Facebook's New Global Currency Coin: Libra
Facebook has declared its entry into the financial services market space with its new global digital currency initiative. Its new proposed currency, called Libra, will target the 1.7 billion people around the world without a bank account, giving them the ability to make instant and nearly free international money transfers from their mobile phones.
Aimed at transforming the world of financial services, the project’s massive undertaking will be backed by its own assets as well as supported by over two dozen partner companies ranging from huge financial players such as Visa, Mastercard, and Payal to services from Uber, Lyft and Spotify.
While regulators, traditional banks, and even the major tech companies have generally adopted a cautious, observe and note approach to digital currency in general. Facebook has decided to be the first of the tech giants to embrace the emerging market by pursuing alliances with merchants to use Libra as a means of payment with the goal that consumers to see it as a safe store of value.
Facebook’s move is the most significant effort yet to bring blockchain technology, which does not rely on a central authority to issue money, into the mainstream and comes after a decade of wildly popular growth and coupled uncertainty of the cryptocurrency market.
Headed by David Marcus, the former president of PayPal who joined Facebook in 2014 the Libra project has forged partnerships with 28 groups including payments companies, e-commerce groups, and venture capital companies have committed to becoming backers and will integrate the technology into their services. With each founding partner in the Libra Association contributing a minimum of $10m to help kick-start the project, Facebook estimates over 100 partnered groups by the launch of Libra.
HOW IT WILL WORK
To counter the flaws inherent in existing cryptocurrency market, Libra will be backed by a pool of currencies and assets stored around the world. It will not have a fixed exchange rate against traditional currencies such as dollars and euros, preventing it from swinging in value as erratically as traditional cryptocurrencies.
Libra is based on an entirely new blockchain, a heavily modified version of VMWare's HotStuff. It will operate similar to Ethereum in that it's a smart contract platform that also carries a store of value mechanism innately. Its networks capacity will potentially allow for thousands of transactions per second making faster and more robust than most cryptocurrencies but with the tradeoff of being less decentralized as it currently only allows approved partners to run a node, which is a backbone of the network.
If successful, the project could dramatically disrupt a significant slice of the finance industry, removing intermediate parties from payments platforms and stealing business from retail banks and financial technologies companies, specifically those that specialize in sending payments across borders.
With over 85% of the world's transactions being made in cash, the Libra projects hope to plug the world’s payment gap by granting payment access to the developing world. Embracing these idea means retail market penetrations into untouched markets were banking doesn't exist.
Major players such as Apple, Google, Amazon, and Microsoft have not yet signed up and banks have mostly stayed away due to uncertainties about regulation and concerns over logistical issues that could hinder adoption.
It is still unclear whether Libra will clear the steep regulatory hurdles such as reaching approval by the US Securities and Exchange Commission. It also remains to be seen if the project is embraced, or strongly resisted, by the financial services industry. Central banks have already questioned the impact of company-created cryptocurrencies on financial stability.