The Breakdown - Libra Plus? A New Global Digital Currency Strategy For Facebook

Episode Date: March 5, 2020

Yesterday, The Information reported that Facebook’s Calibra wallet would be abandoning the backed-by-a-basket-of-currencies Libra for a set of fiat-backed digital currencies for different regions. The company quickly amended that while they would be launching those fiat-based digital currencies, they weren’t abandoning Libra. In this episode, @NLW argues that these fiat digital currencies could be more readily adopted initially than Libra among Facebook’s existing user base.  Also on this episode, huge news out of India, as the Supreme Court reverses a decision by the Reserve Bank of India from 2018 to ban crypto banking. The move could breath life into an industry which has largely shuttered in India since the initial ban.  Finally, a news roundup including a lawsuit against Twitter around deplatforming and a new router from HTC that can also run a bitcoin full node.   

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Wednesday, March 4th, and today we are going global with some exciting and interesting news for the global crypto community. So first we're going to talk about what I think is the most significant story of the day, which is the Indian Supreme Court reversing a ban. imposed by the Central Bank of India around banks serving crypto exchanges. So we'll start there. Then we will turn our attention to Libra. Reports came out yesterday suggesting that Facebook's wallet would be dropping Libra altogether,

but it seems now as though it's more that they will be adding dedicated digital currencies focused on existing fiat currencies around the world. Third, and finally, we'll look at a couple little grab bag news items that are interesting and quirky and potentially relevant for the future. Now, before we dive into all of this, just a quick follow-up from yesterday's episode. Yesterday was Super Tuesday in the U.S., so an important day for primary elections, and Joe Biden had a massive day outperforming basically everyone's expectations, including probably the Biden campaign, which is interesting in the context of the poll we ran looking

at or asking which U.S. election outcome would be best for Bitcoin. Biden was by far the lowest after Trump and Sanders and Bloomberg. Biden only got 6% of the votes, but Biden looks better today as a candidate than he ever has before. Now, I think that probably Biden got such a low percentage of votes because he seems like he would kind of just be mainstream, whereas people are counting on Sanders and Trump, at least in this poll, to juice QE so much that it makes the case for Bitcoin all by itself. so maybe a little bit disappointing for the crypto crowd, but either way, a really interesting moment. But with that out of the way, let's actually dive into our first and biggest topic for the day, India.

Okay, so as I mentioned, India's Supreme Court has reversed a ban on banks serving crypto exchanges in the country. First, what was the decision before? How did this whole thing come about? In April of 2018, the Reserve Bank of India banned domestic banks in that country from serving crypto exchanges. Now, the reason for the decision given at the time had to do with your standard hit list of crime, terrorist funding, money laundering-based reasons, but many of the exchanges in the country believed that it was actually because the RBI, the Reserve Bank of India, was interested in exploring its own digital currency, and that was in fact reported that same month that the ban happened in April that the RBI was examining whether a digital currency might be

in India's future. A few months later, the Supreme Court of India endorsed this decision, this ban by the RBI, and ever since then, exchanges have been fighting it. So what happened after that? Well, obviously, the exchanges in that company were hugely nervous about this decision. It effectively put the kibosh in a lot of ways on growth and development of the Indian crypto industry, and so they filed petitions basically to get the decisions reversed. Over the last couple years, there have been a huge number of hearings around this,

and at least part of the argument had to do with regulatory overreach and whether the RBI actually had the authority to make this sort of decision. So I think the key thing to note here is that this has been a long battle. I mean, imagine that the crypto industry in the U.S., for example, had just been effectively shuttered in early 2018, how many of us would still be here fighting, right? Really think about that. Two years on, how many would still be fighting for this financial future that we believe in and trying to spend our time on this versus just moving into something else. I think it's a really impressive feat just of endurance in a lot of ways. On that note, I want to play a clip from Nishal Shetty, who is the CEO of Wazir X, which is a exchange in India that was

purchased by Binance. He was on Bloomberg Quint in India this morning talking about just what this decision means. So let's listen in. See, I think we're all elated by what has happened. If you look it's been around 18 to 19 months since the circular or close to two years now since the circular came into effect and since the time of the circular it has been very very hard for crypto businesses in India and most of these businesses are startups these are not like large companies these are startups trying to build on new technology but the rbi circular prevented us from having an effective business which caused a lot of companies to shut down And if you look at it today, there are thousands of crypto businesses globally, but in India

we can count a handful. So I would say this judgment now opens up the floor for new startups to emerge in India and to attempt their hand at this innovative technology. So the entire crypto ecosystem is related by what has happened. We've been fighting for this, and we're glad that the Supreme Court orders squashes this whole circular. So what happens next? Well, India is a country of more than 1.3 billion people.

