Facebook Libra vs. Bitcoin

facebook libra vs. bitcoin

Date Published

07/17/2020

Over the past few years, we have seen a growing number of companies and corporations either evaluate or begin to roll out their own forms of cryptocurrency. We have seen moves in the space from titans like J.P. Morgan and Nike, as well as from smaller-scale startups like Sia, an ambitious decentralized cloud solution.

And of course, there is Facebook.

The social media behemoth unveiled plans for its own cryptocurrency in 2018 – a token it has labeled Facebook Libra – and has since described its vision as that of a simple, reliable world currency. While Libra has yet to officially launch (it is expected to do so later in 2020), we already know quite a bit about the nature of the platform and the technology behind it.

To provide a clear frame of reference, here is a breakdown of how Facebook Libra compares to the original cryptocurrency – bitcoin.

Regulation

We know bitcoin is deregulated, which has long been one of its greatest draws.

Bitcoin transactions take place and are recorded semi-anonymously on a decentralized public ledger known as the blockchain. The network’s health is maintained by miners via which transactions are verified and confirmed. The bitcoin network is (in theory) immutable, and because of its user-oriented nature it requires no regulation from outside entities.

With Facebook Libra, regulation is a bit more prominent (as one might expect when dealing with a global tech giant).

Libra uses a permissioned variation of blockchain, meaning transactions can only be completed once confirmed by a large group of regulating parties known as the Libra Association.

The Libra Association is a growing group made up of many large companies worldwide, each of which has invested upward of $10 million to have a say in the everyday operation and future development of the Libra network.

This is a massive differentiation between bitcoin and Facebook Libra, and has even led to many analysts questioning whether or not Libra can truly be described as a cryptocurrency. While bitcoin is theoretically accessible and attainable by anyone with computing power, Libra is much more centralized and is clearly going to be subject to much more regulation.

Supply and demand

Bitcoin operates with a fixed supply, in that there is a set number of bitcoins that can ever be mined into existence. It is also a deflationary asset, meaning over time, its buying power is designed to increase rather than decrease as with most traditional fiat currencies.

Perhaps the greatest driver of bitcoin’s supply and demand is the fact that its block reward is cut in half roughly every four years – most recently on May 11. This means fewer bitcoins are being mined into circulation, leading to a decrease in supply and most often an increase in demand and price. In essence, the demand of bitcoin reacts directly to its supply.

With Facebook Libra, supply is open to much more manipulation and can be made to react directly to demand.

This is because Facebook and its partner companies (in the Libra Association) can adjust the supply of the coin to match a given quantity of other assets being held in reserve. Doing so would serve to maintain a stable price for Libra even amid rapid changes in demand.

Speaking of stability, Libra’s link to several government-backed currencies is expected to help it steer clear of the volatility inherent in most traditional cryptocurrencies. Because of this, some analysts refer to Libra as a stablecoin and liken it more to a fiat currency than a cryptocurrency.

Applications

Since its creation, bitcoin has served as a method for making peer-to-peer payments to and from anywhere in the world. It has also served as a popular long-term investment vehicle, with many investors adopting the practice of HODLing to try and combat the coin’s short-term volatility.

For Libra, the primary purpose will be to complete cross-border payments and money transfers via Facebook and any of its subsidiary platforms like WhatsApp. It has also been speculated that other  channels within the Libra Association may adopt usage of the coin (the group currently includes Uber, Spotify, and several others).

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Date Published

07/17/2020

Author

First Scribe

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