What does the future hold for Facebook Libra? 

Christoph F Strnadl is VP Innovation & Architecture at Software AG The news that Facebook is now rethinking its plans for Libra is unsurprising. Originally announced as a way to bring more affordable transactions to the masses, Facebook’s proposal for a new digital currency has had no shortage of criticism. Originally set for launch this year, Libra promised to transform the payments landscape, taking power away from the fat cats where financial control had typically lay. Instead, it would be the Libra Association who controls the currency and transactions, an organisation consisting of technology companies, venture capitalists and payments organisations, many of whom have since cut ties. Perhaps unsurprisingly, the project was met with considerable resistance from EU and US regulators, the US senate included. Now, after months of pressures and pushback from regulators and politicians alike, Facebook’s plans for Libra have shifted. The Libra coin will no longer be the centrepiece of its digital payments strategy which instead, will also “support existing government-backed currencies” (It is unclear to me whether that means crypto-euros or crypto-dollars or simply a trivial fiat money account). While the move to bring more affordable transactions to the masses may well have been well-intentioned, Libra was infeasible from the beginning for several reasons – here’s why. Blockchain as a first choice First, Libra’s technology architecture raises doubts. Cryptocurrencies and blockchain are highly complex technologies and using them to implement a shared database to support a mere 1,000 transactions per second (a bit more in the future) for a few dozen members of the Libra Association may prove to be over-engineered. In fact, there are countless other database technologies which could achieve the same means for a fraction of the cost of a distributed ledger implementation. It therefore remains unclear as to why blockchain was chosen to support this solution at all – if not to ride the hype surrounding this new technology. A complicated governance Second, another question centres around how Facebook Libra would be governed. Facebook’s claims state “decentralised governance” and that a “global currency” should be governed as a “public good” – but the facts say something entirely different. The Libra association, its entry conditions, and its (incomplete) governance structure and processes are anything but independent or beneficial to the public. For instance, even if a company wanted to spend the $10 million entry fee, Facebook (or later, the Libra Association at large) would still have the last word on its admission. Nobody needs to be reminded about the $5 billion fine that Facebook accepted from the FTC for grossly violating user privacy in the Cambridge Analytica scandal. This happened despite all the assurances Facebook gave its users of the improved controls it had implemented because of another earlier FTC Commission Order from 2012. The fact that the Libra association is not answerable to any outside entity beside Swiss law enforcement raises further doubts around its feasibility. After all, any public good needs to have public oversight. In the recent hearing on the Libra project, Mark Zuckerberg faced a thorough cross-examination before the House Financial Services Committee. This included questions over discrepancies found regarding data privacy in Libra and how Facebook can safeguard user data, ultimately avoiding another Cambridge Analytica scandal. Learning from past mistakes Finally, a global currency, or any public good for that matter, cannot and must not be governed by any private entity. This is because it will inevitably, and despite the best of intentions, result in one company gaining a monopoly or a tyranny. Similar ideas existed as early as in the 19th century when mining and logging companies established their truck wages and company scrip systems, all in the name of the cash-poor workers. All these schemes, which have been deployed and tried all over the world, not just in the US or the UK, were long ago declared unlawful. This was because of the egregious mark-ups the monopolists extorted from their employees, resulting in peonage and slave-like conditions for them. We see yet another irregularity in the fact the Swiss Libra Association is registered as a not-for-profit organisation. This status merely serves to disguise who the true financial beneficiaries would be. During the congressional hearings in the wake of the Libra announcement, Libra officials repeatedly stated that they do not regard Libra to be a bank. Clearly, they want to avoid the accompanying oversight as much as possible. However, on a deeper level, this is the signature of an insatiable appetite for global dominance, a coup d’état or coup du monde, perfectly in line with Mark Zuckerberg’s 2009 claim that “in a lot of ways Facebook is more like a government than a traditional company.” The future of Libra in doubt The departure of several founding members from the Libra Association signalled a slow start for the project, casting doubt that it will reach the 100 members for which it had hoped this year. Instead, it kickstarted a change in direction which may put the whole future of Libra into question. Facebook’s revisited approach, to have its Calibra wallet now support multiple currencies of which Libra will be just one, will certainly work in principle. This would provide users with greater flexibility for online transactions. However, it also minimises the initial ambitions of the Libra coin. We have seen similar approaches being successfully implemented in normal banking over the years, driven by the EU’s PSD2 regulation; and any decent crypto-exchange has long been offering mobile wallets carrying all crypto-currencies and assets traded on their platform. Although ultimately, the revised Libra approach will likely fail because of its pedigree and ill-conceived architecture. After all, who would want to have a company monitor, control, and censor their financial transactions, crypto or otherwise, which displays “the ethics of Uber, the censorship resistance of PayPal, and the centralisation of Visa, all tied together under the proven privacy of Facebook” (to quote Twitter’s Executive Director of Open Privacy, Sarah Jamie Lewis)? In light of the fact that there are competitors out there, like Austria-based Bitpanda, which not only falls outside the scope of the US Cloud Act, but also honours privacy by design and privacy by default as mandated by Europe’s GDPR. I think the answer is “no one.”
The fact that the Libra association is not answerable to any outside entity beside Swiss law enforcement raises further doubts around its feasibility