Facebook’s Libra holds the potential to become the biggest global financial entity, but there are barriers it has to overcome.
Ever since Mark Zuckerberg made a public announcement of his company’s interest in participating in cryptocurrency using its digital crypto, Libra, there has been an increased interest in what cryptocurrency is all about. There is no doubt that the Libra coin will be a game-changer.
With a ready market of more than 2 billion active users on Facebook, the Facebook coin is poised for an official launch in the course of 2020. The announcement saw Zuckerberg quizzed by senators regarding his proposed currency.
What do you need to know about it? Read this article to the end to get your facts right.
Table of Contents
What is Libra?
Libra is Facebook’s digital currency which is poised to help in simplifying and reducing the cost of money transfer. The cryptocurrency will also help better financial access, more so for those who do not have bank accounts or do very little banking.
The Libra Network is the blockchain technology on which the cryptocurrency is built. Blockchain refers to a series of nodes (servers) which record and verify transactions executed across the network.
Most cryptocurrency networks are built to allow any node to join its network. However, the operation of the Libra Network will be different in that only servers with required permission will be able to join.
The approach is aimed at helping the network run faster compared to other cryptocurrencies. With an improved speed of transactions, Libra will be viable for everyday uses such as buying items online.
Libra Network operates on open-source code, making it easy for any developer to create products for use with Libra. The long-term plan is to eventually convert the Libra Network into public blockchain, but guideline as to how that will happen is yet to be released.
A brief timeline
To get a clear picture of where Libra is headed, it is important to go over some key events that it has gone through:
- May 2017 – Morgan Bellerleft quits Medium.com for Facebook. Nine months later, she becomes part of the blockchain strategy team, where she works on Facebook’s blockchain initiative
- 8 May 2017 – Facebook VP, David Marcus, joins the new Libra team and begins works on the new project alongside Weil and Beller. More Facebook talent is recruited into the newly created blockchain division.
- 13 June 2019 – First major public speculation about Facebook working on a cryptocurrency leaks courtesy of The Wall Street Journal. The Article indicates Facebook’s plans to make public the crypto in a few weeks’ time. It is also revealed that Facebook has the backing of top payment processors such as MasterCard, Visa, Booking, PayPal, and Stripe, each of which commits $10 million into the project.
- 18 June 2019 – The social media giant makes an official announcement regarding its entry into the crypto world. As a not-for-profit entity, Libra Association, is also announced to be in charge of the new currency.
- 16 July 2019 – Marcus makes it clear to the U.S. Senate that the Libra will only launch after the lawmaker’s concerns are handled.
- 4 October 2019 – PayPal desists supporting the Libra Association.
- 11 October 2019 – Visa, MasterCard, eBay, and Mercado Pago follows PayPal’s move and withdraws from the Libra Association.
- 15 October 2019 – Libra Association is officially launched in its Geneva headquarters. Among the supporting organizations of the association are named as Women’s World Banking, Uber Technologies, Coinbase, Spotify AB, Creative Destruction Lab, Vodafone, Lyft, PayU, among other organizations.
- 6 December 2019 – Steven Mnuchin, U.S. Treasury Secretary, says he is ‘fine’ with the launch of Libra as long as it remains compliant with anti-money laundering regulations.
- 20 December 2019 – Christine Lagarde, European Central Bank President, says that Libra may get an unfair advantage from Facebook’s big name on social media.
- 7 January 2020 – Reserve Bank of Australia becomes skeptical that stablecoins such as Libra would ever be adopted by the masses.
- 9 January, 2020 – Mark Zuckerberg says that Facebook has a goal to completely decentralize most of its operations by 2030. Even though he mentions Facebook’s plans to encourage digital payments, makes no reference to Libra.
- 6 February 2020 – The Governor to the Federal Reserve mentions that the U.S. central bank is considering countering Libra with its own digital currency.
- 16 April 2020 – The Libra Association updates its white paper, making changes to the original vision.
