Monday, June 17, 2019

Facebook To Launch a Global Currency Token - Project Libra

A thank you to a friend and reader who forwarded me this news regarding Facebook's plan to launch a new global currency token. I am not sure if this is something that might impact the present monetary system if successfully implemented, but Facebook has a huge user base so it is worth noting. Below are a couple of excerpts and then a few added comments.


Markets Insider - Facebook Working on Project Libra

"Facebook has been working for more than a year on a secret initiative code-named "Project Libra" to build a cryptocurrency-based payments system, The Wall Street Journal reported on Friday.

The social-media giant plans to introduce a digital coin that its more than 1.5 billion users can transfer to one another and spend on Facebook and other websites, the newspaper reported.   . . . .   click here to read the full article on Markets Insider

Markets Insider - Facebook Partnership for New Cryptocurrency

"Facebook has been working for more than a year to create a currency that its two billion users can use to transfer money and make virtual and real purchases, the FT reported. The company has discussed the secretive initiative, code-named "Project Libra," with "dozens of financial firms and online merchants" including Visa, Mastercard, and payment-processor First Data, according to the Wall Street Journal."

My added comments: It will be interesting to see if the project is successful over time. I tried to get some input from a variety of sources to see how much interest there might be for something like this from Facebook. The limited input I got back indicated there was not major interest in this for a variety of reasons at this time. Below are some quotes from some who were willing to comment on it anonymously on a community message board for college sports. This community is pretty diverse in it's thinking. I also included the option for people to vote in a poll on this. The results of that poll were as follows:

Would you have interest in using a "stablecoin" cryptocurrency issued by Facebook tied to US dollars?

Yes  -  9 votes 6%
No  -  115 votes 82%
Need More Information  - 17 votes 12%

This poll was viewed by over 650 people so a pretty diverse group of people saw it and over 140 actually voted. The poll is not scientific of course.

Now here are the comments posted in the discussion thread by various poll participants:

"I need to see more details on how it's different/better than the 1000's of cryptocurrencies already out there. If it's just a copy cat Bitcoin or Ethereum with the FB logo on it, shrug. If they're patenting a new more secure blockchain that can do 5,000+ transactions per second, interested."

"No, I’m tired of technology trying to take over very facet of life. I would avoid for as long as possible if it happens. Full disclosure I am 30 years old, and don’t mind technology, but the Facebooks, Twitters, Googles don’t need to be running the world and becoming a sidebar to traditional government."

"Facebook is going away in the next 10 years so who cares what they do. the younger generation doesn't use Facebook and at the rate they are banning conservatives will only expedite their demise."

"Facebook is dying. They put my buddy in time out for the last week. Since I pretty much only enjoy his posts, I haven't been on in a week. The banning of people will slaughter this company."

"I’m bored with Facebook. I’m certainly not going to use Facebook bucks."

"No. Not Interested"

"I would be interested in investing. Facebook just has a tremendous reach for sales opportunities. This is coming from someone who has never used Facebook."

"No. It may have some utility for a few years but it's not going to be significant in the long run. The public's lack of trust in Facebook may doom it before it ever gets traction."

"Why would anyone invest in anything Facebook has to offer? The whole lack of privacy they want people to invest in currency that they would control?!?!"

"Dont have a FB account and I sure as hell wouldnt use a currency created by that thief. He stole FB and he sells your info for profit. Hard pass."

"So what is the hot social media outlet these days? 1.5B daily active users still seems like a lot of traffic for a platform that is no longer popular."

"a ton of those accounts are fake, they have to purge fake accounts regularly. not to mention probably 9/10th of my friends on it including myself never use it.  no clue what kids use these days, i'm too old."

"that'd be awesome to have 1k in facebook money and then they seize it because you are a conservative and a "danger" to society."

"I'll take a crypocurrency by a major bank or nation..Thats about it."

"Facebook is terrible. Feels like spam mail from the 90s"

"Would they be able to ban people from their wallet similar to the way they ban people for speech they disagree with?"

"Wouldn’t it make more sense to be backed by the ruble?"

"Their whitepaper drops in a few days but based on leaks, I have no reason to believe it's better than Bitcoin in any tangible way."

"No. Facebook can’t effectively manage its existing businesses and folks want to allow them to create a crypto-currency? Good grief, some people are really stupid some of the time."

"LOL at people saying "investing". You obviously don't know what "stablecoin" tied to USD means."

