Facebook 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 and MasterCard. 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.”
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, Visa and others… LOL 😂 that’s not a #crypto. That’s a centralized wannabe crypto to enable these giants to get their hands on more of YOUR data.
— Kiana Danial (@KianaDanial) June 14, 2019
Reason #2: it’s pegged to fiat
Moreover, Libra labels itself a stablecoin that’s pegged into a basket of other fiat currencies including the US dollar (USD), British Pound (GBP), Euro (EUR), Swiss Franc (CHF), and the Japanese Yen (JPY).
Facebook wants Libra to be a stablecoin because of all the concerns around Bitcoin’s volatility. As we saw with the hype in 2017 when Bitcoin’s price went up and then came crashing down and a lot of people lost money. As a result, many market watchers became suspicious about Bitcoin due to this.
I fundamentally have a problem with coins that are pegged to fiat.
If you’re gonna be pegged to a fiat currency like the US dollar, then why even create a cryptocurrency?
Just use the US dollar digitally on PayPal or Venmo!
It doesn’t make any sense to me to have a cryptocurrency that is pegged to another fiat currency because the whole goal of cryptocurrencies to NOT use a government-backed currency.
If you want to label it “crypto”, then don’t peg it to fiat.
That’s why I think Facebook is using the “term” crypto just so that it can benefit from the hype.
Reason #3: it needs permission
It took the House Financial Services committee chair, Rep. waters, five hours to ask Facebook to halt the development of Libra. Real cryptocurrencies such as Bitcoin don’t have to get the permission of central governments! That is, in fact, one of the key differences between Facebook Coin Libra vs Bitcoin.
Looks Like Libra has to get permission…
Bitcoin never has to get permission! 🚀 https://t.co/5pSo4sCYwg
— Mark Moss (@1MarkMoss) June 18, 2019
Okay… But Will Libra Coin Succeed?
With all the power Facebook has, Libra is likely to succeed as a project.
Facebook has been active in every hot field that you can think of. It’s using artificial intelligence (AI) and machine learning to predict your future actions. It has a ton of data which together with AI, helps with targeted advertising. And it’s now using the blockchain technology, another hot tech, to get its hand on your money.
Facebook, along with Google, hold a ton of your data whether you like it or not. Many people have stopped using Facebook, but they are still using Instagram and What’s App, two applications that are owned by Facebook!
With that, Facebook has put itself in an excellent position where it’s very difficult to avoid giving your data to it. With that, if it’s able to proceed with the Libra project, it may very be able to get at least a part of its population to use it as a form of transaction.
Does Facebook’s Libra Follow Bitcoin’s Ideology?
Ideology is a key difference when digging into Facebook Coin Libra vs Bitcoin. With Facebook now creating its own economy through Libra, you might as well now call Facebook its own country—a completely centralized country that has an actual economy and has access to all of your data.
Ironically, this is something that is literally what the blockchain technology in Bitcoin is trying to crush.
The blockchain technology and Bitcoin’s goal is to create a society that is peer-to-peer, and that is not backed by a centralized entity.
Libra is the opposite. No matter how awesome their blockchain technology is with hundreds of people developing it. No matter how cool their partnerships with MasterCard, PayPal, and Uber sounds. Libra is not the type of cryptocurrency that the crypto crowd fell in love with.
The crypto crowd fell in love with cryptocurrencies like Bitcoin because they wanted to move away from a central entity that is going to have access to their data. They wanted to move away from one powerful middleman that’s in charge of their money. Facebook Coin Libra not only is going to completely ignore the true ideology behind crypto, but it’s in fact going to become “THE” entity that holds ALL the power.
Facebook’s population is bigger than the US and China combined. The data Facebook has collected from you, where you go shopping, what your habits are, what your beliefs are. This puts Facebook in a very powerful position to turn into a centralized global bank.
Facebook Coin Libra vs Bitcoin
The one similarity between Libra and Bitcoin is the usage of public keys and not linking the accounts to a real-world identity. According to the Libra white paper, “A user is free to create multiple accounts by generating multiple key-pairs. Accounts controlled by the same user have no inherent link to each other.” Here are sme of the key differences.
- Bitcoin is decentralized. Libra is centralized, backed by Facebook.
- Bitcoin doesn’t follow a fiat currency. Libra is pegged to a basket of fiat currencies.
- Bitcoin is volatile. Libra aims to be a stablecoin.
As I mention in my book, Cryptocurrency Investing For Dummies, Bitcoin is owned by no particular person or entity. Bitcoin the cryptocurrency is pretty much the same as Bitcoin the open-source platform. That’s why Bitcoin is highly decentralized and open source, owned by a community that agrees on changes.
By contrast, Facebook is a centralized entity that is running its “crypto” project on a private company called the Libra Association, LLC.
Unlike Bitcoin’s lighting torch, you won’t be able to use Libra send and receive money between countries like Iran, Isreal and the US whose governments don’t get along.
Unlike Bitcoin, if Facebook decides to close down shop and take your Libra to a different planet, there’s no peer-to-peer, centralized community to stop it.
Libra vs. Ripple’s XRP
While Libra and Ripple serve different purposes, they do have some similarities. Let’s start with a couple of key differences.
- Purpose: Ripple’s XRP is created to serve large financial institutions to help them rapid transactions. By contrast, Libra’s mission is to become a payment method for retail customers.
- Blockchain protocol: Libra promises the use of Proof of Stake (POS) for coin creation. Ripple doesn’t have a blockchain. Instead, Ripple has is own patented technology: the Ripple protocol consensus algorithm (RPCA).
Now with the similarities:
- Both Ripple (the company) and Facebook try to disassociate themselves from their crypto token.
- Both are rather centralized.
- Energy cost per transaction is minor.
- Both have partnerships with big brands.
Although there are many similarities between Libra and Ripple’s XRP, I don’t think they are truly competing versus one another. If anything, Ripple’s real competition is JP Morgan’s crypto, JPM coin. Regardless, here are a few reasons why Ripple’s XRP might have a bright future.
Facebook coin, Libra, still has a long way to go before becoming a success. It’s a centralized transaction method that combined with all the data Facebook own, can create a powerful tool to connect the economies around the world. However, being pegged to fiat currencies, it will need a lot of regulatory adoption which takes away from the true meaning of “cryptocurrency.”
Facebook’s Libra won’t be able to follow through with the ideology of true cryptocurrencies such as Bitcoin. It won’t be able to truly bank the unbanked or the underbanked, or connect people around the world without the need for government supervision.
As a project, it may succeed. But it will never be accepted as a true cryptocurrency.