Facebook’s controversial Libra cryptocurrency could be launched in January

Libra, the Facebook-led cryptocurrency, could be launched as early as January, according to the Financial Times, which reported that the project will likely be even more limited than its already reduced plan.

The Libra cryptocurrency will likely be backed one-to-one by the US dollar, the newspaper reported Thursday. In April, the association that launched Libra said it will create more single-currency stablecoins backed by major currencies, such as the dollar, euro, and pound, as well as a currency based on a basket of currencies. A stablecoin is a cryptocurrency that links its market value to an external source such as the dollar.

Launching the cryptocurrency still hinges on regulatory approval, the newspaper said, citing three unnamed people. Facebook and the Libra Association, which runs the project, declined to comment on Friday.

Facebook didn’t have much love for Libra, which has changed in its goals and carried by association publicly launched in mid-2019. Partners have bolted by the project, the details have changed and lawmakers criticized the plans. However, Facebook has indicated it will continue. Here’s what you need to know.

Why does Facebook want a cryptocurrency?

This isn’t actually Facebook’s cryptocurrency. It is a project of the Libra Association, which Facebook co-founded. The association, which will serve as the monetary authority for the cryptocurrency, says Libra’s purpose is to “empower billions of people,” citing 1.7 billion adults without bank accounts who could use the currency.

But Facebook has its interest in digital money that predates Libra. The social network has been running a virtual currency, called Credits, for about four years as a way to make payments on games played on Facebook. Mark Zuckerberg, CEO of Facebook, said sending money online should be as simple as sending photos. Libra is designed to make it easier and cheaper for people to transfer money online, which could also attract new users to the social network. But Zuckerberg acknowledged that having people using Libra would likely benefit Facebook, making advertising on the social network more desirable and, therefore, more expensive.

Facebook may also have other plans for Libra. A new branch will manage a wallet to hold and use the digital currency. Originally called Calibra, the wallet was renamed Novi in ​​May with a mission to “help people around the world access affordable financial services”. RBC Capital Markets analysts said such services will likely include gaming and commerce.

Will Facebook have direct control over Libra?

No. Facebook is a member of the Libra Association, the non-profit organization that will effectively serve as the monetary authority for the currency. (Facebook membership is through Novi.) The association hopes to do so grow to 100 members, most of which will amass $ 10 million to drive the project forward. Each member has the same vote in the association, which is based in Switzerland. So, technically, Facebook will no longer have a say in the association’s decisions than any other member.

That said, Facebook played an outsized role in the early stages of the Libra project. After the network’s launch, Facebook says, the social network’s role and responsibilities will be the same as any other founding member.

Why have the members of the association withdrawn?

Some of the older founding members seem to have had cold feet. Seven of the original 28 founding members, or a quarter of them, withdrew before the inaugural meeting of the Libra Association in Geneva. Releases included PayPal, eBay, Stripe, and financial service giants Visa and Mastercard. Departures are big losses because those members brought experience in payment and transfer technology. The other dropouts are Mercado Pago, the online payment platform of the Argentine market Mercado Libre, and Booking Holdings, an online travel company that operates sites like Priceline, Kayak and OpenTable.

The association currently has 27 members.

How is Libra different from other cryptocurrencies?

Let’s start by addressing how Libra is similar to other cryptocurrencies, such as bitcoin and ether. Like them, Libra exists entirely in digital form. You won’t be able to get a physical banknote or coin. And like other cryptocurrencies, Libra transactions are recorded on a software ledger, known as a blockchain, which confirms each transfer. The Libra blockchain will be managed by the founding members in the early stages, but is expected to evolve into a fully open system in the future.

Libra will be anchored to real assets, a format widely known as a stablecoin. This contrasts with bitcoin, ether, and some other cryptocurrencies which are not backed by anything and fluctuate wildly in response to speculation.

Initially, the plan involved using a basket of assets to anchor the value of Libra. The Libra Association did not say what those assets would be, but did indicate that they would be denominated in major global currencies, such as the dollar and the euro, which do not fluctuate intensely on a day-to-day basis. The association will buy more underlying assets to create, or “coin,” the new Libra when people want more cryptocurrency. When people cash out, the association will sell those assets and “burn” Libra.

Backing a currency with an asset is nothing new. In fact, it was common. The US dollar was backed by gold until 1971. The value of the Hong Kong dollar is pegged to the US dollar and managed by a currency board, which can only issue new banknotes if it has sufficient reserves.

How do cryptocurrencies compare to the dollar?

The US dollar is tried and true and accepted virtually everywhere in the world. Some countries like the dollar so much that they use it instead of their own money. And the dollars earn interest, although at current rates they won’t add up much.

Obviously the dollar has some weaknesses. Using dollars, particularly across borders, can be expensive as banks take a cut to convert them into local currencies. If you’re using dollars on a prepaid card, the credit card company is likely charging the merchant for a portion of your purchase. And if the US government prints too many dollars, inflation could follow.

Despite the hype, cryptocurrencies are still not widely used. Try buying a cup of coffee with ether. (Yes, it is possible but not widespread.) The value of cryptocurrencies is volatile, often rising or falling by more than 5% per day, making it difficult to get an idea of ​​the long-term value of the asset.

Cryptocurrencies can make it easier to send money directly to someone. Bitcoin transactions are not actually untraceable, although they can be very difficult to trace. Likewise, the use of bitcoin is by no means anonymous. It is a pseudonym, which means that your bitcoin address is recorded even if your identity is not.

Some cryptocurrencies, especially bitcoin, have a limit on the number of coins that can be minted, which means that owners of existing coins don’t have to worry about arbitrary creation of new coins, although this could create other problems in the future.

Is it just a ploy so that Facebook can get my financials and send more targeted ads?

We listen to you. Facebook doesn’t have a great reputation for protecting privacy.

The social network says don’t worry, not that you expected him to say anything else. When Libra’s plans were first unveiled, Facebook took care to point out that its wallet was hosted in a branch of the social network. The deal was designed to allow the portfolio company to be regulated by the authorities and prevent money laundering and other financial crimes. The company also said it will keep financial data separate from Facebook social data.