Project Libra: Bringing Our Money Closer Together

On Tuesday, Facebook revealed its plans for the much-rumored cryptocurrency that came together under Project Libra. In a white paper, Libra explains its mission as a “simple global currency and financial infrastructure that empowers billions of people.”

All the Right Steps, on the Surface

Reading through the white paper, I could not help but notice how Facebook masterfully ticked all the boxes that at least on the surface would ease concerns.

Governance – Libra will be governed by the Libra Association which is said to have 100 members by the time of its launch in mid-2020. Facebook is one of the founding members, and it will maintain a leadership role in 2019. The Libra Association is a non-profit membership organization headquartered in Geneva – nothing says banking and independence better than Switzerland!

Independence – Facebook created Calibra, a regulated subsidiary that will ensure separation between social media data and financial data.

From permissioned to permissionless – Libra will start with granting permission to someone to be a blockchain validator node, but the goal is to move to allow anyone who meets the technical requirements to be a validator. The set timeframe is five years from the launch of the Libra blockchain and ecosystem. In its early years, the founding members will be the validator nodes.

Despite all of this, it is clear that Facebook is not in the charity business and the driver behind Libra and Calibra is monetizing from commerce by empowering more transactions to go through Facebook. While they say Calibra and Facebook will keep data separate, one has to wonder in how many different ways Facebook will be able to influence people’s purchase through advertising. Also keeping data separate does not mean that there will be no learnings shared between the two companies. If you think I am too harsh, I have two words to say to you: Cambridge Analytica! By now, it is also clear that Facebook does not seem to learn from its mistakes, so my level of trust that there will be no cross-pollination between the two is very low. I also have very little confidence that Calibra will be in a position to make decisions that put users first and Facebook second. In this case, the word I have for you is Instagram!

Unsurprising Government Opposition

I am not the only skeptic, though! As soon as the Libra white paper was made public, the initiative was met with strong opposition both in the US and in Europe. This really should not come as a surprise to anyone given the current stand that governments on both continents have taken on big tech and Facebook in particular. The concerns seem to be multiple, according to Bloomberg.  The French Finance Minister is adamant that Libra cannot become a sovereign currency. The European Central Bank calls for keeping Libra at the highest standard of regulation. In the United States, House Financial Services Chairwoman Maxine Waters asked Facebook to put Libra on pause while Congress and regulators get answers to their questions.

These concerns might touch on different aspects of the cryptocurrency project, but ultimately, they are all about one thing: power. Government officials and regulators are terrified at the idea that Facebook could become even more powerful than it is today.

Of course, power, coupled with a lack of regulations in an area that is the backbone of every capitalist economy is a huge threat to the current status quo and a significant risk for consumers.

Vulnerability is My Main Concern

My real concern about the Libra Project is the vulnerability of the audience it is aimed at. If we believe the problem statement in the white paper, Libra want to be a solution for the underserved:

“All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges.”

I am sure that India will be a key market for Libra, given the high popularity of Facebook. India is not new to being targeted with payments solutions. Back in 2010/2011, when Nokia was still the market leader in the mobile phone market, a lot of attention and resources were put in using mobile payments and microfinancing to reach those mobile phone users who did not have access to formal lending institutions. Back then, it seemed like a no brainer that phones were the way forward: 850 million phone subscribers vs. 240 million bank account holders! The method, however, was not risk-free. Establishing both agent and customers authenticity was hard, technology issues, lack of regulations around privacy and an arduous process to follow when things went wrong, and one had to find someone accountable.

Relatable? It should be, as I believe some of the risks and concerns that we had with mobile payments and microfinancing are the same as I have with Libra, but on steroids. I say on steroids because the power and the “profit first” attitude shown by Facebook time and again amplify these risks. When you have little to no alternative, you are usually more accepting of the solution that is presented to you even when there is a risk. I am not often one to call for regulations but given where we are with social media because nobody paid enough attention along the way, it is clear to me that we cannot afford to do the same with Libra. Thinking we have time because we look at Bitcoin and see it has not scaled would be a big mistake and would totally underestimate the Facebook machine. Today, if I do not trust Facebook I can delete the app, deactivate my account, or simply never bother to use it, once I come to rely on Libra as the backbone of my finances switching off would not be crippling.