Facebook has formally announced their plans for a new currency launching in 2020.
Facebook and a consortium of 27 partners on Tuesday unveiled Libra, a new cryptocurrency. The aim of the new cryptocurrency is to create a new global money and the foundation for a host of new financial services.
So how will this all work?
What Is Libra?
Libra is a cryptocurrency that is intended to be sent instantly, and with almost no fees, anywhere in the world.
It is built on some of the same principles as Bitcoin. Unlike Bitcoin, Libra will have a stable value and be backed up by a basket of international currencies, such as the dollar, euro, and yen.
Facebook and its partners, including many other big technology companies, will help oversee a Swiss nonprofit that will be responsible for the final design of Libra and for putting the system in place.
When Will It Be Available?
In 2020, Facebook and its partners plan to make Libra coins available to the public. But there could be roadblocks.
The Swiss association governing Libra will first have to agree on the final design of the cryptocurrency and then find banks willing to hold the money to back up the currency which could be a challenge. Financial institutions have been hesitant in the past to deal with cryptocurrencies.
What will I be able to use Libra for? And on what services?
Any company will be able to accept the coin and build wallets that will let people hold and spend it. Users of Facebook and WhatsApp will also be able to send and receive payments from each other.
Facebook has also set up a subsidiary called Calibra, which will be the company intends to build other services including lending and investing financial services.
Facebook hopes its partners, such as Uber and Spotify, will also take Libra as payment for car rides and online subscriptions, as they do with PayPal and Venmo today.
Behind The Scenes Of Libra
So how exactly is Libra different from Bitcoin?
When you buy Libra, the money is deposited into a bank account where it will sit untouched, so that every dollar’s or euro’s worth of Libra will be backed by a dollar or euro in the bank.
The untouched money will generate interest and can be used to pay back the cryptocurrency’s initial investors. The current structure will help the generation of an infinite number of Libra as compared to the popular Bitcoin which is capped at 21 million.
That makes Libra more attractive because it doesn’t require Bitcoin’s mining process.
Facebook will create Libra wallets which will encourage new customers by giving them a small number of Libra to get started. Users will also be able to buy Libra by transferring money from their bank account or debit card.
The cost of an individual Libra will be determined by the value of the basket of global currencies that backs up Libra, which will fluctuate slightly over time based on the value of the underlying currencies.
If you want to turn Libra back into dollars or other traditional currencies, Facebook’s wallet, Calibra, will make the conversion at the going rate — based on the current value of the underlying currencies — and transfer the money to another bank or online financial account like PayPal.
Setting Up A Wallet
Facebook users will be able to set up a Libra wallet by verifying their identities online with a government document. (ID Cards, Passport etc..)
Other companies working with Libra will be able to create their own wallets and verify their own customers. Only companies approved by Libra’s Swiss association will be able to move money in and out of the system.
Currency Of The Future?
It’s too early to determine how well received Facebook’s currency will be received. It’s already facing pushback from the US Congress.
Facebook is also facing a trust problem when it comes to privacy and the pas US election interference.
Video Explainer By Washington Post
Sourcing and Information from New York Times
Joseph-Albert Kuuire is the creator and editor of TechNovaGh.com, an online digital platform focusing on technology in Ghana. Tech Nova covers news stories, reviews, think pieces and opinions on technology and its application in the Ghanaian setting. A technology enthusiast with a background in management information systems, systems audit and user experience designing, Joseph created Tech Nova to bring something new to the table with in depth stories, visual media and witty writing for consumption by the reader.