Facebook’s Calibra and Libra – “Mastercoins” and the “Circle of Trust”?

 “Our goal is not to build a platform. It’s to be across all of them.” – Mark Zuckerberg, 2011

“This was the beginning of surveillance capitalism, and the end of the Internet as I knew it.” – Edward Joseph Snowden, 2019

“I’ll trade you these gold “Mastercoins” for your ruby ring,” I asked my friend in Fourth grade. We swapped – she ate the chocolates and I wore the ruby.

As a child, I saw trading baseball cards was stats-based, basically swapping one player’s card for another. I soon figured out that there were other items that could be exchanged based on their perceived value turning them into “high value assets.”  

I masterminded and kept pushing the idea that some “gold” colored foil wrapped chocolate coins were rare, “Mastercoins.” How?  I purchased large quantities of these “gold” coins. Then I publicly traded my bike for 10 Mastercoins amongst my “circle of friends.” (No real loss. I learned I would be getting a new bike for Christmas for being “good” all year). I did the same with other items I’d soon replace.

In time, I expanded my circle of friends to other neighborhoods. In time, the items I wanted but my parents could not afford were purchased using rare Mastercoins. Then, some in my circle of friends broke the “circle of trust” by pocketing others’ coins mixing them with the Mastercoins.

Outsiders and some in my circle of friends wanted items their authorative parents would never have allowed them to have. And so they developed a network of platforms whereby they could trade their “dirty” coins for Mastercoins to buy real “high value assets.” It’s funny how child’s play of trading chocolate for play jewels among a “circle of friends” can lead to breaking a “circle of trust” for real high stakes platforms.

Inside the “Circle of Trust” and Cryptocurrency

Are Calibra and Libra, just more platforms? Mark Zuckerberg says “It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall…” Zuckerberg’s idea of a cohort being “decentralized” appears to run counter to known centralized groups, associations, and agencies (i.e. Central Intelligence Agency). Have members of the CIA and other agencies been fair? Wait, their systems are not designed to be fair but about collecting Intel.

Calibra. What’s in a name? Interesting, the word calibrate means to regulate, standardize, and to repair. These words are not synonymous with social media reported motto of “breaking things.”

Will users trust Libra’s Association and what appears to be a “circle of trust” of current members and any future members? As their website notes the, “Network of partners – The Libra Association is governed by diverse businesses, nonprofit and multilateral organizations, and academic institutions.” Though based in Switzerland, partners stem from the U.S., U.K., Netherlands, Russia, Argentina, Sweden, France, and Hong Kong.

Mastercoin→Bitcoin→Libra→?

About two centuries ago economies of scale decided that “Knowledge had to be gathered, organized, standardized, recorded, continually updated, and easily accessible…” According to Hernando de Soto and Karen Weise, this resulted in “the invention of the first massive “public memory systems” to record and classify-in rule-bound, certified, and publicly accessible registries…” System appears to be standardized and regulated – calibrated.

It did not matter in what form it was, “intangible (stocks, commercial paper, deeds, ledgers, contracts, patents, companies, and promissory notes) or tangible (land, buildings, boats, machines, etc.).” The importance of the system was “Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results.” Brings me to the open distributed ledger.

In their 2017 paper “The Truth About Blockchain,” in Harvard Business Review, Marco Iansiti and Karim R. Lakhani describe DLT as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” With what currency?  Bitcoin.

Nakamoto’s “Bitcoin” and Snowden’s “Permanent Record”

On November 1, 2008, Satoshi Nakamoto reportedly “posted a research paper to an obscure cryptography listserv describing his design for a new digital currency that he called bitcoin.” Does anyone else find intriguing the timing of Nakamoto’s paper? Was it by chance? Or, by design to address the 2007-8 global financial and economic crises?

In September 2019, Edward Joseph Snowden’s book, “Permanent Record”, notes that “The early rush to turn commerce into e-commerce quickly led to a bubble, and then, just after the turn of the millennium, to a collapse. After that, companies realized that people who went online were far less interested in spending than in sharing, and that the human connection the Internet made possible could be monetized.” Sure, today, few are surprised. But was anybody listening six years ago when Snowden “disclosed the government’s documents only to journalists”?

