Earlier this week, a Nobel Prize-winning economist squared off with a Facebook executive over whether the social media giant could be trusted to create a cryptocurrency.
On July 2, Nobel laureate Joseph Stiglitz published an opinion piece that concluded, “[o]nly a fool would trust Facebook with his or her financial well being.”
A day later, David Marcus, the head of Facebook’s Calibra wallet, which will run on the Libra cryptocurrency blockchain Mark Zuckerberg’s sprawling tech empire is creating, responded.
Pointing to the fact that Facebook plans to be only one of 100 voting nodes controlling Libra, Marcus said, “Bottom line: You won’t have to trust Facebook to get the benefit of Libra.”
The fact that Marcus’ key response to Facebook being called duplicitous and unscrupulous is to say that the company has designed the project so that people don’t have to trust it speaks volumes about its reputation.
So do polls. It fell from second place to dead last (tied with YouTube) between 2017 and 2018, according to Business Insider Intelligence’s Digital Trust ranking of major social media companies. Another 2018 survey found that the percentage of Americans who trust Facebook dropped from 79% to 27% after the Cambridge Analytica scandal, in which the data analysis firm illicitly gained access to tens of millions of Facebook users’ data.
There’s one born every minute
“Time and again, Facebook’s leaders, faced with a choice between money and honoring their promises, have grabbed the money. And nothing could be more about money than creating a new currency,” said Stiglitz. “[I]n just a few short years, Facebook has earned a level of distrust that took the banking sector much longer to achieve.”
That said, Stiglitz doesn’t trust cryptocurrencies in general.
“[T]echnology has enabled us to complete transactions efficiently, moving money from customers’ accounts into those of retailers in nanoseconds, with remarkably good fraud protection,” he said. “The last thing we need is a new vehicle for nurturing illicit activities and laundering the proceeds, which another cryptocurrency will almost certainly turn out to be.”
As for Facebook, there are two main potential sources of revenue that Facebook could gain from Libra, he said. One is its share of the Libra Foundation’s interest on the pool of strong currencies and government securities that will back libra in order to keep it as stable as possible (although it will not technically be a stablecoin).
In addition, “the data Libra transactions provide could be mined, like all the other data that’s come into Facebook’s possession — reinforcing its market power and profits, and further undermining our security and privacy,” said Stiglitz. “Facebook (or Libra) might promise not to do that, but who would believe it?”
Facebook hopes everyone will, Marcus said. Noting that the social media giant won’t have any special rights or privileges over the Libra blockchain, Marcus promised that while “Facebook, Inc. owns and controls Calibra, it won’t see financial data from Calibra.”
In other words, Facebook will not combine the staggering amount of data it mines from 2.4 billion members to sell ads with any of the financial data its Calibra subsidiary gathers. Which is not the same as saying Calibra will not mine Libra financial data.
Marcus added, “We’ve been clear about our approach to financial data separation and we will live up to our commitments and work hard to deliver real utility.”
That is to say, trust us.
Yet, will people trust Facebook? Stiglitz seems to think so. “With so much personal data on some 2.4 billion monthly active users,” he said, “who knows better than Facebook just how many suckers are born every minute?”
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