As Mark Zuckberg, the CEO and Founder of Facebook testifies before Congress today I thought it was a good time to break down what is Libra and cut through the partisan hype and give a layman’s view of why you should care. If you want to read the written testimony submitted before the House Financial Services Committee then the ever-helpful Gabor Gurbacs is worth checking out. His tweet gives the full statement.
Libra is defined as a permissioned Blockchain digital currency proposed by Facebook. The project and currency are yet to be launched and the planned launch date is currently set at 2020. The project is not solely the responsibility of Facebook though. Currently 21 other organization are part of the Libra Association and open body that has been set up to provide governance and oversight of the new cryptocurrency. In recent times the membership of this group has been newsworthy with the likes of Mastercard and Visa having pulled out.
Libra is different from Bitcoin as it exists on a permissioned blockchain. This is significant, it means that in order to run a node on the network you need permission.
Another key difference is that the crypto currency will also be backed by a basket of Fiat currencies which will include the likes of very stable state backed currencies such as the dollar, euro and the yuan. The other major difference between Bitcoin and Libra is that the limit of Libra coins in circulation is not yet defined so in theory the Libra Association can mint new coins as it sees fit.
All of this doesn’t make Libra a bad thing. According to Zuckerberg’s statement he wants Libra to be an inclusive way for the worlds unbanked to be able to transfer money in as frictionless a way as possible. This is a lofty ambition and will of course disrupt the likes of Venmo, Zelle and PayPal if the network ever gets past the regulatory oversight and actually launches.
So why all the fuss?
Well Fiat currency is a way for sovereign state’s to control their economies, and while most of the developing world have issues with their currencies as a global method of exchange, the US does not. The US dollar is the world’s global reserve currency. Lots of things globally are priced in dollars, stock and share are priced in dollars and lots of global transactions are priced in dollars.
Any disruption of the global reserve currency usage and standing is a big deal for the US. If Libra were to become how the world moves money around and is the world’s most adopted form of exchange, then the country with the most to lose is the US.
Watch this space…