We might as well trust Facebook with the details of our personal lives, but should and would we trust it with our money?
This Tuesday, June 18, 2019, Facebook co-founder and CEO, Mark Zuckerberg, officially announced its plans to release a new digital cryptocurrency of its own, called Libra, in 2020. Facebook had been stealthily working on building its worst-kept secret, Libra, for over a year and it indeed did big, the testimony of which is the support it has seen from the most prominent companies in the finance, retail, and technology market.
The Libra Association was formed by Facebook and its partners to manage the technicalities of the project to ensure that everything is in order. According to the association, Libra’s vision is to serve and “empower billions of people”, citing 1.7 billion people who do not have bank accounts and can thus use this digital currency.
Unlike popular belief, Facebook’s cryptocurrency, named Libra, is nothing like Bitcoin, which might make people feel like it is an entirely foreign concept. And so, here are the answers to the big questions that might come to mind while thinking about Libra.
Facebook’s cryptocurrency, Libra is fabricated to run on the Libra blockchain. This is a network of computer servers or nodes, wherein each node in the ledger will be responsible for validating and maintaining transactions. The blockchain technology plays a key role in making Libra accessible to everyone, requiring no transaction costs, and maintaining transparency while protecting users’ anonymity.
Ultimately, the goal of Facebook’s cryptocurrency coin is to create a universal Libra payment system that can process transactions quickly around the world, while not charging a transaction fee.
“These transactions would be pseudonymous, meaning they are available to view on a public ledger, but without personally identifiable information, including names”,
says Braden Perry, a regulatory and attorney with expertise in novel and emerging technology with a financial focus.
Presently, to send $200 across borders, a 7.1% transaction fee is charged. Libra will bridge this gap and serve the globe with affordable financial services.
Libra will be a part of fiat currencies and backed by the governments that issue these currencies, such as the U.S. dollar, the euro, the yen, and others. Moreover, according to Facebook, Libra will also be backed by a reserve of real assets, including a basket of bank deposits and short-term government securities. That means Libra is not a Facebook-backed cryptocurrency. This will maintain its stability and won’t see wild swings in its value as we saw with Bitcoin.
Libra will operate almost as Venmo does. However, it wouldn’t rely on the banking system, allowing users to exchange the currency through various applications. This is kind of satisfying to know because Facebook won’t be the only company building Libra cryptocurrency apps.
In spite of the fact that Libra is expected to be traded through various platforms, Facebook also created another subsidiary called Calibra, which is attempting to make a digital cryptocurrency wallet that can be used to purchase, sell, and spend Libra coins.
The Calibra cryptocurrency wallet will exist as an independent cryptocurrency app, but also incorporate integration with Facebook Messenger and WhatsApp, enabling users to send and accept Libra currency within the messaging platform. At this moment, there is no plan to incorporate Instagram messaging.
Users will not be necessarily required to have a Facebook account to have a Calibra wallet; the organization intends to offer the cryptocurrency wallet for free. Facebook also claims that it won’t have access to users’ financial data, which will be managed by Calibra individually. Along these lines, open exchanges won't be attached to users’ identities so that the data can't be utilized for ad targeting.
Since Facebook is only one of the many members of the Libra Association, Facebook most certainly will not have direct control over its new cryptocurrency.
The main goal behind forming the Libra Association, headquartered in Switzerland, is to keep any one company from controlling the entire network. Facebook will have one equal vote among other members.
That said, Facebook will play a major role in the initial phases of the cryptocurrency. Apart from running the Calibra wallet, it will also maintain a leadership role through 2019. But once the Libra network is officially launched, Facebook’s role and responsibilities will be no more than those of other founding members.
Currently, the founding members of the association ― who invested at least $10 million to join the venture ― are:
Let’s first understand how Facebook’s cryptocurrency, Libra, is similar to other cryptocurrencies such as Bitcoin and ether, like which Libra is a Bitcoin alternative that is entirely digital and will not be seen in the form of a physical coin or note. Moreover, like the other cryptocurrency alternatives like Dagcoin, Ethereum, and Ripple, the transactions will be recorded on a software ledger, blockchain.
Facebook’s cryptocurrency, Libra, is different from the other cryptocurrencies in the way that it won’t swing wildly in its value and will be pegged to a basket of assets that anchor its value. The Libra Association hasn't said what those assets will be but indicated they will include "bank deposits and government securities in currencies from stable and reputable central banks."
Libra’s value will solely depend upon its popularity. If more people come on board with Facebook’s cryptocurrency, the association will “mint” new cryptocurrency Libra. For cashing out purposes, the association will pay the user and destroy that amount of Libra from the network.
Libra is more similar to the US dollar than it is to cryptocurrencies. It will be backed by assets, just as the US dollar was once backed by gold until 1971.
Considering how Facebook has been accused of stealing its users’ private information, it’s difficult not to be skeptical about the privacy concerns associated with its new cryptocurrency, Libra. However, according to the Libra whitepaper, Facebook will not be importing contacts or user identity information, but it will ask for permission.
Moreover, the paper also suggests that the network will not share any transaction data back to Facebook. You can rest assured that you will not be targeted with personalized ads, news fees, etc. Meanwhile, in an attempt to hunt down criminals and thieves, data will be shared anonymously if requested by law enforcement.
