FACEBOOK SAYS ITS NEW DIGITAL CURRENCY WILL BE 'OPEN TO ANYONE.' THAT'S NOT TRUE.

• Author: O'Sullivan, Andrea

FACEBOOK HOPES ITS proposed Libra currency system will bank the world--and keep us on Facebook. Right now, it's just an idea. While the project may change before its projected launch in 2020, the current plan has big problems.

For starters, Libra will be a "permissioned system," meaning that only a few hand-picked parties--through an independent governing body called the Libra Association--will be allowed to run the network. This is different than permission-less systems like bitcoin, where anyone can connect to validate transactions. That closed nature would leave Libra's users vulnerable to outside influence, because permissioned validators can coordinate to block transactions for regulatory or political reasons.

While Facebook's white paper announcing Libra says it will be "open to anyone," the paper also says Libra will innovate "on compliance and regulatory fronts to improve the effectiveness of anti-money laundering." But how can Libra be both fully open to anyone and fully compliant with anti-money laundering regulations? By definition, such laws limit certain transactions.

Facebook says closed access is initially necessary for scale but wants Libra to later transition to a fully permissionless system. That leap seems unlikely. First, it is technically dubious. Introducing major systemic changes after rollout can spark network-debilitating chaos. More fundamentally, permissionless networks seem incompatible with Facebook's stated vision of full compliance.

And then there are the regulators, who are already licking their chops. Rep. Maxine Waters (D-Calif.), the chair of the House Financial Services...