Facebook to take on banks, not Bitcoin

Facebook has announced the launch of its Calibra wallet that is backed by the Libra Association, an independent consortium with members such as Visa, Mastercard, Stripe and Coinbase.
The association will independently govern and oversee Calibra’s bespoke cryptocurrency, Libra—with the digital coin imagined to further a global financial system, this historically marks the social media giant’s boldest foray into the financial services industry.

CEO and Co-Founder of publicly listed cryptocurrency and blockchain investment firm KR1 George McDonaugh takes a look at what’s motivating Facebook to launch its own cryptocurrency.

Social media giant Facebook (NASDAQ:FB) is creating its own cryptocurrency – something that even those of us necking the crypto cool aid back in the early Bitcoin days never in our wildest dreams thought would happen. The details are thin on the ground but what we do know is that the asset will be called Libra, it will be a ‘stablecoin’ (ie pegged to a dollar value, backed by a basket of assets in order to prevent it from being volatile) and there are so far 28 confirmed ‘validators’. The cost to be a validator is $10m (USD) each, there’s a foundation in Switzerland and Facebook has stated that their main focus for this crypto is to help facilitate payments across the developing world.

Facebook is essentially trying to create a stable medium of exchange that can be used for making payments across its networks and therefore across borders. Think the current functionality of Wechat, Venmo and PayPal but instead of transacting pounds and dollars, users will be transacting in Facebook’s Libra.

Let’s cut to the chase, Facebook (and Libra’s supporting corporations which include Ebay, Visa, Uber and PayPal) are doing this for one reason and that’s data. It will be spun as banking the unbanked, revolutionising payments and connecting the world, but don’t be fooled, this move into the murky world of cryptocurrency is about tapping new wells of data, the modern day oil. No doubt there’ll be plenty of assertions over privacy protection and ‘decentralised’ hand waving, but this is all about Facebook enriching their reservoirs of data, knowing who you are (for real), what your buying, who you’re paying and how much you have. This is why Facebook’s Libra will not compete with Bitcoin but rather validates the underlying blockchain technology more than ever. Bitcoin is open, borderless, permissionless, censorship resistant, publicly verifiable and immutable. Facebook’s coin cannot be any of these things because Facebook is a corporation, they have to exist within jurisdictions and comply with every rule ever devised by the legacy financial system including vetting every participant, and unlike Bitcoin’s blockchain, Facebook cannot be neutral in regard to who is using their system.

Further, adding a consortium of global companies as validators does nothing to decentralise the system. All the validators are known and as such can be fully ‘leaned on’ to adhere to the pressures that exist from the global financial systems.

So, if Bitcoin doesn’t need to worry (indeed it’s possible Libra may even help Bitcoin adoption by potentially driving millions of people to seek out what a real cryptocurrency is) whose piece of the pie is Facebook taking? You’ve guessed it, the banks. To one side of them there’s the open source, borderless Bitcoin growing in adoption every day and on the other is Facebook with their 2.3 billion users. Banks are being squeezed between two hugely powerful forces and remember Facebook have built a global phenomenon through reinventing what we’ve come to understand as a user experience. What they’ve done with interfaces, they’re going to do with money, and in that arena, the banks don’t have a chance.

Want a loan? Ask Zuckerberg. Want a credit card? Ask Zuckerberg and everything will be at the click of a button on a platform that literally 30% of the planet’s population are using. Further, Libra could crush merchant fees and potentially solve major issues with card fraud. If that wasn’t enough, if Libra is successful in seeing widespread adoption, watch a slew of new coins come to market from the other Silicon Valley heavyweights. Money is the next frontier for the candy crushing, social networking leviathans and I for one would not want to be standing in their way.

