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Know Why Facebook’s Digital Coin is Set to Run into Rough Weather

By launching its own cryptocurrency, Facebook is essentially creating its own shopping ecosystem

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Facebook is reaching out to financial firms and payments service providers to join the Libra consortium to help them launch their cryptocurrency-based payments system. Pixabay

Sensing a multi-billion dollar opportunity to improve the cross-border payments system, Facebook is launching its own digital coin called ‘Libra’ next year which is set to run into rough weather with several governments, including India, not treating cryptocurrencies as legal tender.

The move to launch ‘Libra’ comes at a time when Facebook is under intense pressure from regulators, shareholders and users to address privacy shortcomings.

The social networking giant with over two billion users globally, is facing regulatory challenges as the Cambridge Analytica scandal has exposed its lapses of data privacy and security.

According to senior Forrester analyst Aurelie L’Hostis, now that Facebook is reaching out to financial firms and payments service providers to join the Libra consortium to help them launch their cryptocurrency-based payments system, we can expect regulators and governments to raise questions regarding Facebook’s financial data collection and management process.

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Facebook is launching its own digital coin called ‘Libra’ next year which is set to run into rough weather. Pixabay

“By launching its own cryptocurrency, Facebook is essentially creating its own shopping ecosystem where consumers and businesses will be able to buy and sell products on its platforms without having to use web payment systems like PayPal,” L’Hostis told IANS.

However, the move is set to see some intense scrutiny as there is huge trust deficit with Facebook.

Facebook has been making inroads into financial services, having applied for a EU “e-money” license five years ago in order to let users use Facebook to pay and exchange money with others on the platform.

According to Meng Liu, another analyst with Forrester, the Libra vision sets up a series of massively complex challenges.

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“A cryptocurrency being used by 2.7 billion people across the globe would be a threat to national sovereignty and disruption of their ability to coin money.

“China, Indonesia, and Pakistan have already banned Bitcoin and other cryptocurrencies due to similar threats. The US, France, and Russia have now all expressed concerns regarding the threat that Libra would represent,” said Liu.

Though cryptocurrency itself is characterized by anonymity, the digital platforms that consumers use to make payments will be based on WhatsApp, Instagram and Facebook.

“The Cambridge Analytica scandal exposed egregious missteps by Facebook — and users haven’t yet forgotten that breach of trust,” Liu added.

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The social networking giant with over two billion users globally, is facing regulatory challenges as the Cambridge Analytica scandal has exposed its lapses. Pixabay

‘Libra’s’ documentation indicates that it has strengthened its data privacy protection mechanisms, but this will unlikely be enough to assuage deep concerns when it comes to Facebook’s ability to govern such a system and currency.

“Meanwhile, too much privacy will increase regulatory concerns about money laundering and tax avoidance,” the expert cautioned.

Facebook says its aim is to enable accessible and affordable digital payments for billions of people with ‘Libra’.

“While Facebook has a lofty vision for Libra, it already faces many rough challenges pertaining to privacy and regulation. India currently posits an excellent growth opportunity for fin-tech initiatives, primed from its booming digital payments push by the government,” said Prabhu Ram, Head, Industry Intelligence Group (IIG), CyberMedia Research.

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It is no wonder then that in India Facebook, like its peers Google and Amazon, has been aiming to integrate payment capabilities into WhatsApp, allowing users to make and receive payments.

“However, with ‘Libra’, it will potentially run into rough weather with the Reserve Bank of India (RBI) which currently does not view cryptocurrency favourably,” Ram told IANS.

Just weeks ago, the media was awash with calls to break up Facebook and reduce its influence. Considering this background, the launch of the ‘Libra’ project seems brazen.

“But what is even more strange is Facebook’s decision to launch a cryptocurrency. Launching a traditional payment system to better compete with the likes of Alipay and WeChat Pay would have not attracted such ire from governments and would have probably had a better chance of success,” noted Liu. (IANS)

Next Story

Facebook Pay to Work Across its App Ecosystem

In India, Facebook is aiming to launch WhatsApp Pay, a peer-to-peer payment system

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Facebook, Messenger and Instagram apps are displayed on an iPhone, March 13, 2019, in New York. VOA

Facebook has launched a new payments system that will work across its app ecosystem — Facebook, Messenger, Instagram and WhatsApp.

Appropriately named Facebook Pay, it will begin rolling out on Facebook and Messenger this week in the US for fundraisers, in-game purchases, event tickets, person-to-person payments on Messenger and purchases from select Pages and businesses on Facebook Marketplace.

“Over time, we plan to bring Facebook Pay to more people and places, including for use across Instagram and WhatsApp,” Deborah Liu, Vice President, Marketplace and Commerce at Facebook, said in a statement late Tuesday.

Facebook Pay supports most major credit and debit cards as well as PayPal.

Social Media, Facebook, Authenticity, Posts
The social media application, Facebook is displayed on Apple’s App Store, July 30, 2019. VOA

The social media giant said Facebook Pay is built on existing financial infrastructure and partnerships, and is separate from the Calibra wallet which will run on the Libra network, the company’s digital currency.

You can start using Facebook Pay on Facebook or Messenger with just a few taps.

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“With Facebook Pay, we’re continuing to invest in security. We designed Facebook Pay to securely store and encrypt your card and bank account numbers, perform anti-fraud monitoring on our systems to detect unauthorized activity and provide notifications for account activity,a said Liu.

The users can add a PIN or use device biometrics, such as touch or face ID recognition, for an extra layer of security when sending money or making a payment.

In India, Facebook is aiming to launch WhatsApp Pay, a peer-to-peer payment system. (IANS)