Will beat the Facebook currency bitcoins
Facebook Coin Libra - What's behind the cryptocurrency
Facebook is still the online social network with the most active users in the world. The company's growth seemed limitless in the past. However, the pressure from Asian competition is currently increasing. That is why the heads of the US company from San Francisco are currently in the process of initiating the next stage of Facebook expansion. The network is continuously expanding its offering and thus its relevance and reach. In the future, the Facebook universe should map many other areas of social life online. The new business models are intended to secure Facebook's market share. Facebook is currently entering the financial market with the introduction of the cryptocurrency Libra.
Libra - a separate currency for the Facebook ecosystem
Probably the most sensational announcement from Facebook is the introduction of its own global currency called Libra for 2020. Facebook is currently building a complete financial infrastructure for this. According to company data from Facebook, 1.7 billion people, 30% of the world's population, have no access to banking services today. International transfers would cost 3-5 days and an average of 7% fee. This is where the group wants to start and make transfers worldwide as easy and cheap as sending a WhatsApp message. Transfers, securing credit or granting credit, which are still typical banking transactions today, should soon be much cheaper and faster via the Facebook platform.
The Libra Association is supposed to watch over the currency
In order to organize and monitor the new payment transactions, Facebook set up the independent, non-profit Libra Association based in Geneva, Switzerland. Founding members can be companies, Social Impact Partners (SIPs) or academic institutes. To join the Association, applicants must take part in a Facebook selection process and purchase $ 10 million Libra currency. Each member becomes part of the Libra Association Council, the governing body. After the current build-up phase, Facebook says it only wants to be an equal member of this council. Previous members of the council are, for example, Vodafone, Mastercard, Uber, Paypal, Coinbase, Visa and Ebay. To ensure an “appropriate separation between social and financial data”, Facebook founded the subsidiary Calibra. Calibra's task is to set up and operate services in the Libra network.
Blockchain technology and cryptocurrency form the basis
The Facebook currency Libra is based on blockchain technology, a decentralized and freely expandable network of data sets. The rules of this network are specified for the specific application Libra in the so-called Libra Protocol. The members of the Council in their role as validators make decisions about the transactions involved. Like the entire Libra project, the Libra Protocol is in the development phase. However, some specific information about how it works is already publicly available. To test the design of this protocol, Facebook works with an open-source approach. This is intended to identify all possible problems early on and to eliminate them in further development. The currency's payment units are tokens, a cryptocurrency that results from the protocol. These tokens are called Libra Coins.
Reserve is intended to minimize volatility and preserve value
In contrast to today's largest crypto currencies such as Bitcoin or Ethereum, a reserve of investments is planned for Libra. This reserve is intended to ensure that the value of the Facebook currency remains as stable as possible with only low volatility, thus creating the indispensable trust that enables the use of a currency and determines its reputation among market participants. Investors can invest in a separate investment token. These amounts form the reserve. The assets of the reserve are to be safeguarded by diversified investments in a basket of goods consisting of long-term, low-volatility investments such as government bonds. The reserve thus fulfills the same task as the gold standard in a traditional currency. This is also the big difference to Bitcoin, whose value does not have such a basis and whose value therefore appears much more virtual. In addition, Bitcoin has no equivalent to the Libra Association, the powerful body that watches over the Libra Coin like a currency bank. In order for new Libra Coins to be created, a buyer can deposit currencies such as euros or dollars into the reserve. He then receives Libra Coins back according to the current Libra exchange rate. As a result, the reserve grows more and more and at the same time helps prevent Libra inflation or a bubble.
Next big thing or next big fail?
With the Libra Coin, Facebook has initiated a highly complex project. The company's goal is to implement a global currency. Allegedly there is no interest in replacing previous currencies. But if more and more people only use Libra, then sooner or later exactly this scenario would arise. Many legal and technical details about the Facebook currency have not yet been finally clarified, but hundreds of experts are working intensively on this project. The timing of the introduction of the currency system by Facebook has not yet been communicated, but the developments that can be observed at the moment are extremely interesting.
Resistance against Facebook is already forming
The US Congress sent a letter to Facebook just a few weeks ago. In it, high-ranking representatives of the finance committee demand that the introduction of Libra be stopped. The MPs fear the emergence of an uncontrollable financial system in a lawless area, which could cause extensive financial damage. Certainly the representatives of the people also want the important currency policy to remain a privilege of sovereign states and not to move into the power of a private company. In addition to politicians, consumer protection associations are now also sounding the alarm. Even the US Nobel laureate in economics, Joseph Stiglitz, has already expressed himself in critical words about Facebook's currency plans. In his remarks he criticizes the creation of a new dimension of money laundering, tax evasion, drug trafficking and terrorist financing. For him, the Cambridge Analytica scandal in the context of the last US presidential election made Facebook a seedy player who should never be allowed to run a project like Libra.
What are the chances for Facebook?
If the information about Libra that has been available so far is compiled, the picture is ambiguous. On the one hand, the financial market today consists of many different legal and currency areas, between which the flow of money flows is highly regulated by laws and regulations. These are actually the best prerequisites for implementing a disruptive business idea. On the other hand, the image of Facebook in the population and with the authorities is worse than ever. It remains questionable whether the politically highly networked people in charge of the financial system will put up with attacking the core of their industry. It is also questionable how Facebook's competitors, such as Google, Apple or Amazon, will react to the social network's currency plans and, if necessary, start their own platforms.
The Libra Coin will ensure exciting discussions, both politically and socially.
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