Libra? A Digital Currency?
Yes, Libra is indeed a digital currency that Facebook introduces. Most people new to the digital currency sector might confuse it with Libra, a zodiac sign. But no, it is not. But what is Libra? Is it already launched or to be launched? And why is Facebook launching it?
How will Libra stand up in a market dominated by many digital currencies? What makes it different from other digital currencies? Let us find out the answers to these questions below.
1. What is Libra, and why is it the talk of the industry?
Libra is a digital currency that is going to be launched by Facebook. Facebook announced on June 18th that it would launch Libra by the first half of 2020. It is named Libra because Libra Association will run this currency.
Libra Association is an organization or company which is based in Geneva. Libra Association has over two dozen founding partners, which include Facebook, Visa, Mastercard, the Vodafone Group, and Uber.
It has received numerous flak and criticisms from some lawmakers and commentators, which includes Chris Hughes, who happens to be one of the co-founders of Facebook. He has now become one of the foremost critics of the social media platform, which he once helped create.
The reason why Libra is the talk of the industry is due to various reasons. Firstly, its approach gets questioned everywhere. As Facebook is running it, most of analysts feel that Libra might not prove to be a safer option in terms of customer privacy.
The matters of concern regarding the usage of Libra also include money laundering and even finance for terrorism. Because of these aspects, many governments have taken a backstep toward embracing Libra. Many ministers are also focusing on detailed reports on Libra's work process and functioning.
Even Facebook’s co-founder Hughes has termed digital currency as a frightening option. He has opined that it shifts power from central banks toward multinational corporations.
2. Why are crypto enthusiasts and skeptics coming together for Libra’s criticism?
Most of the critics, as well as the lawmakers, are coming together to criticize Libra because the factor of privacy and security is questionable under this digital currency. This plan of Facebook to introduce a digital currency has had an adverse reaction in most places.
The criticism is drawn not only towards the security or privacy of customers but also its functioning approach. Everyone from politicians, data protection activists, and financial regulators are criticizing the plan of Libra.
This high level of skepticism also gets fuelled by the fear of the widespread adoption of this new digital currency can achieve. How is such a widespread adoption completed? As we all know, Facebook is a social media giant with around 2.4 billion users worldwide. So if most users start adopting Libra as their new digital currency, it will be a problem for others.
But some of the criticisms made by these people can be accepted. Everyone is aware of the multi-layered scandals of Facebook, which happen from time to time. Despite numerous attempts to fabricate its model, Facebook has failed to stop these scandals. Because of these scandals, it has lost the people's and government's trust.
Even on factors such as dependability Facebook’s stand has often proved to be little and digital currency from the social platform can invite lots of problems to the users. To be precise, the matters stressed by these analysts and crypto activists seem to be on point, right?
3. What is the government’s stance on Libra?
Many governments have started to discard Libra right from its initial stages. In France, the Finance Minister has asked for a detailed report on this project on Facebook. The report should state the fundamental facts, amongst which the content should be primarily on issues like privacy, money laundering, and finance.
Even in America, it has been discarded by President Donald.J. Trump, who has publicly tweeted his displeasure towards Libra. He has stated that if Libra wants to succeed in U.S markets, it first has to convince the Government. He also opines that the work process and its functioning should be at high standards.
Because of its numerous scandals, Facebook has also lost the trust of many Governments. Many Governments have opined that it will be crazy to give Facebook a chance to experiment with people’s accounts, given their record of numerous scandals.
Even the German Government is not so supportive of Libra, as many of the members in the parliament have opposed the idea of Facebook foraying into the digital currency industry. The German Government has opined that this digital currency might turn Facebook into a shadow bank, and regulators should always be on a high alert.
Many Governments have termed this digital currency frightening and a power that will assist the multi-corporations in gaining the upper hand.
4. What are the economic and political impacts of Libra’s announcement?
Any physical assets do not back the digital currencies circulating in the market. This attribute makes them immune to the notions of the National Government. This attribute also makes them vulnerable to speculative bubbles and flash crashes.
On the other hand, Libra is one digital currency directly backed by assets. This fact is 100% proved also. Every single unit of this digital currency will get supported by an equivalent basket of bank deposits and short-term government securities in various major currencies.
So what is the advantage of this feature? The power is that Libra will never face any wild price fluctuations in its value. And considering it will be backed by many currencies and assets internationally, it will not be bound by the policies and fortunes of a single country.
Another noteworthy feature of Libra digital currency is that, as physical assets back it, it may help lower the risk of high inflation, which many countries are experiencing. Another benefit of Libra is that it may likely help reduce the cost of transferring money worldwide.
How is it possible many of you may be wondering? It is possible, as we all know that the cost of using Facebook is so low and prevalent. This feature will reduce excessive fees when you move your money from one country to another.
But there are downsides to this digital currency also. If Libra is successful once it gets launched, it will surely speed up the movement of becoming cashless societies in most countries. You might be asking how is it the downside of digital currency.
