Gordon Einstein: The Fact That Libra Stalled Reemphasizes Why Bitcoin’s Autonomy Is so Important

28.01.2020

In retrospect, Libra was the hype of 2019. Facebook, global payment processing, cryptocurrency all mushed together in a reptilian power fantasy. “What could have gone wrong?” we ask ourselves as we watch Vodaphone coyly quit the Libra Association, becoming the eighth company to pull out of the project.

So what happened? Is Libra as good as dead? Our today’s guest can shed some light on what’s up with it.

Today forklog.media talked to Gordon Einstein, the founding partner at CryptoLaw Partners, early Bitcoin adopter and “the most expensive lawyer in the world” that deals exclusively in crypto-related matters. Gordon has been closely following the developments at Libra from the moment of its inception and has become somewhat famous within the community for (among other things) his commentary on Libra.

We talked to Gordon about a slew of Libra-related topics. What is Libra, who stands behind it, and who fights against it? Why might it ultimately fail and how did it in some ways paradoxically succeed. And, of course, what happens next.

forklog.media: Hello, Gordon! Why don’t we start from the very beginning? What is Libra? Some members of the community refuse to call it a cryptocurrency. How would you define it?

Gordon: These terms—digital currency, cryptocurrency—they are not legally defined. And they mean different things to different people.

I’d say there are two kinds of currencies. There’s a currency that operates as legal tender, meaning it’s a recognized form of exchange that governments say will be used within its geographical space. And there’s non-governmental non-legal tender currencies, which nonetheless represent value, units of account and an accepted medium of exchange.

Digital currency is when either one of those types is not represented in physical form but is represented in computer-based accounting systems. And, when it is electronically transferred by the debit/credit type system.

Believe it or not, the vast majority of legal tender currency is actually digital. But when we within this community say “digital currency” we’re usually referring to a non-governmental form of currency that’s entirely electronic.

It’s very clear that Libra, as proposed, is at least a digital currency.

When it comes to defining cryptocurrency, I go down the Vitalik Buterin and Satoshi way of looking at it. Cryptocurrency is a type of digital currency that is secured through various cryptographic facilities. It’s not necessarily that transmissions back and forth are encrypted because that’s kind of what happens with digital currency also. It’s more that there are these crypto-economic tools in place for making sure that there’s no double spend, that the amount of it issued is under control, that ownership of it is provable, and that transactions are signable by a private key.

forklog.media: So you are basically describing a blockchain?

Gordon: A blockchain can use cryptographic mechanisms to ensure its integrity. We kind of assume that’s what it’s supposed to do because Bitcoin does it. But there’s no specific requirement that a blockchain makes use of cryptography, though it certainly should.

So I’d say that cryptocurrency as a class uses distributed ledger technology coupled with crypto-economic security measures. And it specifically addresses the traditional issues with legacy digital currencies which are not legal tender—double-spend issue, the rate of issuance and the issues of censorship. So if those issues are resolved by cryptographic mechanisms, I’d say it makes it a cryptocurrency.

You can make a good argument that Libra is a digital currency but it’s questionable whether or not it is a cryptocurrency because its issuance, for one, is not cryptographically metered. It’s more like Tether. If people buy it, the Association will issue it. And they may even potentially retire it.

This is my take on it.

forklog.media: I remember you calling yourself a Bitcoin maximalist, is that correct?

Gordon: I’ve used that term before. But let’s rather say I’m a Bitcoin idealist. I really like the idea of it.

forklog.media: So from the perspective of a Bitcoin idealist, do you think Libra even needed a blockchain?

Gordon: Even if Libra is not a cryptocurrency it doesn’t mean it can’t benefit from the use of blockchain. And when you have a consortium, which is basically what the Libra Association is, to have a single source of truth shared amongst all of them is useful.

I don’t know if Libra absolutely needs blockchain, but it does add a degree of reliability about what transactions have happened in the past if that blockchain is distributed and not under the control of a single party. Blockchain is useful because it provides clearer and more reliable statements of what happened and the time and order in which they happened. Non-distributed databases under centralized control are potentially less reliable because transaction time is just an entry there and that entry may be changed by the party with control over the database.

So it would be nice if there was a blockchain component in Libra but I don’t know if it’s formally a full blockchain in the usual sense of the term. I think there is a little bit of hype involved.

In my mind blockchain is a data structure. There are time-stamp and all these cryptographic features but basically, it’s a form of a linked list. Each structure on that linked list is a block of transactions. The way Libra is currently envisioned, I don’t think it’s technically a blockchain.

