Facebook has unveiled plans to launch a digital currency called Libra. Read our introductory guide that tells you all you need to know about why it is generating a great amount of hype.
The exciting news in the world of finance and cryptocurrency this past few weeks has been the unveiling of Facebook Libra. The digital currency will be rolled out for use by Facebook’s 2.4 billion users in 2020. It will allow them, primarily, to make financial transactions online for free.
This significant move by the world’s biggest social network could change the entire banking landscape. But given the recent scrutiny that Facebook has faced from regulators and antitrust campaigners, it’s seen by some as a step too far. Do you really want Facebook owning your money as well as your holiday snaps? Can you trust Facebook with your financial data?
Concerns aside, Libra is fascinating, and here are the basics that you need to know.
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Facebook themselves say, Libra is a “global currency and financial infrastructure”. In short, they mean Libra is a digital asset, like bitcoin, that will be built on a Facebook-created blockchain.
According to Facebook, the main reason they’re launching Libra is to give banks accounts to the near 2 billion people on earth who currently don’t have them. That seems like a noble mission.
But they also want users of their social network – meaning you and me who, I presume, have Facebook accounts – to use Libra. Then we will do our banking and make payments with the new digital currency.
It’s not clear yet. Libra will launch in 2020, so more details will come out later this year.
Interestingly, Facebook has partnered with the likes of VISA, Mastercard and PayPal. This suggests that Facebook users will be able to buy Libra using one of those methods. Like buying euros at your bank with a VISA debit card, you should be able to buy Libra in the same way.
There are also rumours that Facebook is going to be handing out Libra for free in the early days in an effort to get the system up and running.
Once you’ve got your Libra in the Facebook digital wallet, called Calibra, you can send the currency to anyone else who has a smartphone. The wallet will be integrated into Facebook’s family of apps, such as Whatsapp and Messenger.
Facebook also wants to allow you to transact with vendors for day-to-day transactions, like paying for your Uber, buying a coffee in Starbucks or paying for your Spotify subscription. Although details about how and when this will be possible aren’t yet clear.
Perhaps most intriguingly, buried in the Libra whitepaper, is a brief section on identity. It says:
“An additional goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite to financial inclusion and competition.”
In 3 lines, and the 3 words, “open identity standard”. Facebook sets out how it thinks society will benefit from a decentralized, portable digital identity. Unlike other companies who want to build an identity database from scratch, Facebook has a headstart, given that we all have accounts.
This is important because this is perhaps the future of Facebook. Today, Facebook helps you have an online identity and advertisers pay to access it. In future, Facebook gives you a digital identity that is very much relevant in the physical world and gives you a cryptocurrency to pay for items in it.
This may only be a brief statement about identity. But it seems this will be an important part of Libra and Facebook going forward, so keep a look out for further developments.
Privacy, especially around data and identity, is a concern. Facebook has had data breaches, privacy scandals and controversial company responses. CEO Mark Zuckerberg says he wants Facebook to become a “privacy-focused” social network, but critics find it hard to believe him.
With Libra, Facebook has said that it will keep the data gathered from the financial transactions we make using Libra separate from the part of the network that generates adverts. So that should satisfy some doubters but many will wait to see more detailed plans for how Facebook is going to keep our privacy and data safe and secure.
Given the worries around privacy, will Facebook be allowed to roll out Libra at all?
There are still many unanswered questions. And, as Facebook builds towards Libra’s launch, much will change. But the company is going to run into regulatory problems, especially given the antitrust issues of the past few years, ranging from the US elections to Brexit.
Many regulators also think that Facebook is already too big and powerful and needs breaking up. So bolting on this hugely ambitious project to their offering will only heighten those voices.
Not until 2020. And, even then, we wouldn’t advise that you convert much money into any crypto, be it bitcoin or Libra.
Even as big companies like Facebook move into the cryptocurrency space, it’s still uncharted territory, with lots of unknowns for investors. The market is unregulated, with few mechanisms in place for those who suffer from the frauds and hacks that take place with concerning regularity.
At Sarwa, we’d only ever recommend investors allocating up to 5% of their portfolios into cryptocurrencies, like bitcoin and Libra, as the risks remain far too high. Any more than that is too much risk. If you’d like to know about our approach to investing, get in touch.
As we move towards Libra’s launch in 2020, we will be writing about the issues and developments on the Sarwa blog as we learn more. So watch this space.
For more information, you can check out Facebook’s detailed whitepaper and watch their very cool teaser video, Introducing Libra.
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