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Long Story Short - Can We Trust Facebook?
Over the decade, digital currency, commonly referred to as cryptocurrency, has been a new creation that many companies want to get their hands on. Since the creation of Bitcoin in 2009, cryptocurrency has attracted a large following as well as large investments. Recently, Facebook has made their way into the cryptocurrency world with what they call Libra. Libra proposes quick, safe, and easy global transactions on their own blockchain, although regulators have been quick to jump in and voice concerns.
Backed by real currencies. Facebook’s Libra will be backed by a “basket” consisting of bank deposits and short-term government securities, which will be held in the Libra Reserve. Having Libra backed by real assets such as the U.S. Dollar and Euro, would ideally make the Libra very stable unlike the Bitcoin and other cryptocurrencies.
Comprised of large companies. Facebook is the main name in the game, but they aren’t the only company involved in Libra. PayPal, Mastercard, eBay, and Visa are just a few that are also collaborating with Facebook on Libra. Teaming up with these major companies may help users feel secure using the platform, because it isn’t solely under Facebook creation.
Won’t launch until addressed. David Marcus, Facebook’s head of blockchain projects, said Facebook won’t release Libra until all concerns raised by regulators are answered. This assures some regulators and consumers that it will be safer and more structured when it launches. Facebook isn’t trying to rush the release of Libra, as the release date is sometime in 2020.
Where’s the regulation? Virtual currencies are unregulated, in that they have found loopholes around the laws that govern banks and financial institutions. Libra Association hasn’t provided any further detail on how they will deal with fraud, fees, money laundering, and many other issues that investors and financial professionals deal with daily.
Tied to Facebook. Although Libra will have oversight by the Libra Association, it is still a creation of Facebook, which has been in the hot-seat for a couple of years now regarding privacy and ethical issues. Many individual Facebook users have had their data compromised. Companies have also pulled out of advertising deals with Facebook amid the ongoing scandals, which makes it difficult for anything tied to Facebook to be considered trustworthy.
World economy risks. Cryptocurrencies such as Libra, could create large privacy issues as well as reduce competition in the current financial system. With Libra predicting to launch by 2020, it opens the door for billions of users to make unregulated financial transactions, which could shake up the global economy. If Libra emerges as a dominant leader, it may eliminate competition, also hurting the economy.
Libra is still in its early stages of development and has a lot of information that needs to be cleared up before it launches. The backing of Libra by the “basket” of currencies shows the large potential for the stability of this cryptocurrency. Although regulators have voice their concerns over lack of regulatory controls, Facebook still plans to launch Libra, after these concerns have been addressed. Since it was only announced recently, there is still much more to come from Libra.
https://www.theguardian.com/technology/2019/jun/23/facebook-libra-cryptocurrency-poses-risks-to-global-banking, Phillip Inman and Angela Monaghan June 23 2019
https://www.cnn.com/2019/07/16/tech/facebook-libra-crypto/index.html, Clare Duffy July 16, 2019
https://www.foxbusiness.com/technology/g7-leaders-significant-concerns-facebooks-libra-treasury-sec-mnuchin, Joe Williams July 18, 2019https://www.bbc.com/news/business-49008298 , July 16, 2019