Facebook Cryptocurrency in Trouble

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Facebook Cryptocurrency in Trouble

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Facebook no doubt rules the social media roost, but its ambitious cryptocurrency plan, Libra, seems to have hit a roadblock.

In June of 2019, Facebook formally announced its plan to enter the cryptocurrency market with Libra. The whitepaper on Libra was released, and the currency set for a 2020 launch. You can refer to our earlier blog post – Will Facebook Change The Cryptocurrency Market? – to learn about Libra’s background.

But with G7 and G20 raising concerns over cryptocurrencies, it appears unlikely that Libra will see the light of day any time soon. So to try to determine what the future holds for Libra, we will examine the path it has traveled up to now.

The idea behind Facebook Libra

Libra was intended to provide a stable global currency and financial infrastructure to empower billions of people. The currency would have been built on a secure and stable open-source blockchain, which was to be governed by an independent association and backed by a reserve of real assets.

The aim was to create better and cheaper access to financial services for people, regardless of their financial status, region or standing. 

Facebook saw cryptocurrencies as both a threat and an opportunity. Cryptocurrencies can disrupt market dynamics – it can alter the way goods and services are bought and sold by eliminating transaction fees that are synonymous with credit cards. This could affect Facebook’s ad business, which influences purchases. For example, if Google or a start-up introduces a popular coin and starts monitoring the transactions, they could easily learn what people buy.

Once they know the buying pattern, they could have tried to influence buying decisions, which would have affected the billions of dollars annually spent on Facebook marketing. On the other hand, for a population of 1.7 billion who do not have a bank account, it would have been a perfect financial service alternative that offers them an online identity, as well. And, this is what Facebook aspires to become.

The G20 warns of stablecoins

But why has the G20 warned of stablecoins?

Recently the group of G20 finance leaders agreed to put in place strict guidelines for cryptocurrencies like Facebook’s Libra. They have warned that issuance of stablecoins – such as Libra – should not be allowed until all of the global risks have been addressed.

The agreement came after a G7 working group warned of stablecoins. Stablecoins are digital currencies that are generally backed by traditional money and other assets. The working group warned that if stablecoins are launched on a wide scale, it could disrupt the world’s monetary system and financial stability.

The financial chiefs of the G20 group did not doubt the potential benefits of stablecoins, but they said that their wider use could pose serious policy and regulatory risks.

The G20 group finance leaders wrote in a statement, “Such risks, including in particular those related to money laundering, illicit finance, and consumer and investor protection, need to be evaluated and appropriately addressed before these projects can commence operation.” 

Haruhiko Kuroda, Governor of the Bank of Japan, said that the G20 group is expected to start a debate on how to regulate stablecoins after it receives proposals from institutions like the Financial Action Task Force (FATF) and the Financial Stability Board (FSB). A report on Stablecoins is expected to be submitted by the FATF and FSB in 2020.

What this means is that Facebook is unlikely to meet its deadline for launching Libra in 2020.

According to Kuroda, “Policymakers have expressed concerns over various risks Stablecoins pose. Until they are addressed, stablecoins should not be issued. That was something agreed by the G20 members.” 

Also, the G20 group has requested the International Monetary Fund (IMF) scrutinize the economic implications, which includes monetary sovereignty issues. 

“Some emerging countries have concerns on what could happen if stablecoins backed by a huge customer base become widely used globally,” Kuroda said.

According to Kuroda, this is not only an issue related to emerging economies, but could have a wider impact on monetary policy and financial stability.

The G20 agreement raises concern among stakeholders over stablecoins like Libra, more so when more than a quarter of its founding members left the project. It is believed that many of the Libra stakeholders departed due to the serious concerns raised by the policymakers.

Also, the Finance Minister of Germany has raised concerns about Libra, and said that the issuance of new world currency should be prevented.

Kuroda also said that policymakers are expected to debate how to make the current cross- border settlement and payments systems better. But the settlement issues are to be confined to the private sector only, and there has been no discussion on the issuance of digital currencies by the central banks. 

Facebook may not have Libra, but it has Facebook Pay

As the chorus against Libra gained momentum, it appears that Facebook is not waiting for Libra to launch, having in the meantime launched Facebook Pay.

Though not a virtual currency, Facebook Pay is a payment system that allows you to use debit cards, credit cards and PayPal.

Using Facebook Pay, users can make purchases, donations or send money to individuals. Users can utilize Facebook Pay on all the apps in Facebook’s arsenal – Facebook, Messenger, Instagram and WhatsApp. Such existing payment platforms as Stripe and PayPal will process the payments.

Facebook Pay was launched in the United States in November 2019 on Facebook and Messenger. Facebook has yet to announce a date for extending this facility on its other apps or in other countries.

With Facebook Pay hitting the market, it means that Facebook had a backup plan in place to counter the unscheduled delay of Libra.

