Facebook’s Libra (Diem) Token – Good or Bad?

Estimated Reading Time: 5 minutes

On June 18, 2019, Facebook (FB) announced its partnership with 27 organizations. Together they started Project Libra, a non-profit organization to create a new currency called, Libra. Facebook also created an independent subsidiary called Calibra, which will build services to send, spend, and save Libra.

According to Mark Zuckerberg,

Libra’s mission is to create a simple global financial infrastructure that empowers billions of people around the world…Calibra will build services that let you send, spend and save Libra — starting with a digital wallet that will be available in WhatsApp and Messenger and as a standalone app next year. Calibra will be regulated like other payment service providers.

His release contained several buzzwords like regulated, decentralized, privacy, and safety. For the layman, Libra/Calibra seems promising and like a gift to the world. Let us dig a little deeper, though.

Some Statistics

• 2.7 billion people use Facebook, WhatsApp, Messenger or Instagram each month
• 2.1 billion people (average) use at least one of the Facebook family of products daily
• 1.7 billion people worldwide do not have a credit card or bank account but own smartphones.
  
• The people I described above are the main targets of this initiative

Facebook already has a significant amount of Know Your Customer (KYC) information. This data includes the Names, Date of Birth, Addresses, Phone Numbers, Faces, and much more of its users. This list exposes a new fact. With Libra, they can track data on several more people from developing nations. Digest that for a moment!

Is Libra Decentralized?

Many do not understand distributed ledger technology (DLT) and would accept Facebook’s deceptive definition of decentralization.

…All of this is built on blockchain technology. It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall.

The organizations supporting this initiative are all regulated. This means that they must follow the rules and regulations of their government(s). Thus, is Libra decentralized or not?

According to Vitalik Buterin, the co-founder of Ethereum,

Blockchains are politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure) but they are logically centralized (there is one commonly agreed state and the system behaves like a single computer)

So now that you know consider the definition of decentralization. And now it is dawning on you that Libra is not decentralized

Is Libra a Digital Currency or Cryptocurrency?

Digital currencies and cryptocurrencies can be confusing. Cryptocurrencies are a subset of digital currencies but have unique characteristics.

Let us examine if it incorporates the important characteristics of a cryptocurrency:

• Would it be borderless – Will anyone, located in any part of the world, including nations under sanctions (Iran, North Korea, etc.) be able to use it? – No!
• Would it be permissionless? – Would the blockchain be publicly available to everyone in the world? There is no need for any form of KYC or certification to use it? – No!
• Would it be trustless? – There is no need for a central authority. The consensus across several elements replaces the responsibility of conducting, confirming, and verifying transactions. Does Libra operate on a system like this? – No!
• Would it be censorship-resistant? – No!

Our Rant

Consider the gatekeepers (nodes) responsible for processing transactions on the Libra blockchain (Visa, MasterCard, PayPal, etc.). These entities will now be able to link users’ biodata to their financial data.

If Facebook cannot be trusted with users’ data, can they be trusted with users’ financial information?

Facebook has an alarming track record of incidents. Users’ data sprung leaks due to their inadequate and insufficient data security measures. Several times

TechRepublic’s Facebook data privacy scandal cheat sheet provides a historical record:

1. 2005 – researchers at MIT created a script that downloaded publicly posted information of more than 70,000 users from four schools.
2. 2007 -user activity on other websites were automatically added to their Facebook profiles. This was thanks to Beacon, one of Facebook’s first attempts to monetize user profiles. For example, Beacon displayed the titles of videos that users rented from Blockbuster. This was a huge violation of the Video Privacy Protection Act. A class-action suit followed. As part of the settlement, Facebook paid $9.5 million to a fund for privacy and security.
3. 2011 – In December 2009, data users considered private was publicly shared, according to The New York Times. Following an FTC investigation, Facebook entered into a consent decree. It promised to address concerns about how they tracked and shared user data.
4. 2013 – Facebook disclosed the details of a bug that exposed the personal information of six million accounts over approximately a year. When users downloaded their Facebook history, they got more than their contacts. Those downloads contained the emails and phone numbers of their friends” contacts, too. Worse, the data that the bug exposed wasn’t given to Facebook by its users, for starters. Facebook vacuumed it from the contact lists of other Facebook users who happened to know the person downloading. This phenomenon is now described as “shadow profiles.”
5. 2018 – On April 4, 2018, The Washington Post reported on an announcement by Facebook. The claim: “malicious actors” abused the search function to gather public profile information of “most of its 2 billion users worldwide”.
6. 2014 – 2018 Cambridge Analytica Scandal – The Cambridge Analytica Scandal came to a head. Facebook exposed data on up to 87 million Facebook users to a researcher who worked at Cambridge Analytica. This organization worked for the Trump campaign.

Update: Facebook has rebranded project Libra to Diem and its digital wallet from Calibra to Novi. There are also changes to the association members.

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