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Why Would Anyone Use Facebook's Digital Currency?

Michael O'Dwyer| August 06 2019

| security

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Facebook is determined to launch their own digital currency called Libra, but why would anyone trust them at this point?

Some question, huh? On pondering how to compose my thoughts in a manner other than a succinct “you’ve got me stumped there, matey,” I decided that maybe I should give Facebook a fair shake. After all, they’ve accumulated more than two billion users, a discerning group it must be said.

Facebook is a venue where most of the world’s issues are discussed in an open forum, where intellectuals and wannabes can battle for supremacy on the latest pressing topic. In case you’re wondering, I use it solely to keep in touch with those in other countries (I’m based in Hong Kong/China) who fail to use other methods such as VoIP or email. Confirmation that Facebook will launch a digital currency in 2020 came as no real surprise as there had been rumblings since 2017.

Facebook is an advertising behemoth, with almost all revenue derived from this activity. Unfortunately, it’s cavalier attitude to privacy has resulted in fines on both sides of the Atlantic, with the latest one from Congress a global record. As critics pointed out, the settlement doesn’t require any admission of wrongdoing and indemnifies the company for any and all claims before June 12, 2019. Bear in mind that these actions included allowing developers to access private messages between users, misleading advertisers about the number of views, and failing to protect user passwords. Therefore, they hurt not only users but also their own customers.

This huge fine was less than 10% of revenue for a single year and amounted to little more than a slap on the wrist. It should open the door to similar actions in other jurisdictions. Personally, I can’t see the EU seeking less damages in the future. Who wouldn’t want such a company leading the charge on a new ‘global’ currency?

Clearly, damage control was needed. Even the educationally challenged will smell a rat if Facebook has control of the digital currency, so what next?

Pure speculation on my part of course, and I’m not an economist, but Facebook could not continue with a digital currency project alone, people would never adopt it and regulators would never allow it. They needed an angle and a means of furthering their aim, global domination, just like the Romans attempted. Coincidentally, the Romans also failed to reach China and the currency name Libra was a Roman measure of weight with the equivalent in coinage known as an ‘as.’ Add another ‘s,’ and you’ve got a name you can market…

Others speculate that the name is derived from the French ‘libre’ as in free. It could be simpler than all that with Libra referring to the astrological sign, which supposedly denotes stability, balance and rationality and all the other qualities no-one associates with Facebook, except when it comes to acquiring cold hard cash. It’s a logical progression if you think about it.

Data Privacy For Them, None For You

Chinese market entry for Facebook will likely never happen. They have their own solutions, solutions that include mobile payment, namely Alipay and WeChat. With Facebook's market at saturation point and gaining additional revenue an obvious goal, why not try to ‘revolutionize’ the payment market?

Let’s choose Switzerland as the base of operations for a new non-profit – The Libra Association. Why? According to a TechCrunch article, it was selected because Switzerland is neutral and offers strong support for financial innovation.

I think it’s because Switzerland has strict data privacy regulations and prevents governments and law enforcement from immediate access to data. I know this as ProtonMail is hosted there for this very reason. Anyone seeking access to data would need to show cause and even then, it could take years before permission is granted. Interesting, isn’t it?

Take A Step Back

Let’s be clear, Facebook conceived the idea (although the idea of a transnational currency is not new), did the development work (in conjunction with its partners in the Libra Association) and is a founder member of the Libra Association. Each Founder Member is required to invest a minimum of $10 million or offer a means of targeting a new market--the unbanked or underbanked, meaning those without bank accounts or those outside the financial system.

Under the guise of social good, a new potential market of 1.7 billion adults has been created, as 1 billion of them have mobile phones and half a billion have internet access. And we will all have free (or very cheap) currency transactions as needed.

Perhaps I'm too cynical about it all? Facebook attracted a variety of founder members and even competitors can join if they meet the criteria involved. Feel free to read the Libra Association white paper if you wish. I can read between the lines. I’m sure you can too.

