Libra, Facebook's cryptocurrency: What you need to know
Facebook, the world’s social media behemoth, has recently joined the bandwagon of mainstream corporations poised to enter the crypto sphere. Facebook has huge ambitions for its digital currency, and in this article, we will explore everything you need to know about it.
First, when did this journey begin?
The first signs that Facebook was giving serious thought to blockchain technology came when David Marcus joined Coinbase’s board of directors in December 2017.
At the time, Marcus was the vice president of messaging products at Facebook; which includes Messenger and WhatsApp.
Although both Messenger and WhatsApp are giants in their category, they lack the payment functionality that their top rival, WeChat from China has. But Marcus, having served as president of PayPal, a leading payments company in the US, was familiar with solving this type of tech problem.
The next clue that Facebook was serious about cryptocurrency came in August 2018, when Coinbase reported that Marcus was leaving Coinbase’s board. He had been reassigned to focus on blockchain in May 2018, but he stepped down to avoid a conflict of interest.
In December 2018, Bloomberg announced Facebook’s intention to build a stablecoin. If you are new here, a stablecoin is a unique digital currency that is collateralised to the value of an underlying asset. Unlike other cryptocurrencies, stablecoins are not subject to high price volatility.
Although it was believed that stablecoins would not take off without massive civilisation, they rose to become some of the most popular cryptocurrencies in 2018.
Facebook has also recently acquired ChainSpace; a British blockchain company. It has also been hunting for talent the old fashioned way, with a couple of blockchain related job postings early this year.
Reports in June 2019 suggested that Facebook may be launching its crypto coin soon. According to a report by the Financial Times, Facebook had been holding talks with US Commodity and Futures Trading Commission to see if its stablecoin would fall under the regulators’ remit.
Facebook’s decision to roll back its ban on cryptocurrency related adverts also seems to favour the reports that it is working on a blockchain project.
After waiting and speculating for long months, Facebook finally made an announcement about its new cryptocurrency. Libra, Facebook's cryptocurrency will be available to people who use Facebook’s services such as WhatsApp, Instagram, and Messenger. If the cryptocurrency catches on, it’s likely to disrupt the tech and banking industries.
What is the point of Libra, Facebook's cryptocurrency?
If the crypto coin is accepted by users and companies, it could become a better way to pay online. Facebook and other websites will be able to sell their products online and use the crypto for payments.
Beyond e-commerce, people living in developing countries where the banking infrastructure is still in its developing stages will benefit by using it to store and transfer money, without incurring high costs. If a person wants to send money to another country, it might be cheaper to use Libra than other currencies.
Rather than being backed up by one currency, Facebook's stablecoin will be backed by several currencies to prevent fluctuations. The coin will be transferable through products such as WhatsApp and Facebook messenger at no cost.
Facebook is also consulting with financial merchants and firms to help launch a payment platform. They are also allegedly talking to some e-commerce companies and applications that will accept the upcoming coin.
Rumour has it that the social media giant has also consulted with Mark Carney, the current governor to the Bank of England, who is known to support Fintech innovation. Facebook is also in talks with potential partners such as banks, Western Union, Uber, Visa, MasterCard, and brokers who can help in facilitating the launch of Libra.
What is different about Libra compared with other cryptocurrencies such as Bitcoin?
Cryptocurrencies such as Bitcoin are decentralised in nature. There is no single authority to verify transactions between parties. Anyone can do it.
To authorise a Bitcoin transaction, you have to provide proof of work (PoW). Proof of work involves solving a complex mathematical equation. When you successfully solve the equation, proving that you have done the work required, you add a block to the Bitcoin distributed ledger and you are rewarded with bitcoin. This process is known as mining.
Proof of work is important because it reduces fraud. Because anyone can mine bitcoin, it is difficult to collude since you cannot tell who the next person to mine a coin will be. It is also easier to confirm that the person is approved since anyone can check that the puzzle has been solved correctly.
The difference between Libra and other cryptocurrencies such as Bitcoin and Ethereum will be that Libra will use a consensus system referred to as proof of stake (PoS) to verify transactions. Under this system, transactions are verified by a group of people who have a stake or ownership in the currency.
