Facebook recently announced its new cryptocurrency ‘Libra’. Facebook has made big promises about the new currency. It calls it a reinvented currency. It will reportedly allow users to buy things or send money online with virtually zero fees. In its website libra.org is Libra’s mission statement:
“A simple global currency and financial infrastructure that empowers billions of people.”
As of now Facebook has only released details to the public and a testnet for developers. The actual cryptocurrency will launch in 2020.
Here are some of the things you need to know about Libra and how it works:
How will it actually work?
Libra claims that its primary aim is to help the 1.7 billion (31%) people on earth who don’t have access to traditional banking or digital currencies. It also claims to make the process of sending money internationally much cheaper and safer than it currently is. This could be a huge incentive to Facebook’s already massive userbase.
As of now, Facebook is yet to divulge information regarding how Libra will be made available at the beginning. What we do know is that like all cryptocurrencies, it will make use of a blockchain technology.
What is Blockchain?
All cryptocurrencies make use of a technology called blockchain. Blockchains offer two pronounced advantages to traditional mode of transactions: anonymity and security. Since the information is spread across a network, hackers can’t attack it with ease as they could attack a central banking system. Also, since all transactions are updated across the network, there is no easy way to track a user’s activities.
Management and Partners
Facebook has announced that it won’t be directly involved in managing and regulating Libra. There will instead be a non profit organization that will serve as an independent governing body. Here’s how Marc Boiron, an attorney specializing in blockchain describes this organization:
“The network initially will be managed by the Libra Association, a nonprofit based in Switzerland, which currently has 28 members but will have up to 100 members at the launch of the network.”
The 28 current members include some high profile companies such as PayPal, Visa, Mastercard, eBay, Uber etc. Each of the founding members reportedly invested $10 million to join the organization. All of these member companies, and all others that will join the following year will incentivize their userbase to use Libra coins. To do this, they could offer discounts, bonuses and giveaways.
Security and Privacy
Of the myriads of questions issues surrounding Libra, there have since the beginning been two major issues that have stood out. One is security and the other privacy.
Facebook has assured users that unlike other cryptocurrencies, Libra will not be volatile and subject to major swings. We’ve seen this issue with other cryptocurrencies since the beginning of the crypto boom, with prices constantly surging and plummeting. But Libra will be tied to several traditionally secure currencies. These include the U.S. dollar, the Euro and the Yen. Facebook has also said that it has put forth extra effort to keep the currency stable by purchasing real asset reserves. Basically, Facebook wants Libra to stay stable, as a volatile currency wouldn’t really serve the company’s vision of helping poor communities transfer and save funds.
Facebook has also clarified that they will employ all the due diligence that is characteristic of a traditional financial institution.
“We will be using all the same verification and anti-fraud processes that banks and credit cards use, and we’ll have automated systems that will proactively monitor activity to protect and prevent fraudulent BEHAVIOR.”
Privacy has been another major issue surrounding Facebook and Libra. Facebook has come under a lot of fire in the recent years due to its mishandling of user data among a myriad of other privacy issues. Facebook has however claimed that all transactions and activities in its blockchain network will be “pseudonymous”.
Another issue with Facebook has been its use of user date to improve ad targeting on its family of products. The company has assured users that their financial information will not be used in the same effect.
Libra and Calibra
Facebook has also announced a new subsidiary to the company called Calibra. Calibra will be working on a range of things, but one of its first products will be a sort of a digital wallet for Libra Coins. Here’s how the company describes this:
“The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app — and we expect to launch in 2020.”
Facebook has said that Calibra will be free and that users won’t require a Facebook account to use it.