By Matt Harrod, VP of Europe for Processing.com
Ever since Bitcoin was launched back in 2009, cryptocurrencies have struggled to scale up and grow into a viable means of paying for everyday goods and services.
However, following the recent news from Facebook regarding its new digital coin, Libra, could this all be about to change? Given that Facebook’s social network is used by almost two and half billion people around the world – not to mention the company’s many other social platforms, like WhatsApp and Messenger – could Libra be unique among cryptocurrencies in having the critical mass and momentum necessary to become a viable payment method in its own right?
However, Libra, like existing cryptos, faces regulatory hurdles that need to be overcome. Worldwide, national regulators are becoming more knowledgeable about cryptocurrencies and are developing global policies, alongside card scheme limitations, to bring them under the oversight of the relevant authorities.
In the case of Libra, the currency has faced pushback from authorities. Benoit Coeure, director at the European Central Bank Executive Board, has warned: “It’s out of the question to allow them to develop in a regulatory void for their financial service activities, it’s just too dangerous.”
The US Congress, meanwhile, has written to Facebook, asking it to halt development of Libra until lawmakers have had more time to investigate the ramifications of the company’s actions.
In spite of this negative reception, there are some countries that are exploring how to bring crypto into the fold, such as Estonia and Malta. However, if Facebook succeeds in creating a global demand for its digital coinage, all regulators will need to reconsider their lack of enthusiasm and prepare to follow in the footsteps of these pioneers.
There are a few key reasons why lawmakers around the world have been reluctant to act on cryptocurrencies before now. A lack of understanding of how they work is one, while concerns about crypto’s potential to devalue local currencies is another. Many governments are also worried about the lack of transparency around transactions and cash flow, which could aid money laundering.
could Libra be unique among cryptocurrencies in having the critical mass and momentum necessary to become a viable payment method in its own right?
Now that one of the largest companies in history is planning to launch a crypto of its own, these reluctant regulators now have to make a move in order to keep pace. Facebook has a habit of self-regulating and, if its initial announcement is anything to go by, Libra will be no different. Whether regulators will let them get away with this approach this time remains to be seen. Whatever happens, though, it looks likely that the rest of the industry will need to operate using Facebook’s playbook.
The plus points of Facebook’s involvement
Facebook’s move into the crypto space brings with it some major advantages for the industry.
A major tech company, like Facebook, entering the market lends legitimacy to the concept of digital currency in the eyes of the public, helping to speed up the conversion of sceptics into believers. This will help to encourage more potential consumers to start using crypto in place of traditional payment methods.
In addition, it’s likely that other giants will join in. Apple, for instance, is already becoming increasingly payment focused with its ApplePay, so we can only assume it is a matter of time before it joins in.
It may turn out that newcomers like Apple will look to simply buy an existing cryptocurrency, instead of developing their own product from scratch. This will foster innovation in the market, providing investment to support the research and development. Working in tandem with the changing legislative landscape, this will serve to create a radically different and exciting industry.
Doubtless, many will see this as a weakening of the core ideal of cryptocurrency. After the economic crisis of 2008, Bitcoin evolved to take back control from the financial institutions that caused the hardship. What we are seeing now is that the financial control is being transferred from financial corporations to tech corporations who, some argue, already have too much power and control over users’ data. It will be interesting to see how this evolves in a world that is increasingly trading personal information for convenience.
Watch this space
It has been said that Ethereum and Bitcoin are the crypto equivalent of Myspace, and everyone is on the hunt for the sector’s answer to Facebook. With Facebook itself getting involved and launching its very own digital currency, it could well be the case that we have found it.
However, we cannot be certain – we need to watch and wait to see if Libra really is the digital coin that brings crypto to the masses.