Why Facebook Got Into Cryptocurrency and the Issues Which Lie Ahead
When I first heard about Libra, I had mixed emotions. While Facebook’s opaqueness and shady business practices are indefensible, it’s hard to deny the value that it could bring to the space by introducing cryptocurrency to its billions of users. But would these users even humor using Libra?
Aside from its declining image and usage, Facebook must also contend with government legal scrutiny and user adoption if Libra is to succeed in its vision of a nigh fee-less peer-to-peer digital currency. Failure to execute on any one of these could see Libra as just another failed project aimed to boost Facebook’s image (remember Internet.org?).
In determining the efficacy of an endeavor, it helps to consider the intentions underlying it. So, before diving into the issues which we see Libra facing, let’s recap what may have led Facebook to be the first of the FAANG companies to dive in with its own cryptocurrency.
Cambridge Analytica
In 2015, political consulting firm Cambridge Analytica breached Facebook’s terms of service by collecting the personal data of approximately 87 million Facebook users without their consent. This data was collected via an exploit in Facebook’s API that allowed their third-party app “This is Your Digital Life” to access all of the data of the friends of the 270,000 people who actually gave the app permission to access their data.
While there are plenty of apps which undermine user privacy, like this, the data which was amassed by Cambridge Analytica was subsequently used to help inform the decisions of the Trump campaign. Given the scrutiny that the campaign’s efforts had already been under coupled with the allegations of Russian involvement, the story blew up when it broke in March of 2018.
And while Facebook was quick to suspend Cambridge Analytica for violating its Terms of Service, it could not undo the damage which had already been done. The movement to #deletefacebook began picking up speed, the FTC began investigating Facebook, investors began calling for Mark Zuckerberg’s resignation, etc…
Deciding to take this head-on, Zuckerberg vowed to invest heavily in security, even at the expense of the business’ profitability. This was reflected in the company’s Q2 quarterly report and caused Facebook to lose more value ($120 billion) in one day (July 26) than any other publicly traded US company ever.
This stock decline would continue throughout 2019 as Facebook began to lead the charge with ‘Deplatforming’ by banning Alex Jones and others — calling into question their support for free speech. This would be compounded by multiple other hacks which compromised millions of users’ data as well as a Times investigation that found Facebook was sharing many users’ personal data with large companies.
The fact of the matter is that with each passing day, Facebook was clearly failing to deliver on its promises of improved security measures.
Fixing Facebook
In March of this year, Mark released a 3,200-word missive on the importance of privacy and ephemerality and how it would be the key to Facebook’s future. This was buttressed at their yearly F8 Developer Conference, where Mark addressed the crowd in his keynote with this year’s focus: “The future is private.”
With this announcement, Facebook appeared to be trying to restore its reputation by commanding a common front against world governments who are actively working to ban secure encryption. This effort was compounded by their announcement of Libra, a ‘cryptocurrency’ poised to disrupt the financial industry.
While Facebook has compared itself to other businesses in the past as a means of assuaging its poor reputation (ex: ISPs in the case of Internet.org), taking on the government and finance is much, much more serious. And Facebook has a long road ahead of it — Libra is fraught with a number of non-trivial issues that the business will need to overcome to realize its vision and begin mending its reputation.
Issues
Facebook Pay
Before getting into the possible success of its cryptocurrency, let’s take a peek at how Facebook’s foray into payments has gone, thus far.
A few years ago, Facebook launched Facebook pay as a way for users to connect their bank accounts and pay one-another inside of the platform. And while Facebook’s Marketplace has been a huge success as a user-driven marketplace — almost none of the users of the product are using Facebook Pay in their transactions. In fact, most of the users in the United States are instead using Paypal, Venmo, and cash in their peer-to-peer transactions, cutting Facebook out of the equation beyond discovery.
This behavior is likely due to the fact that people associate Facebook with being a social network, not a payments platform. A paradigm shift inspiring users to use Facebook as a payments platform could certainly arise through partnerships with established payments businesses (chiefly, PayPal), but even then, many users may still opt to use their established channels.
Move Programming Language
Perhaps one of the most interesting aspects of Libra is the new programming language which is ships with, “Move”. Upon hearing about there being a new language in lieu of Solidity, a number of technical-minded individuals whom I know doomed the effort to fail. But, this has been said about a number of languages which have succeeded in the past — so, what does Move have going for it?
Well, to answer that question, let’s take a look at some commonalities amongst newer successful programming languages. New languages have a much higher chance of gaining traction and adoption if they are:
- Open source — developers do not want vendors to have complete control of a language.
- Familiar — developers don’t want to relearn everything from scratch.
- Niche — most new successful programming languages have started out with a specific purpose.
- Timing / Luck — it’s important to be in the right place, at the right time.
While Move is open source and niche, its familiarity is yet to be determined. The language is fairly immature and will likely change substantially to better align with developer wants and desires, over time. While it’s unlikely that many blockchain developers would be moving away from Solidity any time soon, the possibility of Facebook tapping into its existing developer community could position Move for major adoption amongst traditional web / mobile developers.
Legal Scrutiny
As mentioned previously, Facebook has already been under investigation by governments over the past few years. So, it was of no surprise that Congress asked Facebook to cease development on Libra until they had time to investigate.
While this action has the community up-in-arms saying that “this is why Satoshi was anonymous”, it’s important to consider Facebook’s track record with the government. In the past, the government has certainly stymied Facebook’s efforts, but Facebook has almost always managed to circumvent them in one way or another.
In short, this action may slow things down, but if history tells us anything, it’s highly unlikely to stop Facebook’s efforts.
Benefits
Awareness
Bitcoin found a home within the cypherpunk and crypto-anarchist community. And while it and other blockchain-based technologies have grown substantially in awareness over the past decade, they still don’t hold a candle to Facebook’s reach of billions.
This is because these technologies are still quite cryptic to the general public. And while Libra doesn’t quite fit the definition of a ‘cryptocurrency’, it may very well succeed in better articulating and demonstrating some of the intended benefits of cryptocurrencies. This, in turn, may well assist in the awareness of cryptocurrency, in general.
Unbanked Adoption
As mentioned previously, many individuals opt to use PayPal or Venmo in lieu of Facebook Pay when transacting with one another on Facebook’s marketplace. But, there are many people around the world who are unable to use these services due to their requirement of a bank account. If Libra is able to provide the same value without a bank account, the potential for adoption amongst this demographic (assuming they’re using Facebook) is huge.
Corporate Adoption
When Facebook’s partners of Libra were announced, it was all over the news with big names like Visa and PayPal willing to pay $10 million to become a part of this decentralized effort. But this news was quickly dampened when it was realized that these businesses signed non-binding agreements and could easily back out.
Regardless, the fact that these businesses were willing to let it be publicly known that they were signing these agreements demonstrates a huge forward progression in thinking from businesses in the past few years.
Summary
It’s no secret that Facebook’s reputation and usage have been on the decline for some time, now. With a continual failure to deliver on improved measures regarding user data and privacy, Facebook now finds itself under continuous investigation by world governments. In hopes of improving its image, Facebook has taken on a number of efforts, including the public reveal of a new cryptocurrency, Libra.
While Libra doesn’t quite fit the definition of a ‘cryptocurrency’, Facebook’s entry into the space could serve as a huge onramp for new users and businesses. This is contingent on Facebook’s ability to both navigate legal scrutiny of Libra as well as bring value to users that they can’t get from other platforms like PayPal or Venmo. While these are non-trivial problems, it’s obvious that Facebook isn’t going to go down without a fight. And to me, that should be very exciting for everyone involved in both cryptocurrency and blockchain technology.
