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Watch: Facebook’s Libra coin explained simply

Published June 20, 2019

They’re not called Zuckerbucks, but Facebook just reinvented digital money. Facebook’s Libra cryptocurrency that will launch early next year is more like PayPal than Bitcoin — it’s designed to be easy enough for everyone to use. But it’s still complicated to understand, so I’m going to break it down for you nice and simple.

Watch our handy video above or read the transcript below.

Libra is like cash that lives inside your phone. How do you buy Facebook’s cryptocurrency? Starting in 2020, you’ll be able to purchase Libra through Libra wallet apps on your phone or from some local grocery and convenience stores. You cash in your local currency like dollars and get nearly the same number of Libra coins, which are represented by this wavy three-line emoji instead of the $ symbol. But first you’ll have to verify your identity with a photo.

You’ll then be able to spend your Libra while online shopping, or potentially pay for things like Ubers or your subscription for Spotify, since those companies have partnered with Facebook to make Libra popular. Since it’s almost free to digitally move Libra from one account to the other, you won’t have to pay high credit card processing fees that can add almost 4% to your total. And some Libra wallet apps and shops will give bonus discounts or free coins for signing up and paying with Libra.

You’ll also be able to send and request money from friends like you would with Venmo or PayPal. It’s as easy to send Libra as it is a message. In fact, Facebook is building its own Libra wallet app called Calibra that will live inside of WhatsApp, Facebook Messenger and its own standalone app.

You won’t have to attach your real name and identity to any of your payments, but they will be public. Facebook knows it’s a little bit creepy and you probably don’t want it spying on what you buy. So Facebook set up a new company also called Calibra that will keep all your financial data separate from your Facebook profile. That means it can’t use your transaction data to target you with ads, re-order your News Feed or sell your info to marketers.

Eventually, Facebook hopes you’ll use Libra to pay your bills, scan your wallet’s QR code to purchase coffee or tap your phone to buy your public transit ticket. At any time, you can cash out of Libra and get your local currency back in your bank account, or handed to you at a local grocery store.

 

But how does the Libra cryptocurrency technically work…without a bunch of blockchain buzzwords? Libra is coded to have a stable price, be secure and be controlled not just by Facebook.

Instead, Libra is run by the 28-member Libra Association that it hopes will grow to 100 members by the time it launches in the first half of 2020. Financial companies like Visa and Mastercard, merchants and apps like eBay and Lyft, venture capital funds like Andreessen Horowitz and Union Square Ventures and nonprofits like Kiva are all members. They each paid at least $10 million to get one vote on the Libra council that controls what happens to the currency. They’ll be responsible for checking to make sure Libra transactions are real and creating the Libra Reserve.

Each time you cash in a dollar, that money goes into a big bank account called the Libra Reserve that creates and sends you roughly one Libra token. The Libra Reserve is made up of a collection of the most stable international currencies, like the U.S. dollar, British pound, the euro and the Japanese yen. The idea is that even if one of those currencies goes up or down in price, the value of the Libra will stay stable. That way, shops will accept the Libra as payment without worrying the value of the coin will drop tomorrow. Big swings in price are why older cryptocurrencies like Bitcoin or Ethereal haven’t grown popular as payment methods. Libra can also handle 1,000 transactions per second, while Bitcoin can only handle 7.

So how do Facebook and the other Libra Association members earn money? Off of interest on all the assets held in the Libra Reserve. After the Libra Association pays for its operations and investments in technology, members earns a cut of the remaining interest in proportion to how much they invested when they joined. If Libra gets popular, tons of people cash in and the reserve grows huge, the interest could add up to serious revenue for Facebook.

But there’s also a subtle second way Facebook could get rich from Libra. If the currency makes it easier for small businesses to accept payments online, they’ll sell more stuff. They’ll then have extra money to spend on Facebook ads, which will make it extra quick to buy things with Libra. Ninety million small businesses already have Facebook Pages, but Facebook only has 7 million advertisers. If it can turn more of those local merchants into ad buyers, Facebook’s revenues could skyrocket.

The big risk of Libra is that anyone will be able to develop apps for it. That could lead to another Cambridge Analytica situation. But instead of some shady app maker snatching your personal info, they could steal your digital currency. Facebook and the Libra Association say they won’t vet Libra developers, which leaves the door wide open to abuse. And if people get scammed, they’ll blame Facebook.

But if Facebook succeeds, the real win could be for the 1.7 billion people left in poverty with no bank account around the world. They’re exploited by international money sending services like Western Union or Monogram that charge steep 7% fees that take $50 billion away from families per year. And if they’re mugged, they could lose all their money since they have nothing stored online. All they’ll need is a photo ID and Libra could give them an alternative to a bank account that’s tougher to steal and could make it easy to pay for what they need.

