Is Libra really a cryptocurrency? Facebook’s new money, explained | WIRED Explains


On June 18, 2019, Facebook
announced Libra. It is a virtual currency, or cryptocurrency
– even if some people don’t agree with that definition. In Facebook’s vision, Libra should become a
global currency for billions of people, especially those in developing countries who have no
access to banks or financial services. The idea is that Libra would be like digital
money, which you can transfer to other people or simply use to buy stuff. Facebook CEO Mark Zuckerberg is not doing
this alone – a bunch of Silicon Valley hotshots are also onboard with the plan. Libra will be governed by the Libra Association,
a Swiss group including 28 members – among which Facebook subsidiary Calibra,
Uber, PayPal, Mastercard, Visa, Spotify and many other household names in technology and
finance. So, how will this work? Libra’s white paper – a sort of technical
manifesto – says that it will run on a “blockchain”. Again, that is a controversial definition
in some quarters. So, a quick, rough explainer: a blockchain
is the infrastructure on which cryptocurrency payments take place. It is a digital, unchangeable
record of all the payments ever made in a given cryptocurrency. Here’s a crucial thing: a blockchain is
decentralised. The transactions are processed and verified by a swarm of independent computers
rather than by a single referee or central bank. Those independent computers are called nodes. That decentralised structure is intended to
enhance security – as there is no single entity to be hacked – and also, to guarantee
that governments can’t block transactions simply by browbeating a central authority. It is a pretty libertarian, anti-state, anti-bank
tool. The first blockchain ever is, of course, the one underpinning Bitcoin, the original
cryptocurrency. But, the Libra blockchain is not decentralised
the way Bitcoin is. On the Bitcoin blockchain, anyone can theoretically run a node, even
if that’s expensive. In contrast, Libra’s nodes will be
run only from the servers of the Libra Association’s members – that is, Facebook, Uber, Paypal
and the others. Now, none of these companies will individually
have much of a say in how payments are processed and verified. It will be a collective
effort – which is good, according to the blockchain ethos. Still, the more libertarian cryptocurrency
fans resent that Libra will be controlled by a club of megacorporations. They also fear
that the Libra Association could buckle under pressure if, for instance, a government ordered
it to block a transaction. Facebook’s official reason for this make-up
is that a fully decentralised model would not be powerful or fast enough to deliver
the “global financial infrastructure” Libra aspires to become. The issue of scale is one of the main challenges
confronting decentralised cryptocurrencies. Decentralisation makes the system less vulnerable
to hacks or shutdows, but takes time: the Bitcoin blockchain, for instance, can only
process about seven payments per second. By comparison, the centralised Visa payment network
can support up to 24,000 payments per second. Initially, Libra should be able to handle
about 1,000 transactions per second. The white paper says that, over the next five
years, Libra will shift from the current proposed model – also called a “permissioned” blockchain
– to a totally decentralised – or “permissionless” blockchain. Of course, there is no guarantee
that will ever happen. Here is another issue Facebook says it is
tackling. One big problem with cryptocurrencies is that
their value can be quite fickle. Over the course of 2017, the price
of Bitcoin swung between 900 and 20,000 dollars. That is great news if you are a speculator,
but it’s not ideal if you want to launch a global payment network for Facebook’s
2.4 billion users. That’s why Libra has been designed as a
so-called “stablecoin”. That means the value of Libra will be tied
to the value of real-world assets. Essentially, the Libra Association will store a basket
of currencies (like dollars, euros, or pounds) and low-risk government securities. The value
of this basket will determine the value of all the Libra units in circulation. Every time a user trades cash for Libra through
an exchange, that cash will be added to the Libra Association’s reserves. At this stage, there is not much else we know
about Libra. We do know that Facebook Calibra will launch a Libra wallet allowing users
to exchange Libra through Messenger, WhatsApp or a standalone app. We don’t know which businesses will accept
Libra yet – I suppose that both Uber and Ebay will, because they are both members
of the Libra Association. Libra doesn’t launch until 2020 but that
doesn’t mean that people aren’t already fretting about the whole affair.
Facebook has promised that it won’t use payment data in order to target adverts – but
people don’t trust Facebook, for notorious reasons. And regulators are also frowning upon
the move . France has underlined that only governments can mint money, and has warned
against Libra’s potentially nefarious uses. The Bank of England said that Libra will have
to meet very high financial standards to be allowed in the UK. Lawmakers in both the US and the EU are concerned
about Facebook’s expansion to the financial domain. For a company which is increasingly depicted
as an oversized, unaccountable, arrogant monopoly is launching a currency really the best way
to avoid scrutiny? We’ll find out in 2020.

8 thoughts on “Is Libra really a cryptocurrency? Facebook’s new money, explained | WIRED Explains”

  1. Facebook under the pretense of cryptocurrency is going to tax evade alongside a union of tech companies as Amazon has blown them out of the water by paying $0 in taxes.
    Mark my words.

  2. Step outside of Facebook "guidelines" and your assets will be frozen..
    This is the first step in ceasing total control of people, just like China's socialpoint system where you get shunned if you disapprove of the government system.

    Libra.. No thanks…

    YOU DO NOT WANT TO LIVE IN A WORLD WITHOUT CASH MONEY!

  3. Not going to succeed just like the Internet.org and Free basics failed.
    Also, the trust of people in facebook is getting weaker every day.

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