Facebook’s Cryptocurrency, Libra, and Its Potential Effects
by Kalyn Stockman
Between instant access to communication and networking, the dozens of business-focused tools, live streaming videos, smartphone integration, and hundreds of other features, what doesn’t Facebook offer? Well, “it’s own cryptocurrency” will no longer be a suitable answer to that question come 2020. Say hello to Libra, Facebook’s very own form of cryptocurrency. To some, the upcoming launch of Libra triggers excitement as a familiar platform incorporates a new feature. To others, Libra brings uncertainty, frustration, and doubt. Whatever feelings the introduction of Libra may spark in you, it is certainly something to pay attention to. The social media giant extending its services into banking and currency? It has my attention!
In Facebook’s attempt to become an all-in-one platform for users, as well as acquire mass amounts of data to store and access, it is no surprise that they want to provide a way for users to participate in quick and safe financial transactions. However, this decision is sitting differently between four main groups who will be affected: users, investors, banks, and cryptocurrency competitors.
The Reason for Libra
Before diving into the effects of Facebook’s cryptocurrency launch, it is important to understand the motivation behind this plan. It is hard to say exactly why Facebook is introducing Libra and all that it hopes to accomplish through this, but there are some clear benefits of launching Libra if we look at Facebook’s current situation.
By entering the cryptocurrency market, Facebook is expanding and diversifying its business model (which will in turn bring new customers), as well as creating a whole new source of revenue. On top of attracting new users by expanding into a new market, Facebook might tempt current users to increase use and loyalty to Facebook because of the new service being offered.
Facebook must constantly develop and grow to meet the expectations of demanding users, and I’d say tackling cryptocurrency is doing just that. Facebook also clearly intends to become an all-in-one place for users, and by offering cryptocurrency, users will depend more heavily on Facebook alone, rather than switching to other platforms for everyday needs (like financial transactions).
Libra will certainly be appreciated by Facebook Users who have been waiting for a familiar brand to offer a digital currency service. Facebook is one of the biggest and most used social media platforms, and with that comes loyal and trusting monthly users (nearly 2.5 billion of them!). As well as giving users a trusted platform to engage in peer-to-peer electronic transactions, Libra will benefit users who haven’t otherwise had access to bank accounts or services, such as those in developing areas.
Despite these clear benefits, the question of Facebook’s security and trustworthiness remains. Many of us remember the recent privacy scandal in which the personal data of millions of Facebook users was accessed by companies without permission. Will new, former, and current users be able to trust a cryptocurrency platform designed by Facebook? Or, if Facebook succeeds in creating a safe and secure cryptocurrency system, could this be how they redeem themselves and regain trust around the world?
Major corporations such as Uber, PayPal, Visa, and MasterCard are investing millions of dollars to back the launch of Libra. What’s in it for them, you might ask? Well, being a part of Libra at this early stage allows investors to become “founding members” (with a payment of at least $10 million, that is).
By backing the creation of Libra, these investors gain the ability to track its growth as well as access some or all of the financial data that it collects over time. They are also entitled to partial decision making and a share of the earnings. Many are impressed with the investors that Libra has managed to team up with thus far. It surely gives the new system some instant credibility to see familiar and trusted companies taking part in it.
Mobile banking apps and traditional banks will face threats as Libra rises. People will be able to bypass banking systems and complete transactions on their own, eliminating the need for bank services. If Libra gains enough popularity, small central banks could face severe loss of business.
Something interesting to note is that no US banks have joined the group of Libra investors. While payment networks like Visa and Paypal have joined the team, banks are nowhere to be found in the initial group of investors. Perhaps this is because of the threats Libra brings them, or maybe they will join others in observing how Libra plays out before becoming the least bit involved with it.
Of course, competitors feel frustration as the social media giant plans to take market share away from them. Especially since Facebook is making a clear effort to be simpler and cheaper than competitors, even the well-known Bitcoin. It is also designed to avoid some of the key problems that Bitcoin faces, such as major value fluctuations and development problems due to a lack of leadership.
Libra isn’t all bad for competitors, however, and they may even benefit from its introduction. By implementing a cryptocurrency system, Facebook is normalizing this type of financial transaction and helping users get more comfortable with the process. They are introducing millions of people to digital currency, and this may draw customers to accept and use other cryptocurrency platforms like Bitcoin.
It is apparent that Facebook’s Libra is expected to greatly impact the electronic currency market. Facebook is certainly taking action to keep up with consumer needs and technological advancements by introducing this system. While predicting the outcome of such a controversial action by Facebook will be difficult until its launch, the company has given consumers reason to believe that Libra will come out as a strong, secure, and convenient platform that is here for the long run.
At this point, Libra will likely appeal to and benefit the every-day consumer who wants quick, easy, and cheap financial transactions. It will be interesting to monitor Libra’s consumer feedback and check how it aligns with Facebook’s promises and how it will impact the use of cryptocurrency as a whole. If this lands in the consumer market, chances are business users will start to demand Facebook’s Libra or similar currencies in their work lives, like we’ve seen with so many consumer technologies before.