Facebook Coin (Libra)

On June 18, 2019, Facebook published a white paper explaining their own cryptocurrency called Libra. Now the currency is available in test mode. An official launch is planned for early 2020.

What Is Facebook Coin Libra?

Libra is a Facebook token that can be used in Calibra e-wallet. The wallet will be embedded in the WhatsApp, Messenger, and Facebook applications. If a Libra user account is connected to their bank account, they will be able to exchange the tokens for another currency directly via the smartphone.

The Calibra wallet promises its users the following benefits:

• Low transaction fees.

• 24/7 support in WhatsApp and Messenger.

• Money can be sent as easy as a message.

• Transactions take seconds.

• It is possible to replenish the wallet, cash out, send money, or buy products in Messenger with a few taps.

• All transactions are confidential.

Libra will be a stable coin, that is, a currency with low exchange rate volatility. Transfers in Libra will be free from big commissions. Facebook mentions only small service fees that will help fight spamming activity. The cost of the Facebook coin is still unknown. The company promises that the price will be close to the euro, dollar, or pound. To use it, you will need verification, such as a photo of your ID.

The main task of the upcoming cryptocurrency is to facilitate the work of the businesses and include emerging markets in payments. Own currency will allow Facebook to avoid bank fees and simplify the registration of international payments.

Who Manages Libra?

To manage the cryptocurrency, Facebook established the Libra Association, an independent non-profit organization based in Switzerland. The organization has 27 participants who invested $10 million in the cryptocurrency, among which are Visa, Mastercard, PayPal, Uber, eBay, Vodafone, and other companies.

Apple, Google, Amazon, and Microsoft have not yet supported the project. Large banks are also reluctant to join the association because of doubts about regulation and a number of logistical issues that may hinder decision making.

Each member should invest a minimum of $10 million in order to launch the project and get a vote in the association council. One of the key functions of association members will be the approval of transactions within the Libra blockchain. Before the official launch of the coin, Facebook wants to extend the association to 100 participants. However, it sets strict requirements for beginners, such as over $1 billion in market value or recognition as a top 100 industry leader by third-party, sector-specific associations, such as the Fortune 500.

The partners will meet twice a year. They will also receive the so-called Libra Investment Tokens (LIT). Depending on their input in the project, the investors will be paid dividends - surpluses from the rising value of Libra's underlying assets. They will receive these dividends only after the deduction of network maintenance expenses.

The association will also manage the underlying assets. Initially, the token is based on a package of stable fiat currencies (dollar, pound, Swiss franc), government bonds, and bank deposits, which are collectively called the Libra Reserve. If the price of one of the positions drops, the association will be able to adjust the reserve. The association has a reserve management policy that can be changed only by a vast majority of association members. This reserve is what makes Facebook coin different from other cryptocurrencies.

How Libra Works?

According to David Marcus, the vice president of Facebook Messenger project and former CEO of PayPal, Facebook's currency is based on the same distributed registry technology as Bitcoin. However, unlike Bitcoin, it does not depend on currency fluctuations. It is planned that at the initial stage Libra will be used for transfers made in different currencies. Thus, the cryptocurrency will directly compete with services such as MoneyGram and Western Union, for the use of which you have to pay extra fees. In the future, according to Marcus, Libra should become a universal payment means.

Every time someone will cash Libra into fiat money, their tokens will be eliminated. Thus, a currency will always be tied to fiat money - each token is associated with its share of assets. Besides, all transactions are recorded in a blockchain capable of withstanding a load of 1,000 operations per second. The Libra blockchain is now permission, meaning that only those participants who meet the technical requirements can run a validator node. Each member of the association will receive one verification node. To confirm each transaction, a validation of 2/3 of all nodes in the system will be required. However, according to the white paper, it is planned that the Libra network will become permissionless within 5 years after the public launch.

The blockchain is written on Rust and is open source. The developer documentation describes the Libra blockchain as a decentralized, programmable database that supports a low volatility cryptocurrency, which will be able to act as an efficient medium of exchange for billions of people across the world.

The developers can use the Move language, which was built especially for the Libra blockchain, to create compatible applications. The language itself is not yet complete - its simplified version, Move IR, is now available. The Libra Association also cooperates with the HackerOne exchange to launch a vulnerability search program for white hackers.

Why Facebook Needs Libra

With the help of Libra, the company plans to completely rebuild its own infrastructure and combine WhatsApp, Facebook Messenger, and Instagram into a single platform. Facebook is developing its own payment system to integrate it with partner applications, stores, financial organizations, and websites. It is just like the Facebook profile is currently used for authorization on various platforms without having to register and create an account.

The system of rewarding users for social network activity, viewing ads, and interacting with content will possibly reduce the level of criticism of Facebook about making money on user data. Own payment system will also improve the understanding of what products and brands attract customers, and help to more accurately evaluate rank and target advertising. Facebook can also monetize a user base with advertising and earn money on currencies and securities that act as Libra's underlying asset.

What's Next?

The stability of the new cryptocurrency should attract users from developing countries, where it has the potential to become a supranational payment instrument, provided that local governments will not resist this.

The domestic market will also be attractive for Facebook because now only 44% of the population uses a smartphone for payments. With its user base, the company can establish itself as a national and then world leader in the domain of mobile payments.

Every month, Facebook gets 2.4 billion new active users, and they will be the original base of the new cryptocurrency. In addition, Libra can also be used by the users of Facebook Messenger as well as WhatsApp and Instagram. Facebook is also going to partner with major online trading platforms where the currency can also be used. Other sources report that now Mark Zuckerberg's company is developing physical terminals resembling conventional ATMs, through which users can convert their money into Libra and vice versa.

Regulation Issues

Regulators in countries where there are no clear rules for working with cryptocurrencies can stand in the way of launching Libra. In May 2019, the US Senate Banking Committee wrote an open letter to Facebook, demanding the disclosure of the project details. The senators were interested in how the company will process the personal data of users.

Facebook representatives are also negotiating with the Commodity Futures Trading Commission to determine if the cryptocurrency falls under their jurisdiction. The company held several meetings with the representatives and top managers of the US Treasury, Bank of England, and Western Union.

Summary

Facebook coin Libra is the new cryptocurrency introduced by Facebook with the main purpose to reduce transaction commissions. Unlike other cryptocurrency systems such as Bitcoin or Ethereum, Libra is backed by a package of low volatility assets, specifically, fiat currencies, government bonds, and bank deposits. The token will have its own wallet called Calibra, which promises fast and confidential transactions, low fees, and ease of use. The wallet will be integrated in Facebook and WhatsApp messengers.

Libra and its underlying assets are managed by the Libra Association - an independent organization that now has 20 founding members, including PayPal, Visa, MasterCard, and other renowned companies.