In the past few years, Facebook has often times been present in the news, generally for the wrong reasons. The social media and tech giant has been bashed for its anti-consumer stance, horrible privacy practices, leaked information scandals and the way it seems to be moderating content on the platform to favor one specific political view. Even investors and shareholders have expressed their dissatisfaction with the direction Facebook is taking, calling for Mark Zuckerberg to be removed from the board of directors.
Recently, the company has announced it will be launching its own cryptocurrency, called Libra, in an attempt to turn the tide on the previous bad practices. Taking into consideration Facebook’s history, it remains to be seen how they will deal with payments and user’s financial information.
Libra, sometimes called Global Coin, can be referenced as a stablecoin of sorts, however it functions much more different than a regular stablecoin, such as Tether. Facebook has built their own blockchain network to support Libra, rather than opting to use an already existing one.
As with most cryptocurrencies, Facebook wants their new cryptocurrency to become a replacement for paper money and even credit cards, creating an efficient payment system that Libra holders can instantly access directly from their apps. Users will be able to transfer money to friends or relatives, pay for services, make online purchases and much more. Facebook even stated that Libra is to act as a personal bank of sorts for the “unbanked”, those without the means or records to be able to open an account at a traditional bank.
The company seems to tug at the heartstrings of the public by stating their biggest goals are for Libra to act as a currency for migrant workers, people that need to send funds overseas to their loved ones, and for the unbanked populations in developing countries, where money transfer services often comes with high fees and bad practices.
Given Facebook’s past practices, it is doubtful that they only intend to “give back” to the people and “service” those where traditional means of banking are not trusted or present. Most likely they company is trying to find new ways to monetize their product and gather more sensitive information about its users. But hey, everyone gets a chance at redemption right? So let’s dig into what Libra is about.
As previously stated, Libra resembles a cryptocurrency , but more of a stablecoin. It is backed by several currencies held in reserve (hopefully not just 74% like Tether) that are meant to minimize price volatility, making this a big difference between traditional cryptocurrencies where volatility runs rampant, and Facebook’s new digital currency. The fact that it is built on its own native blockchain proves that they spend a lot of time and effort to create this new payment system, however this means that the usual visibility of the blockchain’s ledger we have grown accustomed to will not be possible with Libra. After all, only Facebook should be allowed to look into its users privacy and (in the near future) transactions, right? Let’s hope they keep it that way and no “leaks” of your purchasing history get posted all over the internet or in a corporation’s board room meeting as part of their “target audience” statistics.
Aside from mitigating price volatility, Libra is designed to be much easier and user friendly to transact, and much faster as well with quicker validation times.
We can’t say Facebook doesn’t keep things fresh (with scandals popping up in the news weekly) but they certainly did their best with their new blockchain concept. Libra is a blockchain that operates without the blocks and without the chains.
Then why call it a blockchain?
The structure is similar to other blockchains but functions differently in the sense that not need nodes on the chains, but rather relies on validators to do the usual work that a validating node would do on a regular blockchain. These validators function by permissioned access, and the data is assigned in sequence, rather than in a group (block).
No clusters of data will be present for Libra, as its blockchain uses a single data structure that records all transactions and states over time.
The best part is yet to come, their validator network. Currently the network is comprised of 27 companies, with big names such as Uber, Vodafone, Visa, MasterCard, PayPal. With such payment processing giants I guess the old saying comes true :”The more things change, the more they stay the same”. You will have the usual names searching, validating, accepting or declining your payments, only this time with Facebook being the one who gets to look first.
Libra also lacks most of the defining characteristics we have grown accustomed to when it comes to blockchain : open, public, censorship resistant , immutable and most importantly, neutral. These are all points taken from the whitepaper, so they are not trying to hide it. Given how Facebook manages neutrality, or better said how it only encourages behavior that follows their community guidelines, it would come as no surprise if users are denied access to their Libra wallets should they not follow said guidelines.
Not just one, but a few issues come in mind when dealing with a currency released by Facebook.
By using Libra , Facebook will keep your financial data for at least 5 years since it will use a regulated payment processors, and the law in most countries dictates that this data cannot be deleted and must be kept for a minimum of 5 years. Even if you do decide to delete your wallet, your Facebook account, they will still have access to your purchases, who you sent Libra to, through what means did you purchase Libra and much more.
Already in Europe a task force was created by the G7 in response to Libra’s announcement, to ensure that no regulations regarding use of customer data and privacy are infringed, with France leading the way in this endeavour.
The U.S. Senate Banking Committee has scheduled a hearing July for Facebook’s new digital currency, following the open letter that was sent from the Banking Committee last month that Facebook has left unanswered so far. Some have even called for the halt of the project until the hearing has taken place. Regulators are worried about the risks and the data privacy measures of Libra, most likely taking into account Facebook’s previous privacy issues.
The big question is, can you really trust Facebook with your finances? What if you post something that Facebook’s community guidelines views as inappropriate, and all of a sudden your funds are locked? How will Facebook manage your privacy and purchasing history? We already know that your data will be stored for a minimum of 5 years, with no recourse of having it deleted.
So far, the news and release have been met with skepticism by the general public, showing a great level of distrust for Libra and how they will deal with sensitive user information.
All in all, while the promises of fast, cheap and reliable payments are enticing, especially in areas where banking and payment transfers are not yet developed, it remains to be seen how Facebook will address all the issues regarding they way they store and manage user data.