Facebook's unveiling of its Libra project last month electrified the cryptocurrency community, with some experts saying it was the driving factor behind bitcoin's June surge. The reaction since then has been less bullish. Alarums have been raised by lawmakers and regulators, including the U.S. House Committee on Financial Services, the Senate Banking Committee and the Federal Reserve.
What the impact of the Libra blockchain will be on the cryptocurrency market and financial industry at large remains to be seen. The digital currency is set to launch in 2020. As a technology with 2.4 billion potential customers in its back pocket, however, enterprises should consider how Facebook's digital currency could impact their business.
How the Libra project could help enterprises: Four reasons
At the simplest level, the Libra blockchain will make international transactions much cheaper, which will be particularly important for international companies. According to Julien Uhlig, CEO at alternative energy company Entrade X, the costs of currency exchange and transactions for companies running offices in multiple countries can amount to hundreds of thousands of dollars per year. With Libra, "this probably can be reduced to almost zero," said Uhlig, who has experience in token sales.
Entrade could probably avoid those costs with any other cryptocurrency, but the appeal of Libra is its potential to break barriers. Today, the cryptocurrency community is limited to hardcore fans and techies. Facebook, on the other hand, has developed a product friendly enough for 2.38 billion people to use it. That positions the Libra project to drive mass-adoption of cryptocurrencies.
Second, Libra is also a stablecoin, which means it will not move up and down like bitcoin does. This is another important feature that experts believe will make the Libra cryptocurrency usable for daily use and not just for speculation.
Third, Libra's initial focus is on the 1.7 billion unbanked. According to Peter Ryan, CEO and founder of Ryan Research and a former CoinDesk researcher, enterprises would be able to reach more customers as Libra would unlock more cross-border commerce without the friction of domestic currencies and foreign exchange.
"The current checkout process leads to a lot of drop-off of would-be customers," Ryan explained. "Any enterprise in e-commerce would gain from Facebook streamlining the checkout process with their new coin."
Fourth, once customers get acquainted with Libra, expectations will change. "Nowadays, when you go into a shop and it doesn't accept Apple Pay, you feel frustrated," said Steven Parker, CEO of Crypterium, the company behind the first global cryptocard. "The same logic applies for Libra: If businesses do not work with Libra, they will clearly face serious limitations serving customers."
Andy Liu, senior research analyst at the Info-Tech Research CIO advisory group, sees this already coming: "We can see the case where every point-of-sale system will have a Libra coin payment system. This is already prevalent in China where every retailer has a WeChat pay and Alipay."
Challenges for Libra
As noted, Libra is set to launch in 2020. For now, it is only running in testnet. U.S., French and German officials have asked Facebook to stop the development of Libra until they can fully understand the implications.
"Facebook will likely have to negotiate different policies with each country that chooses to use Libra," Liu said. Negotiating points range from regulations to tax laws.
Others doubt if Libra will even make it, given Facebook's record of privacy scandals. "Libra is a distraction from the challenges that Facebook faces with its users," said Christian Lanng, CEO of supply chain payments platform Tradeshift.
As for comparisons to WeChat's dominance in China, Lanng, who called Libra a "scammer and hacker paradise," added that there is "a fundamental gap between WeChat and Facebook, which is users trust WeChat, unlike Facebook."
Still, others insist there is little chance Facebook will back down from Libra. "Facebook has much to lose from not delivering," Antoni Trenchev said.
Trenchev is co-founder and managing partner of cryptolending company Nexo Capital, which aims to join the Libra Association, the not-for-profit based in Geneva, Switzerland, that was formed to oversee the currency. Despite the political headwinds, he believes Libra will prevail. "From the public statements from Facebook, it appears that they have run everything by the relevant U.S. agencies, so I don't see a reason for delay," he said.
Trenchev, who is certified by the Association of Certified Anti-Money Laundering Specialists, also responded to worries regarding the misuse of Libra: "The number one choice of the money launderers and the criminals of the world in terms of currencies is the US dollar, hands down."
Libra is not as decentralized as bitcoin, but it is not under Facebook's total control either. It differs in being a stablecoin and also has much higher transaction rates. While these help make the project safer for newcomers, Libra is also taking a step toward solving the identity problem. Though the whitepaper only mentioned this briefly, it still hinted at an important and necessary direction to protect against fraud.
According to Mike Stay, CTO of blockchain development company Pyrofex Corp., this development could go beyond the cryptocurrency and be used to determine credit scores, since Libra is consolidating all transactions under one roof -- the same things banks need to judge creditworthiness.
Enterprises still have a year before the actual launch. By then, a lot of the details will have been clarified -- both from a development perspective as well as regulations perspective. What seems clear is that if Libra does indeed prevail, it is poised to have an important effect on the consumer economy. Enterprises must be ready to adapt to the changes.