According to Iansiti and Lakhani, “The very foundations of our economy have changed. Physical scale and unique intellectual property no longer confer unbeatable advantages; increasingly, the economic leaders are enterprises that act as “keystones,” proactively organizing, influencing, and coordinating widespread networks of communities, users, and organizations.” However, little has changed.

I see the blockchain as the “railroad in the cloud” facilitating the transport of people’s transactions, commodities, etc. Instead of engineers building a railroad, you now have developers designing applications and users mining. Recall Zuckerberg’s 2011 statement, “A big part of being a technology company is getting the best engineers and designers.”

Whose the Conductor operating the chain of blocks?  The Libra Association website states, “The Libra Blockchain is operated by a network of validator nodes. The evolution of the blockchain will be overseen by the Founding Members of the Libra Association, and each member will be responsible for running a validator node.” Sure, transactions on blockchain run on high-tech but the product runs through the usual customs process of dull, dirty and dangerous, remnants of the “gilded age” and the “men who build America.”

Cornelius Vanderbilt was one of those men. According to T. J. Stiles’ book, The First Tycoon: The Epic Life of Cornelius Vanderbilt, Vanderbilt, “embraced new technologies…and used them to compete…” Vanderbilt, also known as “The Commodore” became the owner of the New York Central Railroad. NYC Railroad became central to the nation’s trade infrastructure facilitating transportation of people and goods. So will be the next “Commodore”?

Regulating Cryptocurrency

NYC Railroad’s regulatory constraints coupled with competing forces from the automobile and airplane industry led to buyouts and bankruptcies. I would venture to say that we will continue to see “frictions and a mismatch between new technologies and old regulatory structures.” Government is known to walk at a flatfooted pace, especially in its attempt to catch up with technology, a fast-moving runaway train.

Did “The Destruction of Economic FACTS” facilitate a block chain of runaway trains remotely controlled by a select number of conductors on a virtual platform? According to de Soto and Weise, “Over the past twenty years, Americans and Europeans have quietly gone about destroying these facts. The very systems that could have provided markets and governments with the means to understand the global financial crisis- and to prevent another one- are being eroded…” Warnings of another financial crisis endure.

In my June 2018 paper, “Virtual Currencies and Financial Disclosure.  What’s the Point?”, I refer to Senator John Neely Kennedy (R-Louisiana) and the testimony of Jay Clayton, SEC Chair and J. Christopher Giancarlo, CFTC Chair.

Kennedy asked, “how far you think we ought to go to protect people from themselves?” I take Kennedy’s question as pointing to the need for people to take responsibility for their actions. Sir, agreed, but how many people conduct due diligence and research a company before purchasing a product? Also, not everyone reads the Wall Street Journal, so the article “Regulators Are Looking at Cryptocurrency” written by Clayton and Giancarlo may have been overlooked.

Gentlemen, my suggestion to you was to reach out to the public on the same platforms they’re being targeted: Combine your warning, “The SEC does not have direct oversight of transactions in currencies or commodities” with that of those who understand ICOs and that “a commodity like token has no issuers upon whom investors rely, but it trades on speculative spot markets.” Few listened.

According to Microsoft’s President Brad Smith, “Government needs to do more…move faster…” But Smith, government has been moving fast, on 5G that is. We wouldn’t want the nation’s population as a whole to be “left behind” because like Qualcomm’s CEO, Steve Mollenkopf stated, “you don’t really catch up.” Steve, nothing like using fear to get people to buy the latest gadget or download another app.

So why the pushback from government and banks?  According to Sen. Mark Warner (D-Virginia) “We’ve got to get this balance right, we want to keep this innovation in America, but as a former Governor the revenue leakage from internet based transactions for states that depend upon sales tax is an enormous challenge.” In other words, we’re all for being the leader in technology as long as we, government and banks, get a piece of the action.

Hearings on Virtual Currencies (VC) continue. Warner’s past statement, “The uses of virtual currencies have proliferated in recent years. My hope for this hearing is to educate the Senate members…the potential and drawbacks…” It appears Warner continues to hope on tech issues. In a recent discussion on Disinformation & Technology, Warner was asked what he and his party were doing to incite social media and networks to monitor their platforms. His response, we “hope persuasion.”

