Introducing “Libra” makes it appear as if Facebook (NASDAQ:FB) wants to become a country. If the move rubs the wrong people the wrong way it could be disastrous for Facebook stock.
Libra isn’t exactly a blockchain, but the company’s white paper keeps referring to it as one. Its Libra coin isn’t supposed to be a substitute for dollars or rubles, but the documentation makes clear that’s exactly what it is.
What gives Libra hope for success is that, if it works as intended, it makes all aspects of transaction processing electronic. If the coin’s value can be stable, if fraud can be prevented, Libra can avoid the costs associated not just with bank networks like Visa (NYSE:V) but central banks as well.
Libra Rollout and Facebook Stock
Crypto experts have been poring over the white paper like reporters at a Presidential debate since they hit the Web.
But experts aren’t the audience for this. Neither are Americans or even Europeans. That’s because, as Alex Danco of Social Capital notes, for hundreds of millions of people in the developing world Facebook is the entire Internet, the only scaled communication service that’s both global and entirely free to use.
Calling Libra a cryptocoin sends analysts down a rabbit hole arguing over whether it’s more like Bitcoin or Ethereum. What Facebook is really trying to build is a low-cost transaction system like Ant Financial, the transaction affiliate of Alibaba Group Holding (NASDAQ:BABA). Ant Financial, formerly called Alipay, runs a mobile payments platform and the world’s largest money market fund.
Once you understand that crypto is a straw man, that the real goal is to let Facebook operate its own financial transaction system, with its own currency, no Central Bank control, and its own rules, the audacity of Libra becomes clear.
Jennifer Grygiel of the Syracuse School of Journalism says the aim of Libra is to make Facebook an independent nation. She wants Libra blocked until it proves itself as more ethical than Facebook itself.
Libra Fallout and Facebook Stock
Libra is an all-out attack on the inefficiencies of the current financial system and attempts to be a replacement for it.
If you’re standing before a JPMorgan Chase (NYSE:JPM) ATM in New York or handing your credit card number to Amazon.Com (NASDAQ:AMZN) this is preposterous. If you’re trying to do international business from Harare, Zimbabwe this could be your way in. The fact is that nation states run currencies for themselves, and the current financial system has costs that only those with money can bear.
Even if you’re using Square (NASDAQ:SQ), as a merchant, you’re paying 2.5% of your gross, plus a per-transaction fee, to be part of the system. Getting a credit card means paying the costs of having a bank account, which many Facebook users can’t do.
The difference between Facebook and either Ant or India’s NCPI is that Libra comes with the network, and that network is global.
The Bottom Line on Facebook Stock
Libra is an illustration of the immense power the Cloud Czars now have over communications, media, software and the general global economy.
Facebook is the smallest of the Czars, by far, and it’s also the only one completely dependent for life on its own free services. This has been its weakness, from an investment standpoint. But Libra shows Facebook trying to make this a strength because it can launch a global payment system without gaining permission from any other authority, public or private.
Facebook started building its network of cloud data centers before it had the cash flow to sustain them. It took the biggest risks and gained the biggest rewards as a result. For better or worse, Libra is a reminder of that legacy.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear , available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in JPM and AMZN.