Facebook has announced plans to start a cryptocurrency for online payments. Tom Merritt lists five things you should know about Libra.
Facebook made a bit of a splash when it announced it intended to found a cryptocurrency to make online payments easier--this caused a lot of people to have very strong reactions. Stepping back from the emotions for a second, let's look at five things to know about Libra.
SEE: Cryptocurrency: An insider's guide (free PDF) (TechRepublic)
- It's a stablecoin: That means that unlike bitcoin, it will be backed by low-volatility assets. Each Libra will be worth a slice of a collection of bank deposits and government securities in currencies from stable and reputable central banks: Dollar, pound, euro, Swiss franc, and yen. This would keep the value from fluctuating wildly. It also means it's not exactly a currency and not exactly an exchange traded fund, which means governments are not exactly sure how to regulate it yet.
- It won't be owned by Facebook: Facebook is developing the technology, which it intends to hand over to the not-for-profit Libra Association. Right now, that's made up of 28 partners--one of whom is Facebook--but Facebook will not have a larger voice than the other partners. Current partners include Coinbase, Mastercard, Visa, eBay, PayPal, Stripe, Spotify, Uber, Lyft, Vodafone, Women's World Banking, and Kiva. The Libra Association hopes to have around 100 partners eventually.
- You won't need a Facebook account to use Libra: If Visa makes a Libra wallet, you won't even need to use a Facebook product. Even if you use the Facebook-owned Calibra wallet for your Libra, you won't need to have a Facebook account for that either.
- It's private but not anonymous: Anyone who signs up to use Libra must show a government ID and share other personal information--similar to opening a bank account. Facebook-owned Calibra says it will not share data with third parties except for legal compliance or product performance (paying the person you're trying to pay involves sharing some info) unless you tell it to.
- It's meant to make paying for things online easier: Money transfers are slow and can take two to three days--Libra will be much faster. Remittance charges to send cash across borders average 7%--Libra will be much less, possibly even free. Sellers could pay reduced transaction fees with Libra, and micropayments become feasible without fees attached.
Facebook's idea is to set up an easy way to move money around online that is not a fiat currency or a bank, but will lead to more commerce and therefore more advertising on Facebook. Almost everybody who isn't involved in Libra has expressed skepticism or outright distrust. We'll see if it ever gets off the ground, and if it does, who might use it.... But at least now you know a little bit more about it.
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