The Libra Hustle

Joel John
Joel John
Jun 18, 2019 · 18 min read

If you were born after 1995 and grew up in a developing economy, odds are high that Facebook has encompassed the vast majority of your digital life. The platform hit a billion users right around the time you were 13 (2008), leveraged network effects of Mobwars and Farmville to keep a younger demographic hooked and converted to ownership of Whatsapp and Instagram as they grew older. For many of us — Facebook provided the means to connect to friends far and wide, hold conversations that’d otherwise be impossible and easily connect to influencers that were continents apart. In a pre-4G world, where e-commerce had not taken off, Facebook was the internet for so many of us. And it remains to be the case. If not on the platform itself, through Instagram or Whatsapp, Facebook owns much of the world, by its most private conversations and intimate moments shared in pictures. Zuckerburg is simultaneously the brand ambassador of a digital nation whose powers remain unchecked and the CEO of one of the fastest growing companies of our times. His board struggles to tame him, his regulators fail to understand his business model and his competitors crawl far away in the distance as the corporation sustains its growth consistently. Quarter after quarter.

Next week will be a monumental one for the blockchain ecosystem. One that many of us had anticipated for over a decade. It is when this niche technology that was once discussed only in the strangest, sometimes nerdy corners of the web goes mainstream. 2.4 billion users across 3 major platforms may access Facebook’s blockchain initiative as it rolls out to the public. While much has not come to the public yet, there are a few hints that explain what Zuckerburg is up to, where his business is headed and what that means for the people that have been tracking the space. Mark first alluded to the concept of “decentralisation” in a New Year’s post in 2018. While much didn’t come of it and Facebook continued to remain busy with regulatory tango over the course of the year, it seems his team has been busy at work. News has emerged that a Geneva-based foundation has raised $1 billion for the initiative from 100 major corporations including the likes of Uber, Visa and prominent Indian payments player PayU. Another way to put it is that the world’s largest corporations have pooled together a billion dollars in collaboration with the world’s largest digital network platform for a blockchain initiative.

Why Is Facebook Going Down This Route?

It would be a farce to even remotely suggest that Facebook’s entry into the space is based on good intentions. Calls to break Facebook apart has come from its early founder — Chris Hughes and early investors — Sean Parker and Chamath Palihapitiya. This is not for a lack of reasons. Facebook has been responsible for breaking down democracies, mass murders and even lynchings in India. The spread of fake news on platforms owned by Facebook today may have more power to declare death on an individual that supreme courts do in certain countries. Facebook’s echo chambers are the equivalent of religious propaganda inspiring hatred and calls to violence in the digital age. With this in context, it is only fair that the platform develops checks and balances for how its content is spread, consumed and verified. However, inspite of having a literal army of manual laborers, many of who are paid below minimum ages, whilst being subject to torture — mental, physical and emotional, Facebook has failed to do so. However, nothing Facebook is about to do has with its failures in being an ethical business that pushes mankind forward. It really boils down to numbers. In order to understand what Facebook is about to pull off, one has to dig into how its earning patterns are currently. To break it down to pointers here’s what you need to know

  • Facebook has a total of 2.3 billion users globally across three prominent platforms — Instagram, Whatsapp and Facebook itself
Source : Statistica
  • The reasoning for this is simple. Facebook’s growth came at a time mobile and internet penetration happened simultaneously. For many in these economies, the mobile was the first ‘digital world” experience. The internet is essentially Youtube, Whatsapp, Facebook and new age platforms like TikTok in this part of the world
Source : Statistica
  • Facebook is stuck with a conundrum where its largest userbases make the lowest amounts in return for the platform. With the spread of fake news, higher investments into moderation meant lower ROI from these economies inspite of economies of scale

Tl:dr — Facebook’s largest userbase comes from developing economies. But it makes the lowest income from those regions. Difficulties in training AI for regional content, combined with heavy expenses in human run teams means difficulties in running the business.

