Consumer mistrust of Libra should be no surprise
Libra has not even launched yet and still it dominates the daily cryptocurrency news cycle. The number of people talking about the project is a testament to Facebook's influence in nearly every aspect of modern culture. Still, it should be noted that much of the talk surrounding Facebook's anticipated stablecoin is not good. People have a general mistrust of Facebook apps and the company itself.
Two recent surveys showed that neither Americans nor Brits demonstrate glowingly positive impressions of Facebook. So it is no surprise that they are not all that high on Libra either. Whether or not this is a problem for Facebook moving forward is unclear. It could be, given that cryptocurrency adoption in general is nowhere near what was anticipated a decade ago.
At the root of Facebook's popularity problem is its history of failing to protect private customer data. Company executives have appeared at numerous government hearings over the last several years in an attempt to defend their business model and data sharing policies. Those hearings have only served to further alienate the company from consumers already suspicious of it.
So where does Facebook go from here? No one really knows. They are treating Libra a lot like Apple treats the release of new products. We all know it's coming, but Facebook is keeping details close to the vest.
Libra vs Bitcoin
One thing we can all say for certain is that Libra is going to have to take on Bitcoin if those behind the project want it to be the world's dominant digital currency. Taking on Bitcoin is a daunting task for any digital asset, as the backers of Bitcoin Cash, Litecoin, Ethereum, et al can testify. Bitcoin is to cryptocurrency what Facebook is to social media and Google to online search.
Facebook might have a slight advantage in that its worldwide network and infrastructure are already capable of handling Libra's distributed ledger and blockchain. Their existing market penetration in social media is such that they have a built-in audience for Libra as well. But neither reality may offer as much of a benefit as the company is planning on.
It just may be that trust becomes the number one factor if people are forced to choose between Libra and Bitcoin. And if that is the case, Facebook is in a world of hurt.
Survey data doesn't look good
According to a CivicScience poll conducted among nearly 1,800 U.S. adults during the month following Facebook's announcement of Libra, researchers found that just 2% of the respondents said they would trust Libra over Bitcoin. The other side of that coin is that 40% say they would trust Bitcoin more. Facebook can take comfort in the fact that 19% said they would trust both about the same. But even at that, Bitcoin still has a clear and possibly insurmountable advantage.
Another survey, conducted by the company behind the Viber messaging app, asked some slightly different questions. Their data reveals that 49% of UK and U.S. consumers say they would not trust Facebook or Libra. Some 20% of the UK respondents said they have not yet come to a decision about Libra while only 4% said they would trust Facebook and its stablecoin.
It is clear that Facebook has an uphill climb ahead of it. If they hope to actually compete with Bitcoin for cryptocurrency dominance, they are going to have to overcome the trust issue. But it's not just trust in Libra. It is trust in the company in general.
Overall mistrust of Facebook
The challenges associated with launching and maintaining Libra are tough enough. But Facebook's bigger concern should be the general perceptions consumers have of them as protectors of personal data. So again, let us look at some hard data - specifically a recently released poll from NBC news and the Wall Street Journal.
The big headline from that poll is that 60% of Americans do not trust Facebook's ability or willingness to protect their personal information. According to one of the pollsters, Facebook would get a zero-star rating if Americans were giving it a Yelp review. Ouch.
Here are some key numbers from the poll:
- 28% don't trust Amazon with their data; 37% don't trust Google
- 35% don't trust the government with their data
- 55% think social media spreads lies and falsehoods
- 31% think social media spreads legitimate news and information
- 82% say social media wastes time
- 74% don't like trading access to their personal information in exchange for free apps.
It is clear that American consumers do not have a very positive view of social media in general. They clearly don't like Facebook all that much. Interestingly though, 69% of the poll's respondents admitted to using social media at least once per day. That may be Facebook's salvation where Libra is concerned.
Consumers are not big fans of Facebook but use it anyway. There could be any number of reasons for this. The most likely is that people started using Facebook without truly understanding it. Now that they have a better handle on Facebook's data privacy issues, it's too late. They are already roped in to the extent that they can't find a way out.
The thing Facebook has to worry about here is the 'fool me once, shame on you; fool me twice, shame on me' principal. Consumers may not be able to extricate themselves from Facebook's social media apps, but they surely do not have to get entangled with Libra. Unless Facebook makes it mandatory for users to engage with Libra, they are giving users an opportunity to turn their backs on the stablecoin.
Government mistrust also a problem
Of course, mistrust among consumers is not the only thing Facebook has to worry about. Government mistrust is another problem. It might be an even bigger problem given that government has the ability to regulate. If recent events in the U.S. Congress are any indication, regulation is forthcoming.
Regulators in multiple countries have already made it clear that their opinions of Facebook are not very good. Within days of the Libra announcement, regulators began talking about finally starting to look at cryptocurrency in earnest. Some even called Facebook out by name, claiming that Libra would fundamentally damage financial markets if it were allowed to flourish unchecked.
In the U.S., legislators have already held hearings to get the ball rolling on regulation. Libra was the impetus for many of those hearings. Multiple legislators made note that Facebook's past history forces them to be skeptical that the company can manage to launch and maintain Libra without running afoul of privacy concerns.
The new problem in India
If all of this is not enough to throw a wrench into Facebook's plans for Libra, they now have a big problem in India. The Indian government just released a scathing report outlining regulators' dim view of cryptocurrency in general. The report laid out a number of detailed reasons why regulators are hell-bent on banning cryptocurrency in India.
Along with the report are proposals for enacting the legislation necessary to implement a ban. Rumor has it that a bill is now under consideration among Indian lawmakers. From the language of the report, it seems all but certain that cryptocurrency's days are numbered in that country.
Why is this a problem for Facebook? Because they are relying on their South and Southeast Asian market penetration to be the launching point for Libra. Take India out of the equation and Facebook suddenly loses access to millions of users who will not be able to tap into Libra.
The big take-away here is that Indian regulators do not trust any cryptocurrency to begin with. They are not suddenly going to warm up to Libra because it is a stablecoin. It is still a private digital currency, and Indian regulators have made it clear that there is no place for such currencies in India. If the ban comes - and many people believe it is inevitable - Libra's launch will be meaningless to Indian consumers.
It's not dead, but...
None of this is to say that Libra is dead on arrival. It certainly is not. Facebook has a tremendous store of resources it can tap into to get Libra off the ground. But at the same time, there are a lot of obstacles standing in the company's way. Even getting Libra established as a viable project now appears to be more difficult than Facebook had anticipated.
Unfortunately for them, the real issue is not Facebook's technical ability. It is not its market capitalization or the viability of its apps. It's just a matter of trust. Therein lies the irony of the whole thing.
One of the fundamental principles of cryptocurrency is decentralization. Cryptocurrencies are decentralized specifically because those behind the projects do not want to cede control to a government authority or central bank. Simply put, cryptocurrency proponents don't trust governments and central banks. Nor should they.
Facebook is attempting to get its foot into a community that already has trust problems. But they apparently were not prepared for the fact that consumers and regulators alike have trouble trusting them. They have sown the seeds of mistrust by not protecting private data. They may reap what they have sown in a Libra project that ultimately goes nowhere.