certainly we're going to see, I hope, a boom of activity and excitement. On the flip side, there is still cause for concern, right? The government didn't suddenly reverse its perspective on crypto. It's still largely antagonistic. But this does have implications for other dimensions of that antagonism. Currently, the Supreme Court is hearing a separate case around regulations of digital currencies. And one of the implications of this ruling could be that the Supreme Court limits how strict or draconian the government can be in its regulations of crypto. Another implication that some are talking about has to do with Libra. When Libra was first announced, its big pitch to the world was about banking the unbanked. Well, a huge portion of the world's unbanked lived in India.

And very soon after the Facebook announcement, the Indian government basically said that this would never be allowed in India, which really poured a lot of cold water on Facebook's pitch. In fact, listening to the first set of hearings with David Marcus in the U.S. And people ask, they said, look, you know, the Indian government said that they're completely not going to allow this. And that's a huge portion of the world's unbanked. So how do you deal with that? So what we don't know is exactly where this will all resolve. You still have a government that is largely antagonistic to cryptos, but it is undeniable that for, like I said, more than a billion people, the opportunity to participate in this space is now

much, much bigger and brighter than it was just yesterday. So huge kudos to all of the exchanges that were involved in filing this petition, to the lawyers that actually fought and got this through, and to the entire Indian crypto community who has kept faith. They've hashtag India wants crypto for months and months and months. Really exciting day for them that we should all be thrilled about no matter where you are. But with that, let's actually turn to Libra, which itself was in the news yesterday with some interesting developments. The Libra Association has been showing some signs of life recently. After a couple quiet months, over the last two or three weeks,

we've had two announcements of new members joining the Libra Association. First, it was Shopify, and then second, it was the crypto broker dealer, Tagomi. Now, I think what's interesting about those announcements to me is that they seem to indicate a shift in strategy from these big signaling organizations, right? The visas and master cards of the world, who the Libra Association, tried to recruit initially as a way to show governments that there was this big coalition, two companies that actually have a similar worldview about the future of finance with them, right? Shopify is not a crypto company, but it brings a approach that is fundamentally focused on

giving small business owners, small digital business owners better tools, which is in line with this whole kind of decentralized financial vision of the world. Well, news broke yesterday about an even more significant shift in the Libra plan, or at least in the context of Facebook's plans vis-a-vis Libra. At first, the information reported that the Facebook Libra wallet, i.e. Calibra, would be abandoning the Libra asset, right? This asset that was theoretically backed by a basket of currencies rather than peg to any one individual currency. That report was quickly amended as Facebook actually commented on this. And what came out is that it looks like Facebook is looking to include or create a set of digital currencies that are pegged to existing fiat digital currencies,

right? So a USD-pegged Facebook digital currency, a Europegged Facebook digital currency. So a few different thoughts about this. First, I don't think that anyone who's been watching should be particularly surprised about this move. This was one of the biggest points of consternation for regulators, particularly American regulators, with Libra, was the idea that the Libra itself would be backed by a basket of currencies rather than pegged to the US dollar specifically. At the hearings that he participated in last fall, Mark Zuckerberg gave some indications that that may be one of the areas of compromise from them. So I'm not at all surprised to see some shift in that direction, even though this is actually even less of a shift than I thought

might happen where Libra itself seems not to be moving away from the reserve basket of currencies scenario, but there are going to be a different slate of Facebook digital assets. The second piece of this is that it sort of is an unintentional or maybe intentional reinforcement of the idea that the Libra Association is independent and different from Facebook, right? Facebook now gets to say, no, look, we're actually building different digital currencies with our Calibra project that are pegged to specific assets, while the Libra Association, it does whatever it's going to do. A huge part of the argument for why Facebook should be allowed to proceed with this

is that it wasn't actually Facebook, right? Is that it was this new thing that Facebook was just initiating. The more that they do to actually make that real, perhaps the better it is in terms of their regulatory stance. The last thing, and this is kind of my hot take here, is that it feels to me like this might be better for Facebook from a strategy perspective, then just launching with Libra. Here's what I mean.

