Should You Buy Into Facebook’s Cryptocurrency Venture?

by Tom Burg
July 11, 2019

Last month, Facebook confirmed its rumored ambition to create a financial system based off a new cryptocurrency called Libra.

What is Libra? According to Facebook, Libra will be developed by Calibra, a new subsidiary, and will be a digital asset designed to work as a medium of exchange, which is being called a stablecoin. What this means for consumers and users of the social media platform is that its value should not change much compared to other forms of currency, like the U.S. dollar. 

Facebook isn’t going it alone with Libra, either. It’s backed by the Libra Association, a non-profit organization with a long list of founding members that will jointly make decisions about Libra alongside Facebook. The list includes companies like Mastercard, Visa, PayPal, Stripe, eBay, Uber, Lyft, Spotify, Coinbase, Xapo, Andreessen Horowitz, Union Square Ventures, Mercy Corps, and Women’s World Banking, among others.

The goal is for Libra to become the in-house currency for Facebook, Instagram, and WhatsApp’s combined 2.7 billion users. The advantage being pitched by Facebook: Get cash in a local currency, use it to get Libra, and then spend Libra like dollars — without big transaction fees or your real name attached — and cash them out whenever you want. 

Source: TechCrunch.

Will Consumers Trust a Currency Developed by Facebook?

Given the most recent privacy scandals, Facebook has taken steps to assure their users that data from their social media activities and financial transactions won’t be mixed. This according to eMarketer senior analyst Jasmine Enberg

“Facebook has said that it won’t share account or financial information from Calibra with its social services, meaning that it can’t be used for targeted advertising, it remains to be seen if that will convince consumers to share more private information with the company, which is something that both the success of Libra and Facebook’s new privacy-focused vision are dependent on.”

But is that enough to incentivize users to trust the newest addition to their global communication platform? After all, Facebook has made similar announcements or statements about not sharing account information in the past, and yet they continue to have privacy scandals. What will be different this time? 

Combine that lack of trust with an unfamiliar concept like cryptocurrency, and we wondered not only if consumers would trust this new form of payment, but would they even understand it enough to use it? We ran user discovery tests on Alpha to get the answers to our questions.

Alpha Goes Straight to the Source

“How familiar or not familiar are you with cryptocurrency?”

For Libra to be accepted by Facebook’s billions of users, its first challenge will be to educate them on cryptocurrency. Of the 745 users Alpha surveyed, 51% said they are not at all familiar with cryptocurrency. In fact, their interpretations of the term ran the gamut, according to their open-ended responses: 

“It invokes an image of electronic transactions only. It’s not much different to me than a debit account but without the debit card.”

“Some kind of high tech money laundering scheme that is a fad but no one really knows for sure. A smoke and mirrors game possibly.”

“A non tangible currency that is used in place of money or currency to pay bills and such. It is based on the utility grid.”

“Online currency not connected to any national government but solely backed up by the goodwill of those who use it.”

For a company whose goal it is to make using cryptocurrency as easy as sending a Facebook Message, Facebook should first make sure the concept is understood before trusting that consumers will adopt it. 

“How would you describe your overall opinion of Facebook?”

2018 was a difficult year for Facebook. But despite a year of scandals and negative press, advertisers are still spending money on the platform and they continue to grow their user baseHow badly did the negative media attention affect the public’s opinion of the company? Enough to hurt the successful launch of a new product?

Alpha ran a follow-up test to ask this question, and of the 349 users we talked to, the general opinion was slightly more positive than negative. Even with the scandals and bad press, people feel surprisingly good about Facebook. Here’s a sample of some of the good will: 

“There is good and bad with everything, Facebook connects a lot of people, however it’s easy for companies to create perceptions because they have a free or cheap global platform.”

“I use it and like that I know what’s going on in my friend’s and family’s lives, but I do realize that there are privacy issues.”

“I use it regularly despite privacy concerns. Overall, I am benefiting from it, but I know there is a time cost as well as privacy risks.”

“How likely or not likely would you be to trust cryptocurrency developed by a company that isn’t a bank or a finance company?”

If Facebook succeeds with Libra, it could potentially create a borderless collection of millions — maybe hundreds of millions — of people using the same platform to communicate, the same tools to shop, view ads and play games, and the same monetary system. 

But positive feelings toward Facebook or not, cryptocurrency is a new space for the media company. And it’s a space that deals with sensitive financial information. To do it well, this requires a great deal of financial expertise, not exactly the backbone of Facebook’s founding. 

Even banks struggle with gaining consumer trust, according to a 2019 Forbes report, which led us to our next question: How likely would users be to use a cryptocurrency that wasn’t developed by a company with finance expertise, like a financial services company or a bank?

Not surprisingly, of the people that responded, 45% said ‘not at all.’

Consumers aren’t the only ones who are a little hesitant about Libra. It’s also making members of the Federal Reserve nervous, with U.S. Federal Reserve Chairman Jerome Powell questioning whether Facebook can keep financial data private:

Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability.”

It seems like everyone is processing the same concerns and asking the same question: After Facebook’s alleged role in improperly storing user data and spreading misinformation, why would they be trusted with potentially remaking global currency and financial systems?

Facebook, for their part, acknowledges their lack of expertise in finance. David Marcus, Facebook VP of messaging products and a key developer of the Libra project, recently announced that he is looking to hire someone with experience in government and central banking.

Facebook needs to make sure their user base trusts the company enough to use Libra, and that hire is a start. But without addressing and seriously considering privacy concerns, we’re having a hard time predicting users will cash in their Libra coins. Stay tuned for more coverage on this topic as the Libra project continues to dominate the news cycle. 

Tom Burg

SVP of Marketing at Alpha, the platform that enables management teams to make data-driven decisions about users, products, and new markets.