Facebook founder Mark Zuckerberg announced the launch by the social network of its own cryptocurrency, called Libra, which should be introduced from 2020. Here we list all the main information on new electronic money: what it is, how it works, what it is for, and not only.
What is Facebook Cryptocurrency?
Cryptocurrencies are virtual currencies, alternative currencies. The validity of a shared and immutable data structure, a blockchain, a technology that has been around for about a decade. Libra is a cryptocurrency that should move with almost no transaction costs and no volatility. For problems related to volatility, unlike bitcoin and other traditional cryptocurrencies, Facebook’s electronic money will be a stablecoin, bound ‘1 to 1’ to legal tender currencies.
Libra will not be tied only to the dollar but to multiple currencies, in order to offer a fluid experience regardless of the country of reference.
Already 27 founding members have joined the Libra project, 27 including global companies, NGOs, fintech, venture capital and payment circuits, from Visa to Mastercard, from Paypal to Uber up to Vodafone and Iliad. And another 70 names should participate in the future. Each member of the consortium will have the right to vote on the substantive decisions that will affect the cryptocurrency network and the members should invest at least 10 million dollars to join them.
This is the list of those who have already signed up: Mastercard, PayPal, PayU, Stripe, Visa, Booking, eBay, Facebook, Farfetch, Lyft, MercadoPago, Spotify, Uber, Iliad, Vodafone, Anchorage, Bison Trails, Coinbase, Xapo, Andreessen Horowitz, Innovative initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures, Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking. Facebook’s rivals like Google, Amazon, Apple and Microsoft are missing from the list.
What is Facebook Libra?
More in detail, the cryptocurrency management announced by Facebook is entrusted to the Libra Association, an independent non-profit organization based in Geneva, Switzerland. This is the organ that will formally remove the currency from the social network, which will remain one of the partners.
The purpose of the Libra Association is to coordinate governance, promote network expansion, manage reserves and support financial inclusion, in other words to promote cryptocurrency. On the adhesion front, the goal is to reach a hundred members by the first half of 2020.
As reported by the official document describing the cryptocurrency, the Libra Association is governed by a Council formed by a representative for each “validation node”, that is the “centers” of the blockchain that put the quality stamp on the transactions. The main political or technical decisions are voted and must be approved by a two-thirds majority.
Another objective of the association is to make Libra less and less “dependent on the founding members”, with a path that should begin “within five years”. Until then the partners will continue to lead the way. And Facebook “should maintain a leadership role until the end of the year”.
How Facebook Cryptocurrency Works
How does it work? Libra has a decentralized blockchain and links its value to a basket of stable and highly liquid real assets.
The ‘Libra Blockchain’ software is open source, intended to target a global audience. When we talk about “new decentralized blockchain” we mean to underline that Facebook is not the only one to manage it: but it will be a concentrated blockchain, in the hands of the Libra Association’s partners. Only some members of the association will be authorized to manage a “node” for the validation of transactions. There is therefore that intermediary that Bitcoin seeks instead to remove.
Zuckerberg in a post on his page Facebook wrote that with the new cryptocurrency he aspires to “make it easy for everyone to send and receive money just like using apps to instantly share messages and photos”.
The social network has created a subsidiary, an independent branch, Calibra, which will offer digital wallets to store, send and spend books. Calibra will be closely connected to the Messenger and Whatsapp platforms, owned by Facebook, which boast more than a billion users.
Facebook Cryptocurrency What is it for?
As reported again by the official document of the Facebook cryptocurrency, Libra’s goal is to create a “global currency and financial infrastructure” accessible to “billions of people. Blockchain and cryptocurrencies have unique properties that can potentially solve some of the problems of accessibility and reliability “. However, development has so far been “hindered” by “volatility and lack of scalability”.
Now, with the arrival of a group that brings together almost 2.4 billion users, it is explained, “the world really needs a reliable digital currency and an infrastructure that together can carry the promise of an Internet of money ‘”.
Zuckerberg in his post on Facebook explained that “mobile money” increases security and “this is particularly important for people who do not have access to traditional banks”. “There are about a billion people who do not have a bank account but have a cell phone,” recalled the founder of the social network.
