Square Crypto vs Facebook’s Libra Bitcoin Philosophy: Analysis of Impact in Africa
By M a k u b i on The Capital
Jack Dorsey tweeted that Africa’s bitcoin potential is big and is even planning to spend 3–6 months in Africa in 2020. Facebook’s Libra is also targeting developing markets, especially in Africa with its Libra project. They both want to tap into the emerging markets’ payment space but with different philosophies.
While Facebook wants to build a ‘better Bitcoin’, square wants to build on top of bitcoin. This is a philosophical difference that shows how Facebook and Square view the evolution of money and payments. Square is betting that bitcoin is already showing its prominence and it makes sense to work with it rather than trying to replace it.
Square sees bitcoin as a public tool that they can benefit from if it’s widely adopted, just like the internet. Libra wants to build a corporate-backed digital currency that players can benefit from a global payment rail.
Libra is of the notion that the design of current bitcoin network is slow, and cannot scale to billions of users. It is, therefore, creating Libra in partnership with other corporations to provide payment rails for global unbanked. It will essentially be a stablecoin backed by a basket of currencies — the US dollar, Pound sterling, Japanese yen, Euro and Singapore dollar. In the wake of increased skepticism against control by big tech, Libra is seen as an attempt by corporations to maintain control in the changing finance landscape. Facebook will have its own Calibra wallet, which even if they are saying it will be different and will not mix social data with financial data; many don’t believe they will actually do that in the long run.
Square formed Square crypto whose mission, on the other hand, is focused on improving the bitcoin network to make it work at scale. At inception, the SQ crypto team has been working on areas such as checking bitcoin code reviews and Github contributions making sure they are bug-free. Square recently said it was launching a ‘Lightning Development Kit’ to enable developers to create layer 2 solutions for their apps and wallets to enable faster payments on the bitcoin network.
In addition, Square won a patent that enables different parties to pay and be paid in different currencies in real-time. For example, one party has the option to pay in crypto while the receiving party can accept and receive in fiat. This could be used by the retail sector to enable them to easily accept crypto payments without the risk of shouldering price swings amidst slow transaction confirmation times.
Square benefits from bitcoin’s lightning network adoption for payments
Square is positioning itself to provide rails for the bitcoin payments network. If the lightning network is able to scale and be adopted widely, Square could integrate it as part of their payment mechanism. With the fiat-to-crypto patent, more retailers could use Square in order to accept bitcoin and crypto payments easily without having to bear the risk of waiting for confirmation and price volatility.
In an interview with Thenextweb, Dorsey says ‘ with payments, you have to go to each market and pay attention to regulators, partnership with a local bank, the process is slow in any new market’ With the internet having a native currency, Dorsey says ‘it will enable Square to be more like an internet company’. This captures how Square plans to benefit from bitcoin global expansion and adoption.
Africa’s payment ecosystem is among the most active and fastest-growing in the tech ecosystem in Africa. Bitcoin and crypto have not yet played a big role with the majority of bitcoin transactions taking place via P2P crypto exchanges such as Paxful and localbitcoins. P2P exchanges such as Paxful are able to operate in most developing markets because they do not hold funds (custody) for users but instead connects buyers and sellers in a marketplace- type of setting. In most cases so far, such P2P exchanges do not need to get banking and other stringent financial regulatory permits in countries they operate. Non-P2P exchanges such as Binance, Coinbase would need to get regulatory approval even before they commence operations. Paxful and localbitcoins have been successful in Africa through this model. Analysis by Matt Ahlborg shows Paxful has leveraged other means such as gift cards as a means of remittance from the USA to Nigeria. The company has been successful adding 800,000 wallets in 2019 with Paxful COO Artur Schaback saying Nigeria, Kenya and Ghana are Paxful’s big markets due to restrictions in traditional financing.
In the USA, Square mainly caters for in-person payments. Therefore it is more skewed towards people using cards to make payments at various POS outlets. In the USA where card payments are Mainstream, Square enables businesses to accept cards easily. Since Square has expanded to also integrate online payments, square crypto could come in and help businesses accept crypto for payments. Another product of Square is the cash app, which enables money transfer via mobile phone app. Cash app now also accepts bitcoin trading in the USA and Canada.
All this points to a future whereby square will be able to allow all types of payments fiat or crypto either for retailers or sending money. I suppose this is where Jack Dorsey’s plan for Africa could come in. By providing a seamless way to accept bitcoin for businesses and send bitcoin via mobile app (cash app), it would cater to a large portion of the Africa crypto market.
African crypto space
Already, there are companies trying to make it easier to buy/sell bitcoins in Africa. Naijacrypto.com recently said it had successfully integrated Paystack into its platform enabling users to buy/sell crypto using debit cards. Another Payplux.com operates in Ghana and has recently launched an Android app. South Africa has VALR supporting over 50 digital assets. Binance launched in Uganda in 2018 signing up 40,000 users within the first week. Binance also launched in Nigeria in 2019 partnering with Flutterwave to add a fiat-to-crypto gateway for Nigeria’s Naira.
So there is already presence within the African crypto space. No platform has however been able to dominate across various countries the way P2P exchanges have.
If Square crypto or Libra enters the market, their advantage would be scale and reputation.
User base- Africa angle
In the case of Libra, Facebook has an estimated 200 million users in Africa. Most of them access Facebook through mobile phones. Libra says it is targeting the world unbaked. In Africa, mobile payment is the norm. Since Facebook will have its native wallet, Calibra, it would serve as a gateway to providing payments for 200M users. Nonetheless, as rightly pointed out by Jack Dorsey, Calibra would have to seek payments-related regulatory approval from individual member states. Given the stature and influence, this might not be a tall order for them in Africa.
On the other hand, Square moving into Africa would be starting from a clean slate. It does not have any presence in Africa at the moment. It would be either through its existing cash app or other developments through Square crypto. But this could depend on or closely tied to the growth of the bitcoin network to cater for payments and merchant adoption.
Global payments system
When appearing in Congress, Facebook’s head Mark Zuckerberg specifically stressed a few points that show Libra’s ultimate mission.
Zuck said ‘Libra will not launch without congress approval’.
Another statement was –‘If the USA does not innovate and get into the digital currency space, it will be overtaken by others’.
This is both bait and strategic showing that Libra wants to closely resemble a central bank digital currency with the backing of lawmakers. With USA approval and backing, Libra would compete with other countries that are contemplating launching CBDCs.
End game
Square’s approach has gained more approval from the crypto community as it is seen to be in-line with the open-source community. On the other hand, Libra is seen as an extension of corporate-led control of global payments. It is possible that Libra wallets such as Calibra could provide awareness of bitcoin and provide crucial fiat-to-crypto onramps for users. It is still unclear how this will evolve over time but Calibra could be a direct competitor to Square crypto’s plans. Calibra will facilitate payments and commerce within Facebook in the long term. As clearly stated in the Calibra website ‘ The first version of Calibra will support peer-to-peer payments and a few other ways to pay such as QR codes which small merchants can use to accept payments in Libra. Over time, there will be many others including in-store payments, integrations into POS systems and more’. This could also be a similar approach to be adopted by Square crypto with bitcoin’s lightning network. The end result for both Libra and Square crypto seems to be closely related but they follow different pathways to get there. The growth of bitcoin and crypto space in the next few years in terms of adoption and regulation will have an impact on how these two projects evolve. Libra could still move ahead with or without success of bitcoin while square crypto is betting more on bitcoin. They could both thrive depending on how bitcoin ends up being adopted- a store of value, or payments or both. This decade will seal the fate of how this will turn out.
