digital currency

Facebook Disappoints with Libra Coin

In December (2018), I did my last Dinsider podcast about the digital market, blockchain and digital currency, and in cryptocurrencies. I have decided to continue the podcast, after the massive hype over Facebook coin and Libra coin and I had to respond I had to show my insights. Clear what this is and is there any real value or not, because interestingly in my last podcast back in December I had actually uploaded podcasts of approx 12 to 13 minutes long.

Listen to the podcast or continue to read the transcription below.

In this podcast I have talked about Facebook and the point I was actually talking about Facebook stock which relatively was about $125 per share and I specifically said, go back to my last podcast that I feel that Facebook is under valued and there is a significant potential for upside of Facebook shares, and rightly so Facebook is trading at $125 end of last year and now has hit a high of $194 today and that’s well over 50%. I want to talk about the share price I don’t just want to talk about the digital aspect for I don’t just want to get into the technical details. I look at the practical implications of what’s happening in today’s market. How could you potentially benefit?

Facebook’s stock price was a typical action today, buy on rumor sell on news. I was the owner of Facebook yesterday so today I got sold on this little rally. Frankly my dear this libra white paper and libra coin is ridiculous I find. I find it’s not even a proper blockchain. It’s frustrating and I’m extremely disappointed what Facebook has done. It’s also not even a proper cryptocurrency because it allows you and it can be overwritten and the transaction is not imutable.

Its more so a digital currency than a cryptocurrency. There’s a difference, digital currency you can have funds that are transferred digitally than cryptocurrency relies on cryptography and a key aspect of cryptography is that it has to be validated the data cannot be overwritten, it can’t be changed, its immutable. You can add new data but you cannot go back and erase previous data. It is not a proper distributed ledger.

I am going to breakdown this podcast, quite a bit to cover and you will find it very interesting. I am going to be breaking it into three parts. One I am going to give you a quick overview 2 to 3 minutes about what libra is?

Secondly, I will talk about the technical aspects which are worth noting. Finally, I will conclude with the flaws and what the problem is. Which I have hinted already that it’s not a cryptocurrency and the trust mechanism is essentially under the control of this oligarch rule formation and the libra association which is going to be created to manage this digital currency.

So, what is libra? I think libra is Facebook’s cute way to capitalize the cryptocurrency buzz and be able to ingrain and enridge its position with its users, and the reason for that is that. In the whitepaper Facebook says libra’s mission is to enable the simple global currency and financial infrastructure that empowers billions of people so that’s fine.

They go on to say that an average cost 7% to send money abroad. There’s about 50 billion dollars in fees that are eaten up in currency remittance. Agree that is a challenge, so libra is attempting to provide micro transactions which would cost just a few cents, and which is significantly less than the current marketplace. So how does libra work? Libra is essentially cash in a local currency. So, you would convert your cash into libra coin, then you would spend them like dollars through the Facebook network, Facebook messenger, WhatsApp and Instagram without transaction fees and without your real name being attached. So you are still anonymous.

However the challenge is that they will still need to do some kind of governance kyc, so that’s not very clear in terms of who should be worried. It essentially is trying to take away business and Facebook and also trying to provide in a way foreign currency mechanism and competing against the banks.

So in terms of the technical perspective it’s not very clear and I looked at a quote from the libra protocol in the white paper. It’s stated it’s still in prototype stage, quote we do not have concrete performance metrics yet to report and we anticipate the official launch of libra protocol will support 1000 payment transactions per second with a 10 second finality time. 1000 payment transactions per second is not bad. Visa as an example has over 1700 transactions per second. Right!. So that’s not bad. The challenge is it hasn’t really been tested. So I think the market and the reason is that the stock price fell back is that the expectation was for something revolutionary. A real proper bloc chain and that really hasn’t transpired.

One of the key aspects that is interesting and had been commented on by many technicians and technologists, experts of blockchain is the generic words such as resources which make it unclear and then there is particular quote in the white paper which says transaction based predefined and in future versions user defined smart contracts. In a new program and language which is called “move”. We use move to define the core mechanisms of the bloc chain such as the currency and validator membership.

Ok, now that’s different and very interesting because that means there is a custom built smart contracting language and that will create a lot potential, issues and questions.  How future rich the language will be and secure, robust it will be. Because the more you try to make it developer friendly. The more the risk you have within that development community. So, the libra association that is going to be managing this will have eventually a hundred partners which is good, and each partner including Facebook has 1% vote. But it’s still not clear how it will function?

It seems to be that they are trying to create a kind of proof of state a mechanism over the next five years. The problem is on the technical component is its very much opaque not much clarity. A lot of ideas, concepts, we haven’t really done this. The Market is disappointed really done the technical work to backup a lot of this and that’s really disappointing considering the resources Facebook has at it’ disposal and it needs several unanswered questions and concerns about the libra coin because it is not a proper blockchain.

As I mentioned in the beginning, how does governance actually work? We have the libra association and it eventually will have a hundred members and the supermajority, and two thirds of the members will need to improve any significant change. But they are the only ones that can mint or destroy libra coins and presumably is that they can make any changes if they agree to it.

Its still top down controlled by this organization. Secondly, the other thing is that it does not clear on KYC “know your client” and anti-money laundering requirement because the Libra and the calibra wallet will require users to verify themselves through government issued ids. Now going back to their claim of trying to help the people who do not know about cryptocurrencies or not being able to access cryptocurrencies or bank accounts is because they don’t have id.

