Is Libra The Next Big Digital Currency?
Libra, Facebook’s project for a simple and global currency and infrastructure to empower billions of people, is set to be launched in mid-2020. Despite the fact that lots of people in the world today have access to the internet as well as mobile broadband that enables them cheaply and conveniently communicate, a huge chunk of them remain unbanked. Those who have access to financial services incur a lot of costs via the wire costs, ATM charges among others involved when transacting. While cryptocurrencies, most notably Bitcoin, have been established, they have not been massively adopted due to challenges in volatility, scalability among others. Libra would like to go a step further and create a simple and easy-to-use, scalable cryptocurrency that will hopefully be widely adopted to increase financial inclusion.
Just like Bitcoin, Libra intends to use the decentralized blockchain to increase accessibility and trust. It will have 3 key properties: distributed governance to ensure no single entity controls the network; open access to paving way for anyone with an internet connection to take part and finally security that will be provided by cryptography to ensure the integrity of funds. Libra will be built on a secure, scalable and reliable blockchain. Unlike Bitcoin, it will be backed by a reserve of assets designed to give it intrinsic value and make it less volatile.
While Bitcoin transactions can take minutes to be confirmed and cost lots of money, Libra transactions will be instantaneous and relatively cheap. Transactions on Libra will also consume significantly less energy compared to Bitcoin transactions that normally consume over 1000 kilowatts of computing energy. At the start, Libra will only allow permissioned nodes to take part in the network with an eventual goal of allowing any valid node to take part. However, this is a threat to the decentralization of the network, and it is yet to be seen how much influence Facebook will have on Libra as well as payments despite the broad range of organizations including financial institutions that will take part in decision making.
Libra, the unit of currency, will only be created when users buy coins using real money that will form the reserve to back the currency. A lot of governments are opposed to this idea as they will be unable to monitor this currency. While it would go a long way in improving financial inclusion, it could also pave the way for criminal activities such as money laundering. Governments that finance their budgets by printing money are also likely to block this currency. Also, as long as governments will still demand sovereign currency such as the US dollar for taxes, it is hard to think Libra will be the end of sovereign currency.
The plan is to offer the currency to approximately 2.4 billion users that Facebook boasts of. Calibra, the subsidiary organization in charge of the currency, plans to run incentives to ensure a lot of businesses can accept Libra for it to be a success.
While so many things could go right including the massive adoption of Libra, so many things could go just as wrong. The working prototype of Libra is yet to be tested. There will also be lots of concern about the fair competition on the network including how much power Calibra will be willing to give up. However, if all users of Facebook will adopt this currency, it will truly become one of the world’s biggest financial entities. However, with the unending privacy scandals, Facebook is involved in, it will be interesting to see whether people will be willing to adopt Libra.