Will Facebook’s Libra Cryptocurrency Be Ill-Fated In India Like FreeBasics?
The antagonist in the James Bond movie Tomorrow Never Dies (1997), media mogul Elliot Carver tells Bond, “The distance between insanity and genius is measured only by success… Great men have always manipulated the media to save the world.”
Given that every major development across the globe is now viewed through the binary lens of social media, Facebook founder Mark Zuckerberg, for some, would be the ‘real’ Elliot Carver, and for others, he could be one of the most innovative minds in technology.
And, it’s not just because of Zuckerberg’s global cryptocurrency project — Libra, but for a series of developments since the beginning Facebook including the short-lived FreeBasics experiment (India) which Zuckerberg said ‘would bring digital equality to India’.
Facebook, today, has 2.4 Bn monthly active users, one-third of the world’s population. And, the company wants to leverage its vast user base to build a strong ecosystem of offerings beyond social media, including Instagram and WhatsApp. In the attempt, Facebook launched WhatsApp Payments, Messenger Payments, Marketplace and other potential hive-offs. But even there WhatsApp Payments has not been able to make inroads into the Indian fintech market due to regulatory hurdles, and India with 260 Mn users is its largest user-base in the world.
With Libra, the company plans to allow unrestricted payments across a host of countries (which allow cryptocurrencies). Announcing the launch, Zuckerberg wrote, “Libra’s mission is to create a simple global financial infrastructure that empowers billions of people around the world. Being able to use mobile money can have an important positive impact on people’s lives because you don’t have to always carry cash, which can be insecure, or pay extra fees for transfers. This is especially important for people who don’t have access to traditional banks or financial services. Right now, there are around a billion people who don’t have a bank account but do have a mobile phone.”
Project Libra: The Making
It was January 4, 2018, when Zuckerberg showcased his inclination towards cryptocurrencies. In his Facebook blog, he revealed that he’s exploring cryptocurrency as something Facebook could do in the future.
Five months later, on May 9, as Zuckerberg announced the entry of Jeff Zients, then CEO of The Cranemere Group in the company’s board of directors. Then David Marcus, who previously oversaw Facebook’s Messenger app revealed the formation of a new division within Facebook, dedicated to blockchain technology.
In his Facebook post, Marcus said, “After nearly four unbelievably rewarding years leading Messenger, I have decided it was time for me to take on a new challenge. I’m setting up a small group to explore how to best leverage Blockchain across Facebook, starting from scratch.”
However, on May 11, it was the US-based digital news platform Cheddar that first broke the story that Facebook is indeed exploring the creation of its own cryptocurrency, that would allow its billions of users around the world to make electronic payments.
One year later, the Wall Street Journal also reported that the Marcus-led blockchain project is named Libra and the cryptocurrency will be pegged to fiat-values.
What Is Libra?
In the project Libra, the word ‘Libra’ stands for multiple initiatives. The Libra Association that will govern the entire development of the decentralised blockchain called Libra (blockchain) developed under the Libra protocol. Most importantly, Libra is also the name of the stablecoin or cryptocurrency pegged to fiat-currencies, that will be used by customers for transactions.
The makers claim that the cryptocurrency will have the ability to serve as an efficient medium of exchange for billions of people around the world. “To validate the design of the Libra protocol, we have built an open-source prototype implementation — Libra Core — in anticipation of a global collaborative effort to advance this new ecosystem,” the whitepaper says.
While there are currently 2000 cryptocurrencies in the world, many of them such as Tether TrueUSD, Paxos Standard, Gemini Dollar etc are popular stablecoins. Then, the question is why Facebook decided to launch just another stablecoin?
A couple of reasons: Firstly, unlike its rivals such as Apple, Microsoft, Alphabet and Amazon, Facebook has failed to build a robust ecosystem around its core social media offering and the massive user base that it has built over the years. Secondly, it has yet to make any impact in the payments market so far.
In fact, Zuckerberg’s biggest announcements have been the biggest disappointment for the company. Facebook Home, Parse which it bought for over $85 Mn in order to build a search engine for inter-app migrations, Facebook email or inbox (@facebook.com), Facebook News (Notify), Facebook Questions, Facebook Beacon, and the HTC First smartphone running Facebook’s version of Android are just a few of them.
