We still don’t know for sure who Satoshi Nakamoto really is, but the hidden face behind that virtual name did say something that made a lot of sense. Back in 2009, when the entity who liked to go by the name of Nakamoto developed a new peer-to-peer digital cash system, called bitcoin. At that time, this entity had said, “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”
And here we are, in 2019 and heading into the year 2020. That power, which is usually meant for the central bank in almost every country, could shift into the hands of one company you really might not be able to trust completely. Facebook. Trust is in short supply at the moment since the Cambridge Analytica scandal and the subsequent revelations, though we do hope this is a temporary blip. However, it is hard to not link Facebook’s announcement about its new subsidiary, Calibra, which will introduce a digital wallet for the Libra currency network, for what will be the company’s global currency “powered by blockchain technology”.
What is the Libra Network? The Libra Association, by its own definition, is governed by diverse businesses, non-profit and multilateral organizations, and academic institutions. At present, Mastercard, VISA, PayU, PayPal, Vodafone, Booking Holdings, Spotify, Ebay, Uber and Vodafone are some of the members. Of course, the idea is to allow a group of financial firms and tech companies to manage the cryptocurrency. Libra’s platform is built on blockchain tech, and is scalable as well. Libra cryptocurrency is global—at least in countries which have not officially said cryptocurrencies are illegal within their geographical boundaries. On the face of it, Calibra seems just like any payments company, and its immediate task is to ready a digital cryptocurrency wallet.
The reality is that while there may be big name financial companies and tech companies who are a part of the project, it is still very much a Facebook project.
Libra wallet will be integrated in Facebook’s own apps, which leads us to assume that Facebook, Messenger, WhatsApp and Instagram could be graced by the presence of this payments system. That could mean Facebook’s plethora of apps are where you will get your first taste of the new cryptocurrency payments wallet. While this may get more people to actively start using FB’s apps (that is great for various metrics), it also means FB has a huge demographic of users who can be leveraged to sign up and start using Libra. Expect this also to be available as a standalone app for Android and iOS devices.
But that is where Facebook could perhaps face its toughest hurdle.
Within hours of Facebook announcing the plans for the Libra cryptocurrency, French Finance Minister Bruno Le Maire said “it can’t and it must not happen” on Europe-1 radio, when faced with the scenario that Facebook’s cryptocurrency could become a sovereign currency. He insists that only governments can issue such currencies, and Facebook must also ensure that this currency cannot be used to either undermine the interests of customers or be used for illegal activities. Cryptocurrencies, by definition, can remain anonymous to a certain extent. If Le Maire’s call is adhered to, the G7 banking officials will have to ready a report, within a month, to talk about what Facebook’s plan could mean.
According to Bloomberg, there has been a debate in the German parliament on the risks of Facebook becoming a “shadow bank”.
In the US as well, lawmakers aren’t exactly enthused about the Facebook Libra. Rep. Maxine Waters, a California Democrat, has asked Facebook to put its cryptocurrency plans on hold for the time being. There are fears that this will give Facebook access to financial data and transactions, which may give it an unfair advantage and access into users’ habits.
According to the Associated Press, Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington, has warned that Facebook and the partners for this project shouldn’t believe that they can get away with the same sort of lightweight regulations that tend to govern social media platforms. “They are going to get a rude awakening, because people’s money is at risk. This is really serious stuff,” she says. Facebook does have a clarification already in place. “We’ll also take steps to protect your privacy. Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent. This means Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook family of products. The limited cases where this data may be shared reflect our need to keep people safe, comply with the law and provide basic functionality to the people who use Calibra,” says Facebook, in an official statement.
If we are to go by the recent examples, financial companies in the US and the EU are very heavily regulated. At the same time, tech companies get a stiff talking to, but not much more—even if they make transgressions including absent-mindedly leaking the data of millions of users. That could be the potential loophole that Facebook may be trying to take advantage of, as a tech company, but with financial companies in tow.
Finally, there will be the challenge of dealing with regulations in various countries. For instance, cryptocurrencies are not a legal payment method in India, China, Taiwan, Indonesia and Taiwan. It is legal in the United States and the European Union, for instance, as well as in Brazil, Japan and Hong Kong. In a way, the size of the pie that Facebook envisioned as the starting point for its cryptocurrency aim, may be smaller than it has imagined. Or maybe it has.