Abra-ca-libra! A 101 on Facebook Libra

Abra-ca-libra! A 101 on Facebook Libra

Facebook has only pulled a cryptocurrency out of it’s hat, having “secretly” been working on the project for a year! Last Tuesday 18th June, Facebook announced the launch of the joint venture called Libra coin (a cryptocurrency run on blockchain) & Calibra (the subsidiary running the wallet). We take a look at what’s been announced and reported across: payments, crypto, blockchain & the unbanked. Tackling some big questions…

 

What do we know about Libra & Calibra?

Libra – the joint venture launching cryptocurrency built on blockchain

  • Facebook unveiled ambitious plans to create an alternative financial system – called Libra – that relies on cryptocurrency technology. 
  • A team at Facebook built the Libra project, and has added the partners to manage it, including many big technology companies, to oversee the Swiss association. 

The Libra network, announced that ‘Libra coin,’ the unit of cryptocurrency, is intended to be sent instantly, and with almost no fees, anywhere in the world – using blockchain technology.

 

Calibra – the consumer facing payments wallet

  • The Calibra wallet is designed for the Libra coin and will be integrated to WhatsApp, Instagram and Messenger from 2020 to bring payments to the “1.7Bn people who don’t have bank accounts.” 
  • Users will be able to send money, buy items or pay bills with Calibra. Pseudonymously (under an assumed name) you’ll be able to buy or cash out your Libra online or at local exchange points like grocery stores, and spend it using Calibra built into WhatsApp, Messenger and its own app. 

Calibra is expected to “provide financial services to individuals and businesses, including saving, spending and sending money.” – the New York Times reports.

Why is it such a big deal?

  • Facebook announced the Libra association with a number of the world’s largest companies across a number of specialisms – indicating a huge network and ability to scale quickly, worldwide, when it eventually launches. 

Techcrunch reported the 28 founding partners include:

  • Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
  • Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
  • Telecommunications: Iliad, Vodafone Group
  • Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
  • Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
  • Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

What’s motivating Facebook & Libra? 

“It feels like it is time for a better system…This is something that could be a profound change for the entire world.” – David Marcus, Head of Facebook’s Blockchain- Research

Why now? 

  • This is Facebook’s stake in the global payments market, following competitors like Apple, WeChat, and Google who are making inroads into global finance.
  • Leading payments advisor, Karen Webster for Pymts reports: “payments players like Alipay, WeChat, Paytm and Grab are creating their own domestic and regional mobile money schemes…to create new payments flows and lower the cost of money transfers by moving more of those flows digital.”

“The results [of other payments players] are demonstrable and compelling, particularly for women and other microbusiness owners who are able to lift themselves out of poverty by being included in the world’s financial system.” – Karen Webster of Pymnts.com 

How will Libra coin work, when its launched?

In the FT, Kevin Weil, head of product at Calibra, said:

 Calibra “hopes to partner with local businesses such as convenience stores where people could hand over cash and load Libra directly on to a mobile phone and vice versa..They have a scanner and you have a QR code on your phone….” – Kevin Weil, Head of Product, Calibra.

  • Libra is still early in the process of developing Calibra. “Along the way we’ll be consulting with a wide range of experts to make sure we can deliver a product that is safe, private and easy to use for everyone.” 
  • 11FS Blockchain Insider Co-host Sarah Feenan intimated: “you can buy in Libra in your local currency, if Libra supports it, then off ramp with it.”
  • On ramp / off ramp rates will be key to it’s accessibility aims.

How is Libra different from other cryptos e.g. Bitcoin, Ripple etc?

