Ever since Bitcoin entered the mainstream consciousness, rumors have abounded that major companies would come around to a cryptocurrency mindset and enter the space. Until recently, these rumors amounted to very little, as tech giants eschewed the world of digital assets. This all changed with Facebook’s recent announcement of its own cryptocurrency, ‘Libra’.
While the announcement has reinvigorated existing cryptocurrency markets and opened the eyes of many to the true potential of digital payments, many cryptocurrency purists are deriding the venture as not only a sham, but detrimental to the original goals of the cryptocurrency community.
Earlier this month, Facebook released a whitepaper outlining its plans for Libra, a new cryptocurrency devised by the social media company. The project is touted as a cryptocurrency for the masses with price stability. Facebook hopes to reach the more than 1.7 billion people around the world who are currently unbanked. Users will not require a Facebook account to use Libra, and the currency will be accepted anywhere Visa or MasterCard are accepted. According to the head of the Libra project, David Marcus, “Libra’s mission is to be a simple, global currency and financial infrastructure that empowers billions of people.”
Libra is backed by real-world assets such as US treasuries and cash deposits, which should help support price stability. It will also use any interest earned from these deposits to maintain low network fees for users.
Libra itself is controlled by companies in the Libra Association, which is comprised of other technology and finance companies including PayPal, Uber, Spotify, Visa, and Mastercard. The company also plans on launching a subsidiary, called Calibra, to manage all Libra data and information separately from that of Facebook.
One of the biggest features of this project concerns digital identity. Facebook hopes to solve the issue of online identity by requiring a decentralized form of digital identification for all users. According to the Libra whitepaper, “An additional goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite to financial inclusion and competition.”
The technology is still in the testing phase, with a public rollout of Libra expected sometime in 2020.
Not Everyone is Positive
While the prospect of a major tech company embracing cryptocurrency has excited many, not everyone is happy. Many of those who celebrate the decentralized, uncensorable nature of blockchain networks and cryptocurrencies feel that Libra should not even be categorized as a cryptocurrency. One reason is that the digital asset will be completely controlled by Facebook and its partner organizations, rendering it subject to censorship and centralization, should these companies choose. This is a marked difference between Libra and decentralized cryptocurrencies like Bitcoin, even though the media tends to group them in the same category.
The development also comes at a time when Facebook is under fire for its questionable privacy practices and concerns are being raised regarding whether it is in breach of antitrust regulations. Michael Pachter, managing director of equity research at Wedbush Securities, said, “I am not sure that this is the smartest thing for Facebook to be doing, as it will invite further regulatory scrutiny, but it sounds like they’re determined to give it a try.”
Some speculate that Facebook is attempting to shape the world of finance to its own world, which will result in social media-like financial system. Others claim Facebook is creating convenience for its users while doing nothing that will benefit the financial system as a whole; think ‘PayPal for Facebook’. Even its own partners seem unconvinced of Libra’s likelihood of success: many of its 27 other partners signed nonbinding agreements, which do not require that they promote, or even use, the new cryptocurrency.
Who Might be Next?
Now that Facebook has taken the leap into the world of cryptocurrency, other tech companies may well follow suit. Amazon has been rumored to be working on their own cryptocurrency for quite some time. The company previously partnered with Ethereum and Hyperledger on two blockchain-based projects in what seems to be first forays into cryptocurrencies. This makes sense, as Amazon has already made in-roads into financial services, with Amazon Pay and the Amazon Credit Card.
Google’s initial response to the popularization of cryptocurrencies was one of extreme skepticism: the company banned all advertisements for cryptocurrencies and related businesses just as ICOs were beginning to take off. The company has since reversed its stance and is now welcoming such technology into its ecosystem. Google already allows Ethereum developers to build applications using Google Cloud services. It is also making it easier for users to view information about their favorite cryptocurrencies. These are only small steps into the cryptocurrency world, but still point to a growing interest by Google.
Google co-founder Sergey Brin even admitted the company has been lagging when it comes to this new technology. “We probably already failed to be on the bleeding edge,” he said in reference to blockchain technology.
A New Beginning, for Better or Worse
Facebook has significant resources, infrastructure, and insights into its user base that it can leverage to bring Libra to market and maximize its chances of success. Libra just might end up being the currency of the future. However, Facebook’s trustworthiness has been thrown into question over recent years, a fact that may generate friction as it attempts to onboard millions, if not billions, of users to the company’s new digital currency. While the company’s stated motive of helping the unbanked is ostensibly well-intentioned, it comes with some strings attached, and those questioning the development do so with no small degree of justification. However, whether it is Facebook or another major tech company that succeeds in popularizing their own digital currency, current developments may likely mark the beginning of a new chapter in the story of the development of cryptocurrencies.