Facebook’s Libra, set for launch in 2020, is set to be a disruptive presence within existing financial frameworks. The Social Media giant’s landmark initiative is based on financial inclusion, as it intends to bring financial services to the billions of unbanked individuals around the globe. Reaching people where traditional financial institutions have failed to do so, is an initiative that other cryptocurrencies have tried their hand in — only to be met with failure. However, Libra might be an exception to the case, due to a simple reason: Facebook’s install base.
Approximately 1.7 billion people around the globe don’t have access to an account at a traditional financial institution or access through a mobile provider. This is according to data put out by the World Bank. It is worth noting that there was similar buzz surrounding crypto, and it is still arguably, one of crypto’s “benefits”. However, the market has failed to adopt and accept crypto for regular transactions.
The adoption of evolving monetary standards requires more than just software. It requires robust infrastructure that facilitates these cryptocurrencies, and this mandates close collaboration with governments and customization of services in alignment with regional traditions, customs, and sentiments.
Libra, however, has a major trump card up its sleeve: its install base. With 2 billion Facebook users, Libra has a large audience it can market itself towards right off the bat. While the exact number of these users who are unbanked cannot be determined exactly, the opportunity that presents itself is very noteworthy indeed. The biggest barrier that is stopping the unbanked from making the jump is transaction fees. With Libra, anyone with a cheap smartphone can have accessible financial services. Individuals can purchase items, make transactions, or transfer money to other individuals with nearly zero fees – this stands in contrast to traditional financial institutions, and owing to its integration with FBM and WhatsApp, Libra promises a degree of intuitiveness not provided by clunkier methods.
How does it work? You’ll anonymously purchase or cash out your Libra on the internet, or at local exchange points such as grocery stores. Libra can be spent using interoperable third-party wallets, or through Facebook’s proprietary Calibra wallet – which, as specified earlier, will be built into Facebook Messenger and WhatsApp. In addition, Calibra will come bundled with its own app. The whitepaper detailing Libra and its testnet (released in June) specifies ways in which Facebook is working out the kinks of its blockchain system prior to the 2020 launch.
You have your cash in local currency. Purchase Libra, and spend them like dollars without any transaction fees or your name attached. The financial architecture of Libra, however, goes way deeper than this. The base tech, the wallets that are used, the way in which payments function and the association governing the currency all have a massive degree of complexity behind them.
The Libra Association oversees Libra development, in addition to the reserve of real-world assets that provide its value and the governance rules of a blockchain. The reality here is that people are not bound to trust Facebook wholly in this regard, and such a scenario might drive away potential adopters. There are 28 soon-to-be founding members of the Libra Association, and a few names include Stripe, VISA, and Vodafone. To be a part of the association, prospects must own a half-a-rack of server space, a dedicated internet connection of 100MBPS+ speed, a full-time site reliability engineer and enterprise-standard security. Every member, including Calibra and Facebook, will obtain a single vote, or 1% of the totality (whichever is bigger) in the Association Council.
As a stablecoin, the value of the fledgling currency is intended to be mostly stable. While the exact value is still being decided upon, it is expected to be close to the value of a US dollar, for easy conceptualization. Every time a regional currency is cashed in, money flows into the Libra reserve and equal value of Libra units is minted and issued to that individual. Conversely, if someone cashes out, the Libra they give are done away with, and they receive an equivalent value of their local currency. This indicates that there is always 100% of the value of Libra being circulated, secured by real-world assets in the Libra reserve.
The Libra Blockchain has been engineered for speed. Libra payments are permanently recorded into the Libra blockchain, this public online ledger is engineered to handle 1000 transactions on a second-by-second basis. This can be contrasted with Bitcoin’s 7 and Ethereum’s 15. Upon submission of a transaction, every node executes a calculation based on the prevailing ledger of all transactions. For a transaction to be authentic, executed, and written onto the blockchain, only 2/3rds of the nodes should come to a transaction authenticity consensus. Libra is a permissioned Blockchain.
Libra-compatible apps can be developed utilizing the Move coding language. The Libra Association is implementing Libra Core with the help of the Rust programming language. The Move Language isn’t 100% ready to avert all security loopholes. The move makes bug-free blockchain coding easier. It moves Libra units in between accounts, and in the process, such assets are never replicated. Ultimately, the creation of smart contracts targeted towards programmatic interactions with the Libra Blockchain will be a reality with a move.
Not everything is rosy, as there has been a mass backlash to Facebook’s effort already. This includes opposition from France, India, Japan, China, Singapore, South Korea, Russia, Thailand, the U.K., and the U.S. Entities such as the Bank of International Settlements, and the European Central Bank have also voiced their concerns. The House of Representatives Financial Services Committee voiced grave concerns about privacy, consumer protection, money laundering, and economic stability in relation to Libra.
China’s central bank’s research bureau Director views Libra as a threat to Chinese cross-border payments, fiscal policy, and economic sovereignty. China’s concerns also center around mitigating possible damage to the Yuan.
India’s negative perception of cryptocurrency is well known, and as a private cryptocurrency, the State of India is already looking towards a potential ban of Libra. Elsewhere, in Singapore, Libra might fall under the PS Act, due to money laundering and terrorism financing concerns.
Japan views Libra as a threat that could exploit existing financial systems. It is very likely to not be a crypto asset, and the currency is under close watch. The United Kingdom intends to put Libra under scrutiny, possibly subjecting it to intensive regulations. France has flat out gone on record to state that Facebook shouldn’t be allowed to create their own sovereign currency. Projects such as Libra are viewed as a wake-up call for authorities and policy regulators, as the healthy questions, they raise help us in improving the way in which things are done.
Meanwhile, certain analysts have arrived at an interesting conclusion: Libra is just another payment medium, a “new and improved” version of PayPal. It is not an exciting and liberating cryptocurrency like Bitcoin and Ethereum. For crypto proponents, Libra isn’t a vehicle of liberation from existing financial institutions. At least, not in the way that present cryptocurrencies are.
Libra’s value can be influenced by central bankers. This is because it is backed by a basket of sovereign fiat currencies. In layman’s terms, Libra doesn’t have the ethos of a blockchain. It poses a threat through Facebook’s large crypto illiterate audience, who don’t understand the difference between liberating crypto that breaks shackles versus Libra, and as a result, will enter the cryptosphere through it.
The future of Facebook’s fledgling cryptocurrency looks pretty vague at this point in time. What’s obvious is that the flak it is drawing from governments, the cryptosphere, and financial institutions are showing no signs of abating.