Facebook made its official unveiling of its anticipated entry into the cryptocurrency ecosystem.
This will position the leading social network as a direct rival of Bitcoin and other digital coins.
Facebook Launching a Cryptocurrency
Though Facebook recently officially unveiled its first steps into the cryptocurrency ecosystem, its move to become a Bitcoin rival didn’t come as a surprise to many. Rumours and speculations have abounded for quite a while. Still, the company has now revealed what its new crypto, Libra, will entail, how it will be employed, how it will be traded, and how it will differ from other types of digital coin.
Until the official announcement, the upcoming Facebook cryptocurrency had been referred to by a number of different names. Some called it GlobalCoin while others simply called it Facebook Coin. That said, the name was not the main concern of those interested in this digital currency.
What many are now curious to discover is whether or not Facebook has recovered enough trust among its users for them to want to use it to complete transactions. This may be an important consideration as the social media company has faced severe trust issues in recent years. The trust issues peaked with the Cambridge Analytica scandal.
Unveiling in a Whitepaper
Facebook confirmed its intentions to launch Libra by way of a whitepaper. It described its newly unveiled cryptocurrency as “a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets.”
Since its first mention, it was naturally compared to Bitcoin, the present leader of the cryptocurrency market. However, Facebook’s description of its crypto shows that these are very different digital coins. The main factor they have in common is their use of blockchain technology. That said, while Bitcoin is known for being exceptionally volatile, Libra is designed to be considerably more predictable.
To help boost user trust in Libra, Facebook has focused on creating a low-volatility cryptocurrency. Moreover, to encourage user adoption, Libra will also involve very low transaction fees.
To minimize volatility, Facebook created the Libra Association, which will manage reserves to back the crypto. The association is a non-profit organisation working to bring real-world value to this crypto. It will also govern the oversight of the blockchain technology powering Libra. Merchants who want to include Libras among their accepted currencies will be managed by the association.
The Libra Association will be made up of members required to pay an entrance fee of a minimum of $10 million. Every member will be entitled to a single vote on the association’s governing council. Furthermore, they will also receive a share of Libra’s reserve interest dividends. That share is directly proportionate to the amount of money the member paid as an entrance fee.
Initial Libra Association members include Visa, MasterCard, PayPal, Uber, Vodafone, five venture capitalist firms, and a number of others.
How to Use Libras
Facebook Libras are purchased as users trade traditional currencies into the reserve. Libras are minted in the amount of the current exchange rate of the trade. After that point, users can save their Libras or can complete transactions with them with any merchants accepting that cryptocurrency.
If the user wants to trade the Libras for a traditional currency, those digital coins are traded at the current exchange rate. The traded Libras are then “burned”. As a result, any Libras in existence at any time will be in active circulation. They will all be backed by the reserves managed by the Libra Association.
The purpose of this reserve method is to keep volatility low and ensure that there will always be enough traditional currency to ensure that all Libra trades are always possible.
Testimony Before Congress
Facebook’s blockchain subsidiary is called Calibra. Calibra’s head, David Marcus, released a prepared testimony before U.S. Congress. Within it, Marcus described the way in which the Libra Association, which is headquartered in Switzerland, will be regulated by the Swiss government. Equally, he said that Calibra and the Libra Association plans to be fully compliant with all U.S. tax, anti-fraud and anti-money laundering laws.
“The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight. Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA),” said Marcus in his written testimony. “We have had preliminary discussions with FINMA and expect to engage with them on an appropriate regulatory framework for the Libra Association. The Association also intends to register with FinCEN [The U.S. Treasury Department’s Financial Crimes Enforcement Network] as a money services business.”