Libra: Facebook's Cryptocurrency
Facebook didn’t show any interest in blockchain technology until early 2018 when the company formed a special blockchain group that is supposed to help Facebook find the best uses of blockchain tech. Not long after forming the blockchain group, Facebook announced its first blockchain product: a cryptocurrency named Libra. Issuing a corporate currency is a controversial idea and it received a lot of criticism from many parties. This decision looks pretty awkward given that Mark Zuckerberg is probably the last person people would want trust with their private data and he’s so bad at protecting his customer’s data that he had to testify in the United States Congress regarding major privacy issues within his company.
In this article, we’ll share our opinion on Facebook’s Libra and we’ll also expand on why we think that it’s unlikely to be released, at least in its current form.
Table of Contents
What is Libra?
Libra is an old Latin word that means “scales”, as an astrological sign it symbolizes a balance of forces, so it’s a quite nice name for a new cryptocurrency. Facebook’s Libra is a digital currency (cryptocurrency) that is based on blockchain technology.
Facebook created and supported an organization called the Libra Association, founded in Geneva, Switzerland, that is responsible for overseeing the development of the new cryptocurrency. Facebook will not be the only owner of the new currency, each member of the Libra Association who invested at least $10 million will have a vote in the organization and can control it. You can find the list of founding members here.
Like any other cryptocurrency, Libra supposed to be transparent, secure, decentralized and almost untraceable. In theory, a cryptocurrency should be unregulated by governments and central banks, but recently there have been many initiatives to create crypto that will be a part of the legitimate monetary system, however, no country has implemented an official cryptocurrency yet.
You can check a list of countries and their current cryptocurrency regulations here.
Can Facebook Technically Create Libra?
This is the key question in Facebook’s Libra controversy. They most certainly have more than enough recourses to create and support a powerful new cryptocurrency. Facebook is a leading multinational corporation with 22 billion annual net income as of 2018, it’s also an IT company with many educated professionals who can develop and support such a technology quite easily.
If the initiative to create a new cryptocurrency was coming from a small and unknown source nobody would care. To this day thousands of small companies create and launch their cryptocurrencies but they tend to struggle and close fast as it’s hard to maintain the infrastructure and gain the trust of the people. Facebook has massive financial and marketing resources with which they can easily promote their “new money” via their messengers, social media, etc.
Facebook has talented engineers, researchers, money and, most importantly, they already have well-known platforms with 2.3+ billion monthly active users (it’s only on Facebook, not Including Instagram, WhatsApp, and other platforms) who can start using their new product very quickly.
Why Governments Don’t Like Facebook’s Libra?
Governments and central banks don’t like any cryptocurrency, many of them already spoken on the matter and did it repeatedly.
The reason why they are very skeptical of cryptocurrencies is because of the nature of this technology. A cryptocurrency, by definition, is the opposite of the traditional money. You can’t control it, you can’t track it, and it, indeed, can be used for some illegal, shady or criminal activities like money laundering. You can’t even force people to pay taxes if they use a cryptocurrency unless it’s somehow attached to the owner.
Technically speaking, a cryptocurrency can be implemented by a government and it even is better than traditional money, because it’s transparent and it’s much easier to manage. For example, with a cryptocurrency tax-paying process can be fully automated (in theory), but it would mean that millions of government workers will lose their jobs and they wouldn’t be happy with such a scenario.
A cryptocurrency as a main country’s currency hasn’t even been tested yet in a developed country, so now it’s very hard to say how would it work and if it would work at all. If a small developed country like Denmark would try this out and publish the results, maybe then it could be tested in certain states/provinces of bigger countries, but now only countries like Venezuela are trying it out.
US regulators contacted many major American financial companies like Mastercard, Visa, and PayPal (who were in the list of initial founders of the Libra Association) to tell them to avoid any cooperation with Libra at the moment, and they followed this recommendation. The French finance minister has also spoken against Libra as it has the potential to destroy the sovereignty of European countries and their monetary systems.
