Facebook is diving into the global cryptocurrency market, but many aren’t ready for the tech giant to have more power.
The company’s new offering, called Libra, would use its worldwide network but still be linked to fiat currency issued by governments. Facebook has been working on the program for at least a year, with its former head of Facebook Messenger heading up the blockchain team.
The blockchain currency is the most mainstream offering of a technology that has taken the world by storm and has made lots of money for some early adopters. However, Facebook’s offering won’t create a gold rush (in theory), because its value is tied to government-issued money already in the marketplace.
Some are leery about Facebook’s new product, which they say promises to give the tech giant unprecedented power in the global marketplace. Plus, many haven’t moved on from Facebook’s recent data-use scandals.
Can Facebook convince government regulators and everyday consumers that its currency is a safe bet?
For the last year, Facebook has been signaling it wants in on the cryptocurrency phenomenon. At its F8 developers conference last month, cofounder and CEO Mark Zuckerberg said he wants to make sending money as easy as sending a photo: digital, immediate, free and secure.
On Tuesday, the company formally unveiled its highly-anticipated digital currency project. It’s called Libra. Facebook (FB) also announced the creation of the Libra Association, an independent organization that will manage the currency, and Calibra, a unit of Facebook that will build applications related to the new digital currency.
Facebook has 2.4 billion users around the world, an audience that could help it spur a bigger mainstream adoption of cryptocurrency than others have yet to generate. At the same time, the announcement comes at a critical moment in Facebook’s history. The company is under regulatory and political scrutiny for its massive influence, as well as its mishandling of user data, even as it works to further extend its reach into users’ lives.
The currency is already garnering skepticism from European government regulators, with some drawing a line in the sand.
As Facebook unveiled its cryptocurrency project today, European officials quickly called for scrutiny of the plan, raising concerns over whether the project was sufficiently regulated.
According to comments reported by Bloomberg, French Finance Minister Bruno Le Maire said Facebook’s cryptocurrency, called Libra, must not “become a sovereign currency.”
“It can’t and it must not happen,” he told Europe 1 radio. Le Maire reportedly called for G7 banking officials to issue a report on Facebook’s plan next month.
A German member of the European Parliament expressed similar concerns, according to Bloomberg, saying Facebook was at risk of becoming a “shadow bank” and that companies “must not be allowed to operate in a regulatory nirvana when introducing virtual currencies.”
However, Facebook says it won’t be in charge of the cryptocurrency. Instead it hopes to create an alliance of corporations that will create a governing body to manage the currency in Geneva, Switzerland.
In recent months, the company established the Libra Association, a not-for-profit governing body that will oversee Libra. Facebook says it did not want to be solely in charge of Libra because it intends for the cryptocurrency to be a “public good.”
The group has 28 founding members — companies and nonprofits from several different countries — including Facebook, which says it will have just one equal vote. The association will be based in Geneva and officially take up its post this week overseeing the rollout of Libra. Facebook hopes to have 100 association members by the 2020 launch.
Among the founding members are heavy hitters in the tech, finance and nonprofit sectors, including Mastercard (MA), Uber (UBER), Mercy Corps and Andreesen Horowitz. These partners bring expertise in areas key to the project: international financial regulations, blockchain and the financial needs of poor communities around the world.
There still might not be enough separation from Facebook for some regulators and consumers. Facebook is still struggling to regain consumer trust after a series of data-use scandals that rocked the company in the aftermath of the 2016 election. That history has made some consumers wary about Libra.
Even though Facebook won’t solely control Libra, some in the industry worry that the project isn’t in the spirit of the larger cryptocurrency sector, which has prized decentralization.
“With regards to international exposure, it’s a positive but that may be where the positives end,” said Richard Dennis, founder of cryptocurrency marketplace Temtum, which offers a digital currency. “With Facebook one of the biggest hoarders of personal data on the planet, there’s a complete contradiction of what cryptocurrencies are meant to be — no one entity should hold the power, the data or most importantly control user funds.”
Ultimately, Facebook is betting on its scale, as well as the customer bases of Libra Association members, to get consumers to buy into the technology.
Social media response
On Twitter, some weren’t impressed with Facebook’s offering:
I think it's safe to say Facebook's Libra is massive tech companies giving the finger to government authority and power, claiming it for themselves and themselves only.
— Peter Todd (@peterktodd) June 18, 2019
They certainly weren’t impressed with Facebook’s description of Libra:
First sentence of the abstract: "The Libra Blockchain is a decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world."
That's a lie.
— Peter Todd (@peterktodd) June 18, 2019
Others identified a branding problem Facebook will have to conquer if it wants to take Libra mainstream:
6. Facebook tells users that “the value of a cryptocurrency depends on the type of blockchain it is built on”, which imo is a very silly statement to make. I expect that the marketing department is going to have a hard time explaining the “crypto” part to users pic.twitter.com/SSnMEjURO0
— Udi Wertheimer (@udiWertheimer) June 18, 2019
However, others were more optimistic:
Facebook is going to be the biggest crypto onramp and LIBRA the most used cryptocurrency for a while.
Sending/receiving crypto is going to be mainstream. That's for sure now. 🚀
— Lukas Bydzovsky (@LukasBydzovsky) June 18, 2019
Others even relish the coming battles between big tech companies and governmental and banking authorities:
While Facebook's Libra doesn't compete against any open, public, permissionless, borderless, neutral, censorship-resistant blockchains, it *will* compete against both retail banks and central banks. This is going to be fun to watch.
— Andreas M. Antonopoulos (@aantonop) June 18, 2019
If Facebook can’t get government regulators to sign off, the project could get nipped in the bud.
Mastercard’s executive vice president for digital solutions Jorn Lambert told Reuters that if the project experiences too much regulatory pushback “we might not launch.”
In an exclusive interview with Business Insider Germany, European Data Protection Supervisor Giovanni Buttarelli also raised concerns about Facebook’s push into cryptocurrency.
“We recognize the potential of new technologies, including, as in the case in question, new applications, which aim to provide financial and ecommerce services in new or efficient ways,” he told Business Insider on Tuesday. “However, any further concentration of personal data poses additional risks to the rights and freedoms of individuals — so the proposed launch of a digital coin (cryptocurrency) by Facebook will require careful scrutiny from several enforcement bodies, including data protection authorities.
“It would be deeply concerning, for example, for a company with access to massive volumes of personal information, gathered through its social media platforms and communications services, to be able to combine this information with the tracking of online digital purchases,” he continued.
One big problem still exists for all blockchain advocates: explaining themselves in clear, simple sentences.
for reasons I don’t understand, almost nobody in crypto has the ability to communicate clearly in plain English. Facebook is no exception. pic.twitter.com/zlD8HQ4C2P
— Felix Salmon (@felixsalmon) June 18, 2019
How would you advise cryptocurrency advocates and Facebook to promote their products?