Last month, Facebook finally disclosed details of its much-hyped cryptocurrency, Libra. After generating an immense amount of chatter, the company announced that the digital currency, set to launch in 2020, will enable people to buy things or send money to others with almost zero fees.
Facebook plans to build its own wallet that will be integrated into WhatsApp, Facebook’s Messenger and its app. Cryptocurrencies have been in the fintech space for quite some time - over 1,600 cryptocurrencies are in circulation - but till date, Libra enjoys the largest financial backing amongst them.
Albeit the hype, what stood out were Facebook’s intentions regarding their users’ digital identities.
“An additional goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite to financial inclusion and competition,” the whitepaper highlighted.
In a digital environment where you don’t know if the person you’re interacting with is indeed who they claim to be, a large amount of data and personal information may be collected by businesses to verify the user’s true identity. In an attempt to guard themselves against fraud, the vast amount of users’ personal data may run the risk of identity theft and spying. One of the ways to tackle this problem is to enable the user with control over their data.
However, plans that target a self-sovereign identity are not underway yet, although the social media giant’s CEO Mark Zuckerberg said that he was exploring the option earlier this year.
The company is also considering a decentralized digital identity standard, but the disclosure made researchers wary of how open the digital identity standard would be.
“If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business,” remarked David Marcus, Facebook’s VP of blockchain.
The bigger threat of muscling in on user’s data
When it launches, it will most likely be the first cryptocurrency wallet that would interact with over a billion people - largely because it's tied to Facebook's ecosystem. Tapping into their data through this will open a new channel for monetization. The tech company is largely driven by advertisements - with nearly $15 billion in ad revenue for their recent quarter, by harvesting and monetizing data.
With Libra, Facebook would have access to purchase data of its users. If the tech company were to monitor the transactions, it would learn exactly what people are buying and may tap into that information for monetization.
There would be several privacy concerns if the cryptocurrency ran on a public ledger like many others - including Bitcoin. A public ledger could expose the data, permitting an outsider to use pattern recognition technologies and artificial intelligence to identify the users making the transactions.
Lawmakers and regulators expressed mistrust of the company's new cryptocurrency plan, pointing out to the Facebook's pattern of failing to keep consumer data private and infringing on their privacy.
“Just five data points might be enough [for a company] to say, ‘I’m pretty sure that this identity that’s anonymized on the Libra ledger is Wayne Vaughan because he purchased something of this amount at this store at this time,’” explained Wayne Vaughan, co-founder of the Decentralized Identity Foundation.
“Now [the firm] can search the entire public ledger for a set of data for all the transactions that are associated with that identity,” he said. Libra may provide Facebook with the option to use the wallet to tap into financial services and advertise or sell products on the platform. It's a whole new business opportunity for Facebook.
Phil Windley from the Sovrin Foundation also highlighted that “decentralized” does not imply that the user has control over their data. It could mean that the user’s identity information will be spread across Libra’s blockchain.
“People often use decentralized as an unalloyed gilt and just assume that it means everything is going to be great. That could be what they are doing here – just using ‘decentralized’ as a synonym for ‘awesome,” he highlighted.
Days after Facebook disclosed plans of making Libra a payment solution, regulators called on the company to halt any further development until the authorities investigated its implications to the global financial system.
“If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger global financial stability,” Rep. Maxine Waters wrote in a letter to Facebook CEO Mark Zuckerberg. “These vulnerabilities could be exploited and obscured by bad actors, as other cryptocurrencies, exchanges and wallets have been in the past,” she said.
After the Federal Reserve and regulators raised serious concerns over Libra's financial stability, privacy and consumer protection, officials from other countries including Singapore have demanded a more thorough investigation of Facebook's proposal. Democrats have raised calls for Facebook to clean up its past and be very transparent before moving on to Libra and the Fed's Chairman said that Libra "cannot go forward" until Facebook examines the regulatory challenges it will face.
This makes us question if Facebook will succeed with their cryptocurrency plan and if we really need (or want) Facebook to rethink money.