Facebook launches controversial Bitcoin-style cryptocurrency Libra that lets that will let anyone in the world pay with their smartphones amid fears it could spy on what you buy
- Facebook hopes the currency will power transactions over the internet
- It also hopes to provide access to financial services for people without a bank
- Privacy concerns and regulatory barriers may present significant hurdles
- The name was inspired by Roman weight measurements, the astrological sign for justice and the French word for freedom
A controversial cryptocurrency developed by Facebook that some experts say could be used to spy on what you buy has launched today.
Facebook revealed plans for its Bitcoin-style digital money, dubbed Libra and set to launch in 2020, in a white paper sent out to investors and others.
The social network has joined forces with 28 partners in a Geneva-based entity called the Libra Association, which will govern the new digital coin.
Facebook has also created a subsidiary called Calibra, which will offer digital wallets to save, send and spend Libras.
Calibra will be connected to Facebook’s messaging platforms Messenger and WhatsApp, which already boast more than a billion users.
The move is the latest development in Facebook’s effort to expand beyond social networking and move into e-commerce and global payments.
The Menlo Park, California-based company has big aspirations for Libra, but consumer privacy concerns or regulatory barriers may present significant hurdles.
The digital currency will be backed by a reserve of existing currencies from around the world, likely including the US Dollar, the Euro and the Yen.
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Facebook has revealed plans to launch a cryptocurrency called Libra, the latest development in its effort to expand beyond social networking and move into e-commerce and global payments, as well as a digital wallet (pictured) called Calibra
Facebook hopes it will not only power transactions between established consumers and businesses around the globe, but offer unbanked consumers access to financial services for the first time.
The name ‘Libra’ was inspired by Roman weight measurements, the astrological sign for justice and the French word for freedom, said David Marcus, a former PayPal executive who heads the project for Facebook.
‘Freedom, justice and money, which is exactly what we’re trying to do here,’ he said.
Facebook also appears to be betting it can squeeze revenue out of its messaging services through transactions and payments, something that is already happening on Chinese social apps like WeChat.
The Libra announcement comes as Facebook is grappling with public backlash due to a series of scandals, and may face opposition from privacy advocates, consumer groups, regulators and lawmakers.
Some Facebook adversaries have called for the company to incur penalties, or be forcibly broken up, for mishandling user data, allowing troubling material to appear on its site and not preventing Russian interference in the 2016 presidential election through a social media disinformation campaign.
It is not clear how lawmakers or regulators will react to Facebook making a push into financial services through the largely unregulated world of cryptocurrency.
Some experts believe that the Libra coin could be used by Facebook to spy on people’s purchases.
Facebook could use information about what users of the site are buying to offer better targeted adverts to attract further investment from firms.
‘A better understanding of who buys what or which brands or popular could aid Facebook in ad measurement, ranking, and targeting to amplify its core business,’ Josh Constine, tech expert and boss of gadget site TechCrunch, said.
Facebook has linked with 28 partners in a Geneva-based entity called the Libra Association, which will govern its new digital coin set to launch in the first half of 2020, according to marketing materials and interviews with executives
WHAT DO WE KNOW ABOUT FACEBOOK’S LIBRA CURRENCY?
What is Libra?
Libra is the name of the new cryptocurrency Facebook is backing which will launch in 2020, and once in circulation will be used to buy service digitally from a user’s smartphone.
The digital currency will be stored in a digital wallet called Calibra, a standalone app on a user’s smartphone or housed within Facebook-owned services such as WhatsApp and Messenger.
It has been backed by Visa and Mastercard, as well as businesses such as Uber, Spotify and eBay meaning eventually users will be able to use the currency to pay for almost anything from their weekly shopping to an Uber journey or their Spotify subscription.
How does cryptocurrency work?
Cryptocurrencies are entirely digital forms of money which use encryption to carry out transactions securely and in many cases anonymously between two parties, which many argue make it more secure against fraud.
A key benefit of cryptocurrency is also that they are decentralised, meaning that no one entity controls the currency in contrast to how a central bank controls traditional currency.
The currencies are often built on blockchain networks, a type of digital ledger technology where all transactions are publicly verified and recorded and can not be altered – creating a chain of information and improving transparency.
How is Facebook’s different?
The two biggest issues for cryptocurrency so far, Facebook argues, have been scalability and volatility. Bitcoin, for example, has seen its price fluctuate violently in recent years as its price is linked to supply and demand.
However, Libra is to be backed by a reserve of assets – including linking it to several international currencies – from a number of central banks in order to keep its pricing stable.
The developers have said that launching it through Facebook apps will also make it immediately accessible to more than two billion people globally – the number who use a Facebook app each month.
How can users buy Libra?
When the Calibra wallet for Libra launches, those wishing to use it will need to sign up for an account using a government-issued ID.
Users will then be able to convert their money into Libra and add it to their digital wallet. Once in place, the currency can be used to pay for “everyday transactions, like buying a coffee, buying groceries, or taking public transportation”.