There are plenty of reasons to worry that Libra could give Facebook and other tech giants more power or lead to people getting scammed. But it could also give disadvantaged people everywhere a way to join the modern economy. And at least it’s not called FaceCoin.

If you want the opposite of this article — every single nerdy detail about Facebook’s cryptocurrency, read our Libra deep-dive:

And if you want to know how Libra could spawn Facebook’s next scandal, read this:

Video by Gregory Manalo, b-roll via Libra Association

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Facebook plans June 18th cryptocurrency debut. Here’s what we know

Published June 6, 2019

Facebook is finally ready to reveal details about its cryptocurrency codenamed Libra. It’s currently scheduled for a June 18th release of a white paper explaining its cryptocurrency’s basics, according to a source who says multiple investors briefed on the project by Facebook were told that date.

Meanwhile, the company’s Head of Financial Services & Payment Partnerships for Northern Europe Laura McCracken told German magazine WirtschaftsWoche‘s Sebastian Kirsch that the white paper would debut June 18th, and that the cryptocurrency would indeed be pegged to a basket of currencies rather than a single one like the US dollar to prevent price fluctuations. Kirsch tells me “I met Laura at Money2020 Europe in Amsterdam on Tuesday” after she watched fellow Facebook payments exec Paulette Rowe’s talk. “She told me that she wasn’t involved in what David Marcus’ [Facebook Blockchain] team was doing. But that I’d have to wait until June 18th when a whitepaper was supposed to be published to get more details.” She told him she thought the date was already a publicly known fact, which it wasn’t.

Then, yesterday TechCrunch received a request for a June 18th news embargo from one of the communications managers for Facebook’s blockchain team. The Information’s Alex Heath and Jon Victor also reported yesterday that Facebook’s cryptocurrency project would launch later this month.

Facebook declined to comment on any news regarding its cryptocurrency project. There is always a chance that the announcement date could fluctuate if snafus with partners or governments arise. One source says Facebook is targeting a 2020 formal launch of the cryptocurrency

The debut of Libra or whatever Facebook decides to call it could unlock a new era of commerce and payments for the social network. It could be used to offer low or no-fee payments between friends or remittance of earnings to familys from migrant workers abroad who are often gouged by money transfer services.

Sidestepping credit card transaction fees could also allow Facebook’s cryptocurrency to offer a cheaper way to pay merchants for traditional ecommerce, or facilitate microtransactions for a la carte news articles or tipping of content creators. And 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.

How Facebook’s cryptocurrency works

Here’s what we know about Facebook’s blockchain project:

Name: Facebook will likely use the Libra codename as the public facing name for its cryptocurrency, which The Information reports won’t be called GlobalCoin as the BBC had claimed. Facebook has registed a company called Libra Networks in Switzerland for financial services, Reuters reported. Libra could be a play on the word LIBOR, an abbreviation for the London Inter-bank Offered Rate that’s used as a benchmark interest rate for borrowing between banks. LIBOR is for banks, while Libra is meant to be for the people.

Token: The cryptocurrency will be a stablecoin — a token designed to have a stable price to prevent discrepancies and complications due to price fluctuations during a payment or negotiation process. Facebook has spoken with financial institutions regarding contributing capital to form a $1 billion basket of multiple international fiat currencies and low-risk securities that will serve as collateral to stabilize the price of the coin, The Information reports. Facebook is working with various countries to pre-approve the rollout of the stablecoin.

The head of Facebook’s Blockchain team David Marcus (left) speaks at TechCrunch Disrupt 2016

Usage: Facebook’s cryptocurrency will be transferrable with zero fees via Facebook products including Messenger and WhatsApp. Facebook is working with merchants to accept the token as payment, and may offer sign-up bonuses. The Information also reports Facebook also wants to roll out physical devices for ATMs so users can exchange traditional assets for the cryptocurrency.

Team: Facebook’s blockchain project is overseen by former PayPal President and VP of Facebook Messenger David Marcus. His team includes former Instagram VP of product Kevin Weil, Facebook’s former corporate head of treasury operations Sunita Parasuraman who The Information reports will oversee the token’s treasury, and many elite engineers cherrypicked from Facebook’s ranks. They’ve been working in a dedicated part of Facebook’s headquarters off-limits to other employees to boost secrecy, though the nature of the partnerships needed for launch have led to many leaks.

Governance: Facebook is in talks to create an independent foundation to oversee its cryptocurrency, The Information reports. It’s asking companies to pay $10 million to operate a node that can validate transactions made with its cryptocurrency in exchange for a say in governance of the token. It’s possible that node operators could benefit financially too. By introducing a level of decentralization to the governance of the project, Facebook may be able to avoid regulation related to it holding too much power over a global currency.

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