Making Cents of Facebook’s Libra

A blockchain expert shares her thoughts on the social media giant’s foray into cryptocurrency

By Breanna Mroczek

In Disruption Issue 5, we shared a story about blockchain expert and cryptocurrency advisor Anne Connelly, and her thoughts about how decentralized technologies could benefit users by removing the need for government-regulated systems and letting people stay in control of their data. She has seen success with, and continues to see the potential for, cryptocurrency (or digital currency), in developing or war-torn countries, where access to cash and other financial data is unreliable.

However, cryptocurrency overseen by Facebook was not something she had in mind.

On June 18, social media giant Facebook announced that it will launch a cryptocurrency in 2020 called Libra. Over 24 multi-national chains including Uber, PayPal, and Spotify are early supporters (or “nodes,” in Facebook’s terms), pledging $10 million each in exchange for voting rights within Libra’s governance. Users will be able to access digital currency and Libra’s banking features via a new Facebook-owned app (Calibra), or via Facebook’s existing apps including Messenger and WhatsApp.

Facebook’s official announcement of Libra describes it as “a global, digitally native, reserve-backed cryptocurrency built on the foundation of blockchain technology. People will be able to send, receive, spend, and secure their money, enabling a more inclusive global financial system.”

In theory, this sounds great—it’s akin to the sort of digital currency solutions Connelly works with and advocates for. But Facebook’s alleged data breach and suggested lack of ethics have made her concerned

“My first instinct [after the announcement] was just this horrible feeling in the pit of my stomach like, ‘oh no,’” Connelly says. “Their marketing materials use words like ‘decentralized’ and ‘blockchain,’ but it certainly isn’t either of those things. It is fundamentally a database that is stored across a variety of computers or a variety of nodes which to the untrained eye might look decentralized, but because those nodes are hand-picked by a centralized corporation it’s not decentralized at all.

“Facebook has none of the properties of an open cryptocurrency, and yet they are using those words to lend credibility to their project which is concerning, particularly when you look at Facebook’s ethical history and their ethos as a company which has proven to be less than five stars.”

Is there an “unlike” button for this?

Overall, Libra isn’t getting a “like” from Connelly. Here are five main concerns that she has with Facebook’s cryptocurrency project.

1. Facebook is trying to centralize an inherently de-centralized product.

“Libra goes against everything that the blockchain and cryptocurrency communities are about,” Connelly says. “We’re about freedom and decentralization and individual sovereignty, and Facebook is all about walled gardens and money and selling people’s data, and so for me this was not the global adaption of crypto that I wanted to see.”

2. Libra is (currently) only open to wealthy supporters.

“In their system, only a selected number of groups can run nodes and validate transactions, and those are hand-picked by Facebook and they charge ten million dollars to do that. In a system that I would want to see, that process would be available to anyone in the world. Anyone can download Bitcoin software, there’s no criteria, there’s no price on that, and so it essentially means that the entire world has the opportunity to validate and verify transactions.”

3. Facebook gets more of your data—for free.

“If you look at how Facebook has run their operation to date, they’ve made billions of dollars off the backs of the data of their community, and that may have been somewhat acceptable a long time ago, but that’s no longer the way that we see the future of the world. We see data ownership as a 31st human right. We see this as something that people should care as much about as the way they care about owning their property. Community members should be rewarded for the value of their data. We’ve seen this be a really successful model with other crypto and blockchain communities, most notably a Canadian company called Bunz, who pay their users if they look at advertisements or if they fill out a survey. If they willingly share their data, they get rewarded for that. Barclays [financial services company] states that Facebook is going to make at least $19 billion USD in the first year of this launching, and none of that is going back to the users upon which they are effectively stealing and selling their data.

Power to the People

Unfortunately, not everyone in the world lives with a relatively stable government and has access to currency and other financial assets through traditional banking structures. Connelly knows that there are billions of people around the world who will benefit from Libra, given that Facebook is synonymous with the Internet in many developing countries like Myanmar and Nigeria where there isn’t free, open Internet access, but there is free, open access to Facebook on mobile devices. Right now, most cryptocurrency options, like Bitcoin, aren’t available to users without the Internet.

“I would much prefer if everybody had true, free open Internet access, but that’s not the world that we live in,” Connelly says. “For all these people who are living in a cash-based economy, or at best a very under-banked economy, giving them access to a digital currency that they can use through Facebook is going to be completely transformative. It’s going to link them into a more formalized financial economy that they can then use to send money over borders. They can use it to build capital and they can use it to access capital, as well as to build credit worthiness and build a credit history, and that’s going to change people’s lives, absolutely. It will move a whole generation of people up the socioeconomic ladder and out of poverty.”

Even within first-world countries like Canada, cryptocurrency can be a huge advantage for citizens and refugees who have family and friends in other countries that they need to send financial support to. Cryptocurrency allows for easy exchange of finances without government interference or extreme transfer fees which are often upwards of ten per cent.

So, amid the privacy and censorship concerns that surround Libra, Connelly knows that the product is a true disruptor in the cryptocurrency space and will have a, hopefully positive, impact in the lives of many who right now are not served by traditional financial institutions.

“We need to appreciate that this is going to be one of the greatest innovations that some people will see in the next decade. We are making a shift of power around financial structures away from government, and I think that’s a good thing. It’s a system that was coordinated hundreds of years ago and no longer is effective for the world that we live in today. What I would have preferred to see is that shift happening from government to people, instead of from government to another centralized corporation.”

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