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Taking A Look At Facebook’s New Blockchain Called Libra

Scott CunninghamJun 21, 2019, 2:39:07 AM

Given all the hype around Facebook's Libra blockchain release announcement stating it would launch in 2020 and everyone going crazy over it, I wanted to cover it as well and share my two cents on it.

To me, it seems obvious that this is meant to help them take over the digital marketplace. They compete now with Ebay and Kijiji etc., but they are doing an amazing job in that space. It will be very different if people use Libra as their go-to currency online and very natural that they would just use the Facebook marketplace to earn Libra and spend it. Ebay was one of their 28 private investors who in my opinion is probably just ensuring Facebook doesn't get rid of them and getting in as early as possible.

They claim they are doing this to help people who struggle with access to banking. That seems very noble, but they can say that because those people can then be served ads and brought into their consumer based system. Also, they probably won't be censored from using the service, but you can bet that if Facebook has already banned you or you don't align with them politically and ideologically, that you too will suffer when they cut you out of their financial network as more and more people come to rely on it. However, the new law being introduced by Josh Hawley to remove section 230 protections from big tech giants under certain circumstances could change all of that. This could be game-changing as to how big tech companies like Facebook who arbitrarily censor and ban users can operate under US law. I will cover this in another post and video.

It runs on nodes and uses a lot of the basic infrastructure of blockchain, but only needed a database. A lot of their explainer videos etc. make it seem like they needed the blockchain to achieve what they are attempting to do when really, they just needed the cooperation from all the major investors who are backing it which they have. They make it seem like blockchain was the only way they could be distributed. Considering it will be permissioned, centralized, and everything most blockchains are not, it falls short from being what they espouse that it will be. They claim that the association that is made up of only big tech private investors will eventually create a permissionless network and establish an open and accessible blockchain, but does anyone really believe that is their goal? No blockchain network has ever made the transition from permissioned to permissionless. Also, they don’t plan to do this for five years and they may have so much control then that they could simply say, never mind. What it really seems to be is a front for creating one global coin that all major corporations have a hand in. If they can provide a solution for unbanked people, then all the companies can now start selling to them through Facebook. It's more about consumerism than anything.

The funny thing about "nearly no fees" is that simply means there are fees. These companies all paid 10 million to become a validator and they include some of the most prominent financial authorities like Mastercard, Visa, PayU, Stripe, and Paypal amongst many others like Uber, Lyft, Ebay, Spotify, and many more. There are 28 "foundation members" currently and I was surprised and shocked to see Coinbase as one. They intend to have 100 investors backing it by the time of the launch. Facebook claims are more nodes are added it will become more decentralized, but again do people really believe that with the amount of control being given over to these massive tech companies that already have a monopoly on digital advertising. Unfortunately for everyone else involved in blockchain, they have been creating proprietary technologies, making a new programming language called Move to make it more challenging for others, and have been buying up companies to stunt innovation outside their control like Chainspace.io.

Major financial authorities have been questioning and criticizing this move. Mark Carney, the governor of the Bank of England said that they would scrutinize Facebook's cryptocurrency and work with global forces on regulation. Maxine Waters from the US House of Representatives Financial Services Committee asked that Facebook stopped developing the Libra network until the government can catch up for regulation. Bruno Le Maire, the French Finance Minister believes that Facebook could become a shadow bank and that there is no way they should be allowed to become a sovereign currency.

Even Elizabeth Warren said “Facebook has too much power and a terrible track record when it comes to protecting our private information. We need to hold them accountable—not give them the chance to access even more user data,” on Twitter today. Interesting that even prominent Democrats are pushing against Facebook who historically has been very left-leaning.

This is a desperate late attempt to make people reliant on using Facebook again in my opinion and given it is a stable coin, there is no money to be made in investing in it, but I naturally expect Facebook's stock to go up from the hype. Maybe it will correct with upcoming regulations and legitimate criticisms from the blockchain community. It seems obvious to me that this isn’t about the coin at all but rather letting their shareholders have some say in what is happening and then Facebook doesn’t have to take all the heat since they aren’t the only centralized authority. Why would anyone invest in it other than because they want to have some say in the governance of the new global currency. It seems to really be about expanding their control and means of governance.

There will be a public hearing on July 16th held by the U.S. Senate Committee on Banking, Housing, and Urban Affairs regarding Libra for Facebook to respond to previously asked questions from last month they sent in an open letter to Mark Zuckerburg. There are also already huge competitors in China like Alipay and WeChat Pay that makes up for more than 90% of their mobile payments and 20% of the global population already. Facebook’s services are also still unusable currently for people in China so there is no way that they could utilize Libra currently. I assume Facebook thought China would have come around by now and will probably have to continue to push censorship to gain their approval with which they capture a massive untapped market.

Apparently, Caitlin Long predicts that given it will have close to a billion dollars in the Libra reserve pool, that it will generate a huge amount of interest that would be where Facebook will stand to benefit financially if this is not shared with the users.

Mark Zuckerburg said in a post that “It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall. It’s available to anyone with an internet connection and has low fees and costs. And it’s secured by cryptography which helps keep your money safe. This is an important part of our vision for a privacy-focused social platform — where you can interact in all the ways you’d want privately, from messaging to secure payments.” Though, given that the real way to invest in Libra is via Facebook’s stock, it would make sense that these companies would govern Libra in a way that ultimately helps Facebook unless their only goal is to have more power, but again they would lose that power if Facebook also lost power, so naturally they still work to benefit Facebook. Also, Facebook has never been privacy-focused, nor have they had trusted private messaging, so why trust their added-on payment system?

Interestingly enough, they claim that you won’t need a Facebook account to register for Calibra or to use Libra, but they will use your contacts from Facebook and will run through Facebook’s messenger which does in-fact require Facebook or Whatsapp which is still owned by Facebook all the same. Eventually, they will apparently release a standalone application, but do you really think that frees you from the censorship and control they have? Do you think that they won’t ban you and treat you the exact same as they would on Facebook? Making it a standalone application isn’t going to fix these issues when it’s the underlying ideology and policy that is cause for concern.

The Financial Times gave an amazing summary of this saying “Given that Facebook simply appears to be trying to build a global pseudo-banking and payments network, there doesn’t appear to be any good reason why you would want to do this using blockchain tokens, which as the authors point out themselves in the documents, have so far proven volatile and difficult to scale. China’s social media-turned-payments giant WeChat Pay — who Facebook is surely trying to compete with on a global level — doesn’t use the blockchain. Nor does PayPal. Or Venmo. Internet money doesn’t need to be blockchain money. Which is maybe why Libra coin isn’t really blockchain money in any meaningful sense of the word.”

A few news outlets have reported that “Facebook is also looking at paying users fractions of a coin for activities such as viewing ads and interacting with content related to online shopping, in a system similar to the loyalty schemes run by retailers,” which is very similar to what the Brave browser offers via their basic attention token $BAT. I have seen no confirmation of this anywhere, only in news articles talking about Libra prior to the announcement. After searching the whitepaper, I found nothing at all mentioning this and I would deem it as speculative misinformation.

It’s not decentralized, it’s not open, it’s not public, you cannot be part of its governance, it’s not neutral, it’s prone to censorship and restriction based on your relationship with Facebook. What do you think about Libra? Will you “invest” in it? The best we can hope for is that makes the market more bullish and gets awareness way up for blockchain.

I will be doing a video on this as well when I recover from being sick stay tuned for more information and let me know what you think about Libra and what this means for blockchain in the comments below.