Facebook is unveiling plans to create a new digital currency similar to Bitcoin for global use, one that could drive more e-commerce on its services and boost ads on its platforms. Here are the five things that you need to know about this digital currency called Libra.
1) What we know: It is scheduled to launch sometime in the next six to 12 months. Facebook is taking the lead on building Libra and its underlying technology; its more than two dozen partners — including PayPal, Uber, Spotify, Visa and Mastercard — will help fund, build and govern the system, AP reported. David Marcus, who is heading Facebook’s cryptocurrency operation, tweeted on Tuesday that Libra is in part aimed at “the 1.7 billion people who are still unbanked 30 years after the invention of the web.”
2) What Facebook stands to gain: Facebook hopes to raise as much as $1 billion from existing and future partners to support the effort. 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, Reuters reported.
3) How Libra will work: 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 Marcus, a former PayPal executive. Many purchases happen on brands’ own websites right now, which is a problem for Facebook, since it doesn’t know itself when a user has decided to buy something. Knowing what exactly prompts a purchase would help the company target future ad campaigns more effectively. Starting its own digital wallet – Calibra – should allow it to plug that gap by inserting itself into the middle of consumers’ transactions. Facebook has said that it won’t use financial data to target ads, but the wallet will nonetheless surely be optimized to execute purchases from within one of its platforms, Bloomberg reported.
4) How Facebook may monetize Libra: Facebook also appears to be betting it can squeeze revenue out of its messaging services through transactions and payments, something already happening on Chinese social apps like WeChat, Reuters reported. In theory, a user might receive a token for watching an ad, which they then spend on something they have also seen advertised on Facebook. The company selling the product could then use that token to buy more ad space on the social network, and so the cycle would start anew. That would mean that, even if Zuckerberg had to spend a little bit more to keep his users engaged, the money would ultimately flow back into his company’s coffers, Bloomberg reported.
5) Who all are onboard as of now: Facebook’s 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 Inc, Visa Inc, Spotify Technology SA, PayPal Holdings Inc, eBay Inc, Uber Technologies Inc and Vodafone Group Plc, as well as venture capital firms like Andreessen Horowitz, Reuters reported. 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 to join. Facebook does not plan to maintain a leadership role after 2019. 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.