Facebook's Libra Cryptocurrency: How It Stacks Up to Bitcoin and PayPal
June 28 2019 - 05:59AM
Dow Jones News
By Kurt Wilberding
Facebook Inc. last week unveiled plans to launch Libra, a
payment system it describes as a new "global currency." It's based
on blockchain, the same technology that powers bitcoin, and is
backed by real assets and pegged to stable government securities.
Over two dozen corporate partners are on board, including financial
companies MasterCard Inc., Visa Inc., PayPal Holdings Inc. and
Coinbase. Partners contribute a membership fee of $10 million each.
Facebook's goal is to line up a total of 100 corporate partners and
$1 billion in assets.
In many ways, Libra appears to operate more like existing
web-payment systems, such as PayPal, than bitcoin. Here's how
Facebook's new system compares:
LIBRA
Facebook's base of 2.4 billion active users gives Libra immense
global reach. But the social-media company will need to assure its
users that Libra's convenience doesn't come with the cost of
compromising privacy.
Libra's blockchain will be fundamentally different from
bitcoin's. With bitcoin, the process of validating transactions is
decentralized among all the participants of the system. Libra, on
the other hand, will have a centralized governing body, the Libra
Association, overseeing transactions and verifying them. Libra's
transaction history will be stored in one place, and some members
within the association will be responsible for maintaining and
verifying the digital ledger.
BITCOIN
Bitcoin can be used as a payment system, but mostly appeals to a
niche group of investors. For various reasons, the original
cryptocurrency never took off as a payments network; only about 1%
of bitcoin transactions are for payments, according to research
firm Chainalysis. As currently constructed, bitcoin is most
commonly used for trading. To traders, bitcoin is not about cash,
it's about profit. It's a volatile but at times very profitable
asset to own, along the lines of a hot tech stock or a parcel of
Vegas real estate.
While a bitcoin miner might sell a portion of earnings to recoup
expenses on the shipping container full on overheating hard drives,
most users are inclined to sit on their cache. In late 2017, the
cryptocurrency spiked close to $20,000, only to fall a year later
to the mid-$3,000 range. Such volatility makes bitcoin owners
unwilling to use the cryptocurrency for impulsive purchases.
PAYPAL
PayPal is one of the founding members of Facebook's Libra
launch. On paper, there's a lot of overlap between the two
digital-payment systems, with one big difference: Libra uses a
cryptocurrency, PayPay doesn't. The financial-technology company
functions similarly to an online bank, albeit one that appeals to
people of all financial levels. One can set up a PayPal account
without a credit card or bank account.
PayPal provides added security by centralizing a user's
financial information. Instead of saving credit-card or
bank-account numbers on various sites -- any one of which can be
compromised -- users link their financial information through
PayPal. In addition, receiving money requires only giving out an
email address, not a bank-account number.
Unlike bitcoin, PayPal isn't anonymous. The company is a
licensed money transmitter and therefore it requires personally
identifiable information, such as your name and phone number, when
creating an account.
While a wide base of merchants accepts PayPal, it isn't accepted
everywhere. Amazon, which has it competing Amazon Pay app, doesn't
accept PayPal.
(END) Dow Jones Newswires
June 28, 2019 05:44 ET (09:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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