banks – P2P Foundation https://blog.p2pfoundation.net Researching, documenting and promoting peer to peer practices Thu, 27 Jun 2019 19:08:21 +0000 en-US hourly 1 https://wordpress.org/?v=5.5.15 62076519 Facebook May Pose a Greater Danger Than Wall Street https://blog.p2pfoundation.net/facebook-may-pose-a-greater-danger-than-wall-street/2019/06/30 https://blog.p2pfoundation.net/facebook-may-pose-a-greater-danger-than-wall-street/2019/06/30#respond Sun, 30 Jun 2019 08:00:00 +0000 https://blog.p2pfoundation.net/?p=75439 Payments can happen cheaply and easily without banks or credit card companies, as has already been demonstrated—not in the United States but in China. Unlike in the U.S., where numerous firms feast on fees from handling and processing payments, in China most money flows through mobile phones nearly for free. In 2018 these cashless payments... Continue reading

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Payments can happen cheaply and easily without banks or credit card companies, as has already been demonstrated—not in the United States but in China. Unlike in the U.S., where numerous firms feast on fees from handling and processing payments, in China most money flows through mobile phones nearly for free. In 2018 these cashless payments totaled a whopping $41.5 trillion; and 90% were through Alipay and WeChat Pay, a pair of digital ecosystems that blend social media, commerce and banking. According to a 2018 article in Bloomberg titled “Why China’s Payment Apps Give U.S. Bankers Nightmares”:

The nightmare for the U.S. financial industry is that a technology company—whether from China or a homegrown juggernaut such as Amazon.com Inc. or Facebook Inc.—replicates the success of Alipay and WeChat in America. The stakes are enormous, potentially carving away billions of dollars in annual revenue from major banks and other firms.

That threat may now be materializing. On June 18, Facebook unveiled a white paper outlining ambitious plans to create a new global cryptocurrency called Libra, to be launched in 2020. Facebook reportedly has high hopes that Libra will become the foundation for a new financial system free of control by Wall Street power brokers and central banks.

But apparently Libra will not be competing with Visa or Mastercard. In fact, the Libra Association lists those two giants among its 28 soon-to-be founding members. Others include Paypal, Stripe, Uber, Lyft and eBay. Facebook has reportedly courted dozens of financial institutions and other tech companies to join the Libra Association, an independent foundation that will contribute capital and help govern the digital currency. Entry barriers are high, with each founding member paying a minimum of $10 million to join. This gives them one vote  (or 1% of the total vote, whichever is larger)  in the Libra Association council. Members are also entitled to a share proportionate to their investment of the dividends earned from interest on the Libra reserve—the money that users will pay to acquire the Libra currency.

Needless to say, all of this has raised some eyebrows, among both financial analysts and crypto-activists. A Zero Hedge commentator calls Libra “Facebook’s Crypto Trojan Rabbit.” An article in The Financial Times’ Alphaville calls it “Blockchain, but Without the Blocks or Chain.” Economist Nouriel Roubini concurs, tweeting:

Another Zero Hedge writer calls Libra “The Dollar’s Killer App,” which threatens “not only the power of central banks but also the government’s money monopoly itself.”

From Frying Pan to Fire?

To the crypto-anarchist community, usurping the power of central banks and governments may sound like a good thing. But handing global power to the corporate-controlled Libra Association could be a greater nightmare. So argues Facebook co-founder Chris Hughes, who writes in The Financial Times:

This currency would insert a powerful new corporate layer of monetary control between central banks and individuals. Inevitably, these companies will put their private interests — profits and influence — ahead of public ones. …

The Libra Association’s goals specifically say that [they] will encourage “decentralised forms of governance.” In other words, Libra will disrupt and weaken nation states by enabling people to move out of unstable local currencies and into a currency denominated in dollars and euros and managed by corporations. …

What Libra backers are calling ‘decentralisation’ is in truth a shift of power from developing world central banks toward multinational corporations and the US Federal Reserve and the European Central Bank.

Power will shift to the Fed and ECB because the dollar and the euro will squeeze out weaker currencies in developing countries. As seen recently in Greece, the result will be to cause their governments to lose control of their currencies and their economies.

