It seems to be a monthly occurrence at this point, but another major digital company is announcing major cryptocurrency news. Last month the speculation was all on eBay, but this time around it’s Facebook who have announced a new cryptocurrency to be called Libra.
Libra will not technically be owned by Facebook, but it’s the social media giant who will be building the currency and running the project until launch. At that time, Libra passes into the hands of a non-profit organisation with 28 major businesses partnered to back it – and the Libra blockchain is already open-sourced.
Other developers are expected to be looking at their own ways to use Libra.
Among the businesses represented in the Libra Association are:
- Ribbit Capital
- Mercy Corps
- Booking Holdings
- Breakthrough Initiatives
- Thrive Capital
- Union Square Ventures
- Andreessen Horowitz
- Women’s World Banking
Of these, the one to watch may be another new business, Calibra. But the presence of Kiva and Mercy Corps is interesting – and may explain Libra’s official starting focus.
Libra is intended to begin as an alternative to existing banking systems for people in developing countries. Mercy Corps operates in countries like these, and Kiva’s crowdfunding social investment model also focuses a lot of attention on person-to-person efforts in these countries.
Of course, the involvement of Stripe, Visa, MasterCard, Coinbase and other fixtures in ‘traditional’ banking raises some questions over this. Libra seems to be positioned as an opposite to Bitcoin rather than an alternative. It’s hard to imagine Bitcoin’s devoted anti-banking fans supporting a cryptocurrency literally backed by mainstream banking organisations.
Libra and Calibra
Calibra is a Facebook subsidiary formed to help Facebook make the most of Libra. A sort of preview video shows people set up a bank transfer and send a private message to explain it, all from the same app.
Calibra will run natively within Facebook and WhatsApp apps.
The company makes an interesting point; a little under two billion people on Earth have no access to banking. Libra is designed to lower the access cost of beginning something that could develop a new, cloud-based financial service industry.
From that perspective, it’s no surprise to see Stripe and others involved in this. But Calibra – which will begin by developing a cryptocurrency wallet that can be integrated into Facebook products – is already being referred to by the Verge as the “Bank of Facebook – an arm of the social network that hopes to do for loans, credit, money transfer and commerce what its suite of apps has done for online communication.”
One of the reasons to make Libra’s blockchain open-source must be to encourage other developers to create alternative Libra digital wallets. But Calibra will have a huge advantage. Coinbase is one of the most popular digital wallets – but its user base is less than 1% of Facebook’s user base. Calibra could become the biggest thing in cryptocurrency if it gets just 1% of Facebook users.
What Does This Mean?
First and foremost: a cryptocurrency with MasterCard and Visa backing probably means that cryptocurrency spending is about to become ‘respectable’. eCommerce businesses will want to consider whether to accept cryptocurrency, how to report it for tax, and how to process payments received in it.
Secondly, this could represent a hit for PayPal and other smaller payment gateways. Casual transfers are common through PayPal for financial arrangements made on Facebook, but that will be dropping away.
Lastly, this could change assumptions about cryptocurrency. Traditionally, Bitcoin and its competition provide privacy, but it’s hard to imagine a Facebook-backed currency doing the same. It’s possible this will make financial transfer less anonymous than ever before.
Calibra will require the use of a government ID to sign up, which means that the Calibra offering may not be ideal for many in those developing companies. We can expect to see encouragement to create alternative Libra wallets to support these systems. How will that change Libra?
There are also indications that Libra Association member companies will have lower transaction fees, driving prices down. Everything we’re hearing about Libra is designed to encourage buy-in, either from businesses or from consumers.
Whatever the case, there are a lot of major players backing this. It may be, to borrow a phrase from the financial sector, too big to fail – and it hasn’t even launched yet.