Last week we covered the growing interest in cryptocurrency among Zimbabweans and cited the pending launch of Zimbocash. Well, that’s the not only cryptocurrency that people are excited about as Facebook has put the wheels in motion on their own cryptocurrency Libra. The announcement of Libra has many in the world raising questions and showing concern over this cryptocurrency. There’s a lot to unpack when it comes to Libra.
The basic concept of cryptocurrencies is that they work on a system of open public ledgers. Any member can view the ledgers and they are updated in real-time but cannot be edited retroactively. Through the use of blockchain technology, the ledgers are automatically updated all at once so there is no opportunity to cheat the system. As such cryptocurrencies can operate on what is called a permissionless system, which means there is no central authority, the system is open so regulation is unnecessary. They have stated they intend to move to a permissionless system.
Libra, which we can expect in 1-2 years time plans to operate on a permission basis, that is with a central authority known as the Libra exchange. You can think of this as a Reserve Bank for Libra as it will authorize all transactions and be responsible for conversion of fiat currencies to Libra. One would buy Libra from the exchange with the ability to sell Libra to the exchange and receive your fiat currency. The idea of the Libra exchange is to keep the Libra coin stable in value.
The Libra association currently boasts some major companies in the realms of payments, e-commerce and services. Lyft, Uber, Spotify, VISA, MasterCard, eBay, PayPal and Vodafone are among the current members of the governing body of sorts. As Libra is intended to be a payment method on these and other platforms going forward you can quickly see how we will finally a useful cryptocurrency. Having a payment platform via WhatsApp similar to that on WeChat would do businesses a lot of good.
The goal for Libra as it stands is for it to be a medium of exchange rather than an investment vehicle as other cryptocurrencies have been pitched. To this end when you buy Libra from The Libra exchange the money will be invested in stable investments to guarantee availability when you need to “cash-out”. To this end, they aim for a steady exchange rate.
Libra will, however, maintain the cryptographic element through having accounts that are not linked to any user data. This is interesting as the question begs how they will get around Anti Money Laundering and Counter Financing of Terrorism Laws with this approach. Facebook has also bet on a digital wallet Calibra for the storage and transacting of the Libra coin.
There are many questions that have been brought up by the Libra white paper.
While the Libra Association brings a central authority which cryptocurrencies this have lacked the question begs on how much influence the users will have on this association. It is a private organization which makes them hard to touch and furthermore being headquartered in Switzerland gives an additional layer of protection. With central banks, you have government lobbying and elections as recourse. But recourse do users have here? Leave Facebook, WhatsApp, Instagram and whatever else they choose to buy or create? 1.2 billion users would beg to
Secondly, Facebook already has a lot of data on you. What you view publicly and privately on their platforms alone is valuable data. And they have not been shy to capitalize on that information. Add to that them knowing what you buy and big brother may as well have arrived just as described in George Orwell’s novel 1984. How far Facebook would go in taking advantage of this data is anyone’s guess but many are rightly sceptical.
Facebook boasts 1.2 billion users on that platform alone. Add in the WhatsApp and Instagram only users and we could be looking at closer to 2 billion. With improved access to internet connectivity and devices, this number continues to grow. The target here for Facebook is not only more users but much more profitable ones.
Through Libra Facebook is offering an option. While those in the first world have easy access to payment systems and stable currencies the same cannot be said for countries like Zimbabwe and Venezuela. With foreign currency only available on the parallel market for the ordinary individual who seeks a store of value what would happen if the parallel market were removed? A perfectly legal cryptocurrency would be a great store of value. Of countries like Zimbabwe may not benefit from Libra as trade restrictions (otherwise known as sanctions) would rule out access to the Libra exchange.
Interesting times are ahead and Facebook still has many questions to answer. The irony of Facebook stepping into cryptocurrency when they banned cryptocurrency advertising for some time is not lost. The opportunity is currently there to seize but they may face pushback from many concerned stakeholders.