According to Facebook, Libra is a project that will allow 1.7 billion people in developing countries to access financial instruments and improve, rather than destroy, the traditional financial system.
The company received support from Visa, Mastercard, PayPal, Uber, eBay, Farfetch and other financial and technology companies. The global launch of Libra will take place in the first quarter of 2020, and testing will begin at the end of 2019, according to the BBC.
Facebook does not plan to make money on cryptocurrency – the payment system has no commission, and the company itself will pay users for operations with cryptocurrency, financial analysts say .
According to The Information, the Facebook cryptocurrency project was launched about a year ago when the company hired former Mark PayPal president and Facebook Messenger vice president David Markus to lead.
The team also included Coinbase employees, former Instagram vice president Kevin Vale, and at the beginning of 2019, the Chainpace project team. The project’s chief economist was Christian Catalini, a professor at the Massachusetts Institute of Technology.
In total, about 100 people work on the project, while the company constantly hires new people – Facebook posted 28 vacancies related to the blockchain.
Unlike the open culture of Facebook, cryptocurrency project employees keep any information secret and work in a separate building.
Initially, the BBC assumed that the cryptocurrency would be called GlobalCoin, but The Information and TechCrunch talk about another name – Libra. In May 2019, Facebook registered the financial company Libra Networks in Switzerland, and also bought the brand from the startup of the same name.
TechCrunch believes LIbra is a pun with the abbreviation of the London LIBOR interbank rate. Only “LIBOR is for banks, and Libra is for people.”
The main interest in the crypto project was personally shown by Mark Zuckerberg, despite skepticism from the operational and financial directors of Facebook.
Of the three investment scenarios, Zuckerberg chose the most expensive, and the payment system inside Facebook fits into Zuckerberg’s statements that all money transfers should be no more difficult than sending a message in the messenger.
Token Libra and its use
Facebook’s cryptocurrency will be a “stable coin” – it is tied to a currency basket and low-risk securities, and not to a single currency. This will eliminate course jumps, like other cryptocurrencies.
This was confirmed by the head of the Facebook department for financial services and payment partnerships in Northern Europe Laura McCracken in a conversation with the German magazine WirtschaftsWoche.
The company integrates cryptocurrency not only on Facebook, but also in Messenger and WhatsApp, as well as in affiliate platforms. Employees of the company will be given the opportunity to receive part of their salary in cryptocurrency.
In December 2018, Bloomberg reported that Libra will be used to transfer money between users in instant messengers. In February 2019, The New York Times spoke about the change in plans and the desire of Facebook to sell coins to users, as well as to negotiate with cryptocurrency exchanges.
The company plans to launch “cryptomats” – ATMs for selling and buying Libra offline.
Facebook is also negotiating with sellers that will accept tokens for payment, and is considering pay users for viewing ads and online purchasesaccording to a loyalty system similar to retail stores, writes Guardian.
It is separately noted that Facebook will not use the payment system to target ads.
Who will manage the cryptocurrency
The company takes into account its negative reputation in the field of personal data processing and understands that the project’s ambitions to control online payments can scare away users.
To protect against regulators, reduce the centralization of cryptocurrencies and avoid the effects of negative reputation Facebook transfers control over Libra to independent Libra Association. The fund will be managed by Sunita Parasuraman, the former head of treasury operations on Facebook, reports The Information.
The Block received Facebook marketing materials on Libra and found that there were 29 companies in the consortium. In total, Facebook expects to attract 100 members to the Libra Association in order to fulfill the plan to attract $ 1 billion of investments to ensure the stability of the cryptocurrency.
Among Libra partners: eBay, Uber, Lyft, Spotify, Coinbase crypto exchange, telecom giant Vodafone, payment systems Mastercard, Visa, Paypal, PayU, Stripe and other organizations. Each investor contributes $ 10 million to gain access to the network and manage its own node.
The Block also notes that Facebook was not supported by investment conglomerates Goldman Sachs and JPMorgan. In the case of JPMorgan, this may be due to plans to release its own “stable cryptocurrency” JPM Coin.
Why does Libra need Facebook and can a company make money on it
Using Libra Company plans to completely rebuild its own infrastructure and combine WhatsApp, Facebook Messenger and Instagram under one platform, Writes The New York Times. The total audience of potential token users is 2.7 billion people.
Facebook is developing its own payment system to integrate it into the applications of partners, stores and financial organizations, as well as on websites – similar to how the Facebook profile is now used for authorization on various platforms without the need to register and create an account.
The system of rewarding users for activity on the social network, viewing ads and interacting with content serves as a tool that reduce criticism of Facebook about making money on user data and will improve their interaction with content, according to The New York Times.
It will also strengthen the core business of Facebook – its own payment system will improve understanding of which products and brands customers like, and help to more accurately evaluate, rank and target ads.
Creating your own cryptocurrency may be an attempt by Facebook to enter the mobile payments market and take a leading position in it, said David Martin , investment director of the financial company Blockforce Capital.
Libra can become a powerful payment tool in the markets of developing countries, for example, in Venezuela, where the purchasing power of fiat currencies is unstable. Thanks to Libra, citizens of such countries will be able to access a more reliable financial platform than the national currency, writes financial and cryptocurrency expert Caitlin Long in the Forbes column.
No less attractive for Facebook may be the domestic market, in which only 44% of the population use a smartphone to pay. With its user basethe company can establish itself as a national, and then a world leader in the field of mobile payments, says David Martin.
Typically, banks, payment systems and networks charge 2-3% commission for each transaction that sellers pay. But, according to The Wall Street Journal,Facebook does not plan to charge fees for operations with LibraIt is unclear how the company will earn on cryptocurrency.
According to financial experts from The New York Times and CoinTelegraph, in this way, the company will create an increased interest of online sellers and increase the audience of users of its platform before monetizing it.Updated 06.18 For organizations that accept payments, a “very small commission” will be provided, CNBC notes .
Moreover, Facebook can monetize the user base through advertising and earn on a basket of currencies and securities that provide cryptocurrency – according to Caitlin Long, Facebook can receive about $ 235 million for every $ 10 billion in deposits.
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 U.S. Senate Banking Committee wrote an open letter to Facebook asking for details of the project. Senators are interested in how the company will process the personal data of users.
Facebook representatives are also negotiating with a Commodity Futures Trading Commission to determine if cryptocurrency falls under jurisdiction. The company held several meetings with the US Department of the Treasury, Bank of England Governor Mark Carney and senior executives at Western Union.
It is still unknown how Libra will be regulated and what role payment systems will play in its development – usually Visa and Mastercard do not support cryptocurrencies, since they see them as a threat to their business. What Facebook will offer and how Libra will actually work will be announced on June 18.