Libra, a stable virtual currency from social media giant Facebook, has finally arrived.
But is this new coin a threat to Contentos and COS? To find out, we first need to fully understand why Facebook introduced Libra and what it offers.
According to Libra’s white paper, its vision is to help the billions of adults who are excluded from traditional financial services, such as having bank accounts or credit cards, access those services. An affordable financial service system that requires only a smartphone and internet connection can help billions of people — especially those living in developing countries — receive improved access to economic services and opportunities. It means foreign workers would no longer need to rely on services such as Western Union to transfer money to their home countries. It means students or people with low credit scores could have a better option for making online payments without credit cards. It means better equality as internet financial service and payment systems will be available to everyone with a smartphone.
This is a milestone in Facebook’s development as well. Facebook’s core business model is based on advertising revenue, and it is no secret that their recommendations engine analyzes our browsing habits to customize the ads shown on our personal feeds. But this business model has two problems:
- Privacy: The good side about Facebook ad customization is that it helps show people the ads most relevant to them, but the downside is that Facebook retains too much information about its users, leading to an apparent invasion of privacy. If and when Facebook is asked to address these privacy concerns, it could mean major changes to its core business model.
- Conversion rate: Businesses advertise on Facebook to find potential customers. If these users do not become customers — users who complete the “call to action” after browsing Ads — then these ads are less useful, meaning that businesses are less likely to advertise on Facebook in the future. If the call to action is to download an app or visit a website, it is significantly easier to convert Facebook users to engaged customers than when the call to action is a purchase. This is even truer when considering the large number of Facebook users around the world who do not have access to credit cards or other financial services.
That is why Facebook is now heavily promoting e-commerce on its platform; it is not just about helping advertisers access more potential users, but also about having new ways to conduct peer-to-peer business. Facebook is adjusting its business model to become a combination of eBay and Amazon — when you are shopping, you are more likely to continue purchasing if the recommendation engine customizes its offerings to your interests. But how does Facebook compete with e-commerce giants like Amazon? The key is the payment system. If Facebook can make e-commerce accessible to a large number of people who are excluded from existing online payment systems, it can instantly access an untapped base of new consumers and increase demand on its e-commerce platform, eliminating competition from more traditional online retailers. This would also enable Facebook to strengthen its leading position in developing countries such as India or Indonesia, which have large populations but little advertising value compared to developed countries. If the payment system problem can be solved, the conversion rate in these countries would significantly increase, thereby increasing the value of advertising on Facebook.
The question of how to build a payment system across borders remains. Building another credit card-like system is doable, but it would not be the best solution, particularly because challenges and questions regarding privacy would undoubtedly arise. The solution is a payment system that can be trusted and used by the masses: it is time to utilize blockchain.
To solve the issue of trust, Libra is not actually owned by Facebook; instead, it is controlled by an organization which includes founding members such as PayPal, Uber, and Visa. Second, since potential users are those who cannot access traditional financial services, the financial risk tolerance must be low enough for these people to use the service. The daily fluctuations of most digital currencies might hurt their trust and savings. For this reason, Libra is designed to be a stable coin backed by a reserve of real assets, ensuring that people can rely on it for daily use.
Third, trust cannot be earned through big corporate partners; it also depends on foundational technology. Like Contentos, Libra is open source and based on a BFT-type consensus mechanism. In the future, Facebook users will be able to use Libra on Messenger and other Facebook apps, but the details of wallet creation and user experience are still unclear. It seems likely that Facebook might choose something similar to Contentos proxy design to reduce the learning curve of public/private key management.
Should Contentos view Libra as a competitor? Let’s compare the differences between the two projects.
Above all, Libra is a stable coin — a financial instrument designed to improve access to online financial services. It is also important to Facebook’s core business model. In contrast, Contentos is a content platform focused on content creators and audiences, with COS serving as the token within the content ecosystem. As such, Libra is not a direct competitor to Contentos. On the contrary, the Libra project offers an opportunity for Contentos to expand. There are two primary reasons for this:
- COS needs a way to exchange value with other ecosystems. Currently, this value exchange can only be achieved through crypto exchanges. In the future, Libra tokens can become the medium as long as there is a way to exchange COS and Libra, which is likely since every cryptocurrency has the same needs.
- Libra offers additional entries into developing markets. Together with strong allies, Libra may be able to resolve regulation pain points for numerous countries. Although this is not guaranteed, Facebook is in a better position to talk to different governments about regulation compliance than any other existing crypto projects, including Bitcoin or Ethereum.
- Content creators and social platforms are interdependent. Based on current Libra information, the only way you can get Libra is by exchanging fiat currency. Once content creators learn how to use Libra, they will look for alternatives to earn more Libra, and COS may be the most relevant crypto they earn with their content.
With this understanding, it is clear that Libra presents more of an opportunity than a risk to projects such as Contentos, and is likely to support the global growth of cryptocurrencies.