Facebook has now released their new “cryptocurrency” Libra to a very mixed reception. Now, let’s be clear. Libra can’t really be called a cryptocurrency in the traditional sense of the word for several reasons. For one, Facebook is legally required to censor transactions if requested. Bitcoin has largely become such an important currency since the decentralized nature means it can be used as a valuable currency in countries where currencies have become horrendously undervalued–like Venezuela. And since Libra must adhere to laws and isn’t designed to be borderless, it can be blocked by governments that have a dense centralized power structure, i.e., China, Iran, Venezuela, and other countries like Russia. It doesn’t seem like Libra will be valuable for privacy and anonymity advocates who are seeking to use currency against corrupt and centralized governments.
At its core, Libra isn’t decentralized, since its controlled by the central authority of chosen Facebook investors. Not only that, but Libra is a permissioned system which means that the currency itself is not mined by a network anyone can take part in. So, while Libra’s design has a lot of problems not commonly seen in the cryptocurrency world, it also presents new problems on how financial data is tied to currency.
Some critics of Libra think that the real objective is not so much to create a global currency, but instead to create a global database of information. And since the company behind Libra is Facebook, that idea holds a lot of weight. At nearly the bottom of the Libra whitepaper, there is a section that outlines this goal.
“An additional goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite to financial inclusion and competition.”
The only question is what does Libra mean by a decentralized identity? As we’ve covered already, the entire Libra platform itself is very centralized and a direct opposition to the idea of “self-sovereign identity”. But what is self-sovereign identity?
Well, self-sovereign identity is the concept that we could own our identifying credentials instead of relying on central authorities to issue them. So theoretically, if we had a way to create a digital identity, then people everywhere could have some form of way to access loans, bank accounts, and other important technological and financial needs that they otherwise can’t in a centralized ID system.
But the places where a self-sovereign identity could be the most useful in providing more privacy, anonymity, and ease of access to goods–i.e., in places with government corruption and strict social tracking has run rampant (like China), most likely won’t have Libra access since it has to comply with laws.
It’s hard to understand exactly what Facebook is planning, concerning this new ID system and how Libra ties into it. Its entire history has been collecting a mass amount of data and selling it in order to monetize their platform. They’ve also created their own centralized way to login to websites, but the goal has always been the same–to get people to use Facebook more so that they can make money.
In a way, if Libra created a self-sovereign identity like the whitepaper claims, it would be a conflict of interest for the company itself. On one hand, Facebook seems to be saying “Hey, look, we’re trying to be more open. We don’t want to be this honey pot of everyone’s information,” explains Wayne Vaughan, co-founder of the Decentralized Identity Foundation, and then on the other hand they are trying to create a currency to make themselves even more invested in our personal data.
Facebook has enough personal data to recognize faces, interests, and more–but now with Libra, they could leverage the data they already have with new financial data to make even more targeted ads or other forms of potential revenue sources. Facebook seemingly has made a subsidiary named Calibra to distance themselves from direct ownership, but it’s hard to take this business organization as a 180-degree pivot for the company.
Instead of creating decentralized identities, the more likely end game would be for Facebook to use Libra to create centralized online social identities that they can track and have control over. By doing this, they can circumvent privacy laws and placeholders that already exist in various countries. A new ID system would provide them a huge amount of data and give them even more power in the technology space to make even more money.
The question becomes, how would Facebook protect and store the massive amount of financial data that they will receive with Libra? One reason Bitcoin is decentralized is to protect against attacks that could take down the network. However, Libra might not have that strength, and Facebook doesn’t have the best track record in terms of protecting user data like passwords and sensitive information.