Facebook’s Libra Cryptocurrency: Has Facebook Lost Its Mind?

Why is a company with a history of privacy abuse creating an open payment platform?

Facebook's Libra Cryptocurrency: Has Facebook Lost Its Mind?

Facebook's Libra Cryptocurrency

Facebook’s Libra Cryptocurrency

By now you have no doubt heard the news – Facebook is creating a new cryptocurrency and blockchain platform called Libra, which, according to the whitepaper, “is a simple global currency and financial infrastructure that empowers billions of people.”  The idea is bold and exciting: to provide a frictionless payment mechanism to roughly 1.7 billion people around the globe that don’t have access to the modern financial system.

The white paper is a fascinating encapsulation of the leading practices and learnings from preceding blockchain protocols in an attempt to break open one of the most obvious and beneficial use cases for blockchain – creating the “internet of money.”  Libra will use DPoS for scale and has set up a Geneva-based foundation for independent governance; the technology is open sourced, and the cryptocurrency will be backed by multiple fiat currencies.  All great stuff.

The Libra currency is built on the “Libra Blockchain.” Because it is intended to address a global audience, the software that implements the Libra Blockchain is open source — designed so that anyone can build on it, and billions of people can depend on it for their financial needs. Imagine an open, interoperable ecosystem of financial services that developers and organizations will build to help people and businesses hold and transfer Libra for everyday use. With the proliferation of smartphones and wireless data, increasingly more people will be online and able to access Libra through these new services.

But I can’t get one question out of my head – why in the hell is Facebook doing this?  What is the motivation behind creating an open-source protocol and cryptocurrency that, on the surface, adds no intrinsic value to the company’s share price?  Let’s face it, Mark Zuckerberg isn’t the poster-boy for modern altruism, so there must be an angle, right?

Here are some theories I’ve read about why Facebook is doing this:

A PR play to make up for the shredding the company has taken in the media about privacy issues

I don’t buy this – blockchain protocols and crypto-economics are not well known to a mass audience, so an announcement like this won’t resonate with your average everyday social media user.  Plus, Mark is too calculating to simply want to do something “good” for the public.

A sinister ploy to build a deep combination of payment and social data to turn us into the ultimate product

I don’t buy this either – Even if you question the sincerity of Facebook’s intentional statement that there will be a firewall between payment transaction and social media data, Zuck knows the company will get annihilated by regulatory bodies if they don’t hold true to this promise. 

Libra supports Zuck’s vision of pivoting Facebook to be a messaging platform

This I buy – One way to monetize WhatsApp without throwing ads everywhere is to create a payment feature.  If FB is to become a messaging platform, a payment facility is a natural evolution to diversify revenue away from ads.

I actually believe the motivation behind Libra is a combination of 1. (PR) and 3. (Messaging pivot).  David Marcus (the FB executive behind the Libra idea) sold Zuck on the potential of blockchain, and Zuck saw a way to create a payment mechanism that opens up a new line of revenue (through the wholly owned subsidiary, Calibra).  All the sticky regulatory issues get pushed to the 3rd party wallets, exchanges, and onramps, and Facebook gets to build a seamless payment feature into their ecosystem.

There are a lot of questions about Libra and its success is by no means guaranteed.  But if you are a believer in blockchain, this is a monumental (if not extremely ironic) event.  One of the world’s largest and most valuable companies, one built on a centralized, opaque model that is the antithesis of blockchain’s promise, is making a big bet on the relevance of blockchain’s future. 

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