Facebook currency Libra, can the financial dream of Xiaozha be realized?

Domestic Baidu, Tencent, Alibaba, and Jingdong have launched financial business on the basis of their original business, and they have split and established separate subsidiaries. At present, apart from the fact that Tencent did not establish an independent financial technology company business, Baidu established Xiaoman Finance, Alibaba established Ant Financial, and Jingdong established Jingdong Digital.

Chinese technology giants seem to have a "financial dream", and foreign technology giants seem to have been focusing on their own business compared to domestic ones. But this is an illusion. Foreign technology giants also seem to have a "financial dream", but they have not grown and developed because of supervision and other reasons.

On June 18, 2019, Facebook and 27 institutions including PayPal and Visa released the Libra white paper on cryptocurrency. Xiaozha’s “Financial Dream” once again attracted worldwide attention.

Xiaozha has been broken "financial dream"

From 2011 to 2018, Facebook has gradually withdrawn from Facebook Credits, Facebook Gifts, Facebook Messenger Payments, WhatsAPP Pay and other financial services, but has not grown and developed due to regulatory or promotion issues.

Facebook Credits : Facebook launched virtual currency Credits in June 2001 to simplify payments. Facebook hopes to manage virtual goods transactions on the platform through the system and acquire 30% revenue sharing from each transaction. But in fact, due to exchange rate fluctuations, Credits has caused trouble for international payments. This product was discontinued in 2013.

Facebook Gifts : Facebook launched Gifts Gifts in September 2011 and opened the service to all US users in December 2012. Users can purchase gifts online for gifts through the Facebook website and their Android mobile app. This product was officially closed on August 12, 2014.

WhatsAPP Pay : WhatsApp pioneered the electronic payment system in India as early as February 2018, launched an electronic payment service called Payments, and WhatsApp users can use the Contact List contact list for PSP instant direct transfer. However, the Indian government has not approved the necessary promotion throughout the country. Meanwhile, on May 4, 2019, the Indian government also urged the Supreme Court to take action on WhatsApp because WhatsApp tried its payment service without complying with the Reserve Bank of India data localization specification.

According to the 2019 Facebook Annual Report of 2019, payment and other fee income was $165 million, accounting for 1.09% of total revenue. Payments and other fee income are mainly from developers who use their payment infrastructure.

At present, Facebook's financial business layout is mainly reflected in two aspects: Facebook Messenger Payments and small business loan business.

Facebook Messenger Payments : At the beginning of 2015, Facebook introduced a personal transfer function, allowing users to transfer money directly to friends on Messenger. In 2017, its service range expanded and the group payment function was launched. In the future, users can also conduct small transactions when using the Messenger group conversation. There is no confirmed news that Facebook will close its P2P payment system for UK and French users on its Messenger app from June, and this news has not been confirmed by Facebook.

Small Business Loan Business : In February 2017, Facebook has partnered with Canadian financial services firm Clearbanc to provide cash advances. The project, called "Chrged," allows Facebook business users to connect their Facebook Ads to Clearbanc for cash advances. According to the "Financial Times" reported on October 26, 2017, its number of borrowing companies has reached 1,000. After the advance payment is repaid, Facebook will receive a portion of the company's income and will charge a fee of 5% to 10%. After that, there is not much public data about this business.

From the perspective of Facebook's financial business layout, its financial business development has not been smooth. Can Libra become a new starting point for Facebook?

Libra – a global digital payment system based on digital currency

Libra's goal is to create a simple, borderless currency and financial infrastructure that serves billions of people. Its essence is a global payment system without borders, enabling users to achieve cross-border payments easily, quickly, safely and cheaply.

Libra has a complete digital currency system consisting of the digital currency Libra, Libra Reserve Assets, Libra Blockchain, Libra Association, and Calibra Digital Wallet.

Digital currency Libra : Libra is positioned as a global digital native currency with stability, low inflation, global acceptance and interchangeability.

Libra Reserve Assets : Libra is fully backed by real asset reserves and is supported by a network of trading platforms that buy and sell Libra and compete. This approach is similar to the way other currencies were introduced in the past: ensuring that this currency can be used to exchange real assets, such as gold. Interest on reserve assets will be used to pay for the cost of the system, to ensure low transaction costs, dividends to investors in the early stages of ecosystem start-up, and to provide for further growth and diffusion.

Libra Blockchain : The underlying architecture of digital currency with high throughput, low latency, high security, reliability and flexibility. Libra blockchain design and use of the new Move programming language for implementing custom trading logic and "smart contracts" in the blockchain; a BFT mechanism based on the LibraBFT consensus protocol is implemented to implement all certifier nodes to be executed The transaction and its execution order are agreed upon, trust is established in the network; the blockchain data structure that has been widely used is improved and adopted to ensure the security of the stored transaction data.