Pros and Cons

Caitlin Long, co-founder of the Wyoming Blockchain Coalition, recently agreed that Libra was a Trojan horse but predicted it would have some beneficial effects. For one, she thought it would impose discipline on the U.S. banking system by leading to populist calls to repeal its corporate subsidies. The Fed is now paying its member banks 2.35% in risk-free interest on their excess reserves, which this year is projected to total $36 billion of corporate welfare to U.S. banks—about half the sum spent on the U.S. food stamp program. If Facebook parks its entire U.S. dollar balance at the Federal Reserve through one of its bank partners, it could earn the same rate. But Long predicted that Facebook would have to pay interest to Libra users to avoid a chorus of critics, who would loudly publicize how much money Facebook and its partners were pocketing from the interest on the money users traded for their Libra currency.

But that was before the Libra white paper came out. It reveals the profits will indeed be divvied among Facebook’s Libra partners rather than shared with users. At one time, we earned interest on our deposits in government-insured banks. With Libra, we will get no interest on our money, which will be entrusted to uninsured crypto exchanges, which are coming under increasing regulatory pressure due to lack of transparency and operational irregularities.

United Kingdom economics professor Alistair Milne points to another problem with the Libra cryptocurrency: Unlike Bitcoin, it will be a “stablecoin,” whose value will be tied to a basket of fiat currencies and short-term government securities. That means it will need the backing of real money to maintain its fixed price. If reserves do not cover withdrawals, who will be responsible for compensating Libra holders? Ideally, Milne writes, reserves would be held with the central bank; but central banks will be reluctant to support a private currency.

Long also predicts that Facebook’s cryptocurrency will be a huge honeypot of data for government officials, since every transaction will be traceable. But other reviewers see this as Libra’s most fatal flaw. Facebook has been called Big Brother, the ultimate government surveillance tool. Conspiracy theorists link it to the CIA and the U.S. Department of Defense. Facebook has already demonstrated that it is an untrustworthy manager of personal data. How then can we trust it with our money?

Why Use a Cryptocurrency at All?

Why has Facebook chosen to use a cryptocurrency rather than following WeChat and AliPay in doing a global payments network in the traditional way? Yan Meng, vice president of the Chinese Software Developer Network, says Facebook’s fragmented user base across the world leaves it with no better choice than to borrow ideas from blockchain and cryptocurrency.

“Facebook just can’t do a global payments network via traditional methods, which require applying for a license and preparing foreign exchange reserves with local banking, one market after another,” Meng said. “The advantage of WeChat and AliPay is they have already gained a significant number of users from just one giant economy that accounts for 20 percent of the world’s population.” They have no need to establish their own digital currencies, which they still regard as too risky.

Meng suspects that Facebook’s long-term ambition is to become a stateless central bank that uses Libra as a base currency. He writes, “With sufficient incentives, nodes of Facebook’s Libra network would represent Facebook to push for utility in various countries for its 2.7 billion users in business, investment, trade and financial services,” which “would help complete a full digital economy empire.”

The question is whether regulators will allow that sort of competition with the central banking system. Immediately after Facebook released its Libra cryptocurrency plan, financial regulators in Europe voiced concerns over the potential danger of Facebook running a “shadow bank.” Maxine Waters, who heads the Financial Services Committee for the U.S. House of Representatives, asked Facebook to halt its development of Libra until hearings could be held. She said:

This is like starting a bank without having to go through any steps to do it. …  We can’t allow Facebook to go to Switzerland and begin to compete with the dollar without having any regulatory regime that’s dealing with them.

A Stateless Private Central Bank or a Publicly Accountable One?

Facebook may be competing with more than the dollar. Jennifer Grygiel, assistant professor of communications at Syracuse University, writes:

[It] seems that the company is not seeking to compete with Bitcoin or other cryptocurrencies. Rather, Facebook is looking to replace the existing global financial system with an all-new setup, with Libra at its center.

At least at the moment, the Libra is being designed as a form of electronic money linked to many national currencies.That has raised fears that Libra might someday be recognized as a sovereign currency, with Facebook acting as a “shadow bank” that could compete with the central banks of countries around the world.

Long thinks Bitcoin, rather than Libra, will come out the winner in all this; but Bitcoin’s blockchain model is too slow, expensive and energy intensive to replace fiat currency as a medium of exchange on a national scale. As Josh Constine writes on TechCrunch:

[E]xisting cryptocurrencies like Bitcoin and Ethereum weren’t properly engineered to scale to be a medium of exchange. Their unanchored price was susceptible to huge and unpredictable swings, making it tough for merchants to accept as payment. And cryptocurrencies miss out on much of their potential beyond speculation unless there are enough places that will take them instead of dollars. … But with Facebook’s relationship with 7 million advertisers and 90 million small businesses plus its user experience prowess, it was well-poised to tackle this juggernaut of a problem.

