Yves Mersch, executive board member of the European Central Bank, outlined on Monday a series of warnings concerning Facebook’s proposed blockchain digital currency Libra.
What is Libra?
Development of Libra began in 2017, and public reports first came to light the next year. Creators Morgan Beller, David Marcus, and Kevin Weil formally announced it this June. They also revealed its planned release in 2020.
Whereas Bitcoin and many other blockchain currencies are decentralized, relying on unaffiliated miners to maintain solvency and stability, Libra’s assets are centralized by the Libra Association. Guarantees of $10 million investments from each supporting partner—injected before Libra opens to the public—intend to stabilize the digital currency. Concerns with volatility significantly deter investment in blockchain currencies.
Libra’s expected 2020 release coincides with the release of a digital wallet, Calibra, that will allow payment through Messenger and WhatsApp. Similar messaging-app-integrated payment systems are hugely popular in China (WeChat Pay, AliPay) and Japan (LINE Pay). This market gap still exists in other parts of the world; apps such as Google Pay, Venmo, and Cash App do not integrate payment and SMS services. Investing partners include Mastercard, eBay, PayPal, and Uber, which should give a likely indication of Libra’s plans for market implementation.
Governments push back
The criticism from the ECB is both general and specific.
Mersch expressed distrust in Facebook as a whole, reminding the public that Libra’s developers are:
“the very same people who had to explain themselves in front of legislators in the United States and the European Union on the threats to our democracies resulting from their handling of personal data on their social media platform.”
He also criticized its centralized, hefty investment-based structure:
“With such a setup, it is difficult to discern the foundational promises of decentralization…normally associated with cryptocurrencies and other digital currencies. On the contrary, similarly to public money, Libra will actually be highly centralized, with Facebook and its partners acting as quasi-sovereign issuers of currency.”
Digital currencies have always been subject to criticism and regulation from governments; they disrupt traditional wealth distribution and storage. Libra also seeks to profit off market disruption, creating a currency privately regulated by the very companies that are selling you their products.
Libra has received criticisms and/or cease and desist requests from the United States, France, England, Germany, and Japan.