Facebook is working on a payment system to exchange money within its message applications – such as WhatsApp and Messenger – using systems similar to those used for cryptocurrencies such as Bitcoin. There is still not much information available on the new system or official confirmations, but the New York Times has gotten some anticipation from employees who are working on the project. The system could be available within the next year so as not to be beaten by competitors of Telegram and Signal, other apps to exchange messages that are working on similar solutions based on their cryptocurrency.
Payments through messaging applications are already enjoying considerable success in the countries where they are available. In China, for example, WeChat is used to exchange money, buy products online and pay at the physical stores. However, the system is centralized and uses normal currencies, while Facebook and others are thinking of a different solution based on virtual currencies and with a distributed control of transactions.
According to information gathered by the New York Times , there are at least 50 people within Facebook working on the new project, which is coordinated by David Marcus, former president of PayPal. The group of developers works in a building separate from the rest of Facebook’s employees, which can only be accessed if they have certain credentials. The company neither confirmed nor denied being at work on a cryptocurrency but would have started to get serious about a year ago, after Telegram had raised $ 1.7 billion in funding to develop its own virtual currency.
For now, Facebook is evaluating various alternatives to implement its payment system. Most of these are inspired by the “blockchain” principle, which underlies the operation of the main cryptocurrencies currently in circulation, starting from Bitcoins. This solution requires that the management and control of the transactions be carried out in a way shared by all members of the network that manages the currency, instead of in a centralized way as with banking circuits, credit cards and online systems like PayPal.
Although it has been talked about at length in enthusiastic tones, in the last year cryptocurrencies have suffered a significant decline. The value of Bitcoins has dropped considerably, as has that of other digital currencies, while others have disappeared due to their loss of value or due to various scams. Cryptocurrencies have proved to be very useful for freely exchanging money, untying transactions from individual national currencies and from traditional payment circuit commissions, but they still lead to some complications. Not having a centralized control system, a government or a central bank behind it, cryptocurrencies are exposed to strong fluctuations in their value and the risk of being used for illegal activities.
To mitigate risks and problems, Facebook could produce a cryptocurrency linked to the value of currencies already in circulation. In this way the new currency would be more stable, less exposed to the activities of speculators and would reduce the concerns of users on the fear of constant fluctuations in value, which would make its use less practical. The system of hooking up a cryptocurrency to the value of traditional ones has already been tested and with promising results, so it could be a valid starting point for Facebook. The New York Times sources say the company is considering hooking up its cryptocurrency to multiple currencies and not just the dollar, in order to make it more stable in different markets.
However, many doubts remain to be resolved on the new Facebook cryptocurrency. It is not clear, for example, what a blockchain management can do if the social network maintains control over the transactions and guarantees this. If this were the case, it would make more sense to have a centralized and more traditional system, such as that used by PayPal and credit card networks. A decentralized system would also involve some complications to impose commissions on individual payments, limiting the possibility of revenue from the system for Facebook.
The cryptocurrency plan of Facebook could be part of a larger project that the company has been working on for some time, and anticipated at the end of January by some indiscretions in the newspapers later confirmed partly by the CEO of social network, Mark Zuckerberg. Facebook is considering the possibility of merging together the systems that make WhatsApp, Messenger and Instagram chat work. The three systems would remain separate, but they would use common technologies and therefore probably also the same solution for payments with the new cryptocurrency. However, any merger has raised several criticisms and requests for clarification from groups and institutions that deal with the protection of personal data.
However, Facebook is not the only company active in messaging to have initiated developments and experiments with cryptocurrencies. Among the most popular and interesting apps for alternative digital coins is Telegram, a company that has always promoted its message app as the most secure in terms of privacy. With its own cryptocurrency, Telegram could guarantee the free exchange of money without checks by governments and financial institutions. The company has repeatedly confirmed that it is working on its own cryptocurrency which will be called Gram and is almost ready for its activation within the middle of the year.
Signal, another less famous message app, but much appreciated by its users for the guarantees it gives in terms of privacy, is working on a project called Mobilecoin. To make it, he raised 30 million dollars and hopes to collect as many in the coming months, but he still works on a smaller scale than Facebook or Telegram. Mobilecoin will be built by an independent division of Signal.