June 26, 2019

Facebook’s Libra announcement was met last week with a ton of hype, dominating the news cycle for several days. The proposed cryptocurrency is designed to be a stablecoin – backed by several international securities to avoid volatility – making it easier to use for everyday transactions than currencies like Bitcoin, which experience regular large fluctuations in value.

The question on everyone’s mind right now is, “will it work?” Cryptocurrencies have been around for some time, but few people can name one outside of Bitcoin. Even fewer have actually owned or transacted in any type of cryptocurrency.

So for all the hype, the fact is Libra, and any other cryptocurrency for that matter, is a long, long way from becoming a major currency. Here are four of the major hurdles Libra is facing on it’s path into the payment world:

  1. Regulators will have their say
    Libra will have to meet the financial regulatory standards of any country in which it hopes to be used. This will be difficult, as it will no doubt be held under the strictest amount of scrutiny. The U.S. House of Representatives immediately called in Facebook for a regulatory hearing after the announcement, which has been set for July 16th.

Some countries, such as India (one of Facebook’s biggest markets) don’t allow blockchain transactions in conjunction with the country’s banking network. Russia is also currently drafting cryptocurrency laws, and Russian Parliamentary Finance committee head Anatoly Aksakov said it is very likely Libra will be barred entirely in Russia. Furthermore, countries subject to U.S. sanctions, such as Iran and North Korea, will be strictly off limits.

  • Many governments are already skeptical

Libra faces a lot of political opposition, to put it lightly. Governments generally want to control the currencies used to transact business in their countries. French Finance Minister Bruno Le Maire was quick to declare that Libra “can not and must not” become a sovereign currency. He also called on the G7 central bank governors to immediately prepare a report on Libra.

Germany’s Markus Ferber, a member of the European Parliament, expressed concerns that Libra could become a “shadow bank”. The countries have legitimate concerns about privacy, money laundering and terrorism finance – questions Facebook will need to answer, if they hope to get off the ground with Libra.

  • Privacy and security are a major concern

Facebook doesn’t exactly have the best record when it comes to privacy. Trusting them with the sensitive financial data of 2 billion people in their hands is a big ask.

The company has been subject to several FTC investigations over the years, and in March 2018 it was revealed that the company knew about a massive data theft and did nothing about it. Many people might be forgiving, but for others, giving Facebook their financial data is going to be a hard pass.

  • Cryptocurrency Custody Issues
    Who can forget that fun story of the crypto CEO who “died” with sole access to $137 million in cryptocurrency funds, leading 115,000 customers without any way to access their investments?

Custody is a major issue with cryptocurrency. Lose the records and it’s gone forever. Use alternative methods for managing it, and you may be subject to theft from a hacker. It’s a problem many people are currently working very hard to solve, but until there’s a good solution, it will remain a large barrier.

To be fair, here are three very big reasons why Libra might succeed:

  1. A more stable currency for developing countries.
    In the U.S. we have generally great stability in our government and financial institutions. But nearly half the world’s currencies are in absolutely terrible shape. Libra is designed for stability, backed by multiple international currencies, making it a day at the beach relative to the volatile currencies of countries like Venezuela.

  2. Bringing e-commerce worldwide
    Nearly 94% of U.S. households have a bank account. Worldwide, the story is much different: there are still 1.7 billion adults who don’t have a bank account. 2.5 billion are considered “under-banked”, meaning they have very limited access in terms of banking services.

There is good reason to offer them a solution. In 2018, 1.8 billion people purchased goods online. If it’s successful, Libra could potentially increase that number significantly, bringing e-commerce to populations that have never had the option before.

  • There are a lot of people on Facebook
    There are 2.38 billion Facebook users worldwide, far more than any financial institution. If Amazon, Google and PayPal have proven anything, it’s that ubiquity and convenience are the modern checkbook. Simply by meeting people where they are, Facebook has a decent chance of success.

  • Facebook’s track record of innovation
    The ace in the hole for Facebook is their well-established track record of innovation. Of the companies who have attempted to establish cryptocurrencies, Facebook is by far the largest and most established. They have assets and resources those companies can only dream of.

Along with the announcement of Libra, Facebook released a whitepaper that has many financial experts excited, not only about the possibilities, but the plan for putting Libra in place. If they are able to clear the many, many other hurdles that stand in their way, Libra just might work. What do you think about Libra? Do you feel this will be a game changer in the financial industry, or just a passing fad that may never get off the ground? How long do you think it will take Libra or any cryptocurrency to be considered a major currency? We’d love to hear what you think. Sound off on