By David Alade
Libra is a cryptocurrency developed under the blockchain architecture; it was set up to solve a fundamental problem of other cryptocurrencies like Bitcoin and Ether. The fundamental problem being they are not backed by any underlying asset, hence they are only most suitable for speculation purposes. Libra will take care of this with its Libra Reserve which will serve as “Central Bank” of Libra.
To serve the purpose of a currency, stability is key, something the current cryptocurrencies lack. Bitcoin has recorded a year-to-date return of more than 150% while the Dollar year-to-date return is less than 0.5%, this begs the question of Bitcoin stability. Libra has been set up by world’s giants from the research lab of Facebook to answer the stability question.
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The Facts:
- The foundation of creation was hinged on the believe that “the world needs a global, digitally native currency that brings together the attributes of the world’s best currencies: stability, low inflation, wide global acceptance and fungibility.”
Libra’s attempt at this means all things that ensure the purpose will be achieved have to be out in place including agreement with world regulators, basically as Ndubuisi Ekekwe Noted, it is in direct competition with the world’s currencies.
- Libra is different from Calibra
Calibra will be set up to provide financial services to individuals and businesses, including saving, spending and sending money, with goal of achieving financial inclusion among others. The first target point for Libra is the more than 1 billion users of Facebook platform.
Libra Association will be a nonprofit in Switzerland set up to design standards for the currency and will manage its central bank Libra Reserve Bank. Libra Reserve Bank will be chaired by a board of committee comprising of representatives from corporations that helped set it up.
- Facebook does not intend to bear full responsibility for Libra and hence has sort partnership with the biggest names that be, including Uber, Spotify, PayPal and VISA.
An interesting thing about this large base partnership is that the major organizations to which Libra posit threats to are also partnering with it. These firms include Visa, Stripe and Paypal.
- Calibra will be integrated inon Facebook and WhatsApp architecture.
What this simply means is that when you view the Status of your connection who is advertising a product or service, you can make your payment directly without needing to sign-in on another app. Cross-border payment will become seamless and transaction cost greatly reduced.
On Data Management, Facebook has promised to “it will keep financial data from transactions on Libra separate from user ad profiles. The blockchain is ‘pseudonymous’, the company said and, like many crypto networks, will allow users to hold one or more addresses not linked to their real-life identities.” This is key as the Bank Holding Act 1970, amended, specifically prohibits such act.
- Libra is not in competition with Bitcoin.
“Many want to [put] Libra vs. Bitcoin. In my mind these two are not in the same category. BTC is a decorrelated (investment) asset. Libra is designed to be a stable medium-of-exchange. I have been, and remain a fan of BTC, but for very different purposes”, noted David Marcus (Co-creator Libra).
This reflects and reinforces the deeper purpose of Libra beyond bitcoin. It is designed to be a stable means of exchange. With Libra, if you bought a can of coke with 10 Libra yesterday, you can expect to get for same amount today and tomorrow, something Bitcoin historically struggles with.
- Another important part of Libra mission is the “additional lofty goal of the association to develop and promote an open identity standard. We believe that a decentralized and portable digital identity is a prerequisite to financial inclusion and competition”.
What is not clear here is what they meant by identity? Is it the creation of pseudo-identity, real-identity, digital-identity, and more questions? But you should understand that they intend to create “open identity for all” in a bid to achieve financial inclusion and competition.
- These are question we need to ponder on
- Will Facebook end up controlling the two foundations (Communication and Transaction) of the world?
- Is “open identity” really a prerequisite for financial inclusion?
- What does this mean for all ecosystems that intersect with Libra, Central Banks, Payment gateways, Banks, and more?
- Will regulations allow this to pass?
- Libra promised to launch in 2020, when will ubiquity be attained?
Concluding thoughts
Libra is ambitious and I wouldn’t know what probability of success to accord it, and if I knew, it would probably be on the high (partnership that it has will be the reason for this). Libra has been initiated or say launched to be a success and if it does, the fundamentals of a lot of intersecting ecosystem will be poised for a fundamental shift; some will be disrupted, and some will just go to extinction. Whatever the case may be, I will like to say it is an interesting time, witnessing so much unprecedented change.
Follow this link to read the 10 important questions that Libra needs to answer; Tyler Cowen and Christian Catalini (Head Economists of Calibra) respond here.
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