Why Facebook’s Libra Cryptocurrency Will Be Bad For Everyone

Why Facebook’s Libra Cryptocurrency Will Be Bad For Everyone

Facebook calls its new banking endeavor cryptocurrency, but Libra looks less like Bitcoin and more like the next step in the social media giant's takeover.
Kyle Sammin
By

Last month, Facebook announced the launch of a new cryptocurrency, which it plans to call Libra. Digital money is a growing trend, and Facebook is always looking for ways to expand into new markets. Until now, governments have not stood in its way, so it may have been a shock to the social media company’s executives to see how many politicians on both sides of the aisle reacted to Libra in ways ranging from suspicious to outright hostile.

Part of this is the give and take of regulation: Some politicos would be happy for Facebook to do whatever the company wants, as long as some politicians’ concerns are addressed. But others are sincerely worried about the growing dominance of social media monopolies over people’s daily lives. They are right to be concerned. Facebook’s foray into banking will be bad for banks, bad for privacy, bad for markets, and bad for America.

Libra Isn’t Crypto, It’s Facebook Scrip

Cryptocurrencies, the most famous of which is Bitcoin, have become popular for very specific reasons. For most of our financial transactions, the U.S. dollar works just fine, and credit cards and other electronic methods make our dollars easy to transfer. Bitcoin and others like it offer two advantages that appeal to certain users: No government or bank dictates Bitcoin’s value, nor can those institutions monitor Bitcoin transfers.

Cryptocurrency works best, essentially, when it is like gold. Gold is worth what it is worth, is mined by individuals and corporations, and does not leave a paper trail. Cryptocurrency does all of that and adds the convenience of digital transfers, freeing people from carrying around sacks of metal. It has the freedom of the old gold currency with the efficiency of modern fiat banknotes.

Facebook’s Libra fails on both of these points. Libra’s creators seek to avoid the ups and downs of Bitcoin by linking it to real currencies. That adds financial stability, but it destroys the autonomy that is part of cryptocurrency’s appeal.

Linking Libra’s value to existing currencies means it is partly controlled by those currencies. This is not an independent value, but more of a basket of fiat money — a hedge, not an alternative. Add to that the idea that the credit card duopoly of MasterCard and Visa controls part of the venture, and this looks more like a traditional financial instrument and less like a new form of money.

Even more importantly, Libra lacks Bitcoin’s anonymity. This is on purpose, one suspects, and could even be one of Facebook’s selling points to Congress. Congress does, after all, like to control things, and knowing what people do with their money is one of its major interests.

Knowing people’s business is also Facebook’s line of work. Facebook makes it its job to find out who you are, what you like, and what you’ll spend your money on. It uses this information to market things to you. That’s how free software works: You’re not the customer, you’re the product.

Having collected all of this personal information, Facebook has historically been terrible about keeping it secret. Its data privacy breaches are frequent and serious. Yet secrecy is a huge component of cryptocurrency’s appeal. It’s right there in the name: “Crypto” comes from the ancient Greek word “kruptós,” meaning “secret” or “hidden.” There is no hiding from Facebook, though, and it knows all of your secrets. Not only that, it tells them to anyone clever enough to hack its system.

As with many of Silicon Valley’s “disruptions,” this new discovery is just some old idea with a shiny new package. If cryptocurrency is like digital gold, Libra more resembles old-fashioned company scrip, the currency substitute factory towns once issued. Mark Zuckerberg and company have figured out what coal and lumber companies once knew and governments still do: It is to their advantage to pay people in money that they print themselves. (Amazon already figured this out when they began to pay productivity bonuses to workers in Swag Bucks, not dollars.) Libra is no cryptocurrency. It is just repackaged fiat money with a Facebook logo.

Facebook Never Stops Nudging

Even if Libra is ineffective as a cryptocurrency, that alone may not be a reason for Congress to get itself worked up. After all, an ineffective product is a threat to no one if people simply refuse to use it. The cryptocurrency landscape is already littered with the ruins of faced attempts to mimic Bitcoin. More will follow, and people will invest in them at their own risk.

But those ventures are irrelevant because they are standalone endeavors. Facebook’s currency bursts on the scene with the backing of a massive social media giant and the two largest credit card providers in the world. (PayPal is also involved in the venture.) Libra has clout behind it, which guarantees it will not crumble with the first bad quarterly report.

Again, this is not all bad news. Firm backing should mean greater stability and dependability. But here, it also means leverage to make people use Libra even when they think another digital currency, or a real currency, would be better. Facebook already uses its algorithms to nudge users this way and that, subtly influencing their online behavior. To promote its own proprietary currency, it would do that and more.

Some nudges would be more obvious than others. A business that wants to advertise on Facebook might receive a discount if it uses Libra. That sounds harmless enough, but it is just a different way of saying Facebook will charge you extra to use American dollars. From there, it is easy to see how Libra could worm into various corners of the economy.

Just how many of those corners? Consider how many businesses have a Facebook presence. Nearly every decent-sized firm has a Facebook page, and many small businesses do a large portion of their business through the portal Facebook has created. Since 2016, Facebook’s Marketplace feature has allowed ordinary people to buy and sell things too, even if they are not full-time businesspeople. Promoting Libra in these areas at the expense of dollars or other currencies would quickly establish the new monetary units in a vital area of commerce.

This Is Too Much Power for Facebook

Facebook already exercises tremendous control over what we do online, but Libra would give the social media giant quite a bit of control over money itself — a far more serious proposition. Such a system might add greater efficiency, but is would also add a greater concentration of power in unaccountable hands. As Congress considers Libra, they — and we — ought to ask: Do we really trust Facebook to use that power responsibly?

Facebook isn’t the first big company to consider integrating banking into its corporate structure. In 2005, Walmart announced its application to operate a Utah-based industrial loan company (ILC). Like Facebook’s foray into finance, Walmart’s ILC would not have been a full-fledged consumer bank, but observers of the move understood right away that it would give the company a foothold in the financial sector that could easily develop into something greater. The Bush administration’s bank regulators pushed back on the idea, as did consumer advocates, and Walmart withdrew its application in 2007.

Even in those prelapsarian days, people understood that too much concentration of financial power could undermine the market. In the days since the credit crisis of 2008, many on both sides of the political spectrum have begun to pay more attention to the perils of monopolistic behavior in finance. Add to that the genuine concern of the strength social media monopolies already exercise, and it is clear that Libra presents a far greater threat to the economy than Walmart’s banking venture ever did.

The name “Libra” is an ironic choice for Facebook’s new hustle. It is the Latin word for “scales” and suggests a fair balance, like the scales of justice are meant to do. But this faux cryptocurrency will unbalance the American economy and the relationship between consumers and Silicon Valley. Social media companies already exercise never-before-seen control over the marketplace of ideas. Congress should not allow them to spread that domination to currency itself.

Kyle Sammin is a lawyer from Pennsylvania, a senior contributor to The Federalist, and the co-host of the Conservative Minds podcast. Read some of his other writing at his website, or follow him on Twitter at @KyleSammin.

Copyright © 2019 The Federalist, a wholly independent division of FDRLST Media, All Rights Reserved.