Despite all the controversy, things are still looking good for Facebook. In fact, it just enjoyed its 2nd most profitable quarter…ever. Its share price also rose by 50% this year. On top of everything that’s going on for the company that started in a Harvard dorm, it recently made another big announcement. Specifically, Facebook recently indicated that they will be launching their own cryptocurrency, Libra, confirming governmental fears, and met in front of a U.S. congressional committee to discuss its plans.
Specifically, they fear that Facebook, like it loves to do, will threaten consumers’ privacy and dismantle governmental control over international finance. Facebook responds that it’s just trying to provide and expand alternative banking services to 1.7 billion adults without bank accounts.
Let’s examine what’s going on in more detail.
Libra will be like any other cryptocurrency that uses blockchain technology. It will be approved by companies like Mastercard, Visa, and Uber; but notably, not any banks. A subsidiary, Calibra, will supervise Libra. Facebook users will be able to manage and spend money through Facebook Messenger, WhatsApp, and/or a Libra-specific app. All of this will be governed by the Libra Association, an organization of businesses, non-profits, and academics institutions. Facebook expects to launch Libra in about a year.
One question we’re all wondering: Will Facebook control Libra? Turns out that they will not, at least not any more than any other member of the Libra Association.
The First Issue: Uprooting the Current Financial System
Lots of industries have experienced disruption to the benefit of society, but is banking also in need of disruption? Current currencies are doing well and displacing them could be tricky or even disastrous. Remember, Facebook has nearly 2.4 billion users. If they all started using Libra, it could quickly and dramatically affect the rest of the global financial market.
We have already heard of serious concerns or even calls for a ban of Libra from countries like Japan, Germany, England, France, and India. Trump has also expressed critiques in tweets, and in a rare case of agreement with the President, so has Alexandria Ocasio-Cortez. Even more directly, the U.S. House Committee wrote to Facebook requesting it shut down Libra because of privacy, security, and financial concerns.
The Second Issue: Regulation
At present, there is no governmental authority in place to regulate digital and private financial currencies like Libra. In other words, there’s no way of making sure that there is democratically-derived monitoring of Libra’s operation. This isn’t a small issue. Having a private company managing 2.4 billion individuals’ money without elected officials overseeing the process could make for a very vulnerable and dangerous situation. It remains to be seen how Libra and governments negotiate the powers of Libra and whether it can operate as a bank.
The Third Issue: Enabling Crime
Facebook plans to keep all money management and transactions in Libra anonymous and not tied to user’s actual identity. While this will (purportedly) maintain privacy, it also means money can swap hands in the dark. This is how a black market develops.
It wouldn’t surprise anyone if Libra becomes a haven for criminal activity because it would provide them with a channel for transactions without any trace or governmental inquiry. In fact, we already know that bitcoin, another cryptocurrency, is buzzing with illegal activity. Facebook’s Libra could just open another can of worms. In response, Facebook says it will work with law enforcement and employ precautions and defences against any illegal activity or money laundering.
Ironically, Libra scams are already proliferating. It’s hard to think how Facebook expects us to trust its service if it is struggling already to squash illegal activity related to its service before launching.
The Fourth Issue (You Knew This was Coming): Privacy
Facebook doesn’t exactly have the best reputation when it comes to protecting users’ privacy. In fact, Mark Zuckerberg is now personally sharing responsibility for Facebook’s privacy issues. It doesn’t take a genius to then guess that Libra might also be suspect for its privacy. Facebook responds that it will keep Facebook data separate from Libra. After a Senate Banking Committee hearing, however, Senator Sherrod Brown (D-Ohio) wasn’t convinced that users’ privacy would be protected or even that Facebook wouldn’t have major control over Libra:
“[Facebook] can’t be trusted to protect people’s privacy. Facebook has shown time after time after time it’s betrayed the public trust and I can’t imagine there’s anything that would make us trust them.”
Despite these warnings, Libra is already gaining traction. It has already run ahead of cryptocurrency competitor, like litecoin and ethereum, with only bitcoin—the largest cryptocurrency—in its way. In the same research, it was found that about 20% of people responded that they would trust Facebook with their money as they would any other bank.
Overall, this is an exciting time for Facebook and potentially consumers. Any new technology is going to face pushback. But it’s clear that lawmakers have a lot of work on their hands. Keep an eye out for how this story develops…it could truly change the face of banking and money worldwide.
In any case, it seems the Facebook is putting their money where their mouth is. In response to doubts, David Marcus, a Libra executive, stated that he would comfortably accept 100% of his salary paid over Libra. Would you?
– Investing Insider Magazine