THE WORLD IS SKEPTICAL ON FACEBOOK’S NEW CURRENCY – LIBRA

Written by Jerome Teo

Europe takes a tough stance on Libra

During the Group of 20 (G20) meeting in Washington, participating finance ministers expressed concerns over the risks associated with Facebook’s Libra in becoming a global currency. The main concerns pertain to how Facebook does not address the possibility of money laundering, data protection and terrorist financing controls in the new currency.

In particular, European ministers were most vocal about setting strict guidelines for Libra over fears that the cryptocurrency would threaten the financial stability within Europe and plan to set out tough regulations for Libra and other virtual currencies. This has also prompted the European Central Bank to rethink its project for real-time payments in the bloc, which would allow “consumers to use electronic cash… without need for bank accounts, financial intermediaries or clearing counterparties.”

 

How and why was Libra created?

On 14 October 2019, Facebook announced the formation of The Libra Association in the presence of its founding members, which include Uber, Spotify and Vodafone, at the association’s first convened meeting in Geneva.  The Libra Association will be the main governing body for the Libra currency and its reserves. The main purpose of creating the Libra blockchain was to increase access to the 1.7 billion unbanked population who do not own an account with a financial institution and convince the whole world to use the digital currency, Libra, as a legitimate form of payment. The currency would be accessible through Facebook’s digital wallet “Calibra”.

Compared to other cryptocurrencies like Bitcoin, Libra will be a stablecoin, being pegged to a reserve of tangible assets. This would eliminate drastic fluctuations in the value of its currency which is a common drawback of storing money in other cryptocurrencies. The Libra blockchain will use LibraBFT, which is a specially-designed fail-safe mechanism that guards against hacks on the entire Libra system. Libra also adopts the consensus mechanism, which ensures that an agreement is reached where the minority in a group is not ignored. Moreover, in order to deal with the predicted high load of accounts and transactions, Libra is coded in “Move”, a new programming language which utilises functional programming.

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