With the rapid pace at which the field of cryptocurrencies is developing and the ever-growing public interest in the topic, it was just a matter of time before Facebook launched its own cryptocurrency. In association with Uber, MasterCard, Visa and others, Facebook joined the club with Libra, their new cryptocurrency.
Libra aims to empower billions of people worldwide with its simplicity and financial infrastructure. The announcement of such design sparked fears that Libra might be yet another threat to traditional banks, just like other cryptocurrencies.
Before we cover the skeptical response to this news, let’s start with the basics. By introducing you to everything you need to know about Facebook’s Libra, you’ll be informationally equipped and able to confidently, but cautiously, use it once it arrives.
What Is Libra?
Facebook’s Libra is a new digital currency that will be launched in 2020.
The predicted success of Libra stems from the support it has from the Libra Association. This organization is made up of large international corporations such as Uber, Facebook and Vodafone, and has the goal of making cryptocurrency accessible for everyone. No traditional banks are included in the association, but Visa and MasterCard are involved, along with Coinbase and PayPal.
Where Does the Name Come From?
The name Libra has different origins, depending on who you ask.
One version of it is derived from the Roman unit of weight, the Libra.
Originally, the £ symbol comes from the letter L in “Libra,” but in a more ornate form. The abbreviation for pounds, lb, is also derived from Libra.
Another version of the name’s origin comes from the controversial relationship between Mark Zuckerberg and entrepreneurs Tyler and Cameron Winklevoss, who are twin brothers. If you’re familiar with the history of Facebook, then you likely know that Zuckerberg was accused of stealing the initial idea for the social media platform from the Winklevoss twins. The brothers already have their own cryptocurrency exchange named Gemini.
These two names, Libra and Gemini, have roots in astrology, which can be used to explain this theory about the reason Facebook’s cryptocurrency will be called Libra.
According to the hypothesis, Zuckerberg’s decision to name the cryptocurrency “Libra” has its roots in his desire to be а worthy opponent of the twin brothers. Both Gemini and Libra are air signs but Gemini is considered darker than Libra. Gemini is also a mutable sign, which contributes to its instability. Contrarily, Libra is a cardinal sign and is considered much more stable than Gemini. While Gemini is associated with two-faced behavior and tries to play both sides, Libra sees both sides and seeks to balance them.
While this theory may be skirting the edge of a conspiracy theory, it may provide context as to why Zuckerberg would prefer the name Libra for the cryptocurrency.
How Does Libra Work?
As a cryptocurrency, Libra will allow users to buy things online or send money to other users with small or no fees. The Libra coins will be available for purchasing and cashing out pseudonymously through Facebook’s own Calibra wallet or other third-party wallets.
The Calibra wallet will be incorporated into Messenger and WhatsApp, as well as its own mobile application. According to the whitepaper that was released regarding the details of Libra, the public launch of both the cryptocurrency and the Calibra wallet are planned for the first half of 2020.
What’s the Difference Between Libra and Other Cryptocurrencies?
Even though they fall under the same category, there’s a significant difference between Libra and other major cryptocurrencies.
By nature, cryptocurrencies like Bitcoin and Ethereum are equitable due to the omission of authority verifying the transactions. Therefore, any party can potentially do the verification process.
By proving the users have done the work, a Bitcoin transaction is authorized. This system, also known as “proof of work” (PoW) is the major difference between Bitcoin (and other similar cryptocurrencies) and Facebook’s Libra.
Contrary to Bitcoin, Libra will be based on the opposite consensus system known as “proof of stake” (PoS). The implementation of this system means that a particular group of individuals that have an ownership or a stake in the cryptocurrency will authorize Libra transactions. Such a difference makes both kinds of digital currencies entirely different from one another.
PoW vs. PoS is a highly debated topic because each of these methods is largely advantageous and disadvantageous at the same time.
Who’s in Charge of Libra?
When it comes to the governance of Libra, it’s important to note that Facebook will not have complete control over the cryptocurrency. Instead, just like the other founding members of the Libra Association, Facebook will get just one vote in Libra’s governance.
Although this may sound like Facebook’s role in the creation of Libra is somewhat insignificant, this simply is not the case.
