One of the most concerning things to come from Facebook’s cryptocurrency reveal is the number of traditional finance players who are supporting it. These are many of the same people who shunned Bitcoin, and other cryptos, and still shun them. In light of the hype surrounding Facebook’s new “Libra” cryptocurrency, it’s important to pause and be just as critical of it as other cryptos.
Examining Facebook’s Libra without the hype
The overall concern raised by observers of Facebook’s cryptocurrency stem from the social media company’s disconcerting past. Facebook has had to disclose several breaches that resulted in its subscribers’ private information being disclosed.
In addition, there are many other potential pitfalls that should be kept in mind about Facebook’s newfangled crypto effort.
Saving the world of the underbanked and unbanked
Facebook has long touted itself as “bringing the world together.” This cryptocurrency is being touted as a means to help those who do not have access to traditional banks.
However, there are questions. For example, Alex Gordon-Brander of Omega One, said he was not sure if Libra is a savior for the underbanked or non-banked. It is a savior for those who have already invested time and energy in some aspect of cryptocurrency, he said.
“The FB announcement and efforts—including its high-end backers—legitimize digital currencies. Yes, there will still be skepticism about various currencies and the dark underbelly of this industry, but companies and the financial community will figure out ways to leverage Libra and other worthy currencies for the same reasons other assets are traded daily.”
How Facebook handles security threats will be crucial
Tech entrepreneur Hector Hoyos, the founder of Hoyos Integrity, spoke about the potential threats Facebook’s cryptocurrency will face. For example, he said he worries about anti-money laundering (AML) and know your customer (KYC) issues that Facebook could overlook.
Additionally, given the likelihood of hacking, Facebook’s attention to its digital wallet is flawed, putting consumers in the Facebook ecosystem at substantial risk, Hoyos said.
Observers have also noted that Facebook may not have the backend to support the crypto platform they’ve been touting.
Will Facebook be able to secure people’s trust?
Steven Elisc, executive VP of Corporate
“Just as Alipay and WeChat Pay are vehicles to potentially allow the Chinese government to monitor the transactions of its citizens, in a similar way, Facebook could allow transaction data to be used in a way that invades user privacy. Given ongoing news about Facebook in this regard, we expect this.”
Effects on Bitcoin and other cryptocurrencies
Avani Desai, is president of a security and privacy compliance assessor called Schellman & Company. Desai joined many others in saying that Facebook’s crypto could be the catalyst for mass adoption of cryptos, pushing them to the next level. She pointed out:
“Up until now, we haven’t seen institutional cash come into play due to regulations and, in my humble opinion, fear of the unknown. But Facebook’s Libra will give digital currencies a level of legitimacy and acceptance we have not seen previously while providing more options than established cryptos.”
Likening Libra to a “security backbone,” Desai acknowledged it will allow Facebook to gather more data. The handling of such data will be at the core of its success, considering it’s done a poor job in the past. According to Desai:
“If Facebook develops this right, they will also be able to scale better than bitcoin and Ethereum while increasing speed and agility and revamping the crypto landscape. Because blockchain is open source, the benefits to this kind of a payment platform not only suit Facebook, but the consumers who buy, sell, and partner with the organization. And if these developments progress the right way, the crypto market will actually be able to achieve the stability it needs.”
Calling herself a crypto evangelist, Desai said Facebook has an opportunity here that will benefit newbies and veterans alike.
“This is all while increasing their own questioned transparency and further safeguarding the personal data it would be collecting.”
Has Facebook Libra changed the cryptocurrency outlook?
Reinvent money. Transform the global economy. So people everywhere can live better lives. Facebook’s description of Libra has all of the high-minded self-confidence and overarching ambition you’d expect of the social media behemoth as it offers its own particular cryptocurrency outlook.
In October, politicians on Capitol Hill grilled Mark Zuckerberg about issues including the handling by Facebook of Libra users’ data and the siting of the Libra Association, the organisation that oversees the project, in Switzerland rather than the United States.
These criticisms are set against a background of longstanding concerns about Facebook’s privacy policies and advertising practices. Meanwhile, a number of founding members of the Libra project, including eBay and Mastercard, have deserted it.
Is cryptocurrency outlook on the up?
Criticism of Libra, Facebook’s first foray into cryptocurrencies, has been intense, but it has increased interest in this rapidly developing financial instrument and put the spotlight on its potential as an asset class. According to Azoth Analytics, a business research and analytics company, the cryptocurrency market was worth $856.36 billion last year.
