A well-known social networking service company headquartered in the United States, Facebook, Inc. has announced the launch of its cryptocurrency wallet, Calibra on Tuesday. The company has also created a cryptocurrency Libra, powered by blockchain, to enable users to make purchases on Facebook and on other websites online.
Making its cryptocurrency efforts official, Facebook has announced the launch of Calibra in 2020. Calibra is a digital wallet that will be integrated into Facebook Messenger and WhatsApp applications, allowing users to transfer money and make payments using Libra.
Cryptocurrency and Crypto wallets
Cryptocurrency is a digital currency built with cryptographic protocols, which is difficult to counterfeit because of this security feature. One needs a cryptocurrency wallet to use the cryptocurrency. Such wallets are used to securely store, send and receive the cryptocurrencies. Some of the digital currencies have their own official wallets, while for others, multiple currencies can be stored within the same wallet.
Know More About Crypto Wallets
- Components of Crypto Wallet
Crypto wallet consists of two components - a private key and a public address. The private key can be used by the cryptocurrency holder to access their wallet, and the public address is in the form of text or a QR code provided to the other cryptocurrency users for receiving funds.
- Types of Crypto Wallets
Generally, crypto wallets are classified into hot wallets and cold wallets. The hot wallets are used by online exchange platforms and are connected to the internet. However, cold wallets are used to store funds offline as they are not connected to the internet.
The crypto wallets can also be segregated in the following way:
III. Creating a Crypto Wallet
Now, the question arises that how can we create these cryptocurrency wallets? The cryptocurrency wallets can be found via web browsers like Myetherwallet.com (MEW), IMtoken, and MyTrezor. The crypto wallets can also be downloaded through smartphone app stores or can be purchased in the form of hardware devices from online stores.
- Keeping the Cryptocurrency Safe?
After creating the crypto wallets and keeping all the crypto assets in the wallet, the risk of losing money from the wallet arises. If the private key of the wallet falls into the wrong hands, it is likely that one can lose all its funds from the wallet. So, the following security steps can be taken to ensure the safety of cryptocurrencies:
- The first step should be to keep your passwords and private keys safe. One should keep different passwords for every exchange and try to change them on a regular basis.
- The cryptocurrency should not be kept for a longer period of time in exchanges.
- One should use two-factor authentication for the log-in process.
- One should not be sharing details about income and profits with others.
- To safeguard yourself from the phishing techniques used by hackers to steal funds, one should avoid clicking on the miscellaneous Emails and links.
- The computer or smartphone screen should always be treated with caution.
- How to smartly tackle the high risks of crypto investing?
The risks associated with trading in cryptocurrencies can be reduced by:
- Diversification – Market risks linked with the crypto trading can be reduced with the diversification of investments as keeping all of the crypto eggs into a single digital basket is not a sensible decision. One should have a balanced investment portfolio to mitigate idiosyncratic market risk.
- Investing in more-liquid cryptocurrencies - Liquidity risks pose a challenge for investors trading in large ticket sizes. The parameters like the volume of trading, volatility and liquidity of assets should be analysed by the investors beforehand to mitigate liquidity risk.
- Taking Precaution against regulatory risk – Mitigating the regulatory risk completely is a difficult task. So, investors can keep a close watch on cryptocurrency media and should stay informed of any potential policy changes.
- Hedging – Investors can use the hedging instruments to diversify their portfolio of investments. As the cryptocurrency market is highly volatile, investors can invest in precious metals, stocks and other traditional assets for safety.
More About Libra and Calibra
Backed by fiat currencies, the digital currency Libra will allow the transfer of funds across borders at near real time and for almost no cost. Libra will be powered by the blockchain technology and governed by the non-profit Libra Association that has been created to manage the cryptocurrency and network. Established in Geneva, Switzerland, the Libra Association has 28 founding members including Uber, Visa, MasterCard and PayPal.
Calibra will be used for storing and exchanging the digital currency Libra. It will enable people to send Libra as easy as sending a text message. It will be available outside Facebook’s communications platforms via a smartphone application. Calibra is a newly formed Facebook subsidiary that is designed to provide financial services.
According to Calibra’s head, David Marcus, the financial data on Calibra will not be accessible by Facebook. He informed that a single entity would not own and control Calibra, rather it will be controlled as a public good by a decentralised group of global organisations.
In Australia, the Calibra wallet requires the Australian Securities and Investments Commission’s approval. Along with the scrutiny by the Reserve Bank of Australia, the competition and prudential regulators may also examine Facebook’s plan.
Facebook Gets Libra Partners’ Support
The other members of the Libra Association like eBay and Uber have supported Facebook’s cryptocurrency move as the technology has promised to lower the transaction costs. As mentioned by Facebook, the creation of Libra will enable the transfer of money across borders at a very minimal cost. However, banks charge large fees for international transactions and merchants pay huge interchange fees in the wake of foreign exchange rate spreads.
The head of global payments firm, eBay, Alyssa Cutright stated that Libra has the ability to make global e-commerce more affordable for people across the world. Mr Peter Hazlehurst, head of Uber’s payment department has also supported Libra, mentioning that it will reduce the costs for everyone, especially consumers by filling the gap between traditional financial networks and new digital currency technology.
ASX Tough on Cryptocurrency Investments
According to the Chief Compliance Officer of the Australian Securities Exchange, Mr Kevin Lewis, consumers are confusing initial coin offerings with cryptocurrency investments. He indicated that there is a need to prevent consumers investing in cryptocurrencies from harming themselves. As the cryptocurrencies are largely being used for fraudulent activities across the world, he urged the need to stop it.
Mr Lewis is of the view that a lot of investors got attracted to initial coin offerings as the bitcoin values have increased sharply in the first couple of years. He is concerned about the businesses that are using bitcoin boom for selling their digital currencies.
Recently, the Australian Securities and Investments Commission (ASIC) also cautioned the brokers and issuers for ramping up scrutiny of initial coin offerings and trading of crypto assets. The regulator found some of the activities to be in breach of corporate laws including potential insider trading in the materials sector ahead of mergers and acquisitions. After observing some crypto assets involving misleading or deceptive conduct, ASIC has decided to intensify its focus on insider trading.
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