17,670 reads

Facebook and Libra Coin — What You Need To Know

by Iliya ZakiJuly 10th, 2019

Too Long; Didn't Read

Last month, Facebook made headlines when they announced their plans for Calibra. Calibra is a new subsidiary of Facebook that focuses on financial services. Their goal shall revolve around the utilization of a new digital currency, powered by blockchain, called Libra. Calibra will first introduce a digital wallet and is expected to launch in 2020. This announcement from Facebook has received mixed reaction from both the crypto and mainstream media.

Facebook and Libra Coin — What You Need To Know

Despite the split opinions, there seems to be a consensus that Facebook can very well pave the way to global adoption of blockchain technology. The reason behind the consensus is that Facebook has more than 30% of the entire world’s population or 2.38 billion people as its users. As for the rest of the population, it is simply down to two key things on why they do not possess a Facebook account: no access to internet connection or freedom of choice.

Let’s explore a little further.

What is Libra?

Libra is first and foremost, a cryptocurrency created to let people access and participate in the Libra Network. Users shall be able to exchange fiat currency into these digital currencies and use them in online transactions.

The digital coin is essentially a stable coin as it is pegged to government-issued currencies such as USD, EUR, SGD, etc. Many decentralized cryptocurrencies like Bitcoin or Ethereum, are volatile in its valuation. Facebook seeks to create a more stable cryptocurrency to encourage it as a means of facilitating ordinary online consumer transactions.

Traditionally, to make financial transactions, one has to go through banks or what is available today as online money transfers such as PayPal, Transferwise, and many more. However, it is important to note that existing financial systems today are of their own technology. For the sake of being brief, what makes Libra special as compared to other financial systems, is that it is powered by the blockchain.

The Libra Association is made up of reputable partner companies such as Mastercard, Visa, PayPal, Uber, and many others. These companies shall work together to ensure payment processes are faster, more accurate, and safer than existing financial technology by using Blockchain Technology.

How Facebook plans on mass adoption?

Brand Recognition

An article by WIRED discussed how hard it is for modern-day individuals to escape being exposed to Facebook. The social media network has become so dominant until it still affects those who do not own an account. Parents have revealed that Facebook is an essential part of family life and is used to keep distant relatives informed. Therefore, it is undoubtedly an entity that has been integrated into the daily lives of the common people.

A survey was conducted by LendEDU with 1,000 adult Americans and has garnered interesting results. The participants were asked if they had invested or were currently invested in Cryptocurrencies and 91% or 910 people have answered “No”. 18% of these 910 answered “Yes” when asked if they would be interested in investing in Facebook’s Cryptocurrency and out of that number, 57% chose to do so because they trust companies like Facebook to deliver a reliable product.

Libra as payments

At first, Libra will only be available in the Facebook messenger app and WhatsApp. With the other partners in the Libra Association, it is accepted that those companies will find ways to integrate Libra payments.

Real-world Fiat to Crypto conversion

According to The Verge, Facebook is also planning to install ATM-like terminals for people to manage their Libra coins while out and about. Eventually, it is planned to have shopping outlets accepting Libra as a form of payment. In our previous article on Facebook’s cryptocurrency, we discussed that the main problem with world-wide crypto adoption is the ease of exchange of fiat currencies to crypto.

The massive number of Facebook and WhatsApp users worldwide

The most famous Cryptocurrency, Bitcoin, is still limitedly accepted in the world and in order for it to properly flourish as a currency, it needs to be used in paying for products or services. Bitcoin currently is only used and exposed to a minority of the world’s population. Libra, on the other hand, shall be instantly exposed to 30% of the world’s population, if successful. That alone is a massive plus point for the mass adoption for the digital asset.

Proven tech companies in most industries as partners

As mentioned above, the partners of the Libra Association consist of successful, widely adopted services such as PayPal, Uber, eBay, Spotify, and plenty of others. Each with their own mass of user base. These companies have integrated themselves into the daily lives of most people (with an internet connection) and to establish a common currency among them will ensure a high level of penetration.

What are the challenges to be faced by Facebook and Libra?

