In mid-June, the much-anticipated Facebook cryptocurrency, the Libra coin, was announced. Expected to be available in 2020, Libra will represent a cryptocurrency that differs from those offered by other blockchain platforms. And in some ways, these differences offer some advantages. But given the reach of the Big Tech giant, many are concerned what this case could mean for banking and currency systems. Likewise, blockchain companies like Bitcoin may be left behind.
The proposed launch of the Libra coin has the potential for far-reaching effects. With a Facebook cryptocurrency in place, opportunities for global exchange using a common currency are tremendous. Understandably, dominating a global financial remittance industry is quite attractive. However, for Facebook, this step may just be a stepping-stone. In all probability, Mark Zuckerberg has significantly larger aspirations for the Libra coin in mind.
The Libra Coin — Is It Truly a Cryptocurrency?
A Facebook cryptocurrency available to billions of people offers some level of freedom and monetary value. And as a blockchain, it could presumably impart justice allowing everyone greater fairness in currency exchanges. But there is only one caveat. The Libra coin is not really a true cryptocurrency in a technical sense. Unlike Bitcoin and other blockchain cryptocurrencies, Facebook’s blockchain will have an intermediary. In other words, Facebook’s cryptocurrency platform involves more than the two parties involved in a digital currency exchange.
True cryptocurrencies record transactions on a public ledger within a shared network of computers. This decentralized network requires no intermediary to validate transactions as a result. However, the Facebook cryptocurrency blockchain will be governed by a Libra Association. This association, composed of dozens of corporation members each willing to invest $10 million at least, will oversee and validate Libra coin transactions. As a result, the Facebook cryptocurrency blockchain looks much more like a digital central bank than a cryptocurrency.
The Libra Coin as a Global Exchange Currency
In developing the infrastructure for the Facebook cryptocurrency platform, Facebook is also establishing a digital wallet as well. Calibra, the digital wallet, will serve as an independent application and one that can be used on WhatsApp or Messenger. Thus, the Libra coin can be stored and accessed via Calibra to facilitate monetary exchanges. Through Calibra, Facebook states it will provide legal compliance, asset security, and prevention of criminal activities. However, many are not convinced that this case is necessarily true.
In terms of the Libra Association, there are currently 27 other companies already enrolled. These include major corporations from numerous sectors, including the financial, technology, travel, telecommunications and transportation sectors. Ultimately, the Facebook cryptocurrency oversight association is expected to have over 100 members. And the $10 million each member contributes will be used to purchase low-risk currencies and securities. Thus, unlike Bitcoin and others, the Libra coin will be backed by real monetary value and have a fixed exchange rate.
For these reasons, many are referring to the Libra coin as a stablecoin. In other words, Facebook cryptocurrency will have an inherent value already established in the existing global monetary systems. In any event, it also suggests that the Libra Association is serving a central-bank-type of role. As a result, it will be subject to legal regulations and registrations just as other banking systems are.
The Libra Coin’s Impact on Other Cryptocurrencies
The announcement of the Facebook cryptocurrency spurred notable interest in the Libra coin. This situation attracted the attention of governments throughout the world as well as the G7 Summit. Concerns over terrorism financing, money laundering, and other criminal activities were at the forefront. Nonetheless, concerns over global monetary stability and effects on existing systems were similarly present. Thus, naturally, nations throughout the world are struggling to determine how to proceed while assessing just how much control they have.
At the same time, the announcement of the Facebook cryptocurrency gave existing cryptocurrencies a boost. Interest in Bitcoin and other cryptocurrencies increased along with their share price. Investors saw Facebook’s Libra coin as a sign of validation for blockchain in general. But while the scenario looks favorable for now, it is less certain how the Libra coin might impact true blockchain cryptocurrencies. On the one hand, it could overcome hesitations for users to embrace cryptocurrency in general. Alternatively, the Libra coin could be so dominant that other cryptocurrencies fall by the wayside.
The Future Vision for the Facebook Cryptocurrency
It’s not hard to envision the impact the Libra coin could have globally. Facebook cryptocurrency could serve as an immediate option for money exchanges and purchases throughout the world. Using Calibra, digital currency could rapidly facilitate global monetary transfers. Also, with a stable backing, the Libra coin might be more attractive than Bitcoin and other cryptocurrencies. And, of course, there is the small fact that Facebook already has over 2.3 billion users on its platforms.
Interestingly, however, Facebook isn’t planning on charging transaction fees for these digital currency exchanges. Instead, Libra coin transfers will be free of charge for users. Assumedly, this detail will attract many to embrace Facebook cryptocurrency. Subsequently, merchants and retailers will follow. Thus, through merchant fees, Facebook could support its blockchain platform while incentivizing its use. Given that the global remittance economy is nearly $700 billion annually, this endeavor is surely worthwhile. Yet, believe it or not, that is not Facebook’s long-term goal in introducing the Libra coin.
If Facebook simply wanted to be a leader in global remittance, it could have easily partnered with an existing exchange. However, the vision for the Facebook cryptocurrency platform is much grander. Facebook wants everyone not only to use the Libra coin but also to become dependent on its entire platform for enduring global relevance. In other words, Facebook wants the Libra coin to be THE global currency of the future. If that happens, then Bitcoin, as well as other real currencies, might be in the same boat. Moreover, rather than merely being involved in cryptocurrency, Facebook just might become the world’s Federal Reserve.