For Libra to scale as a national medium of exchange, its governance had to be centralized rather than “distributed.” But Libra’s governing body is not the sort of global controller we want. Jennifer Grygiel writes:

Facebook CEO Mark Zuckerberg . . . is declaring that he wants Facebook to become a virtual nation, populated by users, powered by a self-contained economy, and headed by a CEO–Zuckerberg himself– who is not even accountable to his shareholders. . . .

In many ways the company that Mark Zuckerberg is building is beginning to look more like a Roman Empire, now with its own central bank and currency, than a corporation. The only problem is that this new nation-like platform is a controlled company and is run more like a dictatorship than a sovereign country with democratically elected leaders.

A currency intended for trade on a national—let alone international—scale needs to be not only centralized but democratized, responding to the will of the people and their elected leaders. Rather than bypassing the existing central banking structure as Facebook plans to do, several groups of economists are proposing a more egalitarian solution: nationalizing and democratizing the central bank by opening its deposit window to everyone. As explored in my latest book, “Banking on the People: Democratizing Money in the Digital Age,” these proposals could allow us all to get 2.35% on our deposits, while eliminating bank runs and banking crises, since the central bank cannot run out of funds. Profits from the public medium of exchange need to return to the public rather than enriching an unaccountable, corporate-controlled Facebook Trojan horse.

Reposted from Truthdig. Header image: Facebook CEO Mark Zuckerberg. (Mike Deeroski / Flickr)(CC BY 2.0)

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Why the Ethereum/DAO Hack Proves They Are Better Than Banks https://blog.p2pfoundation.net/ethereumdao-hack-proves-better-banks/2016/06/18 https://blog.p2pfoundation.net/ethereumdao-hack-proves-better-banks/2016/06/18#comments Sat, 18 Jun 2016 18:37:41 +0000 https://blog.p2pfoundation.net/?p=57195 Amidst all of the buzz about the hacking of the DAO and the consequences for Ethereum, everyone seems to be missing the most crucial point of all. The Ethereum Foundation stated quickly on its website that they identifed and effectively froze the hacker’s account. Also, Stephan Tual (the founder of Slock.It, the group that created... Continue reading

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Amidst all of the buzz about the hacking of the DAO and the consequences for Ethereum, everyone seems to be missing the most crucial point of all.

The Ethereum Foundation stated quickly on its website that they identifed and effectively froze the hacker’s account. Also, Stephan Tual (the founder of Slock.It, the group that created the DAO) said:

“All stolen funds will be retrieved from the attacker.”

Now if you change the “will” to “can” in that sentence you get an interesting and crucial new reality:

“All stolen funds can be retrieved from the attacker.”

No other financial system ever has been able to make that claim.

The point is that peer-to-peer validation systems that store history well can provide a mechanism for reversion. In other words, a damaged system can immediately revert to a state from before the damage occurred! (wiki much?)

In the case of currencies, this is a huge win for the user-base of any currency. In the case of other distributed systems, the same is true.

Moreover, this is an example of a more general property of panarchy and the peer-to-peer future as a whole, that stems from understanding of complex systems. Some complex systems are not only resilient to certain kinds of attacks, but but actually improve as a result of disruptions! Popular scholar and author Nassim Taleb coined the term “antifragile” (his book, “Antifragile”) to refer to this phenomenon:

“The resilient resists shocks and stays the same; the anti-fragile gets better”.

While there are still ongoing, and healthy, debates about the response and the solution, they will invariably leaded to a wide variety of technological implementations, some of which will be adopted as improvements to the alternative economy as a system. It can be argued that this kind of evolution also happens in the currently dominant financial system of banks, etc., but that current system is run by elites with very private agendas. By contrast, the alternative peer-to-peer panarchical economy is, a system we can celebrate because it includes a global community of interested and motivated participants and makers.

In other words, there is no need for a huge financial bailout which incurs enourmous economic costs and does little to alleviate the actual damage done or to improve the future situation. Ethereum (and any other systems we develop) can be changed by us simply by getting more involved and saying “We think this needs to be done differently.”

