Facebook's Libra currency has many trust issues
Facebook announced its new cryptocurrency on June 18, 2019, under the name Libra. With an impressive cadre of platform participants including corporate giants, from Visa Inc. to Uber Technologies Inc., Facebook revealed its plans for a new global financial system centered on usage of libra as both a medium of exchange and store of value. Facebook plans to use established government-backed currencies and securities to support the digital currency and solve for the hodl issue that plagues Bitcoin usage in everyday transactions. [Reuters on stablecoins]. Unlike Bitcoin, it aims to avoid massive fluctuation in value and is poised to be used in everyday transactions across Facebook’s various properties.
In contrast to Bitcoin, Libra is a blockchain-based payment system where multiple users keep records, enhancing transparency and security. A non-profit organization in Switzerland, "The Diem Association," sustains the currency standards. The Libra reserve, the board comprising the partner corporations' committee, will set up the central bank. Libra, Facebook had announced that once government regulatory backing was received the cryptocurrency would be widely available for use by early 2021.
Since that announcement on Libra was made, it has become a top ten trending topic in the technology and finance world in 2019,with both world’s surprisingly unwilling to trust in its nature and intent. Why are so many people so skeptical about Libra? We postulate a couple of ideas below
Association with Facebook makes it hard to trust.
Bloomberg summarizes Libra as a mistrusted global monetary entity. Libra has come under fire for its close association with the social network - Facebook. Over recent years Facebook has repeatedly come under scrutiny because of numeours privacy scandals. People reckon that Libra's key insight is faulty. People will transfer money in the same ways as information. History repeatedly exposes Facebook and how it cannot ensure people's privacy; how can it create trust with money? Facebook states in the white paper, the company's vision for its new cryptocurrency, should be as easy and cost-effective as—and even more safe than—sending a text message or sharing a photo." But the social media giant had failed its customers more than once. But most people hope for the currency to succeed as the volume of Facebook users is over 2 billion. As Vox declares, "Facebook may have too many users for its cryptocurrency to fail — even if you don't trust it."
Trust remains the primary difference between cryptocurrencies like Bitcoin and Libra. It involves no third party in the transaction for Bitcoin users. Libra users have to trust Facebook, a company most affected by issues around trust and privacy.
Libra will not stay decentralized, well, not for the next five years
In the initial release, Facebook will structure Libra to function on Facebook-built blockchain software. Unlike Bitcoin, its mining is not open to the public. Only Libra's 29 founding companies will be allowed to make Libra coins. This semi-blockchain model gives the cryptocurrency all the decentralized security benefits of the blockchain. But the FinTech innovation gatekeepers disagree with this view. Eric Posner, Professor at the University of Chicago, explains: initially, the early internet was a decentralized entity as that concept given by Mark Zuckerberg on Libra. As the internet grew, a structured communication system strengthened during the dot com revolution; ultimately, a few companies, including Facebook, overtook it.
That system also got centralized. Although Facebook denies such a scenario, policy choices, information leaks, and data usage all point otherwise. Facebook has become a significant influencer. Once started as a libertarian utopia, it has since turned into a highly controlled environment. If Libra succeeds, Facebook will gain more power and eventually become the largest player in the financial world (even bigger than the U.S Fed), gaining monetary and political influence.
No one trusts the code
The code of the currency also makes people and governments cynical about it. Bloomberg's Joe Weisenthal offers his perspective:
"I think Facebook is aspiring to be to Libra what Google is to the Android operating system. If successful, the right way to think about this is not as a coin or a cryptocurrency, but as an open-source platform for building money-moving applications. Unlike traditional open-source software, which anyone can in theory fork, modify, or develop for their own needs, a monetary system must maintain some consensus on things. What is the unit of account? Who has the money? Who is allowed to issue it? And so, unlike a normal piece of software, an open-source money system needs all kinds of governance mechanisms. But in theory, if Libra launched and gained momentum, you could imagine it as a platform in which anyone anywhere could write an app that moves money to anyone else in a fashion they please. Right now, there are many closed payment applications, but they're not interoperable. A person using Venmo can't send money to someone using Zelle or WeChat. The potential with Libra is that they could".
This plants one giant and suspicious trajectory for misuse of Libra: the developer platform.
Lack of regulatory framework poses a serious concern
Last, the absence of a proper regulatory framework of the cryptocurrency market cannot offer substantial protections for investors, consumers, and the economy. The American congress, G7 working committee, EU, Central banks, International Monetary Fund, and IRS, all influential and prominent regulatory authorities have raised concerns. US regulators and politicians voiced concerns within hours of the initial announcement. The United States House Committee on Financial Services quickly petitioned Mark Zuckerberg and Facebook by extension to pause Libra's development and launch, quoting a list of recent scandals, displaying concerns of privacy, national security, trading, and monetary policy.
Serious questions regarding money laundering, consumer protection, and financial stability remain unexplained. The French foreign minister refused to see it as a sole sovereign currency, reciting its misuse for terrorism and lack of user protection.
After the response around the world, Facebook has rebranded Libra and has decided on a limited launch. A cloud of uncertainty still hovers over the launch, development, and setup of the cryptocurrency. However, Facebook holds on to its ambitious project and hopes for its success as the preeminent digital currency used around the world.