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:
- 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:
- 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. - 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 optio