First people traded in the barter system, later on, the human race used gold, silver and other metal as a currency. In recent centuries the paper currency was invented. However, in the 21st Century, the trend of digital currency started since the invention and expansion of Bitcoin, which is a type of cryptocurrency.
Facebook announced the launch of its own digital currency in June 2019 which was certainly a big announcement. Facebook gave the digital currency a name- Libra. This raised some concern that the power may shift to corporates, which may change the map of political power in the entire world.
Before discussing Libra, first, understand what is a digital currency.
What is digital Currency?
The digital currency is the money used on the internet. It only exists in digital form. It does not have a physical equivalent in the real world. For example, there are various online shopping malls, which give a virtual effect to users as if they are visiting the product, while the product is only in digital form.
However, the difference here is that a product until it is purely digital like a video, does not have a physical equivalent in the real world.
The digital currency has the maximum characteristics of traditional money.
You can use it to pay for the goods and services, such as mobile and internet communication, online stores and others.
However, the digital currency does not have a political or geographical border. The transaction can be sent from anywhere to anywhere in the world.
What is Libra- the online currency?
On June 18, Facebook announced that it is going to launch a global digital currency by the first half of 2020. The currency has been named Libra.
It will be run by the Libra Association, a Geneva-based entity that has over two dozen founding partners, including Facebook, Mastercard, Visa, Uber, and the Vodafone group.
Almost immediately, concerns were raised by some lawmakers, commentators and even the co-founder of Facebook, Chris Hughes, who is now one of the foremost critics of the social media network he helped create.
It will be run by the Libra Association, a Geneva-based entity that has over two dozen founding partners, including Facebook, Mastercard, Visa, Uber, and the Vodafone group.
What is the technology of creating Libra?
The Libra will use complex mathematical models to generate Libra by using blockchain technology.
However, there is a difference between digital Currency – Libra and Cryptocurrency – Bitcoin.
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The difference between Digital Currency- Libra and Cryptocurrency Bitcoin.
Libra is an initiative of 28 influential corporate entities. Bitcoin, which the world first came to know of in 2008, is seen as a product of libertarian values. Its founder, whose identity remains a mystery to this day, is referred to as Satoshi Nakamoto.
Though cryptocurrency is a type of digital currency, there are some fundamental differences.
Structure. Digital currencies are centralized; there is a group of people and computers that regulates the state of the transactions in the network.
Cryptocurrencies are decentralized, and the regulations are made by the majority of the community.
Anonymity. Digital currencies require user identification. You’ll need to upload a photo of yourself and some documents issued by the public authorities.
Buying, investing and any other processes with cryptocurrencies do not need to require any of that. Nevertheless, cryptocurrencies are not fully anonymous.
Though the addresses don’t contain any confidential information such as name, residential address, etc., each transaction is registered, the senders and the receivers are publicly known. Thus, all the transactions are tracked.
Transparency. Digital currencies are not transparent. You cannot choose the address of the wallet and see all the money transfers. This information is confidential.
Cryptocurrencies are transparent. Everyone can see any transactions of any user since all the revenue streams are placed in a public chain.
Transaction manipulation. Digital currencies have a central authority that deals with issues. It can cancel or freeze transactions upon the request of the participant or authorities or on suspicion of fraud or money-laundering.
Cryptocurrencies are regulated by the community. It’s very unlikely that the users will approve the changes in the Blockchain, although there were some precedents such as the hack of The DAO. However, the amount of money was significant, and the decision was uncertain.
Legal aspects. Most countries have some legal framework for digital currencies, i.e., Directive 2009/110/EC in the European Union, or Article 4A of the Uniform Commercial Code in the US. We cannot say the same about cryptocurrencies at the moment. In most countries, their official status is not defined. The establishment of the legal framework is only in the process.
Therefore, even though the Bitcoin has been built on a sound technological base but it had to encounter challenges relating to regulation across the world. Governments of the world, including India, have been wary of it functioning outside the ambit of organized finance.
With huge swings in value, it remains one of the most volatile currencies.
Libra immediately has a few things working in its favor. A currency, to be a success, needs to have acceptability amongst many people. Facebook, with its over 2 billion users, and its partners could tick this box. Also, the Libra Association is promising to play by the regulatory rule book.
Plus, to make it a relatively stable currency, not prone to wild fluctuations, the creators of Libra are backing this up with a reserve of real assets. Still, going by the opposition to the idea, it isn’t going to be a smooth sail for Libra.
Opposition to Libra
The Libra is going to be centralized money. The centralized networks keep a lot of confidential information about the users. This data may get lost, hacked or be transferred to law enforcement agencies at court request.
Decentralized networks do not have these problems. The same goes for a transaction cancellation. If the system is revocable, you can make changes to a transaction. At the same time, it opens room for fraudulent activities.
Bloomberg has reported that the French Finance Minister, Bruno Le Maire, has called on the Group of Seven central bank governors to “prepare a report on Facebook’s project for their July meeting. His concerns include privacy, money laundering, and terrorism finance”. Markus Ferber, a German member of the European Parliament, has also been reported as saying that Facebook could become a “shadow bank” and that regulators should be on high alert.
Facebook’s co-founder Hughes, terming the digital currency “frightening”, has said it is a shift of power from central banks towards multinational corporations.
There were concerns raised by other experts that even if Libra remains modestly successful, it will hand over much of the control of monitory policy from central banks to private companies.
If enough people traded Local Currency for Libra in emerging economies, it would threaten the ability of the government to manage the fiscal policies.
If Libra becomes successful, Facebook and its partner would hold undue sway over the development of crucial global technology such as identity verifications, as well as effective writing the rules on the matter such as privacy and response to the theft.
In a flash, the ability for a government to fund itself through the manipulation of money disappears. You can’t obfuscate bitcoin supply — inflation is transparent. You can’t ‘quantitatively ease’ bitcoins... Central banks and private banks can’t create bitcoins when it suits them, and the government can’t print bitcoins. It all means you don’t have to pay the price for the mistakes of governments and banks
- Bitcoin: The Future of Money? Dominic Frisby
The new coin already has support from many corners in the sector and could be a major step in the right direction for an industry looking for mainstream legitimacy. While it is unlikely to fulfill the goal of a truly decentralized currency, Libra could be a milestone into crypto becoming a broadly accepted technology.
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