Oh good, another cryptocurrency. And this time from the paragons of privacy themselves, Facebook. ‘Libra’ (nice zodiacal jab at the Gemini cryptocurrency company backed by archnemeses, the Winklevoss twins) is reportedly being prepped for international rollout sometime in 2020. I must say, I’ll be very impressed if Facebook do manage to pull that off, given that they have to figure out aspects relating to regulation in multiple jurisdictions, back-end implementation, acceptance from merchants, to name just a few.
Aside from a plethora of minor issues, two major ones seem to hang over Libra from my perspective. One is that of volatility which has plagued every cryptocurrency, i.e. the ups and downs in the value of the currency. Libra is reportedly designed as a ‘stablecoin’ backed by a “reserve of real assets” which they claim will counter this problem. The key point to note here is the goal of ‘minimizing’ volatility, which does not immediately translate to stability.
Central Bank Cryptocurrencies will also ensure that even if it succeeds, Libra won't have it all its own way. Read more in Hargo's white paper Central Bank Digital Currency – Death of the Retail Bank?
The other major issue here seems to be one of trust and privacy. Given the many instances of high-profile data breaches related to Facebook, I for one would be hesitant in giving them access to my purchasing information. At the moment, if I go buy a ticket to the opera using ApplePay and buy a new pair of Nike Shoes off Amazon, the two are distinct purchases, and never the twain shall meet. So, Apple can’t start to market shoes to me, and Amazon can’t include books on opera in my recommendations. However, if Libra does become the norm, they’ll know everything about both purchases and marketing efforts directed at me are now much more targeted. And that’s the vanilla scenario. Given Facebook’s data breaches in the past, and the “management” of political discourse on their newsfeed (read: election tampering), how do I know my purchase history isn’t landing up in more nefarious hands? The conspiracy theorist in me can run wild on this notion, but I’ll refrain myself.
There are other overarching points to consider as well. For instance, the biggest demographic constituency of Facebook’s subscribers is in India, a country averse to cryptocurrencies at the moment (or at least in the midst of defining how they are to be implemented). The use of cryptocurrencies as a whole could be banned outright. This is particularly relevant as Facebook’s whitepaper on Libra referred to providing access to the unbanked and underbanked segments. If one of their larger target markets outlaw cryptocurrencies, it could affect the business case. To that point, each international jurisdiction is going to have its own idiosyncrasies based on the level of consumer privacy and control they’d like to maintain, which highlights the headaches of the regulatory hurdles. So, to create a crypto that can accede to ‘universal’ demands is not an insignificant task.
Taking a step back, there are over 2000 cryptocurrencies that have been floated or are in circulation, with various levels of success and (predominantly) failure. Everything from Bitcoin to DogeCoin (yes, it’s cute and hilarious) to Titcoin (yes, the porn industry is in on the action too), so what gives Facebook the edge over its competitors? It has a large consumer base sure but by the time you boil it down to active users, and then segment it into jurisdictions that would be amenable to Libra, that number shrinks. Additionally, usage stats are on a downward trend (down 15 MM since 2017), primarily attributed to the privacy scandals. Granted that adding in Instagram and Whatsapp may move the needle, especially since those brands are still relatively inoculated from the privacy concerns (strangely enough).
But hey, I’m a sceptic when it comes to the cornucopia of cryptos out there. Call me old fashioned but for me the only way a cryptocurrency makes sense is if the Central Bank was issuing it. Not only do I trust that it’s going to be there in 6 months’ time, but that it’s going to retain its value at a stable (ish) level. Facebook might be one of the biggest players to attempt floating its own cryptocurrency to date and that MAY give it a chance at success. However, given that they’ve already failed in the digital payments space before (a decade ago they were called Facebook Credits), I won’t be waiting with bated breath. There are a lot of people out there saying Facebook COULD be the next big thing and revolutionize the global banking system, and time will tell, but I’d say the odds of that are lower than one would imagine. There are a number of other factors at play, any one of which could scupper the challenger’s chances.