In an attempt to transform the way people exchange money, Mark Zuckerberg’s Facebook is soon launching a cryptocurrency called Libra. Powered by modern-day blockchain technology, the currency will be available for global Messenger and WhatsApp users. What makes Libra different from other modern money-transfer systems is that it is going to allow users to send money to others worldwide with low or no cost, as per the latest report by Facebook’s white paper. It also stated that the upcoming payment system will be different and secure than the current system because the money will be sent by users in real-time where banks do not play any role.
What Is Libra?
In the herd of cryptocurrencies, Facebook’s Libra is claimed to be a different type of money-transfer system that is aimed at replacing paper money and options like debit/credit cards. According to people close to the company, Facebook is developing a more efficient payment system that will allow users to directly transfer money through an application on their phones.
Libra is going to be different from traditional cryptocurrency systems because it operates more like digital cash rather than current cryptocurrencies, as per Facebook. The white paper has stated that the company’s digital cash system will make money-transfer a quick and reliable system.
If Libra is different from current cryptocurrencies, then is it fair to call it a cryptocurrency?
Compared to cryptocurrencies like Bitcoin, Libra is different. Bitcoin is known for being permission-less system while Libra is permissioned, which means there are some trusted entities to monitor the ledger and keep track of it. This thing makes Libra more like a digital currency and less like a cryptocurrency. On the other hand, there are experts who say that Libra should be called cryptocurrency because there is no stable definition of the term.
How Does Libra Work?
Facebook has introduced Libra as a different type of cryptocurrency that is more reliable and safe than traditional cryptocurrencies. How does it work? Investors can cash in the local currency to get Libra. After that, they spend Libra like dollar without paying any charges for it. In addition, they can cash out Libra any time they want. To understand more about Libra and its usage, Facebook has even released documentation.
The unit of Libra cryptocurrency is Libra and its character is a three wavy horizontal line unicode character ‘≋’. According to reports around Facebook’s new cryptocurrency, Libra’s value will remain stable- unlike traditional cryptocurrencies. It means Libra could be a good option for investors who have a keen interest in cryptocurrencies.
Whenever someone invests in Libra using the local currency, the money is deposited in a reserve called ‘Libra Reserve’. This value will be equivalent to value doled out to the investor. When the person cashes out, they are given money equivalent to the value of local money. In addition, Libra given back by the individual is destroyed. All this means Libra in circulation provides an individual with 100% value.
Understanding The Libra Blockchain
Only a few things that make Libra like other cryptocurrencies include the use of blockchain technology. There is a cryptographically authenticated database to register each payment permanently. The database acts a public ledger to handle at least 1,000 transactions per second. It makes Libra faster than Bitcoin that can handle 7 transactions per second and Ethereum with 15 transactions. What’s different in Libra is that founding members of the Libra Association keep on monitoring the system to verify the blockchain.
There are nodes to manage the Libra blockchain. When an individual submits a transaction request, a node considers the ledger and runs a calculation. Only 66% of the nodes need to agree that the transaction is legitimate and should be executed.
Users need to note that a Libra transaction cannot be reversed. In case of an emergency, the Libra Association may come forward to stop transaction temporarily to analyze the issue and resolve it.
Although Libra transactions are said to be free, they aren’t entirely. Users are charged a tiny fraction of a cent to cover the transaction fee. However, this Libra transaction is negligible when compared with other cryptocurrencies’ transaction charges. Right now, the Libra blockchain is permissioned which means only those entities are authorized that meet the requirements set by the Libra Association.
To make Libra securer, the association is working closely with HackerOne to create a bug bounty system. Under the project, researchers will look for flaws in the system so that security vulnerabilities can be prevented in future.
Why Does Facebook Want To Launch Libra?
Libra isn’t fully Facebook’s digital money, or say cryptocurrency. It is a project by Libra Association, an organization co-founded by Facebook. However, there is a motive behind the formation of Libra cryptocurrency. As per a report by the association, the newest system is to empower more than 1.7 billion adults worldwide who don’t have a bank account. They could use the newest system to easily send and receive money using their phone.
