Facebook vs Bitcoin: Battle of the Crypto Coins, Can Libra Can Topple BTC Cryptocurrency?
A few months ago, there were rumours floating through the grapevine about Facebook’s desire to enter the cryptocurrency sector by floating its own digital asset. At the time, there wasn’t a lot of concrete information on the venture so no one really knew for sure. A few things started to solidify the conjecture, one of which was Facebook’s announcement of more than a few vacancies with specific blockchain requirements. A while later, it was announced that Facebook had hired two compliance managers who were formerly with Coinbase.
The Libra Whitepaper
Today, it’s no longer conjecture and everyone, even if you’re living under a rock, now knows that Facebook, along with a score of partners, will be launching its own cryptocurrency in 2020. The digital asset, Libra, is probably the most talked about topic in the global financial sector – both cryptocurrency and traditional industries. Facebook officially released Libra’s whitepaper on the 18th of June, which says that
“Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”
The whitepaper further explains what Libra was created to solve, as part of its problem statement. It states a few challenges being faced by the world’s current financial climate including unaffordable transaction fees, widespread access to financial solutions amongst others.
It then goes on to explain the advantages of cryptocurrency and blockchain technology as we have it today, highlighting “distributed governance”, essentially decentralisation which removes control from any one entity; “open access” which explains the ease of accessibility by anyone with internet access and also “security through cryptography”. However, the whitepaper states that all the currently available blockchains still have issues with both volatility and scalability and as such, “have yet to reach mainstream adoption.”
For Libra, on the other hand,
“It is built on a secure, scalable, and reliable blockchain, backed by a reserve of assets designed to give it intrinsic value [and is also] governed by the independent Libra Association tasked with evolving the ecosystem.”
This means that Libra could be described as a stablecoin
The whitepaper also clarifies the association:
“The Libra Association is an independent, not-for-profit membership organization headquartered in Geneva, Switzerland. The association’s purpose is to coordinate and provide a framework for governance for the network and reserve and lead social impact grant-making in support of financial inclusion.”
The association is already made up of a few global heavyweights including MasterCard, PayPal, Visa, Lyft, Spotify AB, Uber Technologies, Vodafone Group, Coinbase and Andreessen Horowitz, among others. Apart from Facebook itself, the Libra Association is made up of 27 firms and it is hoped that before the official Libra launch next year, there will be 100 members.
Bitcoin Versus Libra
Many people have offered varying opinions and theories about the specific impact of Libra and how it could possibly affect the global financial market and the cryptocurrency market specifically. There are some who believe that with Facebook’s large customer base and all the members of the Libra Association pulling resources together, Libra could eventually topple Bitcoin. Whether or not this is a real possibility, it’s important to highlight the major differences between both digital assets.
The blockchains used by both cryptocurrencies are inherently different. The Bitcoin blockchain doesn’t require any permission and allows miners from all over the world to mine the asset whenever they choose to. For Libra, it won’t be so straightforward as the asset would be powered by a permissioned blockchain. This would mean that for anyone to mine Libra, they would have to first seek permission.
Bitcoin is a fully decentralized cryptocurrency. This means that from its inception in 2009 till now, there is no single entity that has any control over the network or blockchain. Libra will not be running the same way as Facebook and the Libra Association would retain substantial authority over Libra, its application and its mining. Bitcoin in no way allows anyone any authority over usage or mining. Everything that happens on the Bitcoin network is largely organic.
Libra is a stablecoin – backed by national fiat currencies. Due to this, there would still be some government influence, however indirectly. If Libra’s value is tied to national currencies, then actions or inactions of these governments would affect the value of their currencies which also means that the value of the Libra would be impacted. This is not a problem with Bitcoin at all. Bitcoin is not backed by any fiat so it can rise or drop independently, regardless of the condition of any fiat currency.
Vulnerability to Inflation
Bitcoin’s fundamental feature prevents the endless production of the asset. Specifically, there will never be more than 21 million Bitcoins ever produced. There is also the halving event which ensures that the amount of Bitcoin mined after every 210,000 blocks are cut in half. This system in itself largely prevents inflation. For Libra, however, there is no cap on how much can be produced and all that we know is that the Libra Association will control its production and supply. This means that everything is dependent on the association and nothing is organic.
Everything being said about the chances of success or failure for the Libra cannot exactly be conclusive. There are those who do not think that the Libra is a real cryptocurrency because it’s not exactly decentralized. There however are those on the other hand who believe that regardless of the decentralization, the coin’s application could do a lot for the global financial climate. Until next year, we can only wait.