The whole Facebook company with its founder Mark Zuckerberg in the helm is known for having boundless ambitions. Even after the company has conquered the whole social networking world, Facebook is now focusing on something bigger, and that’s to revolutionize the global financial system by introducing a new type of cryptocurrency called “Libra”.
Libra is designed by Facebook to be much better than Apple’s and Google’s payment services (which are known for its improved user interface for using credit cards). The company is using a blockchain-like technology to develop a new payment system from scratch with Libra as its currency.
Facebook has managed to gain support from impressive partners for the new project. MasterCard, Paypal, Visa, Lyft, and Uber are just some of the big-name companies that support Facebook’s new project.
But the introduction of Libra is not without controversy though. Even though it’s months away from its official launch, its future is uncertain. When Facebook introduced Libra last month, many people were left wondering how this new payment system will work and if it will actually work.
Money laundering is a real concern as well about Libra. A lot of people are doubtful that it’ll also open up various ways for criminals to launder money. It’s even feared by many governments because they’re unsure how Libra will be able to comply with the number of legal and regulatory requirements that are required by payment networks.
In this article, we’ll discuss the nature of Libra along with its controversies and concerns, particularly the potential to launder money.
What Is Libra?
Libra is a new type of global currency and financial system that’ll empower billions of people around the world. The point of Libra is to allow people to send money all over the world at a much lower fee than other money transfer service providers. It’s a digital coin that’ll be using the same blockchain technology behind other cryptocurrencies, such as Bitcoin and Ethereum.
Calibra, a subsidiary of Facebook, will be tasked to oversee Libra and its digital wallet through the Libra Association. As of now, Facebook is waiting to earn 100 members of the Libra Association, which now has 28 members, by the time it goes live. The Calibra digital wallet will be incorporated into Facebook’s messaging app – Messenger and WhatsApp. It’ll be also available as a stand-alone app once it’s launched.
By using the digital wallet, the 2.4 billion users of Facebook will be able to transfer, spend, or save money with very little fees. Facebook also assured users that their real identities will not be linked to their transactions and, for the safety of their privacy, will use a pseudonym instead.
How Is It Different From Other Cryptocurrencies?
Libra is no different than other cryptocurrencies when it comes to its structure. Like all other cryptocurrencies, it exists only in digital form, which means you won’t be able to hold a Libra coin or note in person. All Libra transactions are also recorded on the blockchain, which will confirm each transaction. The Libra blockchain will be supervised by the Libra association at first but will soon become an open system in the future.
Now that we have already discussed the similarities of Libra and other cryptocurrencies it’s time to take a look at the differences between them. There are two key differences that separate Libra from other cryptocurrencies:
- Unlike other cryptocurrencies that are not backed by anything, Libra is backed by a number of assets that’ll also secure its value. It’s still unclear though what Facebook means about those “assets,” but it’s speculated that they’ll be bank deposits and government securities in multiple currencies, like the dollar and euro, from central banks.
- The value of Libra will increase or decrease based on its popularity. If more people want to use Libra, Facebook will buy more assets and create new Libra. If people don’t want to do anything more about Libra, Facebook will have to pay them and burn the amount of Libra they have in their account.
Concerns That Surrounds Libra
Libra is set to launch in 2020, but it’s already facing a lot of serious concerns from many people and governments around the world. Some of the most serious concerns that policymakers have about Libra are the privacy problems that it could bring and how it can be harnessed by criminals for illegal activities, such as money laundering.
Can Be Exploited for Money Laundering
Libra brings a lot of implications to anti-money laundering laws. Facebook has to secure a lot of verification details via an online form for users who want to start using Libra and set up a Calibra wallet, which includes a government valid ID. The problem with this kind of approach is that Facebook will probably have millions of potential users from all over the world, how, then, are they able to authenticate the information provided by the users?
This is the same kind of issue that plagued the Liberty Reserve that operated in Costa Rica back in 2013. Liberty Reserve is a digital currency that was exploited by money launderers to transfer billions of worth of assets until it was shut down and was considered as the biggest money-laundering scheme in the US.
Liberty Reserve works the same way as PayPal although they’re using their own digital currency. Users are allowed to register and transfer money to other users using only a little information, such as name or email address. What made Liberty Reserve vulnerable to money launderers is that it never made any efforts to very the identity of their users, which made it ideal for illegal activities.
Liberty Reserve was also known for using unlicensed and unregulated third-party exchangers. You transfer money from a bank to a third party exchanger and it will convert your real money into digital currency and will be then deposited to your Liberty Reserve account. Liberty Reserve also didn’t put any limits on the size and number of transactions users can make. All transactions in Liberty Reserve are also completely irrevocable.
