Facebook’s Libra Currency: The Good, The Bad & The Ugly

By Pablo Casadio

The social network Facebook announced the launch of  the “Libra” cryptocurrency in 2020 is causing commotion with enthusiasts. The project is already backed by 27 companies of those including major players like PayU and Uber. From the looks of it, “Libra” promises to be a financial and geostrategic Trojan horse for Western society. However at what cost? Invasion of privacy to its users? Let’s take a closer look at the data.

It’s no secret that “Libra” aims to attract the unbanked population and its principal interest is to promote financial inclusion and eradicate poverty. Provoking the million-dollar question “How does “Libra” work?”. The process of buying “Libra” is as simple as sending the desired amount to your Libra wallet (calibra.com) which can be accessed from the home app, Facebook, Instagram or WhatsApp. The money  stays in the “Libra reserve” (pool of assets -major currencies and assets, such as low-risk bonds-) up to the moment in where the transaction is generated .Therefore it is a stable coin. Additionally, “Libra” helps the cryptocurrency generate more confidence in the system itself and to the massive adoption of digital currency.

After analyzing cryptocurrencies in Western Asia, reports have shown that WeChat controls the forefront as the sole provider of crypto cash. Thus, Facebook’s “Libra” may have been strategically positioned to block off WeChat expansion giving western governments a fighting chance. We will see if Facebook’s efforts will prove to be fruitful in the near future.

Some potential errors to consider with Libra

The blockchain protocol used is 100% private, not public like in traditional models. This means that Facebook (or the instrument created to do so) can change the rules of the game at any time. It differs from bitcoin in which user consensus is needed in a public network where anyone can participate.

Libra is a non-custodial service, when delegating to a third party and from the point of view of decentralization, it goes against many of the values that the blockchain system promotes, like freedom and empowering the user. This new cryptocurrency keeps all of the decision-making and delegating power within Facebook’s walls.

You may be asking yourself “Who is behind Libra?”. It will consist of a network of 100 nodes and there are requisits to be part of it: minimum payment of $ 10 MM per node, having sales higher than $ 1B in the last year, having more than $ 500M in fixed assets. Thus, we can assume that only large companies will have control of Libra and there will be no bank involvement. It is a declaration of war to traditional and central banks.

The “Libra association” based in Switzerland will also ensure the governance of Libra and on the website, you can see who the key players are made up of:  payU, stripe, Uber, Spotify, Lift, Vodafone, Coinbase, Xapo, etc. The business model suggests that they will gain a small percentage of all transactions done.

The most concerning are the last two points mentioned, because “Libra” is still a private system controlled by large shareholders. In the sense of blockchain and cryptocurrencies, this proposal is quite the opposite of one another. Just imagine the largest World Bank with 2.4 billion people without being subject to any regulation and depending only on a hundred corporate companies.

Overall, the new business model of Libra does not seem promising.As the owners can change the rules of the game by changing the protocol users will be expose to losing their digital asset without any protection. It is an even worse system than traditional banking (where the value of each currency cannot be changed). And “Libra” will make the rich richer, and they will have more power over the banking industry. Ultimately, “Libra” will bank the unbanked populations under a new concept, enslaving their users. The key is the regulation.

It seems that until the regulation is clear on “Libra” the launch should be brought to a halt. In addition, during the last weeks many major players like Visa, Mastercard and Paypal have decided to wait until there’s regulatory clarity to proceed with “Libra”. Pressure has been intense and it looks like Facebook’s latest dream is hitting a brick wall, that the financial system has raised against Libra.

A little about the author: Pablo Casadio is CEO of Filos Global (filosglobal.com) and CFO of Bit 2 Me (bit2me.com). If you would like to learn more about cryptocurrencies and read the latest news you can visit https://academy.bit2me.com/