Facebook has roped in more than a dozen companies including Visa, Mastercard, PayPal and Uber to back its new cryptocurrency, named Libra, The Wall Street Journal reported (paywall) on Thursday. Each company will invest around $10 million in a consortium that will fund and govern the cryptocurrency, the report said, citing people familiar with the matter. Facebook plans to release a white paper introducing Libra next week before launching it in 2020. To avoid the wild swings that have dogged other cryptocurrencies, it will be pegged to a basket of government-issued currencies, the sources told WSJ. This type of currency is known as a stablecoin. 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, per TechCrunch. 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, the report said.
What are Facebook’s crypto plans?
Facebook wants to create a digital currency that provides affordable and secure ways of making payments on Facebook and across the Internet, regardless of whether users have a bank account. In May, the BBC reported that the company wants to start testing its cryptocurrency by the end of the year, and plans to set up a digital payments system in about a dozen countries by the first quarter of 2020. By doing so Facebook is hoping to disrupt existing networks by breaking down financial barriers, competing with banks and reducing consumer costs, the report said.
Bloomberg, which first reported Facebook’s cryptocurrency plans in December 2018, had said Facebook was working on creating a cryptocurrency 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 the company began testing it with around a million beta testers last February. Additionally, recent reports have claimed that India is planning to impose a complete ban on cryptocurrencies, The company is also reportedly in talks with a number of online merchants to accept the currency as payment in return for lower transaction fees, per WSJ.
What about regulatory hurdles and security concerns around crpyto?
The WSJ report notes that regulatory hurdles in the US and elsewhere are high, and adds that some members of the consortium have expressed concerns that the cryptocurrency could be used to finance illegal activities. To minimise its exposure, Facebook will keep the cryptocurrency network separate from its social media platform “should problems arise”. . Yet, as the developer of the underlying technology, Facebook could exert considerable influence over it, the report says.
Why are card companies getting involved?
Cryptocurrencies pose a threat to card companies, which have long worried about a tech giant creating a payment option that would encroach on their business. But, as the WSJ report says, the lure of nearly 2.4 billion Facebook users was too good to pass up. And by teaming up with Facebook on Libra, Visa and MasterCard can keep an eye on Facebook’s payment ambitions and reap some of the benefits if Libra proves popular with users.