Facebook’s decision to launch a new cryptocurrency has caused a stir in the financial world. Central banks are threatened that Facebook’s digital currency Libra will compete with fiat money, such as the USD, EUR, GBP, and CNY, for instance. In addition to governments, banks are also feeling the pressure from Libra, given that they stand to lose market share from the new competition.
Bank of England Governor Mark Carney has voiced concerns about Libra, arguing that digital currency shouldn’t be controlled by Facebook or any tech company for that matter. Facebook CEO Mark Zuckerberg has countered such complaints by insisting that his company is only one in a consortium of many businesses that will together comprise the governance structure of the Libra Association, which in turn governs the digital currency.
Other members of this group include Visa, Mastercard, and Uber, to name a few. He says that “Facebook only has one vote,” suggesting that it can’t control cryptocurrency in which it does not have the majority say.
What Will Libra Be Used For?
Similar to bitcoin, Libra is built on the blockchain; but that’s about where the similarities end. Bitcoin is much more decentralized, relying on a network of computer nodes to validate and complete transactions on the blockchain. There is no organization like the Libra Association or any single entity controlling bitcoin, and there is nobody to call if you send funds to the wrong BTC wallet address.
Libra Association Controls Libra Coin
Libra is more comparable to PayPal, according to the The Wall Street Journal report. In fact, PayPal is one of the members of the Libra Association, so this comparison makes sense. The key difference between the two platforms is that PayPal doesn’t have its own digital currency while Facebook does.
Libra Association is responsible for creating the coins, a process that’s aptly called minting. They issue the coins to sellers, and once a Facebook user downloads a digital wallet from Calibra, which is a new Facebook division, they can buy the coins right on that website. There are also reports swirling that Libra could be sold on a cryptocurrency exchange such as Binance, which is also the biggest trading platform for bitcoin.
To use Libra, you are limited to the companies that have partnered with the venture. Facebook, which boasts more than 2 billion users, reportedly plans to sign on 100 partners. Libra coin can be used for online purchases, such as a subscription to Spotify. When the receiving company, in this case Spotify, receives the digital currency, they covert it to fiat money. Libra consortium is then responsible for destroying the coins.
If you’ve seen the headlines on bitcoin, then you know how volatile of an asset it can be. Bitcoin price has been known to rocket from roughly $11,000 to nearly $14,000 in a day. It can also fall just as quickly as it rises.
The thing about Libra is it doesn’t entirely fit the definition of a cryptocurrency. It’s closer to what’s known as a stablecoin, but market leaders suggest it’s not that either. The similarity to a stablecoin is that Libra is designed to be linked to a basket of fiat currencies. Stablecoins like Tether, for instance, are tied to a single fiat currency, in this case the U.S. dollar. The point is that Libra won’t experience the same price fluctuations as bitcoin because even though the value of fiat money including the U.S. dollar fluctuates, it’s not nearly to the extent of cryptocurrencies like bitcoin, the latter of which can take investors on a roller coaster ride.
Facebook hasn’t launched Libra yet and doesn’t plan to do so until 2020. Skeptics aren’t convinced the digital currency will ever see the light of day given the regulatory backlash. One thing that Libra has been successful at doing already is bringing attention to the cryptocurrency space.