Facebook has finally revealed the details of its cryptocurrency, Libra, which will let you buy things or send money to people with nearly zero fees.
So what exactly is Libra and what can you do with it? With Libra you will be able to pseudonymously buy or cash out your Libra online or at local exchange points like grocery stores, and spend it using interoperable third-party wallet apps or Facebook’s own Calibra wallet that will be built into WhatsApp, Messenger and its own app. Facebook is currently said to be working out the kinks of its blockchain system before a public launch in the first half of 2020.
Facebook, which currently suffers from a ‘trust deficiency’ around the world has wisely decided that it will not control Libra. Instead Facebook will have a single vote in the governance of Libra, just like any other founding member of the governing Libra Association. The founding members that include Visa, Mastercard, Uber and investment firm Andreessen Horowitz, have each invested at least $10 million into the project’s operations. The association will promote the open-sourced Libra Blockchain and developer platform with its own Move programming language, plus sign up businesses to accept Libra for payment and even give customers discounts or rewards.
Facebook is also launching a subsidiary company called Calibra that will handle its crypto dealings and protect users’ privacy by never mingling their Libra payments with their Facebook data so it cannot be used for ad targeting. Your real identity will not be tied to your publicly visible transactions. But Facebook/Calibra and other founding members of the Libra Association will earn interest on the money users cash in that is held in reserve to keep the value of Libra stable.
Facebook’s audacious bid to create a global digital currency that promotes financial inclusion for the millions of unbanked people around the world actually has more privacy and decentralization built in than many expected. Instead of trying to dominate Libra’s future or squeeze tons of cash out of it immediately, Facebook is instead playing the long-game by pulling payments into its online domain.
Facebook appears to believe that if more commerce happens, then more small businesses will sell more on and off platform, and they will want to buy more ads on the platform so it will be good for Facebook’s ads business.”
In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the promise of disrupting how things are bought and sold by eliminating transaction fees common with credit cards. That comes dangerously close to Facebook’s ad business that influences what is bought and sold. If a competitor like Google or an upstart built a popular coin and could monitor the transactions, they would learn what people buy and could muscle in on the billions spent on Facebook marketing. Meanwhile, the 1.7 billion people who lack a bank account might choose whoever offers them a financial services alternative as their online identity provider too. That is another thing Facebook would like to do.
Yet existing cryptocurrencies like Bitcoin and Ethereum are not properly engineered to scale to be a medium of exchange. Their unanchored price was susceptible to huge and unpredictable swings, making it tough for merchants to accept as payment. And cryptocurrencies miss out on much of their potential beyond speculation unless there are enough places that will take them instead of dollars, and the experience of buying and spending them is easy enough for a mainstream audience. But with Facebook’s relationship with 7 million advertisers and 90 million small businesses plus its user experience prowess, it was well-poised to tackle this juggernaut of a problem.
Now Facebook wants to make Libra the evolution of PayPal. It is hoping Libra will become simpler to set up, more ubiquitous as a payment method, more efficient with fewer fees, more accessible to the unbanked, more flexible thanks to developers and more long-lasting through decentralization; and, in the process, somehow increase the trust factor for the mother-brand, Facebook
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