Facebook is set to officially announce its cryptocurrency with a white paper today, according to multiple reports. Few facts about Facebook‘s crypto token, which could be called Libra or GlobalCoin, have been made public ahead of the announcement. Here’s what we know so far:
It will be a stablecoin, pegged to a basket of currencies
Facebook plans to roll out its cryptocurrency in 2020. To avoid the wild swings that have dogged other cryptocurrencies, it will be pegged to a basket of government-issued currencies. This type of currency is known as a stablecoin. For now, no one knows which currencies Facebook’s cryptocurrency will be pegged to, or even how its value will be calculated and backed. The Block Crypto reports, based on an introductory blog post it viewed, that Libra will be built on the Libra Blockchain, a “secure, stable, and reliable blockchain” and backed by the Libra Reserve, “a reserve of real assets”, which will give the cryptocurrency “stability, low inflation, global acceptance, and fungibility”.
Facebook gave up absolute control over it to avoid regulation
Last week, Facebook roped in more than a dozen companies including Visa, Mastercard, PayPal and Uber to back the new cryptocurrency. Each company will invest around $10 million in a consortium, called the Libra Association, which will fund and govern it. Each of the companies in the consortium will validate transactions made with Facebook’s cryptocurrency and in exchange get a say in how the token is governed. By creating an independent foundation to oversee its cryptocurrency, Facebook is introducing a level of decentralisation to avoid regulation related to it holding too much power over a global currency. Facebook‘s rumoured goal is to rope 100 companies into the Libra Association, which would see the company earn $1 billion right off the bat.
The company has also been working with governments around the world to approve the use of the token, and plans to provide stricter forms of identity verification and fraud detection than most cryptocurrencies.
Why is Facebook getting into crypto?
Facebook’s goal is to allow its billions of users across Facebook, Messenger, Instagram and WhatsApp to make digital payments – both with other users of Facebook’s apps, and on e-commerce websites and third-party services – without ever leaving their Facebook-owned app. It will pitch the new cryptocurrency was a way of providing financial services to the world’s 1.7 billion “unbanked” adults. Facebook employees will reportedly have the option of taking the cryptocurrency as part of their salaries. Creating its own payment system also will help the company, which makes most of its revenue from ads, develop different profit streams.
How will it work?
Little is known so far. A CNBC report cited RBC analysts as saying that Facebook will use crypto to facilitate a platform for payments, commerce, and applications and gaming. The tokens will reportedly be transferrable with no fees between Messenger, Instagram, WhatsApp, and other Facebook-owned apps and services, and thus could undercut services such as Venmo and Apple Pay Cash. Facebook is also building a network of businesses and merchants that accept the cryptocurrency as payment by offering lower transaction fees, and plans to set up physical ATM machines to allow people to exchange its digital tokens for traditional money, per The Information.
What are the privacy concerns?
Facebook has come under fire in recent years over its handling of users’ personal data, and regulators are likely to examine the launch closely. In May, the US Senate and Banking committee wrote an open letter to Zuckerberg, in which he asked the following questions, among others:
- How will the cryptocurrency-based payments system work, and what outreach has been there to financial regulators to ensure it meets all legal and regulatory requirements?
- What privacy and consumer protections would users have under the system?
- What consumer financial information does Facebook have that it received from a financial company? What does Facebook so with such information, and how does it safeguard it?
- Does Facebook share or sell any consumer information, or information derived from it, with any unaffiliated third parties?
How will it affect the cryptocurrency ecosystem?
They jury is still out on whether Facebook’s crypto move will benefit or harm the cryptocurrency world. While some observers claim that Facebook’s brand isn’t strong enough to support crypto, given the decline in its reputation since the 2018 Cambridge Analytica scandal, others say that Facebook’s currency will boost the adoption of crypto as it is designed to be as easy to use as conventional currency, allowing everybody to get on board.
On Monday, Bitcoin climbed past $9,000 to its highest level since May 2018, as reports that Facebook was due to unveil its digital currency added to optimism that cryptocurrencies were becoming more widely adopted. Bitcoin rose as much as 9.4% from Friday, and rival coins also climbed: Litecoin was up 5% and Ethereum rose 5.5%.
What does it mean for India?
India has more Facebook users and WhatsApp users than any other country. Bloomberg, which first reported Facebook’s cryptocurrency plans in December 2018, had said Facebook was working on creating a digital token that would let users transfer money on WhatsApp, and that the company’s first focus would be on the remittances market in India. However, the rollout of WhatsApp Pay in India has been delayed several times since the company began testing it with around a million beta testers last February. And recent reports have claimed that India is planning to impose a complete ban on cryptocurrencies.