Overview
Why does the world need another cryptocurrency?
Virtually every coin exchange around has been hacked. Coin founders walking away with millions and conveniently disappearing. Thousands of coin holders have lost millions. The value of the coin is always volatile. The coin holder’s value when converted into US Dollars declines and rises on a random basis.
Now comes a new one called Libra. Why is this different?
Libra is a cryptocurrency managed by a not for profit Libra Organization headquartered in Geneva Switzerland.
The driving force behind Libra is Facebook.
The following table itemizes the partners in the Libra organization. Each was required sign a letter of intent and contribute US$10M to the organization. Facebook is seeking a total of $USD one billion in capitalization.
Note that
- The list is not globally representative.
- Only Facebook has deep pockets.
- There are no financial institutions on the list from North America, Europe and Asia nor
- Are their any representatives of the top global economies.
Table 1: Libra Partners as of Nov 7, 2011
| Id | Organization | Sector | Country |
| 1 | Women’s World Banking | Microfinance | USA |
| 2 | Kiva | Microfinance | USA |
| 3 | Andreesen Horowitz | Venture Capital | USA |
| 4 | FarFetch | Online Luxury Fashion | UK |
| 5 | Illiad SA | Telecom | France |
| 6 | Uber | Taxi | USA |
| 7 | PayU | Online payments technology | Netherlands |
| 8 | Breakthrough Initiatives | search for extraterrestrials. Cofounded by Zuckerberg | USA |
| 9 | BisonTrails | Blockchain Technology | USA |
| 10 | Calibre | Libra Digital Wallet | USA |
| 11 | Social Media | USA | |
| 12 | Xapo | Bitcoin Wallet | Hong Kong |
| 13 | Anchorage | Crypto Custodian Software | USA |
| 14 | Spotify | Music | Sweden |
| s15 | Coinbase | Digital Currency Exchange | USA |
| 16 | Lyft | Taxi | USA |
| 17 | Thrive Capital (Kushner – avoid) | Venture Capital | USA |
| 18 | Ribbit Capital | Fintech Venture Capital | USA |
| 19 | Union Square Ventures | Venture Capital | USA |
| 20 | Vodaphone | Telecom | UK |
| 21 | Mercy Corps | NGO | USA |
The table below itemizes the partners who have dropped out of Libra including Visa and Mastercard.
Table 2: Companies Who Dropped Out of The Libra Association as of Nov 7, 2019
| Id | Organization | Sector | Country |
| 1 | Visa | Global Credit Card/Payments | USA |
| 2 | MasterCard | Global Credit Card/Payments | USA |
| 3 | eBay | Consumer-to-consumer and business-to-consumer sales via online auction | USA |
| 4 | payPal | Online Payments | USA |
| 5 | Mercado Pago | Mobile Wallet | Mexico |
| 6 | Stripe | Internet Payments Software | USA |
| 7 | Booking Holdings | USA |
As noted by Libra, the opportunity target is credit card transaction fees[1]. Transaction fees are to be minimal subsidized by the transaction data sold to Facebook advertisers. It is the data that is the main profit centre.
So if Facebook creates a crypto currency named Libra, what is preventing Google from creating a parallel product?.
Details
- Uses cryptocurrency technology such as block chain
- Coins are mined[2]
- Is permissioned. Only certain entities can modify the block chain
- Vision is to replace cash as AliPay and WeChat Pay has done in China.
- Libra Reserve acts as a central reserve by investing in baskets of international currencies and bonds with the objective of stabilizing the exchange rate value of libra to the US Dollar.
- Libra reserve is initially funded by Facebook and currency collected by exchanging real money into Libra.
- Interest collected by Libra Reserve is paid not to the coin holders but to the Libra organization to finance operations and Libra investors.
- The initial system will feature a centralized blockchain.
- The transaction processing speed will be around one-third slower than Visa’s rate of 3,000 transactions per second.
- Libra transactions will not be private information.
Trust
Trust lies at the heart of any financial institution. I trust my bank TD Bank to safely hold my money and return it to me with interest at anytime.
Given Facebook’s role in corrupting the US Election and illegal use of 87 million records of personal data by Cambridge Analytica, no one trusts Facebook.
Personal data is a key profit centre which is what is driving the Libra initiative.
Why Libra Will Fail
- No on trusts Facebook
- Major economies are not on board.
- Facebook has forgotten that governments set the rules on currency policy.
- Crypto was invented to enable heroin to be purchased on the dark web and fake pharmaceuticals to be sold over the internet. The stigma of BitCoin persists with any cryptocurrency.
- The users of crypto are a small minority of libertarians who hate the government.
- For more details, see https://www.thebanker.com/Transactions-Technology/Facebook-s-Libra-dream-will-it-become-reality
- China is a world leader in electronic payments. Virtually every merchant accepts Alipay and WeChat Pay. It is likely that China will create their own cryptocurrency.
At a EU finance ministers meeting , French and German finance ministers Bruno Le Maire and Olaf Scholz opposed Libra’s development. They noted “No private entity can claim monetary power, which is inherent to the sovereignty of nations.”
I agree.
This is why we have democratic institutions. Economic policies are set at the ballot box. In no way should Canada’s economic policies ever be set by a foreign corporate entity.
Instead, Facebook should focus on making the system relevant to teenagers and millennials who are leaving Facebook in droves.
Indeed, as of March 2020, facebook is planning on exiting Libra.
[1] https://techcrunch.com/2019/06/18/facebook-libra/
[2] https://www.theverge.com/2019/6/26/18716326/facebook-libra-cryptocurrency-blockchain-irs-starbucks