Acadlore takes over the publication of JAFAS from 2023 Vol. 9, No. 4. The preceding volumes were published under a CC BY license by the previous owner, and displayed here as agreed between Acadlore and the owner.
This Time is Different: Facebook’s Libra Can Improve Both Financial Inclusion and Global Financial Stability as a Viable Alternative Currency to the U.S. Dollar
Abstract:
Purpose: The aim of this study is to determine the relationship between the propagation of high-magnitude crises since the late 1990s and emergence of cryptocurrencies in the aftermath of the global financial crisis of 2008. Design and Methodology: The study was based on a literature review of the interaction between financial crises and evolution of money in the digital age. A high-level technical overview of Libra and blockchain is provided. The broad analysis of Libra coin looks at various models and categories of implementation approaches. The study discusses the components of blockchain technology and provides illustrative visuals when possible. We also compare consensus models used in the Libra and Bitcoin blockchain networks. The analysis also touches on the use ofblockchain technology in applications such as smart contracts. Findings: The study shows that cryptocurrencies are not only a natural but an inevitable transformation in the evolution of money. As with any new technology, Facebook’s Libra is going to cause a great deal of disruption in the existing ecosystem of cryptocurrencies that has taken a decade to form. On the other hand, Libra’s financial inclusion and global stability as a public good promises to revolutionize the cryptocurrency world. Practical Implications: If Facebook’s Libra doesn’t sputter out, it will spur central banks to introduce their own cryptocurrency projects. Libra’s vast scale will make access to intermediation by banks easier, faster, and cheaper. Unlike Bitcoin, Libra will be backed by a basket of stable currencies as well as low-risk government bonds and central bank reserve assets. Originality/Value: This study presents a clear picture of both advantages and potential risks of Libra which is considered to be a new invention eventhough Bitcoin has been around more than a decade. The study warns regulators and law makers along with central banks who are running headlong into backlash to Libra can harm consumers more than protect them. Punishing Facebook with a troubled past for violation of privacy and exploitation of users’ data could adversely affect innovation and discourage developments of cryptocurrencies.
1. Introduction
Trade, to facilitate exchange between people, has existed since the ancient times. Before the invention of money (i.e. coin or paper), people used bartering as a primitive form of exchange (e.g. Smith, 1776) without the use of a monetary medium which, according to Karl Marx (1867), Krugman et al (2012) eliminates difficulties as well as costs of barter. Nevertheless, Chapman (1980) still considers barter as a universal mode of exchange1. Later in the evolution2 of money, people began to use commodities (e.g. Hermele, 2014) and materials to facilitate exchange; leather, parchment, cloth, wood, clay tablet, peppercorns, tea, large stones, barley (Egyptians), salt (Chinese) were used (Davies, 2002). Native Americans used animal skins, wampum, and white shell beads (Dalton, 1967; Rolnick & Weber, 1997). Before minting coins, gold3 has fascinated humankind for millennia (Pedley, 1972; Roosevelt, 2009); but only after 600 BC, gold was the basis of the bimetallic standard which the U.S. adopted in the late 18th century after declaring independence from Britain on July4, 1776 (Friedman, 1967; Friedman & Schwartz, 1963). The Chinese Tang Dynasty printed the first known paper money in 618 AD, but banknotes across Europe and North America4 appeared 200 years after the Chinese eliminated paper money in 1455 due to high inflation (Cipolla, 1976; Cook, 1958; Mockford, 2014; Tullock, 1957). Despite existing cryptocurrencies, Facebook’s permissioned Libra digital coin5 is a recent invention, which is planned to be introduced in 2020. Throughout history, the evolution of money points to an alternated shift between commodity money and credit money (e.g. King, 1999; Goodhart, 2000). The earliest written history shows that a credit system6 was used in Babylon (current Iraq) in 1800-1750 BC. The Charga-Plate, predecessor of department store charge cards and credit cards, was developed in 19287 and had been used until 1950 (Mandell, 1990; Manning, 2001). Ralph Schneider and Frank McNamara founded Diners Club in 1950 as the first general purpose charge card, but only after 1958 a worldwide credit card network was finally established by American Express and Bank of America (BankAmericard). A group of banks (i.e. Citibank’s Everything Card) created Master Charge (ancestor of MasterCard) in 1966 to compete with BankAmericard which was reorganized in 1976 as Visa (for a fuller discussion, see Mandell, 1990; Klein, 1999; Lee & Kyoung-Nan, 2002; Scott, 2007).
