Every now and then, Facebook, the tech giant, comes out with new and advanced features. However, their foray into the cryptocurrency market with the newly announced Libra coin is something not many expected from Facebook.
The huge announcement from Facebook founder Mark Zuckerberg drew mixed reactions from the masses as well as lawmakers.
The New Entrant In The Cryptocurrency Market- Facebook’s Libra
The Libra cryptocurrency is slated to be publicly launched in the first half of 2020.
But why does Facebook needs to have a cryptocurrency in the first place is the question that’s bothering many?
To clear the doubt, Libra isn’t actually Facebook’s cryptocurrency, but a project of the Libra Association, an organization co-founded by Facebook. The main aim of the organization is to collaborate and work with regulators to ensure that everything runs smoothly. It will essentially serve as a monetary authority for the cryptocurrency.
Among the companies who contributed a minimum of $10 million (£8 million) to be a founding member of the Libra Association includes PayPal, Spotify, eBay, Uber, and Lyft, along with various renowned financial and venture capital firms such as Thrive Capital, Andreessen Horowitz, Visa, and Mastercard.
If you have been wondering what Libra is all about, here’s everything you need to know about Facebook’s new global cryptocurrency.
What Is Libra Coin And How Exactly Will It Work?
Libra is a type of digital currency that is designed to run on the Libra blockchain. Designed by Facebook, Libra is nothing but a network of nodes or computer servers.
Blockchain technology was essentially devised for cryptocurrency investments. It was created so digital information can be fairly distributed without being copied in any form.
It functions as an extensive digital ledger/spreadsheet of all the cryptocurrency transactions taking place during such digital investments. All this data is stored within blocks created at regular short intervals. And since each block is linked to the existing chain, it is termed as blockchain.
The purpose of Libra is to empower people by giving them an alternative investment platform and allow them to easily and safely carry out financial transactions online. In fact, as per Facebooks’ claims, Libra wants to reach 1.7 billion people around the world who don’t have access to a bank account.
Depending on the popularity of Libra coins, the supply will either grow or shrink, which means that if there is more demand the association will buy more underlying assets and manage the supply by creating additional Libra. On the other hand, if investors want to cash in on their Libra coins, the association will accordingly pay them and destroy the equivalent amount of Libra.
Also mentioned in the big announcement was that Calibra, a new Facebook-owned subsidiary will release a wallet for Libra coins and ultimately other banking and finance products. This move can potentially add another feather to Facebook’s cap of being a financial services giant in addition to already being a social and advertising one.
How Will This Work?
There are huge technical aspects behind the working of the Libra blockchain. The main question that consumers and regulators are mulling over is whether or not they should trust their money and financial data with a company known for severe privacy concerns.
To address this, Facebook has clarified the complex yet transparent (to an extent!) model behind the working of Libra.
- The tokens or Libra coins will be transferable at extremely low (or no cost at all) between Instagram, WhatsApp, Messenger, and other Facebook-owned apps and services
- The Libra Association will ensure they keep the price stable and prevent volatility using an asset pool (deposit/ governments securities) tied to multiple currencies including the dollar, euro, pound, yen, and Swiss franc
- To ensure privacy, Facebook’s social data and Libra’s financial data will be kept completely separate. In fact, consumers don’t need a Facebook or WhatsApp account to use either Libra or sign up for Calibra. Additionally, Facebook won’t be able to take the data from investors’ transaction history and use it for advertising or selling products.
- All the Libra users will be thoroughly vetted for anti-fraud protection when setting up their account
- There will be no personal data/information associated with Libra and each and every transaction will be encrypted.
Is Libra Different From Other Cryptocurrencies Like Bitcoin Then?
Yes, Libra is different.
Although Facebook’s Libra is essentially designed on blockchain technology, it’s quite different from other cryptocurrencies in the way it works.
The fundamental difference between the two is that while a public blockchain (such as bitcoin) must be open, neutral, and censorship-resistant, the Libra coin isn’t a fully independent currency. Libra is likely to work as a quasi-bank such as PayPal.
What makes Facebook’s Libra a closed and non-neutral cryptocurrency is the fact that it is managed by a fixed group of members and is backed by real assets which could be bank deposits and other government securities from reputed central banks.
Also, unlike cryptocurrencies such as bitcoin and Ethereum- which aren’t backed by any asset and are prone to speculation- Libra, because of being backed by a plethora of assets, will anchor its value.
How And Where Can You Use Libra?
Once the Libra coin is launched, you can download Calibra ( the digital wallet by Facebook) and it will allow you to send the coin to anyone having a smart device. The same will be available in WhatsApp, Messenger, and as a standalone app as well.
Will Facebook make money from Libra and how?
As per Facebook, the Libra coin will be sustained through a small charge per transaction on the blockchain. These charges will then be transferred to the respective vendors who can either relay the cost to end-users or absorb it themselves.
The Future Of Libra
Libra is an attempt by Facebook to reinvent money and the way people use it. The feasibility (and success!) of the initiative is yet to be seen, but Libra is definitely the most ambitious foray into cryptocurrencies by any company since bitcoin.
Quoting Facebook’s David Marcus, Vice President of Messaging Products at Facebook
Libra is about giving billions of people more freedom with money and righting the many wrongs of the present system
Whether it’s true or not, only time will tell, but this recent development in the cryptocurrency segment is well worth our attention and by extension our time.
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