Facebook’s New Cryptocurrency Libra: Not to be Confused with Libre

Image courtesy of Michael Coghlan

The long-speculated Facebook cryptocurrency is finally here! Libra!

Libra Association, an entity co-founded by Facebook, has announced the creation of a new cryptocurrency, Libra, "a simple global currency and financial infrastructure that empowers billions of people". 

The white paper that outlines the rationale for the new currency makes a number of heady statements, some which anyone who cares about rights should commend -- and some which should be challenged.

One of the key statements made about the currency and referenced repeatedly within the white paper is around decentralisation. Decentralisation lies at the heart of the ethos behind cryptocurrrencies: it is supposed to mean that no central banks, no state actors, and no centralised management can control the currency. Libra on the other hand is the polar opposite. The Libra Association, which oversees the development of the currency may be a not-for-profit, but the founding partners are overwhelmingly US-based companies, including Facebook, Mastercard, and PayPal. Together these and other companies amount to more than 70% of the ownership within the US. 

If you consider these companies to be the equivalent to role played by central banks in traditional currencies, replacing them with companies accountable only to their shareholders is not real decentralisation. The Association claims it will move away from this flawed model of ‘decentralisation’ in the next five years – a claim which is impossible to verify.  

This matters for other reasons. Cryptocurrencies are vulnerable to what’s known as control attacks: if an actor has a certain amount of control within the network, then they can do things like create coins or manipulate transactions. In Bitcoin, for example, the percentage of control an actor would need to have to do this is 51%. The cryptographic proof being used within Libra (Byzantine Fault Tolerant) is only capable of mitigating control attacks if up to a third of the network is compromised (according to the white paper). This means that as US companies, they could conspire together or if under duress by the US government, to easily take control of the currency. 

Privacy International has documented how many of the Libra partners, including Facebook, and Uber , don’t just engage in exploitation of people’s personal data to make a few extra million, they make it a part of their core business models. It remains unclear how these companies will benefit from the new currency. 

An initial Customer Commitment of Calibra, a digital custodial wallet that enables storage and usage of the Libra digital currency, outlines some of the envisioned data sharing relationship between Facebook and the new payment service. Aside from limited cases, which are currently non-exhaustive, Calibra claims it will not share account information or financial data with Facebook, Inc. or any third party without customer consent. The key question for users is how Facebook will decide to implement consent and whether users will have a real choice, given Facebook’s dominance as a company and platform. 

The envisaged data flows from Facebook to Calibra, however, are much more open: "Calibra will use customer data to facilitate and improve the Calibra product experience, market Calibra products and services, comply with legal and regulatory obligations, and ensure safety, security, and integrity. We may also use customer data to conduct research projects related to financial inclusion and economic opportunity with, for example, academic institutions and NGOs, though any published results will only contain aggregated statistics.” This suggests that Facebook might offer credit or insurance products that rely on Facebook data. PI has documented the inevitable challenges that come with such alternative forms of credit scoring in our report on financial technology, and how insurance companies such as Admiral have tried to take advantage of such data for personality profiling.

Advertising is the core business model of Facebook. Financial data opens new avenues for many of the companies involved as it allows the direct provision of products and services, be that lines of credit or insurance, or tangible things like taxis or telecommunications. This won't unfortunately usher in a utopian world of open access to services. Instead, it will be based on even more intimate profiling of individuals allowing organisations to offer products and services with discriminatory pricing based on a large dossier of data.

Moving onto the actual financial suitability of the currency, it is a ‘backed cryptocurrency’, making it a rarity and giving it a unique position in a crowded market as it will be backed by real-world money. The backing is, however, not material in nature but based on government securities and cash deposits. This means that in financially turbulent times (such as those seen in the 2008 crash) the value of Libra is likely to fall, while other cryptocurrencies (and material assets) are likely to rise. This wouldn't necessarily be a problem in an open-marketplace, however as the white paper makes clear, Libra is designed for those who lack the ability to engage with the traditional banking system, and it instead puts them in a more precarious position than if they hadn't engaged with Libra at all.

This is the complete package in many ways, the confluence of social, financial and inferred data to make ever more detailed and discriminatory profiles and provide a transaction mechanism devoid of scrutiny to exploit some of the most vulnerable in society. This is not the privacy we are looking for.