Front Burner - Facebook’s plan for a new global currency

Episode Date: June 20, 2019

This week, Facebook announced it will launch a cryptocurrency in 2020. A new global currency, available to billions of people - is something like that legal? Or a good idea? Jon Porter from The Verge breaks it down.

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Felt like a murderer had gotten away with something. Tell me now, did you have anything to do with the murder? Someone Knows Something with David Ridgen, Season 5. Now available. Go to cbc.ca slash sks. Hello, I'm Jamie Poisson. Here's one thing that everyone can agree Facebook is. A social network. A gigantic social network. $55.8 billion in revenue in 2018.

More than 2 billion users. But what else is Facebook? If you ask that question, there's more debate. Is Facebook a broadcaster? I mean, they've got Facebook Live. Is it a publisher? Huge amounts of news pass through it. Let's add one more to the mix, because Facebook has just announced that it will create its own currency with a conglomerate of other companies. A global encrypted digital currency called Libra.

So is Facebook a bank now too? A country? A financial institution? I don't know. Today on FrontBurner, what is this cryptocurrency Libra? How will it work? And what does it mean for the growing reach of a company many people believe can no longer be taken at its word? I'm joined today by John Porter from the tech website The Verge. John, hello. Hey, good to be here. Okay, so we've talked about cryptocurrencies on this podcast before, and I'm still pretty sure I don't understand them.

But very basically, and can you tell me if I'm right here, crypto is like regular currency, like a euro or a dollar, but it's not tied to a government and you can use it to buy stuff online i know that is super rudimentary no i mean that's basically it right it's just this idea of you have a currency that rather than being owned and controlled by government it's controlled by people um which sounds like a fairly simple thing but is actually a really difficult problem to solve i mean digital currencies it's been like theorized for decades, and people just couldn't work out how, how you could do it. And the big problem basically is trust. You trust the Canadian dollar,

I trust the British pound, right? Because I have trust in the government that administers it, right? So the idea of having this currency that's not administered by a government, you have to have enormous amount of trust in the system that's underpinning it. So the genius of cryptocurrency is finding a way of trusting nothingness in a weird way, right? Yes, yes, that weirdly does make sense to me. Now can we talk about how Facebook says they're going to do it? Essentially, how is Facebook saying that this could work logistically? The big thing to start off with is that this is kind of one step removed from Facebook. So the organization that's going to be administering the Libra cryptocurrency is called the Libra Association. And Facebook is a member of that association. But the way they've positioned

it is they're a member like any other member of that organization, which includes people like Visa, MasterCard, Uber, Lyft, Spotify is a member. David Marcus, fascinating new endeavor you're launching. 27 organizations right now. And so we needed a way to decentralize governance because no one company should control a network that basically is a protocol for value on the internet. So that's the first thing. And then logistically, how this thing actually works is each of these companies that are a member of this organization, they've all agreed to stump up $10 million, which will then go into a central pot, which will then kind of provide backing and security for this currency. And that's what they hope will kind of give it value and stability and will allow people to

trust that this thing will have value when they want it to go around and spend it. This is how they're going to gain that trust because they're saying, look, we're backing this with real dollars. Why would I want to use Libra? You know, you mentioned that Visa is part of this conglomerate. Like, why wouldn't I just want to use my Visa card? So the big one is transaction fees, basically. So whenever you're using a Visa card, a MasterCard, at some point, someone in that transaction is paying a fee in order to kind of keep the lights on a Visa or MasterCard, right? And normally in shops, that's kind of covered by the shop itself. And that's what can then make person to person transactions a little bit expensive, because you need to pay

for that. So the big advantage that Libra has is that Facebook says you'll be able to transfer money with close to zero transaction fees, which is not only great if you're as a Canadian transferring money to another Canadian, but should also mean that if you're transferring money from one country to another, it should be a lot cheaper. I think that the figure that I've seen thrown around is that those transaction fees tend to be around 7%, which obviously adds up quite quickly. So with this, Facebook is kind of targeting markets like India and stuff. We have a lot of migrant workers who are looking to send remittances back home. So it kind of has the potential to save them a lot of money. And it's kind of a lot more convenient is the idea. Backed by the belief that money should be fast for Ope in Lagos.

