Blockchain gives Libra some heft but Facebook's chequered past may doom this virtual currency
Facebook last week showed the world Calibra, a digital wallet that holds a virtual currency called Libra. Calibra, and by extension Libra, is one more Facebook product that uses cutting edge technology to further the company's big future plans. In fact, Calibra is one of the biggest steps in Facebook's recent history besides launching the Facebook Portal. If successful, Calibra and Libra will let Facebook have a say in almost everything digital.
Now, what is particularly interesting about Libra is that it is powered by blockchain, technology that has gained some reputability in the tech world owing to its strong cryptographic features and its resistance to data modification. Blockchain is considered safe and extremely secure and Facebook's insistence that Calibra and Libra are going to be powered by this technology give them a kind of heft and respectability. This may help users trust Calibra enough to buy Facebook's virtual currency -- Libra -- with their real money and use it for money transfer or payments.
That is not the whole story, though. Now before we delve into nuances, let's first understand Libra.
What is Libra?
Libra, as I mentioned before, is virtual currency and can be stored in virtual wallet Calibra that has been designed specifically for it. It uses the blockchain technology - the Libra Blockchain - to support a "low-volatility cryptocurrency" that according to Facebook will create an infrastructure to provide improved access to financial services across the globe.
Given its blockchain base, Libra may seem similar to Bitcoin and Ethereum. But it is different. For starters, Libra's value - when it is launched in 2020 - likely won't fluctuate as much and as frequently as Bitcoin's because its value will be backed by assets such as bank deposits and government securities that will provided by its 27 founders, each of which will shell out $10 million for the cause. The list, besides Facebook includes, PayPal, Visa, Mastercard, Coinbase, Vodafone, Uber and Spotify AB among others.
Another point of difference between Libra and other crypto currencies is its structuring. Right now, Libra works on a "permissioned system", which means that only a limited set of entities - founders -- can make changes to the Libra blockchain and create it.
Facebook does plan to make the Libra system "permissionless" - wherein anyone will be able to create Libra and take part in its governance process simply by meeting the criteria established by the core members. This is supposed to happen in five years but in the beginning the Libra system is going to be "permissioned".
On paper, Libra looks good. It seems to have a strong technological backbone. It is funded by some top companies from diverse background. And it is universal in the sense that it can be accessed via WhatsApp and Facebook Messenger as well, sort of making it the antithesis of what banking systems stand for and how they operate.
So what's the problem?
The problem is not the Blockchain. The problem seems to be the ownership of the Calibra and Libra. Calibra and Libra are Facebook products and people nowadays are a little wary of brand Facebook.
Lawmakers and tech critiques from all around the world have expressed their concerns on Facebook's latest move. While Libra's launch has been met with political skepticism in the Europe, in the US Senate, lawmakers have scheduled a hearing next month to question Facebook over Libra. Beyond the political circle, tech insiders too have shared some drastic opinions on Facebook's latest move.
"Facebook: we are one of the largest platforms on which damaging, disease causing, life-ending misinformation is spread, but here is a global currency," wrote Uber whistleblower Susan Fowler.
Facebook: we are one of the largest platforms on which damaging, disease-causing, life-ending misinformation is spread, but here's a global currency!Susan Fowler (@susanthesquark) June 18, 2019
Past one year hasn't been exactly a pleasurable experience for Facebook. To start with there was the Cambridge Analytica scandal, which quickly turned into a series of investigations and congressional hearings. Then Facebook discovered a bug that exposed private posts of nearly 14 million users. Later a security flaw exposed 14 million Facebook profiles to hackers. More bugs, more concerns about user data, privacy and how Facebook uses all the data it collects from users. There was also report about Facebook data sharing agreements with tech companies that only fuelled the privacy concerns.
This year has seen the same story. Earlier, a report indicated that a bug lead to passwords of nearly 600 million people stored in plain text in Facebook servers. Not just Facebook but also Instagram was affected by this bug. And so on and so forth.
Facebook's security lapses and its privacy practices have not only brought bad PR to the company but these practices have also led to people starting anti-Facebook campaigns like #DeleteFacebook campaign on Twitter, that got votes even from the WhatsaApp co-founder Brian Acton.
So the problem: If you don't want to trust Facebook with your data (though you really don't have a choice), how can you trust it with your money?
Questions about Calibra and Libra
The perception is that Facebook will be, well, Facebook. And it doesn't help that everything Facebook has said about Libra and Calibra is not enough to allay fears that prospective users may have. In other words, questions remain. For example, Libra, besides having a standalone app of its own will also be available in WhatsApp and Messenger - or in other words, Facebook's ecosystem, giving the company access to the user data. Facebook has said tried to explain how this data will not be used but it hasn't explained how the data will be used.
Privacy concerns are always there. Facebook says Calibra - the digital wallet that will holds Libra - will not share account information or financial data with Facebook or any third party without customer consent. But then there are nuances. Facebook says it can share this data to "comply with the law, secure customers' accounts, mitigate risk and prevent criminal activity". What does Facebook mean by securing customer accounts? Not explained well enough for now.
Facebook's chequered past is against it. It tried many tricks to get users data, and not all of them seemed nice, earlier. For example, in the past it thought of methods to bypass Android privacy settings, even if it didn't go through with it. Given such context, right now don't blame prospective users and government regulators if they are a little skeptical about what Facebook says about the Calibra data use and privacy.
A number of questions remain unanswered at the moment. Perhaps we will have a better idea when Facebook formally launches the final product - Libra and its digital wallet, Calibra - in the market next year. Even so, one cannot help but wonder can Facebook be trusted? Can blockchain prove to be Facebook's saving grace? May be. May be not. Perhaps, Facebook's privacy sins are already too many for anyone to ever trust the company. History is definitely not on its side right now even if the technology is.