Facebook Project Libra – the good, the bad, the ugly and why you should care

By Kurt Seifried, Chief Blockchain Officer, CSA

So you’ve probably heard by now that Facebook will be creating a crypto-currency called “Project Libra” and if you haven’t well, now you know.

So first let’s cover what is good about this. Facebook has announced Project Libra as a Stablecoin, its value will be pegged to a basket of stable “real world” currencies (I’m guessing something like a mix of USD, Euro and Yen), so speculation won’t really be a thing. Lessons from other stablecoin launches have clearly been learned by Facebook, this one will be using OpenSource technology, it will actually be “owned” by the “Libra Foundation” which is headquartered in Switzerland. We already have the typical mix of white papers talking about the Libra blockchain, the on-chain software that will be used to enforce the chain governance, rules, smart contracts and so on. As is typical there’s not an actual running production instance, just the test network, and the software hasn’t yet been formally audited or put through a formal verification process, but it will be. Essentially Facebook is using every signal possible to show this as a legitimate and trustworthy crypto-currency that can be used for payments.

To be honest the technology and governance structure looks fine, there’s nothing really new or significantly different which I think is a good thing, Project Libra is designed to provide a stablecoin that can be used as a payment system, something you don’t really need or want a lot of new surprises and excitement in.

So are there any real downsides to Project Libra? Probably the biggest one is that Facebook is pushing this forwards, despite setting up an association with a goal of 100 major participants (companies, banks, NGO’s, etc.) this project is still heavily tied to Facebook, and many people have a love-hate relationship with Facebook.

There’s nothing really ugly about Libra either, but one aspect I’m curious to see play out is how tradable digital assets sold via Libra will handle pricing discrimination. Many companies would rather sell digital assets (like in game skins) at a discount in developing countries as opposed to not selling anything at all. For digital assets that can be exchanged or traded in game this could present an arbitrage opportunity for end users and secondary markets may develop, and as we’ve seen companies often hate this, because secondary markets are often lucrative (and frustrating for users, opportunities for fraud abound).

But there is one thing that Facebook brings to the crypto-currency table that almost nobody else can (apart from maybe Linkedin or Google…) which is KYC.

KYC is Know Your Customer, it’s literally knowing who the account holder(s) are, their identity, location, address, which jurisdiction they are in and so on. This helps prevent things like identity theft and financial fraud, and also ties into the AML side of crypto-currency regulation. Anti-Money Laundering is exactly what it sounds like, and also ties into terrorist and other criminal funding activities.  

Facebook has arguably the world’s largest social graph, and the deepest knowledge of many people (many people essentially stream their entire life, and the lives of their families on Facebook). Facebook can easily verify who people are (and in many cases they already have via your phone number and so on) in a way that almost nobody else can. This combined with Facebook’s reach (they can simply add Libra capability to their website and mobile client and boom, hundreds of millions of people have access to it instantly) gives them a potential advantage no other crypto-currency has ever had.