On Tuesday Facebook announced Libra, a cryptocurrency that it will launch (along with 27 other partners) in 2020. A little like Bitcoin and a little like PayPal, Libra will be a new digital currency, one available to people without bank accounts or credit cards, but that could potentially be a major force for the rest of us, too. But first you have to trust Facebook with yet more personal data. Here’s what you need to know.
How does it work?
Libra is an upcoming digital currency that users can access through apps and use to pay for things or to send money to each other. In that way it’s a lot like PayPal and Venmo.
But unlike PayPal and Venmo, Libra is largely aimed at people without bank accounts. (See “Why would I want to use it?” below.)
Unlike Bitcoin, Libra’s value is tied to government-issued currency like the dollar […] This isn’t a coin that you buy because you think it will grow 100 times as valuable. It’s more like exchanging a dollar for a Euro.
To keep and exchange Libra, you’ll need to use a “wallet”: an app that might be integrated into existing apps, the way PayPal or Apple Pay is integrated into other apps. The current plan is to let many developers make their own wallets.
Unlike Bitcoin, Libra’s value is tied to government-issued currency like the dollar—specifically to “a market-value basket of several trusted currencies,” says Wired. That’s one of several ways that Libra will try to avoid the weird, scammy, gambling vibe of Bitcoin and other cryptocurrencies. This isn’t a coin that you buy because you think it will grow 100 times as valuable. It’s more like exchanging a dollar for a Euro.
You don’t need to know this next part, but it has some consequences that we’ll explain later. On the backend, Libra handles transactions with a blockchain, kind of like Bitcoin. A blockchain is a distributed record of transactions that records who owns how much of a coin, and who transferred what coin to whom. But while Bitcoin’s blockchain is distributed among everyone who uses it, Libra’s blockchain is managed by the Libra Association. (See “Who controls it?” below.)
When is it coming?
The Libra Association plans to launch the coin some time in 2020. It will immediately be available on WhatsApp and Facebook Messenger, and through several other Libra partners.
Will I have to use it?
Not yet. Maybe not ever. The answer will probably lie between your answers to “Do you need Venmo?” and “Do you need a credit card?”
How long did people know about this?
Facebook started working on Libra in early 2018, according to Wired’s history of the coin. Some details about the coin leaked in 2018, but most were unclear until Facebook launched a website and white paper yesterday.
Who made it?
The new coin and its underlying code are controlled by the Libra Association, a 28-partner consortium of companies and foundations, but Facebook is the driving force.
Founding partners include eBay, PayPal, Vodafone, Spotify, several investment firms and cryptocurrency companies, and a few non-profits. Each partner gets a vote on group decisions. Each partner invested at least $10 million, partly to build a reserve of fiat currency (that is, regular dollars) to exchange for Libra.
Facebook is one partner. Calibra, its wholly owned spinoff company, is another. The association hopes to add more partners over time, to further decentralize the currency and lower their own control over it—while also building faith in the currency as something bigger and “realer” than Flooz or airline miles or Disney Dollars.
What’s Calibra?
Calibra makes, and is, a “wallet”: an app that lets you exchange Libra. While other developers can make their own wallets, Facebook will integrate Calibra into WhatsApp and other Facebook apps, so they’ll have a huge advantage. On those apps, you’ll be able to send money as simply as texting, similar to Apple Pay in the Messages app.
While Facebook shares control over the Libra currency with the rest of the Libra Association, it entirely owns Calibra, and that’s not likely to change.
Why would I want to use it?
If PayPal and Venmo work fine for you, you might not have a reason to, according to Aaron Lammer, co-host of the cryptocurrency podcast CoinTalk. But you’re not who Libra is aiming at right now. The biggest market, he tells Lifehacker, is people sending money to family abroad.
According to Libra’s white paper published Tuesday, “1.7 billion adults globally remain outside of the financial system with no access to a traditional bank.” That’s 31% of the world’s adult population. And if you’re trying to send money to one of those 1.7 billion, your current options, says Lammer, are “fairly predatory.” Fees for these international transfers average 7%, according to TechCrunch.
You can’t use PayPal or Venmo to solve this; both of those require a bank account. But you don’t need a bank account to get on Libra. A billion of those unbanked people have a mobile phone, and half a billion have internet access. They could receive money in the form of Libra on their phones—and spend that money as Libra as well. Libra will make these transactions cheaper than other non-bank options.
Of course, you can fund your Libra account from your bank account too, through PayPal or Stripe, which are founding members in Libra. And not just to send it to people without banks. For the rest of us, there will still be advantages to Libra, especially incentives to use it instead of a credit card. Other founding members of the association include Uber and Lyft, eBay, and Spotify. These companies will all be eager to let you pay in Libra—and they might offer discounts if you do.
Lammer compares it to credit card rewards, which try to keep you locked into their ecosystem. For example, the Amazon rewards card gives users 5% back on all Amazon purchases—in the form of Amazon credit. If taking an Uber is 1% cheaper with Libra than with dollars, you’ll think about getting Libra. Specific discounts like this haven’t been announced yet, but they’re definitely in the works.
Why would a company want me to use it?
To keep you as a customer
First, companies like Spotify say they want to get customers who currently can’t pay because they don’t have a credit card. Second, they can win your loyalty by encouraging you to keep your money in Libra, and use partnered promotions to swap customers, until every Uber customer joins Spotify and vice versa.
