Facebook's Libra cryptocurrency could change global commerce and finance, becoming a new way for people to send money and pay for things.
Facebook announced Libra in June and expects to launch it early next year.
What is Libra?
Libra is a cryptocurrency developed by Facebook. The company says Libra will make sending money online cheaper and faster, and it will improve access to financial services, especially for people without bank accounts or with little access to banking.
How will Libra work?
Libra and the technologies to use it will be built upon a blockchain platform called the Libra Network.
A blockchain is made up of a series of servers (also called 'nodes') that record and validate every transaction made on the network. Unlike with many other cryptocurrency networks that allow any server to join the chain, the Libra Network is a 'permissioned' blockchain, meaning only certain servers will be able to connect to the chain.
Facebook says that will allow the network to run faster than other cryptocurrencies, making Libra practical for everyday uses like purchasing something online.
The network is built with open-source code, meaning any developer will be able to create a digital wallet or other tool to use Libra on top of the network. Facebook has said it will eventually transition the Libra network to a public blockchain, though it has provided no details on that process.
Who will oversee Libra?
Though Facebook envisioned and developed the infrastructure for Libra, it will not manage the digital currency. Instead, an independent, nonprofit organization called the Libra Association will oversee Libra's launch and govern the currency.
The Libra Association is a consortium of companies and nonprofits from around the world based in Geneva, Switzerland. It has 28 founding members — including payments, technology, telecommunications, venture capital and blockchain companies, as well as nonprofit organizations. Members include Paypal, Lyft, Coinbase and Mercy Corps, among others. The association hopes to have 100 members by Libra's launch.
The association will have two main roles: Member organizations will operate the servers to run the Libra Network, and the Libra Association will manage the reserve that will back Libra to ensure its stability.
How will Libra remain stable?
Facebook says Libra's value will be less volatile than that of Bitcoin because it will be backed by real currencies. But unlike some other 'stablecoins,' Libra's value will not be fixed to any single physical currency (cryptocurrency exchange Coinbase, for example, offers a stablecoin backed 1:1 by US dollars).
Instead, Libra will be backed 1:1 by a reserve 'basket' of fiat currency bank deposits, including the dollar, euro and Japanese yen, and government securities. This means its value relative to any one currency will vary.
What is Calibra?
Calibra is a Facebook subsidiary created to develop products and provide financial services using Libra.
The division's first product will be the Calibra Wallet, a digital wallet that will let users store Libra and send it to friends like they'd send a text message at 'low-to-no-cost,' Facebook says. The Calibra Wallet will be a standalone app, and will plug-in to Facebook's Messenger and WhatsApp. Other companies and entities will also be able to develop wallets and other tools to use Libra on the network.
To protect user privacy, Facebook plans to keep the Calibra subisidary independent. The company says Calibra will not share customers' account information or financial data with Facebook except in limited circumstances such as preventing fraud or complying with the law, or unless users have agreed to the sharing of their data.
What's in it for Facebook?
Facebook expects Calibra will enable more transactions between users and businesses on its platforms, which could generate more ad revenue for Facebook. The company hopes to eventually offer more financial services and create new revenue streams through Calibra.
Facebook says it will not use Calibra users' data for ad targeting.
What are critics saying?
Lawmakers and regulators are concerned about a new financial tool that will suddenly be available to Facebook's 2.4 billion users, and they are scrambling to determine how to oversee it. Facebook will attend two public Congressional hearings this week, to evaluate Libra's potential impacts on consumers and global financial systems. Some have proposed legislation to stop Libra altogether.
In a press conference Monday, Treasury Secretary Steven Mnuchin said the government is worried Libra could be used for human trafficking, purchasing illegal drugs and other illicit uses. Last week, Federal Reserve Chairman Jerome Powell told Congress Libra 'raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability.'
Facebook said it is willing to delay its entrance into the cryptocurrency market to work with regulators, though that may not stop the Libra rollout altogether.