Here’s all you need to know about this new digital currency that could potentially change the financial world for good.
Facebook’s LIBRA is the latest talk in town but what is it all about? Well Libra is technically not a crypto currency. It can be broadly viewed as a digital asset that is backed by Facebook. It is nothing else beyond a digital asset because it doesn’t pass the very basic test of private transactions and decentralization of funds to qualify as a crypto currency.
It may be able to disrupt mobile and internet banking to a large extent but it will never replace Bitcoin. Although Bitcoin is still not as widely adopted as it was supposed to be but to say that Libra, backed by a certain corporate will bury Bitcoin is plain insanity. Libra will not be open-sourced for development by independent developer pools and it’s protocol will essentially be upgraded or developed over time by core facebook engineers. This is against the very principle of digital democracy that Satoshi Nakamoto envisaged in 2009.
Facebook has the one of the largest online databases in the world. They know what you do, what you eat, what you see, what you like, what you dislike. Facebook knows more about you than your spouse does. For such an organization to introduce a digital currency is mind-boggling. Crypto currencies are meant to make the holders incharge of their own funds and challenge the Govt’s autocratic reign on people’s money.
Taking the control of your financial reserves from the Govt and Gifting it to a multinational corporation would be suicidal. Libra doesn’t possess any threat to Bitcoin or any major cryptocurrency for that matter. Only digital banking service providers will face a challenge from Libra. Given Facebook’s user-base and it’s mass outreach, it will be quite interesting to watch how it unfolds.
Merchant adoption of Libra will definitely be regulated or even banned by many countries because no Govt would allow their sovereign and fiat currency to be undermined by an up and coming mode of monetary payment. This will be the biggest bottleneck for Facebook and Libra. Cross-border remittances and peer to peer banking will definitely become easier if all goes well with Libra. Then there’s an issue of transaction fees which will be free or negligible but Govts will naturally want to tax transactions.
There still remains a bleak possibility of Libra being widely adopted as a means of payment and Bitcoin becoming the Gold of tomorrow. This is what I think is going to happen. Bitcoin will be in a few years from now what Gold is today, a reserve of value. All it will take is one regulation or law by a few central banks, to ban the flow of Libra within their country but the same can’t be said for Bitcoin which is masterfully designed by the anonymous Satoshi Nakamoto to evade Govt control and regulations.
Nevertheless, it will be fun to watch how Facebook goes ahead with this ambitious project.
(Author Kanika Madani – A chartered accountancy and company secretary student and finance graduate from St Xavier College Kolkata)