Facebook after a long wait has revealed its plans for a cryptocurrency called Libra. It is a stable coin which uses a permitted network to carry out transactions. The project has turned out to be one of the worst-kept secrets in the history of virtual money. After months of news leaks and speculation, Facebook along with its 27 other partners are touting the Libra digital coin and Facebook’s corresponding digital wallet, Calibra, as a way to make sending payments around the world as easy as sending a photo.
What’s curious about the projects are the partners which include e-commerce giant eBay, ride-hailing App Uber and most curiously other payment processors like PayPal, Visa, MasterCard. This is a really odd situation given the fact that crypto could end up being the biggest challenge to these companies. Some have even dubbed this new technology to be a threat to the fundamental business model of such payment processors. So are these companies digging their own grave? A closer look reveals a different picture.
Given the dominant position of Visa, Mastercard, and PayPal, their decision to join the Libra Association makes no sense from an outsider perspective. But there are genuine reasons which could be behind the move. Joining the Libra Association gives them access to the network and an inside look into the payment system, this can give vital information necessary for changes to be adopted in their own native platforms. Also, all of these payment processors use a bank partner to do the final part of transfer the money to the accounts, and Libra can open up a new customer base of potentially 1.7 billion people with no bank access. Finally, if indeed crypto takes over the world, all of these companies that might end up being put out of business might want a piece of that pie. This is similar to many oil companies investing in renewable technology.
Facebook, Instagram, and Whatsapp with their huge user base can push the new projects into the hands of hundreds of millions of people, and in many instances, the project has real tangible benefits. But the fact remains that the payment methods which exist today are robust and reliable, handling trillions of dollars of transactions every year. It is convenient and people love it. It will be hard for crypto to dethrone the traditional player. Yet, payment processors are taking part in Libra Association just to be cautious and not be blinded by an upcoming competition.
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