For the last year, Facebook has been signaling it wants in on the cryptocurrency phenomenon. At its F8 developers' conference last month, co-founder and CEO Mark Zuckerberg said he wants to make sending money as easy as sending a photo: digital, immediate, free and secure.
On Tuesday, the company formally unveiled its highly-anticipated digital currency project. It's called Libra. Facebook also announced the creation of the Libra Association, an independent organization that will manage the currency, and Calibra, a unit of Facebook that will build applications related to the new digital currency.
As part of the announcement, Facebook launched a test version of its blockchain, the technology upon which cryptocurrencies like bitcoin are built. It is open-source software, meaning developers can experiment with building applications on the platform and submit feedback on the code. The currency itself is set to launch in 2020.
"Libra's mission is to be a simple, global currency and financial infrastructure that empowers billions of people," said Facebook's David Marcus, who runs Calibra and headed up the Libra project. One of the aims of the project is to help the 1.7 billion people around the world who don't have bank accounts access a stable currency and financial services.
In recent months, the company established the Libra Association, a not-for-profit governing body that will oversee Libra. Facebook says it did not want to be solely in charge of Libra because it intends for the cryptocurrency to be a "public good."
Users will be able to access Libra in a number of ways, not just through Facebook. Facebook's new subsidiary Calibra will build a "wallet" application for people to use Libra, send it to their friends and make purchases on Facebook and Instagram. A button on Whatsapp and Messenger will allow users to send Libra in their message threads, the same way they send GIFs or emojis. Calibra will also operate as a standalone app.
Other companies will be able to build similar applications. For example, a bank could build an application allowing users to take out a loan in Libra, or a retail company could plug into the network so users can make payments in the digital currency.
To get Libra, users will need to go to their local bank or money exchange to trade local currency for it. And for a user to spend the money their friend sent over Messenger without first depositing it back into their bank account will require, say, their favorite clothing store to accept Libra as payment, too. Though Facebook's large user base will give the cryptocurrency broad exposure initially, the effort's success will depend on consumers being able to do more than just use Libra on Facebook's platforms.
Libra will be backed 1:1 by a bundle of financial assets likely to include bank deposits and short-term government securities from the US Treasury, among others. This will help it avoid the volatility that has plagued other cryptocurrencies like bitcoin.
This kind of "stable coin" is highly unusual among cryptocurrencies, according to Ari Juel, a professor at the Jacobs Institute at Cornell Tech who studies cryptocurrency. Digital currencies are usually not backed 1:1 because that would tie up billions of dollars in reserve currencies that could not be used. Even traditional financial institutions, like US banks, do not fully back deposits this way, hence the need for FDIC deposit insurance.
However, this stability will be essential for the mainstream adoption of Libra, according to Union Square Ventures Partner Fred Wilson. Union Square Ventures has made a number of investments in the cryptocurrency sector in recent years and is a Libra Association founding member.
