Facebook Announces Libra, Digital Currency On The Blockchain That Doesn’t Actually Need To Be On The Blockchain

Facebook and 27 other partner companies formally announced this morning they plan to launch a digital currency called Libra in the first half of 2020. And if they pull it off, Libra could become the standard digital currency around the world.

Facebook describes Libra as being “powered by blockchain”, though it’s not clear why the currency is going to use blockchain technology at all. Unlike cryptocurrencies like Bitcoin, Libra will be backed by a reserve of real assets, it can’t be mined, there’s no cap on the number of Libra that can be produced, and it won’t be decentralized at launch.

“Today we’re sharing plans for Calibra, a newly formed Facebook subsidiary whose goal is to provide financial services that will let people access and
participate in the Libra network,” Facebook said in a statement posted to its website.

“The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app — and we expect to launch in 2020.”

Facebook, its newly spun off company Calibra, and its 27 other partners are forming a group in Geneva, Switzerland called the Libra Association that will manage the digital currency project. In its white paper, Libra is described as something that will be “governed as a public good,” despite the fact that the ultimate goal is for Facebook and its partners to make money off the venture.

Facebook has posted a promotional video for Libra to YouTube, positioning the venture as a positive and empowering global system that will help people who are shut out of the traditional banking sector. But anyone who’s paying attention will definitely get some weird vibes from the ad, which seems like it would fit perfectly in a dystopian sci-fi movie like 2006’s Children of Men.

“What if we made money truly global, stable, and secure,” the narrator of the Libra video says. “What if everyone was invited to the global economy, with access to the same financial opportunities? Introducing Libra, a new global currency designed for the digital world.”

Why is Libra “powered by blockchain”? The white paper for the digital currency doesn’t really answer that question.

The Financial Times perhaps put it best:

Given that Facebook simply appears to be trying to build a global pseudo-banking and payments network, there doesn’t appear to be any good reason why you would want to do this using blockchain tokens, which as the authors point out themselves in the documents, have so far proven volatile and difficult to scale.

China’s social media-turned-payments giant WeChat Pay — who Facebook is surely trying to compete with on a global level — doesn’t use the blockchain. Nor does PayPal. Or Venmo. Internet money doesn’t need to be blockchain money. Which is maybe why Libra coin isn’t really blockchain money in any meaningful sense of the word.

But the Libra white paper also describes the way that they expect to achieve stability. Namely, by just issuing the currency like a world government would issue any other currency, linking it to something of value in the real world:

The reserve assets are a collection of low-volatility assets, including cash and government securities from stable and reputable central banks. As the value of Libra is effectively linked to a basket of fiat currencies, from the point of view of any specific currency, there will be fluctuations in the value of Libra.

The makeup of the reserve is designed to mitigate the likelihood and severity of these fluctuations, particularly in the negative direction (e.g., even in economic crises). To that end, the basket has been structured with capital preservation and liquidity in mind.

Facebook insists that it won’t use data from the Calibra wallet or from your spending to deliver ads, something that plainly seems suspicious, given Facebook’s recent privacy problems. But maybe Facebook’s internal culture of secrecy and underhanded dealing has changed, right?

“Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent. This means Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook family of products,” Facebook said in a statement posted to its website.

“The limited cases where this data may be shared reflect our need to keep people safe, comply with the law and provide basic functionality to the people who use Calibra. Calibra will use Facebook data to comply with the law, secure customers’ accounts, mitigate risk and prevent criminal activity,” Facebook continued.

The symbol for Libra will be three horizontal wavy lines, precisely where the dollar sign would go when writing out American currency:

The 27 companies that are involved include major financial institutions as well as some of the largest venture capital firms in Silicon Valley. Even private tech companies like eBay and Uber are getting in on the act, according to Facebook’s website:

  • Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa

  • Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, MercadoPago, Spotify AB, Uber Technologies, Inc.

  • Telecommunications: Iliad, Vodafone Group

  • Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited

  • Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures

  • Nonprofit and multilateral organisations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

Facebook says that it hopes to have even more companies on board by next year, with perhaps as many as 100 by launch.

At this point you might be asking yourself, didn’t it used to be very illegal to create your own currencies? And you’d be correct. Entrepreneurs like Bernard von NotHaus discovered as much in the early 2000s when he tried to create the gold-backed Liberty Dollar.

But obviously he was just ahead of his time. If von NotHaus had waited for the 2010s, he could’ve created as many currencies as he liked, as long as he used buzzwords like blockchain and happened to run one of the largest global surveillance networks around.

But Facebook’s consortium of companies say that you can trust them and their new currency. The same currency that hopes to take over the world.

“We’re still early in the process of developing Calibra,” Facebook said. “Along the way we’ll be consulting with a wide range of experts to make sure we can deliver a product that is safe, private and easy to use for everyone. But we’re excited to share this early glimpse and we’ll share updates along the way.”

What could go wrong?

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