Facebook has announced the creation of a digital currency in an effort that could possibly see the whole world use a single currency.
The company announced that this digital currency will help accommodate close to 1.7 billion people across the globe who don't have a bank account, as well as those who do. This will give people around the world the ability to save the same type of money, get access to credit, and send money around the world with ease.
People will also be able to use this digital currency called Libra coin to buy products and services through Facebook or via the internet.
How do you get Libra coins?
People across the world will be able to exchange real-world money for these digital Libra coins. This can be done in a couple of different ways:
1. A newly formed Facebook subsidiary called "Calibra" will introduce a "digital wallet". This wallet will be present within Facebook's apps such as Whatsapp or Messenger. Calibra will also be available as a separate app that can be downloaded onto iOS or Android devices. Calibra will allow people to convert real-world money into Libra within the app. A number of payment providers such as Mastercard, Visa, PayPal, PayU, and Stripe have already decided to partner with Facebook to get this done.
2. People with no bank accounts will be able go to certain physical stores and shopping outlets to convert cash into digital Libra coins that can be uploaded onto the "digital wallet" on a mobile phone, and vice versa.
3. People with bank accounts will also be able to transfer money from their bank accounts into the digital wallet without losing out a lot on exchange fees.
What makes it different?
Unlike other cryptocurrencies such as Bitcoin and Ethereum, which most people consider as an investment, Facebook's Libra coin is aimed at being a liquid, actual digital currency to use in day-to-day transactions anywhere in the world. It is expected to be a quicker and cheaper option of making payments and receiving money globally. A total of 28 founding companies, including Mastercard, Visa, Uber, Lyft, Vodafone, eBay, Farfetch and Spotify, have already backed the currency.
Since the Libra coin digital currency is pegged to existing real-world currencies such as the dollar or the euro – like a "stablecoin token" – its value is not likely to have the volatile fluctuations that other cryptocurrencies such as Bitcoin have witnessed.
People will be given the chance to spend and transfer money with close to no transaction fees. For the large number of expats living in the Middle East who need to send money across international borders, or need to receive money to sustain businesses or attract investors, this could be a welcome boost in monetary transactions.
Then comes the concern of security, which Facebook has been battling with in terms of its privacy battles. Facebook has already created levels of accountability by handing over the control of the Libra coin to a Geneva-based independent, non-profit consortium called the Libra Association. This consortium consists of dozens of partners including Visa and Uber all of whom have invested at least $10 million into the project's operations. This means that Facebook, and all the individual members of this consortium will each get a single vote in decisions taken about the future of the cryptocurrency. Furthermore, the subsidiary Calibra will run independently from Facebook and has assured that users' privacy will be protected by never using data gathered by Facebook for any payment purpose – whether it be ad targeting, marketing or public transactions. The blockchain technology in itself is run through a network of computers, which means that it is not controlled by any single entity. Calibra, will also adhere to the anti-money laundering and KYC (know-you-customer) mandatory regulations in the jurisdictions where it is active.
A number of NGOs have also partnered with the initiative by becoming "Social Impact Partners". Each of these entities have a proven track record of working to alleviate people from poverty for more than five years. The digital financial inclusion of people within the payment system, therefore, has far-reaching effects on raising people from below the poverty line.
Libra digital currency will also not require the huge amounts of energy in terms of actual electricity spent on mining (as is the case with other cryptocurrencies such as Bitcoin), and could therefore, reduce the carbon footprint that has become a common concern of digital currencies.
Additionally, the blockchain on which Libra is built is an open-source platform, and therefore, practically any company, entity or individual can build applications on it.
What's in it for them?
In some ways similar to a bank, the members of the Libra Association will earn interest on the money that people store as cash in reserve – which is part of keeping the digital currency stable. The Libra coin will be backed by low-risk assets such as bank deposits in various currencies and U.S. Treasuries. People who have the Libra accounts will also be shown the actual monetary value of their Libra currency in terms of traditional money on their screens.
Facebook is hoping to attract at least 100 different members with equal rights to help run the association. In the long run, Facebook intends to move away from the "permissioned" blockchain that is controlled by the consortium of several entities, to becoming a "permissionless" blockchain that is truly decentralized. The social media tech giant estimates that this move will be possible by 2025 – five years from Libra coin's public launch.