In June, the Rotman School of Management’s seed-stage incubator announced a partnership with Facebook’s new venture into cryptocurrency: Libra. As the company’s only academic founding partner, U of T’s Creative Destruction Lab (CDL) will participate as part of the Libra Association in its efforts to create a cryptocurrency infrastructure.
While CDL touts the partnership as an exciting opportunity for innovation, recent criticisms leveraged against the tech giant have some wondering if Libra is contributing to Facebook’s woes.
Facebook’s crypto experiment
On June 18, amid a tense period for the company, Facebook released a statement announcing Calibra, a new subsidiary of Facebook that aims to connect people to financial services through the Libra network.
Calibra intends to create a digital wallet system where people can buy, spend, and save Libra cryptocurrency. Users will be able to use Libra’s wallet on Facebook-owned services like WhatsApp, Messenger, and as a standalone app.
The Libra network will use a blockchain system that will record every transaction that takes place. As a “permissioned” network, Libra’s blockchain can only function on specific servers.
Libra’s network will be overseen by the Libra Association, which is composed of companies, non-profit organizations, and academic institutions. The association intends to manage the network, provide servers to run the network, and manage the cryptocurrency’s reserve. The association also removes Libra’s control from the hands of Facebook into those of industry, academia, and non-profit sectors.
When it was announced, the Libra Association had 27 members, including Spotify, Lyft, and Uber. Facebook hopes to have at least 100 partners in the association by Libra’s expected 2020 launch.
CDL joins The Libra Association
While the CDL was established at the University of Toronto in 2012, the lab now operates with locations across the country and in the United Kingdom. As a seed-stage program, CDL supports startups in the science and technology field.
CDL’s partnership with Libra is intended to build on the lab’s incubation role by providing additional opportunities for the startup community. According to Rotman School of Management Professor and CDL’s Chief Economist, Joshua Gans, the partnership intends to provide more opportunities for CDL startups in the blockchain stream. In the long-term, Gans said Libra presents an opportunity for the entire startup community. “In creating better startup ecosystems, we will be fulfilling our mission,” he said.
In an email to The Varsity, Gans discussed how the partnership will benefit the U of T community, saying, “for the university, it represents a bold and innovative move — with a set of challenges that is not normally in the university’s wheelhouse but is something that its leadership can build on and signal a vision that goes beyond the ordinary day-to-day of academic life.”
“I think it is particularly gratifying that the university, at its highest levels, has been able to back our role in Libra thus far and I hope that will continue as things evolve,” Gans added.
In an interview with The Varsity, Associate Professor of Finance at the Rotman School of Management and at UTM’s Department of Management, Andreas Park, said academic institutions should have a role to play in regulating Libra.
“I think it’s really important that an academic institution is part of [the governance process],” Park said, adding that academic partners could have a “positive influence” when outlining Libra’s objectives, goals, and governance structure.
Libra’s promise and pitfalls
When announcing the project, Facebook evoked current concerns around financial systems as justification for the product. Specifically, the company noted that financial infrastructures are inaccessible in developing countries — especially for women.
Facebook founder and CEO Mark Zuckerberg reflected on this promise in leaked memos, saying he hopes that Libra will create a system of “digital money that can work globally” and can effectively “be implemented by big companies.”
For Park, a global cryptocurrency system has significant potential, especially for countries without a stable currency. An effective cryptocurrency system could have a sweeping positive impact by creating a financial structure that “transcends borders.”
“Most people in the world would benefit greatly if they had stable money,” Park said. “And if you think of Facebook as two billion users, most of them are not from the developed world. So, the developing world can benefit enormously [by] this initiative almost by accident.”
“I could not envision a world in which the public sector would actually be able to build this,” Park added.
However, while Facebook maintains that Libra will protect users’ private information – apart from sharing data to “keep people safe” and “comply with the law” – some researchers, lawmakers, and advocates have raised concerns with Facebook’s track record on privacy.
Amid these mounting concerns, Libra has come under sharp scrutiny. For some companies, the costs of participating in Libra outweighed the benefits. Earlier this month, reports surfaced that seven major partners had left the association: Paypal, Visa, Mastercard, eBay, Stripe, Mercado Pago, and Booking.
Megan Boler, Associate Chair of the Department of Social Justice Education in the Ontario Institute for Studies in Education, raised concerns about Facebook’s size and power in an email to The Varsity. “Nothing could be more disturbingly symbolic of Facebook’s meteoric rise to ruling the globe than Libra,” Boler said in an email to The Varsity. “Given Facebook’s track record with profit over public good, one must cultivate deep suspicion about this corporation’s ongoing amalgamation of economic, political, legal and increasingly moral power.”
Park also discussed possible concerns with Facebook’s ownership of a global financial system. Unlike banks, which have limited personal data about customers, Facebook has a plethora of information on every user.
“If you have the complete picture, you’re extremely powerful,” Park explained.
Disclaimer: Kaitlyn Simpson previously served as Volume 138 Features Editor and Volume 139 Managing Online Editor of The Varsity, and currently serves on the Board of Directors of Varsity Publications Inc.