As Marcus explained, “If you stopped anyone on the streets of San Francisco, or New York City — respectively, the tech and financial capital of the world — and asked them to send $5 to Canada, they wouldn’t know where to start. Those who send money across borders are faced with an average cost of 7%, and it takes days for the money to arrive. Why is it that there’s no protocol for money on the Internet? That in this day and age, there’s still no way to securely move value with the same convenience we send text messages?”
He added that 30 years after the invention of the web, 1.7 Bn people are completely unbanked, despite a billion of them, having mobile phones. Over another billion are underserved by financial services. In the US alone, over 12 million people rely on payday lending that charge interest rates of up to 400%, he added and exhorted anyone who would listen to change things.
Zuckerberg wants Libra to meet this gap.
And it also helps that none of the other stablecoins has the numbers as good as Facebook does in terms of revenue and users.
Will Facebook To Overlook The Cryptocurrency Libra?
Given the poor track record of Facebook in terms of data handling and the risks involved in the crypto project, Zuckerberg in his announcement, clarified that even if it was a Facebook-led project, “Facebook is coming together with 27 organizations around the world to start the non-profit Libra Association and create a new currency called Libra.”
After launch, Facebook will be simply a founding member like other member organisations. While payment companies like Mastercard, PayPal, PayU, Stripe and Visa, to popular services like Booking, eBay, Farfetch, Lyft, Spotify and Uber are already part of the founding members of Libra Association, the list of founding members is expected to hit 100, by the time of launch in 2020.
According to the WSJ report, each founding member has paid $10 Mn to earn a place in the association. If the number is correct, this means, Facebook has already raised $270 Mn for the project and if Libra Association gets 100 member companies by 2020 launch time, the funding will surge to $1 Bn, perhaps the largest crypto fund raised ever before the launch.
In addition, to build a seamless interface for payments, Facebook has also established a financial subsidiary Calibra which has been tasked to develop a wallet for Libra. Other payments companies Mastercard, Paypal, Visa, PayU etc are also expected to launch a new wallet for Libra or integrate it in their existing models.
Facebook’s Libra: Does It Have A Chance In India?
With 260 Mn users, Facebook’s largest user base is in India. The number is expected to rise exponentially as internet users in India set to reach 627 Mn by the end of 2019. This is why India has been the key focus market for Zuckerberg to the extent that outside the US, the India team is now treated on par with the those working from the Menlo Park HQ.
However, India could never be the ‘Harvard’ Zuckerberg wanted it to be. And, his flagship projects such as FreeBasics and Facebook’s HTC First smartphone which were supposed to focus on India somehow failed before they could take off.
While launching FreeBasics, despite running a year-long campaign, it couldn’t bend the meaning of ‘Net Neutrality’ for India and the telecom authority TRAI later banned the app amid rising controversy.
As most of the NGO and corporate ads do, Zuckerberg used an example of a generic individual in his Times Of India column that tried to bust the claims made by various people against FreeBasics. He said, “In every society, there are certain basic services that are so important for people’s well being that we expect everyone to be able to access them freely. We have collections of free basic books. They’re called libraries. They don’t contain every book, but they still provide a world of good.”
However, the activists then responded, “It’s not about how many books do you offer as FreeBasics, it’s about giving Facebook the very power to choose which books should be made free and which shouldn’t.”
FreeBasics critics were right. In 2018, after Facebook-Cambridge Analytica data scandal was exposed, Cambridge Analytica accepted the very fact that they used Facebook data to sway people’s minds.
Facebook despite being the most used social media (Facebook and Instagram) and messaging platform (WhatsApp) has been struggling to launch WhatsApp Payments in India. And, like FreeBasics, there is a good chance that Libra may not see the light of day in India due to unfavourable regulations pertaining to cryptocurrencies.
How unfavourable are these regulations? We will find out on July 5 when finance minister Nirmala Sitharaman introduces the Union Budget 2019 in the Lok Sabha, which is expected to clarify India’s official stance on cryptocurrency.
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Author: Suprita Anupam