Facebook’s New Libra Coin: How Does It Work and Is It Worth Buying?
Facebook on Tuesday announced Libra , a cryptocurrency it will launch (along with 27 other partners) in 2020. A bit like Bitcoin and a bit like PayPal, Libra will be the new digital currency available to people without bank accounts or credit cards. but it could potentially be a great force for all of us. But first, you must trust Facebook with even more personal data. Here’s what you need to know.
How it works?
Libra is the future digital currency that users can access through apps and use to pay for things or send money to each other. In that sense, it’s very similar to PayPal and Venmo.
But unlike PayPal and Venmo, Libra is primarily targeted at people without bank accounts. (See “Why would I use this?” Below.)
To store and exchange Libra, you need to use a “wallet”: an application that can be integrated into existing applications, like PayPal or Apple Pay integrated into other applications. The current plan is to allow many developers to create their own wallets.
Unlike Bitcoin, Libra’s value is tied to a government-issued currency such as the dollar, namely a “basket of market value of several reliable currencies,” Wired reports . This is one of several ways Libra will try to avoid the weird, scam, and gambling atmosphere of Bitcoin and other cryptocurrencies. This is not the coin you buy because you think it will become 100 times more expensive. It’s more like exchanging dollars for euros.
You don’t need to know this next part, but it has some implications that we’ll explain later. On the backend, Libra processes transactions using a blockchain like bitcoin. Blockchain is a distributed transaction record that records who owns which coin and who transferred the coin to whom. But while the Bitcoin blockchain is shared among everyone who uses it, the Libra blockchain is governed by the Libra Association. (See “Who’s Controlling It?” Below.)
When it will be?
The Libra Association plans to release the coin sometime in 2020. It will be immediately available on WhatsApp and Facebook Messenger, as well as through several other Libra partners.
Do I have to use it?
Not yet. Maybe never. The answer is likely to lie between your answers to “Do you need a Venmo?” and “Do you need a credit card?”
How long have people known about this?
Facebook started work on Libra in early 2018, according to the history of the Wired coin . Some details about the coin were leaked in 2018 , but most were unclear until yesterday Facebook launched a website and white paper .
Who did it?
The new coin and its base code are controlled by the Libra Association , a consortium of companies and foundations made up of 28 partners, but Facebook is the driving force.
Founding partners include eBay, PayPal, Vodafone, Spotify, several investment firms and cryptocurrency companies, and several non-profit organizations. Each partner votes for group decisions. Each partner invested at least $ 10 million , in part to create a reserve of fiat currency (i.e. regular dollars) to be exchanged for Libra.
Facebook is one partner. Another company is Calibra, a wholly owned subsidiary. The association hopes to add more partners over time to further decentralize the currency and reduce its own control over it, as well as strengthen faith in the currency as something bigger and “more real” than Flooz, airline miles or Disney dollars.
What is Caliber?
Calibra creates and remains a “wallet”: an application that allows you to exchange Libra. While other developers can create their own wallets, Facebook is integrating Calibra with WhatsApp and other Facebook apps, so they have a huge advantage. In these apps, you can send money as easily as text messages, similar to Apple Pay in the Messages app.
While Facebook shares control of the Libra currency with the rest of the Libra Association, it fully owns Calibra and this is unlikely to change.
Why would I use this?
If PayPal and Venmo are working fine for you, you may not have a reason, according to Aaron Lammer, co-owner of the CoinTalk cryptocurrency podcast . But you are not who Libra is currently targeting. According to him, the biggest sales market is people who send money to families abroad.
According to an official Libra document released on Tuesday , “1.7 billion adults worldwide remain outside the financial system, without access to a traditional bank.” This is 31% of the world’s adult population. And if you’re trying to send money to one of that 1.7 billion, your current options are, in Lammer’s words, “pretty predatory.” The fees for these international transfers average 7%, according to TechCrunch .
You cannot use PayPal or Venmo to solve this problem; both require a bank account. But you don’t need a bank account to get into Libra. A billion unbanked people have a mobile phone and half a billion have Internet access. They could receive money in the form of Libra on their phones – and spend that money in the form of Libra as well. Libra will make these transactions cheaper than other non-banking options.
Of course, you can also fund your Libra account from your bank account through PayPal or Stripe, which are Libra’s founding members. And not just to send it to people without banks. For the rest of us, Libra will still have benefits, especially the incentives to use them in place of a credit card. Other founding members of the association include Uber and Lyft, eBay and Spotify. All of these companies will want to let you pay in Libra – and they might offer discounts if you do.
Lammer compares this to credit card rewards trying to keep you locked up in their ecosystem. For example, an Amazon bonus card returns 5% of all Amazon purchases to users in the form of an Amazon credit. If using Uber with Libra is 1% cheaper than using dollars, you should consider buying Libra. Specific discounts like this have yet to be announced, but they are definitely in the works.
Why would a company want me to use it?
So that you remain a client
First, companies like Spotify say they want to attract customers who currently can’t pay because they don’t have a credit card. Second, they can build your loyalty by encouraging you to keep your money in Libra and use affiliate promotions to exchange customers until every Uber customer joins Spotify, and vice versa.
Save money
Keeping you in Libra can save these companies a lot of money. If they want to receive your money with a credit card, they will have to pay a transaction fee. (This is why so many local stores offer “cash discount” or minimum purchase, even if it goes against the rules of the credit card issuer. They hate sending so much of their money to Visa and Mastercard.) But if you use Libra, there is only a tiny fee. much less than a credit card transaction, TechCrunch says.
