Facebook Libra: All you need to know

If you are one of those people who are yet to hear about the most anticipated Cryptocurrency of 2019, today is your lucky day. Facebook Libra was cofounded by Facebook in an attempt to make international money transfers as easy as sharing photos on social media. But what happened to the initial hype around it? Is it still called Facebook Libra? Even if you go about searching online, the details available are scattered across the years making one wonder if it’s a concept that never took flight. Read along about the Facebook Libra: All you need to know.

What exactly is Facebook Libra?

Libra is a cryptocurrency created by Facebook intended to be used as an unsophisticated, low-charge global currency. It will be similar to digital money on your phone, which can be used to pay for any commodities at outlets or online stores where the cryptocurrency is supported. But the major advantage is that Libra is supposedly backed by a basket of assets, including government debt instruments and major currencies including USD & Euro. 

The name Libra was selected since it represents freedom from outrageous service charges collected for international transfers. By the end of 2020, Libra was rebranded to Diem(meaning “day” in Latin). The Libra association was also renamed the Diem association.

How is Libra/Diem different from other cryptocurrencies?

Before we enlist the differences, let us first address the similarities to other cryptocurrencies, such as bitcoin and ether. Just like the other cryptocurrencies, Diem also exists entirely in digital form without a physical note or coin. The Diem transactions are also recorded on the blockchain which is a software ledger that confirms each transfer. The Diem blockchain is supposed to evolve into a fully open system in the future but will be managed by the founding members in the early stages. Similar to Bitcoins, Diem can also be pseudonymously bought or cashed out online. This means that your online identity is not recorded even though the transactions are. 

Unlike Bitcoins & Ethereum which are not backed by anything, the Diem tokens will be pegged to real assets, a format widely known as a Stablecoin. The result is that the value does not swing wildly in response to speculations since the assets are denominated in major global currencies(mainly USD) which don't fluctuate intensely on a daily basis. This also means that you may not become a millionaire overnight with Libra/Diem tokens since the rates remain more or less constant.

How does Libra Work?

Libra or Diem tokens will be able to be purchased and used with the help of known cryptocurrency wallet applications by cashing in dollars to be used at any business that supports its use. A digital wallet service called Calibra was developed by Facebook that can hold and spend these tokens. Calibra was later renamed as Novi, which is headed by David Marcus, the former president of PayPal and Vice President of Messaging Products at Facebook.

The Tokens are accounted for and kept track of by the not-for-profit organization, the Diem Association, which will ensure that the tokens are backed by a basket of major currencies and securities as individuals exchange their local currency for tokens. Unlike other virtual digital cryptocurrencies, the Diem cryptocurrency is supposed to have a relatively stable price owing to the existence of this basket of major currencies and securities.

Also, the Diem is not a true blockchain currency due to the fact that it is not fully decentralized like Bitcoin or Ethereum. Instead, the ledger of transactions can be accessed solely by the members of the Diem association. 

Does Facebook control Libra Cryptocurrency? 

The Libra/Diem Association will not be run solely by Facebook as the association acts as a regulatory body for the cryptocurrency and is made up of 26 members, including Uber, Shopify, Spotify & Pay U to name a few with an initial investment of US$10 million. Earlier the members included financial service giants like Mastercard, Visa, PayPal, and a number of other companies. Just like the other members of the association, Facebook will have just one vote. So to answer the question, no Facebook does not control Libra but was originally one of the co-founders of the Libra Association.

 But Facebook had its own vested interest in digital cash even before Diem as they ran a virtual currency called Credits, as a way to make payments on games played within Facebook. Diem is also designed to attract new users to the social network by making it easier and cheaper for people to transfer money online. Besides, Mark Zuckerberg acknowledged that it would likely benefit Facebook by making online advertising on the social network more desirable and expensive.

Facebook has created a new subsidiary to run a wallet for holding and using Diem which was initially called Calibra and later renamed Novi. Its mission is "helping people around the world access affordable financial services." Those services will also include games and commerce as per famous analysts at RBC Capital Markets.

Why did the Original Libra association members drop out?

Although founded in 2019 and the launch decided for 2020, with passing time some of the original founding members withdrew their support: almost Seven of them right before the association's inaugural meeting in Geneva. The members that exited include eBay, PayPal, Stripe, and financial services giants Mastercard and Visa whose departures had a huge backlash for Libra because those members brought age-old expertise in payments and transfers technology. The other dropouts are Mercado Pago & Booking Holdings, both of which are prominent organizations in the US. These partners who have exited could have ideally helped fund a dependable ecosystem of Libra developers, spread the system in the developing world thereby creating daily use cases, and also push for alliances between Libra and cryptocurrency players. One of the main reasons was that Libra was appearing to compete directly with the US Dollar which would break the USD dominance in the world. 

How Does Libra Fare against the Chinese Yuan?

The digital Yuan is a central bank digital currency that aims to replace some of the cash in circulation by the People’s Bank of China. Yuan is simply a digital currency compared to Diem’s complicated basket of multiple-stable & fiat-backed coins design. It aims to provide traceability and a good user experience by getting rid of paper and coin-based cash. Diem on the other hand hopes to be a global platform for “digital programmable currencies.” 

Milking the fear of the USD dominance being broken, Mark Zuckerberg made the case that China’s digital yuan will usurp the dollar and achieve currency supremacy if the US doesn’t catch up and create a digital currency. 

But so far only 2% of the global reserves and payments are done in Yuan whereas USD still controls almost 90%. The work of the Yuan is still in its early stages whereas Diem is near completion.  So if the Diem is backed by USD, it can overshadow the Chinese digital currency.