Libra isn’t a global cryptocurrency, it’s a global data feed straight into Menlo Park.
This post was originally published on Medium.
I don’t need to recap Facebook’s announcement on Tuesday of Libra, “a new global currency” that the company claims “empowers billions of people.” Basically an evolution of PayPal to be simpler, borderless and cheaper, it will take the daunting and suspect nature of cryptocurrency and wrap it in the familiar blue screen of Messenger. Editors at The Economist, not known for drinking every new flavor of Kool-Aid, agree that as described, “Libra will be global and cheap, and require no bank accounts … making sending money across the world as easy as texting … It would give those in less developed countries access to the financial system and a way to protect hard-earned wages against runaway inflation.” And just as widespread Internet connections led to innovations no one could have predicted, Libra could spawn an era of breakout financial innovation. (See Josh Constine’s “Libra: All You Need to Know” for more details.)
Those could be wonderful benefits, but skipping past the obvious irony of Facebook promising to protect the security and privacy of your money, let’s be honest what Libra really is: Not actually a blockchain-based cryptocurrency, it’s a data mine for individual spending wrapped in a payment system. Facebook’s PR touts it as empowerment for Third World entrepreneurship, true enough, but don’t kid yourself that affluent Americans aren’t a prime target market for a Messenger-based payment system. Visa and PayPal (and its subsidiary Venmo), whom you might imagine as Libra’s competitors, are already onboard as partners.
Because Libra has been rushed out without being tested and challenged by developers outside Facebook’s inner circle, much of its operation is a mystery, even to people who understand cryptocurrency terms like tokens and smart contracts. Facebook’s white paper is a team effort in self-contradiction. Here it describes the Libra Blockchain as not really a blockchain:
Unlike previous blockchains, which view the blockchain as a collection of blocks of transactions, the Libra Blockchain is a single data structure that records the history of transactions and states over time.
Translating the paper’s crypto-speak into English (as did a few experts I contacted), the Financial Times summed it up as “nonsensical, pointless, stupid, risky, badly thought-out and blockchainless.” A crypto gaming founder put it in kinder terms: “Ethereum Lite.”
On the upside Libra, unlike current cryptocurrencies, will be backed in the real world by a reserve of U.S. dollars and stock market value. A spokesman told reporters that the separate Libra Association created by Facebook aims to sign up 100 financial partner companies, each with a minimum billion-dollar market value, to contribute $10 million or more each to a reserve that backs the value of Libra coins. That sounds comforting, but it basically stands Libra atop the U.S. financial system. If a 2008-like crash happens in Libra — a massive cybertheft, or a run on the bank if everyone decides to cash out at once in a crisis — who’s going to fund the bailout?
Facebook’s real goal: Your data as a product
People hand-wringing that Facebook will rope in the world’s financial transactions and then jack up the fees once they’re settled in, like a trailer-park landlord, aren’t taking one step back to look at the more obvious motive. When I posted about Libra on my Facebook page, my friend Theodore Quangvinh Pam immediately summed up the obvious:
“What better way to know exactly what everyone is spending their money on and how to target advertising than to have a completely durable log of all transactions in the world. Selling out your privacy is inherent in the currency.”
Facebook’s cash cow is ad sales — a solid $15 billion per quarter, more or less, and still climbing. The company’s success, and its half-trillion-dollar valuation, come from cornering more of the world’s ad spending than anywhere other than Google. They’ve done that by offering advertisers the most precisely targeted ads anywhere other than Google, and for markets that Google can’t reach. Imagine if your credit card or PayPal could show you ads targeted to where and when you spend how much on what. That’s worth more than a jillion penny-size transaction fees. As I’m writing, The New York Times posted the same thought:
Imagine Facebook’s subsidiary Calibra knowing your account balance and your spending, and offering to sell a retailer an algorithm that will maximize the price for what you can afford to pay for a product. Imagine this cartel having this kind of financial visibility into not only many consumers, but into businesses across the economy. Such conflicts of interest are why payments and banking are separated from the rest of the economy in the United States.
Libra itself isn’t meant to be a money-maker for Facebook. Libra is a loss leader to get you to give Facebook their favorite thing in the world: Your data. As the head of an agency that consults on ethics in tech, I’m not here to question whether Facebook can safeguard your money. I’m here to remind you what you already know: With Facebook, your personal data has a long history of going where you didn’t want it to.