The idea of a cashless society operating under a decentralized system is a natural byproduct of the Great Recession.
The sentiment is strong in the United States where the global financial crisis started, as triggered by the crash of its real estate market.
Major American bankers played a significant role in the economic disaster.
Although the country does not lead the world in the adoption of key financial technology services, including payments, financial planning, lending, and insurance, its citizens’ distrust of banks remains high.
According to Fortunly, the level of confidence that Americans have in the traditional banking system was only 27 percent in 2016, which was far from the 41 percent recorded a decade prior.
In 2009, bitcoin, the first cryptocurrency, was introduced to the world. It symbolizes the zeitgeist of the era following the financial crisis.
What is fascinating about this novel digital currency is its blockchain technology.
It is a publicly distributed ledger where every transaction is linked through cryptography, making it immutable, transparent, and decentralized.
Eventually, bitcoin’s popularity exploded, and it has inspired the discovery of countless cryptocurrencies since it was conceived.
While it became a subject of speculation, which backfired big time last year, what it represents did not vanish like the fragile film of its own bubble.
In hopes of disrupting the broken banking system through mass adoption of cryptocurrency, Facebook plans to launch its own digital currency called, Libra coin.
This move is at least the social network’s fourth attempt at social payment. Will it stick this time?
Libra coin announcement unsurprisingly gained massive attention – but for the wrong reasons.
Despite its captivating name, Facebook Libra coin is something of a misnomer upon closer inspection.
1. Facebook Libra coin could be fiat money masquerading as cryptocurrency
Facebook Libra coin is not pure crypto. Rather, it is a fiat-collateralized stable coin.
Its market value is pegged to a basket of fiat currencies for its simplicity, price stability, and security, three vital ingredients for universal acceptance.
Although Facebook Libra coin is not going to replace fiat money by design, its stable coin-hood is not what makes it controversial. It is raising eyebrows because of its administrative body: the Libra Association.
Yes, Facebook Libra coin is advertised like a typical blockchain, and yet it is not decentralized. No other party could run its nodes except the Libra Association itself.
In essence, the crypto defeats the purpose of the blockchain technology, on which cryptocurrencies are generally built.
Right off the bat, trust (or lack thereof) is going to be an issue.
While the not-for-profit, membership organization promises to make its network permissionless within five years after the service’s launch next year.
Its very existence has cast doubt on Libra’s integrity quickly after its white paper was released.
2. Facebook Libra Coin could be self-serving
The majority of the so-called founding members of the Libra Association are tech giants (such as Visa, PayPal, Coinbase, and Uber), telecommunications behemoths (like Vodafone), and venture capitalists (such as Breakthrough Initiatives and Andreessen Horowitz).
Four organizations in the club are either nonprofits or educational institutions. They act as counterbalances, but their number pales in comparison to that of their corporate counterparts.
The organization has to buy and store enough fiat currencies and securities to justify the value of Libra.
It also needs to authorize and work with select financial institutions to facilitate the conversion of its digital money into other currencies on demand.
The difference between the Libra Association and central banks is that the former is not expected to place huge importance on sound monetary policies.
To be fair, a blockchain project of this magnitude justifies this kind of elite collaboration.
If Facebook Libra coin manages to weather regulatory storms across the world, it (with its backers) could do more than just put a dent in the ubiquity of all known payment tools.
As a platform, Facebook, although it does not directly control Libra, is the perfect brand to effect universal cryptocurrency adoption for seamless and instant mobile remittance – without necessarily bringing fiat money to the brink of irrelevance.
Nevertheless, the high number of for-profit backers behind this not-for-profit organization begs the question of whether promoting financial inclusion is actually first on its agenda.
Rocket Lawyer founder and CEO Charley Moore speculate that Libra’s primary role might be to monetize all of Facebook’s platforms.
The organization may be not-for-profit, but its stakeholders are still private companies with individual business goals.
It does not work for any government, and its only objective is to improve the Libra ecosystem, probably even to the detriment of certain fiat currencies.
3. Facebook Libra Coin could accelerate global de-dollarization
Facebook Libra coin could reduce the role of the US dollar.
The association could decide to stop pegging the value of its crypto to the greenback and favor other popular currencies.
Furthermore, the Libra Association’s headquarters are in Geneva, Switzerland, a strategic location where several internationally renowned governing bodies are located.
Perhaps Mark Zuckerberg envisions the Libra blockchain to be the ultimate alternative to the SWIFT system and a viable excuse to circumvent the US dollar in global commerce.
No wonder Facebook immediately found itself in hot water after announcing its Libra initiative.
The biggest worry attached to the blockchain project is actually data privacy.
This apprehension is not unfounded since the social network is notorious for failing to protect the sensitive information of its users.
Other than the issue of cybersecurity, though, the potential to be treated as a sovereign currency is another serious concern associated with Libra.
Nations with extremely volatile currencies, like Venezuela, may adopt the new crypto early and heavily, which may cause an undesirable butterfly effect in the financial world.
Also, regulators do not like the prospect that Facebook Libra Coin could easily be used in a host of crimes, including tax evasion and money laundering.
The Libra Association is already bracing for intense regulatory scrutiny in Western countries.
If the organization is able to survive it all, Facebook Libra coin could become the crypto equivalent of the greenback.
With the collective clout of Facebook and its partners, it would not be crazy to imagine this digital currency becoming more popular than cash itself in the future.
Facebook Libra Coin: The bottom line
Libra is full of both potential and uncertainty at this point.
The backlash against Facebook’s centralized blockchain project might even render it dead on arrival.
Actually, some of its backers are reportedly trying to distance themselves to keep their core businesses away from the unwanted spotlight.
The Libra Association definitely has a solid plan to ease to qualms the world has about using its digital currency.
Let us tune in to its regulatory battles, for the results could change money as we know it forever.
Andriana Moskovska is proud to call herself SmallBizGenius’s community manager. Her mission is simple: to connect small business owners with the best tools and resources to help them thrive. When she’s not working, Andriana likes to go for walks with her two pet dachshunds and binge-watch documentaries, usually not at the same time.
