In the days of the Roman Empire ‘Libra’ was a unit of measurement of coins. Today, Libra is the name of Facebook’s cryptocurrency that will be launched in the first half of 2020. As much as Facebook will reap its own benefits from launching Libra, what they are trying to do is of a much wider, more humanitarian angle. Facebook’s foray into global digital currency is one that will promote financial inclusion for all, but more on that later.
A Brief History of Cryptocurrency
Cryptocurrency itself is not a new invention, back in 1998 currencies such as B-Money and Bit Gold were created but never saw the light of day. Fast forward to 2009 and the Bitcoin software is made public. Users began ‘mining’, the verb used to describe the creation of this currency. By 2010 Bitcoin achieved a real value, with someone selling 10,000 Bitcoin for just 2 pizzas – Bitcoins that, at today’s value, would be worth $100 million plus! 2011 saw the rise of rival cryptocurrencies and just 2 years later, after reaching $1000 in value for the first time, Bitcoin crashed. By 2017 Bitcoin reached $10,000 in value, and banks worldwide began looking at ways they can work with Bitcoin, solidifying cryptocurrency as a powerhouse worldwide.
The main issue surrounding cryptocurrency is the lack of security it provides. It was designed with anonymity in mind and to be ungovernable, making it an attractive target for criminals – to use and to steal. Security concerns are something that Facebook is used to after last year’s Cambridge Analytica data scandal. Mark Zuckerberg himself had many questions to answer. Facebook’s F8 conference focused a lot around privacy, and how Facebook is combatting this for the future. With Facebook announcing Libra, there has been a wave of scepticism surrounding the security of this new currency.
To put people at ease it is worth noting that Facebook won’t actually fully control Libra, they will instead have a vote in the way it’s governed along with the other founding members of what is known as the Libra Association. Other members of note include Visa, Uber and venture capital firm Andreessen Horowitz each of whom have invested at least $10 million in the project. The association’s responsibilities include:
• Developing the open-sourced Libra Blockchain
• Implementing the bespoke programming language known as Move
• Signing up businesses to accept Libra payments
• Giving customers discounts and rewards
The Libra Association is also responsible for the legitimacy of transactions taking place on the platform, and ensuring that the currency itself remains stable. The stability of cryptocurrencies is an issue that all of them face, mostly because they are not backed by actual currency. When Bitcoin crashed in 2013, falling from $1000 to just $300, it would be another 2 years before it reached $1000 again. With Libra on the other hand, every time you cash in $1, you will receive roughly 1 Libra token in return. That dollar will then enter what is known as the Libra Reserve. Other currencies such as the British Pound, Swiss Franc, Euro and Japanese Yen are also in the reserve, with the idea being that if the price of one of these currencies was to fluctuate the Libra itself would remain stable.
If you’re still not convinced, Facebook will also be launching a subsidiary known as Calibra which will oversee all crypto dealings and protect user’s privacy by never mixing Facebook data and Libra payments – meaning you won’t be subject to ad targeting.
Your real identity won’t be tied to the transactions you make, however, the transactions themselves will be publicly visible. Facebook’s plan is to play the waiting game with Libra, they do not want to immediately begin forcing cash out of it but rather allow it to grow to the point where it is being reinvested back into Facebook by those using it.
As mentioned, one of the ideas behind Libra is the real-life use for those around the world who do not have a bank account. Just to put this into perspective, there are 1.7 billion people around the world who do not have a bank account.
Unfortunately, when sending or receiving money worldwide these people are subject to 7% fees from financial services such as Western Union or Moneygram. These 7% fees cost users $50 billion annually, a staggering figure. Facebook states that with Libra “a college student can pay their rent as easily as they can buy a coffee”.
One of the current problems with cryptocurrency is the number of transactions they are able to handle per second. Just to give you an idea of the situation, Bitcoin can handle 7 transactions, Ethereum can handle 15 transactions per second but Libra will be able to handle 1000 transactions per second. This difference practically leaves other cryptocurrencies in the dust and will ensure Libra has a much better user experience. The reason this is possible is due to the amount of Libra Association members who operate a validator node. These nodes help guarantee the security of Libra as they verify transactions in the blockchain, which is essentially a record of all transactions.
Buying and using Libra will be easy. All you need is an internet connection and form of photo ID, you don’t even need a Facebook or WhatsApp account! Once you have verified yourself you can begin to buy Libra through Calibra or select stores that will sell the currency. Sending and receiving money will be similar to apps such as PayPal or Venmo which can be done at the click of a button. Always looking for that personal touch, Facebook has also made it possible to add a message when sending money to friends and family.
Facebook’s other focus is the effect Libra will have on e-commerce, with the idea being that Libra will make it easier for small businesses to accept payment’s online. If small businesses can accept payments easier, they will sell more and, if all goes to Facebook’s plan, they will reinvest this into Facebook advertising. This will then also improve the speed at which you can buy Libra. It may surprise you to learn that there are 90 million small businesses that have Facebook pages, but only 7 million advertiser accounts. It is clear that Facebook’s secondary goal with Libra is to further its advertising platform’s number of users and revenue.
Another obvious application of Libra is among Facebook’s network of apps. We already know that Libra will launch alongside Calibra on Facebook Messenger and WhatsApp, meaning the possibilities for its use are quite endless. We already know from Facebook F8 that Messenger is being pushed to become more prominent, with the connections between people and businesses ever growing. With more people using Messenger and WhatsApp to contact businesses, we can assume that Libra will be the first choice in the sale of goods.
Just imagine serving a catalogue ad to a user in Messenger, for example, and them being able to purchase right away. Libra would not allow shorten the customer journey, allowing customers to make a purchase without ever leaving the app. Libra will mean that customers won’t need to enter payment information but rather send money instantaneously. Facebook’s hope is to make sending money to friends, family and perhaps making purchases too as easy as sending a message. With the Calibra app, you will even be able to pay merchants by scanning yours or their QR code, which could arguably be even easier.
As with everything, only time will tell what the future holds for Libra. Right now, you can sign up to early access on the platform with the official launch coming next year. Facebook is clearly trying to innovate an area which could do with improvements and if the early signs are anything to go by, they may be on to a winner. In the long-term Facebook wants to be able to offer in-store payments and point-of-sale integrations, increasing the use of the currency worldwide and fattening the pockets of themselves and the other members of the Libra Association, which it also hopes to grow. As of right now, the association stands at 28 members with Facebook aiming to increase membership to 100 before launch.
Sceptics of the Libra argue that Facebook has a reputation for producing over-developed and under-used products. For some, it could be seen as not worth the hassle, or they may not see the difference between current online payment systems such as PayPal and will need convincing in making the switch. Also worth considering is those who have been burnt by cryptocurrency and are reluctant to invest in a new form of largely unknown, unregulated currencies. Libra seeks to aid the most financially deprived in the world, but just how will Facebook get the message of Libra to them? It could be argued that those living in desperate poverty would be harder to reach with marketing relating to Libra. Many speculate that for Libra to become a household name it will need all the help it can get.
As with any new product announcement from Facebook, we’re sitting eagerly on the edge of our seats waiting for developments. We’re intrigued to see how Libra will sit in Facebook’s advertising platform. How great would it be to be able to buy ads using Libra? It seems that it could be a recyclable currency, with Libra generated from ads being used to buy ads to sell products for people to buy using Libra! What part of Libra are you most excited for? Let us know in the comments below.