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Banks and Big Businesses Scramble for Their Own Digital Cash



Last week Reuters reported that several of the world’s biggest banks have invested $50 million to “create a digital cash system to settle financial transactions”. It’s an on-going project, according to the report, involving the likes UBS, Credit Suisse, Barclays, and Deutsche Bank.

Banks are being tight-lipped on the project, and it should be noted that Reuters’ reportinvolved an unnamed source, but there was a confirmation from a Barclays’ spokeswoman that the bank is involved in the USC [utility settlement coin] project and that the research and development stage had come to an end.

Any mainstream interest in cryptocurrency and blockchain is always significant, of course. But should it determine whether we buy Bitcoin or other digital currencies? That is to say, should backers of crypto be worried that banks creating their own digital currency be worried that the likes of Bitcoin, Ripple and more. will be shunted aside?

Investors buoyed by Bitcoin’s streak in 2019

In truth, investors in cryptocurrencies shouldn’t worry too much, certainly in the short term. Financial institutions have been notoriously slow in not only embracing the possibilities of blockchain technology but in addressing the problems that they are trying to solve.

The new entity banks are reported to be creating to run the project, Finality, is aimed at making clearing and settlement in financial markets more efficient. This is not a new issue, but something that has made financial transactions cumbersome for decades.

The point is, one could argue, that while financial institutions are addressing issues that have been around since the 1970s, those developing cryptocurrencies could be stealing a march on financial solutions for the 2020s. Banks will be looking for solutions to long-standing problems, whereas developers will be looking for solutions to problems that have not yet been pinpointed.

Yes, some investors will welcome mainstream embracing of crypto – in any form – as a positive sign, but it is the sense of ‘rule-breaking’ at the development level that has always made cryptocurrency an existing investment.

Facebook also interested in crypto

Banks, of course, are not alone in making a foray into the world of cryptocurrency. Facebook has also been upping its plans to create a digital currency. The so-called ‘Facecoin’ or, as has been reported, Project Libra, is creating quite the stir, albeit it is still shrouded in secrecy. Most observers believe it will be used to facilitate payments, and that it will be a stablecoin.

The speculation around Facebook’s digital coin has ramped up in recent weeks. And, as so often the case with anything to do with Mark Zuckerberg, a bit of hyperbole has infused the reporting. It’s been suggested that Facebook “has lit a fire’ under Bitcoin and crypto”, and that “it’s a catalyst for mainstream Bitcoin and cryptocurrency adoption” around the world.

Take all of this with a pinch of salt. At the same time as being told Facebook is creating a “rival to Bitcoin”, we are also told it’s a catalyst for Bitcoin adoption. The truth is that we do not know exactly what banks or Facebook or planning, nor what that impact will be further down the line.

Yet, through all of this increased speculation in the first half of 2019 of mainstream financial and tech giants exploring crypto, that has coincided with Bitcoin going on a tear throughout the year so far. For most investors, that’s the important thing, not the speculation on other projects.

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What Indonesia Reveals About Facebook’s Cryptocurrency Ambitions



Facebook published plans for the Libra cryptocurrency in seven languages, including Indonesia’s Bahasa – a move that offers perhaps the clearest glimpse of what Facebook’s fintech ascent might look like.

“Indonesia has the fourth-highest number of Facebook users in the world,” Pang Xue Kai, co-founder of the Indonesian crypto exchange Tokocrypto, told CoinDesk. “If Facebook’s Libra can address the [local] issues, it has the potential to succeed.”

According to the annual media report released by We Are Social and Hootsuite, Indonesia has the world’s highest rate of Facebook post engagement among internet users, over 4 percent, and the highest frequency of online shopping, with 86 percent of Indonesian survey respondents saying they bought something online in the past month.

Since nearly 10 percent of Indonesian respondents said they also own some cryptocurrency, double American percentage, Facebook couldn’t have dreamed up a better market for Libra.

QCP Capital co-founder Joshua Ho, a trader who works closely with Indonesian exchange Tokocrypto, told CoinDesk Facebook’s Libra ecosystem could be a “gamechanger” in Indonesia.

“People are already very aligned with mobile payments,” Ho said. “It is geographically decentralized. Creating banking access is a huge challenge.”

Since the Asian financial crisis in 1997, which sparked rampant inflation, economic recession and political turmoil in Indonesia, Ho said cryptocurrency offers an attractive alternative to fiat currencies and banks the population still distrusts.

Add all this to the World Bank’s estimate that Indonesia is a collection of islands with one of the world’s largest unbanked populations, 97 million adults as of 2017, and it’s clear why Facebook prioritized publishing its crypto materials in the native language.

Anchorage CEO Nathan McCauley, a founding member of the Libra Association, told CoinDesk getting merchants to accept Libra will be a crucial part of encouraging adoption among the unbanked. The Andreessen Horowitz–backed startup will primarily contribute to security and custody features for the Libra ecosystem, especially custody services related to the Libra investment token for institutional investors.

