The Financial Industry & Facebook’s Libra Coin
The financial industry is drastically changing due to cryptocurrency and blockchain technologies. Thirty years ago, The Economist determined that a world currency would be created before 2020. That world currency could be Facebook’s upcoming Libra Coin. This future crypto network will allow consumers to purchase and send money worldwide without any fees involved. This is something that services that Bitcoin & PayPal are lacking.
There hasn’t been a cryptocurrency popular enough to become the mainstream with financial institutions worldwide. However, with Facebook maintaining more than two billion active users monthly, their Libra Coin could have proficient impacts of global society and the way the world manages their finances. Crypto analysts estimate that banking and financial institutions will implement StableCoin & Fiat Coin projects in the coming years. This already has been proven with JP Morgan’s announcement of their cryptocurrency project.
The Decentralization Efforts
Given the track record of Facebook, will the credentials and financial data of users be safe? The documents released by the social media giant on June 19th, 2019 confirmed that the crypto network would be decentralized. Facebook will be in charge of the creation & launching of Libra Coin, but it won’t have total control over the network’s activities. There will be a governing team of one hundred entities, Facebook is one of them, and the other ninety-name are unnamed. However, they will act as nodes to the network.
The nodes job is to confirm the transactions of any trade to guarantee that the networks defence protocols are upheld. Most of the companies maintaining these nodes are unidentified, except for Uber and Visa. It’s known that both these companies have invested $10 Million into Project Libra.
The Founder of Ryan Research, Peter Ryan & his team actively research crypto and blockchain networks, he spoke about Libra by saying: “Libra will be no more decentralized than a central bank. Large institutions already selected by Facebook validate the Libra blockchain solution. If more are added, you can expect them also to be chosen by Facebook and already large incumbents. This way, they can freeze transactions and ban users in their centralized role, which is drastically different from other cryptocurrencies.”
The Neutral Firm Opens Up
The Libra Coin is going to be the first cryptocurrency to have global economic implications. Its stability over long periods will determine if the coin becomes the single global currency. Though Facebook hasn’t released any information as to how the Libra Coin will be maintained, crypto firms like Neutral that operate StableCoins have shed some insight.
The CEO of StableCoin, Matt Branton, explained publically that “Libra will employ a basket model, meaning that the StableCoin will be pegged to an aggregated basket of multiple assets, rather than being pegged to a single fiat currency. This has been proven by Neutral to be beneficial to investors. The use of a basket offers increased stability through diversification, by countering the unexpected volatility found in instruments backed by a single centralized component. Moving forward, the challenge for Libra remains, can they maintain the value of their token?”
MrBranton continued his statements by saying, “Simply having a basket isn’t enough; the chosen currencies will experience inevitable fluctuations in price, and this will have an impact on the value of the overarching currency. Maintaining a peg can be extremely difficult, and the basket could experience significant volatility. Any mistake here could result in complete failure. The value of Libra is directly related to the ability of the managers of Libra to maintain stability with their basket of four currencies. If they fail at this activity, you will see a free-floating Libra that could explode or crash in price.”
There are significant privacy concerns for customers and their financial credentials. In recent years, Facebook has been the culprit of mistrust numerous times. They’ve exploited the data of their users to earn additional funds. Prominent figures in the industry have concerns that the social media company will sell data through Project Libra for their monetary benefit. Facebook will now not just have your phone number, address, identification, location and name, but they’ll also have your wallet now as well.
There are beacons of hope, though, as Facebook isn’t entirely maintaining the project. Furthermore, real-life identifies don’t have to be displayed on Project Libra. Users will be able to use secret identities in the form of a nickname. This will allow for credentials to remain private with any product purchased. Libra will be accessible through Instagram Direct Message, WhatsApp and Facebook Messenger.
The Founder of ZivKienan Digital Asset Lawyers, AdvizivKienan, spoke about these privacy concerns by saying: “The new goal of Libra is to develop and promote an open identity standard. Libra believes that decentralized and portable digital identity is a prerequisite to financial inclusion and competition.”
Facebook has made significant efforts to guarantee the security of Libra consumers. Facebook has created a new company called Calibra, which will be tasked with maintaining the Libra Network. Calibra is located in Switzerland as a result of the country having direct regulation towards crypto and blockchain products. However, Facebook has already been receiving backlash about the choice of jurisdiction. Switzerland is known for smuggling money for millionaires and companies worldwide. This had led some analysts to believe that financial credentials will be exploited in Switzerland to increase profits.
The United States Senator Sherrod Brown tweeted, “Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.”
Regardless of senators or analysts stating that Calibra is another means to sell customer data, the new company has been created to guarantee that Libra payments won’t be connected to your Facebook data in any way. Subsequently, this means that financial credentials won’t be used for targeted advertising. The endgame for Libra is to earn interest off reserve Libra coins; the funds obtained will generate revenue for the company and will fund the stability of Libra.
Furthermore, Libra has announced that they’ll be maintaining an additional Investment Security Token. This token will apply to accredited investors.
The CEO & Co-Founder of Securitize, Carlos Domingo, commented on the investment token by saying, “When a globally known brand like Facebook elects to do an STO (Security Token Offering) over traditional methods as a way to fund incentive programs and cover operational costs, it legitimizes the whole STO industry,” said Carlos Domingo, Co-Founder and CEO of Securitize. Hopefully, this will help raise awareness as to why an STO and digital securities are a better option for raising capital and managing the lifecycle of securities.”
Libra is Crypto’s Savoir
The majority of the cryptocurrency industry is rejoicing by the fact that Facebook has entered the market space. This new coin will act as a significant catalyst for the growth of all crypto coins worldwide. The blockchain technology will be widely adopted and used by millions worldwide. If everything succeeds, Facebook will go from a Data Bank company to a Central Bank Financial Institution.
The CEO of eToro, Yoni Assia, echoed these thoughts by saying: “This is a seismic moment for global finance. It is the first time that we have seen a tech giant and one of the FAANGS make a significant move into finance using crypto by launching a decentralized, permission-less blockchain, which will be available to billions of people. We believe that this is just the beginning. We expect other tech giants to follow suit, helping to realize the potential for blockchain to disrupt traditional financial services.”
Is Libra True Innovation?
Not everyone in the cryptocurrency industry has jumped on board with the idea of Project Libra. One of those individuals is Alex Freckle, the Vice President at Kin Ecosystems. He stated, “Big tech entering the cryptocurrency world means more awareness and competition, which can be a good thing for the industry. In the best version, it can push companies towards even more innovation. The truth, however, is often far from this.
Alex Freckle didn’t stop there, his comments pushed forward, indicating that Project Libra won’t be real innovation for the industry as a whole, but instead only for Facebook. He stated, “If we take Facebook’s past behaviour as a benchmark, it is more likely they will use this new technology as a way to choke off competition rather than inspiring use focused innovation.”
The comments continued with, “The question is whether Facebook will use this technology to create a real change in how value works in the online world, or use their token as a new payment method. If they replace digital fiat currencies with their token, there would be little true innovation or change. Unfortunately, it seems that this is the most likely path Facebook will follow. If this is the case, then the launch of Libra/GlobalCoin will ultimately generate considerable excitement without real change.”