Libra cryptocurrency announced by Facebook: everything you must know
Facebook enters the money market. The social network has invented a new global currency called Libra. It should be available by 2020. Facebook assures that it will have no access to users’ financial data.
Mark Zuckerberg wants to turn the financial world upside down: Facebook has invented a new global currency. The digital money with the name Libra is similar to the Bitcoin based on the so-called blockchain technology, but is supposed to do without exchange rate fluctuations. Facebook will not have access to the transaction data, assured David Marcus, the Facebook manager responsible for the project.
Marcus told dpa that in the early days the digital money would be used mainly for transfers between different currencies. Libra would thus compete with services such as Western Union or Moneygram, which charge high fees for international transfers. The vision, however, is to make Libra a fully-fledged means of payment for all situations.
Libra transfers possible from Whatsapp and Messenger
It should be easy for consumers to exchange money between Libra and other currencies and make transactions with them. For example, it should be possible to make Libra transfers directly to Facebook’s WhatsApp and Messenger chat services. With a link to the bank account, Libra can also be exchanged for other currencies directly on the smartphone.
In order to achieve the great goal of a digital full currency, Facebook has forged an alliance, the Libra Association. This alliance, not Facebook, will manage the digital money. Among the current 28 members are the financial service providers Visa, Mastercard, Paypal and Stripe – which should facilitate integration into payment systems. Also on board are Vodafone and Ebay, the travel booking platform Booking.com as well as the music streaming service Spotify and the driving service intermediaries Uber and Lyft. At Libra’s launch in 2020, he hopes to have more than 100 members, Marcus said. Facebook will not have a special role in the organization.
Facebook promises: no price fluctuations as with Bitcoin
Previous blockchain currencies like Bitcoin are notorious for their massive price fluctuations – something Facebook absolutely wanted to avoid with Libra. Therefore, Libra will be fully covered by a reserve fund with various currencies such as dollars, euros and yen. “For example, if someone buys Libra for 100 euros, those 100 euros will flow into the reserve,” Marcus explained.
The Libra Association will also determine the ratio of currencies and securities such as bonds to be held in reserve in order to ensure a stable price. Unlike the Bitcoin, Libra is not created by the users themselves, but has to be purchased from members of the alliance or on trading platforms.
Libra to become a global currency
Facebook leaves no doubt that Libra will eventually become a global currency that, like today’s money, allows you to buy anything, anywhere – whether online or in a store. At the same time, Marcus restricted: “I think that any new currency will take a long time to become as big as an existing national currency of a big economy”. One reason for this is that in the developed world, payment methods are already well established with today’s possibilities. “At least for the next ten years we will all still get our salaries and pay taxes in the currency of the countries in which we live”.
At the same time, however, there are also countries with high inflation and poorly developed banking systems – and a digital currency like Libra could play a much greater role there “because it can offer a solution to many problems”. Libra will not be available in China.
Libra users can use a pseudonym
Various providers will be able to set up digital wallets for the storage and use of Libra. Facebook wants to be just one of many wallet providers, so the online network founded the subsidiary Calibra with Marcus at the helm. “Facebook and Calibra will have no special rights or benefits, although we wrote all the source code for the blockchain and the transactions,” he said. Facebook is under massive pressure to improve privacy, especially after the Cambridge Analytica scandal.
Users can operate in the Libra system under pseudonyms and have multiple accesses. “Transactions do not contain any connection to the identity of users in the real world,” one paper said.
Members must invest at least ten million dollars
The usual regulation – for example measures against money laundering – will apply at wallet level, Marcus said. “We have talked to regulators around the world. A hurdle has been set for companies that want to become founding members of the Libra Alliance: they must have a market value of at least one billion dollars or more than 20 million customers. Members must invest at least ten million dollars.
The best-known blockchain currency, Bitcoin, is organized differently: In its case, the units are generated by mathematical calculations on the users’ computers – “digged”, as it is called in technical jargon. The total number of Bitcoin that can be produced is limited. And the calculations for this are becoming more and more complex. In the meantime, high-performance computers are needed to produce Bitcoin, which is why commercial “minining farms” are currently the main target. This increases energy consumption and the scarcity of supply can lead to price jumps. At its peak, a Bitcoin cost up to 20,000 dollars at the end of 2016 – followed by a slump. In the meantime, the Bitcoin was working its way back to the 9,000 dollar mark, also thanks to rumours about Facebook plans.
Libra is said to have lower energy consumption than Bitcoin
In a block chain, encrypted data is strung together using transactions and stored in different locations. A comparison would make any changes noticeable, which ensures security. Facebook’s system has succeeded in solving well-known technology problems such as slowness. Libra does not have the same high energy consumption as Bitcoin. “We have developed a blockchain that can adapt to the needs of billions of people,” said Marcus. Facebook also developed a new programming language for the system called Move.
Marcus was head of Paypal before he joined Facebook. At the online network, he was initially responsible for the Messenger chat service until Zuckerberg entrusted him with the Blockchain project.
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