So now the old guard of the big tech companies have announced their intention to join the new world of blockchain and cryptocurrency. It was only ever a matter of time. But what does this mean for Bitcoin, and the wider blockchain space?
There is a huge amount to unpack from the white paper, so I’m not able to breakdown the whole lot, but my view today is that through Libra and Facebook, the words “blockchain” and “cryptocurrency” will start to become more trusted and a more comfortable lexicon for those not currently anywhere near this space – this is a good thing overall for the industry…
First let’s get clear on the distinctions between Libra and Bitcoin; Bitcoin is generally viewed as a future store of value, as today it is not a cheap, fast or effective way to send small amounts of money (until a solid layer 2 solution can be implemented at scale), but with a finite supply and a pre-programmed flow of new coins, it’s a deflationary currency – something we’ve not had for a long time. So potentially Bitcoin is good as an investment asset/product, but not really as a medium of exchange or a unit of account.
Libra, on the other hand, will be pegged to a basket of government-issued currencies (and bonds?) and will be relatively stable in value, by comparison, meaning that it is still impacted by inflationary pressures inherent to those currencies.
Although purists won’t view Libra as either blockchain or a real cryptocurrency, it definitely has aspects of both. Libra should be viewed as digital money, easily purchased and transacted with, but not a very good store of value (SoV) unless you are in a country suffering from hyperinflation.
Libra will benefit from being accessible through Facebook Messenger and WhatsApp and their two billion daily active users. Facebook Messenger and WhatsApp will drive consumer adoption of Libra and when enough consumers have Libra, merchants will follow. Facebook will create both sides of the ecosystem through its sheer size. With a large base of consumers and merchants as its engine, Libra can deliver frictionless payments to friends, family and businesses across (almost) all borders at speed with no transaction costs.
Facebook has managed to bring in some of the biggest brands and companies into the Libra foundation including Visa, Mastercard, Uber and PayPal as well as some big players in the venture capital space. Each member of the foundation pays $10million. The money is used to support the underlying basis for the Libra coin value. Additionally, members of the foundation run the computers (nodes) of the Libra blockchain creating the basis for distributed ledger and decentralised control.
This raises questions – and eyebrows – about what those companies might then do with the sensitive financial data they may now be privy to? Facebook has already had to weather the storm of negative press and congressional hearings around how they use data, and whether the public will trust them not to utilise that data for ad targeting – they’ve said they won’t, but the key word is “trust”.
No doubt, Libra’s biggest obstacle to success will be governments around the world, their central banks, and the regulators who want to ensure consumers are protected, and no unfair advantages are given to any entities. It was only a few weeks ago that we saw the SEC move on Kik and their token Kin. Kik promotes the Kin token as a utility, whilst the SEC put forward their interpretation that the Kin token is a security. They believe the Kin token was purchased with a view that investors could hold and make a profit. Unsurprisingly, Kik have come out fighting (they didn’t have much choice though really).
If the value of the Libra coin is to be based on the value of a basket of currencies, bonds and other assets, then its value will not be pegged to any single currency. This makes Libra a new unit of account when adoption and utility reach a critical mass. I really can’t see the Federal Reserve rolling over and allowing a new sovereign currency to suck value away from the dollar – effectively the global reserve currency.
Suddenly, many of the cypherpunks and crypto-anarchists will be rooting for a multi-billion dollar corporate behemoth and its corporate buddies. As the saying goes, “the enemy of my enemy is my friend” – right? It definitely looks that way today.
Libra will have a net positive effect on Bitcoin and the wider Blockchain space, just through the massive PR machine that is Facebook.
Facebook has not snatched at this play. They’ve put smart people on it, taken their time, and really considered how best to execute. Facebook knows how to execute, and they’ve seemingly done it every time (from newsfeed updates to smart acquisitions), and the one thing you know they’ll get right is a smooth user experience that your grandma can use – do not underestimate just how important this is.
Libra can only be a good thing for awareness. With Libra, Joe Public can start learning “what’s this Bitcoin thing is all about?”. Libra will also make corporates start to consider the role of consortia and decentralisation through utilising blockchain, and what issues that may solve for their respective industries.
Ultimately, only time will tell as to how successful Libra coin will be for all parties involved, but right now, I wouldn’t bet against Libra’s success. And I hope that in turn, this will drive greater understanding of Bitcoin, and society’s need for sound money.
Associate Partner Blockchain Rookies
HOW WE BROKE THE NEWS OF FACEBOOK’S LIBRA PROJECT: https://coinrivet.com/breaking-news-facebook-announces-crypto-launch/