Things to know about Libra: Facebook's new cryptocurrency
by The Blockchain Diary on 2019-06-28
Libra is an upcoming digital currency that users can access through apps and use to pay for things or to send money to each other. In that way it’s a lot like PayPal and Venmo.
Facebook started working on Libra in early 2018, according to Wired’s history of the coin. Some details about the coin leaked in 2018, but most were unclear until Facebook launched a website and white paper.
The Libra Association plans to launch the coin some time in 2020. It will immediately be available on WhatsApp and Facebook Messenger, and through several other Libra partners.
How does it work?
To keep and exchange Libra, you’ll need to use a “wallet”: an app that might be integrated into existing apps, the way PayPal or Apple Pay is integrated into other apps. The current plan is to let many developers make their own wallets.
Unlike Bitcoin, Libra’s value is tied to government-issued currency like the dollar—specifically to “a market-value basket of several trusted currencies,” says Wired. That’s one of several ways that Libra will try to avoid the weird, scammy, gambling vibe of Bitcoin and other cryptocurrencies. This isn’t a coin that you buy because you think it will grow 100 times as valuable. It’s more like exchanging a dollar for a Euro.
Does Facebook’s Libra have anything to do with Bitcoin?
Libra transactions will be recorded on a blockchain—a tamper-proof ledger that runs across multiple computers. This is the same technology that Bitcoin and other cryptocurrencies are built on. So, yes, there are some similarities, including the ease of moving money and creating secure transaction records.
But there are also key differences. For instance, the price of Libra is more stable than Bitcoin, since Libra is backed by a reserve fund, while the value of Bitcoin just floats.
Also, Bitcoin is recorded on a public blockchain that allows anyone to build on it. On the other hand, to build on many features of Libra’s blockchain, developers must seek permission from Facebook and its partners who administer it.
Why would I want to use it?
If PayPal and Venmo work fine for you, you might not have a reason to, according to Aaron Lammer, co-host of the cryptocurrency podcast CoinTalk. But you’re not who Libra is aiming at right now. The biggest market, he tells Lifehacker, is people sending money to family abroad.
According to Libra’s white paper published Tuesday, “1.7 billion adults globally remain outside of the financial system with no access to a traditional bank.” That’s 31% of the world’s adult population. And if you’re trying to send money to one of those 1.7 billion, your current options, says Lammer, are “fairly predatory.” Fees for these international transfers average 7%, according to TechCrunch.
You can’t use PayPal or Venmo to solve this; both of those require a bank account. But you don’t need a bank account to get on Libra. A billion of those unbanked people have a mobile phone, and half a billion have internet access. They could receive money in the form of Libra on their phones—and spend that money as Libra as well. Libra will make these transactions cheaper than other non-bank options.
Of course, you can fund your Libra account from your bank account too, through PayPal or Stripe, which are founding members in Libra. And not just to send it to people without banks. For the rest of us, there will still be advantages to Libra, especially incentives to use it instead of a credit card. Other founding members of the association include Uber and Lyft, eBay, and Spotify. These companies will all be eager to let you pay in Libra—and they might offer discounts if you do.
Lammer compares it to credit card rewards, which try to keep you locked into their ecosystem. For example, the Amazon rewards card gives users 5% back on all Amazon purchases—in the form of Amazon credit. If taking an Uber is 1% cheaper with Libra than with dollars, you’ll think about getting Libra. Specific discounts like this haven’t been announced yet, but they’re definitely in the works.
Other points to know.
You don’t have to have a Facebook account to join Calibra. But you do have to give Calibra a government-issued ID. (Third-party developers might let you skip that step.) There’s a balance Facebook has to reach here: it wants a freer currency, but it doesn’t want to be a playground for money launderers and criminals, which some other cryptocurrencies famously are. Lammer even bets that early PayPal was a useful tool for money launderers, before it needed to legitimize itself and avoid prosecution. Facebook is too established to play that game, at least as aggressively as a young startup.
Calibra explicitly says it’s allowed to use your data to market other Calibra products to you. Which is not unusual. And while it won’t share Calibra data to Facebook, it might ask you to share your Facebook data to Calibra. But it promises to ask your permission.
And as for Facebook’s promises, well, Facebook has never abused its users’ privacy before, right? Lammer thinks the company will get creative and find ways to cash in on all this transaction data. But to be fair, they’ve at least started with a public promise to keep their fingers out of their own data. Not that you could stop them if they changed their minds.
One motivation behind Libra, says Wired, was that Google, WeChat, and Apple all had their own payment services. That’s why Lammer thinks that the other tech giants aren’t going to launch a coin like Facebook’s; they each have different strategies to insert themselves into the middle of transactions.
And Facebook makes money by helping advertisers target you, so Libra is a money play that helps it collect more data about purchasing. Anonymized data, maybe, but still. Any time a big tech company has a shiny new product to offer you, ask yourself how they’ll make their money back.
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