Mainframe computers by the 1970s coupled with advancements in internet enabled technologies8 in the 1990s helped track electronic transactions, paving the road for the inevitable birth9 of electronic money. Therefore, the 1990s proved to be the decade for groundbreaking events that took a leap of faith that internet would make the dream of digital cash a reality (Woodford, 2000), but not without some mishaps along the way. David Chaum’s DigiCash (1990) filed for bankruptcy in 1998 and e-gold (1996) had reached several million users before it was shut down by the U.S. government in 2008. In 1998, two attempts at creating a decentralized digital currency emerged; B-money10 by Wei Dai and Bit gold by blockchain pioneer Nick Szabo. For a longer discussion, see Andolfatto, 2018; Chiu & Wong, 2014; Duffie, 2019; Fung et al., 2014; Kahn & Roberds, 2009; Kocherlakota, 1998).
Since the 2008 global financial crisis (GFC), well over two thousand cryptocurrencies have sprouted. At the time of writing this research article, 2,426 digital coins11 were trading with a combined market capitalization of $311 billion; Bitcoin’s market cap alone is $211 billion (or 68% market share). While the GFC of 2008 was in full swing, a mysterious creator under the alias Satoshi Nakamoto registered the domain name bitcoin.org in August 2008 and published a white paper on October 31 titled Bitcoin: A peer-to-peer Electronic Cash System (Nakamoto, 2008). Even a few years after Bitcoin’s12 inception, it was still an arcane topic; for instance, a survey by Bloomberg (2013)13 revealed that only less than half of those polled knew what Bitcoin was (oddly, 6% thought it was a video game). Although Bitcoin has achieved becoming a household name in less than a decade of its existence (Wallace, 2011), some traditional economists still find it difficult to get a grasp on the Bitcoin phenomenon (Sovbetov, 2018; Taskinsoy, 2018a; 2019c). Bitcoin has no intrinsic value, its value is based on belief and trust.
The first symbolic bitcoin transaction took place on January 12, 2009 when Nakamoto Satoshi sent 10 BTC to a computer programmer by the name of Hal Finley (Nakamoto, 2008). Without an official exchange at the time of Bitcoin’s launch in January 2009, its arduous existence literally began with a price of $0.00. However, after the establishment of a Japanese-based Bitcoin exchange Mt. Gox in July 2010, 20 bitcoins changed hands at a price of \$0.05 cents each on the first day of trading. Less than a year later (December 27, 2010), Bitcoin had achieved a historic milestone when bitcoin price hit \$0.29 BTCUSD, and spurred the introduction of many cryptocurrencies. The sale of a good involving bitcoins occurred at the end of 2009, where a bitcoin user swapped 10,000 BTC for an order of two pizzas from Papa Jones in the U.S.14 (Kristoufek, 2015; Phillips & Gorse, 2017; Taskinsoy, 2018a, 2019c). The image of digital coins has been blemished by their extreme volatility (see Table 1 and 2), nevertheless investors globally have kept pouring billions into this asset class making the price of bitcoin peak at intraday high of $20,089 in December 2017, but few months later 80% of bitcoin value vanished.
Period | Dollar Change ($) | Percentage Change (%) | Direction |
Today (August 6, 2019) | +833.31 | +7.59 | ↑ |
Last 7 days | +2,311.60 | +24.33 | ↑ |
Last 30 days | +560.17 | +4.98 | ↑ |
Last 6 months | +8,361.51 | +242.28 | ↑ |
Last 1 year | +4,785.64 | +68.10 | ↑ |
Last 2 years | +8,510.87 | +257.77 | ↑ |
Last 3 years | +11,237.67 | +1,954.53 | ↑ |
Last 5 years | +11,229.59 | +1,929.06 | ↑ |
Last 7 years | 11,801.77 | +108,719.98 | ↑ |
Rank | Cryptocurrency | Symbol | Price ($) | Market Cap ($) | Market Share (%) |
1 | Bitcoin | BTC | 11,802.25 | 210,787,663,777 | 67.99 |
2 | Ethereum | ETH | 233.56 | 25,037,379,095 | 8.07 |
3 | XRP | XRP | 0.324940 | 13,931,047,244 | 4.49 |
4 | Bitcoin Cash | BCH | 347.93 | 6,238,932,197 | 2.01 |
5 | Litecoin | LTC | 98.06 | 6,175,663,429 | 1.99 |
6 | Binance Coin | BNB | 27.91 | 4,341,501,330 | 1.40 |
7 | EOS | EOS | 4.52 | 4,186,025,579 | 1.35 |
8 | Tether | USDT | 1.01 | 4,075,942,095 | 1.31 |
9 | Bitcoin SV | BSV | 154.38 | 2,756,391,635 | 0.89 |
10 | Stellar | XLM | 0.082883 | 1,625,976,610 | 0.52 |
Total market cap & market share | 279,156,522,991 | 90.05 |
Facebook’s Libra15 can be metaphorically referred to as “big bang” in the cryptocurrency market, also backed by 28 heavyweight firms (Figure 1); even the announcement to roll out Libra has created more hype than when Bitcoin emerged in January 2019. Like any new idea or technology, Libra will disrupt the existing electronic cash markets by polarizing cryptocurrency investors and enthusiasts. With a user base of close to 3 billion (i.e. Messenger, WhatsApp, Instagram, and Facebook), Facebook’s Libra is forecast to dominate daily transactions for goods/services and money transfers online (LA, 2019). Facebook aims to tap on approximately 1.7 billion unbanked adults worldwide as of 2017 (Demirgüç- Kunt et al., 2018); according to the 2018 FDIC16 survey, 8.4 million households (i.e. 48.9 million adults and 15.4 million children) in the United States were unbanked in 2017 (FDIC, 2018).

