Facebook recently publicized that it is working on its own cryptocurrency called Libra. The social network has already published a white paper, which some are claiming will not only redraw the landscape of the crypto industry but also alter the entire global financial system. However, this will only happen if the authorities allow it.
Facebook has more than 2.38 billion active users worldwide, according to Zephoria. Each second, 5 new users join the social network.
According to Facebook, each user will be able to use the new Libra cryptocurrency. This has huge ramifications for the crypto industry, whose user base is still comparatively small. As of July 14, the Bitcoin network had only 1 million active addresses.
Facebook’s cryptocurrency Libra will affect the entire global financial system as it will compete with banks and other financial services. In anticipation of this, authorities of developed countries have already expressed their concerns about Libra, which could hinder Facebook’s plans.
What is Libra?
In developing this new cryptocurrency, Facebook has created a separate non-profit company called the Libra Association. Apart from the social network, it has 28 other founding members. Among them are giants such as Visa, MasterCard, Coinbase, PayPal, Uber, and Lyft. Each of them contributed $10 million to the new project.
The founders will have a direct impact on the cryptocurrency itself. The Libra blockchain is built on the Byzantine fault-tolerant consensus algorithm. In it, trust nodes confirm transactions and mine blocks. There are 33 such nodes in total, and among them are the founders of the Libra Association.
Transaction confirmation will require the consent of each of the nodes, which will guarantee the security of the blockchain. Obviously, this structure is much more centralized than, for example, Bitcoin or Ethereum. After all, anyone can become a miner on these blockchains. Once the equipment is purchased, you can mine.
However, Facebook promises the number of nodes will expand in the future. As a result, the decentralization of the system will increase.
As for the blockchain itself, the social network built it from scratch, borrowing cutting-edge ideas from existing DLT systems. Facebook even developed its own programming language called “Move” especially for this purpose.
This is quite common in the crypto market. For example, Ethereum has its own programming language – Solidity.
According to Ben Maurer, Facebook’s blockchain technical lead, in creating a language it is possible to increase security compared to other cryptocurrencies, as well as to avoid mistakes inherent in the code. Thanks to “Move” the system promises to be more flexible and functional.
Also, the social network claims that transactions in the system will be pseudonymous. That means wallets will not be tied to the real identity of the user. Similar to the BTC network, anyone can create as many wallets as he or she needs, without confirming their own identity.
The nodes themselves, as the white paper of Facebook’s Libra, says, will not store users’ data. All information will be encoded in the hashed address of the wallet.
Furthermore, in an effort to avoid the excessive volatility the plagues cryptocurrencies, Facebook plans to back Libra with a handful of fiat currencies.
Libra and Money Laundering Laws
Facebook plans to roll out Libra in the first half of 2020. On the technical side, the company has every chance of meeting this deadline. However, getting approval from the regulators could prove difficult and disrupt the social network’s plans.
Facebook operates in almost every country in the world, each of which has its own regulation and attitude towards cryptocurrencies. It would, therefore, be tough for Facebook to secure green lights from all of them.
The G7 countries have already agreed to create a separate task force, assigned to study how Libra will deal with money laundering and the financing of terrorism. In addition, countries fear that Libra may eventually become the sovereign currency and begin to compete with fiat, which regulators cannot allow.
In the UK, there are also concerns about Libra. Mark Carney, the head of the Bank of England, said that he was not against cryptocurrency as such, but Facebook would have to follow the “highest standards.” Carney was extremely interested in how the social network would protect user data and fight money laundering.
In the US, the House already scheduled several hearings about Libra. They are scheduled for the next month.
In general, the regulatory environment is Facebook’s biggest problem. If the social network does not resolve its issues with the authorities, the cryptocurrency will not appear.
Before we rush to condemn the heavy-handedness of authorities, their fears aren’t unfounded. Facebook regularly finds itself in the midst of scandals. One recent example involved the firm Cambridge Analytica. This company was collecting the personal data of Facebook users without their knowledge, going all the way back to 2015. The social network knew about it but did nothing. Once the scandal broke, Facebook’s founder Mark Zuckerberg was required to report to the US Congress, where he promised to pay more attention to the privacy of users.
There are many similar examples. Even Chris Hughes, the co-founder of the social network, called on the authorities to force Zuckerberg to split Facebook into several independent companies, due to influence which has grown “far beyond that of anyone else in the private sector, or in government.”
Libra will only increase this influence. Therefore, the authorities must be doubly careful when it comes to Facebook’s new cryptocurrency.
A new era for the financial system
Facebook’s cryptocurrency Libra can really reshape not only the crypto industry but also the global financial system, as more than 2 billion people will be able to easily use this financial service.
This could be a godsend to those 1.7 billion people around the world, who are cut off from banks and a regulated financial system, vital for escaping poverty.
Of course, on the other hand, Facebook has already grown to an alarming size. Without proper governmental controls, there is a risk that the social network will use its cryptocurrency for personal gains without thinking of the pitfalls until it is too late. This must be addressed.