One of the things that people who have built products commented when Libra was announced is that there was no guarantee that Facebook would actually be able to build something that people wanted, right? Just having 2 billion plus users doesn't mean that those users are going to want to build a product. In fact, history is littered with Facebook products that just didn't hit the mark, right? And you look at any tech company with a big user base and that's the same thing. We don't even need to get into the history of Google products that just didn't work despite

their ability to put them in front of hundreds of millions, if not billions of people. It is a big shift to move into using, in a day-to-day way, a new digital asset where you're used to using your dollars or your euro or whatever. And this is reinforced by the fact that most people who are interested in crypto assets, digital assets today, do kind of see them as an investment opportunity, right? even if they have long-term belief in the potential for those things to be like money, they're probably investing because they think they're the future. Thinking about wanting to spend them is a difficult thing.

What Facebook is now doing when it launches its Calibro wallet, by having just digital versions of USD or digital versions of the euro, people won't have a fundamentally different experience. They might just use it because it's integrated with Facebook Messenger and with their other services that they use, and it's effectively the same as paying with their bank accounts. At least it seems like it to them, right? So the mental hurdle of using a Facebook digital US dollar

is different, potentially, than the hurdle of using a Facebook-initiated Libra Association Libra. Now, of course, we still don't have all the specifics about how these new digital currencies are going to work or how many of them are. is all reacting to one investigative report by the information, but I do think that it makes some amount of sense for Calibra specifically, the Facebook subsidiary focused on digital currencies, to take this path forward.

Now, what I'm less sure of is what this eventually could do in terms of the relationship between Calibra and the Libra Association. What I mean by that is that if Calibra's digital Facebook currencies just take off, does that make them less incentivized to actually care about fighting the regulatory battle around the Libre Association? I'm not sure. I think that's a future debate that will kind of just have to wait and see. And again, there's no guarantee that even if Facebook does launch digital currencies for every fiat in the world that they actually take off and fit in a product experience that Facebook users want. But certainly an interesting development, if nothing else.

Three last things, the little news grab bag that I'd want to touch on just super briefly. First, the IRS held a little meeting slash conference yesterday with exchanges and other leaders. And big surprise, the key takeaway was that people in crypto want more guidance. They want more regulatory clarity. This continues to be the theme of basically every regulator meeting with the crypto industry is get us, get us, get us, get us that regulatory clarity. Also in the news today was that Jeff Goldberg, a blockchain entrepreneur, an independent researcher who had been digging deep into Twitter bot networks and was eventually kicked off of

Twitter is suing the platform with the help of crypto-friendly lawyers Stephen Paley and Preston Byrne for damages associated with them removing his account. This will be a really interesting case potentially in terms of what the relationship of bots on these platforms, in terms of the questions of deplatforming that are a really important part of the conversation for many parts of the crypto community. So certainly something to watch and keep track of there. Finally, in what seems like a cool bit of hardware news, HTC is launching a router that also allows people to run Bitcoin full nodes. HCC announced the Exodus 5G hub today. They said it's a router that can run its own Bitcoin full node. And they added the Exodus 5G hub will also support a suite of

privacy applications. Own your keys, own your privacy. People so far haven't had a chance to dig into it. They don't exactly know what the specs of this thing are going to be. So there's not necessarily universal excitement or thrill about this device per se, but people are definitely stoked that we're seeing more self-sovereign technology where the Bitcoin ecosystem is being built into hardware from the ground up. So again, another thing to keep an eye on, and something that is perhaps a cool moment in the hardware history of Bitcoin, if nothing else. All right, guys, that is the breakdown for today. A really exciting day for, I think, the Indian crypto community, obviously, but the whole crypto community. For anyone who wants to see where this technology and where this

new financial system can go, bringing in a huge portion of the world's population is not only exciting but essential. So, congrats to everyone who's involved with that and looking forward to seeing what gets built next. That'll do it for us though, so until tomorrow, guys, peace.