Unlike Bitcoin’s decentralized (permissionless) purely peer-to-peer electronic cash system supported by blockchain without a trusted third party (Nakamoto, 2008), Facebook’s Libra blockchain is claimed to be decentralized but starts as a permissioned (centralized) network that relies on the governance of a trusted third-party (i.e. the Libra Association as the central authority). Another confusion is that
Libra coin runs on blockchain without block, this is far different from Bitcoin blockchain where every new transaction through mining starts with a block, and then the ledger consisting of timestamped transactions in chronological order is distributed to all miners (nodes) who check and verify before added to the end of each coin in its block (see LA, 2019; Nakamoto, 2008; Berentsen & Schär, 2018; DeVries, 2016; Dai, 1998; Merkle, 1987; Tamassia, 2003; Taskinsoy, 2018a, 2019c; Wood, 2016).
2. Literature Review
Libra, if overcomes all potential regulatory hurdle17, will be the future of cryptocurrencies. However, Libra is far more different than Bitcoin. Even though Libra is claimed to be decentralized, transactions and monetary policy will be governed by a central authority namely the Libra Association (LA, 2018), whereas Bitcoin at inception is a decentralized (permissionless) purely peer-to-peer electronic cash network without the need of a trusted third party (Nakamoto, 2008). Another major difference is that while Bitcoin is unstable (Chiu & Wong, 2014) and not backed by any asset (its value is based on trust), Libra on the other hand will be backed by a basket of stable currencies (i.e. dollar, euro, pound, and yen) and low-risk reserve assets (Adrian, 2019). Libra definitely has an advantage, its potential of vast scale (i.e. close to a three billion user base) sets it apart from Bitcoin which was arcane even several years after its launch a decade ago (Franco, 2014); a survey by Bloomberg18 (2013) revealed that less than half of those polled knew Bitcoin (oddly, 6% thought Bitcoin was a video game).
Libra is the new cryptocurrency on the block (but without block), governed by the Libra Association comprising 28 heavyweight firms as founding members; when the member count reaches 100, each governing firm including Facebook Calibra (digital wallet) will have only one voting right. As Bitcoin has faced massive criticism and skepticism along with never-ending questions whether Bitcoin is a digital money, crypto-currency or an investment asset class (Baek & Elbeck, 2015), Libra will also be the centerpiece of similar debates (Adrian & Mancini-Griffoli, 2019). We have absolutely no objection to why people tend to show resistance or are reluctant to accept Bitcoin and Libra or others (DeVries, 2016) because the prevalence of fiat money we are so inseparable now had taken 300 years (Cuthell, 2019); during which, fiat currencies had faced countless rejections and failures (i.e. inflation effect) as people throughout history had a skeptic approach to the notion of literally worthless piece of paper being used in trade as a medium of exchange for goods and services (Davies, 2002; Hermele, 2014). Numerous cryptocurrencies have sprouted as the price of Bitcoin had skyrocketed in December 2017 (i.e. peaked at intraday high of $20,089), this resulted in an intense rivalry among them (Phillips &
Gorse, 2017; Kristoufek, 2015). Bitcoin’s rise to the stardom gave realism to the question of Bitcoin’s potential to replace the U.S. dollar as a reserve currency (Bouoiyour & Selmi, 2016; Cermak, 2017).
