Facebook has made it official, confirming suspicions about a blockchain project they’ve been working on for more than a year. Libra is Facebook’s next step to becoming a dominant force in FinTech sector.
Crypto-users saw this as a nod to cryptocurrency as an established payment option, but for some, it’s just a way to lure people away from traditional banks and payment services.
One Currency for Everyone
Throughout history world currencies has been associated with the most powerful countries like the British pound sterling and the US dollar. Whoever has control of the globally accepted currency has the potential of affecting the world’s economy.
Facebook’s announcement cannot be taken lightly. With roughly 30% of the world’s population currently on Facebook, it’s not hard to see why Libra can cause massive disruption in the financial sector. Crypto users estimated to be around 25 million pales in comparison to the sheer volume of would-be Libra users including the unbanked and the underserved.
This could lead to the rise of a “supercurrency” where only one currency exists for cashless, online, and cross-border transactions. As technology improves and more people gain access to free internet, digital currency and cashless transactions will become the norm, and fiat currency as we know it will cease to exist.
How Libra Works in a Nutshell
We’ve seen some attempts to create a borderless currency in the late 20th century like the gold-backed dollar, or more recently cryptocurrencies like Bitcoin and Ethereum. Facebook decides to do things differently.
Libra aims to be the first borderless currency with the stability of state-backed fiat and the security features of blockchain technology. It’s a stable coin like Tether and TrueUSD, but with some level of decentralization that employs validator nodes (a total of 100 nodes) to process transactions. There are currently 28 which includes Visa, Mastercard, Coinbase, Paypal, Ebay, and Facebook.
Libra will also address the problem of slow transaction throughputs encountered by decentralized currencies like Bitcoin and Ethereum. Whereas Bitcoin could only make seven transactions per second (TPS), Libra can process up to a thousand. That’s five times faster than PayPal, although much slower compared to Visa’s 1700 to 4000 TPS. Still, Libra is a significant improvement to many large cap cryptocurrencies in terms of transaction speed.
Unlike most coins listed on Coinmarketcap, Libra isn’t meant to be traded but is a way to store wealth outside of banks and financial institutions and making cashless transactions. Facebook, along with Libra’s founding members will put together a “Libra reserve” where all of people’s money will be pooled together creating an immense repository of all the world’s currencies. It’s like Facebook having its own “superbank.” This can have severe consequences on traditional banking and, if successful, could lead to closures.
Calibra – Facebook’s Wallet &Payment Processor
Facebook will have its own wallet and payment processing app known as “Calibra” which is distinct from the social media platform and the messaging app. Hence, all transactions made by users on the app are not mingled with user activity on social media. Facebook assures data will be stored anonymously for research purposes and will not be used to market goods and services to people on social media. Thus, if you buy a new pair of sports shoes with Libra through your Calibra wallet, you won’t be bombarded with ads of sports items on social media. Whatever shows up on your newsfeed still depends on your browsing activity.
This, in a way, prevents another Cambridge Analytica type of situation where tech giants and corporations could take advantage of user information for their own good. Meanwhile, this would encourage a lot of businesses to advertise on Facebook as more people get attracted to the idea of using instant,cashless, borderless transactions much cheaper than traditional bank transfers and payment services. Question is, can we trust Facebook with our money and spending habits?
A Friend or Foe of the Government
By allowing Facebook to gain access to the financial sector, governments can achieve what it failed to do with permission-less, decentralized, censorship-resistant currencies like Bitcoin, Ethereum, or the untraceable privacy coin like Monero. Unlike Bitcoin, Libra is a “permissioned” coin in which validator nodes (the founding members of Libra Association), have been selected based on a given criteria. These are usually multinational companies with at least $10 million staked on the Libra project.
This puts every node under the radar, and governments could very easily knock on their doors and make demands of them. Think of what this could mean to your privacy. Would it be worth the risk in exchange for a much cheaper and faster way to use money? For the 1.7 billion unbanked, and the rest of the world’s population suffering from high fees, it is a much better alternative to being denied from or being constantly ripped off with fees that are considered discriminatory. They just want to use money the way it supposed to work.
On the other hand, Facebook Libra could turn into a “mono-bank” where all of the world’s currency is sucked into. Facebook can turn the table on traditional financial institutions by depriving them of customers on the payments side. Furthermore, if Facebook succeeds in holding the majority of people’s wealth in Libra reserve, banks will slowly lose their ability as informed lenders while Libra gains the upper hand by becoming a lender itself.
Facebook is playing the long game in its bid to become the most dominant force in cashless, borderless transactions and online advertising. This is a crucial moment which will decide the fate of many traditional financial institutions. They can either make concessions or slug it out to the bitter end. But ultimately, it will depend on us, users, from all countries across the globe whether Facebook’s vision of putting us all under one currency will come to fruition.