- Libra coin is backed by traditional assets and acts like a fiat money
- Facebook just wants to build a global pseudo-banking and payments network
It’s already known that Facebook today revealed its Libra coin’s whitepaper presenting it as a “a low-volatility cryptocurrency, supported by the Libra Blockchain – a decentralised, programmable database”.
However, if we take a look at its whitepaper, we may conclude that – Libra is not really a cryptocurrency, moreover it’s not stablecoin.
Bloomberg’s editor Joe Weisenthalt says that IMO it’s not a cryptocurrency, so much as it is an attempt to create a global, unified version of the fragmented payment apps that exist all around the world.
He is explaining that the basic essence is that, unlike the most of cryptocurrencies and altcoins, Libra will be backed by traditional financial assets in traditional financial institutions that include “investment grade credit ratings”.
This reserve backing, thinks Weisenthal, is designed to eliminate any volatility currency might have – which can be seen as factor that obstructs commercial adoption of most cryptocurrencies.
He says that the problem lays in fact that once traditional financial institutions are involved, there come regulatory problems in terms of who can obtain and use the coin.
Libra Blockchain Will Not Be Regulated
He gives an example of drug dealers and money launderers buying Libra and using it to hide money from the law enforcement.
Regulators don’t want that and therefore in the Whitepaper is said that developers building on the Libra Blockchain will have a responsibility to comply with the laws and regulations in the jurisdictions in which they operate. Libra Blockchain itself will not be regulated.
The problem here, notes Weisenthal is that once you apply traditional regulations to tokens backed by money in the bank – those tokens start to look and act as a normal fiat money.
As example, Weisenthal says that the most money we use today (via credit cards, Venmo, Paypal etc.) is just a digital representation of money that banks promise to back up. This seems to be the same think – but on blockchain.
Internet Money Doesn’t Have to Be Blockchain Money
The opportunity here is not something extremely revolutionary, but just the Facebook’s way to use its global reach to create unified version of payment networks that people are already using around the world.
It seems that it’s true that Facebook just wants to build a global pseudo-banking and payments network. However, it’s hard to see a reason why someone would want to do this using blockchain tokens, which as the authors point out themselves in the documents, have so far proven volatile and difficult to scale.
Take China’s social media-turned-payments giant WeChat Pay for example. For longer time now, Facebook is trying to compete with on a global level and WeChat doesn’t use the blockchain. PayPal doesn’t use it, nor Venmo.
Internet money doesn’t necessarily have to be blockchain money. Which is maybe why Libra coin isn’t really blockchain money in any meaningful sense of the word.