Libra is Facebook’s new cryptocurrency, and according to the Libra Foundation, their mission is to enable a global currency and financial infrastructure that empowers millions of people and promote financial inclusion. Great!
Remember the Winklevoss twins? The guys from whom Mark Zuckerberg ripped the Facebook idea. Well, they are running a cryptocurrency exchange with their own, guess what, a cryptocurrency called the Gemini Dollar. Mark is once again crushing the ideas of these handsome men.
Apart from this funny anecdote, this is precisely the kind of innovation we need! So far, we haven’t had any disruptive innovations in money and payment systems since the credit cards came along in 1950. With cryptocurrencies such as Bitcoin, Libra, and many others, it creates competition and puts pressure on central banks to not devalue their national currency and banks to keep up with the pace of innovation. Although this came as a shock form some, most nations, companies, and users saw the announcement already coming back in 2018 when Facebook decided to ban all cryptocurrency advertisements on their social media platform — in fact, smoothing the runway for the big launch of their own virtual cryptocurrency.
Meet the new boss, same as the old boss
Although we think Libra is owned by Facebook, it’s, in fact, an independent foundation based in Geneva. Their goal is to be operational in 2020 with a consortium of minimum 100 publicly identifiable members. Each of these companies will have no more than 1% control over the decisions so no single company could call the shots. The entrance fee to join this consortium of members will be $10 million, which will give them the right to vote and interests on the Libra reserve. So far they have managed to find 27 partners including Visa, Mastercard, eBay, Coinbase, Spotify, etc.
While they promote this as a new innovative technology, it’s based on an old idea we’ve already used in the past, basket currencies. One of the significant problems with cryptocurrencies is their volatility. Libra will solve this by pegging one Libra to a basket of different fiat currencies such as the US Dollar, Euro, British Sterling Pound, etc. In that sense would the Libra have its own exchange rate. When users deposit money to buy Libra, Libra coins will be created. Once users decide to sell their Libra coins and withdrawal their money. Those Libra coins will be burned. So far, they haven’t given us any insights on the exact distribution of these fiat currencies. Basket currencies already exist since the eighties when Europe created the ECU, the forerunner of the Single European currency, and the SDR which served as a unit of account for the IMF (International Monetary Fund).
While the idea of a cryptocurrency sounds new since the inception of Bitcoin in 2009. It’s all about the definition we give it. And right now, there isn’t one that describes the exact aspects of a cryptocurrency. I believe it’s fair enough to say that the Libra uses cryptocurrency technology, in the same way, you could argue that the US Dollars on your bank account is a cryptocurrency. Yes, it uses a currency and cryptography.
So what’s the difference with Bitcoin? Well, Bitcoin gave us the notion of removing the middleman and enabling an open, peer-2-peer, censorship-resistant, and neutral network. In other words, no single identity or authority could enforce rules without having a global consensus across all stakeholders. That’s the only reason while Bitcoin still stands, isn’t shut down and can maintain its fixed monetary supply of 21 million. With Libra, this is somewhat different.
The remittances market, e-commerce platforms, freelancers, and many other individuals who do international trade will welcome this technology with open arms. It will boost their profit margins as it will be more convenient, cheaper, and faster to use than traditional payment rails. International frictionless payments are what we need in the 21st century. The neat thing about Libra is that it changes the conversation about money. Before Libra, the main question was, “do you have cryptocurrencies?”. While now the question switched to, “what kind of cryptocurrencies do you have?”. It will bring the idea of cryptocurrencies to a much larger audience and questing the role of banks and governments.
Libra will primarily market their new currency in the developing countries who need this technology the most. Instead of being restricted to trading to the local community, people in developing countries can now offer their products on a global scale. On estimate, 2,2 billion people are still excluded from financial services we enjoy in the west. Imagine the entrepreneurs and potential new business this technology will empower. Instead of relying on high fees from remittance services such as Money Gram and Western Union, they will now send and receive money with a simple slide on the screen.
