Facebook, the social media giant recently announced its plans to launch its own payment system, Libra, which it is planning to position as a new currency of the world. Libra will be based on blockchain, the technology which powers the bitcoin as well. It will be backed by actual assets and will be pegged to government securities (which are more stable than other financial instruments).
The company already has more than two dozen corporate entities on board, including big financial companies such as Coinbase, PayPal Holdings Inc., Visa Inc., and Mastercard Inc. Every partner has paid a membership fee amounting to $ 10 million each. If things go as per Facebook’s plan, they will soon line up 100 corporate partners, creating an asset base of $ 1 billion.
Unlike bitcoin, the most well-known cryptocurrency, which is usually traded like gambling, Libra will operate more in the way that existing web payment systems are run, for instance, PayPal. Below we throw more light on Libra and how it compares to PayPal and bitcoin.
The existing 2.4 billion active user base of Facebook is expected to give Libra a phenomenal reach at the global level. However, the company will need to convince the users that there will be no compromise on user privacy.
The blockchain behind Libra will be quite different from that of bitcoin. While in case of bitcoin, the transaction validation process is decentralized amongst all the systems’ participants, in Libra, there will be something called the Libra Association, a centralized governing body which will oversee and verify transactions. The transaction history associated with Libra will get stored in one single place, and a few of the association members will take care of maintenance and verification of the digital ledger.
Even though bitcoin has the potential of an excellent payment system, it appeals only to a segment of niche investors. It never took off majorly as a payments network and only around 1% of all bitcoin transactions are actually for payments. At present, bitcoin is mostly used for trading purposes. Traders view it solely as a means of registering profit, and not as cash.
Despite being volatile at many times, bitcoin has emerged as a profitable asset. It’s common knowledge that this cryptocurrency was trading in the vicinity of $ 20,000 in 2017, only to fall down to mid-$ 3000 range in 2018. Because of such fluctuations, bitcoin owners don’t normally use it for purchases.
One of the founding members behind Facebook’s Libra launch, there will be plenty of overlap between PayPal and Libra, with just one major difference that Libra will be based on cryptocurrency, and Paypal is not. PayPal functions basically like an online bank, appealing to people at all financial levels. You can create a PayPal account for yourself without the need for a bank account or credit card. It delivers an added level of security to users by centralizing their financial details. So, instead of saving your bank account and/or credit card details on multiple websites, any of which can be compromised, you can link all your financial info through PayPal. In addition, PayPal isn’t anonymous like bitcoin.