So if you want and require them to verify through government user ids then it defies the purpose of providing access of funds to people that want to receive or send money will require government issued ids. So that’s again not very clear in terms of fees, again it says a few cents or low fees. I get no clarity on fees that what it actually is going to be how transparent that’s going to be. So, these are some of the challenges. The bigger challenge I see is that the libra and its coin and this payment mechanism will it actually get approved. I would be very surprised, particularly the EU does not push back on this.

Because through libra Facebook can technically act as the mass surveillance resource for US agencies. Because now they will have the user’s email, government ids and payment details and that’s a lot of data. If you are now worried about how they will keep your data. They have stated they will keep that data separate from Facebook but at the end of the day it all goes to the mothership Facebook.

So, I expect the EU to push back and perhaps not allow the libra coin to be used without some regulations or some requirements that require scrutiny on Facebook with using that data.  

Because what Facebook is actually doing is it’s trying to take on the global banking system. Because you don’t need to use your banks, you transfer your money to Facebook and use libra coin to transfer money around. Then what that is also going to is further scrutiny on Facebook which is already having challenges and there has been calls for Zucker Berg’s powers to be reduced or the company to be broken up WhatsApp, Facebook, messenger, Instagram. Together collectively they all have access to billions of people and that is too much control for one organization. If Facebook does not do or manage this program libra initiative properly. I think they are going to open themselves up to the banks coming after them and taking them down.

So, Mark Zucker Berg is exposing himself to a lot more risk now. Especially the way that it’s structured. This association he’s not trying to make it fair, it’s not transparent it’s inot owned by the public it is controlled by this oligarch organization based in Switzerland.

It will be interesting to see if he can appease enough people to stay with him to get banks on board that will be key. If the banks don’t come on board then watch out Mark. Because there is a central bank initiative called Finality, which is trying to solve that cash on ledger problem the central banks are working on creating digital or cryptocurrency equivalent of fee add currency and we would talk about in this next episode of the Dinsider.

So, I am from the stock perspective and I have sold my Facebook position today. I sold it out at 191. I think this is going to be more of a liability, particularly it’s not very strong. It’s not wowed people, it’s not a proper blockchain and it is going to put a target on Facebook. So, I am not a buyer of Facebook currently and I am not a buyer of libra coin. I think it’s going to be good for bitcoin and it will give more exposure. In the coming episodes I will talk about bitcoin and the price actions. Bitcoin has seen since bottoming out in the early part of the year. Where I see it going and how I am participating in the cryptocurrency space

So, alright thank you so much and I promise to keep my podcast under 20 minutes, this one is a bit longer thank you very much for staying with me until the end. Do follow the podcast and if you have any questions and you want me to talk to me about anything in the podcast please send me an email at [email protected] or through our company website [email protected] thank you and God bless. Have a good day!


Report: Central Bank Digital Currency

Digitalization is reshaping economic activity, shrinking the role of cash, and spurring new digital forms of money. Central banks have been pondering whether and how to adapt. One possibility is central bank digital currency (CBDC)—a widely accessible digital form of fiat money that could be legal tender. While several central banks have studied the adoption of CBDC and have undertaken pilots, many have not actively explored it and remain skeptical.

This discussion note proposes a conceptual framework to assess the case for CBDC adoption from the perspective of users and central banks. It abstracts from cross-border considerations by assuming that CBDC is for domestic use only. This note discusses possible CBDC designs, and explores potential benefits and costs, with a focus on the impact on monetary policy, financial stability, and integrity. This note also surveys research and pilot studies on CBDC by central banks around the world. The main takeaways are as follows:

• The impact of CBDC introduction will hinge on its design and country-specific characteristics. Critical features will be anonymity (the traceability of transactions), security, transaction limits, and interest earned. The role of cash and commercial bank deposits in payments will also matter.

• CBDC could strengthen the benefits and reduce some of the costs and risks to the payment system and could help encourage financial inclusion. However, demand will not necessarily be very high and will depend on the attractiveness of alternative forms of money. Moreover, there are other payment solutions to help central banks more fully achieve their goals relative to money. CBDC will have to contend with operational risks arising from disruptions and cyberattacks.

• Token-based CBDC—with payments that involve the transfer of an object (namely, a digital token)—could extend some of the attributes of cash to the digital world. CBDC could provide varying degrees of anonymity and immediate settlement. It could thus curtail the development of private forms of anonymous payment but could increase risks to financial integrity. Design features such as size limits on payments in, and holdings of, CBDC would reduce but not eliminate these concerns.

• Account-based CBDC—with payments through the transfer of claims recorded on an account—could increase risks to financial intermediation. It would raise funding costs for deposit-taking institutions and facilitate bank runs during periods of distress. Again, careful design and accompanying policies should reduce, but not eliminate, these risks.

• CBDC is unlikely to affect monetary policy transmission significantly, although operations may need adaptation. Transmission could strengthen if CBDC spurs greater financial inclusion. Interest-bearing CBDC would eliminate the effective lower bound on interest rate policy, but only with constraints on the use of cash.

Source: IMF Staff Discussion Note, Casting LIght on Central Bank Digital Currency 

Download Discussion Note (PDF)