The search for new forms of money continues, and Facebook announced that it was also entering the race, as it announced the Libra method app. In the world there are 1,700 million people without access to financial institutions, and in 2018 those who live and work outside their countries of origin sent 689 billion dollars in remittances, of which 25,000 million were ‘lost’ via commissions. Libra, a ‘stable global money’, will allow a nanny in Hong Kong to change her dollars from Hong Kong to Pounds, which she can send online to her mother in the Philippines, who can change them to Philippine pesos. Libra will not be anchored to any country and will give people a way to move money without friction throughout the world via the Internet – without any commission.
The jump to the ‘third type’ of money
In 2008 someone under the name “Satoshi Nakamoto” published an article exposing the idea of bit coin, a new form of money that is neither fiduciary nor commodity. Its value is derived from a combination of mathematics and global connectivity. Bit coin is nothing more than lines of computational code. In particular, transactions are validated through a process called “mining”, where several computers compete to solve a complex mathematical problem that validates the transaction, where winners are rewarded with bit coins. Once the problem is resolved, the transaction is recorded in a block chain (a public database) and the new data block cannot be deleted.
In principle, anyone could participate in this mining, so it is said that the bit coin block chain is “permission less”, but in reality, today its mining is in the hands of companies that have a massive computing power, capable of solving the math problems. In addition, bit coins have to be stored in “digital wallets,” which are encrypted and secure, (so much so that millions of dollars can even be lost if a password is unknown).
Why Libra method is different?
Despite these characteristics, bit coin has not yet managed to position itself as money for two reasons. First, between September and December 2018, its price rose from $ 4,000 to $ 19,000, and today it is quoted at about $ 12,000: this volatility made it popular among speculators and investors, while discouraging merchants to accept it as a form of payment. Second, its computing infrastructure is such that it can only process seven transactions per second.
Designed to solve several of the problems of bit coin, Facebook proposed Libra Profit System, a new crypto currency whose launch is scheduled for 2020. These are some of its features:
Libra has been announced as “stable global money” – it will be backed by a basket of low volatility currencies such as the US dollar and the Japanese yen, which should make it attractive for trade and not for speculation.
Libra will be a “permissioned” blockchain- the Libra Association, a non-profit organization established in Switzerland, will operate the computers that will validate the transactions.
Facebook has announced that it is willing to conform to a legal framework to discourage it from becoming the standard dark web payment method. Libra has to be stored in the Calibra digital wallet which will be integrated into Messenger and WhatsApp, with two billion users.
Facebook will not be the only member of the Libra Association- so far more than twenty companies, including Uber, Spotify, MasterCard, and Visa, have announced their intention to pay an entry fee of $ 10 million and $ 250,000 annually, to belong to the project
How will it facilitate Facebook?
It is still unclear how Facebook will make a profit from this project. Perhaps of the commissions that are charged when converting Pounds to physical money and vice versa. Of the interest generated by Libra reserves, it could be commissions paid by merchants who accept Libra as a form of payment. Or the data generated by the transactions. In addition, the economic, social, and legal implications of Libra are still a matter of active discussion. Many economist and computer scientist are already actively thinking about the economic limits of blockchains and crypto currencies. Meanwhile, the truth is that the crypto is already here! And, Libra method will definitely enhance the structure of crypto transactions.
