Facebook unveiled an ambitious plan on June 18 to create a new digital currency – Libra – similar to Bitcoin for global use, one that could drive more e-commerce on its services and boost ads on its platforms.
Libra is being touted as a means to connect people who do not have access to traditional banking platforms. With more than 2 billion people using Facebook, Libra could be a financial game-changer. However, it will face close scrutiny as Facebook continues to reel from a series of privacy issues.
Creating its own globe-spanning currency one that could conceivably threaten banks, national currencies and the privacy of users isn’t likely to dampen regulators’ interest in Facebook.
What is Libra?
Libra is cryptocurrency from Facebook which is scheduled to be launched next year. Libra will be available as a standalone app. The transactions can be made on WhatsApp and Facebook Messenger platforms as well. It will allow consumers to send money to each other as well as potentially pay for goods and services using the Facebook-backed digital currency instead of their local currency.
Company officials emphasised Libra as a way of sending money across borders without incurring significant fees, such as those charged by Western Union and other money-transfer services. Libra could also open up online commerce to huge numbers of people around the world who currently don’t have bank accounts or credit cards.
How will it be valued?
Facebook says Libra’s value will be pegged to a basket of established currencies such as the US dollar, the euro, the yen and others. Each purchase of Libra will be backed by a reserve fund of equal value held in real-world currencies to stabilise Libra’s value.
Facebook won’t run Libra directly. Instead, the company and its partners are forming a nonprofit called the Libra Association. Companies involved include Mastercard, PayPal, the crypto exchange Coinbase and eBay. Also joining the Libra Association are ride hailing startups Uber and Lyft and nonprofit financial organisations Women’s World Banking, microloan platform Kiva and humanitarian aid group Mercy Corps. The foundation will be headquartered in Geneva and Facebook claims it will be independent from governments and the company itself.
Facebook hopes to raise as much as $1 billion from existing and future partners to support the effort. The association will be regulated by Swiss financial authorities, Facebook said.
The company has also created a new subsidiary, Calibra, that is developing a digital wallet to allow people to buy, send and use Libra. Calibra pledges that it won’t share transaction data from details of Libra user’s financials with Facebook unless compelled to do so in criminal cases. Still, if people are using Facebook products to buy things and send money, it’s possible Facebook will be able to track some data about shopping and money transferring habits.
Calibra won’t require users to have a Facebook account to make a free wallet. And it will allow people to send Libra back and forth on two of Facebook’s core messaging apps – WhatsApp and Messenger. Instagram messages won’t be included, at least at first.
Many concerns remain
Facebook is in the crosshairs over multiple privacy violations, and the move is already attracting scrutiny from financial regulators and privacy advocates across the world.
Cryptocurrencies have generally failed to catch on despite a devout following among curious investors and innovators. Bitcoin itself remains shrouded in secrecy and fraud concerns, not to mention wild value fluctuations, making it unappealing for the average shopper.
Many privacy questions remain unanswered, though. Cryptocurrencies such as Libra store all transactions on a widely distributed, encrypted “ledger” known as the blockchain. That could make the Libra blockchain a permanent record of all purchases or cash transfers every individual makes, even if they are stored under pseudonyms rather than real names. Facebook said that if people use Calibra or similar wallets, their individual transactions won’t be visible on the Libra blockchain.
A look into Bitcoin history
* The concept of Bitcoin, and its underlying blockchain technology, was laid out in a white paper published in October 2008 by Satoshi Nakamoto.
* Bitcoin was reportedly the first decentralised digital currency used to make peer-to-peer transactions without any intermediary.
* Bitcoin attracted attention to its underlying technology – the blockchain – which may be used to revolutionise the way companies handle payments or transfer information.
* A blockchain is a database that is shared across a network of computers. Once a record has been added to the chain, it is very difficult to change.
* The US, Germany, Japan, Australia and Argentina are some of the countries that have showed positive signs towards Bitcoin.
* Over the past year, the installation of Bitcoin ATMs has been on the rise across the world. According to data from website Coin ATM radar, the total number of crypto ATMs across the world stands at 4,155.
* The Indian government has said that it does not recognise cryptocurrency as legal tender.