Facebook’s New Cryptocurrency — What Is It, and Is It Safe?
The social media giant’s new currency ‘Libra’ is set to start trading soon, and though it is backed by powerful corporations, not everyone is convinced that it is a good idea.
Facebook, Spotify, Uber, and PayU — those are just a number of representatives of the ‘Libra Association’, a plethora of venture capital firms and non-profit organisations spanning the telecommunication and blockchain networks. The grand vision of the Association is no less than to build “a stable cryptocurrency built on a secure network… [for a] more inclusive global financial system”.
Libra hopes to achieve this by hooking up the millions of ‘unbanked’ people in the world — that is, people with no ability to transfer money instantly across the world, securely and at low cost.
How Libra works
Libra is understood to run on a blockchain of around 100 different computer servers. The blockchain algorithms have ‘command-line programs’ to enable scripting and interactive use, along with an interface of various file formats and options. To make things extra secure, Libra uses the ‘Byzantine fault-tolerant consensus approach’. In theory, the Byzantine consensus should make it near impossible for the entire blockchain to be disrupted, even if the servers are compromised.
For a cyberattack to bring down the blockchain, it is reckoned up to a third of its servers would have to be interrupted — a feat that the Libra Association are again confident is near impossible, as each server will be well secured by each of its partners.
Furthermore, Libra is thought to be capable of 1,000 payments per second, making it around 500 times more efficient than Bitcoin.
The United States government is not convinced, however. It already does not like the strength of the other cryptocurrencies in use today. In an attempt to win them over, the Association has marketed Libra as a “stablecoin” especially friendly to regulators.
But the danger is that Libra is intended to be used as collateral by some debt obligations and currencies. Libra’s status as a global currency means it will also fluctuate like other currencies, and differently. It may even resemble something like an index in volatility if it is shaped by underlying assets. If it becomes too popular, it could be “Too Big To Fail”. A phrase that still haunts us from 2008. If there was ever a run on Libra, there would be no Libra Central Bank to fix the damage.
Is there a place for Libra?
One way to absolve these concerns comes from the Association of German Banks, who have suggested limiting Libra to payment transfers only, and preventing it from handing out loans. But this would undermine the Libra’s ambitions.
Despite the concerns, it seems the establishment banking system is prepared to accommodate Libra and other forthcoming “soft infrastructures” as other central banks have already agreed to make concessions, as long as there are clear regulations and rules.
This article was written by Glenn King of Oakmount Partners Ltd, an investment consultancy firm based in the United Kingdom.
CB Insights: US Insurtechs Compete In A Now Global Market
In the first half of the year, insurtech companies around the world have raised US$7.4bn, nearly doubling their funding in Q2. According to Digital Insurance, insurtechs have raised US$4.8bn in Q2—an 89% increase in funding from Q1. But US firms are no longer the sole beneficiaries.
What Are the Stats?
Out of the 15 Q2 mega-rounds—those that top US$100mn—only eight included American firms. Pretty good, you might say. That’s over half! But US companies only made up 38% of the deals, which marks a 10% drop from Q1 and a 12% drop from 2020. Technically, therefore, US insurtechs are less influential than they’ve been in the past. But who says this is a bad development?
Despite my American citizenship, I’d argue that a more globally diverse insurance market is only for the best. Many of the world’s citizens who could most benefit from improved insurance services live outside of the States—and deserve local, tech-savvy services.
Why Does This Matter?
You’re always going to see the typical insurtech contenders from Western countries. For instance:
- German-based wefox: US$650mn Series C
- UK-based Bought By Many: US$350mn Series D
- US-based Collective Health: US$280mn Series F
But it’s critical that we address risk across the world. American insurtechs might be some of the most technologically skilled firms in the industry, but it’s not their first goal to address floods in Southeast Asia, crop destruction in China, and COVID complications in South Africa. That’s why we should celebrate that the recent Q2 round included insurtechs from 35 different countries.
According to CB Insights’ Q2 2021 Quarterly InsurTech Briefing, this was the first time that they’d observed insurtech activity in Botswana, Mali, Romania, Saudi Arabia, and Turkey. And ‘from a product, service, distribution, and underlying risk perspective, we—as a society and as an industry—are moving at an unprecedented speed’, says Dr. Andrew Johnston, Global Head of Willis Re InsurTech.
Just ask CB Insights. InsurTech value propositions have resonated with the world.