Earlier this week — following a hefty string of rumours — Facebook announced that it would be launching its own cryptocurrency, Libra, in 2020. And whether the world realized it at the moment or not, that announcement has brought us to the edge of one of the greatest societal shifts since the separation of church and state.
Ten years ago, with the creation of bitcoin, people were given the ability to digitally transact value without the need for a government to manage the financial system. Bitcoin marked the beginning of the separation of money and state. Changes of this magnitude take time, and the growth of cryptocurrencies is still ramping up. But that is about to change.
By next year, users will be able to transact in Libra across the suite of Facebook’s social platforms, including Messenger, Whatsapp, and Instagram. This stable coin is pegged to a basket of fiat currencies including the USD and the Euro, meaning that it will fluctuate less than traditional crypto, removing much of the currency risk that can be a deterrent to adoption.
The launch of Libra has both the financial and crypto communities abuzz. Here are some of the arguments about why this powerful new currency will change the world, for better or for worse.
Libra could bring financial opportunities to the underbanked and unbanked.
Living in a stable, developed country like Canada, we often take our financial system for granted. More than 4 billion people worldwide are unbanked or underbanked. And while most live in developing countries, 25 percent of Americans also fall in that category.
This leaves people cut off from opportunities that require a credit card, for instance, and from financial opportunities to grow their capital and transact into broader markets. Libra has the potential to bring an entire generation of people into a more formal financial system that, in the longer term, could help them build their credit and move up the socioeconomic ladder.
Bitcoin could bring about the same opportunities. However, the massive fluctuations in its price are unsustainable for those with little to no disposable income. For people who need to be sure their rent money will be there on Tuesday, bitcoin isn’t a viable option right now. And with limited on- and off-ramps to the bitcoin ecosystem, particularly in developing countries, it’s not a practical solution if your landlord doesn’t accept bitcoin. With a pre-existing community on Facebook of over 2.38 billion monthly active users, though, there’s a pretty good chance your landlord will be one of them.
Libra could bring cryptocurrency to those with limited internet access.
Another common criticism of cryptocurrencies from the international development community has been that you need consistent internet access to use bitcoin, and that the cost of using bitcoin in terms of phone data and miner fees often outweighs any benefits to actually using the currency. This is where Facebook has a distinct advantage. For many people around the world, Facebook is the only way they can access the internet and, subsequently, any non-cash-based financial system.
Internet connectivity has been around for close to three decades, yet in many countries, the vast majority of the internet has remained inaccessible to most due to its cost. In 2012, however, Facebook made it free to access their app on over 50 mobile providers worldwide. And so, for a large proportion of the world’s population who can only connect to the outside world via the Facebook app, Facebook is the internet. (In Nigeria alone, 65 percent believe that they are functionally the same.)
Although that statistic is fundamentally concerning — and we should absolutely be fighting for greater access to free and open internet — it does mean that with the introduction of Libra, people everywhere will have free access to financial services on their phones. And with 85 percent of people living in cell-connected areas, this has the potential to be massively transformative to the way we transact.
Libra could protect people from unreliable currencies.
Most importantly though, Libra will offer people choice. In today’s world, the vast majority of people are forced to use their country’s fiat currency, even when that is a massive disadvantage to citizens. Take Argentina for example, a country with massive capital controls: if an Argentinian had put their life savings into bitcoin at its peak, when it was up over $20K USD, they would still have more money today than had they left it in the plummeting Argentine peso. The number of people taking advantage of bitcoin will grow over time, but in the short term, Libra will offer a wider audience refuge from inflation. You only need to look at the devastating consequences of inflation in Venezuela — where 15 percent of people report eating garbage every day — to understand why even a token pumped by Facebook is a better option than what they have.
By having other alternatives to choose from, not only will citizens be more protected from having their life savings go up in smoke, but more importantly, governments will be incentivized to clean up their acts and get their national currencies under control.
All in all, Libra has the best chance of all the tokens on the market to actually succeed at bringing the bulk of the world onto a financial system that can help eliminate poverty and give people alternatives to the broken fiat currencies they are forced to use today.
