Last month we talked a bit about Facebook’s intent to release its new global coin, Libra, which will allow users to buy things or send money with almost no associated fees via various apps. Cash in currency for Libra, spend them like dollars without transactions fees, cash out at your nearest Libra point. Tuesday saw the official announcement from Facebook itself on its testnet and proposed public launch in early 2020. They also released over 100 pages of documentation on Libra and Calibra.
Given the multiple recent issues Facebook has had regarding privacy, many are concerned about the security of their information and currency in this new venture. To counter this, Facebook is launching a new subsidiary company called Calibra. Calibra will handle all crypto deals and serve as a spacer of sorts between Libra payments and Facebook data. This way your real identity can’t be tracked back to any Libra transactions or be used for ad targeting.
Facebook CEO Mark Zuckerberg explained some of the philosophy behind Libra and Calibra in a post today. “It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall. It’s available to anyone with an internet connection and has low fees and costs. And it’s secured by cryptography which helps keep your money safe. This is an important part of our vision for a privacy-focused social platform — where you can interact in all the ways you’d want privately, from messaging to secure payments.”
Libra is also running off a blockchain technology platform which promise immutability of transactions. The Libra Blockchain should be able to operate at 1,000 transactions per second if nodes use at least 40Mbps connections and 16TB SSD hard drives. Any developer can build apps that work with the blockchain platform using the Move coding language.
To add to the societal feeling of security, Facebook isn’t the sole proprietor of Libra. The Libra Association is in charge. The Libra Association, a not-for-profit, is comprised of 28 different $10 million investors including Visa, Uber, and Andreessen Horowitz, each with a vote in the Libra governance. The Association is charged with promotion of the open-sourced Libra blockchain, business signup and engagement, overseeing token development and real-world assets, the governance rules, and even customer discounts and rewards. The Block’s Frank Chaparro reported the founding memebers as Mastercard, PayPal, PayU, Stripe, Visa, Booking Holdings, eBay, Facebook/Calibra, FarFetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Iliad, Vodafone Group, Anchorage, Bison trails, Coinbase Inc, Xapo Holding Limited, Andreessen Horowitz, Breakthrough Initiatives, Ribbot Capital, Thrive Capital, Union Square Ventures, Creative Destructions Lab, kiva, Mercy Corps, and finally Women’s World Banking. The Association would like to see its members count rise to at least 100 before its official Libra launch.
Getting into the Association as a member isn’t exactly easy. According to Tech Crunch, potential association members must “have a half rack of server space, a 100Mbps or above dedicated internet connection, a full-time site reliability engineer and enterprise-grade security. Businesses must hit two of three thresholds of a $1 billion USD market value or $500 million in customer balances, reach 20 million people a year and/or be recognized as a top 100 industry leader by a group like Interbrand Global or the S&P.” Tech Crunch goes on to say that, “Crypto-focused investors must have more than $1 billion in assets under management, while Blockchain businesses must have been in business for a year, have enterprise-grade security and privacy and custody or staking greater than $100 million in assets. And only up to one-third of founding members can by crypto-related businesses or individually invited exceptions. Facebook also accepts research organizations like universities, and nonprofits fulfilling three of four qualities, including working on financial inclusion for more than five years, multi-national reach to lots of users, a top 100 designation by Charity Navigator or something like it and/or $50 million in budget.”
Part of investor draw is the potential long-term payout from Libra. The $10 million buys the investor Libra Investment Tokens, which translate into a portion of the dividend earned off the interest on assets in the reserve. Though these dividends are only paid out after operating expenses, ecosystem investments, research and grants are dispersed, if Libra takes off as anticipated, the size of the reserve stands to be enormous with huge payouts. Facebook’s VP of blockchain, David Marcus, explained the company’s motive behind its minimal upfront grab for profits and long-term dividend payouts. “If more commerce happens, then more small businesses will sell more on and off platform,” said Marcus at a briefing in San Francisco. “They’ll want to buy more ads on the platform so it will be good for our ads business.” More business equals more reserves equals more dividends.
Unlike existing cryptocoins, Libra is designed to be a largely stable medium of exchange, making it easy for merchants to accept Libra payments worry-free. Stability comes from the “basket” of bank deposits that back Libra, including the dollar, pound, euro, Swiss franc and yen. The Libra Association plans to offer incentives, possibly Libra coins, to encourage developers and merchants to work with Libra too.