On Tuesday, Facebook announced an ambitious proposal to establish a new "global currency" in the form of a cryptocurrency dubbed Libra, in conjunction with a plethora of big technology and financial organizations, including Visa, Mastercard, Uber, and Spotify.
Facebook's foray into the esoteric domain of blockchain-powered payments might signal a huge milestone in the technology's evolution, perhaps moving it from the early-adopter fringe into the mainstream, with billions of global users and tens of billions of dollars at its disposal.
In a research note for investors, Mark Mahaney, an analyst at RBC Capital Markets, stated, "We regard Facebook's debut of the Libra currency as a possible watershed event for the firm and worldwide adoption of crypto."
Many in the crypto world-an often anti-establishment subculture of programmers and speculators, where decentralization and information security are paramount values-are concerned that Big Brother is getting into the blockchain, given the recent spate of privacy and political scandals that have beset the social media giant.
"Facebook has demonstrated time and time again that they don't respect privacy as a company," said Eric Meltzer, who co-founded Primitive Ventures, a cryptocurrency-focused venture capital firm, following years of working on cryptocurrencies in China.
When Libra opens in 2020, Facebook hopes it will become a near-instant means of trade across Facebook programs like WhatsApp and Instagram, as well as the rest of the internet. It is based on blockchain technology, which is a digital record of activity that is spread over a large network of computers and allows for the safe movement of "coins" from one user to another without the need for banks and their fees.
The idea is that after consumers purchase a piece of Libra in their own currency, they'll be able to transact commerce online with only a smartphone and no credit card or bank account.
This presents another opportunity for consumers to spend time in the Facebook ecosystem in wealthier countries, where Facebook already earns the majority of its revenue from advertising dollars, and if buying and selling is more seamless, it could make the company's targeted ads even more valuable to advertisers. Libra might be the feature that initially draws a new category of users searching for a solid, low-cost, and smartphone-native international banking alternative in the poor world, where Facebook is aiming for user growth and advertising is less profitable.
From the first moment a Bitcoin was digitally "mined," the goal of a frictionless, trustworthy, online-only means of trade has always been at the heart of cryptocurrencies. True cryptocurrencies, on the other hand, which are controlled solely by their users and are unconnected to the real world of bank accounts and regulations-and thus theoretically immune to taxes, borders, and police seizures-have proven to be too volatile and confusing for ordinary consumers to use for day-to-day payments.
So Facebook tweaked those fundamental parameters to make Libra more likely to succeed as a digital cash replacement that can compete with non-blockchain-based services like WeChat Pay and AliPay, which have become ubiquitous in China, allowing people to pay for train tickets or a snack on the street using their smartphones.
To avoid the price of Libra rapidly changing, the coin's value will be fixed at an as-yet-undisclosed number of international currencies and backed by a massive cash reserve.
Second, the Libra network will be administered via a set of central nodes controlled by the big corporations that Facebook has invited on board for the launch to make it stable and fast from the start. When Libra initially starts, only these organizations' nodes will be able to verify and process it, unlike a system like Bitcoin, where anybody on the network may join in and validate a new transaction.
Despite this surrender to centralization, no one member of the association, including Facebook, has authority over how Libra operates. Each member organization has one vote, and the number of voting members and processing nodes will rise as Libra expands, with each new user contributing cash to the reserve in return for Libra.
Eventually, everyone with a significant amount of Libra will be eligible for voting power, and the first papers provided by Facebook on Tuesday state that the objective is to progress toward a completely nodeless blockchain comparable to Bitcoin's.
Even crypto purists who are wary of centralization see the appeal of a product that may bring at least some of the technology's advantages to the public. According to Meltzer, Libra is "interesting in the sense that Facebook has tremendous spread, larger than most nations." "On the other side, it's sort of the same issue when you're supporting it with a basket of currencies."
Maya Zehavi, a blockchain expert and entrepreneur, believes Facebook is using "magic blockchain jargon" to build faith in a product that lacks the openness and security assurances that propelled Bitcoin to prominence. "The worst-case scenario is that this is a chance for Facebook to hide the fact that it's collecting everyone's transaction data," she added.
If the project works, she believes that fears about Facebook's unchecked influence in 2019 would seem quaint in hindsight. "I believe it is a usurper for banks," she said. "I believe it poses a serious danger to the US government."