Two months ago, Mark Zuckerberg stood up at the annual F8 Facebook developer conference and declared his vision that “sending money should be as easy as sending a photo”. Now, the details of that dream have been announced.
Yesterday, Facebook finally released the specifics of its cryptocurrency, named Libra. Like other cryptocurrencies like Bitcoin or Ethereum, the technology will let individuals buy products online and send money to other people with fees below those of credit cards.
In order to spend their cash, each person will need their own digital wallet, which also allows individuals to change the stored value into physical currency at preassigned points like grocery stores. Any developer is able to make their own wallet, although Facebook has already designed a product named Calibra that will automatically integrate with WhatsApp, Messenger, and its own app.
The past few years has seen trust in the platform plummet, which is likely a key reason why Facebook has made sure that it won’t fully control Libra, but instead hold just one vote in its governance: a structure that is currently made up of 28 members including Mastercard, PayPal, Visa, Lyft, Uber, Spotify, and Women’s World Banking. Each of these organizations has paid $10 million to join the association and will act as a validator node for the blockchain (the process necessary to make sure that transactions are correct). Facebook hopes to have 100 member companies on board before 2020.
The company believes that by creating an easy-to-use interface and by having only a few contact points involved in its blockchain, it will create a seamless and fast-paced way to move money between people and businesses. Individuals can buy things without their name attached, and Facebook has promised that Calibra will not share any account information or financial data with the platform or any third party without consent—meaning that people’s financial data won’t be used to better ad targeting on properties like Facebook, Whataspp, or Instagram.
But does that mean you should use it?
First to consider is Facebook’s questionable record on data privacy. When then-Cambridge Analytica director of research Christopher Wylie revealed that the personal information of more than 87 million Facebook accounts had been reaped without users’ consent, it inspired a wave of anti-Facebook sentiment and led to CEO Mark Zuckerberg being hauled in front of the U.S. Congress to answer questions about data protection. While the platform has attempted to revamp its image in recent months by saying it will shift towards smaller, more private networks, Facebook makes its money on big data. Financial transactions are a treasure trove of information, and it’s not inconceivable that the company gains a person’s consent to harvest it by hiding language in Calibra’s small-print.
Another point of contention is the name attached to transactions. An individual’s identity, Facebook says, will be pseudonymous and allow users to hold one or more addresses that are not linked to real-world identifiers. Although the Libra whitepaper suggests that this approach is familiar to many users, developers, and regulators, it’s easy to see how the platform could be potentially be used for money laundering or tax evasion. The Libra Association doesn’t offer any insights into the tax implications of holding and spending the cryptocurrency.
Much of the appeal of Libra—and, according to the white paper, its mission—is to empower billions of people who do not have access to bank accounts, or need to send money to individuals and family in different countries in the cheapest way possible. Libra is able to offer this service because the crypto space is, in most jurisdictions, unregulated. As regulation inevitably arrives, however, the platform is likely to become increasingly expensive as governments add the same fees required for fiat remittances.
Then there’s the question of bad actors. Although fees for sending Libra are low, it’s not free, with each transaction requiring a fraction of a cent to pay for “gas” to cover the cost of processing the funds. Libra hopes that this charge will discourage individuals from creating millions of transactions to power spam attacks. To make sure that’s effective, however, the price of gas may need to rise—making each transaction more expensive for the user.
In short, Facebook is attempting something with Libra that is much more complex than a central bank or Federal Reserve is tasked with controlling. Operating in multiple currencies with little regulation means the currency may become more volatile as new laws are introduced, and become incredibly complicated as each jurisdiction requires different compliances. As a result, it runs the risk of turning the poor and unbanked into investors who carry substantial risk, while failing to offer a secure and significantly cheaper alternative to richer individuals shopping online with their credit cards, using PayPal, or sending online transfers.
Facebook is currently testing Libra, with the cryptocurrency and Calibra wallet slated to be launched in early 2020.
Kate Wilson is the Technology Editor at the Georgia Straight. Follow her on Twitter @KateWilsonSays