For the past six months and maybe even longer, Facebook has been eyeing the cryptocurrency industry in what many believe to have been in a bid to launch a product in the space. It’s the hiring of blockchain experts, buying of the blockchain company Chainspace, and hiring of several industry leaders was a dead giveaway.
However, there were still uncertainties as to what the social media company was about to do which meant the cryptocurrency community had to rely on the bits of information pieced together by media outlets. As of today, that is no longer the case since the much-awaited Facebook coin’s whitepaper has been launched.
The 29-page whitepaper tells a lot about what the social media company has in store for Libra, its global cryptocurrency which will be launched in the first half of 2020. Based on the whitepaper and details given by Facebook executives, there are several reasons why Libra cryptocurrency is the future of global payments.
Libra is a digital currency that was officially unveiled on June 18, 2019, and it gets its name from a Roman unit for weight and currency. The name is also an astronomical symbol for balancing the Scales of Justice. In terms of pronunciation, Libra sounds like libre, a French word which means “free” or “freedom”. Therefore, the term Libra is a combination of money, justice, and freedom.
Libra differs from Bitcoin and some other altcoins because a central authority will govern it. Similarly, each unit of the Libra will be backed by four government currencies. These are the US dollars (USD), Euros (EUR), Japanese yen (JPY) and Pound sterling (GBP).
According to its whitepaper, Libra is:
“A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.”
Like any other cryptocurrency, transactions made with Libra are recorded on the blockchain but this time around called Libra Network. The blockchain ensures that these transactions are irreversible and traceable. Similarly, Libra will be stored in a digital custodial wallet known as Calibra in order to make the sending and receiving of payments swift.
The global cryptocurrency will be tailored for use on Facebook’s platforms and these are WhatsApp, Instagram, and Messenger; platforms that are believed to have an accumulative of over 2 billion users.
Here are some reasons why Libra is the future of global payments and could potentially rival other virtual assets and the traditional banking system.
Libra differs significantly from Bitcoin and some altcoins because its value has been pegged to several fiats. The fiats will be held in a reserve known as Libra Reserve, and reputable members of organizations will contribute $10 million each to it in order to ensure that Libra is less volatile than Bitcoin. The asset’s price will not be determined by scarcity but by assets with intrinsic value.
What this means is that the non-speculative and stable price of Libra will facilitate its use for online and offline payments. Facebook executives have, however, outlined that Libra will first be used by individuals in developing countries who are lacking access to the traditional banking system.
Pete Lewis, a spokesman for Mercy Corps, a humanitarian organization that signed up as one of the 28 founding partners for the Libra Association also hinted that the virtual asset will be useful for people facing a crisis such as a natural disaster. These are people who may need not have the cash immediately to fall back on and as such, they can rely on the virtual asset whole value is stable.
In Lewis’ own words:
“A low-volatility currency could provide financial stability for people struggling with conflict”
Now if Libra succeeds in this aspect, it could take it one step further by being an alternative to the traditional banking system that makes it easier and cheaper to send money across borders and not just in developing nations. The virtual asset could potentially become an integral part of people’s lives which is one of the goals of the social media company.
Dante Disparte, the head of policy and communications for the Libra Association while speaking to The Verge stated that:
“The goal really is to improve financial inclusion and do to the transfer of value and payments what the internet has done to the transfer of communication and information.”
While cryptocurrencies are generally known to compete with the financial sector of the economy, Facebook in a blog post outlined that Libra’s goal is not to directly compete with the financial sector. On the contrary, the social media company plans to incorporate banks into the whole process and from now to next year, banks would’ve been a part of Libra.
According to Facebook, if it brings another billion people, then these individuals will require saving accounts, loans, and just about anything banks are good at. This, therefore, means banks will also play a major role in the success of Libra while also facilitating swift digital payments.
A question that may be running in one’s mind is how the success of this asset will be brought about and if people can trust it. Nonetheless, when one considers the members of the Libra Association, a non-profit organization made up of 27 partners who will see to Libra and its development, then there is little or no uncertainty. In return, the founding members will receive interest on the reserves Libra is backed with.
The Libra association is a partnership involving venture capital firms, crypto firms, nonprofit organizations, and technology, corporate finance, and telecommunications service providers.
Some of them include:
That being the case, this is one of the few cryptocurrency projects if not the only one with reputable industries backing it.
To that effect, Facebook has outlined that the willingness of Visa and Mastercard to be partners in the Libra Association shows that even companies that make immense profits also see a potential in Libra. In the same vein, the role played by the duo in the Libra network is to bring about merchant acceptance which could provide several use cases for Libra. It can, therefore, be said that this is one of the most ambitious cryptocurrency experiments in history.
