Facebook’s New Digital Currency and Libra

The recent news that Facebook, a company which is has been noted maintains a near monopoly on global social media usage, outside of totalitarian internet spaces like China, is set to release one of the first large-scale corporately sponsored digital currencies.

For a concept of a decentralized, fully liberalized and untraceable currency – to be adopted by a company that hopes to control, monetize and track usage just as it does with the worlds personal data, this is the definition of irony.

Further, in order to maintain their control, they have made absolute sure to ensure that this is not a true cryptocurrency. It is a parallel digital currency, controlled by a private megacorporation, that hopes to displace the publicly controlled US dollar so that it can benefit Facebook’s shareholders. This, by definition is not decentralized, it is even more highly centralized, except instead of being under the control of qualified public officials, appointed by democratically elected leaders, the entire governance of this monetary instrument would be under a team of corporate officials behind closed doors. If this doesn’t frighten you, it should.

Unlike bitcoin, the ledger is not completely open, it requires permission, and of course this is privately controlled. Secondly, it does not have a free floating value, it is pegged, though to what, nobody is sure and this is where it gets dangerous. If in the future, the value is pegged to some privately held asset, like a corporate stock, this opens the door to price manipulation on a scale we’ve never seen before. And lastly and most ridiculous of all, transacting in a public currency has essentially no transaction costs. You don’t pay 2% to use cash at a grocery store. However, when one private group controls the entire infrastructure for regulating and transacting a global currency, they will inevitably demand a cut at some point, a fee for the use of their infrastructure. If the currency remains free at first, and they wait until it has been widely adopted before changing the terms of use, which is what they intend, a system in which we would prefer to receive our salaries in libra to USD, we could end up paying a transaction cost just to use our own money.

There is now speculation too that the anonymity aspect, perhaps the single greatest reason for adoption of bitcoin, but really any digital currency, may be crushed. This is part of facebooks push towards a universal digital identity, an online identity. This concept is becoming increasingly popular, especially in places with authoritarian regimes where the goal of the government and internet regulators is to stifle free expression and association in online spaces, or mute digital criticism of their regimes. The white paper released by facebook makes clear that this is their ultimate goal, and this should be ringing alarm bells with everyone who has ever been concerned about online censorship, or self-censorship and internet freedom.

Public reaction has been mixed, but the financial sector has met this news with great interest, and both of these aspects are frightening. We as consumers should remember who Facebook is, and why we (mostly) trust our democratically elected governments to issue currencies and not opaque, profit-seeking corporations. Responsible consumers should boycott its use.

This says nothing of the resurgence in bitcoin in the last couple weeks, likely due largely to this news. Bitcoin failed as a currency because it had no practical usage or grounding to promote its stability. No retailer wants to accept a currency that’s value fluctuates 20% in a day, nor do they want a currency whose transactions can take days to clear. The days of personal checks are over, digitizing the inconvenience and sluggishness of a mailed money orders is not revolutionary. The resurgence is not due to increased interest in bitcoin as a useful currency, it is only due to the small crop of extremists who gamble on the future of this relatively purposeless digital token. Perhaps another Cryptocurrency may be useful in several years time, when the terminally slow hashing issues or freak instability can be addressed with volume, or maybe when a single popular retailer accepts the coin itself and not a coin transfer for real money. For now, it abundantly clear though: bitcoin has no future.

The drive to profiteer the expansion of digital transactions has led to a spate of scams, opportunistic price manipulation and gross speculation, and now the corporatization of a space that, once too in the past, was dominated by private banks before we did away with that system and made a public central banking system. We must remember the past: the inefficiency, corruption, and disasters unleashed privatized currency and relegate this whole notion to the dustbin of history, at least for a few years until a compelling, open, liberalized, system more efficient than the one we have now, arrives.

Staff writer: Ari B