To save money
Keeping you in Libra could save these companies a lot of money. If they want to get your money via credit card, they have to pay a transaction fee. (That’s why so many local stores offer a “cash discount” or a minimum purchase, even though it’s against the credit card issuer’s rules. They hate sending so much of their money to Visa and Mastercard.) But if you use Libra, there’s only a tiny fee, much tinier than a credit card transaction, says TechCrunch.
To track your purchases
The biggest reason might be customer data. Libra transactions will be pseudonymous—you’ll be able to have an account that’s not linked to your real-world identity—but there will still be plenty of user behavior to track. Even aggregate data will give Libra’s members a valuable insight into customer behavior, so they can better target advertising, and get you to spend more of your money. And while Libra and Facebook promise to keep a wall between your individual financial data and social data…well…do you trust them?
To sell you more services
Facebook’s Calibra will build more financial services on top of Libra, Calibra VP Kevin Weil tells the Verge. For example, he says, they might offer lines of credit. While Facebook won’t be fully in control of the currency, it will be offering the default app to access that currency. It’s the Apple Podcasts app of money. So Facebook gets to double dip into this currency in a way that most of its partners won’t.
How much does it cost?
Libra will be cheaper to use than many other money transfer services, with transactions costing a small fraction of a cent. And for businesses that accept it, it will have much lower transaction fees than credit cards—which might even make microtransactions more attractive.
If you mean “how much is one Libra worth”: somewhere around one dollar, one Euro, or one pound. And that won’t dramatically change—unless some major world currencies dramatically change.
Can I invest in it?
Not the way you can invest in Bitcoin, because Libra won’t significantly gain (or lose) value. You could apply to be a member of the Association, if you have $10 million and a good reason they should include you. Or you can invest in the many businesses that will spring up around Libra support.
Will my money become worthless?
Very unlikely. If Libra is successful, its value will remain stable. If it tanks and no one uses it, the Libra Association still has reserve money, so if there’s a “bank run”—if all the users withdraw their money at once—the Association is good for it. There’s always some risk, but it’s nowhere near as risky as Bitcoin, where the price wildly fluctuates.
Will my money get hacked or stolen?
That depends on how adventurous you get. If you only use Facebook’s Calibra app and other official apps, and you don’t just send money to anyone who asks for it, you’ll be pretty safe. As it tries to establish Libra’s legitimacy, Facebook will prioritize security, but the company has been hacked before. There’s one more possible safety measure: As long as a small consortium controls the currency, says Lammer, even a major hack could theoretically get rolled back if the controlling members agreed.
You need to be more careful with third-party apps. The Libra Association released open-source code so outside developers can make their own Libra apps without any vetting process from the Libra Association. So you shouldn’t use just any app unless you can confirm it’s legit. And just because an app makes it onto the Google, Apple, or Amazon app stores doesn’t mean it’s legit; Apple unintentionally let some apps record users’ screens without their knowledge, and Google and Apple both approved apps with malware that sends data to a malicious server.
You could always fall for a scam the same ways you could with your regular credit card or PayPal. You have to be just as careful with your Libra as you are with the rest of your money. Calibra will have fraud protection much like on PayPal or your credit card’s, but we’ll have to see how good the customer service is.
Can I trust Facebook?
Lol.
Facebook promises not to take specific data from your Libra transactions and use it on other parts of Facebook, like serving you targeted ads or deciding which posts to put in your feed. But in Calibra’s “customer commitment” document, it’s already carved out some ways it can share data, like anonymized data for research and aggregated data for Facebook, and police requests.
That alone is a big drawback, at least versus more decentralized and anonymous cryptocurrencies. Lammer points out that tracking transactions is a common way to catch white-collar criminals. Facebook and other tech giants have a history of handing over lots of data to law enforcement. Do you trust government authorities to never abuse their surveillance power? Have…have you heard of the NSA?
You don’t have to have a Facebook account to join Calibra. But you do have to give Calibra a government-issued ID. (Third-party developers might let you skip that step.) There’s a balance Facebook has to reach here: it wants a freer currency, but it doesn’t want to be a playground for money launderers and criminals, which some other cryptocurrencies famously are. Lammer even bets that early PayPal was a useful tool for money launderers, before it needed to legitimize itself and avoid prosecution. Facebook is too established to play that game, at least as aggressively as a young startup.
Calibra explicitly says it’s allowed to use your data to market other Calibra products to you. Which is not unusual. And while it won’t share Calibra data to Facebook, it might ask you to share your Facebook data to Calibra. But it promises to ask your permission.
And as for Facebook’s promises, well, Facebook has never abused its users’ privacy before, right? Lammer thinks the company will get creative and find ways to cash in on all this transaction data. But to be fair, they’ve at least started with a public promise to keep their fingers out of their own data. Not that you could stop them if they changed their minds.
Will there be a Google coin and an Apple coin too?
One motivation behind Libra, says Wired, was that Google, WeChat, and Apple all had their own payment services. That’s why Lammer thinks that the other tech giants aren’t going to launch a coin like Facebook’s; they each have different strategies to insert themselves into the middle of transactions.
Apple and Google both have app stores where they can take a bite of every software purchase, and payment systems that make your phone as indispensable as your credit card. Amazon turned its online store into a platform where anyone can sell anything, and give Amazon a little of the money; it uses partnerships, credit card rewards, and Amazon Prime subscriptions to make Amazon your favorite way to buy any physical item.
And Facebook makes money by helping advertisers target you, so Libra is a money play that helps it collect more data about purchasing. Anonymized data, maybe, but still. Any time a big tech company has a shiny new product to offer you, ask yourself how they’ll make their money back.
