Facebook’s Libra: Potential to Increase Demand for Bitcoin

July 24, 2019
author avatar
July 24, 2019

Arthur Iinuma

This arti­cle also appears on Forbes.com where ISBX reg­u­lar­ly cov­ers the top­ic of mobile app devel­op­ment and cryptocurrency.
Face­book has recent­ly announced its planned 2020 launch of a cryp­tocur­ren­cy it calls Libra. This is per­haps one of the sin­gle largest events in cryp­tocur­ren­cy his­to­ry – Face­book has the pow­er and pres­ence to mas­sive­ly dis­rupt a still-grow­ing indus­try. It can sin­gle-hand­ed­ly ush­er in a new wave users and adop­tion, has the resources and tech­ni­cal capa­bil­i­ties to build a tru­ly scal­able and func­tion­al blockchain ecosys­tem, the man­age­ment expe­ri­ence to launch a new and nascent tech­nol­o­gy, and the clout to bring on the nec­es­sary part­ners to enable usage out of the gate.
This arti­cle explores how the future launch of Libra may have a pos­i­tive impact on bit­coin demand. But first, let’s explore a bit about the new cryptocurrency.
Libra belongs to a fam­i­ly of cryp­tocur­ren­cies called “sta­ble coins” and is backed 1:1 against a bas­ket of sta­bi­lized assets – more on that lat­er. It is also fast, though no esti­mates are giv­en for set­tle­ment times, Face­book is impos­ing strict through­put, finan­cial, reli­a­bil­i­ty and secu­ri­ty require­ments for val­ida­tor nodes. Due to its per­mis­sioned blockchain struc­ture (albeit at the expense of sig­nif­i­cant dis­tri­b­u­tion and decen­tral­iza­tion) it is expect­ed to be capa­ble of sup­port­ing 1,000 trans­ac­tion per sec­ond (tps). Com­pare that to 7 tps for Bit­coin and 15tps for Ethereum, and you can quick­ly see just how scal­able Libra is designed to be.
Most cur­rent sta­ble­coins are pegged to a sin­gle fiat asset, such as USD. Libra is not pegged to a sin­gle fiat asset, but instead is backed by a col­lec­tion of low-volatil­i­ty assets, such as bank deposits and short-term gov­ern­ment secu­ri­ties. This is impor­tant, as Libra has the poten­tial to be more sta­ble than many local cur­ren­cies, espe­cial­ly those used in high-con­flict regions, a chal­leng­ing polit­i­cal cli­mate, or with his­tor­i­cal­ly high infla­tion rates such as the Bolivar.
This method in which Libra is backed gives it intrin­sic val­ue, but more impor­tant­ly, the reli­a­bil­i­ty of price sta­bil­i­ty so that it can be used for dai­ly pur­chas­es of goods and ser­vices with­out the risk of sig­nif­i­cant price change. This also means that it has func­tion­al val­ue as both a method of pay­ment, as well a store val­ue for sav­ings. It is also impor­tant to note that there’s like­ly min­i­mal room for spec­u­la­tion on Libra’s future price growth poten­tial – since it is designed to be sta­ble, it is assumed to not appre­ci­ate in val­ue like bit­coin or oth­er spec­u­la­tive cryptocurrencies.
Implications for Bitcoin
Ini­tial­ly, Libra is acquired by end-users by exchang­ing their local fiat for Libra. This can be per­formed through ATM’s placed in local mar­kets or through Facebook’s Cal­i­bra Wal­let. From there Libra can be trans­ferred to ven­dors or mer­chants, to pay for goods and ser­vices, or to friends and fam­i­ly as a form of remit­tance. Most impor­tant­ly, Libra is designed to sup­port an open ecosys­tem, such that it can be trans­ferred to and sup­port­ed by “a com­pet­i­tive net­work of exchanges,” where users can exchange it for bit­coin and oth­er cryp­tocur­ren­cies. Libra also sup­ports sev­er­al hall­mark ben­e­fits of blockchain tech­nol­o­gy, such as the abil­i­ty to cre­ate wal­lets and send/receive it with­out sup­ply­ing any per­son­al­ly iden­ti­fi­able information.
Libra’s vision is to pro­vide a fast and low-cost method of val­ue trans­fer to the unbanked or to those who tra­di­tion­al­ly pay more for finan­cial ser­vices as a result of hav­ing less mon­ey. In order to do this, it will need to cre­ate a vast net­work of fiat-to-Libra onramps, so that it can con­vert local­ly used fiat in the many coun­tries it plans to oper­ate in, to Libra. At the moment, this process is exclu­sive­ly being han­dled by cryp­tocur­ren­cy exchanges, and the options, while grow­ing, are still lim­it­ed. How­ev­er, as Face­book and the expand­ing col­lec­tive of well-cap­i­tal­ized busi­ness­es in the Libra Asso­ci­a­tion con­tin­ues to push for usage and adop­tion – a new wave of pre­vi­ous­ly untapped con­sumer cap­i­tal is expect­ed to make its way into the cryp­tocur­ren­cy mar­kets. Even if just a frac­tion of Libra hold­ers exchange it for bit­coin or oth­er cryp­tocur­ren­cies, there is sig­nif­i­cant poten­tial for new demand, as Libra is expect­ed to gain adop­tion from an entire­ly new base of users. Think of Libra as a “gate­way cryp­tocur­ren­cy” that will help famil­iar­ize a new pop­u­la­tion of users to dig­i­tal currencies.
Face­book has tak­en on the mon­u­men­tal effort of build­ing an ini­tial con­sor­tium of found­ing mem­bers, includ­ing pay­ments heavy­weights, Stripe, Pay­Pal, Mas­ter­card and Visa. How­ev­er, to date, no sin­gle bank has signed on. Crit­i­cal to Libra’s adop­tion is a vast and diverse fiat-to-Libra onramp. Banks have their part in this, as all cryp­tocur­ren­cies must ini­tial­ly be pur­chased in fiat. While spe­cif­ic asso­ci­a­tion with Libra is not nec­es­sary to accom­plish this, coop­er­a­tion and sup­port by bank­ing enti­ties is absolute­ly critical.
Beyond this, there are mar­kets where banks are few-and-far between or oth­er­wise dif­fi­cult to access by low income house­holds. In these mar­kets, it may be excep­tion­al­ly dif­fi­cult to con­vert an individual’s cash-based wages to the dig­i­tal rep­re­sen­ta­tion of val­ue that is Libra. This is a prob­lem that has exist­ed for decades and is not new and unique to Libra. How­ev­er, it has yet to be solved at scale, and presents a very real chal­lenge. Still, it seems that the Libra Asso­ci­a­tion is the sin­gle most pow­er­ful and influ­en­tial con­sor­tium of com­pa­nies that has been chal­lenged with the task of solv­ing this, and as a result, this author is hopeful.
chevron left icon

Collaborate with us

Ready to discuss your project? Please fill out the basics in the form below to get in touch with us. We would love to hear from you! If you don’t like filling out forms just send an email to info@isbx.com to start discussing your project with our team!

Project Budget