The American giant must present Tuesday its cryptocurrency project. While waiting for its launch scheduled for 2020, the future “libra”, conceived in partnership with 27 groups, raises many questions: how can we buy them? How will it work? Who to regulate it?
The end of the suspense is approaching. After more than a year of work, Facebook must present this Tuesday the “white paper” (prospectus) of its cryptocurrency developed in partnership with 27 groups, while waiting for its launch in 2020, the future “libra” raises many questions.
The libra is a cryptocurrency. Logically, it should be available for purchase on “crypto” platforms. Facebook’s top 27 partners include the American Coinbase, the world’s second-largest bitcoin exchange. The libra should also be available in all cryptos portfolios that will distribute it.
Facebook and its partners should not rely on industry specialists to distribute libra. Other project partners may be able to buy some from their sites. Groups such as Visa and PayPal could also negotiate physical purchase points (cash), especially to reach “debagged” populations.
Future libra can be used in the application environment of Facebook. First in Messenger and WhatsApp, then on Instagram. Thanks to a dedicated application, the 2.1 billion users of the social network will be able to exchange libra and purchase products from partners (Lyft, Iliad, etc.) as well as those from companies outside the project that will accept it.
For Facebook’s 27 partners, the situations are variable. By accepting libra, eBay, Uber, and Spotify should enjoy privileged access to the gigantic park of users of the social network. For their part, companies like MasterCard or Stripe should look to supply businesses with financial services based on the libra ecosystem.
Impossible for the moment to know it. What is certain is that the libra will be indexed on a basket of currencies, according to the “1 for 1” principle. The goal? Avoid fluctuations like those observed with other cryptocurrencies (bitcoin, ether, etc.). To ensure this stability, Facebook and its partners have decided to take the currencies deemed most solid.
At this stage, the 28 partners would have at least chosen four currencies: the dollar, the euro, the pound sterling, and the yen. Eventually, the yuan could be added. As users buy books, the 28 partners will accumulate currency in a “reserve” managed by the Swiss foundation “Libra”.
It is indeed the foundation based in Geneva and led by all members of the network, which should calculate the average value of the libra (compared to the baskets of currencies). However, we do not yet know how the US giant and its partners will manage this “parity” and currencies non-reference currencies, such as the Venezuelan bolivar or the Argentine peso.
It is undoubtedly one of the biggest unknowns of the project because Libra is a financial UFO. Facebook and its partners have consulted extensively with regulators and discussed with central bankers, especially those whose currency is expected to fuel the reserve basket (US Federal Reserve, European Central Bank, Bank of England and Bank of Japan). Nothing has filtered yet.
What we do know is that Libra will not be controlled directly by Facebook and its 27 partners. The Swiss foundation “Libra” will take care of it. To monetize libra, Facebook, Uber and other giants are likely to launch applications and financial products based on the libra ecosystem. If Facebook and its partners want to launch such offers, a license to regulators should be necessary. Will they want it?
Currently, the social network has an e-money authorization issued in July 2018 by the Bank of Ireland. This approval has been granted to the entity Facebook Payments International and allows it to offer the service throughout the European Economic Area.
Almost no information leaked on the subject. But the project is obviously not philanthropic. If the use of libra should be free as for traditional currencies — if only to facilitate its adoption — Facebook and its partners should, however, draw juicy benefits from such an ecosystem.
Facebook should have different sources of revenue: first, the increase in advertising revenues thanks to a market (2.1 billion users) that is particularly attractive for companies. The group is in contact with 90 million companies who will be pleased to highlight their products that users can buy live on social network applications.
The group of Mark Zuckerberg and his partners should also develop “financial services” (portfolios, payment, etc.) and applications focused on Libra. Eventually, according to our information, some groups like Facebook could even offer paying products close to those of banks (credit for example).
This is a fundamental question, as the management of personal data has become a major issue in recent years. Since March 2018 and the explosion of the Cambridge Analytica case, Facebook is shaken by repeated scandals. For other giants to have decided to associate with Mark Zuckerberg, it is because they had guaranteed.
The foundation in Switzerland should not be foreign: it is this structure that should manage the libra, and therefore the data of users (identity including) that are related. Theoretically, none of the partner groups should be able to access the financial data of libra users.
Several questions may arise around the security of using such currency. The first is financial security. Many cryptocurrencies are known to be very volatile, especially because of the lack of regulation. The Livra association is reassuring and ensures that the price of the Libra will be fixed — indexed on the “Libra reserve”, made up of $ 10 million from the founding members. This means that the exchange rate with other currencies will not change.
The second question is obviously that of the protection of personal data, as Facebook is involved and has not been clearly the best protagonist in recent years. For several months, Facebook is entangled in scandals related to data leaks or their weak protection.
If bitcoin and Libra are “cryptocurrency” (the nature of Libra is not unanimous), everything is in opposition. First the type of blockchain: while Bitcoin is a public blockchain, that is to say after learning about bitcoin so far, open and decentralized, the Libra blockchain is, she, “private”. It’s a “permission” blockchain where only authorized actors — the 28 partners — can connect.
The speed of circulation of the two cryptocurrencies is also very different. Even though many technologies — like the Lightning Network — are developing, bitcoin is still a bit ‘slow’. Transactions take more than 10 minutes, especially because the architecture, more robust, is also less agile. For their part, Facebook and its partners want to succeed in operating instant transactions, what a private blockchain allows more easily.
Finally, the size of the market also opposes them. Currently, just over 30 million people own bitcoin, worth $ 175 billion. Even if the arrival of Facebook should boost the bitcoin market, the libra market already seems much more mature: from its launch, in 2020, the libra could be bought and used by more than 2.1 billion users of the network American society and its partners. That far exceed the $ 175 billion bitcoin.