Libra – and the monetization of network effects

Over the past few days, there has been a lot of buzz about Libra – Facebook’s version of a (stable)cryptocurrency and potentially a smart programming platform. While Libra is a brand new innovation and yet another blockchain with an extremely well-defined governance model, adoption and governance are not as straightforward as it seems. Below I highlight some of the features, use cases, and challenges that will be faced by an ecosystem like that of libra’s – including regulatory ones.

What is Libra?

Libra is a cryptocurrency proposed by Facebook going to launch in 2020. It is a stable coin with governance from corporate partners like Visa,eBay, Uber, Paypal, and Mastercard. The libra association is a governing body that open sources the libra blockchain and developer platform along with developing its own programming language called MOVE.

What will be the Use of Libra?

Libra is supposedly going to be the form of value transfer on Facebook’s network which includes the Facebook platform, facebook messenger, Instagram, and WhatsApp’s crypto-wallet Calibra. Libra’s use cases vary – firstly, from providing a user friendly way to transfer money between people using WhatsApp, to trade with other affiliate companies (or use as a currency on eBay, uber, PayPal, etc).. In addition, Facebook expects that its 2.38 billion people will somehow get to use Libra, while its value is stable – This onboarding of 2.38 billion people onto the ecosystem will suddenly bring the whole connected world- in direct touch with cryptocurrency through one of Facebook’s many services. This reach is truly the largest a cryptocurrency can expect in the world and will significantly increase volumes significantly on exchange markets because once people realize how easy it is to adopt or use libra then they will trade/participate on exchanges that support other cryptocurrencies too, cross chain innovation (e.g., multiple blockchains being able to interact among themselves), applications in other constrained environments too.

Bitcoin, Ethereum VS Libra.

Libra is a centralized permissioned blockchain network backed by real currency value in the form of currency and/or debt bonds from the stakeholders or partners. Bitcoin and Ethreum have their own value but Libra will depend on the currency value. Bitcoin is highly volatile but Libra will be a Low volatility stable coin – according to Facebook.
. Every large firm in the world will now be motivated to launch its own crypto e.g., United Lever, AT&T, Verizon, Sprint, etc… or join the Facebook Libra or one other crypto platform. In foreign countries like India – ridesharing firms such as Ola and e-commerce platforms such as Flipkart have their own rewards mechanism.

Challenges

1) Government regulation on monetary equivalents or money will significantly challenge libra’s global adoption – since governments control all aspects of money within their boundaries. While Facebook has the monetary power to push through or lobby for regulation in all geographies, it will take time to really make it a globally adopted monetary equivalent. Secondly, Facebook’s push into cryptocurrency markets will overall be good for the entire crypto-ecosystem since regulation will now ease adoption of other cryptocurrencies as well. We have seen this with organized efforts from the

2) While Facebook has promised to back up libra with monetary equivalents – it has yet to be seen how this will be audited in each geography.

3) The low volatility coin hopefully does not lead to secondary markets where libra is traded and demand far outstrips supply.

4) The reach of libra is far greater than that of any other cryptocurrency – but, will libra now managed (and governed) by the libra organization, be able to replace all banking infrastructure globally.

Government regulation Vs Libra.

1. US, Maxine Waters, the chair of the House committee on financial services, said that Facebook should hold the Libra launch temporarily.
2. The current state of India cryptocurrency policy won’t allow Libra to launch in India.
3. China already banned crypto activities, Companies like Ali express and Tencent are not going to follow Facebook

Let’s wait and watch this private digital currency future.