But you can go too far with this. When people say “oh, it’s not a cryptocurrency” or “oh, it’s not really a blockchain,” that’s interesting, but that doesn’t necessarily make Libra bad. It’s just doing things differently where Bitcoin has so far failed, namely in becoming a real-life global medium of exchange.

The Bitcoin maximalist in me says “Anything else trying to be a medium of exchange is detracting from Bitcoin.” But Bitcoin idealist in me says “I really want Bitcoin to be a medium of exchange but in real life, it’s not doing it. So if someone else solves it and it gets adopted, so be it.”

Blockchain does not solve everything. It’s not meant to. It’s just a tool. A fantastically useful tool in distributed systems. But maybe currencies are not meant to be distributed or maybe it’s not realistic.

forklog.media: Do you think Libra is good for the industry?

Gordon: That’s a tough question. I have mixed feelings.

forklog.media: Let’s go for the cons and pros?

Gordon: Sure! Pros: firstly, it will make more people aware of cryptocurrencies. Libra, even if it doesn’t ever show up, has accelerated history by a good three to five years. All of a sudden countries are talking about cryptocurrencies, converting their own currencies to digital very quickly, and they were not necessarily talking about doing it at this speed before. Libra pushed countries to go down this route.

Another pro is that Libra drew attention to the fact that there is a large contingent of people who are unbanked and lacking access to financial services. And this issue has not been addressed globally before.

It also showed that banks are not a strictly necessary component of a financial system. The entire Libra Association did not consist of a single bank, just payment service providers and other entities. Banking is basically about taking deposits and making loans. If you have a wallet that is secure and is your own (not custodial) you don’t really need the deposit functionality of the bank. The loaning process does not get solved by a wallet but it may be solved by the financial services that you can layer on top of a wallet infrastructure. So there’s this great saying: “go long on Bitcoin and short the bankers.” So maybe going long on Libra would likewise be shorting the bankers.

On the con side, this is Facebook. I don’t like all that Facebook has done. But I always make this joke during my presentation. I say “raise your hand if you trust Facebook”. No one raises their hands. Then I say, “Raise your hand if you used Facebook this week, including Facebook Messenger, WhatsApp or Instagram” and almost everyone raises a hand.

So people have an opinion about Facebook that is occasionally negative because Facebook has been quite reckless if not abusive about privacy and other issues. But Facebook is a fantastic utility and I use it all the time. My legal career became successful in part because of Facebook. Still, there’s no denying that Facebook has been playing loose and fast with privacy and other issues. So it’s not a good look for the first corporate global crypto to be associated with Facebook.

forklog.media: Did I get it right that in your opinion Libra’s only drawback is that it’s made by Facebook?

Gordon: There’s a series of questions that are just not Libra specific. Do we want commercial interests like Facebook, like Google, like Tencent, do we want these companies individually or as a group to have the ability to create the currency that we use every day? Or do we want that in the hands of governments, or do we want something truly decentralized and independent like in Bitcoin’s model?

It is not clear to me at all that we want our day to day transactions to be in some corporate crypto. Because even as unresponsive and unthinking as governments and regulators sometimes are, they are at least a little bit accountable to their populations. Whereas corporations are technically only accountable to their shareholders.

So the whole idea of corporate crypto may sound cool. It sounds like some kind of William Gibson cyberpunk novel. But we haven’t been in this world for centuries and I don’t know if it’s safe or good to reenter this world now.

I don’t know if Libra has any other specific cons. It’s a little bit tainted by its association with Facebook. It’s a little bit tainted by the fact it’s a corporate private currency. But it’s surely an interesting idea.

forklog.media: Can we backtrack a bit to banking the unbanked segment? We’ve heard that slogan before with a few spectacularly unsuccessful ICO projects. Do we actually know that the currently unbanked have money and require access to banking?

Gordon: That’s a great question. I have mixed feelings about this. Just because someone doesn’t have something, doesn’t necessarily mean that a person needs it. You’re right. The question is: what is the impact of not having banking for these people?

forklog.media: Wouldn’t banks organically move in, if there was sufficient demand in the unbanked communities?

Gordon: Maybe. But I often hear examples like this: because of the natures of certain societies women are not able to have their own bank accounts, therefore something like Libra is needed to solve this women’s’ rights issue. I don’t know if that’s some sort of politically correct posturing or how true that actually is, but I could see it being true.

forklog.media: Do you think this is their true motivation or just corporate virtue signaling?

