Almost two years ago, in 2017, the price of bitcoin and other cryptocurrencies ballooned by several thousand percents. This caught the attention of many companies and governments across the globe. The crypto and blockchain industry that had so far been experiencing relatively slow growth suddenly started catching pace and paralleling the fastest growing technologies.
Today’s tech giants have seemingly found it quite difficult not to start developing their own products. Amazon, Microsoft, Facebook, and almost all of the big names in the technological landscape either already have their blockchain and cryptocurrency products or are working on one. It reflects that everyone with a proper understanding of these two technologies expects high throughput from them in the future. This understanding has further motivated not just the big techs but also medium and some small scale businesses to explore ways to fit blockchain and crypto into their business model.
The excitement to build something exciting and unique with the two technologies spread like fire. In a matter of months, blockchain and crypto had become the buzz word in the world of technology. Every company had started outlining its plan for experimentation as well as implementation. And Facebook was one of these companies.
While the involvement of big techs in new technology is often considered a means for broader adoption for it, the same does not seem to stand true for Facebook’s move towards experimenting with blockchain and cryptocurrency.
How Facebook Stepped into the Crypto Industry?
Until June of 2018, Facebook had an on-off relationship with cryptocurrency and blockchain. According to some sources, Facebook started exploring blockchain in 2016, but there were hardly any hints as to what it was planning to do. In January 2018, Facebook banned all blockchain and cryptocurrency-related ads on its platform as a measure to prevent its users from being lured into investing in risky financial assets. Four months into this ban, in May 2019, Facebook switched again and eased out on blockchain and crypto ads.
Following this, on 18th June 2019, Facebook unveiled its own cryptocurrency project, without revealing much detail about the project. While Facebook secretly kept working on the project without giving out any specific information, the growth in its project was clearly visible by the number of blockchain and cryptocurrency-related job openings that were being posted on their website.
Facebook did a great job of keeping its project a secret until late February when the New York Times published a report quoting five of the team members of Facebook’s cryptocurrency project. It was then revealed that Facebook had plans to release its product by the first half of 2019.
This was followed by many other news reports revealing different aspects of Facebook’s cryptocurrency. Soon, Facebook unveiled the name of its project, which was called Calibra and also its stablecoin, Libra.
After building up enough hype about its project among the tech enthusiasts, the crypto community, and its users, Facebook launched the Libra whitepaper in June 2019. This was the first instance when everyone had the exact idea of what Facebook was trying to achieve with its cryptocurrency project Calibra. And an inside look into the project sparked both excitement and skepticism about the project.
What is Libra?
Libra is a cryptocurrency that Facebook is developing under its blockchain and cryptocurrency arm dubbed Calibra. According to the Libra whitepaper, Libra is a global currency pegged to a reserve of fiat currencies, which makes it a stable coin. This means that the value of one Libra would always equal the value of the currency that backs it. The fact that Facebook made Libra a stablecoin will allow people to enjoy the low cost and high speed of a cryptocurrency while not worrying about its price volatility.
Libra aims to disrupt today’s financial ecosystem, just the way Facebook and WhatsApp disrupted telecommunication. The organization intends to make it available to all the world’s population without any constraints and give them “access to a secure and stable global banking system.”
As is described in the whitepaper, the currency would be governed by a group of 100 member institutions that include the likes of Visa, Mastercard, PayPal, Uber, eBay, and Spotify.
What Places Libra Under Scrutiny?
So far, everything sounds good about Libra. A global currency. A stable price. Big names are backing the company. And billions in funding. What could possibly be wrong with it?
Well, a lot. Let’s explore.
Past Record of Facebook
Facebook is enormous with a current unique user count of over 2.4 billion, and it has a very poor reputation as a social media platform in terms of maintaining user privacy. These two combined have acted as the primary reason for the skepticism that Calibra faces today from the lawmakers and the crypto community.
In 2018, Facebook was accused of knowingly allowing Cambridge Analytica Ltd., a political consulting firm, to harvest millions of users’ data from their Facebook profile without their permission. The organization then used the data for advertising purposes during the 2016 presidential elections and also for manipulating people during the Brexit vote.
Reports stated that Facebook was aware of Cambridge Analytica skimming personal data from Facebook profiles without the users’ consent. This caused a huge public outcry, and Facebook’s reputation went from a trusted social media platform to a scam that sold people’s personal data to third parties.
Only a year later, when the image from the past scandal of Facebook hadn’t even been washed away from people’s minds, Facebook launched its cryptocurrency project, Calibra. And because this time, Facebook’s plan had to do with a currency of its own, both authorities and users found it all the more difficult to place their trust in the company.
