Big bad Libra: Do we really need (or want) Facebook to reinvent money?

Facebook's cryptocurrency scheme will undoubtedly generate value and a following. But if the hairs on the back of your neck start to raise up, you're not alone.

Understanding Libra: Facebook's new cryptocurrency Facebook announced plans to introduce a new cryptocurrency called Libra. In this video, TechRepublic's Karen Roby and ZDNet's David Gewirtz explore what you need to know about Libra, whether it's something you should be excited about or concerned about, and whether you'll want to trade in your hard-earned dollars for Zuckerbucks. Read more: https://zd.net/2LySdbK

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Are you kidding me? Facebook, the company that thinks privacy is a challenge to be overcome rather than an essential right to be protected, is launching its own currency. Good lemmings that we are, we're all supposed to transfer our hard-earned dollars or euros or rupees or yen into Zuckerbucks?

Okay. Okay. Let's back up a second. What exactly is Facebook doing? Let's break it down.

Facebook has announced it will be launching a new cryptocurrency called Libra sometime next year. The company is going to integrate payment and currency transfer capabilities right into Facebook's mobile app, Messenger, and WhatsApp. Presumably, we'll see it show up in the Facebook-owned Instagram app sometime later.

Libra, according to Facebook, is like Bitcoin in that it's a blockchain-based currency. But it's not like Bitcoin because Facebook claims it's put a structure in place to stabilize the value of Libra.

Also: Facebook debuts Libra cryptocurrency: a Bitcoin killer?

Libra is also not like Bitcoin because you can't mine Libra. Although cryptocurrency mining rigs are hugely expensive these days, you can still mine Bitcoin. But you have to buy Libra. In that way, getting Libra is a lot more like buying in-game currency in World of Warcraft by spending real money than it is like Bitcoin, where you at least have the option to apply prodigious computing power and get cryptocoin in return.

Look, I'm going to say "Facebook claims" a lot. Normally, when we say Company X claims, it means we're not entirely sure we can fully trust what the company is saying. Whenever we say Company X claims, it's kind of code for a mix of we-can't-verify-it with it-smells-like-BS. But in this case, when we say "Facebook claims," um, yeah, that's what we mean. It's got that used car that lived through Hurricane Katrina smell to it.

Also: Key takeaways from damning UK report on Facebook's world of "digital gangsters"

In any case, Facebook claims that Libra will be separate from Facebook, so you don't have to worry about Facebook sucking down all your financial information along with everything else it's already gathered up. The foundation for this claim is that Facebook has created a subsidiary company called Calibra which will manage the transactions.

Facebook also claims that it's not in control of Libra, because there's an independent, not-for-profit association running the "reserve" and Facebook only has one vote in that association.

Stay with me. This gets confusing fast, but I'll try to unwrap it as we go.

The Libra Association

The Libra Association is made up of member organizations who have each bought into it by forking over $10 million. In megalomaniac terms, ten million is chump change. The roster of organizations looks impressive, but when you really think about it the motivation of most of the members is obvious.

Members include VISA, Mastercard, PayPal, and Stripe. These organizations would pay ten mil simply to keep an eye on what Facebook is doing with payments. Their buy-in gets them a vote, and potentially some income if Libra winds up screwing with their national currency-based business models. eBay is part of it because eBay owns PayPal and hey, making it easy for someone in another country to buy Cabbage Patch Kids is right on mission for the company.

Next you've got Uber and Lyft, who are spending so much, another few million doesn't matter. Plus, they're all about mobile payments since they're pretty much mobile incarnate. In-car-nate. Get it? Fine. That's my Dad Joke for the day. No more. I promise.

There are a bunch of blockchain startups participating, because of course they are. The same with the lineup of venture capitalists, who really, really want to make cryptocurrency a financial boom as big as social networking was.

Finally, to lend a taste of credibility, there are a few non-profits who are members of the Libra Association. This is part of the spin that Libra is good for the world, because it will enable the billion or so smartphone owners who don't have bank accounts to spend and store money in their phones. It's "empowering" - unless, of course, these financially challenged folk lose their phones or they get stolen.

The Libra Reserve

That chump change $10 million buy-in to the Libra Association isn't just about doing good or keeping your enemy closer. There's potentially big money to be made by the Association shareholders. That's because of the Libra Reserve.

When you transfer real national currency into Libra in return for digital fake money, the real money has to go somewhere. That's the Libra Reserve. On one hand, it's there to back up the value of the Libra, in much the same way that the gold reserves at Fort Knox are there to back up the value of our paper money. The value of the Libra will be based, claims Facebook, on the value of real currency like the dollar, yen, and euro.

