Libra Faces a Decentralization Dilemma As Regulatory Authorities Pile On The Pressure
Conversations about Facebook’s Libra have dominated the news in recent times. The American government and legislators have been debating whether or not the project should be allowed to come to fruition.
The position Libra is in was summed up by a lawyer called Marco Santori, who spoke about the challenges Facebook is facing in the establishment of its project.
Santori pointed out that Facebook is required to be centralized enough to prevent illicit activity and freeze funds of those suspected to be engaging in a criminal enterprise. At the same time, Facebook needs to maintain decentralization in order not to discriminate against users based on how they make use of their funds.
The original premise behind cryptocurrency was the need to create electronic cash. In so doing, there would be the conception of private digital payments which bring the functions of physical money in the world to the online world. The idea was that people shouldn’t have to prove their identity to make a payment on the internet.
Although cryptocurrencies have been riddled with the controversy surrounding their use in financial crimes, it is important to note that not everyone who uses digital assets is a criminal. Identification processes applied in conventional banking systems are sometimes difficult and they are detrimental to commerce.
Why Crypto And Privacy Are Important
Over the world, there are over 2 billion adults that do not have bank accounts. This is due to a variety of factors such as poor credit scores, lack of identity documents or a lack of education. As a result, these people face limitations in the extent to which they are able to engage in commerce.
Even if the banks wanted to offer them accounts, international know your customer standards disallow the local banks from doing so lest the banks themselves come under fire. Cryptocurrencies offer these people a way out and enable them to engage in commerce internationally.
The need for privacy is even seen in Wall Street’s hedge funds, brokers and banks which trade on behalf of wealthy individuals. The identities of the person on whose behalf trades are being executed is rarely known as they buy and sell stocks, bonds or commodities. These are some examples to show why privacy is of importance when money is involved.
While there is a valid need for crypto enabled privacy to satisfy the aforementioned needs, the fear that the digital assets will be employed in a criminal enterprise is also valid.
Regulators are calling for stricter KYC checks and for exchanges to be able to provide the personal information of traders of authorities request it. Crypto developers are pulling in the opposite direction and they are developing solutions that make cryptocurrency more private, gives more autonomy to users and exchanges that are more trustees.
Facebook will have to find a way to satisfy both the authorities and those who intend to use Libra. This will be tough ground to find as neither side can be able to compromise to a level that will satisfy the other.
How Facebook and its partners maneuver out of the predicament they’re in is yet to be seen but one thing that’s for certain is that there is my way to please both ends of the dilemma