On June 18, 2019, Facebook announced the launch of its own currency, Libra. According to official statements, it should become a new cryptocurrency, however, some experts do not agree not only with forecasts but even with the very ability to call it that. And they even have some reasons for this.
According to Facebook, Libra should allow billions of people, including those from countries where banking systems are in big trouble, to use a single currency for mutual settlements. That means that the largest social network plans to release its own full-fledged digital currency.
The important point is that it will not do it alone because there were many companies in Silicon Valley that joined it. The so-called "Libra Association" was formed, which included more than 28 members. Including a Facebook subsidiary - Calibra, as well as Uber, PayPal, Mastercard, Visa, Spotify and a number of other high-tech organizations.
How does libra work?
“White paper” has already been released - a technical manifesto that is necessary to be present in every cryptocurrency, since the time of Bitcoin appearing. According to it, Libra is based on blockchain technology. With which, however, not all experts agree either.
In short, the blockchain is a special decentralized infrastructure in which records are made about all cryptocurrency payments which were made. These records can be changed, but technically very difficult.
The most important thing is that the system is decentralized. It forms a lot of interconnected independent computers - nodes. And each of them contains a complete digital copy of the blockchain. This is what makes the whole system so stable - to make changes to it, you need to hack most of the machines that maintain it. And this is an extremely difficult task, even for modern supercomputers.
In addition, there is no “central regulatory authority” on the blockchain, which may be influenced by governments of different countries in order to block various accounts.
In fact, it is a libertarian, anti-state and anti-banking instrument. It has become quite popular since the first blockchain - Bitcoin was launched in 2009.
Is Libra a cryptocurrency?
On the one hand, yes, but on the other, no. The problem is that this system is not decentralized. If in a normal blockchain any user can declare his computer a node, if he meets the technical requirements, then with Libra this is impossible. It will only be launched from the servers of members of the Libra Association.
However, not a single member of the association will be able to single-handedly determine the fate of this “cryptocurrency” - only by “collective consensus”, as is required in blockchains.
Is a digital currency can be a real cryptocurrency if its status is regulated not by people, but by a club of megacorporations? Many experts believe that not. In addition, governments have “leverage” for such large companies, which automatically reduces the overall level of “decision-making independence”.
In response to these claims, Facebook officials say that a fully decentralized blockchain will not have enough power to ensure the high speed of the “global financial infrastructure”. And they are even right in this.
Reasons for centralization
There are two of them - speed and scale.
Decentralized systems are almost impossible to crack, but the price of such security is the speed of work. The Bitcoin blockchain, for example, for a long time could not process more than 7 transactions per second. A centralized payment system Visa, for example, even at the very beginning of its path kept the bar at the level of 1000 transactions per second. Not to mention 24,000 payments at the current moment.
However, the "white paper" says that in 5 years of active work, Libra will have to move from the described centralized scheme to a full-fledged decentralized "permissionless blockchain". However, there is no guarantee that this will actually happen.
The prices of cryptocurrencies can have major fluctuations - will this be a problem?
Of course. In 2017 alone, the price of bitcoin increased from $ 1,250 to more than 20 thousand. This is good for those who actively speculated on this cryptocurrency, but in the context of the basis of a payment system for 2.4 billion users, it is not particularly convenient. Therefore, Libra was developed as a full-fledged stablecoin.
Which means that its value is tied to some non-digital assets. In this situation to classical currencies, such as the dollar and the euro, as well as to government securities of low risk. And every time a user exchanges their real assets for Libra, they will be added to the “reserves” guaranteeing price stability.
However, despite the presence of a "white sheet", we know little about the planned features of Libra. The fact is that Facebook will release its own Libra cryptocurrency wallet, which will be accessed through the built-in messenger, WhatsApp and a number of other applications. However, it is not known exactly which companies will agree to accept the new cryptocurrency as a means of payment. However, there is no doubt about Uber and eBay - they are already members of the Libra Association.
What do large banks think about this?
The launch of the system is planned for 2020, but people are already worried about a number of issues. For example, that payment data will be used for targeted advertising. And although Facebook promised not to do this, but who will believe them now, after the scandal of 2019?
The governments of different countries also look at all this rather sceptically. France, for example, has officially stated that only legally elected governments can regulate cash flow, so Libra is unlikely to be allowed to be used in this country. The Bank of England was not so categorical - if the new cryptocurrency meets the high financial standards of the UK, then it will be allowed to be used as an official means of payment in the country.
But overall, US and European Union lawmakers are concerned about Facebook’s attempts to infiltrate the financial industry. Because using your own cryptocurrency is pretty convenient for hiding financial frauds that have repeatedly been found at different levels of Facebook. So a clear scenario for the development of the situation with Libra is still not known. We will closely monitor the situation and keep you posted.
CryptocurrencyAuthor: EXBASE.IO | Dec 01, 2020
NewsAuthor: EXBASE.IO | Sep 03, 2021