While the United States has not made cryptocurrency a legal tender yet and is still not certain on the treatment or regulations, yet another cryptocurrency is getting launched right under their noses. Libra is the new buzz in the fintech market after bitcoins went mainstream. The corporate giant Facebook’s initiative in collaboration with 27 other corporate giant has published a white paper which has left open discussions all around.
David Marcus, who had joined Facebook 5 (five) years ago, has helped Facebook develop Libra. Libra is a cryptocurrency which is built on the already existing technology of bitcoins called blockchain. While there are currently 27 corporates on board with Facebook to launch the currency, Facebook is aiming to get this number upto 100. The 27 companies includes companies like Uber, Paypal, Visa, Mastercard, Vodafone etc.
The incentive of Facebook in developing libra is not clear as it will get the same vote as other corporations involved. It must be noted that Facebook may have 100 partners collaborating but the code for Libra will still be developed by Facebook. The grievance redressal mechanism has not yet disclosed to be in place. In such a situation, is a user expected to approach the Facebook customer care?
Facebook has developed a wallet for libra which is called Calibra. While this will not be the only wallet that may be available to the users, it is likely to be convenient for transacting in Facebook marketplace, i.e. Instagram, Whatsapp, Messenger etc. The idea is to make the transactions as easy as sending a Facebook message.
Libra, like bitcoins allows the users to pseudonymously spend. However, the concept of libra is different from that of bitcoins. Following are the major differences:Sr noBasisLibraBitcoins1.NodesNodes are private who give consensus to validate a transaction.Nodes are public.2.Personal DataThe data may be provided to the government on request.The pseudonymous data is already available publicly.3.Reserves and volatilityThe currency value will be reserved and therefore the spread with the fiat currency will be low.The value is completely based on demand and supply. Bitcoins are not reserved anywhere to control the volatility.4.OwnershipOwned by the giant corporatesCompletely decentralised and run by its users.
While the whole concept of bitcoins was to eliminate trust in a third party, Libra involves trusting the central banks and the large corporate houses since Libra is going to be pegged to the stable currencies of the world.
Facebook is in talks with the governments to regulate Libra. However, it is not being perceived well considering the recent Cambridge Analytica Data Scandal where the data of more than 50 million users was leaked for the purpose of political campaign. A currency has value based on the trust that people have on it. People are not keen on trusting Facebook at least now. Libra could have been revolutionary if probably Facebook was not involved. Further, in the absence of laws regulating it worldwide, users are more likely to not get involved.
Libra is also being marketed by Facebook for the countries like Argentina, Zimbabwe, Indonesia or even South Africa which has revealed that they should “print more money and give it to the poor” failing to understand the concept of hyper-inflation. Since Libra will be pegged to the stable currencies of the world, it will help if and when the value of money reduces to less than the worth of paper and ink in these countries. Libra is likely to have largest impact in these countries.
Facebook has announced that it will not launch Libra in countries where either cryptocurrencies are banned or Facebook is banned from operating in. In such a case, Libra may never be launched in India considering the hostile stance of the country toward the cryptocurrencies. Reserve Bank of India had, via a notification on April 6, 2018 banned the banks from provided services to the cryptocurrency organisations. While this notification is under scrutiny by the Supreme Court, the government is now working on a Banning of cryptocurrency and Regulation of Official Digital Currency Bill 2019 which even puts a ban on the users on holding the currency. The offence is non bailable and punishment would be 10 years imprisonment, if this bill becomes a law.
Further, not launching Libra or Calibra in India will be a huge market loss for Facebook as India is the biggest market of Facebook marketplaces. Facebook will also not be able to launch its project in China which has shown extreme dislike for cryptocurrencies.
It will be interesting to see the launch of Libra in various countries where the governments have announced their plan of launching their own version of cryptocurrency.
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