Several more industry experts have also shared their insights on the upcoming announcement. Details can be seen below:

Tony Gu, Founding Partner at NEO Global Capital, one of the world’s leading blockchain investment firms with over $400 million in assets, said:

Facebook’s arrival on the crypto scene illustrates the subtle transformation of money as an economic medium, mirroring the metamorphosis of the global financial system into a virtual economy. Whereas cryptocurrencies are often not viewed in the same league as traditional capital markets, the scales are set to tip in favour of the digital asset class with the social media behemoth’s latest endorsement via Libra. The digital coin’s core proposition, beyond onboarding a greater sense of legitimacy to the nascent space, lies in its fulfillment of a future where Facebook becomes the sole custodian of value. Money prescribed under the modern theory of macroeconomics have two definitions: M1 and M2, with the latter referring to the multiplier effect of currency in use. By boosting the circulation of transactions across its growing platforms, Facebook is a unique position to capture the spillover effects of coins that are issued within its ecosystem i.e. M2, imagined through a built-on-blockchain central bank anchored by Libra.

Consequently, the creation of value is now recognized as a responsibility that can reside with players in the private sector, previously the exclusive domain of centralized authorities such as governments and banks. By rewriting the playbook, Web 3.0 will welcome distinctly different rules of engagement, as well as players eager to stake their claim in an unexplored era. The deployment of blockchain technologies, in this instance, gestures to Facebook’s greater need to create a token of trust that exists and functions independently of the business entity. While Facebook’s purposed entry into the crypto-space has translated to optimism in the stock markets, observing steady share gains across the past few days, investors bearing in mind the longevity of their investments have to exercise prudence in navigating the blurring lines between emerging technology and the enterprise environment.

Jehan Chu, Co-founder of Social Alpha Foundation and Managing Partner at Kenetic, commented:

Facebook’s bold, all-in crypto approach is not only a breath of fresh air for the industry, but is the new benchmark for unicorns if they want to get to the trillion dollar level. Crypto economies are still in their infancy and have massive growth curves ahead, and Facebook will not only boost the industry, but benefit from utilizing their own internal cryptocurrency to capture and drive value. History will mark Facebook’s Libra as the starting gun of cryptocurrency 2.0.

Facebook’s onboarding of the “Who’s Who” in global payments resembles how Apple brought in the largest music publishers to their iTunes platform. While it’s unlikely that the endgame will result in the same power shift away from traditional institutions, Libra will trigger a seismic shift in how these institutions engage and adopt crypto into their businesses – Visa crypto won’t be far away. While critics bemoan the centralized nature of Facebook’s crypto, I believe it is an enormously positive driver that will accelerate crypto into mainstream consciousness and adoption, and provide further capital and opportunities for fully decentralized blockchains like bitcoin and ethereum and the startups that build on them.

Matt Luczynski, CEO, and Co-founder of Travala.com, the blockchain-based hotel booking platform said:

Having Booking.com as one of the members of the Libra Association is indeed a positive sign not only for the cryptocurrency space but for the entire travel industry. Cryptocurrency and blockchain hold huge potential in revamping the travel industry, making it more efficient and streamlined, so seeing a well-respected, household name like Booking.com pledging their commitment to the future of cryptocurrencies is really refreshing to see.

I believe this is far more than a group of tech companies cashing in on the hype, this signals the start of crypto’s mass adoption. Visa, PayPal, Stripe, are all trailblazers within the payments space, and this involvement in Facebook’s Libra is not only reassuring but sparks a new excitement in those of us already championing cryptocurrency as a form of everyday payment.

Mateusz Tilewski, CTO of Concordium, explained:

With some of the world’s biggest payment giants such as Mastercard, Visa, PayPal and Stripe on the consortium of companies governing Facebook’s bespoke cryptocurrency, and with its coin due to be pegged to government-issued cryptocurrencies, this development is bound to transform the way international transactions are carried out. This development is especially interesting in light of the FATF announcing that it will impose new rules for virtual asset service providers (VASPs), with regulatory compliance set to be at the top of Facebook’s agenda.

