Why Facebook entry into cryptocurrency is causing jitters

The crypto world has been dominated by the father of all cryptocurrencies, Bitcoin over the last ten years.

Despite Bitcoin dominance, the crypto environment has largely remained the playground for tech geeks and financial analysts exploring new forms and concepts of money.

Commonly known as programmable money, cryptocurrencies are simultaneously similar while being radically different to traditional currency.

The similarity is in the fact that cryptocurrencies can be used as a medium of exchange, a unit of account and a store of value.

Using a cryptocurrency such as Bitcoin, one can buy goods (medium of exchange), at a given price (unit of account), using funds from their crypto wallets (store of value).

But that is where the similarity with traditional currency ends.

That cryptocurrencies are radically different from traditional money is evident in the way it is created, controlled and distributed into the economy.

Traditional money is created or printed and generally controlled by the central bank.

Cryptocurrencies on the other hand are created, controlled and distributed by software running on autonomous nodes owned by multiple independent actors collaborating through consensus mechanism.

In simple terms, cryptocurrencies are decentralised, distributed and not under the control of any one single entity. This paradigm shift is the antidote of the prevailing central banking systems across the globe.

Own risk

That is largely why all central banks globally have cautioned their citizens against cyrptos and warned them to engage at their own risk.

The other reason being that that drug dealers, terrorists and other underworld operatives find cryptocurrencies a haven for funding their global operations with minimal visibility to authorities.

Facebook entrance into the crypto market dilutes this cautionary warning and potentially introduces the crypto world to Wanjiku, who happens to be just one of the 2.5 billion global citizens under the Facebook domain.

Facebook entry into the crypto world is likely to have the same effect that Internet browsers had in the early 1990s – commoditising internet services by simplifying their user interface and accelerating its uptake beyond geeks and academia.

But not everyone is happy.

Firstly, the Bitcoin die-hards who are generally libertarian by nature, have rightly pointed out that Libra (Facebook's cryptocurrency) is quite centralised and controlled by a select few US organisations.

It is therefore not exactly a cryptocurrency in the strict sense of the current technical standards for cryptos. In other words, President Trump can wake up one morning and tweet that he is shutting down Facebook coin and it will immediately go off air.

The same way he is trying to run Huawei out the US and Europeans towns.

In contrast, he cannot execute such a hostile move against Bitcoin given its extreme purist design and compliance to the original Satoshi crypto vision and standard.

Red flag

Privacy groups have also raised a red flag, wondering how Facebook with its recent privacy-related challenges would handle additional financial data points about its users.

Some even argue that Libra is a bait to increase Facebook’s advantage over its FAANG competitors in the perpetual rat race to see who between them is the best - in as far as monetising user data is concerned.

Whereas blockchain technology has excellent provisions for enhancing data privacy, it all depends on how the specific blockchain system is deployed towards achieving this objective.

The more centralised, rather than decentralized, the blockchain deployment is, the less secure the user data becomes.

Finally, central banks across the globe have been shaken to the core, prompting the US Congress to issue sermons to Facebook to appear and explain to what extent their new coin is likely to destabilise the prevailing financial world order that is obviously centred around their biggest export – the US dollar.

We are indeed living in interesting times and we should all continue watching this crypto space as it unfolds since it wont be going anywhere anytime soon.

As a friend of mine would want to say – Brace for impact.

The author is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT.

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