Facebook has a lot of history, most of it is not pretty.
From the allegations of stealing the company from friends to the allegations of breaching privacy from its dopamine addicted feeders, most of Facebook’s history is marked by dark milestones.
Governments turned a blind eye so far, because that’s the right thing to do with the company that can ship jobs in a blink of an eye, and those jobs mean taxes and revenue.
But then Facebook ventured into crypto, an attempt to undermine the FIAT financial monopoly of Governments all over the globe. Facebook may not have thought through the repercussions of that decision.
By now everyone has heard about Libra, however, for the benefit of the few who may not, here is a quick recap: Facebook formed a company called CaLibra that is registered in Switzerland (where else!). CaLibra is gearing up to issue its own cryptocurrency called Libra and plan to launch it by the year 2020. They have been facing backlash from authorities and the bitcoin evangelists.
How many times do we see authorities and bitcoin evangelists speaking against the same thing? Facebook deserves the credit here for bringing these two very opposite forces to agree on one thing, that is, to hate Facebook’s crypto move.
Bitcoin evangelists hate it because Facebook says Libra is decentralized, however, the whitepaper has a clear caveat about the possibility of forever remaining a private blockchain.
Private blockchain can be distributed but never decentralized. This in our view is a basic distinction.
Beyond the blatant misinformation, their plan to create a parallel fiat system is a slap on the face of the Governments who forgave its intrusive practices in the past.
Naturally, both groups are furious.
What happens when Libra pegs against Bitcoin?
Facebook plans to peg Libra plans against Fiat and other low volatile assets to maintain stability.
Let’s say Libra grows into a billion member giant. That will make Facebook larger than any financial institution in existence. When they garner such a monopoly over the financial system, what happens to the fiat if all of a sudden they decide to peg against Bitcoin?
That is an underlying concern that banks and Governments are battling with, even though no one is coming outright to say it.
If Facebook eventually decides to use Bitcoin to back its Libra coin, that could disrupt the monopolistic control over money that fiat has been enjoying for ages.
On the other end, such a move will send Bitcoin (and other dependable crypto) to the moon.
They can freeze users account, with money in it, that’s not decentralized
Because, and we cannot reiterate this enough, Libra is not a decentralized blockchain, Facebook can change the rules of engagement as and when they wish. That means, they can one day declare that speaking your mind is against their policy and ban you from Libra’s network.
What happens to the money you may have in your Libra account?
What happens to all the money so seized? Who gets to keep it? Will they burn all of the seized balances? Under what authority?
What happens when court orders to freeze accounts?
We are assuming CaLibra, as an entity, will have to oblige court orders to freeze accounts.
Let’s say, CaLibra maintains that since it is a (not) decentralized network, the participating members will decide on freezing decisions. All participating members are traditional business giants, they will never go against court orders. Given that, they will have to execute court orders – we are presuming they have some kind of backdoor to freeze accounts.
That is a concern of most blockchain and crypto evangelists.
CaLibra is registered in Switzerland, will it be bound by the laws of other countries? If not, why would any country take the risk of allowing a financial instrument that is not bound by its own laws?
They say no real-world ID is required, and that’s not true
Let’s forget for a second what we know about Facebook, which is, they don’t need permission to use our data, that is, they already have access to who we are, what we like, who our friends are, etc.
There were allegations that Facebook’s data was used to build algorithms that can predict your sexual orientation even before you know and they can caLibrate their ads to appeal to those subconscious queues.
In the context of Libra, they are saying that you won’t need ID to use Libra, however, you will need a government-issued ID to open their CaLibra wallet. CaLibra wallet is the only way to acquire Libra in exchange of fiat.
“You don’t need ID to use Libra as long as you verify your ID to get Libra. Go figure.”
What about ‘right to forget’ under GDPR?
If you want to buy Libra, you have to deposit fiat. How do you do that? You link your bank account. When you link your bank account, your identity is known. It’s not only known – it is now on blockchain where it can live forever.
What happens if someone decides to be forgotten?
How will Libra handle that? If it can truly delete the accounts out of existence, then why call it blockchain or decentralized?
“If you can delete the history, then what you have is not a blockchain!”
How do you trust developers with access to what could end up being one of the largest financial pools?
Libra has its own language called Move.
This means, only a select group of developers will have insight into its working and probably have backdoors built in, in case of emergency.
A backdoor that exists to tackle emergencies is not guaranteed to be used only for that purpose, as such, it leaves a big question unanswered about the accountability (and who is enforcing that accountability) of the Libra financial system.
If Facebook asks users to put their trust on them, then it goes against everything Blockchain and cryptocurrencies are about: trust decentralization.
All of these issues could impose bans on Facebook in some jurisdictions
Authorities don’t like it when someone dabbles with their monopoly over money.
The issues raised above relating to privacy, security, identity management, GDPR issues and cryptocurrency bans in some locations that Facebook operates in, might put Facebook in a compromising position. The good news is that CaLibra is established as a separate entity, in case they run into these expected turbulent waters.
Centralized nodes structure, hefty price tag for voting voice, contradictory ideology behind the identification requirements, scammy past, potential hurdles from Governments across the globe, potential for greater intrusion into personal lives and many other negative possibilities make Facebook’s Libra coin a bitter pill to swallow.
Facebook does have one antidote to all these woes, and that is its size.
Facebook has close to 2 Billion users on its platform and on boarding even a fraction of these users will make Libra coin the most popular crypto in the world overnight, even more so than Bitcoin.
This could help the cause of bitcoin and conversation around decentralization, however, might subject Facebook to undue hardship in the near future.
Thank you for reading the article.
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About the author
RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.
RK Reddy is an ardent fan of Blockchain and Cryptocurrencies. You can see the excitement about this new blockchain technology in every article on Cryptotapas.com. Sometimes this excitement leads to an overly optimistic view. Guilty as charged. RK Reddy says “what may seem like an ‘overly optimistic expectation’ today may become an everyday norm in 5-10 years; look at the history of cars or airplanes, Blockchain and Cryptocurrencies belong to a similar frame of reference.” Of course, that is just his opinion.
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