Things were grim for Mark Zuckerberg at the end of 2017. In the wake of Donald Trump’s surprise 2016 election win, critics had accused Facebook of nothing less than doing irreparable damage to democracy through its failure to control the spread of fake news.
That grave charge came on top of other festering issues, including rampant trolling, bullying and harassment on the site, especially of young people and women, and complaints that Facebook’s news feed was no longer delivering quality results for users.
By the start of 2018, Zuckerberg and his team were in major damage control. He said as much in his annual New Year’s post on Facebook:
The world feels anxious and divided, and Facebook has a lot of work to do — whether it's protecting our community from abuse and hate, defending against interference by nation states, or making sure that time spent on Facebook is time well spent.
My personal challenge for 2018 is to focus on fixing these important issues. We won't prevent all mistakes or abuse, but we currently make too many errors enforcing our policies and preventing misuse of our tools. If we're successful this year then we'll end 2018 on a much better trajectory.
In truth, 2018 wasn’t much better as the company became mired in US Congressional hearings, EU privacy regulation battles and a severe media backlash.
Interestingly, though, Zuckerberg signalled something in his New Year’s post that baffled some observers. Part of Zuckerberg’s stated mission for 2018 was to explore the possibilities of blockchain and cryptocurrency. Was this faddish pandering to Bitcoin-mania or something more serious?
He framed this within the overarching issue of the role tech giants like Facebook (throw in Google and Amazon, for good measure) play in the centralising or decentralising of power: “A lot of us got into technology because we believe it can be a decentralizing force that puts more power in people's hands.”
With the rise of a small number of big tech companies — and governments using technology to watch their citizens — many people now believe technology only centralizes power rather than decentralizes it.
There are important counter-trends to this — like encryption and cryptocurrency — that take power from centralized systems and put it back into people's hands. But they come with the risk of being harder to control. I'm interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.
Fast forward to June 2019 and Facebook has announced the imminent launch of its own cryptocurrency, Libra. According to the explanatory White Paper, “Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”
Facebook, through its subsidiary Calibra, is a driving force behind Libra, but it’s also joined by a powerful group of partners, including Mastercard, Paypal, Visa, Stripe, eBay, Spotify, Lyft and Uber among others. These founder members make up what’s called the Libra Association. The White Paper says the target launch for Libra is in the first half of 2020.
Amid all the Bitcoin hype and the claims about the revolutionary potential of blockchain, could Facebook really be the company that tips these technologies into the promised land of mass consumer uptake and usage? It’s an ambitious undertaking even for a business with the size and scope of Facebook.
To better understand all of this, I spoke to Neil Staunton. Neil has been advising me and The Female Social Network team on tech issues like AI, blockchain and cryptocurrency. He is the founder and CEO of Crypton, an AI-Quantitative Fund for institutional investors and the first digital assets company in the UK to receive an equity investment from a tier 1 capital markets global law firm, Ashurst, headquartered in London.
Fi Bendall: What’s the benefit of Libra to Facebook? Why do it?
Neil Staunton: The benefit to Facebook is simple: they don't have the one key piece of data that would help them understand what everyone cares about — the true value of a transaction. Facebook have a lot of social transaction data and some economic transaction data BUT they don't actually know the true value that one person puts on consumption.
With financial transaction data, Facebook now understands and can influence us more effectively than any other technology giant (Google, Apple or Amazon). Facebook have social transaction data, political transaction data and now financial transaction data, all in one view. It means Facebook can target advertising more effectively and generate more revenues, an extra $19B in the next few years some analysts have suggested.
This is the pessimistic view, justified to an extent through recent experience of how we know Facebook or its 3rd party business partners (Cambridge Analytica) have used the data to influence US and UK political outcomes.
However, the Libra whitepaper says Facebook are setting up a governance structure in Switzerland that separates financial data from social data. Although most people won't believe this will deter people inside Facebook and Libra from sharing data that will help Facebook increase its advertising effectiveness, I believe the scrutiny will be so public that it won't risk another beating of its reputation.
FB: So why else would Facebook do this?
NS: Stickiness. Having financial transactions inside the Facebook ‘walled garden’ (they control the system) means users are more likely to use Facebook, Instagram and WhatsApp and this leads to more advertising revenues, and it will also attract more users to these platforms, further increasing advertising revenues.
FB: Is it a serious threat to traditional banking?
NS: Absolutely! Facebook are creating a new financial system that lives outside the US dollar banking system or any banking system once users transfer fiat into Libra. They will have to use the old banking system to gain access to the new banking system, so depositing fiat in return for Libra. However, once inside the system the US or traditional banking systems lose sight of all transactions. And currently, all transactions across the world are recorded by banks unless it's cash transactions that don't enter the banking system. Banks report this and people and businesses pay taxes on this. Libra doesn't prevent people or businesses from paying taxes and it's likely Facebook will be forced to report transactions, but Libra essentially means banks and governments lose control of the monetary systems that have given them power and wealth for many decades.
FB: Would its success squeeze out other cryptos?
NS: It's more likely to raise awareness and increase adoption of other cryptocurrencies. There are 70 million Bitcoin wallets and 2.5B Facebook users. Now 2.5B people will know about a cryptocurrency, and that if it has well-designed technology and governance, it is actually a better form of money than any previous form of money. People will realise cryptocurrencies can be used for frictionless and global transactions by anyone with a $40 smartphone. Finally, my hope is Facebook genuinely want to build a new, fairer and more inclusive financial system that will one day become permissionless and decentralised.
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