Why (almost) everyone hates Facebook's cryptocurrency



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Facebook Inc. says its mission is to "bring the world together". Its plans to launch a digital currency called Libra have managed to unify central bankers and financial regulators around the world, alongside US President Donald Trump and his Democratic opponents. Congress. At best, they doubt this idea. But Facebook is not the only one to pursue what is called a "stable coin", a form of cryptocurrency that has proved much more boring than, say, Bitcoin. While some regulators are reacting to the idea that Facebook could use its 2 billion users to create a de facto global currency, other industry analysts are wondering if stable coins like Libra will find a widespread use.

1. What are stable parts?

Digital currencies are designed to avoid one of the biggest problems of crypto-currencies: their volatility. Bitcoin fell once close to $ 20,000 to about $ 6,000 in four months – a range of price fluctuations that makes it almost unusable for real transactions. Many stable coins associate their value with that of another, less volatile asset, such as the US dollar or a basket of national currencies or commodities. Their transmitters save the value of their coin while keeping this asset. The most popular stable coin to date, Tether, indicates that it keeps a supply of dollars; its price has varied only a few cents.

2. What is the plan of Libra?

Facebook states that Libra would be linked to a basket of low-risk securities and traditional currencies issued by governments, such as the dollar, the euro, the pound and the yen. Scheduled to be launched in 2020, Libra is described as a digital piece based on a chain of blocks that will allow Facebook users to send and receive money or pay for services. The goal is that Libra is also used outside the social network: consumers will eventually be able to use it to pay for a taxi or a cup of coffee in the morning.

3. What is the call?

Stable coins in general can be a bridge between two worlds that have not been designed to blend – crypto-currencies and traditional finance. They facilitate the transfer of funds between people and companies. JPMorgan Chase & Co. has developed a stable piece (called JPM Coin) and Goldman Sachs Group Inc. is also exploring digital parts. Facebook says that Libra will open the world's 1.7 billion unbanked adults to pay for goods and services and send money to others for reduced fees.

4. Are there any other reasons?

Probably. Facebook's revenue growth has slowed in recent years and is looking for new ways to make money outside of advertising. Libra could potentially unlock new revenue opportunities in payments and trade. Facebook partners in the Libra project, such as Visa Inc. and Uber Technologies Inc., also have their own motivations: if Libra disrupts its payment business, Visa, for example, probably wants to at least participate in the disruption.

5. How would Libra work?

Facebook says it will entrust control of cryptocurrency to the Libra association, composed of its partners. Together, they will use a version of a blockchain, the online digital book used to verify and record transactions. Unlike block chains for Bitcoin or Ether or other popular crypto-currencies, Libra will be under the control of the members of the association, at least initially, a more centralized approach that some crypto enthusiasts consider to be contrary to the spirit of the blockchain.

6. What annoys people?

Many things, starting with other problems that Facebook has encountered – and its very size. US Congressmen from both political parties raised questions about Facebook's security and practices, including the missteps that led the Federal Trade Commission to impose a $ 5 billion fine on the company. Facebook officials will face House and Senate panels this week. Meanwhile, President Donald Trump tweeted that he was "not a fan" of digital parts in general, and asserted that Libra "will have little value in terms of reliability or reliability. US Federal Reserve Chairman Jerome Powell told lawmakers that he had "serious concerns" about the pledge, with Treasury Secretary Steven Mnuchin describing Libra as "a national security issue". Because of money-laundering and other illicit activities, the European Central Bank, the Bank of England and the French Minister of Finance have all expressed concerns.

7. Will this opposition kill Libra?

Despite all this, David Marcus, who runs the project on Facebook, thinks he can respond to the concerns of regulators and politicians and continues to continue. In a statement in front of his testimony in the Senate, he promised that the currency would not be used until all the problems had been solved. If Facebook succeeds, it could potentially create a new world currency, at parity with the yen and the dollar – and that would not be regulated by central banks. This is what regulators and politicians fear the most.

8. What are the other risks that Libra is facing?

All normal online issues, such as security and privacy issues. But perhaps the biggest challenge is getting people to actually use it. Crypto-currencies such as Bitcoin have tried unsuccessfully to be accepted in payments. Even the more stable Tether is mainly used by traders to park their assets in times of volatile markets. And Libra does not lack competition: the service described by Facebook, to send money "as if you were sending a text message", is already offered by many other companies such as Google, Alphabet Inc., Apple Cash, Venmo and Circle from PayPal Holdings Inc., a pay-to-use provider that allows you to transfer traditional fiduciary currency. Similar services are also already available in developing countries, to which Libra is mainly intended. Libra may end up being used differently or not at all.

To contact the reporter about this story: Olga Kharif in Portland at [email protected]

To contact the editors in charge of this story: David Scheer at [email protected], John O'Neil

© 2019 Bloomberg L.P.

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