Facebook Announces Its Cryptocurrency Libra
Facebook unveiled plans for a new cryptocurrency that the social-media giant hopes will one day trade on a global scale much like the U.S. dollar, according to Bloomberg.
Called Libra, the new currency will launch as soon as next year and be what's known as a stablecoin -- a digital currency that's supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions in a way that more volatile crypotcurrencies, like Bitcoin, haven’t been.
Libra is the culmination of a year-long effort to devise an easy way for Facebook users to send and receive money through its messaging services. Private messaging is one of the company’s fastest growing products, and Chief Executive Officer Mark Zuckerberg is embracing this by integrating all Facebook’s messaging products to let users communicate between its different apps.
This focus comes at a time when user growth of the main social network has plateaued in some major markets, and regulators are scrutinizing the company’s frequent privacy failures. Payments are a potential way to turn messaging into a business that complements Facebook’s advertising operation, which generates almost all its revenue.
To come anywhere close to matching the U.S. dollar for utility and acceptance, Libra will need to be widely trusted. So Facebook and its partners are mimicking how other currencies have been introduced in the past.
“To help instill trust in a new currency and gain widespread adoption during its infancy, it was guaranteed that a country’s notes could be traded in for real assets, such as gold,” the companies wrote in a white paper. “Instead of backing Libra with gold, though, it will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks."
The total number of Libra can change, and new digital coins can be issued whenever someone wants to exchange their Libra for an existing fiat currency, so the price shouldn’t fluctuate any more than other stable currencies, according to David Marcus, head of the Facebook blockchain team that’s spearheading the project.
“It would make a scenario where there’s a run on the bank completely impossible, because we are backed one-for-one,” he said. Libra will also be audited, he added, an important step in an industry with limited transparency. Facebook has closely guarded its crypto plans for more than a year, though many of the details have already been reported by Bloomberg News and other outlets.
Marcus, who used to run Facebook Messenger, said Facebook plans to build a new digital wallet that will exist inside Messenger and its other standalone messaging service, WhatsApp. Once Libra is up and running, the currency and the digital wallet should make it easier for people to send money to friends, family and businesses through the apps. Libra will run on the so-called blockchain, a database that can use millions of computers to verify transactions, eliminating risks that come with information being held centrally by a single entity. Facebook created a new subsidiary, called Calibra, to build the new wallet and focus on the company’s blockchain efforts.
Facebook's track record in payments and commerce has been spotty. A few years ago, it began letting people buy flowers or hail an Uber through its Messenger service. Those features have not been huge hits. In 2010, it began offering Facebook Credits, a way to buy virtual goods inside Facebook games. But in 2012 it scrapped Credits, and in 2013 it started working with third-party services like PayPal process some payments. Facebook's revenue from "payments and other service" was less than 2% of total sales in 2018.