By Gystilyn O’Brien and Jill Anderson
Where regulators and government officials have some valid questions regarding security issues and the intention behind the Libra Foundation and its foray into the “cryptocurrency” scene with the introduction of the Libra coin, there is also the question of whether the coin is, in fact, a true cryptocurrency?
To Be or Not to Be
To this question, cryptocurrency investor and co-founder of the bitcoin company Coinapult, Erik Voorhees posted on Twitter: “Relative to PayPal or to the US dollar, Libra is very much a cryptocurrency. Relative to Bitcoin or ZCash or DAI, Libra is not all that crypto-y.”
Specifically, in comparison to PayPal, an account is pre-loaded with funds that you can use to make “digital” purchases — without ever handling the actual currency. The amount is deducted from your account and goes to the merchant, all seamlessly, and the transaction is recorded in each ledger on the blockchain — just like cryptocurrency. But the similarities stop there.
One primary difference is that a true cryptocurrency is anonymous — the owner (purchaser) and receiver (seller) identities are verified by means of the blockchain record that follows the coin. Without the key to unlock the PKI encoding, one cannot ascertain the identities of the interested parties. Voorhees seems to agree, tweeting: “[Libra] is clearly not a pure cryptocurrency. Nobody should expect privacy by using it and nobody should expect the true borderless standard of most cryptos.”
Further, a true cryptocurrency, by definition, does not fall under the jurisdiction of an individual or a “select group” of individuals who may wish to control the currency either through censorship or (self-imposed) regulations. The decentralised nature of the blockchain is its inherent beauty. And while Facebook assures the public that they will ultimately move toward a more decentralised system, not only are there no assurances that they will ever do so, but the project’s white paper declares that the goal for Libra is: “A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association” (italics added by author). Can someone please explain, how can it be both governed by an independent association, yet remain decentralised?
Unlike cryptocurrencies which are, according to International FinTech, based on a crypto algorithm, the Libra coin, according to the Libra white paper, is backed by fiat currencies. These currencies originated from a group of Libra Foundation members of geographically distributed and diverse businesses, each of whom invested the equivalent of $10 million USD (in their local currency) to create a reserve, which will aid in backing transactions with fiat-based real assets.
So, What is Libra?
At first glance, the Libra coin may appear to be a “stablecoin” in that it is tied to the value of a “stable” asset — in this case, a fiat currency. However, upon closer review of the Libra white paper, the reserve is described as a “basket of bank deposits and short-term government securities.” Not to split hairs here, but an asset that is backed by a security is, itself, a security; and therefore, subject to capital gains/losses taxation for each transaction. Now that promises to be a huge headache for the everyday consumer.
In the opinion piece by Nicolle Acheson and posted on Coindesk, she points out, Libra Isn’t a CyrptoCurrency. It’s a Glimpse of a New Asset Class. And on the forefront of a digital financial-disruption frontier, it’s not a wonder that new asset classes are likely to come and go.
Bottom-line Business
Regardless of what the Libra coin truly is or how it will be officially classified, for a digital currency to make way into the mass market for day-to-day consumer use, it’s a common consensus that it must have a level of stability that currently isn’t present in “true” crypto coins. Bitcoin, Etherum, and others are all volatile commodities: sometimes gaining, sometimes losing up to 10 to 20% of its value in a single day. This is a huge deterrent for mass adoption for general, everyday transactions as no one wants to purchase something today that would cost significantly less tomorrow.
As Forbes reports, the mass-adoption of a digital payment system (cryptocurrency) should incorporate “…simplicity along with the elegance of concept, easy integration points for partners, and ability for an exchange to work with. However, stability is key. Short-term stability is important for transactions and long-term stability is important for holding.”
Therefore, the stability that the Libra coin promises will appeal to a population ready to adopt a cashless society. According to Voorhees, “Libra has a good chance of helping hundreds of millions of people avoid middlemen fees, and increase their wealth and financial sovereignty.” He states:
Lots of blockchain projects will be created and played with while the world rebuilds the financial system upon this new technology. Different assets will serve different markets, at different times, in different ways. Libra will serve the mass market, and be the single largest bridge toward decentralised finance that has ever been built.
While the jury is still out on what exactly the Libra coin is, and whether or not it will actually alleviate middleman fees, or simply replace them in the guise of ‘commissioned transaction rates,’ Acheson predicts that it is likely to be officially classified as a security, and rightly points out that new technologies are sure to develop that will streamline taxation issues, paving the way for widespread adoption. Backed by the reach and infiltration of Facebook, don’t be surprised if “Libra” becomes synonymous with “cash,” a common household word.
Do you have an opinion on the Libra project? Revain’s Review Platform was designed for this very purpose — to evaluate, watch, and monitor blockchain-based projects, such as Libra. This is the place for the community to come together to support particular blockchain-based projects, a think-tank where people can voice concerns and opinions.
As blockchain provides the general population the option to remove controlling third-party interests in our future financial transactions, it also gives the community an immutable platform to discuss the potential pitfalls or windfalls of our evolving society. On Revain, we can collectively influence the future and fate of blockchain projects that affect us all.
