After months of secrecy, Facebook’s roll out of the Libra coin has certainly shaken up the crypto space and continues to be one of the hottest topics worldwide. With its aim to bring financial inclusion for the unbanked and its potential to engage more than 2 billion Facebook users to join the crypto universe, Libra is well-poised to disrupt the existing landscape of fiat currencies and may turn out to be the biggest catalyst for digital transformation.
Facebook’s cryptocurrency, dubbed “Libra”, is a multi-currency backed stable coin that will run on its native scalable smart contract blockchain platform called Libra Blockchain that doesn’t use Bitcoin’s proof of work model. This will keep its energy footprint low. Each coin does not have a fixed value in any given national fiat currency and will be pegged to a collection of “low-volatility” assets such as bank deposits and short term government securities to prevent huge and unpredictable price swings of conventional cryptocurrencies. These assets will be held in Libra Reserves and will be invested in low-risk assets that will yield interest over time.
Mainly, it is designed to bank the unbanked and function as a borderless currency to streamline the process of transferring money between users at a potentially much lower or nearly zero transaction fees. More than that, Facebook has created a subsidiary company called Calibra, a FinCEN (Financial Crimes Enforcement Network) registered entity that will build and maintain the company’s digital wallet (in WhatsApp and Messenger) on top of the Libra Network. Using Calibra, users can exchange their fiat currency into Libra, store it, and send or receive money to almost anyone with a smartphone with just a few taps. And with Facebook’s promise of delivering privacy and safety into every step, Calibra will also ensure separation between social and financial data. Further, with the intent to eventually offer a broad suite of financial services such as loans, investments, or paying products and services with a scan of QR code all within the app, Calibra will be available as a standalone Android and iOS app next year.
Libra Networks, a non-profit association based in Geneva Switzerland, is set to launch their crypto assets by the early half of 2020. The Libra Association council is responsible for the operation and governance of the overall Libra ecosystem. And to be a founding member, one must have 1 billion market cap or hold 1 billion of customers asset. Currently, the association has 28 high-profile founding members who have invested a minimum of $10 million each to seal a position, become a validator node operator, gain one voting stake in the Libra association council, and be entitled to a share of the dividends from interest earned on the Libra reserves that is proportionate to their investment. Thus, no member will control more than 1% of the Libra blockchain network.
Forthwith, Facebook stated its hopes to achieve 100 founding members (100 nodes) by next year to generate $1 billion fees that will back its cryptocurrency, spur adoption, and raise funds to jump-start the ecosystem. At present, the founding members include some of the world’s most trusted leaders in venture capital firms, e-commerce, tech, blockchain, telecom, and the largest payment networks such as Visa Inc, Mastercard Inc, Paypal, Booking.com, eBay, Spotify, Uber, Vodafone, Anchorage, Coinbase, and Andreason Horowitz to name a few.
However, in spite of the project’s capacity to foster financial inclusion and create an opportunity of payment unification at a global scale, there are still a lot of unanswered questions and compromises about privacy, security, and regulations given the Facebook’s toxic roots in the global game of data manipulation. Questions on decentralization, the threat as to whether this might be a new way for corporations to mint money from consumers and increase their monopolizing powers, or whether Libra will really have mechanisms to defeat illegal activity further entice regulatory regimes across the globe to grapple more prominent roles and streamline supervision over digital asset space.
Along with the key unknown that remains, of course, it is essential to understand the economics of the project as well as address the security and privacy issues. But by the same token, we must also take into account, Libra is offering a very interesting proposition of connecting the crypto world with the legacy financial system that could address the main issues of the current expensive and inefficient cross border payment system. For instance, Thai Banks can use Libra to do international remittances between countries, removing international clearing houses, thus, lowering exorbitant remittance fees that erode hard-earned income. What’s more, financial exclusion breeds poverty, and Libra has the potential to realize one of the core promises of cryptocurrency since its inception - financial inclusion. With its partnership to the veteran payment networks Mastercard, Visa, Paypal, and eBay, Facebook Libra will introduce crypto to a much broader market with a wider range of financial products from banking to loans to credit, aiming to onboard billions of individuals who don’t have access to traditional banking system but do have a mobile smartphone.
More than launching a price-stable cryptocurrency, Libra will be like a public utility tool (open source) where anyone will be able to build payment applications on top of it that will allow plenty of room for developing different models, applications, interfaces, and future adaptability for better user experience.
Furthermore, Facebook will not necessarily undermine the financial sector as it blatantly expresses its desire for future collaboration where banks will become back-end utility providers holding reserves and providing financial services like loans and bank accounts to an extra billion people that were previously excluded from traditional banking.
Given these points, cryptocurrency is obviously rapidly evolving and on the verge of creating a new international model for money and payments. Libra ecosystem is one of the most compelling evidence of crypto innovation well positioned in pushing digital currencies further into the mainstream and broaden the reach and impact of digitization. Facebook’s crypto foray may also serve as a great boost to encourage major financial institutions who have been tiptoeing on the sidelines to get out of the “wait and see” mode. Though we are still at the genesis phase, Libra has the potential to propel economic growth by connecting billions of users worldwide in a decentralized global form of payment and commerce creating a seamless digital economy making everyday crypto-based transactions in an instant.
It is true that there are many hurdles to be overcome on the path of digitization but so as to the solutions that could be found.