What is Libra?
Libra. Zodiac sign. Surely we all know that. But for some time, we are also reading (and listening) about another Libra. This one is the cryptocurrency proposed by Facebook. That’s the simplified matter’s view. But what Libra is – or will be – and why it’s causing so much fuss? What would be the vision of consumers, the final recipients of this cryptocurrency? Will companies accept to receive it? From now on we will try to answer all these questions.
Less than a month ago Facebook formally announced the Libra project. The cryptocurrency will initially be based on permissioned blockchain technology (controlled by the “owner” of the network). Unlike other digital currencies, Libra will be supported by a basket of financial assets, mainly currencies and government bonds of several countries, to avoid volatility in their value. Libra will be created under strict demand (there will be no mining) and their units not required will be withdrawn from circulation, exchanging them for fiat currency. The overall system’s development and administration will provided by Libra Association, a conglomerate of 27 companies – major fintech companies, payment providers, consumer and credit card enterprises – led (for the moment) by Calibra, a Facebook’s subsidiary.
Since its publication, Libra has become an obligatory topic at technology, finance, politics and economics worlds. Several voices raised their concerns regarding issues ranging from Libra’s legality to the stability of the global financial system. Those concerns seem to curb the initial enthusiasm shown by Facebook. Related with the above, the director of the United States Federal Reserve (central bank), Jerome Powell, said that the discussion of those concerns should be done patiently and cautiously.
Useful for the end users?
Now, back to one of the initial questions, what happens with the Libra’s end user? According to Libra co-creator David Marcus, the cryptocurrency final purpose is to provide open and cheap access to the financial world to all people, no matter who they are, where they live and how much they have. This would result in cheaper international money transfers and the integration of the unbanked people into the system (1,700M), since the use of Libra would be done through the Facebook Messenger’s Calibra digital wallet; that is, a transfer or payment would involve a simple text message sending.
As with everything in life, Libra presents risks. That ease of making payments and transfers could lead to an overspending, more than he can really afford. Another important issue has to do with maintaining the crypto value. As we previously said, a basket of assets will support Libra in a “one on one”basis, it isn’t clear what the effect of possible government regulations that could lead to losses in value (especially when we talk about inflation). Last, but not least, there is the privacy issue. In the week in which Facebook was condemned to pay a penalty of USD 5B for a lot of privacy scandals, we can not forget the deficient registry that the Menlo Park giant has in terms of protecting their users’ data.
Some final words. Obviously Libra revolutionized the world of cryptocurrencies. And went beyond that, also drawing attention to politics, economics and finance. In our opinion, these are first steps. Much needed (beyond 2020) to see Libra operative. There will be negotiations, back and forth, more or less regulation and intervention by the states and we can even expect launches of other cryptocurrencies by central banks and financial entities. What we do believe is that Libra will be an option that people and companies can choose. And more freedom of choice for the human being, always better.