I started this though process on Twitter a while ago and an event by Blockchain for Good helped me crystalize the “Facebook as a country” theory.
In an age where “the world’s largest taxi firm, Uber, owns no cars, (…) the world’s most valuable retailer, Alibaba, carries no stock, and the world’s largest accommodation provider, Airbnb, owns no property,” (source) it’s possible to consider a country that has no land.
- If Facebook were a country, it would be the
largest in the world. It now has over 2.4B users and it’s still growing.
- Once it launched its Marketplace in 2016, Facebook started having its own economy – and that’s
besides the advertising economy it had by selling user data and attention.
- Facebook has a system of laws and rules, deemed
in the terms of service, which get enforced by teams of moderators. It also has
a network of robots that evaluate accounts periodically to weed out risky
behavior, other bots or spammers.
There was one thing Facebook did not have – a currency – until they came up with Libra and Calibra, the network, basked-backed currency and wallet designed to replace current payment rails and change the financial system as we know it.
They have drawn significant attention and scrutiny from regulators
(US, UK, Indian Government, for example), the banking system, and even made
Christine Lagarde shrug on camera this summer.
But is this new or revolutionary? By no means. Facebook is drawing from exsiting stuff:
- Special Drawing Rights by the World Bank and International
Monetary Fund (1969)
- The launch of the Euro currency and its success (1999)
- Visa as a foundation for inter-bank compensation
1958
- Every other digital wallet out there, including Venmo,
Cash App (2009, 2013)
Special Drawing Rights as an inspiration for Libra
Libra will issue a stable coin (a cryptocurrency that does not
fluctuate severely) backed by a number of national currencies, to enable
stability and interchangeability.
For anyone who knows a little bit about macroeconomy, baskets of currencies
are not new. The International Monetary fund created them to support the global
credit system and shield it from single country currency risks. The underlying mechanics
are simple, weighted pot sums of each participating currency are used to
determine the basked currency value at any point in time.
Libra will most likely combine a series of top economies’
currencies with a few top cryptocurrencies such as Bitcoin, Ethereum and others
to determine the price of Libras. Libra will most likely operate outside the
traditional banking and national currency sector, given the regulatory issues
surrounding its birth. It will be interesting to see what on-ramps will be
allowed early on.
Countries and banks don’t like this too much for two
reasons:
- It takes away their power to control supply and
demand for their currency and influence how the economy evolves – see the
Eurozone’s issues with Greece, Spain, Italy
- It creates a network that can circumvent fees, rules
that banking systems and countries set for their citizens, such as capital
controls or restrictions, removes the possibility to charge exorbitant fees due
to lack of alternatives when dealing in exotic trades and unusual territories
The launch of the Euro currency and its success
I’ve written about this topic before. The
Euro and its launch are the original initial coin offering, with countries
participating to the biggest artificial coin issue of its time. National banks
were required to initially seed, and then exchange their currencies to Euros
after a transition period, effectively ascribing value to the new currency. It
has been successful thanks to its use inside the system, between citizens,
countries, companies, and due the fact that it is mandatory to deal in Euros
when dealing with the EU.
Libra learns from this and tries to get many entities
involved to seed outside money (the basket of currencies), first in a limited
format, with the membership fee – $10M or equivalent. They want as much exchangeability
as possible from day one, so that the currency is useful. Having it also used
alongside traditional money will create the foundation for “inside the system”
transactions to start growing vs money having to constantly go out of the
system.
Libra and Facebook will ultimately have to hold a trade
balance with the rest of the world, ensuring that there is always enough liquidity
of Libras to currencies that are needed to be withdrawn from the system. This
is similar to preventing a run on the bank.
If they follow the EU model, they are likely to be successful.
Visa as a foundation for inter-bank compensation
A few months ago, I ordered a book called The
Birth of the Chaordic Age, by Dee Hock. For those who don’t know who he is,
he created VISA, one of the most impressive and important financial
organizations of our time, about 60 years ago. He wrote the book on how the
organization was created and his leadership style. It’s a great read.
