After months of anticipation, Facebook has recently unveiled its own crypto-currency, the Pound.
Hmm. . . in fact, this is not entirely accurate. Perhaps it is better to say that Facebook unveiled its ambitious plan to dominate the world's payment systems and challenge the power of nations.
Let's take a step back and start from the beginning. The world is now full of payment services galore. We have credit card networks (such as Visa, Mastercard, American Express), online payment companies (Paypal, Stripe, SecurionPay) and even mobile payments (Venmo, ApplePay, WeChat). All of these services and more are crucial to modern business and financial activity.
There are, however, what could be considered two major problems when it comes to modern payment systems. The first is that most of these services are isolated – they do not interact with each other. One person can not send money directly from Venmo to ApplePay and vice versa. The money must be moved through a bank first and then deposited in the appropriate application / service. This can be quite inconvenient and inefficient for consumers and businesses, especially if they are considered geopolitical differences. In the European Union, for example, Orange Cash is a mobile payment service available in France and Spain, but not in the rest of the union. Although they are united by a single currency, people can be, and still are, divided by the choice of payment services used.
The second problem is, for lack of a better term, privacy. All of these services require individuals to rely on financial institutions as third-party payment processors. Even if a person wanted to do something as simple as buying a cup of coffee, this transaction would have to go through a bank, credit card company, or payment processor. As a result, there is an electronic record of all transactions, or private financial information that is now in the hands of an institution. Moreover, since these institutions sometimes need to mediate transaction disputes, they must implement certain inefficient measures (high transaction costs, a limit on the maximum amount of money that can be transacted over a defined period of time, etc.) for users .
How do you create money online?
Finding a way to solve this puzzle – a simple system to engage in online financial transactions without giving up privacy – was one of the goals of an online movement in the 1990s comprised of privacy-focused activists, computer scientists, cryptologists , technical specialists and political advocates. . These "Cypherpunks," as they were informally called, made many experiments and endeavors in the attempt to create this kind of online currency focused on privacy. Although many may not remember, even Paypal itself was originally intended as an attempt, in the words of co-founder Luke Nosek, to "create a global currency that would be independent of the interference of those corrupt cartels of banks and governments that were depreciating their All these initiatives, however, failed because no one could figure out how to create money online without creating a central institution to manage that hypothetical currency. This central institution represents a single point of failure: it can be manipulated, subject to government regulation or otherwise destroyed.
The solution was finally conceived by an online individual under a pseudonym called Satoshi Nakamoto, who presented a white paper entitled Bitcoin: a peer-to-peer electronic cash system.
Satoshi's system was simple: Instead of relying on a central institution, his system was configured so that every transaction and individual property was tracked and recorded simultaneously in a shared book. Transactions and participations would be pseudonymous, preserving privacy. The shared ledger would be distributed on the computers of all users of the system, thus avoiding the creation of a central institution and a single point of failure. This shared database, which would later be known as a blockchain (so named because of how the system groups transactions into sets called blocks, which are added to a continuous chain), has triggered a revolution in finance. Bitcoin was born and was introduced into the world.
More than ten years have passed since Bitcoin was created. While the system is still strong, several limitations, however, have become apparent. On the one hand, Bitcoin can only handle an average of four to five transactions per second (tps), with some variation. Visa alone, by comparison, handles an average of 1,700 tps and is able to handle more than 24,000 tps. Then there is the question of latency: the time it takes to create a transaction to the initial confirmation of being accepted by the network. Bitcoin's confirmation time varies depending on how much the system is being used, but it is certainly no less than five minutes and sometimes more than ten. Compare that with the few seconds, you should expect a credit card transaction to be confirmed, and the choice is obvious.
The privacy sought by Bitcoin is also less secure than originally expected. While transactions and holdings may be pseudonyms, it is possible to link these financial details to an actual identity when a Bitcoin user attempts to convert his Bitcoin into fiduciary currency or vice versa through an exchange or other service. Finally, Bitcoin's limited offer (a predetermined limit of twenty-one million coins) means that it is deflationary – there will be less of it out there. Although this may be good for long-term holders, since they can expect a positive return on their investment, the price volatility associated with this type of asset does not match with short-term users.
In short, while Bitcoin has properties that make it an attractive store of value and / or speculative investment, it does not have the capacity to function as a stable medium of exchange. "Cryptomoeda," as it is, can no longer fulfill the original purpose of an anonymous and money-like online payment system. Some of Bitcoin's most ardent supporters and supporters would argue against this view, pointing to developing solutions such as the Lightning Network. These efforts, however, still face technical and regulatory obstacles, both in the short and long term. Even so, they would be hard pressed to overcome a now firmly entrenched public perception that Bitcoin is a speculative asset and not a medium of exchange.
It is because of these limitations, among others, that many have adopted the underlying blockchain technology that allows Bitcoin to function and used it to create newer, more advanced crypto-coins and platforms. For example, a cryptomooeda and blockchain platform called Zilliqa indicates that it can handle impressive 2,828 tps – more than enough to compete with Visa and other major payment processors. However, there are still some obstacles to be overcome, such as the fact that transactions on this platform take about one minute to confirm. Although the Zilliqa development team is working on improvements to reduce the confirmation times to about twenty seconds and further increase the tps, they are still far away, and the platform suffers from a lack of name recognition outside the cryptomedical niche and blockchain software.
A benefit to all mankind?
This is where we return to the announcement of the Libra system by Facebook, with interesting information contained in the white paper of the cryptomoeda and the technical article. The stated details of the project are quite impressive. The system is designed to be able to handle 1,000 tps at launch, with a ten-second confirmation time – with plenty of room for improvement. Libra's own currency will be "backed by a reserve of real assets – the Libra Reserve", which will be "a collection of low volatility assets such as bank deposits and short-term government securities in stable central bank currencies and respectable ". To help oversee, design, launch and manage Libra, Facebook is setting up a Swiss-based government association composed of a consortium of partner organizations. Only the list of founding members is impressive: it includes Visa, Mastercard, Paypal, Stripe, eBay, Uber, Spotify, Vodafone and many more.
In short, the Pound intends to be a unified global payment processor and optionally pseudonym, supported by real assets and backed by some of the best companies in the world, that can be used by any company or individual that has access to a Facebook account. In short, it is the future of money. Its users would include the unbanked and bankless in the world – individuals who do not have access to the traditional banking system for a variety of reasons – as well as other vulnerable populations. The recently announced Libra focused subsidiary of Facebook, Calibra, has released some documents that further detail the pressing situation that the banker faces: