Facebook’s new cryptocurrency & wallet, good news or bad?

The news has been brewing for a long time, now the rumors are confirmed. Facebook is launching Libra, a new cryptocurrency that it hopes will “transform the global economy.” The launch is slated for the first half of 2020.

 

The gist

Almost half of the adults in the world don’t have an active bank account (it’s worse in developing countries and even worse for women); approximately 70% of small businesses in developing countries lack access to credit; money transfers are slow (3-5 working days) and fees are high (7% on average).

These are the challenges Facebook has taken on with Calibra, a digital wallet and ecosystem, and Libra, a cryptocurrency.
Facebook says users will use Libra to send crypto coins inside of Facebook Messenger, WhatsApp, and a stand-alone app. The funds will be converted to traditional currencies. Eventually, the social media giant hopes Libra will be accepted as a form of payment at traditional businesses, and third-party developers will build services on top of its blockchain-based network.

To achieve these lofty goals, Facebook will register a subsidiary company, Calibra, which will develop products and services around Libra.

Because of Facebook’s previous troubles with privacy and data breaches, an immediate backlash from regulators followed the company’s announcement. Facebook will have to answer a lot of questions prior to Libra’s launch, even plagiarism-related ones. The launch itself and the future of the cryptocurrency is not certain yet.

 

But where’s the big money?

Calibra is how Facebook intends to make money off Libra. And not from ads or transaction fees.

Kevin Weil, a vice president of product at Calibra, says the goal is to create a vibrant financial services economy on top of Libra, used not just by Facebook but by any other company in the world.

Facebook says it does not want to control Libra or the blockchain network, despite having created them. Instead, the company will become a member of the nonprofit Libra Association and have equal voting power as the other partners (although twice the representation). The association includes Mastercard, Visa, Uber, Lyft, eBay, Stripe, PayPal, along with other tech companies, financial service providers, venture capitalists, and nonprofits. PayPal, for example, already operates digital wallets that can be simply updated to support Libra, and they are in business.

In this way, Facebook aims to get into financial services and no other technology company may be able to compete with it. Facebook’s enormous user base, and those of WhatsApp, Messenger, and Instagram, will give it a significant advantage over competitors.

 

The end of decentralization?

Facebook’s take on a global financial blockchain is a hugely ambitious and wide-scale project. But using Libra means trusting Facebook, which is hard in 2019. Many fear that if Calibra/Libra duo is a success, this will mean the end of the decentralized era of cryptocurrency.

While there are strong reasons to be skeptical, Facebook’s plan is to eventually open the ecosystem after five years and allow any third-party developer to build on top of Libra.

 

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