Will Libra Overhaul Bitcoin

Bitcoin has a 10 year start but Facebook promises mass adoption. We are about to witness a clash between digital assets and digital currencies leading to a “join or die” version of digital transformation. Can stable coins dominate the token economy?

Facebook stunned the world when it announced the launch of its own crypto currency, Libra. Expected to be used for global payments, according to its whitepaper released in June this year, Libra’s mission is to “enable a simple global currency and financial infrastructure that empowers billions of people”.

With perfectly fine online payment services available such as Apple Pay, Square, WePay and many more, why does the world need “Libra”? We will find out very soon that this initiative is game changing for many reasons.

Research estimates that around 2Bn people do not have a bank account despite the surge in financial inclusion. Yet, of the unbanked adult population, two thirds have a mobile phone. In a bid to tap this unbanked population, Facebook intends to leverage on its 2.4Bn strong user base distributed across a suit of social platforms, including Messenger, Whatsapp, and Instagram to encourage large scale adoption of a new currency pushing it to mainstream acceptance. By comparison, “only” 2.5 million people own Bitcoin.

Even though Blockchain is hyped as a technology that will revolutionize the finance sector, high volatility and a lack of mass adoption exhibited by crypto currencies have resulted in widespread skepticism. The low transaction speeds and lack of standardization have also threatened to further restrict growth.

How is it different from the leader Bitcoin and many other traditional blockchain currencies?

Libra has some very unique components that makes it stand out from the pack. For instance, it is built on a secure, scalable, and reliable blockchain. It is also a stablecoin which is backed by a reserve of assets such as bank deposits and government securities and most importantly it is governed by the independent Libra Association.

Let’s understand why Facebook chose a stablecoin structure and how it works. A sound currency should fulfill the following three roles, a medium of exchange, unit of account & a store of value. However, while crypto currencies do a great job as a medium of exchange, they fail miserably as a unit of account and store of value. If you own something that is extremely volatile, will you trust it as a store of value? Most likely the answer is No and for good reason!

From a basic blockchain perspective, Bitcoin is completely decentralized with a vast number of nodes operating across the world. It’s also permission less meaning that anyone with the hardware and technical knowledge can start mining. The core issue with this from a payments perspective is that it takes a considerable time to validate transactions.

Libra on the other hand does more or less the opposite: It’s based on a relatively centralized blockchain governed by the Libra Association to keep transactions fast and scalable.

Libra payments will be peer-to-peer. This means that neither a banking account nor credit card will be required. This makes the digital coin ideal not just for those seeking to bypass banks and avoid high transfer fees, but also for millions of people around the world who don’t have access to traditional banks or financial services.

Crypto currencies have had a greater adoption rate in economies with troubled currencies and this is yet another option that can favor Libra advocates.

While the project looks promising it has its fair share of challenges. The burning question must be asked. How comfortable will the financial system and governments be in passing regulation enabling and accepting the Libra project?

We also cannot disregard the harmful potential that Libra may have as a vehicle for money laundering, a threat to global financial stability and the myriad instances of data privacy abuse. This may have far reaching consequences especially for us consumers and perhaps even strip nations of the control of their economies by privatizing the money supply.

Overall, Libra probably has the best shot at success when compared across all the tokens on the market to bring the greater part of the world onto a financial system that can help eliminate poverty and give people alternatives to the broken fiat currencies they are forced to use today.

Libra is expected to launch in the latter half on 2020. If successful, Libra would have disrupted the existing power structures that control the world’s financial system, however the solution must not transfer this newly acquired power from government to corporations but rather transfer the power directly to the people. We can only hope for global adoption that is fair and equitable, one that does not herald modern technological colonialism.

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Taamara de Silva

Taamara de Silva

A banker, fund manager and investment specialist with a commitment to contribute to the community by inspiring ideas that are pragmatic and call for action..