Love to read! World Politics, Science and Tech, Galaxy! Tech Content Editor @InvoZone
When Facebook first introduced the concept of Libra, their first digital currency, it looked promising. They designed the currency to become global and utilized a digital ledger, or blockchain technology, just like any other cryptocurrency. Interestingly, unlike other cryptocurrencies, Libra would be backed by a ‘basket of currencies’, which would protect it from volatilities; the usual fluctuations that we see in a typical cryptocurrency, like Bitcoin.
However, according to Facebook’s David Marcus, the executive who is leading its blockchain initiative, previously testified to the United States Congress that Libra’s intent is to become more of a traditional currency rather than cryptocurrency. I think that is where the downslope started!
Facebook has over 2.4 billion active users. If it ‘helps’ a quarter of them through its ‘next-generation’ cryptocurrency, that is still almost double the population of the United States. Libra gathered an association from the top companies of the world, who funded at least $10 million into this project. Companies such as Lyft, Spotify, Uber, PayPal and MasterCard were a huge part of it. However, as soon as they arrived, companies started leaving. PayPal became the first to drop out of this coalition.
MasterCard, Visa, Stripe and a few other followed as well. When Congress asked Facebook’s Mark Zuckerberg back in 2019 about the reason for their departure, he simply stated that it is a risk they did not want to take. He further tried to convince lawmakers that such risks are essential if a country wants to continue staying on top as a global superpower. Zuckerberg ultimately received mixed reviews on Libra and his conversation with Congress ended with a very downslope trend.
The remaining Libra Association (LA) regathered to install changes into their original plan. Calling it Libra 2.0, the founders are now seeking to appease the United States government. Why? It was Zuckerberg who constantly assured the lawmakers that the new digital currency would not launch in any part of the globe without the U.S’s approval.
Facebook’s Libra launched itself back in June 2019 and quickly started marketing itself as a solution for people in developing nations. These are the people who don’t have access to traditional bank accounts or have a proper banking system. Through Libra, Facebook introduced a digital wallet which can make payments through WhatsApp, Messenger, and its stand-alone application, Calibra. To stabilize the value of Libra, it would invite several currencies in its basket to become a ‘global currency’. I mean, just look at how they launched Libra to the world:
“What if we made money truly global, stable and secure? What if everyone was invited to the same global economy, with access to the same financial opportunities?"
The figure below shows a summary of what Libra offered:
However, the United States still remember Facebook’s recent Cambridge Analytica scandal. As soon as the Association announced Libra, questions started rising about its true intentions. Senators and the Congress questioned Libra’s efforts to become a transnational currency involving several money fiats, while still not be a competition to country’s monetary system.
There was also an issue of Facebook’s data security, which (as we all know very well) is not as good as they claim. People don’t want their personal information mixing up with their financial information, and vice versa. The fact that Facebook would have access to both sides of information raises a huge concern about privacy. However, Zuckerberg countered with the fact that they created a separate entity, Calibra, who would govern Libra Tokens separately from Facebook Inc. Unfortunately, the issue of trust is only just one of the aspects of troubles. Analysts and governments asked: Is Facebook even ready to take on this level of power and responsibility?
As it goes, the concerns also involve intentions and utilization of power. The ginormous figure of 2.4 billion users is bigger than the number of people in the largest religions of the world. The Libra currency would be circulating among these many people located all over the world. This goes beyond the transnational regulation and seemingly bypasses traditional financial markets. The question is: How can national governments regulate a currency that stretches to all corners of the globe?
If a government is not regulating a currency, then who is going to do it? There is a fear of loss of governing power over Libra. Moreover, there was an implication that Libra might break a major economic rule that doesn’t allow a private entity to manipulate currency.
Let’s start with privacy and segregation of users’ personal and financial information. This is what David Marcus told Fox News:
“We heard people loud and clear: they don’t want financial data commingling with their social data. And they certainly don’t want their financial data being used for ad targeting and all these things…. Facebook Inc. will not have access to financial data inside Calibra.”
Facebook is just one member out of 27 world-renowned members who will overlook Libra. These are companies that include Lyft, Women’s World Banking, Spotify, PayU, Kiva, Novi, Coinbase, Anchorage, Farfetch, Lyft and more. This is apparently a strong point that will keep FB from looking inside Calibra’s user data.
Let’s dive deeper!
Libra 2.0 Offers Plugging of Multiple Currency
This news comes directly from the published Libra White Paper. Check out an excerpt below:
Libra version 2.0 will welcome a new form of ≋LBR Coins which will accommodate other currencies looking to join its ecosystem. For now, they have only mentioned variations for the US Dollar (≋USD), European Euro (≋EUR) and British Pounds (≋GBP). Libra will certainly increase cooperation with other regulators and central banks as more countries join in.
Libra 2.0 To Become A Composite Of Several Currencies
For places where there is no stable currency, the standard Libra Token will fill the void to increase financial inclusion. The standard ≋LBR will be a composite of multi-currency Libra formed by single-currency stablecoins. The exact composition and share of the every single-currency stablecoin will be determined by nominal weights, such as ≋USD 0.50, ≋EUR 0.18, ≋GBP 0.11, and so on.
