Financial Libra-ation or Data Breach Hotspot?
Let’s be honest: Facebook doesn’t have the greatest track record with data privacy and security.
Whether it is the Cambridge Analytica scandal, security flaws, or one of the many other data breaches that the social networking giant has been guilty of, the subject of data security has resulted in Mark Zuckerburg testifying before the US congress and apologising for privacy scandals before, so let’s let that sink in for a moment. The latest global revolution planned by the founder of Facebook is called Libra, and it’s an ambitious project. According to its whitepaper, Libra is a blockchain, a low-volatility cryptocurrency and a smart contracts platform that will provide financial inclusion and allow sending money to be simple and intuitive. Calibra, a subsidiary of Facebook, is the wallet which will control the libra cryptocurrency and the company is keen to let us know it takes privacy very seriously (though it should be noted that information may be shared in ‘limited cases’). The main issue that many are already highlighting is, if we can’t trust Facebook to keep our profiles secure, why on earth should we trust them with our finances?Those that follow crypto know that the bitcoin blockchain has not been hacked in its 10+ years of existence. That is in part what gives it its value and keeps it at the top of the market cap board. This is the legacy of a system controlled by noone and implemented by unknown persons for seemingly philanthropic reasons. Facebook does not have this track record. Those that follow crypto also know that having information on a blockchain was, and still is, one of the huge concerns for people’s privacy. With a company known for failing to handle data properly, is an immutable and permanent record of data a good idea? It may well be that the Libra blockchain will ensure privacy and security as promised but until it is proven it remains just a goal. And really, is Zuckerberg just reinventing the wheel?Bitcoin was designed to be a global peer-to-peer payment system and, since its inception, thousands of altcoins have sprouted up. Many do not have a real use case but there are also many that do. Ethereum’s focus on smart contracts, Ripple’s focus on financial institutions, many others trying to solve the scalability issue - including bitcoin itself with the introduction of the lightning network. Can Libra really provide for something that doesn’t already exist through another altcoin?A significant part of the press releases for Libra highlighted the millions and billions of people in the world without access to banking and financial services. This is a huge issue which we have highlighted before in our blogs, but there are already a number of blockchains and cryptocurrencies that are trying to solve this very problem, including bitcoin itself. Facebook is not a charity, but it seems to be putting itself in a philanthropic light to push its latest idea. If there are already solutions working out in the real world, with expertise and experience, can Libra add anything?Really, is it likely that Facebook’s answer will do something so different and so revolutionary that it will succeed?Maybe. One thing that cryptocurrency still hasn’t done is broken into the mainstream. There are many reasons for this - including public perception (fuelled by misinformation and misrepresentation by mainstream media), regulatory uncertainties, and governmental concerns about lack of control. As ubiquitous as Facebook and its subsidiaries are, if a single cryptocurrency was introduced to the system en masse, it could see huge adoption as people turn to it for convenience. On the other hand, there are reports that suggest that Facebook is seeing a downturn in its number of users, particularly amongst younger people and in Europe, though recent metrics show a rise of usage again as Facebook expands globally. In the long run, if people are becoming disenfranchised by the social media giant, whether through social media fatigue or unhappiness at its handling of our personal data, will it provide enough of a user-base for the currency. All of this is speculation, however; Facebook still needs to get approval of regulators and governments before it is able to launch Libra. In its whitepaper, the following is stated:
Some projects have also aimed to disrupt the existing system and bypass regulation as opposed to innovating on compliance and regulatory fronts to improve the effectiveness of anti-money laundering. We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure and trusted framework underpins this new system.
Despite this, the announcement of Libra took many people in the financial ecosystem by surprise, with The Times reporting a cautious but open-minded approach to Libra from Mark Carney, Governor of the Bank of England, whose statement held a note of warning that financial regulations were more stringent than social media regulations: “an open mind but not an open door”. Likewise, French Finance Minister Bruno Le Maire was reported by Bloomberg to have concerns around privacy, money laundering and terrorism finance should Libra be introduced.The conclusion of the whitepaper noted:We recognize that the road to delivering this will be long, arduous, and won’t be achieved in isolation - it will take coming together and forming a real movement around this pursuit.It may well be that Zuckerberg sees his latest project hit a few bumps in the road and that there are many issues to overcome if his new dream is to be realised. There are many things to balance on Libra’s scales and it is yet to be seen if it can be achieved, but if Zuckerberg really believes in coming together to solve the issues, maybe he’ll be asking Blockpass to ensure that data security and privacy is, for once, held in the highest regard.