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Facebook is launching a cryptocurrencyREUTERS/Charles Platiau
By Donna LuFacebook announced its plans to launch Libra, a digital currency, in 2020. Once in circulation, the cryptocurrency will be stored in a digital wallet called Calibra, which will be available as a standalone app as well as within Facebook Messenger and WhatsApp. Facebook has created a subsidiary of the same name to administer the services.
How will it work?
Once launched, users will be able to buy Libra and add it to their digital wallet. Similar to the Chinese social app WeChat, which has integrated payments, Libra will be built into Facebook Messenger and WhatsApp, allowing users to send and receive money via messages.
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People will be able to send money at “low to no cost”, Facebook said in a statement, suggesting that a small commission may be taken from transactions.
Eventually, the firm envisages Libra will also be used for offline payments too, such as paying bills, buying coffee, or paying for public transport.
Who is involved?
The currency has been backed by Visa and Mastercard, as well as tech firms including Uber, Spotify and eBay, meaning that they are likely to accept Libra payments in future.
Libra will be built on its own blockchain, a decentralised database that records the history of transactions over time.
The software running it will be open source, meaning that others can build new applications that will use the currency and run them on any kind of device.
What’s the point?
Libra represents a new business model for Facebook. The ease of using Libra to make payments within Facebook-owned apps may result in higher engagement, says Catherine Mulligan of Imperial College London. “They can retain you on their platform,” she says. “They don’t lose that end user eyeball.”
Facebook has also said that the currency aims to provide financial services to people without bank accounts – an estimated 1.7 billion adults worldwide, two-thirds of whom own a mobile phone.
“There’s this idea that using cryptocurrencies allows you to serve the unbanked”, says Mulligan.
Can we trust it?
“I would be quite concerned about Facebook becoming a bank for people who are in vulnerable situations,” says Mulligan, citing privacy concerns regarding the firm’s poor track record of handling user data.
Facebook has said that account details will not be shared with Facebook or third parties for advertising purposes, except for cases of data sharing “to keep people safe, comply with the law, and provide basic functionality to the people who use Calibra.”
How is it different from other cryptocurrencies?
Cryptocurrencies are decentralised forms of digital money, meaning that unlike traditional currency, they are not controlled by single entities such as a central bank. However, it is not yet clear what degree of control founding organisations of Libra will have over the cryptocurrency.
The best-known cryptocurrency, Bitcoin, is run this way but its value has been volatile in recent years.
Unlike Bitcoin, Libra will be backed by a reserve of real assets, meaning that the value of the currency is linked to something with intrinsic value rather than driven by demand or scarcity.
The Libra reserve will include bank deposits and government bonds in several international currencies. The reserve will be administered by a non-profit associated headquartered in Geneva, Switzerland.
Libra is not Facebook’s first venture into virtual currencies. In 2009, it launched the short-lived Facebook Credits, which let users buy items in Facebook-hosted games and apps.
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