© Provided by CNET Facebook and its partners plan to launch Libra, a new global cryptocurrency.Getty Images The Libra coin will likely be backed one-for-one by the US dollar, the paper reported, a more limited version of earlier plans.In April, the association launching Libra said it would create multiple single-currency stablecoins backed by major currencies, such as the dollar, euro and pound, as well as a coin based on a basket of currencies.
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The cryptocurrency ‘s launch is still dependent on regulatory approval, the paper said, citing three unnamed people.Neither Facebook nor the Libra Association, which is managing the project, immediately responded to requests for comment.
Facebook hasn’t gotten much love for Libra, which has shifted over the past year and a half.Partners have bolted from the project , details have shifted and legislators have criticized the plans .Nonetheless, Facebook has indicated that it will press on.Here’s what you need to know.
Why does Facebook want to have a cryptocurrency? This isn’t actually Facebook’s cryptocurrency.
It’s a project of the Libra Association, which Facebook co-founded.
The association, which will serve as a 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.
© Provided by CNET The Libra logo.Libra Association But Facebook has its own interest in digital cash that predates Libra.The social network ran a virtual currency , called Credits, for about four years as a way to make payments on games played within Facebook.Zuckerberg has said that 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 might attract new users to the social network.But Zuckerberg acknowledged that having people use Libra would likely benefit Facebook by making advertising on the social network more desirable and, therefore, more expensive.
© Getty Images Facebook and its partners are launching Libra, a new global cryptocurrency.
Facebook may also have other plans for Libra.A new subsidiary will run a wallet for holding and using the digital currency.Originally called Calibra, the wallet was redubbed Novi in May with a mission of “helping people around the world access affordable financial services .” Analysts at RBC Capital Markets have said those services will likely include games and commerce.
Will Facebook have direct control over the new cryptocurrency? No.
Facebook is one of the members of the Libra Association, the nonprofit that will serve as a de facto monetary authority for the currency.(Facebook’s membership is through Novi.) The association hopes to grow to 100 members , most of which will pony up $10 million to get the project going.Each member has the same vote in the association, which is headquartered in Switzerland .So Facebook won’t have any more say over the association’s decisions than any other member.
That said, Facebook has played an outsized role in the initial phases of the Libra project.After the network is launched, Facebook says, the social network’s role and responsibilities will be the same as those of any other founding member.
You said something about members of the association dropping out.What’s that about? Yup.Some of the bigger founding members appear to have gotten cold feet.Seven of the original 28 founding members — that’s a quarter of them — dropped out before the Libra Association’s inaugural meeting in Geneva.
The exits included PayPal , eBay , Stripe and financial services giants Visa and Mastercard.The departures are big losses because those members had brought expertise in payments and transfers technology.The other dropouts are Mercado Pago, the online payments platform of Argentina’s Mercado Libre marketplace, and Booking Holdings, an online travel company that runs sites including 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 Libra note or coin.And like other cryptocurrencies, Libra transactions are recorded on a software ledger, known as blockchain , that confirms each transfer.The Libra blockchain will be managed by the founding members in the early stages but is supposed to evolve into a fully open system in the future.
© Provided by CNET Here’s what the Calibra wallet is expected to look like on a phone.Facebook Unlike bitcoin, Ethereum and some other cryptocurrencies, which aren’t backed by anything and swing wildly in response to speculation, Libra will be pegged to real assets, a format widely known as a “stablecoin.” (Zuckerberg acknowledged as much to lawmakers.)
Initially, the plan was to use a basket of assets to anchor Libra’s value.
The Libra Association didn’t say what those assets would be but indicated they would be denominated in major global currencies, like the dollar and the euro, which don’t fluctuate violently day to day.The association will buy more of the underlying assets to create, or “mint,” new Libra when people want more of the cryptocurrency.When people cash out, the association will sell those assets and “burn” Libra.
Backing a currency with an asset isn’t anything new.In fact, it used to be 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 issue new notes only if it has enough in reserves .
How do Libra and other cryptocurrencies compare to the US dollar? The US dollar is tried and true and pretty much accepted anywhere in the world.Some countries like the greenback so much that they use it instead of their own money .And dollars earn interest, though at current rates that won’t add up to very much.
Of course, the dollar has weaknesses.
Using dollars, particularly across borders, can be expensive because banks take a cut to convert them into local currencies.If you’re using dollars on a prepaid card, the credit card company is probably charging the merchant a portion of your purchase.And if the US government prints too many dollars, inflation could follow.
Despite the hype, cryptocurrencies aren’t widely used.Try buying a cup of coffee with ether .(Yes, it’s possible .But not widespread.) The value of cryptocurrencies is volatile, often rising or falling more than 5% a day, making it difficult to get a sense of the long-term worth of the asset.
Cryptocurrencies can make it easy to send money directly to someone.Though not private or untraceable, cryptocurrencies can be pseudonymous.Some cryptocurrencies, notably bitcoin, have a cap on the number of coins that can be minted, meaning that owners of existing coins don’t have to worry about the arbitrary creation of new ones, although that could create other issues in the future.
Is this just a ploy so Facebook can get its hands on my financial data and send me even more precisely targeted ads? We hear you.
Facebook doesn’t have a great reputation for privacy protection.
The social network says don’t worry …not that you expected it to say anything else.When Libra plans were first unveiled, Facebook took pains to point out its wallet was housed in a subsidiary of the social network.The arrangement was designed to allow the wallet company to be regulated by authorities and prevent money laundering and other financial crimes.
The company also said it would keep financial data separate from Facebook’s social data.
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