Is Facebook Ready To Launch Its Own Cryptocurrency?

 “Of our 49 billion, we haven’t moved any to bitcoin; cryptocurrency will come to a bad ending.” – Warren Buffet

These words come from a man who has made the incredible financial journey from $6,000 to $73 billion and certainly knows a thing or two about investing money wisely. The so-called “Oracle of Omaha” is not the only member of the super-rich rooting against the advent of a new era in the history of mankind—the rise of cryptocurrency.

Although backed by names like Bill Gates, the cryptocurrency market value lost nearly $340 billion USD in the first quarter of 2018, following an unprecedented boom in 2017. Ever since that debacle, the virtual currency market boasting names such as Bitcoin, Ripple, Litecoin and many others has not been able to fully swing back, yet the promoters of the BlockChain-supported technology assert that the full potential of this market has yet to be reached.

Amidst the ruckus comes Mark Zuckerberg’s Facebook introducing its digital currency, Libra, last month. The social media giant is hoping that the stars align favorably for its launch in early 2020. If you don’t know much about this new player in the game, don’t worry, this article will get you up to speed.

Facebook's cryptocurrency Libra

Facebook’s cryptocurrency Libra (Photo Credit: pixabay)

What is Libra?

Libra will be a digital currency managed by the independent Libra Association Council. There will be a comprehensive charter and bylaws that will govern the functioning of this e-currency. Just like most other cryptocurrencies, Libra will run under the application of a blockchain called Libra Blockchain. You can read more about blockchain technology at What is Cryptocurrency?

The mission of Libra, as stated on its official site, is “to enable a simple global currency and financial infrastructure that empowers billions of people”. Unlike most other cryptocurrencies, Libra will be a Stablecoin, implying that it will be backed by a reserve of real assets, including bank deposits and short-term government securities, which will be held in the Libra Reserve.  Buying one unit of a stablecoin is equivalent to buying one dollar (if a dollar is the underlying asset), which is then stored in the reserve.

More on Stablecoins

Stablecoins are cryptocurrencies designed to minimize the volatility of their prices by attaching them to a real monetary asset, such as the U.S. dollar. For instance, Tether (USDT) is a blockchain asset meant to be traded for the price of one USD. It is a sort of tokenized dollar that can be directly used for online transactions. For every tether the company issues, it needs to add one dollar to its bank account, which can then be exchanged with the token anytime its owner wants. Therefore, whenever you want to sell your token, you can sell it for the price of at least a dollar.

shiny golden TETHER cryptocurrency coin on blurry background with dollar money 3d illustration - Illustration(knipsdesign)s

Tether is backed by the US dollar (Photo Credit: knipsdesign/Shutterstock)

Stablecoins were launched with the intention of creating a safe form of e-currency for online transactions that are backed as a legal tender by all the monetary institutions of the world. There are many different types of Stablecoins, but the most common include Commodity-backed Stablecoins (backed by metals such as gold, silver etc.) and Fiat-backed Stablecoins (with a value dependent on the value of the backing currency).

Why has Libra received so much backlash?

Libra aims at becoming a permissionless blockchain, meaning that anyone will be able to use it, make legitimate changes and add new blocks (details of transactions) to its blockchain. This is equivalent to saying that your bank cannot stop you from performing a given transaction if you have legitimate currency in your account. In a permissionless network, nothing can stop you from buying a powerful machine and joining the system as a miner (people who take part in cryptocurrency transactions), potentially earning mining fees, and no parties are more privileged than others. Ethereum is an example of this type of blockchain.

However, with Libra, this seems like it could be a real problem.

ETHEREUM (ETH) cryptocurrency; silver ethereum coin on the background of the chart - Image(AlekseyIvanov)s

Ethereum’s logo (Photo Credit: AlekseyIvanov/Shutterstock)

As already mentioned, Libra will initially be managed by a group of 100 individuals who will form the council. Permission from this geographically diverse group of people will be required to allow transactions on the network. This means that these people will screen your applications and decide whether you can join the network of Libra to trade or not. This group will also set the initial rules and regulations of the trade.

Although Libra plans to transition to a permissionless system, users will initially have to trust the council for the safety of their funds. This will be a partial decentralization, as compared to completely decentralized currencies such as Ethereum that we have already discussed.

The speed of transactions determines how fast an ordinary user can buy or sell on a network with millions of other users, which dictates the capacity of the network. The Libra project aims to reach speeds of 1,000 TPS (transactions per second). Considering the TPS speeds of its industry and market rivals (Mastercard and Visa, for instance, are the closest thing to a universal currency today), Libra’s capacity falls short by about 50 times that number.

So what makes Libra different?

The major points on which Libra differs from some of the standard cryptocurrencies—being a permissionless network and a partially decentralized currency—have already been discussed. Still, some of these characteristics overlap with a few existing e-currencies, such as Ethereum. So what actually makes Libra different?

Bangkok Thailand 22 jun 2019 The Libra Facebook and bitcoin cryptocurrency for Libra Facebook content - Image( Niphon Subsri)s

Libra is backed by one of the biggest tech companies in the world. (Photo Credit : Niphon Subsri/Shutterstock)

The answer is Facebook. Think about it like this… when you want to open a bank account, people typically consider large and famous banks over their relatively smaller counterparts, because these smaller institutions, whether state-run or private, can also collapse in a bad economy and you could lose all your money. The reason for relying on bigger banks is that people trust them more and feel that their money will be safe.

The same goes for Libra. It’s backed by one of the largest and most valuable multinational corporations in the world. The assets used to back this cryptocurrency will be highly safe, making it a game-changer in the industry.

Will Libra wake the Sleeping Giant?

Ever since its introduction, Libra has drawn speculation from stock observers about its viability and potential role in resuscitating the crypto market. However, nothing can be said for sure. No one predicted the Bitcoin boom of 2017 that saw a 2000% increase in its value… and no one predicted its dramatic fall in 2018. That is the nature of these e-currencies; they are unpredictable!

However, looking from another perspective, we can make some educated guesses. The success of Libra will depend on the number of organizations that accept it as a medium of exchange. International bodies like the World Bank and the International Monetary Fund have indicated that they might start accepting cryptocurrency as a form of payment in the future; if others follow, Libra might be moving towards a major triumph.

A Final Word

Libra is an initial attempt to make the masses aware of the crypto and blockchain evolution taking the world by storm. It plans to bring the common man on-board this virtual ecosystem, but it might not be able to follow the original vision of blockchains. After all, Facebook is not exactly a benchmark of data safety.

Finally, the success or failure of Libra will depend on you and me. Are you ready to back cryptocurrencies to replace legal tender? If not, then there will be many more e-currencies like Libra that are introduced, experience short-term rises and falls, and then stagnate, without driving the industry forward. However, if people like you and me are ready, we might be signing on for something that will change the way our economy and the entire planet functions. Think about it!

References:

  1. Libra
  2. Tether
  3. BlockchainHub
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About the Author:

Rajat is an undergraduate student of BTech at BITS Pilani (India). He likes all kinds of sports and has represented his college for Athletics several times. He also loves to sing and play the guitar. He enjoys watching movies and likes to read about financial management and the stock market.

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