Chances are that you’ve already heard about Libra (aka GlobalCoin) — Facebook’s new cryptocurrency project. The internet has spent the better part of 2019 furiously debating the pros and cons of Libra cryptocurrency, calling it everything from a power-grab by a multimillion corporation to a beacon of change that will make cryptocurrencies more mainstream with the general public.
With the new coin set for a 2020 launch, some experts are voicing concerns about the Libra blockchain and the project itself.
What Is Facebook Libra Cryptocurrency?
Let’s start with a recap: what is Facebook’s Libra all about?
As of 2019, the number of adults around the globe that don’t have a bank account exceeds 2 billion. While the number of unbanked individuals is that high, the number of internet users in 2019 was a reported 4.4 billion with Facebook alone having more than 2.3 billion active monthly users. This makes the goods and services available online frustratingly unattainable to internet users without access to basic banking.
Facebook has marketed its new coin as a game-changing project, that will cater to unbanked people providing them with access, as Libra white paper puts it, “to high-fidelity communications, and a wide range of lower-cost, more convenient services, now accessible using a $40 smartphone from almost anywhere in the world.”
Today’s cryptocurrencies are not backed by any commodity: they have intrinsic value only due to their users’ willingness to accept them. Libra, on the other hand, will be backed by bonds and assets held in reserve by Facebook. Moreover, Libra claims to be more user-friendly than most other cryptocurrencies. A means to trade and withdraw will be embedded directly into Facebook and WhatsApp.
Problems With Libra Currency
So why is the new project under fire from both experts and world governments? Since it’s unveiling, most policymakers have voiced several concerns about Facebook’s Libra.
1. Facebook privacy concerns and technical issues
Organizing a global payment system is a complex task that requires an enormous investment in compliance systems in order to prevent money-laundering, tax avoidance, and counterfeiting. Traditional banks go to great lengths to introduce and maintain security measures that counteract terrorist financing and illicit activities.
Experts suggest that recreating a system of that level is not something that Facebook — with its history of mishandling private data and severe security concerns — should be attempting.
2. Keeping assets safe
The second problem builds on the first concern. As previously mentioned, Libra cryptocurrency will be backed by a basket of currencies, with potential partners injecting an initial $10 million to fully back all assets on the launch day.
If Libra gains the global outreach that Facebook hopes for, then keeping these assets safe and secure will be a top priority. This is a task that Facebook may not be up for.
3. An intersection between banking and commerce
Since the late 1800s, the United States has prohibited banks from going into non-banking businesses and commercial enterprises. Banks are privy to the intimate financial information of their clients. This information is not something you would willingly hand over to a business that is actively targeting you as a client.
Facebook’s participation in targeted marketing combined with this new knowledge of the exact balance of your accounts can allow its subsidiaries to raise the prices of targeted goods according to this information.
4. A threat to national security
Enabling an open flow of currency across all borders is not always a good thing. Most countries use economic sanctions to ban individuals, businesses, and entire countries from influencing their financial system in a harmful way. Sanctions are enforced through banks, but with cash flowing through a parallel unregulated currency system, these sanctions will lose all power.
Furthermore, central bankers (and the governments that regulate their actions) are hired by elected leaders, while Libra regulators will be fully corporate and operating under Facebook, making them immune to outside influence. This is a challenge to national security and the idea of democracy.
5. Failing to thrive under regulations
Libra cryptocurrency will not be allowed to operate beyond the reach of any country’s regulatory regime. Depending on the laws in effect in each country, the system will have to comply with a host of regulations. Users will be asked to provide identifying information and the Libra Association will be forced to disclose that information when reporting suspicious transactions to authorities. This alone can deter potential users from engaging with the new Facebook cryptocurrency.
Additionally, since Libra coin is backed by fiat currency, a user can appeal to have any stolen funds returned through the court. No one has the technical ability to reverse a Bitcoin transaction, but the Libra Association or its members would not have the ability to refuse a court order.
Major Issues With Libra Coin May Delay Launch
Facebook’s plans are majorly under fire from most regulators across Europe and North America. Experts strongly oppose the company delving deeper into its users’ personal lives.
Facebook will need to move past allegations concerning money laundering and data leaks. Gaining enough trust to make consumers hand over their proprietary information may be harder than Facebook expects.
While Libra currency appears to be a system that combines the best characteristics of blockchain and conventional banking, it may prove to be a dangerous and contradictory stunt that leaves consumers and investors dissatisfied.