It is finally happening.
The original promise of digital currency – of electronic money that bypassed banks and governments – was first put forth by the enigmatic Satoshi Nakamoto in 2009. In that fateful year, Satoshi introduced Bitcoin, a global digital currency, and Blockchain, the technology that enabled its transfer from one point to another. He then disappeared into cyberspace and hasn’t been heard from since.
services when the value of that currency could decrease in a heartbeat? (Bitcoin, for instance, has dropped more than $1,000 in a day). Yes, it can go up as well, but your average shopkeeper or corporate CEO is not a currency gambler.
Here’s a price graph of Bitcoin for the first week of July. At one point, it is as high as $11,800 on July 4 and as low as $10,900 on July 5.
But despite more than a decade of riding the planet’s digital airways and taking residence in its crypto exchanges and wallets, Bitcoin hasn’t fulfilled its promise as a digital currency. It has become a major alternative investment asset, another subject entirely.
Yes, there are a few vendors that accept Bitcoin in payment for goods and services, but the vast majority of owners of the $200 billion of Bitcoin’s market cap use it as a speculative investment.
And that is its problem: It is a speculative investment. What vendor is willing to take a digital currency in payment for goods or
How could Bitcoin ever be considered a stable form of money with daily price swings like that? Price swings, I might add, that shows no sign of stopping.
Which brings us to the fact that a true cryptocurrency is about to be introduced to the world, one that will, in my opinion, become a major competitor to fiat currency worldwide. (Fiat currency is money governments issue and mandate as the medium of exchange in a country: dollars, pounds, euros, yen, etc.)
What has changed the cryptocurrency landscape is Facebook’s announcement of the creation of a new digital currency called Libra.
No banks, no governments, just economic freedom, particularly new freedom for the 1.7 billion people on the planet who are “unbanked.” Providing access to financial empowerment to the world’s “unbanked” is one of the key purposes of Libra.
“The Libra mission:
“A simple global currency and financial infrastructure that empowers billions of people.
“Reinvent money. Transform the global economy. So people everywhere can live better lives.” (https://libra.org/en-US/)
By way of example, you buy a hundred dollars’ worth of Libra. You pay for it by debiting a bank account, using a credit card, or purchasing it directly at one of the multitudes of locations where you will be able to buy or sell the Libra directly.
You can hold the money in your phone, which then serves as your digital bank account, use the digital funds to buy goods and services, and/or sends money to a friend or relative anywhere in the world, again, as simple as sending a text.
Think about this for a minute. It completely restructures the global financial system.
There are three primary elements of the system.
Libra will be an actual digital currency.
HERE COMES LIBRA
Click the round white icon at this link (https://libra.org/en-US/) and watch the 90-second video.
Anyone with a smartphone can buy Libra with whatever currency they use, store it in a Facebook-created digital wallet called Calibra in the phone, and then use it to buy goods and services or send money to anyone in the world, all as simple as sending a text.
“Many cryptocurrencies today (e.g., Bitcoin and Ether) have no underlying assets to back them. As a result, speculation and investment have been (the) primary use cases, as with a potential for substantial appreciation many people have acquired these coins hoping to sell them at a higher price later. As beliefs over the long-term value of these currencies and success of their networks fluctuate, so too have their prices, yielding at times massive swings in value.
“To drive widespread adoption, Libra is designed to be a currency where any user will know that the value of a Libra today will be close to its value tomorrow and in the future.”
HERE COMES LIBRA
The first is a secure and reliable blockchain. “Blockchain is a network of computers (called nodes) that all have the same history of transactions, validated by every new computer that wants to be part of the transaction. Cryptography … makes sure the transaction is secure by encoding each transaction with a unique set of numbers and letters, verified by all parties in the transaction.” (https://www.dailydot.com/debug/what-is-blockchain-explained/)
The data in a blockchain is immutable, unchangeable.
The Libra blockchain will be able to process 1,000 transactions a second.
A STABLE CURRENCY
As noted above, the reason Bitcoin and other cryptos have not been able to serve as a currency is because they are simply electronic digits with no other backing and can fluctuate wildly in price.
Libra is different. I’ll let them tell it.
How do they do that?
Simple, when someone buys some Libra, the fiat currency used to purchase the Libra is placed in a reserve account. That reserve account uses those funds to purchase liquid assets with recognized value, including a basket of world currencies (likely dollars, euros, yen, and yuan and short-term government paper, such as U.S. Treasury bills).
So, stable (well recognized and accepted) assets back the Libra. And it can convert back to fiat currency, if and as needed. There will be a fee for the transactions, but that fee will only be a fraction of a penny to cover the cost of the processing and the transfer of funds.
THE LIBRA ASSOCIATION
While Libra is a Facebook creation, many are surprised to find out that Facebook will not control it. The non-profit Libra Association will oversee Libra. The association will be responsible for managing the reserves and monitoring the blockchain.
“The Libra Association is an independent, not-for-profit membership organization, headquartered in Geneva, Switzerland. … The Libra Association is made up of a group of diverse organizations from around the world. The founding members of the association each run one of the validator nodes that form the network that operates the Libra Blockchain.”
And just what is the Libra Association exactly?
It’s a conglomerate of (currently) 28 global corporations from different industry sectors, each of which has ponied up the $10 million fee to join the Association. Facebook is just one of the 28. Moreover, they intend to increase the association membership to 100. There is another membership requirement besides the $10 million, but Facebook will remain simply one of the 28 or the 100, or however many association members wind up being the total membership.
Members include corporate honchos like Visa, Mastercard, PayPal, eBay, Uber, Lyft, Vodaphone, Spotify, Coinbase, and many others.
Here, below, is the current membership.
HERE COMES LIBRA
On June 18, 2019, the organization issued a Facebook post saying in part, “It’s available to anyone with an internet connection and has low fees and costs. And it’s secured by cryptography, which helps keep your money safe. This is an important part of our vision for a privacy-focused social platform — where you can interact in all the ways you’d want privately, from messaging to secure payments.”
Of course, anything that would deny Americans the loving arms and protection of the U.S. banking system and the Federal Reserve Bank would have to be investigated by authorities.
Or in the words of one crypto blogger speaking of Libra (blog.cex.io):
“The most ambitious of cryptocurrencies elicited the worldwide ire of the government and banking elite on day one of their announcements.”
Indeed, Congress, with an approval rating lower than hemorrhoids, cockroaches, root canals and colonoscopies, to the rescue. https://tinyurl.com/y58vzlyt
The Senate Finance Committee is scheduled to hold hearings on Libra on July 16 and the queen of Congressional finance, Maxine Waters, Chair of the House Finance Committee, has taken the only rational course she sees available and called on Facebook to halt development of the project.
For their part, Facebook and other Libra execs have taken a very pro-active approach and have gone out of their way to work with regulators in the U.S. and elsewhere.
Hang tight, we’ll see Libra in 2020, and global finance will change.
Keep your powder dry