Libra coin
The unusual undertaking called Libra and its place in the highly competitive and vast crypto world.
Less than a year ago, Facebook brought to the big public news about its plans to create a brand-new currency working on the Blockchain basis. The name is ‘Libra’, and some of the greatest players on the American and global market, such as Visa, Spotify, Vodafone, eBay, Uber and Thrive Capital, are involved. But, of course, the main character is Facebook itself, which has got nearly 2.5 billion active users and plans to use the new virtual money for its coming payment service called Calibra. This is one of the most talked-about topics in the crypto community in 2019, but we heard outrageously inaccurate comments, so we decided to draft this article and create some legal clarity around the subject matter.
Libra’s Whitepaper is very promising but still with very few details. However, the need for universal online currency exists, and the interest in such projects is towering. If Facebook’s new venture succeeds, online users will have an extremely suitable and cheap way to purchase whatever they want, send or receive Libra units or do almost any other transaction they now do in a more complicated way and by paying significant fees. The promise is that the accompanying wire costs to overdraft and ATM charges will disappear for good. And that won’t be because of purposeful regulations and directives of the European or any other’s legislative body but due to natural market competition. So far, so good.
Regarding the project, many questionable matters must be clarified and actions to be taken — Facebook, with its massiveness, has all the potential to jeopardise the financial system security of both in the USA and any other country. It is a company registered in the USA, but the Libra enterprise will be based in Geneva, Switzerland. This, as well as many other peculiarities, cause fear in the regulators. Thereon, a special hearing of Calibra CEO David Marcus before the US House Financial Services Committee was done in July 2019. The prospect is to address the problem by adopting specific pieces of legislation for as much as the risk of money laundering and terrorist financing seems natural. However, there is also a sense of fear of state men about turning the new cryptocurrency into a complete alternative to the dollar.
The pure idea behind Libra is simple: giving real fiat money for receiving tokens of the new currency. The latter is based on Blockchain, but specialists remark that as it is, Libra is not a cryptocurrency. Obviously, Libra is not a legal tender either and is not required to be accepted anywhere. And if the banking market provides the necessary guarantees of security and predictability, there are still no such guarantees for the Libra system. It will have its proof-of-stake protocol, and the whole conception is dissimilar. The big company relies on its user base and the millions of businesses represented by it to turn the financial world into Libra coins. At first glance, this activity may seem like banking, but it is likely to be something more. The association aims to provide its service to persons who cannot access financial services offered in the developed world due to poverty or other reasons.
Creating a new currency or payment method doesn’t mean much if no powerful transaction system exists. And here comes Calibra wallet with a declaration for seamless and straightforward operations. In essence, it will be sui generis asset management which, together with ‘currency’ Libra, could be described as shadow banking. The idea is similar to the exchange-traded fund (ETF) creation and redemption mechanism. Libra and Calibra, though, are not an ETF but rather a mutual fund that represents two classes of interest. Moreover, unlike the Libra Association, which includes many companies, Calibra Wallet is a project that will be wholly owned and operated by Facebook. This raises various concerns and questions, such as whether Facebook would be eligible for a banking licence.
By definition, banks are the only institutions that can collect public deposits. Their activity is too risky, and therefore the laws of the countries provide for special requirements. The simultaneous desire of many or all depositors to withdraw their money in cash inevitably results in bankruptcy. And if Similarly, Libra users will ‘be on the line’ if oversight is not applied. Considering the reasonable concerns, Facebook’s Calibra would be a risky financial institution, and the legal framework in the USA needs an update as such was done in Switzerland with FINMA. It should be noted that Facebook chooses a place with good regulation instead of staying where such is missing. Risk of losing the money deposited.
As mentioned above, some differences between Libra and the known cryptocurrencies like Bitcoin appear. It will start as a centralised Blockchain network and could not be described as a digital commodity. Instead of the usual features, Libra Whitepaper represents something entirely different. Despite the difference between Libra and the usual cryptocurrency, they both share similar attributes. We are here yet, to see if a social platform such as Facebook may be worth investing in, provide reliability and security as widely popular cryptocurrency such as Bitcoin. Depending on the regime of regulations that Libra will have to comply with, it will become clear whether it is worth investing in. We will continue to oversee this unusual undertaking such as Libra in the future to comes, so you may hear more from us on this topic in the near future soon enough.