Gordon: It’s possible that Libra’s “banking the unbanked” narrative is just a PR positioning strategy. That they see this as their primary market and want to look virtuous while making money from it. Like “how dare you to stop us on our mission to bank the unbanked and free women and do this and that?”

But I think there has to be another layer to it. David Marcus and Mark Zuckerberg are not stupid. They must have known that the regulator’s reaction to Libra would have been harsh. And most of the regulatory pushback has happened in the global north or in first world countries. So maybe that strategy all along was to pretend that they were coming up with a global currency but in real life just target the global south.

But if they said that from the very beginning they might be accused of being exploitive or imperialist. So maybe they made use of the regulators to have a good excuse to just go after the south? And say “hey, it’s not because we’re exploiting, it’s because the overly-conservative regulators in the global north wouldn’t let us do it up there.”

forklog.media: Sounds like a legit conspiracy theory. But is there enough money there for this to be a feasible plot?

Gordon: The global south is not poor. It just has extreme wealth concentrations so it looks poor. But all these countries have wealthy people. All these wealthy people have bank accounts. The question is do the non-wealthy people need bank accounts?

And it’s a good question. In crypto, we aren’t fond of banks. But banks do currently serve a legitimate function that crypto has not yet successfully replicated. So what if there was a good bridge away from the banking to a more idealist version of crypto?

I think also a part of that push is that the banking system has turned into a system of regulation and control and peering into people’s privacy. Ever since the 9/11 attack, especially since the 9/11 attacks, the banking system really has turned into a global enforcement spying system. With all this reporting between countries and now this machine learning/AI peering through all this stuff.

When people don’t have bank accounts you can’t see what they’re doing. The moment they get a bank account they start gaining transparency. When you combine that with all the tools that Facebook has it’s potentially scary.

forklog.media: Can you tell us about that field investigation you did when you traveled to Libra’s head office?

Gordon: That’s right! Libra Association is based in Geneva. Geneva is associated with multi-national institutions and companies and David Marcus has a long history there, including going to school there. Overall Switzerland gives a lot of good optics.

Part of my lawyer’s philosophy is to get out from behind my desk and take action in the real world. So I went to Geneva and I looked up Libra in the corporate register. And I found the address for a “Libra Networks”. So I went down to the building and I checked it out. And it turned out that that building was a coworking facility where companies and individuals can rent desks and work.

I went in and stated that I was looking for a coworking space (which may eventually actually be the case) and took a tour around the building. I also took a photograph of the occupant’s directory. And guess what, there’s no Libra at Libra. In fact, the only company that’s associated with Libra that was there was PayPal. That was absolutely curious.

I’ve always had the feeling that Libra is a sort of cryptocurrency version of PayPal. And David Marcus, the gentleman who is running Libra, came from PayPal, he was its president. So potentially Libra was operating under that PayPal office.

Ironically, since my visit to Geneva PayPal has dropped out of the Libra Association.

forklog.media: Do they even have an office now?

Gordon: No idea!

forklog.media: Let’s talk more about Libra Association. Who comprises it and why did each company become a member? We can group them for convenience.

Gordon: There were some private equity companies, some social media, there’s e-commerce, a few non-profits, several South American companies and a whole bunch of payment providers.

forklog.media: Why this configuration? It can’t be accidental.

Gordon: They were trying to establish a blend between private equity companies that had been backing it and non-profits to look good. Women’s World Banking was in. I always joked that if you’re against Women’s World Banking you’re going straight to hell. How dare you?

forklog.media: And then the payment services. Were they the guys who actually had the most vested interest in Libra?

Gordon: Absolutely. I think the whole point of Libra was for these payment processors to take banks out of their business and just be able to do their business directly around the world. And when I say it was sort of a payment provider coup, it doesn’t necessarily make it bad. Banks are not all good.

Of course, pretty much every single one of the payment providers has dropped out by now.

forklog.media: So do you think everyone will jump ship eventually? Even Facebook stated they will leave the LA if regulators do not approve of the project in the end. If everyone leaves, what will happen?

Gordon: Yes, it might potentially abandon the project if there’s no hope for it. And Facebook in the meantime ironically has come up with something called Facebook Pay. This is a way to transfer value back and forth using Facebook Messenger, and that is kind of funny.

