Facebook released the promised whitepaper on their new cryptocurrency this week. Hats off to them for the scale of the ambition, which can be summarised as taking over the world of retail banking.
What’s good about it?
- It is backed by a basket of assets rather than just the USD. This was a smart move and removes the criticism that it’s just another USD stable coin.
- Facebook do not control it (so they claim). It is governed by the independent Libra Association.
- It has its own programming language “Move” designed to address some of the weaknesses in current smart contract protocols. Ambitious, but this might create a whole ecosystem.
- It is open source, so you can log on right now and play with it. Thousands and thousands of people will and it will be fascinating to see what they come up with.
What’s bad about it?
- The white paper notes that the Libra Association: “has a goal of building an open identity standard. A decentralized and portable digital identity”
- We interpret this to mean we can KYC you with your Facebook account, and why not? The fact that this is possible because of how much they know about everyone is deeply concerning to anyone who cares about their privacy.
- The asset backing for the coin is based on a mix of fiat currencies from ‘stable central banks’ and government securities. So bonds then, at all time high prices.
- To be clear, the value of Libra will be tied to USD, EUR, US and European bonds. It will fall versus gold, it will fall versus bitcoin. For users though its probably no worse than their host national currency.
What does it mean for crypto?
- For some crypto assets, Libra is profoundly negative. Particularly those that promise fast and more efficient payments like Ripple.
- Smart contract protocols like Ethereum & EOS will also be challenged if it turns out that ‘Move’ is capable of things they are not.
- For bitcoin, the fact that Libra is backed by fiat and bonds is a major boon. Ultimately Libra, by design, has unlimited supply. It has tied itself to a losing game of government money printing and debt and it will lose value versus bitcoin. It may also serve as the single biggest cryptocurrency onramp in the next few years.
So, digital currencies are hitting the mainstream. 2 billion people will shortly have access to cryptographically managed money. It will serve as massive advertisement for the sector.
Expect bitcoin to absolutely hoover up this liquidity when people realise that by holding Libra, they are actually holding their value in USD, EURO and the associated government debt of those regions.