Facebook is yet to launch Libra after it was announced on June 18, 2019. Since then, controversy seems to be looming around the launch, and now crypto experts believe that Libra could be mimicking Ripple’s XRP.
Facebook has already released Libra’s Whitepaper, a move widely considered as bad news for Ripple, XRP. The fact that the Libra Association consists of a consortium of large well-known tech companies, including PayPal, Uber, and Spotify, among others, coupled with the backing of Facebook, Libra is projected to give Ripple high competition once in operation.
Nonetheless, is Libra really a cryptocurrency? Is the project mimicking Ripple? Will its operation be credible? This post will look at the differences and similarities between the two projects.
(See Facebook Libra vs Ripple XRP part 1)
What is Facebook Coin Libra?
Announced in 2019, Libra is Facebook’s flagship cryptocurrency that will facilitate cross-border money transfers as well as payments. Once launched, users will exchange their fiat currency, including USD and EUR, for the Libra token on Facebook’s platform. Libra will also be used as a means of payment or transaction on Facebook’s owned companies: WhatsApp and Instagram, as well as Facebook’s partners such as Uber, Spotify, and MasterCard.
According to the recently unveiled White Paper, Libra is “a new kind of digital currency built on the foundation of blockchain technology. The mission for Libra is a simple global currency and financial infrastructure that empowers millions of people”. Facebook claims that the project will empower billions of people across the globe, citing 1.7 billion adults without bank accounts who could use the currency to their advantage.
Facebook claims that Libra will be decentralized and governed by a separate entity-The Libra Networks LLC based in Switzerland. Just like Ethereum, Libra will run on the Proof of Stake (POS) protocol.
To avert centralization fears and concerns from the recent privacy issues, Facebook has completely distanced itself from the project by forming a subsidiary named Libra Networks LLC. In the second quarter of 2020, Libra is set to be incorporated into the Facebook ecosystem encompassing WhatsApp, Messenger, and Facebook.com using the Calibra wallet interface.
Facebook Libra’s Regulatory Headache
With Libra yet to be launched, Facebook has been embroiled in a data scandal which compromised on privacy of users. The scandal paints a bad picture of the company and also casts doubts on the extensive adoption of the Libra project once its launched. It’s highly unlikely that Facebook will be allowed a free reign on their cryptocurrency as their influence as well as their massive user bases on Facebook, Instagram, and WhatsApp could see the Libra GlobalCoin abused through money laundering and illicit transactions. Already, several Facebook officials have been grilled with regards to the launch of Libra.
Libra has also faced a regulatory backlash from the US and around the world. The president of the Deutsche Bundesbank and ECB official, Jens Weidmann, said that the European Union could need an alternative to Libra. In an interview, Weidmann said that he believes that projects like Libra should not be created. The European Union has also warned that cryptocurrencies such as Libra pose a risk to the global financial system. The US, France, and India are among the countries that have vowed to block Facebook’s Libra from operating in their space. Swiss finance minister Ueli Maurer said on Dec. 27 in Bern that the country can’t approve Libra in its current form. He stated that Libra “has failed” in its current form because the basket of currencies proposed by Libra hasn’t been accepted by the issuing national banks.
The US Securities & Exchange Commission(SEC) has also expressed similar sentiments regarding Libra’s sovereignty. SEC is concerned with Facebook’s allegations of misuse of data as well as the potential of Libra to be used to finance criminal activities. SEC also states that Libra could rival the US dollar as it’s based on a relatively new and unproven technology. In essence, there are so many regulatory hurdles that could delay or completely stop Libra’s launch. And with Libra already facing a bleak feature, several companies have the Libra Association. Visa and MasterCard pulled out of the Libra project in October 2019, citing regulatory uncertainty. PayPal and eBay have also pulled out from the project. Vodafone Group has become the latest company to exit the Libra Association to focus its efforts on M-pesa- a mobile payment platform.
Libra vs. Ripple’s XRP
Libra has largely been compared to Ripple with claims that the coin is mimicking Ripple’s XRP. For starters, Ripple is a decentralized network powered by the XRP token. Ripple Labs largely own XRP and aims to offer banks a platform to efficiently handle cross-border transactions quickly and cheaply.
It’s evident that Ripple and Libra share a common target group and thus are apparently in competition with each other. Nonetheless, there are differences and similarities between the two projects
Ripple’s XRP was created to serve large financial institutions such as banks to provide a platform for rapid transactions. Libra, on the other, has intended to become a means of payment for all retail customers regardless of size.
Libra employs Proof of Stake(POS) consensus mechanism. Contrary, Ripple has its own patented technology referred to as the Ripple Protocol consensus algorithm(RPCA).
- Libra is a “stable coin” pegged to the US dollar while Ripple XRP is an altcoin.
Other than differences, the two projects share similarities as well. In July 2019, Garlinghouse highlighted the differences between Ripple and Libra while speaking to CNBC’s Squawk Box. He said that Ripple’s approach is centered on helping banks move money across borders, while Facebook’s Libra Association has zero banks on board.
- Both Ripple and Facebook have distanced themselves from their crypto projects.
- Both projects are environmentally friendly
- Both have formed partnerships with established brands.
Why Libra is not a Cryptocurrency
Why is Facebook launching Libra? The company obviously wants to ride on the cryptocurrency wave to create a global currency and benefit immensely. Several factors indicate Facebook’s Libra is not a cryptocurrency but a Fiat. It would be challenging to trust Libra, not after Facebook’s data scandal. Facebook may decide to track what you buy and sell your data to advertising companies. Below are some reasons why Libra is not a cryptocurrency:
- It’s not fully decentralized – The fact that Facebook still has some power over Libra means that the token isn’t fully decentralized. This is totally against the primary idea in cryptocurrency which is decentralization or peer-to-peer cryptocurrency.
- It’s pegged on fiat currency- Libra is pigged in fiat currencies, including the USD, GBP, EUR, and JPY. It totally doesn’t make sense to create a cryptocurrency pegged to a fiat currency like the USD. Why not use the fiat currency by itself? After all, cryptocurrencies should not be a government-backed currency.
- Central authorities regulate it- Unlike Bitcoin or other cryptocurrencies such as Ripple’s XRP, Libra is largely regulated by central governments. The House Financial Services Committee chair. Rep. Maxine Water has asked Facebook to halt the development of Libra cryptocurrency until hearings are held.
Bottomline: Ripple has a Brighter Feature Compared to Libra
With immense regulatory hurdles before its launch, Libra’s feature could be in jeopardy. This could be Ripple’s opportunity to reinforce its platform and realize a brighter future. Ripple is a plausible, quick, and low-cost solution to governments and established financial payment looking for cross-border transactions.
Ripple has already formed over 300 partnerships worldwide and has demonstrated its capabilities. Some of Ripple’s partners include Santander Bank and Shinhan Bank based in South Korea. The fact that Ripple’s payment solutions are fast, cost-effective, secure with the ability to transfer large sums of money across borders makes it superior to Libra, which is yet to be launched. Facebook’s new project, Libra, is not a cryptocurrency but a scheme to reinforce the company’s control over our data and increase their profit margin.