How Facebook's Privacy Breach affects Libra & Crypto?
A well-designed global currency and financial infrastructure that surveys billions of people, or is it really the case?
In the middle of March this year, People’s Republic of China (China) was rocked by a high-profile news that an unprecedented scale of over 538 million user accounts at Weibo, dubbed as the ‘Twitter’ of China, had been breached by hackers of unknown origin. With as little as 10 RMB (An equivalent of US$1.60) worth of Ether (ETH) or Bitcoin (BTC), anyone can purchase the private data of Weibo users. Personal information including names, gender, location and contact numbers were stolen and sold as a result of the massive data breach.
Tech companies are no strangers to controversies such as privacy breach and server outages. Since most applications found in the market today were built on centralised databases, the risk of infiltration by hackers or ‘inside jobs’ were high. Thus, data protection has emerged as a highly crucial topic amongst the public and regulatory bodies, especially the United States where there had been a series of highly publicised hacks and data breaches, resulting in the imminent involvement of the government.
On June 18 2018, social media giant Facebook forayed into the cryptocurrency space by announcing an ambitious plan known as Calibra (slated to be launched in October this year), a mobile app wallet to transfer money between individuals for the unbanked population across many developing countries. An accompanied stablecoin called Libra will be introduced to provide an inclusive global financial system on a secure network. The project was initially supported by many in the cryptocurrency community and numerous corporations such as Visa, Mastercard, Paypal and Coinbase. Unfortunately, it was cut short when it failed to meet certain regulation criterions as required by the US regulators. A privacy breach further complicated the future of the project.
A Breach of People’s Trust
Facebook has a number of major missteps when Russian operatives used targeted ads on the platform to affect the 2016’s US election results. Then, there was this infamous data breach scandal in 2018 involving Cambridge Analytica, when the latter was revealed via a hack to have harvested more than 87 million Facebook users’ private information, without prior users’ consent. The wealth of information was likely used by both Russian operatives and Cambridge Analytica to develop promotional techniques for Donald Trump in his 2016’s presidential election campaign. The cyber attack on its computer network occurred just three months after Facebook’s announcement of Calibra and Libra stablecoin. Regulatory concerns about the privacy risks had caused the project to face an exodus of partners including Paypal, Stripe, Mastercard, Visa and eBay pulling out of the project.
What was seen as a complete ‘disaster’ to Facebook’s grand plan may instead offer an opportunity to rebuild an improved and more compatible global project that is more aligned to various regulatory and privacy concerns. Cryptocurrency community has also largely welcomed the entry of Libra into the cryptocurrency market with the belief that Bitcoin, or cryptocurrency in general, may be legitimised by its entry into the space.
After months of massive regulatory pressure and political pushback, Facebook finally managed to refine its Calibra project and plans to launch it in October this year. In order to align the project to various regulatory requirements, the wallet app will support multiple fiat currencies to appease G20’s framework for stablecoins. Facebook’s Libra will transition to support existing government-backed currencies – like the US Dollar (USD), and the Libra stablecoin when it is fully completed. It could become a viable competitor to costly incumbent financial services companies.
Mass adoption could happen with Libra.
The one thing that the cryptocurrency market lacks right now is mass adoption. Many prominent blockchain and cryptocurrency projects have presented innovative and disruptive solutions using blockchain technologies. And yet, the cryptocurrency market has been dormant since the last bull market back in 2017. Many experts believed that the maturing space is currently at a critical phase where governments and corporations such as Facebook have to adopt the technologies in order to gain both retail and institutional investors interest in the cryptocurrency market.
Boasting a whopping 2.7 billion users worldwide, Facebook is one of the five big tech companies (Stocks: FAANG) in the US. With Calibra’s announcement, it has caught the world’s attention on blockchains and cryptocurrencies. US legislation could suppress Libra domestically, but cryptocurrencies are made to transcend political boundaries. For instance, Libra is largely focused on users in the developing world instead, and it could solve numerous financial issues for the unbanked people. Facebook’s immense global influence could catapult Libra stablecoin as the currency preferred by these groups of people in developing nations. In countries like Zimbabwe and Venezuela, national currencies were hyperinflated, making these fiat currencies unsustainable and highly volatile for commerce and trade.
Therefore, Libra stablecoin could prove to be the most immediate answer to countries with the real risk of financial or political catastrophe. If the ‘experiment’ proved to be successful, people may embrace Libra out of convenience, and governments might not be able to shut it down since cryptocurrencies (and blockchains) do not have a central source of authority. However, while Libra is indeed a cryptocurrency, it could not be distinguished as part of a fully decentralised blockchain like Bitcoin and Ethereum, due to its association with the internet behemoth. Libra could instead be viewed as a ‘stepping stone’ for people to fully understand the technology and the benefits cryptocurrency could offer to them.
An Intermediary to Crypto
Unlike Bitcoin and other popular cryptocurrencies, Libra do not possess any qualities that a truly decentralised and public cryptocurrency should have. Unlike Bitcoin’s open system, Libra is closed and will likely be highly controlled by Facebook. In 2018, there were 27 major corporations, firms, and non-profit organisations that made up the Founding Members of the Libra Association. By Calibra’s launch by 2020, it was estimated to have about 100 members. These members will then be in charge of processing transactions for the network and maintaining its version of the blockchain. What this translates to in blockchain terms, is that Libra will be operated by only 100 nodes, entirely run by corporations. By contrast, Bitcoin features something near 11,000 community-ran nodes on a global scale to verify and broadcast transactions to the rest of the network. Cryptocurrency node operators are known as Miners, and they can join or leave the network whenever they please. On the other hand, Libra’s node operators, ie. corporations, have to pay $10M to act as a node and verify transactions in the network. In order to leave the network, the corporation in question will have to undergo a complex legal procedure. Thus, while Libra could indirectly promote the use of cryptocurrency through the project, it could not replace existing cryptocurrencies as Libra stablecoin is not decentralized like Bitcoin or other cryptocurrencies.
Raising Crypto Awareness
In spite of the current global pandemic where businesses are affected globally, there has been a lot of excitement especially from the cryptocurrency community, anticipating the eventual launch of Facebook’s Libra this October. As a project from one of the most influential companies in the world, this stablecoin will have the potential to greatly impact cryptocurrencies in general in terms of understanding and adoption. However, this could only happen if Facebook finally manages to improve on its efforts in users’ data protection, during the next six months prior to its official launch. If Libra is launched and adopted successfully, it could prove to be beneficial to the world placing a more significant attention on the cryptocurrency space as a whole. Afterall, a privately issued digital currency like Libra could only present a credible alternative to this public-private model now in place if it could avoid bitcoin’s shortcomings. They can also take advantage of Facebook’s extensive user base and geographical dispersion to quickly provide the public with a digital currency that would facilitate not only local transactions but also cross-border payments.
Bitcoin and other cryptocurrencies have some similarities in terms of adopting blockchain technology but have stark differences in creation rationale and usage. It is, therefore, possible that both will be able to exist to serve different functions in the digital economy.
Until Libra stablecoin and the accompanied Calibra app is launched, it is highly likely that there will be a lot more controversy and opinions surfacing in regards to whether or not Libra would be the guiding light for the entire cryptocurrency market, or that it will eradicate the market, for better or for worse.
But the answer is pretty obvious, if Libra works out.