Facebook’s Libra highlights the power of decentralized Bitcoin

Social media giant Facebook recently announced Libra. The idea is that this digital currency will be integrated into Facebook, Whatsapp and Instagram, among others, with which users can make mutual payments. Since the announcement, however, Facebook has faced considerable resistance from politicians and governments worldwide.

Meanwhile, the discussion around Libra and Facebook as the central party behind it is heating up. In America, various politicians and top officials have already expressed their concerns and Facebook was recently called upon to declare itself before the US Senate. Even President Trump announced via Twitter that he is not a fan of Libra (and not of Bitcoin, for that matter).

Libra is not exactly welcomed with open arms elsewhere in the world either. French finance minister Bruno Le Maire, among others, expressed concern, as did his German colleague Olaf Scholz. India was also not very receptive.

As often when it comes to digital currencies, there are concerns about possible money laundering or possible financing of terrorism and crime. In the case of Libra, however, there is also a lot of attention for the possible privacy violation of users and the question of whether it is desirable for Facebook to accumulate so much power and information.

Facebook’s Libra highlights the power of Bitcoin

Perhaps this discussion also highlights an important difference between Libra and Bitcoin. That difference is mainly in the decentralization of Bitcoin versus the centralization of Libra.

Decentralization is often mentioned, but its meaning, implications and power are sometimes insufficiently understood. Decentralization is a very rare and special thing. It means that there is no central party in power. And therefore no one who decides who can and cannot participate, or which transactions are allowed or not. Thanks to decentralization, Bitcoin is open, uncensorable and therefore financially inclusive.

It also means no one is at the top of the food chain taking advantage of the users. There is therefore no one to designate who is responsible or liable, or who could pull the plug. There is therefore also no central party, or ‘ single point of failure ‘, to place trust in, or who could violate the trust. Decentralization is why Bitcoin is so exceptionally safe. And the more decentralized the network is, the more secure it becomes. Bitcoin therefore exists independently and on its own, and is designed to minimize trust and resist takeovers.

That’s different from the design of Facebook’s Libra. Although Facebook says it has plans to decentralize Libra in the future, it seems for now that Facebook’s influence will be a strong centralizing factor. This is perhaps also evident from the fact that Facebook, as the central party behind Libra, was called to account by the US Senate.

That is in stark contrast to Bitcoin, where due to decentralization there is no one to address or impose restrictions on. Bitcoin is not a company but a protocol; a means of communicating value.

Decentralization is hard

The degree of decentralization like with Bitcoin is very hard to match. The history of Bitcoin is simply a special one. Partly thanks to its decentralized architecture and because it flew under the radar for many years, it developed in a way where no single person or party amassed power.

Miners and nodes of the network are independent of each other and spread all over the world. The Bitcoin blockchain has also become so robust that takeover is considered practically impossible by many. And with the disappearance of Bitcoin creator Satoshi Nakamoto in 2011, decentralization also emerged among the developers.

Bitcoin belongs to no one, and therefore belongs to everyone. And instead of operating on the basis of trust, Bitcoin operates on distrust, creating a trustless and censorship-resistant environment for users to transact. That is one of the innovations of Bitcoin.

That cannot be easily reproduced by simply copying Bitcoin’s technology or architecture. That does not yet guarantee decentralization among the miners, nodes and developers.

Nevertheless, there are many projects that do try. As with Facebook’s Libra, however, there is usually a centralizing factor that can be identified that determines the entire project. Decentralization is therefore one of the features that make Bitcoin so special.

Want to read more about decentralization and the role of full nodes? Read more here!

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