The current wave of digital currencies has seen many businesses and groups coming up with new solutions and innovativeness to help people live a better life.
The cryptocurrency world has recently added a new baby into its fold. This time, it is coming from a well-known and reputable brand, Facebook, the social media giant. Libra is the name of the expected cryptocurrency from Facebook. Want to know more about how Libra and its benefits? Read on…
What is Libra Cryptocurrency?
Libra is a digital currency, otherwise called cryptocurrency. It is developed by the Facebook Company. According to the company, the cryptocurrency is designed to help users send and receive money cheaper and quicker than the traditional form that we are all used to.
By using Libra, the developers believe it will enhance access to services in the financial sector, particularly for individuals who don’t operate a conventional bank account or those who have restricted access to use banking facilities.
Who Will Run the Digital Currency?
The Libra digital currency will be managed by an independent not-for-profit company, Libra Association. Although the infrastructure of Libra and the conception of the idea comes from and built by Facebook, the launch of Libra and its running will be overseen by the Libra Association.
Libra association comprises a group of nonprofit organizations and consortium of companies from around the globe with a location in Geneva, Switzerland. It is composed of strong 28 founding members in various sectors of the economy. This includes telecommunications, technology, payments, blockchain companies and venture capital including not-for-profit organizations.
Industry-leading organizations in the membership include Paypal, Coinbase, Lyft and Mercy Corps. At the time of its launch, the association is expecting to have a strong 100 members to strengthen its performance.
When in operation, the Libra Association will play two major roles:
- The organization will run the servers to manage the Libra Network.
- The Libra Association will run the reserve which will back the cryptocurrency to ensure its stability.
How Libra Works?
The workings of Libra is comparable to other digital currencies that have been created but with a little slight difference. As with all digital currencies, Libra is built on the blockchain. Blockchain technology is composed of a set of servers, referred to as nodes.
They verify and record every transaction done on the blockchain network. However, the Libra blockchain is not like what obtains with conventional development.
Instead, it is coded distinctly to meet some specified requirements including:
- Must possess scalability to be able to accommodate billions of accounts. This design will allow for low latency, accommodate high transaction and perform optimally with sufficient storage system.
- The blockchain is developed to ensure high security, placing fund safety and financial data security on a high priority list.
- It is designed to be meet high flexibility. This will make it possible for it to strengthen the governance of the Libra ecosystem.
Permissioned & Permissionless Blockchain
Most cryptocurrencies that have been developed run on a permissionless blockchain. Digital currencies like Etherium and Bitcoin both run on the permissionless blockchain. This allows anybody to join the network and mine on the ecosystem of the currency.
A permissionless blockchain does not allow all comers to join the network. It must be by approval. Ripple is an example of permissionless blockchain. The blockchain is reserved for financial institutions and banks. They must go through proper vetting to be accepted into the network.
A permissionless blockchain is often highly decentralized and slower because of the massive number of people involved in the network.
Permissioned blockchain is a faster network because of the lower population of people in the ecosystem.
The technology that runs Libra and the cryptocurrency itself is billed to be built on the blockchain platform known as Libra Network. In contrast to other cryptocurrency networks, the Libra network works on a permissioned network.
The network does not permit any network to join the network. As a permissioned blockchain network, it means only restricted servers are given access to a link to the blockchain network.
According to Facebook, the permissioned network will enable its blockchain network to operate quicker than other digital currencies. It is hoped that this will make the use of Libra more practical for online purchases for everyday use.
A good advantage is also the fact that the Libra network runs on an open-source network. Software that is developed with an open-source code gives other developers the freedom to modify the codes. For this, any software developer can develop a digital wallet or related tools to make the use of Libra possible on the created platform.
The Libra blockchain network is initially designed to be on a private network but the developers hope that as time goes on, the Libra network will be on a public blockchain.
The Stability of Libra
The issue of cryptocurrency stability is often the subject of discourse in the financial sector. The Libra digital currency is hoped to take care of stability measures to make the digital currency more viable in the market.
Unlike what obtains in bitcoin and other previous cryptocurrencies, Facebook announces that there will be less volatility with Libra’s value. This is because the digital currency will be supported strongly by fiat or real currencies.
Similarly, in contrast to other stable coins, the value of Libra won’t be fixed to only one physical currency. The Libra digital currency is expected to be backed by a 1:1 reserve of fiat currencies deposited in the bank.
Unlike notable digital exchanges such as Coinbase that is backed by a 1:1 to the united states dollar, Libra is supported by deposits of the US dollar, Japanese yen, euro, and government securities. With this, the value of Libra relative to other currencies will differ.
Facebook is the foremost social media network, no doubt. To further add to the strength of the social media network, Facebook established a subsidiary of its company to manage other prospects of the company.
Calibra was born to provide financial services and develop products by using Libra. The first product to be released by the company will be the development of the Calibra Wallet. The Calibra wallet will enable users to safely store Libra.
Users will be able to easily send the currency to their loved ones and carry out transactions smoothly just like sending an SMS. Facebook says carrying out transactions with the digital currency will be at a very low cost or none at all.
The Calibra wallet is hoped to be launched as a standalone application. It will be integrated into the Whatsapp application and Facebook Messenger. The infrastructure made available by Calibra ensures that other organizations and companies will be free to develop other tools and wallets to make use of Libra on the network.
Facebook takes the privacy of users seriously and plans to ensure the subsidiary company, Calibra is independent. The organization assures that privacy will be implemented by making sure customers’ financial data and personal information will not be shared on Facebook.
However, this may be necessary for rare circumstances including having to prevent fraud and keeping in line with the law. The only exemption is only when users allow or agreed for their information to be shared.
It is a win-win situation for Facebook, the parent company to benefit from the provision of Calibra. Facebook expects to gain tremendously from this establishment. The facility will enable more transactions between businesses and users on its platforms.
In other words, Facebook will be making a very good income from ad revenue. Facebook hopes to provide additional financial services and create new revenue flow through this subsidiary company. According to Facebook, Calibra users’ data won’t be used for ad targeting.
Worries from Regulators
Facebook boasts of a huge following as a social media network. Its massive 2.4 billion users is a great potential to reach over a third of the world’s population. Lawmakers including regulators are concerned about this innovative financial tool from Facebook that will soon get into the hands of many users.
They are looking out to various ways to get things under check in the use of this tool. As a result, the parent company is examining critically to evaluate the potential of Libra and how it will impact on the lives of global financial systems and consumers. Whether legislation will be moved to completely stop the creation is considered a possibility by some quarters.
According to Steven Mnuchin, the Treasury Secretary said the government is troubled about the digital currency. It is seen as a tool that may get into the wrong hands, be used to buy illegal drugs, human trafficking, and other negative uses.
According to Jerome Powell, the Federal Reserve Chairman, the creation of Libra raises many concerns including money laundering, privacy, financial stability, and consumer protection.
Facebook is optimistic and taking its time to set things out properly. It states to be working with regulators and sees that things are set out right before its eventual launch.
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