Simple for Saul's family business in Manila, and secure for Betsabe when sending money home to Mexico City. I also noticed that they're talking about unbanked people. So people that don't even have bank accounts. So this is, I think, a part of the scheme that's a little bit, it's less clear exactly how this is going to work. I think the idea is that like a kind of a money transferring service like Western Union, that you could, if you don't have a bank account, you could go into a shop with just money notes in your hand and then kind of pay that over a counter and then get access to Libra quite conveniently. It'll have to be cash in and cash out at a local physical place. We believe that the ecosystem that can be built around this new network can be really powerful in driving more financial inclusion.

So yes, the idea is that you wouldn't need to have access to an additional bank account, but then you will need a government ID to get Libra. So, yeah, I'm not quite sure exactly that it adds up or that the picture is entirely clear at this point. Why do these companies want to do this? What would they get out of this if they were making money before on transaction fees and now they're making almost no money on transaction fees? Like what's their motivation here for being part of this conglomerate? I mean, so I think for someone like Facebook, it's quite obvious, right? That they're going to build it into their services.

It's like another reason to use WhatsApp, to use Messenger. So for Facebook, I feel like it makes sense. For these other guys, you're right. It's a lot less clear. I think that there's definitely a part of it that Visa and MasterCard are looking at stuff like cryptocurrencies. And there's a real sense that this stuff could end up being really important in the future. And they kind of want to get in at the ground floor and kind of understand it and build it into their business model so they don't get blindsided by it.

But then in the immediate future, the way Facebook says they're going to make money, there's all this money in this pot that's used to back the cryptocurrency that will obviously earn a huge amount of interest. And then that interest will not only pay to keep the network running, but then they'll also kind of do payouts to the companies involved. It is possible that Libra becomes this global currency. And once they have all of these billions of people using Libra, you can turn up these rates. That's what's happened with Facebook, right? I

don't think anyone likes Facebook as a company, at least not people in the kind of journalistic circles, I guess. But you're kind of trapped there because you kind of go, well, I guess I could leave Facebook, but what's going to happen the next time a party happens? What's going to happen the next time a friend of mine gets married? There's a lock-in, right? And I think there's a real risk that the same thing could happen with this currency. And I know we've seen the same thing happen with Amazon, where prices on certain items have been low at the beginning. And then once a lot of people are using Amazon, those prices, they go up. Yeah. And to get really high and philosophical about it, the whole point of the Internet was to be this decentralized network. And what we've seen over time is that over time, it's just kind of become more and more and more centralized with just a few key big companies.

And now Facebook and Google essentially command the entire digital ad ecosystem. And it's very hard for anyone else to compete with them. It's kind of terrifying. Sometimes I have these moments where I think to myself, the internet, like we just should not have done that. I mean, I don't think that they've knowingly or intentionally been bad companies. I just think that there is a lack of guidance. There's a lack of regulation. You know, I really hope that we get into a point where lawmakers can kind of look at these companies and go, OK, we know the bad stuff that can happen here. And it's time for us to say maybe these companies shouldn't be as big as they are.

I don't think they want to knowingly break the law. I just think that they've just grown so quickly. And there's just a lot of people there that just don't really know the power of what they're dealing with, especially a problem when it comes to something like Libra. Right, right. And I mean, I was reading the white paper that Facebook put out on Libra, and I couldn't help but notice that they are talking about this as like a public good. What if everyone was invited to the global economy with access to the same financial opportunities?

They're saying they think of this as a public good. And, you know, when I think of Facebook right now, I'm not necessarily thinking to myself, public good, right? I'm thinking Cambridge Analytica, millions of people's Facebook profile data was harvested and then used for political advertising purposes. The company got its hands on the data through a Facebook app for personality testing.