A look at the features of Facebook Pay

You can select the apps on which you want to activate Facebook Pay. For example, you can select only Messenger, or activate it on all Facebook apps. One attractive feature of Facebook Pay is that you only have to select the preferred payment method once. For example, once you select PayPal or a Visa debit card, you don’t have to populate the payment information form every time you make a purchase or transfer money.

In the United States, Facebook Pay is offering real-time customer service to its users. Facebook indicates that it plans to gradually roll out Facebook Pay to other regions.

According to Facebook, Facebook Pay is designed to store and encrypt card and bank account numbers securely, and can detect unauthorized usage. Users can add a PIN or use their device’s biometric features (facial recognition) to transfer money. Facebook claims that it does not receive or store this biometric information.

The take-home message

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Facebook Cryptocurrency Libra

Will Facebook Change The Cryptocurrency Market?

With over two billion users worldwide, Facebook rules the social media space. But it is now setting its ambitions even higher, planning to take a plunge in the currency market.

Yes, Facebook is joining the cryptocurrency game. It is about to launch a Bitcoin-like currency called Libra. Cryptocurrencies like Bitcoin and Ethereum have generated a tremendous amount of interest as well as confusion. To learn more about cryptocurrencies, refer to our blog post – “Cryptocurrency For Dummies – What is Cryptocurrency & How Does it Work?

But in this blog post, let us focus on what Facebook plans to achieve through its proposed currency, Libra.

What is Libra?


Facebook’s Libra will be a cryptocurrency, which will allow you to make purchases or allow you to send money to individuals at almost zero transaction fees. According to Libra, “Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”

A Roman unit of weight, Libra in the context of Facebook’s cryptocurrency tries to invoke a sense of financial freedom. You can buy or spend your Libra online or at a grocery store near you by using third-party interoperable wallet apps or Facebook’s Calibra wallet, which the company plans to incorporate into all its apps, including WhatsApp and Messenger. Facebook is planning to launch its cryptocurrency Libra through its blockchain system sometime in the first half of 2020.

Facebook does not plan to control Libra fully. Instead, Facebook will get a single vote – just like other founding members of the Libra Association – which include Uber, Andreessen Horowitz and Visa. Each of the founding members has invested at least $10 million in the project. The open-source Libra blockchain will be promoted by the association with its Move programming language. The association also plans to enter into agreements with other businesses to use Libra for payment and give rewards and discounts to customers.

Facebook will launch a subsidiary company by the name of Calibra to handle its crypto dealings and protect the privacy of its users by not allowing your Libra payments to mingle with your Facebook data, which means it cannot be used for ad targeting. Your publicly visible transactions will not be tied to your real identity. Libra association members along with Facebook (Calibra) will earn interest on the money that users cash in, which is kept in reserves so that the value of Libra remains stable.

Facebook’s global digital currency plans to promote financial inclusion for those who don’t use banking services, and it is expected to have more privacy and decentralization. Facebook does not intend to make a lot of money immediately through Libra; instead, they want to be there for the long-term so that they can get more payments into its online domain. According to Facebook’s VP, David Marcus, “If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business.”

What does Facebook want to accomplish with Libra?

As reported by Josh ConstineZuckerberg Money LibraEditor-at-Large for TechCrunch – “In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the promise of disrupting how things are bought and sold by eliminating transaction fees common with credit cards. That comes dangerously close to Facebook’s ad business that influences what is bought and sold. If a competitor like Google or an upstart built a popular coin and could monitor the transactions, they’d learn what people buy and could muscle in on the billions spent on Facebook marketing. Meanwhile, the 1.7 billion people who lack a bank account might choose whoever offers them a financial services alternative as their online identity provider too. That’s another thing Facebook wants to be.”

The existing cryptocurrencies like Bitcoin and Ethereum are not properly designed to be a medium of exchange because of their uncontrolled price, which results in their erratic swings. It becomes difficult for the traders to accept these coins as payments. Also, these cryptocurrencies cannot be exploited to their full potential because there are not many places where they can be used in place of dollars, and it is not easy for the mainstream audience to deal in these coins. But Facebook can tackle this problem head-on because it has more than seven million advertisers and 90 million small businesses in addition to its user experience expertise.

Facebook now wants to turn Libra into another PayPal. Facebook is confident because it thinks that it is easier to set up Libra, it is easy to use as a payment method, more accessible to those who don’t have access to banking services, more efficient than others because there are fewer fees, and flexible and long-lasting due to developers and decentralization.

According to Facebook’s Libra documentation, “Success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee.” When you look at exploitative remittance services charge, which averages around 7% for the money sent abroad, totaling $50 billion from users annually, it certainly seems to be a big improvement. Libra would allow microtransactions of a few cents, which is unthinkable with the in-built credit card fees.

But it is a steep climb for Facebook ahead in the cryptocurrency market.

How does Libra work?

All you need to do is cash in your local currency and get Libra, which you can spend like dollars, with fewer transaction fees and without disclosing your identity. You can also cash your Libra whenever you want.

