Innovation

Headlines and Perspective: Facebook Cryptocurrency

By: Dr. Debbie Bartoo, Sr. Innovation Strategist

Facebook is planning to launch a cryptocurrency, run by the nonprofit Switzerland-based Libra Association in 2020, backed by some of tech’s biggest names. The focus is on financial inclusion for all.

How it Works

  1. The Libra Association – an independent not-for-profit organization created by Facebook and based in Geneva – mints the currency and distributes it through authorized sellers.
  2. A consumer downloads a digital wallet from Calibra, then purchases Libra from an authorized seller’s site.
  3. With Libra, the user can make an online purchase, such as a subscription to Spotify, one of the corporate partners of the currency.
  4. Spotify then exchanges the Libra for dollars via a reseller, who then sells the currency back to the Libra Association.

Background

  • A Facebook account will not be required to use Libra.
  • This cryptocurrency is unique in that its value will be equivalent to the U.S. dollar.
  • A new Facebook subsidiary, Calibra, is established as an independent consortium (registered as a money service business with the U.S. Treasury; they are working to acquire money transmitter licenses in the U.S. states where needed).
  • There are 28 founding members in addition to Facebook.
  • This cryptocurrency is powered by Blockchain technology, but it is not truly decentralized; only certain members will be able to process transactions, therefore it is not considered true cryptocurrency as we have known it in the past and eliminates volatilities seen with other cryptocurrencies.
  • This cryptocurrency is being viewed as a single currency globally, and where regulators are taking pause.

Open Questions at This Time (To Note a Few)

  • How will Facebook make money?
  • How will Facebook use the data?
  • Will consumers trust Facebook with their money?
  • What was the impetus for this solution being brought to market?
  • How will regulators react to protect the established banking infrastructure?
  • Where will this cryptocurrency be initially launched?
  • Can Facebook successfully move unbanked into banking customers?

Functionality

  • Facebook initial use case: low or no-cost cross-border transactions; micro-transactions have also been suggested.
  • Additional use cases include paying bills, buying goods by scanning a code or accessing public transport.
  • Calibra intends to start with a digital wallet for the Libra coin, which will let users transfer funds to each other, as well as store their tokens locally.
  • Customers will be able to access the wallet functionality through a new standalone app on iOS and Android, or through Facebook’s Messenger and WhatsApp services.
  • Wallet providers will be able to build products on top of the solution.

Notable
“Implied in this project is that wherever the Visa or Mastercard logo are accepted, Libra would follow suit,” Dante Disparte, head of policy and communications for the Libra Association, told CoinDesk in an interview.

Industry Thoughts

  • Data – how much of our personal data will Facebook be provided access to?
  • The tax implications for this type of currency are under question.
  • Banks and credit unions may lose balances/funds to this wallet; Facebook could invest those funds and make money.
  • Facebook has stated they will not use advertising in the wallet to make money.
  • There is a potential for this type of currency to be accepted by merchants, which we will be watching closely; however, we know Visa and Mastercard will want to protect the merchant business as it is today and in different countries.

PSCU Perspective

  • We will continue to monitor this new currency, the regulatory concerns around it, and the technology applied to this currency.
  • If and when our partners launch and/or integrate this into payments types, we will provide updated information on how this will occur, as well as any network rules around it.
  • There are many hurdles to overcome for unbanked and banked customers to move towards this solution.

What You Can Do

  • Continue to read about how the industry evolves as more is released on this topic. We expect many more questions to be asked and answered as more on this topic is released.

Sources