Its licensing agreement required users to share their own data, as well as friends' data who had loose privacy settings. And, you know, I think of the slow response to take down the New Zealand livestream videos. In all 17 minutes of it, you see the shooter drive up, park at the mosque, enter, and then start shooting. So what I do know about cryptocurrency is that it's like a pretty gray area when it comes to regulation. And so is there any sense that what's happening here, is it legal? And if it is, like, are people looking to regulate it?

Certainly before the cryptocurrency was announced, there were reports that Facebook had met with various key stakeholders. There was a report that it met with representatives of the U.S. Treasury, met with the Bank of England governor. So reportedly, it's looking into these things. When Facebook announced it, they turned around, they said that they're going to use, I'm going to quote here, we will 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 protect and prevent fraudulent behavior. So it's something that Facebook say that they're looking at. But if you just think of national governments that have been operating currencies for hundreds of

years, this is something they're still struggling with, and they should be the experts. And so I think Facebook is optimistic to the point of being a bit foolish if it thinks that it can do, if it can match that effort that governments make or even do better than it. It's kind of, there's something really appealing about seeing companies being optimistic. It hasn't gone well for Facebook in the past. Right. Have you heard concerns that it might be difficult for governments to work with Facebook here? I mean, we just had a parliamentary committee here in Canada on election interference. And Mark Zuckerberg and COO Sheryl Sandberg were subpoenaed

to come to this committee. And they just did not show up. We're kind of meek and mild here in Canada. I don't ever remember a summons being issued against the head of a corporation. And I don't ever know of anybody who's decided to ignore someone. So surely to God, they have something really pressing. I think it's a kind of Facebook is willing to cooperate on its own terms. It will kind of announce the initiative and then it will make sure that it mentions that it's going to be obeying regulations, it's going to be doing all this stuff. But when it's kind of on the back foot, and I mean, you say this happened in Canada, exactly the same thing happened in the uk around the time

that the cambridge analytica scandal there was a government committee that said you know mark zuckerberg you need to attend this committee and he sent a subordinate and i think for him not to make himself available i think was disrespectful to the process um i think there are really important questions that were asked today um where again, we got unsatisfactory answers. There's almost no there's no recourse. It technically operates within countries, but because it is so international in scale, it can kind of skirt regulations when it wants to. I think it's a problem when you're a social network and it's definitely a problem if you're going to try and launch your own currency. Yes, your own global currency. Meanwhile, over in the Senate, Democrat Mark

Warner says that this issue is fundamentally about trust. What I heard virtually uniformly from commentary this morning, here is a company that has frankly lost the majority of Americans trust about their ability to keep individuals' data private already. The idea that we're going to turn over our financial data and information to that company, I think they've got a big uphill effort. We'll be back in a second. We'll be back in a second. a whole new way where stories are brought to life by powerful performances from renowned actors and narrators. With the free Audible app, you can listen anytime, anywhere, whether you're at home, in the car, or out on a jog. The first 30 days of the Audible membership are free, including a free book. Go to www.audible.ca slash cbc to learn more. Can we talk a little bit about security?

So first of all, about 2.5 billion people use Facebook. And let's say just even half of them use this new currency. Is this a huge security risk? Like, couldn't someone hack into my Facebook account and steal my Libra? Yeah, so from a kind of from a cyber security standpoint, nothing is 100% secure. For a potential hacker, that's a massive, a massive honeypot, right? It's potentially 2.5 billion users. It's huge. It's even if each one of those users only invested a couple of dollars, that's billions. So yeah, I think they seem to be following best practices when it comes to security with this stuff. But it's so untested. The stakes are so high that yeah, it's really hard to know exactly how much security that they can provide. Does this make it easy for criminals? Like would this attract criminality? Comments by European lawmakers suggest that they're definitely worried that it

