Blockchain Ethics

Responses for Class 11 Readings

Hi all,

So the prompt is to answer one zone, but since I have many issues with Libra I am going to answer the first and then some. Firstly, users expect Libra to solve the ‘double-spending’ problem in a decentralized fashion allowing for quick and easy transactions. Well they lied. Libra isn’t even a blockchain. Validator nodes are roles that are bought and the verification of transactions is thus at most distributed among a small subset of privileged players. The Libra Association under ‘exceptional circumstances and supermajority of the association’ can essentially do whatever they want. Moreover, according to "a technical look at Libra’, it is unclear whether this merkle tree of ledger states is append-only or not, thus leaving the possibility of long-range attacks if a certain number of private keys of the Libra Association are compromised (which is not that many). Since there is no real blockchain, there isn’t PoW, and the consensus algorithm used is PBFT, which can only handle up to 33% bad nodes. One point of social unrest and political power, is the ability of Libra to replace native currencies especially those of Africa since Libra is based on Western European and American financial practices as it is backed by U.S. and Western European companies and low-volatile currencies. If a country’s sovereignty is tied to the control of their money, then the spread of Libra to Africa may pose a threat of digital colonialism.

In terms of access, one reason people gravitate to blockchains is anonymity. However, it is unclear as to whether other wallets besides Calibra, which requires a government ID and is subject to KYC/AML regulations, will be available, thus privacy already seems to be compromised. Moreover, people must ask more fundamental questions like: How many people have facebook accounts and not bank accounts and why do people not have bank accounts? When you ask these questions, you find that 2/3 do not have the money to open an account and 1/3 do not find the need. A quarter of respondents in the same World Bank data stated ‘high fees’ and another 20% mentioned distance impediments. Libra doesn’t solve any of these. Firstly, Libra doesn’t give you money, you have to buy Libra in order to use, which points to the fact that you need to make the initial transfer from cash or some other currency to Libra which requires access to financial institutions like exchanges. Lastly, Libra has stated to provide ‘low fees under normal operations at sufficient capacity’, which essentially translates to “we will charge you accordingly and nothing is guaranteed.” Even worse, another tax may spring up in the form of a rent-based mechanism since the authenticator of an account is the hash of the serialized representation leading to computational efficiency issues as the data of the account grows. So many unanswered questions.

Overall, disappointed with Libra and pretty concerned. People who deposit money in Libra don’t gain interest and instead receive a bunch of unknown transactions and that is if they even get this far considering Facebook is banned in 4 of the 7 countries that host 1/2 of the unbanked adults and crypto is banned in the other 3. Moreover, no companies constituting the association is of local origin to these places of interest (Bangladesh, India, Pakistan, China, Indonesia, etc.). With the Libra Investment token and the association ‘paying out incentives in Libra coin to founding members’ or paying themselves, I am convinced that this fake blockchain with a merkle tree of ledgers that aren’t even hashed (?) and a lack of aggregated signatures to protect validator nodes from DoS attacks, all point to a destructive road ahead. I also believe that Mustafa al Bassan had a good point in regards to secure layer one scalability being a solved problem in quite a few research spaces and Ethereum 2.0 is currently in their implementation stage of such technology. If Libra is hoping to eventually transition to a PoS system, then stating 5 years for the transition allows for research to develop is a blatant lie because Libra clearly didn’t do their research.

Summary: I’m upset ┌( ಠ_ಠ)┘

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I definitely agree with the points that were made above, and it makes me wary about what Libra is actually going to be able to accomplish. Also in line with Facebook’s Free Basics which received backlash because of stronger stances on net neutrality (and was a ploy to get more users on Facebook), Libra seems to me like just another way Facebook can gather more users on its platform. The Calibra wallet is Facebook based and will definitely be needed to access Libracoin. It feels like there are many ethical situations at stake here. First I will review 1) if Libra is actually a needed solution for prospective users and 2) discuss some of the surveillance state questions posed in the EthicalOS checklist.

There is also alot of question around how Libra is actually going to get users to engage and use the platform. Facebook is banned in China. Some countries, such as Pakistan, Indonesia, and Bangladesh, have temporarily banned Facebook for periods of time, possibly limiting the effectiveness of any money tied to the app. Countries like India have bans on crypto currency. Moreover, how do we see Libra competing against existing telco solutions and mobile money like M-PESA? Why would users be incentivized to switch to a network where less people were using the product and there was not an existing infrastructure / network? It is also unclear on how users of Libra would get onto the network without an existing bank account or credit card information, especially when Libra targets the unbanked. Here people mostly have cash or prefer to use cash. Like in Nigeria, people still prefer cash because they worry if their phones are stolen, their money will be gone, too.
Another ethical question is the fact that none of the Libra partners are based in Asia or Africa, and so how are they thinking about tailoring the user experience and thinking about implementation/scale in a market that is hard to grasp? Facebook the company has an understanding of the market through their deployment of Free Basics, but social media consumer behaviors and money behaviors may look different.

