Libra: Facebook’s new disruptive token

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Libra: Facebook's token

Libra is the new token that is getting very much attention from the public. Why? Because it is created by Facebook. Of course, this means a lot of exposure. That is why I thought it’s best if we analyse it, too.

About Libra

Libra is the cryptocurrency created by Calibra, a subsidiary of Facebook. It is administered by the Libra Association and Libra Networks (a company registered in Geneva, Switzerland). It has published its whitepaper in June and you can read it here.

What is special about Libra is that the plan is to create an entire ecosystem, not just an ordinary token. The power of Facebook is that it already has a multibillion-user ecosystem and the integration of a 21st century payment method in it might prove to be an intelligent idea.

Other big companies have declared their support, including Uber, Spotify, Visa and Mastercard, each of which has pledged to invest at least $10 million in the project.

The flow

This is the supposed flow of how the platform will work:

  1. Users sign up to Facebook’s Calibra wallet after identity checks and KYC (read my previous article to understand what this means)
  2. The user links his local currency bank account and uses it to buy Libra tokens
  3. Users will be able to carry out transfers in a text message style functionality or through Facebook Messenger and WhatsApp
  4. The recipient can cash out Libra to local currency or store for later use with other online merchants
  5. The long term goal is for Facebook to roll out the payments platform to stores

Now, that is one interesting way of creating a blockchain ecosystem on their existing infrastructure and products (Facebook and WhatsApp). But one problem might be the price stability of the token. Well, they thought about that, too, so low-volatility assets such as deposits, government bonds and major currencies, will back the money held in Calibra.

This is what makes things a little different. Most of the big cryptocurrencies now are not backed up by anything other than a great idea or an interesting platform. Does this take Libra outside the cryptocurrency category? We don’t have an answer to that question yet. We will have to see what the future will say.

Public concerns

There have been many public concerns about Libra. For instance, chief economics commentator Martin Wolf questioned Facebook, saying that its proposed payment system must be “robust, resistant to breaches” and it must protect “personal privacy, while being sufficiently transparent to regulators, judicial authorities and others with a legitimate interest in who uses it”. He also mentions seeing a possibility that Facebook could become a lender itself, “thereby usurping traditional banks on the asset side of their balance sheets. At worst, the world might have a Facebook-dominated mono-bank”.

I believe the theory about corporate monopoly might be a little extreme, though it is a possibility that it might become a major player since we are seeing the corporate giant entering the fintech sector.

Criticism has been coming also from political people. President Trump, for example, just launched an attack on Libra and Bitcoin, saying cryptocurrencies are “not money” and they facilitate illegal activity. He also warned the social media company that they might be subject to full banking regulation if they carry on with this project. These comments followed-up Jay Powell’s warning, chairman of the US Federal Reserve, in which he said Libra will not progress unless it resolves “serious concerns” over “privacy, money laundering, consumer protection and financial stability”.

Libra’s effects on the market

It has been clear that news about Libra have influenced majorly the market fluctuations, among other factors. Bitcoin is now sitting at the $11.000-$12.000 level, with a high dominance of over 65%. These public people’s concerns have certainly caused some negative movements. A minor negative trend might be coming up, after the $32 million hack on Japanese exchange Bitpoint (read more here).

In order to determine in which direction the market is moving, we have to wait for other events to happen. However, the bull trend will certainly continue, even though volatility is still present.

Conclusions

Facebook is entering the fintech sector in a smart way, through Libra. This token will have good integrations in the corporation’s platforms. It will certainly bring value both to the company and its products. I am still, however, looking forward to seeing how all of this will come together and still cannot predict everything from this point.

Anyhow, if you want to add something, feel free to leave a comment below. If you want to get in touch with me personally, use this link.

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