When it comes to the cons of Libra, this tweet sums it up well:
Libra would give Facebook access to even more user data.
Facebook isn’t exactly known for its ethical operations. You may remember it exposed the data of up to 87 million Facebook users to Cambridge Analytica, a company who used it to manipulate the presidential election in the United States. Facebook has also been implicated in election manipulation in Africa, and has even been implicated in the genocide of Rohingya Muslim community in Myanmar. Not exactly a great track record.
Now imagine what could come from Facebook not only tracking and selling your data, but tracking and selling information on your financial transactions as well. Barclays predicts that Facebook will make an additional $19B by 2021 as a result of the currency. Historically, Facebook has chosen not to compensate any of its users for the profits it’s made off their personal data, unlike other social platforms, and there is no indication the adoption of Libra will change that.
Libra’s infrastructure could create surveillance issues.
More importantly though, Facebook is creating a honeypot for government surveillance. For those who respond with “If you’re not doing anything illegal, then you shouldn’t have to worry,” give your head a shake and put yourself in the shoes of one of the billions of people who live under authoritarian governments. Think of a woman in Saudi Arabia who might want to donate to an organization supporting the rights of women and what would happen if the government found that out.
In their marketing for Libra, Facebook actively uses phrases like “built on blockchain” and “decentralized.” However, the crypto community will tell you that Libra is not actually built on blockchain — it is a database. Facebook is also charging carefully selected network partners $10M to operate a node, meaning that Facebook controls who is recording transactions and could very easily manipulate them to push out network changes that aren’t beneficial to the community. (Facebook claims that because these partners have strong reputations, that they will not act against the benefit of the system. Clearly, Zuckerberg missed the memo that some of the world’s most reputable banks are responsible for laundering over $2 trillion every year.)
This is not what a truly decentralized system looks like. Facebook is appropriating words from the crypto world to give credibility to the project, when what they are really doing is a calculated bait-and-switch.
People could come to financially rely on a system where access can be revoked.
Where things get really scary, though, is when you think about what happens when Libra becomes a success. Suddenly, the vast majority of the world uses Libra as their primary transfer of value: a monetary system built on the infrastructure of a centralized company that has previously had its software turned off by governments looking to better control their citizens. What happens when the government prevents Facebook from operating when its citizens have their life savings in the app? Or, more importantly, what happens when Facebook begins to censor your purchases? Imagine not being able to buy a T-shirt in support of the Democrats because the Republicans bought the censorship rights to your area.
Worse is if Facebook kicks you off their network, perhaps for a comment or a photo that’s against their policies, leaving you locked out of the modern financial system and forced to use what’s left of the fiat system that has now crumbled into the ground. Imagine an underpaid, overworked intern blocking you from the financial system because your nipple was visible in a photo of you breastfeeding your baby.
In order to maintain the approximate stability of the token, a board of presumably rich white men will decide how the currency should be manipulated. A group of around 10 people having control over the currency used by the entire world sounds a lot like the systems of today, but worse.
One only needs to compare Zuckerberg to Jack Dorsey, the CEO of Twitter, to get a better understanding of why Libra is an ethical disaster. Instead of building a token that primarily benefits a single company and forces users to operate within an ethically-murky walled garden, Dorsey directed his payments processor, Square, to support and build around bitcoin, the fully decentralized and open platform that transfers the power of the financial system to the people. And while Zuckerberg claims they will make the transition to an open system, I find nothing in the history of his operations or his ethos that would lead me to believe that’s true.
We should be proud that we are disrupting the existing power structures that prop up the world’s financial system, but the solution is not to make the transfer from government to corporations — like we’re doing with identity — but to transfer that power to the people. Perhaps this is an additional step to achieve the separation of money and state. The question remaining is: who will inherit control? My hope is that this is just a slight detour on the way to the global adoption of a truly blockchain-based, decentralized cryptocurrency — bitcoin — and not the beginning of modern technological colonialism.