The International Monetary Fund (IMF) uses the exact system in Special Drawing Rights (SDR). Hence, the LA has invited regulators, central banks and global organizations (like IMF) to oversee and control the basket composition. This nullifies the concerns about LA changing the ≋LBR composition unilaterally.
Version 2.0 Will Forgo A Permissionless System
Facebook’s Libra v1.0 was fully committed to becoming a permissionless system, like Ethereum, five years after its launch. However, after the regulatory bodies expressed security concerns of money laundering and terror financing Libra 2.0 states that it is “forgoing the future transition to a permissionless system while maintaining its key economic properties.”
This move will give more control to the Libra Association who can monitor the flow of Libra funds in the network. This move is aimed at regulatory bodies, as a move away from decentralization means better governance.
Smart Contract System On Libra
The blockchain and tech community applauded when Ethereum introduced smart contract system. Libra 2.0 will carry the same functionality as well. For uninitiated, Nick Szabo, famous computer scientists and cryptographer, first spoke about smart contracts in 1997. Smart contracts are digital contracts stored as a computer program inside a blockchain. They monitor a business dealing between two (or more) parties, reducing chances of fraud, scam and business dishonesty.
The LA wrote in White Paper that Libra’s smart contracts will allow participants to agree on more complex business transactions, all of which the Association, or its subsidiaries, will govern. Tech reports are also hearing news about the introduction of a loan system as well. However, the LA reiterates that the coalition would not be providing loans themselves; rather, it will be third parties. This implies the possibility of banks collaborating with Libra Association in the future.
It Will Not Interfere With Monetary Policies
The new version is going to do its best to get inside the green zone of regulatory frameworks. When the previous LA first announced Libra 1.0, news channels and the government officials discussed Libra as a threat to monetary policy and sovereignty.
To counter this, the Association is taking on robust compliance frameworks that will prevent black market financing. In fact, international organizations like the IMF will work under the guidance of the Swiss Financial Market Supervisory Authority (FINMA) to oversee these transactions and policies.
Fortunately, I got to have a little interview with people well-adept in the field of crypto and blockchain. Here is how they view Libra 2.0 just before its launch:
Sergei Khitrov, CEO and Founder of ListingHelp writes:
“Nowadays, many people still have doubts about the future of the world of cryptocurrencies. When such assets as digital Euro and digital Dollar will occur, all doubts will disappear. It will also make a great inflow capital on the market, and we know how bitcoin price reacts to such things.
The project will also compete with the Chinese Digital Currency Electronic Payment (DCEP), and I think this is very good for the market. It will accelerate development of the entire industry and bring even better technology."
William Michael Cunningham, author of The JOBS Act: Crowdfunding Guide to Small Businesses and Startups views the new Libra a bit differently though. He writes:
“The functionality of cryptocurrency is superior to that of paper money... Eventually, cryptocurrency is going to dominate. Thus, regulating Libra would be a waste of time… What Libra needs is a competitor, perhaps Amazon, Google or a government.”
I also got a chance to record thoughts of the CEO of Cypherium, which is a smart contract platform, Mr Sky Guo. He thinks:
“[Libra 2.0] has dropped its original aim of becoming a global, unified cryptocurrency, and is now more of a blockchain-based electronic payments system. From a technical standpoint, this represents a big step back because Libra 2.0 cannot fully utilize the benefits of blockchain technology. It has now become a PayPal and blockchain hybrid. A centralized system could be more effective for this use case."
Looking at the White Paper publication, the new Libra is apparently doing exactly what the United States government wanted. It is bringing in regulations, making it more centralized, and adding other features to make it more friendly with the traditional monetary system. The intentions of Facebook, Calibra and all the combined members of the Libra Association are crystal clear: they will not give up their idea of digital currency.
However, even with these modifications, Libra might still meet critical eyes. Regulatory and government authorities will not give up their criticism so easily. Perhaps there is some hint of influence from the COVID-19 crisis which has led to governments adopting more centralized schemes and policies. They might not be ready to receive projects that either create competition or even act as complements to the current system.
Overall, the very notion that Libra might become a game-changing force has countries looking into their flaws. China, for example, investigated very thoroughly. In fact, a Wall Street Journal report tells that they actually picked up the pace for their digital currency, Renminbi, after the LA announced Libra. They plan to make their digital currency acceptable in all parts of China. If this plan materializes, China will become the first country to become a cash-free society!
Is Libra 2.0 going to be worth the wait? Definitely. Will it live up to its promise? Yes.
After leaving the coalition of Facebook/Calibra-led Libra Association, CoinDesk reported back on June 22 that PayPal is looking into a currency of their own. Here is what a source told them:
“My understanding is that they are going to allow buys and sells of crypto directly from PayPal and Venmo. They are going to have some sort of a built-in wallet functionality so you can store it there.”
The company is probably going to release this feature of buying and selling cryptocurrency directly from its platform with a few months, as per this source. However, the information on which digital currencies are going to jump on this platform is not public right now.
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