Could Facebook’s Libra Be The Actual Future Of Money?

Libra isn’t competing with Bitcoin — It’s Competing With The U.S. Dollar

Doug Sandlin
Jun 18 · 10 min read
Image Credit: Facebook announces Libra cryptocurrency: All you need to know

Libra Is A Currency Designed For Payments

In 2008, the Bitcoin white paper expressed the goal of Bitcoin as follows:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network.”

However, in the intervening decade, Bitcoin has evolved into more of a store of value, like gold, than a means of payment, like the U.S. dollar. And like gold, the value of Bitcoin fluctuates per real-world supply and demand, created in trading markets.

So, how does this relate to the new Libra cryptocurrency from Facebook?

Very simply: Libra is inherently designed to serve as a better means of payment than either Bitcoin or the U.S. dollar, per its “better than a stablecoin design”, which is explained in more detail, below.

But first, to answer the question “how could Libra compete with the U.S. dollar?”, a bit of background is needed.

What Is Money?

Money is defined as something that is usable as a medium of exchange, a unit of account and a store of value.

Image Source: Is Bitcoin Money?

Libra As Money

Excerpts from the Libra Association Website

Medium Of Exchange

“A key objective of the project is to provide billions of people with access to a low-volatility cryptocurrency that can serve as a low-friction medium of exchange on an international basis from day one, and can support new digital-native use cases such as micropayments.”

“Moving money around globally should be as easy and cost-effective as — and even more safe and secure than — sending a text message or sharing a photo, no matter where you live, what you do, or how much you earn. New product innovation and additional entrants to the ecosystem will enable the lowering of barriers to access and cost of capital for everyone and facilitate frictionless payments for more people.”

Unit Of Account

“Just as consumers in Europe know the number of Euros it takes them to buy a coffee today will be similar to the number of Euros it will take them tomorrow, holders of Libra, too, can be confident the value of their coins today will be relatively stable across time.”

Store Of Value

“To drive widespread adoption, Libra is designed to be a currency where any user will know that the value of a Libra today will be close to its value tomorrow and in the future.”

“By fully backing each coin with a set of stable and liquid assets (described later) and by working with a competitive group of exchanges and other liquidity providers, users can have confidence that they will be able to sell any Libra coin at or close to the value of the reserve at any time. This gives the coin intrinsic value on day one and helps protect against the speculative swings of other cryptocurrencies. “

“The actual assets will be a collection of low-volatility assets, including bank deposits and government securities in currencies from stable and reputable central banks. As the value of Libra will be effectively linked to a basket of fiat currencies, from the point of view of any specific currency, there will be fluctuations in the value of Libra.

The makeup of the reserve is designed to mitigate the likelihood and severity of these fluctuations, particularly in the negative direction (i.e., even in economic crises). To that end, the above basket has been structured with capital preservation and liquidity in mind.

On the capital preservation point, the association will only invest in debt from stable governments with low default probability that are unlikely to experience high inflation. In addition, the reserve has been diversified by selecting multiple governments, rather than just one, to further reduce the potential impact of such events. “

More Stable Than A Stable Coin, More Stable Than Fiat

Stablecoins are cryptocurrencies that are pegged to a single fiat (national) currency, and subject to following the fluctuations in its value.

Libra is an asset-backed coin, supported by the reserve investments of the Libra Association, which consist primarily of short-term debt instruments from stable nations (think U.S. treasury bonds).

Therefore, Libra’s value may change substantially over time if the given fiat currency isn’t very stable — because Libra, per its well-considered backing, is actually more stable than most fiat currencies around the world.

However, unlike Bitcoin and most other cryptocurrencies, Libra is backed by a basket of assets, preventing its price from either appreciating or depreciating significantly.

This simple design structure could potentially make Libra a better form of money, as money is defined — as a means of exchange, as a unit of account, and as a store of value, than any other option available today.

Credibility Counts

The Libra Association’s Founding Partners were reportedly required to invest $10 million each for the privilege of participating in the Libra cryptocurrency Network. And those founding partners consist of a veritable who’s who from venture capital, payments, travel, nonprofit, and even telecommunication. And for the quotes above you can see that they’re quite serious about their participation, and its potential ramifications.

On their blog today, the respected cryptocurrency-friendly venture capital firm Andreessen Horowitz, aka a16z, offered some more detail as to why they are joining the Libra Association as a founding member.

“The Libra Association is a membership organization behind Libra, a new global currency and financial infrastructure built on blockchain technology. Libra brings together a world-class group of partners, including:

Technology companies that know how to create global-scale networks and infrastructure, like Stripe and Facebook.

Financial services companies, like PayPal and Visa, that have deep experience in global payments.

Platforms, including Spotify, Lyft, and Uber, who know how to build user-friendly and popular applications with millions of users.

Crypto-first companies, like Coinbase and Anchorage, that have deep subject matter expertise.

NGOs, like Kiva, Mercy Corps and Women’s World Banking, that understand the neeLibra whitepaper initial analysis: The only digital currency other than bitcoin that matters, and it could succeed massively. But it does not compete with bitcoin, it reinforces bitcoin’s value proposition, and will likely need to rely on bitcoin if it succeeds. Thread👇

Facebook has some 2 billion accounts, and extremely detailed data on them. Its extensive data mining & identity verification capabilities mean it has the potential to build by far the largest platform by user number of any financial institution.

To on-board billions, Visa or Paypal need to go through people’s banks to verify their identity, which is highly expensive, manual and unscalable. FB tracks your every move & knows you better than you or your mom do. They don’t need a bank & can scale much faster.ds and habits of a wide variety of populations across the globe.

