What you need to know about Facebook’s new cryptocurrency, Libra
Last year, the world saw the Facebook-Cambridge Analytica Scandal, where the data of millions of users was used for driving political campaigns without their knowledge. Facebook has been desperately trying to mend its damaged reputation ever since.
In June ‘19, FB came up with its own cryptocurrency — the Libra coin.
To make it functional, FB is rolling out Calibra — a cryptocurrency wallet for storing, spending and managing the Libra.
You’d be able to transfer ‘money’ to your family, friends and buy / sell using the currency.
Libra does use the blockchain technology, like Bitcoin. But unlike Bitcoin, Libra is said to be a low-volatility (stable) currency, allowing its users to trade Libra with very low fees. The Libra coin will be backed by reserves managed by a non-profit organisation, called the Libra Association and will be based in Geneva, Switzerland. This association will include any entity that holds sufficient stake in Libra and operates as a validator node for the transactions.
But here’s the catch: these entities are a handful, handpicked ones with the help of an invite-only system. As of now, the association is made up of 28 members, which are very large organisations themselves.
The currency and the wallet is due to launch is 2020.
How can I buy Libra?
If you are to buy some Libra, you can buy it from a person, or go to an official Libra exchange. Here, you pay them using your regular currency, and in return, the exchange pays you off with equivalent Libras. The same process goes for selling your Libra. These exchanges are the ones authorized to create new Libras and destroy them.
What about my financial privacy?
To assure customer privacy, the Libra Association has assured that it will not know who the users are, however, Facebook will have reasonable idea about who are the users they are transacting with, as Facebook’s products may be used for communication among the users. No doubt there will be instant transactions from across borders, but completely anonymous transactions and complete freedom cannot be guaranteed over the Libra blockchain, due to the involvement of a central regulatory authority.
Facebook has created a subsidiary called Calibra, through which all the financial services related to Libra will be offered. This organisation will only hold money transmission related licenses, considering the protection of the users from personal data related conflicts. This organisation will be issuing a wallet for holding Libra called Calibra, named after the subsidiary organisation itself. Different developers will be able to build different wallets for Libra, but Facebook will be encouraging users to use Calibra. Facebook has also promised to keep Calibra as a separate product from its other products.
Although Facebook is trying to portray itself as a completely genuine and a reliable player, its intentions to gain complete control over Libra are clearly visible. Facebook has been known to break promises over the last few years. Promises are easy to break for Facebook. Whenever they broke promises, they have made massive amounts of money.
Where does my money actually go?
The money you put into buying Libra is invested into something that maybe known to hold its price — commodities such as recognised national currencies, company stocks and Gold. Unlike Bitcoin, the Libra association controls the amount of Libra in circulation. Also, the price of Libra may be controlled by the association itself, ensuring low fluctuations in the prices. In fact, to some extent, Libra’s value will also fluctuate in accordance with the domestic and international trade currencies. So, the Libra coin seems to fall somewhere in between the regular cryptocurrencies like Bitcoin and other fiat currencies, where it uses cryptographic technologies but also, is managed by a central authority.
So, how do they make money off it?
But here’s the deal — the customers who will be indulging in the system by depositing their money and trading in Libra will have to give up on their rights to earn interests on their capital, to some extent. Libra intends to use the deposits made by their customers to purchase interest-yielding assets, and the interest earned will be used for paying off the system’s operating costs, and if left over, will be divided among the founder members.
Takeaway
To conclude, its too early to consider Libra for our day-to-day digital transactions. Also, we ought to keep a careful watch on what new policies Facebook comes with over the next few months related to the usage of Libra and its integrations into the existing Facebook products.
Right now, Facebook needs play its “trust game” the right way, to get people into confidence to use the “Zucc Bucc”.
Opinions stated in the above article represent that of the author’s, and not of the publishing organisation.
