Articles filed under Cryptocurrencies

“This project contains risks of abuse of dominant position, risks to sovereignty and risks for consumers and for companies” (Bruno Le Maire, French Finance Minister)

In June Facebook announced to much public fanfare that it intends to roll out a new digital currency called Libra for use in 2020, allowing its users across the globe to make online financial transactions.

It has quickly become clear that Facebook faces a significant battle to ensure that the Libra project does not become mired in regulatory and political red tape and, more damagingly still, is not able to launch across key national/regional markets. At the last count, the roll-call of those who have signalled a desire to subject Libra to careful scrutiny (as well as Mr Le Maire whose quote above makes it quite clear what he thinks) includes leaders of the G7 nations, the US Congress, the Committee on Payments and Market Infrastructure comprising representatives of 26 central banks, the European Commission and the Swiss Financial Market Supervisory Authority.

Why is Facebook Libra attracting so much critical scrutiny and what are the key issues that regulators and politicians are likely to focus on now that the project is under the public gaze?

Cryptocurrencies are a form of decentralised digital currency based on principles of cryptography. They use blockchain technology which is essentially a cryptographically secured method of recording data transactions which cannot be altered retroactively (see What is the blockchain?). Complicated mathematical equations need to be solved in order to generate each unit of the currencies, a process known as crypto-mining.

Bitcoin refers to a type of digital currency known as a cryptocurrency, as well as the peer-to-peer system on which it relies. Bitcoin describes itself as “an innovative payment network and a new kind of money”.

Cryptocurrencies are based on principles of cryptography and generally entail complicated mathematical equations which need to be solved in order to generate each unit of the currency (such as a bitcoin). The number of potential units is finite and it’s extremely difficult to manipulate the speed at which the currency units are created. In theory this inherent system of control should make cryptocurrencies more stable than traditional currencies which are subject to radical government manipulation, such as through quantitative easing (printing money) which naturally leads to inflation as the currency quickly becomes less valuable.