These organizations can help Libra reach a critical mass of users, businesses and developers, with the goal of mainstreaming crypto adoption. The focus on developers is particularly important. The Libra network is already open source and in the future will be permissionless, which will allow developers and entrepreneurs to freely build on top of it, helping to accelerate the mainstream adoption of user-friendly crypto applications.”

What Libra Association Founding Partners Are Saying

Libra Association Founding Member Quotes

“PayPal aims to democratize financial access — Libra Could contribute to that goal.”

~PayPal, Libra Association website

“We salute the Innovation, disruption, and entrepreneurial DNA that Libra promotes.”

~Mercado Pago, Libra Association website

“[The] Libra Association may drive massive Global awareness to crypto.”

~Coinbase, Libra Association website

“Libra is a significant step toward our vision, digital money for all.”

Xapo, Libra Association website

Quotes Source: Libra Association Website, Partner Section

Other Experts Weigh In

A tweet thread from this morning by economist Saifedean Ammous, author of The Bitcoin Standard:

“Libra whitepaper initial analysis: The only digital currency other than bitcoin that matters, and it could succeed massively. But it does not compete with bitcoin, it reinforces bitcoin’s value proposition, and will likely need to rely on bitcoin if it succeeds. Thread👇

Facebook has some 2 billion accounts, and extremely detailed data on them. Its extensive data mining & identity verification capabilities mean it has the potential to build by far the largest platform by user number of any financial institution.

To on-board billions, Visa or Paypal need to go through people’s banks to verify their identity, which is highly expensive, manual and unscalable. FB tracks your every move & knows you better than you or your mom do. They don’t need a bank & can scale much faster.

An international transaction on the Visa network has to go through clearance & settlement through many financial institutions and central banks, entailing costs & risks. On Libra, users can transact peer-to-peer through only one institution. The perks of 2b+ users!

Libra being backed by national currencies means it is backed by the USD, since all other national currencies at this point are backed by USD and managed by central banks to try to stay stable against the dollar.

Other government coins are just dollars + issuer risk.

For billions of people, a dollar-backed Libra on your phone globally is infinitely superior to national currency in market depth & maintaining value. If it succeeds, Libra will likely destroy most 3rd world currencies, or force them to be fully pegged to & backed by the US dollar.

For billions of people, a FB-based payment network will offer more and cheaper transactions than any other KYC/AML platforms. If it succeeds, Libra will likely eat most fiat payment processors like Visa, Paypal, and Western Union, particularly those functioning in the third world.”

Do not underestimate how powerful and beneficial such a network could be. If access to global finance & the USD were as easy as access to a FB account, billions of people’s lives would be improved drastically.”

Also, from a Bloomberg report this morning:

Michael Novogratz, the billionaire co-founder and chief executive officer of Galaxy Investment Partners LLC, said:

“Libra “is a game changer in that it credentializes crypto. We now have many of the largest companies in the world participating. It is now a matter of time before crypto and blockchain are part of both the consumer and financial infrastructure of the world. This is extremely bullish for Bitcoin and the whole ecosystem.’’

Jeremy Allaire, Chief executive officer, Circle Internet Financial, the crypto trading firm and stable coin issuer backed by Goldman Sachs Group Inc:

“This is a massive inflection point for the crypto industry -– it’s an extremely positive development for this broader movement towards decentralized platforms and open finance, and the ability to connect every person in the world to an entirely Internet-based financial system. It is the transition point where people start to realize that crypto and this infrastructure is going to help change the way the international economic system functions.’’

Joseph Lubin, the co-founder of the Ethereum blockchain platform and founder of ConsenSys, a Brooklyn-based Ethereum application developer, said:

“Even if the system turns out to be operated in a centralized or federated model — which seems nearly certain at this point — it would be a good stepping stone for people towards taking further control of their assets and identity and getting more comfortable with peer-to-peer payments managed from their own wallet. We started educating enterprises on the basics of decentralized technology about four years ago. I’ve said this before: if we don’t bring in the rest of the world, then I think we’ve failed.’’

Jeff Dorman, Chief investment officer at digital assets firm Arca in Los Angeles:

“While there are a lot of polarizing opinions on the significance of Facebook and even JPMorgan’s entrance into the digital asset world, the fact of the matter is their day 1 will be bigger than any other crypto company’s year 10. As a result, it is undeniable that Facebook is a positive for the crypto industry.”

Travis Kling, founder of the Los Angeles-based crypto hedge fund Ikigai:

“Through Libra, Facebook will introduce its 2.5 billion monthly active users to digital assets, which is a strongly positive tailwind for the decentralized crypto asset landscape. While Libra may compete with existing stable coins, it in no way competes with Bitcoin — it is a gateway to Bitcoin.”

Barry Silbert, the founder and chief executive officer of Digital Currency Group said June 14 on Twitter :

“The launch of Facebook’s cryptocurrency will go down in history as the catalyst that propelled digital assets (including Bitcoin) to mass global consumer adoption. Will be remembered as just as important — and transformative — as the launch of the Netscape browser. Buckle up.’’

For More Information on Libra:

Libra Association Website

Libra White Paper

For Developers

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About

Doug Sandlin is a performance optimization consultant for startups, blockchain projects, and digital asset projects and investors. For more information, please visit https://dougsandlin.com

You can also follow me on Twitter, and you can check out my other writing on Quora.


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Co-Founder and Chief Development (CDO), VolunCharity, Inc. | https://voluncharity.org

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