What does Facebook’s Libra cryptocurrency mean? According to news reports, Facebook will soon launch Libra, a global cryptocurrency that is available to users of its suite of platforms, including Messenger and WhatsApp.
It is assumed that any merchant with an account on these platforms can conduct cryptocurrency transactions with customers who have an account – such as online shopping and physical world shopping, such as groceries and restaurants.
Predictions Related to Libra Cryptocurrency
According to Facebook’s statement and some anonymous comments made by people involved in the project in the “Information” interview, this is my six predictions.
1. Facebook’s cryptocurrency will be a powerful force for good in developing countries
The central banks in developing countries are notorious for their lack of discipline in maintaining their fiat currency value, these currencies often lose purchasing power.
The best example of many people is Venezuela, which experienced worse inflation than Germany after the First World War.
By providing citizens in developing countries with more reliable storage than government-backed currencies, Facebook’s cryptocurrency will indirectly impose fiscal and monetary discipline on developing countries – which will improve the lives of many people around the world.
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2. Facebook will pay interest to holders of its cryptocurrency
I will get out of the woods and predict that Facebook will pay interest for its cryptocurrency users. why? Because assets that support cryptocurrency will generate interest income (especially if according to some reports, the basket includes “low risk securities”).
If Facebook does not share these loss losses with users, the critics’ chorus will loudly publicize how much Facebook and its partners are shorting.
What is the size of interest income? For example, if Facebook stops all dollar balances at the Fed through one of its bank partners, it can earn 2.35% of its revenue without risk – this is $235 million out of every $10 billion deposited in its cryptocurrency. If you don’t share it with users, these profits will soon become a new hot spot in Facebook politics.
But this has an added benefit – the turmoil that may be caused by this issue will reveal the importance of corporate welfare at the core of the US banking system. The 2.35% figure is the actual interest rate that the Fed will pay the excess reserve interest (IOER) to its member banks.
This year it is expected to pay US$36 billion in corporate benefits to Bank of America, equivalent to about half of the amount paid by the Fed. The United States spends on food stamps. Imagine if Facebook and its partners just put this number in their pockets and how critics will promote “Facebook’s corporate benefits” on the court.
Indeed, other stable currency issuers are almost always paying for it rather than sharing it with customers. But Facebook’s stable currency may be too big and visible to escape this – so it’s unlikely to solve this problem. This is good news for the next point.
3. Facebook’s foundation will grow to garner big power in global capital markets
Facebook plans to hand over control of its projects to an independent foundation that was recently established in Switzerland. This is positive – it not only allows Facebook to guard against antitrust charges, but it also helps to reduce the concentration of its cryptocurrency.
This foundation may become a huge force in the global capital market relatively quickly – because it will do what the central bank does, that is, determine the basket weight of the stable currency linked to it and manage the assets to ensure that the link does not break.
There are many powerful “basket makers” in the capital market, and their mobile market may be very powerful – think about the committee that defines the Dow Jones Industrial Average (DJIA) or the S&P 500 or the central bank. In the basket (such as the People’s Bank of China in China).
Along these lines, at first glance, I was shocked that Facebook sold the right to participate in its network for $10 million each, because the transaction processors (“miners”) in the cryptocurrency market are usually for them.
The service pays instead of having to pay for the drama. However, remember #2 – there is a lot of interest income between them, especially if they don’t pay interest to users, and many foreign exchange transactions are at risk. No wonder why dozens of banks may be involved.
4. Facebook will face regulatory uncertainty
Is Facebook’s cryptocurrency safe? If so, will the user face the ridiculous need to get a cup of coffee with a US brokerage account? Will Facebook be hit by regulators, and small start-ups don’t – because Facebook’s project will generate tax data honeypots for the government? This is good news for the next forecast.
5. Facebook’s regulatory reporting program will open more interesting discussions
We may find out how many of Facebook’s 2.3 billion users are real – because users of their cryptocurrencies need to prove their identity and pass on customer compliance requirements. Information reports indicate that Facebook “plans to provide a more rigorous form of authentication and fraud detection than most cryptocurrencies.”
But there are more. Discussions about Facebook’s data privacy and corporate power are coming to an end. Take popcorn!
This will open up a variety of conversations about data privacy, financial privacy, overseas asset reporting and tax compliance, and reporting burdens – and may challenge the US government’s extraterritorial reporting requirements for non-US companies.
Local governments see Facebook’s cryptocurrency as a huge data honeypot about how users spend money – all the privacy and tax reporting implications of having a data honeypot, because every transaction can be tracked by the government.
This will give some officials what they want, the ability to track, monitor, and analyze each expense, rather than piece together piecemeal reports (currently, banks submit suspicious activity reports for transactions over $10,000). The following is an example of a speech by Sigal Mandelker, Deputy Director of the Terrorism and Financial Intelligence Agency, in a speech in May 2019:
When FinCEN analyzed millions of dollars in remittance transactions suspected of being related to terrorism, they found that they averaged less than $600 each. In an era when a radical suicide bomber can bring tragic endings for hundreds of lives, it is just the price of tape, vests and supplies, and we cannot allow any money to flow into terrorists. (emphasis added)
In addition, once the Financial Action Task Force recommends that all financial transactions (including cryptocurrencies) embed data on beneficiary owners in each transaction between the invoice and the recipient, these reporting requirements are about to increase substantially.
As I explained in my previous Forbes website post, I suspect that the US report requires that the data pull required can survive the constitutional challenge. If Facebook is at the heart of such a challenge, how interesting it will be. Will it fight or cooperate?
6. Facebook’s cryptocurrency will turn out
This is my biggest prediction: Facebook’s entry into cryptocurrencies will ultimately benefit Bitcoin. It takes time, but Facebook will greatly speed up the teaching of cryptocurrencies. When this happens, more people will turn to Bitcoin for the simple reason – Bitcoin is rare, and Facebook’s cryptocurrency is not.
People will migrate over time to the most honest ledgers to store their hard-earned wealth – this is not a fiat currency or its derivatives, including Facebook’s cryptocurrency.
This phenomenon actually happened in Venezuela, as the early bitcoin manufacturer Nick Spanos pointed out to me recently. When the Maduro regime introduced the oil cryptocurrency of fate, the government worked hard to educate Venezuelans about cryptocurrencies – this was related to the surge in the use of Venezuelan Bitcoin.
Facebook’s involvement in cryptocurrencies may eventually become a useful detour for the wider adoption of bitcoin. come on!
These predictions are from Caitlin Long. Caitlin is a 22-year Wall Street veteran who has been active in bitcoin since 2012.