Facebook's Libra cryptocurrency explained




They're not called Zuckerbergs, but Facebook just reinvented digital money.

Facebook's Libra cryptocurrency will launch early next year and it's more like PayPal than Bitcoin.

It's designed to be easy enough for everyone to use, but it's still complicated to understand.

So I'm going to break it down for you nice and simple.

Libra is like cash that lives inside your phone.

You'll be able to buy Libra through Libra wallet apps on your phone or from some local grocery and convenience stores.

You cash in your local currency like dollars and get nearly the same number of Libra coins, which are represented by this wavy three line emoji instead of the dollar symbol.

But first you have to verify your identity with a photo ID.

You'll then be able to spend your Libra while online shopping or potentially pay for things like ubers or your subscription for Spotify, since those companies have partnered with Facebook to make Libra popular.

Since it's almost free to digitally move Libra from one account to another, you won't have to pay high credit card processing fees that can add almost four percent to your total.

And some Libra Wallet apps and shops will give bonus discounts or free coins for signing up and paying with Libra.

You will be able to send and request money from friends like you would with Venmo or PayPal, and it's easy to send Libra just like a message.

In fact, Facebook is building its own Libra Wallet app called Calibra that will live inside of Whatsapp, facebook Messenger and its own standalone app.

You won't have to attach your real name and identity to any of your payments, but they will be public.

Facebook knows it's a little bit creepy and you probably don't want it spying on what you buy.

So Facebook set up a new company called Calibra that will keep all of your financial data separate from your Facebook profile.

That means it can't use your transaction data to target you with ads, reorder your newsfeed or sell your info to marketers.

Eventually Facebook hopes that you'll use Libra to pay your bills, scan your wallets QR code to purchase coffee or tap your phone to buy your public transit ticket.

Anytime you can cash out of Libra and get your local currency back in your bank account or handed to you at a local store.

But how does the Libra cryptocurrency technically work without a bunch of blockchain buzzwords?

Well, Libra is coated to have a stable price, be secure and be controlled not just by Facebook.

Instead, Libra is run by the 28-member Libra Association that it hopes will grow to a hundred members by the time it launches in the first half of 2020.

Financial companies like Visa and MasterCard, merchants and apps like eBay and Lyft, venture capital funds like Andreessen Horowitz and Union Square Ventures and nonprofits like Kiba are all members.

They each paid at least ten million dollars to get one vote on the Libra Council that controls what happens to the currency.

They'll be responsible for checking to make sure we Brent transactions are real and creating the Libra Reserve.

See, each time you cash in a dollar that money goes into a big bank account called the Libra Reserve that creates and sends you roughly one Libra token.

The Libra Reserve is made up of a collection of the most stable international currencies like the US dollar, British Pound, the euro and the Japanese yen.

The idea is that even if one of those currency goes up or down in price, 、 the value of the Libra will stay stable.

That way, shops will accept the Libras payment without worrying that the value of the coin will drop tomorrow.

Big swings in price are why older cryptocurrencies like Bitcoin and Ethereum, haven't grown popular as payment methods.

Libra can also handle 1,000 transactions per second while Bitcoin can only handle 7.

So how do Facebook and other Libra Association members earn money?

Off of interest on all the assets held in the Libra Reserve.

After the Libra Association pays for its operations and investments in technology, members earn a cut of the remaining interest in proportion to how much they invested when they joined.

If Libra gets popular and tons of people cash in, then the reserve grows huge and the interest could add up to serious revenue for Facebook.

But there's also a subtle second way that Facebook could get rich from Libra.

If the currency makes it easier for small businesses to accept payments online, they'll sell more stuff.

They'll then have extra money to spend on Facebook ads which will make it extra quick to buy things with Libra.

90 million small businesses already have Facebook pages, but only 7 million advertisers currently exist on Facebook.

If Facebook can turn more of those local merchants into ad buyers, Facebook's revenues could skyrocket.

The big risk of Libra is that anyone will be able to develop apps for it, that could lead to another Cambridge Analytica scandal

Instead of some shady app maker snatching your personal info, they could steal your digital currency.

And Facebook in the Libra Association say they won't vet Libra developers which leaves the door wide open to abuse.

And if people get scammed, they're still gonna blame Facebook.

But if Facebook succeeds, the real win could be for the 1.7 billion people left in poverty with no bank account around the world.

They're exploited by international money sending services like Western Union or money ground, they charge steep 7% fees that take fifty billion dollars away from families per year.

And if they're mugged, they could lose all their money since they have nothing stored online.

But all they need is a photo ID and the Libra could give them an alternative to a bank account that's tougher to steal and can make it easier to pay for what they need.

There are plenty of reasons to worry that Libra could give Facebook and other tech giant's more power or lead to people getting scammed.

But it could also give disadvantaged people everywhere a way to join the modern economy, and at least it's not called Face Coin.