The fantastic marketing operation that is going around facebook’s GlobalCoin will make the world aware of a new banking system and it will make money transactions easier for entire populations.
By the click of a button, payments will be allowed to be sent to families on the other side of the world. Faster, as it will take seconds to do so. Cheaper, as it will only cost a little fee and not the high commission paid with services like Western Union or TransferWise.
These financial institutions should be worried about Libra. These and banks, retail and central banks alike.
Let’s see why
What Facebook is trying to do with its currency, really, is to create a new open banking system.
A major report called “Millennials + Money: The Unfiltered Journey” in 2016 found that only 8% of people between 21 and 34 trusted their financial institution.
This is frankly shocking: 92% do not trust banks. Outside of this age range, the situation is only slightly different.
One might argue, after Cambridge Analytica and the consequences for Facebook in terms of trust, who’s going to rely on them?
You might learn that people forget easily and Facebook usage does not seem to have been affected much after that episode.
Just like there was an urge to create communication easier with the Internet, there is now an impelling need to resolve to a faster, simpler and cheaper financial system.
Enters Libra, that will likely open the doors to this new way of transacting finances.
If Ripple has already made it easier to send and receive money, why do we need Libra?
The Ripple digital network is made of institutional payment-providers (including banks, money lenders etc) that use Ripple’s various transfer portals such as xCurrent, xRapid to provide a frictionless experience to send money globally.
To help address many of today’s existing payment problems, Ripple has entered into a partnership with a number of financial institutions (such as Santander, IFD, BOE and most recently MoneyGram) so as to help them with their transfer needs in a faster, more reliable fashion.
XRP is a token used for representing the transfer of value across the Ripple Network. The main purpose of XRP is to be a mediator for other – both cryptocurrencies and fiat – exchanges.
Unlike Libra or Bitcoin and Ethereum, Ripple does not have its own blockchain but verifies transactions with its own patented technology: the Ripple protocol consensus algorithm (RPCA).
Here lies the competition
Facebook’s advantage is its 2 billion users, including the underbanked and unbanked that will only need a simple $40 mobile phone to send the global coin pretty much everywhere. They do not own a bank account because they are not allowed to have one.
Ripple’s users are mainly banks and institutions, not the common person.
The penetration of the Facebook market is way wider than any bank might possibly hope for.
Also, being more stable as a coin, Libra surely will have its benefits over the volatility of a cryptocurrency like XRP.
On the other hand, regulations and tight restrictions will be a massive burden for the Facebook coin.
If it’s really trying to present itself as a decentralized, open, neutral, borderless, and censorship-resistant coin as any cryptocurrency should be, well Libra will have a tough time trying to keep up with the reputation.
This is the main reason why the global coin cannot compete with the top cryptocurrency.
Bitcoin does not need anybody’s permission, its very nature allows anyone to transact with people anywhere by simply downloading the Bitcoin software.
Without being asked who they are, why they need to send or receive that money, where the finance comes from.
This won’t be possible with the private, permissioned and centralized network that Facebook coin will use. The concept of decentralization that is mentioned in their White Paper seems more to do with independence from governments than from any central authority.
Despite there being several central companies (Paypal, Mastercard, Booking.com, Vodafone Group, to name a few) and not only one, they are identifiable entities and therefore subject to any jurisdiction law and regulation, making them pretty much inclined to censorship. Non-neutral, as KYC will be required by any country. Non-borderless, as countries like Iran or any authoritarian territories, will still likely deny access to it.