The upcoming Facebook cryptocurrency Libra is the social media giant’s bid into the financial services and banking industry. Here’s everything one needs to know about it.
In this article:
- What Is Libra?
- Who Made Libra?
- Why Would Individuals Use It?
- What Advantages Does It Have For Businesses?
- What Is Calibra?
- Will Calibra Keep Users’ Data Private?
- How Does One Invest In This Facebook Cryptocurrency?
What Is Libra? | Everything You Need to Know About the Upcoming Cryptocurrency of Facebook
What Is Libra?
Libra is the new cryptocurrency that social networking giant Facebook will soon release. Over 50 engineers are working on the confidential project the company plans to launch in 2020.
While details about the digital global currency plans leaked in 2018, most of its details remained blurry until the launch of its white paper.
In many ways, Libra is a combination of virtual currencies like Bitcoin and Paypal. Facebook and cryptocurrency may not seem like a thing now, but Libra is its bid to enter the digital global currency industry.
With it, Facebook aims to promote financial inclusion, especially for the unbanked.
Libra is a stablecoin, which means that unlike other virtual currencies, its price will not fluctuate drastically.
Its value won’t be tied exclusively to the dollar. Instead, it’ll be pegged to the value of several currencies.
More specifically, Libra’s value will be tied to a basket made up of bank deposits and short term-government securities. This will all be for a slew of generally stable international currencies such as the euro, pound, dollar, and yen.
The Libra Association maintains the assets. They can change the composition balance if necessary.
For example, if a certain currency experiences a major fluctuation, it can shift the composition of assets to stabilize Libra’s value.
This makes it a good medium of exchange. Merchants that accept it for payments know that its value will more or less remain the same tomorrow.
Libra won’t be tied exclusively to the social media giant, but rather, as an actual currency one can buy, sell, and trade.
Facebook’s partnership with exchanges shows that Libra will be partially decentralized. Its blockchain also shows that Libra will not be an “in-game currency” available only to Facebook users.
Though the digital global currency will be available on Facebook Messenger, it’ll also be available on other Libra partners.
Who Made Libra?
While Facebook remains the driving force, Libra Association is actually the one responsible for the coin and the underlying code. Libra Association is a partner consortium made up of 28 foundations and companies.
Some of its more prominent founding partners include PayPal, Spotify, Uber, Visa, and eBay. Each partner invests a minimum of $10 million that will act as a fiat currency reserve to exchange for Libra.
What is Fiat Currency? Also known as “fiat money,” it’s a currency that has no intrinsic value and which government financial regulation established as money. Its value remains only because a government maintains its value or because the parties that use in exchange have agreed on its value.
Each partner, including Facebook, will get only a single vote in its governance. They will be responsible for signing businesses that will accept Libra as payment, as well as the incentives that go with the use of the platform.
The association is hoping that, with time, it can add more partners to further keep the currency decentralized. At the same time, it hopes to build faith in the currency as something that is bigger and “more real” than airline miles or Disney Dollars.
Why Would Individuals Use It?
Wider Reach for Remittances, but with Lower Costs
The biggest market of this Facebook cryptocurrency is people who are sending money abroad.
According to Libra’s white paper, the financial services offered by banks fail to reach over 1.7 billion adults all over the world. Anyone trying to send money to one of those 1.7 billion people end up paying high transaction fees along with other fees.
Cheaper Way to Send Money Abroad
Libra will be cheaper to use compared with other money transfer or cross-border payments services. These remittance services typically charge an average of 7% just to send money abroad.
Digital solutions like PayPal, on the other hand, also require bank accounts. This is not the case with Libra.
With this Facebook cryptocurrency, users can receive money through their phones via Libra. They can also spend that money in Libra, making transactions cheaper than non-bank options.
Similar to using a credit card, Libra will also offer incentives for its use. Companies that support Libra may offer discounts and other bonuses for using the platform.
People who transact with businesses using Libra can also enjoy certain benefits. Transaction fees will cost less compared to when one uses a credit card.
What Advantages Does It Have For Businesses?
The new Facebook cryptocurrency has a lot of advantages for businesses that’ll accept it as a mode of payment. It’s relatively stable, so business owners can rest assured the value of the money they have will more or less remain the same tomorrow.
It also helps companies get in touch with customers who do not have a credit card.
Additionally, using Libra saves those businesses tons of money as they charge only a tiny fee. In contrast, businesses that accept credit card payments have to pay transaction fees to retrieve those payments.
What Is Calibra?
Calibra is a subsidiary company that Facebook wholly owns. It is a “wallet” in the form of an app that allows users to exchange Libra.
Calibra is responsible for handling the crypto dealings of the users. More importantly, it protects the privacy of users by making sure that users’ Libra payments and Facebook data don’t mingle.
In light of recent government inquiries into Facebook’s data usage, this is important especially to financial regulators. It prevents Facebook from using the data for ad targeting.
Other developers can create their own wallets. The social media giant, however, can integrate Calibra into its apps like Facebook Messenger.
This allows users to send money with something as simple as a text message. In many ways, one can liken this to how Apple Pay works in the Messages App.
Facebook, along with the other founding members, will earn interest on the money that users cash in. The money will be held in reserve, helping keep the Libra’s value stable.
Will Calibra Keep Users’ Data Private?
Calibra users don’t necessarily have to be Facebook users. However, they still have to present a government-issued ID to Calibra.
While Facebook wants to build a freer currency, it still wants to maintain a monetary policy that prevents criminal activities like money laundering.
Calibra also stated explicitly that it can use one’s data to market other Calibra products to the user.
It won’t share Calibra data (such as one’s purchasing habits) to Facebook. However, with the user’s permission, it might share Facebook data with Calibra.
How Does One Invest In This Facebook Cryptocurrency?
Investing in Libra will not be the same as investing in Bitcoin. Because Libra is a stablecoin, one’s money will have a significant gain or loss in value.
However, investing in Libra is still possible by buying and trading it on digital exchanges. When investing in it, one should keep a few things in mind:
- Libra’s blockchain is designed so its value is driven up with more users. Because of the size and value of Facebook, its currency also has massive potential.
- Because of the generally stable value of Libra, investors may not find it as appealing to invest in when compared to other investment mediums like mutual funds, bonds, and even precious metals.
- Libra is designed to remain stable. Individuals may as well invest directly in government bonds and other traditional investment options that have a generally conservative composition.
The Facebook cryptocurrency Libra is an upcoming virtual currency that shows a lot of promise. Before getting into it, however, it is important to have a complete grasp of what it is and what it means to use it.
As always, one should also consider if the investment is aligned with one’s goals and risk tolerance.
Do you have other questions about the Facebook cryptocurrency Libra? Ask us in the comments section below!