Hey, did you hear Facebook announced a cryptocurrency?
You probably did. News of Libra
was inescapable today as every sort of publication — from the mass mainstream to the tech nerds to the finance world —tried to wrap their heads around the idea of a new global currency birthed by a technology giant. I’d be lying if I said I had succeeded — I’m still catching up to exactly what Byzantine fault tolerance
means. But I do have the basics, and a host of takes, and some thoughts on what might come next.
The currency is designed not to be a speculative asset, like Bitcoin, but a form of digital money backed by a reserve of assets. You will one day be able to use Libra as payment for online and offline services, Facebook executives say. At the beginning, the company imagines Libra will be used mainly to transfer money between individuals in developing countries who lack access to traditional banks. Eventually, the goal is to create the first truly mainstream cryptocurrency: a decentralized global form of payment that is as stable as the dollar, can be used to buy almost anything, and can support an entire range of financial products — from banking to loans to credit.
Although Facebook is building Libra, and plans to run the project through the end of this year, eventually it plans to cede the project to a larger community. The company has formed the nonprofit Libra Association with 27 other partners to oversee Libra and its development. The partnership includes venture capital firms, nonprofit organizations, crypto firms, and massive corporate financial, telecommunications, and technology service providers, including Coinbase, Mastercard, Visa, eBay, PayPal, Stripe, Spotify, Uber, Lyft, and Vodafone. Those organizations will also contribute to what is known as the Libra Reserve, the asset pool that will ensure every unit of Libra currency is backed by something of intrinsic value rather than by simple scarcity, as Bitcoin is.
In a second piece, Statt looks at Calibra
, Facebook’s forthcoming digital wallet, which explains more of what the company might hope to gain from the project.
Calibra is how Facebook intends to make money off Libra, a digital currency it says it does not want to control, despite having created it. More generally, it’s a massive play for Facebook to get into financial services in a way that no other technology company may be able to compete with. Think of it as the Bank of Facebook — an arm of the social network that hopes to do for loans, credit, money transfer, and commerce what its suite of apps has done for online communication.
Libra is the technology that underpins the network. But when it launches, Calibra will likely be how most people interact with the currency until competing wallets arise. In fact, it will likely be the first cryptocurrency wallet that hundreds of millions of people will have access to, by nature of being bundled with Facebook’s massive ecosystem. With billions of users potentially interacting with Calibra, it will instantaneously have many hundreds of times the user base of the world’s most popular existing wallets from Coinbase and others.
In a smart piece in New York
, Max Read articulates why making Libra popular feels like an existential need for Facebook in this moment:
Payment infrastructure isn’t just (potentially) more lucrative than social infrastructure, it’s much less easy to replicate, either on the business side and on the consumer side. It’s pretty easy to quit Facebook, the app where you fight with your childhood neighbor about politics. It’s much more difficult to quit Facebook, the app you use to pay your rent.
To state the obvious: all of this is staggeringly ambitious. It is the kind of project that, if successful, could make Facebook itself feel like an amusing detour on the way to Libra. Why’s that? Matt Levine explains why in Bloomberg
If you mostly spend dollars, and Libra is always going up and down against the dollar, that will be annoying and you won’t want as many Libras. But if you mostly spend Libras—if Facebook is successful at making this the main currency of the internet—then that dynamic will reverse. If the dollar is always going up and down against the Libra, that will be annoying and you’ll want more Libras. The dollar will start to seem unstable and useless. If you buy most things online, and if everything online is priced in Libras, then you’ll end up living your life denominated in Libras, and only converting your Libras into dollars on your occasional touristic visits to the physical world. The goal is for Libra to be more useful than any national currency, accepted in more places and with fewer complications; pegging it to a single national currency would only hold it back.
One possible effect of this, of course, is that it would destabilize national currencies — and potentially complicate the investigation of financial crimes. One friend messaged me to ask what might happen if the Libra organization kicked a currency out of its reserve for whatever reason. If Libra were sufficiently powerful, he reasoned, it could cause a sovereign currency to crash.
Meanwhile, the finance minister of France is unhappy about the proposal for other reasons, Alastair Marsh reports
“It is out of question’’ that Libra “become a sovereign currency,’’ Le Maire said in an interview on Europe 1 radio. “It can’t and it must not happen.”
Le Maire called on the Group of Seven central bank governors, guardians of the global monetary system, to prepare a report on Facebook’s project for their July meeting. His concerns include privacy, money laundering and terrorism finance.
What else to read? Here is the Libra origin story, featuring Facebook blockchain chief David Marcus dreaming on a beach in the Dominican Republic
. Here are eight good takeaways
from The Information,
including what Facebook’s partners in the Libra partnership are getting out of all this. (They’ll be paid in transaction fees and earn Libra tokens in exchange for operating nodes in the network, which they are paying $10 million apiece for.)
Here is Russell Brandom writing about Libra’s trust problem
— the promise of cryptocurrency was supposed to be decentralization, and yet Libra would seem only to entrench the power of some of earth’s biggest companies. (It aspires to let anyone operate a node someday, but here’s a thread
arguing the companies will lack any real incentive to do so.)
Facebook’s track record in payments and commerce has been spotty. A few years ago, it began letting people buy flowers or hail an Uber through its Messenger service. Those features have not been huge hits. In 2010, it began offering Facebook Credits, a way to buy virtual goods inside Facebook games. But in 2012 it scrapped Credits, and in 2013 it started working with third-party services like PayPal process some payments. Facebook’s revenue from “payments and other service” was less than 2% of total sales in 2018.
The fate of Libra will be measured in years, and maybe even decades — the approximate amount of time I’ll need to get myself up to speed on the various all-consuming debates that seem to have the cryptocurrency world in a perpetual stage of rage-posting.
If it fails, Facebook will probably just try again in slightly modified form based on whatever it learns in the first go-round. But if it succeeds?
People who do not have access to banks, and who pay steep fees to transfer money, would likely benefit. So would the many venture capitalists and entrepreneurs rooting for the emergence of a new platform on which to build successful products and companies. And so would Facebook, of course, which will have invented a way to enmesh itself fully into the lives of its users that is much harder to abandon than the News Feed.
Meanwhile, Libra could represent an existential threat to banks, and sovereign currencies, and … whatever might currently depend on the existence of many independent sovereign currencies? Predicting unintended consequences of world-altering products has never exactly been a strong suit of Facebook (or the reporters who cover them). For now, let’s just assume there will be many such consequences, and here’s hoping that both Facebook and regulators wake up to any risks before whatever calamity looming on the horizon actually takes place.