Experts believe that empowering people without a bank account isn’t the only reason behind Libra. Facebook has a keen interest in the cryptocurrency. The company already has a virtual currency called Credits. In an earlier statement, CEO Mark Zuckerberg disclosed that the company had a meeting with developers and it wanted to make money transfer as easy and quick as sending pictures to others. Libra has been developed as a simple and cost-effective money transfer system. In addition, it may also help Facebook to gain more users on the social media platform. There are experts who believe that Facebook may also have hidden objectives behind Libra that it didn’t share yet.
How Will Facebook Control Libra?
Although Facebook has co-founded Libra Association, the company is not going to have direct control over Libra currency. Libra Association is expecting to grow and have around 100 members, who are going to have one vote each. As there are other members too in the association, Facebook is going to play the role of an outsized member. However, the social networking company’s role will be similar to founding members. It means that Facebook may not have direct control over Libra but it going to be a bigger player than other association members.
How Is Libra Different From Other Cryptocurrencies?
Facebook stated that Libra is a better and cost-effective option than traditional cryptocurrency systems to transfer money quickly. What makes it different from cryptocurrencies like Bitcoin and others? A major feature that sets them apart is their form. Different from today’s cryptocurrencies, Libra is entirely based on a digital system. It means people are not going to get any kind of coins or notes like they were having in Bitcoin. To ensure each transfer, there is a digital ledger called blockchain that confirms the transfer. In Libra, the blockchain will be handled by founders of the currency.
How are people going to use Libra? According to experts, Libra’s supply is going to be affected by its popularity. It will grow or decrease with the popularity of the cryptocurrency. They said that the company will invest in more assets if people show interest in Libra. When users will be requiring to cash out the digital currency, the company will pay them and remove Libra.
Comparing Libra To US Dollar
US dollar is one of the strong forms of currencies in the world. It is accepted almost everywhere. In many regions of the globe, banks charge a big amount of transfer fee to convert dollars into local currencies. When it comes to comparing the US dollar with cryptocurrencies, dollars are considered more reliable than digital currencies. The value of these cryptocurrencies is volatile as it keeps on changing frequently. They could rise or fall by 5% in just one day. This is a thing that makes it difficult for people to decide on whether or not they should invest in cryptocurrencies.
What makes cryptocurrencies a good option to choose is the easy-to-use feature. Users can easily and quickly send or receive money directly. Although it is a private or the securest form of money transfer, it can be pseudonymous. Here, the receiver doesn’t need to know the name of an individual transferring the cryptocurrency. Apart from that, some of the most popular cryptocurrencies like Bitcoin put a cap on the number to mint. It means people who already have coins do not need to worry about the creation of new coins.
How Is The World Reacting To Libra?
Facebook’s new cryptocurrency Libra has bagged mixed reactions worldwide. Some politicians and cryptocurrency experts do not seem to be impressed with the digital currency by the social media company. Many of them are worried about Libra because of the failed Facebook record related to security. There are some politicians who believe Libra is going to add more problem to the current cryptocurrency world that lacks a regulatory framework to provide investors with a sense of security. In addition, it doesn’t affect the economy in the right way. There are a few politicians in the US who think Facebook cannot be trusted, especially in the case of a cryptocurrency project. Apart from the US, Libra received similar reactions in Europe. Citing Facebook’s reputation, not all are impressed with the social media giant launching Libra.
How Can Users Set Up A Digital Wallet?
Most probably, Facebook’s Libra is going to be in the market by the first half of 2020. After the release, there will be many ways for consumers to make use of it, and they are not required to go through Facebook. According to reports, there will be a digital wallet called Calibra to allow consumers to process transactions.
The transaction fee will be lower than other cryptocurrency systems currently operating in the market. In a statement, Facebook said that the company is not planning to make money at first. However, there are people familiar with the matter who believe that the social media company may add more features to the platform in the near future like loans and others.
People can use Libra for multiple purposes, including paying vendors and managing day-to-day transactions. As Uber and Lyft are a part of the Libra’s earliest investment group, there are possibilities that ride-sharing users will be allowed to pay for their trip using Libra.
It is very early to say whether Facebook will succeed in its Libra plan, but the company is very much open about the digital currency project. There are reports that people are excited about the project and may see it as an opportunity to send/receive money easily without involving banks in the process.