Although it’s safe to say that Libra is backed by a number of big-name companies and organizations from all over the world, it’s still open to the same problems that plagued Liberty Reserve. Because of its structure and grasp, once it’s operational, Libra could enable a massive scale of money laundering scheme.
To make things worse, the Libra Association also didn’t give specific or technical details on how they can prevent criminals from using the new cryptocurrency for money laundering. One can only hope that they’ll be able to figure something out. It’s an extremely difficult task since Facebook has a very large global user base, and differentiating good from bad transactions can be quite a challenge.
If it’s used for a money-laundering scheme, it’ll be very difficult to stop. No amount of legislation will be able to solve the problem since each country has different views and understanding about cryptocurrency and ways to regulate it. Regulators must come up to speed with Libra and its blockchain technology to find out how to mitigate its risks and weaknesses. By then regulators should be able to address potential money laundering problems before they happen.
But until that happens, money laundering problems will continue to escalate once Libra becomes live especially with the number of digital channels that are now available and the ease of moving money around in our modern financial system. And, if you add into the mix the number of money laundering enablers (with Facebook being the biggest enabler of all) that’ll surely take advantage of Libra; making the war against money laundering even more difficult to win.
Can Facebook Stop Money Laundering Once Libra Launches?
Preventing money laundering using Libra is such a daunting task especially with the size of the user base that’s expected to use it. Aside from that, weeding out the real transactions from laundering can be very difficult since there are users who are probably going to use multiple accounts.
Genuine users will also be hesitant to continue using Libra because of the fact that their activities are continuously monitored even though all they’ve been doing are completely legal. Facebook is already having a really hard time gaining the trust of their users to use Libra once it launches, especially after the Cambridge Analytica scandal that greatly affected their credibility and reputation.
But if Facebook manages to develop a system that can detect money laundering without them having to monitor and scan every transaction, Libra can prevent laundering.
Facebook promised that they’re willing to shoulder the cost of losses that’ll arise from scams, hacks, and loss of access to their user’s Calibra wallet. Indeed, Facebook will be able to bear all these colossal losses since it is one of the largest companies in the world. But they’ll still need a very big capital to cover such losses when they do happen.
You also have to put into the spotlight Facebook’s notorious track record when it comes to privacy. The Cambridge Analytica scandal of 2018 really showed us that Facebook is not to be fully trusted when it comes to consumer protection and privacy.
Facebook has amassed billions of data from its users and it has been shown that they disregard the careful use and proper protection of this data. It’s no wonder why many people are questioning the credibility of Facebook when they announced that they’re developing a new type of cryptocurrency.
The company has promised though that all Libra activity will be only conducted on Calibra and is separate from the data that Facebook gathers for ad targeting. They also said that third-party wallets for Libra will soon be available once it becomes live.
Brings Serious Implications to Global Financial Stability
Facebook has over 2.4 billion monthly users and WhatsApp has 1.5 billion monthly users. If Libra becomes live it’ll instantly become global. A project this big of a scale can bring serious to global financial stability, which can lead to systemic risk.
With Facebook’s global network, Libra can easily takeover the world. It has the potential to replace the fiat currencies we have today thanks to Facebook’s global platform. Many financial institutions like the Bank of England have raised concerns about Libra. They claim that there’s not enough transparency when Libra was introduced. Some countries like India are even planning to ban Libra before it launches.
Libra must comply with a global regulation board but such a thing still doesn’t exist. This is exactly the same problem that countries and many constitutions are worried about the cryptocurrencies that came before Libra – the lack of global regulation for cryptocurrencies. There’s still no proper single institution that’s designated to oversee these cryptocurrencies.
But if this issue is going to be addressed, Libra has the potential to dominate the cryptocurrency world and would take over as the “global currency”. But until a single global regulation board is not yet created, Libra will have to comply with a number of regulations from around the world.
Facebook dreams that Libra can serve a great purpose to the people around the world once it launches. But the cryptocurrency has a lot of concerns, challenges, and regulatory issues to address before it can launch. They also have to consider whether people are going to embrace Libra and adapt to a new payment system.
Aside from that, cryptocurrencies are known to be used for various illegal activities, such as money laundering, and the same can be said about Libra. Anyone can take advantage of it for laundering because of its privacy and full anonymity, making it an ideal tool for criminals.
There are still so many questions that surround Libra. Will it be backed and approved by governments from around the world? Are the people ready to embrace and adapt to Libra? Would the people even want to let Facebook manage and handle their money given their history of data breaches and accusations? Will Libra ever launch?
Whatever the outcome will be, the developments of this massive project by Facebook will surely be under the microscope and will be monitored by the world.