McCauley said Anchorage is currently applying for various licenses, but declined to specify which. He said he did not believe the association or its members would require additional licenses for money transmission or custody features for retail users in various jurisdictions.

Although Facebook’s dominance across Indonesia’s communication networks is growing rapidly, accessibility can still be hindered by government intervention.

“Of course the platform that facilitated a transaction is going to know who the transaction is coming from, who it is going to, and will have the ability to enforce whatever norms, laws or regulations that they need to do so,” McCauley said. “That tends to be jurisdiction dependent and client dependent.”

Privacy risks

Facebook’s omnipresence in Indonesia raises questions about how Libra will impact retail users.

For example, TechCrunch reported the Indonesian government censored access to WhatsApp and Instagram, both owned by Facebook, in May when protests about controversial election results turned violent. Numerous reports have called Facebook a political “battleground” in Indonesia, where data from over a million user accounts was reportedly sold to Cambridge Analytica for targeted political campaigns.

A Facebook spokesperson declined to comment on how relations with local authorities evolved since the protests in May, focusing instead on partnerships forged with six fact-checking entities certified by the Poynter Institute to quell the spread of misinformation among Indonesian users.

This type of scenario raises red flags for Cornell University professor and blockchain researcher Emin Gun Sirer.

“I did not see anything in their roadmap related to privacy at all,” he told CoinDesk about the Libra Association. “I don’t think people are talking about how aggressive the Facebook approach is.”

A blog post by the crypto startup Nym went even further. Nym’s CTO, Dave Hrycyszyn, was briefly with the social media giant after the acqui-hire of Chainspace, a startup he co-founded.

“Libra will provide Facebook and its partners with the ability to analyze every purchase by every single Libra user,” the blog post said:

“While Facebook currently promises that it will not triangulate its vast hordes of personal data with financial transaction information to probe ever deeper into the minds of its human subjects, there are no cryptographic or technical privacy guarantees in Libra to prevent Facebook from doing exactly this.”

Social ecosystem

Mass reliance on the same provider for mobile communication and financial access would give Silicon Valley even more leverage in markets like Indonesia.

CoinDesk contributor Daniel Evans noted Facebook’s Libra Association doesn’t have any partners in the region yet and may not be able to operate “freely.”

Shaun Djie, co-founder of Tokocrypto’s Singapore-based partner, DigixGlobal, told CoinDesk the fintech ecosystem in Indonesia is currently “very malleable” as young people are “receptive to owning cryptocurrencies.” In general, crypto veterans with experience in the Indonesian market were optimistically curious about Libra.

Regardless of privacy concerns, WhatsApp and Instagram would inherently be huge factors in the local Libra ecosystem. Ho confirmed that WhatsApp, with roughly 70 million Indonesian users, is a pivotal tool for local businesses.

The Hootsuite report said 90 percent of small-to-medium businesses in Indonesia identified WhatsApp as a tool for communicating with customers. Plus, the report estimated 20 percent of Indonesian internet users are on Instagram, soaring above the global average of 15 percent.

Speaking to the local vision for Libra, a Facebook spokesperson told CoinDesk:

“Facebook is committed to helping Indonesians come together to build communities and support businesses – both large and small – through initiatives and programs with local partners.


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Bank for International Settlements: Facebook’s coin is a threat to banks



  • BIS published a report dedicated to the risks related to Facebook’s Libra coin.
  • Coins, created by hi-tech companies, may pose systemic risks.

Libra, the cryptocurrency introduced by social media giant Facebook could damage the banking sector and threaten financial stability, the Bank of International Settlements (BIS) warns in the recent report.

BIS, which is often called the “central bank of central banks,” is concerned that payment systems developed by a hi-tech giant like Facebook or Google can quickly gain dominance and replace traditional banking systems. These companies have multi-million user bases that will serve as an excellent jumping-off ground for them.

“At the same time, big techs’ entry into finance introduces new elements in the risk-benefit balance. Some are old issues of financial stability and consumer protection in new settings. In some settings, such as the payment system, big techs have the potential to loom large very quickly as systemically relevant financial institutions. Given the importance of the financial system as essential public infrastructure, the activities of big techs are a matter of broader public interest that goes beyond the immediate circle of their users and stakeholders,” the report says.

By launching various payment services, including cryptocurrency, large companies will make financial services more accessible; however, they will also make the global economy more vulnerable and less table, BIS experts explain in the report.

The document also emphasizes that regulators should coordinate their efforts and develop a “comprehensive” approach to level the playground for large technologies and banks.

Last week Facebook published a White Paper of its proprietary cryptocurrency. Since then, regulators of several countries have expressed their concerns about the digital asset controlled by the social network and called for tight regulation for it.

Thus, French Finance Minister Bruno Le May said that the Libra should not and cannot become a sovereign currency;

Russian politicians also came up with critical comments. The chairman of the State Duma Committee on the Financial Market, Anatoly Aksakov, said that Russia would not legalize Facebook” coin and would introduce restrictions for foreign platforms where that coin would be listed.

