Libra is a brand new cryptocurrency announced by a conglomerate of organisations in June 2019 and currently headed by Facebook. It’s been billed as a cryptocurrency by the media. It has been hailed as a competitor to Bitcoin by many. It has even been described, albeit by the Facebook-led group themselves, as offering empowerment to the unbanked.

 

However, the tethered coin is not strictly decentralized, has already been blocked by US lawmakers, and it has been derided by many, even those within the cryptocurrency sphere. The primary concern surrounding Libra is privacy, which is a major factor in the popularity of cryptocurrencies.

 

The Libra Association

 

Although the coin is being described as Facebook’s Libra, Facebook is just one of 28 companies that will make up the Libra Association. Visa, Mastercard, PayPal, eBay and Uber are among the list of participants. These participants gave a minimum of 10 million dollars each, and the Libra Association has raised more than 1 billion dollars, which it will use to create a basket of assets to back the currency.

 

This basket will incorporate a range of global assets, which should help reduce the volatility of the cryptocurrency, but it also means that the currency is being derided as a tethered currency. Although Facebook is currently leading the charge, the social media giant claims that the currency will act independently of them, and world governments.

 

Calibra Wallet

 

Facebook claims that they will not be running or managing the cryptocurrency. However, early adopters may need to use Facebook to send and receive Libra. The announcement claims that the cryptocurrency can be transferred using a Facebook wallet, which will be part of a newly formed Facebook subsidiary, called Calibra. This wallet will be available in Messenger, WhatsApp and as a standalone app. Many are skeptical that Facebook is not the leading power behind the proposed currency.

 

Offering Banking to the Unbanked

 

Facebook claims that Libra will offer financial services to “the unbanked”: people that do not have access to basic financial products like bank accounts. Many critics have questioned the validity of Libra’s philanthropic claims. It is easy to see the benefits to companies like Visa and Mastercard. They will gain access to unbanked customers: a market they have previously been unable to sell products to. Facebook will gain access to data.

 

Concerns

 

Libra’s cited goals are lofty. They aim to provide financial services to the adult population that does not have access to a bank account. However, the new cryptocurrency is not without its critics.

 

Privacy Concerns

 

A poll conducted by NBC News and Wall Street Journal found that 60 percent of Americans do not trust Facebook with personal data. In contrast, the same poll showed that only 28 percent of Americans do not trust Amazon. Thirty-five percent don’t trust the federal government with that data! There are major concerns over privacy.

 

The Cambridge Analytica scandal, which truly came to light in March 2018, revealed that the political consulting firm, Cambridge Analytica, had harvested personal data from more than 70 million Facebook user accounts. It led to a significant drop in Facebook share price and saw founder Mark Zuckerberg appear in front of the US Senate. In the eyes of many critics, the company has not done anywhere enough to rebuild trust, which is arguably even more important when dealing with financial transactions.

 

Increasing Facebook’s Reach

 

It will be necessary to use Facebook Messenger, Whatsapp, or the Calibra wallet app to transfer the currency. It is worth noting that Libra has Coinbase as one of its members. Coinbase is one of the largest cryptocurrency exchanges and has its own cryptocurrency wallet, so it seems likely that Libra will trade on their app as well.

 

Members of the Libra Association stand to benefit by increasing their reach to new customers. Facebook will be a beneficiary, signing up global users that would not have otherwise accessed their platform. Arguably, however, it is the likes of Visa and Mastercard that stand to gain even more. The cryptocurrency is specifically being targeted, initially at least, to those that do not currently have access to basic banking products. Once they are using Libra, will they be encouraged to participate in a wider range of financial services?

 

Not Decentralized

 

Many members of the cryptocurrency community have welcomed the new currency. They have pointed to the exposure that Libra will bring to cryptocurrencies as being beneficial to the whole market. Investors believe that this will push prices for other cryptos up because it will inject new money into the market.

 

However, not all of the cryptocurrency community is praising the move. Libra will not be decentralized, at least initially, although Facebook has said that it hopes to see decentralization increase over time. The 28 members of the Libra Association will be responsible for validating transactions and appending new blocks.

 

Bitcoin can be validated by any user with a computer and Internet access, which is what makes it decentralized. The Libra White Paper does state that their “ambition is for the Libra network to become permissionless,” which would enable the same decentralization as other cryptocurrencies.

 

Volatility

 

Another concern, especially for those that Libra is targeting, is volatility. Currencies like Bitcoin can swing more than 10 percent in a day, and sometimes in as little as a few minutes. There is a concern that a similarly volatile cryptocurrency would do more damage than good to its target users. Libra has stated that it will overcome this because the new digital currency will be “backed by a reserve of real assets.” As a tethered coin, volatility shouldn’t be an issue for Libra.

 

Facebook Payments

 

For all of its undoubted success, Facebook has had its shares of failures, including in the payment processing sphere. Facebook Credits launched in 2011 but has been mothballed due to poor performance. It also launched a payment service on its Messenger app in 2015, but this service is gradually being closed to users around the world. April’s news that the service would be closed in the UK and France served to fuel speculation that the social media giant was working on a cryptocurrency of its own.

 

The First Hurdle

 

Libra was hit with major obstacles within the first few days after its announcement. In the US, The House Financial Services Committee wrote a letter to Mark Zuckerberg demanding that there be an “immediate moratorium n the implementation of Facebook’s proposed cryptocurrency and digital wallet.”

 

Furthermore, Indian officials have hinted that they are ready to ban the cryptocurrency, stating that private cryptocurrencies are not something they “have been comfortable with.”

 

India is believed to be a significant target for the digital currency. It is Asia’s third- largest economy, but a proposed bill means that holders of any cryptocurrency could face up to 10 years in jail for holding digital currency.

 

Libra and Its Struggles

 

There are some major hurdles that Facebook and the rest of Libra need to overcome. It is likely they will have to answer questions in the US and many other jurisdictions where they want to offer the cryptocurrency and digital wallet. Even if they are successful, the group will need to convince potential users that privacy and other issues are not a real threat.

 

Crypto investors will take even more persuasion, although they are not the target of this particular currency: It will be a stable coin with very little price fluctuation to trade on.

 

For now, the 2020 Libra launch date looks to be overly optimistic, even though the currency has the backing of some of the biggest companies in the world and a pool of more than 1 billion dollars behind it. Its lofty ambitions could be left dead in the water before it even reaches the market. With Facebook’s backing, however, you never know. And for those that do not have bank accounts or access to other financial products, the allure of being able to send and receive money quickly and cheaply, may be enough for them to overlook the potential problems.