On the 18th of June this year Facebook announced the cryptocurrency ‘Libra’. Currently, there are around 1 billion people in this world who do not have a bank account but do have a mobile phone. Libra aims to create a financial infrastructure based on blockchain technology in order to facilitate payments between peers with low transaction fees (M.facebook.com, 2019). However, Facebook will not do this on its own. In this blog post, I will elaborate on what is behind Libra, how it will work and further implications.
Libra is a non-profit entity. It has scheduled the launch for 2020. Currently, it has 28 founding partners, but they hope to reach 100 partners before the launch. Most of them are tech companies, such as eBay, Spotify, and Uber. These Partners will be responsible for running a node in order to secure the network and validate transactions. They will also receive voting power to participate in important decisions about the development of the token and governance (Libra.org, 2019).
Each time someone buys Libra coins the Libra association uses that money to buy stable currencies like the Dollar and securities. This way the value of Libra will not fluctuate a lot. This way people using Libra can easily use and cash out libra for their native currency (TechCrunch, 2019).
People will be able to send Libra through social media like Facebook, Instagram, and WhatsApp to each other. They can also spend it in the Uber app or in other places where they accept Libra. Facebook says it will never connect your payment behavior to your Facebook identity. In that case, they will not be able to know what their users buy (TechCrunch, 2019).
In my opinion, Facebook is clearly showing good intentions. They founded an association with other companies. However, I think the only reason they did it together with others because Facebook understands we do not trust them anymore. I do also agree with several political institutions they undermine the existing financial monetary policies in the world (the Guardian, 2019). Therefore I am really curious about how this unfolds. Please share your opinion on this topic!
Bibliography
Libra.org. (2019). Libra | A New Global Currency. [online] Available at: https://libra.org/en-US/ [Accessed 12 Sep. 2019].
M.facebook.com. (2019). Mark Zuckerberg. [online] Available at: https://m.facebook.com/story.php?story_fbid=10107693323579671&id=4 [Accessed 12 Sep. 2019].
The Guardian. (2019). France to block development of Facebook’s Libra cryptocurrency. [online] Available at: https://www.theguardian.com/technology/2019/sep/12/france-block-development-facebook-libra-cryptocurrency [Accessed 12 Sep. 2019].
TechCrunch. (2019). Facebook announces Libra cryptocurrency: All you need to know – TechCrunch. [online] Available at: https://techcrunch.com/2019/06/18/facebook-libra/ [Accessed 12 Sep. 2019].
Thanks for this insightful post. While I agree that using a unified online currency will make online transactions easier, I strongly doubt whether it will be worth the risk.
The risk that I’m referring to is putting more power into the hands of big tech firms. Since these companies grow stronger the more customers they have, it’s hard to compete with them once they are the biggest in their field. If we look at companies like Facebook and Google it’s hard to think of any notable competitors. So giving them an extra way to exert power, in this case over the financial market, is quite a risk. While it is doubtful that current financial regulators are doing a terrific job, it’s worth asking whether we should hand over the control of monetary policies to private companies who, in theory and proven practice, act to benefit themselves.
Hi Niels,
Thank you for sharing this! I think it is interesting to see that, just like WeChat is doing, Facebook will also start to incorporate financial services in their services. This is a trend among more tech giants, like Alibaba. I believe this trend can indeed have a big impact on the financial markets, and regulators should be aware of these changing environment.
I also find it hard to think that Facebook will not know what their users are buying, but maybe that is some personal mistrust. I can imagine that they can not find out which user bought what, but seeing Facebook’s newupdates lately lets me believe that they will definately make use of the aggregated data. They will probably use this to optimise their advertising with more insights about users. It is indeed interesting what the future will bring!