Facebook’s Libra coin: the truth behind the hype

FT Alphaville’s Jemima Kelly says the social media giant is piggy-backing on hype surrounding ‘blockchain’ and ‘cryptocurrency’ and she separates PR puff from reality to bust five myths about the new currency. Read more at

Facebook has announced its new libra coin to much fanfare and media attention but it’s fair to say that we’re alphaville remain skeptical so we’ve started a series called breaking the zach buck in which we examine mark zuckerberg new baby and explain what we think is wrong with it myth number one a blockchain is what will allow libra to function libra is meant to

Be supportive by what’s been called the libra blockchain which is described as a decentralized programmable database but we’d argue that the libra blockchain is not in fact a blockchain as some of the defining characteristics of a blockchain are missing whereas in a normal blockchain like the one underpinning bitcoin lots of transactions are hashed down and added

To a chain of other blocks hence the word blockchain libra will use neither blocks nor a chain instead libra will be a single data structure that records the history of transactions and states over time facebook says that because it uses technology that’s associated with block chains such as merkle trees byzantine consensus protocols and other complex cryptography

It should be called a blockchain but we don’t think facebook should get to decide what a blockchain means and furthermore it doesn’t need a blockchain for what it’s trying to achieve myth number two libra is decentralized so libra says that it’s a decentralized system but we think calling it that is a stretch unlike crypto currencies such as bitcoin libra won’t

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Use the proof-of-work mechanism that incentivizes miners to keep the network going instead facebook and the other 27 founding partners of the liebherr association will run their own notes that validate libra transactions the partners include uber paypal and mastercard and each one has paid 10 million dollars for the privilege facebook says libra will move to

A more decentralized permissionless system in the future but we don’t have any details on how and when that will happen myth number 3 libra can magically reduce cross-border payment fees these fees are high not just because of technological issues but political and regulatory ones associated with the complicated process of moving money from one jurisdiction to

Another although it’s true that many banks still charge extortionate rates for cross-border transfers and remain it’s payments we already have many companies working on making those fees lower like transferwise and revenue there’s no reason to believe libre can lower those costs further and as long as people still use central bank money as their primary means of

Payment they’ll still have to somehow exchange that money into libra which will come with a cost myth number for libra is about helping me unbanked facebook wants you to think that the reason they’re doing all of this is because they want to increase financial inclusion and to bring in the 1.7 billion adults around the world who remain outside the banking system

But it’s not clear how the unbanked will be able to buy libra if they have no bank account particularly of libra wants to keep regulators happy by doing proper checks on its users to avoid money laundering libra is also unlikely to help people in countries with rapidly depreciating currencies as those countries tend to put in capital controls to prevent a run on

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Their banks facebook has never shown much interest in the unbanked before and we’re not sure why it’s suddenly so interested myth number 5 libra legitimizes bitcoin libra calls itself a low-volatility cryptocurrency but just as the libra blockchain isn’t a real blockchain libra coin isn’t a real prick toe currency either that’s because it’s issued by a centralized

Entity doesn’t run on a real blockchain and rather than being subject to the whims of crypto markets is paid to a basket of fiat currencies so it’s much more akin to something like the gemini dollar the stable coin issued by the winklevoss twins exchange and it’s probably not a coincidence for the twins longtime rival mark zuckerberg shows another star sign for

The name of his coin overall we think that the use of the words blockchain and cryptocurrency is more about pr value than substance like many such projects for facebook maybe it’s also about getting regulators to smile upon them

Transcribed from video
Facebook's Libra coin: the truth behind the hype By Financial Times

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