Facebook has Revealed the Details of its Cryptocurrency: Meet Libra
The Reveal of Libra
Planned for a pubic launch in 2020, Facebook has officially released the details of its new cryptocurrency. Meet Libra.
What is the benefit to Facebook to create a cryptocurrency? Let’s first start off with a definition of what a cryptocurrency is.
Cryptocurrency is a digital currency that is next to impossible to counterfeit thanks to its cryptographic security system built by blockchain technology. The defining characteristic of a cryptocurrency is its independence of any centralized bank, leaving it unaffected by any government or banking institution.
Cryptocurrencies hold the allure of making it simple to transfer funds between two parties directly, not needing a bank to clear a cheque or credit card to charge a fee. As they are independent of any governmental organization, this also means that inconveniences such as foreign transaction fees or monitoring international exchange rates aren’t necessary, and free movement of capital across countries can occur in milliseconds. This supposedly results in economic empowerment.
To those living in urban areas in first world countries, the need for a cryptocurrency may not seem particularly necessary.
“However, nearly 2 billion adults around the world still do not have access to any form of a traditional bank, despite the fact that half of these people have a mobile phone, and 25% have access to the internet.”
Now also take into the account the percentage of the world that have migrated from their native country to a wealthier one, in order to send money back to their families. Firms such as Western Union allow the transactions of large amounts of currencies, but will take a hefty commission (a global average of 7%) while also taking 5-7 business days to process the payment, resulting in ambiguity and a profit to a third-party organization.
Facebook has stated that “Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people”.
In our Digital Age with the rise of the Internet of Things, we are also on the cusp of entering the Internet of Money era.
Using the platform called Calibra, users can trade their domestic currency in exchange for Libra. Calibra will allow users to keep their personal and financial data separate.
What Makes Libra Different to Bitcoin or Other Popular Cryptocurrencies?
Libra is meant to be a stable currency with a low rate of inflation (we will discuss how this is possible later in the blog).
The most popular cryptocurrenies, including Bitcoin, haven’t been engineered to be stable, and their up-and-down values along with the lack of trust that the average consumer (or business) holds in them has kept cryptocurrencies on the fringes of daily life.
The Libra Association
Facebook is not only creating a currency, they are also initiating the creation of a governing organization to regulate it. Facebook knows that consumers won’t be immediately trust an entirely new currency entirely controlled by a single corporation, so they have become a founding member of the Libra Association.
Headquartered in Geneva, Switzerland, the Libra Association is a not-for-profit that will ensure the Libra is backed by a reserve of real assets. Its Founding Members are businesses, academic institutions, and non-profit organizations around the world. Paying $10 million for 1 vote, each Founding Member will also be given a share of the dividends from interest accumulated by the Libra reserve.
Why have all these mega-corporations invested in the Libra Association? As mentioned earlier, each Founding Member is given a say in Libra’s governance as well as the hopes of receiving dividends.
So, how is the Libra going to remain a stable currency? Thanks to the Libra Association’s reserve of multiple government securities, its value will be determined by stable currencies (USD, GBP, EUR, CHF) and the Founding Members will use the interest earned on the money traded for Libra to keep its value as stable as possible.
How Will it Work?
We all know that Facebook is a monumental advertising platform with an extraordinary amount of data on its users. While Calibra and the Libra Association are meant to keep the personal data of their users separate from their financial data, many are still wary of how Facebook may try to use this data to further optimise their advertising platform.
Facebook wants to reward its early users – it knows that the success of Libra is contingent on businesses and other merchants accepting it as a form of payment. As seen in the image above, many of the Libra Association’s Founding Members are also mega-brands that have millions of customers. These brands, like Spotify or Uber, might offer a discount to users that pay in Libra.
Creating a new global currency is a monumental effort, and we here at Filed are excited to see how this will play out in the coming months.