To track your purchases
The biggest reason could be customer data. Libra transactions will be pseudonymous – you will be able to have an account that is not associated with your real identity – but you will still need to track a lot of user activity. Even aggregated data will give Libra members valuable insights into customer behavior so they can better target ads and motivate you to spend more of your money. And while Libra and Facebook promise to keep the wall between your personal financial data and social data … well … do you trust them?
To sell you more services
Facebook’s Calibra will build more financial services on top of Libra, Calibra vice president Kevin Weil told Verge . For example, he says, they may offer lines of credit. While Facebook won’t have full control over the currency, it will offer a default app to access that currency. This is the Apple Podcasts money app. Thus, Facebook can double the rate for this currency, which most of its partners will not do.
How much is it?
Libra will be cheaper to use than many other money transfer services, with transactions costing a fraction of a cent. And for businesses that accept it, transaction fees will be much lower than credit cards, which could even make microtransactions more attractive.
If you mean “how much is one Libra”: somewhere around one dollar, one euro or one pound. And this will not change dramatically, unless some of the world’s major currencies change dramatically.
Can I invest in this?
Not how you can invest in Bitcoin because Libra won’t get (or lose) a significant increase in value. You can apply to join the Association if you have $ 10 million and have a good reason why they should include you. Or, you can invest in the many businesses that Libra will support.
Will my money be worthless?
Unlikely. If Libra succeeds, their value will remain stable. If it doesn’t work and no one uses it, the Libra Association still has reserve money, so in the event of “bankruptcy” – if all users withdraw their money at once – the Association is good for it. There is always some risk, but it is nowhere near as dangerous as Bitcoin, where the price fluctuates a lot.
Will my money be hacked or stolen?
It depends on how ready you are for the adventure. If you only use Facebook’s Calibra app and other official apps and don’t just send money to anyone who asks for it, you will be completely safe. While trying to establish Libra’s legitimacy, Facebook will prioritize security, but the company has already been hacked . There is another possible security measure: As long as a small consortium controls the currency, Lammer says, even a major hack could theoretically be reversed if the controlling participants agree.
You need to be careful with third party apps. The Libra Association has released open source so third-party developers can create their own Libra apps without any verification by the Libra Association. Therefore, you should not use any application unless you can verify that it is legal. And just because an app ends up in Google, Apple, or Amazon app stores doesn’t mean it’s legal; Apple has inadvertently allowed some apps to record user screens without their knowledge , and Google and Apple have approved malware apps that send data to a malicious server.
You can always fall for a scam just like with a regular credit card or PayPal. You must be just as careful with your Libra as you are with the rest of your money. Calibra will have the same fraud protection as PayPal or your credit card, but we’ll need to see how well the customer service is.
Can I Trust Facebook?
Laughing out loud.
Facebook promises not to take certain data from your Libra transactions or use it in other parts of Facebook, for example, to show you targeted ads or decide which posts to post on your feed. But in Calibra’s “customer commitment” document , it’s already cut out some ways you can separate data, such as data for anonymized research and aggregated data for Facebook, and police inquiries.
This alone is a big drawback, at least compared to more decentralized and anonymous cryptocurrencies. Lammer notes that tracking transactions is a common way to catch white-collar criminals. Facebook and other tech giants have a track record of transferring large amounts of data to law enforcement . Do you trust that government agencies will never abuse their power of oversight? Have you … have you heard of the NSA?
You don’t need to have a Facebook account to join Calibra. However, you must provide Calibra with a government issued ID. (Third-party developers may let you skip this step.) There is a balance here that Facebook needs to achieve: it needs a freer currency, but it doesn’t want to be a playground for the money launderers and criminals that some other cryptocurrencies are known to be. … Lammer even bets that early PayPal was a useful tool for money launderers before he needed to legitimize himself and avoid prosecution. Facebook is too resilient to play this game, at least as aggressively as a young startup.
Calibra expressly declares that it is permitted to use your data to sell other Calibra products to you. This is not unusual. And while he won’t share Calibra data with Facebook, he may ask you to share your Facebook data with Calibra . But he promises to ask your permission.
And as far as Facebook promises, well, Facebook has never misused its users’ privacy before, right ? Lammer believes the company will get creative and find ways to capitalize on all of this transactional data. But to be honest, they at least started with a public pledge to keep their finger on the pulse of their data. Not that you can stop them if they change their minds.
Will there be a Google coin and an Apple coin?
One of the motivations behind Libra’s creation, Wired says, was that Google, WeChat and Apple had their own payment services. This is why Lammer thinks other tech giants are not going to launch a coin like Facebook; they each have different strategies to get into the middle of a transaction.
Apple and Google have app stores where they can take a bite out of every software purchase, and payment systems that make your phone as irreplaceable as your credit card. Amazon has turned its online store into a platform where anyone can sell anything and give Amazon a small chunk of their money; it uses partnerships, credit card rewards, and Amazon Prime subscriptions to make Amazon your favorite way to buy any physical item.
Facebook makes money by helping advertisers target you, which is why Libra is a gambling game that helps collect more purchase data. Anonymized data, perhaps, but still. Every time a big tech company has a shiny new product, ask yourself how they’ll get their money back.