You certainly won’t get far trying that at your bank.

Further Reading:

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Douglas Rushkoff on the space between samples, derivatives and the way out https://blog.p2pfoundation.net/douglas-rushkoff-on-the-space-between-samples-derivatives-and-the-way-out/2014/06/13 https://blog.p2pfoundation.net/douglas-rushkoff-on-the-space-between-samples-derivatives-and-the-way-out/2014/06/13#respond Fri, 13 Jun 2014 13:05:28 +0000 http://blog.p2pfoundation.net/?p=39404 In this, the final installment of our serialization of Penny Nelson’s Douglas Rushkoff interview for HiLobrow magazine, the conversation turns to the differences between analogue and digital media, the derivative life and how to get out of this whole mess. In case you didn’t catch them, here are the links for part 1 and part 2 of this... Continue reading

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In this, the final installment of our serialization of Penny Nelson’s Douglas Rushkoff interview for HiLobrow magazine, the conversation turns to the differences between analogue and digital media, the derivative life and how to get out of this whole mess. In case you didn’t catch them, here are the links for part 1 and part 2 of this fascinating interview.


7. Freedom Isn’t Free

[All Watched Over By Machines of Loving Grace, by Adam Curtis, 2011]

PN: Let’s talk about technology. In terms of administering a shared goods-and-services system, the internet might be a good match. But it also seems that the internet, and machines and technology in general, can stand in place of actual relationships, and can be a stumbling block. How do you negotiate between those ideas?

DR: The word that describes digital for me is discrete. For example, take sounds. With an actual sound, no matter how hard we zoom in, it’s still a real thing. There’s still more fidelity, more information to be found. If I scan or sample it, I’ve now translated that sound in the real world into a number. Something that was an event, in nature, in the world, is now a number. It’s a derivative of reality. That number encapsulates as many metrics and as much information about the sound as I’m capable of including, and I can then make copies of the number and manipulate them. So there’s greater choice in that way. But the only things the number can reproduce about that sound are the things I’ve told it to reproduce.

PN: It only knows what it’s supposed to measure.

DR: The reproduction process also involves a sampling rate, which necessarily leaves stuff out. Even if the sampling rate is so good, so super-mp3, that it’s beyond my conscious hearing, there is still space between the samples. Just like a fluorescent light; there’s space between the flashes.

Now the question is, for all intents and purposes, is it the same, or not? I would argue that formany intents and purposes, it is the same, but for all intents and purposes, it is not. It is a re-creation of a thing, and an approximation, and without even getting spiritual and talking about prana and chi and everything else, there is a difference.

In high school when I needed to do a research project, I would go to the library to find a book. I couldn’t help but see the 20 other books on the shelf nearby, I had to read 20 spines before I found mine. And in reading those 20 spines I would see stuff I wouldn’t have found otherwise, and I might get ideas for my paper randomly — not by predetermined choice. I would see them by virtue of the fact that some librarian who was alive before me made a decision, by virtue of legacies and input and real life messiness. Whereas when I’m in the digital realm and I know the book I want, I type it into Google, and it’s there. And nothing else.

PN: This discrete freedom of choice sounds like a very controlled environment.

DR: Right, what are my range of choices? And who’s giving me that range? People are utterly unaware of that. So when I look at technology I say well great, people have the ability to write online, but they don’t, most of them, have the ability to program. In other words we can enter our text into the little blog box, but we aren’t thinking about the biases built into a daily blog structure, which are towards short, daily thoughts, not introspective . . .

Or look at online communities. I’m going to become friends with another person who owns a 2004 red Mini with a sunroof, like mine, rather than with my neighbor who happens to have a different car; I’m going to look for that perfect affinity. But that’s not a real relationship, that’s my digital relationship, which is discrete! Discrete communities end up groping towards conformity of behavior really quickly.

That’s why it’s a consumer paradise, because it really does celebrate the idea of increasingly granular affinity groups, increasingly granular product choices.

8. The Derivative Life, An (Un)Reality Show

PN: An over-arching theme I found in the book is how the common-sense stuff of our reality, the economy and money and shopping and working, is really science fiction; we don’t live inside a “natural” economic structure — we made it up.

