Facebook is launching a cryptocurrency. What does this mean for developers?
So, the rumors were true. Facebook will indeed launch its own cryptocurrency.
Actually, let’s clarify that. Facebook wants to create its own digital money.
Whether the world’s governments and regulators allow it to happen is another matter. Shortly after the announcement was made, the powers-that-be gave every indication that they might block it. You can’t blame them for being cautious.
A company with more than two billion customers minting its own money?
That raises a lot of questions. So let’s get into them.
What exactly did Facebook announce?
Last month, Facebook unveiled details of its Libra project in a white paper. The paper bemoaned the clunkiness of the world’s financial systems – especially when compared to digital technologies. It said, “for too many, parts of the financial system look like telecommunication networks pre-internet.”
Instead, Facebook wants to build “a reliable digital currency and infrastructure that together can deliver on the promise of the internet of money.” This is Libra. It comprises of two new elements.
- The Calibra wallet.
This is the wallet that holds the Facebook coin. It will be integrated inside WhatsApp, Instagram, and Messenger from 2020.
- The Libra Foundation
This is the consortium that will create and manage the currency. It includes PayPal, Visa, Mastercard, Stripe, Spotify, eBay, Coinbase, Vodafone and key investors such as a16z and Union Square Ventures.
Facebook stresses that it doesn’t own Libra. Instead, all 28 members have equal ownership (this will possibly allay fears that Facebook will use the coin to get more data on people).
How will users load and send money?
Users will be able to access Libra via the Calibra wallet app on Facebook, Instagram, and Whatsapp. They will then be able to spend money or send it to friends just as they send GIFs or emojis. Calibra will also operate as a standalone app and could be integrated into other apps.
To get coins, users will need to transfer money through a bank or go to a local money exchange to trade local currency for it.
Obviously, Libra/Facebook’s big challenge (assuming they can actually launch the currency) is to convince banks and retailers to support it.
What benefits is Facebook promising?
All those that come with other cryptocurrencies – near-instant payments anywhere in the world, radically reduced fees (especially for international transactions), friendly customer experience, access for the unbanked, micropayments, etc.
But Libra also hopes to avoid the pitfalls of Bitcoin et al. The currency’s value won’t fluctuate wildly and it will have a transparent ownership team (see next question).
What kind of cryptocurrency is Libra?
It is a stablecoin. That means it will be pegged to the value of a basket of real-world assets (US Dollar, Pound Sterling, Euro, etc.). This should prevent the wild swings in value that affect other cryptocurrencies such as Bitcoin and Ether.
However Libra will not have a fixed peg to those currencies, so its value could still move up and down relative to them. Digital currencies are not often backed this way because stablecoins require billions of dollars in reserve currencies.
What kind of blockchain is it based on?
Like all cryptocurrencies, Libra handles transactions on a distributed ledger (blockchain). This ensures that no single intermediary is responsible for moving money around.
But while Bitcoin’s blockchain is distributed among everyone who uses it, Libra’s blockchain is managed by just the members of the Libra Association. That makes it a closed blockchain. The crypto purists don’t like this.
Why is Facebook getting into money?
There are probably two mean reasons: one aggressive, one defensive.
On the aggressive side, Facebook is aware of the huge success of WeChat’s payment system. In 2018, WeChat processed more than one billion payments every day. Facebook would love some of that action.
In fact, it has tried many times before. Facebook launched P2P payments inside Messenger, but with little success. It recently closed the service in some countries. It has also been trying to put payments in WhatsApp for its Indian users but has yet to launch thanks to regulatory concerns.
Which leads to the defensive play. Zuckerberg et al are very aware that Facebook is entirely dependent on ad revenues, which is the cause of its many data scandals. Adding a payment business would mitigate some of this.
Why don’t the regulators like it?
There are so many reasons why governments are concerned about Facebook Money. Here are the big ones.
- Money laundering: How will Libra prevent illegal transfers without breaching privacy?
- Fraud: If hacking data is damaging, how much worse would the hacking of wallets be?
- Liquidity: If Facebook Coin takes off, and billions of people pile their money into it, what happens to the traditional bank system?
- Fiscal policy: Central banks regulate inflation and economic growth with interest rates and other instruments. They won’t be able to if everyone is using Facebook crypto.
Within hours of the Libra announcement, the G7 nations had already voiced concern and set up a joint inquiry into the risks.
What does it all mean for developers?
Well, in one sense, Libra could be great for developers. The foundation says: “The Libra Blockchain will be open to everyone: any consumer, developer, or business can use the Libra network, build products on top of it, and add value through their services.”
Libra has already made the code available to developers, along with Move, “a safe and flexible programming language for the Libra Blockchain”.
So it’s easy to imagine how an app could house a wallet and use it to receive micropayments from anywhere in the world. The fees would be a fraction of those charged by Visa/Mastercard/PayPal. Spotify, Lyft, and Uber are all part of the Libra Foundation. They must be thinking this way.
Of course, much will depend on the attitude of Google and Apple, though there will clearly be the option to develop native apps for Facebook’s own messaging apps.
While Libra raises the exciting prospect of a new commercial platform for millions of app developers, there’s an ugly flipside.
An article in TechCrunch has already articulated the great danger of opening up the code to any developer without vetting. “This is exactly what opened the door for Cambridge Analytica to hijack 87 million people’s personal data,” it said.
After the early flurry of excitement around Libra, we are now in the uncertain second phase. What happens next? It’s anyone’s guess.
On the one hand, Libra could be quashed by governments. On the other, it could become the ‘internet of money’ and unleash a new era of friction-free global digital commerce.
Exciting isn’t it?bitcoin, blockchain, Crypto, cryptocurrency, developers, Facebook, libra, Mobile