I told you! Do you also hate people who say you they told you? But I really told you: The giant corporations will steal the crypto-revolution. I think that is what is happening now with Facebook’s Libra. At least if they can realize their plans written in the new White Paper.

Dreams or reality?

Yesterday I wrote about this White Paper, concluding that the company’s ambitions are really huge. Not only do they want to make a kind of money transfer system, but world money, world currency and at the same time, a global and universal crypto coin. Maybe on long term with lending, smart contracts and maybe other features. Copied from cryptocurrencies and the actual banking system.

White Papers write often about general goals, plans and dreams, I know. The reality can be quite different. But Facebook seems to have the necessary capital, power, and knowledge to be a really big player in finances, too. And it already made an alliance with other heavy-weight players. Among others:

Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa, eBay, Facebook/Calibra, Lyft, Mercado Pago, Spotify AB, Uber Technologies,
Vodafone Group, Coinbase, Xapo Holdings Limited, Andreessen Horowitz…

Learning from the errors

A bunch of big names, with the capital worth of the GDP of a small country. But the real problem is: They seem to make it really good. Why? Because, as written in the White Paper, they want to correct the errors and problems of the other existing cryptocurrencies:

Mass-market usage of existing blockchains and cryptocurrencies has been hindered by their volatility and lack of scalability, which have, so far, made them poor stores of value and mediums of exchange.

Prices to fall sometimes

“Volatility” and “lack of scalability” – these are the two large problems by the authors of the paper. Indeed, Steemians and Bitcoin holders and all altcoin buyers are complaining all the time about volatility. (Of course only if the price falls, almost never if it jumps, although these are the two sides of the same coin.) There are surely many reasons why the high-desired mass adoption is failing, but this one can be the first.

Scalability problems are larger by the one and smaller by the other cryptocurrency. In December 2017, Bitcoin had serious issues, with increased delays in transaction speed and sky-rocketing transaction fees. Bitcoin system is some quicker now (Lightning Network), but it could not handle a real mass usage case. Other cryptos, in the first line the “proof of stake” types, like also Steem, have much more capacity.

Three main pillars

What are the most important characteristics of this Libra by the White Paper? They mention three:

1. It is built on a secure, scalable, and reliable blockchain;
2. It is backed by a reserve of assets designed to give it intrinsic value;
3. It is governed by the independent Libra Association tasked with evolving the ecosystem

The first one handles the scalability problem, there is another “technical paper” of 29 pages about the functionality of the blockchain. Number two, the “Libra Reserve” fund, or pool, handles the problem of volatility:

Coins are only minted when authorized resellers have purchased those coins from the association with fiat assets to fully back the new coins. Coins are only burned when the authorized resellers sell Libra coin to the association in exchange for the underlying assets.

Advanced Tether?

So, the Libra coins are always exchangeable to fiat, and vice versa. I suppose they also learned from the deficiencies of Tether because they say:

The assets in the Libra Reserve will be held by a geographically distributed network of custodians with investment-grade credit rating to provide both security and decentralization of the assets.

That seems to be much better than the Tether story where there was a lot of problems with the transparency of the assets backing the currency. Similar custodians are preserving many trillions of dollars in investment funds, trusts, retirement funds, etc.

Disrupting the banks, finally?

That is also a great advantage of Facebook and its huge consortium: They can hire custodians like Citigroup, Deutsche Bank or others of the greatest financial institutions to be custodians. Steemit, can’t do that. (Imagine a fiat backed Steem Dollar.)

The white paper is also mentioning in several parts that people need a cheap, low-fee financial system. If they can do that, and the system proves to be reliable, they can really act as a competition of the banks. Maybe that’s the reason why such companies like Visa and Mastercard also joined the alliance. The Libra really seems to be disrupting.

Can it be decentralized?

What about decentralization? I have seen many posts where people are laughing about Libra, because they mean it can’t be decentralized. So it must fail in the race with decentralized cryptos. Probably, they are wrong. Don’t interpret me wrong, I don’t like Facebook, I don’t have face shares and I have a lot of “real cryptos” (mostly BTC, Steem and ETH). But what I read in the white paper – if it becomes reality – is scary and exciting at the same time.

Decentralization for Facebook’s Libra means, the Libra Association will be the leading force in this system. The members – some of them I mentioned above – act something similar to the witnesses in Steem blockchain. And Facebook wrote in the White Paper:

While final decision-making authority rests with the association, Facebook is expected to maintain a leadership role through 2019. (…) Once the Libra network launches, Facebook, and its affiliates, will have the same commitments, privileges, and financial obligations as any other Founding Member. As one member among many, Facebook’s role in governance of the association will be equal to that of its peers.

A little bit of paranoia

So, Facebook says it will be only one of many members in the future. Interesting, particularly, if the plan to grow the number of association members to 100 gets a reality. Don’t you have the impression, big financial and fintech, social media and technology concerns are organizing a conspiracy in front of our eyes to acquire the world’s financial sphere? Or am I paranoid already?

And what about privacy and selling of personal data, dear Facebook? They are making a promise:

Facebook created Calibra, a regulated subsidiary, to ensure separation between social and financial data and to build and operate services on its behalf on top of the Libra network.

(Chart courtesy of Stockcharts.com)

So be it. I’m very curious what will be realized of all these plans, promises and rules they made. As issuance of the Libra is planned only for the first half of 2020, many details can be changed, I suppose.

Conclusion

I have the impression Facebook, with its huge capital and power, is trying to realize the dreams and plans of other crypto-developers. Attempting to join the advantages of several cryptocurrency types. (Stablecoins, proof-of-stake types, smart contract-capable ones.) Let’s see if it can make it.

Probably with the Libra coin you can’t earn very much, speculate, because of the stable price. If it gets very successful maybe you should lower your exposure in other cryptos in time. Or, you can buy Facebook stocks. But Facebook seems not to be very cheap now. (See the chart.) Maybe in a future correction.

Please, answer my poll: Is This A Conspiracy?

First part here:

Don’t Underestimate Facebook’s Libra: They Are Creating The World Currency (1)

(Cover picture: Pixabay.com)