Is Facebook Creating Its Own Cryptocurrency?

Facebook has made waves by announcing its own cryptocurrency, called Libra, as detailed in its publicly released whitepaper. Many argue that Libra does not possess the core characteristics of another major cryptocurrency, Bitcoin. This article explores the nature of Facebook's Libra project, the motivation behind its launch, and how it might impact the existing cryptocurrency market.

What is Libra?

Libra is an open-source cryptocurrency project and supposed stable coin created by Facebook. It is minted on the Libra Network, backed by a basket of fiat currencies and monitored by the Libra Reserve. While some see this as a potential game-changer for the cryptocurrency landscape, others view it more as a tool to expand Facebook's influence and collect financial data.

Libra vs. Bitcoin: Key Differences

One of the primary points of contention between Libra and Bitcoin lies in their underlying technology and principles. Here are some key differences:

Mining Process: Bitcoin uses Proof of Work (PoW) mining to generate new coins, whereas Libra allows for the simple printing of whatever amount is desired with a command line interface. Currency Supply: Bitcoin has a limited supply of 21 million coins, while Libra's supply can be increased at will, similar to how traditional fiat currency is managed by banks. Decentralization: Bitcoin operates on a decentralized, permissionless network with an open-source codebase. In contrast, Libra is owned and managed by large corporations, which raises concerns about centralization. Node Participation: Bitcoin nodes are open-sourced and permissionless to run, whereas the Libra node requires payment of 10 million dollars to participate in the network's infrastructure. Backing: Bitcoin relies on electricity and the complexity of mining to secure its network, unlike Libra, which relies on a basket of currencies, bonds, and other financial assets.

Why Is Facebook Interested in Cryptocurrency?

The motivation behind Facebook's interest in cryptocurrency is multifaceted. Its primary objective is to increase the size of its walled garden and generate significant revenue. A walled garden is an ecosystem that controls user access to web content and services, allowing the company to direct user navigation and access to a curated selection of material.

By creating a cryptocurrency, Facebook can incorporate a wide range of financial services within its existing ecosystem, making it the go-to platform for users' financial transactions. This strategy would also help in collecting a vast amount of financial data on its users, which can be used for predictive analytics, targeted advertising, and other purposes, further enhancing the value of the walled garden.

Facebook's Walled Garden Expansion

Facebook's interest in cryptocurrency aligns with its strategy to create a comprehensive ecosystem. It aims to connect its various apps, products, and services into a single, seamless user experience. Companies like Facebook, Apple, and Amazon have successfully implemented this strategy, creating walled gardens that dominate their respective markets.

Facebook's Libra project features a network built by a consortium of corporations, including payment giants like Mastercard and Visa, technology players like Booking Holdings and eBay, and even telco giants like Vodafone. This network is intended to facilitate a wide range of services, from payments to food delivery and even personal data management. Through this network, Facebook would have a comprehensive view into its users' financial behaviors and can create targeted services and products.

Further, Facebook's announcement of the Libra Reserve and its associated companies highlights its ambition to become a one-stop-shop for all financial services. For instance:

Payments: Mastercard, PayPal, PayU, Napster’s fintech arm Stripe, Visa Technology and Marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, MercadoPago, Spotify AB, Uber Technologies Inc. Telecommunications: Iliad, Vodafone Group Blockchain: Anchorage, Bison Trails, Coinbase Inc., Xapo Holdings Limited Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures Nonprofit and Multilateral Organizations: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

Impact on the Cryptocurrency Market

In the short to medium term, the launch of Libra could be beneficial for Bitcoin as it raises public awareness and interest in the broader cryptocurrency space. However, in the long term, some argue that Libra may disrupt the existing cryptocurrency ecosystem by providing an integrated payment system that could overshadow decentralized and permissionless cryptocurrencies.

Facebook's sheer size and influence in the digital realm mean that any move towards cryptocurrency will likely lead to significant changes in how digital payments and financial data are handled. As the U.S. government has already expressed concerns about Facebook's Libra project, it highlights the need for careful regulation and oversight to balance innovation and user privacy.

In conclusion, while Facebook's Libra project aims to disrupt the traditional financial landscape, its underlying strategy of creating a comprehensive walled garden could fundamentally alter the way financial services are delivered and consumed. The implications for the cryptocurrency market and user privacy are still being debated, making this an exciting area to watch in the coming years.