“Hey Andreas. It is official: Facebook
will give us GlobalCoin early next year.” “Please put our concerns to rest and remind us why this
will only compete against central bank fiat currency, and not be a threat to Bitcoin. Thanks!” Unfortunately, I can’t put your concerns to rest.
In fact, I have sold all of my bitcoin to buy GlobalCoin. No, I am just kidding! What Facebook, or companies like Facebook,
are proposing is not a cryptocurrency. It doesn’t have any of the fundamental
characteristics of cryptocurrencies. It does not stand on the five pillars of open blockchains.
In fact, it [stands on] none of those [five pillars]. What are the five pillars that we talked about before?
You have probably [heard me say this] a few times. A cryptocurrency is open, public, neutral,
borderless, and censorship resistant. All of these characteristics stem
from decentralization of control. Anything created by a centralized organisation that
can be identified and exists in a specific jurisdiction, subject only to its laws,
cannot achieve any of these five pillars. They cannot achieve it because
the law prevents them from doing so. First of all, they can’t be censorship-resistant.
Let’s start with the [last characteristic in the list]. They can’t be censorship-resistant because they are
legally required to prevent the transmission of funds… to certain entities, including [those within] sanctioned
countries like Iran, North Korea, and Venezuela. Companies and people on the OFAC list,
run by the U.S. Department of Treasury. You can’t send money [to them]. You can find the
search engine, type in a name, and it will tell you… if that name is on the OFAC list.
Just for fun, type “Pablo.” The first name that will come up is Pablo Escobar.
It is a felony to send money to Pablo Escobar. The OFAC list is long. How long? Nobody really knows. If you are a regulated entity, you are required to check
[names] against before transmitting payments. So [Facebook’s coin] won’t be censorship resistant, because you are required by law
to censor certain transactions. The OFAC list is becoming longer and longer.
If [Facebook’s coin] can’t be censorship-resistant, it also can’t be borderless. If you are prohibited from sending money to
certain countries, you must be able to identify… who is receiving the money and where they are. In order to identify who and where they are, you must
follow ‘Know-Your-Customer,’ ‘Anti-Money Laundering,’ and counter-terrorism financing regulations.
Essentially, [they] would start behaving like a bank. Anybody who implements a centralized payment system
must follow the rules of a money transmitter or bank. At that point, you are no longer neutral.
The protocol itself cannot be neutral. “Neutrality” means any sender,
recipient, or value regardless. The protocol should not care where you are, who
you are, what you are doing with the money, or why. A regulated entity cannot [refuse to] care about
these questions. They must check all of those things. “Who are you?” “Where are you?” “What are you doing
with this money?” “Where did the money come from?” You may notice, those are very specific questions.
Your bank has probably asked you these questions. The exchanges you deal with have
probably asked you these questions. “What is your income?” “Show us identification.”
“Which country are you in?” “Are you an American?” This applies across the world.
Every jurisdiction has different rules. Facebook acts as a borderless company
in many aspects of its operation, but… money is not an area in which it can do that. It can do that with content [to some extent]
because of various protections under the law. Even that results in Facebook being blocked
and banned in a number of authoritarian countries. If they tried to follow payment regulations, for two
billion customers across 194 countries, is a morass. It would have the same problems that PayPal has.
Why is PayPal not a global company that… serves 194 countries equally? They can only [fully] serve about twenty to thirty
countries, [and dozens more to a limited extent]. And even there, they must [comply with a lot
of restrictions], because they became a bank. They are not censorship-resistant, borderless, or neutral. They can’t make this information publicly available,
because that would violate various laws. They hold a lot of private identity
information about owners of money. They can’t create public APIs, transparency reports,
due to laws around secrecy of financial information. Most importantly, they cannot be open.
They cannot give access [to anyone]. You can’t send or receive outside of their platform.
They won’t allow you to take [coins] off their platform. They won’t allow you to sell them to someone else
unless they are an intermediary in the middle, and control every transaction. They are not open, public, neutral, borderless, or
censorship resistant. It is not a cryptocurrency. They are a bank just like PayPal and JPMorgan Chase. They will be a large, multi-national, powerful bank with
a lot of users. [Traditional] banks should be very scared. When technology companies start playing in banking,
with all of these users and experience with technology, that will be a real challenge for [traditional] banks. Even though Facebook’s coin cannot be as open,
borderless, neutral, or censorship resistant [as bitcoin], they could certainly be more open and
reach more countries than JPMorgan Chase. They will start with more users. That should be scary
for all of the existing financial services companies. It should also be scary for some authoritarian
regimes that will try and fail to block Facebook. They may try legal shenanigans and
probably fail, or face an army of lawyers. This does affect central banks as well,
especially in countries that have problems. It does affect fiat currencies.
It will force banks to modernise. All of the legal restrictions will be challenged,
of course, which may make the banking system… more open, and that would be a good thing.
But [GlobalCoin] can never be a cryptocurrency. It can never be as open as Bitcoin, or any of the open, borderless, public, neutral,
and censorship resistant cryptocurrencies. I will hold what I have. To me, this is
not about convenience of payments. This is not about access to a 2 billion userbase.
This is about being free, being able to hold my money, [where] no one else can just freeze it, censor it,
tell me who I can and cannot transact with, when, how, or what I can transact for. That freedom is at the core of cryptocurrency.
You won’t have that freedom with GlobalCoin.