Facebook seeks to MySpace Bitcoin. What, too soon? (Composite image by Modern Consensus.)

Facebook’s Libra seeks to MySpace Bitcoin

The social media giant’s new stablecoin will harness its 2.7 billion users to bring the new cryptocurrency mainstream

Facebook wants to do to Bitcoin—and maybe even the dollar, euro, and yen—what it did to MySpace and Friendster by launching a new cryptocurrency called libra, announced on Tuesday after months of anticipation and speculation.

The libra stablecoin will be backed with a basket of assets—the Libra Reserve—including currencies and government bonds from “stable and reputable central banks,” in order to mitigate volatility, Facebook said in the Libra whitepaper.

Libra coins will be created as new coins are bought by resellers with fiat currency.

The Libra mission is to create “a simple global currency and financial infrastructure that empowers billions of people,” according to the forthcoming cryptocurrency’s website, libra.org. “Reinvent money. Transform the global economy. So people everywhere can live better lives.”

The libra will be accessible through a Calibra digital wallet, which can be either a standalone smartphone app or reached in Facebook’s Messenger and WhatsApp messaging tools. Facebook has 2.4 billion users and WhatsApp 1.5 billion, with the total user base reaching approximately 2.7 billion.

The widely reported GlobalCoin name for the cryptocurrency was nowhere to be seen in any official announcement. “Libra” means “pound” in Latin and was an ancient unit of measure for Roman money (the British pound symbol, £, is a nod to it); of course, it helps for marketing in Romance language-speaking countries in places like Africa and Latin America that it sounds a lot like “liber,” the Latin word for “free.”

The company promised that transaction fees will be low and transparent. No Facebook account is required to use Calibra, although know your customer (KYC) and anti-money laundering (AML) requirements mean a government-issued ID will be required.

Despite Facebook CEO Mark Zuckerberg’s recent focus on making the company into an e-commerce powerhouse, the libra will not initially be aimed at large-scale retail transactions. Aside from peer-to-peer payments transferring funds between individuals in their local fiat currencies, Calibra will initially support a few other payment methods aimed at small businesses, such as QR codes. This will expand over time to include in-store purchases and integration with point-of-sale systems, according to the Calibra website.

The cryptocurrency will be governed not by Facebook but by the members of the Geneva-based Libra Association, which the company hopes will number 100 by the time it launches in the first half of 2020. Facebook has been widely reported to by trying to raise $1 billion for the project by recruiting 100 members who would run validator nodes for $10 million. The initial launch only included 28, including four not-for-profits, so Facebook clearly has some recruiting ahead of it.

Notable members included payments firms Mastercard, Visa, and PayPal; technology and marketplace firms eBay, Facebook, Lyft, Uber, and Spotify; telecoms Iliad and Vodaphone; and venture capital firms Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, and USV.

Four blockchain and cryptocurrency companies are founding members: Coinbase, Xapo, Anchorage, and Bison Trails.  

Focus on the Poor

One unexpected aspect of the new cryptocurrency is how heavily Facebook’s attention appears to be focused on the poorest third of the world’s population—1.7 billion people, including 20.5 million Americans—who are unbanked. At least, that is how the company is pitching it.

“The core problem we’re trying to address is the lack of progress in financial services for the people who need it most,” said Kevin Weil, Facebook’s vice president of blockchain product, on Instagram (where he once held the product VP title). “The internet has changed the way we communicate and access information. Why hasn’t it done the same for money? 30 years after the invention of the web, billions remain unbanked, sending money home to family in another country averages 7%, payday loans charge interest rates up to 400%—the list goes on.”

How Libra is supposed to look work, as imagined by Libra.

Migrant workers and others sending money home across borders—often to the world’s poorest—spend $25 billion on money transfers each year, Libra said.

The official release included a statement from founding Libra Association member Mastercard’s Jorn Lambert, executive vice president, digital solutions, reinforces that focus. Addressing the poor rather than its 875 million existing cardholders, Lambert said, “We are committed to ensure that the Internet of Everything comes with the inclusion of everyone. By activating partnerships to explore, co-create, and test new ideas, we can cultivate ideas to make inclusion a reality sooner than some may think. This effort embraces that spirit.”

Also among the founding members of the Libra Association are the non-profit humanitarian NGOs Mercy Corps and Women’s World Banking.

Focus on privacy

With both Facebook’s privacy-challenged reputation causing it political problems in the U.S., E.U., and elsewhere, security and privacy were issues the Libra launch needed to address.

“The Libra Association recognizes the importance of privacy on the public blockchain — but also recognizes the risks of misuse,” it said in a Security and Privacy statement. “The association itself is not involved in processing transactions and does not store any personal data of Libra users,” it added, noting that this was done by the validator nodes.

These transactions will include data such as the time of transaction, public addresses of the sender and recipient, the amount, and the validator node performing it, but, “do not contain links to a user’s real-world identity. This approach follows the norm of pseudonymous transactions adopted by other major blockchains … [and] is familiar to many users, developers, and regulators.”

In its Compliance and Consumer Protection statement, the Libra Association added that it “is committed to compliance with global privacy regulation and to working with regulators and policymakers to shape a regulatory environment that promotes privacy and blockchain technology.”  

It added: “While the network is open and accessible to everyone with internet access, the network’s main endpoints will need to follow applicable laws and regulations and collaborate with law enforcement. In addition, because transactions on the Libra Blockchain are pseudonymous, it is possible for third parties to do analysis to detect fraud and illegal activity.”

A secret project

While there has been a great deal of wondering about Facebook’s cryptocurrency project in the last few months, very little was known about it, even internally. Even the name of the currency, Libra, was kept secret from those in the company. The stablecoin was widely reported to be called GlobalCoin when the press postulated about it.

According to a source within Facebook, Libra was only the second project in recent memory to maintain that level of secrecy. The only other project Facebook employees were not aware of was Portal, which uses Facebook Messenger to act as a video phone not unlike Apple’s Facetime; that project had the internal name of “Building 8.”

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.