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Facebook’s Libra Cryptocurrency: Bad for Privacy, Bad for Competition



Scott A. Shay is co-founder and chairman of Signature Bank of New York and the author of In Good Faith: Questioning Religion and Atheism (Post Hill Press, 2018).

Allowing Facebook to mint its own coin, the Libra, would turn it into the greatest anti-competitive trust case in history. It would make the early 20th century Morgans or Rockefellers seem downright competitive.

Even before it unveiled its vision for a global cryptocurrency this month, Facebook was already a near-monopoly in social media, and part of a duopoly in its main markets. Together with Google, it controls 82% of the digital advertising market. 

In the past, Facebook has purchased any company that threatened it, e.g. Instagram and WhatsApp. And, when it spots a company that won’t sell itself or would be difficult to purchase, it uses the “embrace, enhance and extinguish” technique.  

Facebook saw Snap Inc. (maker of Snapchat) contesting a small part of its franchise, so it embraced Snap’s best features and integrated them into its app. Now, Facebook is hoping to extinguish Snap as a competitor. Compare the stock performance of Snap and Facebook, and you will probably place your bet on Facebook. 

But it is not simply Facebook’s business practices that are of concern.  

Neither Facebook nor Google charges for their consumer products, obscuring the fact that all-encompassing consumer tracking is their real product. In many cases, their data is better than what the KGB or CIA could have gathered 20 years ago. And their data is certainly a lot cheaper, since it is voluntarily provided and easily accessible.

We would not want our government agencies to have this sort of power, nor should we want it to be in the hands of corporations. 

Facebook and Google have already shown their political muscle. With their duopoly on digital marketing advertising, these companies have transformed the nature of news.  Only a few news sites, such as The Wall Street Journal and The New York Times, can resist their gravitational pull and still attract direct advertisers as well as subscribers.  

Most other publications must use Google ads, which provide far less revenue to the outlet, slice and dice their readership, and force newspapers to write clickbait. Ads to readers are so well-placed because of the mountain of information that can be inputted into their algorithms. The same holds true for news content viewed on Facebook.

Now, with the Libra project, Facebook wants to exponentially increase its monopolistic power by accessing unparalleled information about our consumer purchasing habits. If allowed to proceed with Libra, a company that knows your every mood and virtually controls the news you see will also have access to the deepest insights into your spending patterns. 

Privacy threat

Of course, Facebook will speak piously about privacy controls and its concern for the consumer, yet it will still figure out a way to sell the data or others who buy the data will figure it out for them.

Furthermore, with the richness of the social media data Facebook consistently garners, even anonymized data can be recalibrated to distill specific individual-related information and preferences. Facebook, along with its other monopolist rent-seeking cohorts, such as eBay, Uber and Mastercard, all say they won’t do that. 

Quite frankly, there is zero reason to believe such promises. Their culture is based strictly on brand concerns and access to personal data. Additionally, hacks of social media are now so common that we are inured to them.

Consumers can have the benefit of a digital payment mechanism without allowing Facebook to gain more power. In the financial services sector, my institution, Signature Bank, was the first to introduce a 24/7 blockchain-enabled payment system. As one would expect, others, such as JPMorgan, are trying to follow suit and will no doubt be competitors someday.

Banks and financial institutions are limited in their access to, and transmission of, information, and for good reason. If Facebook, on the other hand, establishes Libra, no other competitor will have equal access to its data, and therefore, a chance at the consumer payment market.

In this way, Libra is in keeping with Facebook’s monopolistic business style.

Further, the information monopoly Facebook would possess will be similar to what the Chinese government possesses but needs the Great Firewall to execute. Monopolistic forces will produce the same result through different means.

Call to action

Action needs to be taken quickly to stop Libra and break up Big Tech, not only for the welfare of consumers but for the good of the nation.

The first step is to force Facebook to divest or spin off Instagram, WhatsApp, Instagram and Chainspace, the blockchain startup it acqui-hired early this year.

Facebook also must be mandated to offer a parallel, ad-free, “no collection of information” site supported by fee-based subscriptions. Over time, this would provide some transparency as to the value of the consumer information currently being gifted to Facebook.

Google should be forced to divest or spin off YouTube, Double Click and other advertising entities, cloud services and Android. Amazon similarly needs a radical breakup as it too poses systemic threats to a transparent market. (Alexa is a prime example of the private data Amazon gathers on users’ lifestyle and personal habits.)

The breakup of these behemoths cannot wait until after the 2020 election.  Such action must be taken on a bipartisan basis as soon as possible.

Even once stripped down, Facebook should remain separated from commerce due to privacy concerns. Congress, which has scheduled hearings on Libra for next month, is right to intervene.

Editor’s note: Have a reaction to the Facebook news? Email [email protected] to pitch your opinion. 

Standard Oil depicted as an Octopus in a 1904 political cartoon, image via Wikimedia Commons.


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