Facebook to Launch its own Cryptocurrency - Libra
Facebook is set to launch its own cryptocurrency, Libra, which will be used on its existing platforms – Messenger, WhatsApp, and Instagram. Facebook’s head of financial services and payment partnerships for Northern Europe, Laura McCraken, told German magazine WirtschaftsWoche on June 4 that a whitepaper for the token would be published on June 18. She also said the token will not be tied to any single fiat currency but will instead be linked to a basket of currencies.
As per reports, more than 10 companies including Visa Inc., MasterCard Inc., PayPal Holdings Inc., and Uber Technologies are set to invest around USD 10 million dollars each to fund the development of the cryptocurrency. Libra Association is an independent consortium to govern the digital coin and will remain independent even of its parent company Facebook Inc.
None of the investors will have any direct control over the consortium or the cryptocurrency. At most, their involvement will be limited to acting as nodes to verify transactions and keep records in the cryptocurrency chain.
Facebook Cryptocurrency is a Stablecoin
Stablecoin is a cryptocurrency that has price-stable characteristics. So, it can also be called price-stable cryptocurrency.
To ensure price stability, the Stablecoins are pegged against US dollar or a basket of currencies, or an index such as CPI (Consumer Price Index). Pegging against existing fiat currencies or popular indices ensures that it can always be checked against the real currency.
Facebook is planning to peg its Stablecoin Libra against a basket of currencies, so that economy of any single country is not able to dictate the future of its cryptocurrency.
The popularity of Stablecoins is on the rise because of its relative non-volatility and smart contract compatibility.
The transaction cost of each cryptocurrency transaction is also steadily increasing. The increase has been so much that many companies that were earlier allowing cryptocurrencies for E-Commerce transactions are discontinuing the use of cryptocurrencies on their platforms.
Stablecoins have stepped in to fill the gap by creating a cryptocurrency that is solvent against assets, currencies or traded stocks.
Is Facebook looking to create a Parallel Economy?
Whether we like it or not, Facebook has changed the way we communicate, exchange information, and connect over the Internet. Speculation is rife as to the intentions of Facebook behind launching its own cryptocurrency. Being a Stablecoin, Libra will have much more acceptance among the people. Out of its 2 billion-plus user base, most people live in economies that have unstable economies, and hence currencies. Libra could well prove to be an alternate and more stable option.
Facebook is planning to have ATM-like terminals where people can exchange their digital assets into currencies. The development of the physical infrastructure will require huge investments, but it might be well worth the effort. After all, one reason that cryptocurrencies have not been able to appeal to mass users is the lack of trust in a fully digital concept. Having physical infrastructure will take care of that to some extent.
Buildup to the Launch of Libra
The announcement by Laura McCracken is not exactly out of the blue. Facebook's interest in fintech became clear when it hired David Marcus, former PayPal president, in 2011. With the help of David, Facebook has been able to launch many financial applications through its Facebook interface in different countries including Ireland, India, Australia, and Canada.
When David Marcus resigned from the board of Coinbase, citing a conflict of interest, it was clear that Facebook was working on its own cryptocurrency.
According to Reuters, Facebook has also registered a company name Libra Networks in Switzerland. It has also bought a trademark from a blockchain startup of the same name.
The white paper on Facebook cryptocurrency is being eagerly awaited by the fintech world to see if the new Stablecoin has the potential to transform the existing cryptocurrency landscape. Some experts claim that it could well turn out to be advantageous to the people staying in developing countries.