This is relevant for Libra because VISA, unlike the publicly
traded corporation that it is today, started out as a member-owned not-for-profit
organization that helped banks settle payments faster than the 6 month process
they previously had and reduce fraud that resulted due to ledgers being out of
sync for so long. Each member organization had equal rights to vote –
decentralization – and had to participate financially to the network to be able
to vote – staking. Libra called them network members and has them stake the
$10M to both regulate the network and provide liquidity.
The question here for Facebook and Libra is: If this becomes
profitable, will you IPO Libra, the same way VISA decided to change from a member-owned
not-for-profit to a public corporation?
I’m not saying that’s bad. Dee Hock, on the other hand, is
more decisive about the topic than I am – he parted ways with Visa for this
reason – he wanted to keep it from becoming a profit-seeking corporation to
maintain its mission to open access to financial products for everyone.
Will Libra maintain its mission, or will it turn into Visa
2.0 meets Facebook-style data mining?
Peer to peer and payment functions
Libra claims that the network itself will enable two kinds
of wallets – Facebook’s (Calibra), with full identity verification and affiliated
with Libra, and more self-sovereign wallets, where if you control your key, you
control your Libras, without any identity checks.
The second wallet type is interesting, but likely doomed
from birth – most merchants, vendors won’t accept it due to risks. Some will,
in the same way they accept cash today.
Calibra, the first wallet, is interesting to mention here because it wants to ultimately connect two things – identity and payment. The most interesting and concerning part about this fact is they want to do it fee free. That means that the users and their data will be the product. If you don’t pay for the service, you’re being offered to someone who does. Fun, right?
And, yes, Calibra will compete with Paypal, Venmo, Cash App, Zelle etc.
The ethics and moral debate on Facebook and Libra
This was the topic of debate when we met in San Francisco,
for Libra-themed round table.
This comes at no surprise to anyone who has seen Facebook
take off from a college-themed youth social network to the global organization
that it is today. It’s over 2.4B strong user base has proven to be not just a
tool for people to connect with each other – which is great, but also one of
the best cash cows for advertising, a mass surveillance tool for governments
and, more recently, a powerful elections / political medium. I’m sure the team
behind Facebook never intended for more than the first 2, but as it happens
when large groups of people gravitate in one place, so does a proportional
level of bad actors (both individual and institutional).
Let’s fast forward a few years into a future where Facebook
is successful, and Libra is being used by 3B people globally. We now have not
only the biggest social network, but it is now interconnected with the global financial
system – showing to whomever wants to see who is paying whom for what and when,
further enriching human metadata.
Ethics of good and bad here are debatable and my inner libertarian-leaning self tends to argue that people have the right to choose to use a tool like that, if made available, with reasonable warnings / explanations / disclaimers.
The reason we need these disclaimers / communication pieces
inside Facebook and Libra is the two type of users the platform has – unconscious
and conscious. The unconscious ones share everything and are easy to profile due
to the almost exact resemblance of their online profile to their physical self.
The conscious users are engaged in a transaction with Facebook, only sharing
that what is useful for them and receiving service as a result. In their case,
the online persona can differ significantly from their physical selves.
You might think you are a conscious user and that Facebook
doesn’t already have most of your data, but if you think harder, you’ll see
that Facebook knows if you changed jobs, bought a house, had a child, got
married, divorced, moved to a new city, country, neighborhood, how often you go
on vacation and where, what media you follow, what jokes you like, your sexual
and social preference, what opinions you share publicly with others, and that’s
all just by looking at your usage data – friends, likes, shares, comments, posts,
photos (and their EXIF info).
When looking at the bigger picture and what Facebook and similar companies do to our lives, my assessment is net positive. This doesn’t mean everything they do is good, but that for the most part they have made it easier for us to keep up with people in our lives.
Maybe hiring a Director for social good will help with this ethical debate.
Image Credits: Geralt