"FB, no thanks"

I also asked a number of economics experts from around the world about their take on it. I did get some response from a couple of experts I hear from who are very plugged in to what is going on with payments technology. In this case, they prefer to offer their comments without attribution by name:

"If Facebook implemented this on a blockchain, in a few weeks or months, they'd realise they would have to shut it down, because it doesn't scale. If they figured out how to make it scale, then when google or whoever launched a competing one, not on a blockchain, then it would be even cheaper." -- one expert on global payments system technology  

" . . the laws have not changed, so this "currency" will still be in law, a taxable "digital commodity" not a "money". And all the AML (anti money laundering), KYC (know your client) and PEP (politically exposed person) controls will still apply. Those are the complications that keep the incumbents from driving down transactions fees in competition with each other.  - another expert on global payments regulations

The email discussion on this between the experts involved was interesting. They basically discussed the pros and cons of Facebook trying to do something like this. Among the issues discussed were the technology to make it work, the regulatory hurdles involved, and the economic feasibility for Facebook to sustain this over the long term if it does launch next year which is the stated goal. Another issue might be how central banks would react if this were to gain substantial public adoption. Also, how the IRS would view the token for tax purposes will be interesting.

Some articles indicated that early stage talks between Facebook and the CFTC have taken place to get a feel for how this token might be regulated in the US. It's too early to tell how the CFTC might or might not be involved. They did produce a brief primer on Virtual Currencies that you can read here

It will probably be some time before we can get the full answers to these questions since launch of the actual token to the public is not planned until 2020 based on some of the early articles reporting on it. 

My initial feedback did not indicate a high % of interest in this from those surveyed, although the sample size was fairly small. It's obvious from the above though, that as with anything that wants to be a currency, the trust people have in it and in who issues it is extremely important. We see that principle over and over again when we examine what people will accept as money. I should add that one participant pointed out to me that on a college sports message board, there is not a lot of diversity by gender as most participants are likely male. That is a good point, but it is true that in this online community, there is a good bit of diversity within the group in terms of age, income level, political views, etc. Also, I do know that many people in that online community have some interest in cryptocurrencies in general.

Despite the poll results above, if Facebook eventually implements this with a big global marketing push and can actually develop the technology to do this profitably, we can assume that some portion of their user base will have interest in it. While only around 18% of this poll indicated interest, 18% of the total Facebook user population is still a lot of people if that percentage held up on a global basis. Also, the articles linked below say that Facebook could initially target certain countries where they may see more need for financial inclusion and lower remittance fees for money transfers.

We will watch to see how things go with it over the next year.

Links for additional information:

Libra White Paper (added 6-18-19) 

CNBC - Congress asks Facebook to slow down (6-18-19)

PC Mag

Tech Crunch (extracted quote below)

"The cryptocurrency will be a stablecoin — a token designed to have a stable price to prevent discrepancies and complications due to price fluctuations during a payment or negotiation process. Facebook has spoken with financial institutions regarding contributing capital to form a $1 billion basket of multiple international fiat currencies and low-risk securities that will serve as collateral to stabilize the price of the coin, The Information reports. Facebook is working with various countries to pre-approve the rollout of the stablecoin." (extract below)

"With regard to its cryptocurrency, Facebook also seems to be aware of its less than stellar public reputation. It’s in talks to create an independent oversight foundation, according to the Information. It’s also reportedly offering third-party organizations to help manage the cryptocurrency, provided they cough up $10 million for the honor of running a node. This will theoretically decentralize Facebook’s power over the Facebook Bucks and is expected to net the social media giant up to $1 billion in swift fashion."

The Block (extract below)

"Visa, Mastercard and PayPal are set to be backers of Facebook's cryptocurrency along with a number of other companies, including Uber. Each will invest approximately $10 million into a foundation that will govern the coin, the Journal (Wall Street Journal) said citing anonymous sources. 

Neither the governing body, called the Libra Association, nor Facebook will directly control the coin, according to the Journal (WSJ). Sources also told the Journal that some members don't fully understand how the coin will work or their role in the project."

CoinDesk (extract below)

"Despite reports that Facebook is gearing up to reveal its new cryptocurrency as early as next week, a source with knowledge of Facebook’s operations said the project’s software has a long way to go until it can be used. Sources attribute the delay to blockchain industry incumbents being reluctant to work on a project that doesn’t appear to have the hallmarks of a true cryptocurrency."

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