Facebook’s white paper on its Libra explains how the new currency works, but leaves a number of important questions unanswered, mainly to do with widespread concerns over the company’s trustworthiness.
The white paper and another targeted at developers explain that while Libra will use blockchain, it doesn’t share the philosophy of other cryptocurrencies such as bitcoin. In the first place, because it is a stablecoin anchored to a basket of funds and deposits held in leading central banks, which should limit, but not completely avoid, exchange rate fluctuations. In the absence of any monetary policy, all that will regulate how many Libras are created or destroyed will be the number that users keep in circulation.
Unlike bitcoin, Libra’s blockchain and the nodes that support and validate transactions will be private: operating a node will require a permit and a $10 million investment, which sets it apart from the most popular cryptocurrencies’ ideal of decentralization. The nodes are part of the association that controls Libra and have one vote each, compared to Facebook’s two. Facebook says it eventually wants to see the network public and decentralized, but has not established any reliable mechanism or timetable for this.
On the plus side, the consensus algorithm will not be a Proof of Work, or PoW system, like bitcoin, surely the most expensive of its kind ever created, but instead, Proof of Stake, or PoS), which makes it much more reasonable ans energy efficient. It is to be hoped that Libra’s developments to try to evolve into a public system will help other cryptocurrencies like Ethereum improve their transactional efficiency.
Facebook’s incentive is in operating the digital wallet, called Calibra: when the currency comes into circulation, the vast majority of its users will likely come from the user base of Facebook itself, along with Facebook Messenger and WhatsApp, which will integrate Calibra and allow Facebook to monetize the flotation of those funds. The problem, as I have already noted, is that this requires users to trust an outfit that has shown itself to be decidedly untrustworthy: as far as I’m concerned, Facebook’s pledge not to monetize transaction data isn’t worth a light. Lest we forget, monetizing data is the basis for Facebook’s business model and there is no reason to believe it will change its ways.
I’m sorry, but I do not trust Facebook, and I doubt I’m the only one. As for its claim that “Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people,” perhaps we should remember that Facebook’s original mission was “to make the world more open and connected” until it was rewritten in 2017 as “give people the power to build a community and bring the world closer together.” Look what happened to these pledges.
Facebook is only in this for one reason: to capitalize on its huge user base. Its partners in this enterprise also want to access that user base: quite simply, they have no choice but to get in bed with Facebook, despite its terrible reputation. What’s more, in the same way that Facebook has deceived its users despite working with thousands of advertisers, the presence of other partners in Libra will not prevent Facebook from continuing to do so. The company has come to see the most blatant aberrations as normal practice, as have the companies that work with it. That’s the biggest problem with Facebook: its malign philosophy is contagious.
Quite simply, Facebook drags everybody it deals with down to its murky level. How long before we hear about the first Libra scandal, the first proof that Facebook is using data to target its users or the first transaction data theft? At this stage in the game, is there really any need to remind people of Facebook’s reputation?
In short, as I wrote a few days ago before the final product was revealed: Libra is a great idea and hugely ambitious: a universal cryptocurrency has huge potential to do good. But unfortunately, it’s in the wrong hands. Will I try Libra? Sure, I’ll try anything once, after all, I teach about innovation. Do I believe that Facebook will manage its users’ data responsibly? No, I’m sorry, I don’t. As long as Facebook is part of Libra, never. Hopefully, at some point, some other company with the potential to make a universal cryptocurrency and make it popular will step forward and come up with yet another alternative to Facebook’s Libra. In fact, I believe this area could even get overpopulated in the future, threatening the control that central banks now exert over monetary policy, and perhaps creating a totally different economic landscape.
But Facebook? Facebook is like the scorpion in the fable, unable to stop itself from stinging the frog, even though it knows it will drown as a result: it’s in its nature. Bearing in mind the disaster it created with our personal data, one can only wonder at what it will do with our financial transactions.
This article was previously published on Forbes.
(En español, aquí)