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Facebook Cryptocurrency: Libra could reshape the banking industry

Since Bitcoin set the cryptocurrency market alight just over a decade ago, a number of crypto currencies have emerged, forming their own stock market including currencies such as Litecoin, Ethereum and EOS. Despite advantages associated with using cryptocurrency to exchange funds, the digital money platform has failed to reach mainstream usage and only accounts for a small percentage of people invest in the currency to this day. Facebook announced in June 2019 that it will begin operations within the finance market through the development of its own cryptocurrency, Libra. The Libra Blockchain is a decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world. Libra hopes to become a widespread global currency and has the potential to shake up todays banking industry.

Libra hopes to break issue of cryptocurrency instability by being built from a secure, scalable, and reliable blockchain that is asset backed. Libra is supported by a reserve of assets funded by investors and seemingly more stable and easier to exchange. The currency will be guaranteed by a reserve of real assets similar to how currencies have been propped up in the past via gold reserves. This will be provided by the partners that buy into the Facebook run Libra Association that includes big name financial services companies. This environment is intended to be more secure and stable for individuals to store capital and exchange funds.

Although assets could generate interest over time, investors will not receive any returns which are instead allocated towards maintenance. The cryptocurrency has a strong network of initial partners including leading multinational companies such as Uber, PayPal, MasterCard, eBay, Spotify, Visa, Vodafone and Lyft. Each of the association’s current 28 members was required to invest a minimum of $10m and Libra is aiming for a collaboration of around 100 financial contributors each of which will receive a vote on the board. Facebook has, interestingly, given itself two votes on the board through a new subsidiary it has created called Calibra which will provide the user facing services for Libra (such as digital wallets, apps and plugins).

The announcement of Libra has received mixed responses, many of which suggest that the integrity of privacy and national security, trading and cyber security are at risk. Over the past decade the regulation of the cryptocurrency market has been relaxed with most countries demonstrating no cryptocurrency specific laws or regulations. Since the announcement of Libra, regulators have been on high alert and the introduction of new regulations specifically for cryptocurrencies could materialize in response to planned introduction of Facebook into the financial markets. US authorities will hold a hearing to assess Libra and the data protection issues surrounding the currency.