When Facebook announced its own cryptocurrency, regulators, nonprofit organizations, and politicians all expressed concerns about the ambitious project. Named Libra, the tech giant’s payment solution will let its users make purchases and send money with almost no fees. Facebook’s Libra will be next year’s biggest cryptocurrency trend and could even outdo Bitcoin.
In May, Facebook’s founder and CEO Mark Zuckerberg said at F8, “I believe it should be as easy to send money to someone as it is to send a photo.” Leveraging its own blockchain, Libra will be a decentralized currency that can be used and cashed out whenever a person wants.
But how will it actually work?
Libra Association
First, Facebook doesn’t fully own Libra, although the social media giant founded Libra’s proprietor—the Libra Association. This Geneva-based not-for-profit organization was co-founded by some of the biggest global finance and tech giants. These include Uber, Mastercard, eBay, PayPal, and Andreessen Horowitz, to name a few. They pooled the investment to develop both the Libra blockchain and cryptocurrency.
Each founding member paid a minimum of $10 million to join and will earn dividends from interests earned on the Libra Reserve—users’ fiat money paid for Libras. Facebook’s subsidiary Calibra will provide the digital wallet for users’ Libra coins.
Stablecoin
Unlike popular cryptocurrencies like Bitcoin and Ethereum whose values swing with speculative activities, Libra will be more predictable. As a stablecoin, Libra’s value will be tied to short-term government securities and bank deposits. In fact, some expect that this stability will make it better suited for regular trading and investing.
The anchor value of Libra or the Libra Reserve will include historically stable international currencies such as the dollar, pound, euro, Swiss franc and yen. These will then be held by custodians in different locations across the world.
‘What is Facebook’s Libra?’ by FXCM describes how the Libra Reserve plans to prioritize liquidity and capital preservation. By investing only on short-term government securities, it can minimize the risk of volatility and remain liquid. This will then ensure that users can freely cash out using Libra.
Growing scrutiny
Ahead of its global launch, many regulators are still not convinced with the Libra initiative—especially with Facebook’s privacy reputation. Facebook has already said that data from Calibra will not be used to improve targeting in Facebook’s social media suite. The social media company has also made moves to appease regulators, especially in the US, by excluding the Chinese Yuan in Libra’s fiat currency backing.
French finance minister Bruno Le Maire said they will block Libra in France: “The monetary sovereignty of countries is at stake from possible privatization of money.” The main worry is that it can weaken governments’ capacity to manage the economy in times of crisis as people may exchange fiat currencies with Libra. In addition, other policymakers are concerned about how Facebook can ensure that it won’t be used for money laundering or to fund terrorism.
Despite all this, the cryptocurrency is pushing through. In ‘The Full Transcript of Mark Zuckerberg’s Leaked Internal Facebook Meetings’ by The Verge, he confirms Libra’s launch next year but notes that the token might be delayed. The billionaire cited that the company was still testing the cryptocurrency. Despite the delays, expect Libra to start disrupting how we live in the near future.
