Facebook has revealed plans for an ambitious new digital currency, Libra, ending months of speculation about the project.
The work is in its early stages but Facebook has published documents revealing ideas for the currency and some heavyweight partners.
Many of the details will be hashed out in the coming months. Here is what we know so far.
What is Libra?
Libra is a new global digital currency based on technology created by Facebook.
The plan is for a new Swiss-based non-profit foundation, comprised of 100 private sector and civil society members with equal voting rights, to launch Libra in the first half of 2020.
Facebook said the design of Libra would allow individuals to store, spend and transfer money with close to zero transaction fees. Libra is partly targeted at the $613bn annual market for cross-border remittances.
“Just as people can use their phones to message friends anywhere in the world today, with Libra, the same can be done with money – instantly, securely and at low cost,” Facebook said.
The digital coin will be backed by a reserve of low-risk assets including bank deposits in various currencies and US Treasuries, which will prevent its value from fluctuating too wildly.
Members of the foundation will initially validate transactions and the reserve will be held by a “geographically distributed network of custodians”.
In the white paper, the Libra Association’s members said it was “important to note” that the structure meant “one Libra will not always be able to convert into the same amount of a given local currency”. Individuals and merchants with Libra accounts will be shown the current value of their holding in traditional money on their screen.
How can you buy and use Libra?
Facebook said any company could build a “wallet” to hold Libra. Its own service will be a subsidiary called Calibra, which will be integrated into Facebook’s family of apps and will also be available as a standalone app.
Calibra will partner with “authorised resellers” of Libra, cryptocurrency exchanges and liquidity providers to help people change money into Libra seamlessly within the apps.
The company would “try to negotiate the most advantageous” exchange fees for customers when they are transferring fiat currency from their bank account into Libra online, it said.
Facebook said it hoped the service would also appeal to 1.7bn “unbanked” people around the world. Kevin Weil, head of product at Calibra, said the company hoped to partner with local businesses such as convenience stores where people could hand over cash and load Libra directly on to a mobile phone and vice versa. “They have a scanner and you have a QR code on your phone. That’s the way you physically would do it in a store,” he said.
In the longer run, Calibra said it hoped to offer users additional services, such as “paying bills with the push of a button [or] buying a cup of coffee with the scan of a code”.
Other initiatives targeting the unbanked include the many mobile money platforms such as M-Pesa, which lets users transfer money by mobile phone in Africa; Aadhaar, a government ID system that brought hundreds of millions into the banking sector in India; and Mastercard’s digital identity scheme, which hopes to repeat that success globally.
Can I use it anywhere other than Facebook?
Yes. Facebook hopes that some of the consumer-facing companies that have been involved in funding the project – such as Spotify and Uber – will integrate the cryptocurrency into their systems.
What this will look like exactly is unclear. But David Marcus, the former PayPal president who will now head up Calibra, said the blockchain technology would allow for microtransactions – tiny online purchases. In the case of Spotify, this might mean users are able to pay a couple of cents to listen to a song, for example.
“Now you can start doing microtransactions . . . I think a whole range of new models can emerge when that is possible,” said Mr Marcus.
Alex Norstrom, chief premium business officer at Spotify, said: “One challenge for Spotify and its users around the world has been the lack of easily accessible payment systems – especially for those in financially underserved markets.”
Does this mean cryptocurrencies are becoming mainstream?
Mr Weil said Libra had to be a cryptocurrency or you “inherit the fees and the existing structures that today keep billions of people unbanked”.
Until today, however, digital currencies have only appealed to niche enthusiasts.
But the heft of the partners involved, and Facebook’s belief that its new technology can scale to accommodate billions of daily transactions, give Libra a chance of becoming widely adopted. Facebook said it would not require the huge energy needed to “mine” bitcoin and that transactions would be far faster.
But its success will also depend on how it is used by the crypto and wider business community. The Libra blockchain is open source, meaning any developer or company can build applications on it, whether or not they are founding members.
Who is responsible for the network?
The network will be governed by a Geneva-based independent non-profit association called the Libra Association. This will initially be made up of 28 groups, including Uber, Lyft, Spotify, Mastercard, Visa, eBay and PayPal, to name a few.
While Facebook has led the project so far, it hopes that 100 “diverse” members with equal rights will run the foundation.
Potential candidates must meet two of three criteria including having a market value of $1bn or holding more than $500m in customer balances, having a global reach of more than 20m a year, or being recognised as a top 100 industry leader for example in the Fortune 500 or similar ranking tables.
There are exceptions for smaller crypto-focused investors and blockchain companies who will be committed to driving mainstream adoption, as well as social impact and academic groups.
In the longer term, Facebook plans to shift the model away from being a so-called “permissioned” blockchain run by several players, to being “permissionless” and a fully decentralised one run by anyone with the technical capabilities, as was the original vision of bitcoin. It wants to begin this transition within five years of the public launch.
While Facebook will be firming up its exact charter for governance over the next two months, it is proposed that there be a simple majority for most decisions by the council, and a super majority – two-thirds of the votes – for big policy decisions.
How will Libra be funded?
Members must commit to paying $10m, at least, to operate a “node” of the blockchain, although they can invest more. They must also agree to help promote the ecosystem and push for mainstream adoption.
This money will go towards covering the operating costs of the association and creating a pool of incentives for adoption that merchants, developers and wallet providers will receive. Facebook said it would also conduct a private placement of securities, “available only for a select group of accredited investors” to jump-start the project, but would not give further details.
In the longer term, interest yielded from the reserve, invested in low-risk assets, will go towards covering operating costs, as well as paying out dividends to members.
What are the regulatory hurdles?
Cryptocurrencies are a loosely regulated space, where rules vary from jurisdiction to jurisdiction and are still evolving.
Facebook has already started talks with regulators such as the US Commodity Futures Trading Commission to discuss the impact of its project and whether it will fall within the scope of its remit.
In the US, securities laws regulators are also paying heightened attention to blockchain projects. It is unclear whether Libra would fall into the category of a security, which would require formal registration with the Securities and Exchange Commission.
In addition, payments processors need licensing in most jurisdictions in which they operate and this can sometimes take years. Mr Weil said Calibra would be a regulated entity and was “in the process” of applying for money transmitter licenses.
Facebook will also need to reassure watchdogs, including central banks, that it can undergo stringent anti-money laundering checks and prevent fraud. Mr Weil said Calibra users would need to submit government identification to sign up to use the wallet and that automated systems would be in place to detect fraud.
Is it safe to trust Facebook?
Facebook has said that given the sophisticated technology behind the coin and the diverse members running separate nodes, a big hack is unlikely.
Still, the Libra Association will “work to prepare responses” to potential attacks from hackers, including temporarily halting the processing of transactions in the case of a big breach.
Users may be also wary of handing over personal financial information in the wake of the Cambridge Analytica data scandal.
Calibra has said it will not share account information or financial data with Facebook or any third party “without customer consent”, and that user data will not be used for targeting adverts. While WhatsApp and Messenger would know that an individual was using Calibra, they would not be able to see transaction information, said Mr Weil.
In the longer term, users’ financial data could be used to help Calibra sell other financial products to users, he said.