Democrats are good at hoping. Hoping for change and hoping to win elections. But hope is not an excuse for unpreparedness. Warner, before attending a discussion on disinformation, you may wish to obtain information on the subject.

Noting that Facebook was “caught flatfooted” at a past hearing, Warner appears to have been caught “flatmouthed.” When asked about the Information Quality Act, he responded, “I’m not sure I know what the Informed Quality Act is…Shame on me and my staff.”

Warner, for your information and your staff, the Information Quality Act (IQA), also known as the Data Quality Act (DQA) “requires federal government agencies to employ sound science in making regulations and disseminating information.” Remind us why you Chair the Senate Intelligence Committee? Sir, you may wish to pay attention to Republican Senator John N. Kennedy who is informed and whose clever questions likely led to Facebook, and others, being “caught flatfooted.”

Not surprisingly, Warner’s rhetoric exemplifies the majority of Democrats. Though admitting ignorance on the subject of IQA, Warner points to how he’s profited from technology. “I remember I was lucky enough to get into the cell phone business back in the early 80s and everybody thought it was going to be a small business. They were wrong and I got rich.” Will Warner be “lucky” with the business of cryptocurrency? Hmm, could this be why he reportedly said, “don’t want to knee cap these innovative companies”? Will other members of Congress be future investors in Libra?

A “Free” Calibra Across a “Neutral” Libra?

In a 2011 interview, Zuckerberg was asked “You’re one of four tech giants battling for the future. How does this play out?” Zuckerberg responded, “Our goal is not to build a platform. It’s to be across all of them.” Exactly. So while some members of Congress have been concerned about privacy and social media reportedly collecting data, they’ve either naively or reluctantly closed their eyes to the books, that is ledger books.

Surprise! Facebook has moved past collecting bits of data. Its new project appears to be collecting bits of currency, Calibra, from the larger Libra.

Timing, why now? I’m sure you’ve heard that Facebook, and other tech giants, are reportedly being investigated. So why announce their interest in cryptocurrency? Is it a form of distraction from the antitrust probing? Or, did Facebook see election year as a perfect time to make their announcement as politicians themselves were already distracted? For those of us who have actually payed attention and listened to Facebook’s CEO and COO, Calibra and Libra came as no surprise.

Libra’s Blueprint?

As innovative as the company may appear to be, Facebook’s actions reflect the old structural management that is market-based utilizing traditional foreign currency markers. According to the Libra Association website, “Libra is a global, digitally native, reserve-backed cryptocurrency built on the foundation of blockchain technology.” Unlike the U.S. Federal Deposit Corporation (FDIC) it is reported that “Libra is fully backed by a reserve of real assets” in the form of foreign currency.

Just a few questions: Will the association have more members? If so who? Arising conflict of interests? What are the implications to economy, trade, privacy, etc.? How will the system deter “shadow banking”? How will bundling of social media and financial transaction deter security issues? Is User provided a “user friendly” agreement to make an informed decision? If Libra plan switches to a permission less system, how will it be equipped in maintaining the system stable to handle the increase of security threats brought on by increased users?

According to Facebook’s VP of blockchain, David Marcus, Libra wouldn’t “threaten the sovereignty of Nations when it comes to money.” Does this include economic systems and international security? How will this “global coin” play out with cryptocurrencies by individual banks and nations like The People’s Bank of China, J.P. Morgan, or Deutsche Bank?

A 2011 Bloomberg Businessweek article referring to Facebook’s Sheryl Sandberg noted, “The possibilities, she recalls, boiled down to two categories-making users pay or making advertisers pay. Employees quickly agreed with her that the latter was far more appealing.” Will Facebook’ Calibra opt for the first category “making users pay”?  Marcus says, “We realize people don’t want their social data and financial data commingled.”

