(Bloomberg Opinion) — Facebook on Tuesday launched its ambitious new cryptocurrency – Facebook Libra – which targets 2.6 billion users and is backed by up to $1 billion in funds. For the blockchain faithful, there was plenty of the usual stuff you see in these kinds of projects: A white paper, a nonprofit consortium to govern the digital coins, geeky technical details on how transactions will be validated, and the promise of open-source code.
But for consumers, who will decide ultimately whether or not Libra is a flop, there was only a slightly underwhelming hint of what it might actually be used for: A picture of someone sending money to someone else via a smartphone.
Even setting aside the various risks thrown up by the Libra white paper (financial stability, user privacy, and whether it could cope with hundreds of millions of daily transactions), you have to ask why it might be a compelling product. The service described by Facebook, namely sending money “as you might send a text message,” is already offered by plenty of other companies such as Alphabet Inc.’s Google, Apple Cash, PayPal Holdings Inc.’s Venmo and Circle, a peer-to-peer payments provider that lets you transfer traditional fiat currencies.
Indeed, Facebook itself lets you send cash through its Messaging app. The company even had its own virtual currency before, called Credits, for the purchasing of content from within apps. It didn’t take off.
Libra’s sales pitch says that “in time, we hope to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass.” It’s true that you can’t do that on every payments app. But Facebook founder Mark Zuckerberg faces plenty of competition in the race toward a cashless society, with other corporate and government rivals already well advanced in their plans.
Sweden, for example, is on the road to becoming cashless as soon as 2023. The local mobile payments service Swish was used by about 60 percent of Swedes in 2018, according to a Riksbank survey. It has more than 6.7 million users in the country.
This isn’t to write off Facebook’s chances completely. Maybe its financial heft and vast number of users could turn something that’s already pretty convenient today (money transfers and payments) into something ultra-convenient.
Imagine a pot of Libra tokens that could pay directly for every goods purchase or app subscription without the need for any currency conversion or card payment. This would, though, depend on Facebook’s ability to manage the huge technical challenge of designing a single coin that can be used truly anywhere.
To become a genuinely universal medium of exchange, the company would need to get rival tech giants like Amazon.Com Inc. and Netflix Inc. on board. And why would they want to do Zuckerberg any favors? The idea that Libra is really at arm’s length from his social media empire of Facebook, Instagram and WhatsApp is debatable.
Facebook plans to lead the Libra consortium for the rest of 2019, and it will be at least five years before the blockchain technology that supports the tokens is completely decentralized.
The ultimate dream of any crypto project worth its salt is that the digital currency doesn’t rely on a single point of control. But even if Facebook manages to get there, does Zuckerberg really want to embrace the dangers of a Wild West cryptocurrency? Bitcoin is a lesson here.
And what about Facebook’s targeting of the “unbanked,” or those in the developing world struggling with volatile currencies? Bitcoin and its ilk promised to address the same problems, and have failed completely to help anyone other than speculators and criminals.
Zuckerberg’s own patchy record on international payments should give pause too. WhatsApp Pay has struggled to gain regulatory acceptance in India, the world’s top remittance market, because its data storage practices didn’t meet national standards. Libra will have to answer a lot of similar questions about its financial structure and treatment of customer information.
Facebook has been on a mission over the past year to recapture the trust of its users. Libra certainly demands a lot of faith.