But it's also there to make money for the Libra Association members, in the form of interest. They're planning on investing that money and each - according to the amount they put into the Libra Association - gets a share of the interest.

There will also be transaction fees for money going in and out of Libra, along with every Libra transaction. Those fees also go into the reserve.

Here's the elevator pitch. Facebook has more users and reach than any single organization has had since the beginning of time. If this works, the majority of those users will put their money into Libra. You, if you sign up, can get interest on that money. Ooh. Shiny.

Notice that Google, Apple, Amazon, and Microsoft are not part of this Libra cabal. Neither are any banks.

Don't worry. That slightly nauseous feeling is normal. It's just a side effect of the rational response to yet something else in our world beginning to go terribly, terribly wrong.

What could possibly go wrong?

Facebook has claimed that it will be separate from Calibra, and the data gathered by Calibra won't be used by Facebook. So, yeah, your privacy is golden. Riiiiight.

Facebook hasn't said anything about Calibra not using your financial data, so there's that nerve-wracking omission.

Facebook has also claimed that there will be the equivalent of an opt-in to allow some level of data sharing. Users won't be opted in by default. But Facebook and its partners are going to bang the drum really, really hard to get you to convert your cash to Libra, so they're going to offer tasty incentives.

Wanna bet giving up some of your privacy rights will be buried in the terms and conditions for accepting those incentives? I'll take that bet.

Then there's the whole decentralized blockchain so no one can get to it all thing. The idea of the blockchain came from Bitcoin and it's a way to store encrypted unique information in a decentralized form.

Except Facebook expects Libra to be so big that it would take too much time to do decentralized transactions. There will be some centralized management of all that Libra currency. If you don't think that's already a target for hackers, you're not paying attention.

Speaking of rotten smelling eggs, Facebook intends to allow Libra to be baked into apps other than those owned by Facebook. It's going to start promoting an API so anyone with access to a good pizza delivery service and a tendency to stay up all night can incorporate Libra transactions into their apps.

Do you think there might be some spammy, scammy apps out there? Sure you do.

Then there's the government. Which government? Any government. Libra is specifically designed (like Bitcoin) to be government agnostic. But since each government likes to govern how money flows through its economy (and its sticky tax-collecting hands), many governments are likely to weigh in on Libra. The odds are they're not going to like what they see.

The good news, from the point of view of Facebook and the Libra Association, is that it doesn't take a lot of money to influence a senator or congresscritter.

According to the New York Daily News, it now costs about $10.5 million dollars (total!) to win a senate seat. Does that number look familiar? Yep, it costs $10 million to buy into the Libra Association. Now, I'm not going to say that any of these companies are buying votes. That's illegal. But it's not illegal to hire lobbyists and fund them reaaal well.

Oh, and for the company who wants to influence policy on a budget, it costs about $1.7 million for a seat in Congress. Let's put this in big business perspective. It cost $5 million for a 30 second TV spot in Super Bowl 2018. The cost of a single Super Bowl ad is enough to fund the campaigns for almost three members of congress.

Also: Facebook asked by lawmakers to pause Libra cryptocurrency project

Again, I'm not saying our elected officials will do anything illegal. I'm just saying that you shouldn't expect them to be the bulwark against Facebook's new currency scheme.

Is it really that bad?

Put in a historical perspective, not really. Our society has reinvented money a bunch of times in just the last century. Paper checks, electronic fund transfers, credit cards, services like PayPal were all fundamental rethinks on how money is transferred.

Libra is just another take on smoothing the movement of money between hands. Think of it this way: Amazon wouldn't work if we didn't have credit cards.

Rethinking money transfer opens up new doors of possibility. But it also has chilling effects. From my perspective as a very busy consumer, Amazon is wonderful. But from the perspective of the many businesses that Amazon has put out of business, it's is the grim reaper.

Most of our modern technological powerhouses are really double-edged swords. They provide some real value, but they do so at a cost. Sometimes that cost is obvious and shows up in monthly subscription fees. Other times, that cost is insidious and just sucks away at us behind the scenes, to the detriment of us all.

Facebook is clearly in that second category. The Libra will undoubtedly generate value and a following. But do we need it?

Some would say that the disadvantaged without access to banks do, and that's true. But Facebook? Facebook???

Also: Quitting the five tech giants: Could you really flee Facebook?

What do you think? You probably already trust Facebook with knowledge of your preferences, locations, interests, friends, and political opinions. Are you going to trust Facebook with your money, too? Let us know in the comments below.


You can follow my day-to-day project updates on social media. Be sure to follow me on Twitter at @DavidGewirtz, on Facebook at Facebook.com/DavidGewirtz, on Instagram at Instagram.com/DavidGewirtz, and on YouTube at YouTube.com/DavidGewirtzTV.