What is the Current State of Libra?
At first, Libra seemed to be impossible to implement as many major players clearly stated that they don’t approve it, but now it seems that we may see a positive turn of events for Libra as the discussion around it continues. Perhaps, currently they are looking for a way to implement this cryptocurrency in a legit manner, that won’t disturb the monetary system and will prevent illegal activities. In 2019 officials from Libra consortium met 26 officials from different central banks to discuss the matter, and this is definitely a positive sign for Libra because if there was no chance at all for the implementation, this talk wouldn’t happen in the first place. It doesn’t mean that Facebook will eventually launch Libra, it just means that they are serious about it and that some government officials are ready to look for a consensus.
Why Facebook Wants to Launch Libra?
In recent years, many IT companies at least considered to create their cryptocurrency because the topic was hyped. Even small IT firms were thinking about it and many of them did launch their crypto, but in most cases, it wasn’t very successful.
The reason why Facebook wants to do so is quite simple - it’s like printing your own money. Plus, as a huge IT giant, you already have all infrastructure in place to implement, promote and support the technology.
That is why Apple launched their credit card and that is why many corporations are trying to be a bank.
The main problem is, as Trump puts it:
“If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks.”
Those companies don’t want to do that, they don’t want to face the same level of regulations as a bank would, but they do want to play on this field.
If Facebook will successfully create Libra, they can make an enormous profit off it because of the way this currency will be issued. They want to make 1 Libra equal to 1 US dollar, which means that with a better infrastructure than banks offer and with super-low transaction fees their currency will slowly replace local currencies and it could even compete with the United States dollar.
From the business point of view, Libra would be a great thing for Facebook.
Fully functioning implementation of Libra will lift this company to a completely new financial level. Charging even a tiny transaction fee on each transaction of their 2-3+ billion users would mean a lot of money, and such currency would likely be positive for the company’s reputation because Libra going to be quite useful, especially in developing countries with weak local currencies.
Many people, including the author of this article at EasyPortfol.io, are not fans of Facebook due to various reasons. I don’t like the design of the PC version of their website, I think the design of the Instagram can be better too, but I don’t use these social media anyway as I am a bit concerned with the privacy of my data. Facebook may look like a giant monopolist who is claiming to be for all good against all evil, but their actions and, sometimes, words are not supporting this philosophy. However, the core of Fakebook’s corporate culture initially was to connect people around the world, to give them a platform to express their views, thoughts, ideas and to interact with each other, and Libra is not that far from this philosophy, so its implementation would be a logical step towards more connection and globalization which is the company’s mission.
You can check out Libra’s official introduction video on YouTube to see what they want to achieve with it.
Will Libra Be Launched After All?
It’s impossible to say if Libra will be launched or not, we just don’t know and it depends on many factors. Currently, it seems that Libra might be implemented even in 2020, but it might be created in a limited “beta edition”. Maybe it will be tested at first in some small and developing countries if they agree to allow Facebook to experiment on them. This can help to establish a stable financial system in those places and fight their high inflation rates. Getting physical dollars in those countries can be a problem, as well as the digital dollars, because there are not many trusted banks that can provide liquidity, but if anyone who has an internet access can freely receive and send money (always valued as 1 to $1) to anybody, this can really help people to have a better and a more stable economy.
There is a chance that the members of the Libra Association will come to an agreement with Europeans and develop a version of the cryptocurrency that will comply with the EU’s complicated financial regulations. Also, we might see some limited implementation of Libra in small European countries or new members of the European Union, but right now it’s doubtful that Libra will exist in big countries like Germany or France.
Lastly, it’s unlikely that Libra will see the light of the day in the US because it seems that US officials are not happy with the idea that a private corporation will replace the official mighty dollar. Google, Amazon and other American multinational corporations are under fire at the moment for their monopolistic behavior in recent years, and Facebook is not an exception.
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