Facebook is set to launch a new cryptocurrency called Libra next year in early 2020. This new currency will allow its 1.7bn users to make financial transactions online from their mobile phone without a bank account, the company claims.

In early 2018, Facebook was accused of compromising over 50 million users’ data, having to pay $5bn for Cambridge Analytica privacy violations. This has been the largest levy ever imposed over a technology company by the Federal Trade Commission. Stocks plunged 20% and the company’s value dropped by $120bn.

Later on this year, Facebook announced that it is going to have a new cryptocurrency and financial infrastructure powered by blockchain technology, a series of immovable record of data that is managed by cluster of computers not owned by any single entity, which aims to provide and facilitate global transactions.  The company will have a new blockchain division ran by David Marcus, former president of PayPal and current head of the Libra project.

Zuckerberg and his team were initially able to gather 28 organizations for this new currency, such as Uber, MasterCard, Farfetch and Vodafone among many others. Thereby, they created the “Libra Association”, a non-profit organization, headquartered in Geneva, Switzerland, working to support financial inclusion worldwide. Each member funded the project with a minimum of $10bn. The association will focus on the reserve management, ensuring stability obtained by having a cluster of valuable assets composed by the dollar, the euro, the Japanese yen, the British pound and the Singapore dollar, with 50 percent, 18 percent, 14 percent, 11 percent and 7 percent, respectively.

The price stability will be the main differentiator from its cryptocurrency’s peers. It won’t have a fixed exchange rate, although it won’t be as volatile as, for example Bitcoin (another cryptocurrency run by blockchain technology). The reserve will amount around $200bn, an actual low number when looking into the financial markets.

Calibra will also complement this project, being the first product that introduces a digital wallet for the Libra, expected to launch in 2020. It will be available in apps like Messenger and WhatsApp, but it will also have its own app. It is claimed that it will have strong protection and be able to keep the user’s money information safe, although there is concern going around since the company’s history in data privacy is somewhat hazardous.  As previously mentioned, Facebook claims that the new cryptocurrency will reach the unbanked. You’ll just need to have a smartphone in order to send Libra instantly.

Problems might arise…

People who actually study the unbanked in the Federal Deposit Insurance Corporation have noticed that more than one third of the population concerned didn’t have enough money to open a bank account. This is something that is not solved by simply opening an online bank account. Almost half of the adults in the world don’t have an active bank account and these numbers worsen in developing countries and amid women, data released by the World Bank. So if this is the reality, will these people have access to a fully working smartphone? Even if they do, will they have digital means to buy Libra Coins?

Well, the certainty we have is that big companies like Apple, Google, Amazon and Microsoft have not yet signed up for the project, as well as banks. Mainly due to uncertainty going around future regulation that might be imposed by the authorities in order to secure central banks’ “monetary sovereignty”. Lawmakers and regulators in the U.S. have already raised concerns over this initiative. French Economy and Finance Minister already stood out saying France won’t allow the authorization of Libra into European soil given the issues inherent to the situation. China also considers Libra as a direct threat and is developing its own Central bank’s digital currency to meet the challenge imposed.

Facebook, however, has already stated that “people will increasingly trust decentralized forms of governance” (statement by David Marcus). The head of the Libra Association has already responded to the threats this project might have against financial institutions, playing down concerns over a potential disruption to monetary policies by the central banks. The reason of this being the fact that the Libra reserve contains multiple currencies, which makes Libra the one affected and not the other way around, he justifies, also adding that in case there is a currency crisis, they might decide whether or not to keep the certain currency in the basket.

Libra is designed to run on top of existing currencies, and claims the 1:1 backing of traditional currencies requires an equivalent value in government reserve in order for Libra to exist. “As such, there’s no new money creation,” Marcus tweets. He has also completed the statement saying that regulation should be created. Nevertheless, Facebook is maintaining the release date unchanged setting the launch for 2020.

Wait… Zuckerberg’s company knows the barriers they have to face to get the project launched. Most attacks to the Libra have to do with the technology and trust issues. The CEO himself has had a meeting with Donald Trump in order to discuss regulations, and how it will protect users’ data. The G7 nations have already formed a task force to look into concerns about cryptocurrencies, mainly the Libra. The firm’s own problems don’t lay solely on the decision of lawmakers, as this project has no “significant prior experience with digital currency or blockchain technology”. If problems are not settled, the digital currency might never launch.

One thing is certain, if Facebook is able to further develop and launch these cryptocurrency, they will centralize their platform users into their brand and profit from it. They may be able to use private information to personalize advertisements, their main source of income ($16.6bn at the end of last year), and eventually build a huge network of people around Zuckerberg’s empire. But first, they will have to overcome regulation and privacy hurdles. For now, because of the big controversy, some of the main companies involved the project have recently announced their withdrawing from supporting Libra, as it is the case of PayPal, eBay, MasterCard and many others.

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