The things you won’t pay attention to behind the hype of Facebook Libra coin announcement
It is no more news that Facebook is taking a chunk of its resources and technical know-how to establishing a coin, Libra. Subsequently, both the crypto and mainstream media are churning out expository and investigative pieces on the topic with many either favoring the development or skeptical about its potential impacts.
Amidst this buzz, my first reaction portrayed enthusiasm as the development had crypto adoption written all over it. However, on second thought, I began to piece together new information spewing from speculative sources, I pondered on the arguments from both sides of the divide, and I came to a realization that “Facebook’s crypto” foray is not all that convincing as a cryptocurrency, particularly on paper.
Here, I will tread the thin line between two opinion leaders that have lent their voices to the subject matter. Firstly though, I will run you through all the available facts on Libra coin.
Positive key takeaways you need to know about Facebook Libra project and its “crypto” initiative
- Perhaps, the most interesting speculation surrounding Facebook’s blockchain power play is that it is inevitable that the proliferation of Libra would rub off on the crypto market. With the Facebook ecosystem already boasting a whopping 2,4 billion users, there is no doubt that the global reach of this initiative will set the likes of bitcoin up for blistering adoption.
- The same cannot be said of fiat currencies, which experts suggest will experience a drop in valuation. As such, in the next 3 to 10 years, central banks and financial powerhouses have no other choice but to join the blockchain bandwagon, else they phase out.
- Libra blockchain initiative will go toe to toe with Ethereum, which is currently the largest blockchain app hub. This notion is even truer considering Facebook’s past successes in open source development. Joe Lubin (Co-Founder of Ethereum) didn’t express a lot of optimism on this matter dubbing Libra as a “…centralized wolf in decentralized sheep’s clothing”.
- Another implication is the economic power it avails Facebook. Apparently, Mark Zuckerberg will emerge as the head of one of the biggest financial platforms we have ever seen, and its headquarter is in Switzerland. While some have aired their reservations concerning the tech giant’s growing dominance, others believe that its emergence as a payment processor will correct its apparent liabilities.
- It is probable that issues relating to political manipulation, fake accounts, and privacy that had at one time or the other plagued Facebook’s credibility will come to an end since it has to conform with strict Anti Money Laundering (AML) and Know Your Customer (KYC) policies.
- Many of the corporations listed as members of the Swiss Foundation (Calibra) that will govern the operations of Libra are mostly established tech companies. For a project tagged the biggest payment solution by a mile, it is surprising that there are no traditional financial institutions taking central roles. This revelation establishes a burgeoning fact that the tech industry has begun to claim a controlling stake in the global financial market.
N.B. More information to read in the actual White Paper
Regardless of all the details surrounding the introduction of this ambitious project, one thing is clear — over 2 billion people would have seamless access to Libra. Therefore, regulations, use case, its influence on the crypto market, as well as the financial industry, has come under unprecedented scrutiny.
Caitlin Long, a blockchain enthusiast and a contributor to Forbes, discussed extensively on the role of Facebook’s payment network on the crypto community. Sh took an optimistic stance on this topic while praising GlobalCoin as the perfect launching pad for Bitcoin’s global adoption. In her words, “Facebook’s foray into cryptocurrency will likely end up being a beneficial detour on the path to broader bitcoin adoption. Bring it on!”
Long went further to argue that Libra would become vital to developing countries with financially unstable economies. Also, being that it is a corporate powerhouse, regulatory grey areas surrounding data, privacy, and financial issues could come under the spotlight. Thirdly, Facebook’s proposed governance structure would attract big names that would, in turn, spark issues relating to corporate welfare in the US (more on this later).
On the issue of corporate welfare, Long believes that the Feds standard procedure of paying its banking partners 2.35% of the interest income they generate would spur Facebook, who will partner with one of these banks, to share the spoil among its users. What Long seems to be missing is the fact that Facebook and the horde of companies that would scamper to pay $10 million to become nodes of the network are for-profit organizations.
Remember that one of the conditions for running a legal business in the US is full compliance with FinCEN’s Bank Secrecy Act (BSA). For governments, Libra Coin is the perfect instrument to trace tax evading individuals, money laundering schemes, and terrorism-related funds, so why place an embargo on its introduction.
Cryptocurrency vs Stable Coin?
From what I have noticed so far, many do not only convince Libra to a cryptocurrency, some have even begun to compare it to stablecoin (a coin pegged to a single traditional asset, such as Tether). However, as revealed in Binance’s in-depth research on the true nature of Libra and JPM’s Quorum, its apparent reliance on more than one asset excludes it from the stable coin nomenclature.
More accurately, Facebook will initially back Libra up with four fiat currencies, including USD, EUR, GBP, and JPY. Judging from this approach, I believe that Facebook has come to understand that fiat currencies continue to play an integral role in cryptocurrencies as they are the primary means to determine their value. And so, opting for a basket of fiat currencies to sustain the stability of Libra seems like the best option.
Nevertheless, for those looking forward to adding Libra to their investment portfolio, there are no guarantees that it will yield much. The same way 1 USDT (USD backed Tether) will always retain the value of 1 USD, Libra’s value will depend on the value of its underlying assets.
Reality check behind Facebook Libra
On June 11, Andreas M. Antonopoulos, a well-known crypto supporter, tailored some critical issues regarding the possibility of Facebook’s initiative crippling the crypto market on his YouTube channel.
Here, Antonopoulos argued that GlobalCoin would, in fact, have little or no negative impact on traditional cryptocurrencies like bitcoin and Ethereum.
