When we wrote our nice little piece on Libra (Facebook's little digital currency) last time, we got a lot of comments asking us to provide a more elaborate account. And since Facebook officially launched Libra yesterday, we thought it would be a great time to revisit that story.
The Rise of Libra?
Despite the catchy headlines, the official launch does not mean much. It is only a symbolic endeavour. You can’t buy a Libra yet or transact with it. At least, not until Facebook can overcome the regulatory hurdles i.e. getting lawmakers to green light this bold initiative. But before we get to that, here’s a small brief on Libra.
Facebook will tell you it’s a digital currency that runs on a blockchain, a cryptocurrency if you like.
Meaning
1. Nobody controls the currency.
2. Nobody decides who gets to transact with the currency
3. And most importantly it provides an unalterable record of all transactions ever committed on the network, but one that stays completely anonymous.
However Libra isn't a cryptocurrency in the traditional sense. It is exclusively controlled by a small group of big corporations called the Libra association — including the likes of Vodafone, Lyft, Uber etc. And each one of them will be entitled to a single vote, including Facebook.
Meaning, no one entity will have access to the transaction data. Instead, the blockchain (and through it, Libra) will be controlled and operated by the group as a whole. So why is Facebook pushing so hard considering they only have as much say in the whole project as the other members?
Well, because Facebook has an ace up its sleeve.
Calibra
That’s the app Facebook is currently working on to hold all your Libra coins. Think of it as your PayTM wallet. You transfer money to PayTM from your bank account and PayTM provides a seamless interface to transfer money to other PayTM wallets. With Calibra, you’ll be able to buy Libra coins and Facebook will allow you to transact with anybody anywhere in the world. And when you want to sell your Libra, Facebook will promptly transfer the equivalent amount in your local currency.
That’s the value proposition.
However, Facebook has also stated that the app could be tightly integrated with Whatsapp and Messenger. And that’s where it gets tricky. Because when you are sending money to your friend on Whatsapp, Facebook can move the money between its wallets' users without relying on other members of the Libra Association i.e. the blockchain.
Think of it this way. When you transfer money from your PayTM wallet, PayTM can move the money between the accounts without using any intermediaries like banks. In the case of Libra, Facebook can do the same without other members of the association ever getting a whiff about it.The only time they get involved is when a customer wants to send money outside of Facebook to a wallet or service developed by another company.
And that is a problem.
The whole idea of having a blockchain (even if it’s controlled by a small group of members in the Libra Association) is to prevent Facebook from getting to your data. However, if you use the version of Calibra integrated within WhatsApp or Messenger, Facebook will be able to see which people or businesses you’ve transacted with. This information is crucial and although the company has suggested that it won’t use your data to provide targeted ads on your Facebook account, the company doesn’t exactly have a stellar track record here.
But let’s assume that they don’t commingle your personal account with your transaction data? What’s the game plan then? The official line is this — “If it becomes easier to transact (send and receive money) on our platform we expect to see more business. And when people see more business coming in, they’ll want to buy more ads on Facebook.”
Also, if they do clear the necessary regulatory hurdles, there’s nothing stopping them from selling other financial products once Libra becomes mainstream. With the wealth of information that they’ll possess, Facebook could become the greatest Fintech player the world has ever seen.
In any case, all eyes are now on US lawmakers. If they okay this thing, we could have a revolution on our hands.
At least until Libra meets RBI. That’s when they’ll give up :)
P.S. We are kidding.
No Auto Slowdown?
Also, in other news, there were reports coming in that Auto Insurance sales were booming despite the terrible slowdown plaguing the auto industry. A completely counterintuitive claim that’s baffling industry observers. Does this mean, the narrative around the slowdown is a manufactured myth? Are we blowing things out of proportion?
Hold your horses. The only reason why there’s been an uptick in insurance sales is because the government (last year) made it mandatory for vehicle owners to buy insurance to cover legal liabilities towards a third party for injury, death or property damage. Can’t escape it anymore. So yeah, we are seeing the effects of that policy move now. So there's no reason to be too excited here.
That's it from us today. We will see you tomorrow. Have a nice day folks :)
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