{"id":2181,"date":"2019-06-26T16:55:46","date_gmt":"2019-06-26T08:55:46","guid":{"rendered":"https:\/\/www.coincola.com\/blog\/?p=2181"},"modified":"2021-06-30T15:31:39","modified_gmt":"2021-06-30T07:31:39","slug":"understanding-libra-coin","status":"publish","type":"post","link":"\/blog\/understanding-libra-coin\/","title":{"rendered":"Understanding Libra Coin"},"content":{"rendered":"

In a Facebook post on 18 June, 2019 <\/span>Mark Zuckerberg <\/span>revealed what has the potential to become a ground-breaker in the world of cryptocurrencies \u2013 Libra Coin. A new cryptocurrency, backed by world-leading corporations, tasked with the mission to make financial services open to everyone.<\/span><\/p>\n

That is Libra Coin on paper. <\/span>In reality, a lot remains unclear about the new cryptocurrency, which makes it hard to make initial judgements about its future adoption and market potential. However, from all we know at this point, it seems like Libra Coin\u2019s model is not the noble savior it is supposed to be. But much can change in the time until its official release in 2020 or later, so let\u2019s take a look at the facts we know at this point.\u00a0<\/span><\/p>\n

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What is Libra Coin?<\/b><\/p>\n

In its official<\/span> White Paper<\/span><\/a>, Libra Coin is described as \u201ca simple global currency and financial infrastructure that empowers billions of people\u201d. Its mission is to \u201cReinvent money. Transform the global economy. So people everywhere can live better lives\u201d. Libra Coin is designed as a stablecoin – a digital currency that has a relatively stable price because it\u2019s supported by other types of currencies (usually government-backed) or securities. In the case of Libra, the cryptocurrency is backed by the<\/span> Libra Reserve<\/span><\/a> of real assets. The low-volatility cryptocurrency is intended to run on a new decentralized blockchain and a smart contract platform to create \u201cresponsible financial services innovation\u201d. The members of the Libra Association hope for the newly-introduced coin to live up to its potential and deliver on the promise of becoming \u201cthe internet of money.\u201d<\/span><\/p>\n

Why is Facebook releasing the coin?<\/b><\/p>\n

The main motivator is to try solve the problem of the unbanked population around the world. According to<\/span> statistics<\/span><\/a>, currently, 31% of the global population (or roughly 1.7b) don\u2019t have access to banking services. The Libra Association makes a very accurate remark stating that the financial system now remains inaccessible to those who need it the most \u2013 people impacted by cost, reliability and usability.<\/span><\/p>\n

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That is why the introduction of Libra Coin and its whole concept make sense and have the potential to solve this problem. However, whether this happens or not, it all depends on the implementation of the idea.<\/span><\/p>\n

The Libra Association points out some other reasons for the launch of the digital currency, such as to provide cheap capital for everyone, to bring back the right of the people to control the \u201cfruit of their own legal labor\u201d and to provide global, open, instant and low-cost movement of money to create immense economic opportunity.<\/span><\/p>\n

The organization believes that the whole initiative will result into a majority of positives, such as the creation of 95 million new jobs, improvement of people\u2019s earning by 20%, reducing extreme poverty by 22%, etc. All this sounds very promising, although, at this point, it remains unclear how the Libra Coin will manage to achieve all that.<\/span><\/p>\n

But let\u2019s now turn our focus on the reasons behind Facebook being at the helm of this initiative. The majority of Facebook\u2019s profits come from advertising. Libra will be integrated into the company\u2019s leading apps like Messenger and WhatsApp. This means that anyone can, at any point, send money or use it for advertising on the platform. The 1.7b unbanked market will have immediate access to funds, which paves the way for Facebook\u2019s leading income channel to reach the rest of the 31% of the global population and its potential market to grow with 1.7b users. Apart from that, it also sets the foundations for Facebook to expand into payments and commerce in the future.<\/span><\/p>\n

Another issue with the whole idea is that if Libra achieves even partial success, it would take over much of the monetary control from regulators and hand it over to the private companies, part of the Libra Association. However, to distance itself from the speculation about potential global manipulation, Facebook has limited itself to a single vote on the commission. This means that, in theory, the partners in the Association will vote democratically.<\/span><\/p>\n

Yet, this does not limit the fear of the establishment of a powerful new corporate layer of monetary control between central banks and individuals, which is in total dissonance with the core idea of cryptocurrencies \u2013 to decentralize the financial system by turning it into a p2p network and removing third-party intermediaries.<\/span><\/p>\n

Who is a part of this?<\/b><\/p>\n

The Libra Coin is established and governed by the Libra Association, described in the white paper as \u201can independent, not-for-profit membership organization, headquartered in Geneva, Switzerland\u201d. Choosing Switzerland is a wise decision as it is a country known for its global financial neutrality and out-of-reach for the EU financial regulations.<\/span><\/p>\n

The Association consists of 28 companies, non-profits and multilateral organizations. Some of the members include Visa, Mastercard, Paypal, eBay, Facebook, Uber, Lyft, Spotify, Vodafone, Coinbase, Andreessen Horowitz, Women\u2019s World Banking, etc. (a full list is available<\/span> here<\/span><\/a>). The Association is expected to continue to grow and reach approximately 100 members at the start of next year.<\/span><\/p>\n

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The Libra Association has two main goals. The first one is technical \u2013 to look after the development and technical roadmap of the project, while the second one is financial – to manage the reserve and allocate funds to social-impact causes. When voting on particular organizational and technical matters, all decisions require the consent of two-thirds of the members\u2019 votes.<\/span><\/p>\n

When and where can you buy Libra coin?<\/b><\/p>\n

The project is expected to launch officially in the first half of 2020. Whether the team behind Libra will manage to keep up with the timeframe, it remains to be seen. All the work and unanswered questions that should be addressed in the meantime, alongside potential on-the-go developments and regulatory issues may significantly delay the deadline.<\/span><\/p>\n

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The philosophy of Libra supposes for it to be accessible by each and every individual, no matter his geographical location. The idea is users to be able to exchange the coin for fiat money in every national currency around the world. Thanks to the payment-processing partners in the project, Libra will be accessible to anyone with a smartphone and data connectivity. According to Zuckerberg, the process will be just as easy as using apps for message and photo sharing.<\/span><\/p>\n

For the storage of the Libra coins, Facebook launches a stand-alone app, as well as a built-in feature in Messenger and WhatsApp, named \u201cCalibra\u201d. It will be responsible for the spending, saving and storage part of the process. Calibra is going to be regulated just like other payment service providers. At first, Calibra will be limited to sending and receiving Libra to your contacts. According to its roadmap, however, in the near future, it will become a payment app that will allow you to buy coffee, pay bills, etc.<\/span><\/p>\n

What comes next and what issues will Libra have to deal with<\/b><\/p>\n

The truth is that many questions remain unanswered and it seems the Libra project was announced too early. The Libra Association may have looked at the whole initiative as a good way to combine the positives of both \u2013 the cryptocurrency (stablecoins in particular) and the fiat worlds, but the plan for achieving this, however, seems far from being entirely clear.<\/span><\/p>\n