What Does Facebook's New Cryptocurrency Mean For Law Enforcement?
What Does Facebook's New Cryptocurrency Mean For Law Enforcement? By David Gewirtz
In May, Facebook officially announced what the rumor mills had been buzzing about for months: its very own cryptocurrency. To find what all that means, and specifically what it means to law enforcement and counterterrorism operations.
By now, you should have a pretty good basic understanding of cryptocurrency. If you don’t, I’ll point you to my article from a few issues back, "Cryptocurrencies: Follow-the-money just got a whole lot more difficult,” which will bring you fully up-to-date.
Facebook, sometime next year, intends to introduce Libra, a currency based on distributed blockchain technology. Unlike many other cryptocurrencies, Facebook’s blockchain will have some centralized components. According to a white paper published by the company, this is because Facebook believes that there will be so many transactions occurring that a fully-distributed solution will never keep up.
Libra is also not mineable, meaning that individuals and groups can’t create their own value merely by running some extreme compute power. You don’t mine Libra, you buy it.
Facebook has created two new legal entities that should be on your radar from now on: Calibra and the Libra Association.
Calibra is a subsidiary of Facebook that will manage the Libra wallets (where the value is stored digitally) as well as all the transaction technology. Calibra will run the tech behind Libra. The ability to transact Libra will be built into future versions of Facebook, WhatsApp, and Messenger.
The Libra Association, by contrast, will run the finance behind Libra. Consisting of about 20 founding members, including Visa, MasterCard, PayPal, eBay, Uber, Lyft, a bunch of venture capital firms, a bunch of blockchain startups, and a few non-profits, each member of the Libra Association buys its seat for a cool $10 million payment.
This money, as well as all the money consumers pour in when buying Libra goes into something called the Libra Reserve. Because Facebook is so big and has so many users, the expectation is for the Libra Reserve to be a pot of gold with many zeros on the end. This giant reserve of money will be invested and earn interest. It will also earn fees from every Libra transaction.
Facebook says the Libra Reserve in concert with the Libra Association be able to do something other cryptocurrencies like Bitcoin haven’t been able to accomplish: create value stability. Facebook says it’s going to peg the value of the Libra to a calculation based on the value of the dollar, yen, and euro. If this works, it will be a boon for buyers of the digital coin.
The members of the Libra Association will be able to take profits from the Libra Reserve based on their membership share.
Multiple points of concern
As you might imagine, this scheme could cause all sorts of ripples through the world’s financial systems. Libra is intentionally international, with a key goal to speed up and reduce the friction of international monetary transactions. If you think this has government regulatory bodies pretty freaked out, you would not be wrong.
From a law enforcement point of view, following the money might be much harder — or much easier. We don’t know yet. If Calibra can secure all transactions and can keep that information private, then it might be harder for law enforcement to track transitions.
On the other hand, Facebook has never been exactly chummy with the concept of privacy, so it’s possible that the company, or at least the Calibra subsidiary, may open back doors to various law enforcement entities across the world, presumably secured by at least a court order.
Facebook did say it’s publishing an API (an application programming interface) that will allow app makers to embed Libra transaction capability inside third-party applications. While many app vendors are legitimate creators of value, we have also seen a history of scams perpetrated via apps. It’s relatively unlikely that Facebook will actively police users of the Libra API, so it’s possible that a considerable fraud vector might exist through the use of Libra in questionable apps.
Finally, there’s the Libra Reserve itself. If, as Facebook expects, this does become a giant pile of money which the Libra Association can use as a generator of interest value, it will also become a ginormous target for hackers and rogue nations. We’ll have to see how secure Facebook and Calibra are, as well as how secure each Libra Association member is, before we can assess whether the Libra Reserve is a nightmare heist waiting to happen.
Keep your eye out for this. Depending on the level of uptake by the consuming public, Libra might be the new money for millions of people.
About the Author
CTSERF Research Professor David Gewirtz, M.Ed. is Director of the U.S. Strategic Perspective Institute, Distinguished Lecturer for CBS Interactive, Cyberwarfare Advisor for the International Association of Counterterrorism and Security Professionals, IT Advisor to the Florida Public Health Association and an instructor at the UC Berkeley extension.