By the first half of 2020, Facebook will be launching Libra, arguably one of the audacious breakthroughs in the world of cryptocurrency, since bitcoin. Backed by the likes of PayPal, Mastercard, Visa, Uber and Andreessen Horowitz, the cryptocurrency is being touted as the Biblical apocalyptic one world single currency.
While the rest of the world may be too distracted rekindling nationalistic ambitions rather than uniting under a single government, the Libra cryptocurrency does has the potential of uniting the world’s economic systems. While adoption would likely not pose a major challenge as recent research from global cryptocurrency firm, Luno, has shown, Libra may have some serious hurdles to jump when regulators come calling.
In a white paper released on Monday, Facebook described the Libra which runs on the Libra Blockchain as a low-volatility cryptocurrency and a smart contract platform that together aim to create a new opportunity for responsible financial services innovation.
“Libra is less a new currency, more a new integrated global payment system,” said Ivan Werning, an economist with MIT.
The cryptocurrency is driven by six beliefs including; more people should have access to financial services and cheap capital; inherent right of individuals to control the fruit of their legal labour; global, open, instant, and low-cost movement of money will create immense economic opportunity and more commerce across the world; people will increasingly trust decentralised forms of governance; global currency and financial infrastructure should be designed and governed as a public good; and collective responsibility to help advance financial inclusion, support ethical actors, and continuously uphold the integrity of the ecosystem.
It is backed by a basket of financial assets (Libra Reserve) provided by node operators. When it is launched in 2020, it will be backed by assets denominated in four fiat currencies: USD; EUR; JPY and GBP.
Facebook would only own a single vote in the control of Libra. Other founding members of the Libra Association headquartered in Geneva, Switzerland also get a vote. The founding members who are expected to finalise on the charter are chosen by industry and includes but not limited to companies such as Mastercard (payments); Vodafone Group (telecommunications); Anchorage (Blockchain); Thrive Capital (Venture Capital); and Women’s World’s Banking (NGO). Facebook wants to recruit100 members of the Libra Association by the target launch in the first half of 2020.
Regulators like Mark Carney the governor of Bank of England, however, are not wasting time in addressing the potential disruption Libra would become when launched. According to Financial Times report on Tuesday, Carney said he remains “open minded” on the utility of Facebook’s Libra cryptocurrency while acknowledging that world payment systems are largely unequal at the moment. He also disclosed that Facebook will have to meet the highest standards of regulation should it succeed in signing up users.
Meanwhile, Luno on Monday released a report which showed that the earliest adopters of the Libra and other altcoins are likely to come from emerging markets like Nigeria. In essence, signing up users may not be so difficult for the social media which also command over 2 billion users across its social media channels.
The US Senate Banking Committee issued an open letter to Facebook at the beginning of May asking the company a number of questions about Libra, after word of the project leaked out in the press. Most of the questions centred on privacy and data protection and a few also relates to the Libra blockchain itself.
While a Facebook spokesperson has told coindesk.com that the company was addressing the senators questions, the Libra white paper does specify how the company intends to address security concerns that may arise.
First, Facebook is launching a subsidiary company to be called Calibra. Calibra has the mandate to handle the crypto activities of Libra and protect users’ privacy by never mingling their Libra payments with their Facebook data. This is intended to address the problem of ad targeting. Users’ real identity will not be tied to their publicly visible transactions.
However, Facebook, Calibra and other founding members of the Libra Associations will earn interest on the money users cash in that is held in reserve to keep the value of Libra stable.
“To ensure that Libra is truly open and always operates in the best interest of its users, our ambition is for the Libra network to become permissionless,” the White Paper stated.
Erick Voorhees, CEO of SpaceShift and a market leader in cryptocurrencies said Libra has the potential to serve the mass market and be the single largest bridge toward decentralised finance that has ever been built. He also believes Libra’s biggest advantage was not to back itself solely with the US dollar. The implication is that the cryptocurrency can arguably become a medium-term replacement to any single government fiat currency.
“Libra is, arguably, superior and above the US government dollar,” he tweeted from his handle @ErikVoorhees. “To whoever bravely navigated Facebook into creating a currency above the US dollar, kudos to you. It was the right decision. I was worried FB coin would just be a lame proxy for US dollar, and it is not.”
He however refers to Libra as not a “pure cryptocurrency” given that it does not guarantee true borderless standard like many cryptocurrencies do.
“The governing consortium can explicitly block or prevent transactions. You won’t find unstoppable finance here. Again, in this, traditional cryptos are far superior. But let’s be realistic, there’s no way Facebook could create an unstoppable coin,” he said.
It may be too early to call, but Facebook’s Libra may have a very long road to travel before becoming the world’s single currency.
