Facebook‘s hotly anticipated blockchain project, Libra, has officially been unveiled.
On Tuesday, the Menlo Park-based social media giant released a formalized white paper documenting its vision for Libra. The project’s stated goal is to empower people worldwide to move money quickly and inexpensively, regardless of location, occupation, income or access to traditional banking services.
Andreessen Horowitz, Ribbit Capital, Thrive Capital and Union Square Ventures are all among those named as “founding members” of the Libra Association, meaning they’ve financially contributed to the project’s development and will be given voting rights over its direction, among other perks.
Here’s our breakdown of three key things to know about Libra:
1. Decentralization is nonexistent
The world of blockchain is based on the concept of decentralization, since unrelated computers worldwide—known as nodes—all verify transactions independently. With blockchain, there’s no single entity that can influence or control money and data because each transaction requires many different nodes to reach a consensus on the transaction’s data and associated computations before it becomes official.
Libra will not have this global node distribution, however. Initially, the project’s nodes will consist of its financial backers, including companies like PayPal, Mastercard and Visa.
Eventually, any holder of the Libra currency could serve as a node, but no specific timeframe has been determined. In the meantime, to stomp out concerns of overreaching and invasive centralization, founding members include entities that hold diverse and—at times potentially contradicting—objectives. For example, if Mastercard wanted to mine data on users’ financial habits, such a pursuit could be counterbalanced by, say, Mercy Corps arguing against such an initiative.
However, there are still possible loopholes. When it comes to voting rights for members of the Libra Association, such an opportunity arises. “The voting powers in the council are proportional to stake,” the project’s website reports. “However, voting rights are capped for any one Founding Member to avoid concentration of power.”
While there may not be an easy path to monopolizing power over the project, a proportional voting rights system still opens the door for power to be bought in dollars—or, perhaps, Libra.
2. Crypto may finally go mainstream
Thus far, blockchain and crypto are somewhat of a niche, with fiat currency still reigning as king.
Libra could change this by addressing many concerns that have traditionally hindered other cryptocurrencies from penetrating large swaths of society. Libra will be a stablecoin, meaning its value is pegged to a basket of currencies, which reportedly include US dollars, euros and Swiss francs. This addresses the problem of crypto volatility, which has made it hard to transact for the simple fact that the bitcoin a customer uses to buy food may be worth significantly less to a merchant later that same day, for example.
Libra has also reportedly declared it will fully cooperate with authorities and legal investigations, in addition to implementing know-your-client protocols. While effectively removing the anonymity that cryptocurrencies have enjoyed thus far, the protocols also help shatter the stereotype that crypto is supposedly only used by criminals. Libra’s claimed pursuit of accountability is conducive to its gaining the trust of the general public and perhaps improving the image of cryptocurrency as a whole.
3. Privacy and data monetization remain issues
However, while the association with crime may be reduced, there are still other threats to users.
Libra claims to be a solution for the difficulties and expenses frequently stemming from low-income individuals trying to move money, manage bank accounts or obtain credit: “All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges,” the white paper states.
While this may sound benevolent, it’s not the first time Facebook has sought to acquire more members, usage and advertising dollars under the guise of a savior-like image. In 2016, India banned Facebook’s Free Basics project, a program that was developed to provide internet to those in rural India. The country indicated that Free Basics would violate net neutrality principles, due to Facebook’s overwhelming presence in the otherwise limited service. Facebook, however, argued for the virtue of bringing the internet to impoverished and underserved parts of the world.
Unlike with Free Basics, Facebook will not single-handedly call the shots for Libra, given the existence of the founding members and Libra Association entity. This may help alleviate concerns that Facebook is holding hidden motives.
Libra’s founding members aren’t just passive investors. As mentioned above, they will run nodes, thereby having access to at least some of the data surrounding every transaction and wallet. There are also potential plans to allow Libra holders to buy products through WhatsApp or other Facebook-owned applications, which would provide insight into consumer spending habits.
Libra continues a pattern of using customers as the product, with data appearing to be a potentially monetizable aspect for the project. Even for nonprofit members, such access to data could influence their own work, possibly providing insight into areas of the world that possess higher amounts of money than previously thought.
However, concerns regarding Libra’s potential for data monetization and privacy issues were raised Tuesday by various politicians. Rep. Maxine Waters, chairwoman of the US House Financial Services Committee, asserted that Facebook should stop its development of Libra. “With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users,” Waters said in a statement.
Waters’ sentiment was shared by US Sens. Sherrod Brown and Mark Warner, as well as France’s finance minister Bruno Le Maire, who all expressed uneasiness regarding the Libra project.
Moving forward, it remains to be seen how the new trove of data flowing through Libra will be used.
Featured image via ismagilov/iStock/Getty Images Plus
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