Facebook hasn’t always been cryptocurrency’s friend but with the launch of their own digital currency, they look set to make their bid for financial as well as social domination – and they have billions of users at their feet.
Here’s what you need to know about Facebook’s new cryptocurrency, Libra.
After months of speculation, Facebook finally announced its latest project: a new global currency and financial system. Well, Mark Zuckerberg has always been one to aim big.
According to their white paper, Libra is a blockchain based digital token that’s primarily intended as a payment currency for the billion people worldwide who don’t have access to traditional banking systems but do have internet access via smartphones. Users will be able to transfer funds instantly to contacts in Facebook Messenger or WhatsApp, or via a standalone app.
But that’s not all. Facebook has got some big partners on board as part of the Libra Association – the body that will govern the new cryptocurrency. Names such as PayPal, eBay, Uber and Spotify. As these founding members are required to accept Libra as a payment currency, Facebook is creating a wider ecosystem to test how Libra works as a regular payment currency, not just in countries where the banking system is ropey, but globally.
Libra will be backed by a reserve of assets, giving it the characteristics of a stablecoin. However, unlike most stablecoins, it won’t be pegged to a single currency or asset. Instead, it’ll be pegged to a basket of “low-volatility assets” (e.g. bank deposits, government securities) in a range of currencies which will be held in a reserve by the Libra Association. This means that the value of Libra will fluctuate against individual currencies.
Facebook is planning to launch Libra in the first part of 2020, though they haven’t committed to a specific date. Given the amount of work that still needs to be done and the pressure from regulators to address security and privacy concerns, it wouldn’t be surprising if this gets pushed back.
Facebook has created a new blockchain specifically for Libra, designed to make transactions fast and inexpensive compared to cryptocurrencies such as Bitcoin. The Libra Blockchain (with a capital “B”) which, in the white paper, sometimes sounds like a blockchain and sometimes doesn’t, uses a new programming language called Move. (If you want to get into the details, read the technical paper.)
The white paper also hints that they may be looking at other uses for their technology, stating that the Libra Association will “foster the development of the Move language and determine a path for third parties to create smart contracts”. This sounds very much like they’re looking to tread on Ethereum’s toes in offering a digital platform for other developers to build upon.
If you have money, you need a wallet to put it in, and Calibra is Facebook’s answer to the question of where you should store your Libra. Calibra is a subsidiary of Facebook and represents its parent company on the Libra Association Council.
Calibra will be launching a digital wallet for Libra next year. As well as being available in Facebook Messenger and WhatsApp, it’ll also be accessible as a standalone app. Initially, you’ll be able to use it to transfer money to other users, but Calibra intends to expand this functionality to make it more of an everyday payment mechanism.
One of the questions bouncing around the cryptocurrency community over the past few weeks has been about whether Libra can really be called a cryptocurrency. The simple answer? Yes… and no.
At first glance, you may be wondering why it’s even up for debate. Libra isn’t controlled by a central bank, it’s built on blockchain technology and users can hold pseudonymous wallets not linked to their real-world identity. But the detail paints a different picture.
Libra uses blockchain technology, but it doesn’t adopt the decentralized approach that’s at the heart of most cryptocurrencies. The whole ethos behind the development of Bitcoin was for it to be a permissionless system based on consensus, not trust.
Facebook’s blockchain takes a different approach. You can’t mine it, only buy it, and control of distribution will be in the hands of a few “trusted” entities – the members of the Libra Association Council. This may have benefits in terms of transaction speeds (one of the downfalls of the Bitcoin blockchain), but it stretches the concept of “decentralization” to the limit. Libra may not be controlled by a central bank, but it will be controlled by a bunch of tech and payment companies. Whether you see this as a good or a bad thing will depend on who you trust more.
Add to this that no one currently knows what proportion of Libra tokens Facebook currently owns. Although they technically only get one vote on the council, at the moment, this is very much Facebook’s project. It’s also worth noting that the significant reserves the Libra Association will be retaining – reserves that you’ll be adding to when you buy Libra – will generate interest – interest that will be split among its investors, not given to users. You could be forgiven for thinking that this is starting to sound like the International Bank of Facebook. A bank which doesn’t pay interest.
The Libra white paper does state that “the association will develop a path toward permissionless governance and consensus on the Libra network”, but the plans for this so far are about as concrete as a stick in quicksand.
Ah, the million-dollar question. Unless you’ve been living at the bottom of the sea for the past few years, you’ll know that Facebook doesn’t have a particularly good track record when it comes to taking care of data. If there’s one thing that’s become clear over the past few weeks, it’s that not everyone is happy about Facebook extending its grip to our wallets.
After a lot of pressure from US watchdog organisations, the US Congress has formally requested that Facebook “immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action”. Their concerns are valid – Facebook already has access to more than a quarter of the world’s population and unlike any central bank, is truly global. Privacy is just one of a number of reasons why Facebook’s intention to establish a new financial system would set government alarm bells ringing.
As might be expected, Facebook was keen to address privacy and security concerns when revealing their plans for Libra. They’ve stated that one reason for creating Calibra as a subsidiary was to ensure separation of social and financial data and that Calibra customer information “will not be used to improve ad targeting on the Facebook family of products”.
Despite this reassurance, cynics might say that giant tech companies are masters of the loophole, which in this case is quite likely wrapped up in the stock phrase: “Calibra will not share account information or financial data with Facebook or any third party without customer consent”. This makes customer consent sound optional, but we’ve all been in a situation where you can’t access specific services, websites or other tools without opting into the organisation’s privacy agreement. Why would this be any different?
Although it’s not available to buy yet, Libra is already having an impact on the cryptocurrency market. Many investors see Facebook’s move into cryptocurrency as a giant leap toward digital assets becoming more mainstream. It’s almost certainly been one of the driving factors behind the recent surge in the Bitcoin price to a high of $13,800 at the end of June.
The development of Libra and future announcements will undoubtedly cause further ripples in the market, but it’s not the only reason for the recent uplift in the price of many cryptocurrencies. There are plenty of other factors that indicate that the current bullish market trend will continue in 2019.
If US regulators had their way, Libra would never get out of the starting blocks. For crypto enthusiasts, Libra can be seen as something of a double-edged sword. On the shiny, sparkly side, Libra could put cryptocurrency firmly in the mainstream, giving legitimacy – and a possible boost in value – to other digital assets. But the darker side to the blade is a digital currency that monopolises all others, owned by a central body with power over billions of people – the very opposite of what cryptocurrency was intended to achieve.
Time will tell whether Facebook’s cryptocurrency will deliver the financial freedom it promises or if Libra will become just another gold chain.