Blockchain technology, now used by mainstream companies worldwide, such as JPMorgan Chase & Co. (JPM) and Toyota Motor Corp. (TM), to run parts of their operations, faces a major threat. According to several critics, including one of the respected leaders in the computer science world, Mihai Alisie, co-founder of Ethereum, the blockchain of choice for most business and finance projects, Facebook Inc.’s (FB) foray into the cryptocurrency space is bad news for technology.
Libra Security Concerns
In June, Facebook announced plans to develop its own digital coin called Libra, set to be backed by cash and short-term securities. Like other cryptocurrencies, Libra would run off blockchain technology, allowing the platform’s more than 2 billion users to send Libra coin to one another, and use it for transactions across Instagram, WhatsApp and Messenger. The idea is to create a secure and low-cost way for consumers to move money around the world.
Since the day the news about Libra broke, Facebook has faced criticism from lawmakers. The company has battled with regulatory issues over the recent years, following a wave of scandals and a massive data breach involving political consulting firm Cambridge Analytica. Many have ridiculed CEO Mark Zuckerberg for not better managing Russian interference in the 2016 Presidential race.
The key issue is that the social media behemoth, which is under constant scrutiny for the way it monetizes the personal data of its users, threatens the privacy and user sovereignty that is crucial for blockchain, per the experts cited by Bloomberg. Ethereum co-founder Alisie highlights the fact that an integral aspect of blockchain is that no person or corporation owns the underlying systems, comparing it to how the Internet is free for anyone to use. Ownership by Facebook threatens this key pillar of the blockchain system, said the cryptocurrency trailblazer.
“This has implications on so many areas, from the economic to the political to the technological to surveillance and data privacy,” according to Alisie.
He criticizes Facebook for prioritized growth over user privacy, and for its role in the Russian election meddling. “It’s a very well-oiled machine of surveillance… It is actively manipulating the behavior of people on a global scale,” added the Ethereum co-founder, who created the cryptocurrency in 2014 and 2015 and more recently founded Ethereum-backed social network Akasha Project.
What Blockchain Could Lose for Mainstream Adoption
Facebook has already partnered with more than 20 companies including PayPal Holdings Inc. (PYPL), Visa Inc. (V) and Mastercard Inc. (MA). David Marcus, the head of Facebook’s Libra subsidiary Calibra, says that by the time the cryptocurrency is live, 100 companies will be in its network.
Team Libra thinks it can help bring cryptocurrency to the mainstream in ways that Bitcoin and Ethereum have failed. Dante Disparte, head of policy and communications at the Libra Association, is confident that the scale of Libra over the next five years will help it ride the adoption curve and reach billions of people. Within this time, Libra will be “totally permissionless and totally decentralized,” said Disparte.
While many have attributed Bitcoin and other cryptocurrencies’ rally in 2019 to Facebook’s interest in the space, Alisie fears that having the blockchain infrastructure owned by a company is “not an upgrade” but “downgrade for what blockchain means.” He says Libra would take away a fundamental aspect of blockchain that gave power back to individuals who no longer needed to rely on third parties like Facebook or Verizon.
Facebook says that it has reached out to regulators around the world to ensure that it is in compliance, upholding consumer protection and making sure that central banks and governments are appropriately involved with Libra.
Blockchain’s threat from Facebook comes as studies have shown that blockchain is susceptible to macro leaks, and also is slower and more costly to operate than expected, as outlined in a previous Investopedia report.
All of this comes as Facebook executives involved in the Libra project have faced questions from Congressional committees this week.
Federal Reserve Chairman Jerome Powell has raised concerns that he indicates must be addressed before the plan moves forward. “Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” Powell told lawmakers at a House Financial Services Committee hearing in Washington.