What is Facebook’s Libra Cryptocurrency? [The Complete Guide]
Libra is the cryptocurrency proposed by Facebook, the social media giant with more than 2 billion active users. Libra aims to be a stable coin for everyday use in the Facebook ecosystem, but it functions differently than other stable coins like Tether. It is designed to be an internet protocol for low-cost money movement.
What Can Users Do With Libra?
The cryptocurrency will be transacted on its own Libra blockchain, which others can build on top. Its stated goal is to serve as a global, low-cost payment system for any Facebook user directly from all of its properties, including WhatsApp, FB Messenger, and Instagram. The immediate target market is users in developing countries and emerging markets.
For such demographics, impactful use cases would include sending money to friends or family and paying merchants for services. There are real economic needs associated with paying bills or sending money back to their home country. About 1.7 billion people remain unbanked and consequently deal mostly in cash. Meanwhile, roughly 80% of the worldwide remittance volume is handled via cash payments and requires the physical presence of money transfer operators alongside cash inventories. People who fit that profile are concentrated in countries like India, Brazil, Indonesia, and the Philippines. These same countries account for a substantial share of Facebook users.
Likely Libra will not serve the needs of current cryptocurrency users in the following use cases: (1) mining, (2) trading, and (3) store of wealth. By design choice, Libra does not have certain qualities that other crypto assets have. For example, compared to Bitcoin, a user probably can’t store their wealth in Libra. One market view of Bitcoin is that it is akin to digital gold. By reputation, Bitcoin is uncensorable, unseizable, immutable.
How Does Libra Work?
As a digital currency, Libra is native digital, and non-sovereign (not issued by a government). It will be backed by a basket of fiat currencies (e.g. USD, EUR, JPY, AUD). The Libra Reserve backing each Libra will also hold low volatility assets like bank deposits and short-term government securities, which will rebalance based on market conditions. Assets backing the tokens are provided by:
- Token users through the purchase of Libra tokens with fiat currency.
- Holders of an investment token (Founding Members are initial holders).
From a balance sheet perspective, Libra’s asset is like cash/cash equivalent collateral pool. Libra tokens are like liability and Investment Token as equity. Investment Token holders would have rights to all returns on the collateral pool after Libra’s expenses.
Libra user wallets will be provided on all Facebook properties, which enables open, instant, and low-cost global movement of money. The original digital wallet-designed by Facebook’s affiliate Calibra- will be integrated into Facebook properties such as Facebook Messenger and WhatsApp. Developers would be able to build competing third-party wallets that interoperate with the FB properties.
Libra will be transacted in a private, permissioned blockchain, and Facebook will be one of the validating nodes. The select number of validators on this network help certify transactions. So unlike Bitcoin, Libra is not an open, permissionless blockchain where anyone can participate as validating nodes.
Governance of Libra is handled by a consortium of founding members, many of which are influential players in their respective markets including Mastercard, Uber, eBay, and Spotify.
Looking Ahead
Facebook aims to launch the new network in 2020 (as of Q3 2019, in testing). In the short- to medium-term, if Libra gains meaningful traction, it could act as large fiat-cryptocurrency gateway (an on-off ramp for cash and digital currencies). If it achieves widespread in the long-term, Libra would be a global payment method with regulated gateways that are compliant with current anti-money laundering/KYC policies, whereas Bitcoin would become more of a worldwide store of value asset. This potential will be achieved if Facebook is able to address the concerns expressed by lawmakers in the US and the European Union when Facebook made the official announcement. Facebook’s recent track record regarding privacy is starting to be a roadblock to achieve further goals like the ones outlined by Libra.
The launch of this cryptocurrency, with the backing of Facebook and very well-known companies, increasingly reinforces public perception that the underlying technology is maturing and can exist as an alternative financial mechanism or gateway for underserved populations. It is spurring broader public discussions about money as a social technology and how money can take various forms to suit different needs of society. If Libra achieves the goal, it will have a deep impact on the global financial system and presents a real threat to the traditional banking system and incumbent remittance services like Western Union and Money Gram.
Learn more about it
If you are interested to dig deeper on Libra, check it out their whitepaper and their official website.
Originally published at https://overblock.io on June 27, 2019.