Considering Facebook's revenue is to a great extent subject to associating advertisers with the right audience, we need to ponder what's in it for the organization by offering this new service. This, indeed, is raising many eyebrows on the release of Facebook’s cryptocurrency, Libra.
Libra will be available to the world, including those who don’t have bank accounts. Moreover, companies will provide discount offers, instigating you to use Libra coins. Here’s why a company would offer you to use Facebook’s cryptocurrency coin:
To begin with, organizations like Spotify state they need to get customers who, right now, can't pay since they don't have a credit card. Moreover, these companies can easily earn your loyalty by instigating you to use Libra in lieu of cash to use partnered promotions. This way two companies can swap customers until, let’s say Uber customer joins Spotify and the other way round.
Keeping you in Libra could spare these organizations a great deal of money. On the off chance that they need to get your money via credit card, they need to pay a transaction fee. (That is the reason such a large number of neighborhood stores offer a "cash discount" or a minimum purchase, despite the fact that it's against the credit card issuer’s rules.) But in the event that you use Libra, there's just a modest fee, a lot lesser than a credit card transaction.
The main motivation may be customer data. Libra transactions will be pseudonymous — you'll have the option to have an account that is not connected to your real-world identity — yet there will be a lot of user behavior to track. Indeed, even aggregate information will give Libra's members a profitable understanding of customer behavior, so they can all the more likely target promoting, and get you to spend a greater amount of your money. And keeping in mind that Libra and Facebook guarantee to keep a wall between your individual financial data and social data...well...do you trust them?
Facebook's Calibra will build increasingly financial services over Libra, Calibra VP, Kevin Weil, tells the Verge. For instance, he says, they may offer lines of credit. While Facebook won't be completely responsible for the money, it will offer the default application to access that currency. Consider this to be the Apple Podcasts app of money. So Facebook gets the opportunity to double-dip into its new cryptocurrency.
Facebook’s cryptocurrency will be less expensive to use than various other money transfer services, with transactions costing a small fraction of a cent. What's more, for organizations that accept it, it will have much lower exchange fees than credit cards, which may even make microtransactions more appealing.
If you are looking for answers to “what amount is one Libra worth", somewhere close to one dollar, one Euro, or one pound. Furthermore, that won't drastically change — except if some real-world currencies significantly change.
Not the manner in which you can put resources into Bitcoin, in light of the fact that Facebook’s cryptocurrency won't significantly gain (or lose) value. You could apply to be a member of the Association if you have $10 million and a valid reason as to why they should include you. Or then again you can put resources into the numerous businesses that will spring up around Libra support.
The initial reaction has been chilly.
In Washington, several politicians quickly started complaining about the new cryptocurrency, considering the faulty record of Facebook for protecting user privacy.
Maxine Waters, the California Democrat who chairs the House Financial Services Committee, asked Facebook to pump the brakes on the development of Libra until Congress could learn more about the project.
Waters said in a statement,
"The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy. Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies."
Sherrod Brown, a Democrat senator from Ohio, tweeted that Facebook’s cryptocurrency cannot be trusted.
Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight. https://t.co/IjZOFNai3r— Sherrod Brown (@SenSherrodBrown) June 18, 2019
In Europe, the reaction was similar.
Bruno Le Maire, France's finance minister, told Europe 1 radio about how Libra is fine if its usage is only limited to transactions. There should be no interference of the social network.
Le Maire reportedly said in a broadcast,
"It cannot and must not become a sovereign currency, with all of (the) attributes of a currency. The aspect of sovereignty must stay in the hands of states and not private companies which respond to private interests."
Bank of England Gov. Mark Carney referenced Facebook's cryptocurrency project at a meeting of Portugal, saying,
"Anything that works in this world will become instantly systemic and will have to be subject to the highest standards of regulation.”
Citing Facebook's reputation in privacy matters, Markus Ferber, a German member of the European Parliament, said regulators should be on "high alert" regarding Libra.
Ferber said in an emailed statement,
"With the introduction of its own virtual currencies, Facebook becomes a shadow bank and that should put regulators on high alert, particularly when it comes to a company with Facebook's privacy track record. Banking and payment services are areas that are tightly regulated for good reasons and an initiative such as Libra must not attempt to circumvent those regulations."
Whether Facebook’s cryptocurrency will be the next big cryptocurrency or failure is impossible to say. Facebook's Goliath size, especially in developing nations, may get people ready, particularly if it can offer them the services they need. However, it is important to note that cryptocurrencies haven't overturned traditional finance, in spite of all the hype.
Now that you know what Libra is, you can go ahead watch more videos associated with it. Facebook will announce the launch of its new cryptocurrency, Libra, at some point in the first quarter of 2020. Be that as it may, it's already attracted skeptical attention from legislators in both the US and Europe. On Wednesday, a day after Libra's formal unveiling, the Senate Banking Committee said it had planned a hearing for July 16 on Facebook’s new cryptocurrency. The hearing’s name: "Examining Facebook's Proposed Digital Currency and Data Privacy Considerations."
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