Facebook is the latest in a raft of corporate or government entities creating their own cryptocurrencies.
Within weeks of JPMorgan announcing its plans to launch the JPMorgan coin, sources leaked confirmation of the crypto landscape’s worst-kept secret–that the Zuckerberg blockchain team was working on a native cryptocurrency. The social network joins a dubious lineup of centrally controlled entities and despotic governments on the crypto bandwagon. It seems none of them noticed the “Not Welcome” sign on the door.
Whether or not it was going to release its own coin, Facebook has been busy hiring engineers for its blockchain division since May, 2018. Led by David Marcus, formerly of Coinbase and PayPal, the blockchain division’s mission was kept under wraps even to other Facebook employees. But it bred speculation that the giant was planning on releasing a cryptocurrency.
The plans were revealed a month after Zuckerberg unveiled greater user privacy in its roadmap, in an attempt to ward off antitrust regulators and revive its flagging reputation in the wake of various data breach scandals.
Founder Mark Zuckerberg may well be trying to paint a more user privacy respecting facade onto Facebook, but these moves have possibly come too late. The Menlo Park-based behemoth has suffered repeated blows to its reputation over the past year. A Facebook cryptocurrency is unlikely to be used or trusted by cryptocurrency veterans. And its ability to draw use from the general public is questionable given its trust problem.
Jamie Dimon, the long-term CEO of the American investment bank, has also been a long-term crypto skeptic. He once told reporters:
“I could care less what bitcoin trades for, how it trades, why it trades, who trades it. If you’re stupid enough to buy it, you’ll pay the price for it one day”.
At the end of 2015, he told the Fortune Global Forum that there would never be a non-government controlled currency:
Nevertheless, in mid-February, the bank announced the launch of the JPM Coin, a stablecoin to be pegged to the US dollar. JPMorgan is no stranger to blockchain technology, having developed the Quorum blockchain for cross-border transfers. The problems it had with Quorum’s growth in the financial sector are not dissimilar to those it will likely face in terms of adoption of the JPM Coin: it is all controlled by a bank very few people trust.
That one of crypto’s most outspoken opponents is the CEO of a bank that has now created its own crypto is as brazen as it is ironic. But that’s not the most critical issue. What is at stake here is the very definition of a cryptocurrency itself.
With a national economy approaching 1.4 million percent inflation, the Nicolas Maduro government created the petro, a state-sponsored cryptocurrency backed by a barrel of Venezuelan crude oil, last October. The government then released an updated version of its fiat currency, the Sovereign Bolivar, which was in-turn backed by the oil-backed petro.
With all this backing one might wonder what the problem is. Venezuela is suffering from a demoralized economy and crippling economic sanctions. A crypto would present a viable means by which it could evade sanctions by evading the need to rely on the US dollar.
Dimon, Zuckerberg, and Maduro could well be attempting to redefine the definition of “trustless” as it pertains to cryptocurrencies and blockchain. But they have clearly ignored Satoshi’s original bitcoin whitepaper, now over a decade old, which argued:
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Satoshi’s definition of trustless is linked to the absence of an intermediary between a payor and payee. The peer-to-peer electronic payment system he or she described was “trustless” because it did not rely on the need to trust anyone. Trustless, in crypto, does not mean “not to be trusted”.
JPMorgan was fined $65 million by regulators last June for trying to manipulate interest-rate derivative benchmarks. Six months later, it settled charges with the SEC for $135 million for allegedly improperly handling pre-released American Depositary Receipts. Its laundry list of securities violations is not unique for the sector. But it is long.
Facebook Inc.’s Zuckerberg faced a US Senate hearing last April over concerns about the company’s privacy and data mining policies and practices in the wake of the Cambridge Analytica scandal.
And the Maduro government’s handling of Venezuela’s economy has seen the Latin American country plunge into economic turmoil reminiscent of Mugabe’s Zimbabwe. The double-irony about the petro is that it requires users to trust an untrustworthy government to manage something designed to be “trustless”.
As BABB CTO Gaurav Rana points out:
“The lack of central control over the system and the immutability of the ledger form the core characteristics of this technology…”
The absence of central control or authority is an important hallmark of cryptocurrency and blockchain technology. In a world quickly embracing the promise of decentralization, coins minted by the likes of Zuckerberg, Dimon, and Maduro are little more than an unwelcome sideshow.