The Libra Association

It would have been difficult for the general public to trust Facebook in the crypto world, which is why major corporations have been assembled to form the Libra Association. This not-for-profit entity headquartered in Switzerland will overlook the development of the token, keep the reserves safe and streamline the governance rules of the blockchain.

Some of its founding members as reported by The Block’s Frank Chaparro include:

Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa

Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.

Telecommunications: Iliad, Vodafone Group

Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited

Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures

Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

Before the official launch of Libra, Facebook plans to increase its present 28-member founding members to 100.

The Libra currency

The Libra cryptocurrency will be represented by three wavy horizontal lines. To make it a good medium of exchange, the value of Libra would largely stay stable. The value of Libra would be attached to a basket of bank deposits and short-term government securities for a number of internationally stable currencies like dollar, pound, yen, Swiss franc, and euro. To keep the Libra stable, the Libra Association will maintain the basket of assets, and they can also change the composition when required to counterbalance major fluctuations.

The exact start value for Libra is still under consideration, but it is likely to be close to internationally stable currencies.

The Libra Reserve

Every time someone cashes in a dollar, that money goes into the Libra Reserve, and the person gets an equivalent amount of Libra in exchange. Should someone cash out of Libra, the Libra that is returned would be destroyed or burnt, and the person gets the equivalent value of the local currency in exchange. It means that there would always be 100% of the value of the Libra in circulation.

The Libra blockchain

All Libra payments would permanently be recorded in the Libra blockchain, which is a cryptographically authenticated database. Libra blockchain is a public online ledger engineered to handle 1,000 transactions every second. It means that the Libra transactions would be much faster as compared to Bitcoin (which allows seven transactions every second) and Ethereum (which allows 15 transactions every second). 

The founding members of the Libra Association will operate and verify the blockchain. 

Libra transactions cannot be reversed. The Libra association in case of an attack will temporarily stop the transactions and take corrective measures for future smooth operations.

The Libra blockchain currently is known as ‘permissioned,’ and here only those entities that fulfill certain requirements are admitted to a special in-group, which will control the blockchain through consensus. But as of now, the Libra association has not found a reliable ‘permissionless’ structure that is safe and secure. The goal of the Libra Association is to create a permissionless system.

What are the incentives to use Libra?

The Libra Association wants to involve more developers and merchants for its cryptocurrency project. The association plans to issue incentives, possibly in the form of coins to those who use the currency. Those who bring in more customers and keep them active for over a year will be rewarded. Traders will also receive a percentage of a transaction for every transaction they process. Businesses can keep the incentives or pass a portion of it to their respective customers.

Libra privacy concerns

Individuals can spend and own Libra through Libra wallets like Calibra and other third-party Libra Association members like PayPal. The philosophy is to make it easy for an average consumer to send money to a friend or use it wherever they want just as they conveniently send a Facebook message.

About the privacy of the Libra, Mark Zuckerberg had this to say, “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.”

What is the difference between Libra and Bitcoin?

There is a mixed bag of reaction for Facebook’s Libra cryptocurrency project. Some say that it will be nothing more than PayPal with the addition of blockchain technology, while others say that it will lead to more adoption of traditional cryptocurrencies like Bitcoin. 

The Bitcoin and Libra are different. While Bitcoin is a decentralized network – which is permissionless and censorship-resistant – Libra will be operated by a group of companies that will still remain answerable to the governments of the world.

There is some skepticism, though, among the lawmakers of several countries against Facebook’s attempt to create their digital currency. As regards monetary policy, Bitcoin and Libra are poles apart. While Bitcoin follows its own supply schedule, Libra is only backed by a basket of currencies that are issued by governments. Libra, unlike Bitcoin, has a face, which can be targeted by the government whenever they want to regulate it.

Also, since Libra will not operate in a permissionless manner, it is debatable for some whether it qualifies as a cryptocurrency or not. Moreover, when talking of Facebook, it is difficult for the consumers to totally forget about all their privacy-related scandals.

Libra seems to be a minor variation of the traditional financial system and is unlikely to have any significant impact on the Bitcoin price.

Will Libra change the world?

According to Facebook’s Libra white paper, the goal is as follows: “A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.”

Their stated aim is to create better access and improved, inexpensive and open financial services for all people – regardless of their location or economic status. The road ahead for Facebook’s Libra project is arduous and is difficult for a single entity to achieve. That is why a consortium of corporations is coming together to helm the project.

But only time will tell whether Libra project gets the support from various stakeholders – most importantly of all – consumers.

With the great potential of Libra and other cryptocurrencies, encryption technology is more important than ever – especially in the corporate world. DocuServe has the industry experience and solutions to protect company data, keeping employees productive without risking data loss. Our eServe encryption solution provides content security in the cloud, mobile access, security at rest and in motion, encrypted data security, remote wipe and much more. Contact us to learn about our industry-leading solutions.



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