Facebook’s Libra Could Be The Best News For Bitcoin

Facebook’s Libra

Over the past week, social media has been infatuated with Facebook’s Libra. Facebook is aiming to create a global payment infrastructure which will enhance financial inclusivity and give billions of people access to the stability of the US Dollar. Essentially, Facebook is becoming a global bank and is attempting to conceal their intentions by calling their system a decentralized cryptocurrency which uses the buzzword: blockchain technology. While Libra uses a blockchain, it has no interesting characteristics which make a blockchain attractive. Libra is not a decentralized currency and since Facebook is a centralized entity, they will have to answer to any government which allows the use of Libra in said country. This may cause friction when Facebook attempts to operate in certain jurisdictions.

Above all, there are five pillars which define an open blockchain such as Bitcoin:

1. Open
2. Public
3. Neutral
4. Borderless
5. Censorship Resistant

All of these factors are a result of decentralized control. Therefore, a centralized entity which is legally defined and has to comply with government regulations cannot, by definition, be an open blockchain. For instance, Facebook’s cryptocurrency is not borderless or censorship resistant because it has to abide by US regulations. Furthermore, Facebook’s cryptocurrency cannot be sent to certain individuals or groups. For example, the US government may restrict transactions to known terrorist entities or countries which have sanctions such as Iran and North Korea.

Facebook Has Yet to Answer Questions From US Lawmakers

On May 9th, the banking committee wrote an open letter to Facebook. The letter consisted of several questions directed toward Facebook’s CEO, Mark Zuckerberg. The first two questions in the letter are the most notable:

1. How would this new cryptocurrency-based payment system work, and what outreach has there been to financial regulators to ensure it meets all legal and regulatory requirements?
2. What privacy and consumer protections would users have under the new payment system?

The senators’ letter did not give a response date for Facebook. The time period in which Facebook will respond to these questions is still unknown.

Why Facebook’s Libra Could Skyrocket Bitcoin

Last weekend, Bitcoin reached a yearly high of $9.4k. Ever since, price has pulled back to $9k. Some analysts have speculated that the news around Facebook’s Libra has actually led to an increase in the price of Bitcoin. When Bitcoin dropped below $6k in November of 2018, the crypto hype from 2017 had officially died down. Ever since, we have received news of JP Morgan creating their own cryptocurrency. Now Facebook is planning to do the same. In the eyes of many retail investors, cryptocurrencies had no real utility or legitimacy in 2017. Subsequently, they may be surprised to see multinational corporations creating their own cryptocurrencies here in 2019. Perhaps this has made the retail investor more optimistic to the future success of Bitcoin and other cryptocurrencies.

Additionally, Facebook’s Libra creates a blockchain on-ramp which will make it easier for global citizens to acquire Bitcoin and other cryptocurrencies. While Facebook’s Libra is attractive as a means of exchange, Bitcoin is attractive as a store of value and a form of digital, censorship-resistant cash. If Facebook can pull this off, it will be revolutionary for the tech and banking industries. Nevertheless, Facebook still faces many regulatory hurdles moving forward.