Facebook’s Libra Currency Explained
Facebook recently announced a global virtual currency that will be accessible to billions worldwide, especially in developing countries with minimal access to banks or financial institutions. The project is known as Libra and it will allow people to quickly transfer money to others or purchase items online. Facebook isn’t the only company involved with Libra, as well-known companies such as Uber, PayPal, Visa, Mastercard, and Spotify will join the Libra Association to oversee the entire process. The initial launch date of Libra is expected to occur in the first half of 2020.
How will Libra operate?
Libra will function on a “blockchain,” which is similar to other cryptocurrencies. However, that terminology is controversial to describe Libra, as it isn’t decentralised compared to other cryptocurrencies. For example, Bitcoin allows anyone to run a node while only the servers of Libra Association’s members are allowed to run nodes. Facebook believes that a decentralised model isn’t possible and would not be powerful enough to become a viable option for a global audience. Ultimately, the lack of scalability and speed makes it impossible for Libra to operate similar to other cryptocurrencies with a decentralised system.
Advantages and disadvantages of a centralised system
The main advantage of a centralised system is the speed to process payments. The Bitcoin blockchain can only process around seven payments per second, while Libra is expected to handle nearly 1,000 transactions each second. However, the benefit of a decentralised system is that it is much more secure and less likely to be hacked by cybercriminals. Facebook also stated that they plan to transition to a decentralised model within five years of the initial launch of Libra.
How Libra is similar to Bitcoin
Libra will only be available in a digital format, similar to Bitcoin and other cryptocurrencies. Each one of the Libra transactions uses a software ledger, also known as a “blockchain” to confirm each transaction. The Libra blockchain is eventually expected to develop into an open system, but will not be decentralised in the initial stages of development.
How Libra is different from Bitcoin
The market for Bitcoin is ever-changing and is highly volatile. However, Facebook plans to stabilise the value of Libra by connecting it with real-world assets. The Libra Association will store various currencies, as cash will be added to the Libra Association’s reserves each time a user trades cash for Libra. A Libra wallet will also be available, as you can use Messenger or WhatsApp to exchange Libra. The list of companies that will accept Libra has yet to be announced.
Potential problems and challenges
Libra will need to overcome numerous challenges before it becomes a viable alternative to other popular forms of cryptocurrency. The lack of public trust in Facebook is at an all-time high due to the various privacy scandals that continue to plague the company. Facebook has already promised not to use payment data for targeted advertisements, but many consumers remain skeptical. Multiple countries also remain cautious, as France and the UK have both warned against the potential abuse of the system. The Bank of England also stated that Libra would only be allowed in the UK if it met high financial standards.
How will I create a Libra wallet?
Facebook plans to allow each user to create a Libra wallet by using government documentation to verify their identity. Other companies will also have the opportunity to create their own wallets to use Libra. However, companies must be approved by the Libra Association before they can transfer money in or out of the system.
Facebook’s primary goal is to make Libra accessible to nearly anyone in the world. However, Facebook will need to overcome various obstacles to make Libra a viable alternative in the financial industry. Only time will tell if Libra will revolutionise the way people make purchases and send money to others.