Those remittance services won’t be the only market which will face huge competition. Central banks should be nervous as well, especially those in developing countries. If Libra plays it well, this new currency will probably maintain its value better than those national currencies. Before the digital age, people had a hard time switching from one currency to another as it often involves banks, physical cash, and could involve risks as some foreign currencies are banned. With Libra, this is going to change as the barrier for moving currencies will be lowered. While countries such as Venezuela, Argentina, and Turkey are inflating its currently, those citizens will now have the easy option to opt-out instead of experiencing a decline of their savings. This, of course, removes power from those governments and it’s only the question if they will allow it. When people stop using their national currency, there’s no liquidity, no believe, and the currency gets into an inflationary spiral where purchasing power drops.
To stable or not to stable?
Libra is still a fiat currency, controlled by a group of participants who share the same profit-oriented mindset. The Libra won’t be a scarce asset and will just as other fiat currencies devalue over time. It will be the responsibility of those in the consortium and Libra foundation to keep their purchasing power in balance over time. Their role is to trade different currencies and assets back and forth in order to maintain the value of Libra against the promise they made against their users.
When the next financial crisis hits, Libra will be right in the middle of that financial storm. It will be very interesting to see how they will manage their assets to hedge themselves out of this crisis. Bitcoin, on the other hand, is an asset on its own with a fixed supply. In other words, when people are looking for scare assets in uncertain times, Bitcoin could be one of the possible alternatives next to Gold, Silver, etc.
The age of privacy is over …
This is Facebook, and if you think your data will be private, it won’t. That’s their business model. Remember what he thinks about his users who handed over their data? Right, dumb fucks!
In my opinion, it’s impossible for them to perform such as bolt move without talking to regulators. Maybe regulators saw the next wave of cryptocurrencies already coming and had to make a choice which one it should be? As Bitcoin can’t be controlled, Libra was probably the best option on the table.
With money, it will allow Facebook to assemble even more data. They will not “only” know about which whom you communicate, but also with whom you are doing business. And this escalates into dangerous situations where you can get easily trapped in criminal webs where even your gardener could be a potential terrorist as he buys fertilizers and diesel for his machines. Will you be “de-platformed”? Not only shutting down your digital identity but also losing access to your wealth?
And yes, we all believe that terrorist, drug dealers, and other criminal activities shouldn’t happen on these platforms. But do we really want a mass surveillance system that supervises every transaction you engage in? What will happen with this data en what kind of power do we give them in the future? And yes the government wants a piece of the pie.
Here’s the catch. The IRS, the body that is responsible for the collection of taxes and enforcement of tax laws, will have to classify it. If Libra is considered a cryptocurrency, which it does seem to be one, it will be classed as a commodity like Gold and Silver. Now, remember that Libra positions itself as a stable currency? Because it’s pegged to other currencies as well, it doesn’t mean the volatility will be zero against the US Dollar. And if the value of the Libra will go up relative to the US Dollar, you as a taxpayer will have an obligation to declare these profits. This will be an administrative nightmare. To make it more convenient and as the state will require from an investment brokerage like Facebook, they should probably file these income tax documents in your name. See where this is going?
My top 3 bold predictions about Libra
Let’s make a bold move and come up with three predictions where this will lead us. These are already my top three predictions:
At some point, the Libra reserves will be fully backed by Bitcoin. As other assets will devalue in purchasing power, the only asset that can retain its value will be Bitcoin.
Libra will have some many breaches, back doors, and bugs, it won’t even launch in 2020 or will be soon after ceased. As more people are educated about the possibilities of cryptocurrencies, Bitcoin will receive an enormous boost in terms of technology, adoption, and price.
We will see other major companies come up with their own cryptocurrency. From Disneybucks to StarBucks. The last one would, in fact, make sense as in term of geographical reach, Starbucks has the most branches compared to any other brand. It already uses a payment app, and we all trust Starbucks instead of ZuckBucks.
Let me know through Twitter or email what your top 3 predictions are.
The truth is that Bitcoin isn’t ready for the world, and the world isn’t ready for Bitcoin (yet). That’s why we need these valuable detours to educate people about why these technologies exist. Libra and other projects will definitely accelerate the pace of innovation and adoption. I like to quote Andreas Antonopoulos, who once said that we are in the intranet period before the internet emerged.