A few days ago, Laura Mccracken, Facebook’s head of financial services in Northern Europe, announced that they’re releasing the White Paper for their cryptocurrency GlobalCoin (nicknamed Project Libra) on June 18th.
Global coin does not have any of the fundamental characteristics of a cryptocurrency.
It doesn’t stand on the pillars of an open blockchain.
An open blockchain must be public, neutral, borderless, and censorship resistant.
Anything created by a centralized organization in a specific jurisdiction and is subject to specific laws cannot achieve any of the five pillars of an open blockchain.
The main reason is because the law prevents them from doing so.
Because of the power of influence that Facebook wields, that is recognized by the government, Project Libra will focus attention on cryptocurrency regulation. Facebook is bound to come across financial regulatory grey areas as it launches Project Libra. While many small projects skimp on their compliance efforts, thinking that they’re too small to be called out for it, Facebook will be dealing directly with governments to discuss issues that will be covered in the mainstream media, publicized to heights that most crypto-related news pieces never dream of reaching. Facebook and its massive amount of working capital will have the best lawyers available fighting in its corner. They could force the creation of legislature around subjects that until now have been unaddressed.
Facebook is something many people have a hard time deleting because it’s their only connection to people who may not be geographically near them, whether its close friends, family or the odd ‘virtual’ friends. They buy and integrate other services and features to make their platform more all-encompassing on a regular basis. Messaging. Marketplace. Money transfers. If it were to also add in the ability to take part in your local economy, and even the global economy, then Facebook is starting to border on a staple of human life.
Libra could be a play on the word LIBOR, an abbreviation for the London Interbank Offered Rate that’s used as a benchmark interest rate for borrowing between banks. LIBOR is for banks, while Libra is meant to be for the people.
It will be a stablecoin a token designed to have a stable price to prevent discrepancies and complications due to price fluctuations during a payment or negotiation process. Facebook has spoken with financial institutions regarding contributing capital to form a $1 billion basket of multiple international fiat currencies and low-risk securities that will serve as collateral to stabilize the price of the coin. Facebook is working with various countries to pre-approve the rollout of the stablecoin.
Global coin will be transferable with zero fees via Facebook products including Messenger and WhatsApp. Facebook is working with merchants to accept the token as payment, and may offer sign-up bonuses also wants to roll out physical devices for ATMs so users can exchange traditional assets for the cryptocurrency.
While Facebook’s digital currency is unlikely to become a threat to bitcoin, online payment providers such as PayPal, fintech banks, and traditional banks should be concerned.
Facebook has up to two billion active monthly users, which means two billion people will (eventually) be able to use the social media network’s native payment system to make low-cost digital payments without the need for a bank account.
This will directly affect the go-to online payment services, such as PayPal, Stripe, and Skrill, especially if Facebook delivers on its promise to offer low-cost digital payments. PayPal, for example, charges a three percent transaction fee, which takes a substantial cut out of businesses and freelancers who use their payment service for the majority of their transactions. Unless PayPal and its peers lower their fees in response to the new competition from Facebook, they could end up losing substantial market share.
The ‘fintech banks’ that offer easy-to-use, app-only mobile banking services, should also be concerned. If everyone with a Facebook or WhatsApp account will be able to use low-cost mobile and online banking, there will not be much need for mobile banking apps. Of course, this will not happen overnight. Facebook will need to successfully integrate its payment system with the broader financial services industry to enable users to pay bills and make in-person payments. This could take years. Should they succeed, however, fintech banks will likely end up consolidating.
Traditional banks will also be threatened. If Facebook manages to onboard two billion users to its payment service, there is no reason why the next generation will bother with banks that require a mountain of paper documents to open accounts when they can just log onto Facebook, fill out a few documents online, and start banking.
While Facebook is poised to become a serious player in the financial services industry, it is unlikely to directly compete with bitcoin, which is increasingly seen as digital gold. If anything, it may help legitimize digital currencies and in turn, attract more people to bitcoin.