could be. There have kind of been quotes that suggested that European lawmakers think that this could turn Facebook into a shadow bank. And the fact that they're not regulated like a traditional bank could allow people to launder money to fund international organized crime but there are all these potentials they will really rely on facebook to do a lot of regulatory work to kind of make sure people are held to a high standard whilst using the service and i think at the moment based on how facebook it regulates its normal social media platform that certainly leaves a lot to be desired. So you kind of hope that when it comes to dealing with real people's real money, that

they'll be able to hold people to a higher standard when this launches. Okay. Can we talk about data for a second as well? Facebook already has a lot of my data. It knows a lot of what I'm doing online on its social media websites and other websites that it has collected my data from. But what is it saying about how it will use data related to Libra, related to like banking? The official company line from Facebook is that you can hold a Facebook account and Facebook isn't going to look at your Libra account and go, oh, this person spends a lot of money on Ubers and now we're going to sell their advertising data so that Lyft can target them that's what Facebook says that it won't do but the problem is Facebook has said things like this in the past and then it's kind of emerged that they have been sharing

data between people I mean like multiple times exactly so the big one is between WhatsApp and Facebook which when they were allowed to make that acquisition which i think increasingly it looks like government regulators shouldn't have let them do they said we're going to keep the separate separate companies separate data everything's going to be separate um and then over time it kind of emerged that whatsapp phone numbers can be kind of cross-referenced with facebook whatsapp announced changes to its privacy policy where it will begin connecting phone numbers to its parent company, Facebook.

Facebook is saying that they won't share this data and you just don't know whether to believe them when they've had the history that they've had. To end this conversation today, I just kind power, but also power over our lives and ability to influence the way people think about politics and data that is so precise that it is able to influence people's behavior. And now it could have its own currency, essentially. have its own currency, essentially. I think Facebook already holds a huge amount of power. And clearly, there are a lot of people, even recently, we have lawmakers in the States, talking about perceived bias in social media companies and this sort of thing. So already, that there's this worry, from a democratic standpoint, that Facebook holds a lot of power,

it certainly holds a lot of power, already from a monetary point of view, you know, like Facebook and Google between them essentially control the vast majority of online advertising spend. So it's already powerful in all these different ways. And having this power again over monetary transactions, it's really unprecedented. It's really difficult to know what they could do with this power. What I should say is that Facebook is only one company that makes up the Libra Association. And so there's kind of every potential for that to kind of hold Facebook to account. But then even when you look at the Libra Association, these are not small companies. These are like tech giants. These are Uber, Lyft, Visa, Mastercard. These are massive, massive companies.

And you really have to worry whether these companies will have the same goals for a currency as a government would. Obviously, with a traditional currency, a government can use stuff like monetary policy. And all these kind of tools are really essential for a government to kind of control their own economies. of tools are really essential for a government to kind of control their own economies and outsourcing that to an international group of tech giants of e-commerce giants it's a big shift in power and i worry that there isn't the accountability there that you have in a democratic system john thank you so much for helping me muddle through this this was so helpful i'm still i'm still like, not sure I totally understand cryptocurrencies, particularly Bitcoin. But I do understand this issue a lot better now.

And I really appreciate it. No, no problem. So as John mentioned throughout our conversation, there's still a ton that we don't know about Libra, including whether it will even be an option in Canada. The Bank of Canada says it's reviewing Facebook's proposal very carefully. However, the bank also wouldn't say whether Facebook had been in touch about its plans. Meantime, in the United States, the Senate Banking Committee announced Wednesday it would hold hearings on Libra this July. And this comes after Congresswoman Maxine Waters asked the company to stop developing the currency until these hearings can be held. Of course, Facebook and many other companies in this conglomerate are American, and this is where a lot of the action will likely go down.

lot of the action will likely go down. That's all for today, but to cbc.ca slash podcasts. It's 2011 and the Arab Spring is raging. A lesbian activist in Syria starts a blog. She names it Gay Girl in Damascus. Am I crazy? Maybe. As her profile grows, so does the danger. The object of the email was, please read this while sitting down. It's like a genie came out of the bottle and you can't put it back.

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