When Facebook announced its digital currency Libra earlier this year, it received a mixed reaction both from the blockchain space and various regulatory bodies.
The scrutiny that the announcement brought on for Facebook and the wider crypto markets at large has in part led to what can only be described as the near-collapse of the entire Libra project.
This post explores a number of topics that highlight why the Libra project is in trouble. It also looks at the various ways that Facebook might be able to save this project. We’ll cover the following:
- Source of regulatory concern
- Understanding partnership disillusions
- How Facebook can save Libra
- What Libra without Facebook means for the industry
For as long as cryptocurrencies have existed the regulatory question has not always produced clear and simple answers. Even during the ICO boom of 2017, the industry didn’t get intentional regulatory scrutiny until the tail end of the ICO bubble. Undoubtedly, the skepticism from government authorities only increased when Facebook first announced its cryptocurrency project.
In a recent filing made to the U.S. Securities and Exchange Administration (SEC), Facebook suggested the significant pushback Libra has received from governments and regulators in multiple jurisdictions will impact how the product will launch. But what is the source of all this scrutiny?
There have been a variety of reasons suggested for this ranging from the bankers’ concerns, the competition Libra will pose to government-issued fiat and Facebook’s previous track record in management user private data.
Understanding partnership disillusions
When initially announced, Libra boasted a long list of major corporate partners in the payment industry. Earlier in October, however, some of these prominent backers received cautionary letters from U.S. senators indicating members of the Libra Association would be subjected to a high level of scrutiny from regulators not only on Libra related payment activities but on all payment activities.
As a result, some of these backers announced their exit from the project including Visa, eBay, Mastercard, and Stripe. Meanwhile, none of the current Libra backers have yet made any financial commitment to the association. This anticipated level of scrutiny also pushed Facebook to declare that they would have to pull out of the Libra Association if it fails to secure the green light for Libra from U.S. regulators.
Will we see a Libra without Facebook and is this the only way to ensure this solution gets to the market?
Can Facebook save Libra?
Finance is about trust yet Facebook’s biggest challenge is its credibility gap and seemingly the company’s inability to respect privacy rules. Libra was presented to the world as a noble solution to bank the unbanked but the fact that Facebook took the lead role in this initiative represents its biggest challenge.
For years, technology experts have observed Facebook disregard privacy, exploit user data and even fail to manage how this data is used by third parties.
For one of the most distrusted companies in the world, to lead the development of digital currency and a payment solution that could impact the entire global economy resulted in calls for governments to intervene before Libra was brought to market.
It’s not a stretch to presume that Libra will inherit all the problems generated by the social media giant. Nevertheless, Facebook can separate itself from the Libra Association to save this project. But, first and foremost, it needs to understand these key concepts:
1: The nature of financial infrastructure around the world:
There’s still a lot of countries in the world that lack the large-scale and efficient infrastructure that’s necessary for any economy to function competitively.
Around the world, different countries have developed different solutions that are due for updates and improvements. The financial industry is ready for its next evolutionary step. It won’t just be an expansion on current financial infrastructure and services trends. Bitcoin as we’ve come to know it is a leapfrog from other forms of currency which is the cornerstone of the financial revolution.
2. The nature of bitcoin
Bitcoin is peer-to-peer immutable & decentralized cryptocurrency. It has no single point of entity to control it while remaining independent as it has nothing to do with governmental currencies. It also has a deflationary nature due to its supply cap of 21M Bitcoins.
Its a permissionless network that is operated at one’s discretion and for ten years has been maintained by a network of volunteer developers, miners, and independent users. Bitcoin is still the most valuable cryptocurrency to date, continues to function as a currency, a medium of exchange and a store of value.
3. The nature of Libra
Unlike Bitcoin, Libra’s blockchain is permissioned which means that transactions can only be validated by a group of trusted parties. The Libra Association is what drives Libra. Each of the members is required to invest a minimum of $10 million into the project. Besides, the currency is tied to a basket of government-backed currencies and other assets, to avoid the volatile swings often seen in cryptocurrencies like Bitcoin.
While the crypto markets have made room for several private permissioned blockchains to be developed and sold as enterprise solutions, for example, Hyperledger, these blockchain networks are not actively facilitating financial transactions by issuing a currency viable as a medium of exchange. Will Libra offer a contrasting and improved alternative similar permissioned networks? That’s the question.
What Libra without Facebook means for the industry
Libra is a stable coin, backed by a basket of currencies and debt securities. Bitcoin, it’s a potential rival, is a hyper volatile cryptocurrency. Although Libra might come to market with a lot of powerful players behind it to help achieve mass adoption, bitcoin is the most valuable digital currency today.
If and when Libra finally launches in the financial market, it will be under the assumption that the association has passed all regulatory concerns and has received critical government approval. At this point, its operational control can be considered closer to central bank digital currency, or listed security.
If Libra and CBDCs become the norm its safe to assume they could be used as a surveillance tool for governments and corporations. Facebook’s role in the project is yet to be seen. Additionally, the regulatory concessions the company hopes to make will potentially impact the entire blockchain industry.
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