Libra: Why Facebook is the best and worst company to create a cryptocurrencyby Peter Griffin
It has been around for years, so why aren’t we all using Bitcoin, the world’s most commonly traded cryptocurrency, to buy things online? Now, Facebook is making a play in cryptocurrency.
Its decentralised nature is its biggest selling point for those looking to avoid bank fees and preserve their privacy. But that is also its greatest weakness. After hundreds of years of parking our money with banks, we’ve grown used to the idea of a trustworthy intermediary holding onto our money, even if we resent the interest and fees they charge us.
I’d hardly call Facebook trustworthy, but as a US-based multinational with over 2 billion users and tens of billions in annual revenue, it is perhaps best placed to disrupt the banking sector while giving us at least some confidence that we have recourse if our digital currency disappears into the ether.
Read the Libra Association’s white paper on its new digital currency, set for launch in 2020.
Libra, Facebook’s digital currency play has the potential to be as influential as PayPal’s arrival in the online payments space was. But it is nowhere near as radical as Bitcoin and its rivals.
In creating the Libra Association, a not-for-profit consortium of companies that controls the currency, each with a voting share and say in its governance, Facebook is seeking to give people the certainty they associate with bluechip names like Vodafone, Visa, eBay and PayPal, which are among the founding members. Facebook could never have done this alone, given its terrible track record on privacy and protecting our data.
In creating Libra currency with a value per coin similar to the US dollar or euro, and tied to bank deposits and assets underwritten by the Libra Association members, it aims for a “stable coin”, one without the wild price fluctuations of Bitcoin and one unlikely to collapse when a hacker takes off with a crypto exchange’s digital tokens. It is still a decentralised currency, in that it can be swapped directly between people using a smartphone app or website.
That should give people and online merchants confidence in buying and selling with it – and the ease of use we’ve come to expect in the online world, and which other cryptocurrencies don’t offer.
Facebook is also promising “nearly zero fees”, which we can all celebrate especially for international money transfers which are a complete rip-off. Based on blockchain technology and employing bank and credit card level anti-fraud measures, it has the potential to be a secure and fast system of transfer.
Facebook’s digital wallet called Calibra, will facilitate Libra transfers between anyone who uses the wallet in Facebook Messenger, WhatsApp, as a standalone app. But Facebook won’t have a monopoly on facilitating the exchange of Libra – third-party apps from those other Libra Association members will also be available.
Crucially, Facebook is also claiming it will not access any of the data from Libra to track our behaviour and target adverts at us.
“Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent,” it declares on the site for Calibra, which has also been established as a Facebook subsidiary.
“This means Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook family of products. The limited cases where this data may be shared reflect our need to keep people safe, comply with the law and provide basic functionality to the people who use Calibra.”
The devil is in the detail on that and I want to see more information on exactly how Libra and Calibra plug into the Facebook ecosystem and what data is leaked to Facebook in the process.
The ground is set then for Facebook and its partners to next year usher in a new way of paying for things online and transferring money.
So why do I feel so nervous about this?
The timing is all wrong for Facebook, which is facing regulatory action from the US Government and is still trying to recover its credibility following a moral failure that cuts close to the bone for many of us – its live streaming in March of the Christchurch mosque attacks.
Our finances are so personal to us and with a system like Libra and its associated wallets and end points comes the ability to see what we are buying where and who we are exchanging money with. Despite Facebook’s efforts to step back from Libra and put it in the hands of an industry consortium, this is very much Facebook’s baby and there is a strong incentive for it to own the crypto space, the way it has social media.
A successful cryptocurrency will naturally keep Facebook users engaged with its apps for longer allowing it to glean even more information that is actually useful to selling adverts. Businesses will want to spend more advertising through the Facebook network, given that Libra is just a click away for those using Whatsapp and Facebook Messenger.
Facebook will seek to target the 1.7 billion people around the world who don’t use bank accounts and don’t have a reliable and cheap way to get money to each other. Just like with Facebook’s efforts to put cheap phones in the hands of people in developing nations and let them surf Facebook for free, the social media giant is looking to the bottom line.
Or more precisely, it is looking to the next two billion people who will keep its revenues and profits growing. It has total world domination in its sights.
We are about to see the most untrustworthy big tech company around try to enter a space that requires ultimate trust, while that company will seek to attract hundreds of millions of new converts to the Facebook world to grow its profits.
I’m sorry, that fills me with dread. Facebook needs a reset on its values, its practices and, frankly, new leadership before it can credibly pull off a move as big as this.
Impressive work and thinking has gone into Libra, but if Facebook’s management had put nearly as much thought and energy into ridding its network of extreme content, hate speech and misinformation, I’d be a lot more welcoming of its digital currency ambitions.
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