This particular factor will deprive many features of the poor, the elderly, and the unbanked. A cashless society will be a nightmare for such people. How will they lead their lives? And in a country like India, where most people stay in remote areas, this is a disadvantage.
Not just in India, but in places like Philadelphia, San Francisco, and the State of New Jersey also, it will take away many features from the people residing there. Secondly, a cashless society makes the entire economy of a country prone to disruptions.
Why? How do we term something as cashless? When we use the Internet, right? What are the things we require for a stable internet network? A regular electricity supply, a secure communication network, and a robust security setup.
If any of these fails, digital communication will not work correctly. If any of these do not work correctly, the whole setup will be prey for many malware and viruses. This factor can cripple any economy in the world.
How? Because it will allow any hacker to get into your system. Any country can hack into another country’s power grid and weaken its economy quickly. Even accidents that can shut off an entire power grid for a while may be lethal for a cashless society.
A simple example is that you are doing an online transaction, and suddenly, the power or the Internet fails. The sale is incomplete, but your money gets debited from the bank. What follows rest is experienced by almost everyone. So let us not discuss those sufferings here. Similar will be a situation if a cashless economy comes into existence.
5. What do the rare supporters have to say for Libra?
The supporters of Libra, though small in number, are noting down the key features of this digital currency and spreading them correctly. Some factors which these people opine are:
5.1 Libra offers its services with little or limited transaction fees:
This digital currency has not yet planned to charge for payments happening from peer-to-peer. Simply put, they pay a small transaction fee for services such as covering fraud and improving security.
This fee structure can make Libra a competitive threat to the likes of Visa, Mastercard, and PayPal if it is widely adopted worldwide.
5.2 Libra has higher mobility compared to other digital currencies:
Any person who has a smartphone with better connectivity can use Libra. This feature will guarantee the highest number of users for Libra. Like other digital currencies, you may not need a laptop with an ethernet connection to use Libra, which provides a high value of mobility to this digital currency.
5.3 Libra has an extraordinary amount of support from large companies and most of the payment platforms:
Facebook has stated that most platforms, such as Mastercard, Visa, Uber, the Vodafone Group, and Facebook, will support Libra. So most the people do not have to fear using this digital currency. The backing of such eminent companies will provide a brand value to the currency and install a factor of trust among the people.
5.4 Libra has higher stability compared to other digital currencies:
This attribute is possible due to the great support of the Reserve, which Libra creates for higher stability. What does stability mean? Stability is nothing but maintaining the price at a certain level, a high level in this case.
6. Can Facebook gain the trust of its clientele?
Trust is such a quality that requires lots of time to gain but can get destroyed within minutes. Because of its previous scandals, many governments have stayed away from Facebook for most of its policies and reforms. Even after repeated warnings, Facebook is still not able to find a way to minimize these scandals.
The prime fact to note here is that most of these scandals have been about the customer’s private data. This fact is, in fact, one of the terrifying things which can be expected from such a big social media, which has nearly 2.4 billion users.
Any customer would want his private data to be secure and safe always. Infiltrating his private data or letting out his private data would be one of the major crimes that can be committed.
Yes, it is right things heal with time. But the past scandals of Facebook are often reflected as wounds that can never get recovered. But one thing to figure out here is that, even after these scandals, Facebook is still the world's largest social media.
So, accepting Libra would entirely take longer than the time expected from the people. But it will be accepted if it proves to be a better alternative than other digital currencies. What does this sentence mean? It will take time for people to welcome Facebook like before, but if it brings in some serious reforms and proves its worth once again, people will unquestionably believe it.
7. Has Facebook learned from its past mistakes?
This question is framed differently and can be appropriately understood. Is Facebook trying to learn from its past mistakes? Is Facebook taking some measures not to recreate its past mistakes? Definitely yes. But the problem is Facebook has, till today, not found a permanent solution to stop these mistakes happen.
The border scandals have killed the sleep of many Facebook employees and are still doing. The prime culprit of such a scandal is the partnership of Facebook with prominent companies. The brand partners of Facebook include Apple, Microsoft, Netflix, and many others.
The exclusive deals of brand partnerships with these companies allowed them to access certain aspects of Facebook. One of the points included was looking into the private information of Facebook users. This aspect was the primary reason for the data breaches, which keep on happening on Facebook.
Facebook is trying to curb these aspects and minimize many other attributes. But still, some of its mistakes do often surf on the Internet. So, what Facebook needs right now is a detailed approach to prevent such errors from happening again. And the way Facebook works, or as it is read in the news, it might solve these errors in the coming days.
Well, the final stop is:
We saw in detail the reforms of Libra and how it is supposed to work. The different stats of Libra when it enters the market has been discussed. The merits and demerits of Libra have also been extensively discussed.
We have also mentioned the stance of different Governments on Libra and also the impact it can provide on the country's economy. Why are there so many criticisms of Libra? Even this question has been answered. So will people accept Libra? Will it succeed in being one of the topmost digital currencies? Well, the answer to this is “Only Time Will Tell.”