Facebook let internet users take a peek at how their cryptocurrency, Libra, might work when it launches in 2020. This includes the currency’s typographical symbol and some details about its use and value. When launched, the Libra system will let you trade for nearly zero fees. It will work mostly anonymously—like cash—and eventually work natively in the apps associated with WhatsApp, Messenger, and Facebook itself. It will also link up to physical ATMs in the local currency, but it will not have a printed form on its own.
That is, only if anyone actually uses it.
The name Libra comes from the Latin word for of weight measure. (The current emoji for the astrological sign for libra depicts the scale and not the weight that “libra” weight that it refers to.) ♎️. The symbol looks like what web designers call a “hamburger” mixed with the tilde grapheme that is sometimes used in Spanish and Portuguese. Which is funny because it should be worth ~$1.
In a white paper released Tuesday, the Facebook crypto team lead by Kevin Weil also announced a subsidiary company also called Calibra that handles its crypto dealings and protects users’ privacy by keeping a firewall between your Libra payments with your Facebook data. In theory, this should work a bit like your credit card currently works on Facebook. It can be linked to your Facebook account but that doesn’t give them access to any of your off-platform transactions. The wallet platforms will only be able to see that you have enough credit for the transaction.
The white paper also says that Calibra will release a testnet for working out the kinks of its blockchain system before a public launch in the first half of 2020.
How will it work?
A good way to think of this is like the internal card you have when you want to buy something on a cruise ship. You can use it to buy things from internally or from approved vendors. When your cruise ship docks in a foreign port (cross border e-commerce) you don’t need to exchange your money as long as you do business using their platform.
Your real identity won’t be tied to your publicly visible transactions (you can keep that creepy feature, Venmo). But Facebook/Calibra and other founding members of the Libra Association will earn interest on the money users cash in that is held in reserve to keep the value of Libra stable. The hope is that Facebook can one day provide credit and loans to Libra users.
Getting back to our cruise ship analogy: one of the biggest problems with launching a service is it is worthless if people don’t use it. If your cruise ship only partners with merchants who sell things you don’t want to buy (or are overpriced), the system itself will collapse under its own weight. Banks have already made it pretty simple to make cashless transactions. Cardless transactions, autopayments, and our phones have made it so that you don’t even need an actual credit card to make a purchase.
Facebook won’t fully control Libra, but instead get just a single vote in its governance. So will the other founding members such as Visa, Uber, and Andreessen Horowitz, which have invested at least $10 million each into the project’s operations. The association will promote the open-sourced Libra Blockchain and developer platform. It also has created it own programming language called “Move.” They also have a group assigned to sign up businesses to accept Libra for payment and even give customers discounts or rewards.
[For more details on the Libra itself, check out our earlier piece about it.]
So how should Libra work?
First of all, every transaction should be fee-free between users. I guess you can charge merchants, but that cost should be in fractions of a cent. If my data is worth enough for Facebook to host all my mom’s photos and messaging needs, they can afford to pay the Libra servers. They are collecting interest on your money, after all.
It’s counterintuitive, but fractional transaction fees will make sure that this system doesn’t just benefit the First World. India, for example, leads the world in foreign remittance with $80 billion sent home annually. If Libra (the Libra?) could capture that currency flow and tiny transactions all over the world they might have a shot.
In short, those of us in the First World have banks. We have credit card rewards for all our First World problems. We get paid for spending money (cash back), we get paid for not spending money (CDs and savings accounts). But to be a strategy for global growth, Facebook will have to do the one thing they don’t want to do—value our data as much as they value making billions of dollars. And that means paying out users for the data of ours that they sell.
In 2007, after over 5,000 years of trying, we got to a point where more humans lived inside of cities than outside of them. It only took around 25 years for the internet reached 50% in global use. Think about that. We just got to the point where half the planet could check the weather if they really wanted to. According to the Economist, 726 million people came online in the last three years alone.
But in Facebook-land, those users aren’t equal in value. We think about what the internet economy would look like if it had double the users. But the reality is that half the world’s money has been online since the beginning. Rich countries had high speed internet as soon as it was humanly possible. This presents a problem to Facebook as it makes a currency play.
This inequality won’t go away. According to that same Economist article, each Facebook user in Asia generated $11 in advertising revenue. Each North American user generated $112. Think about that. Facebook makes enough money off of you to pay for a year of Spotify.
The combined revenue of all internet firms in emerging markets (excluding China) is $100 billion. That’s about the same size as Comcast, America’s 31st-biggest listed firm by sales.
However, every one of these markets needs some kind of money. The solution to universal adoption? Facebook needs to pay its users in libra for their value. For every North American, $111 and $11 for every user in Asia.
Can they do this? Yes. Facebook sits on $50,480,000,000 in cash-equivalent. $31,095,000,000 of that in short-term investments. That’s cash that they don’t owe to anybody, made by selling your data that you gave away for free. To put this amount of money in perspective, remember that billionaire who paid off everyone’s student loans after he gave a graduation speech at Morehouse College? That cost him $40 million. Facebook could do that every year in perpetuity if they just put this cash in a high interest savings account. Fifty. Times. Over. Every year.
So they have the money. And now they want our money to hold in cash reserves. Fine. Build the platform out for us. Even at a time when Millennials are fleeing Facebook, this is a solution for growth.
For now we will only focus on the 1.56 billion daily active users and ignore the 2.38 billion monthly active users. Their cash reserves divided by global daily active users ends up being about $32 Facebook bucks person. No one’s going to like this part, but say $50 should go to most users and $20 to those who live in countries where those 20 bucks have the buying power of $50. The entire crypto market as a whole is only about five times that amount, $282,686,105,463 as of Tuesday evening. That’s just among an estimated 35 million crypto users total. If you got tired of seeing people you knew from high school get pregnant, Facebook might get a lot more exciting when it gets your North American self a $50 piece of the pie that you can spend.
Bitcoin has been around for 10 years and we still haven’t figured out what to do with it.
If they turned on a money spigot like that, it could [TED Talk Voice] “truely make the world a better place.”
The mass adoption of Libra would mean that unbanked users in rural India could start a small store or barter for needed goods and settle up in Libra. Parents could send $50 to a kid in college. A church or synagogue could to a campaign to have all its members pool their $50 for a capital improvement campaign. Here in the United States, a lot of Facebook users with medical bills to pay do a fundraiser on the platform. This could fund your cousin’s surgery. Meanwhile, the old people who have no idea how the hell to spend their Facebucks just sit on it and keep the price from fluctuating.
The point is that the Facebook economy is waning. Expanding its user base to the “unBooked” in the developing world won’t replace us high-dollar users in wealthy countries. But giving users $50 to try out the new payments system would show users than Facebook does respect and value your data and privacy.
The only thing better than that would be if Facebook flew me to California so I could present this idea to the board. They could then hire me and pay me a lot of money to roll out this campaign and then you could borrow my Tesla next time you’re in Silicon Valley. Tell Zuckerberg I can lay out the whole plan while we smoke meats.