When I was a sophomore in college, cryptocurrency fever swept through my university’s campus like a virus.

Though the most popular currency, Bitcoin, had been around since 2009, it took a few years for the general, non-dark-web-dwelling public to take notice to crypto’s enormous value — both as a tool for unregulated, private e-commerce and as an investment with potentially enormous returns (or losses).

The finance and business bros that ran in my immediate circle framed it primarily as the latter. They discussed which currencies to buy and sell, talking about these transactions in language that wouldn’t be unfamiliar to stockbrokers.

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And they weren’t the only ones taking notice; the same year entrepreneurial twins Cameron and Tyler Winklevoss announced the creation of Gemini, a regulated digital-currency exchange for trading digital assets. Bank of America filed a patent for wire transfers using the blockchain technology. And the all-knowing, inescapable Internal Revenue Service declared that earnings on crypto would be subject to a capital gains tax.

Slowly but surely, cryptocurrency has undergone an evolution from an anonymous, obscure way to buy magic mushrooms on the Silk Road to a major, codified digital finance tool. And while it remains in many ways an unstable asset, it’s definitely growing.

Should You Buy Facebook’s Cryptocurrency? What to Know About Libra. By now, you may have heard about Facebook's #cryptocurrency Libra. But what's its deal? Should you buy it? Get the lowdown here. #investmentideas #moneyinvestmentdeas #financialstability

More than 2,700 different currencies have emerged on the web over the last decade. Since 2013, the market capitalization, or the value of all Bitcoin in circulation, has gone from $1 billion to more than $250 billion, according to CoinMarket, a cryptocurrency analytics site.

As such, it’s no surprise that tech giants, primarily Facebook, want their own chunk of change.

Enter the Zuck: Announcing Facebook’s Cryptocurrency

This past June, Facebook announced its entry into the cryptocurrency game with Libra, a virtual coin of its own developed in part by former PayPal president David Marcus.

In the coin’s white paper, outlining the currency’s intended goals, Libra distinguishes itself as a “low volatility” digital asset that seeks to enable “a simple global currency and financial infrastructure.”

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In short, Libra aims to offset the unpredictable nature of cryptocurrencies like Bitcoin while providing a secure, accessible platform for online payments, thus providing a low-risk, user-friendly, encrypted platform for buying and selling goods or services via Facebook Messenger, WhatsApp, and its own dedicated mobile application.

Despite Libra’s bells and whistles (and its financial and technical backing by a Fortune 500 company), questions remain.

Should you use Libra? Is it a savvy purchase for individuals who have never owned cryptocurrency before? The answer: It’s complicated. Let’s break it down.

What Is a Cryptocurrency?

Before we can answer the question of whether you should buy Facebook’s crypto, we have to explain what exactly a cryptocurrency is, and why it’s been such a hot topic in financial news for the last few years.

A cryptocurrency is a digital currency that, as its name would suggest, is encrypted — or digitally encoded. It’s an asset that individuals can use to pay others for goods or services. It’s usually not regulated by a financial institution, and its encrypted nature makes it difficult to counterfeit.

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Cryptocurrency was designed so that individuals who don’t know or trust each other could conduct transactions without fear of fraud, and in a manner that does not necessitate the approval of an institution like a bank.

Due to these characteristics, crypto is a popular currency for buying illegal items.

It was used by members of the online “black market” Silk Road to buy drugs and fake IDs until the site was shut down by the FBI in 2013.

Bitcoin was the first (and remains the most popular) cryptocurrency, created in 2009 by the mysterious and pseudo-anonymous Satoshi Nakamoto. Its popularity derives in large part from the currency’s use of blockchain technology.

What Is Blockchain?

Blockchain is simply a distributed, or spread-out database that works like a publicly accessible accounting system,” says Yael Tamar, a blockchain strategist and partner at digital asset fundraising platform Solidblock. “It was first created for the purpose of enabling Bitcoin.”

In essence, blockchain works as a decentralized ledger — one that’s not owned or managed by a single individual — that accounts for transactions between users of cryptocurrency. The transactions themselves are recorded as singular pieces of data. These are known as “blocks,” which are, as the name suggests, “chained” together.

While this may not sound super exciting on paper, this secondary component of this technology — the chaining together of data — is what makes cryptocurrency as secure as it is attractive, allowing strangers to send and receive digital currency in a way that ensures they won’t get ripped off.

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“This is enabled through an intricate system in which information is recorded and encrypted on the blockchain. Every subsequent block of information contains data from the previous block, and the same data is accessible by all of the members of the ecosystem, with certain members able to verify it and approve transactions between ecosystem members,” Tamar adds.

Each new transaction is contingent upon the data from the previous transaction.

This means that if an ill-intentioned individual wanted to “undo” a payment without the other party’s consent, that person also would need to change the data from the transaction before them, which is “chained” to the transaction before that (and so on and so forth).

