Facebook, despite earning US$55.8 billion in 2018, isn’t happy with its profit. Facebook wants to become the Federal Reserve of social media – ability to print money and control the money supply and movement ultimately. Meet Libra, the new digital currency just unveiled by Facebook, scheduled to be launched in the first half of next year (2020).
Libra, the secretive cryptocurrency that has been in the making for more than a year is being backed and supported by financial giants like Mastercard, Visa and PayPal, as well as tech companies like eBay, Uber and Spotify. Apparently, Facebook’s plan is to corner the mouth-watering market of 1.7 billion people around the world without bank accounts but owned cheap smartphones.
David Marcus, the chief of Facebook’s Calibra division, said – “We’ve seen internet change the game for everything that could be digitized, except for money. There are 1.7 billion people around the world that are underserved by financial services. Now, anyone with a cheap smartphone has access to all the info they want in the world for free with a basic data plan. Why doesn’t money work the same way?”
To convince people that Libra currency is trustworthy and isn’t run by Facebook, it was revealed that the newly created cryptocurrency will be managed instead by a non-profit association – called Libra Association – and supported by a range of companies and organizations. To enhance the legitimacy of the association, Libra Association is based in Geneva, Switzerland.
So far, Facebook is joined by 27 other companies and organizations that are founding members. Each member of the founding members invested a minimum of US$10 million to fund the operating costs of the non-profit association. The goal is to have at least 100 companies and organizations on board for its launch next year. Each member will entitle to one vote.
Although Facebook won’t fully control Libra, its new subsidiary – Calibra – builds the digital wallet for storing and handling the currency for users. Apparently, Callibra, downloadable from the Apple App Store and Google Play Store, is the ultimate wallet that will be built into WhatsApp and Messenger. Facebook claims that the financial information from your digital wallet will not be used for advertisements targeting.
Unlike highly volatile and speculative bitcoin and other cryptocurrencies, Libra will be backed by relatively stable government-backed money. Marcus said – “If you buy US$50 of Libra, your US$50 makes its way to the Libra Reserve. It’s designed to be stable and confer values on Libra that makes it more like a traditional currency than any of the digital currencies are now. This is the way paper money was created.”
In essence, Libra Blockchain is open-source – designed so that anyone can build on it. Due to the open and interoperable ecosystem of financial services, you’ll be able to send money from Facebook’s Calibra wallet to any other system that accepts Libra. For people who don’t have the ability to digitally purchase Libra with a credit card or digitally linked account, people can exchange Libra for cash.
Once Libra currency launches in 2020, people will need to provide a government-issued ID to set up an account. Users will then be able to convert their local currency into Libra and store that balance of Libra in their Calibra wallet. They can do this electronically – converting currency into Libra either using the Calibra app itself or third-party wallet apps.
To convert cash to Libra currency, users obviously need to go to shops or convenience stores to top-up their balance, the same way people currently top-up their phone credits. Facebook boss Mark Zuckerberg wrote in his blog post – “Any information you share with Calibra will be kept separate from information you share on Facebook.”
To ensure independence from Facebook, Calibra website says that users won’t need a Facebook or WhatsApp account to sign up to Calibra. However, Calibra may ask if users wish to import contacts or profile information from Facebook. For now, there will be zero fees when consumers send and receive Libra around the world, although Facebook is considering “very low” fees for merchants.
But how does Facebook plans to profit from the so-called Libra currency? After all, there’s no such thing as a free lunch. Everything goes back to advertisingrevenue. Facebook’s long-term goal is to get people to spend more time on its platforms. The launch of Libra will enable 2.7 billion people who use its various apps every month to make purchases more easily, which in turn could attract more advertisers.
The immediate profit could be in the remittance business. Facebook says US$25 billion is lost by migrants on fees from players like Western Union every year. Hence, if Calibra could cut the business of Western Union and other money-transfer services, there would be truckloads of money to be made. Even a mere fraction of 1% will see US$250 million of new profit for Facebook.
To boost its security, Calibra will have the same verification and anti-fraud processes that banks and credit cards use. And in case a stranger gains access to your account, Calibra promises to refund any lost assets. Facebook’s relationship with 7 million advertisers and 90 million small businesses are the biggest reasons the company thinks they could do a better job than PayPal.
“Success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee,” – Facebook reveals in its white paper introducing the Libra currency. So the next time you see a three wavy horizontal line, unicode character “≋”, that’s the symbol for Libra cryptocurrency.
– Finance Twitter