CollinsI’m sure you may have heard that Facebook has finally revealed its cryptocurrency plans. Well this article here explains what you need to know about the Libra coin and the company’s own Calibra wallet.
Mark Zuckerberg’s Facebook is getting into payments in a very big way. It’s plan is to create a new global currency, a decade after Bitcoin was revealed to the world. The currency named Libra is the culmination of more-than a year’s worth of work and is being administered as part of a consortium, including some of the world’s other biggest tech companies. Here’s what you need to know about the Libra coin.
What is Libra?
Rumors have been swirling around Facebook’s cryptocurrency for months now, but a week ago the company finally revealed what it’s been working on. Mark Zuckerberg’s firm released what is called a white paper which outlines the technical details of its plans – with a full launch to come next year.
The sort-of cryptocurrency, called Libra, is a big move for the facebook, which has been under pressure for two years over the impact of foreign interference and poor privacy practices. This new digital token will be built on blockchain and could not only be used to send funds instantly through Facebook – and its subsidiaries WhatsApp and Messenger – but also to make online purchases with retail websites such as eBay and Booking.com with fees being lower- much lower than those offered by standard banks and credit card services.
Facebook hopes Libra, which is backed by great companies including Mastercard, Visa, and PayPal, will primarily appeal to the 1.7 billion adults who do not have access to a traditional bank or people that are impaired by volatile local currencies in their home countries.
There’s Backing from Big Financial Groups
Facebook is taking its coin very seriously and many giant corporations are getting involved too. So far, it has sealed deals with 28 financial, e-commerce and other tech firms as well as venture capitalists – including PayPal, eBay, Uber, Spotify and Vodafone – charging each $10m (£8m) to join an independent body known as the Libra Association. This Association will be based in Switzerland and will govern the digital token. This move is meant to encourage trust in the payment system from financial regulators and users, who have increasingly been scrutinizing Facebook its power and lack of responsibility.
Libra payments will eventually be accepted by all the group’s founding members. This means from 2020 it may/will be possible to pay for Uber rides with the digital currency. Subscriptions from Spotify, and mobile phone contract payments could also be available through the use of Libra. The result would provide a currency that’s available everywhere and anywhere.
The involvement of major financial firms like Visa and Mastercard may seem surprising at first considering that cryptocurrencies are typically seen as a cheaper alternative to these payment networks, but their involvement may be an attempt to keep track of Facebook’s currency – and have their slice of the pie should the currency take off with Facebook’s 2.38 billion monthly active users.
Calibra Provides a New Revenue Stream for Facebook
Facebook will be a member of the Libra Association via Calibra, a newly created subsidiary that will offer a digital wallet for Libra and keep users’ financial and social data. Calibra has over 100 employees at Facebook’s headquarters in California as well as in Tel Aviv. Thanks to its close involvement in the development of the currency though, Calibra could become Facebook’s classified or secret weapon.
Calibra could very easily become the world’s biggest cryptocurrency wallet within months of its launch. It wouldn’t be restricted to only Facebook users. It will be made available to non-facebook users through a separate iOS and Android app.
The cryptocurrency, Libra, may be a new era of commerce and payments for the social network. It could be used to make payments between friends or family at little or no costs through the firm’s wholly-owned apps WhatsApp and Messenger. Facebook has already been experimenting with payments through WhatsApp in India and recently shutdown P2P payments through Messenger in the UK. Bypassing credit card transaction fees, offers a cheaper way to pay online merchants. Even though Calibra will not be sharing financial details or transaction histories with Facebook’s advertising divisions, the firm is expected to take a small commission on merchant payments.
Owing to concerns about data sharing, Facebook has said Calibra will only share user data with its parent company and third parties when it has customer consent or when law enforcement requests information.
However, it makes good sense that Facebook does want to leverage its colossal database of users by making a simple way to send money between relatives. Bloomberg reports suggest the company will initially focus on the remittance market in India – where about 200 million people use WhatsApp. The country’s market for payments being sent home is one of the biggest in the world, with the World Bank saying $80m (£63m) was returned to the country last year.
Why Libra will be a Stablecoin
The cyrpto sector is now leaning towards stablecoins. And as it is now obvious, Facebook is key to move into the emerging market. There are about 230 stablecoin projects underway of which 30 were announced in 2019 alone, according to Stable Report, a website that tracks the “stable cryptocurrency” sphere.
Bitcoin is notorious for being a highly volatile asset as its value is determined mainly by supply and investor demand. But stablecoins are supposedly steady in value since they are tied to a basket of traditional real world currencies such as the US dollar. And stability is a key concern for Facebook since it is hoping to appeal to developing countries with a volatile local currency. In Kenya, for instance, 90 per cent of adults already use the successful M-Pesa mobile money system.
To ensure the stability of its own cryptocurrency, facebooks Libra will be fully backed by a securely stored basket of matching traditional currencies. These fiat currencies/assets are set to underpin Libra to stop it suffering (or benefitting) from the wild value fluctuations that we’ve seen in Bitcoin.
Facebook’s Been Interested in Blockchain for a while
Libra was first reported on when Facebook announced that former PayPal president David Marcus, who has been running facebook Messenger since 2014, would head a group dedicated to exploring blockchain technology. Marcus himself has owned Bitcoin since 2012 and has often spoken highly of the potential it has. And the company keeps looking to expand its team with more blockchain enthusiasts and experts.
In February, Facebook hired the team behind a London-based startup called Chainspace and has been offering employees working on the project the option of being paid in the token, The Information reports. Facebook’s career page currently lists 28 job openings related to blockchain. These include legal heads, based in both Hong Kong and Silicon Valley; security engineers; product designers and data scientists.
Facebook Been Speaking to Banking Regulators Around the World
Before Libra’s launch, Facebook attempted to get ahead of regulators. In the UK it has hired bank lobbyist Ed Bowles, who will join the company from Standard Chartered in September. The company has also reportedly been meeting with regulators in the US and UK to discuss Libras opportunities and risks, as well as money transfer firms including Western Union. Getting the regulatory aspects of the currency right will be of great importance to its success, particularly in markets like India, which is proposing a new law that would make owning and selling cryptocurrency a crime – and punishable for up to ten years in jail.
What’s Next for Libra?
Over the next couple of months, the Libra Association will develop and test the blockchain prototype with a view to launching it in the first half of the year 2020. The plan is to grow the Libra Association to about 100 members around the world that will oversee and regulate the monetary reserve
Given that the Libra Association is already made-up of some of the world’s biggest companies, it wouldn’t be a surprise for other big firms to join the partnership. What will remain interesting is whether the idea gets the support of Google, Apple, or Amazon.
Collins