Facebook’s Libra pitches to be the future of money
18 June 2019
It is a hugely ambitious - some might say megalomaniacal -  project to create a new global currency. Facebook's David Marcus tells me it is about giving billions of people more freedom with money and "righting the many wrongs of the present system". The message is this is not some little side project a small team at the Facebook's Menlo Park headquarters will try out for a few months before moving on to something else - this is both the future of Facebook and the future of money, an initiative that has seen an alliance of big players in payments such as Paypal and Visa, Silicon Valley players such as Uber and Lyft and major venture capital firms, a kind of Avengers: Endgame of technology and finance superheroes come together to make the world a better place. But there are still many questions about FaceCoin - or Libra as the company wants us to call it. The principal one I keep coming back to is - why? As in why do we need a new global currency and do we really want it from Facebook? The Libra mission statement makes great play of the 1.7 billion people who do not have a bank account and how expensive it is for them to transfer money to relatives. But there are already plenty of organisations addressing this issue, from Kenya's Mpesa scheme to technology start-ups such as WorldRemit. What is not clear is how exactly Libra will go through the complex business of verifying the identity of these people to comply with anti-money laundering regulations, without incurring lots of costs. "Compliance is the really hard and expensive part," says a man who has worked for a couple of money transfer companies. And this will apply not just to unbanked Facebook users in Kenya but to lucrative markets such as the United States and Britain, where national identity cards do not exist as a relatively easy way of verifying someone is who they say they are. If Libra does allow people to send money from their phones as simply as they send a text, that will prove very attractive. But doing this cheaply and in a secure fashion will be extremely challenging. Facebook, perhaps aware of the reputational issues it faces, appears very keen to stress Libra is a global coalition in which it is just one little player. Sceptics recall Facebook launched its global internet access scheme, Internet.org, as a similar international coalition. Then it became the controversial Free Basics service, denounced in India as a vehicle solely designed to promote the interests of Facebook. Since then, the other coalition partners seem to have melted away. There will be what Facebook describes as a "negligible" fee for every transaction, mainly, it says, to stop the network being spammed by millions of back and forth payments in a denial-of-service attack. Through its Calibra subsidiary, the social giant may eventually seek to offer users additional financial services. But the real prize is simply making people spend longer on Facebook or WhatsApp so that they can be served more adverts. It is being reported that partners such as Paypal, Mastercard and Visa are paying $10m (PS8m) each for the privilege of operating a node in the Libra network. It seems bizarre they would want to support an organisation whose whole pitch is it can do a better job than them. But, then again, they will have access to the data flowing across the network, albeit in pseudonymous form, and that should give them valuable insights into what is being spent and where. Facebook insists that Facecoin - sorry, Libra - will have all the benefits of Bitcoin without the downside. It will be "global and instantaneous" like the original cryptocurrency but also secure and stable. And because it does not rely on mining, it will not have a major environmental impact. But Bitcoin sceptic David Gerard says it is not clear why Libra is being implemented as a cryptocurrency - or needs a blockchain, an immutable distributed ledger visible to anyone. "The usual reason for saying 'blockchain' is to lend magical marketing dust to unmagical ideas," he says. "But Libra is intended to be a service people use - so it'll stand or fall on being useful and convenient, not whether it has a buzzword." This of course is the 64,000 Libra question - why, after Cambridge Analytica and other data scandals, would people want to trust Facebook with their money or give it a key role in running a global currency? Facebook says its Calibra subsidiary will keep financial and social data strictly separate and users will not be targeted with adverts based on their spending habits. But, yet again, the main defence is this is a global coalition, not Mark Zuckerberg's new plan to rule the world. "It is Facebook-led initiative, yes," Mr Marcus tells me. "But by the time it comes to market next year, it won't be a Facebook-controlled initiative. We'll have the exact same voting rights as all the other members." You may not trust us, is Facebook's pitch, but you should trust Visa, Paypal, Uber and the rest. So don't expect Mark Zuckerberg's head to be on the Libra, if they ever decide to strike a commemorative coin. October 2008: A  White Paper is published detailing how to set up Bitcoin, which it described as a "purely peer-to-peer version of electronic cash". Its author - credited as Satoshi Nakamoto - has never been publicly identified. January 2009: Bitcoin comes into existence, with creation of its so-called genesis block. About a week later, software is released for Windows PCs to make possible trade in the asset, after which Satoshi Nakamoto carries out the first transaction, sending 10 bitcoins to a developer, Hal Finney. October 2011: Litecoin becomes the second major cryptocurrency to launch. It is designed to allow transactions to be processed more quickly than Bitcoin. February 2014: Mt Gox - which has become the world's biggest cryptocurrency exchange - files for bankruptcy and declares it has lost thousands of bitcoins to hackers. July 2015: Ethereum joins what is now a busy market of cryptocurrencies. Although it exists as a digital currency, the main purpose of the project is to help developers build and run decentralised applications and pay for related services. December 2017: Cameron and Tyler Winklevoss - co-founders of Facebook - are declared the world's first Bitcoin billionaires, having started investing in the cryptocurrency in 2013. Later the same month, Bitcoin reaches its record peak to date, of just over $19,783 (PS15,800). December 2018: Bitcoin hits a post-peak low of about $3,300 after a turbulent year for the sector at large.
