In the past couple of weeks, you’ve probably heard and seen it all over the news, but what is Libra coin? What does it do?
The goal of Libra is to “enable a simple global currency and financial infrastructure that empowers billions of people”.
To put things simply, it’s facebook’s own cryptocurrency. They are attempting to make world wide money transfer easier and less expensive than your traditional bank transfer or using Western Union.
So, what is the difference between Libra and traditional cryptocurrency?
Libra uses cryptocurrency technology, there is no central bank unlike traditional currency, and there’s a public ledger. However, unlike Bitcoin and similar cryptocurrencies, only few entities are allowed to mine the coin and keep track of the ledger.
In more detail, Ethereum and Bitcoin are different than Libra as they have a distributed ledger that anyone can access and there are no regulations on who can produce more. In addition, there is no single authority that verifies transactions between Ehereum and Bitcoin users. These cryptocurrencies use “proof of work” to authorise transactions. For example, for bitcoin, the proof of work is a puzzle. Once the puzzle is solved, users can add transactions to the blockchain. Essentially meaning anyone can participate.
Libra is different because their transactions will be verified using a consensus systemed called “proof of stake”. What this means is, transactions would be authorized by a group of people who have ownership in the currency.
How does it work?
Libra involves taking deposits from customers, investing the deposits into government bonds, offering cross-border transactions and holding currencies in reserves.
To operate all of this, Facebook created a subsidiary called Calibra which will handle all libra transactions. It has applied for licenses to operate money transfer in the United states and to operate cryptocurency business in New York. In conjunction they formed an organization called the Libra Association in Geneva to govern the new cryptocurrency and hold the currency reserves. Facebook has also allegedly been in contact with Britain’s Financial Conduct Authority, The Bank of England, and Switzerland’s regulator of finance; FINMA.
Libra could prove to be successful as they have backing and governing from Facebook, Uber, Vodafone, Mastercard and Visa.
Seems promising, but...
No traditional banks have shown interest yet, and this is a huge legislative undertaking and Facebook’s Libra announcement encountered instant aversion and criticism from lawmakers and regulators around the world. Libra has a potentially huge user base that would be under the control of corporate entities like Facebook and Uber, but lack of oversight and regulation from government and lawmakers.
Since transactions are not anonymous like Bitcoin, it’s possible that Libra transactions can be linked to individuals, which could be a major privacy concern and risk.
In addition, Facebook has been extremely careless with their user’s privacy and information. To refresh, millions of Facebook users information was used by Cambridge Analytica the psychographic marketing agency that was hired by the Trump campaign and “failed to provide the kind of protections that are required under the Data Protection Act” -Information Commissioner Elizabeth Denham. Moreover, more than 540 million records about Facebook users were exposed publicly on Amazon’s cloud computing service, and Facebook has been under federal criminal investigation for some time now as a result.
If Libra does continue to tread forward and you do plan on trusting Facebook with your information, please ensure that you control access to your funds with a strong password. Also, consider two-factor authentication to help better protect your information and funds.
At this point, Libra is still going to be a huge undertaking before their expected launch next year. Until then, we will keep following the news to see if it gains any traction towards the mainstream.