The recently rumoured Facebook cryptocurrency, Libra, is now official – but the social network is not the only major online brand backing the new ‘global coin’ due for release in the first half of 2020.
It is part of a platform that is supported by major tech brands including blockchain developers, telecoms firms and payment processors including Mastercard, Visa and PayPal.
Launching the new digital currency is part of an aim to open up new markets in developing economies, where 1.7 billion people have no access to traditional banking services, yet a billion have a smartphone or similar device.
Under their new name The Libra Association, the founding brands said: “The advent of the internet and mobile broadband has empowered billions of people globally to have access to the world’s knowledge and information, high-fidelity communications, and a wide range of lower-cost, more convenient services.
“These services are now accessible using a $40 smartphone from almost anywhere in the world.”
But with cryptocurrencies very much on the bubble in 2018-19, what is there to suggest that the scales will tip in favour of Libra for cryptocurrency investment in 2020?
One of the challenges of cryptocurrency investment has been the lack of intrinsic value. Digital currencies are not physical assets, so when investors pull funds out of the market, there is little to stop their value from falling.
While cryptos are often talked about using terms traditionally associated with commodities – such as ‘mining’ new virtual coins – this lack of physical form is a crucial distinction and probably the single biggest reason why they are not commodities for investment purposes.
However, Libra could be different. The announcement explains:
“Libra will be built on a secure, scalable and reliable blockchain; it will be backed by a reserve of assets designed to give it intrinsic value; and it will be governed by the independent Libra Association, which was formed to manage and evolve this new ecosystem.”
This asset-backed basis, named the Libra Reserve, is aimed to promote fungibility, enhance global acceptance, and significantly, to ensure low volatility.
Asset-backed cryptocurrencies have been introduced before – they are commonly known as stablecoins, for obvious reasons – and are pegged against assets ranging from US currency to commodities like gold and silver.
In the past, security concerns have led to assets being stolen from some stablecoin platforms, but Libra appears to have the backing of several leading names in secure blockchain technology.
A mass scale market
Importantly for cryptocurrency investment in Libra, this is not an altogether altruistic mission – it is driven by profit-making intentions.
For example, Libra Association founding member Spotify explained why building a new virtual currency platform like Libra allows it to tap into markets that have previously been inaccessible.
Alex Norstrom, chief premium business officer at Spotify, said: “One challenge for Spotify and its users around the world has been the lack of easily accessible payment systems, especially for those in financially underserved markets.
“This creates an enormous barrier to the bonds we work to foster between creators and their fans. In joining the Libra Association, there is an opportunity to better reach Spotify’s total addressable market, eliminate friction and enable payments in mass scale.”
Again this is potentially good news for crypto investment in Libra, as it is clearly aimed at generating capital as well as providing much-needed banking services, and not simply avoiding traceability or financial accountability.
Who is the Libra Association?
Nearly 30 brands make up the founding members of the Libra Association, with backing from blockchain and technology firms, payment processors, telecoms operators, non-profits and academic institutions, and venture capital.
The full list of members includes:
- Blockchain: Anchorage, Bison Trails, Coinbase, Xapo Holdings
- Non-Profit and Academic: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
- Payment Processors: Mastercard, PayPal, PayU, Stripe, Visa
- Technology: Booking Holdings, eBay, Facebook, Farfetch, Lyft, Mercado Pago, Spotify, Uber
- Telecoms Operators: Iliad, Vodafone
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
Importantly, the Libra Association is working with the financial sector, not against it, to introduce this new asset-backed cryptocurrency in a way that does not attempt to circumvent regulation or compliance, and protects against money laundering.
By doing so, the group is looking to create a “sustainable, secure and trusted framework” and adds: “This approach can deliver a giant leap forward toward a lower-cost, more
accessible, more connected global financial system.”
For cryptocurrency investors, the first half of 2020 will be the time to really watch Libra as this is when the digital currency itself is expected to launch; however, following the initial announcement on June 18th, there should also be early buy-in opportunities for major investors.
This includes recruiting more members to the Libra Association to provide necessary support and to diversify the platform further, while also raising money via a private placement to jumpstart the launch and encourage wider adoption.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.