Facebook Libra: On June 18, Facebook officially launched the Libra project, which aims to leverage blockchain to create a new stable digital currency that will be supported by several major companies.
Facebook says its goal is to enable access to affordable digital payments for billions of people, including those who don't have bank accounts.
It aims to make sending payments as easy as sending a message across all digital platforms for the service's 2.7 billion users worldwide.
The vision for the Libra digital currency is bold and ambitious. However, Facebook's decision to launch Libra as a cryptocurrency, rather than just a new payment system, poses a number of complex challenges.
Below are three critical questions that Facebook should answer before creating Facebook Libra:
How will you get governments and regulators on board?
A cryptocurrency used by 2.7 billion people across the planet would be a threat to national sovereignty and could disrupt the ability of countries to make money.
China, Indonesia, and Pakistan have already banned Bitcoin and other cryptocurrencies for the above reasons.
The US, France and Russia have all expressed their concerns about the threat that the new digital currency Libra will represent.
Furthermore, the fiat-backed nature of Libra means that it will need to work with regulators either directly or indirectly (through financial institutions licensed by the regulator), so regulatory support is paramount.
The lack of regulatory support could significantly reduce Libra's capabilities or render the digital currency illegal.
[su_note note_color=”#ebebeb” text_color=”#271e45″ radius=”2″]Fiat money or otherwise forced circulation money is the means of payment which is not covered by a reserve of other materials (e.g. gold) and therefore lacks any intrinsic value, even indirectly. It is imposed on transactions by some authority (usually the state) both in payments and receipts. It is expressed in a monetary unit and usually takes the form of banknotes and coins which may have a nominal value equal to, multiples of or submultiples of the monetary unit. [/su_note]
How will you gain consumer trust in data privacy?
Although the blockchain is characterized by anonymity, the digital platforms that consumers will use to carry out each transaction are the familiar WhatsApp, Instagram and Facebook.
The Cambridge Analytica showed that we cannot trust Facebook – and there are many who have not yet forgotten this breach of trust.
The new digital currency Libra should strengthen privacy mechanisms, but it is unlikely to alleviate the deep concerns of thoughtful consumers. Does Facebook have the capacity to govern such a system?
Meanwhile, excessive privacy will increase regulatory concerns over money laundering and tax evasion.
Is Facebook a bank or a social network?
It is no surprise that Libra's consensus algorithm uses Byzantine Fault Tolerance (BFT), which uses decentralization for scale and efficiency.
Using BFT requires several validations on the cryptocurrency chain from sources that have the authority to decide and approve each transaction.
This voting power is determined by the financial contribution to the blockchain, meaning that larger or wealthier companies will potentially have more rights on the network.
The vision of the financial integration of the Libra digital currency can be exciting.
But let's be honest: with this initiative, Facebook is essentially trying to go beyond the data it receives from the social network and get its hands on consumers' financial data.
Of course, the most powerful in this chain (and therefore the ones who will pull the strings) will be Facebook and the largest members of the Libra project company.
Just a few weeks ago, all over the media, there was a proposal to break up Facebook and reduce its influence.
Considering this background, the launch of the Libra project seems both untimely and insidious.
Launching a traditional payment system to better compete with Alipay and WeChat Pay would not face such hostility from governments and would likely have a better chance of success.
Written by analyst Meng Liu, vice president and director of research at Benjamin Ensor and Frederic Giron. The original post is here.
