Financial Markets Rattled After Facebook Set to Introduce Its Cryptocurrency Called Libra
On June 18th Facebook revealed its plans to launch a digital currency that has been named Libra that is scheduled to take effect in 2020. This new cryptocurrency will give Facebook’s global pool of over 2 billion social media users the ability to conduct financial transactions online.
The banking system as we know it could face a massive upheaval and upset as the launch of the social network giant’s new digital currency now lingers in the approaching future. Nevertheless, Libra will no doubt face close examination as Facebook has been criticized for the way it handles and regulates its users’ personal data.
Facebook said it wants to enable its users who do not have bank accounts to be able to make financial transactions through the platform. However, the social network firm could encounter barriers as existing concerns regarding regulations and data protection linger. The new digital currency will be regulated by a group of companies known as the Libra Association, based in Switzerland. The regulatory companies will also include a council in which members of all parts of the association will participate in decisions relating to policy making and business plans.
Facebook has suggested that after the digital currency is launched in 2020 it would remove itself from any managerial role and would allocate the responsibility to the Libra Association. The tech and financial businesses that are set to make up the Libra Association after having funded the project, are Uber, Lyft, eBay, PayPal and Spotify, Mastercard and Visa, Thrive Capital and Andreessen Horowitz. This suggests that Facebook’s digital currency could be used as a payment method for these companies.
BKCM LLC’s Founder and Chief Executive Officer, a digital currency investment firm, Brian Kelly said that Facebook’s maneuver into the world of digital currencies can be seen as an endorsement of cryptocurrencies as a financial infrastructure.
According to Kelly, there are some fundamental differences when it comes to comparing Libra and other cryptocurrencies.
“I think this is a huge step forward for the entire space, let’s look at how this works and what you’re getting into if you’re going to do Libra. First thing you do is exchange dollars, yuen, euros whatever the basket is going to be for your Libra token. So Facebook gives you a Libra token for your dollars. You then have to trust Facebook that they will hold onto those dollars and keep track of the ledger and that your token is going to be worth something. You then go out buy your goods and services on the Facebook platform and whoever else is using it, perhaps Uber for example.”
“So, let’s look at the main difference between Libra and Bitcoin. What Libra is doing is creating a digital version of the US Dollar, the Yuen and the Euro, it is like a stablecoin but you still have all the characteristics of a fiat currency. Bitcoin is digital gold, that has no entrusted third party involved and that is the huge difference. This is about that entrusted third party and to me that is the revolution of crypto, is that it is peer-to-peer. You disintermediate financial services, So, when you talk about the differences between this and something like bitcoin, bitcoin is trustless. You don’t need to believe that anybody’s going to check that ledger; you can do it yourself.”
Click here to watch Brian Kelly’s full breakdown of Libra and Bitcoin from CNBC.com.
With the unveiling of Libra, Facebook also announced the introduction of a digital wallet that will facilitate the social network’s digital currency which has been called Calibra.
‘Today we’re sharing plans for Calibra, a newly formed Facebook subsidiary whose goal is to provide financial services that will let people access and participate in the Libra network. The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app — and we expect to launch in 2020.’
To read the full statement from Facebook’s newsroom, click here.
In a statement, Facebook said it is working hard to ensure that the new digital currency and the technology that will facilitate it is secure and user-friendly.
‘When it launches, Calibra will have strong protections in place to keep your money and your information safe. We’ll be using all the same verification and anti-fraud processes that banks and credit cards use, and we’ll have automated systems that will proactively monitor activity to detect and prevent fraudulent behavior. We’ll also offer dedicated live support to help if you lose your phone or your password — and if someone fraudulently gains access to your account and you lose some Libra as a result, we’ll offer you a refund.’
‘We’ll also take steps to protect your privacy. Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent.’
Click here to read Facebook’s entire statement.
With the support and funding from major firms, with the likes of Uber, PayPal, Visa and Mastercard, it is perhaps an indication that Facebook’s Libra will take the cryptocurrency sector to a whole new level. So, as a project it has the institutional support of many well-established platforms essentially becoming conduits for the social network’s cryptocurrency.
Senior US Senator, Sherrod Brown voiced his concerns with Facebook launching a digital currency with the history and reputation it has with user data scandals.
‘Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.’
Taken from Sherrod Brown’s Twitter account.
As Facebook encounters waves of scrutiny from regulators around the globe regarding privacy encroachments, the social network giant also expects to be hit with a hefty 5-billion-dollar penalty by the United States Federal Trade Commission. The imminent fine comes after the FTC opened an investigation into Facebook’s privacy policies and the cooperation it had with Cambridge Analytica, the UK based political consulting firm, that gathered data from Facebook users.
On May 9th the US Senate Committee on Banking, Housing and urban affairs sent Facebook’s CEO, Mark Zuckerberg a letter which raises 7 questions regarding the new cryptocurrency and the security threats that it poses. Two months ago Zuckerberg had a meeting with Mark Carney, the Bank of England’s governor to consider the implications of the new digital currency and the regulatory measures that will need to be implemented.
Facebook maintains that Libra transactions will not be connected to social media data whereas critics claim that the project is a threat to user data protection.
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