Facebook has marked its entry into the world of online finance with the launch of Facebook Libra with much fanfare that created quite a buzz in the digital world. The digital currency through a brainchild of Facebook will be managed by a consortium of companies ranging from finance to Non-profits. Facebook explained the working mechanisms and dynamics of Libra in a white paper outlining the broad vision and process behind the launch of Libra. It will be a cryptocurrency backed by hard cash and asset reserves and will be used for all transactions involving all Facebook-owned products along with other businesses that have partnered with Facebook.
Although Libra is generally receiving rave reviews regarding its potential financial impact worldwide, Facebook’s less-than-optimal history of handling sensitive user data and other economic and political risks demand a thorough review of this latest offering by the social media giant so that consumers and businesses alike can make informed decisions. This is a brief overview of the plethora of prospects and challenges associated with the world’s largest social media giant launching its own digital currency.
Understanding Facebook Libra
Just like all other technology related products, Libra’s official documentation is also littered with technical jargon that is way beyond the understanding of layman internet users. This is why we have taken the liberty of highlighting the crucial details about it in a user-friendly and easy to understand way.
It is a cryptocurrency
Facebook Libra is a cryptocurrency meaning that it is run and managed by the blockchain technology at the backend. This is the same technology behind currencies such as Bitcoin and Ethereum. Simply put, blockchain technology uses a decentralized register method secured by the state-of-the-art crypto security system to record and register different transactions.
The validating nodes needed for these digital transactions and required computing powers will be provided by the members of the Libra Association (explained below) although the programming and ledger account will be visible to the general public.
It is backed by a hard cash reserve
Facebook’s Libra may operate on similar standards like Bitcoin but this is where the similarities end. Libra is backed by hard cash and asset reserve of equal value. This means that it can only be exchanged using offline currencies and cannot be minted out of thin air compared to other cryptocurrencies. If you want to have Libra coins in your digital wallet you must exchange them with the conventional currency of equal value.
Moreover, Libra will not be ‘pegged’ to any fiat currency so it will have its own exchange rate. Although it has not been decided as of yet it would be close to the average US Dollar or British Pound in value in order to ease the transaction in the Western market as per Facebook sources.
It is not owned by Facebook
Facebook may have been headlining the launch of Libra but It does not have much control over its operations. The Libra is going to be managed by a consortium of companies out of which Facebook is just one stakeholder. This consortium is known as Libra Association so far consists of 27 diverse companies ranging from financial giants such as PayPal and Mastercard to service providers such as eBay and Uber to Non-profit organizations such as Mercy Corps.
All of the 27 members of the Libra Association will decide on all matters through equal voting rights and more companies can join the association by buying in Libra currency worth $10 million. The original White paper envisions a total of 100 organizations each with 1% of voting rights when Libra is fully matured and launched for public use sometime in the year 2020 and a two-thirds majority will be required to conduct any official business of Libra.
In fact, Facebook does not have any direct interaction with the Libra or its internal mechanisms. Facebook is represented by Calibra [https://www.theverge.com/2019/6/18/18682838/facebook-digital-wallet-calibra-libra-cryptocurrency-kevin-weil-david-marcus-interview ] an independent subsidiary and digital vault that will be integrated into all Facebook products but will operate entirely independent of them.
What makes Libra a unique currency?
Ever since the explosive growth of bitcoin and similar cryptocurrencies in the early 2010s, we have seen countless such initiatives with exotic names and even exotic backgrounds but none of them managed to stay afloat for a long period of time and many of them turned out of fraudulent ventures capturing ordinary folk’s imaginations and savings by promising huge returns only never to be seen again.
In this climate of doubt and mistrust, it is natural for skeptical readers to question the unique selling points of Libra i.e. what makes it different from rest of digital currencies and why they should employ it in their routine financial transactions?
As the Libra has only been launched a few days ago and still not much information is available about its Standard Operating Procedures (SOPs), the aforementioned white paper does offer some insight into why Libra might manage to take off where rest of cryptocurrencies have failed.
This feature of cryptocurrency is much hyped up ever since Bitcoin was launched in 2009 as a garage project. Now that the Libra has full processing might of Facebook’s computing infrastructure coupled with 99 other equally powerful stakeholders, can we say that Libra will be a secure currency in the true sense of the word?
As per the white paper, this blockchain’s security will be complemented by offline identities of Libra users in order to check any illicit transactions that have become rampant with Bitcoin and other anonymous digital currencies. This might also earn Libra some credit with national governments and financial regulators who typically do not favor digital currencies.
Negligible transaction fee:
This is a feature of Libra that has particularly been trumped by Facebook during its initial launch. Facebook aims to capture the global financial market through Libra and thus has promised to charge almost zero processing fees for normal transactions. This will surely sit well with billions of Facebook users and 1.7 billion people in the world who are currently out of financial coverage and mammoth transaction fees have proven to be the biggest stumbling block in their participation.