However, Facebook has a golden goose that has been slowly coming of age in these regions. It is payments. Unlike advertisements, payments do not require vast amounts of on-platform web traffic. It is driven by utility. And unlike web publishers, having a cut of digital transactions could mean considerably higher average revenue per user. By mapping out the social relationships, emotions (through reactions), preferences (through likes), political, artistic and religious leanings (through groups) Facebook has a map of where and how individuals prefer to lean towards in terms of consumption. By mapping where and how often individuals pay, Facebook will have data on individual expenditure. This move is likely inspired by three key trends in Facebook-owned platforms

  • The surge in social selling on Facebook groups. It is common for individuals in India to list their houses for rent, applications for sale or even pets for adoption in large facebook groups. Key reasoning that encourages this behavior is the verification of social profiles and background checks that are enabled by simply clicking on the poster’s profile link.

Facebook’s desire to enter payments is further cemented by the fact that it has rolled out digital payments in India and Thailand, two of its largest userbases. By simply shifting from an advertisement driven model in these economies to solely focusing on payments, the “social network’ platform will become a banking behemoth that can compete directly against the likes of WeChat.

What does this mean for the platform?

In order to understand what blockchains enable for Facebook, one has to associate the key use-cases that may see direct utility from an integration currently. While all of these are speculatory use-cases, they are ones that can be realistically be integrated into their system and see substantial traction. The purpose of this exercise is not to suggest Facebook will enable them but to lay out the key applications that may witness a threat from Libra

  1. The Identity Stack — Facebook already holds data on social verification of individual profiles. Our social interactions are algorithmically used to define the creditworthiness we hold. In some nations like India, Facebook has also gathered passport and Aadhar details on users alongside phone numbers. Put together, Facebook could expand into a self-sovereign identity network. Much like how we have “Log-in With Facebook” today as an option to merely login and provide details on name, age, region and taste profiles, Facebook could use blockchains as an identity layer to enable authentication to government officials, banking partners and even employers to check the credibility of an individual. With Apple launching its own “Log-in with Apple” button for third-party apps and Microsoft’s renewed focus on Decentralised Identity (DID), one has strong reasons to believe this could be the case. Note: I have covered more on DIDs here.

What could be the impact on the token economy?

Distribution. Distribution. Distribution.
That is at the crux of what Facebook’s move into the space means. Until earlier, platforms such as Twitter, Facebook and Google had control on what crypto oriented content was discovered and used in the form of ads. In fact, when advertising of token-based products declined in 2018, startups struggled to find a user base. Even today, with Apple maintaining a monopoly on how apps are distributed for the iPhone, token-based apps struggle to go through verification. One could argue that Facebook could be more lenient with how it lists and enables apps. The more powerful case here being the fact that all of a sudden developers are incentivized to build for Facebook’s network of users given its large user base. Imagine building Android apps without Google’s ecosystem of apps. Or iOS apps without Apple’s ecosystem in place. Until now, what existed as loose ecosystems with steep learning curves will be replaced by Facebook’s large distribution channels. Distributed applications (dApps) built on Facebook could advertise on the platform and find its first ten thousand users. For context, daily average users across every dApp today is at 300,000. That is below an estimated 0.01% of the internet’s population. Apps that leverage the advantages token based dApps provide today (NFT, asset ownership, data portability, identity) but remain centralised in Facebook’s servers could swallow up the vast majority of users that are unaware of the decentralised ecosystem. However, as they become aware that their digital currency is not really “theirs” and a company based off Silicon Valley now owns their data, digital assets and financial holdings — they may spill over to truly decentralised, immutable, permissionless assets such as Bitcoin. In other words, Facebook could be the inflection point that makes the discovery of this ecosystem possible. This was the case for many of us in India. As foreign companies like Paypal struggled to meet the needs of individuals from India seeking digital payments solution, they spilled over to Bitcoin and other digital currencies. If even 1% of Facebook’s existing userbase converts to using Bitcoin, that is roughly about 25 million users. As a metric of comparison, Bitcoin has roughly 800,000 active wallets the past week. In other words, even a small amount of spillover from Facebook’s space to the token economy could be a huge boom.

