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Libra: A Downfall or New Opportunity in the World of Finance?

UTC by Dr. James Nitit Mah · 12 min read
Libra: A Downfall or New Opportunity in the World of Finance?
Photo: Coinspeaker

It’s worth sticking around for a while to monitor if Libra is another publicity stunt or a new wave of impact like the one Mark Zuckerberg made with Facebook being the world’s largest social media platform.

It’s been asked to comment on Facebook’s Libra, a new global currency. However, there are differing views against money gurus who express a word of praise to Libra as a new digital currency that can change the world. It’s important to examine the pros and cons of new digital currencies.

The Dream to Global Currency

When Facebook announced Libra and disclosed details in the Libra White Paper in June 2019, the purpose was for it to aim high as a new global currency by 2020. Libra was under scrutiny worldwide. From its previous moves, Facebook caused a lot to stir, such as Facebook Live — a real-time video broadcast that was meant to kill traditional media. Unsurprisingly, Libra can be a lethal weapon against other businesses due to having over 2.7 billion users on Facebook, or almost one-third of the world population. Due to the Libra news, people were optimistic and devastated at the same time.

The Facebook-Cambridge Analytica data breach of 87 Facebook users’ personal data has severely eroded public trust. The whole world unanimously condemned Facebook for its pivotal role in this privacy scandal. Given the fact that Facebook nearly lost all its credibility from that revelation, perhaps Libra is Facebook’s reinvention and new business trick to increase the stock (FB) value from the talk of the world.

Libra: Facebook’s Ultimate Goal to Be a New Global Payment System

If you have never heard of Libra, here is an overview.

Libra is a digital cryptocurrency created by Facebook and has been developed by 27 notable finance corporations and business giants under a non-profit organization called Libra Association. By 2020, it’s expected to have 100 members.

Libra promises to be the new solid and most acceptable digital currency as powered by stable coin that maintains a relatively stable value with reserve asset guarantee covered by government securities and bank deposits in various fiat currencies. It is signified to be the same as traditional flat currencies backed by gold. The ultimate goal of Libra is to become the global currency providing a cross-border financial infrastructure that offers cheaper service charges, ease of use and convenience, and secure payment.

Facebook made it known to be the founder of Libra, not a sole owner. The management is set to be operated by Libra Association as Facebook dispels any doubt on personal privacy. The mistrust among its users is a great persisting obstacle that the company must leap over.

Along with Libra, Facebook launched Calibra — a digital wallet app exclusive for Libra, powered by Facebook. A user must download the Calibra app to use Libra, this way it can bring benefit to the big blue social media.

Due to the nature of the free market, there is a possibility for more e-wallets in app stores to support Libra currency and compete with Calibra. However, until that day, Libra needs more trust and expanding user popularity in order to create more appealing value for investors because the true value is to have large user bases and higher demands.

If Libra unlocks its potential and succeeds in becoming the major global digital currency as planned, Facebook will be racking in handsome profits, creating feasibility of investment.

To Hope Is to Risk Pain

With the name Facebook at the forefront, Libra is supposed to be the ultimate global cryptocurrency. However, this claim has its flaws.

The maintenance of price stability for Stable Coin is non-viable because Libra’s guaranteed reserve asset is derived from Fiat money. Despite Facebook’s great effort to accumulate several reliable foreign currencies, all the currencies are subjected to fluctuation meaning Libra isn’t a stable currency as claimed.

It’s uncertain about the lower service charges (like no charges at all) and real-time transaction processing as nobody knows the actual rate of Libra’s service charge. The processing capability whether this is practical and better than other virtual currencies are issues that remain unclear in drawing any conclusions.

It’s not that Libra is useless when considered in other dimensions, those who will enjoy the obvious benefit are coin makers and international entrepreneurs whose cashes will not likely be affected by fluctuations once the cash is deposited in Libra.

