By this time you may have already read about Libra, Facebook’s proposed cryptocurrency, and all the fuss about its relation to Facebook. Many questions have been coming up: Is Libra a payment instrument? Who is behind it? Why should we trust Facebook? Moreover, the European Union may be already investigating a potential anticompetitive behavior related to Libra. Although we still don’t know how everything will play out, I will address some basic questions on what we are talking about and highlight some specific concerns to keep in mind before the launching of Libra.
What Is Libra?
Libra is a new digital currency created by Facebook and announced in June this year. It is expected to be launched in the first half of 2020. According to Facebook’s White Paper on Libra, this new digital currency will be open source and fully backed by a reserve of real assets — which will, allegedly, make it more secure — and will be built on the “Libra Blockchain.” It will be administered by the Libra Association, which Facebook says will be an independent, not-for-profit membership organization that is based in Geneva, Switzerland. The Libra Association will consist of businesses, non-profit and multilateral organizations, and academic institutions, each of which will have decision-making authority and hold equal power with Facebook. Facebook explained that the company will have a leadership role in the Libra Association through 2019 but did not explain how or when it plans to relinquish that leadership.
Additionally, according to the White Paper, in order to “…ensure separation between social and financial data and to build and operate services on its behalf on top of the Libra network,” Facebook created Calibra, a regulated subsidiary and a digital wallet for Libra “coins.”
Why Are We Talking about Libra?
After various speculations over the last months, the discussion on Libra finally got to Capitol Hill. On July 16 a Senate Banking Committee hearing was held and on July 17 it was the turn of the House Financial Services Committee to pose questions to David Marcus, a Facebook executive in charge of the development of Libra within the company. Some questions were focused on the new cryptocurrency and its potential implications for consumers: As examples, Rep. Andy Barr asked Marcus about the impact Libra would have on the U.S. dollar, and Rep. Sean Duffy raised censorship concerns. However, they also addressed the company’s general performance and reputation over the last few years. General trust from users was a topic frequently raised by most of the lawmakers throughout the hearings.
From Facebook’s White Paper and most of the answers given by Marcus, the product seems convenient and Libra may be at least an option to online payment troubles (for instance, for those people who are currently outside the banking system). But Facebook needs to provide further information about this new currency. While there are certainly more issues to highlight outside of Public Knowledge’s areas of expertise (e.g., jurisdiction issues or money laundering concerns), I will focus here on two main issues related to Libra that could have negative implications for consumers: competition and privacy.
It is a fact that Facebook is currently one of the most powerful companies in the world. With more than 2 billion active monthly users globally, its actions may have concrete consequences in any part of the world. Facebook also owns WhatsApp and Instagram, which gives the company even more power. The new digital cryptocurrency could be used on WhatsApp and Facebook Messenger, with users being able to make digital payments on the Libra blockchain. For instance, it would be easier for two friends chatting on one of these messaging apps to send a payment on that platform than to turn to any other. As a result, it could be almost impossible for any other company to compete with this currency. Facebook controls the platforms on which these systems would run, so it makes sense that Facebook would want to make it easier and more efficient for users to use the tools given by the Facebook companies rather than to turn to different systems. Thus, it’s very important to know whether Facebook would allow people to use other wallets rather than Calibra and how it would do so in order to allow competition. This is not specified on Facebook’s White Paper. Still, when asked Senate Banking Committee Chairman Mike Crapo during the hearing, David Marcus said they would allow other wallets and affirmed that the Libra network will be interoperable. This is definitely a good sign, but it will be necessary to follow up on this to make sure the Libra Association will effectively allow other wallets to work on the platforms and to get more details on the way interoperability will work. In fact, discussions during the hearings still leave us with many questions: What parts would be interoperable? Would Facebook allow competing forms of payment or would Libra be the only currency available? Would Facebook get to decide which options it’s interoperable with and which ones to exclude? On what basis would it make these decisions? These, among others, are essential questions while moving forward. Having various wallets and currencies available to choose from would result in a more competitive marketplace, which means better options for consumers and businesses that accept the payments.
Many have raised concerns about privacy related to Libra, and this topic was discussed at both of the hearings. Given Facebook’s power and the amount of personal information it has access to, the privacy matter is extremely pressing. First, data aggregation could be something to worry about. In addition to the data collected on social media, Facebook will now possess users’ financial data. According to Marcus, Calibra will not share individual customer data with the Libra Association or Facebook. However, Marcus’s declarations are the only source we have so far. Similarly, Facebook claimed some years ago that it would not aggregate WhatsApp’s data with Facebook’s data and it claimed that it was technically impossible to merge the data…but it finally did so. How could users trust Facebook to keep their financial data separate?
Moreover, as it was brought up by Sen. Toomey at the Senate Banking Committee, consent to the use of financial data should raise other alarms. Would Facebook share the data in the future after receiving users’ consent? Would that consent be informed? If so, how? Given Facebook’s privacy mistakes over the last few years, it would be difficult for users to trust the company with their financial data.
Some Areas for Further Discussion
As we wait for details on the ways Libra will be developed and enforced, we are concerned about the possible negative consequences on competition and users’ privacy. Facebook assures it will be extremely cautious, but recent examples, such as the massive Cambridge Analytica scandal, illustrate perfectly why it is necessary to be attentive. David Marcus has made some commitments during the hearings, but we need to be sure that those promises will be honored. In this sense, I would make (at least) four suggestions on the aspects lawmakers, agencies, and advocates should focus on before Libra is released:
- Prevent data aggregation across Facebook’s products. The company should explain in detail the tools it would use to make sure that social media information would not be shared and aggregated together with financial information. As previously mentioned, this is necessary to protect users’ privacy.
- Data portability and interoperability are essential to protect users’ privacy and protect competition. People should be free to have their data at their disposal and not be tied to Facebook and its platforms. Also, data portability and interoperability would allow other companies to be able to compete even though Facebook has a huge portion of the market already on its network. In order to ensure effective competition is possible, Facebook should include detailed information on how data portability and interoperability would work.
- Facebook should not rely on a “move fast and break things” approach. Users deserve to be able to trust that the services they use have been meticulously tested — and that any possible negative outcomes that could easily be foreseen have already been addressed. During the hearings, David Marcus committed to Facebook addressing all concerns about Libra in advance of its release. As pointed out by Rep. Maloney, implementing a small pilot before the whole system goes live would be an interesting alternative to explore.
Continue to follow us for updates on these topics as Libra develops further.
Image credit: Alpari.org