Facebook's outage should give pause to CBDC projects

The world's most popular social network going down shows just how centralized social media has become, and resembles many of the same risks facing central bank digital currencies (CBDC).

Facebook's outage should give pause to CBDC projects

On Monday, Facebook’s whole ecosystem froze when the app, along with Instagram, WhatsApp, and Messenger, its three largest subsidiaries, failed to work for over six hours. Outages were first reported at 11:30am EST and lasted until at least 5:40pm EST.

According to Facebook, it was a self-inflicted problem. An update to Facebook's routers that coordinate network traffic went wrong, sending a wave of disruptions rippling through its systems. The company claimed “the root cause of this outage was a faulty configuration change” and there is “no evidence that user data was compromised as a result.”

Regardless, the outage raised red flags over just how monopolized our social networks have become.

Twitter, TikTok and Reddit are separate Web 2.0 big players, and Discord is a growing community strongly tied to the coming-up of Web 3.0, but Facebook owns the four most-downloaded apps of the 2010s. Not the top one, but all four of the top web apps in the world.

When one company is so dominant in any market space, it runs the risk of centralizing attention, decision-making, and most importantly, dependence for society to function. Facebook has not lacked controversy over the years, and its similarities to large central banks are tough to ignore.

CBDC Resemblance

Facebook's outage will happen to central bank digital currency (CBDC) without exceptions. A CBDC is the virtual form of a fiat currency for a particular nation or region. According to Investopedia, it is “an electronic record of the official currency and is issued and is regulated by its monetary authority.”

In many ways, CBDCs owe their origins to the introduction of cryptocurrencies into mainstream society. They are able to help promote financial inclusion and simplify implementation of monetary and fiscal policy. CBDCs can also bring more unbanked into the financial system. The biggest disadvantage—and arguably the most influential factor as to why CBDCs wouldn’t work—is that they are completely centralized and lead to an erosion of privacy.

Facebook Libra

Compare these pros and cons to Facebook’s social network oligarchy. Sure, they allow us to have conversations halfway around the world in split seconds, they promote more communication, connection, and fluidity of information. But, they also invade our privacy, track our every like, click, follow and comment, and use that information to target users for further engagement and share that information with advertisers willing to spend to get users to buy their stuff.

In much the same way Facebook attempted to create and launch Libra, its own cryptocurrency, and claim that it could avoid cumbersome regulation, extend beyond borders, and wasn’t controlled by any single regime (besides, you know, Facebook), CBDCs would ultimately do away with the notion that cryptocurrencies wouldn’t be regulated or tracked.

If we pull back the curtains, Libra’s ultimate goal was to find a way into your wallet, and Libra was an additional way to track your online habits and keep users completely dependent on Facebook’s entire ecosystem.

Digital Yuan

August 31, 2020 the China Construction Bank, one of the big four state banks, enabled open use of the central bank digital currency (CBDC) trial in its app to help distribute the digital yuan for China.

The digital yuan is being trialed in four regions—Shenzhen, Suzhou, Xiongan New Area, Chengdu, and other Winter Olympics locations.

With CBDCs, digital currency might feel the same as paying for items with Bitcoin, but with it comes a lot of sacrifices. At the end of the day, the first “C” in CBDC stands for central. When any one central authority is able to manufacture its own policies—regardless of how few outsiders can regulate it—central banks will always have a primary agenda to cheat the system.

Bitcoiners are growing by the numbers, much of humanity still relies on central banks. Institutions like China and Facebook have incentives to keep things the way they are today. There's a reason China has tried repeatedly to ban Bitcoin—they know it's better, more sound money than the digital yuan.

Facebook being down for six hours proves just how dependent we have become on one company. If we continue to give this type of authority to central banks and buy into the notion that their CBDCs are being more transparent and equal, then our financial dependence on banks will only increase.