•Over 2billion subscribers expected to sign on
When it noticed its growing acceptance among Nigerians, mostly the youths, the Central Bank of Nigeria (CBN) in 2017, warned against investment in crypto-currencies – virtual monies – because they “were not protected by law.”
But such warnings did little. Many continued to trade in the new found “currency” taking advantage of its high volatility to make profits – or incur losses. And if anyone thought crytos were a flash in the pan, such thoughts, with its growing acceptance and JP Morgan Chase & Co. getting into Bitcoin futures trading, could have been mistaken.
And social media giant, Facebook is proving that as it is about to take cryptos to a whole new level. On Tuesday, June 18, Facebook announced it would officially launch its own version of crypto-currency, Libra, next year, 2020. Its primary target is emerging markets like Nigeria were many adults are not yet covered in the banking network.
For the social media giants, it could be new goldmine. But it has also brought its security issues into greater focus.
Facebook had said in its official facebook page on Tuesday that it is “sharing plans for Calibra, a newly formed Facebook subsidiary whose goal is to provide financial services that will let people access and participate in the Libra network. The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by block-chain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app — and we expect to launch in 2020.”
The statement noted further: “For many people around the world, even basic financial services are still out of reach: almost half of the adults in the world don’t have an active bank account and those numbers are worse in developing countries and even worse for women. The cost of that exclusion is high — approximately 70% of small businesses in developing countries lack access to credit and $25 billion is lost by migrants every year through remittance fees.
“This is the challenge we’re hoping to address with Calibra, a new digital wallet that you’ll be able to use to save, send and spend Libra.
“From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost. And, in time, we hope to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass.”
Last week, JPMorgan strategists led by Nikolaos Panigirtzoglou wrote that Bitcoin futures may be more important than many in the market.
“If only around five percent of reported May trading of $725 billion is genuine, it would imply that the actual volume of Bitcoin trading on crypto-currency exchanges in the month was around $36 billion, the strategists led by Panigirtzoglou wrote in the report.
According to Bloomberg, that compares with an estimated aggregate volume of $12 billion on the CME and Cboe futures contracts, JPMorgan said, itself a jump from April’s $5.5 billion and a first-quarter 2019 monthly average of $1.8 billion.
A major implication of this is that “the importance of the listed futures market has been significantly understated,” Panigirtzoglou wrote. “The report by Bitwise credits the traded futures as an important development in allowing short exposures that enabled arbitrageurs in properly engaging in arbitrage, and that the futures share of spot Bitcoin volumes increased sharply in April/May.”
The social network provider, assured that “When it launches, Calibra will have strong protections in place to keep your money and your information safe. We’ll be using all the same verification and anti-fraud processes that banks and credit cards use, and we’ll have automated systems that will proactively monitor activity to detect and prevent fraudulent behavior.
“We’ll also offer dedicated live support to help if you lose your phone or your password — and if someone fraudulently gains access to your account and you lose some Libra as a result, we’ll offer you a refund.
“We’ll also take steps to protect your privacy. Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent. This means Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook family of products.
“The limited cases where this data may be shared reflect our need to keep people safe, comply with the law and provide basic functionality to the people who use Calibra. Calibra will use Facebook data to comply with the law, secure customers’ accounts, mitigate risk and prevent criminal activity. You can read more about our commitments to privacy and consumer protection here.”
Facebook had been gradually recruiting former PayPal executives and crypto experts for years in preparation for entry into the crypto market. It’s eventual acceptance, experts say, could potentially upset traditional banking institutions, more so in emerging markets like Africa where access to internet vastly outpace bank coverage. It is a gap Facebook hopes to tap into – to target 1.7 billion people.
However, while Facebook created the currency, decisions regarding the ongoing maintenance of the Libra platform “will be carried out by the Libra Association, a collective of dozens of financial, not-for-profit companies, and commerce firms. To join the new Facebook subsidiary, each of these companies contributed a minimum of $10million to the venture, giving the company more than $1billion to put towards the new currency.”
Thus, Facebook won’t fully control Libra, but instead get just a single vote in its governance like other founding members of the Libra Association like Visa, Uber, Andreessen Horowitz, Mastercard, PayPal, the crypto exchange Coinbase and eBay. The company says it aims to supplement existing institutions and allow users who may have access to mobile devices but not bank accounts to enter the banking ecosystem, citing its partnerships with Women’s World Banking and other non-profit organisations.
“These kinds of groups will help us improve on the mission of financial inclusion,” said Kevin Weel, vice-president of product at Facebook. “In the long term this project will be seen as a financial utility. This has no intention of substituting itself for the large central banks.”
Ideally, crypto-currency network can be run and secured by anyone with a computer access. But initially, Libra’s block-chain will be closed, and only a select number of people will be able to run the software that powers it and verify transactions.
Facebook founder, Mark Zuckerberg, according to the Guardian, discussed the proposal, known as Project Libra, with US Treasury officials and is in talks with money transfer firms, including Western Union, to develop cheap, safe ways for people to send and receive money. The crypto-currency would let users transfer money using WhatsApp and Messenger, among other platforms.
“Payments is one of the areas where we have an opportunity to make it a lot easier,” Zuckerberg told the company’s developer conference last month. “I believe it should be as easy to send money to someone as it is to send a photo.”
In order to try to stabilise the digital currency the company is looking to peg its value to a basket of established currencies, including the US dollar, the euro and the Japanese yen. It is also looking at paying users fractions of a coin for activities such as viewing adverts and interacting with content related to online shopping, similar to loyalty schemes run by retailers.
With close to 2.4 billion people using Facebook each month, Libra could prove a welcome lift to the company’s profits. Analysts say it could be a huge money maker for Facebook, arriving as its growth is slowing. But security is a major concern. Crypto traders in Nigeria say they await in anticipation.
“We have been promoting it,” says Adol Omeje, Lagos based crypto trader. “It is going to be the next big thing. Already, we are seeing bitcoin rally close to N4million.”
But it could expose Facebook to more scrutiny, even as the company continues to reel from a series of privacy scandals.
Indeed, US lawmakers were quick to raise privacy concerns about the new currency. Shortly after Facebook’s announcement, Maxine Waters, Congresswoman and chair of the House Financial Services Committee, called on the company to put a stop to the project until Congress and regulators could review it.
“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” Waters said in a statement. “With the announcement that it plans to create a crypto-currency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users.”
The company is also attracting scrutiny from financial regulators and privacy advocates across the world. Facebook is currently facing a potential $5billion fine from the US Federal Trade Commission (FTC), which opened an investigation in response to the Cambridge Analytica revelations
U.S. and UK officials have previously expressed concern about Facebook’s move into the financial sector. In May, members of the U.S. Senate committee on banking, housing, and urban affairs wrote to Zuckerberg asking him to answer questions on privacy concerns and financial regulation.
“It is important to understand how large social platforms make data available that can be used in ways that have big implications for consumers’ financial lives,” the letter said. “It is also important to understand how large social platforms use financial data to profile and target consumers.”
Regulatory, issues and Facebook’s poor track record on data privacy and protection, experts say, are likely to prove to be the biggest hurdles to making the currency a success.
“Facebook is not regulated in the same way as banks are, and the crypto-currency industry is, by definition almost, unregulated,” Rebecca Harding, chief executive of banking trade data analytics firm Coriolis Technologies, told Guardian UK.
“In the UK, for example, there are no formal laws that govern this market because crypto-currencies are not legal tender. Facebook has also had issues with protecting user data in the past few years and this may well be an issue for it as it tries to provide guarantees to users that their financial information is safe.”