Another concern is unfair competition caused by the advantage of using tax-exempted Libra for business and payment. Those who don’t use Libra are liable to be taxed according to the local laws, and this would open up a huge gap. In the case of Libra’s rise in popularity across the globe, all nations’ financial stability and monitoring would be affected at the end.

Libra may contribute to the extensive money laundering generated by criminal activity and illegal funding which are difficult to track and verify their true source. If the money laundering on Libra is out of control, it’ll cause disruption around the world in a few blinks, and a new financial crisis in the digital age.

It’s important to keep vigil over the personal privacy that is liable to a security breach as millions of Facebook users’ data was misused by Cambridge Analytica. Even though Libra is run by Libra Association and not wholly-owned by Facebook as stated by the company, the management team comprises 27 companies that work towards the profit. Libra wants additional members up to 100 to act as validator nodes and may increase the number in the future, however, this number sounds meager compared to the world population. This points to rigorously monitor all these validator nodes to ensure transparency and their business ethos in managing the capital assets of the whole world.

Trust War: The Battle of Trust between Banks and Libra

In the financial world, trust is key. When one gains trust among consumers, one deserves to earn the right to win their hearts.

Even though Libra has collaborated with international financial institutes, there are no banks joining the same bandwagon with Libra.

Many people are quick to judge by the omnipotence of Libra. They believe that all banks will be disrupted and disposed of the financial world when Libra comes into the scene, and the world becomes a cashless society where everyone uses digital currencies instead of regular money. Banks will be a word of the past and find themselves in a corner of history museums.

One can look at this verdict through different viewpoints. To eradicate these financial establishments like banks isn’t easy as it sounds. The advantage of banks is trust and beyond. The world’s banking system has its own stringent and reliable standard, being regularly carefully and systematically monitored by local banks, the nation’s bank, and the world’s central bank. All these combinations make standard banks the toughest part, hard to replicate and abolish.

Most important, banks have large customer bases along with gigantic transaction data. With millions of users and big data, banks can create their own digital currencies at ease, but only if the banks implement modern technologies that go along well with the fast-paced world.

In this regard, Libra has raised hopes that it’ll shape the future of the world’s finance, but all doubts seem to be a formidable obstacle for Libra to overcome, or else its ultimate goal of becoming one of the global currencies will be just a distant dream. In light of the digital currency, all eyes are now rested on Facebook’s restoration for the trust and the possible dissolution of the traditional banking system from the inadequacy of technology.

Interestingly, as digital currencies are ubiquitous, it’s very likely that the most influential countries would issue their digital currency too. It’s convinced that the USA’s old rival — China — is readily taking a fierce action behind the Great Wall because China wants the yuan to replace the US dollar as a global currency.

The Risks that Outweigh the Benefits

From extensive observations, the risks would outweigh the benefits by any means. Libra has a long rough way to go to become a global currency, as it needs to dispel a shadow of doubts for the general public in order to build up trust.

10 critical remarks concerning Libra are as follows:

