The Difference Between Bitcoin and Facebook Libra
Facebook has been making plenty of headlines with its plans to create a cryptocurrency.
Unfortunately, it hasn’t gotten far, as it defends the project before Congress amid regulatory concerns regarding privacy and illegal usage concerns. All as the social media giant tries to make it possible to provide basic financial services to millions of people around the world who either don’t have a bank account, or can’t afford to send money overseas.
Like most cryptocurrencies, it would do so on a blockchain. But there’s a major difference.
With Bitcoin, transactions are recorded anonymously on a public ledger known as the blockchain – a database maintained by a network of computers, on which transactions are made to be secure and impossible to tamper with.
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Facebook’s Libra would also use a form of blockchain that is permissioned, which means that transactions can only be added to the chain by trusted parties.
“Libra will create a centralized structure governed by an unelected ‘association’ composed exclusively of large institutions who have purchased their voting rights,” said Ido Sadeh Man, founder and president of the Saga Foundation, a cryptocurrency firm, as quoted by CNBC.
However, that means Libra may not be a cryptocurrency at all.
Remember, cryptocurrencies are defined by their lack of reliance on trusted intermediaries, which the Libra coin would rely on to function. “We believe that Libra is not a cryptocurrency because of its use of a permissioned ledger and its reliance on a trusted issuer to hold and manage a fund of assets that back the currency,” as noted by a Coin Center.
In addition, unlike Bitcoin, there is no “economic scarcity.”
For example, with Bitcoin, supply is fixed. Demand sets the price. Plus, anyone with hardware can add transactions to the blockchain ledger.
However, with Libra, supply is adjusted by a group of corporations to match a “quantity of other assets held in reserve and maintain stable value even if demand shifts,” according to Coin Center. “Only authorized members of a consortium of corporations can add transactions to the ledger.”
While it’s a wait-and-see at this point, if Facebook can overcome the regulatory issues, the currency could “undoubtedly have an enormous impact on the global economy – possibly eclipsing that of Bitcoin,” says Crypto Compare, as quoted by CNBC.
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