Facebook’s Libra is the AOL of Crypto
Crypto Twitter is going insane over Facebook’s announcement of Libra.
The Libra mission: A simple global currency and financial infrastructure that empowers billions of people.
Reinvent money. Transform the global economy. So people everywhere can live better lives.
However, it is still premature to speculate whether Libra is a good or bad idea. After all, this is not the first time Facebook dabbled in digital currency. For instance, Facebook used to offer credits that could be used to buy goods in platform-based video games as well as for purchasing apps.
Libra is not exactly a cryptocurrency but is certainly a fascinating experiment that could reshape payment systems, creating a new set of gatekeepers, financial services, and jeopardizing the existing order of central banks.
Libra is an iteration of the permissioned blockchain, sharing similar aspects to Ripple, Stellar and HyperLedger. The Libra whitepaper states that Libra is a permissioned database governed by the independent Libra Association, also known as Network of Partners (28 so far, 100 partners by 2020), each investing $10m and expensive resources to make Libra happen. A new programming language called “move”, will be used for developing smart contracts, and the currency will be backed by a reserve of assets designed to give it intrinsic value.
The way Libra will work is that you will be able to exchange your dollars for Libra tokens. With these tokens, you will be able to buy goods and services on the Facebook platform, and probably the partners' networks. Libra, therefore, unlike Bitcoin will be more of a stable currency, designed in a way to avoid high market volatility.
One of the greatest differences between Bitcoin and Libra will be related to trust. With Libra, Facebook will be in charge of holding the Libra tokens. The trust will thus be placed unto Facebook (and Libra Association partners). Bitcoin, on the other hand, is a “trustless” public system because it does not require a third-party intermediary to look after the tokens. The public decentral blockchain systems are looked after and managed by all users.
In the end, this project may amount to a financial revolution or nothing. But if it does succeed, even by a little, it can have the following impact:
- It draws people to think outside the monetary systems that they have believed in so far (outside my nation, my money narrative). It may draw more people to participate in real cryptocurrency systems like Bitcoin, especially if people start looking for more privacy oriented payment systems.
- Due to Libra’s large network effect, it might just push Bitcoin to the back end, leaving cryptocurrencies in the existing circle of computer geeks, crypto traders, and libertarians.
As optimists, we’d like to explore the first point. What if Libra actually carries the potential to create a new mental model that in the long run, could help introduce users to real crypto? Libra as a model could teach the general public about the basic fundamentals of crypto payment models.
The best historical example that comes to mind is how Quantum Link introduced early internet-like services to gamers and how AOL expanded internet use to the general public.
The company AOL (American Online) came into existence on May 24, 1985, and was one of the earlier ISP’s, web browsers, and social media providers before the term “social media” even existed. In the past, the internet was for the most part being used by people who were affiliated with academic institutions. AOL essentially opened the door of the internet to average users by putting AOL dial-up disks in everyone’s mailbox. This allowed for “unlimited” access to the internet for an hourly or monthly fee.
Users would have to connect to AOL via a modem that would then be connected to a landline. Often times, people could not make calls when people were logged into AOL, resulting in busy signals. AOL, in some regard, was restricting, as it followed its own closed standards instead of those widely accepted by other internet application. This is not that different from the Libra platform, which likewise is restrictive compared to say, Bitcoin’s or Ethereum’s blockchain. In the1990s, AOL brought Westerners to the internet but then became irrelevant as internet access and web-browsing become more generalized services.
Libra, unlike real cryptocurrencies, will be more user-friendly and will be able to reach a wider audience through a network effect. According to Binance Research:
Within the next 18 months, Libra will be incorporated into the Facebook ecosystem built around Messenger, WhatsApp, and Facebook.com (using the Calibra wallet interface). It is likely to foster rapid expansion of its existing 2.4 billion user base to adopt (and transact with) the cryptoasset across the globe.
According to a Federal Reserve Survey, only 5% of Americans have owned Bitcoin. Facebook, with its 2.4 billion monthly user base could give cryptocurrencies that big break that they desperately need if users, in the long run, will make the distinction between Facebook’s restrictive platform model and decentralized blockchain platforms. We hope that users, will, sooner or later, be able to recognize why using trustless payments systems may be a better alternative to Big Brother ZuckCoin.
The whitepaper claims that the financial data that will be gathered by “Calibra” — the digital application associated with the coin — will not be shared with Facebook or third parties without the consent of consumers (Like before?). This sounds too good to be true; when a platform as large as Facebook controls everything on the internet, from your proof of identity to your social networks and your payments, it begs the question of how much power users will truly have to opt out of this system or to refuse consent?
Again, it is important not to come across as technologically deterministic (the belief that technology is the sole factor that shapes society’s progress). Libra’s success will also depend on how the general population will respond to it. So far, national regulators have not responded optimistically to this idea but this comes as no surprise.
- Facebook Token Runs Into Instant Political Opposition in Europe
- Halt Libra? US Lawmakers Call for Hearings on Facebook’s Crypto
Facebook has not exactly been the most loyal friend to people, so I’m not sure how many people will be willing to give their money to this prying friend. But whatever the result of this 12-ounce association will be, it will for sure give blockchain greater exposure.
