Libra Cryptocurrency: Should You Invest?

Facebook's Libra cryptocurrency has sparked interest from crypto speculators, but it is not yet available to invest in. Libra is different from other cryptocurrencies because it is backed by actual reserves, such as cash and government bonds. The Libra Association, a Swiss not-for-profit, invests users' money in low-risk, short-term investments, and any interest accrued is collected by heavyweight backers like Visa and Mastercard. While Libra is not yet available, there are two ways to potentially cash in on Facebook's crypto plans: buying Facebook shares or buying Libra when it becomes available.

Libra is a high-risk investment

Libra, a cryptocurrency founded by Facebook, is still under development and has not been officially launched yet. However, it is already being touted as a high-risk investment opportunity.

Firstly, Libra is a high-risk investment because it is a cryptocurrency, and cryptocurrencies are notoriously volatile. The value of cryptocurrencies can fluctuate wildly, and investors can lose money just as quickly as they make it. Libra itself seeks to address this issue of volatility, but it is unclear how successful it will be in doing so.

Secondly, Libra is a high-risk investment because it is a product of Facebook, a company with a flawed track record when it comes to privacy and data protection. There are concerns about how well Libra will protect its users' data and whether it will be able to withstand cyber-attacks or breaches.

Thirdly, Libra is a high-risk investment because it is a relatively new and untested currency. It is still in the development phase, and there is no guarantee that it will be widely adopted or successful. In fact, Libra has already faced regulatory scrutiny and has been forced to rebrand to Diem. It is also unclear how Libra will be received by the public, as it is a centralised payment system, which goes against the decentralised nature of most cryptocurrencies.

Lastly, Libra is a high-risk investment because it is not backed by any physical assets or commodities. Unlike traditional fiat currencies, which are backed by the full faith and credit of a nation-state, Libra is backed only by the Libra Reserve, which contains real assets but is not tied to any specific country or government. This means that the value of Libra is purely speculative and could potentially crash if confidence in the currency wavers.

In conclusion, while Libra may offer an enticing investment opportunity, particularly for cryptocurrency traders, it is a high-risk venture. Investors should proceed with caution and be prepared to lose all their money if something goes wrong.

It's not a cryptocurrency, it's a security

Facebook's Libra is not just another cryptocurrency like Bitcoin. Instead, it is a stablecoin, a fiat-backed cryptocurrency that seeks to hedge against volatility. The Diem Dollar (formerly known as Libra) will be pegged to the US Dollar on a 1:1 ratio. This makes it fundamentally different from other cryptocurrencies, which are highly volatile and subject to frequent price swings.

In the US, there have been attempts to classify stablecoins as securities. In 2019, two Texas representatives, Lance Gooden and Sylvia Garcia, proposed the "Managed Stablecoins are Securities Act of 2019". This bill, which was sponsored by representatives from both political parties, aimed to place stablecoin projects like Libra under the purview of stringent US securities regulations. The lawmakers sponsoring the bill argued that such measures were necessary to protect US consumers and ensure proper government oversight.

However, critics of the bill, including the Libra Association, argued that it would further dampen the country's position in the emerging digital landscape and chill innovation in the crypto and blockchain space. They maintained that the Libra payment system was designed to empower billions of people left on the margins of today's networks and that it was not a security.

The classification of Libra as a security would have significant implications for its operation in the US. It would require Libra to follow substantial regulatory requirements imposed by the SEC, increasing legal costs and limiting the flexibility of the project. As of 2024, Libra has not been launched officially yet, and it is still facing regulatory scrutiny in the US and India.

Libra is backed by actual reserves

Libra is a cryptocurrency founded by Facebook in 2019. It was created to establish a simple global payment system that would empower billions of people to access financial services. However, due to regulatory scrutiny, Libra has rebranded to Diem.

Diem is different from other cryptocurrencies as it is a stablecoin. This means it is a fiat-backed cryptocurrency that seeks to hedge against volatility. The Diem Dollar will be pegged to the US Dollar on a 1:1 ratio. It will also support other fiat currencies, including the British Pound, Euro, and the Singapore Dollar.

Diem will be backed by the Diem Reserve, which will contain real assets. These assets will include short-term government securities in stable, reputable currencies and bank deposits. This is different from banks, which only hold a fractional reserve of cash and other liquid assets. The full backing of each coin by liquid assets is intended to discourage runs and stabilize the payment system, giving users confidence that their Diem coins can be converted into local currency.

The Diem Reserve will be intentionally structured to mitigate threats and minimize risks. It will consist of at least 80% very short-term government securities issued by sovereigns with very low credit risk. The remaining 20% will be held in cash, with overnight sweeps into money market funds that invest in short-term government securities. The currency composition of the assets will match the composition of the outstanding single-currency stablecoins, including the currencies of the stablecoins that comprise the Diem Dollar. This will help to mitigate interest rate, liquidity, and credit risks.

The Diem Association, an independent non-profit organization based in Switzerland, will manage the Diem Reserve. The administration of the Reserve will be transparent to the public, with regular audits conducted by independent auditors and the results made publicly available.

It's not decentralised

Libra is a cryptocurrency created by Facebook, which was later renamed Diem in 2020 and wound down in 2022. It was intended to be a simple, low-fee, global blockchain-based digital currency. However, Libra faced scrutiny and criticism from regulators and governments due to concerns about money laundering, consumer privacy, and other financial risks. One of the key concerns was that Libra is not truly decentralised.

Unlike fully decentralised cryptocurrencies such as Bitcoin, Libra operates as a permissioned blockchain. This means that only members of the Diem Association (formerly known as the Libra Association) can access and validate the ledger of transactions. The Diem Association is a group of companies, including Facebook, Mastercard, Visa, and eBay, who each have one vote in managing the association. While Facebook initially had a leadership role, it later stepped back, handing control to the association.

The lack of decentralisation in Libra raises concerns about trust and concentration of power. In a decentralised cryptocurrency like Bitcoin, anyone can participate in the network and validate transactions through a consensus mechanism. In contrast, Libra's permissioned model gives control to a small group of companies, which goes against the fundamental principles of blockchain technology and decentralised finance.

Furthermore, the centralisation of Libra leads to concerns about privacy and data protection. With a large user base and transaction data, there are worries about Facebook and the Diem Association members gaining access to sensitive financial information. This centralisation of data could potentially be exploited for advertising or other commercial purposes, as Facebook has been criticised for in the past.

In conclusion, Libra's lack of decentralisation is a significant point of criticism and concern. It deviates from the core principles of blockchain technology and raises important questions about trust, privacy, and the concentration of power in the hands of a few companies.

It's a stablecoin

Libra, now known as Diem, was a permissioned blockchain-based stablecoin payment system proposed by Facebook. Stablecoins are fiat-backed cryptocurrencies that seek to hedge against volatility. The Diem Dollar, for example, is pegged to the US Dollar on a 1:1 ratio. However, unlike most stablecoins, Diem also sought to support other fiat currencies and short-term government debt instruments, such as the British Pound, Euro, and Singapore Dollar. This would have made it more sophisticated and stable, eliminating the usual price swings that cryptocurrencies are known for.

Diem was to be managed by the Diem Association, a membership organisation of companies from payment, technology, telecommunication, online marketplace, and venture capital, as well as non-profits. The project was initially announced in June 2019 and was to be launched in 2020. However, due to regulatory concerns and backlash from government regulators, it was never launched.

The idea behind Diem was to let anyone, anywhere, transact money over the internet. It was to be overseen by a group of 28 companies and users wouldn't even need a Facebook account to send money. The stablecoin was to be backed by a basket of fiat currencies, ensuring price stability.

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