Proof of stake is less secure than proof of work. Since transactions are verified by a small group of people, it is easier to know who will solve the next block and collude with them to launder funds without the knowledge of the other group members.
It looks like the criteria to become a founding member of the Libra association is to pay a minimum of ten million US dollars as entrance fee; have a large amount of money in the bank and be able to influence a large number of people.
Why are banks and regulators worried about Libra?
Since cryptocurrencies have little to no transaction fees when they are transferred between borders, they affect governments and tax systems.
Although the low transaction fees are favourable for everyday users, the advent of a new cryptocurrency with a very large potential user base is a cause of concern for governments and traditional banks.
Libra is open source, meaning that anyone can view, use, or modify the source code. However, only the members of the association can oversee the currency. Libra could signal a shift away from traditional banking fees and government taxes to a new international monetary system controlled by corporate entities such as Facebook and Uber. This raises major concerns due to the lack of regulatory bodies.
What about privacy? Is it safe?
Everyday consumers might not know the difference between proof of work and proof of stake mechanisms. But seeing that Facebook has a large database of users that will be using Libra, it might be possible for them to link transactions back to individuals. This is a privacy concern. The reason Bitcoin transactions are anonymous is that they cannot be linked to an individual’s identity.
Recent cyber-security infringements have caused a growing awareness of the vulnerabilities of IT systems. Just like software, the Libra management and implementation could be vulnerable to attack which could see users lose their money. That, however, is a risk that all cryptocurrency users face.
So, can we trust Facebook with customer account information and financial data? On the Calibra website, Facebook tries to nip this one by stating that it will comply with the law to secure user accounts, mitigate risk, as well as prevent criminal activity. What’s more, customer account information will not be used to boost ad targeting on other Facebook products.
How much are Libra worth?
Libra will be backed with a pool of real-world (fiat) money. Facebook and its partners are promising users that they will always be able to trade cryptocurrency in for cash. The day-to-day value of this cryptocurrency is pegged on the average value of a basket of world currencies such as Pounds, US Dollars, Euros, UK Pounds, and Swiss Francs.
How can I get some Libra?
Facebook's cryptocurrency will only be available from mid-2020. Once it's ready, you can download Calibra, which is expected to work in a similar way to Venmo and buy some Libra by linking your bank account.
Facebook’s Calibra is, however, not the only option for obtaining Libra. It is expected that Facebook's partners will also create digital wallets of their own. These partners will also allow users to convert their crypto coins into fiat money. It is also expected that Facebook will give some Libra to its partners to help promote the currency once it launches mid next year.
Finally, will Libra, Facebook's cryptocurrency deliver?
Could Libra be the long-awaited breakthrough by a global technology giant into the lucrative market for retail financial services? Or is it just another hyped crypto project buying into the ongoing excitement about decentralised exchanges but not delivering much in the end? Only time will tell.
Nonetheless, some scepticism is in order. A common feature among hundreds of cryptocurrency and blockchain related finance projects is their exaggerated early claims. Most of the projects announced since 2003 that claimed to apply blockchain technologies to financial services have disappeared quietly. None of them has gone through commercial scale launch although some might get there in a couple of years.
On the brighter side of things, the obvious parallel is Libra’s competitor, WeChat Pay. This is a China-based mobile and internet payment solution that is used by nine million active users. WeChat Pay managed to achieve widespread acceptance due to its integration with WeChat. Facebook's integration with WhatsApp and other services by Facebook will probably support a similarly rapid take-off.
Over to you...
How do you feel about Libra, Facebook's cryptocurrency? Are you excited about it? Or, do you think it's the next "central bank"?
Let us know in the comments below!
About the author:
Jay Jackson is a blockchain enthusiast and a freelance writer at topcryptowriter.com. He works closely with brands (people, businesses and startups) in the crypto sphere. He currently writes: Blog posts, Guides, Press releases, ICO reviews, eBooks & Whitepapers. You can find him on LinkedIn.
Disclaimer: The above references an opinion and is for informational purposes only. Do not take this as personalised financial or investment advice. The opinions expressed by the author do not represent the opinion of BitPrime.
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Last updated: 18/07/2019