A Careful Look into Facebook’s ‘Promising’ Libra Cryptocurrency

Facebook, is set to launch its own cryptocurrency, LIBRA, in the first half of 2020. Probably not the most surprising news, but the news both had its share of negative and positive reviews by the populace.

Facebook’s LIBRA cryptocurrency, represented by 3 wavy lines (~~~), aims at making transfer of money as easy as sending a “good morning” text to a loved yet to wake up in another country. Facebook declares “moving money globally. Should be as easy and cost-effective as -and even more safe and secure – sending text message or sharing a photo”.

While this idea seems genuine and brilliant, people fear that this new ‘coin’ will “almost exactly replicate all the problems generated by the company’s social network”.

Looking at the way LIBRA works and its differences compared to other cryptocurrencies such as ‘Bitcoin‘ justify this fear.

How Libra Works

Facebook is creating ‘CALIBRA’, a subsidiary of LIBRA, which is supposed to handle all LIBRA’s transactions. People will obtain LIBRA by exchanging it for their National currencies, this money will be handled by ‘Calibra’, which will in turn transfer the money to the LIBRA reserve – LIBRA’S reserve will refer to several accounts held by financial custodians around the globe. The money in the reserve will then be used to buy other Currency or low-risk government bonds. People that possess LIBRA meanwhile can transfer their coin almost at no cost to others, but gift or pay for services just in the same way information is shared over the internet. LIBRA can, however, be exchanged for national currency if need be with the money coming out of the reserve.

While Facebook’s LIBRA is portrayed as a cryptocurrency since it makes use of the same technology (an open-source Blockchain in this case called LIBRA Blockchain, having its proof-of-stake protocol), It is however quite different from Bitcoin. Bitcoin doesn’t have a reserve. To exchange Bitcoin for money, you need to find a willing buyer and this amount for Bitcoins volatility.

If people decide that Bitcoin is worthless, then no one buys Bitcoin. If people decide that LIBRA is worthless, they can always trade it for cash from the reserve.

Facebook knows that a fully decentralized LIBRA will not profit them, and also that a ‘Centralized Facebook Currency’ cannot be trusted, so it seized the situation of things and claimed LIBRA is both decentralized and Centralized.

LIBRA is somewhat decentralized since it’s based on Blockchain technology, this allows for security and transparency. It is centralized since it has a governing body, the LIBRA association. This LIBRA association stands to prevent oligarchy rule over Libra like the one seen in present-day Bitcoin technology.

Why Facebook’s Libra Might not be so Liberating

Facebook might not be the most trusted company in the world, and that alone is even besides the point. Facebook has broken promises in the past and since the LIBRA association is after all controlled by profit companies, there’s no telling the association won’t buy risky assets and higher risk government bonds for profit.

Facebook’s white paper promises that the Libra Reserve will not exercise monetary policy: “Since Libra will be global, the association decided not to develop its monetary policy but to inherit the policies of the central banks represented in the basket.” But promising not to have and develop its own monetary policy today doesn’t prevent the Association from deciding to develop its own monetary policy in the future. It’s clear enough that Facebook knows that Libra will have the capacity to conduct monetary policy; otherwise, there would be no reason to promise that it won’t.

But how the Libra Association will be employed its power is anyone’s guess. The white paper is full of happy talk and promises but short on details.

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