Facebook initiated the creation of the cryptocurrency and is therefore responsible for its existence. However, the company was aware many people worldwide would not trust them if they retained sole control over the digital currency. Facebook recruited the founding members of the Libra Association to mitigate these concerns.
In order to join and become a validator, each of the founding members made an investment of $10 million. This is how the associates “paid” for their vote and entitlement to a share of the dividends.
Nearly a month ago, Facebook revealed its cryptocurrency partners and their respective industries. The list includes:
Social Media: Facebook (Calibra)
In addition to paying their share, the interested companies are obligated to fulfill several predetermined conditions to become a member of the Libra Association. Every company that aims to join must have enterprise-grade security, a full-time site reliability engineer, a half rack of server space and a minimum of 100 Mbps of dedicated connection to the internet. Businesses also must have hit $500 million in customer balances or a minimum of $2 billion thresholds in market value, be included among the top 100 industry leaders and/or reach 20 million people annually.
Before the official launch of Libra, the team at Facebook has stated that they hope there will be 100 founding members. Companies, including direct competitors like Twitter and Google, who meet the requirements are encouraged to fill out an application. The Libra Association will have the responsibility of recruiting additional founding members.
How Can People Get Libra?
So far, none of the founding members of the Libra Association, including Facebook, have disclosed the details about how the digital currency will be acquired. However, some solid signals point to a hybrid approach possibly taking place.
As noted above, traditional payment firms such as MasterCard and Visa are present on the list of associates. Considering this, the majority of experts suspect that people will be able to get Libra by buying the cryptocurrency just as they would buy anything else online.
In order to not speculate, we’ll be waiting for official reports regarding this issue to provide you with accurate information.
How Can People Use Libra?
When Libra is launched, users will have the opportunity to download Calibra, Facebook’s wallet, which will allow them to send coins to any person who has a smartphone. It will exist as a standalone app, as well as a feature built in to both WhatsApp and Facebook Messenger.
Right now it’s unclear in which countries the cryptocurrency will be launched, but Facebook emphasized that “almost anybody” who has a smartphone, wherever in the world, will be capable of downloading the application.
What Can Be Bought with Libra?
Apart from Libra transactions that users will be able to conduct on the app itself, Facebook plans to expand the use of Libra to a different vendor for daily transactions.
Even though the founding members of the Libra Association have not commented regarding the usage of Libra, the fact that Lyft and Uber are early investors in the project suggests there is a possibility that Libra users will be able to pay for ride-hailing services with the coin.
Why Are Financial Organizations Worried?
Generally, cryptocurrencies negatively affect tax systems and governments due to their minimal transaction costs. Although such a feature is perfect for everyday users, it’s harmful to traditional banks and other financial organizations.
Libra is an open-source cryptocurrency. What this means is that the source code of the currency will be available for people to see, use and customize, while the members of the association have the authority to oversee the cryptocurrency.
In this sense, Libra could potentially become a mechanism for successfully evading banking fees and government taxes. This situation concerns every regulatory body since Libra is likely to shift away from conventional regulatory bodies to a new global monetary system supervised by joint entities such as Uber and Facebook.
Are There Any Risks?
The short answer would be yes, as there are always a number of risks related to cryptocurrencies.
In the case of Libra, the biggest and most important concern is privacy. Due to the digital currency’s connection to Facebook and the usage of its large database, Libra transactions may be able to be linked to specific individuals. Unlike Bitcoin, which allows for completely anonymous transactions, this could be a huge issue for Libra.
On top of that, IT systems have never been more vulnerable to cybersecurity breaches as they are today, which only contributes to the risk level. The software that Libra will use is no different from any other IT system, and this characteristic makes it equally susceptible to cyberattacks.
As a result of such security breaches, not only can the users be personally identified but they can also lose their digital coins forever. Even though these risks are something every user of cryptocurrencies faces, regardless of whether they realize it or not, it’s still worth mentioning.
It’s crucial to take this information with a grain of salt. Since Libra is still not launched, regardless of how promising it may sound, the association behind it has yet to be proven. Not only will the Libra Association have to validate the convenience of their digital currency, but they’ll also have to ensure the safety of the financial transactions they’ve pledged. With the launch expected in the first half of next year, only time will reveal if the support and adoption of Libra will become widespread.