Though it may sound insanely inconceivable, Facebook’s Libra may potentially replace dollar as the reserve currency and the Libra Association may take the place of the US Federal Reserve19 (the Fed). After all, the Fed is a private corporation (not a government branch) with shareholders (chartered banks) who earn dividends of 6% annually; similarly, the Libra Association (although non-profit) is a private entity with stakeholders who will have a number of responsibilities including governance and policy decisions to control the value of the Libra coin. The current Fed was created at the third attempt after two antecedent efforts failed20 (Bordo, 2007; Bordo et al., 2017), which were modeled after the Bank of England (Britain’s central bank).21 Until the onset of the 20th century, foreign coins were legal tender in North America such as British pound sterling and Spanish silver dollars, and the excessive quantities of paper money printed by Britain’s original 13 North American colonies during 1723-60 were banned22 in 1764 (see Bernanke, 2004; Eichengreen, 2009; Friedman & Schwartz, 1963).
Notwithstanding a number of distinct technical differences (e.g. Badev & Chen, 2014), both Libra and Bitcoin run on blockchain as the infrastructure technology which is considered to be highly secure, scalable, efficient and reliable (Nakamoto, 2008; LA, 2019). If Facebook’s Libra does not sputter out, it promises to spur central banks to introduce their own unique cryptocurrency projects (Taskinsoy, 2019c); in line, Christine Lagarde – Managing Director of the International Monetary Fund – urged central banks not to ignore “winds of change” and consider looking into the case of central bank digital currency – CBDC (Lagarde, 2018; also see, Bech & Garatt. 2017; Coeuré, 2018; Mancini-Griffoli, 2018; McLeay et al., 2014). Since the GFC of 2008, a growing number of central banks define digital money (or commonly referred to as cryptocurrency) as a new variant of central bank money (CPMI-MC, 2018; Barontini & Holden, 2019), which was previously categorized as physical cash (retail – general purpose) and central bank reserves (wholesale only, and in the electronic form); see Figure 2.

Libra can learn valuable lessons from Bitcoin experience as Satoshi Nakamoto learned from earlier works related to ecash and appreciated their relevance in the design of Bitcoin. As illustrated in Figure 3, every transaction on Bitcoin blockchain is based on cryptographic proof (Chaum et al., 1998; Back, 2002) where a timestamp server timestamps a hash of a block of items and widely publishes the hash, which proves the data (i.e. transaction) existed (see Bayer et al., 1993; Haber & Stornetta, 1991, 1997; Massias et al., 1999). This proof-of-work system used by Bitcoin’s blockchain is a lot similar to Adam Back's Hashcash (Back, 2002). Libra, on the other hand, uses a new programming language (Pierce, 2002) called “Move” to execute transactions which are then made visible to validators and clients by the Logical Data Model based on Merkle trees (e.g. Merkle, 1980; 1987). For safety and liveness, Libra uses HotStuff as the basis for Libra’s Byzantine Fault Tolerant – LibraBFT (LA, 2019; Bernstein et al., 1987; Castro & Liskov, 1999; Pfitzmann & Köhntopp, 2001; Reed, 1978; Wood, 2016; Yin et al., 2018).
The transaction structures of Bitcoin (also other mineable cryptocurrencies) and Libra follow similar steps executing a transaction (Auer, 2019). Under Bitcoin blockchain protocol, to transfer and receive coins or pay for products and services, a set of private and public keys are used; an owner (sender) digitally signs a hash of the previous transaction and the public key of the next owner the receiver (Nakamoto, 2008; Merkle, 1980). Under Libra blockchain protocol, executing a transaction follows six specific steps; (1) the signature on the transaction is verified to match the sender’s public key; (2) the sender gets authenticated (verified) and his/her LibraAccount is checked for sufficient Libra coins (funds); (3) running prologue ensures that the account has enough Libra coins, the Move bytecode verifies the transaction script and modules that no duplication, double spending, or violation of safety (i.e. type, reference, and resource); (4) modules are published under the sender’s account (no module with the same name, meaning duplication is not permitted); (5) successfully completed transaction scripts are committed to the global state, but not the failed ones; and (6) Move virtual machine (VM) runs the epilogue to finalize the transaction (see LA, 2019; Bernstein et al., 1987; Catalini et al., 2019; Crosby & Wallach, 2009; Castro & Liskov, 1999; Girard, 1998; Reed, 1978; Schneider, 1990).


During the full swing of a global financial meltdown (i.e. GFC of 2008), Bitcoin no doubt was a historic milestone in the evolution of money giving hopes to wishful folks that the dollar’s hegemonic days were numbered, but fell short of the hype and expectations due to its extreme volatility (Chiu & Wong, 2014); Facebook’s Libra as a stable cryptocurrency promises to revolutionize the future of digital money by keeping the relevant disruptions (Fung et al., 2014; Gandal & Halaburda, 2014) to minimum while paving the road for a maximum long-term gain (e.g. Ingves & Donaldson, 2018; Robleh et al., 2014). Libra aims to transform how people transfer money using mobile payment systems (Calibra) and purchase goods and services online without the hassle at minimum or no transactional cost (see Weber, 2015. With Libra, Facebook aims to tap on circa 1.7 billion unbanked adults as of 2017 (almost 50% live in seven countries (Demirgüç-Kunt et al., 2018; Schabel & Shin, 2018; Goodhart, 2000).

Table 3 shows the results of the survey conducted biennially by the FDIC - Federal Deposit Insurance Corporation; based on this report, 8.4 million households were unbanked in 2017 (14.1 million adults and 6.4 million children). Underbanked households were 18.7% or 24.2 million, comprising 48.9 million adults and 15.4 million children. More than half (52.7%) of the unbanked households in the U.S. cited “Do not have enough money to keep in an account” (for more details, see FDIC, 2018).
Year | Number of Households (1000s) | Unbanked (Percent) | Underbanked (Percent) | Fully banked (Percent) | Banked, underbanked status unknown (Percent) |
2013 | 123,750 | 7.7 | 20.0 | 67.0 | 5.3 |
2015 | 127,538 | 7.0 | 19.9 | 68.0 | 5.0 |
2017 | 129,276 | 6.5 | 18.7 | 68.4 | 6.3 |
3. Methodology
This article of Libra is based on both the academic and online literature. We provide a high-level technical overview of Libra and blockchain technology. Our broad analysis of Libra cryptocurrency looks at various models and categories of implementation approaches. We discuss the components of blockchain technology and provide illustrative visuals when possible. We also compare consensus models used in Libra and Bitcoin blockchain networks. We touch on the use of blockchain technology in other applications such as smart contracts. The article discusses limitations and misconceptions surrounding Libra and its permissioned decentralized blockchain. Finally, this article presents some recommendations and directions for future research.
4. Concluding Remarks
Cryptocurrencies are not only a natural but an inevitable transformation in the evolution of money. As with any new technology, Facebook’s Libra is going to cause disruption in the short-term but also, through financial inclusion and global stability as a public good, promises to revolutionize the future of the cryptocurrency world. Libra clearly has an advantage over all cryptocurrencies sprouted since the first successful cryptocurrency (Bitcoin) in January 2009; Libra’s vast scale (close to a three billion user base) sets it apart from even the most dominant Bitcoin that enjoys 68% of the market share. Bitcoin’s arduous journey to the stardom in the digital cash world has been constantly subject to immense criticism and the question whether it is a digital coin or an investment asset class has never been put to rest. At least Libra is not going to have the same predicament as Bitcoin since Libra will be backed by a basket of stable currencies (dollar, euro, pound, and yen) and low-risk reserve assets; of course, this alone does not shield Libra from market fluctuations and exchange rate risks.
Blockchain and distributed ledgers are a revolutionary innovation; as antecedents, they could lead to foreseeable and unforeseeable impacts on the definition of central bank money and online payment systems. Thus, Libra is argued to disrupt the existing cryptocurrency models and the ecosystem they have created for a decade. Facebook promotes Libra as a very stable digital coin contrary to peers (i.e. Bitcoin), but Libra or its 28-member governing body the Libra Association will not eliminate all of cyberattacks or the default risk of securities and member-firms all which are for-profit companies. Unlike Bitcoin and over 2,400 altcoins, not only Libra will be a liability of individuals and entities but also backed by a central bank like authority (the Libra Association) responsible for Libra’s stability in an ongoing basis; this will give Libra intrinsic value which will not be derived from belief or trust.
There is still time until Libra’s launch in 2020, but time is running fast and Facebook must resolve criticism from cryptocurrency investors and enthusiasts, opposition from major central authorities, and concerns from governments including the United States, France, England, Germany, and Japan. In the face of Facebook’s troubled past regarding privacy and the exploitation of users’ data, Facebook assures that Libra will be operated by its subsidiary Calibra and the sensitive financial data including the Libra account holders’ transaction history will not be shared with Facebook unless authorized by account owners. Although Facebook plans Libra to become permissionless in the near future, it must initially start as a permissioned network to support billions of potential transactions generated by a user base of close to three billion account holders across the globe. In this vast scale, Libra’s closest competition Bitcoin and Ethereum are no comparison with less than 50 million combined users. Time will show whether Libra will sputter out or become a reality.
