Running a billion-dollar company is no small task, especially when it has grown from a Harvard dorm room to having over 2 Billion users. With innovations in technology changing the landscape of social media, the occasional misstep could be understood (I can barely remember to get my inspection sticker done on time, so who am I to judge). However, despite struggling to address the many privacy and securities scandals over the years, Facebook has decided to dip its toe into the icy waters of Cryptocurrencies with Libra. Since its announcement of Libra last month (which seems like years ago), there has been no shortage of opinions on either side. And as most things today, we are overwhelmed with the sheer volume of stories in the news cycle. So, with that in mind, I decided to breakdown what Facebooks Libra is and what it means to you.
Below, courtesy of CNN, are some fundamental Q&A’s of Libra (I have edited the list for brevity).
- What is Libra?
Libra is a cryptocurrency developed by Facebook. The company says Libra will make sending money online cheaper and faster, and it will improve access to financial services, especially for people without bank accounts or with little access to banking.
- How will Libra work?
Libra and the technologies to use it will be built upon a blockchain platform called the Libra Network.
A blockchain is made up of a series of servers (also called “nodes”) that record and validate every transaction made on the network. Unlike … other cryptocurrency networks …, the Libra Network is a “permissioned” blockchain, meaning only certain servers will be able to connect to the chain.
- Who will oversee Libra?
An independent, nonprofit organization called the Libra Association will oversee Libra’s launch and govern the currency.
The Libra Association is a consortium of companies and nonprofits from around the world based in Geneva, Switzerland. It has 28 founding members — including payments, technology, telecommunications, venture capital and blockchain companies, as well as nonprofit organizations. Members include Paypal, Lyft, Coinbase and Mercy Corps, among others.
The association will have two main roles: Member organizations will operate the servers to run the Libra Network, and the Libra Association will manage the reserve that will back Libra to ensure its stability.
- How will Libra remain stable?
Facebook says Libra’s value will be less volatile than that of Bitcoin because it will be backed by real currencies. But unlike some other “stable coins,” Libra’s value will not be fixed to any single physical currency.
Instead, Libra will be backed 1:1 by a reserve “basket” of fiat currency bank deposits, including the dollar, euro and Japanese yen, and government securities. This means its value relative to any one currency will vary.
- What is Calibra?
Calibra is a Facebook subsidiary created to develop products and provide financial services using Libra.
To protect user privacy, Facebook plans to keep the Calibra subsidiary independent. The company says Calibra will not share customers’ account information or financial data with Facebook except in limited circumstances such as preventing fraud or complying with the law, or unless users have agreed to the sharing of their data.
I admit, at first glance, it’s easy to shrug this off as just another company trying to change with the times. However, with billions of followers worldwide and pressure from investors to continue to grow, it is important to understand why Facebook launching Libra can have major consequences. First, a review of some issues that have plagued the social media company.
Now that we understand Libra, lets look at why the decision to launch Libra concerns many regulators and law makers. Below is a timeline of the problems Facebook has encountered over just the last 18 months (for more info, please refer to reference section).
2018
April 4: Facebook reveals 87 million people may have had their data “improperly shared” with Cambridge Analytica.
April 10: Zuckerberg testifies before Congress for 4 hours and 54 minutes.
June 7: Facebook says a software bug may have revealed the posts & personal info of up to 14 million users.
July 2: Facebook confirms that it’s under investigation by the FBI, SEC, FTC and the Department of Justice over the Cambridge Analytica scandal.
Aug. 17: The Housing and Urban Development department files a complaint against Facebook for allowing housing discrimination through targeted ads.
Sept. 28 Facebook announces a security flaw that allowed an unknown party to take over almost 50 million accounts.
Oct. 25: The U.K. Information Commissioner’s Office (ICO) fines Facebook £500,000, or about $645,000, the highest punishment it can dish out for a data breach.
Nov. 14: The New York Times publishes an extensive piece about Facebook’s efforts to “delay, deny and deflect” inquiries about its handling of foreign election interference, including that Sheryl Sandberg, chief operating officer, was involved in efforts to retaliate against critics.
Dec. 14: Facebook apologizes after a security flaw exposes unpublished photos to app developers.
2019
May 5: It is revealed that in its efforts to help label content, Facebook hired a 230 team of people to manually review millions of user’s posts. This grueling & outsourced work raises concerns that: 1st the company is outsourcing data collection and 2nd it has not received consent from its users.
June 12: Emails surface showing Mark Zuckerberg may have known of questionable privacy practices.
After reviewing just a portion of the issues Facebook has had (Yup, I trimmed this list down), the main problem with them launching a cryptocurrency comes down to trust. The company has already come under fire for how it collects and disseminates its customers data, how can users trust a company with a new endeavor if it can’t even handle the privacy of its main business strategy? Here are just a handful of possible problems with Libra.
- Financial institutions are very complex and have taken rigorous steps to project customers (and themselves) from risk via government regulations. How will FB address these challenges?
- Separation of financial institutions and retailers – with Facebook now controlling so much of your info, what is stopping them from sharing with retailers, how much money you have or your shopping habits?
- National security – making this more accessible could lead to more illicit activities, i.e money laundering etc.
- If Libra become a regular aspect of the US to economy, what would happen if system was breached?
- Not vetting developers? Josh Constine from TechChrunch reported that “the Libra Association won’t actively vet the developers who want to build digital wallets that handle Libra. So, while Facebook’s own Colibra wallet will supposedly come with high security, customer support and refunds in the case of theft, a shady cryptocurrency analog to Cambridge Analytica could theoretically build its own wallet that exposes consumers to the loss of their Libra coins.”
Even if most people won’t use the cryptocurrency, if a fraction of the country does, the implications for the rest of us could be devastating. Taking into consideration the many issues the company has had, I think it would be fair to ask for them to scale back the Libra project until regulators and users are sure there information is safe. As someone who does not invest with cryptocurrency, but has friends who do, there is amazing potential for a stable cryptocurrency. However, trying to push this endeavor forward, on the heels of a $5 billion dollar fine from the FTC regarding the Cambridge Analytica scandal, seems too rushed. If Facebook wants to reassure a third of the world population that is has changed its ways, it might want to push back this project back and focus on rebuilding the trust of its users. Sorry Libra, friend request denied!
References
https://www.cnn.com/2019/07/16/tech/facebook-libra-crypto/index.html
https://fortune.com/2019/06/19/facebook-libra-cryptocurrency-skeptical/
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