In June 2019, Facebook, the social networking site who owns WhatsApp and Instagram, finally unveiled its new cryptocurrency Libra Coin. The tech giant is hoping to disrupt current financial movement networks by taking down financial barriers whilst lowering costs on the part of consumers.
In the whitepaper released by Calibra, a subsidiary company of Facebook, as much as 1.7 billion individuals do not have ready access to traditional banks despite the increasing access to mobile phones and the internet. Facebook hopes to bridge this gap by offering digital banking services to those who desperately need it.
Take India, for instance. The country has 200 million individuals currently using WhatsApp. They also have one of the highest remittances in the world. In 2018, the World Bank estimated that as much as US$80 million were remitted to the country. Given this, they will benefit highly from using Libra Coin.
What is Facebook Libra Coin?
It is a global digital cryptocurrency built on blockchain technology. Through the use of blockchain technology, people from all over the world will have the capacity to send, receive, spend, and secure their money easily. Libra aims to create a financially inclusive environment where everyone is free to join.
Libra’s goal is to provide a unit of value that will be accepted globally and one that will improve the confidence in doing financial transactions. To create a more inclusive financial system, Libra has a back-up of reserve assets built in a secure, reliable, and scalable blockchain technology under the governance of the Libra Association that will work on evolving the ecosystem.
The cryptocurrency was built on the premise of:
- securing an individual’s assets through simple and intuitive mobile devices.
- financial movements that are smooth and affordable – a safe and secure method that allows sending messages and media regardless of where users live and work.
- creating a frictionless payments system welcoming of new innovative products and entrants into the ecosystem whilst reducing capital costs.
Above all, Libra Coin will be backed by a number of central bank-issued currencies along with the benefits of blockchain technology. In essence, it will be forcing people to utilise cryptocurrencies in their daily lives rather than keep it as merely an investment option.
What Sets Apart Facebook Libra Coin?
Since the introduction of blockchain, a number of cryptocurrencies came out in the market such as Bitcoin and Ethereum. Many theorized that Facebook would benefit had they ridden in the popularity of these cryptos.
Facebook, however, argued that current blockchain systems are still far from widespread adoption. In addition, existing blockchains and cryptocurrencies cannot be applied in the mass market because they are not scalable and are highly volatile. These characteristics contribute to a low value and poor mediums of exchange.
Facebook hopes that their goal of collaborating and working with financial sectors, regulators, and experts to innovate and create a secure, trusted, and sustainable framework will be realised soon.
What differentiates Libra Coin from other cryptocurrencies is its back up of real assets – Libra Reserve. Libra Reserve has a competitive network of exchanges where users can buy and sell. One of the advantages of Libra is the assurance it gives that the digital currency has convertibility to local fiat currency.
More importantly, Libra has low-volatile assets like short-term government securities and bank deposits from reputable central banks. This will allow Libra to become a digital currency accepted and accessible for whoever wants to use it.
Since Libra Coin has assets or fiat currencies backing it, some experts consider it as a stable coin. What sets it apart from other stable coins in the market now is Libra Coin has a group of low-volatility assets and not only one fiat currency like in the case of Tether (USDT). Simply put, wherever the user may be based, there is only one Libra.
Libra Association: Controlling the Libra Coin
Libra Coin has 28 founding members including:
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
- Marketplace: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
- Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
- Telecommunications: Iliad, Vodafone Group
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Venture
Facebook is hoping to reach 100 founding members before its official launch in 2020. The association is open to accept anyone who can meet the requirements. Members of the Libra Association will meet twice a year. The association is based in Geneva, Switzerland for its neutral stand and known solid support for financial innovations.
Those who want to invest in Libra Coin must have over $1 billion in assets under management. Blockchain businesses must be in operation for about a year. They must also have high-grade security with more than $100 million in assets.
Increased Interest in Reserved Backed Cryptocurrencies
In 2016, Bitcoin began its ascend into its all-time high rate of $20,000. During this time, a Barbados-based startup Bitt started issuing a cryptocurrency backed by the Barbadian dollar. Majority of blockchain followers questioned why a company corrupt currency exchange on a shared distributed ledger by introducing a digital currency with a value dictated by a central authority.
As a result of Facebook’s announcement of Libra Coin, many are now taking a closer look at the Barbadian startup. Other central bankers are now scrambling to know more about these digital currencies. Through this, they are hoping to successfully release their own coins along with the growing popularity of Facebook’s Libra Coin.
Bitt went through a regulatory sandbox with the Barbados Central Bank to ensure consumer protection and prevent economic risk. The company admits Libra’s announcement helped them gain traction among investors.
A few notable studies have shown that economies with huge informal sectors have the potential to increase the GDP growth rate from 2% to 7% by using digital currencies. Facebook’s announcement of the Libra Coin supercharged the interest in reserved-backed cryptocurrencies. The released whitepaper incensed a number of central bankers to think about cryptocurrencies as worthy of their note.