How Libra Is a Spark for Blockchain Technology

It faces formidable challenges, but Facebook’s cryptocurrency initiative has the potential to rewire the underpinnings of the entire payments system.

Libra, a new stablecoin powered by blockchain technology from Facebook, is a bold, forward-thinking concept and a potential game-changer for blockchain and the payments realm.

While it remains to be seen whether Facebook can create a system that achieves mainstream adoption, Libra will at least succeed in accelerating discussions and development of both digital currencies and the technology that drives them: blockchain. Leveraging the popularity of Facebook, Libra opens the door to new payment solutions for ecommerce that align with consumer and business needs in the digital world.

Libra isn’t a one-stop solution. However, Facebook has contributed to the discussion around what could be called “multirail technology,” which is fundamentally about fitting the payment rails to the needs of the user, not the other way around.

The payment space is large, and tailoring to different use cases (B2B, B2C, C2C, C2B, G2B, G2C, etc.). It is also tailored to different settings (Web, POS, mobile, devices) and different amounts, including micro transactions (those under $5) all the way to large-value payments (multi-million-dollar transactions). The more various the settings the industry needs, the more rails are needed and the more requirements there are to have the rails fit to the actual use case.

There are many details about Libra that have yet to be provided, but the very announcement of Facebook’s ambitions for a new cryptocurrency using blockchain technology is a foundational event for the payments space. This development has profound implications for the financial-technology industry, its investors, and consumers around the world.

Companies in the fintech sector have different focuses and clientele, but they share one central goal: moving money efficiently.

Each business and use case is different, so why would every user pay in the same way? To foster their own development and to create better relationships with their customers and business partners, it’s crucial that users around the world have more choice when it comes to payments to meet their needs and those of their partners and clients.

Libra, and blockchain technology generally, are offering users new and innovative payments systems that break down borders—both geographical and institutional. The openness of the environment leads to innovation in new services that results in optimization of speed and cost.

Not only will Libra introduce new infrastructure for the multi­rail payments model and a globalization effort in the payments space, but it will also serve as further evidence of the necessity for more payment options across all platforms and industries.

Introducing more choices and ways to pay could have far-reaching implications that extend well beyond the fintech sector. According to the Libra Association, $3.7 trillion in gross domestic product could be added to the economies of developing countries by 2025 through the widespread adoption of digital financial services.

Investment Perspective

Libra will enable the potential for more companies and applications to build on top of what Libra ends up creating, similar to what was experienced when Ethereum was created. For investors, that means more opportunities in infrastructure or in companies using decentralization and blockchain technology.

Enterprises around the world will look to do something similar to Libra and will consider this project as a model for decentralization. This will cause a snowball effect in terms of investment and innovation, which will further revolutionize the fintech sector.

Where Facebook is really owed credit with this endeavor is how it has worked to get companies such as Uber, Mastercard, eBay, Visa, and more involved through the Libra Association. Facebook already has tremendous reach, but getting other major firms involved is what gives this project more weight.

Barriers And Considerations

Building the infrastructure necessary for this project will require strategic partnerships that will aid in the system’s development and adoption. Libra will certainly also face trust issues stemming from Facebook’s various security breaches. But the real hurdle for Facebook and Libra lies in the regulatory response.

The House Financial Services Committee has formally requested that Facebook pause development of Libra, including the Calibra digital wallet, until U.S. regulators and Congress have the chance to investigate whether the project poses any risks to the global financial system. Also, the G7 countries have formed a task force to examine regulatory concerns surrounding Libra.

The only way for Libra to succeed is for Facebook to work with governments and develop arrangements that suit the interests of all parties. The regulatory debate, which is about to kick into high gear publicly, will be pivotal not only for Facebook and Libra, but for the entire ecosystem.

What’s next?

Facebook’s announcement will undoubtedly lead to numerous companies around the world taking a look at how they can leverage blockchain’s anonymity, trust, and automation. That’s because when one of the biggest companies in the world shows an interest in something, it’s worth taking note of what they’re onto.

Libra may also pave the way for more openness in financial platforms. That could open the floodgates to developers trying to make their mark for more creative innovative services. Open financial platforms powered by blockchain technology, in turn, will spur more entrepreneurial growth and development to make transacting easier for users.

Banks, card networks, and central clearing systems are all designed to be closed networks, blocking the best and brightest engineers from developing on these platforms. The next step for this blockchain technology is to provide a space for these innovators to thrive and give rise to the next phase of global finance.

Make no mistake. Facebook may be the first big company to jump on the blockchain and cryptocurrency bandwagon, but it certainly won’t be the last.

—Marwan Forzley is chief executive of Veem Inc., San Francisco. Paul Veradittakit is a partner at Pantera Capital, Menlo Park, Calif.