Since the emergence of Bitcoin in 2009, digital currencies have continued to grow in popularity. The appeal of Bitcoin lies in the security, irreversibility and anonymity of the transactions it enables. The concept of a decentralized, universal currency prompted public fascination and, at the time of writing, there are over 18 million bitcoins in circulation. But what happens when the world’s largest social media network announces that it plans to launch its own digital currency?
Wonderkid and self-made billionaire, Mark Zuckerberg, revolutionized the world of social media by creating Facebook, a social networking platform with a user base of over two billion. Fifteen years after the launch of Facebook (and in the wake of heavy criticism of the social media giant), Zuckerberg stands before congress to defend his newest project: the cryptocurrency ‘Libra’.
Libra has been billed by Facebook as a progressive, “dependable” digital currency and, just like other cryptocurrencies, is built on a secure blockchain.
At this stage, Libra is just an idea, a project in the making with a possible release date sometime in 2020. Despite this, Zuckerberg’s crypto project was met with instant disapproval.
Governments around the world have been vocal in their opposition to Libra – much more so than they were for Bitcoin. However, Bitcoin does not have the scalability to replace fiat currencies; Libra’s endgame is to do just that.
What is Libra’s USP?
The main difference between other cryptos and Libra, is that Libra is not decentralized – the currency’s nodes will run exclusively from the servers of the members of the Libra Association (such as Spotify, Calibra, Vodafone, Uber and of course Facebook itself). And while the Libra Association plans to have 100 members by the new year, seven major corporations like Paypal, Visa, Mastercard and eBay have already distanced themselves from the project following a worldwide political backlash.
Cryptocurrencies are known for their volatility, with Bitcoin’s price fluctuations happening over a short period of time.
Libra will be a stablecoin with its market price tied to a basket of assets such as fiat currencies and low-risk government securities. Facebook believes that this stability will encourage people to feel much more comfortable using Libra than they do with other digital currencies.
Facebook believes that this improved price stability will prove attractive to people who see the benefits of digital currencies but do not want to see wild swings in the value of their digital wallets.
Central Bank of Facebook
But can we trust Facebook with our money? The company has endured heavy scrutiny following multiple lawsuits related to data breaches. Since 2018 Facebook has been accused of repeatedly violating privacy commitments and selling user data.
Mark Zuckerberg states that Libra is not a Facebook project. However, with access to over two billion users, Libra’s potential reach vastly exceeds that of any other cryptocurrency.
Libra’s white paper strongly emphasizes how many people remain ‘unbanked’ around the world, and that Libra will be their gateway to secure financial services. To many observers, this notion simply indicates how poorly researched Facebook’s understanding of being ‘unbanked’ is.
Head of Calibra (Facebook’s e-wallet for Libra), David Marcus, insists that Libra is a solution for millions of unbanked people and was developed with them in mind. But what he fails to mention is that cryptocurrencies remain illegal in half of the countries where most unbanked people reside. Libra does not seem like a real solution for the unbanked but rather just another alternative payment platform such as Alipay.
What does the future hold for Libra?
If Zuckerberg is able to convince regulators and the public that Libra is capable of keeping their financial information secure, then the cryptocurrency is well placed to dominate, but what are the chances that he will succeed?