Ten years since Bitcoin heralded the arrival of cryptocurrencies, expert opinion remains divided on whether decentralized payment platforms have a future. While the blockchain used to record Bitcoin transactions is being enthusiastically adopted by organizations around the world, the currency itself has become a stock market plaything. The only South African payment solution which allowed Bitcoin withdrew support a couple of weeks ago and the Indian and Chinese governments are proposing a blanket ban.
Sink or swim?
Since Bitcoin emerged, over 1,600 new cryptocurrencies have failed, and none can be said to have succeeded. Yet investors remain convinced that there’s a future for online payment tokens, which is why Facebook’s Libra cryptocurrency has generated so many headlines. Mark Zuckerberg’s crypto is scheduled to launch next year, backed by a basket of currencies and Treasury securities.
The Libra cryptocurrency will be created on-demand rather than generated randomly, as happens with Bitcoin. Coins will also be destroyed whenever they’re redeemed for fiat currency. Mining will continue to populate the blockchain, but only with Facebook’s permission. Indeed, Libra is arguably more of a stablecoin than traditional crypto, given how heavily enmeshed it’ll be with Facebook’s IT and UI. And in a demonstration of why comparisons with Bitcoin may be disingenuous, Libra promises to be fast and scalable without any of the slow transaction validation times which have dogged its forefathers.
The Libra cryptocurrency was dealt a blow in July when the US House Financial Services Committee demanded that Facebook suspend development. There are concerns about the security of Facebook’s digital wallet Calibra, which would instantly become a magnet for hackers. There is no indication of how consumer money will be insured or protected against fraud or theft, and little evidence that American authorities even have the power to intervene if they wanted to. In addition, Facebook has a lengthy track record of abandoning speculative projects, from Android pretender Home to Groupon rival Offers. Perhaps most worryingly, its previous take on virtual currency – Credits – quickly fizzled out.
Far from cryptic
Transactions paid for with Libra will be listed within each user’s Facebook account. From an ideological perspective, a traceable currency backed by corporate sponsors including Mastercard and Visa is a world away from the dream of a stateless cryptocurrency where transactions can’t be censored. However, it does offer greater stability, since each partner organization is contributing $10 million upfront. Being pegged to national currencies should negate the instability that plagued Bitcoin and its army of imitators. The avoidance of transaction fees and international currency conversion costs would also be welcomed by consumers.
Growing cynicism around both the crypto market and Facebook itself could yet derail plans for the Libra cryptocurrency. Nonetheless, it arguably stands a better chance of success than any other decentralized currency proposed to date. Congressional approval (or the lack thereof) may ultimately decide Libra’s fate in its home market, and consequently around the world.