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Libra, the intruder or defender to US Dollar?

Libra, the intruder or defender to US Dollar?

The rise of digital currencies has attracted the attention of many large companies and attempts to enter this market. In some companies, they are using blockchain technology for internal operations, such as JPM Coin based on Quorum; ICE and Microsoft, Starbucks in cooperation with Kt Boston Information Group, the digital asset service agency Bakkt, and more.

Based on that, you can see the financial industry’s affirmation of the technology behind cryptocurrencies. On top of large enterprises, small established companies also focus on blockchain operations to provide various district-based technical solutions. Therefore, cryptocurrencies are facing such issues that large companies tend to use it conservatively or for their own internal systems; various types of cryptocurrencies have been continuously introduced, but it is not enough. In addition to the general influence of Bitcoin and Ethereum, hundreds of cryptocurrencies have short lifespan.

We can see the widespread usage of blockchain technology, but cryptocurrencies are not popular in people’s daily transactions. Bitcoin’s delayed information and its inability for greater scalability, the difficulty of becoming a mainstream currency in the trading market under the highly fluctuating currency rate; it is undeniable that Bitcoin sets a precedent for decentralized transactions. With more than a hundred cryptocurrencies available, it is something to ponder! Imagine the communities are unified, it will pose a challenge to the existing financial system. Cryptocurrencies are rejected and attacked by regulators on the periphery and face vicious competition from the inside. The bottlenecks on both sides must be led and broken by powerful intermediaries. This intermediary structure is Libra.

Zuckerberg is a smart and visionary entrepreneur. After Facebook grew bigger, he was not satisfied with the status quo, using huge fund to buy Instagram and WhatApp. Some analysts pointed out that Facebook’s acquisition is a market monopolization. By combining the data and resources from the three major communities of Instagram, WhatsApp and Facebook, they can provide greater revenue channel for itself. This move has been continuously attacked by the media and lawmakers, but Facebook has not stopped to “swallow” other companies to strengthen its ambitions. Finally, in June 2019, Facebook announced its own cryptocurrency, Libra.

Libra’s appearance naturally brought turmoil to the industry. Both developers and investors are concerned about Libra’s trading solutions, with regulatory committees and legislatures are even more concerned about the timing of Facebook’s development in cryptocurrencies. They realized a serious problem, “Libra poses a challenge for the US dollar”. Indeed, in their Q3 2019 report, they stated, “we estimate that around 2.2 billion people now use Facebook, Instagram, WhatsApp, or Messenger (our “Family” of services) every day on average, and around 2.8 billion people use at least one of our ‘Family’ of services each month.

Looking at the traditional perspective, currency has always been one of the symbols of national sovereignty, especially the population behind the currency also represents the market. Facebook has a user base of 2.2 billion, far more than the 320 million people in the United States and twice of the population in China. Annual income of Facebook has grown from $1.13 billion in 2011 to $17.652 billion on 2019, with a growth rate of 165.21%. We can’t estimate how many users Bitcoin has, but according to Coin Market Cap data, Bitcoin’s market value has reached $ 136.2 billion. Compared to Bitcoin, Libra serves billions of users and the advance technology provided, the market has more confident than Bitcoin. Obviously, it is not difficult for Libra to surpass Bitcoin, and it will shake the foundation of the current financial market.

Libra’s technology

In designing Libra, Zuckerberg and his team have taken the existing problem in the blockchain into consideration and re-drafted a suitable framework. In the white paper, Libra is positioned as a “global currency”. The mission for Libra is a simple global currency and financial infrastructure that empowers billions of people and backed by a basket of statutory provisions. A basket of currencies includes the US dollar, Japanese yen, the Euro, British pound, and Singapore dollar. The proportion of the US dollar is 50%.

Technically, Libra is supported by two technologies, namely Move programming and Byzantine fault tolerance (BFT). The programming used for the Ethereum’s smart contracts is Solidity. This programming mainly serves applications and there are loopholes in protecting asset. The DAO security breach incident is mainly due to two reasons: (i) a contract’s control-flow decision relies on some of its state variable (s) that should be, but are not, updated by the contract itself before calling another (ie, an external) contract; and (ii) there is no gas limit when handing the control-flow to another contract, in order to prevent security loopholes. Move-based programming separates data from assets and processes them. It is beneficial to protect assets and ensuring assets are not lost due to loopholes in smart contracts. The PoS mechanism adopted by Libra, only Libra consortium can serve as nodes. The consensus of the verification node is based on Byzantine fault tolerance, also known as LibraBFT. This framework may allow for future inter-operability with other chains powered by BFT consensus. 

