Kevin Werbach Discusses What Is Really Motivating Facebook to Enter the Cryptocurrency Business

By TAP Staff Blogger

Posted on June 28, 2019


Facebook says its new cryptocurrency, Libra, is a tool for financial inclusion and disrupting the world’s cumbersome payment systems. In reality, there is a deeper motivation behind it, although not the one its critics imagine: Libra is the last, best hope to re-establish trust between Facebook and the world.
  -  from “The Real Reason for Facebook’s New Cryptocurrency” by Kevin Werbach, The Wharton School, University of Pennsylvania


Last week, Facebook announced Calibra, a digital wallet for Libra which is a new global cryptocurrency that is planned to be powered by blockchain technology. While Facebook is one of the founding members of Libra, it won’t directly control the currency. The governing body, the Libra Association, is made up of several companies that have partnered in the initiative. These include Visa, PayPal, Uber, Stripe, MasterCard, and eBay.


Facebook envisions Libra being used to make everyday financial transactions like paying bills, making retail purchases and paying for public transport. One of the Libra network’s early goals would be to provide basic financial services to people around the world who lack bank accounts and to save some of the $25 billion “lost by migrants every year through remittance fees,” the company said in a blog post Tuesday.
(“Facebook Unveils Cryptocurrency Libra in Bid to Reshape Finance,” The Wall Street Journal)


The Libra white paper sets a straight-forward goal: “The world truly needs a reliable digital currency and infrastructure that together can deliver on the promise of ‘the internet of money.’” The white paper also states: “Now is the time to create a new kind of digital currency built on the foundation of blockchain technology. The mission for Libra is a simple global currency and financial infrastructure that empowers billions of people.”


Kevin Werbach, Professor of Legal Studies and Business Ethics at The Wharton School, University of Pennsylvania, has taken a look behind Facebook’s goal for entering the business of blockchain technology to understand the business motivation of the social media giant. In “The Real Reason for Facebook’s New Cryptocurrency,” Professor Werbach emphasizes that “The surface rationales for Libra are less important than the long game Facebook is playing. The benefits from re-establishing the trust it has lost would dwarf what it could squeeze out of mining the data.”


Below are a few excerpts from “The Real Reason for Facebook’s New Cryptocurrency.”


Lost Trust


Facebook harnessed billions of users to the engine of artificial intelligence and steered unerringly toward advertising riches. Privacy, civic discourse and even democracy were crushed beneath the wheels as Facebook rolled toward global domination. Now it faces angry legislators around the world, huge fines, hostile investigations and punitive regulations aiming to rein it in.


For all the controversies, Facebook’s profits remain strong and its user numbers remain steady. Yet it has lost something that in the long run is even more important: the trust of its community. Trust is the great enabler of human connections and commerce. It represents the willingness to believe in the good will, abilities and principles of another, despite uncertainty. No amount of pressure or bribery can cause someone to trust you.


There is nothing Facebook can say to rebuild the trust it lost. And there is little it can do. Adding more A.I. to monitor hate speech and more rules designed to protect privacy can’t change Facebook’s fundamentals. It is a profit-maximizing corporation with fiduciary duties to shareholders and a business model tied to advertising.


Cryptocurrency and Trust


This is where cryptocurrency comes into the picture. Bitcoin, and the blockchain technology it popularized, is not just a new digital form of money. What makes cryptocurrencies revolutionary is that they create the foundation for a new form of trust.


A blockchain is a decentralized ledger, meaning that every participant in the network can be confident in the accuracy of transactions, without relying on an intermediary such as a bank or clearinghouse to verify them. Strong cryptography secures information about who is making those transactions at every step and offers powerful guarantees against tampering. If Facebook can establish Libra as a trusted way for users make their transactions, it will go a long way to rebuilding trust in Facebook itself.


Read the full article: “The Real Reason for Facebook’s New Cryptocurrency.”


Kevin Werbach is Professor of Legal Studies and Business Ethics at The Wharton School, University of Pennsylvania. He is a leading expert on the business, legal, and public policy implications of emerging technologies such as broadband, blockchain, and big data. Professor Werbach is the author of The Blockchain and the New Architecture of Trust (MIT Press, November 20th, 2018).