Marcus further noted that “The reality is we’ll have plenty of wallets that will compete with us and many of them will not be in social, and if we want to successfully win people’s trust, we have to make sure the data will be separated.” Does this mean users whose data became commoditized and lost trust with Facebook are not the intended targeted audience but are instead the “financially underserved markets”? 

Law of Unintended Markets

The new librarian’s intended market is said to be the so-called “bank less.” Why stop there? Upstart’s original ideas reach only the intended local small market. Investors think large and global.

Facebook’s founder reportedly was focused on his collegian social life or lack thereof. Then along came Sheryl Sandberg who in a 2011 interview stated, “What would you do if you weren’t afraid?” Unlike Sandberg, some of my decisions involved being afraid, but I dared to take the risks and reap the rewards. Then again, I wasn’t taking chances with other people’s life or money.

In a 2012 MIT Technology Review article, “The Law of Online Sharing”, Paul Boutin notes that “Facebook’s Mark Zuckerberg will eventually have to deal with the fact that all growth has limits.” Some in tech point to Gordon Moore’s law of exponentials, but Boutin points out that “Gordon Moore put it well in 2005 when reflecting on the success of his own law: ‘It can’t continue forever. The nature of exponentials is that you push them out and eventually disaster happens.”

Based on U.S. legislature, it appears the law of unintended markets has triumphed. Why? Because “Today, the law of social sharing is a useful way to think about the rise of social computing, but eventually reality will make it obsolete.” Realities that arise from the physical space: war, famine, lack of medical care, and adverse effects of climate change.

According to Marcus, “If we were controlling it, very few people would want to jump on and make it theirs.” Right. Isn’t that precisely the point? With $10 million or more on the table and a vote, members (including Facebook) are reportedly “entitled to a share (proportionate to their investment) of the dividends from interest earned on the Libra reserve into which users pay fiat currency to receive Libra.” 

Mr. Marcus, for shareholders of American companies, it is not about controlling the company itself but the power, influence, and profit gained through their controlling shares. Perhaps, we need to speak to the CFO.

Speaking of controlling shares, a “Circle of Trust” appears to have taken formation with Libra’s network of partners. Interested parties can either readily jump in or await the fate of the “early adopters.” Investment possibilities abound. Though some may find financial gain with the private, non-profits, and others, my interest is in the public companies.

My “Circle of Friends” and I find that by owning shares in some of these companies we may indirectly profit from their membership with Libra as well as have a vote in the company. Problem may arise with future new members as their interests may not be aligned with ours. In fact, by having a vote in those companies they may decide to short our company stock.

Yes, it may be best to treat the network gently as a rabbit that fattens up, but watch it like a hawk, for in being the prey, the rabbit becomes the predator.

“Facebook and Google know more about you than the FBI and CIA.” – Mark Warner, Vice Chair of the Senate Intelligence Committee

LIBRArian Gatekeepers?

Librarians have reportedly been some of government’s best informants. If data can be bought and sold, then no one really owns or controls it. Recall my paper on “The Alphabet” and my interaction with a Librarian? 

Facebook, how much do the FBI, CIA and other agencies know about you, founders, investors and employees? I imagine these agencies’ portfolios are not filled with MORE needless info of mass searches but of your connected family and friends, in the physical space.

What Warner may have failed to mention is that the Intel accessed from multiple agencies, jurisdictions and across the globe is qualitatively more valuable, accurate, and powerful. And unlike the virtual world of make believe and voyeurism some social media networks and tech companies engage in, the impact of the agencies’ operations is not digital but real and brutal.

Public open access to a database of shared books meant filling an application to obtain a library card. Now access to an e-money account means obtaining a “wallet app.” The LIBRArian continues to be a middleman or broker controlling the data.

In Rob Marvin’s excellent August 30, 2017 article, “Blockchain: The Invisible Technology That’s Changing the World” he noted that there is “no one organization controlling that data, be it a big bank or a tech giant like Facebook or Google. No third-parties serving as the gatekeepers of the internet…”  It appears he was right and wrong. 

Snowden says “…the Internet of today is unrecognizable…that this change has been a conscious choice, the result of a systematic effort on the part of a privileged few.  In “the new architecture” Iansiti and Lakhani describe blockchain as having “the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge.” Based on this description, I find the virtual database is access free to the public, that is their data and transactions are housed in a sphere like books on shelves.