  1. The white paper does not release details and regulations as well as the exchange rate of Libra. It’s hard to tell how the circulation of fiat money in Libra will be like. The cryptocurrency may charge a 9% fee per transaction from a credit card, or a debit card.
  2. Libra’s individual exchange allows everyone to buy and sell Libra coins since Libra has no regulations on crypto brokerage. The unregulated free market of Libra coin can lead to undersell or oversell of Libra coin in order to extremely seek large profits as everyone can become individual exchange and the solidity of Libra stable coin.
  3. Entrepreneurs will gain an advantage in the convenience of Libra, in contrast, a government will likely to suffer from a great loss of tax revenue. The actual money will be taken out of the circulation, causing an unstable financial system in a country. Also, damages from illegal businesses, questionable enterprises, and money laundering will get out of control since transactions on the blockchain cannot be blocked despite the crypto transaction ecosystem to be verifiable. Transactions on blockchain work in a linear movement. To withdraw cryptocurrency from the ecosystem, you can only cash out at the endpoint unless you disable the crypto withdrawal at the endpoint.
  4. Unlike Bitcoin and Ethereum that are based on solidity language, Libra is powered by Move, a new programming language developed to provide the core foundation for the Libra blockchain. The move is praised for being easily programmable and its ‘Smart Contract’ feature. It has some drawbacks because it supports a set of basic functions, but not for advanced codes. It could make use of a well-known coding language and a standard interpreter to ensure the integrity of its blockchain codes.
  5. On closer inspection, Libra allies mostly comprise of low-potential companies for the modern days. For some companies this may be annulled for being too small to seek their ways into the global scene. Libra can fail to materialize and lose more allies, or its new potential members will decline to join the allies.
  6. Libra isn’t a relevant factor that contributes to the emergence of a cashless society because the cashless payment happened long before Libra. People might not know about a cashless society due to limited endorsement. After everyone joins the cashless society, Libra will be supposed as an alternative to digital payment, and a steering wheel in cryptocurrency.
  7. Facebook shouldn’t limit the number of Libra nodes and minimum funds to start a node. More nodes help strengthen its ecosystem and ensure transparency. For technical requirements, Libra set maximum 100 nodes on its blockchain, which means Libra has only 100 nodes to control the whole ecosystem, and 27 companies to invest 1 million funds in 27 nodes. These 27 nodes on Libra are far too small in quantity, compared to Bitcoin’s 20,000 nodes, and Ethereum’s 7,000 nodes on its blockchain.
  8. In Libra’s white paper it is noted that Facebook can recover a token key when lost but there are not enough details on how this key can be recovered. Technically speaking, Facebook can token key, so can the other 26 verification nodes. It can present itself to be very vulnerable in placing all global funds in the hands of a person, a company or an association.
  9. Libra doesn’t have its clear regulations concerning international financial laws, and that may undermine the stability of the global economy. Most government financial organizations won’t approve of Libra to enter national financial systems until there’s more clarifications of Libra transparency from Facebook. It’s impossible to see Facebook clear up all growing doubts about Libra. Furthermore, Libra’s financial partners, such as Visa and MasterCard, would be the first group to leave the ally since their businesses heavily rely on trust and confidence. In the worst-case scenario, Libra would be closely scrutinized by the governments, leaving Visa and MasterCard no choice but to break all connections with this cryptocurrency.
  10. To maximize Libra’s technical efficiency and convenience in use, Facebook would buy start-ups outside the USA to bypass government restrictions that limit payment transactions and activities across the Libra ecosystem. Facebook has collected a large database from Facebook Live covering images and voices from its millions of users across the world. This database is considered as Facebook’s most valuable digital asset. Millions of transactions and other financial activities made on Libra will yield massive profit and be impossible to be regulated to comply with relevant financial laws, regulations, or standards, and to ensure its transparency.

These critical remarks suggest Facebook’s need to clarify any points and doubts to the general public by explaining the real benefits of Libra currency for everyone and not only for some. If not, Libra will never earn enough trust and power to make changes in the global financial system, and it will be just an alternative cryptocurrency. Its big dream of becoming a global currency will be pushed back as well.

In the event Libra is not successful in gaining significant traction, one possibility is that Libra might position itself as an intermediary cryptocurrency platform for any country or organization that cannot invest and does not have the technology on its own to instead use the Libra platform to launch their own digital currency.

It’s worth sticking around for a while to monitor if Libra is another publicity stunt or a new wave of impact like the one Mark Zuckerberg made with Facebook being the world’s largest social media platform. Hold still and soon it’ll be shown if Facebook’s ambitious dream will succeed or succumb.

Altcoin News, Blockchain News, FinTech News, News
Andy Watson
Author: Dr. James Nitit Mah

Dr. James Nitit Mah concentrates on the deliberation of disruptive business strategy, cryptography, and behavioral economy. Dr. Mah has focused on the entrepreneur to consider the transmutation and growth of businesses transcend around the world.

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