In regards to state surveillance, Libra essentially builds the digital currency of the internet, governed by America’s corporations. If it works, they’ll effectively, own the end to end channel of African, Asian and other continent interactions in the digital economy. Libra will be similar to the U.S. based money transaction SWIFT technology that exists today, where we currently have access to to all monetary interactions which is why we are able to track our allies and precarious states such as China. This has been a big part of what has given the U.S. a strong power hold against the rest of the world and contribute to our economic success. Like SWIFT, Libra control will also allow us to have a higher hand in national security and geopolitical relations. This data could potentially be bought by certain national governments, or even worse the U.S. could gain access as a bargaining chip in negotiations with other countries. From a single user perspective, Libra would track payment and transaction data of users, granting them a digital money foot print that could be used against them over time, and with changes in regime. There would need to be policies in place to protect users in different countries from their own government organizations and U.S. political/military agents.

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This is in response to the EthicalOS risk zone 1 questions, with respect to Libra:

When users make transactions with Libra, they should expect that who they transacted with, the value of the transaction, the time of the transaction, and possibly what they purchased, will be collected. Even if itemized transaction history is not shared, they should expect that general metrics about their transactions will be measured, and aggregate statistics may be shared. Sharing this information may seem benign for priveleged developers, but can pose dangers for more financially vulnerable individuals, or people living in places without political freedom. For example, subscriptions to politically controversial publications, or purchases from gay toy websites could disclose sensitive information. Even the cadence and sums of transactions could expose sensitive information, such as whether an individual is living paycheck to paycheck, making them targets for payday loan providers.

The latter questions in risk zone 1 are about how the technology could potentially be used to spread misinformation, or undermine trust in social institutions, or de-stabilize a government.
I do believe there is a threat vector for Libra.

We could imagine a cartel of businesses, or one vendor with significant market power (e.g. some version of mega-Amazon in your small country) using Libra as a tool to de-stabilize a government by de-stablizing trust in its currency. In this threat model, they could signal high inflation by choosing to only sell products in the local government currency at an extremely high price, while selling those same products via Libra at their expected price. This would spread (dis)information about the value of the government currency with respect to Libra and all of the currencies in its assets reserve. This ploy could even then create inflation when other vendors see this signal as the truth and follow suit.

Meta-reflection on how we could update the EthicalOS questions to apply to blockchain ethics:

What concerns me most about Libra is its potential to scale in both the number of people it can impact (e.g. to the billions of facebook users) and the depth to which it can impact their lives. Money is core to much of people’s lives - not just direct finances, but also credit history, reputation, and general freedom. In addition, since money is a tool necessary in our society for transactions, once Libra reaches a given scale it may require others to use and rely on it as well. Reliance on Libra may be particularly harmful to some groups. For example, there will be developing countries whose currencies will not be included in the Libra reserve because they are not deemed stable enough. If their people must rely on Libra to make many transactions, they may further lose their opportunity to establish a stabilized currency.

Due to these concerns about scale, I propose the following.

(new) Risk Zone 9: Uncontrolled Scale
If your system scales, will users be financially dependent on your system?
Will users reputation, such as credit score, be dependent on your system?
Will use of your system by one group of users who benefit from your system then require the use of your system by users who do not benefit from it?

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Great discussion so far, and I want to pick up on the threads of net neutrality going on here. Facebook’s Free Basics have deeply integrated their services into countries across Africa, South America, and elsewhere and have contributed to a number of very negative outcomes. A primary example I’ll tease out here is the 2018 Presidential Election in Brazil, where rampant misinformation on WhatsApp may have contributed to the outcome from the election. WhatsApp use is so ubiquitous in Brazil because it is part of the Free Basics package, unlimited by data usage in contrast to other messaging options like Signal, Telegram, etc. I could imagine (in line with Risk Zones 3, 5, and 6) that similar scams could operate through this ostensible monopoly through ISPs. That is, goods or services available through FB/WhatsApp with Libra coin at a net higher expense but greater convenience or access could choke out other market types. This isn’t speculation, since we can point back misinformation attacks during elections like the case of Bolsonaro’s election.

I also want to dig in on EthicalOS section 7, which has been relevant to a handful of our discussions in class. Additionally, a lot of the umbrage of Libra has been about the positioning and branding – a blockchain not blockchain – and similar frustration has been expressed about IBM and hyperleger, so this section may be of increasing importance for both users and lay audiences. The equal treatment of users is not really a problem for the first five years of operation for Libra, since there is a clear hierarchical structure: partners in the Libra association supply, users demand. But, assuming this thing catches on, the vast majority of users will likely be captured in that initial use case / structure. Transitioning to a PoS model matters only for a small, small segment of the audience and most would never think that they could participate in governance. Additionally, I have a strong feeling that the pseudonymity of Libra will be immediately undermined by whatever data Facebook has that links MAC address and hardware fingerprints to real identities. Of course, this is verboten under GDPR, but it is not a stretch to imagine existing.

I think what can evolve in section 7 of the risk zones is thinking about how the product changes over time and if that change is fundamental and demands some sort of education or informational campaign, or a complete product re-branding. Theoretically, who you trust in a validator node model versus a proof of stake model is a similar, but much more complex communication problem. I might add the following to section 7:

  • Will the required knowledge of the product change over time, and will that change impact the services and agency granted to users?
  • Does the evolution of the product over time impact the data security, stability, and usefulness of the platform for users at all levels of proficiency?

I’ll wrap up with a quick sentiment that I may get roasted for here. Look, Libra is obviously not great and poses a lot of problems, but at the end of the day, Facebook is subject to some social pressures. Without veering into booster-ism, I’d urge thinking about all of this in the context of a likely alternative, crypto from the People’s Bank of China (PBOC). This is no reason not to critique Libra, but it is definitely the lesser of two evils in this case.