Take it or leave it, Facebook is up for the greatest revolution that would hit the cryptocurrency market. This move would probably renew discussions on the adoption and legitimacy of cryptocurrency. While we wait for this to happen, here is what the introduction of Facebook’s new cryptocurrency, Libra would mean for ordinary Facebook users when finally launched in the first half of 2020.
In Simple Terms, This Is How The New Cryptocurrency Termed Libra Would Work
At a go, Libra will allow Facebook users to purchase goods or send money online by using Libra. In other words, Libra is now a currency like Dollar or Yen or Pounds, although it could better be called digital currency. To be able to use Libra, you just need your Facebook or Whatsapp account.
A Libra wallet called Calibra Wallet would be built into those apps. You can also create a separate account using Calibra wallet if you are not on Facebook or Whatsapp. Calibra wallet is an app on its own which you can download from Google Play or other similar platforms.
Instagram messages won’t be included, for now. Calibra will then let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost.
Facebook notes that Libra’s:
“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 writes in its Libra documentation.
You can also use it to make purchases from your favorite online shops that are themselves accepting Libra. Libra is not some physical money you can see or touch, but rather some sort of computer coins or money, if you may call it. But these computer coins or money have the same value as your normal dollar or Euro notes.
Once you log on to Calibra, you would see some Libra to buy. Attached to each of these Libras is the dollar or yen or euro equivalent. Once you purchase a Libra it would be backed by a reserve fund of equal value held in real-world currencies.
The idea of Libra is that you will cash in some money and keep a balance of Libra that you can spend at accepting merchants and online services. You will be able to trade in your local currency for Libra and vice versa through certain wallet apps, including Facebook’s Calibra, third-party wallet apps.
For those who do not have bank accounts but use smartphones, they can purchase Libra by visiting local resellers like convenience or grocery stores where people already go to top-up their mobile data plan or buy air time credit.
“I am not sure that this is the smartest thing for Facebook to be doing, as it will invite further regulatory scrutiny, but it sounds like they’re determined to give it a try,” said Michael Pachter, managing director of equity research at Wedbush Securities.
Facebook is trying this new method because it plans to completely eliminate the transaction fees you pay when you buy or sell with credit or debit cards.
Setting a libra account is simple. When you first sign up, you will be taken through a Know Your Customer anti-fraud process where you will have to provide a government-issued photo ID and other verification info. Due diligence would also be conducted on customers and suspicious activity would be reported to the authorities.
The Support Libra Is Getting From Payment Platforms Shows Libra Is Headed For Success
With this announcement by Facebook of Libra coming into use soon, there are already signs that major world payment platforms are already behind Libra. Facebook appears smarter here.
It knows that leaving the work to be done alone by itself would mean low adoption of Libra globally so it has engaged founding members of the Libra Association, a not-for-profit which oversees the development of the token. The reserve of real-world assets that give it value and the governance rules of the blockchain. The Association is headquartered in Switzerland.
Over 28 members are set to be inaugurated as founding members of the association and their industries. The list of these members, as previously reported by The Block’s Frank Chaparro, includes:
- Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
- Telecommunications: Iliad, Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
“If we were controlling it, very few people would want to jump on and make it theirs,” says Facebook’s VP of blockchain, David Marcus
Unlike Regular Cryptocurrencies, Libra Is Less Volatile and Has Reserves To Back It UP
Volatile crypto is one which was valued $18,000 at 9 AM in the morning today but came down to $15,000 in the evening around 5 PM. This is a problem Facebook’s Libra intends to solve. The social media giant announced that:
“The Libra Blockchain is a decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world.”
Again, reserves backing Libra will be of a mixture of “low-volatility” assets like bank deposits and government securities in currencies from stable central banks like USD, GBP, EUR, and JPY.
Hence, if someone cashes out from the Libra Association, the Libra they give back are destroyed/burned and they receive back the equivalent value in their local currency. This means there’s always 100% of the value of the Libra in circulation, collateralized with real-world assets in the Libra Reserve. It never runs fractionally. And unlike “pegged” stable coins that are tied to a single currency like the USD, Libra maintains its own value.
The Libra Blockchain Is Faster Than Other Blockchains
For starters, blockchains are digital blocks where your payment or transaction history are being stored. What this means is that once stored, the information lives there forever. Now, the Libra Blockchain is designed to handle 1,000 transactions per second. This beats Bitcoin’s 7 transactions per second or Ethereum’s 15. The blockchain is operated and constantly verified by founding members of the Libra Association, which each invested $10 million or more for a say in the cryptocurrency’s governance and the ability to operate a validator node that powers the Blockchain.
Now here comes the issue of privacy. Cryptocurrencies such as Libra store all transactions on a widely distributed, encrypted “ledger” known as the blockchain. That could make the Libra blockchain a permanent record of all purchases or cash transfers every individual makes, even if they’re stored under pseudonyms rather than real names. Facebook said if people use Calibra or similar wallets, their individual transactions won’t be visible on the Libra blockchain. Only time will tell, considering that Facebook is still looking for ways to benefit from the whole Libra hype.
This is A Huge Opportunity For Early Businesses That Want To Deal In Libra
Facebook is making Libra a big deal for early businesses that would choose to trade in Libra. Facebook, through Libra Association, is giving a huge hope to developers and merchants who would work with Libra. The Association plans on issuing incentives, possibly Libra coins, to validator node operators who can get people signed up for and start using Libra. Wallets that pull users through the Know Your Customer anti-fraud and money laundering processor that keep users sufficiently active for over a year will be rewarded.
For each transaction they process, merchants will also receive a percentage of the transaction back. Businesses that earn these incentives can keep them, or pass some or all of them along to users in the form of free Libra tokens or discounts on their purchases. This could create competition between wallets to see which can pass on the most rewards to their customers, and thereby attract the most users. This is like eBay or Spotify giving you a discount for paying in Libra, while wallet developers might offer you free tokens if you complete 100 transactions within a year.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.