Facebook’s Libra (Stablecoin) — Good? Bad? Useless?

Libra — Stablecoin

Libra: “(in ancient Rome) a unit of weight, equivalent to 12 ounces (0.34 kg). It was the forerunner of the pound.”

Don’t worry, you have come to the right place, we will talk about “Libra — The Cryptocurrency” to be. Why am I explaining the literal meaning of it? It will be clear in a moment.

The long-awaited speculation/ rumour of Facebook launching its own Cryptocurrency was over when Facebook (in June 2019) officially announced that they will be launching their Crypto by the name Libra in the mid of year 2020. But it won’t be exactly similar to other famous Cryptocurrencies that you might have heard of like Bitcoin, Ether, Litecoin, etc.

Why Libra? What is wrong with Bitcoin?

One of my friends was getting married in March of 2018 and for his honeymoon he planned to go to Hawaii for 7 days with stay in a 5-Star hotel. He did all this planning in December of 2017 as he owned 1 full Bitcoin (the price was soaring towards 20K USD/ Bitcoin during that time). He was sure that he not only will be able to fund his honeymoon but also save some healthy amount after selling his Bitcoin. Since the whole market was bullish on it, he waited and got busy with preparations for his marriage. In February 2018 (just 2 months after) he looked at the price of Bitcoin and it was around 6000 USD/ Bitcoin. He then went to Pondicherry for his Honeymoon.

Now, don’t get me wrong, Pondicherry is all good and beautiful, but you get the idea, right? The Cryptocurrency market is so volatile that you cannot be certain about price of any Crypto in the next 2 days, let alone be 2 months. Prices of Fiat currencies (Dollars, Pounds, Rupees, etc.) and stocks (equity) are not so volatile, right? So, there has to be a similar reliability and credibility on the prices of these Cryptocurrencies for people to have some trust in holding it for long and using it. This is where Stablecoins come into picture.

Stablecoins and How will Libra work:

Cryptocurrencies that are pegged to either a fiat currency, or another Cryptocurrency, or to an exchange traded commodity (like Gold, Silver, etc.) are called Stablecoins.

Libra is a Stablecoin. Having said that, let me take this opportunity to explain both Stablecoins and Libra together.

1 Libra will be equivalent to 1 US Dollar.

1 Libra == 1 $

This means that if a person decides to buy 100 Libra tokens, he/ she will pay 100 US Dollars to Facebook, and Facebook will then keep those 100 Dollars safe in a Libra Reserve (could be a bank). At this point 100 new Libra tokens/ coins will be generated and assigned to that person. These 100 US Dollars will always be safe in the reserve, unless that person decides to sell those Libra tokens (some or all).

So, if ever that person wants to cash out 50 Libra tokens, then 50 US Dollars will be taken out from the Libra Reserve, given to the owner and those 50 cashed out Libra tokens will then be destroyed and cannot be used again, ever.

There have been many other Stablecoins in past like Tether and Paxos (equivalent of 1 US Dollar), EKON (equivalent to 1 gram of gold), etc.

A good thing about these tokens is that their price does not fluctuate as much as those of other Cryptocurrencies like Bitcoin, Ether, etc. This is because their value is equivalent to the commodity it is pegged to (Dollars, Pounds, Euros, Silver, Gold, etc.). Due to this, these tokens have a higher probability of being accepted as a source of payment by various service providers across the globe.

How Libra network will be established?

There are around 28 companies (this number will increse with time) like Uber, Visa, MasterCard, PayPal, Stripe, Vodafone, eBay, Spotify, etc. who have come together to form a not-for-profit Libra Association, which oversee:

• The development of the Libra token.
• The reserve of real-world assets that gives it value, and
• The management of rules of the blockchain platform that it will.be based on.

Each founding member has paid $10 Million in order to be a part of this association and also these parties will have option to host a Libra node i.e. to make Libra network decentralized (You need to understand Blockchain in detail to understand what I am talking about).

The Good

Around 2 Billion people (according to Libra’s Whitepaper) in the world are unbanked or underbanked. Even some percentage of American population comes under this category. These people do not have financial opportunities to grow their capital and transact into broader markets.

In many countries internet is also an issue. Either it is accessible only by a very small percentage of population or is unavailable. This is where Facebook has a distinct advantage. For many people around the world, Facebook is the only way they can access the internet and subsequently any digital financial system. Infact people of some countries think of internet as Facebook. And this is how will Libra have a positive impact:

1. People who do not have a bank account but have some money will be able to buy Libra.
2. Facebook intends on setting up shops or physical exchanges across the world where people can go and buy Libra in exchange of the local fiat currency (suitable for unbanked audiance)
3. Once a person owns Libra, they should be able to spend it using Facebook, WhatsApp, Instagram, and other future Facebook’s handles.
4. Spend it on platforms provided by all these companies that will be part of this Libra Association.
5. Imagine travelling from one country to another, and taking an Uber. You will be able to pay in Libra and not worry about buying local currency of the country you are visiting.
6. Being marketed by Facebook, it can have a wider adoption and hence more services for people across the world.

These are all good things Libra can posaibly do, but what about the downside?

The Bad

Facebook has not had a good track record and isn’t exactly known for its ethical operations. You may remember a few incidents:

• People’s data to flow to Cambridge Analytica, to manipulate the presidential election in the US.
• Accused of election manipulation in Africa, and
• Has even been implicated in the genocide of Rohingyas in Myanmar.

These things can lead to a really scary future:

1. Imagine Facebook now selling your financial transactions history for their personal profits.
2. Government can force Facebook to share financial details i.e. transactions of a person for their surveillance. Example: Imagine a woman in Saudi Arabia who might want to donate to an organization supporting the rights of women and if the government found that out. She would be killed.
3. Facebook is choosing association members very carefully, and can easily manipulate them in future to change/ modify system to fulfil their personal agenda(s).
4. This won’t be a truly decentralized system. A network like Bitcoin is not governed by anybody and in this situation Bitcoin (and alike) will be a better choice.

If Libra does become a global success and gets accepted by a huge number of people, the horror might start then:

1. Libra will become a centrally governed global currency.
2. What if government then puts a full stop (temporarily or permanently) on Libra, when a lot of people have heavily invested in it?
3. What if Facebook starts censoring your purchase?
4. What if the ruling party puts a “No Trade” rule on purchase of products that promotes opposition parties?
5. What if Facebook decides to deboard you because of a nasty comment or an inappropriate video?
6. Of course, not to mention all the hacking that goes on social media accounts.

The Useless

In a country like India where Crypto (currently banned) future doesn’t seem to be very bright, Facebook will not launch local booths to buy Libra. And Indian government has anyway cut the link between banks and exchanges and so any person with only an Indian Bank account cannot buy or sell Crypto (Since July 2018).

So, people here in India and such countries where there is a ban on Crypto, will not be able to make use of it. Having said that, if a person in India finds a way to own some Libra, he/ she can use it everywhere else in the world wherever it is acceptable.

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