It would be nearly impossible to hack all of that data without a member of the cryptocurrency ecosystem noticing as well. This contributes to blockchain’s immense security.

What Is a Crypto Wallet?

“A wallet is a digital medium that stores cryptocurrency,” says intelligence services analyst Maulik Limbachya of internet security company Recorded Future.

It serves as a record of the digital assets you own and contains the information necessary to send and receive cryptocurrency.

“Wallets often contain public and private keys that determine ownership of cryptocurrency,” Limbachya adds. “The public key allows others to send or receive money, while the private key allows a user to control where their coins are sent.”

To make a transaction in cryptocurrency, the receiving party provides the sending party with their public key, similar to how you may provide your employer with a bank routing number to receive a direct deposit.

The combination of the sending party’s private key with the receiving party’s public key creates the transaction record and ensures that money is sent and received securely.

You can set up a crypto wallet using a site like Coinbase, Trezor, Blockchain.comor Gemini. These sites differ in terms of their usability (some are better suited for a desktop than a mobile device), their level of security, and transactional fees (which average $1.63 per exchange). Howevery, they all will furnish you with a public and private key so you can purchase and store your digital assets easily.

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How Do People Make Money on Cryptocurrency?

Much of the discourse surrounding Bitcoin frames it as an investment and a way to “get rich quick.” This is because, as a separate currency, its price can fluctuate relative to the U.S. dollar.

Those who are lucky enough to buy low and sell high can get huge returns on their initial investment.

“Since crypto operates as a completely separate currency, it can appreciate or depreciate in value relative to other currencies and assets,” says Bryan Aulds, founder of cryptocurrency wallet company Billfodl. “Thus, it can act as a speculative investment or a safe haven asset if the investor’s home currency is particularly vulnerable to depreciate.”

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For example, if you had the foresight to purchase Bitcoin in March 2010, and then sold it when its price peaked in December 2017, your return would have been nearly $20,000 for a three-cent “investment.”

Alternatively, if you bought Bitcoin at its peak in 2017 and were to sell it today, you’d lose over half of your investment’s value. (One Bitcoin was worth roughly $9,500 as of August 2019.)

How Value Fluctuations Happen

So what determines whther a cryptocurrency appreciates or depreciates in value? That is left to the cold-blooded invisible hand of the market. In other words, fear or greed, depending on the day.

“A crypto’s value is not its underlying utility, but how much people believe in it,” says Michael Yuan, Ph.D., founder and CEO of smart-contract business solution firm Second State.

“For the price of Bitcoin, the threat is a collapse in societal consensus — which, in turn, can make it a risky ‘investment,’” Yuan adds.

In the same way that social unrest or economic depression affects the price of a country’s domestic currency, changes in a cryptocurrency’s digital landscape affect an individual’s willingness to hold or sell their assets.

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For example, when Bitcoin futures contracts were listed on the Chicago Mercantile Exchange and Chicago Board Options Exchange, a “downward pressure” was exerted on the currency, causing it to crash in early 2018, according to a letter written by the Federal Reserve Bank of San Francisco.

These undeterminable factors and high volatility have contributed largely to why many people won’t purchase Bitcoin — and it’s a big part of why Libra emerged as a new cryptocurrency.

How Facebook’s Libra Is Different From Other Cryptocurrencies

With Libra, Facebook seeks to adopt key elements of existing cryptocurrencies, namely blockchain technology, to ensure that transactions are safe, secure, and recorded in a public ledger.

What differentiates Libra from other currencies such as Bitcoin boils down to two main components: its stable value and its governance.

While Bitcoin’s value is determined by a “societal consensus” as mentioned above, Libra is backed by a basket of international currencies in the form of bank deposits and short-term government bonds. This makes Libra a stablecoin, a type of cryptocurrency that is linked to the value of another currency (or currencies) to ensure low volatility.

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“Because Libra is a stable coin, it’s pegged to a certain value, making it less volatile than Bitcoin and other cryptocurrencies,” says Manish Kataria, co-founder of cryptocurrency asset management platform Quadency.

“This is done so that users can buy Libra knowing they’re not investing in a speculative asset; they’re investing in a stable asset.”

Because the Libra Association will determine the value of its currency as being a certain number of U.S. dollars, euros, yuans, and pounds, users can be certain that should they buy Libra today, they should be able to cash out for a relatively similar amount at a later date.

Additionally, while other cryptocurrencies are decentralized and unregulated, Libra will be handled by the aptly titled Libra Association to ensure its continuing cybersecurity and manage the currency’s cash reserve. Members of the association each contribute a minimum of $10 million to the project. In return, they receive a vote on the association’s council, in addition to the project’s profits.