COULD A GLOBAL AND TRUSTED STABLECOIN BECOME AN ALTERNATIVE TO THE US DOLLAR? AND WHO SHOULD RUN SUCH AN OPERATION?
“The market valuation since then has fallen by over 75 per cent to a current level of $195 billion, during which time many coins or tokens have proved worthless or been removed from exchanges,” says Nick Cawley, crypto-expert at financial market news portal DailyFX.
“Indeed, many exchanges have also been shuttered due to poor management, hacks or illegal activity and the lack of trading volume to make the business economically viable.”
However, this brutal adjustment and purge has led to a maturing of the market and a calming of recent volatility is prompting a more positive, if cautious, cryptocurrency outlook in the markets. As a result, more wealth managers are being encouraged to recommend cryptos to their clients.
Events such as China’s possible launch of its own state-backed cryptocurrency and President Xi Jinping’s U-turn on the importance of blockchain have affected investor sentiment. “But the important trend is the long-term view and here the most significant development is a growing institutional appetite for cryptocurrencies,” says Kiran Raj, chief executive of trading platform Bittrex Global.
He points to a survey by Fidelity of US institutional investors earlier this year, which revealed that 22 per cent already have digital asset exposure and 47 per cent think cryptos have a place in their portfolios. “As in any asset class, flows of institutional capital will ultimately determine growth and stability,” says Mr Raj. “On that front, the sentiment is certainly headed in a positive direction.”
Will Libra help cryptos become mainstream?
However, Robert Courtneidge, chief executive of international payments business Moorwand, is wary about the long-term cryptocurrency outlook and he remains sceptical about the benefits of cryptos as an asset class. The launch of Libra offers the possibility of cryptocurrencies finally moving from a niche to a mainstream investment. “But, if anything, it raised more questions than it answered. First, could a global and trusted stablecoin become an alternative to the US dollar? And second, who should run such an operation. Banks? ‘FAANGs’? Governments?” he asks.
“Cryptocurrency presents an opportunity for wealth managers to diversify their portfolio and, due to its volatility, there’s money to be made for those investing and capitalising on arbitrage opportunities,” says Mr Courtneidge. “But the question
Regulators and the industry have work to do, argues Mathieu Saint-Cyr, managing director and head of asset management at Geneva Management Group. “For the view on financial assets to shift, co-operation between regulators, cryptocurrency builders and other players must be encouraged and fostered,” he says.
Mr Saint-Cyr emphasises that there is a significant difference between the various fintech products currently available. “The focus on cryptocurrencies has a tendency to overshadow tectonic shifting and innovation made by the likes of, say, blockchain technology or tokens,” he says. “Asset-backed tokens are seeing increasing growth and adoption, and I would say this is where wealth managers can potentially add value for their client.”
Wealth managers more sceptical than clients
Wealth managers are usually more sceptical than their clients about crypto-funds, says Sean Sanders, co-founder of cryptocurrency investment platform Revix. The managers will ask about cybersecurity and licensing. “This makes sense as they have a responsibility to their clients to do their due diligence,” he says. “On the other hand, clients of wealth managers are more inquisitive and excited about the future potential of crypto as an asset class. They’re interested in the use-cases, developments and user number growth of cryptocurrencies and their underlying protocols.”
Dr Tony Wang, lecturer in business economics at the University of Edinburgh Business School, is sceptical about claims that cryptocurrencies offer solutions such as providing the currently unbanked with access to finance. However, he says: “On a more positive note, regulators and big financial institutions have noticed cryptos, and started investing resources in investigating and better understanding this market.
“More and more policies and regulations will lead to these financial products being discussed and developed. Therefore, we can expect to have a clearer vision of the cryptocurrency outlook imminently.”
Much of the scepticism and hostility aimed at libra was probably because, at the time of its launch, Facebook was being criticised for its conduct over privacy.
Congresswoman Maxine Waters told Facebook boss Mark Zuckerberg at the US House Committee on Financial Services in Washington this October: “I have come to the conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the libra project.”
According to Kiran Raj, head of trading platform Bittrex Global, the libra coin might have had a difficult birth, but the cryptocurrency outlook is generally positive. “Although some see governmental scrutiny as problematic in the short term, ultimately this scrutiny may have positive effects as it could help move blockchain and cryptocurrencies to become a well-regulated, well-recognised asset class that capital will flow towards at scale.”
