Blockchain technology is continuously being compared to internet-technology. Facebook, a company with about 2.3 billion users launches its own blockchain-based currency called Libra. This is a fairly bold move and a lot of thoughts come to mind. When the internet was launched to the public in the 1990s no single company had this many clients or users. In fact, in the history of humanity nobody, not even the largest countries, had this many users for a new currency. This is a unique move in the history of humanity.
Here are a few thoughts about this bold move.
Who is a partner and who is not?
At this time it appears that is a consortium of credible investors and companies will adopt, use and help run the currency. Various types of companies form this consortium:
- Payment companies which are the most at risk from being disrupted by blockchain based payments. These are Visa, Mastercard, PayPal, PAYU, Mercado Pago, Stripe, etc.
- Venture Capital investors: USV Union Square Ventures, Ribbit Capital, Thrive Capital, Andreessen Horowitz, Creative Destruction Lab, etc.
- Consumer companies: eBay, Spotify, Iliad, Vodafone,
- Transportation: Lyft, Uber, etc.
- Crypto Exchanges, custodians and wallets: Coinbase, Xapo, Bison Trails, Anchorage, etc.
- And of course Facebook itself with its Facebook Marketplace for used items, Messenger, WhatsApp, and Instagram.
This various set of participants pretty much guarantee that most of the 2.3 billion humans who are on Facebook will have multiple monthly opportunities to use Libra.
Crypto payments vs credit card payments
Unlike making payments with credit cards, using cryptocurrencies is cheaper, faster, no-recourse. It doesn’t require having a bank account or a credit relationship anywhere. Therefore merchants should prefer crypto payments. We expect that online sellers on eBay will prefer Libra to PayPal or other payment types.
Companies like Spotify who’s income is nearly 100% received via credit cards probably stand to save a few percentage points by adopting crypto payments instead. Spotify 2019 revenue is expected to be about 7 billion USD. If Libra saves the company 1% vs credit card payments, this means a $70 million difference which will flow directly to the companies’ bottom line as a profit.
We, therefore, expect the companies in this consortium to aggressively promote payment via the Libra. Once a user will have a Libra balance and will have become familiar with using Libra we expect users will then ask non-participating companies to pay via Libra.
We can even imagine landlords, or small shops will also be fast adopters. The will benefit from receiving rent payments via Libra which will be fast, easy, cheap and non-recurse. For example, 7% of the US population doesn’t have a bank account. They will be able to make online and electronic payments using Libra. Worldwide 2.5 billion people don’t have a bank account.
Who is not part of the consortium and why?
The other interesting part of the consortium is who is not part of it:
- Google with its worldwide Android footprint is not part of the consortium. Google with Android is probably the only other company who has a similar client based worldwide to rival Facebook.
- Amazon is also probably another worldwide company who stands to win from solving a lot of supply chain and customer exchange risk by using a world-wide cryptocurrency.
The fact that these two companies are not part of the consortium makes us think that they either do not believe in the success of the Libra or they are working on their own version. Once Libra is successful they will likely change their mind. Or these companies are already working on a Libra competitor.
We hope that especially Google and probably also Amazon are already working on a cryptocurrency of their own. in order to remain competitive worldwide. They wouldn’t want to miss the boat as Microsoft did on mobile for example.
Talking about Microsoft and Apple. Microsoft is mostly a b2b company at this time. We believe it has no particular edge at launching their own currency and should instead join an existing consortium. Lead by either Facebook or maybe Google or Amazon.
In a similar way, Apple is just a consumer product company. It specializes in electronics and working on services. While they have a large customer set, of course, they don’t rival in size Android or Facebook.
The first real worldwide currency and its politics
Fiat currencies are a 2nd generation currency after gold was the 1st and crypto became the 3rd generation currency.
Governments/states use fiat, and not gold to finance themselves. Most countries aren’t profitable and they finance themselves through inflation and through the printing of their own currency. They also finance themselves through devaluations on the exchange markets.
Other countries like the United States have such a pervasive currency. The US dollar, that they were able to obtain a quasi-monopoly on the interbank electronic payment system SWIFT. Many countries use the USD together with Gold as a reserve currency.
Therefore countries use their currency as a financing mean and a political/influence and power leverage.
Having a new worldwide currency that is not controlled by a politically selected government (democratic, oligarchic, etc.) but by executives in for-profit corporations is new.
Shareholders and Libra currency
In general, shareholders pressure corporations to optimize for profit. What does this mean for Libra currency? It probably means that there will be a lot of pressure for Libra to accumulate as much value as possible. Therefore we expect that Libra will tend to increase in value over time directly or indirectly.
We also expect that as some countries have adopted the US Dollar as a currency instead of their own (example: Ecuador). Because of its stability, some countries will probably also adopt the Libra as their currency.
And in addition countries like Iran, China, Russia and others who have been combatting the hegemony of the US Dollar will also support the adoption and usage of the Libra as an alternative to the US Dollar.