Facebook said initially the new payment system will support peer-to-peer payments between individuals, as well as some other ways to pay for goods and services – for example by scanning a QR code.
The system will eventually be expanded to include integration into point-of-sale systems in stores, which would allow in-store payments that would work in a similar fashion to paying with a debit or credit card or using contactless.
Because it will also be built into WhatsApp and Facebook Messenger, users will also be able to send and receive money between their friends and families just by sending them a message.
This will also work with any businesses they interact with on those platforms, Facebook said.
When will it be available?
Still being finalised in its development, the full system of Libra and its Calibra digital wallet is expected to launch next year.
In recent years, cryptocurrency investors have lost hundreds of millions of dollars through hacks, and the market has been plagued by accusations of money-laundering, illegal drug sales and terrorist financing.
Facebook has engaged with regulators in the United States and abroad about the planned cryptocurrency, company executives said. They would not specify which regulators or whether the company has applied for financial licenses anywhere.
Facebook hopes it can bring global regulators to the table by publicising Libra, said Kevin Weil, who runs product for the initiative.
‘It gives us a basis to go and have productive conversations with regulators around the world,’ said Weil. ‘We’re eager to do that.’
Bitcoin, the most well-known cryptocurrency, was created in 2008 as a way for pseudonymous users to transfer value online through encrypted digital ledgers.
Early developers believed that the world needed an alternative to traditional currencies, which are controlled by governments and by central banks.
Since then, thousands of bitcoin alternatives have launched, and Facebook is just one of dozens of blue-chip companies dabbling with the underlying technology.
But its status as a Silicon Valley behemoth that touches billions of people around the world has created significant buzz around Libra’s potential.
Partners in the project include household names like Mastercard, Visa, Spotify , PayPal, eBay, Uber and Vodafone, as well as venture capital firms like Andreessen Horowitz.
They hope to have 100 members by Libra’s launch during the first half of 2020. Each member gets one vote on substantial decisions regarding the cryptocurrency network and firms must invest at least $10 million (£8m) to join.
Facebook does not plan to maintain a leadership role after 2019.
Facebook has created a subsidiary called Calibra, which will offer digital wallets to save, send and spend Libras. Calibra will be connected to Facebook’s messaging platforms Messenger and WhatsApp, which already boast more than a billion users (stock image)
Though there are no banks among the inaugural members, there have been discussions with a number of lenders about joining, said Jorn Lambert, executive vice president for digital solutions at Mastercard.
They are waiting to see how regulators and consumers respond to the project before deciding whether to join, he said.
The Libra Association plans to raise money through a private placement in the coming months, according to a statement from the association.
Although Libra-backers are hopeful about its prospects, some expressed awareness that consumer privacy concerns or regulatory barriers may prevent the project from succeeding.
Calibra will conduct compliance checks on customers who want to use Libra, using verification and anti-fraud processes that are common among banks, Facebook said.
The subsidiary will only share customer data with Facebook or external parties if it has consent, or in ‘limited cases’ where it is necessary, Facebook said.
That could include for law enforcement, public safety or general system functionality.
Transactions will cost individuals less than merchants, Facebook said, though executives declined to provide specifics. Each Libra will be backed by a basket of government-backed assets.
The company plans to refund customers who lose money because of fraud, Facebook said.
Sri Shivananda, Paypal’s chief technology officer said in an interview that the project is still in its ‘very, very early days,’ and there were conversations in progress with regulators.
Mastercard’s Lambert characterised Libra similarly, noting much needed to happen before the launch.
If the project receives too much regulatory pushback, he said, ‘we might not launch.’
WHAT ARE CRYPTOCURRENCIES?
A cryptocurrency is a digital currency that can be used for transactions online.
It is the internet’s version of money – unique pieces of digital property that can be transferred from one person to another.
All crytocurrencies use ‘blockchain’ and one can only be made and shared using specific agreed-upon rules. For each cryptocurrency the rules are slightly different.
Bitcoins are lines of computer code that are digitally signed each time they travel from one owner to the next. Physical coin used as an illustration
People can buy bitcoins through exchanges such as Coinbase and Bitfinex.
Bitcoin was the first cryptocurrency, created eight years ago.
Other currencies such as Litecoin and Dogecoin do the same thing but have slightly different levels of inflation and rules surrounding transactions.
Currently around 270,000 transactions are taking place every 24 hours.
These currencies don’t exist as physical or digital objects. They are just a collective agreement with other people on the network that your currency was legitimately ‘mined’.
Blockchain is the record of changes in ownership of in a currency which is broadcast through the network and maintained by computers around the world.
The network works by harnessing individuals’ greed for the collective good.
A network of tech-savvy users called miners keep the system honest by pouring their computing power into a blockchain, a global running tally of every bitcoin transaction.
As long as miners keep the blockchain secure, counterfeiting shouldn’t be an issue.
However, because cryptocurrencies allow people to trade money without a third party getting involved, they have become popular with libertarians as well as technophiles, speculators — and criminals.
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