The recent announcement that Facebook plans to launch its own currency has drawn many immediate reactions, not all of them positive. Calibra, a subsidiary of Facebook, will operate a stablecoin called Libra, having garnered the financial backing of approximately 100 organizations such as eBay, PayPal, and Uber. Unlike standard cryptocurrencies, however, that operate on a model of decentralization, Facebook has already stated that it will actively control and regulate the Libra. That has some critics a little worried.
How Is Libra Different Than Cryptocurrencies?
To help guard against volatility, the Libra is asset-backed by a deposit of fiat currencies such as the US dollar and the euro. This is unlike the typical cryptocurrency, which sometimes tends to fluctuate in price and market value.
The biggest difference between cryptocurrencies like Bitcoin and Ethereum, however, is how they are managed. Cryptocoins are a decentralized monetary system in which there are no intermediaries watching over them. Instead, the community of users is rewarded for verifying transactions. This not only leads to faster processing times but perhaps even more importantly, absolute transparency. Cryptocurrency users don’t have to worry about the legitimacy of a third party’s practices, unlike Facebook’s Libra.
What Are the Critics’ Concerns?
Some people in the economic community are concerned over the amount of control Facebook would have over the Libra. Facebook has stated that it would be willing to intervene in fraudulent activities and refund users that are victimized by theft. While playing such a centralized role in the currency can be useful in such cases, it also opens the door for Facebook to participate in questionable practices without users having the countervailing power to stop it. Unlike in cryptocurrencies, Libra users are entirely at the mercy of the coin’s creator.
Facebook has already gotten into trouble with the misuse and mismanagement of data. Operating a widely-used currency will increase their access to such information, raising concerns over data security. Perhaps even more alarming than that is the fact that overseeing a widely used currency will consolidate the company’s power even further, making some governments nervous. Will Libra become the next step in Facebook becoming its own sovereign entity?
Why Is Decentralization Important?
The rise of cryptocurrencies is largely due to the way in which they put the power back in the hands of the people. Blockchain technology that is open, decentralized and independent of third parties allows users to avoid reliance on institutions and large companies. It makes moving funds from one account to another safer, without being at the mercy of a large firm. Facebook is trying to jump onto the cryptocurrency revolution without participating in the democratic nature of cryptocoins.
The financial bodies of many world governments have already called for sufficient regulatory oversights for the Libra. It’s now up to policymakers to ensure that the correct protocols are in place to protect its users. Facebook’s announcement and the nervousness it has stirred is a good reminder of why people became enthusiastic about cryptocurrency in the first place.