USA, USD, Libra

After the release of Libra, lawmakers and regulators were particularly anxious. In the past, Bitcoin was widely used for illegal transactions including money laundering, terrorist financing, extortion and other crimes which cannot be tracked by regulatory agencies. Fake projects are common, large amount of money are obtained by inducing investors to invest in nonexistent product. Whether Libra’s design framework meets regulatory standards is a matter of concern.

During the testimony, Ms Water, the chairman said, “Facebook changes the rules when it can benefit itself. Last year, Facebook banned all cryptocurrency ads on its platform because they are frequently associated with misleading and deceptive promotional practices. However, at the beginning of this year, Facebook allowed the advertisement of cryptocurrency and blockchain companies, as well as announced its own cryptocurrency.” Obviously, through Ms Water, the Legislative Council are dissatisfied with Facebook’s unscrupulous behavior and wicked cryptocurrencies. The source can be traced back to Facebook 50 million users’ data leaked to Cambridge Analytica and being able to conduct political propaganda in the form of advertisement to influence the election.

We will meet the regulatory requirements before launching Libra

Facebook Founder, Mark Zuckerberg

During the testimony, “We will meet the regulatory requirements before launching Libra”, is almost the way Zuckerberg used to solve the severe problems. Yes, although Libra is still questioned by all parties, Zuckerberg’s attitude in this matter is to create a global currency, or specifically to create a global currency for the United States.

First, build the US cryptocurrency standard

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At the hearing, Zuckerberg made it clear that Libra will meet all the regulatory standards of the United States before it is officially launched. Although cryptocurrencies have been allowed to trade in some U.S. states, but they haven’t come to the federation consensus. Cryptocurrencies have also not been given legitimacy because they failed to gain trust from regulators. If Libra meets the requirements of the regulatory unit, it will be the benchmark for future developers. The specifications by the United States will lower the risks and gain greatest benefits to itself.

Second, catching up with the digitally monetized RMB

Zuckerberg emphasized at the hearing, “as soon as we put forward the white paper of the Libra project, China immediately announced a public-private partnership working with such companies, thereby extending what they have done to digital RMB as part of the ‘belt and road’ initiative that they have, and they’re planning on launching that in next few months”. Based on the said development, Zuckerberg expects the United States will also have cryptocurrency on international level and compete with the RMB. Libra can just compete with the digital RMB and be at service to the United States.

Third, pave the way for a new financial model of the future

Some comments pointed out that Zuckerberg actively promoted Libra because after the user’s privacy was leaked, he sought another channel to compensate for the negative image. Libra is one of the best solutions. Decentralized finance (DeFi) is currently a promising prospect, and transactions between people will no longer have to pay high fees due to national borders, and they only need to operate on the network to point-to-point and remit money. On top of that, this kind of de-banking trend has gradually attracted attention. The establishment of Libra, to a certain extent, has the role of a bank, which can efficiently, quickly and transparently handle asset transfers. In the financial transformation, it has played a role of inheritance for the US dollar.

In summary, through Zuckerberg’s attitude at the hearing and Libra’s purpose, it can be concluded that Libra has released a friendly attitude towards the US dollar and is even willing to set policies that are favorable to the US dollar. Once online, standing on the layout of the global strategy, this is undoubtedly a win-win situation for Libra and the US dollar. The main concern for the US government is the Libra’s dominance of monetary policy, which should be summed up by entrepreneurs or national leaders. After all, the trade war between the United States and China has just ended, and the currency war has not stopped. In 1930, Britain, France, and the United States respectively obtained foreign exchange dumping through the devaluation of their currencies to compete for the world market. After World War II, a world monetary system centered on the United States was established. If Libra cannot serve the interests of the country because it cannot be completely controlled, it will become an invisible threat outside the country.

Most of the crypto community welcomed the birth of Libra, but a paper, “Social Media Monopolies and Cryptocurrencies: Facebook’s Proposed Coin” stated that, ” Facebook Coin may be a success where the other cryptocurrencies may have fallen short, what Facebook is proposing in practice is about as far removed from the original ideals of crypto anarchism as possible. Libra can be regarded as the product of reconciliation between traditional and non-traditional currencies. On one hand, it absorbs the technology of cryptocurrencies and on the other hand it accepts the setting of regulatory units. It has the potential to become a global currency. Analyzing from the current situation, Libra has a positive impact on the US dollar, but before receiving the affirmation of the regulatory unit and the approval of the Legislative Council, the issue remains unresolved.

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