Or, are these “books” reserved to any of three Virtual Invested Parties (VIPs): Government, Industry, and Non-State Actors. Consider the Libra Association website notes that it is “Powered by WordPress.com VIP.” What’s changed? 

The verge has been pushed past knowing what users “google” to what, where, when, why, and how much they do what they do. The new brokers can provide a platform that facilitates financial transactions. If “Companies are already using blockchain to track items through complex supply chains” why not track users? Yes, but credit cards have done so for decades. How’s VIP different?

Consider three databases: 1. Credit card companies can provide transaction POS and purchasing data in real-time. 2.  Credit score companies can facilitate financial transaction and residential history; and 3. Department of Motor Vehicles (DMV) can provide current residential address, vehicles along with vehicle code infractions history. Trust them? All three have reportedly been “hacked.”

Now imagine linking all three to one network accessed and reserved for VIPs. Of course, one can click consent to your new crypto account just like you did with social media believing that “Data will only be shared in specific instances in anonymized ways for research or adoption measurement, for hunting down fraudsters or due to a request from law enforcement…” Or, you may wish to read the contract.

Is there “Honor Among Thieves” and Alliances?

AnnaLee Saxenian’s 1996 book, Regional Advantage. Culture and Competition in Silicon Valley and Route 128, gives insight into such contracts. Referring to suppliers and subcontractors Saxenian writes, “While nondisclosure agreements and contracts were normally signed in these alliances, few believed that they really mattered . . .” Of course, the so-called “credit less” or “unbanked” may not have an option. For the rest, those participating “freely” with open source products may find it unnecessary to read “smart contracts.”

Given Facebook’s CEO Mark Zuckerberg’s statements before two Senate committees on data privacy and protection, one could argue that users openness with open source opened the floodgates for users to provide freely their data and exchange communication. How? According to Snowden, “The promise of convenience led people to exchange their personal sites-which demanded constant and laborious upkeep-for a Facebook page and a Gmail account. The appearance of ownership was easy to mistake for the reality of it…The new product was Us.”

Silicon Valley and Washington need to be reminded that “Blockchain isn’t a household buzzword, like the cloud or the Internet of Things. It’s not an in-your-face innovation you can see and touch as easily as a smartphone or a package from Amazon…How can we collectively trust what happens online?” asks Rob Marvin.

I noted earlier, how child’s play of trading chocolate for play jewelry among a circle of friends can lead to breaking the “circle of trust” for high stakes platforms. It all starts with a mastermind and developing a network. In the end, it all comes down to risk and rewards for users and members.

Zuckerberg says that the system is “decentralized.” According to Saxenian “if Silicon Valley’s social networks and technical infrastructure are unparalleled, the semiconductor crisis of the mid-1980s underscores potential weaknesses of its decentralized system. Network systems, like all forms of productive organization, are fragile constructs that must be continually renewed and redefined to meet new economic challenges.”

Users, do you “collectively trust what happens online?” What role do you play outside the “circle of trust”?  You’re not shareholders with a vested interest. In using the service are you being used?

Calibra and Libra members, as Sandberg noted, “What would you do if you weren’t afraid?” Though playing with other people’s money is not new do you trust those in your circle?  Or, more importantly do you trust your lawyer? Saxenian further notes “As an industry consultant described it: ‘Company lawyers are trained to write 90 paragraphs to protect their client, but in the end, the relationship is based on mutual trust. If you don’t have that mutual trust, then you probably shouldn’t have the marriage in the first place.’”

Zuckerberg, it appears you’ve succeeded in your goal to build across all platforms. Since my days of being a kid, I’ve enjoyed how child’s play and masterminding can lead to high stakes platforms and exciting challenges. It will be interesting to see if “The individualistic world views of Silicon Valley entrepreneurs have . . . limited their ability to respond collectively to challenges or to build cross-cutting institutions that would sustain regional interdependencies.”

Zuckerberg, I’ll trade you my gold “Mastercoins” for some Calibra coins.” Trust me, I “mined” them myself.