Facebook unveiled plans to create "Libra," a new blockchain, digital currency and smart contract platform intended to reach a global audience.
As outlined in an "official Libra white paper," the goal behind Libra is to create a virtual currency that is stable, built on an open-source blockchain, supported by a reserve of financial assets (fiat currency and government securities) and overseen by a group of entities who will become members of the Libra Association. The authors cited distributed governance, open access and security through cryptography as some of the major intended benefits of Libra. The authors also noted that Libra aims for greater access to financial services and "cheap capital."
Facebook, which played a key role in the creation of both the Libra Association and Libra Blockchain, will continue in a leadership role through 2019.
Commentary /Steven Lofchie
Notwithstanding the publicity, the announcement was not of a new cryptocurrency; just of a plan to launch a new cryptocurrency.
The planned product will be somewhat in the nature of a "stablecoin" in that it will be backed by "hard" assets (a basket of bank deposits and short-term government securities), rather than just by the confidence of the users. However, it differs from most stablecoins in that it is intended to reflect the value of a basket of global currencies, rather than just a user's local currency. This raises various interesting issues: (i) will each acquisition and disposition of Libra be treated as a taxable event? (ii) how will consumers and merchants deal with the fact that while a Libra may be "reasonably stable" in value as against a basket of global currencies, it will fluctuate in value against any individual local currency? (iii) who will decide how much to weight any individual currency in the Libra basket and how to effect changes in weighting, and the circumstances of any such changes; e.g., U.S. government sanctions against another country?
Commentary /Christian Larson
The end-use idea behind the Libra is simple: create a global cryptocurrency that enables instant, low-cost payments to any person, anywhere, in any amount. Realizing that idea is delightfully complicated, in part, because all cryptocurrencies to date have suffered from the same problem: a lack of truly mass adoption.
The Libra aims to solve the mass adoption problem in three key ways. First, its main sponsor is Facebook, which has more than 2 billion active users worldwide. Second, to avoid the wild swings in value that cryptocurrencies such as bitcoin have displayed, the Libra is designed as a "stablecoin," pegged to a basket of fiat currencies, and fully backed by fiat reserves and government securities. Third, Facebook and its partners are simultaneously touting the benefits of decentralized ledger technology and governance while sensibly establishing a centralized governance structure to garner trust and manage the long-term stability of the coin's value.
The effort Facebook has invested in creating the Libra is unprecedented. Still, it remains to be seen whether the Libra will achieve mass adoption outside of Facebook's platform, and how Facebook plans to comply with financial regulations in all the countries where it operates.
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