When Facebook (FB) announced at the end of last month that they were launching a digital currency, there had been rumors around for a while that the project was in the works. That is not really surprising, as keeping such a massive endeavor involving thirty or so companies completely secret would have been impossible.
If anything, given its potential impact, the lack of coverage of the story as the rumors circulated is what is surprising. Even yesterday, when the news broke, the coverage seemed somewhat muted and what there was focused on the history, not the potential. That is misleading, because if this project is a success it will have massive implications, and not just for Facebook.
In case you missed it, the currency itself will be called Libra, with Facebook’s announcement being about a digital wallet that they are launching to go with it, called Calibra. It is projected to go live next year.
When the press release came, there was some reporting of those bare facts, and there were a lot of stories along the line of “Would you trust this company with your money?”
Those, however, those had the feel of personal attacks on Mark Zuckerberg or attacks on Facebook as a corporation rather than any real analysis. They pointed out past privacy issues and the fact that Facebook’s business model involves collecting and selling data and concluded from that that nobody would or should use any financial service offered by the company.
What really matters is what Facebook actually will do, and on that basis, history suggests this has a good chance of success.
Not the history of similar projects at Facebook, of course. That consists of the ill-fated “Credits” -- an early attempt at a digital currency that was launched in 2011 and folded just a couple of years later. That, however, was the classic case of something ahead of its time, so it tells us nothing about the prospects for the new currency.
When Credits were launched, for example, bitcoin could be bought (by the very few that heard of that currency) for around $0.30 as opposed to the $9,000 exchange rate today. The acceptance of cryptocurrency and the blockchain on which bitcoin is based that caused that surge were still three or four years off in 2011. That is a very long time in fintech.
Now that bitcoin, and more importantly the concept of the blockchain, are mainstream, Libra has a much greater chance of success. Its success or failure will be defined by the level of adoption by consumers and Facebook users, and history suggests that will probably be based less on people’s trust of Facebook than on the convenience and cost of using the currency for transactions. On that front it has a very good chance, based in part on Facebook’s partners in the project.
There are some notable names among those partners, including both Uber (UBER) and Lyft (LYFT), but the most significant are Visa (V) and Mastercard (MA). Those are companies for whom cryptocurrencies represent a future problem that could even rise to the level of an existential threat. That made their involvement in a crypto of some kind likely, but the fact that they are united in support of Libra and will presumably be deploying their vast networks in support of it gives the upstart more than a fighter’s chance.
Early in 2015, I wrote an article asking whether bitcoin could destroy the global banking system. I concluded that whether the currency itself succeeded or not, the idea of the blockchain, a decentralized, peer-to-peer system of record keeping and exchange, had the potential to do just that.
Libra is potentially the tipping point for that to happen.
I understand all too well that bitcoin purists will be apoplectic that Libra is being talked of as a crypto at all. Having thirty big corporations behind it goes against the principles of decentralization and, to be fair, this does look like a corporate response to the threat posed by bitcoin as much as anything. In terms of its potential to affect the banking system, and even the economic system itself though, none of that matters and Libra should be watched very closely over the next few years.