Unless you’ve been under a rock the last few weeks, you would have heard about Libra. And while Facebook of course denies that it is their crypto – look at all the other names on the founding member list! – I don’t think anyone is really fooled.
Regulators and lawmakers are hitting pause on the Libra project until they can understand what, really, this thing is. And for good reason; while the overall objective of helping un- and under-banked people by using the network reach of Facebook and the support of big players like Mastercard and Visa, there is a lot of concern about how it works.
1) It’s brilliant…
…if only it didn’t come from Facebook. The idea to use a basket of currencies to maintain Libra’s value is well needed. Similar to the IMF’s Special Drawing Rights (SDR) or Keyne’s Bancor, such a meta-currency could ease cross-border trade or international aid; the benefits could be tremendous and would move international commerce away from its dependence on the US Dollar. If such an idea came from just about anyone else – anyone with a passion and desire to solve the pressing problems of global commerce – it could change the world economy. Coming from an ad-tech firm, it feels like a grab for more data.
2) It’s disappointing…
…because it doesn’t push the state of the art in blockchain capabilities to new levels. With so many names and so many people involved, one would hope it could make a stab at solving smart contract upgrades, balancing privacy with utility, speeding up transactions, and more. Instead, the technical paper waves its hands and hopes for the best in five years time, as if the future will have the answers. The ideas as presented are smart and solve some challenges with existing blockchain protocols, but nothing is truly exceptional nor revolutionary.
3) It’s scary…
…because the underlying blockchain structure uses an Ethereum-like account-based solution rather than the Bitcoin-like unspent transaction output model. This offers pseudonymity, meaning that the user has a numbered account where transactions come and go. The user can make as many accounts as he or she wants, but the user is somewhat incentivised (through account creation costs) to keep the same account. And once a person or organisation works out who owns an account – say, Facebook – then that person or organisation can see the user’s entire history. The Bitcoin model isn’t perfect, but at least it gives a bit more privacy.
4) It’s blind…
…to the realities of cash and money, and the absolute, critical, no holding back need for strong Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) processes. The corollary: Know Your Customer (KYC). These three pillars of financial services are fundamental to banking and why these banks ask so many questions about who you are and from where your money originates. While Libra makes vague proposals to support all these requirements, mainly by pushing the responsibility to accepters of Libra (such as merchants and cash-in & cash-out providers), there is the question of who will do the necessary, and who will harvest the data.
Which leads to the final point…
5) It’s all about data
The more Facebook knows, the more data Facebook has, the more the social media giant can monetise its own users. Vague statements about helping the un- and under-banked by creating a universally acceptable digital coin, or even creating digital identities, all leads back to streams of data in Facebook’s pocket. That last point – digital identities – is another brilliant idea. If only it came from someone who wanted to solve the problem and not monetise the user.
The concept of Libra as a universal payment instrument, backed by deposits of foreign currencies with global digital identities, could revolutionise global commerce. Digital identities are so needed for the un- and under-banked populations around the world as a conduit to greater economic and financial inclusion.
But these ideas coming from Facebook? And the execution of the ideas as written in their whitepapers and technical papers? Falls far short of what is needed.
I also don’t subscribe to the idea that Facebook is holding back, that they have some master plan to be revealed over time. What I can see is a half-baked idea. And ideas are worthless – only the execution matters.
Some more reading…
- So, Facebook launched a currency… – Chris Skinner, The Finanser
- 11 most interesting things about Facebook’s Libra cryptocurrency – Simon Taylor, 11FS
- Libra, Explained – Elizabeth Lopatto, The Verge (great conclusion!)
- Where will Facebook’s Libra be in six months? – Matthew De Silva, The Quartz
- The Real Threat From Facebook’s Libra Coin – Frances Coppola, Forbes