Facebook has unveiled libra, a cryptocurrency that will enable users to make international payments over Messenger and other group platforms like WhatsApp – perhaps from as soon as 2020.
A lot of people are keeping close tabs on Facebook’s new digital currency project. Known as Libra, it will either change the world as people know it, or fail to make any meaningful impact. There are several reasons to not get too involved in this project right away, primarily because a lot of unanswered questions remain in place.
Here’s how it looks likely to work: a user would buy libra and keep a balance of the currency in Facebook’s digital wallet, called Calibra. The user could either transfer currency to another user – say a family member in another country – or purchase items or services from a participating online retailer. Apart from Calibra, users could buy and sell libra through third party wallets or local resellers, such as grocery stores, in the same way as mobile phone owners already top up their data
THE TRUST PROBLEM CAN’T BE IGNORED
Facebook has tried to reassure the world by outsourcing the management of libra to an independent foundation known as the Libra Association Council. Based in Geneva, this group will include representatives from mainstream financial institutions like PayPal, Mastercard and Visa, who have invested significantly in this project, as well as the likes of Uber, Spotify and Vodafone. This grouping is clearly designed to maximise participation in the new currency.
Facebook says it would bear the cost of losses arising from hacks to the Calibra wallet, scams and loss of access to accounts. But how feasible is this even for a big tech company in the face of colossal losses? Facebook or the Libra Association Council would need to accept the same requirements as any other bank to hold a certain level of capital to cover the cost of such eventualities.
THUMBS DOWN FROM EXPERTS
The public perception of Libra, as well as parent company Facebook, is not helping matters much. While some will claim everything has been blown out of proportion, it is often better to tread with caution rather than going in head-first. This is especially true when it comes to financial ventures in this day and age.
Libra has huge implications for the rules around anti-money laundering. Just like any financial intermediary taking on a new customer, Facebook will have to obtain various verification details through an online form for any users wanting to set up a Calibra wallet, including government-issued photo identification.
POLITICAL CONCERNS AND VULNERABILITIES
Perhaps the biggest drawback of Libra in its current form is how the development of this project has not received regulatory approval. In fact, the US Congress would like to potentially investigate this entire ordeal before it is even released to the public. There is also some concern this venture will pose a threat to the financial system, similar to how Bitcoin is treated in the United States.