Last week Facebook and a consortium of 27 partners announced the cryptocurrency Libra (a reference to the Roman measurement for a pound), new global money, and the foundation for a new universe of financial services. They want to make the first Libra coins available to the public in 2020.
Okay, that’s a magnificent vision, but what exactly will happen and what will you be able to do with Libra? Let me try to explain to you the basics.
What exactly is Libra?
Libra is a cryptocurrency that is intended to sent instantly, and with almost no fees, anywhere in the world.
It built on some of the same principles as Bitcoin. But the aim is for Libra, unlike Bitcoin, to have a stable value, backed up by a basket of international currencies, such as the dollar, euro, and yen.
The project is to be run by a nonprofit entity in Switzerland, the Libra Association, which is independent of the social network. The association will be overseen by other companies, which will have voting power over the design and release of Libra.
Okay, but how Libra Facebook Cryptocurrency will work, and what you will be able to do with it?
The Libra digital token will directly be backed by government currencies like the dollar or euro. So unlike Bitcoin, the best-known cryptocurrency, it will not fluctuate in value any more than real-world money, and it is not likely to appeal to speculators.
However, the wider cryptocurrency community is likely to point to Libra as evidence that digital tokens could have a mainstream purpose. Last week, for example, as some details of the Facebook project, leaked, the value of Bitcoin increased.
Acquiring Libra through a new Facebook subsidiary, called Calibra, users are likely to have to show government identification like a driver’s license, which would make it not attractive for black market transactions like buying drugs.
Libra will set up so that any company, not just Facebook, will be able to accept the coin and build wallets that will let people hold and spend it. That’s similar to the way that a diverse array of companies have created wallets and exchanges for Bitcoin.
How will you set up a Libra wallet?
Facebook hopes to initially make this process open to people almost anywhere in the world. Customers of Facebook will be able to set up a Libra wallet by verifying their identities online with a government document.
Other companies working with Libra will be able to create their wallets and verify their customers. Only companies approved by Libra’s Swiss association will be able to move money in and out of the system.
What do you need to pay attention and be careful?
Companies are hesitant to associate themselves too closely with the Libra project because of Facebook’s issues with regulators around the world, the company’s shaky track record on privacy and how it treats corporate partners, and the uncertain legality of cryptocurrencies.
Some Libra project partners are approaching warily. They signed an agreement in which the parties are not legally obligated to carry the contract. They did it because they knew weren’t obliged to use or promote the digital token and could easily back out if they didn’t like where it was going, said some executives from those companies.
The doubts among Facebook’s partners add to a growing list of challenges for Libra.
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* picture credit William Joel