Facebook’s new currency project, Libra, may be the most interesting announcement from corporate America ever.
One of the largest, most powerful companies in the world – with 2.3 billion users – is launching its own digital currency (a “stablecoin”), along with payment systems and digital wallets. The value of the coin will be pegged to a basket of currencies like the U.S. dollar, the euro, the Swiss franc and the yen.
Say whatever you want about Facebook from a moral perspective. But technologically, the company is badass. It employs thousands of the world’s top software engineers. Banks should be worried.
Who else should be worried about Libra? Any countries that don’t have their currencies included in Libra’s currency index. If citizens in these countries start to use Libra instead of the local currency, it could cause huge sovereignty problems. So I suspect many countries will ban Libra in the near future.
Bitcoin and other cryptocurrencies have paved the way for Libra. They’ve shown that it’s possible to build real currencies using software. And the world is going to change because of it.
Think about it. Now anyone can launch their own currency. Do you think Google, Amazon, Microsoft, Square, Alibaba and others will sit idly by as Facebook builds a potential financial dynasty? Unless world governments squash all of this digital currency ASAP, we’re likely to see dozens of powerful new organizations sprout up and launch their own “Libra” projects.
These aspiring central banks can distribute their networks across hundreds of partners (like Facebook is doing), so the systems will be relatively decentralized.
And what happens if one of these new groups decides to launch a gold-backed digital currency? I suspect any government would shut such an operation down quickly. But who knows?
Not the Same as Bitcoin
While currencies like Libra are going to be fascinating to watch, they will all suffer (eventually) from the same fatal flaw: They’re backed by fiat currencies.
So as the purchasing power of the underlying currencies decreases, so will the value of stablecoins like Libra. With Libra-style stablecoins, the value of your money still depends on central banks.
A Powerful Catalyst for Crypto
The beautiful thing about bitcoin, on the other hand, is that it is not tied to fiat money. It’s a brand-new form of money with a strictly limited supply of 21 million coins (each can be divided into 100 million pieces).
So while Libra and projects like it are a huge threat to the existing financial giants, I don’t see them as a threat to bitcoin or quality altcoins at all.
In fact, it seems that Facebook’s big announcement is helping propel crypto markets higher. Facebook is adding legitimacy to bitcoin by imitating it.
This, by the way, is what Facebook is known for. It imitates successful competitors better than anyone else. Like when it copied a bunch of features from Snapchat and tried to “squash” it, according to Wired magazine.
Eventually, Facebook could allow bitcoin and other cryptos to be traded and stored within its network. I think it would make perfect sense, but it’s likely quite a ways off.
Libra is one of the largest monetary experiments of all time. And I suspect it will help accelerate the downfall of fiat money and the rise of decentralized money.
All over the world, people are starting to think about currency and money in new and different ways. They are just beginning to question whether central bankers actually have a plan to get us out of this mess (they don’t).
And it is no coincidence that all of this currency innovation is happening as we are in the late stages of a huge credit bubble. People are realizing that we need to think beyond fiat money because it’s clearly not going to last forever.
Co-Founder, Early Investing