Recently, Facebook, the world’s largest social media platform, announced it plans to deploy its own cryptocurrency, possibly in early 2020. In the wake of the announcement, existing cryptocurrencies have rallied after two years of decline, and politicians and regulators have voiced concerns.
For insight into the Facebook development, The B.C. Catholic reached out to Michael Vogel, a local expert on Bitcoin and the founder of Netcoins. He is often interviewed by media outlets when major cryptocurrency developments occur. (Full disclosure: he is my son.) The interview has been slightly edited.
How long has Facebook been working on a cryptocurrency of its own, and why is it being announced now?
In December 2018, Facebook announced a “stable-coin” integration was being planned for its WhatsApp messenger, with a focus on India and its $US 69 billion annual remittances market. 2019 has been filled with rumours about Facebook launching a cryptocurrency, which culminated in an official announcement this month. The result is something much, much bigger: a global currency called “Libra,” aimed not just at India but at the worldwide user base of Facebook Messenger, WhatsApp, and Instagram. It’s essentially as if Facebook is now a country, and Libra is its official currency – equivalent to U.S. dollars, Canadian dollars, and euros but theoretically spendable anywhere on the Internet.
Is Libra a potential threat to other cryptocurrencies and, in particular, to the first one, Bitcoin?
Large companies like Facebook, as well as banks and governments, have been closely watching the Bitcoin narrative unfold. It’s noteworthy that Bitcoin celebrated its tenth anniversary earlier this year.
Libra is Facebook’s attempt at entering the cryptocurrency arena, and although in some respects it may compete with Bitcoin, I think most Bitcoin fans are more excited to see mainstream recognition of cryptocurrency by a company as large as Facebook. After all, it doesn’t get much more mainstream than Facebook.
It’s also important to note that Bitcoin is not centrally controlled and is finite in supply, which is a big part of its appeal.
How might Libra appeal to users?
Facebook cites that 1.7 billion adults around the world are considered un-banked, i.e., they have no bank accounts and are without access to traditional financial systems. One of the greatest innovations of cryptocurrency (whether Libra or Bitcoin) is the ability for users to send and receive funds without relying on banks. In principle, this means that costs should be much lower; Visa and Mastercard typically charge merchants 2 to 3 per cent in order to process payments. Libra bypasses the banking and credit card system entirely.
Facebook has had considerable issues with trustworthiness, data leaks, and surreptitious data theft from users. Will users look beyond these issues and embrace Libra?
On the surface, most think of Facebook as a social media network. In reality, it’s an advertising platform that influences what people buy and sell online through its ad network. With Libra, Facebook will now control the payment infrastructure itself, meaning an ability to track who is buying/selling and see where the funds are being sent. The banks already do this – by mining the data from your monthly credit card statement. Banks know a great amount of detail about you. Any retailer would love to know your spending habits; it would know exactly when to advertise certain products. Facebook claims it will remain at arm’s length from payment data, and that Libra transactions will be pseudo-anonymous.
Will national regulators see a currency such as Libra as a threat to fiat currencies? Might governments move to prevent Libra from ever seeing the light of day?
Big players like Google and Amazon are likely to be threatened by Libra. Apple, Google, and Facebook have all gone through periods of banning cryptocurrency in some shape or form. Various governments have also done the same. (China has a notorious love-hate relationship with Bitcoin.) What we’re seeing unfold now is the next chapter in the world of cryptocurrency, where Silicon Valley and governments will make attempts to issue their own digital currencies. After all, banking and payments are among the most profitable sectors in history.
How does Facebook actually plan to use Libra?
No firm launch date has been announced, but it will likely be 2020. Facebook plans to allow users to make purchases using Libra on Facebook and Instagram, as well as include a button in WhatsApp and Facebook Messenger apps which enable users to send and receive Libra within a text message. Quite literally this might take the form of a money emoji.
To show how serious Facebook is, Libra is backed 1:1 by bank deposits and securities (not even the U.S. or Canadian dollar is backed; the gold standard was abandoned long ago). Libra is not a way to send U.S. or Canadian dollars like PayPal. Facebook is creating a unique currency that runs on the Libra Blockchain. Its proposed value hasn’t been revealed, but it will likely fall somewhere between US$1 and 1 euro, in order to seem familiar to users. For example, if you’re buying a cell phone case online, the price might read “20 Libra” (when in fact the price might be $US19.50 or $US21.00). Facebook even unveiled a currency symbol for Libra: three horizontal squiggly lines.
How do you envisage the cryptocurrency field five years out?
Although Bitcoin purists may look at Facebook’s attempt at a cryptocurrency as smoke and mirrors from an untrustworthy company (Bitcoin isn’t centrally controlled by any company, let alone by Facebook or Google), this is a very important milestone for cryptocurrency and the Internet age in general. We all send emails, stream music, and use social media online. However, there is no distinct “money protocol” for the Internet. Cryptocurrency is the missing puzzle piece that completes what the Internet set out to do: connect everyone on earth.
As this column went to press, the price of Bitcoin was pulling back from a 15-month high and valued at just under $US10,500, still a far cry from its all-time high just shy of $US20,000.
Follow me on Facebook (facebook.com/PeterVogelCA), on Twitter (@PeterVogel), or on Instagram (@plvogel)