  • Libra coin is positioned as a “low volatility” cryptocurrency to offer more financial stability than most existing cryptocurrencies and fiat currencies in some developing economies with currency that can be far less stable. 
  • Whilst early announcements say ‘Libra coin is built on some of the same principles as Bitcoin’, well known commentators say the differences between Libra coin and blockchain’s cherished properties are stark. Founder of Nuggets News, Alex Saunders explains in this handy comparison 

“[Libra] it’s definitely not on the decentralised scale…..on permissionless, governments in France & US are already pushing back. I don’t think this will be a simple case of anyone sending money to anyone.” – Nuggets News

  • The Libra website  states: “unlike the majority of cryptocurrencies, Libra is fully backed by a reserve of real assets. A basket of currencies and assets will be held in the Libra Reserve for every Libra that is created, building trust in its intrinsic value.”
  • Wired Business reports: “the Calibra experience will be more Venmo than Bitcoin. Calibra will store your Libra coins and hold the cryptographic keys required to access them—a user-friendly move, in the sense that you can lose your password or phone and know your money will remain accessible.”

How is Libra building this via blockchain?

  • Karen Webster of Pymnts.com revealed: the Libra ecosystem consists of new rails, the Libra Blockchain, built by Facebook engineers, and the introduction of a new programming language, ‘Move,’ designed to make it more efficient and more secure..” 
  • Libra’s testnet is open source (Apache 2.0 licence) allowing developers to read, build and provide feedback.

What about regulation of Libra’s Blockchain?

  • As stated in Libra’s whitepaper: “The Libra Blockchain is pseudonymous (under an assumed  name) and allows users to hold one or more addresses that are not linked to their real-world identity. This approach is familiar to many users, developers, and regulators.”

What about regulation of Calibra wallet?

  • The Calibra wallet & developers will be regulated. The actual standards for the Libra coin currency will be managed by a nonprofit in Switzerland called the Libra Association. 
  • The currency will have its own central bank known as the Libra Reserve, and the board will be the committee of corporations that helped set it up.
  • Organising a global payments system, such as Calibra promises to be a complicated and difficult task, one that requires enormous investment in compliance systems.  

How much control will Facebook have?

  • Techcrunch reports: Facebook won’t fully control Libra, but instead get just a single vote in its governance like other founding members of the Libra Association, including Visa, Uber and Andreessen Horowitz, who have invested at least $10 million each into the project’s operations. 

Won’t potential users be wary of Facebook’s data reputation?

  • In the announcement, Facebook states: “Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent…The limited cases where this data may be shared…to keep people safe, comply with the law…”

“Using Libra means trusting Facebook, which is a hard sell in 2019. And where cryptocurrency initially meant decentralizing power, Libra means further entrenching one of the most powerful companies on Earth.” – Russell Brandom, The Verge, Policy Editor

Finally, what’s with the name Libra? (it appears – quite a lot 😉)

  • Facebook named Libra for three reasons: its use as an ancient Roman unit of measure, the astrological symbol depicting the scales of justice, and its phonetic resemblance to the French “libre,” meaning free. “A combination of money, justice and freedom,” explains Facebook. 
  • The aim is a huge & commendable one – enabling a more inclusive global financial system.
  • Delivering on privacy & security is a fundamental task for a bank or anyone handling financial transactions. One that will be watched closely as Facebook heads into negotiations on government regulation & big tech break-up.
  • Cocreator of Libra coin, former head of Messenger, David Marcus says: 

“Convincing people of Facebook’s intentions makes the job much harder…This is by far the most difficult, intellectually stimulating and challenging thing I have ever done in my life” – David Marcus, Cocreator of Libra coin

  • To uphold values ‘money, justice & freedom’ – Libra will have to draw on both its powerful partners and grassroots developers, quicker than some serious rivals.
  • Today, cryptocurrencies are backed solely by the willingness of users to accept them. To develop a global cryptosystem, Libra will have to prove it can act independently of self-interest.
  • With an audacious goal, the headwinds & challenges Libra face – only thing one can be certain – this is just the beginning for Libra. We expect more, Abra-ca-libra! 

How can I keep across developments?

Sarah is Marketing & Community Lead at Xinja.
The content above does not represent any form of advice and Xinja has obviously not considered your individual circumstances in preparing this. It is simply a few thoughts on Facebook’s Libra announcement.

SaveSave

join Xinja
  • This field is for validation purposes and should be left unchanged.