The Audacity of Facebook: Libra, Cryptos & Privacy

By Hatem Dhiab

As I write this, the ink has barely dried on the most important privacy ruling to date of the internet era: The settlement Facebook signed this week with the Federal Trade Commission (FTC). The order mandates the social network to establish an independent appointed privacy committee to its board to review decisions affecting user privacy. Facebook will also need to designate compliance officers to oversee a privacy program as well as undergo regular privacy audits that Zuckerberg and others must submit to and appoint an outside assessor to monitor the handling of the data. The FTC also assessed Facebook with a cool $5B fine for splash effect, the largest of its kind. I say splash because, for a company with $58B in annual revenue and 40% profit margins, this is just a slap on the wrist, the cost of doing business as they say.

This settlement is a direct result of Facebook deceiving users about their ability to control the privacy of their personal data. This stems from the fallout and outrage from the Russians meddling in US elections and elsewhere as well as the Cambridge Analytica breach. Rohit Chopra, a commissioner of the FTC went further by saying, “Facebook’s flagrant violations were a direct result of their business model of mass surveillance and manipulation and this action blesses this model. The settlement does not fix this problem. We should all be concerned that the business incentives of big tech platform behavioral advertising spur practices that are dividing our society. When companies break the law and cause massive harm, they need to be held accountable.”

What’s mind-boggling is that on the heels of this privacy fallout, Facebook is also in the midst of trying to launch “Libra”, their own cryptocurrency. If all goes according to plan, it will be available sometime in the first half of 2020. Libra will be bought, sold, held, sent and received within Facebook’s apps, Messenger and WhatsApp, as well as rivals. Tap on a smartphone will allow money to change hands almost instantaneously, even if the sender and receiver are on different sides of the planet. Libra, in effect, is an attempt to undercut existing payment services and the current banking system. Facebook will leverage their 2.4 billion users by creating a platform to move cash without 3rd party checks and balances. Libra should move within seconds for negligible fees across the globe. For Facebook the move is gutsy, but genius, why not be the cryptocurrency winner of the internet age?

One might ask, what could go wrong with this idea? Well, it’s a long list! We can fairly assume there will be rampant fraud, money laundering and corruption on a global scale and terrorist funding, just to name a few. One can only imagine what the Russians or whoever is the new Mr. Evil du jour, will try and do with our financial data should they be able to weaponize it.

Additionally, even though Facebook says they won’t try to replace banks, the mere fact that people will need to take money out of banks and put their funds in reserve with Calibra (Libra’s governing body) to buy the digital currency will destabilize the global financial system in ways we haven’t conceived. Facebook’s scale could make Calibra a defacto global Federal Reserve responsible for deposits of billions of people. It’s a direct affront on the sovereignty of nations and their ability to control and manage their own currencies, hence why the whole world has already come against it.

David Marcus, the French-born head of messaging at Facebook and Libra co-founder, was interrogated by the house finance committee & senate last week. During the 2-day hearing, you could see the heads of senators and congressmen and women just about to explode at the arrogance and audacity of the project set forth. Especially, when he contended that Libra and Calibra should not be governed by banking regulations or securities laws. The legislators were literally baffled by Facebook’s suggestion to launch the currency without close government supervision. It is truly mind-blowing to see Facebook, one of the most egregious privacy violators in recent times, is trying to create their own monetary system and expecting the world to simply be agreeable and amenable to this mad project.

What’s true here, is that the pitch to create a global digital currency is actually a good one and further validates cryptocurrencies and their unique attributes through the blockchain technology. The genius of cryptos, in general, is they are decentralized and by design can do away with central bank manipulation and political risk. Let us remember, they were created after 2008 when the financial system nearly collapsed due to widespread greed and fraud. If it weren’t for central banks stepping in and bailing out some of the largest financial institutions around the globe, our financial system as we know it would have been decimated.

The world is perhaps ready for a more efficient means of transfer of value that lacks the constraints of traditional money. A global digital currency will make sending money across the world as easy as texting. It will eliminate fees, delays, as well as other barriers to the flow of cash. It might also give those in less developed countries access to the financial system and a means to protect hard-earned wages from runaway inflation. It could also trigger a new wave of innovation in finance, much as the internet did for the digital economy.

We simply CANNOT put it in the hands of Facebook or Libra! After all, we know too well that the Fox should not be put in charge of the hen house.

Hatem Dhiab is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $859 million in assets under management as of 4/30/19. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures the success or protects against loss. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.”