How Facebook's Cryptocurrency Could Help Bitcoin AdoptionBy Nick Chong
In an announcement and flashy website published in the wee hours of Tuesday morning, Facebook unveiled Libra, its own digital asset. Some see the project as a "Bitcoin killer," pointing to Facebook's partnerships with influential corporations like Visa, Spotify, PayPal, and Uber. But it’s also possible that Libra will validate and eventually boost Bitcoin. Here’s why.
First, let’s be clear. Initially, Facebook's project won't exactly meet the requirements for what technologists deem a "cryptocurrency". As long-time Bitcoin evangelist and decentralization advocate Andreas Antonopoulos explained in a recent video, the latest project from the social media giant will go against the tenets of open networks at launch. Facebook’s Head of Blockchain David Marcus has pledged that Libra will eventually be permissionless. But when Libra is launched in early-2020, access to nodes will be restricted to a select group of entities, implying that the network will be “closed” in comparison to Bitcoin’s “open” nature.
But Libra further validates the idea that digital money is a viable technology, building on the work of Bitcoin, Ethereum, and even ventures like JP Morgan Coin. Few consumers have actually adopted cryptocurrency, despite the fact that it occupies the front pages of newspapers and headlines of digital outlets across the globe. Per a survey conducted by Blockchain Capital, 9% of Americans aged 18 to 65+ owned Bitcoin — far from "mass adoption." And it’s possible that 9% is too high.
The situation is similar in other countries. For example, a March 2019 study conducted by the United Kingdom's Financial Conduct Authority revealed a resounding 97% of Brits don't own digital assets. Those that haven't bought cryptocurrency cite the asset class's risky, nebulous, unregulated, and complex nature as reasons.
With the launch of Libra, however, this all could change. Although Libra is nothing like Bitcoin in that this new asset will be a stablecoin issued by a centralized institution and processed through a closed-in network, Libra still gives "crypto" staying power. No longer does cryptocurrency need to be risky, ethereal, and out of the reach of regulators. Libra will make this asset class accessible to billions of consumers.
It is currently unclear how Facebook and its partners will educate its users about Libra, though the media attention it has gotten so far is certainly a start. Still, through the eventual adoption of the new cryptocurrency via its aforementioned partners, a large portion of the globe will come to learn the benefits of online money, how to interact with digital economies, why smart contracts matter, and that using non-fiat currencies doesn’t have to be risky. For adopters of Libra, branching out to Bitcoin is an obvious next step.
Many hope that once Libra launches, at least a fraction of its users will "stumble across Bitcoin," as BlockTower's Ari Paul put it. From there, these users, armed with knowledge of Libra's benefits and shortcomings, will likely begin to get involved with Bitcoin, creating a capital inflow and a boost to the asset's network effects. Even if a conservative 5% of Facebook's active user base finds its way to Bitcoin, the size of the cryptocurrency community will easily grow.
As put by Luke Martin, a prominent cryptocurrency analyst, in a recent tweet: "New entrants to crypto start with Bitcoin. Libra might change that by bringing more new entrants to Bitcoin than any other coin in history."
As you've likely noticed, Facebook’s announcement hasn't gone unnoticed by the mainstream media or the stock markets. Facebook's shares are up nearly 5% over the past two days; Mainstream media outlets from Bloomberg to CNN to The New York Times are all covering the story.
The fact that "cryptocurrency" and "blockchain" have moved one step closer to entering the public vernacular is, according to some, a positive signal for Bitcoin and its brethren. As put by Balaji Srinivasan, formerly of Coinbase: "It’s good that they are doing Libra as it brings attention to the [crypto] space." As that old adage goes, "any press is good press."
Facebook's cryptocurrency should give the broader digital asset space some much-needed regulatory clarity. At present, governments across the globe generally don’t agree on what to do with Bitcoin or cryptocurrency in general. In the United States, regulatory attitudes toward cryptocurrency vary by state.
If Facebook makes cryptocurrency more mainstream, lawmakers will be forced to better understand the sector. This could lead to governments around the world establishing a proper framework for cryptocurrency companies and users. This is unlikely to eliminate all the friction in the crypto regulatory sphere, like the SEC's hesitation to approve a Bitcoin ETF, but could help establish some basic rules.
Regulatory uncertainty is not good for innovation. It can prevent industry leaders from entering certain jurisdictions. Proper guidelines can pave the way for traditional banks to get involved, as well as entice more venture capital firms and consumers to invest.