Illustration: Aïda Amer/Axios
After nearly a year of speculation, Facebook has finally unveiled its plans to create a cryptocurrency, which will be called Libra and debut in 2020.
Why it matters: With more than two billion users, Facebook is arguably better positioned to roll out a global digital currency than any other company, government, or organization. That's also a source of concern over how much influence Facebook will hold over the new currency, given the company's history of amassing power and its record of privacy controversies.
The details: While Facebook has spent the past year working in house on the plans and technology for Libra, the cryptocurrency will be managed by a separate Switzerland-based foundation initially backed by Facebook and 27 other organizations.
- These organizations are known as Founding Members, and the foundation hopes to have about 100 of them by launch next year. They include businesses like Uber and Lyft, payments companies like Visa, Mastercard and Paypal, investors like Andreessen Horowitz and Union Square Ventures, and nonprofits and academic institutions like Kiva and Women’s World Banking.
- In exchange for investing at least $10 million in the foundation’s reserves (which back the Libra token’s value), these members will get to run validator nodes for the Libra blockchain — "a rack of servers that will run transactions," as the foundation's currency chief describes it.
- They'll also receive special Libra "investment tokens," which are different from the basic form of the cryptocurrency, and get a vote as part of the foundation’s council.
- For some of these members, Libra may provide a new channel for acquiring customers. "If you’re Spotify [a founding member], you’re thinking about how there are a lot of people in markets you want to serve that don’t have an ability to pay you digitally," Kevin Weil, product chief of Facebook's cryptocurrency division, told Axios.
Facebook’s connection to Libra will be as a member of the governing foundation and as the maker of a digital wallet, called Calibra, for sending and receiving the currency. Calibra will be managed by a wholly-owned subsidiary of Facebook.
- Calibra will initially be available inside Facebook’s Messenger app, WhatsApp, and as standalone iOS and Android apps. Because Libra’s technology is open source, it’s possible new digital wallets could eclipse Facebook’s in popularity someday, Weil told Axios.
- The company "will make no money off this for a long time," he added.
Be smart: This is not Bitcoin. Unlike the pioneering cryptocurrency and many of the other digital-token experiments out there, the goal here is not to supplant the traditional financial system but rather to extend it to serve people without access to conventional banking or stable "fiat" (government-created) currency.
- It's also not entirely anonymous. As with Bitcoin and many other cryptocurrencies, although users’ identifying information isn‘t directly tied to transactions, their wallet addresses are public and the blockchain's record of transactions can be analyzed to detect patterns and even identify bad actors.
- Libra’s interaction with fiat currencies around the world will also mean that the digital wallets used to hold the currency will be locally regulated. Facebook’s Calibra division is already in the process of obtaining its own money transmitter licenses in the U.S., for example.