Facebook’s Libra cryptocurrency is big news but will it be secure?
Slated to launch in 2020, Libra’s success will be decided by the interaction of three things its financial architecture (which is complex and novel), how this affects its popularity and take up, and the consequences of how it might be used and misused.
Regardless of what you think of the idea of a cryptocurrency invented (but not controlled) by Facebook, Libra’s coming feels like a big moment for an idea that’s been around for a decade but is still struggling to become mainstream.
Bitcoin, for instance, is a world-famous cryptocurrency almost nobody uses to do real economic work beyond consuming lots of electricity mining tokens and then speculating emptily on their value.
Libra thinks it can solve this by being more like a real fiat currency, managed by big brands (Visa, Mastercard, Spotify, PayPal, Uber, Lyft, Vodafone, and Facebook itself), backed by real assets, and regulated to avoid both volatility and the possibility of money laundering. As Libra’s 29-page white paper states:
The Libra Blockchain is a decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world.
Far from trying to disrupt central control, Libra will embrace it whilst fulfilling the big economic promise of cryptocurrencies to abolish the archaically high charges levied to move currencies around or translate them from one (the dollar, say) to another (the euro or Renminbi).
Libra does employ one innovation for a cryptocurrency on this scale by splitting itself into two parts, the fiat-backed currency and a second investment token that will be offered to accredited investors and members of the Libra Association.
Instead of pegging its value to scarcity a la Bitcoin, Libra’s value and liquidity will be decided by a distributed bank of big investors (including central banks) who, we must assume, know what they’re doing.
In other words, it will behave like a usable, reliable form of digital money that just happens to function via a pseudonymous blockchain somewhere out there.
Why are big companies such as PayPal, Mastercard and Visa so keen? Because they will take a chunk out of the vast and profitable foreign exchange market they currently see very little of.