The Libra mission statement makes great play of the 1.7 billion people who do not have a bank account and how expensive it is for them to transfer money to relatives. But there are already plenty of organisations addressing this issue, from Kenya's Mpesa scheme to technology start-ups such as WorldRemit. What is not clear is how exactly Libra will go through the complex business of verifying the identity of these people to comply with anti-money laundering regulations, without incurring lots of costs. "Compliance is the really hard and expensive part," says a man who has worked for a couple of money transfer companies. And this will apply not just to unbanked Facebook users in Kenya but to lucrative markets such as the United States and Britain, where national identity cards do not exist as a relatively easy way of verifying someone is who they say they are. If Libra does allow people to send money from their phones as simply as they send a text, that will prove very attractive. But doing this cheaply and in a secure fashion will be extremely challenging.
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Who is it for?
Facebook, perhaps aware of the reputational issues it faces, appears very keen to stress Libra is a global coalition in which it is just one little player. Sceptics recall Facebook launched its global internet access scheme, Internet.org, as a similar international coalition. Then it became the controversial Free Basics service, denounced in India as a vehicle solely designed to promote the interests of Facebook. Since then, the other coalition partners seem to have melted away.
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Is this really a global project?
There will be what Facebook describes as a "negligible" fee for every transaction, mainly, it says, to stop the network being spammed by millions of back and forth payments in a denial-of-service attack. Through its Calibra subsidiary, the social giant may eventually seek to offer users additional financial services. But the real prize is simply making people spend longer on Facebook or WhatsApp so that they can be served more adverts.
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How does Facebook make money from it?
It is being reported that partners such as Paypal, Mastercard and Visa are paying $10m (PS8m) each for the privilege of operating a node in the Libra network. It seems bizarre they would want to support an organisation whose whole pitch is it can do a better job than them. But, then again, they will have access to the data flowing across the network, albeit in pseudonymous form, and that should give them valuable insights into what is being spent and where.
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What do the partners get out of it?
Facebook insists that Facecoin - sorry, Libra - will have all the benefits of Bitcoin without the downside. It will be "global and instantaneous" like the original cryptocurrency but also secure and stable. And because it does not rely on mining, it will not have a major environmental impact. But Bitcoin sceptic David Gerard says it is not clear why Libra is being implemented as a cryptocurrency - or needs a blockchain, an immutable distributed ledger visible to anyone. "The usual reason for saying 'blockchain' is to lend magical marketing dust to unmagical ideas," he says. "But Libra is intended to be a service people use - so it'll stand or fall on being useful and convenient, not whether it has a buzzword."
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Why is it a cryptocurrency and why does it need the blockchain?
This of course is the 64,000 Libra question - why, after Cambridge Analytica and other data scandals, would people want to trust Facebook with their money or give it a key role in running a global currency? Facebook says its Calibra subsidiary will keep financial and social data strictly separate and users will not be targeted with adverts based on their spending habits. But, yet again, the main defence is this is a global coalition, not Mark Zuckerberg's new plan to rule the world. "It is Facebook-led initiative, yes," Mr Marcus tells me. "But by the time it comes to market next year, it won't be a Facebook-controlled initiative. We'll have the exact same voting rights as all the other members." You may not trust us, is Facebook's pitch, but you should trust Visa, Paypal, Uber and the rest. So don't expect Mark Zuckerberg's head to be on the Libra, if they ever decide to strike a commemorative coin.
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Why will anyone trust it?