The whitepaper published by Facebook by the Diem Association (formerly Libra Association) is a very detailed piece of text, but it is rather difficult to really distinguish the technical jargon surrounding the hero of the subject, i.e. the cryptocurrency of Libra.
Cryptocurrencies are not necessarily the simplest term to be grasped by many, but because Libra coin is being introduced as a simple global payment system in January next year, one must at least have a clear understanding of what this cryptocurrency is, how it would be used, and some of the nitty-gritty sections that need to be held aware of.
What is Libra by Facebook?
Libra is a cryptocurrency that was created to be used as a type of currency for digital transactions by the Diem Organization. The Libra coin is not required (yet) to replace fiat currency, but it intends to work with them in tandem by reducing the service fees that must be charged by using remittances, ATM fees, and services such as PayPal and Western Union.
It needs some elements of the premise of the cryptocurrency, such as the use of Blockchain technology, but the way Satoshi Nakamoto demands implementation is not completely decentralized.
So calling Libra a type of digital currency is more fitting. The three horizontal waves that have been selected to represent the coin will be able to identify this currency.
When will Facebook launch Libra?
The Libra Cryptocurrency is scheduled to launch in January 2021, after several hits and misses. In the United States and also in some Latin American countries, it will be available. As of now, when it is introduced, the coin is supposed to be sponsored by the US dollar.
How does Libra Work?
Libra’s goal is to provide people who do not have a bank account or are part of the banking system with a way of transacting money in the digital economy. Libra is sold as a Stablecoin, unlike cryptocurrencies such as Bitcoin, which means that there would be a reserve that will retain stable short-term maturity, low-credit risk, and high liquidity assets to sustain its value and keep it stable. This means that you will not invest in Libra and hope to gain some gains and that the Libra coin is intended to be used solely transactionally.
The Libra Coin will be available as Librausd (USD), Libraeur (EUR), Libragbp (GBP), and Librasgd, depending on the currency of the country in which it is used (SGD). The Libra Network (LBR) and the value of the Libra Coin itself are set by these Stablecoins. In the form of many Stablecoins, Libra currency will allow individuals to easily conduct local digital transactions. All they will need is a digital wallet and government id to be able to use Libra.
How will Libra coin be regulated?
The Diem Association has recruited ex-politicians and former government employees such as Christy Clark and Steve Bunnell within its organisation, in addition to working with regulators and financial authorities of the countries in which it aims to launch Libra Coin, to ensure the legitimacy of the cryptocurrency.
These moves are intended to create Facebook’s good intentions with the coin Libra, as well as to ensure that the coin is not used to commit financial crimes or to help corporate profit. The Diem Association has also assured that, without the approval of the Swiss Financial Regulator, FINMA and main approvals from some US states such as New York, the Libra coin will not be released.
The Libra Blockchain
Unlike Bitcoin, which operates in a permissionless Blockchain scheme in which anyone may manage the ledger and function as a validator, only those allowed to validate a Libra coin transaction by the Diem Association are permitted.
Actually, if one takes the current members of the Association into account, there are 27 validators, but this number will rise as more members join.
The Diem Association has provided more technical information on the development of Libra’s Blockchain system here.
We can’t be sure whether in the future the Libra Blockchain will move to a permissionless framework and given the enormous scrutiny it is under, this possibility will be very difficult if not impossible.
What is Novi (formerly Calibra)?
Novi is Facebook’s rebranded cryptocurrency wallet as well as its subsidiary and will be used to transact Libra coins.
The wallet promises things such as no secret cross-border transaction fees, while maintaining maximum transparency as well.
It can also be used to turn fiat currency, such as Libra and vice versa, into cryptocurrencies. Novi will be available both as a standalone app and through WhatsApp and Messenger, according to Facebook. To use this wallet for transactions, some form of government verification will be needed.
This level of autocracy that Facebook has over Libra cryptocurrency comes with its own set of problems, some of which we have mentioned in the next section. To offset these concerns, Facebook decided to democratize the process by creating a body of representative companies/organizations which is right now being called the Diem (formerly Libra) Association to head the Libra project. Facebook is doing everything it can to assert the Association’s autonomy from itself.
Headquartered in Geneva, Switzerland, the Organization currently has 27 members (since several members left last year) and Facebook is aiming to reach the 100-member mark soon. It is the duty of these members to make important decisions about the Libra coin, its control and management. Each participant receives a vote on the cryptocurrency and without the Association’s consensus, no action can be taken.
The controversial history of Libra
This cryptocurrency’s journey has not been simple. Regulators had big concerns about how Libra’s cryptocurrency might interact with the value of the national currencies of their own countries as well as their countries’ financial policies, and with good reason as well.
This cryptocurrency has the potential to disrupt exchange rates of fiat currencies, destabilize stock markets, and even cause economic disruption worldwide, on the assumption that the Libra coin would attract millions of users (which is plausible if one considers the 2.5 billion Facebook audience alone).
In addition to all the above factors, another major concern about Libra is its manipulation of various types of financial crimes, something for which cryptocurrencies have gained a notorious reputation.
Facebook itself is another big explanation why this cryptocurrency is so dreadfully divisive. When used in transactions for its different goods and services, there is no denying the advantages that a cryptocurrency like the Libra coin will bring to the business.
Sadly, despite its many reassurances not to misuse data, Facebook’s deep involvement has also created a privacy problem. In fact, the privacy issues were so bad that last year, members such as PayPal, Visa, eBay, Mercado Pago, Mastercard, Stripe, and Vodafone withdrew from the Diem Association.
The magnanimous influence of the Libra project on the planet can not be overlooked, after much renaming, controversy and relentless corporate ambition, the amount of confusion and speculation that still surrounds it. Whether or not this currency will alter the way we look at money at the end of the day, it will definitely add a new viewpoint to the money narrative.
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