Facebook Libra: what is it, and is it safe?
May 16, 2020
Matt High

Facebook Libra: what is it, and is it safe?

Facebook's new Libra cryptocurrencyis set to start trading soon, with the aim of building a more inclusive global financial system

Facebook, Spotify, U...

<h3 dir="ltr">Facebook's new Libra cryptocurrency&nbsp;is set to start trading soon, with the aim of building a more inclusive global financial system</h3>

<p dir="ltr">Facebook, <a href="//www.spotify.com">Spotify</a&gt;, <a href="//www.uber.com">Uber</a&gt;, and <a href="//www.payu.com">PayU</a>&nbsp;- just some&nbsp;representatives of the <a href="https://libra.org/en-US/">Libra Association</a>, which consists of venture capital firms and non-profit organisations spanning the telecommunications and blockchain networks.</p>

<p dir="ltr">The <a href="https://libra.org/en-US/vision/">grand vision of the Association</a> is&nbsp;to build “a stable cryptocurrency built on a secure network… [for a] more inclusive global financial system”.&nbsp;</p>

<p dir="ltr">Libra hopes to achieve this by hooking up the millions of ‘unbanked’ people worldwide - that is, people with no ability to transfer money instantly across the world, securely and at low cost.&nbsp;</p>

<h4 dir="ltr">How Libra works</h4>

<p dir="ltr">Libra will run on a blockchain of around 100 different computer servers. The blockchain algorithms have ‘command-line programs’ to enable scripting and interactive use, along with an interface of various file formats and options.</p>

<p dir="ltr">To make things extra secure, Libra uses the ‘<a href="https://libra.org/en-US/white-paper/#the-libra-blockchain">Byzantine fault-tolerant consensus approach</a>’.</p>

<p dir="ltr">In theory, the Byzantine consensus should make it near impossible for the entire blockchain to be disrupted, even if the servers are compromised.&nbsp;</p>

<p dir="ltr">For a cyber attack to bring down the blockchain, it is reckoned up to a third of its servers would have to be interrupted - a feat that the Libra Association is&nbsp;confident is near impossible, as each server will be well secured by each of its partners.&nbsp;</p>

<p dir="ltr">Furthermore, Libra is thought to be capable of <a href="https://developers.libra.org/docs/assets/papers/the-libra-blockchain.pd… payments per second</a>, making it around 500 times more efficient than Bitcoin.&nbsp;&nbsp;&nbsp;</p>

<h4 dir="ltr">Regulatory concerns</h4>

<p dir="ltr">The United States government is not convinced, however.</p>

<p dir="ltr">It already does not like the strength of the other cryptocurrencies in use today. In an attempt to win them over, the Association has marketed Libra as a “stablecoin” that is especially friendly to regulators.&nbsp;</p>

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<p dir="ltr">But, the danger is that Libra is intended to be used as collateral by some debt obligations and currencies.</p>

<p dir="ltr">Libra’s status as a global currency means it will also fluctuate like other currencies, and differently. It may even resemble something like an index in volatility if it is shaped by underlying assets.</p>

<p dir="ltr">If it becomes too popular, it could be "Too Big To Fail” - a&nbsp;phrase that still haunts us from 2008. If there was ever a run on Libra, there would be no Libra Central Bank to fix the damage.&nbsp;</p>

<h4 dir="ltr">Is there a place for Libra?</h4>

<p dir="ltr">One way to absolve these concerns comes from the Association of German Banks, which&nbsp;has&nbsp;suggested <a href="https://en.bankenverband.de/newsroom/comments/programmable-digital-euro… Libra to payment transfers</a> only, and preventing it from handing out loans. But this would undermine the Libra’s ambitions.&nbsp;</p>

<p dir="ltr">Despite the concerns, it seems the establishment banking system is prepared to accommodate Libra and other forthcoming “soft infrastructures” as <a href="https://www.bankofengland.co.uk/-/media/boe/files/report/2019/future-of… central banks have already agreed</a> to make concessions, as long as there are clear regulations and rules.&nbsp;&nbsp;</p>

<p><strong><em>This article was written by Glenn King of <a href="https://www.oakmountpartners.com/">Oakmount Partners Ltd</a>, an investment consultancy firm based in the United Kingdom.&nbsp;</em></strong></p>

<p dir="ltr"><em>For more information on all topics for FinTech, please take a look at the latest edition of&nbsp;<a href="https://www.fintechmagazine.com/magazine/fintech-magazine/march-2020">F… magazine.</a></em></p>

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