Yeah, it may all fall apart. I don’t know if anyone will necessarily stay. They all have their agendas. Libra’s potentially useful for this or that function but if Libra is not going to happen or if it’s going to happen in a completely crippled manner, there’s no point in keeping going.

We’ll see. David Marcus is a smart, experienced and persistent man. So if it can happen in some kind of useful form it may happen under his watch. I just don’t think it’s happening any time soon.

forklog.media: If it launches, when do you expect it to happen? David Marcus recently said that regulatory hurdles could see the launch delayed beyond the planned June date.

Gordon: That was always obvious. There was no chance that Libra was going to launch in June 2020. It’s more like 2022 or 2023. Maybe.

forklog.media: Let’s talk about Libra’s enemies. In your opinion who was afraid of Libra the most and for what reasons?

Gordon: Banks, in general, would fear Libra because it would attack their fundamental business. Though we didn’t see commercial banks saying anything in public. Probably because regulators have been saying everything for them. All these financial regulators, all these elected officials, were very vocal and either saying “we don’t want Libra” or “Libra poses threats” or “Libra needs to overcome all kinds of regulatory hurdles before we even consider”.

forklog.media: Did bankers basically assassinate Libra with politicians’ hands?

I think that’s an overstatement. I think banking lobbies may have had some involvement but because Libra really fundamentally attacks the concept of currency issued by governments and removes the levers and dials that governments use to control the economy, I don’t think the government leaders needed to be pushed too hard to be very suspicious of Libra.

The US, France, Germany, Switzerland—all the regulators from developed economies said bad things about Libra. And Russia and China, who of course have some interests against the US, were quiet about it. I don’t think they would allow Libra to operate within their environments but they’re happy with everything that potentially threatens the US dollar. And because Libra could become a global currency that takes over the dollar in that function, I think it threatens the US dollar the most.

forklog.media: What actually needed to happen for Libra to be launched, to satisfy the regulators?

Gordon: In theory if Libra put in lots of controls against money laundering and terrorist financing if Libra had very transparent systems that governments could get into, and if the privacy and security of the users were guaranteed, then the arguments against Libra are certainly lessened.

Whether or not the regulators would ever be satisfied or ever explain clearly what’s required, I have my doubts.

And I’m not sure that current law forbids Libra from doing what they want to do. But current law can always be changed to forbid it. And even if it’s not technically illegal, if the government doesn’t like you and your business model, you’re not going to survive for long.

In fact, one of the things that really disgusted me was a letter sent from one of the committees in Congress to the payment providers who were involved with Libra. And it essentially said, “if you get involved with Libra, not only will we look negatively on your involvement, we may look negatively on you other perfectly legal payment businesses.” That’s basically blackmail.

forklog.media: Will there be a successor to Libra? As in a globally used cryptocurrency-based regulator-compliant payment system? Not actually controlled by banks or governments that is. And who will try to create it?

Gordon: Regulator-compliant but not controlled by banks or governments? That seems to only leave big companies. Because for something decentralized like Bitcoin, it’s hard to make it regulatorily compliant. Because, if the regulation changes, who’s going to change the crypto to make it comply with the new regulations?

It would be good for humanity if we had a single currency that everyone used. But of course, that currency should be stable, actually, hold its value and fulfill all the normal meanings of currency. Whether we can accomplish that in a world where we have all these nations competing with each other and potentially going to war with each other, and while we don’t have unified humanity, I doubt it.

forklog.media: Shall we then have numerous national/regional “Libras”?

Gordon: Absolutely. And they’re going to be government-sponsored. I don’t think you’ll have a consortium of companies doing that. It’s just too much power and too much of a threat to governments.

forklog.media: What does this mean for Bitcoin?

Gordon: Libra’s problems, the issues it’s facing with regulators, and the fact that the project seems stalled, is kind of good for Bitcoin. Because it reinforces the idea that you want a non-centralized digital currency that will survive and thrive no matter what the regulators do or say. If Libra had gone past the regulators then maybe Bitcoin’s resilience and censorship resistance weren’t really needed. But the fact that Libra stalled reemphasizes why Bitcoin’s autonomy is so important.

forklog.media: To sum it up, on a scale from 0 to 10 how dead is Libra?

Gordon: Umm… 7.5.

forklog.media: Pretty dead?

Gordon: Pretty dead. But not completely dead, and resurrection is always possible. We’ll see!

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Tags: cryptocurrencies, Facebook, Gordon Einstein, Libra