowledged that their initial reactions to blockchain technologies were too severe. For example, a commissioner of the Commodity Futures Trading Commission (CFTC) of the United States declared publicly In his view, smart contract developers should be responsible when they can "reasonably foresee" that users will later use their code in a manner that is not in accordance with the law. Four months later, after discussions with the blockchain community, he retracted this position.

Today's poorly designed laws could hold back innovation tomorrow. The end result would be that only companies rich enough to hire an army of lawyers and lobbyists will be able to become familiar with the complex regulatory landscape – companies such as Facebook.

This does not mean that any regulation on cryptocurrency would be a bad idea. Those who abuse cryptocurrency to defraud consumers should be held accountable, and EFF participated in the US United Uniform Law Commission's process to determine how to approach regulation so as to crack down on fraudsters without sacrificing future innovations. We urge all policymakers who move in this space to engage human rights and technology experts in the same way.

We have identified some rules of the road for all policy makers engaging in this space to ensure they minimize damage to consumers. Any regulation around the blockchain:

  • Should be technologically neutral.
  • Should not punish those who just write and publish code.
  • Should offer protections to individual miners, merchants who accept cryptocurrencies and individuals who trade crypto-currencies as consumers.
  • Should focus on child care, not on non-custodial services, which can not trade assets without user involvement.
  • Should provide an adequate access ramp for the new services to achieve compliance.
  • Should recognize the human right to privacy and the deeply personal nature of financial transactions, and should not interfere with innovations that enhance privacy in this space.
  • Should recognize the important role of decentralized exchanges and other decentralized technologies in empowering consumers.
  • Should not stop future technological innovations that will benefit consumers.

Adhering to these principles while trying to pass a law in Congress – with all the concomitant pressures of lobbyists from big technology companies and traditional financial services – is not an easy task, especially when many members of Congress ignore maybe the complexity of the technology works.

Legislators who were already reluctant to the free evolution of cryptocurrencies will not be reassured by a motto associated with the least favorite congressman. But we urge them not to let Mark Zuckerberg's suspicions lead them to restrict the many other innovators who want to compete with him.

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