As I see it, the process (from conception to eventual rollout) consists of but is not limited to the following:

  1. The idea is conceived
  2. Blockchain is used as the basis of Libra but is decentralized and permission-based – anonymity is not allowed, but aliases are possible.
  3. Barriers are identified – Facebook cannot be the public face of the Libra project as it has failed as a company to represent trust, with multiple privacy lawsuits still pending.
  4. A not-for-profit company is decided on, headquartered in Switzerland, i.e. a Swiss bank account.
  5. Founder members join to aid legitimacy, of which Facebook (under Calibra – a subsidiary created to separate this digital wallet activity and its data from Facebook) is one.
  6. Payment Providers are needed-enter PayPal, Stripe, Visa, Mastercard and others. This ensures adoption is not limited to or solely linked to Facebook and its products.
  7. Other technology companies join, Uber, Spotify, etc.
  8. Other categories include venture capital, blockchain, and telecommunications.
  9. The most telling category is Non-profit and Multilateral Organizations and Academic Institutions. I had hope for this category, expecting to see Ivy League or Oxbridge universities represented. No such luck, the sole academic institution to date (and defined as the sole and primary academic founder) is the Creative Destruction Lab, whose focus is seed-stage programs for massively scalable ventures based on science and technology – a combo of the TV show Shark Tank with mentorship as far as I can make out. It’s a bit misleading, I think, and hardly an academic resource in the true sense. Curiously, there are no security or privacy advocates involved in anything.

The non-profit charities and others offering microfinance solutions involved are all worthy solutions, and I’m assuming they did not have to pay to become founders. Instead, it is these companies that will provide access to the desired markets without a banking presence. Are they being used?

Possibly, but all founder members share in the ‘profits’ in the form of dividends from the interest accrued from tangible currency reserves. As the Libra Association can also approve funding for deserving projects, on a positive social impact perspective, this new digital currency could offer this single benefit.

Conclusion

In conclusion, while the idea of a global currency with cheap user transfers is worthwhile, decentralizing the blockchain and removing anonymity creates a situation where financial data is utilized by global companies (the founding members) for their own ends. If something like this is to be universally adopted, then let the actual banks work together to achieve it–at least they only market their own services. We can already save money on currency transfers without introducing a virtual currency, using services such as Payoneer and TransferWise.

To be honest, even if everything else was flawless, Facebook’s involvement already has the Libra tarnished. It’s obviously a massive PR exercise in damage control that the reverse effect is obtained.

The “Look I’m not driving this project…” approach is offset by the fact that in the entire white paper of The Libra Association, the word ‘privacy’ is absent. I’d even go so far as to say that if Facebook was offering free access to the fountain of youth, I’d have to think about it. It’s also telling that companies who promote ‘privacy first’ in their activities are nowhere to be seen and neither are any of the banks. Furthermore, The Libra Association will earn interest on your money.

On a global scale, if a high adoption rate is achieved, that’s a lot of income for a not-for-profit. Does it have potential, or is it just another scheme to make money off the little guy by inflating exchange rates during withdrawal and adding per-transaction costs for merchants?

As Sarah Jamie Lewis, executive director of Open Privacy Research Society tweeted, “Can't wait for a cryptocurrency with the ethics of Uber, the censorship resistance of Paypal, and the centralization of Visa, all tied together under the proven privacy of Facebook.” I can’t argue with that…but it could all be a moot point as the Libra project is under scrutiny in several countries.

Topics: security

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THIS POST WAS WRITTEN BY Michael O'Dwyer

An Irishman based in Hong Kong, Michael O’Dwyer is a business & technology journalist, independent consultant and writer who specializes in writing for enterprise, small business and IT audiences. With 20+ years of experience in everything from IT and electronic component-level failure analysis to process improvement and supply chains (and an in-depth knowledge of Klingon,) Michael is a sought-after writer whose quality sources, deep research and quirky sense of humor ensures he’s welcome in high-profile publications such as The Street and Fortune 100 IT portals.

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