Unless Facebook can gain our trust, we’re not interested in its Bitcoin rival
Facebook on Tuesday is widely expected to release a white paper that explains how its upcoming Bitcoin rival, tentatively called Libra, will work. Libra won’t actually be available for users until next year, at which point it will likely support a variety of online transactions — some of them over Facebook’s own apps.
However, if you’re a fan of crypto and want to use digital money instead of real money to pay for stuff, your best bet might be to avoid Libra (or whatever Facebook ends up calling it) like the plague.
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Facebook already knows so much about you that the last thing you need to give the company is access to how you spend your money online. Admittedly, Facebook might have an idea of what you buy already, but with Libra, it’ll actually keep track of everything. In fact, it will have no choice but to do so.
Libra is expected to be a peer-to-peer payment solution, like Venmo and other apps that let you send money to your friends and family. But it’ll also be available to merchants who will support it, allowing you to purchase physical or digital goods. Any cryptocurrency that’s used for online payments and remittances is better than regular card payments and bank transfers because it reduces fees significantly. Both buyers and merchants would appreciate such a feature, as will people who regularly send money to their family abroad.
But Facebook, which created Libra, will have access to the way you spend your money, even if an independent Libra Association will govern the new coin. For security reasons, Facebook will have to track payments, and some of them will be performed over Messenger and WhatsApp apps, as TechCrunch explains. When I say track, I do not refer only to activity-related data that could tell Facebook what you purchased with Libra over the previous month. Facebook will have to track its coin for security reasons, too, to prevent money laundering schemes, as well as other activities that might allow criminals to profit from instant money transfers.
All Libra transactions will occur between entities which will be known to Facebook. Whether it’s users who have to use their real names on the network — and you bet your ass you’ll have to if you want to exchange fiat for Libra — or merchants, Facebook will know who you are. Anyone who’s ever signed up for a crypto exchange knows these companies also have Know-Your-Customer (KYC) policies in place. But these companies do not have access to all your other data, nor do they make a living from selling your preferences for ad money.
So, you’ll effectively be feeding Facebook precious data about your spending habits. For that reason alone, you might want to stay away from Libra until Facebook proves it has genuine respect over user privacy. But wait, there’s more.
Unlike other coins out there, which can fluctuate from day to day, Libra is supposed to be pegged to the dollar and other main currencies — and Facebook is also considering placing ATMs that will allow users to exchange real currency for Libra coins. That’s a plus for Libra, as it will never lose value.
But cryptocoins are decentralized, meaning there will be no governing body over one coin, as is the case with banks and real money. Facebook’s Libra might not fit that profile, even though Facebook is supposedly building some sort of node-based system that would help govern the coin and validate transactions. The Wall Street Journal reported a few days ago that Facebook is charging partners $10 million to be a part of the Association, and become nodes in it.
Among the supposedly confirmed partners are Visa, Mastercard, and PayPal, or financial institutions that are involved both in online payments and remittances, and represent exactly what blockchain coins try to fight. Now, every merchant that convinces customers to pay with Libra instead of an online transaction will lose Visa, Mastercard, or PayPal money. The commissions of crypto purchases are supposed to be smaller than they are for card-based purchases. The same goes for wire transactions.
So, what’s the incentive for these companies to sit on the Libra consortium? Will they make money of off their $10 million investment? Or will they get detailed insight on how people spend crypto, which will allow them to plan ahead for the next era of payments? Again, with a decentralized cryptocoin, you wouldn’t be able to generate much meaningful data about what customers are doing. But Facebook made Libra, and Facebook tracks everything.
Facebook has more than 2.4 billion monthly users, which is probably why third parties would want in on the game — other companies, including Booking.com, Stripe, and MercadoLibre, have already signed up for it. And there are likely people in many markets who could genuinely benefit from instant, cheap transactions. That doesn’t change the fact that you’ll still have to trust Facebook with all that data.
If anything, what Libra could really do is better explain to people how blockchain tech works, and increase the popularity of all the other coins out there that can be used for online payments. Libra won’t be available to users until 2020, which gives Facebook ample time to convince us that the product’s purpose isn’t to make Facebook more money from advertising. Which, by the way, is a legitimate question. How will Libra make Facebook any money?
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