What is Libra, their cause and solution to financial problems of the World
Facebook has recently revealed more details about their upcoming project called Libra, which aims to connect people from all over the world and enable them financially, despite of their countries facilities or banking structures. The Libra Foundation, which doesn’t consist only of Facebook, but also other notable companies and individuals, such as Visa, Uber or Andreessen Horowitz, has noticed that even though millions of people got accessed to the mobile phones and the Internet, they still don’t have access to fair banking and financial services. In poor and less-developed countries, it costs a significant part of your salary to just send the money, while many people are not even eligible for opening bank accounts or taking loans.
In other cases, the services could simply be just much cheaper than they are now. Why would you spend $25 for an international bank wire?
Cryptocurrencies, blockchain technology and independent banking
To understand how Libra works and how it will be able to help people send money globally at low costs, one needs to learn about blockchain technology, which is being used to create cryptocurrencies. You may be familiar with this term, because of the recent popularity of Bitcoin, which is in fact the first cryptocurrency and project utilizing this type of technology. Putting aside the potential controversies connected with this coin related to investments and market fluctuations, the sole technology behind it and the potential use cases are quite brilliant. For the fraction of what you would pay in your bank, you can send money almost instantly to any person in the World. Moreover, you are not dependent on any bank’s working hours, limitations or regulations, as in fact you are your own bank. There is no one else controlling your funds, despite yourself. And every participant of this ecosystem can contribute to the maintenance of the network.
Your account, as well as each transaction are heavily encrypted and it’s in fact impossible to hack into the system. Moreover, every information is transparently available for anyone to check and validate, this way you can easily prove that a transaction has been made or that the other person has sufficient funds to pay you for your service.
Let’s take a look at currently second most popular cryptocurrency (based on the overall market volume), called Ethereum. Sending ETH from one wallet to another, cost on average $0.1. These 10 cents enable you to send any amount of money to any place in the World, with the payment arriving in literally 30 seconds.
The current obstacles stopping people from fully migrating to such digital currencies are undoubtedly unpredictable and disastrous price fluctuations, which can drive the coins price 50% both up and down in a matter of days, but also lack of regulations and government acceptance, which would make it easy for more companies and store owners to accept payments in them. And what’s the point of having a currency, which you can’t spend or are afraid to spend or store because of it’s volatile price?
Stable coins and digital dollars
That volatility and uncertainty is the problem of cryptocurrencies, which Libra aims to solve with their own blockchain-based coin. There are already multiple so-called “stable coins” on the market, which operate using blockchain technology, benefit from it instant and cheap transaction possibilities, however aren’t speculated as much on the market, therefore their price doesn’t fall and rise every day.
Different projects take different approaches to ensure this stability. Some coins values are pegged to real world assets or other currencies, such as dollars. That way, there are already a couple of “digital dollars” such as Tether or USDC, which exchange 1:1 with the USD currency. There are advantages and drawbacks of each coin and their way of achieving this stability.
Libra will be backed by a well-chosen group of real world assets, explained in the documentation as: “basket of bank deposits and short-term government securities”. They will be purchased for every digital Libra coin created, which means that there won’t be any Libra online without the real assets owned by the foundation. You can further read: “The reserve will be invested in low-risk assets that will yield interest over time. The revenue from this interest will first go to support the operating expenses of the association.”
Worldwide blockchain adaptation, Libra features and how will people benefit from the decentralization
Many people speculate that Libra may be revolutionary in both the crypto and regular financial market, not because of the technology, because we’ve already seen similar projects, but because of the strong commercial and marketing support connected with the giant companies behind it. Facebook has currently on average 1.59 billion daily active users. If Libra gets connected to their social network platform, these billion people will get immediate access to this digital money. Your friend may not have a Bitcoin wallet downloaded on their smartphone, but they most likely already have a Facebook app there.
As many of the partnered companies will most likely start accepting Libra payments from the very beginning, it will be very easy to spend your first coins and use Libra to buy items on eBay or pay for your Spotify’s subscription.
