Facebook, Libra & the Thrilling Rise of the Branded Cryptocurrency
Libra chief David Marcus, watching him deal with angry questioning in Congress two weeks ago. The level of distrust in Facebook has reached new highs – some of the Congressmen and Senators replaced questions with blunt criticism aimed at Marcus and the big blue company. Even Marcus, it felt, must have been surprised by the sheer cacophony of fear, uncertainty, and doubt that he had to sit through as he defended Facebook’s crypto plans.
Meanwhile, Facebook did exactly what you would expect it to. If the whitepaper prepared by Marcus and his team, stretching to a good 100 pages, filled with numerous sensible proposals about how Facebook should not be in power (my italics) wasn’t enough to appease Congress and the public, Marcus’ considerate and calm responses should have been. “You will not have to trust Facebook,” he told the Senate Banking Committee, “because it’s only one of the 28 current and potentially 100 or more Libra Association members, and it won’t have special privileges.”
But they weren’t.
The Good: Libra Could Be the First Mainstream Cryptocurrency
For very many reasons, Facebook could not have picked a worse time to launch a project of this scale. Then again, some say Libra is a PR stunt to divert the public’s attention from Facebook’s unmanageable privacy and content control woes.
This cannot discredit all the good reasons that Facebook gives for what could essentially become the first truly mainstream cryptocurrency.
The vision that payments and money transfers should be as simple as sending a text with Messenger feels incredible even to people from the rich, developed countries, and could be truly disruptive for the unbanked citizens of the third world.
But there is more. Over time, through Calibra, Libra would be capable of substituting most of the everyday functions of traditional banks: accounts, loans and credit, and even ATMs (for that last bit of cash in our lives). Calibra could fulfill the same role in a person’s life, just like the combination of Western Union, Paypal, and a traditional bank account does now.
Pages and pages have been written about what Libra is, but in short: although its announcement (and the events that ensued) kicked-off discussions about cryptocurrencies more widely, and Bitcoin, in particular, Libra has very little to do with a true cryptocurrency. It is a means of payment built on a proprietary new blockchain backed by a basket of currencies and low-risk securities. This should ensure its stability (but it is also the reason why there will be challenges from regulators to regulate it as a form of investment – ETF?). It will be open-source so that Calibra will be only one of the wallets on Libra. This is essential to understand: Libra aims to be a neutral, open-source environment on which anyone can build wallets, applications, and ‘gateways’ for people to enter and exit.
The Bad: Facebook’s Awful Reputation Threatens the Entire Libra Project
And this is where the bad comes in. While picking Marcus apart, most lawmakers attacked Facebook’s damaged reputation for managing privacy and bad actors.
As discussed in Josh Constine’s article that was also cited by Senator Kyrsten Sinema during the hearing, the real risks lie in Facebook’s ‘hands-off’ attitude towards Libra. Marcus said multiple times during the hearings that wallets and the on- and off-ramps (gateways to enter and withdraw from Libra) will be subject to local regulations, with proper controls.
In some ways, Facebook is trying to get the good without the bad. A global value transfer mechanism which will multiply the transactions on its platforms by a factor of X (meaning large – although other companies will be allowed to develop wallets for Libra, only Calibra will be embedded on Facebook according to Marcus), thus generating more ad revenue for Facebook, while also later adding traditional financial services and creating new revenue streams. At the same time, Libra should remain as decentralized when it comes to oversight as is Bitcoin, meaning: there’s no one to hold accountable when things go wrong.
Anyone can join the Bitcoin network and be sure they won’t be blamed if their computer records a Bitcoin transaction to buy drugs on the dark web. It is a decentralized network, where all computers run together to record and validate transactions. All Bitcoin transactions are public, but the users are hidden behind pseudonyms. And so, when police look for cybercriminals, they go for the gateways – places where you can convert bitcoin into real money – like crypto exchanges, which gather information about their users in accordance with KYC and AML rules.
Facebook is a fan of this set-up. It’s a great way for it to remain hands-off. But, in the same way that its open-platform approach to data allowed bad actors to manipulate its users and spread nefarious content to disgust and shock millions, its open-platform approach to wealth transfer could cause financial crime on a massive global scale.
And yet, Marcus had a valid point when addressing this concern – although no one entity could be large and vigilant enough to watch over the entire global Libra environment, the new system would be easier to monitor by local regulators than the intertwined hugely complex financial system of today. That there will be better transparency through the use of blockchain is hard to argue with.
The Rise of the Branded Crypto Coin
Forget Uber Visa and welcome Uber Coin?
Facebook is (and will be) facing a mountain of opposition from lawmakers and regulators due to its controversial track record, and the fact that it is proposing what is effectively a challenger to the hegemony of the USD – the factor, which has given the U.S. an enormous global advantage for decades.
For the most part, the lawmakers showed a good basic understanding of Libra during the hearings, and asked well-informed questions, albeit within the bounds of the regulatory frameworks which are useless for the crypto-world. Asking if Libra could be an ETF (as one of the senators did during the hearing), just because its modus operandi resembles it, even if the motivations behind the two instruments are completely different feels strange. Noelle Acheson discusses how applying the existing regulatory framework to Libra could give rise to new asset categories and investment strategies in an interesting article.
The animosity that Facebook will have to contend with will be enormous. Any issue with Libra, however large, will be shot back at the big blue company. For all their efforts to present Libra as a ‘project for good,’ it has been framed by the world as Facebook’s attempt to challenge global superpowers. “Since when has Zuckerberg limited his ambition to competing with mere companies?” asks Max Read in his New York Magazine article. Is Zuckerberg on a mission to become the 21st century Morgan by starting the new global Fed?
We cannot be sure if Facebook will succeed with Libra. David Marcus’ lonely appearances at the hearings portrayed Facebook as the Libra cryptocurrency’s sole owner and manager. That is hardly something that the world will be ready to accept.
Taking that small issue of becoming a USD-contender out of the picture, Facebook’s crypto project has managed to demonstrate that at least on the technological and commercial level, setting up one’s own stablecoin is not that difficult.
Will we see the proliferation of branded crypto coins? JPM Coin and Goldman Sachs‘ ambiguous stablecoin plans could be just the beginning. For Uber and Starbucks, their own stablecoins could be just as beneficial: ‘stickiness,’ higher efficiency, and more customer data.
Whether it becomes a reality in its full envisaged scale or not, Libra is not going away, and neither are cryptocurrencies and other blockchain instruments aimed at transfer of value. If anything, Libra has managed to direct the world’s attention back to crypto, only to discover a burst of new solutions (security tokenization, crypto derivatives), many of which have one common trait: they disrupt the current financial establishment.
About the author: George Salapa is the co-founder of bardicredit (BC), a Swiss turnkey tokenization service. BC is helping fund managers and entrepreneurs to use tokenization for easier capital formation. Before BC, George was in consulting (PwC), banking (Sberbank), and tech (smart data Braintribe). In the past, he co-founded a smart city App (Shout Platform Ltd) and wrote for Forbes US as a contributor.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.