Social media giant, Facebook drew worldwide interest last week when it announced plans to introduce a cryptocurrency called Libra, part of an effort to expand into digital payments.
Reports of new cryptocurrency by social media giant Facebook has been circling for most of 2019, promising to be the most widely used digital coin to date. Just last week the social media giant released a white paper on Libra, which would become operational by 2020.
According to Facebook, this will allow its 2.4 billion users and anyone with a smartphone to send money quickly and inexpensively send money to each-other and transact with businesses that have a presence on the Libra blockchain.
Is Facebook now moving into crypto?
Yes, in 2014, the social media giant hired former PayPal President David Marcus to run its Messenger app. Marcus was an advisor to Coinbase and was subsequently asked to run Facebook’s new blockchain group. In December of 2018, Facebook announced a WhatsApp stablecoin integration in the works, with a focus on India, a market with over $69 billion in remittances.
The rationale behind Libra
Facebook registered Libra Networks LLC in Geneva, Switzerland, one of the most friendly regulatory environments for cryptocurrency projects, to create a new digital currency Libra.
In the white paper, the Libra Association, an independent, not-for-profit membership organization, also headquartered in Geneva announced that
“Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”
It already enjoys support from 29 multinational companies including PayPal, Visa, Mastercard, eBay, Uber and Spotify among others. There are also reports that each partner invested $10million.
The new digital currency will be built on the Libra Blockchain and fully backed by the Libra reserve, a basket of fiat currencies and ‘other assets’. The project claims to be decentralized and governed by the Libra Association.
What does the Libra coin do?
Libra will be used for peer to peer payments, commerce online, brick-and-mortar and applications & gaming.
According to the Libra White Paper, the Libra Blockchain will be open-source, allowing developers to build on it.
“The world truly needs a reliable digital currency and infrastructure that together can deliver on the promise of “the internet of money.”
What this could mean for the global banking system
The Libra’s value will be restricted to a few major currencies, it will be able to handle large transaction volume and 28 other big firms have indicated interest to join a consortium backing the currency. If Facebook’s 2.4bn users adopt Libra to shop and transfer money, it could become one of the world’s biggest financial entities that could herald a consumer revolution.
Fears over security breaches
While the dust over Cambridge Analytical is yet to settle, many suspect that Facebook would use Libra as a way to gather extensive financial data on its users.
Facebook chose to not directly control the coin, but rather share the control with members of the Libra Association. According to Libra White Paper, keeping this network separate from Facebook’s platform also provides the social media giant with some regulatory cover.
“While final decision-making authority rests with the association, Facebook is expected to maintain a leadership role through 2019.”
Regulatory Hurdles ahead
So far the United States Senate Banking Committee has set a hearing to discuss Libra’s potential impact as well as regulatory concerns. The news of Libra is likely to have positive impacts as markets are responding positively, with Bitcoin reaching new 2019 highs
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