The sole Libra blockchain itself, will be quite advanced, as it’s being designed to handle 1,000 transactions per second (Bitcoin process 7, Ethereum 15 transactions per second). The main concern for people used to decentralized and independent banking of cryptocurrencies is the fact that at the beginning Libra will be governed by the foundation. So people will need to trust them with their money, while in Bitcoin’s or other coins cases, you are sure that no one else has access to your money or can’t cancel any transaction nor make any changes to the system, whatever happens.
However, Libra plans to become fully decentralized in the later stages of the project. In that case, it seems like a sensible plan to set up the network first and govern it until it matures enough to be able to be self-sustainable and fully in the hands of the users and not some global organizations. Currently, we can see a trend and change in people’s minds, as many try to distance themselves from companies and governments who want to control them. After all, no one can stop the government or bank from deciding to cancel your transaction, freeze your account or don’t let you withdraw your money. Cryptocurrencies and blockchain aim for the decentralization of the systems and want to eliminate the need for trust, as you become your own bank.
The foundation is aware of the features that people are expecting from a blockchain-based and digital money service. Mark Zuckerberg, the CEO of Facebook explains that: “It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall. It’s available to anyone with an internet connection and has low fees and costs. And it’s secured by cryptography which helps keep your money safe. This is an important part of our vision for a privacy-focused social platform — where you can interact in all the ways you’d want privately, from messaging to secure payments.”
How to send money cheap to anyone with Libra
We are still waiting for the official launch of the platform, however we already know how the blockchain technology works and that it enables users to send money almost instantly to any place in the world for no more than a few cents. The idea is to make sending money to a friend or paying for a product or service as easy as sending a Facebook Message.
You won’t need to visit any bank, explain the reasons why you are sending the money to someone or fill out tedious documentation. The app will allow you to do it with just a few clicks. Also, you don’t need to worry about the whole complicated blockchain technology or with the responsibility of being “your own bank”, as everything happens in the background and doesn’t require much technological knowledge. The fact that Facebook is the main company behind the project, may allow to easily integrate Libra with their social platform, which will allow you to send money instantly to all of your friends.
There is already first wallet developed called Calibra, which will be integrated with Facebook’s Messenger and WhatsApp. In the future, there may be different apps developed to use Libra coin easier.
It’s important to understand that Libra itself will be a new currency, just like the dollar or euro. That means, that it can be used for purchasing items and services in stores that will decide to accept the coin, but you will also be able to exchange it for any other currency, just like you do when you need foregin money while going on a holiday trip or buying from store from other country. As Libra aims to be a stable coin unlike other volatile cryptocurrencies, you don’t need to worry about market movements, so you may also decide to just hold and store it.
You may need to undergo an identity verification process or KYC (Know your Customer) procedures in order to start sending the money. You will need to take a photo of your ID and yourself holding it, so that they can make sure it’s really you, to prevent any money laundering or other financial crimes attempts. As the company is obliged to conduct due diligence on customers and report suspicious activity to the government authorities.
Is it legit, where is the catch?
For someone not familiar with blockchain technology or cryptocurrencies, the idea may sound too good to be true. And while undoubtedly there will be numerous obstacles to achieve this “easy to use digital money” with international transactions that cost close to nothing, the technology to provide all of these promises already exists.
There are already working examples and multiple coins and platforms which allow you to send money in a few seconds and for a few cents. Facebook by being a well-known multinational company will need to face millions of clients who will want to try this coin. But with huge investors and potential advertising capabilities of the project, one can easily imagine a worldwide adoption of this coin.
Specialists will surely debate on what it’s impact may be on the future of banking or the economy, as why would you want to have a bank account and give someone your money if you can store it securely yourself.
If you want to try a stable digital currency, there are already many coins against which Libra needs to compete. Tether (USDT) for example, already has a daily transaction volume of over $16,000,000,000. There are also decentralized loan platforms, such as Maker and their DAI coin, which don’t require any background checks to use. So the technology is out there and has been utilized in various projects in the last couple of years. There just hasn’t been yet a company as big as Facebook, who showed the regular people that it exists. The mainstream media focuses too much on the danger of Bitcoin and cryptocurrencies as a vulnerable and risky investment, but don’t cover the advantages and benefits that come with decentralized money, where there is no bank or institution deciding on how much fees you need to pay for a simple transaction.