Facebook’s Libra Blockchain and cryptocurrency: Should I consider it?
By 2020 Facebook is planning to integrate blockchain and cryptocurrency ‘Libra’ into its messaging application Messenger and WhatsApp. Set to become a new global monetary system, this new financial infrastructure will rely on the BFT-consensus algorithm to facilitate agreement among all validator nodes on the order and execution of the transactions.
In simple terms, the idea of digital currency it to make money transactions around the world as easy as sending a text message to friends, but is it that simple? The following points describe scenarios which users should evaluate before using Facebook’s Libra coin.
How the price effects in the circumstances of negative economic growth or inflation.
Facebook’s Libra cryptocurrency will be backed by a basket of financial assets provided by node operators. USD, EUR, JPY and GBP etc, a combination used in proportions will determine Libra’s cryptocurrency value but the question remains, will it be price stable.
Some of the economic concerns which may impact underlying currency:
– Rising U.S. National debt reaching $22 trillion of which $16.1 trillion is held by public and intragovernmental holdings is around $5.87 trillion.
– Concerns of growth in the UK’s economy which is at its weakest pace in the last six months.
– Worries about the pace of Europe’s economic growth and uncertainty over Britain’s EU exit.
Given the above-mentioned concerns, Libra’s cryptocurrency may face the challenge of how to adjust the proportion of assets (fiat currencies) to maintain its price stability. At any given time, the value of one Libra coin will be subject to a small fluctuation (1% in the short-term and up to 3-5% in the long-term).
The need for frequent adjustments to maintain price stability for Libra coin requires a central governance system just as today with a fiat system where central banks have to adjust interest rates to maintain economic stability. This raises questions of trust in such a governance system to preserve the value of Libra coin over time.
Facebook’s Libra coin will make users transaction or purchasing behaviors public.
Are we ready for it? Consider paying for coffee in Starbucks or booking your vacation. Do you want this information to be in the hands of Facebook, an enterprise that has been at the center of public and regulatory scrutiny after Cambridge Analytica Scandal over the misuse of consumers’ personal data?
What about converting from Libra coin to fiat currency. Is transaction processing subject to the same fee?
Mastercard, PayU, Stripe, Visa have partnered with Facebook’s Libra project to form a global financial infrastructure and to support adoption. They will facilitate the transaction from the Libra coin-to-fiat-to-user bank account (and vice-versa).
This could mean merchants or users of Libra coin could be subject to the same processing charge i.e. 2-3% for converting Libra to fiat or vice-versa. No much benefit for users.
Facebook’s Libra blockchain will be decentralized but within a closed-circuit of approx. 100 node operators.
Each node operator gets one vote in the council. Together, they make decisions on the governance of the network and reserve. The cost to join as a node validator in Facebook’s Libra blockchain is 10 Million$. The high cost of participation could be a barrier and only selective few can join as node operators. Additionally, for each Libra coin minted, validator nodes have to back it up with fiat funds. A requirement that not many will be able to comply.
In the future, Libra will lower the barriers to entry for participation and reduce the reliance on Founding Members. Given the use of PBFT protocol which is not scalable as node increases, therefore, it is safe to assume that validator nodes will be around 100.
