Libra: A Reckoning for Crypto… or for Facebook?
Last week Facebook and its network of partners, including Spotify, MasterCard and Uber, announced the development of a new cryptocurrency, Libra, planned to go live next year. As the first tech major backed and (ideally) stable cryptocurrency, the implications are as numerous as they are extensive – should, of course, the latest in a long line of SomethingCoins manage to be meaningfully adopted at all.
The odds are not in Libra’s favour. Despite the hype propagated by crypto evangelists, its usage remains primarily akin to investment experimentation. Due to the volatility of cryptocurrencies, investing in them is currently highly speculative.
In this particular sense, however, Libra is different. Up until now, the only use case crypto has been able to address is that of anonymous internet transactions, with all of the inherently dodgy implications associated with this. There is nothing to spend crypto on, nowhere to spend it, and no guarantee it will be worth the same tomorrow as it is today. Libra comes equipped with all three of these things, and this is why the proposition is particularly intriguing.
Libra will be integrated across Facebook platforms (Messenger, Instagram, and WhatsApp), and will be supported by big-name brands. The currency has the potential to be viable because it will cut down on transaction fees, from third-party processing to card surcharges to currency exchange rates, making payments theoretically frictionless. In developed markets Libra will not offer much to differentiate itself from mobile banking. However in emerging markets where fintech integration is at a minimum and currencies can be unreliably stable there is a huge need for the ability to send money online, and to be able to easily exchange the currency while doing so.
Libra is intended to solve a lot of existent problems: Spotify hopes it will “empower fans in underserved markets by enabling financial inclusion”, Uber opines that “sending someone money shouldn’t be harder than getting them an Uber ride home”, and BisonTrails backs it because it will be “a major leap towards a financially-inclusive, decentralised future”. Libra is a move towards a truly global digital currency which would level out spending, and democratize personal financial autonomy, in the global digital market.
US lawmakers within 24 hours had already requested a delay of the currency launch, with Democratic congresswoman Maxine Waters saying “given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward…. until Congress and regulators have the opportunity to examine these issues”. Another congressman, Sherrod Brown, believes this will make the already megalithic company “too big and too powerful”, claiming “we cannot allow Facebook to run a risky new crypto-currency out of a Swiss bank account without oversight”.
UK regulators have not made such defensive moves but have made it clear that if Calibra wants to be a big player in the UK payment system it will be regulated by the Financial Conduct Authority and thus demonstrate adequate controls. As yet, there are major risks associated with the currency, from security flaws to basic value instability, and as details have not been fully released yet it remains to be seen how viable Libra will actually be to use. With talks of anti-trust in the US and low levels of positive perception overall, Facebook’s own morally-ambiguous past could be the projects’ undoing.
If Libra takes off, it could change everything about how we deal with money in the digital economy by mainstreaming digital currency through widespread promotion and adoption in the Facebook ecosystem. Through financially empowering newly emerging digital consumers in developing markets, it represents a huge revenue growth opportunity for digital services in otherwise underserved markets. The risk is that Libra will follow the trajectory of previous Facebook roll-outs: ground-breaking at the onset, and then morphing into controversy over user engagement and data misuse. Unfortunately for Facebook and crypto enthusiasts worldwide, the shadow of Cambridge Analytica now hangs over its every innovative move. Get it right, and Facebook enters into phase three of its evolution, from social media platform, to messaging app ecosystem hegemon, to a default global digital financial services provider. Get it wrong, and Facebook will only have incurred (even) lower consumer trust, having stepped on toes in finance and politics in the meantime.