Libra Association : Libra Association, an independent, not-for-profit membership organization based in Geneva, Switzerland. The Libra Association is governed by the Libra Association Board of Directors, which is composed of a single representative from each of the verifier nodes. The Libra Association aims to promote the operation of the Libra blockchain; coordinate the various stakeholders (the network's verifier nodes) to agree on the process of promoting, developing and expanding the network; and manage the reserve assets.

Calibra digital wallet : In June 2019, Facebook launched its stable currency Libra's matching wallet Calibra. Its official website said that the wallet wants users to send money by sending information and photos, and said that it will complete a transfer transaction within a few seconds. . Users can convert local currency to Libra through Calibra to add money to the wallet and convert it back when withdrawing money. When converting local currency to Libra or converting local currency from Libra, the app displays the exchange rate to get an accurate picture of the exchange rate.

In fact, compared to the past digital currency, Libra is significantly different. First, the digital currency is generally the public chain, and Libra is the alliance chain. The white paper indicates that the Libra Association currently has 27 members and is expected to reach 100 in the first half of 2020. And, after Libra goes live, Facebook no longer has the privilege to manage the Libra digital currency system with members of the association.

Second, Libra is the licensing chain. Different from the random entry of any node in the general digital currency, Libra can only use KYC, that is, identity authentication, for users entering the network.

Finally, Libra calls it a digital currency, and the higher value is to achieve efficient and convenient cross-border payments. At present, blockchain-based cross-border payment applications can be divided into three categories: the first is the use of digital currency as a lubricant for currency exchange, and the second is the use of blockchain as an excuse between payment institutions and commercial banks. The third category is the ant gold service mode. Libra actually belongs to the first category. Similar to Ripple, it introduces the “gateway” of nodes that can be trusted by the public as a transaction intermediary, and introduces “Ripple Coin” as a liquidity tool in the system, acting as a redemption bridge between various currencies. For cross-border payments, the fiat currency is first converted to Ripple and then converted to legal tender by Ripple.

At present, global digital currency holders are less than 1% of the global number, while Facebook has 2.7 billion users worldwide. The huge potential users are Libra's impact and subversion, which may surpass the previous digital currency and bring huge impact to the global financial system. influences.

Facebook's influence – subversion + worry

For Facebook's Libra, many people are overwhelmed by the value of their future.

Economist Lang Xianping said on his Weibo that "Facebook issues digital stable currency, it is worthy of attention, and financial technology will trigger a new wave of enthusiasm." Later, it was again stated that Libra will anchor a basket of multinational currency. Currency, it sounds like the Special Drawing Rights (SDR) of the International Monetary Fund.

The founder of the US group, Wang Xing, also commented on the Meinu platform that discussing the technology behind Libra is as good as the printing technique for discussing dollar bills. In this great change, if Nakamoto is compared to Marx, then the small tie is equivalent to Lenin. It is indeed a genius design.

However, regulators are more worried about Libra. On July 16th and 17th, Facebook faced the US Congress hearing for two consecutive days. Libra faced numerous challenges from PPT to reality.

Hearing board members' questions are focused on Libra's operational mechanisms, governance structures, attributes, and other compliance-related issues. For example, when asked about Libra's users, Libra's head David Marcus responded that Libra has no intention of competing with mainstream currencies in order to help people without bank accounts and stable currencies, and has no intention of influencing monetary policy, only to gain user trust and conduct financial business. To expand revenue sources, Venmo and Alipay may be competitors.

In general, the US Congress, in addition to distrusting Facebook itself, is mainly concerned about its use of blockchain to harm user privacy or gain a monopoly position. In addition, it is difficult for current members to identify which institutions can regulate Libra, and the United States should maintain its leading position in the blockchain industry.

Conclusion

Layout payment is an inevitable requirement for Facebook's own development. Only by getting paid, Facebook can get through the closed loop of the transaction. However, Facebook has repeatedly lost in the payment field. The release of digital currency Libra is another attempt to pay for Facebook layouts. Unlike previous regional and single-function products, this time, Facebook is targeting the global digital currency market. Its broad user base and strong endorsement of trust have the potential to compete for currency rights.

However, it needs to be clear that Facebook's Libra road is long and has a large investment risk. Investment is risky and you need to be cautious when buying coins.

Source of this article: billion euro think tank

Author: pure thin Min, an analyst at think tank billion euros