Facebook’s blockchain initiative to now own the world’s financial data: Libra
Facebook’s official stance on cryptocurrencies and blockchain technologies has been a topic of debate over the years, but commanding a hefty 2.4 billion users — each move they make towards or against has a significant and cascading effect on the aggregate crypto market.
At first, their position was seemingly made clear when they banned any and all crypto advertisement on the platform — implemented early 2018 as a result of their belief that many blockchain businesses were “not operating in good faith”. This policy was later redefined — lifting the blanket ban and applying some restrictions to specific methods of promotion and crowdfunding. Many speculate this was the first indicator that Facebook had taken more than a casual interest in the space.
Fast forward to spring 2019, and Facebooks’ announcement to launch their own asset-backed cryptocurrency doesn’t come as a surprise, given their registration of Libra Networks LLC in Switzerland late last year and numerous reports surfacing over the last few months about Facebook’s new digital currency and payments ecosystem.
This Tuesday, Facebook released the white paper for their Libra Currency and Libra Reserve, marking the beginning of Facebook’s ambitious endeavours to utilize cryptocurrency to improve their products and offer new services.
What is Libra? What is Calibra?
Five years in the making, Libra is an asset-backed cryptocurrency — a stablecoin — that serves as a medium of exchange pegged to the value of fiat currencies worldwide, making it much less volatile than other cryptos like Bitcoin. This stability helps keep the asset a viable store of value, allowing merchants and shoppers worldwide to participate in this self-proclaimed ‘global currency’ with peace of mind.
The main goal of the Libra project is to empower billions of people with a simple digital currency and financial infrastructure to enable peer-to-peer payments and to facilitate simple cashless transactions from an internet-connected device, particularly in developing nations.
Positioned to address the 1.7 billion adults in countries where the economy or banking systems are unstable or unpredictable — Libra allows the currently ‘unbanked’ to participate in a ‘unified financial ecosystem.’ This enables users to make fast, low cost and secure peer-to-peer payments or shop with online merchants and brick-and-mortar businesses worldwide.
Supported by the Calibra App — a wallet requiring full KYC — users will be able to store their Libra coins and make peer-to-peer payments or pay for everyday goods and services right from their smartphone. Initially, the wallet app will integrate with the Facebook-owned Messenger and WhatsApp, but given the open-source nature of the project and the incentives for merchants in terms of payment transfer time and fees — let alone increased reach from access to a larger global customer base — this is bound to expand to other third party apps.
Facebook’s Libra project is “decentralized”, open-source and governed by the Libra Association — a nonprofit organization comprised of some of the largest for-profit corporations in the world.
The Libra Association
Made up of 27 nodes and expected to reach 100 as the project launches, companies including Mastercard, Visa, PayPal, Stripe, Coinbase, Uber and Vodafone reportedly each invested $10M USD in exchange for their own node in the ecosystem and one vote towards the governance of the Libra project.
It is also fair to assume that given their direct involvement, partnering payment and financial service providers would rather collaborate with Facebook on Libra than focus on competing with their own products in the emerging social media payments space.
You have to applaud Facebook for these strategic partnerships in their potential to help drive adoption and usability of Libra. In a climate where the biggest barrier to upcoming innovative blockchain projects is adoption, Facebook’s ability to aggregate their existing user base with that of their partners in the Libra Association will provide a huge head-start.
Despite the lack of a launch date and with the price of the Libra coin having not yet been determined — we will end up seeing Facebook’s stablecoin listed on many of the most popular crypto exchanges sooner than we may expect. In recent talks with crypto exchange leaders Coinbase and Gemini, Facebook has been discussing the terms listing their coin on these exchanges — working to ensure legal compliance, security and liquidity for the buyers and users of the asset-backed cryptocurrency.
Will it work and do we need Libra?
Having purchased Whatsapp back in 2014 for a respectable $19B and Instagram in 2012 for $1B — Facebook owns some of the most popular online platforms in the world. However, a top rivalling messaging and social network — WeChat, popular in China — already claims this functionality.
WeChat has an in-built wallet and payment system that is regularly used by its user base for peer-to-peer transactions. An estimated one billion people use the service, which is clearly reflected in the success of development house Tencent who enjoy a profit margin of $3.3B.
The potential for additional revenue streams for Facebook — an estimated $19B by 2021 according Ross Sandler, an analyst at Barclays Bank — could mean that we could see the giant grow even bigger, despite privacy concerns from the misuse of data as seen in the Cambridge Analytica scandal or of data breach due to buggy code, bad practice or otherwise.
Still, with Zuckerberg made a public commitment to improving privacy within the social platform as a whole (as announced in Facebook’s yearly conference F8), and with the registration of Calibra as a separately regulated subsidiary in which Facebook has the same level of governance rights as the other partners — it looks like they have approached this from the right angle.
Winning over regulators will remain a challenge, though. Already several regulators in the states and Europe are calling for hearings. With the white paper having just come out and still at least a year until any main net launch,only time will tell how all of this unfolds.