Dr Nathalie Janson, economist and associate professor of finance at NEOMA Business School, in France, believes that the controversy surrounding libra could actually be a positive sign. “Governments feel threatened about what they believe is their prerogative,” she says. “Libra appears as a competitor to sovereign currencies since, contrary to bitcoin or other cryptocurrencies, it starts with a high number of potential users given the size of the Facebook network.
“Designed as a stablecoin, fully backed by sovereign currencies, it could appeal to consumers, in particular those living in countries with unstable monetary conditions. If it succeeds, it could become the ecommerce money.”
Libra Updates White Paper, Removes Dividends for Libra Association
The white paper for Facebook’s proposed Libra currency has been quietly updated, according to a Dec. 10 article written by Georgetown University law professor, Chris Brummer. Aside from expected amendments reflecting the revised Libra Association members, the biggest change is the removal of dividends payable to those early investors.
Change in use of interest on reserve assets
While the initial Libra white paper published in June specified that interest on the reserve assets would be used to cover system costs, keep transaction fees low, support growth, and pay dividends to the early investors i.e. Libra Association members, mention of dividends has now been removed, so it now reads:
Interest on the reserve assets will be used to cover the costs of the system, ensure low transaction fees, and support further growth and adoption.Dividend removal alleviates potential conflict of interest
The problemwith awarding dividends, and potentially the reason for the change according to Brummer, is that it created a potential conflict of interest between Libra Association members, and end-users of the currency.
To encourage uptake of Libra, the reserve assets with which they are backed should be stable. However, if dividends are paid from the interest on these assets, this gives an incentive to load the reserve with higher-risk assets.
This in turn would reduce trust in and uptake of Libra, because the supposed stablecoins could lose their value.
Avoiding branding as securities
There is also the possibility that the changes are in some way addressing concerns that Libra may be classified as a security.
As Cointelegraph reported earlier this month, two lawmakers in the United States would like Libra and other managed stablecoins to be defined as securities. However, Brummer believes that this is an unlikely outcome, due to the very nature of stablecoins not increasing in value
Facebook Libra News Today – Top Headline for Facebook Libra December 13th, 2019
- Facebook’s Libra will push regulators to take a stand on the ongoing Libra criticism says R3 chief David Rutter
- Libra set the pace as Countries contend for cryptocurrency omnipotence
Facebook’s declaration of creating its cryptocurrency termed Libra to billions of users globally will mount pressure on central bankers and regulators to take a stand. According to R3 CEO David E. Rutter, it is a good thing for bringing legality to the sector. Rutter went thus:
“If we’re going to legitimize this world which has been fraught with fraudulent ICOs that are bringing no value, and we want to tokenize real assets, securities, natural gas contracts, gold, oil, diamonds, art, there needs to be a legitimate secondary market where you as an individual or as a corporation can go and transact and know that it’s appropriately regulated.”
R3 provides Corda, a DLT, for companies to conserve a shared, absolute ledger of transactions. This allows the financial, health care, trade, and digital assets industries to share information steadily and privately. While Corda users can accept or reject new transactions before obliging the changes.
Bitcoin (BTC) Price Today – BTC / USD
Recently, Microsoft announced bigger incorporation with a commercial version of Corda on its Azure Blockchain Service. Commenting on this, Marc
Rutter also discussed Thailand’s Siam Cement Group which is running on a blockchain solution established on Corda. The application known as Procure-to-Pay is aimed at simplifying procurement and payment for 2,400 suppliers by 2020.
Libra Set the Pace as Countries Contend for Cryptocurrency Omnipotence
Facebook project Libra has set the pace for national regulators. Facebook brought not just its universally recognized brand to the obscure world of cryptocurrencies but also an army of banks, payment providers and other financial institutions, which all supported its project. The subsequent criticism from regulators, which questioned if Libra could offer consumers with security and privacy and the market with financial stability, took enthusiasts by surprise. This prompted criticism has so far left a dent on Facebook and its leagues of a partner. Visa and MasterCard are among those partners who have left the project thus far.
Libra has gradually become the yardstick for governments’ outlooks to crypto assets. Even though politicians and regulators have kept up with developments going on with stablecoins, Mr. Zuckerberg’s involvement with Libra, promising affordable and swift money transfers is quite convincing.