Facebook unveiled its new cryptocurrency Libra on Tuesday, revealing a global vision that imagines poor people without access to financial institutions in developing nations buying the digital token and using it instead of money or traditional banking services.
Libra is a major play in the finance market by Facebook, which also announced a new subsidiary called Calibra to work with Libra and ensure “separation between social and financial data.” As explained in a white paper released on Tuesday, Facebook’s plans for Libra are at least as ambitious as the Facebook platform itself: Billions of people all using an intangible digital currency issued by corporations.
In the white paper, Facebook emphasizes that Libra can “empower” people who don’t have bank accounts (often referred to as the “unbanked”), either because they’re too poor or their home region doesn’t have adequate financial infrastructure.
The first paragraph of the “problem statement” that opens the Libra white paper notes that “large swaths of the world's population are still left behind—1.7 billion adults globally remain outside of the financial system with no access to a traditional bank, even though one billion have a mobile phone and nearly half a billion have internet access.” The white paper notes that a leading reason for remaining unbanked is not having enough money.
Although it’s not stated explicitly, this refers to people in developing nations. The 2017 World Bank report that Facebook pulled the 1.7 billion figure from notes that “because account ownership is nearly universal in high-income economies, virtually all these unbanked adults live in the developing world. Indeed, nearly half live in just seven developing economies: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.”
According to Jerry Brito, executive director of cryptocurrency policy think tank Coin Center, there’s little reason for someone with pretty much any other options to use Libra.
“In the developed world, I don’t see much of a use case for point-of-sale for the same reason that Bitcoin hasn’t seen much adoption,” Brito said. “We have a robust payments system that works very well. I can go to Starbucks and pay for my coffee with my phone, and I get paid for using my credit card. If I was using Bitcoin, I’d have to pay to acquire Bitcoin and then use it at Starbucks.”
In an emailed statement, a Facebook spokesperson highlighted how Libra, which is supposed to have a more stable value than Bitcoin, "will be especially critical for people who live in places where the local currency is volatile." "We know that we still have a lot to learn from those who have invested their careers in addressing financial exclusion, and we hope we will ultimately create shared value solutions on the Libra Blockchain and other opportunities for partnership," the statement said. "The Libra Association will allocate a meaningful percentage of capital raised toward social impact grant-making in support of financial inclusion."
LIbra is a blockchain-based cryptocurrency, which means every transaction is recorded in an ever-evolving database that is viewable by the public. Like Bitcoin, the Libra blockchain won’t keep track of people’s real identities, only the amounts they transact and their digital addresses as well as metadata like a timestamp. Unlike Bitcoin, which is notoriously volatile, Libra’s value is supposed to be pegged to a handful of dependable global currencies and backed by a reserve of assets and investments. This should, in theory, keep Libra’s value relatively stable.
Libra is financially backed, governed, and technically supported by a founding non-profit association of corporations based in Switzerland. Initial members include payments companies (PayPal, Visa, Mastercard, and more), tech companies (eBay, Uber, Spotify, and Facebook itself), as well as telecoms, venture capital firms, blockchain companies such as Coinbase, and a handful of non-profit and academic organizations.
Except for the NGOs, each member of the Libra Association paid $10 million into the reserve that backs Libra’s value. This buy-in bestows a seat at the decision-making table for Libra governance and the ability to act as a node processing and validating transactions. Members of the association skim interest off of the reserve, which grows as users purchase Libra with fiat that is transferred to the reserve.
According to the Libra website, Facebook plans to lead the association through 2019, but eventually wants it to be independent and made up of entities that own a large amount of Libra and run validator nodes. Eventually, Facebook wants Libra to become a “permissionless” network similar to Bitcoin, where anybody with an internet connection can point their computer at the network and join in.
Another big difference between public blockchains like Bitcoin and Libra is that Facebook is committed to working with law enforcement. “While the network is open and accessible to everyone with internet access, the network's main endpoints will need to follow applicable laws and regulations and collaborate with law enforcement,” the Libra site states.
When users sign up for an account with Calibra, for example, they are screened against a government list so that sanctioned persons don't join the network.
In contrast, Bitcoin transactions are unstoppable short of taking away someone’s computer, phone, and internet connection, for better and for worse. Even though the US government recently made it illegal to send bitcoins to two Bitcoin addresses linked to Iranian ransomware, the Bitcoin software will still allow someone to do just that.
“What you don’t see with Bitcoin is that the Bitcoin Core software that runs the network doesn’t have those addresses written in as forbidden,” Brito said. “You could foresee that the [Libra Association] could say, ‘We will not allow transactions to certain addresses,’ or, ‘The funds in certain addresses are frozen.’ That’s within the power of the validators, which is a small set of people.”
This situation could get messy, as all Libra service providers (for example, Calibra) must comply with local laws in the jurisdictions they operate in, a Facebook person clarified in an emailed statement. Remember, Libra is supposed to be global.
With a focus on disenfranchised people without the money or available infrastructure to interact with the traditional finance system, Libra is essentially an invitation for vulnerable people to use permissioned, corporate money with the ability to censor financial transactions built-in, unlike Bitcoin or even physical cash.
The Libra system still needs to be finalized, its governing charter written, and its consumer software developed and released (right now, it’s only available for testing and requires familiarity with open source software to spin up).
Still, it’s hard not to look at Libra and think of Facebook’s other utopian project aimed at empowering people in developing nations: Internet.org and Free Basics, which aimed to beam the internet down to places without adequate infrastructure and offer them a walled-off, Facebook-ized version of the open internet that we all enjoy. Not only was the plan roundly criticized by net neutrality advocates, who argued that Facebook was cynically mainlining its brand and products to people without other options, but regulators in India effectively blocked it in 2016.
For all of Facebook’s lofty proclamations about empowerment, sometimes people just don’t want their shit. We’ll see if it works this time.
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Update: This article was updated with a quote and information from a Facebook spokesperson.