There's been a ton of analysis on Libra since the release, so I'll try to give a perspective and not just rehash the news.
More than just "Facebook Coin"
Much of the pre-announcement discussion centered around Libra as "Facebook Coin" - a new cryptocurrency project competing as a global form of payment. But Libra is far more than that:
"This document outlines our plans for a new decentralized blockchain, a low-volatility cryptocurrency, and a smart contract platform that together aim to create a new opportunity for responsible financial services innovation."
The piece that stands out to me is smart contract platform. Libra's ambitions there bring it into direct competition with Ethereum, EOS and every other smart contract player. Before Libra, the battle for smart contract supremacy was already a raging war with billions at stake. Ethereum leads the ecosystem today (measured by number of developers and infrastructure), but its place on the throne is far from guaranteed, even before Libra entered the market.
Facebook brings some compelling weapons to the fight, including:
- Billions of existing users
- A track record of creating and stewarding open source software (React)
- A track record of creating and scaling ultra successful products
Despite progress, current smart contract platforms haven't found real product market fit. Facebook seems uniquely positioned to bring real users and bring mainstream product market fit in the process.
Opposition of Libra will not stop it
Libra's launch caught the attention of lawmakers and regulators, particularly in the West. One U.S. lawmaker has asked Libra to stop development until privacy concerns are addressed. France's Finance Minister, addressing the concern of Libra becoming a sovereign currency, said "it can’t and it must not happen."
At first glance, it seems that Libra is going to face some huge headwinds getting to market. However, I'm skeptical these attacks will stop Libra from launching or succeeding even, in part because Facebook has anticipated and already made counter moves:
Libra has made clear it isn't a regulatory arbitrage play
"We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure and trusted framework underpins this new system." - Libra Whitepaper
By coming out of the gates pro-regulator and registering with FinCEN (Calibra), Facebook is attempting to minimize their most vulnerable attack surface: regulatory scrutiny.
Libra is launching in friendly markets initially
Reminder: Facebook has ~2.4 billion users, or roughly 1/3 the population of Earth.
Even if lawmakers pursue outright bans of Libra, there's still a ton of markets where they can and will operate. This will allow Libra to pursue product market fit and build network effects.
Facebook isn't doing anything that hasn't already been done by others
An open source blockchain with an "independent" foundation. A stable cryptocurrency backed by fiat currency. A wallet and financial service that perform money transmission.
Does that sound familiar?
It should, because there are plenty of companies and projects that already do all that in the U.S. and elsewhere. Facebook is obviously a unique animal, one with unparalleled scrutiny and weight, but Libra is a combination of things we've already seen.
Lawmakers and regulators are going to quickly find themselves in a position where attempting to stop Libra might mean applying similar restrictions to other high growth tech darlings. That complicates their quest.
Facebook spread the risk with high-profile partners
Attackers will definitely be pushing the narrative that "Libra is completely controlled by Facebook". But Facebook has cleverly prepared for this in the way they set up governance for Libra.
The founding members of the governing body of Libra, the Libra Association, are a Who's Who of the fintech and consumer tech world. They include Uber, Visa, Mastercard, Stripe, PayPal, Coinbase et al.
This makes an attack on Libra an indirect attack on these companies and the many others that will be part of the Libra ecosystem. We'll see if Facebook is able to successfully defend Libra with this consortium approach.
Libra has (finally) lit the fuse on crypto versus central banks
Despite the fact that Bitcoin competes more directly with central banks, it has mostly been a watchlist item for central bankers. This is likely a combination of Bitcoin's humble origins, the required long term adoption cycle and overall complexity of absorbing Bitcoin's many novel ideas.
Libra has been the exact opposite. Libra was absorbed much more quickly and hit closer to home for lawmakers and central bankers. Facebook's involvement is no doubt the primary driver of scrutiny, but Libra also has elements that are easier for traditional finance to wrap their heads around (e.g. backed by reserve of stable assets).
Judging by reactions so far, the central banker comparison between Libra and Bitcoin looks something like this:
What will be interesting to watch is how entangled (if at all) Bitcoin and Libra's narratives become. Will traditional Bitcoin critics also attack Libra? Of course.
But what about Facebook critics who were otherwise agnostic to Bitcoin up to this point? Will they lump Bitcoin and Libra together to take down Facebook? Or what if - more interestingly - Facebook critics ally with Bitcoin to fight Libra / Facebook? The enemy of my enemy.
How does Libra impact Bitcoin long term?
I would argue net favorably.
First, let's acknowledge that Libra is a layer built partially on top of the existing system (state money + traditional banking) by design. Bitcoin is a fundamentally different, alternative financial system, also by design. This simple difference means that they will be used and evolve in different ways, with their own unique value propositions.
Libra might overlap first with Bitcoin around payments, specifically with layer two payment networks (e.g. Lightning Network). But even with some overlap, I see Libra bringing mostly positives for Bitcoin:
- Libra will help usher in more regulatory clarity, enabling wider adoption, more actual use in regular transactions and new commercial entrants to crypto
- Libra will expose billions to cryptocurrency, many of them new users, while also serving as a potential on-ramp to Bitcoin
- Libra will cause crypto infrastructure to be built, much of which will be also used for Bitcoin
Megatrend: convergence of consumer tech and financial services
Libra is a huge moment for the entire crypto ecosystem, one that alters the landscape permanently.
But I suspect 10 years from now we will be marveling this moment for sparking another, even bigger megatrend: the convergence of consumer technology and financial services.
FinTech has already created a massive upheaval in traditional finance the past decade. You've seen the meteoric rise of neobanks. You've seen the OCC open a pathway for tech companies to become banks. You've seen new rules like PSD2 requiring banks to give their customers open access to their data. Saying that financial services is in flux and banks are vulnerable is an understatement.
To date, the primary risk to banks has been from fast moving fintechs who built their (usually millennial) user bases from scratch. Stodgy, slow moving banks have been mortally wounded in this transition, while nimbler, tech-forward financial services companies have evolved their own tech claws.
But Facebook, Amazon, Google and Apple represent an existential threat to financial incumbents. Not only are they stocked with better talent and can move much quicker, but they control billions of users who are deeply entrenched in their proprietary platforms.
Apple dipped their toe into the game with the Apple Card. But Facebook is attempting something far more ambitious with Libra - providing critical financial infrastructure for billions that are underserved by the incumbent financial firms. Expect the rest of our tech overlords to make similarly bold moves and for them to change the world in the process.
Whatever happens, it is going to be a wild ride. The games are just getting started.