Facebook faces backlash as lawmakers question project’s security.
Facebook has open-sourced the Libra Blockchain which could pose a threat to people’s money.
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Facebook has stirred the industry by introducing global cryptocurrency Libra and digital wallet Calibra. The company is not alien to privacy and security issues and it should have expected a push back for introducing something which deals with people’s money. If the industry's reaction is anything to go by, Facebook is getting just that. Even though the social network stresses on the use of Blockchain technology in its latest service and the fact that the cryptocurrency and the wallet will remain a separate entity altogether, privacy concerns about the company's new venture are resounding from all corners.
In the US, the move has already attracted criticism from lawmakers asking Facebook to halt development on the project until Congress and regulators can review the issue. Citing privacy concerns, the company executives are being called on to testify before Congress.
“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data. With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users,” said Maxine Waters, Chair of House Financial Services Committee.
Her concerns were echoed by another senator. “Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight,” said Senator Sherrod Brown, the top Democrat on the Senate Banking Committee.
Not only in the US, the initiative was flagged in Europe, where the company has been on sticky wicket since the Cambridge Analytica scandal. French Finance Minister, Bruno Le Maire called for more regulation of tech companies. “This instrument for transactions will allow Facebook to collect millions and millions of data, which strengthens my conviction that there is a need to regulate the digital giants,” he said in an interview on Europe 1 radio. Markus Ferber, a German lawmaker in the European parliament, said in a statement that Facebook's new coin should put “regulators on high alert.”
When asked about Facebook's move of launching a cryptocurrency, especially at a time when this industry is going through a tough period globally, Tarun Pathak, Associate Director at Counterpoint Research told Digit, "Cryptocurrency has never seen large scale commercialisation mainly because of couple of key reasons: Ease to use, and unpredictable nature attached to it. Only early adopters of technology could understand its use and regulatory challenges in certain countries made it even more hard to go for large scale commercialisation. Facebook is aiming to control few of the factors, including unpredictable nature, and opening the same through coalition to billion of users might just prove the inflexion point for cryptocurrencies adoption."
Facebook is a part of a 28-member consortium called the Libra Association that controls the Libra cryptocurrency. The association is expected to expand to 100-members by the time Facebook officially launches the cryptocurrency and Calibra wallet next year. This essentially means that every member has one vote each on the table and Facebook does not have majority say even though Libra is its brainchild.
Facebook open-sourced the Libra Blockchain and is offering a prototype in a pre-launch testnet. This developer beta, in addition to a bug bounty programme run in partnership with HackerOne, is aimed at making the service more secure and flaw-free. Further, it also gives developers a platform to build products on top of it, which could become a possible loophole for cybercriminals to exploit. How? The developer could turn rogue, or could develop a loophole to exploit when people start putting in money in the wallet. In simpler terms, Facebook may be able to secure it from the outside threats but it surely is hard to mitigate a problem that has been planted from the inception.
"Facebook is banking on commerce as a part of monetisation strategy across platforms and it makes sense to have share of own wallets / cryptocurrency especially when 7 million businesses advertise and 90 million SMBs depend on it for business. So payments can be a big bet for them and given the company's recent record on security and privacy, cryptocurrency could have been the best bet the could rely on," Pathak added.
Libra and Calibra are targeted at developing countries like India where money holds a significant position in people's lives. This, along with Facebook's controversial past, will make it even harder for the company to sell people on the idea of transaction using Libra. India is one of the most important markets for Facebook, and it would be unthinkable that the company doesn’t include it in an ambitious project of this massive scale. However, Facebook will have to secure proper regulatory approvals in the country before Libra transactions are allowed.
"The only challenge here is that Facebook is aiming for financial inclusion of the unbanked which in this case means the advanced world of cryptocurrency being introduced to the least technology aware or dependent users. So simplest UI will be key here. In India, I think, we need to watch out more on regulatory front. It remains to be seen how it evolves," Pathak noted.
Facebook claims that it has engaged with regulators in the US and abroad about the project, however, they did not specify which regulators. Facebook also claims that if a user’s money is lost, it will reimburse it to him/her but we’ll have to wait and see how Facebook materialises that.
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