Regulatory Pressures

In a tweet from a credible voice in the Crypto-space, Anthony Pompliano, members of Congress have sent a letter to Facebook asking them to stop the development of Libra. He continues to elaborate on the fact that government entities will not be able to act as such to Bitcoin.

The letter was reported in The Guardian as well, stating that until regulators and Congress have an opportunity to examine the issues, Facebook shall stop the development of Libra.

Forbes also reported that a group of thirty-three consumer, privacy, economic policy, and other organizations have called Congress and regulators for a moratorium on Facebook’s Libra. To quote the letter,

“The Facebook proposal to create a new cryptocurrency as part of its broader Libra project raises profound questions about national sovereignty, corporate power, consumer protection, competition policy, monetary policy, privacy and more…. We call on Congress and regulators to impose a moratorium on Facebook’s Libra and related plans until the profound questions raised by the proposal are addressed.”

Converting True Crypto Users

Bitcoin’s main purpose in its creation is to challenge the banks and allow people to control over their financial dealings, true financial freedom. The open nature of Bitcoin’s development is also a major plus in its longevity as anyone and everyone is able to work on its code. Decentralization is also the key philosophy of in a cryptocurrency. Libra is clearly not decentralized when we can establish that it came from a US-based company with central authority over a payment network.

Not banking the unbanked

While it is easy to assume that Facebook and Libra shall bank the unbanked on the surface, the truth is that they are not. To be able to obtain the Libra coin, users have to have access to a bank to facilitate the exchange of fiat currencies which means, only banked people shall have access to it. As discussed in The Conversation, the right documentation shall be a barrier towards someone who does not possess it. Despite only needing a mobile phone, we can expect users eventually have to submit to KYC check which requires documentation. It is nothing revolutionary with Facebook, only that it has the potential to tap into a massive market.

The Rise of Stablecoins

Stablecoins are cryptocurrencies with values pegged to assets such as the US dollar or gold. They are a stable, scalable and secure means for transactions, aim to mimic traditional, stable currencies. It is a cryptocurrency that is pledged to the value of any underlying asset or commodity. Many Stablecoins are pegged at a 1:1 ratio with certain fiat currencies, such as the US dollar or the Euro, which can be traded on exchanges. Hence, Stablecoins are not subject to the extreme price volatility that other cryptocurrencies are affected by.

Facebook is the latest to announce its plans on utilizing stablecoins for real-world usage.

JPM Coin by JP Morgan & Chase

On 14th February, Cointelegraph reported JPMorgan Chase introducing their cryptocurrency called JPM Coin. Like Bitcoin, JPM Coin speeds up transactions between JPMorgan customers. For more information on JPM Coin, please refer to my blog post.

Goldman Sachs

Bloomberg reported that the CEO of Goldman Sachs Group Inc. is “absolutely’’ looking at digital currencies and are conducting extensive research on tokenization.

IBM

Alongside Stellar Lumens, IBM is currently working on a Stronghold USD and shall begin experimenting with different ways for financial institutions to achieve a more reliable and safer transaction processing and money transfer throughout the world.

Tether

In the world of Cryptocurrencies, no other stablecoin is more widely accepted than Tether. Despite its controversies, the stablecoin can be found in most exchanges as a substitute to the US dollar.

What is next for Libra?

If the question here is about global “Blockchain” adoption, then yes, Facebook is a brand that is widely known in the world. The success of Libra can become the main driver of blockchain technology adoption in the general population. In addition to that, their partners will be invaluable in legitimizing blockchain technology as an innovation to be adopted by most, if not all, businesses dealing with intermediaries.

That is blockchain technology, but what about Bitcoin adoption? Interestingly, the price of Bitcoin has soared from $9,000 to $12,000 since Libra’s unveiling. The philosophy behind Bitcoin is, in my opinion, unbreakable. Bitcoin is not backed by cash and government bonds like Libra. What gives Bitcoin value is the trust in its system. Libra does not represent the true nature of decentralization — the ideology that makes Bitcoin desirable. Could Libra also drag Bitcoin into mass adoption?