DR: It gets very much like Baudrillard in a way. We lived in a real world where we created value, and understood the value that we created as individuals and groups for one another. Then we systematically disconnected from the real world: from ourselves, from one another, and from the value we create, and reconnected to an artificial landscape of derivative value of working for corporations and false gods and all that. It is in some sense Baudrillard’s three steps of life in the simulacra.

So by now, as Borges would say, we’ve mistaken the map for the territory. We’ve mistaken our jobs for work. We’ve mistaken our bank accounts for savings. We’ve mistaken our 401k investments for our future. We’ve mistaken our property for assets, and our assets for the world. We have these places where we live, then they become property that we own, then they become mortgages that we owe, then they become mortgage-backed loans that our pensions finance, then they become packages of debt, and so on and so on.

We’ve been living in a world where the further up the chain of abstraction you operate, the wealthier you are.

9. The Way Out


[An Ithaca Hour, an example of an alternative currency]

PN: So since this is a system we created, can we create something else?

DR: Right, that’s what open-source was supposed to be about. I believe that every realm of human experience and design is ultimately open-source if we choose for it to be. That’s why I got interested in religion and money, because those seemed to be the two areas that people would not accept an open-source premise. Religion — of course it isn’t, those are sacred truths! But I would argue that Judaism was actually intended as an open-source religion. I’ve written a book about that, called Nothing Sacred, which was and still is controversial. Because if the Torah is open for interpretation, if it’s this beautiful, myriad, hypertextual, hyperdimensional document that it is, then the whole thing is up for grabs: what happens to the real estate, the Israeli state?

Money of course is the other big area, it’s still the one thing they won’t let you print.

PN: You’ve seen the dual currency idea from the Middle Ages coming back in certain places?

DR: We’ve seen it coming back for 10 or 20 years now in places like Ithaca, New York, and Portland, Oregon; little places with alternative communities and hippies and weirdos and Grateful Dead parking lots and things like that. They could try local currency because people were weird enough to go for it.

More recently, after the economic downturn in Japan, dual currencies started to take hold in the non-”alternative” community. Everyone had time, but no one had money. Everyone was willing to work, but there were no companies they could work for. And since the only way we know how to work is to outsource our employment to a company, things looked bad.

One of the main needs people had was getting health care to their grandparents and great-grandparents who lived in towns far away. No one could afford home health care for them — people to bathe them, walk them around, give them their shots, their IVs, their bedpans. So if you can’t afford the service what can you do? What they did was set up a non-local complementary currency system where you would volunteer a certain number of hours of work to take care of an old person where you lived. You would acquire credits, and then someone who lived near your grandparents would take care of them for the credits you paid. There was no money involved! The currency was literally worked into existence. Even after the economy improved and people got their health insurance back, old people preferred the health care workers who were coming from the real people rather than the ones that came from the companies.

Now it’s starting to hit places in the US where things are especially bad — Detroit, Lansing, Cleveland — these are towns that have resources in people, land, old factories. They have time, they have energy, but they don’t have money and they don’t have any corporate interest. So what can they do? Make a local currency, start doing things for each other. I’ll fix your car, and you do something for me.

Promoting bank-lent businesses is basically saying that you don’t believe in sustainable business models yet. Any business that started with the bank is not a sustainable business model, because it’s already in the debt/interest track. This is where Obama is still confused. He should say,“Look, I realize the economic crisis is real, there are mortgages and loans and we’re going to work on that. But the more important thing right now is, rather than spending $5 trillion of your great-grandchildren’s money on these bankers that screwed up, let’s see how can we spend a teeny bit of money and reeducate communities about real economic development and sustainability.”

And it’s easy! When I talk to economists, or when I talk to bankers, they all say, “well that doesn’t work, you need a bank to go in and invest in a community for it to happen.”

Actually — you don’t. You don’t need the bank.

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Life Inc., How Corporatism Conquered the World, and How We Can Take It Back, by Douglas Rushkoff: website.

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A version of this interview appeared in Reality Sandwich in July, 2009.

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Read more recent Douglas Rushkoff:
Think Occupy Wall St. is a phase? You don’t get it.
Occupy Wall Street beta tests a new way of living.
Are Jobs Obsolete?

Read related essays on HiLobrow:
Rushkoff on HiLobrow.
#longreads on HiLobrow.

Additional resources:
Niall Ferguson, The Ascent of Money
Adam Curtis, watch All Watched Over By Machines of Loving Grace on the Internet Archive

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