The Bank Of Facebook
Bitcoin is pumping, but Facebook’s new Libra is the big news story. Bank to the world or another case of “Big Tech” overreach? You decide.
As I was watching CNN this morning, the ticker moving across the screen read: “Bitcoin reaches $12,000”, and I found myself reflecting on time not too long ago when the same ticker would have read: “No bottom in sight for bitcoin.” Notably, however, most of the popular fascination with crypto these days is not swirling around the bullish price of BTC, but rather about the announcement by Facebook of their new digital currency “Libra” or “Global Coin.”
As observed by David Cullinan in the Irish Times, “Depending on who you listen to, the Global Coin is either going to be the best thing that’s ever happened to crypto, or the worst. There doesn’t seem to be any real middle ground.” Is there anything that people do agree on these days? No surprise then that innovation as significant as Libra would also be an incredibly polarizing topic. With that as a backdrop, I’d like to offer an approach that is both cautiously optimistic and optimistically skeptical.
But first, let’s make one thing clear, Libra is nothing like bitcoin. Brian Kelley, who regularly features on CNBC “Fast Money” breaks Libra down as Facebook creating a digital version of the USD, Yen, and Euro. By pegging the value of Libra to a basket of global currencies, it will maintain all the characteristics of fiat currency and be more stable (stable coin). Users can exchange their dollars for Libra tokens, and these tokens will be native to Messenger, Whatsapp, etc. and allow users to send and receive funds internationally as well as transact with merchants who accept Libra.
Anyone who has spent any time in China will immediately see the parallels between Libra and WeChat. In fact, for many of us, it’s hard to believe that it has taken this long for the world to catch up with WeChat. For those of you not in the know, the current reality in Mainland China is essentially such that only tourists use cash. Quite literally every transaction you can think of takes place via WeChat. Even leaving a parking garage is a matter of scanning and tapping. No attendant. No cash.
Sounds pretty amazing, right? Well not so fast, because to pull this off it means that the general population is going to have to not only trust Facebook with even more data than they already do, (data that pertains specifically to their wallets) but also have faith that FB can be trusted to manage this vast ecosystem. This brings us to the topic of “trusted third party.” It’s safe to say that most of us trust our banks, but do we trust Facebook to be a bank? Honestly, I bet most people wouldn’t even trust Facebook with pictures of their poodle anymore (And we haven’t touched how WeChat works vis a vis the Chinese State).
That, in a nutshell, is precisely why bitcoin was created, and why people have been so excited about crypto in general. Simply put, it is a secure, trustless, and censorship-resistant way to send and receive money.
The largest social network in the world unveiling a digital currency — cloaked as it may be in crypto and blockchain hype — will undoubtedly lubricate many people’s entrance to the crypto space. But it needs to be made clear that they aren’t buying “the next bitcoin” or even something that offers the very features that make Bitcoin appealing.
~ Colin Harper (Bitcoin Magazine)
So why has Facebook created Libra at all? There are many opinions and theories, but the Libra team itself has stated that financial inclusion is a big part of their mission. It’s worth noting that a majority of the world’s unbanked population are found roughly only a handful of countries and it isn’t hard to imagine how impactful an innovation like Libra could be to this population if implemented successfully.
Indeed this point cannot be understated, according to Tony Perkins, editor of Cryptonite, a media company focused on blockchain, “Facebook and WhatsApp are huge in developing nations like Africa and India. By providing users the ability to transfer funds to one another and merchants at a low cost, Libra will bring billions of people into the modern economy. This is huge, and represents a gigantic economic opportunity as we have never seen.”
And therein lies the rub, Libra is not the first project with the stated goal of increasing financial inclusion, but Libra is the first project with the scale to pull it off. With 2.3 billion users, its community is almost twice the size of China. When you are trying to bank the unbanked, having such reach represents power and possibility, but in light of recent revelations, and realities, it also poses a significant risk and concern.
In a scathing article for The Guardian, Ethan Lou sums up the fears of many.
Facebook’s cryptocurrency heralds the rise of the corporation-government, potentially shaping the already vast powers of the Silicon Valley giants into a borderless, unaccountable techno-oligarchy.
The main communications platform for millions, if not billions, Facebook already holds the keys to our speech, our inner thoughts and our perception of reality. It holds sway over elections. Now it may hold our wallets, too. Facebook said it will not combine and parse all that priceless data, but who can stop it if it does?
It is ironic Facebook is moving into cryptocurrency, which is supposed to operate without a centralized authority, precisely to prevent an unaccountable administrator from holding power over users.
US lawmakers have launched antitrust investigations to potentially break up Google, Amazon and Facebook, the goliaths that they feel have gotten too big. But Zuckerberg has doubled down, merging his WhatsApp with the messaging platforms of Facebook and Instagram, both a deft move and a middle finger.
As technology companies grow bigger and bolder, any potential scandal will be amplified. The digital serfs of the future may point to this moment as a turning point: when Facebook started printing its own money.
The scary fact of the matter is that perhaps only a behemoth like Facebook could ever hope to achieve the good that would be accomplished by bringing 2 billion people into the financial system. If this is the case, then we must shift the debate away from “Is libra good or bad” to a conversation about how we make sure that this latest technological innovation does as much good as possible while mitigating its downside, and this brings us back to the blockchain.
According to professor Kevin Werbach, “After so much misbehavior, no one paying attention would take Facebook at its word. But that’s the whole point of a blockchain system: No one has to. Limits on Facebook’s power over Libra will be designed into its open-source software and governed by a growing collection of partners who can call Facebook out. The locus of trust will be the blockchain system, not Facebook itself.”
I will go a step further and say that self-governance and faith in the blockchain are not enough. With the rise of these massive techno-giants, we see that there is a strong role to be played by the government and also for engaged citizens, there is simply no other way.
Finally, of all the recent commentary, the voice I think best sums up how we need to view Libra is Michael Casey at Coin Desk.
I wish it were a different company running with this ball right now. But since it’s not, the need for all of us to take a direct interest in this project is even greater.
We must demand that our representatives provide clear-headed, informed oversight that holds corporations like this to account and curtails their monopolizing powers. But we should also expect smart, open-minded regulation that encourages companies to compete and innovate in an open system that creates opportunities for everyone on this planet. ~ Michael Casey (Coin Desk)