The idea that Libra could offer a stable coin alternative to many in developing economies within legal frameworks that currently exist may be flawed. The reasoning being that nation-states often restrict the amount of foreign currency an individual can hold to restrict currency flight. In India, under FEMA laws (Foreign Exchange Management Act) this figure is at $250k. If an individual did wish to hold dollars, they’d rather do it through traditional avenues — that is, their banks. In the case of nation-states where financial infrastructure has been toppled completely (eg: Sudan), Bitcoin acquired through OTC (over the counter), P2P (peer to peer) transactions serve the function far better than Facebook’s libra offering. In other words, what Facebook is offering is not to be seen as a sovereign, immutable, stable alternative to what Bitcoin offers. One is a corporate offering designed to maximise the profits of shareholders. The other is a decade long financial experiment, secured by infrastructure that has billions invested in it, developed on open-source code, distributed by individuals who believe in it.

The big threat to Bitcoin from Libra comes in the form of bad marketing. Imagine, Bitcoin Cash — except with the distribution channels that Facebook holds. That is what we are up against. Individuals could be deluded into believing their data is decentralised, their currency is reliable, their moments can be monetised and that Facebook will work in their best interest. All while corporations plunder it for their own gains. What Facebook could be rolling out in the coming week is an inter-corporation allegiance to share and exploit the personal data of individuals in the most efficient fashion. Liked a track mentioning Gucci on Spotify? How about we offer a 5% discount on it while checking out with PayU. Want a Visa enabled loan on it? Maybe finance it by giving us access to your health data? That is the murky world Libra may enable. Every truly decentralised application today is up against this new reality where a large central corporation with the distribution channels needed to change user behavior and dictate the fates of corporations (eg: Snapchat) and nations (eg: Myanmar) alike is out to eat their meal.

This means two things to put it simple language.

  1. User experience is no longer something we can aspire to improve. Existing token-based applications need to be able to compete against centralised, web 2.0 alternatives that are well cognizant of the challenges posed by web 3.0 applications. They are not here for a share of the pie. They are here to set the restaurant on fire. There will be a period of compromises where token-based applications can find middle-ground with Libra and will likely leverage it for distribution but as we have seen with Zynga on Facebook and distributors on Amazon in the past, the platform can eat up the business built on it. Anyone that truly cares about decentralisation and empowering users, has their reason to be averse.

Regulators around the globe will wake up to a new reality where decentralisation is not at the fringes but a reality. The FSB (Financial Services Board) of the G20 recently issued a document exploring how decentralisation in finance will affect the space. We will soon see the same becoming applicable for elements such as data ownership and identity. Decentralisation as a macro-trend is here and it is here to stay. It will take a while before technology and regulations catch up to it. In the interim however, we ought to realise that we are at the inter-junction of a generational opportunity to remake the internet the way it was designed to be by Tim Berners Lee. Before Facebook’s newsfeeds took over the web, communities interacted with one another in niche forums and chat rooms. Bitcoin had its own share in IRC chat, e-mail lists and Bitcointalk before the industry boomed. When Facebook enters the party, it enters with the same monopolistic mindset it has run with for over the past 15 years. With the same desire to bring together communities and individuals onto a single platform. And if it is able to sell its blockchain with decentralisation sprinkled on top with just the right amount of utility and optimised use-case, there will be challenges in onboarding individuals to a truly decentralised web.

Back to regulations… Those in India wondering if Facebook’s entry could shift regulatory attitudes meaningfully are in for some serious disappointment. As stated earlier- Facebook will not be pushing for a tokenised economy whose pricing moves on the basis of free market principles. It will be positioning itself as the platform upon which hundreds of corporations can pillage personal data and incentivise people while doing it. Even if there is a currency, it will only be a digital variant of regional currencies with high levels of AML/KYC and stricter tracks on how it is used. The idea that an American corporation is here to liberate individuals and ensure their sovereignty is as meaningful as American attempt in delivering democracy in certain parts of the globe. If and when regulators do shift their stance it will be because

1. The G20 has collectively made a decision on how to regulate the space
2. A large economy like the United States has created a functional framework
3. The government decides an outright ban to play vote bank politics.

If you truly care about decentralisation, individual rights and our ability to stand strong in the face of tyranny, I worry Facebook is not the answer. It is just another tool that has grown from the surveillance capitalism economy.

Originally published at https://www.decentralised.co on June 18, 2019.

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Joel John

Written by

Joel John

Principal at LedgerPrime.

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +724K followers.

Joel John

Written by

Joel John

Principal at LedgerPrime.

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +724K followers.

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