Facebook's New Cryptocurrency Libra Has 'Big Hairy Issues', Experts Say
Facebook already knows (almost) everything about you. Now it could know the purchases you make.
The social media behemoth unveiled plans for a cryptocurrency, with plans to "launch in the first half of 2020."
The currency is called Libra, a collaboration between Facebook's new subsidiary Calibra and more than 20 other companies and ventures, including Mastercard, PayPal, Visa, Uber, Vodafone and eBay.
Like other cryptocurrencies -- including BitCoin, Ethereum and LiteCoin -- Libra is meant to replace dollars and cents for online transactions, with the benefit of making payments without annoying exchange rates between foreign currencies.
Facebook claimed Libra would cut transaction costs, and "empower billions of people" without bank accounts, such as those in developing countries, to access financial systems -- with the aim of creating a "global currency".
But tech experts are already worried about how Facebook would safeguard transactions taking place in a special online currency, considering the platform's recent checkered history with data and privacy.
Why is Facebook getting into cryptocurrency?
Libra's white paper outlined "1.7 billion adults globally remain outside of the financial system with no access to a traditional bank". The new cryptocurrency seeks to reach them, as well as people with regular accounts, by providing "cheap capital", "instant and low-cost" transactions, and a "global currency".
But while Facebook is just one of two dozen entities involved in Libra, the social media giant has more at stake than just helping you buy that new pair of shoes, according to Nigel Phair, director of UNSW Canberra Cyber.
"Their business model is all about ads. They want you to live your life on Facebook. They've got to come up with novel ways of keeping you heavily engaged," Phair told 10 daily.
"Banks get a really accurate picture of what we are from our spending habits. If Facebook can come up with a digital currency, they can really know what you do and when you do it."
Calibra said in a statement that information it holds "will not be used to improve ad targeting on the Facebook family of products" -- but Phair said users may be skeptical about how their data is used.
How will Libra work?
Libra is an astrological sign, which represents balance, and equality.
But they clearly didn't consult Australians before deciding on the name, where Libra is a leading brand of menstrual products.
Calibra will essentially handle transactions on the platform. It will act at the Libra 'wallet', where users store and deal their currency.
"Moving money around globally should be as easy and cost-effective as — and even more safe and secure than — sending a text message or sharing a photo," Libra's white paper sets out.
But considering the controversial issues surrounding both Facebook (repeated data breaches, delays in informing users about privacy issues) and cryptocurrency (wildly fluctuating prices of BitCoin and others, massive currency thefts and hacks), safety and security are at top of mind.
However, Libra has a fundamental difference to its often-volatile crypto contemporaries, with its value pegged to a stable 'basket' of "low-volatility assets" to ensure values will not wildly fluctuate.
These include "currencies from stable and reputable central banks".
"They've made sure it is backed by actual fiat currency. By doing that, you stabilise the problem of crypto fluctuating wildly," said cryptocurrency expert Adrian Lee, senior lecturer at the University of Technology Sydney business school.
"You can't manipulate fiat currency easily. That will make it less volatile. Bitcoin doesn't operate that way."
What financial issues does Libra have?
Phair raised numerous regulatory issues with the idea of a "global currency", including about how banking rules would be enforced across national boundaries.
"I’m not opposed to what they're doing, but you need regulatory oversight by whichever jurisdiction you're in, by a central bank. There's a need for that confidence and trust," he said.
"Big public policy questions need to be answered. They should be operating to the laws of each country and getting regulatory approval to operate in those jurisdictions. This is yet another big hairy issue that needs to be resolved."
Traditional banking regulations aren't geared up for this.
Phair suggested a 'sandbox' set of rules could be set up in each market, a draft framework to see how the new model would operate under different national laws.
"They can have a go at rolling it out, before getting a full banking license, and change it if it doesn't work," he said.
"We could create a Pacific sandbox, or an ASEAN sandbox. It's a way of saying saying we see innovation, and maybe we can fractionally relax the rules, but you need regulation."
Will people actually use Libra?
It's being built so that "billions" of people could use the platform. While cryptocurrencies are not widely used today, the company compared its potential growth to the evolution of text messages -- which it said cost 16 cents each in Europe 20 years ago, but are now free to send via services like WhatsApp, and used by billions of people each day.
Phair said it may not be widely used by older users of Facebook, but saw its potential on Instagram -- which is now an important tool for e-commerce, with users able to see prices of clothes or other products featured in photos, and click directly to a store to buy them.
"I won't tell people whether they should or shouldn't use it. I can see great benefits, but users have got to be informed, and there has to be rigour and rules," he said.
Lee said he doubted cryptocurrencies like Libra would totally replace regular money, but saw a place for it in online shopping.
"If the transaction fees are low, it could be beneficial to people wanting to make small transactions," he said.