By CCN Markets: With the release of its whitepaper, Facebook officially announced its cryptocurrency, Libra. It now joins JP Morgan and Atletico Mineiro among the ranks of non-blockchain businesses with their own crypto.
What does this mean for cryptocurrency? Will we finally get that LAMBO MOONSHOT we’ve been waiting for, that orgy of FOMO that sends bitcoin to $1 million?
Or will people suddenly shun bitcoin for this safe, “backed” money that doesn’t have wild fluctuations in price?
We shall see. I’m more interested in Libra for another reason, one much more important than the price of bitcoin.
Bitcoin, the corporate version
Imagine you ran a huge business and wanted to create your own money system. You knew you risked alienating your shareholders, worrying your customers, provoking regulators, and giving governments a reason to fight you.
If you’re an entrepreneur, you probably say “f- that, bring ’em on, we’ll conquer the world!”
If you’re a corporate officer, you probably say “first, let’s make sure our shareholders support us. After that, let’s create a product that fits our customers’ expectations and bring on partners with credibility, leverage, and strong connections. Next, let’s give them a financial reason to support what we’re doing and see if we can get them to stake their reputations on the success of our project.”
Facebook went with the latter approach and created the world’s first corporate cryptocurrency: a fully collateralized token backed by financial assets from countries with relatively stable currencies (on which Facebook collects interest and dividends).
To help Libra gain traction, Facebook enlisted founding members with a wide range of interests, spanning credit card companies, payment services, on-demand service providers (e.g., Uber, eBay), telecom, blockchain, streaming, and financial nonprofits.
On top of that, Facebook made Libra open source, with plans to create a new programming language that allows APIs and smart contracts. Eventually, Facebook will move to a permissionless network with incentives for hosting nodes and developing on the blockchain.
Does that mean we’ll see a swarm of developers flocking to Facebook’s crypto instead of developing on bitcoin or alt-coins?
Some people like the allure of working on a big project for a big company with a huge network that can use their products and services. At least, it may sound more appealing than bootstrapping an obscure utility token that will probably die.
Facebook changed the game with Libra
At first, I was skeptical about Libra. We already have digital currency—Dave & Buster’s tickets, video game tokens, school lunch cards, payment apps, etc.
What makes Facebook’s digital currency any better? Just because it uses blockchain?
Now that I’ve seen Facebook’s plan, I know why this is such a monumental development.
Facebook has 2.3 billion active users across its platforms. That’s a huge, global network and it includes over 1 billion people who do not use banks. In fact, Facebook will have to install Libra ATMs all over the world so these people can fund their accounts.
Will they use Libra?
Many will, if simply for the convenience of sending money to people and merchants on Facebook. Crypto traders may use it as a stablecoin and people in countries with bad currencies might see Libra as a safe haven.
Once people move their money into Facebook’s wallet, Calibra, they’ll instantly enter the cryptocurrency markets. They’ll have access to every other cryptocurrency on every exchange in the world—all with a tap of a button, possibly even through a decentralized exchange.
Nobody knows if they’ll buy bitcoin or other cryptocurrencies, but they’ll have an easy way to do so.
Libra is designed for people who don’t care about crypto
Of course, that isn’t Facebook’s goal. It wants to keep people’s money on its own platforms.
So while you can use the Calibra wallet, you won’t have to. Facebook will embed Libra into everything it can.
As a result, your average user will not ever have to think about cryptocurrency when they use Facebook, Instagram, or WhatsApp. Facebook will make sending money as easy as texting a friend or liking a post.
If merchants accept Libra on their storefronts, you’ll have a seamless payment experience. If content creators collect subscriptions or micropayments directly from viewers, you’ll have a new way to share and reward your favourite writers, bloggers, and musicians. You can even host Facebook contests and events using Libra for reward or entrance fees.
There’s no limit to the innovative ways people will use Libra.
When you can use Libra to do everything you’d ever want to do with crypto, why would you ever use bitcoin? Why would you ever use an alt-coin?
