Facebook has officially announced its secret financial services project: Libra.
Referred to as a new cryptocurrency in its whitepaper, Facebook says the digital asset will utilize blockchain technology in the Libra network. The company says that Calibra, its newly formed, wholly-owned subsidiary, will release a digital wallet for the new global currency, allowing users to save, send and spend Libra.
Unlike cryptocurrencies such as Bitcoin, which are accessible to anyone, Libra will only be available on certain platforms that are also wholly owned and controlled by Facebook: WhatsApp, Messenger and as a standalone app.
Libra is part of Facebook’s larger initiative to provide financial services through Calibra. The social network is targeting the world’s unbanked, roughly 31% of the global population or half of the adults in the world who don’t have an active bank account.
The move is a major play designed to rock the financial services industry as well as legacy banks as it moves to capture new customers. By utilizing blockchain technology combined with online platforms that have allowed the social networking giant to connect friends and family members across the globe via the third largest website on Earth, Facebook’s Calibra has the ability to become a financial services giant.
Libra is expected to launch in 2020 and will target cross-border payments and slow settlement times that currently average three to five days, shaving transactions down to seconds.
According to the Libra project,
“Moving money around the world should be as easy and cheap as sending a text message. No matter where you live, what you do, or how much you earn.”
Crypto coders are highlighting a major difference between the private ledger powering Libra and traditional blockchains like Bitcoin. The Libra whitepaper flat-out states that there is “no concept of a block of transactions in the ledger history.”
Cipherpunk Jameson Lopp points out that the platform essentially has no need to batch transactions because it’s a permissioned system where the corporate partners powering the network are trusted to be good actors.
The technical paper notes that the project is expected to evolve.
“Over time, membership eligibility will shift to become completely open and based only on the member’s holdings of Libra. The association has published reports outlining its vision, its proposed structure, the coin’s economics, and the roadmap for the shift toward a permissionless system.”
In the official statement, Facebook states that “approximately 70% of small businesses in developing countries lack access to credit and $25 billion is lost by migrants every year through remittance fees.” By entering the remittance market, the tech giant will go head-to-head with the existing financial services industry that facilitates payments for migrant workers and people sending money around the world. Effectively, it will leverage its 2.5 billion monthly active users to revolutionize the global economy and create financial inclusion around the world.
According to the 29-page technical paper, Libra “will be fully backed with a basket of bank deposits and treasuries from high-quality central banks.”
One contrast between the more centralized Libra and decentralized cryptocurrencies like Bitcoin is recovery. Facebook has immediately put the notion of “getting your lost money back” on the table. The crypto world is rife with stories of hacked crypto exchanges, bad actors, lost private keys and stolen funds. Although Facebook itself has faced a deluge of criticism regarding how it has handled and comprised its users’ private information, it is still a massive brand with enough deep pockets to offer a “refund” should something go amiss with its new cryptocurrency.
“We’ll also offer dedicated live support to help if you lose your phone or your password — and if someone fraudulently gains access to your account and you lose some Libra as a result, we’ll offer you a refund.”
The company also claims that the newly formed subsidiary Calibra “will not share account information or financial data with Facebook or any third party without customer consent” and that data on Calibra will not be used to improve Facebook’s ad targeting. There are, however, exceptions.
“The limited cases where this data may be shared reflect our need to keep people safe, comply with the law and provide basic functionality to the people who use Calibra. Calibra will use Facebook data to comply with the law, secure customers’ accounts, mitigate risk and prevent criminal activity.”
In the short term, Calibra does not appear to directly challenge Ripple, which aims to optimize cross-border transactions through its products and services for member banks and financial institutions on RippleNet. Nor does it appear to be a direct competitor to the legacy platform Swift which counts over 11,000 financial institutions within its network to send and receive information about financial transactions in over 200 countries. And while Ripple maintains that Facebook is not attempting to engage with enterprises that are part of Ripple’s growing network, Facebook notes that it will broaden the scope of its endeavors over time.
“And, in time, we hope to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass.”
The crypto and banking communities are both analyzing the corporate structure behind Calibra. Facebook has established the Libra Association, a non-profit consortium of 27 financial institutions, venture capital firms and tech companies that will oversee the initiative. Major players such as Visa, Mastercard and PayPal are on board.
John Carvalho, Bitrefill CCO, expects the new organization to face regulatory scrutiny and efforts to dismantle it on the grounds that it’s a monopoly.
In an interview with BlockTV Carvalho says,
“When you gather a group of businesses and create a ‘non-profit’ organization and then you issue a security of shares that distributes funds to its members, this isn’t a non-profit anymore. This is basically like a cartel.”
French Finance Minister Bruno Le Maire wasted no time to issue a warning, urging the G7 central banks to demand answers from Facebook about its intentions. In an interview with news outlet Europe1, Le Maire says Facebook must offer guarantees that it will not become a sovereign currency.
“That Facebook creates its own currency, a transaction instrument, why not. In contrast, it is out of the question that it becomes a sovereign currency.”
“The ability to issue securities, build a reserve and be a lender of last resort: all this is not feasible.”
Le Maire echoes the dangers of creating a sovereign currency in the hands of private companies that answer to private interests.
“I asked the central bank governors of the G7 to report to us in mid-July, when the G7 Finance Ministers will be held, to tell us what guarantees are to be obtained from Facebook. We have to make sure that there is no risk for the consumer, it is our role as a state to protect consumers.”
With Facebook targeting the unbanked, however, central banks will have to prove how the Silicon Valley tech giant, armed with its new cryptocurrency, is harming consumers seeking financial inclusion. Central banks may also face challenges in pinning down exactly how the fast-moving tech giant will behave, how the cryptocurrency will operate and how the platform will be governed.