The report refers to the company’s lack of experience in the field of Blockchain technology, as well as regulatory pressure from governments. Facebook Warns Investors: Libra May Not Be Launched
Blockchain
A blockchain is a growing list of records, called blocks, which are linked together using cryptography.
Each block contains a cryptographic hash of the previous block, a time stamp, and transaction data, usually represented by the hash of a Merkle tree root.
By design, a string of blocks is resistant to data modification. It is an open and distributed ledger that can store transactions between two or more parties efficiently. In a verifiable and permanent manner.
For the use of a blockchain as a distributed ledger, the blockchain is typically managed by a network of peers, where nodes adhere to a protocol to communicate and validate each other’s new blocks.
Once the information of a block has been stored, it cannot be altered retroactively without altering all the subsequent blocks, which requires the consensus of most of the nodes in the network.
Although the records of a blockchain are not tamper-proof, block chains can be considered secure by design and exemplify distributed systems with high tolerance to Byzantine faults.
The block chain was invented by Satoshi Nakamoto in 2008 to serve as the distributed public book of the cryptocurrency “Bitcoin“.
Following the June announcement about Libra, the recent Facebook investor report has generated pessimism about the new developing global currency.
Alluding to its lack of industry experience. Facebook stated in its quarterly report that Libra and Calibra could be delayed or even not launched.
Doubts and possible delay
The Facebook ad about Libra attracted enormous attention, and not necessarily positive.
Several well-known public figures seem to have expressed concern about Libra and the potential harm it can cause. An imitating website was even launched that sought to sell tokens of the new digital currency, which has not yet been launched.
Some of those names include Chairman Donald Trump himself, U.S. Treasury Secretary Steven Mnuchin, Federal Reserve Chairman Jerome Powell, European Central Bank Executive Board member Benoit Coeure and French Finance Minister Bruno Le Maire.
Facebook CEO Mark Zuckerberg stated that “the company would take all the time necessary to improve on all fronts. They need to answer questions from regulators, experts and constituents and then discover the best way forward.
Libra Mission
According to Cryptopotato, Facebook’s digital currency will theoretically launch in 2020.
David Marcus is leading the development of the project and testified at a congressional hearing earlier this month.
He also explained that Libra and Calibra could be a more effective and low-cost way of transferring money between people.
Some questions about Libra’s potential have been raised previously. It has even been treated as a collective investment instrument, an opinion given at the time by the former Trade Commission representative of Commodity Futures (CFTC), Gary Gensler.
A futures contract is a legal agreement, usually made in a trading house or futures exchange, to buy or sell financial products or instruments at a predetermined price in the future.
Some futures contracts may require that the product mentioned in the contract be delivered. Other contracts simply ask that the cash equivalent be settled.
Example
Imagine an oil producing country, which plans to produce 1 million barrels per day to be delivered exactly in 365 days.
Assuming the current price of the barrel is $50, the producer could make a bet. Produce the oil, and sell it at the market price one year from today.
Given the volatility of oil prices, the market price could be at any level. Instead of taking risks, the producer could insure a sales price by introducing a futures contract.
Mathematical models are used to assign prices to futures. Taking into account the current price, the rate of returns without risks, the time to mature the contract (in this case 365 days), storage costs, dividends.
Assuming that the producer decides that his contracts will be at $53 per barrel, the producer is obligated to deliver 1 million barrels of oil and is guaranteed to receive USD $53,000,000.00. Regardless of the price of the oil on the market the day the deliveries are made.
Speculation and Coverage
Futures contracts are used by two categories of market participants. Speculators and Blankets.
Producers or buyers of a product cover or guarantee the price at which the product is sold or bought, while portfolio managers or brokers can also bet or speculate on price movements using futures.
Futures Speculators
Futures contracts are used to manage possible movements in the prices of traded products.
If market participants anticipate an increase in the price of the product in the future, they can make potential profits by buying the product with a future market and selling it later in the market at a higher price. Or by gaining from favorable price differences by liquidating in cash.
However, they may lose if the price of the product is eventually lower than the purchase price specified in the future contract.
In a converse way, if the price of the product is expected to fall, they can sell the product in a futures market and then buy it at a lower price in the market.
Futures Hedges
The purpose of hedging is not to gain from favorable movements, the idea is to prevent losses from unfavorable price changes, and in the process maintain a predetermined financial result depending on what current market conditions allow.
To hedge, unlike speculators, there must be entities whose business is to use the product negotiated in the contract.
When there is a profit in a futures contract, there is always a loss in the market price, or vice versa.
