With its own cryptocurrency, Libra, in process, Facebook is ready to join the crypto revolution — if national governments will allow it. Alongside the announcement of the coin, which has corporate backers including Visa and Lyft, Facebook released a white paper that claims the coin has the potential to change the global financial system as we know it. And that’s precisely what has authorities worried.
Facebook envisions the coin functioning as a currency within a closed community, limited to Facebook users. With more than 2.38 billion users around the world, Facebook would empower approximately one-third of the global population with access to a decentralized currency. That’s significant, considering that the current user base of all cryptocurrencies combined amounts to just one million active users, as of July 14th.
With this kind of membership potential, Libra would rival not just established cryptocurrencies like Bitcoin and Etherium, but the mainstream financial market, as well. In the wake of Facebook’s announcement, the governments of the United Kingdom, the United States, Germany, and Japan are among those who have expressed concern about consolidating this degree of power in a single company. The question now is whether those concerns will translate to impediments for Facebook in the regulation process.
Why Libra is different
Apart from Facebook, Libra is currently officially co-sponsored by 28 organizations from telecommunications, payments, finance, academic institutions, and other relevant spheres. Among the biggest names are MasterCard, Visa, PayPal, Coinbase, Lyft, and Uber, each of which has brought $10 million to the project.
Together they form the Libra Association, a non-profit organization that bills itself as, “Fostering an open-source community to spur the development of a robust ecosystem of financial products and services.”
In order to ensure security and transparency, Libra is built on the Byzantine fault-tolerant consensus algorithm. In plain English, that means that mining and transaction confirmation requires the involvement of trust nodes. In this case, among Libra’s 33 trust nodes are its 29 co-founders (soon to be raised to 100), which consent to each transaction and mine the crypto.
Here, Libra departs from other iterations of crypto in a big way: while coins like Bitcoin can be mined by anyone with the necessary equipment, mining of Libra will be restricted to the trust nodes. This significantly reduces the so-called “decentralization” that Facebook has touted, but the company promises that additional nodes will be added as the currency grows.
Libra boasts several improvements over other cryptocurrencies intended to buoy its security and stability. The blockchain itself is built from the ground up, incorporating the sharpest ideas from DLT systems while using its own unique coding language, Move. Facebook’s blockchain technical lead Ben Maurer says the fact that Libra uses a language different from other cryptocurrencies increases security.
Additionally, Maurer says that transactions will be anonymous. As with the BTC network, users will be able to create multiple wallets without needing to confirm their identity for any of them. Moreover, user data will not be stored, either. According to Facebook’s white paper, information will be encoded only in the wallet’s hashed address. And Facebook intends to back Libra with several fiat currencies in order to avoid the extreme ups and downs that remain the Achille’s heel of other cryptocurrencies.
Facebook founder Mark Zuckerberg says Libra will be ready to go in six months. While this deadline looks realistic from the technical side, the company has work to do to convince regulators to give it the go-ahead by then.
Part of the challenge is the sheer numbers: Facebook is active in nearly every country in the world, and garnering the approval of that many countries is likely not a realistic option. Most important is approval from G7 countries, the currencies of which, no doubt, are intended to back Libra. Yet G7 governments seem cautious about lending their support.
One roadblock to G7 approval are concerns over how Facebook will secure the currency from being used to support terrorism, money laundering, or sale of illicit substances. Underlying these legal concerns, however, is the fear that Libra could eventually displace national currencies.
The UK is one G7 country that has expressed skepticism of the project. Bank of England head Mark Carney says that Facebook would be held to the “highest standards” for data protection and combatting money laundering in the review of its cryptocurrency. The US, meanwhile, has already put Congressional hearings about the currency on the calendar for next month.
With the memory of Facebook’s Cambridge Analytica scandals still fresh, their concerns are not entirely unwarranted. At the same time, Facebook’s co-founder Mark Carney has added his voice to the critics’. In a widely publicized statement on June 20, Carney warned of what such a consolidation of power in a single corporation could mean for the global community. He called for Zuckerberg to split Facebook into several companies in order to avoid a monopoly, far beyond that of anyone else in the private sector, or in government.”
The future of financial systems
On one hand, Libra offers enormous potential for good in the modern world. The biggest beneficiaries could be 1.7 billion people in developing countries who lack access to reliable financial services. On the other, Libra could mean the slow transfer of global purse strings from the governments of several countries to a single corporation, an idea that smacks of the dystopian. While it is not clear if Facebook’s Libra is a godsend or a scourge, one thing is sure: if regulators give the project the go-ahead, it will be big.
Billion Dollar Crypto: Everything You Need to Know About Facebook’s Libra Coin was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.