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Facebook's Libra is not really a cryptocurrency and it faces huge hurdles, including in India. Here’s why

Facebook's Libra is not really a cryptocurrency and it faces huge hurdles, including in India. Here’s why

Facebook's Libra is not really a cryptocurrency and it faces huge hurdles, including in India. Here’s why
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By Prashanth Swaminathan  Jun 21, 2019 6:50:26 AM IST (Updated)

After a period of excitement, Facebook launched the white paper for its digital asset called Libra. Libra is not a cryptocurrency (like bitcoin) but rather a stable coin since it is backed by real assets.

After a period of excitement, Facebook launched the white paper for its digital asset called Libra. A lot of details are still pending and will be released on or prior to public launch in the first half of 2020. However, we do have the following information.

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  • Libra Coin will be a global currency backed by a basket of bank deposits and treasuries from high-quality central banks. It will basically allow you to send money at nearly zero fees.
  • Libra protocol will be open source allowing people to develop on top of it.
  • Calibra wallet, where you can hold the Libra coins, will be integrated across WhatsApp, Facebook, Messenger and Instagram.
  • Facebook will also set up a subsidiary, Calibra (not to be confused with Calibra wallet), for this venture, and it is expected to protect users' data and privacy and not mingle payments with user data, to prevent ad targeting.
  • Why, The Euphoria?
    From social media, it is apparent that the majority of the crypto community is super excited by Libra. I am noticing an evolution of the space, which is a bit ironic, due to the following reasons.
    • It is not a cryptocurrency (like bitcoin) but rather a stable coin since it is backed by real assets.
    • It is not decentralised as it will (initially) run on a permissioned blockchain, operated by the 100 corporates who will sign-up to become nodes by paying $10M each (including Visa, Uber, eBay)
    • It may not be censorship resistant. Facebook’s Calibra wallet requires KYC. With Facebook's history and the currency being backed by regulated assets, there could be stringent KYC/AML across the network.
    • All the above points are anti-thesis to the notion of cryptocurrency. However, Facebook's entry into this space is being seen as a watershed moment for one big reason - mass adoption. Around 2.6 billion people automatically become the top of the funnel for cryptocurrencies, and this can only a good thing for this space as it has been struggling to increase adoption after the ICO boom and bust phase.
      While Libra's utility could render many cryptocurrencies useless due to its play on remittance and payments, it could usher in a new wave of adoption in this space and we will need to wait and see which tokens and coins come out on top. I firmly believe that bitcoin will highly benefit from the adoption, as most people trickling down the funnel and learning about cryptocurrencies are more likely to buy bitcoin before any other crypto.
      The Indian Context
      Libra coin is unlikely to be available to Indian residents due to uncertain regulations on cryptocurrencies, and the ability of Libra coin to operate as a global currency outside of its network which the Reserve Bank of India (RBI) cannot control. With the amount of innovation and development happening in the digital space globally, India really needs to update its regulations to allow its residents to benefit from such innovation, as it could assist in economic, job creation and entrepreneurial aspects.
      While there are way too many questions that are unanswered at the moment, the launch and success is no slam dunk. The biggest challenge Facebook will face is from regulators and central banks who will not be happy with currency and its circulation that is not under their control. US, French and German ministers have already voiced concerns and this is only expected to get louder. Facebook and its entourage of 100 powerful corporates may be on to something special but the road will surely be quite bumpy.
      Prashanth Swaminathan is a graduate from IIT Guwahati and IIM Calcutta, and spent 10 years in investment banking at Morgan Stanley London before setting up an EU cryptocurrency exchange, XDAT.
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