Facebook’s cryptocurrency Libra takes on the world to target mass market users

With the attempt to launch a digital payments system on the blockchain to allow its two billion users to buy things or send money with close to zero transaction fees, tech giant Facebook has now taken a bold dive into the crypto waters.

Providing details on its stablecoin cryptocurrency “Libra” and new cryptocurrency wallet called “Calibra” on Tuesday, Facebook released its whitepaper on Libra and the testnet ahead of its planned public launch in the first half of 2020.

Libra which will be a “stablecoin”, will be a cat of a slightly different breed compared to most cryptocurrencies in the market now such as Bitcoin. Generally, cryptocurrencies tend to experiences large price fluctuations due to their unanchored prices.

Libra will be pegged to a basket of bank deposits and short-term government securities for a group of historically stable international currencies, including the United States (US) dollar and the Euro, and the volatility of the cryptocurrency will be parked to the fluctuations of its asset basket.

Facebook, the tech disrupter now disrupting traditional payments

Essentially, Libra is attempting to create a universal cross-border digital “currency” with the aim to promote financial inclusion for the unbanked. Based on a World Bank research paper The Global Findex Database 2017, there are currently around 1.7 billion people in the world who lack a bank account.

Facebook, who has over the years turned into a tech colossal, has users of over two billion. Taking that there are around seven billion people on earth, the tech firm already has close to 30% of the world within its network to start from.

A typical cross-border payment takes three to five working days to complete, according to a 2016 report McKinsey on Payments from McKinsey and Company. Based on another report from KNOMAD and the World Bank Group last year, it costs on average 7% to send money internationally.

With Facebook’s Libra, the digital payments platform plans to reduce transaction fees and lower the time needed for cross-border payments to go through, making it more convenient and easier to send money from person to person.

As Libra is pegged to a basket of global currencies, its value would stay largely stable.

The Libra Association - the manager who governs the rules on the Libra cryptocurrency - are considering the starting value for Libra to be close to the value of a US dollar, Euro, or Pound so that it will be easy to make reference on purchases of everyday items such as eggs and food and for spending at merchants and online services.

Cryptocurrency governed by a panel of members: Libra Association

The cryptocurrency will not be fully controlled by Facebook and will be ruled by founding members of the Libra association, which includes other tech giants like Visa, and Uber, who have invested at least US$10 million each into the project’s operations. Facebook only gets a single vote on the governance of Libra within the newly minted Libra council.

Crypto firms such as Coinbase and venture capital firms like Andreessen Horowitz make up the founding members for the association. Facebook said it hopes to reach 100 founding members before the official Libra launch next year.

Facebook is also accepting research organizations like universities and non-profit groups into its "governing council". These groups would have to fulfil three of four qualities, including working on financial inclusion for more than five years and/or have a multi-national reach to lots of users, for example.

Calibra cryptocurrency wallet

To accompany Libra, Facebook will be launching a digital wallet called Calibra to manage its crypto dealings with the intention to protect user’s privacy, it claimed.

Facebook said that its Libra payments will not be mined for data for advertisement targeting and the crypto wallet will maintain the privacy and identities of the users.

Regulator disapproval

In spite of the US tech firm’s eagerness and ambition in trying to unite the world on a single digital banking platform, lawmakers in the firm’s home country are angry and are calling for the development of Libra to be halted.

US’ house financial services committee chairwoman Maxine Waters on Tuesday appealed to Facebook to pause on its cryptocurrency development until the US Congress and regulators can examine it.

‘Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,’ said Ms Waters in a statement. ‘With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users,’ she added.

US representative Patrick McHenry meanwhile requested for a hearing on the matter, adding that Congress needs to go ‘beyond the rumours and speculations and provide a forum to assess this project and its potential unprecedented impact on the global financial system.’

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