Seamless processing time:
Having a state-of-the-art IT infrastructure at the backend allows Libra to offer extremely fast processing time not offered by any other competitor. According to the details provided by Facebook, the processing power of Libra’s firmware is around 1000 transactions per second compared to just 7 per second of Bitcoin. This difference matters a lot particularly when global exchange rate fluctuations are taken into account and the advantage that Libra will provide to banks and e-commerce traders in the future.
Libra is a stable coin meaning that its value does not change arbitrarily and is immune to typical exchange rate fluctuation. Unlike Bitcoin and other cryptocurrencies that were susceptible to sudden rise and fall in value and could be manipulated by a group of traders, Libra will have a stable exchange rate. Moreover, as it will be backed by hard cash and asset reserves so it will be more rooted in the ground and will not be dependent on the whims of government’s policies or whims of wall street sharks.
The disruptive potential of Libra
Libra is much more than merely an ordinary digital currency as has been made quite clear by the buzz around it since its high profile launch earlier this week. Not only does it have a group of very powerful companies at its back, but it’s also parent organization Facebook holds immense sway in the digital world on its own.
Facebook has grown into much more than a simple social networking site to encompass a wide range of digital services and has over the years taken over several equally influential services. Facebook now owns WhatsApp, Instagram, and Snapchat among other social media apps and has an active global user base of 2.7 billion. That is more than 33% of the world population that is directly accessible to Facebook and related services.
Having Facebook’s entire corporate weight behind it has given Libra immense edge over other companies which has only grown exponentially by the decentralized management model that has also taken on board other big names such as PayPal, Visa, and MasterCard. All things said and done; Libra is the closest the world has ever gotten to having a truly global currency as aptly put by Jennifer Grygiel. [https://www.sciencealert.com/does-new-cryptocurrency-indicate-Facebook-aims-to-be-an-independent-virtual-nation].
LET THE BUYER BEWARE
The overwhelmingly positive coverage received by Libra since its launch may give the user quite a favorable view of the whole narrative but we believe in providing unbiased reviews of latest happenings in the world of technology. This is why it is pertinent to mention here that the Libra project has not been without its fair share of controversies and criticism in recent days.
Privacy concerns and Facebook
This biggest problem with Libra is the parent organization at its back. Facebook has had a horrible track record of handling sensitive user data, to say the least. From Cambridge Analytica controversy to mass user data leakage to bungled up congress hearings, there are genuine concerns of exacerbated data leaks once Facebook’s native and acquired platforms have also been incorporated by financial services.
A digital monopoly in the making
There have already been calls of breaking up Facebook in the wake of Cambridge Analytica and US Presidential elections debacle. It is argued that Facebook holds immense sway globally as it is and it is growing its might by the day by acquiring new services. Some[https://www.sciencealert.com/does-new-cryptocurrency-indicate-Facebook-aims-to-be-an-independent-virtual-nation] have also started calling it an independent digital state which now it has its own currency with a reckless leader at the helm.
Although Facebook has ensured its shareholders as well as end users of foolproof security regarding Libra transaction yet it has made the protocol open source. This is a well-tested security measure in the digital world but this has not been the case with Facebook in the past. It had to revoke access of all developers to its platform after it was reported in 2018 that millions of users’ data were stolen by these individual developers working with Facebook on third-party apps and now Facebook has adopted the same strategy with Libra.
Geopolitics of Libra
Libra is not an entirely innovative and unique initiative in the digital world. Chinese social media giant WeChat has had similar features for years now and has been performing really well. Introduction of Libra at a time when US and China are engaged in a ferocious trade war and China is aiming to export its WeChat model worldwide does raise some concerns that Libra is a part of US government’s strategy to counter the rise of China as a global leader.
Making the most out of Libra
Libra is going to become operational sometime next year but its early access version is available for beta testing. The full extent and range of its potential will be measurable only once it has been opened to the general public and has amassed a considerable user base. Nevertheless, several indicators point out that it is going to make waves in the digital and financial sectors in the very near future so you might want to hop on the bandwagon sooner than later in order to get the early bird’s treat.
Facebook has made Libra open source and has invited developers all over the world to test and develop on it. As it gains more recognition, Libra is going to be incorporated into a whole lot of apps and user interfaces. This provides interested developers with a golden opportunity to jump in early and be a part of this potential success story of the digital financial sector.
Facebook and the broader Libra Association has already started offering businesses incentives to integrate Libra’s transaction module into their products and services. As mentioned earlier that Facebook has aims of global financial takeover through Libra so for any business, it is a good time to expand their operations globally as does Libra backed by a network of multinational corporations.
To wrap up the discussion, there is no doubt that Libra initiative spearheaded by Facebook and managed by the Consortium possesses the massive potential to significantly alter the financial service side of the internet. The security, stability, and speed of conducting financial transaction across the globe as promised by Libra can go a long way in including billions of individuals to the global financial sector and thus overcome basic development problems such as disaster aid and online freelancing. But this is also the sharpest ever double-edged sword and needs be tackled with very carefully by the policymakers, businesses and the general public alike unless we end up with a digital dictatorship long warned of by science fiction writers like George Orwell.