TOPIC: Facebook’s new cryptocurrency- Libra
Topic in syllabus: General Studies Paper 3: Indian Economy
Science and Technology- developments and their applications and effects in everyday life Achievements of Indians in science & technology; indigenization of technology and developing new technology.
Facebook has announced a digital currency called Libra that will roll out for use in 2020 and allow the platform’s billions of users across the globe to make financial transactions online.
Facebook says Libra is a “global currency and financial infrastructure”. In other words, it is a digital asset built by Facebook and powered by a new Facebook-created version of blockchain, the encrypted technology used by bitcoin and other cryptocurrencies.
Why is it called Libra?
The name Libra comes from the basic Roman measurement of weight. The abbreviation lb for pound is derived from Libra, and the £ symbol originally comes from an ornate L in Libra.
Who is in charge of Libra?
The currency will be serviced by a collective of companies called the “Libra Association”. It functions as what is known as a “stablecoin”, pegged to existing assets like the dollar or euro, in the aim of making it less subject to the volatility that many cryptocurrencies experience.
The Libra Association is described by Facebook as an independent, not-for-profit organisation based in Switzerland. It serves two main functions: to validate transactions on the Libra blockchain and to manage the reserve Libra is tied to and allocate funds to social causes.
Facebook claims that although it created the Libra Association and the Libra Blockchain, once the currency is launched in 2020 the company will withdraw from a leadership role and all members of the association will have equal votes in governance of Libra.
What you need to know about the cryptocurrencies?
Founded as a peer-to-peer electronic payment system, cryptocurrencies enable transfer of money between parties, without going through a banking system. These digital payment systems are based on cryptographic proof of the chain of transactions, deriving their name, Cryptocurrency. These employ cryptographic algorithms and functions to ensure anonymity (privacy) of the users (who are identified by an alphanumeric public key), security of the transactions and integrity of the payment systems. “Decentralised Digital Currency” or “Virtual Currency” is also interchangeably used for a cryptocurrency.
How are they used?
Cryptocurrency is fundamentally a decentralised digital currency transferred directly between peers and the transactions are confirmed in a public ledger, accessible to all the users. The process of maintaining this ledger and validating the transactions, better known as mining, is carried out in a decentralised manner. The underlying principle of the authenticity of the present to historical transactions is cryptographic proof, instead of trust; different from how it happens in the case of traditional banking systems.
India’s stand on cryptocurrencies :
- In India the creation, trading or usage of cryptocurrencies including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority.
- On December 5, 2017, the RBI reiterated its warnings in wake of significant spurt in valuation of bitcoins. RBI stated that “Attention of members of public is drawn cautioning users, holders and traders of Virtual Currencies including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such currencies”.
Risks associated with the use of cryptocurrencies
- Digital currencies, being in electronic format, are prone to losses arising out of hacking, loss of password etc.
- lack of any authorized central agency to regulate the payments or to turn to for redressal of grievances.
- There is no underlying of asset for Cryptocurrencies, making the value a matter of speculation.
- The exchanges are located in various parts of the world, making the law enforcement a tricky thing for the multiple jurisdictions available.
- Trading may subject the user to illicit and illegal activities since the cryptocurrencies, can easily be used for illegal activities anonymously.
Increasing use of cryptocurrencies has created the urgency for a comprehensive law to regulate cryptocurrencies and sectors using them. Discuss.