Blockchain not bitcoin—to the extreme
With Libra embedded in every interface and backed by relatively stable assets, the user experience will not resemble bitcoin at all.
No economists or CNBC commentators will ever ask “what’s the point? Don’t we already have PayPal and Venmo and credit cards?” or point out how criminals use Libra or lament how its price changes all the time.
They will simply accept that Facebook built a money exchange service into its platform (and may even applaud the company for its forward-thinking project).
Some investors will even buy more of Facebook’s stock because of this new “value add” that could produce higher platform loyalty, more ways to get ad revenue, and a new profit center for the company.
Bitcoin? No, no way. That’s fake internet money.
Game-changer, not game-ender
Personally, I don’t buy into that anti-bitcoin BS but I realize that if Facebook offers a compelling service, people will use it.
That doesn’t mean people won’t use bitcoin or alt-coins. There’s plenty of room for several well-differentiated cryptocurrencies, each with its own technology, usage, applications, and place in global commerce. It’s all about offering something really useful.
For those who claim Libra will kill bitcoin or XRP or other cryptocurrencies, I’d caution against getting too far ahead of yourselves.
We don’t know how successful Libra will be or how it will evolve.
We don’t even know if U.S. Congress will let it launch—outraged U.S. politicians are already planning hearings). And even if Facebook does launch Libra on schedule (early 2020), we don’t know how well the interface will work or how easily people can fund their wallets.
I’m also not sure you can trust Facebook won’t collect data about users or their activities. It says it won’t, but…isn’t that its whole business model?
Libra opens up a whole bunch of questions
While I’m impressed with Facebook’s approach to cryptocurrency, I see some big risks and plenty of other concerns.
What happens if there’s a financial catastrophe or Facebook’s “low risk” collateral collapses in value? CDOs were considered safe assets before they caused the global economy to collapse in 2008. How do we know Facebook’s “safe” assets won’t share the same fate?
Will Facebook allow individuals and small businesses to create their own financial services and products using Libra? Will it allow people to create their own smart contracts? If so, what sort of limits will Facebook set?
How does Facebook plan to comply with money transmitter laws? Will it push these responsibilities to the people creating these new financial products and services? If not, what regulatory authority does Facebook need to get? Licenses? Approvals?
What about government interference? How many countries will allow Facebook users to keep their own stash of private money? And use it, too? Will governments kick Facebook out? Ban WhatsApp? Censor Instagram?
How much control will Facebook have over what people do with APIs? Will it shut out projects that it doesn’t like? If so, what impact will that have on developers?
And more questions
Do you treat Libra as property, with taxable gains and losses for each transaction? If so, will Facebook track this for you? If not, does the IRS need new rules for cryptocurrency?
How does Facebook’s coin fit with GDPR? What about privacy rights—can authorities compel Facebook to reveal user identities or confiscate user funds?
How will Facebook deal with money laundering? Will governments hold Facebook responsible or liable?
If Libra gets really popular and people abandon their government’s currency for this more-stable token, will foreign governments pressure the U.S. government to intervene?
The list goes on (and on, and on).
But it’s the most interesting crypto project since bitcoin
A global company has issued its own proprietary currency for use across all its properties. It’s creating a whole new financial system around this currency using ATMs, mobile phones, and private wallets.
This truly monumental development will force the world to think hard about blockchain, its uses, and the consequences of programmable money.
It’s exactly the type of development I had in mind when I wrote Consensusland. What happens when anybody can create their own money system that’s just as good, if not better, than their own government’s?
I present one option in my book. Facebook offers a different option.
I can’t wait to see how it all shakes out.
About the Author: Mark Helfman is a former U.S. Congressional aide and cryptocurrency commentator. He writes on Medium and Quora for cryptocurrency, finance, and bitcoin topics. His book, Consensusland, explores the social, cultural, and financial challenges of a fictional country that runs on cryptocurrency. Catch him at markhelfman.com.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN Markets.