Unarguably, the cost of mining Bitcoin is high starting from setting up a mining farm, hardware equipment and the electricity that will support the farm. Due to this mining burden, a lot of miners have had to quit especially when Bitcoin declined by over 80 percent from its all-time high in 2017.
Others, on the contrary, have had to join mining pools which provide software that shares mining rewards between miners. The latter is in a bid to reduce the cost that is incurred from mining. While remarking on the latter, JPMorgan, the largest U.S. bank also stated in January 2019 that Bitcoin’s price is worth, less its mining cost.
Nevertheless, it’s a good thing to see a virtual asset which requires less energy in order to be created. As such, it curbs one of the problems which has been pointed out in the past as Bitcoin’s limitation, which is its high cost of mining. That being the case, one can access Libra swiftly and easily.
Blockchains may have a common goal of providing immutability, traceability, and transparency, but depending on the network, each differs in its own functionality. That is why you will find the Bitcoin blockchain, Ethereum blockchain, EOS blockchain, and several others, each striving to make up where the other fails.
However, Libra and its blockchain bring something different to the table and that is incorporating the best features of each of these blockchains in order to deliver a better product.
Let’s take the Bitcoin blockchain, for instance, Libra’s whitepaper states that the Libra protocol does not link an account to its real-world identity thus, only public and private keys are used. This feature is similar to the Bitcoin because a user only needs their private key to sign transactions.
Another excerpt from the whitepaper states:
“A user is free to create multiple accounts by generating multiple key-pairs. Accounts controlled by the same user have no inherent link to each other.”
In the case of Ethereum, the whitepaper details certain ways in which core software and data structure can be interacted with. The network also requires all operations running on the network to pay gas which is a feature also found on the Ethereum blockchain. In the same vein, anyone can run a number of reading commands that are associated with objects including smart contracts or a set of wallets.
Binance coin (BNB) is another virtual asset which Libra seems to have taken a liking to. BNB is a virtual currency issued by Binance, a Malta-based cryptocurrency exchange and it is used to pay transaction fees on the platform. However, BNB tokens are occasionally burnt in order to help the price of the virtual asset appreciate.
The latter is comparable to Libra’s feature even though in this case, the burning is not to increase the coin’s value. Instead, tokens which have been issued will be burnt immediately based on how the association responds to demand shifts for its reserve, without any maximum or minimum supply.
Libra Network is open source which makes it free for use by individuals and businesses who intend to build on the framework. Its open-source nature comes with an advantage and that is helping in its development and advancement. Developers can freely carry test on it and point out areas that are in dire need of improvement.
Another advantage of this open source nature of the blockchain is that more non-custodial wallets to store Libra will be created. As such, if you still have trust issues when it comes to Facebook’s custodial Calibra wallet, you can transfer the tokens to other wallets. The latter can be likened to the mode of operation of public cryptocurrencies.
The Libra blockchain upon its launch will be a permissioned network. The latter allows founding members of the Libra Association who hold Libra Investment Tokens (which differ from Libra), to process and secure transactions. Plans have, however, been made that at a later time, the network will be made permissionless which will ensure that anybody can process transactions.
While cryptocurrency enthusiasts may be quick to point to Libra’s permissioned nature since it makes room for a company or organization to hold the concentration of power and the possibility of others being cut off from the network, Facebook has tried to put their fears to rest.
In its whitepaper, it states:
“Founding Members are organizations with established reputations, making it unlikely that they would act maliciously.”
Nonetheless, it may be worthy to note that a permissionless network is difficult to achieve speed or scale because as the network acquires more nodes, it becomes slower. The latter has hindered many crypto assets aspiring to be alternatives to fiat currencies.
Facebook in its blog post also addressed the latter by saying:
“Mass-market usage of existing blockchains and cryptocurrencies has been hindered by their volatility and lack of scalability. Some projects have also aimed to disrupt the existing system and bypass regulation as opposed to innovating on compliance and regulatory fronts to improve the effectiveness of anti-money laundering.”
These and many more are some of the reasons why Libra can be a global payments currency. It can potentially have an impact on the finance industry and even global economies in the long run and this can be attributed to the wide range of currencies it will be backed with.
However, the virtual asset is yet to be launched and as such, one can only determine to a certain level of accuracy what is achievable. It all boils down to Libra’s and its blockchain real-life usage and how it will become a part of people’s everyday’s life as Facebook has taunted. Nevertheless, it is exciting to see something remarkable come out of six months of research.