The Category 5 Freak-Out Over Libra, Facebook’s Digital Currency

Politicians and bankers are in the midst of a Category 5 freak-out over Libra, Facebook’s (FB) proposed cryptocurrency (or currency, depending on your point of view). The hysteria we’re hearing from supposed world and financial leaders would be hilarious if it weren’t so dangerous or shortsighted. So this week, we’re going to take a deep dive into Libra – what it is, how it works and why everyone is freaking out about it.

What is Libra?

Libra is a stablecoin that will be pegged to a basket of bank deposits and short-term government securities tied to currencies like the dollar, pound, euro, Swiss franc and yen.

This, right away, makes Libra different from bitcoin and other pure cryptocurrencies. The value of bitcoin (BITCOMP), ethereum (ETH-X), litecoin (LTC-X) and other pure cryptocurrencies is determined by the market. The value of stablecoins is determined by the value of their underlying assets.

An existing example of this is tether (USDT-X). In theory, for every tether in circulation, there’s an equivalent dollar being held in reserve.* That keeps the value of tether at around $1. This year, tether has traded between $0.99 and $1.03. Tether’s stable value makes it good for transactions. What tether can buy today will be roughly equal to what tether can buy tomorrow and six months from now. (*For reasons that are too complicated to get into here, tether’s reserve fund has only 74% of the dollars it’s supposed to be holding.)

By comparison, bitcoin is far more volatile. Bitcoin traded for less than $4,000 to start the year. And it’s trading for more than $9,500 now.

By pegging Libra to a stable and international mix of underlying assets, Facebook is making its new coin stable for payments and global in nature.

What will Libra be used for? And who will use it?

Let’s be clear. Libra is a massive payments play. In announcing Libra, Facebook outlined two clear goals:

  • It wants Libra to be the internet’s native currency
  • It wants to bring the 1.7 billion unbanked people across the world into the digital economy.
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Carol W 5 months ago Contributor's comment

You presume they didn't know about it til now. I don't agree, Everybody knew. They had to wait til Zuck made it public.They will kill #Libra. The govt doesn't want a currency in the private sector. It could be used for drug trafficking, money laundering, etc. and like you say, where $FB goes, $AAPL, $GOOG, $AMZN could follow. They'll try to squash it like a bug.

Michele Grant 5 months ago Member's comment

I'm no fan of #Libra, but to play devil's advocate, #Bitcoin and other #cryptos are already used for drugtrafficking, money laundering and other criminal activities. So what's one more option for the crooks to have at their dispoisal?