Facebook’s Cryptocurrency Takes It Closer to Being a ‘Virtual Nation’, Expert Warns


Facebook has announced a plan to launch a new cryptocurrency named the Libra, adding another layer to its efforts to dominate global communications and business.

In my view as a social media researcher and educator, Facebook CEO Mark Zuckerberg is clearly seeking to give his company even more political power on a global scale, despite the potential dangers to society at large.

In a sense, he is declaring that he wants Facebook to become a virtual nation, populated by users, powered by a self-contained economy, and headed by a CEO – Zuckerberg himself – who is not even accountable to his shareholders.

Facebook hasn’t behaved responsibly in the past, and is still wrestling with significant public concerns – and investigations – about its privacy practices, information accuracy and targeted advertising.

Therefore, it’s important to see through the hype. People must consider who is reshaping the world, and whether they are doing it in the best interests of humankind – or whether they are just seeking to benefit the new class of elite technology executives.

Humanity needs ethical leadership, and time to think through the potential repercussions of rapid technological change. That’s why, in my view, Facebook’s cryptocurrency should be blocked by financial regulators until its design has been proved to be safe for all of global society.

Understanding Libra

It will start as a private, permissioned, not-trustless, centralized oligopolistic members-only club. So much for calling it “blockchain”. Like all “enterprise DLT” it is blockchain in name only and an monopoly to extract massive seignorage from billions of users. A monopoly scam https://t.co/NritKaQODS

– Nouriel Roubini (@Nouriel)June 17, 2019

Speeding global exchange

There is real potential to Libra, but there are likely to be ways to improve even more, developing a payment system that better serves the world as a whole.

At least at the moment, the Libra is being designed as a form of electronic money linked to many national currencies. That has raised fears that Libra might someday be recognized as a sovereign currency, with Facebook acting as a ” shadow bank” that could compete with the central banks of countries around the world.

To protect consumers, regulators should look carefully at whether the new system supporting the Libra is sound.

It may be that an entirely new set of financial rules and regulations is needed to shield the existing financial system from harm if the Libra becomes more popular than national currencies.

At the very least, governments need to proceed slowly and carefully when new products may introduce systemic risks into our environment. Even the CEO of Google has acknowledged that. In my opinion, Libra’s planned launch in 2020 does not allow enough time to fully vet this technology and its risks.

Protecting the global financial system

Financial regulations have developed over time to encourage trust between unknown parties, and to protect regular customers from fraudsters and corporate greed. There are also rules that help governments prevent and detect transactions that support crime and terrorism.

This is not to say that all payments and purchases should be tied to a known entity online or in real life. Cash and anonymity is also a civil right and is key to privacy and personal freedoms.

As new digital financial services, methods of electronic payment and currencies develop and become popular, they should not be allowed to undermine longstanding financial safety systems, even in the name of smoother, cheaper transactions.

My concern is not just about large-volume transactions. Facebook has shown how even small amounts of money can buy microtargeted ads with the power to influence public opinion and election outcomes in the US and around the world.

Product design and risk assessment

Facebook has a long history of questionable business models and privacy practices. The public, and their representatives in government – including elected officials, financial regulators and central bank authorities – should carefully scrutinize all aspects of Facebook’s cryptocurrency plans.

This concern is especially urgent because Facebook also has a long history of launching products and services, like political ads and live-streaming video, without fully considering their potential to damage democracy and the global society at large.

The company has demonstrated its inability to serve society beneficially – and it may not even be interested in trying.

All the signals suggest that customers and regulators alike should carefully examine whether Facebook’s Libra is truly innovative or just a way to avoid restrictions on a potentially hazardous financial product.

Defending democracy

Facebook’s entrance into the financial industry is a threat to democracies and their citizens around the world, on the same scale as disinformation and information warfare, which also depend on social media for their effectiveness.

It may be hard for world leaders to understand that this is an emergency, as they cannot see the virtual powers aligning against them. But they must huddle quickly to ensure they have – and keep – the power to protect their people from technology companies’ greed.

Yes, but the goal is bigger than this…Zuckerberg is building Rome. This is nation-building. This is bigger than the global financial system. Sovereigns are being invaded from the cloud. https://t.co/cbagUDHoHh

– J. Grygiel 🏳️‍🌈🇺🇸 (@jmgrygiel)June 18, 2019

It will be key to understand if Facebook’s future cryptocurrency will ultimately function more like anonymous cash, or more like a traceable credit card transaction. Facebook has the blockchain and encryption technology to create an anonymous digital cash-like system, or a private digital currency, which has not been created yet.

Anonymity would heighten the risks of abuse such as money laundering, so it’s worth watching out for a cash-like Facebook cryptocurrency that mirrors the central banks’ cash system.

In addition, I cannot help but reflect on the name that Facebook chose for this, the Libra, which is a reference to the Roman measurement for a pound, once used to mint coins.

In many ways the company that Mark Zuckerberg is building is beginning to look more like a Roman Empire, now with its own central bank and currency, than a corporation.

In the wake of the not too distant global financial crisis, and the “fake news” and disinformation culture that is developing, people must slow down and fully evaluate disruptive technology of this magnitude.

Society cannot withstand a launch of a cryptocurrency in Facebook’s infamous ” move fast and break things” style.

Jennifer Grygiel, Assistant Professor of Communications (Social Media) & Magazine, News and Digital Journalism, Syracuse University. This article is republished from The Conversation under a Creative Commons license. Read the original article.