By now, maybe you’ve probably heard of Facebook’s crypto project they’re working on. Maybe you’re curious about it, and want to learn more. Or maybe you think it’s just a clever marketing stunt. What Facebook is trying to do is something so big and so ballsy that they could never hope to achieve it on their own. That’s why they’ve recruited an all-star cast of organizations willing to help them achieve this vision.
The Libra Association
Mastercard, Visa, Paypal, Uber, Ebay….. these are all members of the newly established non-profit, the Libra Association, based in Switzerland. With a collective marketcap north of 1.75 trillion dollars, and yes that’s trillion with a t, these 28 founding organizations have bought into the Libra vision of creating a price-stable cryptocurrency readily available to everyone on earth with an Internet connection. The Libra, which is the cryptocurrency being issued on the Libra network, is set to launch in 2020 and by then, Facebook hopes to have at least 100 organizations as members of the Libra Association. The Libra Association is set up to be the governing body over the Libra Reserve, which is how Libra currency will maintain it’s price stability.
The Libra Reserve
A good currency is one that is relatively stable in price. A cup of coffee should cost you the same amount today as it did the day before. In the above example, the cup of coffee cost you the same amount of libra (denominated by the 3 squiggles) as it did the day before. In this case, the coffee was 2.50 in libra. The purchasing power of the libra in your account would remain stable over time, much like the US dollar or Euro sitting in your bank account. So how does the libra maintain its’ price stability? That would be through the Libra Reserve.
Each libra created is to be backed by a basket of proven, price-stable fiat government currencies. Currencies that have a proven record of stability, like the US dollar, the Japanese yen, the British pound and the Euro have all been discussed as assets to be held in the Libra Reserve. Any time one wanted to exchange into or out of the libra currency, one could be confident of getting the same amount of currency out as they put in. The Libra Association is set to govern the Libra Reserve and and ensure that the digital currency libra, always maintains it’s stability through the backing of the assets in reserve.
Any intelligent investor knows that having a diversified portfolio is a good thing. They know that it’s not good to put all your eggs in one basket and it’s better to diversify your assets. A well-diversified portfolio is one that offers safety and returns in both bear and bull markets. Strong economies and weak ones. This concept is beginning to play a much more important role in the currencies you choose to hold in your account and transact with.
Fiat currencies…. A very short track record
In the grand scheme of things, fiat currencies or the currencies we hold in our bank accounts, have a fairly short track record and not a very good one at that. Fiat currencies haven’t been backed by gold since the early 1970’s when the gold standard was abolished. Any value that they do hold is based on a shared agreement on the value and the willingness of the person your transacting with to agree to that stated value. This is usually fine, but what happens if a corrupt government decides to inflate their countries currency past the point of usability, such as is the case in Venezuela. Or there’s a major bank run and the people can’t access their money?
Bitcoin- The First Freemarket Global Currency
Bitcoin was the first to show the world that a freemarket digital currency could exist. A currency based on math and code that could operate independent of any central bank or government. A currency controlled by the people. Anyone with an Internet connection was free to transact with bitcoin and use the bitcoin protocol. For the first time, citizens of countries could now choose how they wanted to store their wealth. They could choose to keep it their nations government-issued fiat currency, and most did, or they could choose to store their wealth in bitcoin. Volatile as it is, people still preferred bitcoin in places like Venezuela or Argentina when compared with their highly inflationary, government-issued currencies.
The key thing to take away from this is the fact that bitcoin offered people a choice. In healthy, free market economies, competition is a good thing. It spurs innovation and the consumer ends up benefiting in the long run. Bitcoin showed the world that currencies could now be issued on a global scale and could directly compete with one another. It gave people the freedom to choose.
The Future of Libra
Facebook and the 28 members of the Libra Association have recognized this opportunity. They recognize that the technology behind bitcoin has given them a unique chance to create a digital currency that works for everyone on earth, not just the fortunate ones who live in well-established economies. Bitcoin may have come short in offering the world a price-stable currency freely-available to everyone with access to the internet, but libra can offer that price stability that the world so desperately needs.
At the end of the day the world deserves a better money. Make money work for your lifestyle, not the other way around.