Long gone are the days when you had to be a government to issue money. Facebook, the social media platform, has announced they will put into production its own currency.
On Tuesday, they released a statement that their new digital currency would be directed for users all over the globe, much like other cryptocurrencies such as Bitcoin. They will use this new currency for advertisements and online commerce on their platforms, such as Instagram, Facebook, and WhatsApp. The company has already partnered up with the likes of Spotify, Uber, PayPal, MasterCard, and Visa.
However, these new plans may be unwelcome and can further complicate the situation in which Facebook currently finds itself. Namely, Facebook, along with other frontrunners in the technology industry, is facing an antitrust probe by Congress. Additionally, they already find themselves under federal investigation for their alleged violation of consumers’ privacy.
Their efforts to create a currency on their own is likely to be frowned upon, especially by the regulators who’re already looking into the company’s practices. This currency, which will be available worldwide, represents competition to banks and national currencies. Moreover, there are concerns it could damage users’ privacy. Analysts believe this is a very risky decision from a strategic point of view, as it will raise additional yellow flags for the company.
The head of the cryptocurrency operation, David Marcus, tweeted that they would keep the currency and social media operations separate, which came as a consequence of the user feedback the company had received. Marcus conceded that Facebook would have their hands full if they wanted to earn people’s trust. The subsidiary in charge of the currency is called Calibra.
They intend to launch the currency in the next six to twelve months. The currency will be called Libra. Facebook takes upon itself to build the foundations and infrastructure for Libra, but they aren’t funding it alone — they have already partnered with more than 25 firms. In fact, their goal is to raise over $1 billion from current and future partners.
The company stated that the whole point of it was to create a means for people to send money overseas without having to pay significant transaction fees. This way, they would bypass the expensive international money-transfer services, such as Western Union. Such fees start off with a couple of dollars, but they go significantly higher, especially when you’re paying via a credit card.
Their ambition is also to introduce the world of online commerce to the vast number of people who don’t own a bank account or don’t use credit cards. In an interview to the press, Marcus claimed that people all over the globe would be able to dip into the world economy in a matter of just a few years.
Other analysts see this as a move that will ensure that more people spend their money while on the social media platform. Facebook will use Libra to make its users more open to making purchases when they see a Facebook ad. Subsequently, more businesses will invest their money to advertise on the platform, thus creating a cycle of money which has the same middle man.
Will They Succeed?
Generally, there have been many other currencies preceding Libra, but none of them have managed to garner mass appeal. Facebook believes they will succeed thanks to receiving the backing of corporations that already deal with transactions en masse. Bitcoin is currently the most famous cryptocurrency, but even it has a lot of secrecy about it. With fluctuations in value and fraud concerns, most people are still reluctant to use it.
Facebook claims that Libra will have a different fate because it will be recognized in the same manner as already established currencies, such as the Euro, USD, etc. They will connect each Libra purchase to a real-world currency in order to stabilize the value of the cryptocurrency. According to analysts, ultimately, it will come down to how free the users will feel using it.
The fact is, Libra can be another entry to the list of Facebook’s ambitious announcements that have never really gathered any pace. For instance, the CEO and founder of Facebook, Mark Zuckerberg, announced two years ago that the company would have augmented reality. With it, mobile devices would be able to combine real-life background with digital images. Despite claiming that the company would focus on its production, no AR applications have been developed for mass use. The same fate happened to Zuckerberg’s idea of creating shopping chatbots, which were supposed to make a revolution to the way we bought products online.
Facebook’s plan is to found a nonprofit organization, Libra Association, which will have its headquarters in Geneva, Switzerland. As Marcus said, they saw Libra as a public good, and not something that should belong to one person or a company. The Swiss government and financial institutions would regulate the company. Currently, Calibra is working on developing an e-wallet app for easier use of Libra. With it, you will be able to send and receive the cryptocurrency, as well as buy products with it.
In the beginning, to get people interested, companies partnered with Libra will offer stimulus to users of the currency. They haven’t yet published a specific incentive, but, most likely, it will be in the shape of a sign-up bonus or a discount.
Still, there are a lot of questions on privacy left without a proper answer. Libra will, just like other cryptocurrencies, use blockchain technology to store transactions. With this, Libra will have access to every transaction every single person has ever made. Although you can hide your transactions from the blockchain if you use their app, Calibra will still have access to your data. Facebook stated that they would share transaction information only in criminal cases. But, there’s nothing much to go on, except for placing faith into a multi-billion company which is under investigation for privacy violation.
You will be able to transfer Libra with your friends using WhatsApp and Messenger, and you won’t need a Facebook account to do so. At the start, Instagram messaging won’t be included.
Earlier this year, Mark Zuckerberg pledged that the company would focus more on protecting the personal information of its customers. Although they haven’t published how they intend to do so, they plan to make their messaging apps more privacy-shielded.
Analysts think that Zuckerberg’s ultimate ambition is to create the U.S. and worldwide version of WeChat. The Chinese service combines social media, money transactions, and messaging in a single app. With Libra, Facebook is nearing that goal.