In June, Facebook, along with a consortium of 27 partners (possibly more by the time you read this), announced the launch of its own cryptocurrency, Libra.
Despite their considerable volatility, cryptocurrencies such as Bitcoin have already proven that they are both technically viable and, given the hundreds of billions that they’re worth, somewhat desirable.
This is despite the fact that over 98% of the world’s population has never been in possession of a cryptocurrency of any type, let alone used one to buy something.
I am a huge fan of cryptocurrencies, but I’d be the first to admit that none of the leading cryptocurrencies (such as Bitcoin, Bitcoin Cash and Eretheum) are ready for primetime. None of them pose a true threat to fiat currencies (a fiat currency is a government-issued currency that is not backed by a physical commodity, which includes almost all national currencies). They’re just too niche.
It’s still too challenging to buy and store Bitcoin, hardly anyone accepts it for payment and the slow verification process (where Bitcoin transactions are verified by the blockchain, a process that’s measured in minutes) makes it a poor method for payments at the cash register.
Mark Zuckerberg is a smart operator. It’s clear to him that the global banking and finance industries, which are computerised but which otherwise operate much the same as they did a hundred years ago, are fundamentally broken and practically begging for disruption. He certainly didn’t invent cryptocurrencies, but he recognises that the major thing holding them back is that they’re too exotic, inaccessible and difficult to use.
Libra the default currency?
With Libra, Facebook is attempting to not only make cryptocurrencies accessible to all – they’re aiming to make Libra the default currency for all of us.
And they have been very smart about it. Unlike the Facebook of old, they have clearly taken their time to think about all of the things that are likely to make Libra successful, as well as the pitfalls that could limit its success.
Instead of going it alone out of the US, which would be true to type, Facebook has instead assembled the Libra Association, which they’ve based in Switzerland. Facebook will build the Libra platform, but it will be controlled by the consortium. Interestingly, it’s a consortium that includes parties, such as Visa, who arguably have a lot to lose if cryptocurrencies are as successful as I think they’ll eventually become.
Instead of making the Libra blockchain truly descentralised like the Bitcoin blockchain, the Libra blockchain can only be hosted by consortia members. This will make Libra more proprietary, but also much more accessible and easier to use than traditional cryptocurrencies. It looks like it will have the benefits of a decentralised blockchain (ie, fault tolerance, security, etc) but with the performance and manageability required to make Libra a threat to cash and EFTPOS.
They have also built controls into Libra, and into the Libra Association itself, to keep the cryptocurrency stable. It should display a lot less volatility than Bitcoin and its peers, which will help drive acceptance.
Why do we need it?
So what? We already have a bunch of different ways to pay for things. Why do we even need a cryptocurrency like Libra?
To answer this simply look at how much it costs us to use our own money. We see this at Hoodoo every day – many of our corporate customers spend a fortune on transaction fees each year, mainly associated with accepting payments. These fees are indefensible given the infinitesimally small cost to the banks (and intermediaries) of processing those transactions. Look also at how hard it is to obtain bank loans or (for much of the population) even to get a bank account from the small number of organisations that are licensed to issue them to us.
Cryptocurrencies not only allow the transfer of value between two parties at a much lower cost, they are also accessible to anyone with an internet connection. We’re already seeing a world of smarter, more efficient financial services being built around cryptocurrencies, despite their niche status.
Projects like Libra will have the effect of legitimising cryptocurrencies and of making them much more accessible to the average person. Facebook is building Libra payments into Messenger and other products, meaning that billions of us (ie, those with Facebook accounts) will have access to the new cryptocurrency by default from launch. Expect to see Libra as an accepted payment method on more and more web sites and, eventually, at the point of sale in stores.
I don’t know whether or not Libra will be successful or if it will even be around 10 years from now. There are plenty of examples of huge, ambitious tech products that sputtered and failed, despite the fortunes invested in them (Microsoft Network or Google Plus, anyone?) Even if it is successful, will we be comfortable shifting so much control of financial markets from banks (central and commercial) to a consortia made up predominantly of large, powerful corporations?
I’m not entirely sure, but I do think that Libra will do for cryptocurrencies what Tesla did for the electric vehicle. It will legitimise them and bring them into the mainstream, pushing the industry forward in the process.
One thing that is clear is that cryptocurrencies and blockchain will disrupt the old world order. Libra is bringing us that much closer to finding out what this will look like.
Damian Funnell firstname.lastname@example.org is a technologist. He is the founder of Choice Technology, an IT services company, and Hoodoo, an app development studio.
Last updated on the 2nd August 2019