Libra by Facebook
Will the cryptocurrency by the tech giant be really a thing for us in the future?
First off, there are only people in certain corners of the world who understand cryptocurrency and how it works. Given that Facebook is making one is like inviting a murderer to your house again because he missed his mark the first time.
The Libra cryptocurrency introduced by Facebook in July has made everyone in the tech world yak about it. Introduced — not a prototype, not a demo service, not a special launch version — just introduced and already everyone has got scruples about it.
Objections are being raised as to whether Libra is a cryptocurrency. Cryptocurrency as such doesn’t have a proper definition that could help segregate different types of currencies. The primary difference is this; the more famous cryptocurrency, Bitcoin is a permissionless system meaning no one can keep track of the transactions. But Libra is a permission-based system where only certain trusted entities can keep track of the transactions. So Libra sounds more like a digital currency than cryptocurrency. And obviously these types of currencies aren’t monitored by a central bank like its done for the Euro, Yen, Pound, Dollar, etc. The absence of a centralized monitoring body like a country’s government is a cause for concern.
Facebook will be launching a digital wallet called Calibra. It is the application through which users can buy Libras using their local currency. Apart from being a digital wallet, Calibra is expected to be an entire software/application subsidiary of Facebook which will wholly control the Libra currency system across all of Facebook’s platforms. Despite the repeated assurance by Facebook that Calibra will not be used for user-targeted advertising or study an individual’s buying potential/pattern, we all can feel the hair on our hands stand up when we think about what can be achieved with the boundless user base of Facebook, Instagram, Whatsapp, and Messenger.
“Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook, Inc family of products.” — Facebook.
Haha, Facebook! Fool me once, shame on you. Fool me twice, shame on me.
As reported on Bloomberg by Matt Levine, the goal is for Libra to be more useful than any national currency, accepted in more places and with fewer complications; pegging it to a single national currency would only hold it back. The goal is to avoid massive fluctuations in the value so Libra can be used for everyday transactions in a way that more volatile cryptocurrencies, like Bitcoin, haven’t been.
The main issue around Libra hasn’t been about the technology but about the company that developed it. The launch of Libra comes amidst a string of scandals jeopardizing Facebook’s reputation as a tech giant involving cases of misuse of consumer personal data and violating consumer privacy. The FTC recently slapped Facebook with a $5 billion fine for its involvement in the Cambridge Analytica Scandal.
At the launch of Libra in June, Facebook had formed a Libra Association with 28 other Fintech companies like Mastercard, Paypal, Stripe, eBay, Visa, etc. to oversee the rollout and functioning of Libra. This was a smooth move by Facebook to brownnose the authorities and to show the world that Facebook alone isn’t controlling the Libra currency but there are other trusted partners too who will oversee it. But that didn’t work out well as expected. In recent weeks, there have been a good number of companies from that association who have bailed on Facebook.
Paypal pulled out from the association to — “continue to focus on advancing our existing mission and business priorities as we strive to democratize access to financial services for underserved populations.”
However, as reported by The Verge through a report from Financial Times, Paypal had started to move away from the Libra project because of the increasing regulatory scrutiny and also the lack of attention Facebook executives have given to Libra’s backlash.
Paypal is not the only one, a total of 6 other companies have left the association citing that they have their own missions to focus on. Mastercard, Visa, Stripe, eBay, Bookings.com all have left the project even before Facebook appointed an executive team and formed a Board of Directors. A few major companies such as Spotify, Uber, and Lyft are still on board.
For now, as per what Facebook has announced, the Libra Association will act as a non-profit organization based out of Switzerland serving as a governing body that will vote on Libra’s policy and operating decisions. Facebook also said that once the currency is fully launched in 2020, it’ll withdraw from the leadership role and all the members will have equal voting rights in the management of Libra.
That all sounds nice, but in one line, people and authorities are simply not ready to trust Facebook again with a technology involving so many complications requiring user’s sensitive data. Facebook already knows too much about us.
Obviously, the lack of trust could be attributed to the scrutiny faced by Facebook by all the government authorities who are also trying to strip Mark Zuckerberg of his commanding power. Mark Zuckerberg will have to answer to all the government bodies about what Libra does and hopefully pray they accept his company’s promises regarding usage of consumer data and security.
“No. I really think that a currency should stay in the hands of countries. I’m not comfortable with the idea of a private group setting up a competing currency. A private company shouldn’t be looking to gain power this way.”- Tim Cook
Germany and France have argued that Libra should be banned in the European Union. The US, UK, and some central banks have sought more information from Facebook about Libra’s privacy policies.
The government is worried about money laundering. In the wake of the infamous Ransomware attack, all the transactions happened through cryptocurrencies which gave a massive headache to all the federal authorities since cryptocurrencies are pretty impossible to track. Bitcoin too gave elbow room for money-related scams and extortion. When payment processing companies like Stripe, Mastercard, and Visa renounced the deal it became clear that they didn’t want to get involved in legal matters in case Libra was misused to launder money among other things.
The idea of Facebook to build a stable coin that’s immune to fluctuations caused by the ups and downs of the world economy is good, but the past history of the company isn’t letting it fly. This is not the end of Libra, but in order to be a success, there are a lot of questions that need to be answered and a lot of regulatory requirements that need to be met.