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Innovations and Payment Systems

Facebook launches Libra – a new cryptocurrency-based payments system

The social media giant seeks to empower unbanked consumers – without violating anyone’s privacy

Summary

Facebook and its launch partners have unveiled a cryptocurrency-based, fee-free global payments system called Libra. Backed by real-world currency investments, Libra is designed to allow unbanked consumers make payments on their mobile phones.

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Facebook aims to change the way we exchange currency.

On June 18, the world’s largest social media network and its launch partners unveiled a cryptocurrency-based, fee-free global payments system called Libra. Cryptocurrency is virtual money that changes hands outside normal banking channels.

Aside from Facebook, corporate heavyweights like Booking.com, eBay, Mastercard, PayPal, Spotify, Stripe, Uber and Visa are on board with Libra as founding members.

“Libra holds the potential to provide billions of people around the world with access to a more inclusive, more open financial ecosystem,” David Marcus, head of Facebook’s Libra-focused Calibra subsidiary, said in a statement. “We know the journey is just beginning, but together we can achieve Libra’s mission to create a simple global currency and financial infrastructure that will empower billions of people.”

A primary target of Libra, a potential rival of bitcoin, is the 1.7 billion adults around the world who lack access to a traditional bank. Libra is designed to enable these “unbanked” consumers to spend money via their mobile phones.

“A global digital currency has the potential to spark financial inclusion for the world’s poorest and most vulnerable people, connecting them to the local, national and global economy,” says Neal Keny-Guyer, CEO of Mercy Corps, a nonprofit humanitarian aid organization based in Portland, Oregon.

See related:  Chase becomes first major bank to launch its own cryptocurrency

Facebook says Libra won’t be used for ad targeting

The nonprofit Libra Association will oversee the cryptocurrency, while Calibra will manage Libra’s digital wallet, which will be available through apps like Facebook’s Messenger and WhatsApp. Facebook’s power in the association will be equal to the power of other members, Libra says.

Facebook says it set up Calibra to ensure no overlap between social media data and financial data — that’s an especially noteworthy step, given Facebook’s recent privacy scandal — and to build and operate services on top of the Libra network.

“Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook family of products,” the social media company said in a statement.

Libra says it expects to launch the platform — built on what it calls the “secure, scalable and reliable” Libra Blockchain — in early 2020. Blockchain is a database that shares digital information across a network of linked computers.

See related:  Bitcoin credit cards? Mastercard patent suggests it’s possible

Backed by founders’ real money investments

Through Libra Reserve, real-world currencies will financially back the Libra currency; that’s not the case with bitcoin and other cryptocurrencies, whose values are subject to huge swings. Each founding member of Libra has chipped in at least $10 million to keep the cryptocurrency stabilized.

“Blockchain and cryptocurrencies have a number of unique properties — they are decentralized, globally accessible, low cost and safe,” Libra explains. “But the existing blockchain systems have yet to reach mainstream adoption. Mass-market usage of existing blockchains and cryptocurrencies has been hindered by their volatility and lack of scalability.”

Libra says that by collaborating with the financial sector, including regulators and experts, a secure framework can be established to underpin the new currency system.

Successful execution of the cryptocurrency will “mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee,” Libra says.

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Published: June 18, 2019

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