Facebook, Libra and the world of cryptocurrency

Today PayPal announced it would be withdrawing from the nonprofit consortium of companies in the Libra Association, amid growing regulatory scrutiny of the new cryptocurrency. Given that the head of Facebook's Blockchain team was a former president at PayPal, this does not bode well for the fledgling consortium, and it will be interesting to see whether Visa and MasterCard follow suit.

At first glance the project to create a new cryptocurrency, backed by respected brands such as Uber, Lyft, Spotify, Facebook and leading venture capital firms sounds intriguing. It could be useful for safely moving money in real time, without needing to wait days for settlement, and it could be beneficial for reducing or eliminating transfer fees for people and businesses looking to send money overseas or repatriate funds held abroad by creating a borderless currency. Moreover, by establishing incentives for businesses to accept the cryptocurrency, it could be interesting to see widespread retail use of cryptocurrencies finally go mainstream.

On the other hand, Facebook's penchant for disruption and commitment to open systems may have potential drawbacks. An Economist article earlier this year writes:

"Were every Western depositor to move a tenth of their bank savings into Libras, its reserve fund would be worth over $2trn, making it a big force in bond markets. Banks that suddenly saw lots of deposits leave for Libras would be vulnerable to a panic over their solvency; they would also have to shrink their lending." 

The implications of disrupting the status quo to the traditional banking system should be taken seriously. Moreover, it could be problematic for this private association to impede sovereign governments' ability to moderate their home currencies, safeguarding themselves against inflation and recession. In addition, there could be unforeseen consequences of the "democratization" of payments systems, such as facilitating money laundering by drug cartels and autocratic regimes.

Facebook has already demonstrated the immense power of social media to disrupt the status quo through social media through movements such as the Arab Spring and its remarkable ability to empower a new generation of activists across the globe. We have also begun to see some of the potential risks of this incredibly powerful tool with the 2016 presidential elections and Cambridge Analytica.

Facebook is admirable in its ability to set the groundbreaking vision for the future of digital technology, and its ability to successfully execute on its goals. We should be careful that future innovations it plays a role in, such as Libra, are thoughtfully regulated going forward.

https://www.economist.com/leaders/2019/06/22/facebook-wants-to-create-a-global-currency

https://www.businessinsider.com/apple-ceo-tim-cook-criticizes-companies-facebook-creating-cryptocurrency-libra-2019-10

https://techcrunch.com/2019/10/04/paypal-looks-is-the-first-company-to-drop-out-of-the-facebook-led-libra-association/

https://www.theverge.com/2019/10/4/20899310/facebook-libra-paypal-online-currency-payment-system-cryptocurrency