When Facebook unveiled its plans to launch its own cryptocurrency called Libra, it caused quite a stir — and for the second month in a row now, the media and social networks are flooded with discussions of the project, with very divided opinions — while fans of the project emphasize its merits, a no less numerous army of sceptics point out its conceptual flaws. Perhaps the time has come to provide an unbiased review outlining both the strengths and weaknesses of Libra.
Libra is not decentralized — and that’s fine
Libra’s crucial flaw, according to cryptocurrency enthusiast maximalists, is that it is based on a private blockchain developed by Facebook and is not a completely decentralized structure — in order to validate transactions, nodes will need to get permission from the system. According to critics, such a structure generally deprives Libra of the right to be called a cryptocurrency. However, this is absolutely wrong — Libra simply has a different approach to solving the “blockchain trilemma”. This principle states that of the three main properties — decentralization, scalability and security — any blockchain can only have two. The creator of Bitcoin has given priority to decentralization and security, but the developers are still struggling with the scalability issues of Bitcoin. The creators of Libra sacrificed decentralization for scalability because their cryptocurrency was conceived as a global payment system that can process thousands of transactions per second. For those who need a decentralized digital currency, there is still Bitcoin. For potential Libra users, decentralization is hardly a key prerequisite.
Facebook is still not trustworthy
The centralized nature of cryptocurrency does not automatically make it absolutely safe to use, nor is decentralization a panacea. But, unfortunately, Libra was created by Facebook, which in recent years has tarnished its reputation when it comes to user data protection. Negative publicity generated by the storage of user passwords in open access on the company’s internal servers and the fiasco with Cambridge Analytica made people wary of trusting Mark Zuckerberg’s team. If a company fails to protect our accounts on its social network, why provide it with personal financial information through Libra? This is a completely logical question, and Facebook will have to try harder to dispel user concerns. Hopefully, the company will revise its approach to information security after a recent fine of $5 billion, and will also provide an adequate degree of autonomy for the Libra Association.
Facebook audience is too old for cryptocurrencies
The history of the social network originates in a Harvard student dormitory, and it is not surprising that the first Facebook adopters in the mid-2000s were young people. However, now the brainchild of Mark Zuckerberg is unpopular among youngsters, and the average user age has already exceeded 40 years and continues to grow steadily. Among the members of the cryptocurrency community, on the contrary, the percentage of young people under 30 is high. Thus, the target audience of Libra in many respects does not correspond with the current audience of the company’s main platform, reducing the synergy between the projects. If you are looking forward to some form of active integration of the Calibra wallet with Facebook or Instagram, you may be in for a long wait.
Libra will be a huge success among WhatsApp users
Analyzing the ways to integrate Libra stablecoin with the company’s existing platforms, it seems that the introduction of payments in Libra through the WhatsApp messenger has by far the greatest potential. Users from developed countries, as a rule, divide their time between several messaging apps — but in developing countries, the popularity of WhatsApp can hardly be overestimated. In the 21st century, Internet access has been opened up to billions of users. Today, the number of Internet users is 48.5% of the world’s population — just 10 years ago this figure was 25%, and in 2000 only 6% had this “privilege”. A large number of users in Africa, Southeast Asia and the Middle East choose WhatsApp as a simple and convenient means of communication.
Yet the access to financial services is by no means spreading as fast as access to the web. Today, more than a billion people are not able to open a bank account, take a loan, etc. As a rule, these people are also forced to overpay for money transfers.
Thus, the time to launch Libra was chosen perfectly and will allow the project to reach an audience of hundreds of millions of people who already have access to the Internet but do not yet have a bank account.
Libra has the chance to become the ideal stablecoin
Libra’s value will be tied to a basket of so far unnamed financial assets in order to provide it with the stability and low volatility necessary to fulfill the role of a universal payment instrument. The idea itself is not new — there are already many stablecoins in the world. One of the problems of this sector of the crypto industry is that not all leading stablecoins can convincingly prove that they have enough reserves that serve to ensure the value of these coins. And in this regard, the status of Facebook as a public company can only benefit the project — given the strict financial reporting requirements, you can be sure that everything will be in order with Libra reserves.
Libra may still not see the light of day
It seems that Facebook executives did not expect the level of consternation among financial regulators around the world that was caused by the announcement of Libra. The topic has already been discussed at the highest levels — for example, US senators questioned Fed Chairman Jerome Powell about Libra during parliamentary hearings. Today it is clear that the Facebook initiative will face resistance from the authorities in almost every jurisdiction. This casts doubt on whether the project will be launched at all, as the company informed its shareholders in the latest financial report. Obviously, the decision to start a dialogue with government agencies only a month before the announcement was a huge misstep and a sign of hubris. Perhaps the company would have been able to convince financial regulators to approve the project — but now it deals with politicians, many of whom do not know anything about cryptocurrencies and are prone to a negative bias toward them. Only time will tell whether Libra will cope with all the difficulties. There is no doubt only about one thing: cryptocurrencies will change the lives of millions of people in the near future — with or without Libra.
