Facebook (NASDAQ:FB) just announced their new cryptocurrency Libra and there has been massive movement in the news around it. I've been getting a lot of questions from my students from news media alike about what Facebook coin, Libra is, how Facebook is planning to use it as a currency and how it compares to Bitcoin and other altcoins such as Ripple's XRP.
Is it a threat to any other cryptocurrencies? Is it going to succeed? Here's a brief to answer these questions including the difference between Facebook Coin Libra vs Bitcoin and Ripple.
Oops... Facebook did it again.
First, let's get started with what Facebook is trying to do here. In my opinion, creating a cryptocurrency is truly a genius move from Facebook. They are trying to ride on the hype around the blockchain technology and cryptocurrencies, and use it to their advantage. Keep in mind the Facebook has been banning cryptocurrency advertisements on their platform for over a year now. So that truly shows how Facebook is aiming to become the monopoly in the cryptocurrency field and use their power in their advantage.
They're basically trying to do what Facebook did to MySpace. Remember MySpace was actually the original social media. Facebook stole the idea and created a much more successful platform. Nobody hears about MySpace anymore.
This is interesting because everybody has been comparing Bitcoin to MySpace. Bitcoin was the original crypto. It's the one with ideologies such as banking the underbanked. It has the technology behind. It also has a lot of flaws. Therefore, many believe there could be another cryptocurrency that could come in and become new Facebook that overthrows Bitcoin.
Guess what? This Libra "cryptocurrency" could very well do to Bitcoin what Facebook did to MySpace. In the war to become the front-running digital currency, it could truly get to Facebook Coin Libra vs Bitcoin.
What is Facebook Coin Libra?
Libra is a new cryptocurrency backed by Facebook. Users will exchange their fiat currency, such as the USD and EUR, for the Libra token on Facebook's platform.
Facebook's coin, Libra attempts to be a transaction method across Whatsapp, Instagram, Facebook and other Facebook's partners such as Uber (NYSE:UBER) and Mastercard (NYSE:MA). They claim sending Libra money is going to be as easy as sending a photo. With that, they're combining the idea of Bitcoin with Venmo, PayPal and Instagram to create a one-stop-shop for all your daily activity. Facebook will be holding on to your money, much like a central bank. That's why it's crucial that you trust Facebook to hold your money.
According to their White Paper, Libra is "a new kind of digital currency built on the foundation of blockchain technology. The mission for Libra is a simple global currency and financial infrastructure that empowers billions of people."
Facebook Coin Libra vs Bitcoin and Ripple by Invest Diva CEO Kiana Danial
The project claims to be decentralized and governed by the Libra Association. Libra's blockchain runs on a Proof Of Stake (POS) protocol just like Ethereum. But Facebook has tried to disassociate itself from the coin's platform. That's why it has assigned a different entity, Libra Networks LLC in Switzerland, to be the face of it.
This attempt to disassociate Facebook from the Libra Networks blockchain could be because of all the backlash that Facebook has received over privacy issues, and the fact that many people don't trust Facebook.
Within the next 18 months, Libra will be incorporated into the Facebook ecosystem built around Messenger, WhatsApp, and Facebook.com (using the Calibra wallet interface). It is likely to foster a rapid expansion of its existing 2.4 billion user base to adopt (and transact with) Libra across the world.
Will Facebook Benefit From its Libra Coin?
While Facebook has technically disassociated itself from the blockchain, it still is going to benefit from the transactions made through Libra. If Facebook plays its cards right, they may very well become the front-runner as the owner of a global currency that everyone has no choice but to use. Even if you hate Facebook and decide not to use it, once everyone around you tries to send you money using Libra, you'd have no choice to eventually give in.
I'm not saying to the ideology behind this is great. In fact, I think it sucks because it takes away from what bitcoin is trying to achieve with creating a decentralized, peer-to-peer distribution ledger. But considering Facebook's branding, its infrastructure, and the amount of data and money it owns, it's in a perfect position to benefit massively from the Libra project. They may even consider providing loans and other financial services normally provided by banks.
With that, the Libra project may play out to be great for Facebook's stock (FB) in the long run as well.
But Is Facebook's Libra A True Cryptocurrency?
There are three main reasons why I don't think Libra is a real cryptocurrency.
Reason #1 - it's not really decentralized
When it comes to cryptocurrency, the main idea is that there's no centralized entity you need to trust. The whole blockchain community is in charge of the trust issue. That's why, in theory, cryptocurrencies like Bitcoin are trustless.
Facebook, on the other hand, will be the sole entity behind its Libra coin. You'd need to trust Facebook or its associates with your money. This completely takes away from the true meaning of a decentralized, peer-to-peer cryptocurrency.
Facebook’s crypto project #globalcoin to be backed Uber, PayPal (NASDAQ:PYPL), Visa (NYSE:V) and others.