According to him, “The fundamental thing to understand here is that what Facebook or any type of company like Facebook is proposing is not a cryptocurrency. It does not have any of the fundamental characteristics of cryptocurrency. It does not stand on the five pillars of open blockchains… An open public cryptocurrency is open, it is public, it is neutral, it is borderless, and it is censorship-resistant.”
True to this statement and from what I have gathered about LibraCoin, its functionalities are nothing near that of Bitcoin.
- For one, it is centralized, regardless of the recent scamper by Facebook to bring other companies onboard. These corporations would oversee the operations, and therefore, determine the dos and don’ts of the network.
- On the other hand, Bitcoin is an open blockchain network, which dissociates its operations from bureaucratic governance.
According to SilaMoney Chief Technology Officer Alexander Lipton:
“Libra is NOT a blockchain in the traditional sense since it is lacking most, if not all necessary attributes; it has to be open, public, censorship-resistant, immutable, neutral, etc. which Libra is not, based on the whitepaper.”
3. In the aftermath of recent political manipulation scandals (especially, the Cambridge Analytica scandal), Facebook has beefed up its privacy and security systems by restricting APIs and scrutinizing suspicious new developers. One would expect that the same level of scrutiny will go into the Libra project. As such, apps and exchanges supporting the coin will undergo the sort of checks that would seem alien to the crypto community at first.
Contrary to this belief, Kevin Weil, Calibra’s head of product, reportedly stated,
“There are no plans for the Libra Association to take a role in actively vetting [developers],… The minute that you start limiting it is the minute you start walking back to the system you have today with a closed ecosystem and a smaller number of competitors, and you start to see fees rise.”
In my humble opinion, a comment like this suggests that Facebook is yet to realize the atrocious implications of either a privacy or security breach on a centralized and regulated payment platform.
The Crypto Community Doesn’t Trust Libra Over Banks
In what seems like the ultimate statement of the community, the overwhelming majority of users have clearly stated that they won’t even trust Libra over traditional banks.
Yet, it is safe to say that developments such as this will continue to pop up as other powerhouses in the tech industry follow Facebook’s lead. It is almost certain that Amazon will want to consolidate on its massive share in the e-commerce and tech industry by initiating an innovative payment solution.
Already, Apple is going forward with its proposed credit card project. And in no time, I expect that they will find themselves tweaking the blockchain technology, like Facebook did, to beef up their credit card.
First reactions from the regulators
There was no shortage of reactions, particularly on the part of regulators, following the Facebook official introduction of its brainchild. In the U.S., ex-chairman of the Commodity Futures Trading Commission (CFTC), Timothy Massad, stated,
“The thing we may see from Congress is really pressing [Facebook] on what is really your purpose here? What is your use case?” Massad went on the major talking point the U.S. Congress will focus on as he asked, “Is Callibra a bank, and therefore, is Facebook a bank holding company?”
Likewise, the Financial Market Supervisory Authority in Switzerland has reportedly contacted the Swiss Foundation in charge of the project for more clarification. It is expected the information garnered will inform the watchdog on the compliance responsibilities of the foundation and whether its operations fall under the regulatory jurisdiction of the Swiss supervisory law.
On the other hand, Bruno Le Maire, France’s finance minister, has hit hard on the development while questioning its capacity to “become a sovereign currency.” Furthermore, he reportedly asked the G7’s central bank governors and other global financial regulatory bodies to review the viability of Libra.
💬💬💬More quotes here
What Are Its True Implications?
- However, I could not help but notice that these arguments contradict the important detail that Antonopoulos revealed as the bedrock of open blockchains. It is clear that Bitcoin’s main selling point is it’s borderless, uncensored, cheap, and open nature. Facebook coin, on the other hand, relies on the inputs of selected corporations who will pay $10 million for these privileges, as per reports. And so, financial policies and regulations are very much going to determine their actions or inactions.
- For example, a US based company like Facebook with central authority over a payment network with ties with the US dollar would technically be facilitating illegal transactions if it is available to countries under US sanctions. This assertion implies that GlobalCoin is anything but borderless and censorship-resistant.
- Their sole motivation is making money in an attempt to reinvent the old fashioned invasive ad business model. And from what I have learned from the data brouhaha that has shrouded the operations of Facebook over the years, it is difficult to believe that these corporations would become philanthropic just because media platforms or the public are pushing for it.
Lastly, it is easy to see why many analysts believe that Libra would drive the next phase of bitcoin adoption.
Regardless, I have come to understand that both networks are a world apart, especially if we look at the functionalities and the ease of access. As such, I do not believe that the people who find Libra a isn’t actually an alternative to bitcoin, but it will definitely spark an interest in the masses to explore more on the digital assets in general.
Bitcoin offers users financial freedom — this factor and its value are vital to its growth. However, financial freedom, and not the value itself, is somewhat the most compelling adoption argument.
To be fair, with the biggest distribution channel in the history of business — Facebook will definitely play a substantial role in the adoption of digital assets.
According to Changpeng Zhao — CEO of Binance:
“Facebook probably has a hundred times more users than the cryptocurrency industry combined today. The Facebook project will educate a lot of people about cryptocurrency. Regardless of the criticisms targeted at the company, I believe this is good for the industry in the long run.”
Beyond the hype, it’s important to understand the difference between decentralized and centralized networks, the ability to access your money without someone’s permission, at the same time having security and transparency. My biggest disappointment with the Libra project is that it failed to introduce the concept of Universal Basic Income (UBI) which is all about practical wealth equality. Instead, Facebook is looking to create another Swiss Bank (just private) mimicking the value proposition behind blockchain.