Facebook has announced that it will introduce the Libra cryptocurrency, which will be pegged to several international currencies and will be backed by several well known financial organizations, including Visa and Mastercard. It appears to be something like a cryptocurrency dollar. Bitcoin is more like cryptocurrency gold. It has no set value, but it does a limit on how many Bitcoins can ever exist, making it more like gold, something whose supply is limited and that has a value depending mainly on how much people are willing to pay for it. Thus, the value of the Libra should be fairly steady, while the value of Bitcoin may vary wildly.
A story in the Verge examines some of the downsides of Libra. One of the first questions is whether the Libra will work at all. It seems likely that it will, but its blockchain technology is different from Bitcoin’s. Bitcoin’s chain is basically open to the world, allowing anyone to create a block in the Bitcoin chain through “mining,” i.e., using computers to create identifiers for the blocks. It sounds like only a few insiders will be allowed to maintain the Libra blockchain, and that the Libra blockchain may not be a chain at all, but just one big block.
The most serious problem, however, may be privacy. Facebook is notorious for ignoring privacy concerns, and if users use Libra, Facebook may have access to everything a Facebook user buys, enormously increasing Facebook’s power to target ads, alert sellers to who is looking for their product, report how much money users have and spend, and expand other invasions of privacy that Facebook users already see every day.
Bitcoin’s main early use was to pay for illegal transactions, such as buying drugs. Hackers have used it because it is supposed to be untraceable to individual users, although the Mueller Report apparently was able to track some Bitcoin payments back to Russian hackers. Still it is frequently used, most recently by hackers who encrypt important data for cities or hospitals, and then demand ransom in Bitcoin to restore it.
If Facebook tried to protect users’ identity, it could make it even easier for criminals to transfer money for activities like drug dealing, but also in huge amounts for money laundering. The US government requires banks to release certain information about account holders’ identities and transactions to search for money laundering. Would Facebook have to meet the same requirements?
Despite the downsides, it seems likely that the Libra will be widely accepted and used. What then will be the implications for central banks like the Federal Reserve. Much of their operation depends on increasing or decreasing the money supply. To what extent would the Libra be outside of their control and limit their power to regulate the economy? Many Bitcoin users are techies who dislike government in general. They like the idea that it is unregulated and uncontrolled except by the market. For government regulation, will Libra be more like the dollar or more like Bitcoin?
Here is an additional explanation of Libra from the British version of Wired. https://www.wired.co.uk/article/facebook-libra-currency-replacing-cash.