Libra vs Bitcoin, could Facebook’s cryptocurrency be Bitcoin’s demise?
In this guide, we analyze both currencies in-depth and contrast their strengths and weaknesses to answer that question.
What exactly are Libra and Bitcoin?
After quietly building for over one year, in early 2019 Facebook confirmed that it was launching its own cryptocurrency. This cryptocurrency is named “Libra” and will be backed by a currently undisclosed basket of fiat currencies.
The main goal of Libra is to offer a simple, fast and cheap payment solution for Facebook’s 2 Billion users. However, it seems increasingly likely that the usage of the cryptocurrency may be expanded beyond that.
In a recent piece published by The Block, the publication states that companies like PayPal, Visa, Stripe, and Mastercard will be supporting the Libra project by running one of the 100 available “nodes”, which costs $10M each.
— Mike Dudas (@mdudas) June 14, 2019
Could these companies also integrate Libra into their payment processor software, which is used by tens of millions of merchants worldwide? For now, that is nothing more than speculation, but it doesn’t seem like an unreasonable possibility.
Bitcoin, on the other hand, was launched back in 2009 by its anonymous creator “Satoshi Nakamoto”.
The cryptocurrency was created in response to the 2008 financial melt-down and aims to take the power of money creation away from the Banks in order to create a fairer and more inclusive financial system.
On the contrary to Libra, since Bitcoin is not controlled by any central authority, transactions on the network cannot be censored and funds cannot be seized.
What problems do Libra and Bitcoin solve?
Libra aims to become a simple, fast and cheap payment solution. Facebook’s massive platform of 2 Billion+ users and deep network effects would enable Libra to likely become the most widely adopted payment solution to date.
There are many parallels between what Libra is trying to achieve and payment processors like Visa, Mastercard or PayPal.
Bitcoin, on the other hand, is purely focused on creating money that is not controlled by any central authority. That’s why it’s key features are censorship, confiscation resistance, and its algorithmic monetary policy.
Bitcoin is especially relevant in countries with authoritarian regimes or failing national currencies, like Venezuela.
What shortcomings do Libra and Bitcoin have?
Both Libra and Bitcoin made a set of trade-offs required to achieve their ultimate goal.
Libra, for example, is controlled by a consortium of companies and must adhere to laws that these companies are governed by.
This means that a handful of companies have access to all the private transaction data that users generate when using Libra.
Further, if the company consortium believes that a certain transaction must be censored or an account is frozen, there is nothing that stops them from doing that.
Nothing is free.
The transaction fee for using Libra will undoubtably be you agreeing to give up your transactional privacy and data to Facebook and its corporate partners.
That’s too high.
— ฿ully (@BullyEsq) June 16, 2019
So in that sense, Libra does not fulfill most of the ideals that were the motivation behind cryptocurrencies like Bitcoin, which aim to get rid of powerful third parties and censorship.
Finally, since Libra is backed by a basket of fiat currencies, its value is at the mercy of the exchange value of said currencies. Hence, Libra will suffer a 2-3% annual inflation and will also be subject to significant risk if the fiat currencies that back it were to start failing.
On the other hand, Bitcoin’s main trade-offs are in transaction cost and transaction duration. At the time of writing, sending a Bitcoin transaction can cost up to $2 and takes an average of 30 minutes in getting confirmed by the network.
Further, since Bitcoin still has a relatively small market capitalization, it can have very volatile price swings.
Can Libra “kill” Bitcoin?
Due to its very properties, Libra is no more threat to Bitcoin than Visa or Mastercard are as well.
Although Libra will likely see significant adoption in the short-term for payments due to Facebook’s large network effects, it is poised to be a bigger threat to Banks and payment processors than it is to Bitcoin.
As pointed out earlier, Libra does not match or beat any of Bitcoin’s key value propositions: censorship resistance, confiscation resistance and store of value properties.
Could Libra’s creation be a bullish event for Bitcoin?
If branded as a cryptocurrency to Facebook’s 2 Billion people userbase, Libra’s launch has a big chance of legitimizing the term “cryptocurrency” to hundreds of millions of people on Earth.
While it’s true that the majority won’t be interested in digging further into the cryptocurrency space, a small percentage will indeed do so, which could spark a new retail interest wave for Bitcoin and other altcoins.
Further, if Facebook is indeed shifting towards becoming a full financial institution, the social network may eventually offer a built-in cryptocurrency exchange functionality.
Facebook could build the largest cryptocurrency exchange on Earth.
– 2 Billion users
– Libra will familiarize FB's users with crypto
– Highly targeted ad system
Nobody is talking about this.
— Pascal Thellmann (@pascaltmn) June 16, 2019
Although this is just pure speculation, for now, it would be a very significant liquidity onramp for Bitcoin if it were to materialize.
Finally, the fact that Facebook is getting involved in cryptocurrency also has a significant effect on legitimizing the space in the eyes of regulators. Cryptocurrencies will now no longer just be online currencies used to “buy drugs”, but also money supported by one of the largest tech companies on Earth.
Pascal Thellmann is an investor and marketer focused on the intersection of cryptocurrency and the legacy financial system. He co-founded Bounty0x, which at the time was the largest crypto freelance platform. Now Pascal dedicates his time to CoinDiligent and trading. You can get in touch with Pascal Thellmann on LinkedIn.