Current members of the Libra Association include financial giants like Visa, MasterCard, and PayPal, large tech companies such as Uber, Lyft, and Spotify, and various venture capital firms. 

The Benefits of Buying Libra

If Libra is implemented as its white paper suggests, it would be the first mass-accessible cryptocurrency in the world, allowing individuals to send money quickly and securely through Facebook Messenger and WhatsApp as early as 2020.

It would overcome the cumbersome nature of setting up your own crypto wallet, as well as buying cryptocurrency through an online exchange, and bring the power of blockchain to Facebook users on a global scale. Those elements alone make Libra an impressive endeavor.

“The major takeaway is that this is an ambitious project that looks to upend traditional payment processors like PayPal and Venmo,” says regulatory and government investigations attorney Braden Perry, a partner at the Kansas City-based firm Kennyhertz Perry.

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“Its goal is to eliminate transaction fees while creating a universal payment system capable of quickly transacting payments around the world,” Perry adds. “A user could purchase Libra, use it in transactions, then cash out whenever they want through a compatible crypto wallet or through technology that will be built into Facebook and its related apps.”

A number of cryptocurrency analysts and experts confirmed that the biggest draw of Libra would be its immediate accessibility to anyone with a Facebook account.

“Libra would have the instant credibility of over 2.4 billion potential immediate users and overnight would become a standard in the crypto world, most likely eclipsing Bitcoin,” says Tom Meredith, CEO of blockchain micro-loan and money transfer platform Bitminutes. That’s a lot of coin to be sent.

Why Some People Are Hesitant About Facebook’s Cryptocurrency

“With buying cryptocurrency, there’s both a financial element, and there’s a privacy and security element,” Kataria says.

The former of these two dimensions was raised by lawmakers shortly after Libra was announced. Federal Reserve Chairman Jerome Powell indicated that Libra’s current lack of regulatory controls and the absence of protective measures for consumers raised “serious concerns.”

To Libra’s credit, developer David Marcus has expressed the project’s openness to a “collaborative process with regulators, central banks, and lawmakers.”

As it currently stands, however, users will have no asset insurance similar to that provided by the Federal Deposit Insurance Corporation (FDIC), which usually insures a traditional bank account up to $250,000. If you are defrauded, the Libra Association indicates they will work with law enforcement to stop cybercriminals on their platform.

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Privacy and Security

The latter of these two components — the privacy and security of a cryptocurrency’s users — informs most of the public’s skepticism about the Libra project.

But according to Libra’s website, “Facebook has gone through great strides to ensure the company will not be the sole arbiter of how Libra is managed, nor will they be privy to transactions made on the platform; the social media giant will retain a seat on the Libra Association’s council, but its power will be ‘equal to that of its peers.’”

Additionally, Libra’s blockchain will not retain identifiable information, similar to other cryptocurrencies, as a means of protecting its users’ privacy.

“Transactions using Libra would be pseudonymous, meaning they are available to view on a public ledger, but without personally identifiable information, including names,” Perry says.

Despite these promises in Libra’s white paper, it’s difficult to place one’s trust in any enterprise associated with Facebook — especially in the context of the Federal Trade Commission’s $5 billion fine leveraged against the company earlier this year for the company’s continued mishandling of user data.

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“From a privacy perspective, it’s difficult not to be skeptical,” Perry says.

“By default, Facebook won’t import contacts or any of profile information, but will request you do so. It also states that it won’t share any transaction data back to Facebook. So it won’t be used to target you with ads, rank your News Feed, or otherwise earn Facebook money directly.”

A Waiting Game

Whether or not the company fulfills these promises, only time will tell.

“Facebook is going to have to prove to everyone that they are capable of delivering on this mission,” Kataria says. “Regulators are coming after them for reasons they are obviously familiar with.”

“At this point, they have the partners, they have the technology, but at the end of the day, unless they can truly separate themselves from this project — if they can truly not be viewed as a central authority in what is a fully decentralized organization, if they can pass those hurdles — they may have a chance with both consumers and regulators,” Kataria concludes.

The Bottom Line: Facebook’s Libra vs. Other Cryptocurrencies

If you’re looking to purchase a cryptocurrency that is speculative, with possible high returns, you may want to consider Bitcoin or Ether. Keep in mind that both of these currencies are highly volatile and prone to sudden changes in value. As such, you should only “invest” an amount that you are okay with losing.

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But if you’d prefer to purchase a cryptocurrency that’s comparatively safe, with which you can pay anyone who has a Facebook account in a manner that’s secure and fee-limited, Libra represents a novel way to use digital assets. Better yet, it’s accessible to just about anyone with a phone and an internet connection.

We’ll have to wait and see if the social media giant can be trusted in handling user data; it won’t be until early 2020 that Facebook emerges as a tool for purportedly safe, daily financial transactions involving Libra.