Note: Facebook has changed the name of their cryptocurrency to Diem.
The cryptocurrency space has been through some massive technological advancement since Bitcoin pioneered in 2009, with its use in payments seeing the most innovation. The trend continues with Facebook’s Libra, a cryptocurrency the social media giant has targeted for launch in the first half of 2020. Libra is designed to work as a medium of exchange for cross-border money transfers and payments. The digital currency is built on the Libra Blockchain, a permissioned open-source blockchain platform. Once launched, people will be able to access and use Libra to make transactions anywhere in the world.
The Libra Network uses the Byzantine Fault Tolerance (BFT) consensus algorithm and is built using “Move,” a new programming language that allows for smart contracts. Specifically, Libra is a “stablecoin” in the mold of similar asset-backed coins like Tether (USDT), which are less volatile compared to Bitcoin and other cryptocurrencies. However, Libra isn’t going to be a typical stablecoin backed 1:1 and pegged to a single currency.
The coin’s intrinsic value is not tied to assets like gold or a specific fiat currency like USD, EUR, or GBP, but backed by reserves of several different assets that include bank deposits and government securities. For every Libra token in circulation, an equivalent number of government securities and bank deposits will be held by the Libra Reserve.
Details about Facebook’s Libra first surfaced in 2018, after the social media giant began putting together a cryptocurrency team led by David Marcus, who at one point was Facebook’s head of Messenger. Marcus worked alongside Morgan Beller and Kevin Weil to develop the cryptocurrency. In June 2019, Facebook announced Libra and registered it in crypto-friendly Switzerland. The Libra project is overseen by the Libra Association that initially had 28 members drawn from the payments, telecommunications, blockchain, tech, and venture capital industries. Among the prominent Libra Association members are Visa, PayPal, Uber, Coinbase, Andreessen Horowitz, and eBay.
The pros of Libra are mainly related to its massive potential in terms of global adoption, with exposure to over 2.5 billion people making it accessible to nearly a third of the global population. Libra is also backed by several reputable companies, which will help to boost the cryptocurrency’s acceptance among users around the world. Libra also promises to give people a much easier route towards converting fiat to crypto and is less volatile compared to Bitcoin and other cryptocurrencies.
What are Libra’s cons? First, Libra is not decentralized in the true sense of the word as its blockchain is permissioned. #The Libra Network is also to be governed by third-party entities, which brings forth the issue of intermediary risk, a fact exacerbated by the many privacy issues facing Facebook. Facebook is yet to officially launch Libra, an outcome of which could be impacted by the ongoing regulatory hearings and concerns. However, on the face of it, Libra is a great project that could spur global adoption of cryptocurrency.
Crypto, in general, is here to stay, given massive steps made in the development of Bitcoin and other digital assets. For Libra, the future very much depends on getting the regulatory approvals that would give it impetus going into its planned 2020 launch. A glimpse of the tough regulatory environment it finds itself in was exemplified during a recent U.S. House Committee hearing on Libra. At the time, Facebook had to explain why Libra should not be declared a security token by regulators. It is such concerns that could hamper its use. However, overall, Libra has the potential to make money transfer more instant, but the project must work on security and ensure the KYC demands do not lock out the world’s unbanked population. Currently, Libra Association has 28 members, and Facebook wants that number increased to 100. This should boost the project, but much more is still needed to make Libra a more decentralized cryptocurrency.