While detractors may claim that Facebook is trying to create a new stream of revenue amidst its net profit falling 51 percent year-on-year, it has an enormous reach of 2.38 billion monthly active users which will undoubtedly help with the mainstream adoption of cryptocurrencies and will see other big players moving into the space.

Iain Wilson, Advisor at NEM Ventures, the venture capital and investments arm of the NEM blockchain ecosystem, said:

On balance, it’s probably helpful for traditional players to enter crypto, especially alongside other traditional players who already have, such as Visa (with Wirex) and Paypal (with Coinbase). A company like Facebook has huge distribution and potential for P2P or micro transactions, so the mass market will be further exposed to tokens. At this point, people will be free to exchange out of a centralised Facebook system into a more decentralised currency like bitcoin.

Tara Annison, Technical Product Manager at the PR9 Network, which provides real-time trading and settlement for blockchain-based assets held in cold storage, commented:

The introduction of Libra shows that a wide range of players across the blockchain and traditional finance/tech space are interested in blockchain technology and its potential. The Libra foundation has stated that they think blockchain is a powerful tool for improving financial inclusion and it will be interesting to see how they shape the product offering around this, especially regarding the user experience. They have also developed their own blockchain and are using Move as the programming language, so it will be exciting to see if this sparks other innovations in the space and other companies exploring their open source technology.

Within the Libra whitepaper, the focus is very clearly on improving financial inclusion and the prevalence of mobile technology in many of these regions. Therefore, I would expect a mobile-first offering which takes advantage of the user experience expertise many of these companies have. The ability for users to understand the offering and be able to easily purchase and trade Libra will be pivotal in the success of the project.

Benjamin Scherrey, Group Chief Technological Officer & Chief Systems Architect of HotNow, the first gamified online-to offline economy for users to derive real-world value from a virtual world:

Libra is absolutely an endorsement of the value and inevitability of cryptoledgers, their impact on our economy, and ultimately how we will govern our society. The question that remains to be answered is whether it will be a true cryptoledger which is open, fully decentralized, and trustless, or will it be simply a cheaper, faster, more flexible alternative to existing centralized solutions. That will be answered hopefully today when Libra’s source code is revealed to the world and it’s operational model is more fully explained.

Given the businesses behind it, most likely Libra will be a poor choice for a cryptoledger but will still be quite disruptive to the banking industry which has, of its own volition, regulated itself into an entirely dysfunctional industry. Given that, Libra will be the gateway drug into true crypto for most people and businesses. It’s a positive sign, regardless, and will likely help the adoption of other legitimate crypto assets as well. If it’s not truly decentralized then it’s a sign that Facebook and other Libra backers believe they can retain control and still do crypto. That’s going to be a hard lesson for them in the long run.

David Wachsman, Founder and CEO of blockchain PR firm Wachsman, commented:

Facebook and its subsidiaries, including WhatsApp and Instagram, presently count more than 2.3 billion monthly active users, nearly the sum total of the world population in 1950. With mass scale completely unprecedented in world history, these companies and their brethren are prepared to underwrite a transformation of our hyperconnected human community.

For the past decade, cryptocurrencies have been plagued by the curse of inaccessibility, but the arrival of Facebook’s Libra Association promises burgeoning mainstream interest in the space. With many of the benefits that cryptocurrency enthusiasts have long championed, the initiative should serve as an onramp for mass market adoption. After all, Facebook’s platform advantage provides it with a potential distribution network completely unparalleled; no nation-state has ever had so vast a population.

Marquee organizations, including Andreessen Horowitz, Visa, MasterCard, PayPal, Stripe, Uber, Spotify, eBay, Farfetch, and Booking.com, have signed up as members to govern Project Libra. More will surely join.

With this group’s backing, every individual business or even consumer transaction –– booking a car, paying for a meal, listening to a song, or planning a trip –– might soon be powered and enabled by digital currency. Project Libra is a watershed moment for the blockchain industry and for cryptocurrencies.

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