Almost one-third of the world population currently has a Facebook profile. Approximately 50% of all websites have some form of integration with Facebook. Given that, if Facebook is able to come up with its own cryptocurrency, it might make Facebook, the strongest of all organizations in the world; a digital country of the largest central bank, if we can say so.
As can be quickly figured, governments would never want a company such as Facebook to harvest as much power as can be possible with the launch of Facebook’s cryptocurrency Libra. This is one of the key reasons why Libra faces such high levels of criticism from everyone.
Regulatory Compliance and Dollar Dominance
It’s true that Libra is facing more scrutiny than other cryptocurrency projects in the United States, and it is because of the fame that Calibra’s parent company enjoys. However, other cryptocurrencies from different blockchain projects in the U.S. are facing a similar fate. The most recent example is Kin, the cryptocurrency project of the once-famous messaging application Kik. The CEO of the project recently announced that they were pulling down the shutters to their messaging app Kik so that they could save money for their cryptocurrency project and its fight against the SEC.
During the court hearing of Facebook’s Calibra, the project CEO David Marcus was questioned on multiple grounds ranging from user security and privacy of users to Facebook’s authority over the currency along with other concerns pertaining to Libra’s regulatory compliance such as money laundering and financial stability. Marcus had answered the questions asked by the lawmakers, but the uncertainty of how Libra would comply with the U.S. regulations still remained.
Sherrod Brown, an Ohio Democrat, who was a part of the committee during Calibra’s hearing, stated:
“Facebook is dangerous”
Another issue, which wasn’t directly spoken of during the court hearing, that politicians and lawmakers seem to have with Facebook’s cryptocurrency is the impact it could have on the dominance of the dollar. Today, the U.S. dollar is one of the strongest currencies in the world, but with Libra’s ability to reach billions of people through Facebook, WhatsApp, and other platforms, that status might face a risk.
Whether its a duel for power between Facebook and the government or just a counter-measure by the government against any unwanted and illegal matters that might evolve with the launch of Libra, the way ahead for Libra does not seem very smooth.
Lack of Decentralization
Since day one of the news about Facebook’s cryptocurrency project, the hopes of the crypto community from it apparently wasn’t high. This was primarily because the blockchain and crypto industry is working to create a more decentralized internet where people, the users, are the epicenter of everything while Facebook holds a long list of records for doing the complete opposite in the past. Facebook had been stealing user data from social media profiles and selling it off to third parties, while the crypto industry is striving to bring the rights to ownership of user data to the users. This creates a highly contrasting difference between how the crypto community wants the internet to function and how Facebook has been trying to make it work.
This was a strong reason for the crypto community to believe that Facebook’s project, though said to be built on the blockchain, would not be decentralized. And all doubts were proven right with the release of the whitepaper. The Libra whitepaper named 28 major corporations, firms, and non-profits who would be in charge of handling transactions on the Libra “blockchain” and maintaining the ledger. More organizations are likely to join the group of members, making the number reach 100 before the launch of Libra in the first half of 2020. This means that a maximum of 100 members, or nodes in the blockchain sense of the word, will approve and write transactions on the blockchain.
The crypto community found a mere 100 nodes too less to consider Libra decentralized. To put things into perspective, the Bitcoin network currently has over 11,000 nodes who authorize and broadcast the transactions on the blockchain.
So, despite Facebook calling Libra a decentralized project, it has failed to fit the actual “crypto definition” of the word ‘decentralized.’
It is indeed said that a common enemy unites the oldest of foes.
The crypto community and lawmakers, who’re struggling to understand and make cryptocurrency regulations, haven’t had any concurrent thoughts in a long while. And then Libra happened. These two categories of people, who’d been on an endless argument about cryptocurrencies, finally agreed on one thing: Libra should be stopped, that it wasn’t fit to exist.
It is obvious, though, that the concern of both the authorities and the crypto community has less to do with what Libra is and more to do with the parent company of Libra, Facebook. Had Calibra been an independent organization or an arm of a company with a better social reputation, it would have faced far less scrutiny.
It would be wrong to say that Libra would not offer any helpful use cases or that it would fail to stand to its promises of providing an easily accessible financial ecosystem. However, the ramifications of letting a company such as Facebook govern a project such as Libra could possibly do more bad than good. So, it is for the goodwill of everyone if lawmakers leave no stone unturned to ensure that if Libra launches, it does not exceed its boundaries as was done by Facebook.