Experts Raise Questions About Facebook’s New Cryptocurrency
By Grace Austin
A social media giant is breaking into cryptocurrency ground—leading consumer advocates and security experts to question the potential fallout from the new foray into digital money.
Facebook’s Libra, a proposed cryptocurrency and financial system, is a partnership between payments providers like PayPal, credit card companies such as Visa, and companies like Uber, eBay and Spotify that’s set to launch in 2020. Facebook has billions of users around the globe that would have the cryptocurrency and e-wallet at their fingertips.
The social media giant said the currency itself won’t be run by Facebook and instead be helmed by a nonprofit consortium—but it is creating a new division called Calibra that will build and run the digital wallet.
Facebook is expecting that its reserve of “low-volatility assets” behind the cryptocurrency will lend a stability and respectability to Libra that will make it easy to buy everyday things such as groceries or pay household bills. Those assets include bank deposits and government-backed securities, according to the company’s white paper on Libra. The company said because it’s not meant to be an investment currency like bitcoin, it shouldn’t have wild fluctuations in price like other cryptocurrencies. Libra instead will be a digital exchange currency, or a “stablecoin.”
Several issues have arisen since the June 2019 announcement from vastly different voices weary of the new digital currency and financial platform.
Some experts question the safety of Libra, as data insecurity remains a major issue for tech companies and social media platforms after high-profile breaches left millions of consumers vulnerable to hackers. Facebook also has a history of accusations of selling user data, and experts are concerned that the cryptocurrency could mean more targeted advertising that could negatively influence users to spend.
Another issue, according to CNBC, could be a rise in consumer overspending. That’s as more than a third of Americans say their spending is influenced by social media and what their peers are doing, according to Schwab’s 2019 Modern Wealth Survey. Survey respondents said social media is ranked as the top offender for bad money management.
The ease of digital money also is a factor, according to experts, without the mindful spending that goes into cash and even credit card in-person or online transactions.
On top of that, Facebook said Libra could venture into lending and other financial services. At this point, it’s unclear what kind of interest rates or fine print could govern those loans, but consumer advocates say the ease of access could be problematic.
Now, Libra is facing scrutiny from U.S. officials — lawmakers told Facebook in July 2019 to hold off on the project for now. A group of legislators from the House Financial Services Committee sent that notice to the social media giant, saying they’d like to see hearings on the subject first. Lawmakers said they need time to learn more about the “stablecoin” and identify its risks.
More than 30 organizations sent a similar request to Facebook at the same time, asking the company to hold off on development until many of the most significant questions surrounding Libra are answered.