Introducing Facebook’s Libra coin: what you need to know
With facebook officially announcing the launch of Libra coin, its new global digital currency. Set to launch in the first half of 2020, the Libra coin has been at the center of controversy resulting to the division of crypto enthusiasts into two separate camps. Those criticizing Libra as a fake coin that has nothing to do with crypto - which may be technically true - and those praising it as the would-be driver of mass adoption for other cryptos and especially Bitcoin.
According to facebook, Libra’s raison d'être is to serve “as a global currency and financial infrastructure that empowers billions of people”. However, while the Libra currency is built on the Libra blockchain, facebook’s in-house blockchain technology; it’s a far cry from the tenets of crypto.
At its core, a cryptocurrency is, or at least should be, decentralized and trustless, meaning there’s no central authority that can control the supply and there’s no intermediary in charge of transferring your money to the intended recipient. The transaction is verified by the miners and added automatically to the blockchain. Unlike this decentralized and trustless system, Libra will instead be governed by a body of stakeholders who will all have equal vote in the currency’s management.
Namely, the Libra Association which currently enjoys the backing of PayPal, Mastercard, eBay and even Coinbase among others will be managing Libra and Facebook is looking to find a total of 100 partners. The reason behind the decision to create the Libra Association is to provide a solid base for Libra where facebook will not have total control of the currency but the fact that it will be mainly used by the 2.5 billion facebook users makes it pretty easy to see who will benefit from all the transactions.
In fact, facebook also launched another subsidiary company called Calibra which will focus on creating applications and providing financial services for the Libra network. The plan is to create digital wallets through Calibra that users will be able to use to make transactions using their phones on WhatsApp and Instagram – both owned by facebook of course.
A better cryptocurrency?
Bitcoin and other altcoins were created with a vision to make international payments easier and cheaper, bypassing the need to use a bank to facilitate transactions. As such, they would be used as a medium of exchange and a store of value. However, most would argue that currently they are having a hard time achieving this due to the inherently high volatility.
In truth, you can’t blame people being apprehensive about investing their money in a currency which fluctuates in price by hundreds of dollars in any given day. The Libra coin aims to solve this problem by simply pegging its value to a group of assets and currencies in order to keep the price stable. Of course, this isn’t exactly a revolutionary idea since stablecoins have been around for some time now with Tether, Gemini and USDC being some notable examples. Facebook, however, does have an advantage here and that’s its massive user base. With 2.5 billion active users on facebook, the Libra coin will have a much easier time with adoption than other cryptocurrencies that are fragmented across several online communities.
Being able to use Libra to make transactions with other users on facebook’s marketplace for example will potentially be easier than paying with any other method and probably cheaper as well. As long as integration between the Calibra digital wallet and facebook’s platform is made seamless, the end user will probably won’t even know they are paying with a cryptocurrency in the first place. Bitcoin struggled to enter the mainstream because of the lack of infrastructure and public awareness, and this is why some crypto enthusiasts believe that Libra’s accessibility and ease of use could help ease people into crypto and drive mass adoption.
Cause for concern
Facebook has been under a lot of scrutiny lately due to privacy concerns and mishandling users’ data. The social media giant not only has access to data and information of every aspect of its users lives but now also wants to see and control what you buy and how you buy it. It goes without saying that governments and regulatory bodies aren’t happy with facebook and especially now that it’s pivoting into providing financial services using the highly controversial cryptocurrency technology.
There are concerns about money laundering and KYC requirements and how these issues will be tackled by Calibra. The U.S House Banking Committee that is responsible for the entire financial services industry has called for facebook to cease development of its Libra network until lawmakers have a look at the projects inner workings.
Facebook’s plan to dominate financial transactions and provide accessible financial services to those without a bank account is quite ambitious but hardly out of reach for a company that already has almost a third of the entire world’s population relying on its services for all social interactions.
Indeed, the Libra coin may overcome the challenges of traditional cryptos and become the catalyst needed to accelerate the mass adoption of cryptocurrencies and bring them into the mainstream but there are concerns about facebook being the one behind the project.
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