- 28 April 2020 – Checkout.com becomes a part of the Libra Association
- 6 May 2020 – Former U.S. Under Secretary for Terrorism and Financial Intelligence, Stuart Levey, becomes the new CEO for The Libra Association.
Why is Facebook launching Libra?
The main reason Facebook chose the cryptocurrency is to provide financial services opportunity to the unbanked. A report released by Business Insiders shows that more than 2 billion people worldwide lack a bank account.
Some intriguing facts that motivate the creation of Libra:
- 20% of the unbanked adults get government transfers or wages in cash, whereas a considerable number of people in developing nations pay school fees and bills in cash.
- More than half of the unbanked globally comprises of women.
- 438M people in Southeast Asia are unbanked. The mentioned number accounts for 73% of the population
- About 190 million residents in India are unbanked, making this the second largest number after China. India is the current focus for Libra.
Regions with less than 15% of the population holding a bank account are marked in green.
Facebook aims at using Libra to ride on the rapid increase in Internet connectivity so as tackle the banking issue.
Who will control Libra?
Operations of the digital currency will be controlled by The Libra Association.
Facebook describes The Libra Association as a not-for-profit organization whose headquarters are in Geneva, Switzerland. It is mandated with two main duties – managing the reserve Libra and validating transactions on the Libra blockchain.
The Libra Association will have a governing body called the Libra Association Council, made up of a representative from each member of the association. The purpose of this council is to vote on policy and operating decisions.
According to the social media platform, as much as it created the crypto and its infrastructure, it will withdraw from a leadership position upon launching the cryptocurrency. Each member of the association is set to have the same voting rights concerning the governance of Libra.
How to get Libra
You might have come across exchanges claiming to sell Libra. These are scams and are out to steal your hard-earned money. At the moment, Libra is not yet available for buying and selling. What we have are speculations of release dates and year as works on the cryptocurrency continue.
The position that Libra has held on to is that it will only go live after all regulatory concerns are handled.
Facebook has not yet given clear information on how people will acquire Libra upon its official launch. However, all indicators point towards a hybrid approach. Initial involvement of payment processors such as PayPal, MasterCard, and Visa suggests Facebook intends to let users buy the cryptocurrency using fiat currency.
Similarly, the inclusion of Coinbase shows that the cryptocurrency could be exchanged for designated crypto trading platforms.
There is also the possibility of Facebook performing “airdrop.” Airdrop is a strategy in which the social media giant would hand out small amounts of the cryptocurrency freely to jumpstart the ecosystem. That would be an important approach considering that the underlying goal of Libra is to provide financial services to those without bank accounts.
As the ecosystem matures, the users will definitely require a reliable source of Libra income as opposed to depending on handouts from Facebook. With time, Libra founders could even start offering to pay their employees part of their salaries, if not all, in Libra.
Facebook aims at making Libra usable in 2020, but there are dozens of roadblocks that are preventing this from happening. Besides regulatory issues, the Libra Association needs to settle on the final design of the cryptocurrency. It also needs to find banks that can hold money to back up the cryptocurrency.
How will I use Libra?
The possible use cases for Libra can be drawn from the kinds of partnerships that Facebook continues to strike around Libra.
- By partnering with Uber and Spotify, it is hoped that the crypto could be used to pay for car rides and online subscriptions, as is the case with Venmo and PayPal.
- More than 2.7 billion Facebook members could leverage Libra to pay for things such as ads.
- With Calibra, a digital wallet for Libra, users could transfer cash to any member across the globe. Doing so would tackle a banking problem that most people have often faced.
- The overall set up of Libra is such that any other interested company could accept the coin as a payment method.
Conclusion
The fact that Facebook is championing this cryptocurrency is sure to be disruptive. With access to a ready market of more than 2.7 billion users, it is understandable why regulators are concerned. After all, the social media giant has not had such a good record regarding its handling of user data.
Either way, it would be interesting to see how Libra turns out to be after the official launch. Even though Facebook hopes to roll it out to the whole world, we can already anticipate limitations from countries like Iran and China.
