On Tuesday, 18 June the social media giant Facebook unveiled the cryptocurrency Libra. The cryptocurrency is set to launch in the first half of 2020. It is currently backed by 27 companies that include the likes of MasterCard, Uber, Lyft, PayPal, Spotify, eBay and several others but Facebook has stated that by the time the cryptocurrency is slated to release it will have 100 partners.
What is the Libra token and how is it different from cryptocurrencies like Bitcoin and Ethereum?
The Libra token is a digital stable coin. A stable coin is a digital currency whose value does not fluctuate much, unlike the Bitcoin that has seen a high of $20,000 and a low of $6,000 in value. The Libra token is going to maintain an intrinsic value because it is going to be backed by real reserve assets such as bank deposits and short-term government securities in reserve for every Libra that is created. A Libra token can be obtained by cashing in your fiat currency (e.g.: Dollars). The fiat currency that you cash in is going to be stored in reserve in stable currencies such as USD, EUR, GBP and Japanese Yen. The Libra tokens can be easily obtained by cashing in fiat currency online or at grocery shops near you. Since the Libra token’s currency is going to be stable, small grocers and shops are going to be more open to the idea of accepting the Libra token as payment due to its reliability.
What can the Libra token be used for and how can you use it?
The Libra token is currently backed by 27 partners that include Spotify and Uber. It is believed that with the launch of the Libra token, you will be able to pay for your Uber or your Spotify subscription using the Libra token. The Libra app is going to be like PayPal or Venmo and will be integrated into services like WhatsApp Messenger and Facebook Messenger apart from a standalone app known as Calibra. Third party apps too will be allowed to build apps to use the Libra. This way you will be able to send money to your contacts and such.
How can I trust Facebook?
The question has been one of the most frequently asked questions since Facebook announced the launch of the new crypto. Most people are sceptical about Facebook’s foray into the new sector due to the image of the Cambridge Analytica scandal still freshly imprinted in the minds of most people. Due to Facebook’s tarnished reputation in the privacy sector, the Libra token is going to be looked over by an organisation independent of Facebook known as Calibra in which Facebook’s stake in Libra will be spearheaded by David Marcus, Vice President of the Facebook Messenger unit. What this translates to, is that Facebook cannot use your transaction history to display its nifty ads. The U.S Congress has been quick to react to Facebook’s announcement of the Libra token and Senator Maxine Waters has asked Facebook to cease work on the crypto until it has been investigated by the committee and has called for a hearing next month on July 17.
People also need to trust Facebook to maintain a ledger and need to be assured that their money is not stolen because unlike Bitcoins where there is a finite number of Bitcoins and your money can be kept track of, Facebook’s Libra coin can not be traced by you. Another point for concern is the fact that Facebook is not going to be vetting the developers that build the apps for their crypto which again raises concern regarding the safety of the currency in these. The launch of the Libra token with over 100 companies that are deemed “safe” might also appease people regarding the safety of the crypto.
How does the new crypto help?
Apart from the independence of the Libra token from the volatility in value like the Bitcoin, the Libra token is primarily going to aim to bring on board, people who do not have bank accounts, the “unbanked”. With a simple verification processed through a valid photo ID, users can come on board the platform and use its services. People will be able to transfer money a lot more easily without losing out on huge chunks of money when organisations such as Western Union that charge a 7% fee on processing such transfers and the industry profits about $50 billion annually.
How is the organisation going to make money?
When a lot of people begin cashing in their flat currencies for Libra tokens and after the operational costs are paid off, the rest is going to be profits. This profit is going to garner interest returns. Then organisations that are affiliated with the Libra token will be compensated with a return proportional to their initial investment.
Facebook currently has 90 million accounts of small businesses of which only 7 million advertise on their platform. If transactions to these small businesses increase through the Libra token, then these small businesses will have money to spend on ads on Facebook. This is being speculated as another route through which Facebook might derive income if the Libra token flourishes.
Some questions still do remain unanswered. First of which is whether banks are going to be on board with their new platform seeing that they currently have no bank on their portfolio. Secondly, will we able to hold the Libra token in a non-custodial wallet. For example, the bitcoin can be kept on online platforms such as Coinbase or you could potentially store it in a thumb drive with a password on a piece of paper and nobody would be aware of it. If Facebook does truly allow storing the Libra in non-custodial wallet how will it prevent people from passing it on to criminals or be used for illegal purposes? Facebook says it will have in-built mechanisms to prevent illegal usage of the crypto, but it remains unclear as to how they are going to achieve this.
The Libra token has seen a wide variety of reactions from politicians and bankers and concerned citizens from around the world. There are plenty of reasons to worry that Facebook might exploit our data, but if this experiment does succeed it might indicate a validation in the use of cryptocurrencies. The Bitcoin’s value jumped up to $11,000 upon the announcement of the Libra token. This could potentially indicate validation of cryptocurrencies. Facebook’s foray into this sector does not have many competitors which means it is up to Facebook to succeed.
Success in this venture is a collective triumph for technology.