Before trying to form an opinion on Facebook’s Libra cryptocurrency project and what it looks like from China’s perspective, we would strongly recommend reading three of our previous articles:
- First of all, an article through which we have explained why China has a love-hate relationship which is actually quite a bit closer to the “hate” dimension when it comes to bitcoin and cryptocurrencie
- Next, an article which seems ironically contradictory at the beginning and explains why while China doesn’t exactly love existing cryptocurrency projects such as bitcoin, it is actually open to the blockchain technology itself
- Finally, the third article represents a bridge between the first two and make it clear that “stablecoins” represent the crypto application which sovereign nations such as China might consider the optimal compromise between embracing cutting-edge technology (blockchain technology in our case) and not surrendering authority by embracing decentralization
… in other words, while countries such as China tend to frown upon decentralized blockchain applications such as bitcoin, they are actually quite eager to explore possibilities associated with running their own stablecoins, with them being in full control over what happens, anything from the issuance/burning of stablecoin units to deciding which accounts get blacklisted/banned.
What about potential applications such as Facebook’s Libra stablecoin project?
Are countries such as China likely to embrace these projects or perceive them as threats?
On the one hand, there is the benefit that Libra would most definitely not be decentralized. To put it differently, if China or the US has a problem with bitcoin, there is no central authority or let’s say proverbial “bitcoin CEO” to hold accountable, because nobody is “in charge” of bitcoin. In Libra’s case, it is clear who is in charge and thus, this state of affairs might give sovereigns additional peace of mind.
On the other hand, China and other nations are well aware of just how much additional power Facebook would be able to wield in the event that sovereigns embrace Libra. A Facebook which is already far too powerful if one were to ask most countries, countries who are quick to make it clear that additional regulation is required for giants such as Google or Facebook.
Why Libra rather than just a bunch of sovereign-controlled stablecoins?
Simply because the likelihood of a stablecoin such as Libra acting as a globally accepted means of payment tends to be greater than the likelihood of China launching its stablecoin and it becoming globally accepted. What would the United States have to say about something like that? What about the European Union? Needless to say, Country B and C would be anything but excited to find out that Country A is launching a stable coin, with it being childish at best to assume they will not just tolerate but downright encourage such projects.
Therefore, assuming it is all doom and gloom when it comes to initiatives such as Facebook’s Libra would not be recommended either. In let’s say a best case scenario, they do have the potential of acting as a blockchain-related common denominator, if you will. While China would most likely not tolerate a US stablecoin and the US would most likely not tolerate a Chinese stablecoin, perhaps both entities would tolerate a compromise such as Libra… with strings attached, of course.
And, indeed, it would be premature to put an end to this article without referring to the various strings which will invariably be attached from all sides if Libra is indeed to be tolerated by various sovereigns. In fact, as recent hearings have made clear, these issues represent the number one bottleneck which prevents projects such as Libra from being released in a timely manner.
The United States demands concessions. As does China, the European Union and pretty much everyone else. The end result is a legislative nightmare which many bitcoin enthusiasts for example believe makes it clear how good it is that bitcoin does not have to deal with such hurdles in light of being decentralized. No owner, no compliance department, nothing. Just open-source peer-to-peer technology, which many enthusiasts believe make bitcoin immune from sovereign meddling.
But is that really the case?
The ChinaFund.com team does not believe so. While individual countries such as China have banned certain dimensions related to crypto (in some cases Initial Coin Offerings due to considering them unlicensed securities, in other cases exchanges with improper KYC procedures or various mining businesses) and the space has not only survived but thrived, we would be deluding ourselves by assuming this is as bad as it can get.
What if the United States were to consider bitcoin illegitimate and ban it altogether?
What about the European Union?
Make no mistake, bitcoin and other existing projects are “tolerated” at best and the truth is… we just do not know how probable such gloomy scenarios are and what their effects are likely to be. Perhaps the crypto space would be able to withstand them, perhaps not. Needless to say, such tests would be the number one challenge the crypto community has ever faced in terms of impact.
As can be seen, the cryptocurrency space is incredibly complex, even at this early stage. Is bitcoin likely to remain dominant? What about the 1,000+ altcoins that already exist and perhaps even more which will emerge, what will their long-term effect be? Are sovereign nations likely to launch their own stablecoins and if so, how will the general public reach in light of them being against the “spirit” of decentralization which made bitcoin popular in the first place? What about mega-players such as Facebook or Google, would a stablecoin controlled by them such as Facebook’s Libra initiative represent a decent enough compromise? The jury is most definitely still out and needless to say, the ChinaFund.com team is following crypto-related developments (very) closely.