Facebook has announced that it’s working on a cryptocurrency. Libra will be powered by blockchain technology and will be used to send payments from Messenger, WhatsApp, and from other third-party applications.
If it works, it could be a very big deal.
Facebook isn’t new to the world of digital payments. American users have been able to send each other money through Messenger since March 2015, and a similar service started in France and the UK at the end of 2017.
But Mark Zuckerberg is known to have his eye on WeChat, China’s social media platform that is also used to send cash, pay bills, and even pay for goods in stores. It’s helped to make China a largely cashless society, and it’s made WeChat an essential part of life in the country.
Zuckerberg would desperately like Facebook to play a similar role in the West, and to do it on an international basis. Instead of only being able to send money to someone in the same country, anyone anywhere (including people who don’t have bank accounts) would be able to send funds to anyone anywhere else using an app. Facebook’s advertisers would be able to sell and collect payments directly from their ads. That means creating a new currency.
There are three important things to know about this new currency:
1] Libra is Stable
Bitcoin leaps around, which is good for speculators but makes it difficult to use as a means of exchange. Its value can change by multiple percentage points every day. But Libra’s value will be tied to bank deposits and government securities in a number of international currencies, including the dollar, pound, euro, Swiss franc and yen. As long as those assets remain stable the Libra’s value will remain stable too. When you use Libra, you won’t have to worry about its value collapsing the day after you buy some.
It will also be fast. Bitcoin can only manage seven transactions per second; Libra will be able to manage 1,000.
2] Libra Won’t Be Controlled by Facebook
Facebook doesn’t have a great record of keeping data safe. It would have to work hard to persuade people that it can keep their finances safe. To Facebook’s credit, it has recognized that problem which is why it’s not building Libra alone. Instead, the company will have just one vote alongside a number of other founding members of the Libra Association. They include names like Visa and Uber, as well as venture capital firm Andreessen Horowitz. Each of the companies has to pay $10 million to support the project.
Both of these points will make Libra more easy to use as a currency than Bitcoin. But they come at a price. Unlike Bitcoin, Libra is not decentralized. The founding members will have influence over how the currency works. And because the coin is backed by national currencies, it will also be influenced by decisions made by national banks. Libra isn’t the libertarian dream that Bitcoin claims to be.
3] You Might Just Need It
It’s not clear whether Libra will work. Facebook’s payment system hasn’t been a runaway success. Earlier this year, the company announced that it was discontinuing free peer-to-peer payments in France and the UK, less than two years after rolling the service out. Even supported by other companies and by third-party providers, users will still feel cautious about putting their money, as well as more data, in Facebook’s hands. But if it does work, you might well find that it becomes the easiest and safest way to make any payment online, whether you’re booking a hotel or buying something on Ebay.
Joel Comm is New York Times best-selling author, blockchain enthusiast, professional keynote speaker, social media marketing strategist, live video expert, technologist, brand influencer, futurist and eternal 12-year old. His latest project is as co-host of The Bad Crypto Podcast, a top cryptocurrency show making the future of digital payments easy to understand.
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